FORM 8-K/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT TO APPLICATION OR REPORT
FILED PURSUANT TO SECTION 12, 13, OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
INSIGNIA FINANCIAL GROUP, INC.
(Exact name of registrant as specified in charter)
AMENDMENT NO. 1
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Report on Form 8-K dated October
10, 1997 and filed on October 22, 1997 as set forth in the pages attached
hereto:
Item 7 Financial Statements and Exhibits
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
INSIGNIA FINANCIAL GROUP, INC.
By: /s/James A. Aston
James A. Aston
Chief Financial Officer
DATE: December 23, 1997
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Businesses Acquired
(i). Combined Financial Statements for Realty One, Inc. and
Corporate Relocation Management, Inc., Financial Statements
for First Ohio Escrow Corporation, Inc. and Financial
Statements for First Ohio Mortgage Corporation as of
December 31, 1996 with Independent Auditor's Reports.
(ii). Unaudited Combined Financial Statements for Realty One, Inc.
and Corporate Relocation Management, Inc., Unaudited
Financial Statements for First Ohio Escrow Corporation, Inc.
and Unaudited Financial Statements for First Ohio Mortgage
Corporation as of September 30, 1997 and 1996.
(b) Unaudited Pro Forma Condensed Consolidated Financial Statements
(c) Exhibits
Reference is made to Form 8-K Item 7(c) dated October 10, 1997
and filed October 22, 1997 for a list of exhibits which are
incorporated herein by reference.
(a) Financial Statements of Businesses Acquired
(i) Realty One, Inc. and Corporate Relocation Management, Inc.
Combined Financial Statements
December 31, 1996
REALTY ONE, INC. AND
CORPORATE RELOCATION MANAGEMENT, INC.
CONTENTS
REPORT LETTER 4
FINANCIAL STATEMENTS
Combined Balance sheet 5 - 6
Combined Statement of Income 7
Combined Statement of Stockholders' Equity 8
Combined Statement of Cash Flows 9
Notes to Combined Financial Statements 10 - 15
Independent Auditor's Report
To the Board of Directors
and Stockholders
Realty One, Inc.
Corporate Relocation Management, Inc.
We have audited the accompanying combined balance sheet of Realty One, Inc. and
Corporate Relocation Management, Inc. as of December 31, 1996 and the related
combined statements of income, stockholders' equity and cash flows for the year
then ended. These financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Realty One,
Inc. and Corporate Relocation Management, Inc. as of December 31, 1996 and the
combined results of their operations and their cash flows for the year then
ended, in conformity with generally accepted accounting principles.
Plante & Moran, LLP
September 3, 1997
REALTY ONE, INC. AND
CORPORATE RELOCATION MANAGEMENT, INC.
COMBINED BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS
CURRENT ASSETS
Cash $ 537,625
Commissions receivable, less allowance for cancellations of $2,548,278 9,215,650
Accounts receivable:
Trade 2,593,136
Sales associates 636,530
Affiliates (Note 2) 310,943
Other 292,869
Prepaid expenses and other current assets 371,157
Total current assets 13,957,910
PROPERTY AND EQUIPMENT (NOTE 3) 9,130,874
OTHER ASSETS
Intangible assets 2,559,295
Investments (Note 4) 732,731
Deposits and other 60,570
Total other assets 3,352,596
Total assets $26,441,380
<FN>
See Notes to Combined Financial Statements
</FN>
</TABLE>
REALTY ONE, INC. AND
CORPORATE RELOCATION MANAGEMENT, INC.
COMBINED BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade (Note 2) $ 1,180,423
Line of credit (Note 5) 2,320,485
Commissions payable - sales agents, less allowance for cancellation of $1,375,629 5,450,488
Accrued expenses 335,328
Accrued bonus 3,504,152
Current portion of long-term debt (Note 6) 1,570,061
Current portion of capital lease obligations (Note 7) 431,902
Total current liabilities 14,792,839
LONG-TERM LIABILITIES
Long-term debt, net of current position (Note 6) 4,790,819
Capital lease obligations, net of current portion (Note 7) 924,838
Total long-term liabilities 5,715,657
Total liabilities 20,508,496
STOCKHOLDERS' EQUITY
Voting common stock, no par value, 10,000 shares authorized, issued and outstanding 155,464
Voting common stock, no par value, 750 shares authorized, issued and outstanding 5,000
Nonvoting common stock, no par value, 190,000 shares authorized, issued and outstanding 2,953,817
Additional paid-in capital 175,000
Retained earnings 2,643,603
Total stockholders' equity 5,932,884
Total liabilities and stockholders' equity $26,441,380
<FN>
See Notes to Combined Financial Statements
</FN>
</TABLE>
REALTY ONE, INC. AND
CORPORATE RELOCATION MANAGEMENT, INC.
COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
REVENUE
Brokerage commissions $137,747,743
Less co-broker commissions 62,294,684
Net brokerage commissions 75,453,059
Net management revenue 1,715,967
Other revenue 1,501,383
Total gross revenue 78,670,409
COMMISSIONS EXPENSE 43,806,882
Net revenue 34,863,527
OPERATING EXPENSES
Compensation and benefits 13,961,587
Facilities 4,518,597
General and administrative 6,583,770
Marketing and promotion 5,304,063
Communications 1,493,269
Total operating expenses 31,861,286
OPERATING INCOME 3,002,241
OTHER INCOME (EXPENSES)
Amortization (151,765)
Interest expense (765,493)
Interest income 4,603
Gain on investment 47,240
Total other expense (865,415)
Net income $ 2,136,826
See Notes to Combined Financial Statements
REALTY ONE, INC. AND
CORPORATE RELOCATION MANAGEMENT, INC.
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Voting Voting Nonvoting Additional
Common Common Common Paid-In Retained
Stock Stock Stock Capital Earnings Total
<S> <C> <C> <C> <C> <C> <C>
BALANCE - December 31, 1995 $155,464 $5,000 $2,953,817 $175,000 $1,933,670 $5,222,951
Net income -- -- -- -- 2,136,826 2,136,826
Distribution -- -- -- -- (1,426,893) (1,426,893)
BALANCE - December 31, 1996 $155,464 $5,000 $2,953,817 $175,000 $2,643,603 $5,932,884
<FN>
See Notes to Combined Financial Statements
</FN>
</TABLE>
REALTY ONE, INC. AND
CORPORATE RELOCATION MANAGEMENT, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $2,136,826
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 2,118,020
Loss on sale of property and equipment 11,391
Gain on investment (47,240)
Changes in certain assets and liabilities:
Commissions receivable 4,871
Accounts receivable:
Trade (1,140,997)
Sales associates (109,612)
Affiliates (45,289)
Other 143,887
Prepaid expenses and other current assets (2,182)
Deposits and other 71,889
Accounts payable - trade (672,869)
Commissions payable - sales agents (33,803)
Accrued expenses (351,219)
Accrued bonus (106,516)
Net cash provided by operating activities 1,977,157
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (1,777,232)
Proceeds from sale of property and equipment 13,248
Increase in cash surrender value of life insurance policies (18,816)
Increase in investments (72,782)
Net cash used in investing activities (1,855,582)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 8,587,476
Payments on long-term debt (8,524,597)
Payments on capital lease obligations (390,535)
Proceeds from lines of credit, net of repayments 2,135,764
Distributions paid (1,426,893)
Net cash provided by financing activities 381,215
NET INCREASE IN CASH 502,790
CASH - Beginning of the year 34,835
CASH - End of the year $ 537,625
CASH PAID FOR INTEREST $ 794,513
NONCASH INVESTING AND FINANCING ACTIVITIES - Leases capitalized $ 873,709
</TABLE>
REALTY ONE, INC. AND
CORPORATE RELOCATION MANAGEMENT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - The combined financial statements include the accounts of Realty
One, Inc., (ROI) and Corporate Relocation Management, Inc. (CRM) (collectively
the Companies). ROI and CRM have common stockholders. ROI is engaged in real
estate brokerage in the Northern Ohio area and also provides management services
for commercial, residential and condominium properties. CRM is engaged in
relocation management and marketing assistance activities including, but not
limited to, the acquisition and resale of real estate throughout the United
States. Included in trade accounts receivable are expenses paid by CRM for the
acquisition, maintenance and sale of real estate owned by employees of CRM's
clients. These amounts are subsequently reimbursed by their clients. All
significant intercompany balances and transactions have been eliminated in the
combined financial statements.
Revenue Recognition - ROI recognizes commission revenue and commission expense
related to real estate sales transactions at the time a purchase and sale
agreement is signed. Allowances are recorded for amounts that are estimated to
be ultimately not recognized.
Property and Equipment - Property and equipment are recorded at cost.
Depreciation is computed on the straight-line method over the estimated useful
lives of the purchased assets. Depreciation on leased assets is computed on the
straight-line method over the lesser of the useful life or lease term. Costs of
maintenance and repairs are charged to expense when incurred.
Intangible Assets - Intangible assets include goodwill of $2,334,295 (net of
accumulated amortization of $801,642) and a covenant not to compete of $225,000
(net of accumulated amortization of $525,000) arising from acquisitions of
various real estate brokerages. Goodwill and the covenant are being amortized
on the straight-line method over 40 years and 10 years, respectively.
Amortization expense totaled $151,765 for 1996.
Income Taxes - The Companies have elected to be taxed under the provisions of
Subchapter S of the Internal Revenue Code. In lieu of corporate income taxes,
the stockholders of an S Corporation are taxed on their proportionate share of
the Company's taxable income. Therefore, no provision or liability for federal
income taxes is recorded.
Customer Deposits and Custodial Funds Held in Escrow - ROI has a fiduciary
responsibility for real estate escrow and custodial funds in the amount of
$1,188,772 at December 31, 1996. The related trust cash accounts and
corresponding custodial liability are not included in the accompanying combined
balance sheet.
401(k) Plan - The Companies offer a 401(k) Plan to employees. Under this Plan,
employees can elect to have a portion of their wages deferred and set aside for
retirement. The Companies match eligible employee contributions as defined in
the Plan document. The Companies contributed $59,583 to the Plan in 1996.
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
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from these estimates.
NOTE 2 - RELATED PARTY TRANSACTIONS
The Company shares similar ownership and management with several partnerships
and corporations.
Revenue earned from affiliates includes office rentals, maintenance, marketing
services and other management services. ROI has also entered into an agreement
to lease its corporate offices from an affiliate. In addition, ROI advances
funds to certain related entities on a short-term basis.
<TABLE>
<CAPTION>
<S> <C>
Receivables from affiliates consist of:
Receivables from various entities, due on demand, for maintenance performed,
management fees and other operating expenses. $ 78,105
Receivable from affiliated company, due on demand, for rentals and advertising
services provided by ROI. 232,838
Total $ 310,943
</TABLE>
Included in accounts payable at December 31, 1996 is $39,736 payable to an
entity related through common ownership, pursuant to a lease agreement.
The following transactions occurred during the year:
Revenue
Maintenance fees $ 963,003
Management fees 628,581
Office rentals 213,900
Marketing services 153,739
Total revenue $1,959,223
Expenses
Office rentals $1,683,304
NOTE 3 - PROPERTY AND EQUIPMENT
The Company owns real and tangible personal property as follows:
Estimated Useful
Lives in Years
Land $ 843,610 --
Building and improvements 2,256,019 20-40
Leasehold improvements 6,473,897 1-10
Furniture and office equipment 4,798,152 5
Computer equipment 1,564,792 5
Automobiles 303,598 5
Equipment under capital leases 2,276,170 1-10
Construction in progress 493,833
Total cost 19,010,071
Accumulated depreciation and amortization 9,879,197
Net carrying amount $ 9,130,874
Depreciation expense, including depreciation for equipment under capital leases,
totaled $1,966,255 in 1996.
NOTE 4 - INVESTMENTS
ROI has invested in Realty One Land Company, which has purchased certain
properties for residential development. The Company uses the equity method of
accounting for investment in the land company. Under this method, the
investment is carried at cost, adjusted for the Company's proportionate share of
undistributed earnings and losses.
Investments in land are recorded at cost and the Company capitalizes all costs
incurred with maintaining the properties. Investments consist of the following:
Realty One Land Company $439,371
Land 187,166
Cash surrender value of officers' life insurance 104,636
Other 1,558
$732,731
NOTE 5 - LINE OF CREDIT
CRM has a $3 million line of credit with a bank which is collateralized by
accounts receivable and documents of title and is guaranteed by ROI. Borrowings
bear interest at CRM's option of prime or LIBOR plus two and one-half percent.
NOTE 6 - LONG-TERM DEBT
Revolving credit agreement with a bank, with a $5,500,000 borrowing
limit, collateralized by all Company property and receivables.
Advances on the credit line are payable at the maturity date of
September 30, 1999 and monthly interest payments at the Company's
option of three rates - (i) the prime rate, (ii) the bank's Money
Market rate plus a specified margin, as defined, or (iii) the
bank's Cost of Funds rate plus two and one-half percent. The rate
in effect at December 31, 1996, was 6.0% $1,983,000
Term loan with a bank, with a $4,500,000 borrowing limit,
collateralized by all ROI property and receivables, payable in
monthly installments of $75,000 plus interest at ROI's option of
three rates - (i) prime rate, (ii) the bank's Money Market Rate
plus margin, as defined, or (iii) the bank's Cost of Funds rate
plus two and one-half percent. The rate in effect at December 31,
1996 was 6.0%. Any remaining principal amounts outstanding are due
and payable at expiration date of June 1, 2001. 3,415,000
Note payable to an individual, unsecured, due on demand, and
interest varying with the prime lending rate. Personally
guaranteed by one of the stockholders. 400,000
Note payable to former owners of an acquired company, unsecured and
payable in monthly installments of $6,250, non-interest bearing.
Final payment due 1999. 225,000
Note payable to former owners of an acquired company, unsecured and
payable in monthly installments of $6,251 including interest at
9.0%. Final payment due December 1999. Personally guaranteed by
the stockholders of the Company. 196,494
Notes payable to a bank, collateralized by vehicles, with monthly
installments ranging from $350 to $866, and interest rates ranging
from 7.75% to 9.50% maturing through 2000. 60,619
Note payable to an individual, unsecured, payable in annual
installments ranging from $15,400 to $17,400, non-interest bearing.
Final payment due January 1998. 34,600
Note payable to individual, collateralized by real estate, payable
in quarterly installments of $6,125 plus interest at 8%. Final
payment due September 1997. 18,375
Note payable to a former owner of an acquired company, unsecured
and payable in nine annual installments of $6,000, plus interest
accruing at a rate equal to the greater of (i) the prevailing
short-term money market rate of interest or (ii) the Applicable
Federal Rate (AFR) using long-term rates on annual compounding
assumptions (7.63% at December 31, 1996). Final payment due 1999. 18,000
Note payable to former owner of an acquired company, unsecured and
payable in monthly installments of $1,354, non-interest bearing.
Final payment due April 1997. 5,417
Note payable to former owner of an acquired company, unsecured and
payable in monthly installments of $292, non-interest bearing.
Final payment due March 1998. 4,375
Total long-term debt 6,360,880
Less current portion 1,570,061
Long-term debt, net of current portion $4,790,819
The term loan and revolving credit agreement contain various covenants which
require, among other things, the maintenance of minimum levels of net worth and
debt service coverage, as defined, and certain restrictions with respect to
additional borrowings.
The revolving credit agreement also calls for a quarterly commitment fee of 1/4%
per annum on the unused credit line for the length of the agreement.
Minimum principal payments on long-term debt to maturity as of December 31, 1996
are as follows:
1997 $1,570,061
1998 1,085,835
1999 3,052,420
2000 652,564
Total $6,360,880
NOTE 7 - LONG-TERM LEASES AND OTHER COMMITMENTS
Equipment under capital leases is recorded at the cost of the equipment at the
inception of the lease. At December 31, 1996, future minimum lease payments
under capital leases amounted to the following:
1997 $ 507,412
1998 389,334
1999 282,087
2000 249,802
2001 102,151
Total 1,530,786
Less amounts representing interest, sales tax and 174,046
maintenance charges
Present value of net minimum lease payment under 1,356,740
capital leases
Less current portion 431,902
Capital lease obligations, net of current portion $ 924,838
The net carrying amount of office equipment recorded under capital leases
included with company owner property and equipment totaled $1,343,700 at
December 31, 1996, net of accumulated depreciation of $957,860.
The Company operates principally in leased premises. Outstanding lease terms
generally range from 5 to 10 years with options of renewal for additional
periods.
At December 31, 1996, the approximate future minimum lease payments under
operating leases, including lease agreements with entities related through
common ownership are as follows:
RELATED
PARTIES OTHER TOTAL
1997 $ 1,521,450 $ 2,499,832 $ 4,021,282
1998 1,430,455 2,132,316 3,562,771
1999 1,350,331 1,654,888 3,005,219
2000 1,254,387 1,239,548 2,493,935
2001 1,147,548 1,065,851 2,213,399
2002 and beyond 3,873,586 2,648,145 6,521,731
Total $10,577,757 $11,240,580 $21,818,337
Rental expense under all operating leases, including amounts paid to affiliates
(Note 2) was $3,757,480 for 1996.
ROI has guaranteed the debt of entities related through common ownership. At
December 31, 1996, the outstanding balance of the debt was $19,792,134
(including CRM line of credit).
NOTE 8 - CONTINGENCIES
ROI is uninsured for errors and omissions on real estate sales transactions
brokered by ROI or its sales agents. ROI has recorded a liability for further
losses due to errors and omissions claims of $150,000 at December 31, 1996.
Total expenses incurred to settle errors and omissions claims were $63,460 in
1996.
ROI is a defendant in a lawsuit filed by an international franchise organization
and some of its local franchisee companies who have asserted claims against ROI
and another Ohio real estate broker. Those claims include antitrust
allegations, unfair competition allegations, and other related claims. The
lawsuit asserts claims for an unspecified amount of damages and equitable
relief. ROI has denied all those claims and asserted its own counterclaims
against the plaintiffs for antitrust violations and unfair competition. On
March 19, 1996, the district court granted ROI's motion for summary judgment on
all of the plaintiffs' claims. Additionally, the court denied the plaintiffs'
motions for summary judgment on one of ROI's counterclaims. The plaintiffs have
appealed the district court's ruling. Management and legal counsel believe that
the likelihood of ROI suffering a material loss is remote.
NOTE 9 - STOCK RIGHTS
Under an employment contract between ROI and one of its stockholders, ROI has
the right to repurchase the shares of the stockholder upon his termination of
employment for any reason. The repurchase price is based upon a formula
specified by contract.
NOTE 10 - EMPLOYMENT AGREEMENTS
ROI maintains employment agreements with certain stockholders. These agreements
stipulate the terms of employment and include a three year covenant not to
compete which would be effective only in a limited circumstance.
(a) Financial Statements of Businesses Acquired
(i). First Ohio Escrow Corporation, Inc.
Financial Statements
December 31, 1996
FIRST OHIO ESCROW CORPORATION, INC.
CONTENTS
REPORT LETTER 17
FINANCIAL STATEMENTS
Balance sheet 18
Statement of Income and Retained Earnings 19
Statement of Cash Flows 20
Notes to Financial Statements 21
Independent Auditor's Report
To the Board of Directors
First Ohio Escrow Corporation, Inc.
We have audited the accompanying balance sheet of First Ohio Escrow Corporation,
Inc. as of December 31, 1996 and the related statements of income and retained
earnings and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First Ohio Escrow Corporation,
Inc. as of December 31, 1996 and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
Plante & Moran, LLP
September 3, 1997
FIRST OHIO ESCROW CORPORATION, INC.
BALANCE SHEET
DECEMBER 31, 1996
ASSETS
CURRENT ASSETS
Cash and cash equivalents $380,346
Accounts receivable 38,234
Prepaid expenses 8,799
Total current assets $427,379
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable:
Related party (Note 2) $14,511
Trade 15,595
Accrued liabilities 10,346
Total current liabilities 40,452
STOCKHOLDERS' EQUITY
Common stock - no par value:
Authorized - 750 shares
Issued and outstanding - 500 shares 500
Retained earnings 386,427
Total stockholders' equity 386,927
Total liabilities and stockholders' equity $427,379
See Notes to Financial Statements
FIRST OHIO ESCROW CORPORATION, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
YEAR ENDED DECEMBER 31, 1996
ESCROW INCOME $1,099,600
DIRECT COSTS
Bonus - escrow agents 36,308
Bonus - office staff 16,269
Employee benefits 27,128
Payroll 421,930
Taxes - payroll and other 48,830
Direct selling expenses 10,848
Total direct costs 561,313
GROSS PROFIT 538,287
ADMINISTRATIVE EXPENSES 283,312
OPERATING INCOME 254,975
OTHER INCOME
Interest income 13,332
NET INCOME 268,307
RETAINED EARNINGS - Beginning of year 316,558
DIVIDENDS (198,438)
RETAINED EARNINGS - End of year $ 386,427
See Notes to Financial Statements
FIRST OHIO ESCROW CORPORATION, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $268,307
Changes in assets and liabilities:
Increase in accounts receivable - trade (9,546)
Decrease in accounts receivable - other 133,643
Increase in prepaid expenses (1,146)
Increase in accounts payable 2,089
Increase in accrued liabilities 3,075
Net cash provided by operating activities 396,422
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (198,438)
NET INCREASE IN CASH AND CASH EQUIVALENTS 197,984
CASH AND CASH EQUIVALENTS - Beginning of year 182,362
CASH AND CASH EQUIVALENTS - End of year $380,346
See Notes to Financial Statements
FIRST OHIO ESCROW CORPORATION, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company provides closing and mortgage escrow services on residential real
estate transactions in Cleveland, Ohio and surrounding areas.
Cash Equivalents - The Company considers all highly liquid investments purchased
with a maturity of three months or less to be cash equivalents.
Custodial Funds Held in Escrow - The Company has a fiduciary responsibility for
escrow funds on residential real estate transactions that are in the closing
process in the amount of $2,473,096 at December 31, 1996. The related trust
cash accounts and corresponding liability are not included in the accompanying
balance sheet.
Income Tax Status - The Company has elected to be treated as an S Corporation
under the Internal Revenue Code. As a result of this election, the taxable
income or loss of the Company is included on the stockholders' individual tax
returns and a provision for income taxes is not reflected in the Company's
financial statements.
401(k) Plan - The Company offers a deferred compensation 401(k) tax savings plan
to employees. Under this plan, employees can elect to have a portion of their
wages deferred and set aside for retirement. All contributions to the plan are
voluntary on the part of employees.
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
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
NOTE 2 - RELATED PARTY TRANSACTIONS
Substantially all of the Company's revenue is derived from contracted closing
services performed for a mortgage company related through common ownership and
management. During 1996, the Company has recorded $96,784 of management fee
expense for services provided by the related entity. These fees resulted in an
unsecured, demand accounts payable balance at December 31, 1996 of $14,511.
This payable is non-interest bearing.
The Company is also guarantor on the affiliated mortgage company's bank debt
totaling $10,213,589 at December 31, 1996.
NOTE 3 - OPERATING LEASES
The Company leases its offices under an operating lease expiring in 2000.
Minimum future rental commitments are as follows:
1997 $ 65,410
1998 76,954
1999 78,090
2000 32,876
Total $253,330
Rent expense for 1996 totaled $70,639.
(a) Financial Statements of Businesses Acquired
(i) First Ohio Mortgage Corporation
Financial Statements
December 31, 1996 and 1995
FIRST OHIO MORTGAGE CORPORATION
CONTENTS
REPORT LETTER 23
FINANCIAL STATEMENTS
Balance sheet 24
Statement of Income and Retained Earnings 25
Statement of Cash Flows 26
Notes to Financial Statements 27 - 29
Independent Auditor's Report
Board of Directors
First Ohio Mortgage Corporation, Inc.
We have audited the accompanying balance sheet of First Ohio Mortgage
Corporation, Inc. as of December 31, 1996 and 1995 and the related statements of
income and retained earnings and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing standards
and Government Auditing Standards issued by the Comptroller General of the
United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First Ohio Mortgage Corporation
as of December 31, 1996 and the results of its operations and its cash flows for
the years then ended, in conformity with generally accepted accounting
principles.
In accordance with Government Auditing Standards, we have also issued a report
dated February 20, 1997 on our consideration of First Ohio Mortgage
Corporation's internal control structure and a report dated February 20, 1997 on
its compliance with laws and regulations.
Plante & Moran, LLP
February 20, 1997
FIRST OHIO MORTGAGE CORPORATION
BALANCE SHEET
December 31, December 31,
1996 1995
ASSETS
CASH AND CASH EQUIVALENTS $ 2,765,598 $ 974,559
MORTGAGE LOANS HELD FOR SALE 9,089,634 6,033,780
RECEIVABLES
Affiliate (Note 2) 14,511 23,487
Fees earned on closed loans 436,769 272,956
Employees and other 51,557 109,119
FIXED ASSETS (Note 3) 306,611 246,826
PREPAID EXPENSES AND OTHER ASSETS 96,144 76,791
Total assets $12,760,824 $7,737,518
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Note payable (Note 5) $10,213,589 $6,142,377
Accounts payable:
Trade 140,894 158,091
Escrow agent 624,297 --
Affiliate (Note 4) 231,817 161,679
Accrued liabilities 415,165 217,039
Total liabilities 11,625,762 6,679,186
STOCKHOLDERS' EQUITY
Common stock - no par value, $500 stated value
Authorized - 750 shares
Issued and outstanding - 500 shares 250,000 250,000
Retained earnings 885,062 808,332
Total stockholders' equity 1,135,062 1,058,332
Total liabilities and stockholders' equity $12,760,824 $7,737,518
See Notes to Financial Statements
FIRST OHIO MORTGAGE CORPORATION
STATEMENT OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1996 1995
<S> <C> <C>
REVENUE
Loan origination and servicing release fees $6,429,549 $5,427,785
Interest on mortgages 571,646 172,936
Application and loan fees 783,815 594,250
Management fee income (Note 2) 96,784 111,859
Other income 123,754 110,545
Total revenue 8,005,548 6,417,375
EXPENSES
Commissions and processor bonus 2,658,788 2,330,022
Account executives:
Employee benefits 27,130 22,303
Payroll taxes 153,807 130,313
Selling expenses 973,378 929,953
Operating expenses 3,021,023 2,311,938
Interest expense 569,692 262,042
Total expenses 7,403,818 5,986,571
NET INCOME 601,730 430,804
RETAINED EARNINGS - Beginning of year 808,332 452,528
DIVIDENDS - $1,050 and $150 per share in 1996 and 1995, respectively (525,000) (75,000)
RETAINED EARNINGS - End of year $ 885,062 $ 808,332
<FN>
See Notes to Financial Statements
</FN>
</TABLE>
FIRST OHIO MORTGAGE CORPORATION
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 601,730 $ 430,804
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 84,630 53,904
Increase in assets:
Mortgage loans held for sale (3,055,854) (6,033,780)
Receivables (97,275) 1,247,634
Prepaid expenses and other assets (19,778) 22,669
Increase in liabilities:
Accounts payable 677,238 210,755
Accrued liabilities 198,126 30,884
Net cash used in operating activities (1,611,183) (4,037,130)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (143,990) (164,902)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable, net 4,071,212 5,004,382
Dividends paid (525,000) (75,000)
Net cash provided by financing activities 3,546,212 4,929,382
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,791,039 727,350
CASH AND CASH EQUIVALENTS - Beginning of Year 974,559 247,209
CASH AND CASH EQUIVALENTS - End of Year $2,765,598 $ 974,559
CASH PAID FOR INTEREST $ 570,000 $ 265,000
<FN>
See Notes to Financial Statements
</FN>
</TABLE>
FIRST OHIO MORTGAGE CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
The Company is engaged in the origination of single-family mortgages in
Cleveland, Ohio and surrounding areas for sale to outside investors.
Due to the nature of the assets applicable to mortgage companies, First Ohio
Mortgage Corporation feels that an unclassified balance sheet more accurately
reflects its financial position.
Significant accounting policies are as follows:
Cash Equivalents - The Company considers all highly liquid investments purchased
with a maturity of three months or less to be cash equivalents.
Recognition of Revenue - Fee income on sales of mortgage loans is recognized
when the related mortgage loans are sold. Fee income from loan origination is
recognized on the mortgage closing date. Interest deemed to be collectible on
mortgage loans held for sale is credited to income as accrued. Interest expense
on related borrowings is expensed as incurred. Due to the short length of time
most loans are held and the nature of the costs, there is not a material impact
on net income from applying the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 91, "Accounting for Nonrefundable Fees and Costs of
Originating and Acquiring Loans and Initial Direct Costs of Leases", and,
accordingly, there is no deferral of net fees or costs.
Mortgage Loans Held for Sale - Mortgage loans held for sale are valued at the
lower of cost or market, determined on an aggregate basis, based upon
commitments from investors to purchase such loans and upon prevailing market
rates. Mortgage loans at December 31, 1996 and 1995 are due primarily from
individual homeowners in Northern Ohio.
Custodial Funds Held in Escrow - The Company has a fiduciary responsibility for
escrow funds on mortgage loans held for sale in the amount of $257,453 and
$101,926 at December 31, 1996 and 1995, respectively. The related trust cash
account and corresponding custodial liability are not included in the
accompanying balance sheet.
Fixed Assets - Fixed assets are carried at cost, less depreciation computed on
the straight-line method over the estimated useful lives of the respective
assets as follows:
Furniture and fixtures 5 years
Leasehold improvements 7 years
Office equipment 5 years
Loan Commitments and Forward Contracts - The Company commits to loan applicants
to lend funds within a specified period at a specified interest rate. Forward
contracts for the sale of these loans may be used to hedge the risk of changes
in interest rates. Unrealized gains and losses on forward contracts are not
recognized until the loan has been sold, except as the forward contract price
may affect a write-down of loan inventory to the lower of cost or market.
Income Tax Status - The Company has elected to be treated as an S Corporation
under the Internal Revenue Code. As a result of this election, the taxable
income or loss of the Company is included on the stockholders' individual tax
returns and a provision for income taxes is not reflected in the Company's
financial statements.
FIRST OHIO MORTGAGE CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
401(k) Plan - The Company offers a deferred compensation 401(k) tax savings plan
to employees. Under this plan, employees can elect to have a portion of their
wages deferred and set aside for retirement. All contributions to the plan are
voluntary on the part of employees.
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
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
NOTE 2 - RECEIVABLE - AFFILIATE
The Company provides management services for an escrow company related through
common ownership and management. Management fees charged during 1996 and 1995
totaled $96,784 and $111,859, respectively, and resulted in an unsecured, demand
receivable balance at December 31, 1996 and 1995 of $14,511 and $23,487,
respectively. This receivable is non-interest bearing.
NOTE 3 - FIXED ASSETS
The detail of fixed assets is as follows:
1996 1995
Furniture and fixtures $ 65,734 $ 32,956
Leasehold improvements 30,931 28,942
Office equipment 373,141 304,706
Total cost 469,806 366,604
Accumulated depreciation 163,195 119,778
Net carrying amount $306,611 $246,826
Depreciation expense was $84,205 and $52,321 in 1996 and 1995, respectively.
NOTE 4 - PAYABLE - AFFILIATE
The Company paid rent and advertising expenses to an entity related by common
ownership as follows:
1996 1995
Rent $213,900 $145,229
Advertising 153,739 119,771
$367,639 $265,000
These charges resulted in an unsecured, demand payable balance at December 31,
1996 and 1995 of $231,817 and $161,679, respectively. The payable is non-
interest bearing.
NOTE 5 - NOTE PAYABLE
The Company maintains a $13,000,000 line of credit with a bank that expires on
April 30, 1997. The line of credit is collateralized by substantially all
assets of the Company and guaranteed by companies affiliated through common
ownership. Advances on the line of credit can only be drawn with evidence of a
committed residential mortgage and each advance is limited to the committed sale
price of the related mortgage loan. Repayment of each advance is to be made
within fourteen business days of the funding. The line of credit cannot be used
to fund any single residential mortgage in excess of $400,000. The interest
rate on all advances under the line of credit shall be at a rate per annum equal
to the prime rate plus one-quarter percent (8.5% at December 31, 1996).
NOTE 6 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers and
to reduce its own exposure to fluctuations in interest rates. The primary
financial instruments are commitments to extend credit and commitments to sell
originated mortgage loans. These instruments involve elements of credit and
market risk in excess of the amounts recognized in the balance sheet.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract between the
time a mortgage loan is approved and closed. Commitments generally have fixed
expiration dates or other termination clauses. For each mortgage loan held for
sale and commitment to extend credit, the Company has obtained a commitment from
an investor to acquire the mortgage loan, thereby reducing market risk and
eliminating future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained
upon extension of credit, if any, is based on management's credit evaluation of
the counterparty. Collateral held is residential real estate. Commitments to
extend credit totaled approximately $18,000,000 at December 31, 1996.
NOTE 7 - LEASE COMMITMENTS
The Company has several operating leases for office space and certain equipment
expiring through June 2000. The approximate aggregate future minimum lease
payments as of December 31, 1996 are as follows:
1997 $134,449
1998 142,341
1999 128,388
2000 49,315
Total $454,493
The Company also rents office space and equipment on a month-to-month basis from
an entity related through common ownership (Note 4). Rental expense incurred on
leases, including rent paid to an affiliate, totaled $319,858 and $251,372 for
1996 and 1995, respectively.
(a) Financial Statements of Businesses Acquired
(ii) Realty One, Inc. and Corporate Relocation Management, Inc.
Unaudited Combined Financial Statements
September 30, 1997 and 1996
REALTY ONE, INC. AND
CORPORATE RELOCATION MANAGEMENT, INC.
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
(Unaudited)
September 30,
1997
<S> <C>
ASSETS
ASSETS
Cash and cash equivalents $ 125,000
Accounts receivable 816,000
Commissions receivable 14,206,000
Property and equipment 8,901,000
Investments 166,000
Prepaid expenses and other assets 4,725,000
Total assets $28,939,000
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable $ 3,160,000
Commissions payable 7,875,000
Accrued liabilities 5,161,000
Notes payable 6,652,000
Total liabilities 22,848,000
STOCKHOLDERS' EQUITY
Common stock:
Voting common stock, no par value, 10,000 shares authorized, issued and outstanding 155,000
Voting common stock, no par value, 750 shares authorized, issued and outstanding 5,000
Nonvoting common stock, no par value, 190,000 shares authorized, issued and outstanding 2,954,000
Additional paid-in capital 175,000
Retained earnings 2,802,000
Total stockholders' equity 6,091,000
Total liabilities and stockholders' equity $28,939,000
</TABLE>
REALTY ONE, INC. AND
CORPORATE RELOCATION MANAGEMENT, INC.
COMBINED STATEMENTS OF INCOME
(Unaudited)
Nine Months Ended Nine Months Ended
September 30, September 30,
1997 1996
REVENUE
Net brokerage revenue $26,903,000 $24,810,000
Other revenue 1,647,000 904,000
Total revenue 28,550,000 25,714,000
OPERATING EXPENSES
Compensation and benefits 9,872,000 9,464,000
Facilities 4,006,000 3,521,000
General and administrative 3,762,000 3,453,000
Marketing and promotion 4,599,000 4,042,000
Communications 1,160,000 790,000
Total operating expenses 23,399,000 21,270,000
OPERATING INCOME 5,151,000 4,444,000
OTHER INCOME (EXPENSE)
Depreciation and amortization (1,729,000) (1,621,000)
Interest, net (437,000) (502,000)
Miscellaneous 157,000 (41,000)
Total other income (expense) (2,009,000) (2,164,000)
Net income $ 3,142,000 $ 2,280,000
REALTY ONE, INC. AND
CORPORATE RELOCATION MANAGEMENT, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended Nine Months Ended
September 30, December 31,
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,142,000 $ 2,280,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,729,000 1,621,000
Changes in operating assets and liabilities:
Accounts receivable (4,532,000) (3,231,000)
Other assets 1,097,000 (1,917,000)
Accounts payable and accrued liabilities 1,774,000 (47,000)
Commission payable 2,504,000 1,579,000
Net cash provided by operating activities 5,714,000 285,000
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment, net (1,489,000) (990,000)
(Increase) decrease in restricted cash -- 6,000
Gain on sale of investment 165,000 --
Net cash used in investing activities (1,324,000) (984,000)
CASH FLOWS FROM INVESTING ACTIVITIES
Payments on capital leases (332,000) (265,000)
Payments on notes payable, net of proceeds (1,953,000) --
Proceeds from notes payable, net of payments -- 2,053,000
Dividends paid (2,518,000) (1,153,000)
Net cash (used in) provided by financing activities (4,803,000) 635,000
NET DECREASE IN CASH AND CASH EQUIVALENTS (413,000) (64,000)
CASH AND CASH EQUIVALENTS - Beginning of period 538,000 (871,000)
CASH AND CASH EQUIVALENTS - End of period $ 125,000 $ (935,000)
</TABLE>
REALTY ONE, INC. AND
CORPORATE RELOCATION MANAGEMENT, INC.
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
The combined financial statements include the accounts of Realty One, Inc. (ROI)
and Corporate Relocation Management, Inc. (CRM). ROI and CRM have common
stockholders. ROI is engaged in real estate brokerage in the Northern Ohio area
and CRM is engaged in relocation management and marketing assistance activities
including, but not limited to, the acquisition and resale of real estate
throughout the United States.
NOTE 2 - UNAUDITED FINANCIAL DATA
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for fair presentation have been included.
Operating results for the nine month period ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997. For further information, refer to the consolidated financial
statements and footnotes thereto included herein for the year ended December 31,
1996.
(a) Financial Statements of Businesses Acquired
(ii) First Ohio Escrow Corporation, Inc.
Unaudited Financial Statements
September 30, 1997 and 1996
FIRST OHIO ESCROW CORPORATION, INC.
BALANCE SHEET
(Unaudited)
September 30,
1997
ASSETS
ASSETS
Cash and cash equivalents $326,000
Accounts receivable 34,000
Other assets 18,000
Total assets $378,000
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable $220,000
Accrued liabilities 8,000
Total liabilities 228,000
STOCKHOLDERS' EQUITY
Common stock - no par value:
Authorized - 750 shares
Issued and outstanding - 500 shares 1,000
Retained earnings 149,000
Total stockholders' equity 150,000
Total liabilities and stockholders' equity $378,000
FIRST OHIO ESCROW CORPORATION, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended Nine Months Ended
September 30, September 30,
1997 1996
<S> <C> <C>
ESCROW INCOME $793,000 $848,000
DIRECT COSTS
Bonuses 46,000 44,000
Payroll and employee benefits 378,000 382,000
Taxes - payroll and other 99,000 5,000
Direct selling expenses 5,000 3,000
Total direct costs 528,000 434,000
GROSS PROFIT 265,000 414,000
ADMINISTRATIVE EXPENSES 236,000 211,000
OPERATING INCOME 29,000 203,000
OTHER INCOME
Interest income 9,000 9,000
NET INCOME $ 38,000 $212,000
</TABLE>
FIRST OHIO ESCROW CORPORATION, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended Nine Months Ended
September 30, September 30,
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 38,000 $212,000
Changes in assets and liabilities:
Accounts receivable 4,000 105,000
Other assets (9,000) (3,000)
Accrued liabilities 188,000 17,000
Net cash provided by operating activities 221,000 331,000
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (275,000) (198,000)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (54,000) 133,000
CASH AND CASH EQUIVALENTS - Beginning of period 380,000 182,000
CASH AND CASH EQUIVALENTS - End of period $326,000 $315,000
</TABLE>
FIRST OHIO ESCROW CORPORATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
The Company provides closing and mortgage escrow services on residential real
estate transactions in Cleveland, Ohio and surrounding areas.
NOTE 2 - UNAUDITED FINANCIAL DATA
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for fair presentation have been included.
Operating results for the nine month period ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997. For further information, refer to the consolidated financial
statements and footnotes thereto included herein for the year ended December 31,
1996.
(a) Financial Statements of Businesses Acquired
(ii) First Ohio Mortgage Corporation
Unaudited Financial Statements
September 30, 1997 and 1996
FIRST OHIO MORTGAGE CORPORATION
BALANCE SHEET
(Unaudited)
September 30,
1997
ASSETS
ASSETS
Cash and cash equivalents $ 1,121,000
Accounts receivable 415,000
Fixed assets 394,000
Mortgage loans held for sale 8,414,000
Prepaid expenses and other assets 132,000
Total assets $10,476,000
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable $ 125,000
Accrued liabilities 441,000
Note payable 9,084,000
Total liabilities 9,650,000
STOCKHOLDERS' EQUITY
Common stock - no par value, $500 stated value:
Authorized - 750 shares
Issued and outstanding - 500 shares 250,000
Retained earnings 576,000
Total stockholders' equity 826,000
Total liabilities and stockholders' equity $10,476,000
FIRST OHIO MORTGAGE CORPORATION
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended Nine Months Ended
September 30, September 30,
1997 1996
<S> <C> <C>
REVENUES
Fee revenue $5,483,000 $5,288,000
Other 173,000 156,000
Total revenue 5,656,000 5,444,000
DIRECT COSTS
Bonuses 92,000 71,000
Payroll and employee benefits 1,360,000 1,151,000
Direct selling expenses 2,739,000 2,806,000
Total direct costs 4,191,000 4,028,000
GROSS PROFIT 1,465,000 1,416,000
ADMINISTRATIVE EXPENSES 1,245,000 859,000
OPERATING INCOME 220,000 557,000
OTHER INCOME (EXPENSE)
Interest, net 35,000 (46,000)
NET INCOME $ 255,000 $ 511,000
</TABLE>
FIRST OHIO MORTGAGE CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended Nine Months Ended
September 30, September 30,
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $255,000 $511,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 73,000 58,000
Changes in assets and liabilities:
Accounts receivable 88,000 (184,000)
Prepaid expenses and other assets (37,000) (51,000)
Mortgage loans held for sale 676,000 1,276,000
Accrued liabilities (846,000) 133,000
Net cash provided by operating activities 209,000 1,743,000
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (160,000) (130,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on note payable, net of proceeds (1,130,000) (183,000)
Dividends paid (564,000) (525,000)
Net cash used in financing activities (1,694,000) (708,000)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,645,000) 905,000
CASH AND CASH EQUIVALENTS - Beginning of period 2,766,000 975,000
CASH AND CASH EQUIVALENTS - End of period $1,121,000 $1,880,000
</TABLE>
FIRST OHIO MORTGAGE CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
The Company is engaged in the origination of single-family mortgages in
Cleveland, Ohio and surrounding areas for sale to outside investors.
NOTE 2 - UNAUDITED FINANCIAL DATA
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for fair presentation have been included.
Operating results for the nine month period ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997. For further information, refer to the consolidated financial
statements and footnotes thereto included herein for the year ended December 31,
1996.
b) Unaudited Pro Forma Condensed Consolidated Financial Statements
Insignia Financial Group, Inc. and Subsidiaries
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On October 13, 1997, Insignia Financial Group, Inc. ("Insignia" or the
"Company") acquired the outstanding stock of Realty One, Inc. and its affiliated
companies, including First Ohio Escrow Corporation, Inc., First Ohio Mortgage
Corporation and Corporate Relocation Management, Inc. (collectively "Realty
One") pursuant to a Stock Purchase Agreement dated as of September 18, 1997.
The purchase price was approximately $40 million, of which $36 million was
paid in cash and the balance paid through the issuance of Insignia common stock.
The cash portion of the purchase was financed by borrowings under the Company's
syndicated Revolving Credit Facility.
Realty One, headquartered in Cleveland, provides full service residential
brokerage services throughout northeast Ohio for more than 90 residential
builders and handles more than 20,000 transactions valued at more than $2.5
billion annually. The Realty One affiliated companies are engaged in the
business of providing residential mortgage services, escrow services, relocation
services and other related real estate services.
The following Pro Forma Condensed Consolidated Balance Sheet as of September
30, 1997, and Pro Forma Condensed Consolidated Statements of Income for the nine
months ended September 30, 1997, and the year ended December 31, 1996, give
effect to the acquisition of Realty One and related borrowings under the
Revolving Credit Facility, as if effected at such date, in the case of the pro
forma balance sheet, or at January 1, 1996, in the case of the pro forma
statements of income.
The pro forma statements have been prepared by management of the Company and
are based on the historical financial statements of Insignia and Realty One,
giving effect to the transaction under the purchase method of accounting and the
assumptions and adjustments in the accompanying Notes to Unaudited Pro Forma
Condensed Consolidated Financial Statements. These pro forma statements may not
be indicative of the actual results that may have occurred if the combination
had been in effect on the dates indicated or which may be experienced in the
future. The pro forma statements should be read in conjunction with the
financial statements and corresponding footnote disclosures of Insignia included
in Form 10-K filed March 25, 1997, which is incorporated herein by reference,
and of Realty One and affiliated companies included elsewhere herein.
(b) Unaudited Pro Forma Condensed Consolidated Financials (Continued)
Insignia Financial Group, Inc. and Subsidiaries
Pro Forma Condensed Consolidated Balance Sheet (Unaudited)
September 30, 1997
(In thousands)
<TABLE>
<CAPTION> Pro Forma
Pro Forma Balance
ASSETS Insignia Realty One Adjustments Sheet
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 89,427 $ 1,572 $ 4,718(a) $ 95,717
Receivables 73,657 15,472 (14,419)(b) 74,710
Property and equipment 15,170 9,294 (4,683)(c) 19,781
Investments in real estate limited partnerships and
other securities 150,395 -- -- 150,395
Mortgage loans held for sale -- 8,414 -- 8,414
Apartment property 21,556 -- -- 21,556
Property management contracts 118,035 -- -- 118,035
Cost in excess of net assets of acquired businesses 81,744 14 45,284(d) 127,042
Other assets 18,784 5,027 (2,831)(e) 20,980
Total assets $568,768 $39,793 $ 28,069 $636,630
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable $ 8,767 $11,380 $(6,782)(f)$ 13,365
Commissions payable 30,841 -- -- 30,841
Accrued and sundry liabilities 50,893 5,610 1,718(g) 58,221
Notes payable 39,117 15,736 36,000(h) 90,853
Non-recourse mortgage note payable 19,300 -- -- 19,300
Total liabilities 148,918 32,726 30,936 212,580
Company-obligated manditorily redeemable
convertible preferred securities of a subsidiary
trust holding solely debt securities of the Company 143,993 -- -- 143,993
Minority interest in consolidated subsidiaries 52,778 -- -- 52,778
Stockholders' Equity:
Common stock, Class A, par value
$0.01 per share 291 3,539 (3,537)(i) 293
Additional paid-in capital 191,464 167 4,031(j) 195,662
Retained earnings 31,324 3,361 (3,361)(k) 31,324
Total stockholders' equity 223,079 7,067 (2,867) 227,279
Total liabilities and stockholders' equity $568,768 $39,793 $28,069 $636,630
<FN>
See Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet
</FN>
</TABLE>
(b) Unaudited Pro Forma Condensed Consolidated Financials (Continued)
Insignia Financial Group, Inc. and Subsidiaries
Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet
September 30, 1997
(In thousands)
<TABLE>
<CAPTION>
Increase (Decrease)
September 30,
1997
<S> <C>
ASSETS
(a) Represents the excess cash proceeds from draw on revolving credit facility
for purchase $ 4,718
(b) Represents the removal of receivables to conform with Insignia
accounting policy (14,419)
(c) Represents the removal of property and equipment not acquired
and to adjust remaining assets to fair market value (4,683)
(d) Represents the pro forma adjustment to record the portion of purchase
price allocated to goodwill (Purchase consideration of approximately $65.7
million, including assumed liabilities of $25.6 million, less the fair market
value of assets acquired of $20.4 million) 45,284
(e) Represents the removal of other assets not acquired (2,831)
Total assets effect $28,069
LIABILITIES AND STOCKHOLDERS' EQUITY
(f) Represents the removal of trade payables not assumed $(6,782)
(g) Represents the recording of a purchase deferred payment 1,750
Represents the recording of estimated accrued acquisition costs 325
Represents the removal of accrued expenses not assumed (357)
1,718
(h) Represents the increase in notes payable due to acquisition borrowings
under the revolving credit facility 36,000
(i) Issuance of 210,000 shares of common stock, with a fair value of $4.2 million,
in connection with the purchase
Par value of common stock issued 2
Represents the removal of Realty One common stock (3,539)
(3,537)
(j) Paid-in capital portion of common stock issued 4,198
Represents the removal of Real One paid-in capital (167)
4,031
(k) Represents the removal of Realty One retained earnings (3,361)
Total liabilities and stockholders' equity effect $28,069
(b) Unaudited Pro Forma Condensed Consolidated Financials (Continued)
Insignia Financial Group, Inc. and Subsidiaries
Pro Forma Condensed Consolidated Statement of Income (Unaudited)
For the Year Ended December 31, 1996
(In thousands, except share and per share data)
</TABLE>
<TABLE>
<CAPTION>
Pro Forma
Pro Forma Income
Insignia Realty One Adjustments Statement
<S> <C> <C> <C> <C>
REVENUES
Fee based services $215,623 $84,435 $ -- $300,058
Interest 3,104 18 (3)(a) 3,119
Other 2,327 3,389 (1,719)(b) 3,997
Apartment property 6,020 -- -- 6,020
227,074 87,842 (1,722) 313,194
COSTS AND EXPENSES
Fee based services 164,830 73,459 (1,324)(c) 236,965
Administrative 7,216 7,837 (261)(d) 14,792
Apartment property 3,034 -- -- 3,034
Interest 12,918 1,336 2,552(e) 16,806
Apartment property interest 1,812 -- -- 1,812
Depreciation and amortization 23,031 2,203 1,811(f) 27,045
Apartment property depreciation 901 -- -- 901
213,742 84,835 2,778 301,355
Equity earnings - limited partnership interests 3,590 -- -- 3,590
Minority interest in consolidated subsidiaries (1,976) -- -- (1,976)
INCOME BEFORE INCOME TAXES 14,946 3,007 (4,500) 13,453
Provision for income taxes 5,680 -- (568)(g) 5,112
NET INCOME BEFORE EXTRAORDINARY ITEM $ 9,266 $ 3,007 $ (3,932) $ 8,341
Earnings per common share before extraordinary $0.29 $0.26
item
Weighted average common shares outstanding and
dilutive common stock equivalents 31,560,650 210,000(h) 31,770,650
<FN>
See Notes to Unaudited Pro Forma Condensed Consolidated Statements of Income
</FN>
</TABLE>
(b) Unaudited Pro Forma Condensed Consolidated Financials (Continued)
Insignia Financial Group, Inc. and Subsidiaries
Pro Forma Condensed Consolidated Statements of Income (Unaudited)
For the Nine Months Ended September 30, 1997
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Pro Forma
Pro Forma Income
Insignia Realty One Adjustments Statement
<S> <C> <C> <C> <C>
REVENUES
Fee based services $246,131 $71,364 $ -- $317,495
Interest 3,230 48 -- 3,278
Other 328 1,987 -- 2,315
Apartment property 4,941 -- -- 4,941
254,630 73,399 -- 328,029
COSTS AND EXPENSES
Fee based services 197,921 62,436 -- 260,357
Administrative 8,633 4,730 -- 13,363
Apartment property 2,336 -- -- 2,336
Interest 4,729 441 1,916(e) 7,086
Apartment property interest 1,114 -- -- 1,114
Depreciation and amortization 23,044 1,804 1,359(f) 26,207
Apartment property depreciation 725 -- -- 725
Release fee 5,000 -- -- 5,000
243,502 69,411 3,275 316,188
Equity earnings - limited partnership interests 5,890 -- -- 5,890
Minority interest in consolidated subsidiaries (9,139) -- -- (9,139)
INCOME BEFORE INCOME TAXES 7,879 3,988 (3,275) 8,592
Provision for income taxes 3,152 552 (267)(g) 3,437
NET INCOME $ 4,727 $ 3,436 $ (3,008) $ 5,155
Earnings per common share $0.15 $0.16
Weighted average common shares outstanding and
dilutive common stock equivalents 32,422,548 210,000(h) 32,632,548
<FN>
See Notes to Unaudited Pro Forma Condensed Consolidated Statements of Income
</FN>
</TABLE>
(b) Pro Forma Condensed Consolidated Financials (Continued)
Insignia Financial Group, Inc. and Subsidiaries
Notes to Unaudited Pro Forma Condensed Consolidated Statements of Income
(In thousands, except share data)
<TABLE>
<CAPTION>
Income Increase (Decrease)
Year Ended Nine Months Ended
December 31, 1996 September 30, 1997
<S> <C> <C>
PRO FORMA ADJUSTMENTS
REVENUES
(a) Represents the removal of interest income from
property management operations not acquired $ (3) $ --
(b) Represents the removal of other income from
property management operations not acquired (1,719) --
Total revenue effect (1,722) --
COSTS AND EXPENSES
(c) Represents the removal of expenses from
property management operations not acquired 1,324 --
(d) Represents the removal of administrative expenses from
property management operations not acquired 261 --
(e) Represents the pro forma interest adjustment from
borrowings under the revolving credit facility (the effect of a
1/8 percent variance in interest rates would result in a change
in pro forma interest of approximately $45,000 for December 31,
1996 and $34,000 for September 30, 1997) (2,552) (1,916)
(f) Represents the pro forma amortization adjustment for the
purchase price allocated to goodwill (25 yr. straight line) (1,811) (1,359)
Total Costs and Expense Effect (2,778) (3,275)
(g) Income tax effect 568 267
Adjustment to income before extraordinary item $ (3,932) $ (3,008)
SHARE DATA
(h) Increase in weighted average common shares
outstanding and dilutive common stock equivalents:
Issuance of common stock in connection with the
purchase of Realty One 210,000 210,000
210,000 210,000
</TABLE>
