UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 2004
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from to .
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Commission file number: 000-31413
BOTTOMLINE HOME LOAN, INC.
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(Exact name of small business issuer as specified in its charter)
Nevada 88-0356064
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
201 East Huntington Drive, Suite 202, Monrovia, CA 91016
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(Address of principal executive office) (Zip Code)
(800) 520-5626
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(Issuer's telephone number)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes XX No
The number of outstanding shares of the issuer's common stock, $0.001 par value
(the only class of voting stock), as of November 11, 2004, was 15,539,000.
Transitional Small Business Disclosure Format (check one): Yes No XX
TABLE OF CONTENTS
PART I
ITEM 1. FINANCIAL STATEMENTS..................................................
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.............
ITEM 3. CONTROLS AND PROCEDURES...............................................
PART II
ITEM 6. EXHIBITS..............................................................
SIGNATURES.....................................................................
2
PART I
ITEM 1. FINANCIAL STATEMENTS
BOTTOMLINE HOME LOAN, INC.
Unaudited Consolidated Balance Sheet
September 30, 2004
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Assets
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Current assets:
Cash and cash equivalents $ 178,048
Restricted cash 31,613
Receivables from sales of loans 2,024,443
Receivable from sale of servicing portfolio 69,578
Prepaids and other current assets 4,005
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Total current assets 2,307,687
Equity builder finder's fee receivable 78,021
Property and equipment, net 150,795
Other assets 16,663
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$ 2,553,166
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Liabilities and Stockholders' Equity
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Current liabilities:
Warehouse line of credit $ 1,864,174
Accounts payable and accrued expenses 168,835
Current maturities of long-term debt 22,827
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Total current liabilities 2,055,836
Long-term debt 34,190
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Total liabilities 2,090,026
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Minority interest 75,530
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Commitments and contingencies -
Stockholders' equity:
Preferred stock, $.001 par value, 5,000,000 shares
authorized; 0 shares issued and outstanding -
Common stock, $.001 par value, 500,000,000 shares
authorized; 15,539,000 shares issued and outstanding 15,539
Additional paid-in capital 629,835
Accumulated deficit (257,764)
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Total stockholders' equity 387,610
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Total liabilities and stockholders' equity $ 2,553,166
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See accompanying notes to consolidated financial statements 3
BOTTOMLINE HOME LOAN, INC.
Unaudited Consolidated Statement of Operations
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Three Months Ended
September 30
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2004 2003
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Revenues:
Income from sale of loans and servicing rights $ 177,556 $ 158,650
Origination fee revenue 151,744 360,751
Income from sale of servicing portfolio 115,963 -
Real estate commission revenue 697,890 -
Servicing revenue 3,844 12,622
Other operating revenue 31,252 -
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Total revenues 1,178,249 532,023
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Operating expenses:
Salaries and direct loan costs 303,312 397,507
Cost of servicing portfolio sold 60,688 -
Real estate commissions paid 674,657 -
Interest 13,167 13,211
Selling, general and administrative 144,756 150,723
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Total operating expenses 1,196,580 561,441
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Loss from operations (18,331) (29,418)
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Other income (expense):
Other expense - 2,450
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Total other income (expense) - 2,450
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Net loss before
minority interest and taxes (18,331) (26,968)
Income tax expense - current - (19,073)
Minority share of loss 2,933 8,843
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Net loss $ (15,398) $ (37,198)
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Net loss per common share
- basic and diluted $ (0.00) $ (0.00)
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Weighted average shares outstanding
- basic and diluted 15,539,000 15,539,000
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See accompanying notes to consolidated financial statements 4
BOTTOMLINE HOME LOAN, INC.
Unaudited Consolidated Statement of Cash Flows
Three Months Ended September 30,
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2004 2003
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Cash flows from operating activities:
Net loss $ (15,398) $ (37,198)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 7,115 4,201
Minority interest in net loss (2,933) (8,843)
Decrease (increase) in:
Receivables from sales of loans (111,817) 1,809,264
Equity builder finder's fee receivable 6,755 27,074
Mortgage servicing rights (27,360) (134,183)
Other assets (576) 98
Increase (decrease) in:
Accounts payable and accrued expenses (2,491) 82,558
Net change in warehouse line of credit 98,900 (1,732,443)
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Net cash (used in) provided by
operating activities (47,805) 10,528
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Cash flows from investing activities:
Increase in restricted cash (23,499) (192,504)
Purchase of property and equipment (5,259) (4,762)
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Net cash used in investing
activities (28,758) (197,266)
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Cash flows from financing activities:
Net change in note payable - (40,556)
Payments of long-term debt (5,988) (6,379)
Buy-back of subsidiary common stock (12,000) (12,500)
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Net cash used in financing
activities (17,988) (59,435)
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Net decrease in cash and cash equivalents (94,551) (246,173)
Cash and cash equivalents at beginning of period 272,599 428,261
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Cash and cash equivalents at end of period $ 178,048 $ 182,088
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See accompanying notes to consolidated financial statements 5
BOTTOMLINE HOME LOAN, INC.
Notes to Unaudited Consolidated Financial Statements
September 30, 2004 and 2003
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1. Summary of Nature of Business
Significant The Company incorporated under the laws of the State of
Accounting Nevada on February 15, 1996 as CyberEnergy, Inc. The
Policies name of the Company was changed to Bottomline Home Loan,
Inc. on July 20, 2001. The Company was a developmental
stage company until June 26, 2001, when it acquired 76%
of the outstanding common stock of Bottomline Mortgage,
Inc. The transaction was accounted for as a reverse
acquisition using the purchase method of accounting,
therefore, the historical results presented in the
financial statements are those of Bottomline Mortgage,
Inc., the accounting acquirer, through June 27, 2001,
after which historical results represent the combined
entity. The ownership percentage has increased to 84% as
a result of the Company's subsidiary buying back
additional shares of it's stock. The Company, primarily
through its subsidiary, Bottomline Mortgage, Inc.,
assists individuals, brokers, and others in obtaining
long-term trust deed (mortgage) financing. The Company
processes loan applications, effects loan underwriting
and receives purchase commitments from investor groups
for mortgage backed loans prior to funding the loans,
primarily at its corporate office in Monrovia,
California. Loan applications are also solicited and
received at office locations in Phoenix, Arizona; and
San Marcos, Texas. The Company's subsidiary is a loan
correspondent, as defined by the U.S. Department of
Housing and Urban Development (HUD), and is therefore
required to conform to certain net worth, liquid assets
and other conditions and requirements and to follow
certain specific regulations issued from time to time by
HUD.
Principles of Consolidation
The accompanying consolidated financial statements
include the accounts of Bottomline Home Loan, Inc.
(formerly known as Cyberenergy, Inc.) and its 84%
subsidiary, Bottomline Mortgage, Inc. Minority interest
represents minority shareholders' proportionate share of
the equity in Bottomline Mortgage, Inc. All significant
intercompany balances and transactions are eliminated.
Estimates
The preparation of financial statements in conformity
with accounting principles generally accepted in the
United States of America requires management to make
estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results
could differ from those estimates.
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6
BOTTOMLINE HOME LOAN, INC.
Notes to Unaudited Consolidated Financial Statements
Continued
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1. Summary of Concentration of Credit Risk
Significant The Company's primary business is originating
Accounting conventional mortgage loans and mortgage loans based on
Policies HUD Title II regulations. As an approved HUD Title II
Continued loan correspondent, the Company's subsidiary HUD
mortgages are insured by FHA. Title II regulations limit
the size of individual loans to specific dollar amounts,
and contain guidelines regarding borrower
credit-worthiness. Company management believes the
credit risk associated with specific borrowers and
geographic concentrations is not significant.
The Company maintains cash in bank deposit accounts,
which at times may exceed federally insured limits. The
Company has not experienced any losses in such accounts
and believes it is not exposed to any significant credit
risk on cash and cash equivalents.
Financial instruments, which potentially subject the
Company to concentration of credit risk include
receivables from investors and customers. In the normal
course of business, the Company provides credit terms to
investors and customers. Accordingly, the Company
performs ongoing credit evaluations of investors and
customers.
Earnings Per Share
The computation of basic earnings per common share is
based on the weighted average number of shares
outstanding during each period.
The computation of diluted earnings per common share is
based on the weighted average number of shares
outstanding during the period plus the common stock
equivalents which would arise from the conversion of
debt or equity instruments convertible into common stock
and the exercise of stock options and warrants
outstanding using the treasury stock method and the
average market price per share during the period. Common
stock equivalents are not included in the diluted per
share calculation when their effect is antidilutive. As
of September 30, 2004 and 2003, the Company had no
common stock equivalents outstanding.
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7
BOTTOMLINE HOME LOAN, INC.
Notes to Unaudited Consolidated Financial Statements
Continued
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1. Summary of Stock-Based Compensation
Significant The Company accounts for stock-based compensation under
Accounting the recognition and measurement principles of APB
Policies Opinion No. 25, Accounting for Stock Issued to
Continued Employees, and related interpretations. The Company has
adopted SFAS No. 123, "Accounting for Stock-Based
Compensation". In accordance with the provisions of SFAS
123, the Company has elected to continue to apply
Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB Opinion No. 25"),
and related interpretations in accounting for its stock
option plans. No stock options were outstanding as of
September 30, 2004 and 2003.
Mortgage Servicing Rights
The Company originates mortgage loans for sale to the
secondary market and sells the loans on either a
servicing retained or servicing released basis.
Servicing rights represent the right to receive payments
from the mortgagees, administer the escrow accounts and
remit the mortgage payments to the investor. The
investor pays the servicer a predetermined rate in
exchange for servicing the loans. Servicing rights are
recognized as assets based on a percentage of the direct
costs incurred to originate the loan. The percentage of
direct costs is calculated by taking the estimated
revenue from the sale of the servicing rights divided by
the total revenue from the origination of the mortgage,
including sale of servicing rights. The servicing rights
asset is amortized over the expected life of the asset,
which has been estimated by management to be an average
of nine years. Mortgage servicing rights are
periodically evaluated for impairment. Impairment
represents the excess of unamortized cost over its
estimated fair value. Impairment is evaluated based upon
the fair value of the assets, using groupings of the
underlying loans as to interest rates. Fair value is
determined using prices for similar assets with similar
characteristics or based upon discounted cash flows
using market-based assumptions. Any impairment of a
grouping is reported as a valuation allowance. There
were no impairment charges incurred during the three
months ended September 30, 2004 and 2003.
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8
BOTTOMLINE HOME LOAN, INC.
Notes to Unaudited Consolidated Financial Statements
Continued
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1. Summary of Recognition of Mortgage Fee Income
Significant Mortgage fee income consists of service and release
Accounting premiums, origination fees, processing fees and certain
Policies other income related to mortgages. For mortgages sold,
Continued mortgage fee income and related expenses are recognized
at the time the loan meets the sales criteria for
financial assets which are; (1) the transferred assets
have been isolated from the Company and its creditors,
(2) the transferee (investor) has the right to pledge or
exchange the mortgage, and (3) the Company does not
maintain effective control over the transferred mortgage
loan. The Company does not carry any mortgage loans for
investment purposes. A firm commitment is obtained from
the investor on a loan-by-loan basis before closing a
loan, therefore each loan is sold virtually at the same
time it is closed, removing exposure to interest rate
changes. The loans are sold on a pure pass-through
basis, meaning there is no yield differential between
the loan rate less servicing fees and the yield to the
purchaser of the loan. Such loans are sold at premiums
or discounts depending on the ultimate yield required by
the investor. All premiums or discounts are paid by the
investor at the time the loan is sold. Immediately after
closing, the loan documents are sent to the investor
endorsed in blank, thus allowing the holder of the loan
to sell or transfer the loan at their discretion. This
means that title and effective control have transferred
to the investor. At such time, revenue, calculated as
the amount due from the investor in excess of the loan
funded by the Company, is recorded. Payment of most
receivables from the sale of loans is received within
one week of closing. Because title of the loan has
transferred, the Company is not exposed to market risk
during this time period.
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9
BOTTOMLINE HOME LOAN, INC.
Notes to Unaudited Consolidated Financial Statements
Continued
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1. Summary of Recognition of Mortgage Fee Income - Continued
Significant In connection with the sale of mortgage loans, the
Accounting Company may also sell the servicing rights to such
Policies loans. The Company recognizes revenue from the sale of
Continued such servicing rights when an agreement with the
purchaser of such servicing rights exists, ownership to
such servicing rights has been transferred to the
purchaser, the selling price of such servicing rights is
fixed or determinable, and collectibility is reasonable
assured. The Company's contracts with investors or
servicers that purchase these rights require certain
warrants and representations by the Company which
guarantee the mortgages will be serviced for a minimum
of three to twelve months after they are purchased.
Should for any reason the loan be paid off or prepaid
during the first year, the servicer may request the
return of all or a pro-rated portion of the service
release premium paid to the Company. The Company's
accounting policy is to provide a reserve for the amount
of fees that are estimated to be refunded to the
servicers. To date, such estimates have not been
material. During the three months ended September 30,
2004 and 2003, the Company did not refund any service
release premiums to a servicer.
Commitment fees received (non-refundable fees that arise
from agreements with borrowers that obligate the Company
to make a loan or satisfy an obligation under a
specified condition) are initially deferred and
recognized as revenue as loans are delivered to
investors, or when it is evident that the commitment
will not be utilized.
Loan origination fees received and direct costs of
originating loans are deferred and recognized as income
or expense when the loans are sold to investors.
Mortgage loans are primarily funded by lending
institutions under warehouse line of credit agreements.
Recognition of loan Servicing Income
The Company recognizes revenue from servicing loans
monthly as the services are performed.
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10
BOTTOMLINE HOME LOAN, INC.
Notes to Unaudited Consolidated Financial Statements
Continued
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1. Summary of Real Estate Commission Revenue
Significant Real estate commissions are recognized at the point at
Accounting which all Company services have been performed, and
Policies title to real property has passed from seller to buyer.
Continued
Recognition of Equity Builder Finder's Fees
Equity builder finder's fees represent fees charged to
customers to initiate the Equity Builder Program (the
program). The program allows the customer to make
bi-weekly payments by automatic transfer, which results
in a quicker loan payoff. Equity builder revenue is
recognized upon the Company receiving confirmation from
the servicing agent that the loan payments will be
processed in accordance with the program. The unpaid
balance from the program due from customers at September
30, 2004 was $78,021, net of the allowance for
uncollectible receivables of $20,000, which is shown
under the caption equity builder finder's fee receivable
on the consolidated balance sheet.
Income Taxes
Deferred taxes are computed using the asset and
liability method. Under the asset and liability method,
deferred tax assets and liabilities are recognized for
future tax consequences attributable to differences
between the financial statement carrying amounts of
existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences
are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that
includes the enactment date.
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11
BOTTOMLINE HOME LOAN, INC.
Notes to Unaudited Consolidated Financial Statements
Continued
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2. Unaudited The unaudited financial statements include the accounts
Financial of the Company and include all adjustments (consisting
Statements of normal recurring items), which are, in the opinion of
management, necessary to present fairly the financial
position as of September 30, 2004 and the results of
operations for the periods ended September 30, 2004 and
2003 and cash flows for the periods ended September 30,
2004 and 2003. The results of operations for the period
ended September 30, 2004 are not necessarily indicative
of the results to be expected for the entire year.
3. Basis of The accompanying unaudited consolidated financial
Presentation statements have been prepared by management in
accordance with the instructions in Form 10-QSB and,
therefore, do not include all information and footnotes
required by accounting principles generally accepted in
the United States of America and should, therefore, be
read in conjunction with the Company's Form 10-KSB,
filed with the Securities and Exchange Commission. These
statements do include all normal recurring adjustments,
which the Company believes necessary for a fair
presentation of the statements. The interim operations
results are not necessarily indicative of the results
for the entire year.
4. Supplemental During the three months ended September 30, 2004, the
Disclosure of Company:
Cash Flow
Information o Reduced minority interest and increased additional
paid in capital by $7,444, due to the buy-back of
subsidiary common stock by the subsidiary.
During the three months ended September 30, 2003, the
Company:
o Purchased equipment with a capital lease
obligation totaling $3,409.
o Reduced minority interest and increased additional
paid in capital by $7,921, due to the buy-back of
subsidiary common stock by the subsidiary.
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12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
General
Bottomline Home Loan, Inc. was formed under Nevada law on February 15, 1996,
under the name Cyber Energy, Inc. The name was changed to Bottomline Home Loan,
Inc. on July 20, 2001. On June 26, 2001, Bottomline Home Loan, Inc. signed an
agreement to acquire a 76% interest in Bottomline Mortgage, Inc. (Bottomline) in
exchange for 10,000,000 of the common shares of the Company or a 62% interest in
the issued and outstanding shares of its common stock. Bottomline then became an
operating subsidiary of the Company effective July 1, 2001. The ownership
percentage has increased to approximately 84% as a result of the Company's
purchase of additional shares of its subsidiary. The executive office is located
at 201 East Huntington Drive, Suite 202, Monrovia, CA 91016, and our telephone
number is (800) 520-5626. The registered statutory office in Nevada is located
at 711 S. Carson Street, Suite 1, Carson City, Nevada 89701. We use the terms
"Bottomline," "Company" and "we" in this report to refer to Bottomline Home
Loan, Inc., unless the context indicates otherwise.
Bottomline's operations are conducted through its subsidiary Bottomline
Mortgage, Inc. Bottomline is an independent retail mortgage banking company
primarily engaged in the business of originating and selling residential
mortgage loans. Bottomline offers a broad array of residential mortgage products
targeted primarily to high-credit-quality borrowers over the Internet, as well
as through 8 commission-compensated loan originators and a network of 136 Real
Estate agents. Operations are conducted from Company offices in Monrovia,
California, San Marcos, Texas, and Phoenix, Arizona, which operate as community
loan centers and call centers to service the 15 states in which Bottomline is
currently approved to originate mortgages. Bottomline operates primarily as a
mortgage banker, underwriting, funding and selling its loan products to various
buyers.
During the quarter ended September 30, 2004, Bottomline originated approximately
$9.8 million in loans, of which 90.5% were first mortgages and 9.5% were second
mortgages made to persons seeking to refinance their residential loans. This
represents a decrease of 54.4%, or $11.7 million, over the loans that closed in
the quarter ended September 30, 2003.
Bottomline's quarter ended September 30, 2004 continued to show a positive
impact from the continuing recruitment of Real Estate Agents into our Global
Realty network. Bottomline's total revenues for the Quarter ended September 30,
2004, indicate that total revenues are up 122% over the same period in 2003.
Our net loss for the three months ended September 30, 2004 and September 30,
2003 was ($15,398) and $(37,198) respectively.
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the Financial Statements and
accompanying notes and the other financial information appearing in our annual
report on Form 10-KSB.
13
The following information is based upon the Consolidated Statements of
Operations for Bottomline Home Loan, Inc. and Bottomline Mortgage, Inc., now a
majority owned subsidiary of Bottomline.
Critical Accounting Policies and Estimates
- ------------------------------------------
The following is a discussion of our critical accounting policies and estimates
that management believes are material to an understanding of our results of
operations and that involve the exercise of judgment or estimates by management.
Revenue Recognition. Income from the sale of loans and servicing rights consists
of service and release premiums, origination fees, processing fees and certain
other income related to mortgages. For mortgages sold, mortgage fee income and
related expenses are recognized at the time the loan meets the sales criteria
for financial assets, which are: (1) the transferred assets have been isolated
from Bottomline and its creditors, (2) the transferee (investor) has the right
to pledge or exchange the mortgage, and (3) Bottomline does not maintain
effective control over the transferred mortgage loan. Bottomline does not carry
any mortgage loans for investment purposes. A firm commitment is obtained from
the investor on a loan-by-loan basis before closing a loan; therefore, each loan
is sold virtually at the same time it is closed, removing all exposure to
interest rate changes. Such loans are sold at premiums or discounts depending on
the ultimate yield required by the investor. All premiums or discounts are paid
by the investor at the time the loan is sold. Immediately after closing, the
loan documents are sent to the investor endorsed in blank, thus allowing the
holder of the loan to sell or transfer the loan at its discretion. This means
title and effective control have transferred to the investor. At such time,
revenue, calculated as the amount due from the investor in excess of the loan
funded by Bottomline, is recorded. Payment of most receivables from the sale of
loans is received within one week of closing. Because title of the loan has been
transferred, Bottomline is not exposed to market risk during this time period.
Bottomline may be required to repurchase the loans from investors if specific
original documents specified by the investor are not delivered, if there was
fraud in the origination of the loan, or if the borrower becomes delinquent
during the first several months after the loan is sold. Bottomline's accounting
policy is to reserve for the estimated loan repurchases.
In connection with the sale of mortgage loans, Bottomline also may sell the
servicing rights to such loans. Bottomline recognizes revenue from the sale of
such servicing rights when an agreement with the purchaser of such servicing
rights exists, ownership to such servicing rights has been transferred to the
purchaser, the selling price of such servicing rights is fixed or determinable,
and collectibility is reasonably assured. Bottomline's contracts with investors
or servicers that purchase these rights require certain warrants and
representations by Bottomline that guarantee the mortgages will be serviced for
a minimum of three to 12 months after they are purchased. Should for any reason
the loan be paid off or prepaid during the first year, the servicer may request
the return of all or a pro rata portion of the service release premium paid to
Bottomline. Bottomline's accounting policy is to provide a reserve for the
amount of fees that are estimated to be refunded to the servicers; however, to
date such estimates have not been material. During the quarters ended September
30, 2004 and 2003, Bottomline did not refund any service release premiums to a
servicer.
Commitment fees received, which are non-refundable fees that arise from
agreements with borrowers that obligate Bottomline to make a loan or satisfy an
obligation under a specified condition, are initially deferred and recognized as
revenue as loans are delivered to investors or when it is evident that the
commitment will not be utilized.
14
Loan origination fees received and direct costs of originating loans are
deferred and recognized as income or expense when the loans are sold to
investors.
Equity Builder finder's fees represent finders' fees charged to customers to
initiate the Equity Builder Program (the program). The program allows the
customer to make biweekly payments by automatic transfer, which results in a
quicker loan payoff. Equity Builder revenue is recognized upon Bottomline
receiving confirmation from the servicing agent that the loan payments will be
processed in accordance with the program. The net unpaid balance from the
program due from customers at September 30, 2004, was $78,021, compared with
$84,776 at June 30, 2004, which is shown under the caption "Equity Builder
finder's fee receivable" on the balance sheet. Bottomline stopped initiating
customers in the Equity Builder Program in September 2002, and does not
anticipate enrolling customers in the future.
Revenue from servicing loans is recognized monthly as the services are
performed.
Mortgage Servicing Rights. Bottomline originates mortgage loans for sale to the
secondary market and sells the loans on either a servicing retained or servicing
released basis. Mortgage servicing rights represent the right to receive
payments from the mortgages, administer the escrow accounts, and remit the
mortgage payments to the investor. The investor pays the servicer a
predetermined rate in exchange for servicing the loans. Servicing rights are
recognized as assets based on a percentage of the direct costs incurred to
originate the loan. The percentage of direct costs is calculated by taking the
estimated revenue from the sale of servicing rights divided by the total revenue
from the origination of the mortgage, including the sale of servicing rights.
The servicing rights asset is amortized over the expected life of the asset,
which has been estimated by management to be an average of nine years. Mortgage
servicing rights are periodically evaluated for impairment. Impairment
represents the excess of unamortized cost over its estimated fair value.
Impairment is evaluated based upon the fair value of the assets, using groupings
of the underlying loans as to interest rates. Fair value is determined using
prices for similar assets with similar characteristics or based upon discounted
cash flows using market-based assumptions. Any impairment of a grouping is
reported as a valuation allowance.
Real Estate Commission Revenue. Real estate commissions are recognized at the
point at which all Company services have been performed, and title to real
property has passed from seller to buyer.
Results of Operations - Three Months Ended September 30, 2004 and 2003
- ----------------------------------------------------------------------
Revenues for the three months ended September 30, 2004, were $1,178,249,
compared to revenues of $532,023 for the three months ended September 30, 2003.
This Increase is mainly due to our recruitment of real estate agents into the
Global Realty network and the real estate commissions shown on the statement of
operations as Real Estate Commission Revenue of $697,890 for the three months
ended September 30, 2004. During the same quarter in 2003 we had no real estate
commission revenue.
The Company had loan origination income of $151,744 in the first quarter of
fiscal 2004 versus $360,751 in fiscal 2003, a decrease of 57.9%. In addition, we
had income from the sale of loans and servicing rights in the amount of $177,556
in the first quarter of fiscal 2004 compared with $158,650 in fiscal 2003, an
increase of 11.9%, reflecting the Company's sale of some servicing rights.
Revenue from servicing was $3,844 in the first quarter of fiscal 2004 compared
with $12,622 in fiscal 2003. This amount reflects the revenue recognized from
the servicing rights retained by the Company. We anticipate this amount to
change in future periods as the Company continues to increase its holdings in
servicing rights or sell them.
15
Selling, general and administrative expenses for the quarter ended September 30,
2004, were $143,156, and such expenses for the quarter ended September 30, 2003,
were $150,723, a decrease of $7,567 or approximately 5%. Selling, general and
administrative expenses for 2004 and 2003 consisted of expenses to keep the
Company in good corporate standing, fees to transfer agents, and expenses to
operate the Company, including rent, telephone, licensing fees, equipment
leases, accounting and legal services.
Additional expenses in the form of salaries and direct loan costs for the
quarter ended September 30, 2004, were $303,312 compared to $397,507 for the
quarter ended September 30, 2003, a decrease of $94,195 or 23.7%. This decrease
is mainly attributable to the fact that loan origination were down during this
period.
Total operating expenses were $1,194,980 for the three months ended September
30, 2004 and $561,441 for the comparable period in 2003, an increase of
$633,539, or approximately 112.4%, mainly due to the fact that real estate
commissions were paid to Global Realty agents. Net loss for the quarters ended
September 30, 2004 and 2003 were ($15,398) and ($37,198), respectively. As a
percentage of revenue, net loss for the three-month period ended September 30,
2004, was (1.31%), as compared to the loss equal to (6.99%) of revenues for the
three-month period ended September 30, 2003. The decrease of the net loss over
the comparable period can be attributed to the net real estate commission
Revenue from the Global Realty network during the quarter.
Liquidity and Capital Resources
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Current cash balances and funds available to Bottomline under its working
capital credit facilities, in addition to its cash flows from operations, are
expected to be sufficient to meet its liquidity requirements at its current
level of operations through at least the remainder of the fiscal year ending
June 30, 2005. Bottomline does expect to continue its plans for expansion for
the remainder of the fiscal year ending June 30, 2005, and believes that cash
flows from operations will support those plans over that time period. At the
present, Bottomline does not have any commitments for any additional equity or
loan arrangements and cannot provide any level of assurance that Bottomline
would be able to obtain any additional equity or loan financing if needed.
Bottomline anticipates that revenue generated from its current operations will
provide sufficient funds to satisfy the cash needs of Bottomline through the
fiscal year ending June 30, 2005.
Bottomline's warehouse facility or line of credit presently used to fund loans,
in the amount of $3 million, with an interest rate of prime plus 0.75%, is with
First Collateral Services. First Collateral requires that Bottomline maintain a
minimum tangible net worth of $275,000 and pay a fee or penalty of 0.25% of 1%
in the event that Bottomline fails to utilize at least 50% of the line during a
month. Loans funded by this line must be paid off or purchased within 45 days of
the funding date. The original Master Loan Warehousing Agreement was dated
November 27, 1998, and is up for renewal March 31, 2005. The balance of the
warehouse facility as of September 31, 2004, was $1,864,174, which matures on
March 31, 2005, and is secured by the notes and deeds of trust from the loans
that are funded on the line of credit. Bottomline anticipates rolling over the
warehouse credit facility into a new facility that will mature in March of 2005.
There can be no assurance that Bottomline will be successful in renewing the
credit facility on its maturity date of March 31, 2005. If Bottomline is not
successful in renewing the credit facility, it will be unable to continue its
loan origination business.
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Cash Flow Activities
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Bottomline had an ending cash balance of $178,048 at September 30, 2004, as
compared to $272,599 at June 30, 2004 Management believes that although its cash
position has declined, existing working capital combined with the revenue from
ongoing operations and the sale of loan servicing rights on an annual or
semiannual basis will be sufficient to sustain operations for the next twelve
months.
Cash used by operating activities was ($47,805) for the three months ended
September 30, 2004, as compared to cash provided by operations of $10,528 for
the three-month period ended September 30, 2003.
Cash used in investing activities was ($28,759) for the three months ended
September 30, 2004, as compared to ($197,266) for the three month period ended
September 30, 2003. The significant decrease in cash used in investing
activities is due to the restricted cash received upon loan closing for escrow
payments that must be maintained by the company servicing the loans and
subsequent transfer of the escrowed funds upon sale of the servicing. We began
servicing loans in April 2003.
Cash used in financing activities was ($17,987) for the three months ended
September 30, 2004, as compared to ($59,435) for the three-month period ended
September 30, 2003. The decrease is mainly a result of Bottomline not having any
note payable payments during the quarter ended September 30, 2004, whereas in
the quarter ended September 30, 2003 Bottomline made net payments of $40,566.
Item 3 Controls and Procedures
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a) Evaluation of disclosure controls and procedures.
Under the supervision and with the participation of our management, including
our principal executive officer and principal financial officer, we evaluated
the effectiveness of the design and operation of our disclosure controls and
procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as of September 30, 2004. Based on this evaluation, our
principal executive officer and our principal financial officer concluded that,
as of the end of the period covered by this report, our disclosure controls and
procedures were not effective and adequately designed to ensure that the
information required to be disclosed by us in the reports we file or submit
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in applicable rules and forms. Our
independent auditors recorded adjustments related to the consolidation of our
subsidiary, Bottomline Mortgage, Inc., and related to the change in minority
interest due to the buyback of subsidiary common stock. We are currently
assessing the necessary changes in our procedures required to ensure that such
adjustments are not required in the future.
(b) Changes in internal controls over financial reporting.
During the quarter ended September 30, 2004, there has been no change in our
internal control over financial reporting that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
PART II
ITEM 6. EXHIBITS
(a) The following exhibits are included as part of this report at the location
indicated:
SEC
Exhibit Reference
Number Number Title of Document Location
- -------------- ------------ ------------------------------------------------------------------- -------------------
Item 31 Rule 13a-14(a)/15d-14(a) Certifications
31.01 31 Certification of Chief Executive Officer and Chief Financial Attached
Officer Pursuant to Rule 13a-14
Item 32 Section 1350 Certifications
32.01 32 Certification of Chief Executive Officer and Chief Financial Attached
Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, hereunto duly
authorized, this 15th day of November, 2004.
By /s/Buster Williams, Jr.
-----------------------------------
Buster Williams, Jr., President
Chief Executive Officer and
Chief Financial Officer
17