SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________ to _______________.
COMMISSION FILE NUMBER O-24512
ANZA CAPITAL, INC.
(Exact name of registrant as specified in its charter)
NEVADA 88-1273503
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3200 BRISTOL STREET, SUITE 700
COSTA MESA, CA 92626
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (714) 866-2100
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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 X No.
----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes No.
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. As of March 22, 2002, there
were 44,139,397 shares of common stock issued and outstanding.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT
(check one):
Yes _____ No X
------
ANZA CAPITAL, INC.
TABLE OF CONTENTS
-----------------
PART I
Item 1 Financial Statements
Item 2 Management's Discussion and Analysis or Plan of Operations
PART II
Item 1 Legal Proceedings
Item 2 Changes in Securities and Use of Proceeds
Item 3 Defaults Upon Senior Securities
Item 4 Submission of Matters to a Vote of Security Holders
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K
2
PART I
This Quarterly Report includes forward-looking statements within the meaning of
the Securities Exchange Act of 1934 (the "Exchange Act"). These statements are
based on management's beliefs and assumptions, and on information currently
available to management. Forward-looking statements include the information
concerning possible or assumed future results of operations of the Company set
forth under the heading "Management's Discussion and Analysis of Financial
Condition or Plan of Operation." Forward-looking statements also include
statements in which words such as "expect," "anticipate," "intend," "plan,"
"believe," "estimate," "consider" or similar expressions are used.
Forward-looking statements are not guarantees of future performance. They
involve risks, uncertainties and assumptions. The Company's future results and
shareholder values may differ materially from those expressed in these
forward-looking statements. Readers are cautioned not to put undue reliance on
any forward-looking statements.
ITEM 1 FINANCIAL STATEMENTS
3
ANZA CAPITAL, INC.
(FORMERLY E-NET FINANCIAL.COM CORPORATION)
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
January 31, 2002
------------------
ASSETS
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . $ 633,655
Accounts receivable, net of allowance for doubtful
accounts of $74,123. . . . . . . . . . . . . . . . . . . . . . . 734,877
Loans held for sale. . . . . . . . . . . . . . . . . . . . . . . . 1,498,116
Advances to employees. . . . . . . . . . . . . . . . . . . . . . . 104,500
Prepaid and other current assets . . . . . . . . . . . . . . . . . 80,125
------------------
Total current assets. . . . . . . . . . . . . . . . . . . . . 3,051,273
Property and equipment, net of accumulated depreciation of $93,387 97,941
Goodwill, net of accumulated amortization
and impairments of $1,385,049 . . . . . . . . . . . . . . 425,247
------------------
$ 3,574,461
==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . $ 314,176
Warehouse line of credit . . . . . . . . . . . . . . . . . . . . . 1,475,987
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . 136,143
Commissions payable. . . . . . . . . . . . . . . . . . . . . . . . 871,074
Short-term notes payable . . . . . . . . . . . . . . . . . . . . . 224,934
Convertible notes payable to related parties . . . . . . . . . . . 337,605
Interest payable on notes to related parties . . . . . . . . . . . 29,533
------------------
Total current liabilities . . . . . . . . . . . . . . . . . . 3,389,452
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 1,088
------------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . 3,390,540
------------------
Stockholders' equity:
Class A convertible preferred stock, no par value;
liquidation value of $0.50 per share;
388,700 shares issued and outstanding . . . . . . . . . . . . . . 194,350
Class C convertible preferred stock, no par value;
liquidation value of $100 per share;
17,746 shares issued and outstanding. . . . . . . . . . . . . . . 1,745,900
Common stock, $0.001 par value; 100,000,000 shares
authorized; 39,589,401 issued and outstanding . . . . . . . . . . 39,589
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . 12,160,226
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . (13,950,144)
Deferred stock compensation. . . . . . . . . . . . . . . . . . . . (6,000)
------------------
Total stockholders' equity. . . . . . . . . . . . . . . . . . 183,921
------------------
$ 3,574,461
==================
See accompanying notes
4
ANZA CAPITAL, INC.
(FORMERLY E-NET FINANCIAL.COM CORPORATION)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Three Nine Nine
Months Ended Months Ended Months Ended Months Ended
Jan 31, 2002 Jan 31, 2001 Jan 31, 2002 Jan 31, 2001
-------------- -------------- -------------- --------------
Revenues:
Broker commissions . . . . . . . . . . . . . . . . . 6,502,348 2,507,877 17,566,556 7,352,714
Fee Income . . . . . . . . . . . . . . . . . . . . . 142,348 45,927 483,692 184,032
-------------- -------------- -------------- --------------
6,644,696 2,553,804 18,050,248 7,536,746
-------------- -------------- -------------- --------------
Cost of revenues:
Commissions. . . . . . . . . . . . . . . . . . . . . 3,527,541 2,232,371 10,458,042 5,596,322
-------------- -------------- -------------- --------------
Gross profit. . . . . . . . . . . . . . . . . . . . . . 3,117,155 321,433 7,592,206 1,940,424
General and administrative. . . . . . . . . . . . . . . 3,027,027 964,225 7,349,788 3,141,204
Consulting fees . . . . . . . . . . . . . . . . . . . . 76,850 538,823 603,995 1,469,543
Loss on Recession of LoanNet. . . . . . . . . . . . . . - 1,838,012 - 1,838,012
Non-recurring loss on settlements . . . . . . . . . . . - - 282,494 -
-------------- -------------- -------------- --------------
Operating income (loss). . . . . . . . . . . . . . 13,278 (3,019,627) (644,071) (4,508,335)
Interest expense. . . . . . . . . . . . . . . . . . . . (72,851) (38,073) (99,522) (146,821)
Other income (expense), net . . . . . . . . . . . . . . 5,646 23,472 35,734 111,874
-------------- -------------- -------------- --------------
Net loss before extraordinary item. . . . . . . (53,927) (3,034,228) (707,859) (4,543,282)
Extraordinary item, gain on settlement of debt. 69,695 - 125,880 -
-------------- -------------- -------------- --------------
Net income (loss). . . . . . . . . . . . . . . . . $ 15,768 $ (3,034,228) $ (581,979) $ (4,543,282)
============== ============== ============== ==============
Basic and diluted net loss per share of common
stock, before extraordinary item . . . . . . . . . . . $ - $ (0.14) $ (0.02) $ (0.22)
Extraordinary item. . . . . . . . . . . . . . . . . . . - - - -
Basic and diluted net loss per share of common
stock. . . . . . . . . . . . . . . . . . . . . . . . . $ - $ (0.14) $ (0.02) $ (0.22)
Weighted average common shares outstanding. . . . . . . 38,985,955 21,502,831 34,622,215 21,089,148
============== ============== ============== ==============
See accompanying notes
5
ANZA CAPITAL, INC.
(FORMERLY E-NET FINANCIAL.COM CORPORATION)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Nine Months
Ended Ended
Jan 31, 2002 Jan 31, 2001
-------------- --------------
Cash flows from operating activities:
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (581,979) $ (4,543,282)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . 15,001 382,813
Non-recurring loss on settlements . . . . . . . . . . . . . . . . . . . . . 282,494 -
Loss on rescission of LoanNet . . . . . . . . . . . . . . . . . . . . . . . - 1,838,012
Extraordinary gain from settlement of debt. . . . . . . . . . . . . . . . . (125,880) -
Stock compensation to consultants . . . . . . . . . . . . . . . . . . . . . 426,023 1,234,343
Amortization of debt discounts. . . . . . . . . . . . . . . . . . . . . . . 116,875 -
Amortization of deferred stock compensation . . . . . . . . . . . . . . . . 187,133 235,200
Changes in operating assets and liabilities:
Increase in accounts receivable, net. . . . . . . . . . . . . . . . . . . (270,754) (151,701)
Increase in loans held for sale . . . . . . . . . . . . . . . . . . . . . (1,140,766) -
Increase in other current assets. . . . . . . . . . . . . . . . . . . . . 4,477 (630,819)
Increase in due from employees. . . . . . . . . . . . . . . . . . . . . . (39,250) -
Decrease in accounts payable. . . . . . . . . . . . . . . . . . . . . . . (221,116) 14,558
Increase in commissions payable . . . . . . . . . . . . . . . . . . . . . 610,761 447,237
(Decrease) increase in accrued liabilities. . . . . . . . . . . . . . . . (39,539) 773,954
-------------- --------------
Net cash provided by (used in) operating activities . . . . . . . . . . . . (776,520) (399,685)
-------------- --------------
Cash flows from investing activities:
Decrease in other assets. . . . . . . . . . . . . . . . . . . . . . . . . . 11,307 13,435
Acquisitions of property and equipment. . . . . . . . . . . . . . . . . . . (22,957) (11,991)
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . - 21,800
-------------- --------------
Net cash provided by (used in) investing activities . . . . . . . . . . . . (11,650) 23,244
-------------- --------------
Cash flows from financing activities:
Payments on notes payable to related parties, net . . . . . . . . . . . . . (150,000) (1,236,536)
Proceeds from issuance of bridge loan . . . . . . . . . . . . . . . . . . . 225,000 -
Payments on capital lease obligations . . . . . . . . . . . . . . . . . . . (35,800) -
Advances from warehouse line of credit. . . . . . . . . . . . . . . . . . . 1,135,145 149,826
Proceeds from private placement . . . . . . . . . . . . . . . . . . . . . . 163,874 1,699,973
Dividends paid on A-preferred stock . . . . . . . . . . . . . . . . . . . . (3,630) -
Repurchase of A-preferred Stock . . . . . . . . . . . . . . . . . . . . . . (5,650) -
-------------- --------------
Net cash provided by financing activities . . . . . . . . . . . . . . . . . 1,328,939 613,263
-------------- --------------
See accompanying notes
6
ANZA CAPITAL, INC.
(FORMERLY E-NET FINANCIAL.COM CORPORATION)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Net increase in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 540,769 236,822
Cash at beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92,886 285,583
--------- --------
Cash at end of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 633,655 $522,405
========= ========
Non - cash financing activities:
Debt reduction through the issuance of common stock . . . . . . . . . . . . . . . . . . $ 801,675 -
========= ========
Warrants issued for bridge-loan issue costs . . . . . . . . . . . . . . . . . . . . . . $ 321,428 -
========= ========
Conversion of C-preferred to common stock . . . . . . . . . . . . . . . . . . . . . . . $ 575,688 -
========= ========
Supplemental cash flow information:
Cash paid for interest and income taxes was not significant during the periods presented
See accompanying notes
7
NOTES TO INTERIM FINANCIAL STATEMENTS
NOTE 1. UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial data as of January 31, 2002, for the three and nine months
ended January 31, 2002 and 2001 are unaudited; however, in the opinion of
management, the interim data includes all adjustments, consisting of normal
recurring adjustments, necessary to present fairly the Company's consolidated
financial position as of January 31, 2002, and the results of their operations
and their cash flows for the three and nine months ended January 31, 2002 and
2001. The results of operations are not necessarily indicative of the operations
which may result for the year ending April 30, 2002. Also, in the opinion of
management, all disclosures required on Form 10-QSB were fully furnished with
exception of the per segment information required by Statement of Financial
Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments of an
Enterprise and Related Information" issued by the Financial Accounting Standards
Board (FASB.) Management omitted this information since this information was
not readily available and American Residential Funding, Inc. ("AMRES") loan
brokering business represents approximately 97% of the company's revenues and
related expenses. However, management determined that the omission of this
information is insignificant to the overall presentation of the Company's
financial position and will provide this information only in the annual
financial report in the Company's Form 10-KSB.
Reclassifications
Certain prior year amounts have been reclassified for comparative purposes.
These reclassifications have no effect on net income.
NOTE 2. IMPACT OF RECENTLY ISSUED ACCOUNTING STATEMENTS
In July 2001, the FASB issued Statement No. 141, Business Combinations, and
Statement No. 142, Goodwill and Other Tangible Assets. Statement 141 requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001, as well as all purchase method business
combinations completed after June 30, 2001. Statement 141 also specifies
criteria intangible assets acquired in a purchase method business combination
must meet to be recognized and reported apart from goodwill, noting that all
purchase price allocable to an assembled workforce may not be accounted for
separately. Statement 142 will require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead be tested for
impairment at least annually in accordance with the provisions of Statement 142.
Statement 142 also requires that intangible assets with estimable useful lives
be amortized over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with FAS Statement
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of. The Company is required to adopt the provisions of
Statement 141 immediately, except with regard to business combinations initiated
prior to July 1, 2001, and to adopt Statement 142 effective with the fiscal year
beginning May 1, 2002.
The Company meets the criteria for early adoption of Statement 142, and has
elected early adoption of the statement during the first quarter of 2001 with no
material effect on the Company's financial condition and results of operations
based on the requirements of Statement 142. See Note 3 for further discussion.
In July 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. This statement provides accounting and reporting standards for
costs associated with the retirement of long-lived assets. This statement
requires entities to record the fair value of a liability for an asset
retirement obligation in the period in which it is incurred. When the liability
is initially recorded, the entity capitalizes a cost by increasing the carrying
amount of the related long-lived asset. Over time, the liability is accreted to
its present value each period, and the capitalized cost is depreciated over the
useful life of the related asset. Upon settlement of the liability, an entity
either settles the obligation for its recorded amount or incurs a gain or loss
upon settlement. The Company will be required to adopt this statement no later
than January 1, 2003. The Company is currently assessing the impact of this
statement on its results of operations, financial position and cash flows.
8
In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. This statement replaces SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of. However it retains the fundamental provisions of SFAS No. 121 for
recognition and measurement of the impairment of long-lived assets to be held
and used and for measurement of long-lived assets to be disposed of by sale.
This statement applies to all long-lived assets, including discontinued
operations, and replaces the provisions of APB Opinion No. 30, Reporting Results
of Operations-Reporting the Effects of Disposal of a Segment of a Business, for
the disposal of segments of a business. This statement requires that those
long-lived assets be measured at the lower of carrying amount or fair value less
cost to sell, whether reported in continuing operations or in discontinued
operations. The Company will be required to adopt this statement no later than
January 1, 2002. The Company is currently assessing the impact of this statement
on its results of operations, financial position and cash flows.
NOTE 3 GOODWILL
At January 31, 2002, the Company had goodwill attributable to acquired
businesses as follows:
Goodwill Accumulated Amortization and Impairments Net
----------- ------------------------------------------ ---------
Titus . $ 1,600,000 $ (1,350,000) $ 250,000
Expidoc 210,292 (35,045) 175,247
----------- ------------------------------------------ ---------
$ 1,810,292 $ (1,385,045) $ 425,247
=========== ========================================== =========
ADOPTION OF STATEMENT 142
The Company has elected early adoption of SFAS No.142. Accordingly, the Company
has stopped amortization of goodwill effective May 1, 2001. However, goodwill
amortization continues to be presented in the three and nine months ended
January 31, 2001, statement of operations. Had the provision of SFAS No.
142 been applied for the three and nine months ended January 31, 2001, the
Company's net income (loss) and net income (loss) per share would have been as
follows:
9
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
January 31, January 31,
2002 2001 2002 2001
_______________________________________________________________________
Reported net income (loss) 15,768 (3,034,228) (581,979) (4,543,282)
Add back: Goodwill amortization. - 64,654 - 475,775
------------ ------------ ----------- -----------
Adjusted net income (loss) 15,768 (2,969,574) (581,979) (4,067,507)
============ ============ =========== ============
Basic earnings per share:
Reported net income (loss) - (0.14) (0.02) (0.22)
============ ============ =========== ============
Goodwill amortization - - - 0.02
============ ============ =========== ============
Adjusted net income - (0.14) (0.02) (0.19)
============ ============ =========== ============
10
There was no goodwill amortization recognized in the first nine months of
fiscal 2002 and, as of January 31, 2002, net goodwill was $250,000 for Titus
Real Estate, Inc., and $175,247 for Expidoc.Com, Inc. The net goodwill balance
as of January 31, 2002 remains unchanged from the April 30, 2001, balance. There
were no intangible assets recorded for the Company as of January 31,
2002.
Management assessed the value of Titus during the fourth quarter of fiscal year
2001 based on a liquidation or residual value of the enterprise, and they
recorded an impairment at that time. In contemplating the adoption of SFAS No.
142, management assessed the intangible assets of Expidoc. At May 1, 2001, the
date of adoption, management believed that the primary intangible asset of
Expidoc was goodwill. Because of the relative immateriality of the carrying
value of the Expidoc goodwill, management did not believe that an appraisal was
necessary to determine what amount, if any, should be allocated to intangible
assets with definite lives. Management believes the enterprise value of Expidoc
exceeds the carrying value of goodwill.
NOTE 4 WAREHOUSE LINE OF CREDIT
The Company maintains a $2,000,000 warehousing line of credit which will
mature March 31, 2002. The agreement is personally guaranteed by the Company's
chief executive officer. The credit agreement calls for various ratios and net
worth requirements, minimum utilization requirements, and limits the warehouse
period to 45 days for any specific loan. The interest rate as of January 31,
2002, was 6.25% per annum calculated on the daily outstanding balance. The
adjustable interest rate is based upon a published prime rate plus 1.5% and is
payable monthly. The line of credit is collateralized by the loans held for sale
as referenced above.
NOTE 5 GLOBAL SETTLEMENT
As part of the acquisition of AMRES, Anza was obligated to file and prosecute
until completion a registration statement with the Securities and Exchange
Commission for the purpose of registering 7,500,000 shares of e-Net common stock
issued to EMB. Additionally, Anza was obligated to pay the sum of $4,000,000
under the terms of a promissory note issued to EMB, of which $1,215,856,
including interest, was outstanding at the settlement date.
In an unrelated transaction, Williams de Broe loaned the sum of $700,000 to
EMB, which remained unpaid at the time of the Global Settlement. In connection
with a revision of the agreement between EMB and Williams de Broe ("WdB"), the
then-chairman of Anza executed a document on behalf of Anza in favor of WdB,
which WdB believed acted as a guarantee of EMB's obligation. Anza disputed this
assertion.
In order to settle the outstanding disputes among all the parties, on June
26, 2001, Anza entered into a settlement agreement with EMB Corporation, AMRES
Holding LLC, Vincent Rinehart, and Williams de Broe (the "Global Settlement").
As part of the Global Settlement:
(i) Anza issued to EMB 1,500,000 shares of restricted common stock as
consideration for EMB's waiver of its registration rights for 7,500,000 shares
of Anza common stock already held by EMB. The shares were valued at $0.14 per
share based on a 10% discount from the closing price on the date of the
agreement. The Company will record a settlement expense of $229,500 with regard
to this issuance. Anza issued to EMB a promissory note in the principal amount
of $103,404, which represents the reduced amount due to EMB by Anza under a
promissory note previously issued in connection with the AMRES acquisition,
after giving effect to a principal reduction offset for amounts owed by EMB to
WdB, but which were satisfied by Anza and a note issued by Anza to AMRES
Holdings, LLC to settle an acquisition obligation of EMB (see below). The note
bears interest at the rate of 10% per annum and is convertible into common stock
of Anza. See Note 10 for further discussions of this note.
11
(ii) Anza issued to Williams de Broe ("WdB") 3,000,000 shares of
restricted common stock valued at $459,000 as consideration for WdB's release of
all claims against Anza arising under the purported guarantee of EMB's
obligation to WdB by Anza. The parties agreed that the amount be credited as
additional consideration to apply to the EMB notes payable.
(iii) EMB acknowledges its obligations to pay all outstanding leases
covering equipment and/or furniture now in the possession of Anza as
contemplated by the agreement.
(iv) EMB assigned its rights of a portion of Anza's note payable
totaling $485,446 to AMRES Holdings LLC, owned by Vincent Rinehart. The note
bears interest at 10% per annum. This note is convertible into shares of common
stock based on 80% of the closing stock price on the date of the conversion.
The Company assigned a value of approximately $54,000 to the beneficial
conversion feature imbedded in this note. The entire principal balance,
together with accrued interest, shall be due and payable, in full, on December
15, 2002.
(v) EMB forgave principal and interest totaling $168,006. The balance
of $103,404 convertible notes was issued, bearing interest at 10% per annum.
The note had a mandatory conversion into the Company's common stock on December
15, 2001, which was cancelled (see Note 10).
The following reflects the reduction of the note payable to EMB as follows:
Note payable $1,055,000
Accrued interest 160,856
-------------
Total due EMB prior to settlement 1,215,856
Less:
Value of 3,000,000 shares to WdB (459,000)
Payable to AMRES Holdings, LLC (485,446)
Debt and interest relief (168,006)
-------------
Balance due EMB after settlement $ 103,404
=========
The following reflects the non-recurring charge to operations associated with
the Global Settlement:
Value of 1,500,000 shares to EMB $ 229,500
Debt and interest relief (168,006)
-----------
Total non-recurring loss $ 61,494
=========
12
NOTE 6 BRIDGE FINANCING
On June 27, 2001, the Company entered into an Investment Agreement and
related documents with Laguna Pacific Partners, LLP. Under the terms of the
agreements, in exchange for $225,000 received by the Company from Laguna
Pacific, the Company
(i) executed a promissory note in favor of Laguna Pacific in the
principal sum of $225,000, bearing interest at the rate of 7% per annum, secured
by all of the assets of the Company, and payable on the earlier of nine months
from its issuance date or the date the Company's common stock is listed on the
NASDAQ Small Cap market. The purpose of this bridge financing was to finance the
proposed start-up of Anza Properties and to provide working capital to the
Company, and
(ii) executed a warrant agreement which entitled Laguna Pacific to
acquire up to $225,000 worth of e-Net common stock for the total purchase price
of $1.00, calculated at 70% of the closing stock price on the date immediately
preceding the exercise date. The issuance of the warrant was negotiated between
Laguna Pacific and Anza. The Company is required to allocate the proceeds
received to the value the warrant and the bridge loan using the relative fair
value method and resulting warrant value is reflected as an increase in
additional paid-in capital and a corresponding reduction (discount) to the face
value of the note. Management established the fair value based on $225,000 in
common stock, divided by the discount to market of 30% which the holder of the
warrants receive when purchasing the shares of common stock for a computed value
of $321,428. The relative value of the warrant amounted to $132,345, and such
amount is reflected as a discount to the note. The discount on the note will be
amortized over the term of the note (March 27, 2002) using the effective
interest method.
Other than as set forth above, there is no affiliation between the Company
and Laguna Pacific or any of their respective officers or directors; however,
Mr. Ehrlich was the general partner of Laguna Pacific.
13
FORMATION OF ANZA PROPERTIES, INC.
Also on June 27, 2001, in transactions related to the agreements with
Laguna Pacific, the Company formed a wholly-owned subsidiary, Anza Properties,
Inc., a Nevada corporation ("Anza Properties") capitalized with $75,000 from the
proceeds of the bridge loan. The Company:
(i) executed a bond term sheet with Anza outlining the proposed terms of
an offering to raise up to $5,000,000. The purpose of this offering was to
obtain capital on behalf of Anza Properties to acquire income producing real
estate. The offer was terminated in March 2002.
(ii) entered into an employment agreement with Thomas Ehrlich. In
March 2002, Thomas Ehrlich died and management has no intention to replace him.
The employment agreement provided for a salary of $20,000 per month and options
to acquire up to 2,000,000 shares of Anza common stock at the closing price on
the date of the Option Agreement, vesting equally over the 12 months following
the date of the Employment Agreement, and exercisable only in the event Anza
Properties was successful in raising a minimum of $2,000,000 in a contemplated
$5,000,000 bond offering. The options were effectively cancelled. No
compensation expense was recorded since the contingency was not met.
14
(iii) entered into a Consulting Agreement with Lawrenc e W. Horwitz
to provide legal services to Anza. The Consulting Agreement provides for
compensation of $20,000 to be paid on its date of execution, and $5,000 per
month for eight months beginning September 1, 2001, guaranteed by Anza. In
addition, Anza executed a Stock Option Agreement which entitled Horwitz to
acquire up to 1,000,000 shares of Anza common stock on terms identical to those
of Ehrlich, described above. The options are subject to an anti-dilution
provision in the event of future issuances of common stock or a reverse stock
split. The holder in no event can the option holder own more than 5% of the
issued and outstanding common stock in the event of a reverse stock split. The
Company will assess the value of these options when the contingencies are
removed in accordance with SFAS No. 123.
(iv) entered into an Operating Agreement with Anza concerning the
operations of Anza Properties, Inc. The Operating Agreement specifies in
material part that Vince Rinehart will be the President of Anza Properties, that
Mr. Rinehart and Mr. Ehrlich will be the directors, that the signatures of both
Mr. Rinehart and Mr. Ehrlich will be required on all checking accounts, and that
the assets of Anza Properties cannot be encumbered without the express written
consent of Mr. Rinehart and Mr. Ehrlich.
The purpose of Anza Properties was primarily to improve the net worth of
e-Net by acquiring income producing real estate. Due to the death of Mr. Thomas
Ehrlich in March 2002, all operational and fundraising efforts associated with
Anza Properties have been permanently discontinued.
NOTE 7. STOCKHOLDERS' EQUITY (DEFICIT)
From time to time, the Company's board of directors authorizes the issuance of
common stock. The Company values shares of common stock based on the closing
price of the securities on the date the directors approve such issuance. In the
event the Company issues common stock subject to transferability restrictions
under Rule 144 of the Exchange Act of 1933, the Company discounts the closing
prices by 10% to value its common stock transactions.
SERIES C CONVERTIBLE PREFERRED STOCK
On June 14, 2001, Class C Preferred stockholders exercised their option and
converted 1,616 shares of Class C Preferred stock into 3,741,671 of the
Company's restricted common stock. On July 13, 2001, an additional 400 shares
of the Class C were converted at the option of the shareholders into 924,992
shares of the Company's restricted common stock. Also, on November 15, 2001, an
additional 525 shares of Class were converted at the option of the shareholders
into 1,012,854 shares of the Company's restricted common stock. The number of
shares received upon conversion was determined based on the conversion discount
specified in the agreement of 20%, taking into account the dividends, which were
due on the Class C Preferred shares. The beneficial conversion feature embedded
in the Class C Preferred was originally charged to the Company's accumulated
deficit at the date of issuance since the right to convert into common stock at
a discount was the same date. Preferred dividends totaling $27,341 were charged
to the Company's accumulated deficit during the nine months ended January 31,
2002.
SERIES A CONVERTIBLE PREFERRED STOCK
In November 2001 and January 2002, the Company issued an aggregate of 400,000
shares of Series A Convertible Preferred Stock, (the "A Preferred") in a private
placement for consideration equal to $163,874 in cash. The A Preferred has a
liquidation value of $200,000 and the holder is entitled to receive cumulative
dividends at an annual rate of 12%, payable monthly. The A Preferred is
convertible, at any time at the option of the holder, into shares of the
Company's common stock at a price equal to 90% of the closing bid price of the
Company's common stock in the previous trading day preceding the conversion. In
connection with this issuance, the Company recorded a charge of $36,126 to
accumulated deficit for the difference between the consideration received and
the liquidation value. See Note 12 for additional Series A Convertible
Preferred Stock issuances subsequent to January 31, 2002.
15
COMMON STOCK
In June of 2001, the Company issued 400,000 shares of its restricted common
stock both as payment of a $14,482 liability due an outside consultant and as a
"buy-out" of the remaining guaranteed contract for this consultant who was
providing legal services to the Company. In connection with this transaction,
the Company charged operations $43,118 for the difference between the carrying
value of the liability and the value of the common stock.
On July 2, 2001, the Company issued 325,000 shares of its restricted common
stock valued at $55,575 as a partial satisfaction of a loan payable due an
unrelated party. The original amount of the loan, including interest payable
was $150,000. The Company continues to repay the note in monthly of payments
together with interest at 0% per annum of $4,320 through May 2, 2002. As of
January 31, 2002, $30,040 remained due on the loan.
At various dates from May 1, 2001 through January 31, 2002, the Company issued
3,750,000 shares of common stock, valued at $558,050 to various consultants
which are included in general and administrative expenses in the accompanying
statements of operations. Consulting services performed during the three and
nine months ended January 31, 2002, are summarized below:
Period Ending January 31, 2002
--------------------------------------------------------------
Three Months Nine Months
--------------------------------------------------------------
Costs Shares Costs Shares
--------------------------------------------------------------
Incurred Issued Incurred Issued
Financial and Internal Accounting Services $ 3,500 25,000 $ 79,250 475,000
Mergers Acquisitions Consulting. . . . . . 8,100 100,000 250,100 1,675,000
Bravorealty Start-up Costs . . . . . . . . 12,500 100,000 173,500 1,200,000
Information Technology Consulting. . . . . - - 14,000 100,000
Legal Services . . . . . . . . . . . . . . 2,750 25,000 41,200 300,000
--------------------------------------------------------------
Total. . . . . . . . . . . . . . . . . . . $ 26,850 250,000 $ 558,050 3,750,000
========== ========== =========== =========
Refer to Notes 5 and 6 for discussion of transactions affecting stockholders'
equity (deficit).
16
NOTE 8 EMPLOYMENT AGREEMENT
On June 1, 2001, the Company entered into an Employment Agreement with Vincent
Rinehart. Under the terms of the agreement, the Company is to pay to Mr.
Rinehart a salary equal to $275,000 per year, subject to an annual increase of
10% commencing January 1, 2002, plus an automobile allowance of $1,200 per month
and other benefits, including life insurance. The agreement is for a term of
five years and provides for a severance payment in the amount of $500,000 and
immediate vesting of all stock options in the event his employment is terminated
for any reason, including cause. Mr. Rinehart was granted options to acquire
2,500,000 shares of e-Net common stock at per share, which shall vest monthly
over a three- year period. The options are subject to an anti-dilution
provision in the event of future issuances of common stock or a reverse stock
split. The holder in no event can own more than 20% of the issued and
outstanding common stock in the event of a reverse stock split. The options are
exercisable at the fair market value at the date of the grant of $0.08 per
share. Using the variable method in accordance with Accounting Principles Board
Opinion No. 25, no expense was recognized from the issuance of the options.
NOTE 9 INVESTMENT BANKING AGREEMENT
On May 27, 1999, the Company entered into an agreement with an investment banker
to seek debt financing through public or private offerings or debt or equity
securities and in seeking merger and acquisition candidates. Per the agreement,
the Company granted the investment banker options to purchase 200,000 shares of
the Company's common stock at an exercise price of $0.13, expiring on May 31,
2001. Additionally, the Company was required to pay $60,000 for the initial
twelve months. In addition, the agreement specified that the investment banker
will receive a percentage of consideration received in a merger, acquisition,
joint venture, debt or lease placement and similar transactions through May 31,
2001. The Company valued these options using the Black Scholes model at $3.14
per share for total consulting expenses of $627,200 and amortized such an
expense over the course of the contract. As of July 31, 2001, entire value of
this contract had been amortized. In April 2000, the parties agreed to amend the
agreement to eliminate the fee based on a percentage of the consideration of a
transaction, and to grant the investment banker 200,000 shares of the Common
Stock and to cancel the options to purchase 200,000 shares. On August 7, 2001,
the Company agreed to settle a dispute over the terms of the amendment by
canceling the 200,000 shares in exchange for 1,500,000 of the Company's
restricted common stock. The Company valued the additional 1,300,000 shares at
$0.17 each and charged operations a total of $221,000 for non-recurring loss on
settlement.
NOTE 10 EXTRAORDINARY ITEM
SFAS No. 4 "Reporting Gains and Losses from Extinguishment of Debt", specifies
that material debt extinguishment gains and losses be classified as
extraordinary items. During the nine months ended January 31, 2002, the Company
had capital lease obligations in default totaling $91,985 that were settled
for $35,800. The remaining balance was recognized as an extraordinary
gain of $56,185. The Company used cash from operations to satisfy these
settlements.
On January 17, 2002, AMRES purchased a note payable by the Company in the amount
of $103,404 and accrued interest totaling $6,291 for consideration of $40,000,
of which $25,000 was tendered to EMB with the balance of $15,000 due on June 1,
2002. In the consolidation the note payable is eliminated and the Company
recognizes extraordinary income of $69,695 from forgiveness of debt. The
Company used cash from operations to satisfy these settlements.
17
NOTE 11 EARNINGS PER SHARE
Anti-dilutive securities which are not included in the calculation of dilutive
earnings per share for the three and nine months ended January 31, 2002, which
could be dilutive in future periods include the C-preferred convertible into
approximately 24,195,000 shares of common stock, A-preferred convertible into
approximately 2,699,000 shares of common stock, note payable to related party
convertible into approximately 4,018,000 shares of common stock. Also excluded
from the calculation of dilutive earnings per share were warrants to purchase
1,040,241 shares of common stock that range between $0.08 and $6.73 in exercise
price which exceeded the Company's stock price on January 31, 2002.
NOTE 12 SUBSEQUENT EVENTS
On March 1, 2002, the Company issued 100,000 shares of A Preferred for $50,000
in a private placement. The A Preferred has a liquidation value of $50,000 and
the holder is entitled to receive cumulative dividends at an annual rate of 12%,
payable monthly. The A Preferred is convertible, at any time at the option of
the holder, into shares of the Company's common stock at a price equal to 90% of
the closing bid price of the Company's common stock in the previous trading day
preceding the conversion.
On March 1, 2002, the board of directors approved the issuance of 1,800,000
shares of the Company's registered common stock under an S-8 registration
statement to various consultants for various services. The Company will charge
operations a total of $90,000 in connection with this issuance during the fourth
quarter of fiscal 2002.
18
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION OVERVIEW
The Company is an independent financial services company, whose primary
source of revenue is American Residential Funding "AMRES", a wholly owned
subsidiary. AMRES offers loan originators a "net-branch" opportunity, in which
AMRES provides licensing, accounting and lender approvals in over 40 states.
They maintain a web site, www.amres.net, which contains detailed information on
-------------
AMRES, as well as provides Net Branches with various corporate services.
Currently over 300 net-branches nationwide are operating, in addition to four
Corporate owned branches in 4 counties in Southern California. Further rapid
growth is anticipated, both from commissioned and corporate marketing staff.
Loan processing, mortgage banking and acquisitions will provide additional
revenues sources.
The Company has seen improvement in other subsidiaries as well.
Expidoc.com averaged, during the three months ending January 31, 2002, 275
loan document signings a month through their network of notaries in all 50
states. Expidoc was profitable for the first time during the quarter ended
January 31, 2002. By adding staff, and implementing a new marketing initiative,
Expidoc should continue to improve its operations and maintain near term
profitability. Business is expected to increase over the 4th quarter as
Expidoc.com has become a preferred signer for Ditech.com and with increased
confidence the number of orders continue to increase monthly.
BravoRealty (69% owned subsidiary) has established joint venture branches
in four locations. In addition, BravoRealty has initiated a net branch of AMRES
inside Bravo, and has experienced an increase in revenues from home loans
brokered. Bravorealty has established the documentation, licensing, marketing
materials and operations to sell "Bravo Real Estate Network" franchises. Former
officers of Century 21 have been acting as advisors to Bravorealty. The final
franchise offering circular has been reviewed by management with the prospect of
filing the document with the state during the 4th quarter of this fiscal year.
Management expects the franchise concept will develop an additional 5 outlets
within the next 2 quarters. Due to these start-up costs, BravoRealty had
incurred an operating loss for the current quarter.
Titus Real Estate, LLC, operates as the manager of Titus REIT, a real
estate investment trust. Current shareholders of the REIT have requested the
selling of assets in order to return their original investment. To date, six of
ten properties have been sold, and the final two properties are on the market to
be sold. It is the intent of the management of the Company to repay its initial
investors, operate the REIT at minimal levels, and raise new capital for Titus
REIT when the market permits, although no estimate can be made as to when that
might be. The Company believes the long term benefits of a REIT compliment the
Company's business plan. Titus Real Estate, LLC, has incurred small operating
losses during the current quarter.
Results of Operations
For the three and nine month periods ended January 31, 2002, the Company
reported a net gain of $15,768 and a net loss of ($581,979) respectively. For
both periods, the Company had significant non-cash expenses relating to stock
issued to consultants and amortization of warrants issued as part of the bridge
loan financing. In addition, the tragedy of Sept. 11 virtually stopped loan
production for a week, significantly reducing income for that period. As these
costs are expected to reduce in future periods, the Company remains positive
about its ability to obtain profitability in the near future.
19
Three Months Ended January 31, 2002 Compared To The Three Months Ended January
31, 2001
REVENUES
Revenues increased to $6,644,696 for the three months ended January 31,
2002, compared to $2,553,804 for the three months ended January 31, 2001. The
growth in revenues is primarily attributable to the expansion and growth of
AMRES through the brokering of loans. AMRES accounted for greater than 96% of
consolidated revenues for both periods. AMRES, as did most of the mortgage
industry, benefited greatly from the decline in interest rates over the last
several months. Typically, as interest rates fall, the refinance market heats
up expanding the market of interested borrowers beyond those borrowing for the
purchase of their primary residence. AMRES benefited from this market upturn, as
they had the capacity in terms of people and infrastructure to accommodate the
additional business.
More significantly, the growth of the net branch program at AMRES was the
major contributor to the growth in revenue. AMRES' net branch program comprised
approximately 300 branches as of January 31, 2002, compared to less than 80
branches as of January 31, 2001. As the added support and sales staff takes
effect, the Net Branch program is expected to continue to be a primary growth
vehicle for the Company in the future. In addition, the mortgage banking
division of AMRES is expected to continue its expansion over the next several
months, including applying to FannieMae as a seller/servicer.
Revenues for Expidoc increased substantially to $83,065 for the three
months ended January 31, 2002 compared to $9,077 for the three months ended
January 31, 2001. The increase is primarily a result of Expidoc refocusing its
market strategy to secure higher volume customers as compared to many low-volume
customers. This change in focus is evidenced by the addition of such customers
as Ditech.com.
BravoRealty became operational in January 2001. For the three months ended
January 31 2002, total revenues amounted to $56,922. These revenues were
generated based on approximately 18 closed real estate purchase transactions
during the quarter. Management believes that Bravorealty will be a significant
growth vehicle for the Company over the next 12 months, as evidenced by the
steady increase in the number of real estate sales' listings and closed
transactions generated by Bravorealty so far this fiscal year. With the
continued growth pattern and the addition of 4 corporate real estate offices and
12 additional sales staff, the prospect for profitability within the next 2
quarters is obtainable.
Revenues from Titus were not material for the periods presented.
Gross Profit
Commissions are paid to loan agents on funded loans. Commissions increased
by $1,295,170 or 58%, for the three months ended January 31, 2002, to $3,527,541
from $2,232,371 for the three months ended January 31, 2001. This increase is
primarily related to the increased revenues discussed above. As a percentage of
revenue, the cost of revenue decreased by 34%, to 53% compared to 87% for the
three months ended January 31, 2002 and the three months ended January 31, 2001,
respectively. This decrease is attributable to the Company leveraging its
increased revenues as the Company earns a higher commission split (compared to
the loan agent) once certain revenue targets are reached. Gross profit
increased by $3,085,012 or 960% for the three months ended January 31, 2002, to
$3,117,155 from $321,433 for the three months ended January 31, 2001.
20
General and Administrative Expenses
General and administrative expenses totaled $3,027,027 for the three months
ended January 31, 2002, compared to $964,225 for the three months ended
January 31, 2001. This increase of $2,062,802 can be primarily attributed to
the business growth of the operating subsidiaries, namely AMRES, as additional
personnel, office space and other administrative costs are required to handle
the expansion. Effective in the first quarter of fiscal 2001, the Company had
implemented significant cost reductions to reduce its administrative expenses at
its corporate offices.
The Company has elected early adoption of Statement 142 and as such, has
not recorded any goodwill amortization for the three months ended January 31,
2002. Goodwill amortization relating to the Company's acquisitions of Expidoc,
Titus, and LoanNet amounted to approximately $65,000 for the three months ended
January 31, 2001.
Consulting Expenses
To date, the Company has funded a portion of its operating costs through
the use of its common stock paid to outside consultants. During the three
months ended January 31, 2002, costs paid in the form of common stock to outside
consultants totaled approximately $76,850, representing 250,000 shares of common
stock. For the three months ended January 31, 2001, costs paid in the form of
common stock issued to outside consultants totaled $538,823. The stock issued in
connection with BravoRealty was reported as deferred compensation and $56,000
was expensed during the three months ended January 31, 2002. Management expects
a reduction in the use of stock for this purpose in the future.
Interest Expense
Interest expense was $72,851 for the three months ending January 31, 2002,
compared to $38,073 for the three months ended January 31, 2001. This increase
is primarily related to the amortization of three month's interest expense in
the amount of approximately $48,000 related to options issued as part of the
bridge loan financing with Laguna Pacific Partners, LLP.
Extraordinary Item
On January 17, 2002, American Residential Funding, a subsidiary ("AMRES")
purchased a note payable by the Company to a related party in the amount of
$103,404 and accrued interest totaling $6,291 for consideration of $40,000 of
which $25,000 was tendered. In the consolidation the note payable is eliminated
and the Company recognizes extraordinary income of $69,695 from forgiveness of
debt. The Company used cash from operations to satisfy these settlements.
Net Income (Loss)
The Company's net income for the three months ending January 31, 2002 was
$15,768, or $- per share compared to a net loss of $3,034,228, or $(0.14) per
share for the three months ended January 31, 2001. The Company believes that
with its continued growth in revenues and its ability to leverage its fixed
costs against those revenues, it will be able to achieve profitability in future
quarters.
21
Nine Months Ended January 31, 2002 Compared To The Nine Months Ended January 31,
2001
REVENUES
Revenues increased by $10,513,502, or 139%, to $18,050,248 for the nine
months ended January 31, 2002, compared to $7,536,746 for the nine months ended
January 31, 2001. This increase is again the result of the growth and expansion
of AMRES, primarily the Net Branch program.
Revenues for Expidoc increased substantially to $255,992 for the nine
months ended January 31, 2002 compared to $42,727 for the nine months ended
January 31, 2001. The increase in volume is a result of Expidoc adding such
names as Ditech.com to their customer list.
BravoRealty became operational in January 2001. For the nine months ended
January 31 2002, total revenues amounted to $219,070. These revenues were
generated based on approximately 18 closed real estate purchase transactions
during the period. Management believes that BravoRealty will be a significant
growth vehicle for the Company over the next 12 months, as evidenced by the
steady increase in the number of real estate sales' listings and closed
transactions generated by BravoRealty so far this fiscal year. With the
continued growth pattern and the addition of 4 corporate realestate offices and
12 additional sales staff, the prospect for profitability within the next 2
quarters is obtainable.
Revenues from Titus were not material for the periods presented.
Gross Profit
Commissions are paid to loan agents on funded loans. Commissions increased
by $4,861,720 or 87%, for the nine months ended January 31, 2002, to $10,458,042
from $5,596,322 for the nine months ended January 31, 2001. The primary reason
for the increase in commissions is the increase in revenue as discussed above.
Proportionally, total commissions as a percentage of revenue decrease as
revenues increase due to the Company earning a higher commission split (compared
to the loan agent) once certain revenue targets are meet. Gross profit
increased by $5,651,782 or 291% for the nine months ended January 31, 2002, to
$7,592,206 from $1,940,424 for the nine months ended January 31, 2001.
General and Administrative Expenses
General and administrative expenses totaled $7,349,788 for the nine months
ended January 31, 2002, compared to $3,141,204 for the nine months ended January
31, 2001. The increase in general and administrative expense is a result of the
continued rapid growth and expansion of the operating subsidiaries. The Company
does expect that general and administrative costs will begin to level out,
compared to the growth in revenue, as the company continues to leverage its
fixed costs.
The Company has elected early adoption of Statement 142 and as such, has
not recorded any goodwill amortization for the nine months ended January 31,
2002. Goodwill amortization relating to the Company's acquisitions of Expidoc,
Titus, and LoanNet amounted to approximately $476,000 for the nine months ended
January 31, 2001.
22
Consulting Expenses
To date, the Company has funded a portion of its operating costs through
the use of its common stock paid to outside consultants. During the nine months
ended January 31, 2002, costs paid in the form of common stock to outside
consultants totaled approximately $604,000 representing 4,071,000 shares of
common stock. For the nine months ended January 31, 2001, costs paid in the
form of common stock issued to outside consultants totaled $1,469,543. The
stock issued in connection with Bravorealty was reported as deferred
compensation and $162,000 was expensed during the nine months ended January 31,
2002
Interest Expense
Interest expense was $99,522 for the nine months ending January 31, 2002,
compared to $146,821 for the nine months ended January 31, 2001. This increase
is primarily related to the amortization of seven month's interest expense in
the amount of $94,000 related to options issued as part of the bridge loan
financing with Laguna Pacific Partners, LLP.
Net Losses
The Company's net losses for the nine months ending January 31, 2002 and
2001 were $581,979, and $4,543,282, or $0.02 and $0.22 per share respectively.
During the most recent nine-month period, the non-cash expense component of the
Company's net loss was significant. For the nine months ending January 31,
2002, non-cash expense relating to common stock issued to consultants, for
interest and for non-recurring settlements amounted to $604,000, $116,875 and
$282,494, respectively. The Company believes that with its continued growth in
revenues and its ability to leverage its fixed costs against those revenues, it
will be able to reduce its net losses in the future, and possibly achieve
profitability.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Net cash used in operating activities was $776,520 and $399,685 for the
nine months ending January 31, 2002 and 2001, respectively. Net loss decreased
significantly between the periods to $581,979 for the period ending January 31,
2002, compared to a net loss of $4,543,282 for the period ending January 31,
2001. Non-cash expenses relating to the issuance of stock for services,
depreciation and amortization and amortization of debt discounts totaled
$1,027,526 and $3,690,368 for the nine months ended January 31, 2002 and 2001,
respectively.
Net cash from investing activities was $(11,650) and $23,244 for the nine
months- ended January 31, 2002and 2000, respectively. There were no individually
significant sources or uses of funds from investing activities for either period
presented.
Net cash provided by financing activities was $1,328,939 and $613,263 for
the periods ending January 31, 2002 and January 31, 2001 respectively. Cash
provided by financing for the period ended January 31, 2001 relates primarily to
net proceeds received from private placements of the Company's stock, reduced by
payments made on the Company's note payable to EMB corporation related to the
acquisition of AMRES. Cash provided by financing for the period ended January
31, 2002 relates primarily to advances on the Company's warehouse line of credit
in the amount of $1,135,145 associated with its mortgage banking operations and
to the proceeds from the issuance of the bridge loan. The warehouse line of
credit is secured by first and second trust deed mortgages.
23
The Company generated cash flows from a bridge financing in the amount of
$225,000. The Company was required to issue warrants to purchase 225,000 shares
of common stock for $1.00, the exercise price of which is based on a 30%
discount from the closing bid price on the date of exercise. The total value of
the warrants amounted to $132,345 based on the relative fair value of the
warrants to the proceeds from the financing. The value is treated as a discount
to the carrying value the debt which is being amortized over the nine-month term
of the note using the effective interest method. In March 2002, due to the
death of Thomas Ehrlich, Anza Capital, Inc. has abandoned its plans to raise
capital for Anza Properties. The Company plans to repay the note from proceeds
generated by the sale of its common and/or preferred stock in private
placements. In the event the capital from the sale of securities is not
received, management intends to repay the note from cash on hand, or cash flows
generated from operations, if any.
The Company significantly improved their financial position upon completing
a "Global Settlement" June 26, 2001. The Company substantially increased its net
worth and reduced its liability to EMB from $1,215,856 to $103,404, after
issuing a convertible note to AMRES Holding LLC and issuing 4.5 million shares
of its common stock. The original obligation to EMB further required the Company
to pursue an S-1 registration that had become very time consuming of management,
and costly in terms of cash, which has now been withdrawn.
The Company is current in servicing its obligations as they become due.
From time to time, the Company used its common stock to provide compensation for
outside services that were required. It is the belief of management, that
beginning the first quarter 2003, little or no common stock will be issued for
services.
The Company's stockholders equity increased from a deficit of ($69,925) to
an equity of $184,000 primarily due to the issuance of common stock in relief of
debt.
Management is pleased with the current direction and financial improvement
of the Company. The operating subsidiaries are expanding in tough economic
times. AMRES and Expidoc.com are currently profitable. BravoRealty is performing
as projected, requiring budgeted initial investment in capital prior to ramping
up to full operations, including anticipated selling of franchises. And Titus,
with a small loss, is poised for a round of new investors when the markets
permit. The cash flow of the Company has markedly improved, with cash on hand
ending January 31, 2002 of $633,655 versus $522,405 the year earlier. Short-term
debt is manageable. A $43,000 note is being paid off in monthly payments through
May of 2002, with approximately $27,000 unpaid as of January 31, 2002. The
$225,000 note due Bridgeloan is to be paid from the sale of Company stock or can
be paid with cash on hand. The Company paid $125,000 towards the convertible
note due our Chief Executive with an original balance of $485,446, due in
December 2002. The remaining balance of $360,446 of the note with a carrying
balance of $322,605, net of discounts, will convert into common stock, or extend
the maturity date, at holder's option, if paying in cash proves too difficult
for the Company. The $103,404 convertible note due in December 2002 was
purchased by AMRES for consideration at $40,000 of which $25,000 was tendered
during the third quarter. And, the $1,745,900 in convertible preferred is
expected to convert to common stock. Significant debt has been eliminated, and
no current obligations are delinquent. It is our opinion, baring some
significant adverse change in our business, that the Company should continue to
grow rapidly and continue to increase its profitability.
24
Our Interim financial statements have been prepared assuming the Company
will continue as a going concern. Because the Company has incurred significant
losses from operations and current liabilities exceed current assets by
approximately $338,179, it may require financing to meet its cash requirements.
Our auditors included an explanatory paragraph in their annual report raising
substantial doubt about its ability to continue as a going concern. However,
during the nine months ended January 31, 2002, the Company executed relief from
certain obligations by settlement of its creditors. Cash requirements depend on
several factors, including but not limited to, the pace at which all
subsidiaries continue to grow, become self supporting, and begin to generate
positive cash flow, as well as the ability to obtain additional services for
common stock or other non-cash consideration.
If capital requirements vary materially from those currently planned, the
Company may require additional financing sooner than anticipated. At present,
there are no firm commitments for any additional financing, and there can be no
assurance that any such commitment can be obtained on favorable terms, if at
all. Management has implemented several reductions of costs and expenses to
reduce its operating losses. Management plans to continue its growth plans to
generate revenues sufficient to meet its cost structure. Management believes
that these actions will afford the Company the ability to fund its daily
operations and service its remaining debt obligations primarily through the cash
generated by operations; however, there are no assurance that management's plans
will be successful. No adjustments have been made to the carrying value of
assets or liabilities as a result of these uncertainties.
Except for historical information, the materials contained in this
Management's Discussion and Analysis are forward-looking (within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934) and involve a number of risks and uncertainties. These
include the Company's historical losses, the need to manage its growth, general
economic downturns, intense competition in the financial services and mortgage
banking industries, seasonality of quarterly results, and other risks detailed
from time to time in the Company's filings with the Securities and Exchange
Commission. Although forward-looking statements in this Quarterly Report
reflect the good faith judgment of management, such statements can only be based
on facts and factors currently known by the Company. Consequently,
forward-looking statements are inherently subject to risks and uncertainties,
actual results and outcomes may differ materially from the results and outcomes
discussed in the forward-looking statements. Readers are urged to carefully
review and consider the various disclosures made by the Company in this
Quarterly Report, as an attempt to advise interested parties of the risks and
factors that may affect the Company's business, financial condition, and results
of operations and prospects.
25
PART II
ITEM 1 LEGAL PROCEEDINGS
In the ordinary course of business, the Company is from time to time
involved in various pending or threatened legal actions. The litigation process
is inherently uncertain and it is possible that the resolution of such matters
might have a material adverse effect upon the financial condition and/or results
of operations of the Company. However, in the opinion of the Company's
management, matters currently pending or threatened against the Company are not
expected to have a material adverse effect on the financial position or results
of operations of the Company.
ITEM 2 CHANGES IN SECURITIES
In November 2001, the Company issued 244,000 shares of Series A Convertible
Preferred Stock to an accredited investor in exchange for consideration equal to
$80,500 in cash and forgiveness of debt in the amount of $41,500. In January
2002, the Company issued 156,000 shares of Series A Convertible Preferred Stock
to the same investor in exchange for consideration equal to $83,374. The
issuances were exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933.
In January 2002, the Company issued an aggregate of 1,012,854 shares of
common stock to a preferred stockholder upon conversion of 525 shares of Series
C Convertible Preferred Stock. The issuance was exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933. The common stock was
restricted in accordance with Rule 144 promulgated under the Act.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of stockholders on December 6, 2001.
Proxies were not solicited from the shareholders.
Two individuals were elected to the Company's Board of Directors, namely
Vincent Rinehart and Scott A. Presta, both of which were Directors of the
Company prior to the meeting. The results of the voting were as follows:
Director Votes For Votes Against Votes Withheld
-------- ---------- -------------- ---------------
Vincent Rinehart 22,200,000 -0- -0-
Scott A. Presta 22,200,000 -0- -0-
The other matters on which the shareholders voted, and the results of
voting, were:
(i) to amend the Articles Of Incorporation of the Company to change the
name of the Company to Anza Capital, Inc., a Nevada Corporation.
Votes For Votes Against Votes Withheld
22,200,000 -0- -0-
(ii) to ratify the appointment of McKennon Wilson & Morgan LLP,
Certified Public Accountants, as independent auditors for the fiscal year ending
April 30, 2002.
Votes For Votes Against Votes Withheld
22,200,000 -0- -0-
(iii) to ratify certain executive compensation awards, a Global
Settlement, and bridge financing transactions.
Votes For Votes Against Votes Withheld
22,200,000 -0- -0-
(iv) to ratify the Company's acquisition strategy.
Votes For Votes Against Votes Withheld
22,200,000 -0- -0-
ITEM 5 OTHER INFORMATION
Company Name Change
---------------------
Effective on the open of business January 2, 2002, the Company changed its
name from e-Net Finnancial.com Corporation to Anza Capital, Inc. In conjunction
therewith, the Company's trading symbol for its common stock changed from "ENNT"
to "ANZA."
Status of Subsidiaries
------------------------
- American Residential Funding, Inc. ("AMRES") is the principal operating
mortgage subsidiary of the Company. AMRES operates primarily as a mortgage
banker and mortgage broker through an expansion of its existing company-owned
and branch operations. AMRES has relationships with over 300 agents in over 250
branches, and is licensed in over 40 states. AMRES was profitable for the first
time in the quarter ended January 31, 2002.
- Expidoc.com, Inc. ("Expidoc") is an Internet-based nationwide notary
service that specializes in providing mortgage brokers with a solution to assist
with the final step of the loan process: notarizing signatures of the loan
documents. Expidoc was profitable for the first time in the quarter ended
January 31, 2002.
- Brave Real Estate Network, Inc. ("BravoRealty") is an internet-based real
estate brokerage which was incorporated in May 2000 and began operations in
January 2001. The web-site is completed and fully operational, but this
subsidiary has generated only a limited amount of revenue to date.
- Titus Real Estate, Inc. ("Titus Real Estate") is the management company of
Titus REIT. Titus Real Estate, while currently operational, is not expected to
provide significant revenues for Anza. To date, six of ten properties have been
sold, and the final two properties are on the market to be sold. It is the
intent of the management of the Company to repay its initial investors, operate
the REIT at minimal levels, and raise new capital for Titus REIT when the market
permits, although no estimate can be made as to when that might be. The Company
believes the long term benefits of a REIT compliment the Company's business
plan. Titus Real Estate, LLC, has incurred small operating losses during the
current quarter.
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- Anza Properties, Inc. ("Anza Properties") was formed in June 2001 to
acquire income producing real estate. Due to the death of Mr. Thomas Ehrlich in
March 2002, all operational and fundraising efforts associated with Anza
Properties have been permanently discontinued.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
/s/ Vincent Rinehart
Dated: March 25, 2002 _____________________________
By: Vincent Rinehart
Its: President, Chairman,
Chief Executive Officer,
Chief Financial Officer,
Chief Accounting Officer,
and Director
/s/ Scott A. Presta
Dated: March 25, 2002 _____________________________
By: Scott A. Presta
Its: Director
28