AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 3,2002
FILE NO. 333-84178
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO.1
TO
FORM S-8
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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ANZA CAPITAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 84-1273503
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER ID NO.)
INCORPORATION OR ORGANIZATION)
3200 BRISTOL STREET, SUITE 700
COSTA MESA, CALIFORNIA 92626
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
----------------
2000 STOCK COMPENSATION PLAN
(FULL TITLE OF THE PLAN)
----------------
VINCENT RINEHART, PRESIDENT&CEO
ANZA CAPITAL, INC.
3200 BRISTOL STREET, SUITE 700
COSTA MESA, CALIFORNIA 92626
(NAME AND ADDRESS OF AGENT FOR SERVICE)
(714) 866-2100
(TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED
TITLE OF SECURITIES AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE
---------------------------------------------------------------------------------------------------
COMMON STOCK 1,800,000 $0.05(1) $50,000.00 $12.50(2)
TOTAL 1,800,000 $0.05(1) $50,000.00 $12.50(2)
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(1) ESTIMATED SOLELY FOR THE PURPOSE OF CALCULATING THE REGISTRATION FEE IN
ACCORDANCE WITH RULES 457(H) AND 457(C) UNDER THE SECURITIES ACT OF 1933, AS
AMENDED AND BASED UPON AN AVERAGE OF THE HIGH AND LOW PRICES REPORTED ON THE
NASDAQ OVER THE COUNTER BULLETIN BOARD ON MARCH 7, 2002.
(2) PREVIOUSLY PAID.
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1
EXPLANATORY NOTE
Anza Capital, Inc. ("Anza") has previously filed registration statements
in accordance with the requirements of Form S-8 under the Securities Act of
1933, as amended (the "1933 Act"), to register 7,000,000 shares of stock, $.001
par value, to be issued to certain selling shareholders that are employees or
consultants who have been issued shares of Anza's common stock pursuant to the
company's stock compensation plan. Those registration statements, as amended,
Commission File Nos. 333-51108, 333-54920, 333-57906, 333-62370, 333-68494 and
333-95407, are incorporated herein by reference.
Under cover of this Form S-8 is a Reoffer Prospectus that Anza has
prepared in accordance with Part I of Form S-3 under the 1933 Act. The Reoffer
Prospectus may be utilized for reofferings and resales of up to 1,800,000 shares
of common stock acquired by the selling shareholders.
2
REOFFER PROSPECTUS
ANZA CAPITAL, INC.
3200 BRISTOL STREET, SUITE 700
COSTA MESA, CALIFORNIA 92626
(714) 866-2100
1,800,000 SHARES OF COMMON STOCK
The shares of common stock, $.001 par value, of Anza Capital, Inc.
("Anza" or the "Company") offered hereby (the "Shares") will be sold from time
to time by the individuals listed under the Selling Shareholders section of this
document (the "Selling Shareholders"). The Selling Shareholders acquired the
Shares pursuant to the Company's 2000 Stock Compensation Program for employment
or consulting services that the Selling Shareholders provided to Anza.
The sales may occur in transactions on the Nasdaq over-the-counter
market at prevailing market prices or in negotiated transactions. Anza will not
receive proceeds from any of the sale of the Shares. Anza is paying for the
expenses incurred in registering the Shares.
The Shares are "restricted securities" under the Securities Act of 1933
(the "1933 Act") before their sale under the Reoffer Prospectus. The Reoffer
Prospectus has been prepared for the purpose of registering the Shares under the
1933 Act to allow for future sales by the Selling Shareholders to the public. To
the knowledge of the Company, the Selling Shareholders have no arrangement with
any brokerage firm for the sale of the Shares. The Selling Shareholders may be
deemed to be an "underwriter" within the meaning of the 1933 Act. Any
commissions received by a broker or dealer in connection with resales of the
Shares may be deemed to be underwriting commissions or discounts under the 1933
Act.
Anza's common stock is currently traded on the Nasdaq Over-the-Counter
Bulletin Board under the symbol "ANZA.OB" The common stock is also listed on the
Berlin Stock Exchange under the symbol "ANZA.DE."
-------------------------
This investment involves a high degree of risk. Please see "Risk
Factors" beginning on page 12. Certain statements contained in this Prospectus,
including, without limitation, statements containing the words "believes,"
"anticipates," "estimates," "expects," and words of similar import, constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements relate to our future plans,
objectives, expectations and intentions. In evaluating these statements, you
should consider the various factors identified in "Risk Factors" section
contained herein, which identify important considerations that could cause
actual results to differ materially from those contained in the forward-looking
statements. Such forward-looking statements speak only as of the date the
statement is made, and the forward-looking information and statements should not
be regarded as a representation by the Company or any other person that the
objectives and plans of the Company will be achieved.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED WHETHER
THIS REOFFER PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
3
TABLE OF CONTENTS
Description Page No.
----------- --------
Where You Can Find More Information 4
Incorporated Documents 4
The Company 5
Risk Factors 13
Use of Proceeds 21
Selling Shareholders 22
Plan of Distribution 22
Legal Matters 22
You should only rely on the information incorporated by reference or
provided in this Reoffer Prospectus or any supplement. We have not authorized
anyone else to provide you with different information. The common stock is not
being offered in any state where the offer is not permitted. You should not
assume that the information in this Reoffer Prospectus or any supplement is
accurate as of any date other than the date on the front of this Reoffer
Prospectus.
WHERE YOU CAN FIND MORE INFORMATION
We are required to file annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission
(the "SEC") as required by the Securities Exchange Act of 1934, as amended (the
"1934 Act"). You may read and copy any reports, statements or other information
we file at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D. C. 20549; Please call the SEC at 1-800-SEC-0330 for further
information on the Public Reference Rooms. Our filings are also available to the
public from commercial document retrieval services and the SEC website
(http://www.sec.gov).
INCORPORATED DOCUMENTS
The SEC allows us to "incorporate by reference" information into this
Reoffer Prospectus, which means that Anza can disclose important information to
you by referring to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this Reoffer
Prospectus, except for any information superseded by information in this Reoffer
Prospectus. The following documents previously filed with the Securities and
Exchange Commission (the "Commission") are incorporated herein by reference:
(a) Our Annual Report on Form 10-KSB/A for the fiscal year ended April
30, 2001;
(b) Our Quarterly Reports on Form 10-QSB/A for the fiscal quarters
ended July 31, 2001, and October 31, 2001 and Quarterly Report on
Form 10-QSB for the fiscal quarter ended January 31, 2002; and
(c) Our Reports on Form 8-K dated March 5, 1999, January 27, 2000,
February 25, 2000, March 8, 2000, March 31, 2000 and April 19, 2000, as
later amended; and
(d) All documents subsequently filed by us pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Securities Exchange Act of 1934, as amended,
prior to the filing of a post-effective amendment which indicates that
all securities offered have been sold or which deregisters all
securities then remaining unsold, shall be deemed to be incorporated
herein by reference and to be part hereof from the date of filing of
such documents.
We will provide without charge to each person to whom a copy of this
Reoffer Prospectus is delivered, upon oral or written request, a copy of any or
all documents incorporated by reference into this Reoffer Prospectus (excluding
exhibits unless the exhibits are specifically incorporated by reference into the
information the Reoffer Prospectus incorporates). Requests should be directed to
Investors Relations at our executive offices, located at 3200 Bristol Street,
Suite 700, Costa Mesa, California 92626. Our telephone number is (714) 866-2100.
Our corporate Web site addresses are http://www.anzacapital.com and
http://www.e-netfinancial.com.
4
THE COMPANY
GENERAL
Anza Capital, Inc. ("Anza" or the "Company") was incorporated in the State
of Nevada on August 18, 1988 as Solutions, Incorporated. On July 11, 1994, the
Company filed a Registration Statement on Form 10-SB with the Securities and
Exchange Commission, which was declared effective on December 22, 1994. At that
time, the Company became a reporting company under Section 12(g) of the
Securities Exchange Act of 1934, as amended. On August 16, 1996, the Company
changed its name to Suarro Communications, Inc., and on February 12, 1999, May
12, 1999 and on January 18, 2000, the Company changed its name to E-Net
Corporation, E-Net Financial Corporation and e-Net.Com Corporation,
respectively. On February 2, 2000, the Company changed its name to E-Net
Financial.com Corporation. Effective January 1, 2002 the Company changed its
name to Anza Capital, Inc.
BUSINESS OVERVIEW
The Company is a holding company which currently operates through four (4)
subsidiaries, namely AMRES, Expidoc, BravoRealty.com, and Titus Real Estate.
Since March 1, 1999, the Company has acquired a total of nine companies, six of
which the Company no longer operates. Of the nine companies purchased by Anza
since March 1, 1999, six were purchased from then-current officers and
directors, or parties affiliated with then-current officers and directors. The
total dollar value attributed to the purchase of these nine companies is
approximately $4,400,000.
AMRES and Expidoc represent our only significant operations and greater
than 95% of our consolidated revenue. Please see further discussion of AMRES
and Expidoc below. We have never been profitable, and our net losses have been
significant, although they have been decreasing. For the year ended April 30,
2001, our net loss was $6,745,207, or $0.30 per share. For the nine months
ended January 31, 2001, our net loss was $581,979, or $0.01 per share.
CHANGES IN BUSINESS STRATEGY AND CHANGE IN CONTROL
Effective March 1, 1999, the Company acquired E-Net Mortgage Corporation, a
Nevada corporation ("E-Net Mortgage"), and City Pacific International, U.S.A.,
Inc., a Nevada corporation ("City Pacific"). Pursuant to the Share Exchange
Agreement and Plan of Reorganization dated March 1, 1999, regarding E-Net
Mortgage, its shareholders received 2,000,000 shares of Common Stock of the
Company in exchange for all of the issued and outstanding stock of E-Net
Mortgage, which became a wholly owned subsidiary of the Company. Pursuant to
the Share Exchange Agreement and Plan of Reorganization, dated March 1, 1999,
regarding City Pacific, its shareholders received 500,000 shares of Common Stock
of the Company in exchange for all of the issued and outstanding stock of City
Pacific, which became a wholly owned subsidiary of the Company. Effective as of
that date, Michael Roth, who had owned 100% of E-Net Mortgage, became Chairman,
CEO, President, a director, and the owner of 44% of the common stock of the
Company. Also effective as of that date, Al Marchi, who had owned 100% of City
Pacific, became a director and the owner of 11% of the outstanding common stock
of the Company. Following this transaction, the Company entered into a series
of acquisitions as part of its strategy of horizontal market penetration and in
an effort to increase revenues.
On November 29, 1999, the Company issued Paul Stevens 250,000 shares of its
Common Stock in exchange for Mr. Stevens' transfer to the Company of 500,000
shares of Common Stock of EMB Corporation ("EMB") that he owned (the "Stevens
EMB Shares"). On December 21, 1999, and in connection with that exchange, the
Company entered into agreements with Digital Integrated Systems, Inc. ("DIS"),
and EMB to acquire their respective 50% interests in VPN.COM JV Partners, a
Nevada joint venture ("VPN Partners") involved in vertically integrated
communications systems.
In consideration of the purchase of the interests, the Company issued a
one-year promissory note to DIS in the amount of $145,000 (the "DIS Note") and
tendered to EMB the Stevens EMB Shares. At the time of such transactions, Mr.
Stevens was the sole owner of DIS and the President and Chief Executive Officer
of VPN Partners. Upon closing of the acquisitions, VPN Partners was integrated
with VPNCOM.Net, Inc. (previously known as City Pacific), the other
communications entity then owned by the Company. At the time of the transaction,
our management believed that VPN Partners and Mr. Stevens would contribute
materially to the planned expansion of the Company.
5
On January 12, 2000, as revised on April 12, 2000, the Company entered into
an agreement (the "Amended and Restated Purchase Agreement") with EMB to acquire
two of its wholly owned subsidiaries, namely American Residential Funding, Inc.,
a Nevada corporation ("AMRES"), and Bravo Real Estate, Inc., a California
corporation ("Bravo Real Estate"). At the time of the acquisition, AMRES was the
principle operating company of EMB, and EMB had previously acquired AMRES from
AMRES Holding LLC ("AMRES Holding"), a company controlled by Vincent Rinehart
(now an officer and director of the Company) and in which Mr. Rinehart currently
holds his Anza common stock, in exchange for EMB common stock. The purpose of
the acquisition was to acquire market share, revenues, and certain key
management personnel. The Company also acquired all of EMB's rights to acquire
Titus Real Estate LLC, a California limited liability company ("Titus Real
Estate") from its record owners. Titus Real Estate is the management company for
Titus Capital Corp., Inc., a California real estate investment trust (the "Titus
REIT"), in which the Company has no ownership interest. Titus REIT currently
holds 10 apartment buildings in Long Beach, California, six of which are in
escrow to be sold.
On February 11, 2000, the Company executed a purchase agreement (the "Titus
Purchase Agreement") for the acquisition of Titus Real Estate and issued 100,000
shares of its Class B Convertible Preferred Stock (the "B Preferred") to AMRES
Holding/Rinehart, and 300,000 shares of its Common Stock to Scott A. Presta, in
their capacities as the owner-members of Titus Real Estate. Mr. Rinehart and Mr.
Presta were not, at the time, otherwise affiliated with the Company in any way,
but both became members of Management in April 2000 (see Item 9). Upon closing,
Titus Real Estate became a wholly owned subsidiary of the Company. Management
had hoped that the acquisition of Titus Real Estate would increase the Company's
overall revenue stream. The Company took a charge for impairment of goodwill in
the amount of $1,155,057 in the fourth quarter 2000 with respect to its
investment in Titus Real Estate.
On February 14, 2000, in our continuing efforts to expand, the Company
acquired all of the common stock of LoanNet Mortgage, Inc., a Kentucky
corporation ("LoanNet"), a mortgage broker with offices in Kentucky and Indiana.
In connection with this acquisition, the Company issued 250,000 shares of
its common stock valued at $2.3 million. The acquisition was accounted for
under the purchase method of accounting with the excess of cost over the fair
value of the net assets acquired of $2.2 million was allocated to goodwill.
On March 30, 2001, the Board of Directors of e-Net, none of whom were officers,
directors or management of LoanNet, rescinded the acquisition of LoanNet due to
misrepresentations by LoanNet's management, officers and directors. E-Net
management demanded the return of the 250,000 shares issued, and attempted to
deliver the shares of common stock it received in connection with the
acquisition to the original selling shareholder, whom is also the preferred
stockholder, the chief executive officer and director of LoanNet. The 250,000
shares or the Company's common stock were not returned by the former LoanNet
shareholders. The Company accounted for the rescission of the acquisition
transaction by removing the assets and liabilities of LoanNet resulting in net
liabilities totaling approximately $147,000, offset by the write-off of goodwill
of approximately $1,985,000. The carrying valueof the net assets acquired
totaling approximately $1,838,000, were charged to operations in fiscal 2001 as
a result of this rescission.
On March 1, 2000, the Company sold VPNCOM.Net, Inc., which had proven to be
unprofitable and inconsistent with the Company's changing business structure, to
Al Marchi, its then-President. The sales consideration consisted of his 30-day
promissory note in the principal amount of $250,000 (paid in full on April 15,
2000), the assumption of the DIS Note, and the return of 250,000 shares of
Company Common Stock owned by him.
On March 17, 2000, the Company acquired all of the common stock of
ExpiDoc.com, Inc., a California corporation ("ExpiDoc"). ExpiDoc is an
Internet-based, nationwide notary service, with over 6,500 affiliated notaries,
that provides document signing services for various mortgage companies.
Pursuant to the Stock Purchase Agreement dated February 14, 2000, the Company
issued 24,000 shares of Common Stock of the Company to the selling shareholders
of ExpiDoc, which became a wholly owned subsidiary of the Company. As of the
closing of the acquisition, the Company entered into management and consulting
agreements with ExpiDoc's owners and management, including Mr. Rinehart and Mr.
Presta. Mr. Rinehart and Mr. Presta were not, at the time, otherwise affiliated
with the Company in any way, but both became members of Management in April 2000
(see Item 9)
6
On April 12, 2000, the Company closed the acquisition of AMRES and Bravo
Real Estate. Pursuant to the Amended and Restated Purchase Agreement, the
Company issued 7.5 million shares of Common Stock to EMB, representing nearly
40% of the then issued and outstanding common stock of the Company, paid
$1,595,000, and issued a promissory note in the initial amount of $2,405,000,
and AMRES and Bravo Real Estate became wholly owned subsidiaries of the Company.
Because of the significance of operations of AMRES, new management and the
significance of control, AMRES is deemed the acquiror for financial reporting
purposes. Since Bravo Real Estate had no operations or net assets, management
determined that a nominal value of $1,000 be attributed to its name. The
fair value attributable to the common stock retained by the shareholders
of e-Net on April 12, 2000 was $3,838,000.
As of April 30, 2001, the remaining principal balance of the promissory
note was $1,055,000, and the note was reduced to $103,494 effective June 27,
2001,(see discussion of Global Settlement below). On April 12, 2000, James E.
Shipley, the former CEO of EMB, was elected Chairman of the Board of Directors
of the Company and Vincent Rinehart was elected a Director, President, and Chief
Executive Officer of the Company. Bravo Real Estate never commenced operations,
had no assets, and is no longer an operating subsidiary.
Mr. Shipley was the CEO, President, and a less than 5% owner of EMB at the
time of the sale of AMRES and Bravo from EMB to e-Net. Mr. Shipley resigned as
Chairman of EMB and became Chairman of the Company in April 2000, and resigned
as an officer of the Company in December 2000.
Mr. Rinehart was never an officer or director of EMB, but was the owner of
2,000,000 shares of EMB common stock, making him an approximate 10% owner of EMB
at the time of the sales in April 2000, and continues as an officer and director
of the Company (e-Net) and as an officer of all wholly-owned subsidiaries of the
Company.
On April 12, 2000, in accordance the provisions of the Certificate of
Designations, Preferences and Rights of Class B Convertible Preferred Stock,
AMRES Holding/Rinehart demanded that its B Preferred be repurchased by the
Company for an aggregate of one million dollars. On April 20, 2000, the Company,
AMRES Holding/Rinehart, and Mr. Presta amended the Titus Purchase Agreement to
provide for the return of 100,000 shares of the Company's preferred stock issued
to AMRES Holdings and Mr. Presta upon the issuance of 1,000,000 shares of common
stock to them.
On May 24, 2000, Michael Roth and Jean Oliver, the sole remaining officers
and directors of prior management, resigned their remaining positions with the
Company. On that date, Mr. Presta, an executive officer and director of Titus
Real Estate, was elected a Director and Secretary of the Company.
EVENTS SUBSEQUENT TO FISCAL YEAR ENDING APRIL 30, 2001
Bridge Financing
On June 27, 2001, the Company entered into an Investment Agreement and
related documents with Laguna Pacific Partners, LLP. This note was entered
executed to provide short-term liquidity to the Company and form and capital
Anza Properties, with the expectation that Anza will complete a bond offering
(see below). It was the intention of management to repay the short-term loan
from proceeds from the bond offering. The bond offering has been terminated.
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, and
(ii) executed a Warrant Agreement which entitled Laguna Pacific to acquire
up to $225,000 worth of the Company's 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 relative value of the warrant issued with
this debt instrument totaled $132,345, which is amortized over the term of the
note.
7
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.
(iii) entered into a Consulting Agreement with Lawrence 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.
Global Settlement
As part of the acquisition of AMRES, Anza was obligated to file and pro-
Secute until completion a registration statement with the Securities and Ex-
Change 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:
8
(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.
(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. Approximately $125,000 was paid in connection with this note.
(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.
Executive Compensation
On July 1, 2001, Anza 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 Anza common stock at the closing price on the date of the
agreement which shall vest monthly over a one year period. The number of shares
to be acquired upon exercise of the options shall not be adjusted for a stock
split, is limited to both a maximum value of $1,900,000, and 20% of the
outstanding common stock of the Company. 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.
Settlement of Investment Banking Agreement
On May 27, 1999, we 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,
we granted the investment banker options to purchase 200,000 shares of our
common stock at an exercise price of $0.13, expiring on May 31, 2001.
Additionally, we were 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.
9
We 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, we agreed to
settle a dispute over the terms of the amendment by canceling the 200,000 shares
in exchange for 1,500,000 of our restricted common stock. We 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.
Exercises 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 our 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 our 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 our
accumulated deficit during the nine months ended January 31, 2002. Our Series C
Convertible Preferred Stock continues to be very dilutive to our shareholders.
We are seeking possibilities to reduce our shareholder dilution.
Series A Convertible Preferred Stock
In November 2001 and January 2002, we 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, we recorded a charge of $36,126 to accumulated
deficit for the difference between the consideration received and the
liquidation value.
Common Stock Issued to Consultants
At various dates from May 1, 2001 through January 31, 2002, we issued
3,750,000 shares of common stock, valued at $558,050 to various consultants
which are included in general and administrative expenses. We have issued our
common stock to consultants deemed necessary to us to reduce our cash
requirements.
RESULTS OF ANNUAL SHAREHOLDER MEETING - NAME CHANGE AND OTHER EVENTS
At its Annual Shareholder's Meeting held on December 6, 2001, our
shareholders ratified the bridge financing, global settlement and executive
compensation arrangements outlined above. The shareholders also approved a name
change to Anza Capital, Inc. effective January 1, 2002.
ACTIVITIES OF SUBSIDIARIES
AMRES
We have reported that due to low interest rates in 2001 and continuing in
2002, that mortgage loan production in our AMRES division has increased
substantially on a year-over-year basis. The total production for 2001 of
$637,000,000 represented a 383% increase over production for 2000. We also
reported that in January 2002 we had record loan production of over $81,000,000.
10
The growth of the net branch program at AMRES was the major contributor to
the growth in revenue. AMRES' net branch program comprised approximately 200
branches as of October 31, 2001, compared to less than fifty branches as of
October 31, 2000. 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.
AMRES also announced a national joint venture agreement between AMRES and
NationWideByOwner. NWBO's Internet-based `for sale by owner' technology will
assist the Company in its continued national expansion efforts. The agreement
provides for conventional and FHA home loan mortgage origination and refinance
capacity to all current and future NWBO clients. As the premier Internet-based
for sale by owner transaction company in the nation, NWBO has had in excess of
1,200 residential listings in the California, Texas, Florida and Oklahoma
markets during 2001.
BravoRealty.com
BravoRealty.com is an internet-based real estate brokerage which was
incorporated in May 2000 and began operations in January 2001. AMRES owns 69%
of BravoRealty.com ("Bravorealty"), with the balance owned by Vincent Rinehart
(15%), David Villarreal (15%), and Kevin Gadawski (1%). Bravorealty's business
model targets real estate agents as its customers and offers 100% commission
retention for the agent, while charging a minimal fixed fee per closed
transaction. Bravorealty's web site is operational and this 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 incurred the
expenses to begin, and is expected before fiscal year end to secure 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. Their objective is to become operationally profitable
by the end of this fiscal year, excluding additional start-up costs of
franchising. Due to these start-up costs, Bravorealty has incurred an operating
loss since inception of operations.
Expidoc.com
Our Expidoc.com division has benefited from increased business from its
largest account, National Mortgage Company. This division is expected to add
staff, equipment and software, and to move to new and larger space in the first
quarter of 2002. Expidoc.com has added Ditech.com as a customer, and is now
doing over 500 loan document signings a month through their network of notaries
in all 50 states. By adding staff, and implementing a new marketing initiative,
Expidoc should improve its operations and achieve near term profitability.
Titus Real Estate
Titus Real Estate is the management company of Titus REIT. Titus Real
Estate, while currently operational, is not expected to provide significant
revenues for the Company. Current shareholders of the REIT have requested the
selling of assets in order to return their original investment. As such, eight
of the ten properties are in escrow to be sold. It is the intent of the
management of the Company to raise new capital for Titus REIT when the market
permits, estimating the summer of 2002 as a possible target date. The Company
believes the long term benefits of a REIT compliment the Company's business
plan. Titus Real Estate has incurred small operating losses during the current
fiscal year.
ANZA Properties
ANZA Properties was established in July 2001, for the purpose of raising
investor funds from accredited investors, for the initial purpose of purchasing
Income Producing Real Estate. Management has suspended the activities
of ANZA Properties. The Company incurred approximately $105,000 in start-up
costs which have been charged to operations during the nine-months ended January
31, 2002.
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NEW WEB SITES AND TICKER SYMBOL CHANGE
We commenced operations in two new web sites at the end of January 2002.
The site addresses are www.anzacap.com and www.anzacapital.com. We also updated
our other two existing web sites, www.e-netfinancial.com and
www.e-netfinancial.de. Additionally, our ticker symbol has changed on the
Nasdaq Over-The-Counter Market to ANZA.OB.
OVERVIEW OF OPERATIONS
AMERICAN RESIDENTIAL FUNDING, INC. ("AMRES") - GENERAL
The Company, through its wholly owned subsidiary, E-Net Mortgage, had,
since 1999, engaged in business as a retail mortgage broker. However, E-Net
Mortgage was not capitalized to the level that permitted it to expand its
operations outside of its offices in San Jose, and Costa Mesa, California, and
Las Vegas, Nevada. With the pending acquisition of American Residential
Funding, Inc. ("AMRES"), E-Net Mortgage stopped conducting business in the
fourth quarter of the fiscal year ended April 30, 2000. With the completion of
the acquisition of AMRES, AMRES has become the principal operating mortgage
subsidiary of the Company. It is the intent of the Company for AMRES to operate
primarily as a mortgage banker and mortgage broker through an expansion of its
existing company-owned and branch operations
The name "AMRES" is approved for use by American Residential Funding, Inc.
by the California Department of Real Estate, the primary governing body of
AMRES. An appropriate DBA filing of AMRES has been done, and the company is
regularly referred to as "AMRES".
Loan Making
AMRES is primarily a loan broker, arranging approximately $50,000,000 a
month in home loans. AMRES, through their agents in some 140 branches (1-8
agents in each branch) is licensed in 39 states to originate loans. Although
AMRES has a $2,000,000 line of credit with which to fund loans, less than 5% of
total loan volume is funded this way. AMRES, through their loan agents, locates
prospective borrowers from real estate brokers, home developers, and marketing
to the general public. After taking a loan application, AMRES processes the loan
package, including obtaining credit and appraisal reports. AMRES then presents
the loan to one of approximately 200 approved lenders, who then approve the
loan, draw loan documents and fund the loan. AMRES receives a commission for
each brokered loan, less what is paid to each agent.
Loan Standards
Mortgage loans arranged by AMRES are generally loans with fixed or
adjustable rates of interest, secured by first mortgages, deeds of trust or
security deeds on residential properties with original principal balances that
do not exceed 95% of the value of the mortgaged properties, unless such loans
are FHA-insured or VA-guaranteed. Generally, each mortgage loan having a
loan-to-value ratio in excess of 80%, or which is secured by a second or
vacation home, will be covered by a Mortgage Insurance Policy, FHA Insurance
Policy or VA Guaranty insuring against default of all or a specified portion of
the principal amount thereof. 95% of all loans originated by AMRES are brokered
to lenders and not underwritten or funded by AMRES.
The mortgage loans are "one-to-four-family" mortgage loans, which are
permanent loans (as opposed to construction or land development loans) secured
by mortgages on non-farm properties, including attached or detached
single-family or second/vacation homes, one-to-four-family primary residences
and condominiums or other attached dwelling units, including individual
condominiums, row houses, townhouses and other separate dwelling units even when
located in buildings containing five or more such units. Each mortgage loan must
be secured by an owner-occupied primary residence or second/vacation home, or by
a non-owner occupied residence. The mortgaged property may not be a mobile home.
In general, no mortgage loan is expected to have an original principal
balance less than $30,000. While most loans will be less than $700,000, loans
of up to $2,000,000 may be brokered to unaffiliated third-party mortgage
lenders.
Fixed rate mortgage loans must be repayable in equal monthly installments
which reduce the principal balance of the loans to zero at the end of the term.
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Credit, Appraisal and Underwriting Standards
Each mortgage loan must (i) be an FHA-insured or VA-guaranteed loan meeting
the credit and underwriting requirements of such agency, or (ii) meet the
credit, appraisal and underwriting standards established by the lender. For
certain mortgage loans which may be subject to a mortgage pool insurance policy,
the lender may delegate to the issuer of the mortgage pool insurance policy the
responsibility of underwriting such mortgage loans, in accordance with the
lender's credit appraisal and underwriting standards.
A lender's underwriting standards are intended to evaluate the prospective
mortgagor's credit standing and repayment ability, and the value and adequacy of
the proposed mortgaged property as collateral. In the loan application process,
prospective mortgagors will be required to provide information regarding such
factors as their assets, liabilities, income, credit history, employment history
and other related items. Each prospective mortgagor will also provide an
authorization to apply for a credit report which summarizes the mortgagor's
credit history. With respect to establishing the prospective mortgagor's
ability to make timely payments, the lender will require evidence regarding the
mortgagor's employment and income, and of the amount of deposits made to
financial institutions where the mortgagor maintains demand or savings accounts.
In some instances, mortgage loans may be arranged by the lender under a Limited
Documentation Origination Program. For a mortgage loan to qualify for the
Limited Documentation Origination Program, the prospective mortgagor must have a
good credit history and be financially capable of making a larger cash down
payment in a purchase, or be willing to finance less of the appraised value, in
a refinancing, than would otherwise be required by the Company. Currently, only
mortgage loans with certain loan-to-value ratios will qualify for the Limited
Documentation Origination Program. If the mortgage loan qualifies, the lender
waives some of its documentation requirements and eliminates verification of
income and employment for the prospective mortgagor. The Limited Documentation
Origination Program has been implemented relatively recently and accordingly its
impact, if any, on the rates of delinquencies and losses experienced on the
mortgage loans so originated cannot be determined at this time.
The lender's underwriting standards generally follow guidelines acceptable
to FNMA ("Fannie Mae") and FHLMC ("Freddie Mac"). The lender's underwriting
policies may be varied in appropriate cases. In determining the adequacy of the
property as collateral, an independent appraisal is made of each property
considered for financing. The appraiser is required to inspect the property and
verify that it is in good condition and that construction, if new, has been
completed. The appraisal is based on the appraiser's judgment of values, giving
appropriate weight to both the market value of comparable homes and the cost of
replacing the property. Over 95% of all loans processed are underwritten and
funded by approved lenders of AMRES. Very few loans, approximately 5%, are
funded by AMRES on their line of credit for future resell.
Title Insurance Policies
The lender will usually require that, at the time of the origination of the
mortgage loans and continuously thereafter, a title insurance policy be in
effect on each of the mortgaged properties and that such title insurance policy
contain no coverage exceptions, except those permitted pursuant to the
guidelines established by FNMA.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980 ("Title V"), provides that state usury limitations do not apply to
certain types of residential first mortgage loans originated by certain lenders
after March 31, 1980. The Federal Home Loan Bank Board is authorized to issue
rules and regulations and to publish interpretations governing implementation of
Title V, the statute authorizes any state to reimpose interest rate limits by
adopting a law or constitutional provision which expressly rejects application
of the federal law. In addition, even where Title V is not so rejected, any
state is authorized by the law to adopt a provision limiting discount points or
other charges on mortgage loans covered by Title V. As of the date hereof,
certain states have taken action to reimpose interest rate limits and/or to
limit discount points or other charges.
The above described laws do not have a material effect on the Company's
operations because it acts primarily as a broker to direct lenders.
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Mortgage Software and Technology
AMRES currently uses loan origination software developed by an
independent third party, which is accessible by its Company-owned offices and at
branch offices through an Intranet system. This software can quickly review the
underwriting guidelines for a vast number of loan products, including those
offered by Fannie Mae and Freddie Mac and select the appropriate loan product
for the borrower. The software then allows the routing of pertinent information
to the automated underwriting systems employed by Fannie Mae and Freddie Mac,
the primary secondary-market purchasers of mortgages, and the automated systems
of independent lenders such as IndyMac. Thus, in less than one hour, a borrower
can receive loan approval, subject only to verification of financial information
and appraisal of the subject property. The software also permits the
contemporaneous ordering and review of preliminary title reports and escrow
instructions. The AMRES Intranet system allows branch offices to have
around-the-clock access to the system.
Customer Service and Support
AMRES provides branch owners with on-line technical support, training,
consulting and implementation services. These services consist of the following:
Customer Education and Training
AMRES offers training courses designed to meet the needs of end users,
integration experts and system administrators. AMRES also trains customer
personnel who in turn may train end-users in larger deployments. Training
classes are provided at the customers' offices or on-line with an on-line
tutorial. No fees are charged the branch for these services.
System Maintenance and Support
The Company offers telephone, electronic mail and facsimile customer
support through its central technical support staff at the Company's
headquarters. The Company also provides customers with product documentation
and release notes that describe features in new products, known problems and
workarounds, and application notes.
EXPIDOC NATIONWIDE NOTARY SERVICES
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. This is accomplished
through ExpiDoc's automation of the process, its knowledgeable, experienced
staff, and proprietary technology. ExpiDoc provides its clients with real-time
access to the status of their documents, 24 hours a day. ExpiDoc's proprietary
software executes both the front office notary coordination and the back office
administration. ExpiDoc currently employs 3 people, located in Costa Mesa.
SALES AND MARKETING
As of February 28, 2002, the Company marketed and sold its mortgage
brokerage services primarily through a direct sales force of approximately 10
persons based in Costa Mesa, California, as well as approximately 200 persons at
branch locations. The Company maintains four Company-owned offices in Southern
California and approximately 190 branch offices in 20 states.
The sales efforts of the Company to market its branch opportunities are
located primarily in the Company's Costa Mesa, California headquarters office.
Once a branch is opened, a branch manager supervises a licensed branch office
and its employees, and receives a percentage of the profits of that branch.
AMRES provides accounting, licensing, legal, compliance and lender access for
each branch, retaining a percentage of commission generated by loan
correspondents at each branch. The branch managers must follow all guidelines
set forth by AMRES as well as all regulations of various government agencies and
are independently responsible for the expenses incurred at the branch level,
including personnel expenses.
14
TRADE NAMES AND SERVICE MARKS
The Company will devote substantial time, effort and expense toward
developing name recognition and goodwill for its trade names for its operations.
The Company intends to maintain the integrity of its trade names, service marks
and other proprietary names against unauthorized use and to protect the
licensees' use against claims of infringement and unfair competition where
circumstances warrant. Failure to defend and protect such trade name and other
proprietary names and marks could adversely affect the Company's sales of
licenses under such trade name and other proprietary names and marks. The
Company knows of no current materially infringing uses.
EMPLOYEES
As of February 28, 2002, the Company employed a total of 230 persons. Of
the total, 30 officers and employees were employed at the principal executive
offices of the Company in Costa Mesa, California, of whom 10 were engaged in
sales and marketing, one was in investor relations and compliance, and 19 were
in finance and administration. There were 200 employees of the AMRES branches,
of whom 170 were engaged in sales and marketing and 30 in finance and
administration. None of the Company's employees is represented by a labor union
with respect to his or her employment by the Company.
FACILITIES
Our principal place of business is in Costa Mesa, California, where we
lease an approximate 12,000 square foot facility for approximately $250,000 per
annum (subject to usual and customary adjustments), under a written lease which
terminates in March 2003. This location houses our corporate finance,
administration, and sales and marketing functions. ExpiDoc and the Costa Mesa
office of AMRES sub-lease space at this facility from Anza on a month-to-month
basis for $1,000 and $4,000, respectively.
AMRES leases additional facilities: Long Beach, California (month-to-month,
$3,450 per month); Palmdale, California (month-to-month, $ 1,911 per month), and
Riverside, California (term expiring in 2003, $2,117 per month).
All branch offices are leased in the name of its respective manager, with
lease payments made from revenues generated by that branch. The Company does not
undertake any liability for those locations.
We believe that our current facilities will be adequate to meet our needs,
and that we will be able to obtain additional or alternative space when and as
needed on acceptable terms. We may also hold real estate for sale from time to
time as a result of our foreclosure on mortgage loans that may become in
default.
15
RISK FACTORS
In this section we highlight some of the risks associated with our business
and operations. Prospective investors should carefully consider the following
risk factors when evaluating an investment in the common stock offered by this
Reoffer Prospectus.
WE HAVE INCURRED SUBSTANTIAL OPERATING LOSSES AND OUR AUDITORS HAVE ISSUED A
"GOING CONCERN" AUDIT OPINION
Our consolidated financial statements filed with the United States
Securities and Exchange Commission have been prepared assuming that we will
continue as a going concern, which contemplates the realization of assets and
liquidation of liabilities in the normal course of business. Our auditors have
expressed substantial doubt in their audit letter for the fiscal year ended
April 30, 2001 about our ability to continue as a going concern. As discussed in
our financial statements, we have incurred significant operating losses in our
most recent fiscal year and have a working capital deficit and negative tangible
net worth.
YOU MAY BE UNABLE TO EFFECTIVELY EVALUATE OUR COMPANY FOR INVESTMENT PURPOSES
BECAUSE OUR BUSINESSES HAVE EXISTED FOR ONLY A SHORT PERIOD OF TIME
We began our current operations in March 1999. Additionally, we have
changed our principal business focus and have only operated our principal
subsidiaries for a short period of time. As a result, we have only a limited
operating history upon which you may evaluate our business and prospects. In
addition, you must consider our prospects in light of the risks and
uncertainties encountered by companies in an early stage of development in new
and rapidly evolving markets. In addition, we had no significant assets or
financial resources prior to our acquisition of AMRES and Expedia.doc. The
success of our proposed plan of operation will depend to a great extent on the
operations, financial condition and management of these recently acquired
subsidiaries.
Our ability to integrate these subsidiaries' activities into our
consolidated operations is uncertain. The success of our operations may be
dependent upon numerous factors beyond our control. No person should invest in
this offering unless they can afford to lose their entire investment.
OUR FUTURE REVENUES ARE UNPREDICTABLE AND OUR OPERATING RESULTS ARE LIKELY TO
FLUCTUATE FROM QUARTER TO QUARTER
Our quarterly and annual operating results have fluctuated in the past
and are likely to fluctuate significantly in the future due to a variety of
factors, some of which are outside of our control. Accordingly, we believe that
period-to-period comparisons of our results of operations are not meaningful and
should not be relied upon as indications of future performance. Some of the
factors that could cause our quarterly or annual operating results to fluctuate
include market acceptance of our mortgage services and systems, business
development, ability to originate and process mortgage loans, substantial
increases in mortgage rates, and competitive pressures.
THE MORTGAGE LENDING BUSINESS IS AFFECTED BY INTEREST RATES AND OTHER FACTORS
BEYOND OUR CONTROL
The results of our operations will be affected by various factors, many
of which are beyond our control. The results of our operations will depend,
among other things, on the level of net cash flows generated by our mortgage
assets and the supply of and demand for mortgage loans. Our net cash flows will
vary as a result of changes in interest rates, the behavior of which involves
various risks and uncertainties as set forth below. Prepayment rates and
interest rates depend upon the nature and terms of the mortgage assets, the
geographic location of the properties securing the mortgage loans, conditions in
financial markets, the fiscal and monetary policies of the United States
government and the Board of Governors of the Federal Reserve System,
international economic and financial conditions, competition and other factors,
none of which can be predicted with any certainty. Because interest rates will
significantly affect our activities, our operating results will depend, in large
part, upon our ability to utilize appropriate strategies to maximize returns
while attempting to minimize risks.
16
MORTGAGE LOANS ARE SUBJECT TO THE RISK OF DEFAULT BY BORROWERS AND CERTAIN
INHERENT RISKS RELATED TO REAL ESTATE
Mortgage loans are subject to varying degrees of risk, including the
risk of a default by the borrowers on a mortgage loan, and the added
responsibility on our part of foreclosing in order to protect its investment.
The ability of the borrowers to make payments on non-single-family mortgage
loans is highly dependent on the borrowers' ability to manage and sell,
refinance or otherwise dispose of the properties and will be dependent upon all
the risks generally associated with real estate investments which are beyond our
control. We must rely on the experience and ability of the borrowers to manage,
develop and dispose of or refinance the properties. Investing in real estate is
highly competitive and is subject to numerous inherent risks, including, without
limitation, changes in general or local economic conditions, neighborhood values
and interest rates, limited availability of mortgage funds which may render the
sale or refinancing of the properties difficult, increases in real estate taxes,
other operating expenses, the supply and demand for properties of the type
involved, toxic and hazardous wastes, environmental considerations, zoning laws,
entitlements, rent control laws, other governmental rules and fiscal policies
and acts of God, such as floods, which may result in uninsured losses.
WE MAY NOT DIVERSIFY OUR PORTFOLIO OF MORTGAGE LOANS
Our mortgage loans may be obligations of a limited number of borrowers
on a limited number of properties. The lack of diversity in the type, number and
geographic location of mortgage loans made could materially increase the risk of
an investment in the Common Stock.
IN THE EVENT WE ARE NOT SUCCESSFUL IN SECURITIZING MORTGAGE LOANS, WE WILL
CONTINUE TO BEAR THE RISKS OF BORROWER DEFAULTS AND BANKRUPTCIES, FRAUD LOSSES
AND SPECIAL HAZARD LOSSES.
We may acquire and accumulate mortgage loans as part of its long-term
investment strategy or until a sufficient quantity has been acquired for
securitization into mortgage-backed securities. There can be no assurance that
we will be successful in securitizing mortgage loans. While holding mortgage
loans, we will be subject to risks of borrower defaults and bankruptcies, fraud
losses and special hazard losses. In the event of any default under mortgage
loans held by us, we will bear the risk of loss of principal to the extent of
any deficiency between the value of the mortgage collateral and the principal
amount of the mortgage loan. It may not be desirable, possible or economic for
us to complete the securitization of any or all mortgage loans which we acquire
or fund, in which case we will continue to hold the mortgage loans and bear the
risks of borrower defaults and special hazard losses.
Mortgage loans invested in by us will be secured by the properties and
will also be a recourse obligation of the borrower. In the event of a default,
we would be able to look to the borrower to make up any deficiency between the
value of the collateral and the principal amount of the mortgage loan.
It is expected that when we acquire mortgage loans, the sellers will
represent and warrant to us that there has been no fraud or misrepresentation
with respect to the origination of the mortgage loans and will agree to
repurchase any loan with respect to which there is fraud or misrepresentation.
There can be no assurance that we will be able to obtain the repurchase
agreement from the sellers. Although we may have recourse to the sellers based
on the sellers' representations and warranties to us, we will be at risk for
loss to the extent the sellers do not perform their repurchase obligations.
We may acquire mortgage loans from failed savings and loan associations
for banks through United States government agencies such as the Resolution Trust
Corporation or the Federal Deposit Insurance Corporation. These institutions do
not provide the seller's typical representations against fraud and
misrepresentation. We intend to acquire third party insurance, to the extent
that it is available at a reasonable price, for such risks. In the event we are
unable to acquire such insurance, we would be relying solely on the value of the
collateral underlying the mortgage loans. Accordingly, we will be subject to a
greater risk of loss on obligations purchased from these institutions.
17
Since April, 1999, our growth in originating loans has been significant.
In light of this growth, our historical financial performance may be of limited
relevance in predicting future performance. Also, the loans we originate have
been outstanding for a relatively short period of time. Consequently, our
delinquency and loss experience to date may not be indicative of future results.
It is unlikely we will be able to maintain delinquency and loan loss ratios at
their present levels to the extent that our loan portfolio becomes more seasoned
and are not resold by us.
TO THE EXTENT THAT WE ARE UNABLE TO MAINTAIN AN ADEQUATE WAREHOUSE LINE OF
CREDIT, WE MAY HAVE TO CURTAIL LOAN ORIGINATION AND PURCHASING ACTIVITIES
We rely significantly upon our access to warehouse credit facilities in
order to fund new originations and purchases. We have a $1,000,000 warehouse
line of credit with FirstPlus Bank and a $1,000,000 warehouse line of credit
with First Collateral Services. We expect to be able to maintain its existing
warehouse line of credit (or to obtain replacement or additional financing) as
the current arrangements expire or become fully utilized; however, there can be
no assurance that such financing will be obtainable on favorable terms, if at
all. To the extent we are unable to maintain an adequate warehouse line of
credit, we may have to curtail loan origination and purchasing activities, which
could have a material adverse effect on our operations and financial condition.
VARIATIONS IN MORTGAGE PREPAYMENTS MAY CAUSE CHANGES IN OUR NET CASH FLOWS
Mortgage prepayment rates vary from time to time and may cause changes
in the amount of our net cash flows. To the extent that prepayments occur, the
yield on our mortgage loans would be affected as well as our net cash flows.
Prepayments of adjustable-rate mortgage loans included in or underlying
mortgage-backed securities generally increase when then-current mortgage
interest rates fall below the interest rates on such adjustable-rate mortgage
loans. Conversely, prepayments of such mortgage loans generally decrease when
then-current mortgage interest rates exceed the interest rate on the mortgage
loans included in or underlying such mortgage-backed securities. Prepayment
experience also may be affected by the geographic location of the properties
securing the mortgage loans included in or underlying mortgage-backed
securities, the assumability of such mortgage loans, the ability of the borrower
to convert to a fixed-rate loan, conditions in the housing and financial markets
and general economic conditions.
OUR PORTFOLIO OF MORTGAGE LOANS MAY INCLUDE PRIVATELY ISSUED PASS-THROUGH
CERTIFICATES WHICH ARE TYPICALLY NOT GUARANTEED BY THE UNITED STATES GOVERNMENT
We may include privately issued pass-through certificates backed by
pools of adjustable-rate single family and multi-family mortgage loans and other
real estate-backed mortgage loans in its investment portfolio. Because principal
and interest payments on privately issued pass-through certificates are
typically not guaranteed by the United States government or an agency of the
United States government, such securities generally are structured with one or
more types of credit enhancement. Such forms of credit enhancement are
structured to provide protection against risk of loss due to default on the
underlying mortgage loan, or bankruptcy, fraud and special hazard losses, such
as earthquakes. Typically, third parties insure against these types of losses,
and we would be dependent upon the credit worthiness of the insurer for
credit-rating, claims paying ability of the insurer and timeliness of
reimbursement in the event of a default on the underlying obligations.
Furthermore, the insurance coverage for various types of losses is limited in
amount, and losses in excess of the limitation would be our responsibility.
We may also purchase mortgage loans issued by GNMA, FNMA or FHLMC. Each
of these entities provides guarantees against risk of loss for securities issued
by it. In the case of GNMA, the timely payment of principal and interest on its
certificates is guaranteed by the full faith and credit of the United States
government. FNMA guarantees the scheduled payments of interest and principal and
the full principal amount of any mortgage loan foreclosed or liquidated on its
obligations. FHLMC guarantees the timely payment of interest and ultimate
collection of principal on its obligations, while with respect to certificates
issued by FNMA and FHLMC, payment of principal and interest of such certificates
are guaranteed only by the respective entity and not by the full faith and
credit of the United States government.
18
WE ARE DEPENDENT UPON INDEPENDENT MORTGAGE BROKERS AND OTHERS, NONE OF WHOM IS
CONTRACTUALLY OBLIGATED TO DO BUSINESS WITH US
We depend in part on independent mortgage brokers, financial
institutions, realtors(R) and mortgage bankers for our originations and
purchases of mortgage loans. Our competitors also seek to establish
relationships with such independent mortgage brokers, financial institutions,
realtors(R) and mortgage bankers, none of whom is contractually obligated to
continue to do business with us. In addition, we expect the volume of wholesale
loans that it originates and purchases to increase. Our future results may
become more exposed to fluctuations in the volume and cost of its wholesale
loans resulting from competition from other originators and purchasers of such
loans, market conditions and other factors.
WE WILL HAVE LITTLE CONTROL OVER THE OPERATIONS OF THE PASS-THROUGH ENTITIES IN
WHICH WE MAY PURCHASE INTERESTS
If we purchase interests in various pass-through entities, it will
itself be in the position of a "holder" of shares of such entities including,
real estate investment trusts, other trusts or partnerships, or a holder of
other types of pass-through interests. Therefore, we will be relying exclusively
on the management capabilities of the general partners, managers and trustees of
those entities for the management and investment decisions made on their behalf.
In particular, except for voting rights on certain matters, we will have no
control over the operations of the pass-through entities in which it purchases
interests, including all matters relating to the operation, management,
investment decisions, income and expenses of such entities, including decisions
with respect to actions to be taken to collect amounts owed to such entities. If
such managers, trustees or general partners take actions or make decisions which
are adverse to a pass-through entity or us, it may not be cost-efficient for us
to challenge such actions or decisions.
Moreover, we do not become a substituted owner of such interests, we
will not have the right to vote on matters on which other interest owners in
such entities have a right to vote or otherwise challenge management decisions.
Finally, should any of such managers, trustees or general partners experience
financial difficulties for any reason, the entities in which we invest could be
adversely affected, thereby adversely affecting the value of our investments.
BORROWERS MAY NOT HAVE SUFFICIENT ASSETS TO PAY OFF THE BALLOON PAYMENTS AT
MATURITY
Mortgage loans, other than those representing mortgage loans on
single-family residential, may represent "balloon" obligations, requiring no
payments of principal over the term of the indebtedness with a "balloon" payment
of all of the principal due at maturity. "Balloon" payments will probably
require a sale or refinancing of properties at the time they are due. No
assurance can be given that the borrowers will have sufficient assets to pay off
the indebtedness when due, or that sufficient liquidity will be generated from
the disposition or refinancing of the properties to enable the owner to pay the
principal or interest due on such mortgage loans.
UPON FORECLOSURE OF A PROPERTY, WE MAY HAVE DIFFICULTY IN FINDING A PURCHASER OR
MAY HAVE TO SELL THE PROPERTY AT A LOSS
If a mortgaged property is not sold by the maturity date of the
underlying mortgage loan, the borrower may have difficulty in paying the
outstanding balance of such mortgage loan and may have to refinance the
property. The borrower may also experience difficulty in refinancing the
property if that becomes necessary due to unfavorable interest rates or the
unavailability of credit.
If any amounts under a mortgage loan are not paid when due, we may
foreclose upon the property of the borrower. In the event of such a default
which requires us to foreclose upon a property or otherwise pursue its remedies
in order to protect the our investment, we will seek to obtain a purchaser for
the property upon such terms as we deem reasonable. However, there can be no
assurance that the amount realized upon any such sale of the underlying property
will result in financial profit or prevent loss to us. In addition, because of
potential adverse changes in the real estate market, locally or nationally, we
may be forced to own and maintain the property for a period of time to protect
the value of its investment. In that event, we may not be able to receive any
cash flow from such mortgage loan and we would be required to pay such sums as
may be necessary to maintain and manage the property.
19
WE MAY BE REQUIRED TO INVESTIGATE AND CLEAN UP HAZARDOUS OR TOXIC SUBSTANCES OF
PROPERTIES SECURING LOANS THAT ARE IN DEFAULT
We have not been required to perform any investigation or clean up
activities, nor have we been subject to any environmental claims. There can be
no assurance, however, that this will remain the case in the future.
In the course of our business, we have acquired and may acquire in the
future properties securing loans that are in default. Although we primarily lend
to owners of residential properties, there is a risk that we could be required
to investigate and clean up hazardous or toxic substances or chemical releases
at such properties after acquisition, and may be held liable to a governmental
entity or to third parties for property damage, personal injury and
investigation and cleanup costs incurred by such parties in connection with the
contamination. In addition, the owner or former owners of a contaminated site
may be subject to common law claims by third pies based on damages and costs
resulting from environmental contamination emanating from such property.
THE AMOUNT OF INTEREST CHARGED TO A BORROWER IS SUBJECT TO COMPLIANCE WITH STATE
USURY LAWS
The amount of interest payable by a borrower to us may exceed the rate
of interest permitted under the California Usury Law and the usury laws of other
states. Although we do not intend to make or invest in mortgage loans with
usurious interest rates, there are uncertainties in determining the legality of
interest rates. Such limitations, if applicable, may decrease the yield on our
investments.
With respect to the interest rate charged by us to borrowers in the
State of California, we will be relying upon the exemption from its usury law
which provides that loans that are made or arranged by a licensed real estate
broker and which are secured by a lien on real property are exempt from the
usury law. We intend to use licensed real estate brokers to arrange the mortgage
loans so that no violation of the applicable usury law would take place.
Additionally, if any employee or director of ours or our subsidiaries is a
licensed real estate broker in the State of California, we may use such person
to arrange all or a portion of the mortgage loans to qualify for the usury
exemption.
The consequences for failing to abide by the usury law include
forfeiture of all interest payable on the loan, treble damages with respect to
excessive interest actually paid, and criminal penalties. We believe that
because of the applicable exemptions and the provisions of California Civil Code
1917.005 exempting lenders who originate loan transactions from the California
usury laws, no violation of the California Usury Law will occur. We will attempt
to rely on similar exemptions in other states if necessary but there is no
guarantee that it will be able to do so.
IF A BORROWER ENTERS BANKRUPTCY, AN AUTOMATIC STAY WILL PREVENT US OR ANY
TRUSTEE FROM FORECLOSING ON THE PROPERTY SECURING SUCH BORROWER'S LOAN UNTIL
RELIEF FROM THE STAY CAN BE SOUGHT.
If a borrower enters bankruptcy, either voluntarily or involuntarily, an
automatic stay of all proceedings against the borrower's property will issue.
This stay will prevent the Company or any trustee from foreclosing on the
property securing such borrower's loan until relief from the stay can be sought
from the bankruptcy court. No guaranty can be given that the bankruptcy court
will lift the stay, and significant legal fees and costs may be incurred in
attempting to obtain such relief.
WE FACE COMPETITION IN THE ACQUISITION OF MORTGAGE LOANS FROM COMPETITORS HAVING
GREATER FINANCIAL RESOURCES
We will face intense competition in the origination, acquisition and
liquidation of its mortgage loans. Such competition can be expected from banks,
savings and loan associations and other entities, including REITs. Many of our
competitors have greater financial resources than ours.
20
THE MARKET PRICE OF OUR COMMON STOCK MAY EXPERIENCE FLUCTUATION UNRELATED TO
OPERATING PERFORMANCE, INCLUDING FUTURE PRIVATE OR PUBLIC OFFERINGS OF OUR
CAPITAL STOCK
The market price of our Common Stock may experience fluctuations that
are unrelated to our operating performance. In particular, the price of the
Common Stock may be affected by general market price movements as well as
developments specifically related to the mortgage industry such as, among other
things, interest rate movements. In addition, our operating income on a
quarterly basis is significantly dependent upon the successful completion of our
loan sales in the market, and our inability to complete these transactions in a
particular quarter may have a material adverse impact on our results of
operations for that quarter and could, therefore, negatively impact the price of
the Common Stock.
We may increase our capital by making additional private or public
offerings of its Common Stock, securities convertible into its Common Stock,
preferred stock or debt securities. The actual or perceived effect of such
offerings, the timing of which cannot be predicted, may be the dilution of the
book value or earnings per share of the Common Stock outstanding, which may
result in the reduction of the market price of the Common Stock and affect our
ability to access the capital markets.
BECAUSE OF INTENSE COMPETITION FOR SKILLED PERSONNEL, WE MAY NOT BE ABLE TO
RECRUIT OR RETAIN NECESSARY PERSONNEL ON A COST-EFFECTIVE BASIS
Our future success will depend in large part upon our ability to
identify, hire, retain and motivate highly skilled employees. We plan to
significantly increase the number of our marketing, sales, customer support and
operations employees to effectively serve the evolving needs of our present and
future customers. Competition for highly skilled employees in our industry is
intense. In addition, employees may leave our company and subsequently compete
against us. Our failure to attract and retain these qualified employees could
significantly harm our business. The loss of the services of any of our
qualified employees, the inability to attract or retain qualified personnel in
the future or delays in hiring required personnel could hinder the development
and introduction of new and enhanced products and harm our ability to sell our
products. Moreover, companies in our industry whose employees accept positions
with competitors frequently claim that their competitors have engaged in unfair
hiring practices. We may be subject to such claims in the future as we seek to
hire qualified personnel, some of whom may currently be working for our
competitors. Some of these claims may result in material litigation. We could
incur substantial costs in defending ourselves against these claims, regardless
of their merits.
THE LOSS OF ANY OF OUR KEY PERSONNEL COULD SIGNIFICANTLY HARM OUR BUSINESS
Our success depends to a significant degree upon the continuing
contributions of our key management, technical, marketing and sales employees.
The loss of the services of any key employee could significantly harm our
business, financial condition and results of operations. There can be no
assurance that we will be successful in retaining our key employees or that we
can attract or retain additional skilled personnel as required. Failure to
retain key personnel could significantly harm our business, financial condition
and results of operations.
OUR FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY MAY SIGNIFICANTLY HARM OUR
BUSINESS
Our future success and ability to compete is dependent, in part, on our
proprietary technology. We rely on a combination of trade secret, copyright and
trademark laws to establish and protect our proprietary rights. To date, we have
relied primarily on proprietary processes and know-how to protect our
intellectual property.
21
We also generally enter into confidentiality agreements with our
employees and consultants, strictly limit access to and distribution of our
source code and further limit the disclosure and use of our other proprietary
information. However, these agreements provide only limited protection of our
intellectual property rights. In addition, we may not have signed agreements
containing adequate protective provisions in every case, and the contractual
provisions that are in place and the protection they provide may not provide us
with adequate protection in all circumstances. Any infringement of our
proprietary rights could result in significant litigation costs, and any failure
to adequately protect our proprietary rights could result in our competitors
offering similar products, potentially resulting in loss of a competitive
advantage and decreased revenues. Despite our efforts to protect our proprietary
rights, existing trade secret, copyright and trademark laws afford us only
limited protection. In addition, the laws of some foreign countries do not
protect our proprietary rights to the same extent as do the laws of the United
States. Others may attempt to copy or reverse engineer aspects of our products
or to obtain and use information that we regard as proprietary. Accordingly, we
may not be able to prevent misappropriation of our technologies or to deter
others from developing similar technologies. Further, policing the unauthorized
use of our products is difficult. Litigation may be necessary in the future to
enforce our intellectual property rights or to determine the validity and scope
of the proprietary rights of others. This litigation could result in substantial
costs and diversion of resources and could significantly harm our business.
CLAIMS THAT WE INFRINGE THIRD-PARTY INTELLECTUAL PROPERTY RIGHTS COULD RESULT IN
SIGNIFICANT EXPENSES OR RESTRICTIONS ON OUR ABILITY TO SELL OUR PRODUCTS
From time to time, other parties may assert patent, copyright, trademark
and other intellectual property rights to technologies and in various
jurisdictions that are important to our business. Any claims asserting that our
products infringe or may infringe proprietary rights of third parties, if
determined adversely to us, could significantly harm our business. Any claims,
with or without merit, could be time-consuming, result in costly litigation,
divert the efforts of our technical and management personnel, cause product
shipment delays or require us to enter into royalty or licensing agreements, any
of which could significantly harm our business. Royalty or licensing agreements,
if required, may not be available on terms acceptable to us, if at all. In the
event a claim against us was successful and we could not obtain a license to the
relevant technology on acceptable terms or license a substitute technology or
redesign our products to avoid infringement, our business would be harmed.
ANY ACQUISITIONS THAT WE MAY UNDERTAKE COULD BE DIFFICULT TO INTEGRATE, DISRUPT
OUR BUSINESS, DILUTE SHAREHOLDER VALUE AND SIGNIFICANTLY HARM OUR OPERATING
RESULTS
We expect to review opportunities to buy other businesses or
technologies that would complement our current products, expand the breadth of
our markets or enhance our technical capabilities, or that may otherwise offer
growth opportunities. While we have no current agreements or negotiations
underway, we may buy businesses, products or technologies in the future. If we
make any future acquisitions, we could issue stock that would dilute existing
stockholders' percentage ownership, incur substantial debt or assume contingent
liabilities. We have no experience in acquiring other businesses and
technologies. Potential acquisitions also involve numerous risks, including:
- problems assimilating the purchased operations, technologies or products;
- unanticipated costs associated with the acquisition;
- diversion of management's attention from our core business;
- adverse effects on existing business relationships with suppliers and
customers;
- risk associated with entering markets in which we have no or limited prior
experience; and
- potential loss of the purchased organization's or our own key employees.
We cannot assure you that we would be successful in overcoming problems
encountered in connection with such acquisitions, and our inability to do so
would significantly harm our business.
22
OUR HEADQUARTERS AND MANY OF OUR CUSTOMERS ARE LOCATED IN CALIFORNIA WHERE
NATURAL DISASTERS MAY OCCUR
Currently, our corporate headquarters, many of the borrowers for whom we
provide mortgages are located in California. California historically has been
vulnerable to natural disasters and other risks, such as earthquakes, fires and
floods, which at times have disrupted the local economy and posed physical risks
to our property. We presently do not have redundant, multiple site capacity in
the event of a natural disaster. In the event of such a disaster, our business
would suffer.
OUR EXECUTIVE OFFICERS, DIRECTORS, 5% OR GREATER STOCKHOLDERS AND ENTITIES
AFFILIATED WITH THEM WILL CONTINUE TO OWN A LARGE PERCENTAGE OF OUR VOTING STOCK
AFTER THIS OFFERING, WHICH WILL ALLOW THEM TO CONTROL SUBSTANTIALLY ALL MATTERS
REQUIRING STOCKHOLDER APPROVAL
Our executive officers, directors, 5% or greater stockholders and
entities affiliated with them beneficially own in excess of 60% of our
outstanding shares of common stock. These stockholders, acting together, are
able to elect at least a majority of our board of directors and to control all
other matters requiring approval by stockholders, including the approval of
mergers or other business combination transactions, going private transactions
and other extraordinary transactions, and the terms of any of these
transactions. This concentration of ownership could have the effect of delaying
or preventing a change in our control or otherwise discouraging a potential
acquirer from attempting to obtain control of us, which in turn could have an
adverse effect on the market price of our common stock or prevent our
stockholders from realizing a premium over the market price for their shares of
common stock.
THE SALE OF A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK IN THE PUBLIC
MARKET AFTER THIS OFFERING MAY DEPRESS THE MARKET PRICE OF OUR STOCK
Sales of substantial amounts of our common stock in the public market
due to this offering, or the perception that substantial sales may be made could
cause the market price of our common stock to decline. In addition to the
adverse effect a price decline could have on holders of our common stock, such a
decline would likely impede our ability to raise capital through the issuance of
additional equity securities.
Certain outstanding shares of our Common Stock presently outstanding are
"restricted securities" and under certain circumstances may in the future be
sold in compliance with Rule 144 or Rule 701 adopted under the Securities Act of
1933, as amended, or some other exemption from registration under the Securities
Act of 1933. Future sales of those shares if sold under Rule 144, Rule 701 or
other exemption could depress the market price of the Common Stock in the public
market. However, there can be no assurance that Rule 144, Rule 701 or any other
specific exemption may be available in the future.
CERTAIN "PENNY STOCK" REGULATIONS MAY APPLY TO OUR COMMON STOCK
As of the date of the prospectus, our stock is considered so-called
"penny stock." The so called "penny stock" low-priced securities regulations
could affect the resale of our stock. These regulations require broker-dealers
to disclose the risk associated with buying penny stocks and to disclose their
compensation for selling the stock. They may have the effect of reducing the
level of trading activity in the secondary market for the Common Stock.
ENVIRONMENTAL MATTERS
The Company has not been required to perform any investigation or clean
up activities, nor has it been subject to any environmental claims. There can be
no assurance, however, that this will remain the case in the future. In the
course of its business, the Company may acquire properties securing loans that
are in default. Although the Company primarily lends to owners of residential
properties, there is a risk that the Company could be required to investigate
and clean up hazardous or toxic substances or chemical releases at such
properties after acquisition by the Company, and may be held liable to a
governmental entity or to third parties for property damage, personal injury and
investigation and cleanup costs incurred by such parties in connection with the
contamination. In addition, the owner or former owners of a contaminated site
may be subject to common law claims by third parties based on damages and costs
resulting from environmental contamination emanating from such property.
23
FORWARD-LOOKING STATEMENTS ARE INHERENTLY UNCERTAIN
Some statements under the captions "The Company" and " "Risk Factors and
elsewhere in this prospectus are forward-looking statements. These
forward-looking statements include, but are not limited to, statements about our
industry, plans, objectives, expectations, intentions and assumptions and other
statements contained in the prospectus that are not historical facts. When used
in this prospectus, the words "expect," "anticipate," "intend," "plan,"
"believe," "seek," "estimate" and similar expressions are generally intended to
identify forward-looking statements. Because these forward-looking statements
involve risks and uncertainties, including those described in this "Risk
Factors" section, actual results may differ materially from those expressed or
implied by these forward-looking statements. We do not intend to update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise. Market data and forecasts used in this prospectus,
have been obtained from independent industry sources. Although we believe these
sources are reliable, we do not guarantee the accuracy and completeness of
historical data obtained from these sources and we have not independently
verified these data. Forecasts and other forward-looking information obtained
from these sources are subject to the same qualifications and the additional
uncertainties accompanying any estimates of future market size.
USE OF PROCEEDS
The Company will not receive any of the proceeds form the sale of shares
of common stock by the Selling Shareholders.
SELLING SHAREHOLDERS
Our Shares to which this Reoffer Prospectus relates are being registered
for reoffers and resales by the Selling Shareholders, who acquired the Shares
pursuant to a compensatory benefit plan with Anza for employment and
consulting
services they provided to Anza. The Selling Shareholders may resell all, a
portion or none of such Shares from time to time.
The table below sets forth with respect to the Selling Shareholders,
based upon information available to us as of February 28, 2002, the number of
Shares owned, the number of Shares registered by this Reoffer Prospectus and the
number and percent of outstanding Shares that will be owned after the sale of
the registered Shares assuming the sale of all of the registered Shares.
Selling Number of Number of Shares Number Percentage Of Shares
Shareholders Shares Owned Registered By Of Shares Owned By Shareholders
Before Sale Prospectus To Be Sold After Sale
------------- ------------- ---------- ----------- --------------------
David Villarreal 0 500,000 500,000 0%
----------------- - ------- ------- --
Larry Horwitz 0 500,000 500,000 0%
-------------- - ------- ------- --
David Griffith 125,000 100,000 100,000 0%
--------------- ------- ------- ------- --
Brian Lebrecht 0 300,000 300,000 0%
--------------- - ------- ------- --
Barry R. Clark 0 350,000 350,000 0%
---------------- - ------- ------- --
To be named 0 50,000 50,000 0%
--------------- - ------- ------- --
Totals: 125,000 1,800,000 1,800,000
------- ------- --------- ---------
PLAN OF DISTRIBUTION
The Selling Shareholders may sell the Shares for value from time to time
under this Reoffer Prospectus on one or more transactions on the
Over-the-Counter Bulletin Board maintained by Nasdaq, or other exchange, in a
negotiated transaction or in a combination of such methods of sale, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at prices otherwise negotiated. The Selling Shareholders may
effect such transactions by selling the Shares to or through broker-dealers, and
such broker-dealers may receive compensation in the form of underwriting
discounts, concessions or commissions from the Selling Shareholders and/or the
purchasers of the Shares for whom such broker-dealers may act as agent (which
compensation may be less than or in excess of customary commissions).
24
The Selling Shareholders and any broker-dealers that participate in the
distribution of the Shares may be deemed to be "underwriters within the meaning
of Section 2(11) of the 1933 Act, and any commissions received by them and any
profit on the resale of the Shares owned by them may be deemed to be
underwriting discounts and commissions under the 1933 Act. All selling and other
expenses incurred by the Selling Shareholders will be borne by the Selling
Shareholders.
There is no assurance that the Selling Shareholders will sell all or any
portion of the Shares offered. We will pay all expenses in connection with this
offering and will not receive any proceeds from sale of any shares by the
Selling Shareholders.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
us by Law Office of David M. Griffith, a Professional Corporation, our counsel.
Mr. Griffith is the beneficial owner of 225,000 shares of our Common Stock.
25
PART II
INFORMATION NOT REQUIRED IN THE REGISTRATION STATEMENT
ITEM 8. EXHIBITS.
4. 2000 Employee Stock Compensation Program, as amended.*
4.4 Specimen Share Certificate.*
5. Opinion of the Law Office of David M. Griffith, a Professional
Corporation, as to the validity of the securities registered
hereunder.*
23.1. Consent of the Law Office of David M. Griffith, a Professional
Corporation (set forth in the opinion filed as Exhibit 5 to this
Registration Statement).*
23.2. Consent of McKennon Wilson & Morgan LLP.
_______________
* Previously filed.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 1 to Registration Statement to be
signed on its behalf by the undersigned, in the City of Costa Mesa, State of
California on April 1, 2002.
By: /s/ VINCENT RINEHART
-------------------------------
VINCENT RINEHART
President and Chief
Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 1 to Registration Statement was signed by the following persons in
the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ SCOTT PRESTA Director April 1, 2002
---------------------
SCOTT PRESTA
/s/ VINCENT RINEHART Chairman of the Board, April 1, 2002
----------------------- Chief Executive Officer,
VINCENT RINEHART President and Acting Chief
Financial Officer (Principal
Executive and Accounting Officer)
26
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
4. 2000 Employee Stock Compensation Program, as amended.*
4.4 Specimen Share Certificate.*
5. Opinion of the Law Office of David M. Griffith, a Professional
Corporation, as to the validity of the securities registered
hereunder.*
23.1. Consent of the Law Office of David M. Griffith, a Professional
Corporation (set forth in the opinion filed as Exhibit 5 to this
Registration Statement).*
23.2. Consent of McKennon Wilson & Morgan LLP
-----------------------------------
* Previously filed.
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement on
Form S-8 of our report dated August 8, 2001, which appears on page F-2 of the
2001 Annual Report on Form 10-KSB, as amended, of E-Net Financial
Corporation and subsidiaries for the year ended April 30, 2001.
/S/ MCKENNON WILSON & MORGAN LLP
__________________________________________________
Irvine, California
April 1, 2002
27