SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________ to _______________.
COMMISSION FILE NUMBER O-24512
ANZA CAPITAL, INC.
(Exact name of registrant as specified in its charter)
NEVADA 88-1273503
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3200 BRISTOL STREET, SUITE 700
COSTA MESA, CA 92626
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (714) 866-2100
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No .
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes No.
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. As of March 20, 2003, there
were 96,597,900 shares of common stock issued and outstanding.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT
(check one):
Yes _____ No X
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ANZA CAPITAL, INC.
TABLE OF CONTENTS
-----------------
PART I
ITEM 1 Financial Statements 3
ITEM 2 Management's Discussion and Analysis or
Plan of Operation 19
ITEM 3 Controls and Procedures 28
PART II
ITEM 1 Legal Proceedings 29
ITEM 2 Changes in Securities 29
ITEM 3 Defaults Upon Senior Securities 29
ITEM 4 Submission of Matters to a Vote of Security Holders 29
ITEM 5 Other Information 30
ITEM 6 Exhibits and Reports on Form 8-K 30
2
PART I
This Quarterly Report includes forward-looking statements within the meaning of
the Securities Exchange Act of 1934 (the "Exchange Act"). These statements are
based on management's beliefs and assumptions, and on information currently
available to management. Forward-looking statements include the information
concerning possible or assumed future results of operations of the Company set
forth under the heading "Management's Discussion and Analysis of Financial
Condition or Plan of Operation." Forward-looking statements also include
statements in which words such as "expect," "anticipate," "intend," "plan,"
"believe," "estimate," "consider" or similar expressions are used.
Forward-looking statements are not guarantees of future performance. They
involve risks, uncertainties and assumptions. The Company's future results and
shareholder values may differ materially from those expressed in these
forward-looking statements. Readers are cautioned not to put undue reliance on
any forward-looking statements.
ITEM 1 FINANCIAL STATEMENTS
3
ANZA CAPITAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
January 31, 2003
------------------
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . $ 3,567,734
Commissions and accounts receivable . . . . . . . . . . . . . . . 1,279,930
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . 68,475
Advances to employees . . . . . . . . . . . . . . . . . . . . . . 287,049
Prepaid and other current assets. . . . . . . . . . . . . . . . . 119,853
------------------
Total current assets . . . . . . . . . . . . . . . . . . . . . 5,323,041
Property and equipment, net of accumulated depreciation of $193,334 . 141,024
Goodwill, net of accumulated amortization
and impairments of $1,535,049. . . . . . . . . . . . . . . . 275,247
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . 5,819
------------------
Total assets. . . . . . . . . . . . . . . . . . . . . . $ 5,745,131
==================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . $ 967,958
Warehouse line of credit. . . . . . . . . . . . . . . . . . . . . 62,692
Commissions payable . . . . . . . . . . . . . . . . . . . . . . . 2,182,304
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . 563,820
------------------
Total current liabilities.. . . . . . . . . . . . . . . . . . 3,776,774
Convertible notes payable to related party . . . . . . . . . . . . . . 363,807
Interest payable on convertible notes due to related party . . . . . . 67,273
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,059
------------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . 4,209,913
------------------
Stockholders' equity:
Series A convertible preferred stock, no par value; liquidation
value of $0.50 per share; 500,000 shares authorized, 446,808
shares outstanding . . . . . . . . . . . . . . . . . . . . . 223,404
Series C convertible preferred stock, no par value;
liquidation value of $100.00 per share;
16,400 shares issued and outstanding . . . . .. . . . . . . . 1,640,000
Common stock, $0.001 par value; 100,000,000 shares
authorized; 57,097,904 issued and 54,347,904 outstanding . .. . 57,097
Additional paid-in capital. . . . . . . . . . . . . . . . . . . 12,511,475
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . (12,896,758)
------------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . 1,535,218
------------------
Total liabilities and stockholders' equity. . . . . . . . $ 5,745,131
==================
See accompanying notes.
4
ANZA CAPITAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Three Nine Nine
Months Ended Months Ended Months Ended Months Ended
Jan 31, 2003 Jan 31, 2002 Jan 31, 2003 Jan 31, 2002
-------------- -------------- -------------- --------------
Revenues:
Broker commissions. . . . . . . . $ 14,926,234 $ 6,502,348 $ 40,752,034 $ 17,566,556
Other . . . . . . . . . . . . . . 387,173 142,348 1,117,841 483,692
-------------- -------------- -------------- --------------
15,313,407 6,644,696 41,869,875 18,050,248
-------------- -------------- -------------- --------------
Cost and expenses:
Broker Commissions. . . . . . . 9,825,448 4,750,209 28,829,652 12,221,981
Other . . . . . . . . . . . . . . 251,462 43,441 739,428 155,069
-------------- -------------- -------------- --------------
Gross profit. . . . . . . . . . 5,236,497 1,851,046 12,300,795 5,673,198
General and administrative . . . . . 3,267,501 1,247,219 6,465,093 3,306,500
Salaries and wages . . . . . . . . . 1,547,889 590,549 4,735,850 2,728,276
Non-recurring loss on settlements. . - - - 282,494
Impairment of goodwill . . . . . . . - - 150,000 -
-------------- -------------- -------------- --------------
Total costs and expenses. .. . 4,815,390 1,837,768 11,350,943 6,317,270
-------------- -------------- -------------- --------------
Operating income (loss) . . . . 421,107 13,278 949,852 (644,072)
Interest expense . . . . . . . . . . (38,477) (72,851) (103,085) (99,522)
Other income (expense), net. . . . . 41,371 75,341 96,258 161,615
-------------- -------------- -------------- --------------
Net income (loss) . . . . . . . $ 424,001 $ 15,768 $ 943,025 $ (581,979)
============== ============== ============== ==============
Loss per common share:
Basic:
Weighted average number of
common shares. . . . . . . . . 55,048,830 38,985,955 46,722,260 34,622,215
============== ============== ============== ==============
Net income (loss) per common
share . . . . . . . . . . . . $ 0.01 $ 0.00 $ 0.02 $ (0.02)
============== ============== ============== ==============
Diluted:
Weighted average number of
common shares . . . . . . . . . 160,540,665 38,985,955 152,214,095 34,622,215
============== ============== ============== ==============
Net income (loss) per common
share . . . . . . . . . . . . $ 0.00 $ 0.00 $ 0.01 $ (0.02)
============== ============== ============== ==============
See accompanying notes.
5
ANZA CAPITAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Nine Months
Ended Ended
Jan 31, 2003 Jan 31, 2002
-------------- --------------
Cash flows from operating activities:
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 943,025 $ (581,979)
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization. .. . . . . . . . . . . . . . . . . . . . . . . 31,494 15,001
Non-recurring loss on settlements. . . .. . . . . . . . . . . . . . . . . . . - 282,494
Gain on settlement of obligations . . . . . . . . . . . . . . . . . . . . . . (51,543) (125,880)
Stock based compensation .. . . . . . . . . . . . . . . . . . . . . . . . . . 173,234 426,023
Amortization of discounts on loans . . . . . . . .. . . . . . . . . . . . . . 30,726 46,219
Impairment of goodwill . . . . . . . . . . . . .. . . . . . . . . . . . . . 150,000 -
Amortization of deferred stock compensation. . . . .. . . . . . . . . . . . . 57,958 187,133
Provision for losses on brokered loans . . . . .. . . . . . . . . . . . . . . 350,000 -
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable, net. . . . . . . . . . . . . . . 48,528 (270,754)
Decrease (increase) in loans held for sale . . . . . . . . . . . . . . . . . 1,001,225 (1,140,766)
(Increase) decrease in other current assets. . . . . . . . . . . . . . . . . (76,181) 4,477
Increase in due from employees . . . . . . . . . . . . . . . . . . . . . . . (200,116) (39,250)
Increase (decrease) in accounts payable. . . . . . . . . . . . . . . . . . . 743,198 (221,116)
Increase in commissions payable. . . . . . . . . . . . . . . . . . . . . . . 972,865 610,761
Increase (decrease) in accrued liabilities . . . . . . . . . . . . . . . . . 13,587 31,117
Decrease in other liabilities. . . . . . . . . . . . . . . . . . . . . . . . (30,272) -
-------------- --------------
Net cash provided by (used in) operating activities. . . . . . . . . . . . . . 4,157,728 (776,520)
-------------- --------------
Cash flows from investing activities:
Decrease in other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,819) 11,307
Acquisitions of property and equipment . . . . . . . . . . . . . . . . . . . . (49,004) (22,957)
-------------- --------------
Net cash used in investing activities. . . . . . . . . . . . . . . . . . . . . (54,823) (11,650)
-------------- --------------
Cash flows from financing activities:
Proceeds from issuance of bridge loan. . . . . . . . . . . . . . . . . . . . . - 225,000
Payments on bridge loan. . . . . . . . . . . . . . . . . . . . . . . . . . . (200,000) -
Payments on notes to related parties . . . . . . . . . . . . . . . . . . . . - (150,000)
Payments on capital lease obligations. . . . . . . . . . . . . . . . . . . . (18,420) (35,800)
Net borrowings under warehouse line of credit. . . . . . . . . . . . . . . . . (982,184) 1,135,145
Repurchase of Series A Preferred. . . . . . . . . . . . . . . . . . . . . . . (20,423) (5,650)
Dividends on Series A and C Preferred . . . . . . . . . . . . . . . . . . . . (21,995) (3,630)
Proceeds from private placement. . . . . . . . . . . . . . . . . . . . . . . - 163,874
-------------- --------------
Net cash (used in) provided by financing activities. . . . . . . . . . . . . . (1,243,022) 1,328,939
-------------- --------------
(Continued)
See accompanying notes.
6
ANZA CAPITAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONTINUED
Net increase in cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,859,883 540,769
Cash at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . 707,851 92,886
-------------- --------------
Cash at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,567,734 $ 633,655
============== ==============
Non-cash financing activities:
Debt reduction through the issuance of stock. . . . . . . . . . . . . . . . - $ 801,675
Warrants issued for bridge-loan issue costs . . . . . . . . . . . . . . . . $ - $ 321,428
Conversion of Series C Preferred to common stock. . . . . . . . . . . . . . $ 122,950 $ 575,688
Supplemental cash flow information:
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 27,937 $ 56,035
Income tax payments were not significant during the periods presented
See accompanying notes.
7
NOTES TO INTERIM FINANCIAL STATEMENTS
NOTE 1. UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial data as of January 31, 2003, and for the three and nine
months ended January 31, 2003 and 2002 are unaudited; however, in the opinion of
management, the interim data includes all adjustments, consisting of normal
recurring adjustments, necessary to present fairly the Company's consolidated
financial position as of January 31, 2003, and the results of their operations
and their cash flows for the three and nine months ended January 31, 2003
and 2002. The results of operations are not necessarily indicative of the
operations, which may result for the year ending April 30, 2003. Also, in the
opinion of management, all disclosures required on Form 10-QSB were fully
furnished. The Company's Annual Report on Form 10-KSB for the year ended April
30, 2002 should be read in connection with this quarterly report.
NOTE 2. RECLASSIFICATIONS
Certain prior year amounts have been reclassified for comparative purposes. The
amounts reclassified are summarized in the table below.
Three Months Ended January 31, 2002
As Originally Filed As Reclassified Difference
Broker Commissions . . . . . . . . . $ 3,527,541 $ 4,750,209 $ 1,222,668
Other. . . . . . . . . . . . . . . . - 43,441 43,441
General and administrative expenses. 3,027,027 1,247,219 (1,779,808)
Salaries and wages . . . . . . . . . 76,850 590,549 513,699
Nine Months Ended January 31, 2002
As Originally Filed As Reclassified Difference
Broker Commissions . . . . . . . . . $10,458,042 $12,221,981 $ 1,763,939
Other. . . . . . . . . . . . . . . . - 155,069 155,069
General and administrative expenses. 7,349,788 3,306,500 (4,043,288)
Salaries and wages . . . . . . . . . 603,996 2,728,276 2,124,280
The amounts were reclassified to appropriately disclose costs and expenses
directly related to revenue generating activities. Further, salaries and wages
have been broken out of general and administrative expenses as this cost has
become individually significant. In addition, all expenses relating to
compensation, such as payroll taxes, have been reclassified into salaries and
wages.
These reclassifications have no effect on previously reported net income (loss).
NOTE 3. SEGMENT DISCLOSURE
Segments were determined based on services provided by each segment.
Performance of the segments is evaluated on operating income before income
taxes, excluding reorganization and restructuring charges, and unusual gains and
losses. For the three and nine months ended January 31, 2003 and 2002,
management has provided the following information with respect to its operating
segments (in thousands).
8
Three Months Ending January 31, Revenues Net Income Assets
--------------------- --------------- --------------
2003 2002 2003 2002 2003 2002
Loan Brokering. . . . . . . . . 14,786 6,498 721 24 5,472 2,031
Mortgage Banking. . . . . . . . 140 7 128 (6) 68 1,498
Notary Services . . . . . . . . 256 83 57 - 197 37
Real Estate Brokerage . . . . . 131 57 (4) (64) 8 8
--------- ----------- ------- ------
15,313 6,645 5,745 3,574
========= =========== ------- ------
Impairment of Goodwill. . . . . - -
Compensatory Stock. . . . . . . - (27)
Corporate . . . . . . . . . . . (478) 89
------- ------
Total . . . . . . . . . . . . . 424 16
------- ------
Nine Months Ending January 31, Revenues Net Income Assets
--------------------- --------------- --------------
2003 2002 2003 2002 2003 2002
Loan Brokering. . . . . . . . . 40,547 17,536 1,424 447
Mortgage Banking. . . . . . . . 205 39 155 1
Notary Services . . . . . . . . 646 256 126 17
Real Estate Brokerage . . . . . 472 219 (6) (171)
--------- -----------
41,870 18,050
========= ===========
Impairment of Goodwill. . . . . (150) -
Compensatory Stock. . . . . . . (158) (531)
Corporate . . . . . . . . . . . (448) (345)
------- ------
Total . . . . . . . . . . . . . 943 (582)
------- ------
NOTE 4. IMPACT OF RECENTLY ISSUED ACCOUNTING STATEMENTS
In July 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. This statement provides accounting and reporting standards for
costs associated with the retirement of long-lived assets. This statement
requires entities to record the fair value of a liability for an asset
retirement obligation in the period in which it is incurred. When the liability
is initially recorded, the entity capitalizes a cost by increasing the carrying
amount of the related long-lived asset. Over time, the liability is accreted to
its present value each period, and the capitalized cost is depreciated over the
useful life of the related asset. Upon settlement of the liability, an entity
either settles the obligation for its recorded amount or incurs a gain or loss
upon settlement. The Company will be required to adopt this statement no later
than May 1, 2003. The Company is currently assessing the impact of this
statement on its results of operations, financial position and cash flows.
9
In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. This statement replaces SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of. However it retains the fundamental provisions of SFAS No. 121 for
recognition and measurement of the impairment of long-lived assets to be held
and used and for measurement of long-lived assets to be disposed of by sale.
This statement applies to all long-lived assets, including discontinued
operations, and replaces the provisions of APB Opinion No. 30, Reporting Results
of Operations-Reporting the Effects of Disposal of a Segment of a Business, for
the disposal of segments of a business. This statement requires that those
long-lived assets be measured at the lower of carrying amount or fair value less
cost to sell, whether reported in continuing operations or in discontinued
operations The adoption of the provision of SFAS 144 did not have a material
impact on the results of operations or the financial position of Anza.
In May 2002, the FASB issued SFAS No. 145, "Rescission of FASB No. 4, 44 and 64,
Amendment of FASB Statement No. 13, and Technical Corrections" (SFAS 145). SFAS
145 updates, clarifies and simplifies certain existing accounting
pronouncements. Currently, SFAS 145 impacts Anza only with respect to the
rescission of SFAS 4. Prior to the issuance of SFAS 145, SFAS 4 required all
gains and losses from extinguishment of debt to be aggregated and, if material,
classified as an extraordinary item, net of related income tax effect. As a
result of the rescission of SFAS 4, the criteria in APB No. 30 will now be used
to classify those gains and losses. SFAS 145 is required to be adopted for
fiscal years beginning after May 2002. The Company has elected to early adopt
the provisions of SFAS 145, and as such reported all gains on settlements of
debt as components of other income. For the nine months ended January 31, 2003,
the Company had a gain from the settlement of certain bridge loan obligations in
the amount of $51,543 as discussed in Note 7.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." The standard requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. Costs covered by
the standard include lease termination costs and certain employee severance
costs that are associated with a restructuring, discontinued operation, plant
closing, or other exit or disposal activity. This statement is to be applied
prospectively to exit or disposal activities initiated after December 31, 2002.
Management is currently assessing the impact of this statement on its result of
operations, financial position and cash flows.
NOTE 5. GOODWILL
The net carrying amount of goodwill is $275,247 ($100,000 related to Titus and
$175,247 related to Expidoc) at January 31, 2003. Goodwill, during the periods
presented, was not amortized in accordance with SFAS 142. During the nine
months ended January 31, 2003, management assessed the carrying value of Titus,
after a liquidation of assets held by the Titus REIT. Titus has no remaining
assets or obligations as of January 31, 2003. Management has inquired as to the
sale value of Titus, in its current state, and believes that an impairment of
the carrying value of Titus is necessary to reduce the estimated proceeds to be
received to $100,000. Accordingly, management has recorded an impairment of
goodwill in the amount of $150,000 to operations during the nine months ended
January 31, 2003.
10
NOTE 6. EARNINGS PER SHARE
Dilutive securities which are included in the calculation of dilutive EPS for
the three and nine months ended January 31, 2003, include the assumed conversion
of Series C Convertible Preferred Stock, and the Series A Convertible Preferred
Stock into approximately 105,491,835 shares of common stock. If these
securities had been converted as of January 31, 2003, the Company would have
exceeded its authorized number of common shares. On February 28, 2003, the
holders of Series A Convertible Preferred Stock and Series C Convertible
Preferred Stock entered into agreements effective following Anza's pending
shareholder meeting to exchange their securities for newly created Series E and
Series D Convertible Preferred Stock, respectively, reducing the effects of
dilution for future periods, and the risk that the authorized shares be
exceeded.
NOTE 7. BRIDGE FINANCING
On June 27, 2001, the Company obtained a short-term bridge loan from Laguna
Pacific Capital Partners in the amount of $225,000, with a stated rate of
interest at 7% per annum. Anza also executed a warrant agreement, which
entitled Laguna Pacific to acquire up to $225,000 worth of Anza 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. For accounting purposes,
Anza was required to allocate the proceeds received to the value of the warrant
and the bridge loan using the relative fair value method and the resulting
warrant value is reflected as an increase in additional paid-in capital and a
corresponding reduction (discount) to the face value of the note. The relative
value of the warrant amounted to $132,341, and such amount was reflected as a
discount to the note. The discount on the note was amortized over the term of
the note of March 27, 2002, using the effective interest method. Anza paid
$25,000, plus interest, near the due date. Management of Anza sought relief,
since the general partners of Laguna Pacific did not perform under certain terms
of the agreement. On or about June 27, 2002, Anza entered into a settlement
agreement and general mutual release with Laguna Pacific (the "Laguna
Settlement"). As consideration under the Laguna Settlement, Anza repaid the
$200,000 note, plus $9,000 in accrued interest, and the note was cancelled.
Subsequent to the Laguna Settlement, a dispute arose regarding whether or not
the Laguna Settlement included and consequently canceled the warrants. On
October 25, 2002, the board of directors authorized the issuance of 3,000,000
shares of the Company's common stock upon exercise of the Laguna warrant. The
stock was valued at the fair market value on the date the settlement was
executed of $0.03 per share, less a 10% reduction based on the Rule 144
restriction. The value of the 3,000,000 shares issued to Laguna was determined
to be $81,000. The value of the warrant immediately prior to the settlement was
determined to be equal to the original relative value of the warrant, since no
economic changes impacted the value of the warrant since the date of issuance.
During the nine months ended January 31, 2003, management recorded a gain on the
settlement as other income in the amount of $51,543.
NOTE 8. EMPLOYMENT AGREEMENTS
On June 1, 2001, Anza entered into an employment agreement with Vincent
Rinehart, its chief executive officer. Under the terms of the agreement, Anza
is to pay 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. In addition, Anza granted Vincent Rinehart
options to acquire 2,500,000 shares of Anza common stock at $0.08 per share (the
fair value on June 1, 2001), which vested monthly over a three-year period; as
part of a recapitalization of the company, effective following Anza's pending
shareholder meeting, these options will be terminated (see Note 11). Using the
variable method in accordance with Accounting Principles Board Opinion No. 25,
no expense was recognized from the issuance of the options.
11
On April 1, 2002, AMRES entered into an employment agreement with Jeff Hemm,
president, for the term of three years. Under the terms of the agreement, AMRES
is to pay a salary equal to $168,000 per year, subject to an monthly increase or
decrease based on the number of loans closed during the quarter, plus automobile
allowance of $800 per month and other benefits, including life insurance. In
addition, he was granted options to acquire 1,000,000 shares of AMRES common
stock at $0.05 per share (the fair value on April 1, 2002), which vested over
twelve months; these options were canceled in exchange for 1,000,000 shares of
common stock on November 1, 2002 (see Note 9).
NOTE 9. STOCKHOLDERS' EQUITY
From time to time, the Company's board of directors authorizes the issuance of
common stock. The Company values shares of common stock based on the closing
ask price of the securities on the date the directors approve such issuance. In
the event the Company issues common stock subject to transferability
restrictions under Rule 144 of the Exchange Act of 1933, the Company discounts
the closing ask prices by 10% to value its common stock transactions.
In May 10, 2002, the Company issued 30,000 shares of its restricted common stock
to an employee as an incentive. The shares were valued at $1,080 and recorded
as compensation expense during the first quarter. On November 4, 2002, the
Company issued 3,050,000 shares to consultants and legal counsel for services
rendered prior to October 31, 2002, valued at $82,350. The value of the shares
were recorded in the accompanying financial statements as consulting expense for
the quarter ended October 31, 2002.
Further, on November 4, 2002, the Company issued 3,950,000 shares to current
employees and directors for services rendered prior to October 31, 2002. The
shares were valued at $106,650 and were recorded as compensation expense for the
quarter ended October 31, 2002.
Also see Note 11, Subsequent Events.
SERIES A CONVERTIBLE PREFERRED STOCK
During the nine months ended January 31, 2003, Anza repurchased 48,977 shares of
Series A Convertible Preferred Stock for $20,423. Also during the period, the
Company declared and distributed $21,995 of dividends relating to the Series A
Convertible Preferred Stock.
Please also see Note 11, Subsequent Events for certain recapitalization
transactions related to the Series A Convertible Preferred Stock.
12
SERIES C CONVERTIBLE PREFERRED STOCK
On May 14, 2002 and again on November 17, 2002, holders of Series C Convertible
Preferred Stock converted 1,059 shares of Series C Preferred Stock into
5,728,503 shares of Anza's restricted common stock. The number of shares
received upon conversion was determined based on the conversion discount
specified in the agreement of 17.5%, taking into account the dividends which
were due on the Series C Preferred shares. The beneficial conversion feature
embedded in the Series C Preferred was originally charged to Anza's accumulated
deficit. No expense was associated with the transaction. Series C Convertible
Preferred stock dividends totaling $17,050 were charged to the Company's
accumulated deficit during the nine months ended January 31, 2003.
Please also see Note 11. Subsequent Events for certain recapitalization
transactions related to the Series C Convertible Preferred Stock.
NOTE 10. NOTIFICATION FROM THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
On December 9, 2002, the Company received notification from HUD requesting
indemnification on up to 23 loans brokered by a former loan officer of the
Company. We executed and provided an Indemnification Agreement to HUD as
requested. On February 13, 2003, HUD notified us that (i) without the loans
originated by this particular loan officer, AMRES' default and claim rate would
be an acceptable level to HUD, and (ii) as a result of our termination of that
loan officer, and the indemnification agreement, the matter was closed.
Further, on March 3, 2003, the company was served with a lawsuit from one of its
lenders regarding potential irregularities with as many as six loans submitted
to and closed through this lender. The Company is currently assessing losses,
if any, associated with each of these loans. The Company carries errors and
omissions insurance coverage, which may offset any potential losses, which may
be incurred by the Company with respect to these loans. At the time of the
filing of this quarterly report, it is too early to determine what, if any, loss
the Company may ultimately incur with these loans. The Company has accrued
$350,000 ($115,000 accrued in the second quarter and $235,000 accrued in the
third quarter) of expense as accrued liabilities to account for the potential
deductible the Company could incur if all of these loans result in losses for
the Company.
NOTE 11. SUBSEQUENT EVENTS
Proposed Reorganization and Acquisition
On October 7, 2002, Anza issued a press release announcing the execution of a
reorganization agreement with Homelife, Inc. On February 27, 2003, due to a
number of factors including but not limited to changing market conditions,
the failure of Homelife to fulfill one or more of its obligations under
the agreement, and the extended period of time it would take to complete
the reorganization, Anza notified Homelife of its intent to terminate the
Reorganization Agreement. On March 14, 2003, Anza terminated the Reorganization
Agreement.
Amendment to Effectuate a 1-for-20 Reverse Stock Split
On February 28, 2003, the board of directors approved, subject to stockholder
approval, an amendment to the Company's Articles of Incorporation to effectuate
a one (1) for twenty (20) reverse stock split of the Company's issued and
outstanding common stock. On March 5, 2003, the proposal was approved by
written consent of a majority of the Company's stockholders; however; this
proposal will not be effected until after the Company's annual shareholders
meeting on April 11, 2003.
13
Amendment to Increase the Authorized Preferred Stock to 2,500,000 Shares
On February 28, 2003, the board of directors of the Company approved an
amendment to the Company's Articles of Incorporation to increase the authorized
preferred stock from 1,000,000 shares to 2,500,000 shares, par value $0.001 per
share, the rights, privileges, and preferences of which would be determined by
the board of directors, in their sole discretion, from time to time. On March
5, 2003, the proposal was approved by written consent of a majority of the
Company's stockholders; however; this proposal will not be effected until after
the Company's annual shareholders meeting on April 11, 2003.
2003 Securities Plan
On February 28, 2003, the Board of directors of the Company approved, declared
it advisable and in the Company's best interests, and directed that there be
submitted to the holders of a majority of the Company's voting stock for action
by written consent the Anza Capital, Inc. 2003 Omnibus Securities Plan (the
"2003 Securities Plan"). On March 5, 2003, the proposal was approved by written
consent of a majority of the Company's stockholders however; this proposal will
not be effected until after the Company's annual shareholders meeting on April
11, 2003.
The 2003 Securities Plan authorizes the granting of the following types of
stock-based awards (each, an "Award"):
- stock options (including incentive stock options and non-qualified stock
options);
- restricted stock awards;
- unrestricted stock awards; and
- performance stock awards.
A total of 750,000 (post 1 for 20 stock split) shares of common stock (subject
to adjustment as described below) are reserved for issuance under the 2003
Securities Plan. Shares of common stock issued under the 2003 Securities Plan
may be authorized but unissued shares, or shares reacquired by the Company,
including shares purchased on the open market. The unexercised, unearned or
yet-to-be acquired portions of any award that expire, terminate or are canceled,
and shares of common stock issued pursuant to awards under the 2003 Securities
Plan that are reacquired by the Company pursuant to the terms under which such
shares were issued, will again become available for the grant of further awards.
All shares will be proportionately adjusted for any increase or decrease in the
number of issued shares of common stock resulting from an increase, decrease or
exchange in the outstanding shares of common stock or if additional shares or
new or different shares are distributed in respect of such shares of common
stock, through merger, consolidation, sale or exchange of all or substantially
all of the assets of the Company, reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split, spin-off or
other distribution with respect to such shares. On May 1 of each year, the
number of shares in the 2003 Securities Plan shall automatically be adjusted to
an amount equal to ten percent (10%) of the outstanding stock of the Company on
April 30 of the immediately preceding year.
Under the 2003 Securities Plan, the board of directors may grant either
incentive stock options or nonqualified stock options. Incentive stock options
and non-qualified stock options may be granted for such number of shares of
common stock as the board of directors determines. No grants have been made
under the 2003 Securities Plan.
14
The exercise price for each stock option is determined by the board of
directors. Stock options must have an exercise price of at least 85% (100% in
the case of incentive stock options, or at least 110% in the case of incentive
stock options granted to certain employees owning more than 10% of the
outstanding voting stock) of the fair market value of the common stock on the
date the stock option is granted. Under the 2003 Securities Plan, fair market
value of the common stock for a particular date is generally the average of the
closing bid and asked prices per share for the stock as quoted on the OTC
Bulletin Board on such date.
No stock option may be exercised after the expiration of ten years from the date
of grant (or five years in the case of incentive stock options granted to
certain employees owning more than 10% of the outstanding voting stock).
Pursuant to the 2003 Securities Plan, the aggregate fair market value of the
common stock for which one or more incentive stock options granted to any
participant may for the first time become exercisable as incentive stock options
under the federal tax laws during any one calendar year shall not exceed
$100,000.
Recapitalization Transactions Involving Preferred Stockholders and Debtholder
The board of directors has authorized and approved the following transactions,
which were undertaken as part of a plan of restructuring the capitalization of
the Company so as to better position it for growth and acquisitions. The Company
seeks ratification of such approvals from the shareholders.
(a) On February 28, 2003, Anza Capital, Inc. and Keyway Investments,
Ltd entered into an agreement, whereby Keyway agreed to exchange 4,006 shares of
Series C Convertible Preferred Stock for (i) 8,181,491 shares of common stock,
(ii) 2,003 shares of newly created Series D Convertible Preferred Stock, and
(iii) warrants to acquire 183,168 (assuming the proposed 1 for 20 stock split
effected) shares of common stock, exercisable for a period of five years, with
each one-third at an exercise price of $0.50, $0.75, and $0.90 per share,
respectively. The exchange for common stock was completed on the date of the
agreement, while the exchange for new preferred stock and the cancellation of
the warrants will be effective after the pending Anza shareholder meeting. On
the date of the agreement, the value of the Series C Preferred Stock, plus
accrued dividends, was determined to be $484,509. The 8,181,491 shares of
common stock were valued at $219,325 based on the fair market value of the
shares as of February 28, 2003, less a 10% discount for transferability
restrictions. The Series D Convertible Preferred Stock has a liquidation value
of $254,000 and the warrants were attributed a value of $9,609 using the Black
Scholes option pricing mode. The closing stock price and the date of grant of
the warrants was $0.03, and assuming the 1 for 20 stock split effect, the stock
price used as fair value was $0.60 per share. The option life assumed is 5
years, risk-free interest rate of 2.5%, and an expected volatility of 15%.
Management determined the measurement date to be February 28, 2003, since
consent of a majority of the shareholders was obtained on that date. As the
value of the newly issued shares, Series D Convertible Preferred Stock and the
warrants equate the value of the previously outstanding Series C Convertible
Preferred Stock, the Company is not expected to incur any financial impact
related to the exchange in future periods.
(b) On February 28, 2003, Anza Capital, Inc. and EURAM Cap Strat. "A"
Fund Limited entered into an agreement, whereby EURAM agreed to exchange 4,051
shares of Series C Convertible Preferred Stock for (i) 8,273,395 shares of
common stock, (ii) 2,025.5 shares of newly created Series D Convertible
Preferred Stock, and (iii) warrants to acquire 185,226 (assuming the proposed 1
15
for 20 stock split effected) shares of common stock, exercisable for a period of
five years, with each one-third at an exercise price of $0.50, $0.75, and $0.90
per share, respectively. The exchange for common stock was completed on the date
of the agreement, while the exchange for new preferred stock and the
cancellation of the warrants will be effective after the pending Anza
shareholder meeting. On the date of the agreement, the value of the Series C
Preferred Stock, plus accrued dividends was determined to be $488,359. The
8,273,395 shares of common stock were valued at $221,789 based on the fair
market value of the shares as of February 28, 2003, less a 10% discount for
transferability restrictions. The Series D Convertible Preferred Stock has a
liquidation value of $256,854 and the warrants were attributed a value of $9,717
using the Black Scholes option pricing mode. The closing stock price and the
date of grant of the warrants was $0.03, and assuming the 1 for 20 stock split
effect, the stock price used as fair value was $0.60 per share. The option life
assumed is 5 years, risk-free interest rate of 2.5%, and an expected volatility
of 15%. Management determined the measurement date to be February 28, 2003,
since consent of a majority of the shareholders was obtained on that date. As
the value of the newly issued shares, Series D Convertible Preferred Stock and
the warrants equate the value of the previously outstanding Series C Convertible
Preferred Stock, the Company is not expected to incur any financial impact
related to the exchange in future periods.
(c) On February 28, 2003, Anza Capital, Inc. and The dotCom Fund, LLC,
entered into an agreement, whereby dotCom Fund agreed to exchange 2,195 shares
of Series C Convertible Preferred Stock for (i) 4,482,869 shares of Common
Stock, (ii) 1,097.5 shares of newly created Series D Convertible Preferred
Stock, and (iii) warrants to acquire 100,362 (assuming the proposed 1 for 20
stock split effected) shares of common stock, exercisable for a period of five
years, with each one-third at an exercise price of $0.50, $0.75, and $0.90 per
share, respectively. The exchange for common stock was completed on the date of
the agreement, while the exchange for new preferred stock and the cancellation
of the warrants will be effective after the pending Anza shareholder meeting.
On the date of the agreement, the value of the Series C Preferred Stock, plus
accrued dividends was determined to be $264,613. The 4,482,869 shares of
common stock were valued at $120,174 based on the fair market value of the
shares as of February 28, 2003, less a 10% discount for transferability
restrictions. The Series D Preferred has a liquidation value of $139,174 and
the warrants were attributed a value of $5,265 using the Black Scholes option
pricing mode. The closing stock price and the date of grant of the warrants was
$0.03, and assuming the 1 for 20 stock split effect, the stock price used as
fair value was $0.60 per share. The option life assumed is 5 years, risk-free
interest rate of 2.5%, and an expected volatility of 15%. Management determined
the measurement date to be February 28, 2003, since consent of a majority of the
shareholders was obtai ned on that dateAs the value of the newly issued shares,
Series D Convertible Preferred Stock and the warrants equate the value of the
previously outstanding Series C Convertible Preferred Stock, the Company is not
expected to incur any financial impact related to the exchange in future
periods.
(d) On February 28, 2003, Anza Capital, Inc. and Cranshire Capital,
L.P., entered into an agreement, whereby Cranshire agreed to exchange 6,151
shares of Series C Convertible Preferred Stock for (i) 12,562,245 shares of
common stock, (ii) 3,075.5 shares of newly created Series D Convertible
Preferred Stock, and (iii) warrants to acquire 281,244 (assuming the proposed 1
for 20 stock split effected) shares of common stock, exercisable for a period of
five years, with each one-third at an exercise price of $0.50, $0.75, and $0.90
per share, respectively. The exchange for common stock was completed on the
date of the agreement, while the exchange for new preferred stock and the
cancellation of the w arrants will be effective after the pending Anza
shareholder meeting. On the date of the agreement, the value of the Series C
Preferred Stock, plus accrued dividends was determined to be $741,520. The
12,562,245 shares of common stock were valued at $336,761 based on the fair
market value of the shares as of February 28, 2003, less a 10% discount for
transferability restrictions. The Series D Preferred Stock has a liquidation
value of $390,004 and the warrants were attributed a value of $14,755 using the
Black Scholes option pricing mode. The closing stock price and the date of
grant of the warrants was $0.03, and assuming the 1 for 20 stock split effect,
16
the stock price used as fair value was $0.60 per share. The option life assumed
is 5 years, risk-free interest rate of 2.5%, and an expected volatility of 15%.
Management determined the measurement date to be February 28, 2003, since
consent of a majority of the shareholders was obtained on that date. As the
value ofthe newly issued shares, Series D Convertible Preferred Stock and the
warrants equate the value of the previously outstanding Series C Convertible
Preferred Stock, the Company is not expected to incur any financial impact
related to the exchange in future periods.
(e) On February 28, 2003, Anza Capital, Inc. and Barbara Dunster
entered into an agreement, whereby Dunster agreed to exchange 347,643 shares of
Series A Convertible Preferred Stock for 173,822 shares of newly created Series
E Convertible Preferred Stock. The effective date of the exchange will be after
the pending shareholder meeting. The Series A Convertible Preferred Stock had a
liquidation value of $0.50 per share, or $173,822 total, which equates to the
liquidation value of the Series E Convertible Preferred Stock of $1.00 per
share, or $173,822 total. As such, the Company is not expected to incur any
financial impact related to the exchange in future periods.
(f) On dated February 28, 2003, Anza Capital, Inc. and the Staron
Family Trust entered into an agreement, whereby Staron agreed to exchange 86,911
shares of Series A Convertible Preferred Stock for 43,456 shares of newly
created Series E Convertible Preferred Stock. The effective date of the
exchange will be after the pending shareholder meeting. The Series A
Convertible Preferred Stock had a liquidation value of $0.50 per share, or
$43,456 total, which equates to the liquidation value of the Series E
Convertible Preferred Stock of $1.00 per share, or $43,456 total. As such, the
Company is not expected to incur any financial impact related to the exchange in
future periods.
(g) On February 28, 2003, Anza Capital, Inc. and Vincent Rinehart
entered into an agreement, whereby Rinehart agreed to (i) cancel options to
acquire 2,500,000 shares of common stock and (ii) convert an aggregate of
$433,489.06 in principal and interest under a promissory note into (y) 6,000,000
shares of common stock and (z) 18,800 shares of newly created Series F
Convertible Preferred Stock. The exchange of principal and interest was
effective as of the date of the agreement, while the cancellation of options and
issuance of preferred stock will be effective after the pending shareholder
meeting. The value attributed to the 6,000,000 shares of common stock was
$120,000, based on the fair market value of the stock as of the exchange date
less a 20% discount (per the original terms of the promissory note). The value
attributed to the Series F Convertible Preferred Stock is $313,490 based on
18,800 shares at a liquidation value of $16.675 per share. As such, the Company
is not expected to incur any financial impact related to the exchange in future
periods.
Preferred Stock
Each share of Series D Convertible Preferred Stock (assuming the 1-for-20
reverse stock split is effected) (i) has a liquidation preference equal to
$126.81 per share, (ii) is entitled to receive a quarterly non-cumulative
dividend equal to 7% per annum, which may be paid in cash or in common stock at
the discretion of the Company based on the average of the closing bid price for
the last ten trading days of the applicable quarter, (iii) may be converted,
after February 28, 2004, into 126.81 shares of Company common stock at the
option of the holder, and (iv) is entitled to 126.81 votes on all matters
submitted to the shareholders for approval.
17
Each share of Series E Convertible Preferred Stock (after giving effect to the
1-for-20 reverse stock split) (i) has a liquidation preference (after the Series
D Convertible Preferred Stock) equal to $1.00 per share, (ii) is entitled to a
monthly, non-cumulative dividend equal to 12% per annum, payable in cash, and
(iii) may be converted, only upon the mutual written consent of the holder and
the Company, into common stock at the average of the closing bid price for the
last ten days prior to the conversion date. The Series E Convertible Preferred
Stock does not have any voting rights.
Each share of Series F Convertible Preferred Stock (after giving effect to the
1-for-20 reverse stock split) (i) has a liquidation preference (after the Series
D Convertible Preferred Stock and Series E Convertible Preferred Stock) equal to
$16.675 per share, (ii) is entitled to a quarterly, non-cumulative dividend of
1.75 shares of Company common stock, which may be paid in cash at the Company's
discretion based on the average of the closing bid price for the last ten
trading days of the applicable quarter, (iii) may be converted, after February
28, 2004, into 100 shares of Company common stock at the option of the holder,
and (iv) is entitled to 100 votes on all matters
submitted to the shareholders for approval.
18
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Except for historical information, the materials contained in this Management's
Discussion and Analysis are forward-looking (within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934) and involve a number of risks and uncertainties. These include the
Company's historical losses, the need to manage its growth, general economic
downturns, intense competition in the financial services and mortgage banking
industries, seasonality of quarterly results, and other risks detailed from time
to time in the Company's filings with the Securities and Exchange Commission.
Although forward-looking statements in this Quarterly Report reflect the good
faith judgment of management, such statements can only be based on facts and
factors currently known by the Company. Consequently, forward- looking
statements are inherently subject to risks and uncertainties, actual results and
outcomes may differ materially from the results and outcomes discussed in the
forward-looking statements. Readers are urged to carefully review and consider
the various disclosures made by the Company in this Annual Report, as an attempt
to advise interested parties of the risks and factors that may affect the
Company's business, financial condition, and results of operations and
prospects.
OVERVIEW
The Company is an independent financial services company, whose primary source
of revenue is through American Residential Funding "AMRES", a wholly owned
subsidiary. AMRES offers loan originators a "branch network" opportunity, in
which AMRES provides licensing, accounting and lender approvals in over 35
states. They maintain a web site, www.amres.net, which contains detailed
information on AMRES, as well as provides Net Branches with various corporate
services. AMRES currently has a 200 branch system in operation nationwide, in
addition to four Corporate owned branches in 4 counties in Southern California.
Further growth is anticipated, both from commissioned and corporate marketing
staff. Loan processing, mortgage banking and acquisitions will provide
additional revenues sources.
Expidoc.com has seen increased revenue over the last several quarters,
completing over 900 loan document signings for the month of January 2003 through
their network of notaries in all 50 states. Expidoc.com has achieved profit-
ability the last three fiscal quarters. By adding staff, and implementing a new
marketing initiative, Expidoc.com should continue to improve its operations and
maintain near term profitability. Revenues at Expidoc.com are expected to
continue to increase, as Expidoc.com has become a preferred signer for
Ditech.com. This status with Ditech.com has resulted in a consistent increase in
the number of orders received monthly.
Bravo Real Estate, Inc., a wholly owned subsidiary, has filed papers for
obtaining a trademark ("Bravo Real Estate Network"), as well as the
authorization to sell Bravo franchises. There are no revenues at this time, and
no significant revenues expected until late 2003 or early 2004.
BravoRealty Inc., a 69% owned subsidiary, has established joint venture branches
in four locations, and has incurred a small operating loss for the current
quarter.
Titus Real Estate, LLC operates as the manager of Titus REIT, a real estate
investment trust. Current shareholders of the REIT have requested the selling
of assets in order to return their original investment. To date, all ten
properties have been sold. It is the intent of the management of the Company to
repay its initial investors, operate the REIT at minimal levels, and raise new
capital for Titus REIT when the market permits, although no estimate can be made
as to when that might be. The Company believes the long term benefits of a REIT
compliment the Company's business plan. Titus Real Estate, LLC did not generate
any revenue during the current quarter.
19
We have achieved a profit for the last four quarters. Our revenues continue to
increase, and we have been successful through various strategies in reducing our
outstanding debt. We have achieved profitability in recent quarters and as a
result management believes that we may achieve profitability in the current
fiscal year.
CRITICAL ACCOUNTING POLICIES
Anza's consolidated financial statements and related public financial
information are based on the application of accounting principles generally
accepted in the United States ("GAAP"). GAAP requires the use of estimates,
assumptions, judgments and subjective interpretations of accounting principles
that have an impact on the assets, liabilities, revenue and expense amounts
reported. These estimates can also affect supplemental information contained in
the external disclosures of Anza including information regarding contingencies,
risk and financial condition. Anza believes its use of estimates and underlying
accounting assumptions adhere to GAAP and are consistently and conservatively
applied. Valuations based on estimates are reviewed for reasonableness and
conservatism on a consistent basis throughout Anza. Primary areas where
financial information of Anza is subject to the use of estimates, assumptions
and the application of judgment include accounts receivable allowances, and loan
losses on loans held for sale, which have been historically and favorably low.
These significant estimates also include our evaluation of impairments of
intangible assets (see further discussion below). In addition, the
recoverability of deferred tax assets must be assessed as to whether these
assets are likely to be recovered by Anza through future operations. We base
our estimates on historical experience and on various other assumptions that we
believe to be reasonable under the circumstances. Actual results may differ
materially from these estimates under different assumptions or conditions. We
continue to monitor significant estimates made during the preparation of our
financial statements.
Loans Held for Sale
Mortgage loans held for sale represent mortgage loans originated and held by
AMRES, pending sale, to interim and permanent investors. AMRES sells loans it
originates, typically within 30 days of origination, rather than hold them for
investment. AMRES sells loans to institutional loan buyers under an existing
contract. AMRES sells the servicing rights to its loans at the time it sells
those loans. At the time a loan is sold, AMRES has no continuing interest since
servicing rights are transferred at the time of sale in accordance with
paragraph 5 of SFAS 140. Recourse provisions generally relate to first payment
defaults, or breach of representations and warranties, or fraud, with respect to
the loans sold. The recourse provision, because of its very brief term (30
days), is not practical to value in accordance with paragraph 6 of SFAS 140,
since the value is deminimus. In the event AMRES management becomes aware of a
default, the financial asset and liability is reinstated and an assessment of
the impact of losses is made. To date, AMRES has not repurchased a loan as a
result of its origination practices.
Fair Value of Assets Acquired and Liabilities Assumed in Purchase Business
Combinations and Review for Impairments
The purchase business combinations we evaluate and complete require us to
estimate the fair value of the assets acquired and liabilities assumed in the
combinations. These estimates of fair value may be based on independent
appraisal or our business plan for the entities acquired including planned
redundancies, restructuring, use of assets acquired and assumptions as to the
ultimate resolution of obligations assumed for which no future benefit will be
received. Should actual use of assets or resolution of obligations differ from
our estimates, revisions to the estimated fair values would be required. If a
change in estimate occurs after one year of the acquisition, the change would be
recorded in our statement of operations.
20
Valuation Of Long-Lived And Intangible Assets
The recoverability of these assets requires considerable judgment and is
evaluated on an annual basis or more frequently if events or circumstances
indicate that the assets may be impaired. As it relates to goodwill and
indefinite life intangible assets, we apply the impairment rules in accordance
with SFAS No. 142. As required by SFAS No. 142, the recoverability of these
assets is subject to a fair value assessment, which includes several significant
judgments regarding financial projections and comparable market values. As it
relates to definite life intangible assets, we apply the impairment rules as
required by SFAS No. 144, "Accounting for the Impairment of Disposal of
Long-Lived Assets" which also requires significant judgment and assumptions
related to the expected future cash flows attributable to the intangible asset.
The impact of modifying any of these assumptions can have a significant impact
on the estimate of fair value and, thus, the recoverability of the asset. In
fiscal 2001, our impairments were quite large due to the rescission of LoanNet
and impairment of Titus. No impairments were recorded during the three months
ended January 31, 2003. However, for the nine months ended January 31, 2003,
the Company recorded an additional impairment related to Titus in the amount of
$150,000 (See Note 4).
Income Taxes
We recognize deferred tax assets and liabilities based on the differences
between the financial statement carrying amounts and the tax bases of assets and
liabilities. We regularly review our deferred tax assets for recoverability and
establish a valuation allowance based upon historical losses, projected future
taxable income and the expected timing of the reversals of existing temporary
differences. During 2002, we estimated the allowance on net deferred tax assets
to be one-hundred percent of the net deferred tax assets.
RESULTS OF OPERATIONS, THREE MONTHS ENDED JANUARY 31, 2003 COMPARED TO THE THREE
MONTHS ENDED JANUARY 31, 2003.
Revenues
Revenues increased by $8,668,711, or 130.4%, to $15,313,407 for the three months
ended January 31, 2003, compared to $6,644,696 for the three months ended
January 31, 2002. The growth in revenues is primarily attributable to the
expansion and growth of AMRES primarily through the brokering of loans. AMRES
accounted for over 97% of consolidated revenues for both periods. AMRES, as did
most of the mortgage industry, benefited greatly from the decline in interest
rates over the last twelve months. Typically, as interest rates fall, the
refinance market heats up expanding the market of interested borrowers beyond
those borrowing for the purchase of their primary residence. AMRES benefited
from this market upturn, as they had the capacity in terms of people and
infrastructure to accommodate the additional business. Management believes that
a significant increase in interest rates could slow the rapid growth the Company
has experienced over the last two fiscal years.
21
More significantly, the growth of the branch network program at AMRES was the
major contributor to the growth in revenue. AMRES' branch network program
comprised approximately 407 branches as of January 31, 2003, compared to 93
branches as of January 31, 2002. For the three months ended January 31, 2003,
the total revenue associated with the branches was approximately $11.5 Million,
compared to total revenue associated with the branches of $4.6 Million for the
three months ended January 31, 2002. The Net branch network program is expected
to continue to be a primary growth vehicle for Anza in the future. In addition,
the mortgage banking division of AMRES is expected to continue its expansion
over the next several months.
Revenues for Expidoc.com also increased significantly, $255,691 for the period
ended January 31, 2003 compared to $83,065 for the period ended January 31,
2002. The increase is primarily a result of Expidoc.com refocusing its market
strategy to secure higher volume customers as compared to servicing many
low-volume customers. This change in focus is evidenced by the securing of
business with such customers as Ditech.com. Management believes this to be the
best strategy to focus on, as it allows Expidoc.com to both benefit from
economies of scale and provide the highest level of service to its customer
base. Management realizes that the loss of any one significant customer could
have a material negative impact on the growth and profitability of Expidoc.com.
Bravo Real Estate, Inc. has no revenues at this time, and no significant
revenues are expected until late 2003 or early 2004 when franchise sales are
projected to begin.
BravoRealty became operational in January of 2001. For the three months ended
January 31, 2003, revenues amounted to $131,482 compared with revenues of
approximately $56,922 for the period ending January 31, 2002.
There were no revenues from Titus during the three months ended January 31, 2003
and revenue from Titus for the three months ended January 31, 2002 were
insignificant.
Costs and Expenses
Commissions are paid to loan agents on funded loans. Commissions and other
increased by $5,283,260 or 110.2%, for the three months ended January 31, 2003,
to $10,076,910 from $4,793,650 for the three months ended January 31, 2002.
This increase is primarily related to the increased revenues discussed above.
As a percentage of revenue, the commissions decreased by 6.3%, to 65.8% compared
to 72.1% for the three months ended January 31, 2003 and the three months ended
January 31, 2002, respectively. The Company earns a flat percentage of revenues
associated with the net branches, as compared to revenues associated with the
corporate branches in which the Company earns a higher commission split once
certain revenue targets are achieved. Gross profit increased by $3,385,451 or
182.9% for the three months ended January 31, 2003 to $5,236,497 from $
1,851,046 for the three months ended January 31, 2002.
General and Administrative Expenses
General and administrative expenses totaled $3,267,501 for the three months
ended January 31, 2003, compared to $1,247,219 for the three months ended
January 31, 2002. This increase of $2,020,282 can be attributed primarily to
the business growth of the operating subsidiaries, namely AMRES, as additional
personnel, office space and other administrative costs are required to handle
the expansion.
22
Salaries and Wages
Salaries and wages totaled $1,547,889 for the three months ended January 31,
2003, compared to $590,549 for the three months ended January 31, 2002. The
increase of $957,340 is directly related to the expansion of AMRES operations.
As of January 31, 2003, the Company employed approximately 743 employees
compared to 411 employees as of January 31, 2002.
Consulting Expense
In the previous fiscal year, the Company funded a portion of its operating costs
through the use of its common stock paid to outside consultants. During the
three months ended January 31, 2002, costs paid in the form of stock to outside
consultants totaled approximately $26,850 representing approximately 250,000
shares of stock. There was no stock issued to outside consultants for the three
months ended January 31, 2003.
Interest Expense
Interest expense was $38,477 as of January 31, 2003, compared to $72,851 as of
January 31, 2002. This decrease is associated with a reduction in the total
balance of notes payable during the period, and due to lower average balances on
the Company's warehouse line of credit. The reduction in notes payable is
primarily a result of a global settlement executed on June 26, 2001 and due to
re-payments made on all other outstanding notes over the last twelve months.
Other Income Expense, net
During the three months ended January 31, 2002, the Company repurchased a note
payable totaling $109,695 (representing principal and interest) for $40,000.
The difference was recorded as other income in the amount $69,695. For the
three months ended January 31, 2003, other income was $41,371, relating
primarily to interest earned on the company's surplus cash balances.
Net Income
The Company generated a net profit for the three months ended January 31, 2003
of $424,001, or $0.01 per share, compared to a net profit for the three months
ended January 31, 2002 of $15,768 or $0.00 per share. The increased level of
profit is directly related to the significant increase in revenues between the
periods.
RESULTS OF OPERATIONS, NINE MONTHS ENDED JANUARY 31, 2003 COMPARED TO THE NINE
MONTHS ENDED JANUARY 31, 2002.
Revenues
Revenues increased by $23,819,627, or 132.0%, to $41,869,875 for the nine months
ended January 31, 2003, compared to $18,050,248 for the nine months ended
January 31, 2002. The growth in revenues is primarily attributable to the
expansion and growth of AMRES primarily through the brokering of loans. AMRES
accounted for over 97% of consolidated revenues for both periods. AMRES, as did
most of the mortgage industry, benefited greatly from the decline in interest
rates over the last twelve months. Typically, as interest rates fall, the
refinance market heats up expanding the market of interested borrowers beyond
those borrowing for the purchase of their primary residence. AMRES benefited
from this market upturn, as they had the capacity in terms of people and
infrastructure to accommodate the additional business. Management believes that
a significant increase in interest rates could slow the rapid growth the Company
has experienced over the last two fiscal years.
23
More significantly, the growth of the branch networking program at AMRES was the
major contributor to the growth in revenue. AMRES' branch program comprised
approximately 407 branches as of January 31, 2003, compared to 93 branches as of
January 31, 2002. For the nine months ended January 31, 2003, the total revenue
associated with the Net branches was approximately $31.2 million, compared to
total revenue associated with the Net branches of $12.0 million for the nine
months ended January 31, 2002. The Net branch networking program is expected to
continue to be a primary growth vehicle for Anza in the future. In addition,
the mortgage banking division of AMRES is expected to continue its expansion
over the next several months, including applying to FannieMae as a
seller/servicer.
Revenues for Expidoc.com also increased significantly, to $645,851 for the nine
month period ended January 31, 2003 compared to $255,992 for the nine month
period ended January 31, 2002. The increase is primarily a result of
Expidoc.com refocusing its market strategy to secure higher volume customers as
compared to servicing many low-volume customers. This change in focus is
evidenced by the securing of business with such customers as Ditech.com.
Management believes this to be the best strategy to focus on, as it allows
Expidoc.com to both benefit from economies of scale and provide the highest
level of service to its customer base. Management realizes that the loss of any
one significant customer could have a material negative impact on the growth and
profitability of Expidoc.com.
BravoRealty became operational in January of 2001. For the nine months ended
January 31, 2003, revenues amounted to $471,990 compared with revenues of
approximately $219,070 for the period ending January 31, 2002.
There were no revenues from Titus during the nine months ended January 31, 2003
and revenue from Titus for the nine months ended January 31, 2002 were
insignificant.
Costs and Expenses
Commissions are paid to loan agents on funded loans. Commissions increased by
$17,192,030 or 138.9%, for the nine months ended January 31, 2003, to
$29,569,080 from $12,377,050 for the nine months ended January 31, 2002. This
increase is primarily related to the increased revenues discussed above. As a
percentage of revenue, the commissions increased by 2.1%, to 70.6% compared to
68.6% for the nine months ended January 31, 2003 and the nine months ended
January 31, 2002, respectively. This increase is directly associated with the
proportional increase in the branch networking program revenue as a percentage
of total revenue as the Company earns a flat percentage of revenues associated
with the branch networking program, as compared to revenues associated with the
corporate branches in which the Company earns a higher commission split once
certain revenue targets are achieved. Gross profit increased by $6,627,597 or
116.8% for the nine months ended January 31, 2003 to $12,300,795 from $
5,673,198 for the nine months ended January 31, 2002.
24
General and Administrative Expenses
General and administrative expenses totaled $6,465,093 for the nine months ended
January 31, 2003, compared to $3,306,500 for the nine months ended January 31,
2002. This increase of $3,158,593 can be attributed primarily to the business
growth of the operating subsidiaries, namely AMRES, as additional personnel,
office space and other administrative costs are required to handle the
expansion.
The Company elected early adoption of Statement 142 and as such, did not record
any goodwill amortization for the nine months ended January 31, 2003 or January
31, 2002.
Salaries and Wages
Salaries and wages expense totaled $4,735,850 for the nine months ended January
31, 2003, compared to $2,728,276 for the nine months ended January 31, 2002.
The increase of $2,007,574 is directly related to the expansion of AMRES
operations. As of January 31, 2003, the Company employed approximately 743
individuals compared to 411 individuals as of January 31, 2002.
Consulting Expense
In the previous fiscal year, the Company funded a portion of its operating costs
through the use of its common stock paid to outside consultants. During the
nine months ended January 31, 2002, costs paid in the form of stock to outside
consultants totaled approximately $531,200 representing approximately 3,750,000
shares of stock. In addition, the Company recorded an additional $45,945 in
cash compensation to outside consultants for the nine months ended January 31,
2002. During the nine months ended January 31, 2003 costs paid in the form of
stock to outside consultants and to employees amounted to $82,350 representing
3,050,000 shares. Consulting expenses recorded for the nine months ended
January 31, 2003 also included amortization of deferred compensation in the
amount of $16,666, plus cash paid for outside services in the amount of $47,189.
Non-Recurring Settlement Expense
During the nine months ended January 31, 2002, the company recorded settlement
expense of $61,494 relating to the excess value of shares issued as part of the
global settlement compared to the net reduction in debt and interest relief
received in the settlement. Further, the Company issued common stock to an
investment banker as a final settlement of a dispute arising from former
officers of the Company in fiscal 2000. The Company did not value these shares
since they believed that the value of the services was in excess of $330,000
which was reported in 2001. Upon further review, management determined it was
appropriate to record a charge to operations totaling $221,000 for the period
ending January 31, 2002.
There were no non-recurring settlement expenses incurred for the nine months
ended January 31, 2003.
Impairment of Goodwill
During the nine months ended January 31, 2003, management assessed the carrying
value of Titus, after a liquidation of assets held by the Titus REIT. Titus has
no significant remaining assets or obligations as of January 31, 2003.
Management has inquired as to the sale value of Titus, in its current state, and
believes that an impairment of the carrying value of Titus is necessary to
reduce the estimated proceeds to be received to $100,000. Accordingly,
management has recorded an impairment of goodwill in the amount of $150,000 to
operations during the nine months ended January 31, 2003.
25
Interest Expense
Interest expense was $103,085 as of January 31, 2003, compared to $99,522 as of
January 31, 2002. there are two primary items which impact the amount of
interest expense incurred by the Company. First is interest related to the
Company's notes payable. Interest incurred on notes payable has decreased
between the periods primarily due to a reduction in the total balance of notes
payable during the current year. The reduction in notes payable is primarily a
result of the Global Settlement executed on June 26, 2001 and due to re-payments
made on all other outstanding notes over the last twelve months. The Company
also incurs interest on advances under its warehouse line of credit. Although
the balance is minimal as of January 31, 2003, the average monthly balance of
borrowings under the warehouse line of credit has been significantly higher for
the nine months ending January 31, 2003 compared to the nine months ending
January 31, 2002, thus resulting in increased interest expense.
Other Income Expense, net
During the nine months ended January 31, 2003, the Company recorded other income
in the amount $51,543 relating to the difference of the value of the 3,000,000
shares issued to Laguna per the settlement agreement compared to the original
value ascribed to the warrants held by Laguna. The warrants were canceled as
part of the final settlement agreement. The Company also benefited from
significant cash balances generating increased levels of interest earned on
those balances. Other income in prior periods was primarily related to gain
recognized on the settlement of capital lease obligations and interest earned on
excess cash balances.
Net Income
The Company generated a net profit for the nine months ended January 31, 2003 of
$943,025, or $0.02 per share. For the nine months ended January 31, 2002, the
Company recorded a net loss of ($581,979) or ($0.02) per share. In the prior
period, the Company incurred significant non-cash expenses associated with,
among other things, stock issued to outside consultants and costs incurred with
the Global Settlement. Management believes that these non-cash charges should
be minimal in future periods affording the Company the ability to produce net
income in the future.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Net cash provided by operating activities was $4,157,728 for the nine months
ending January 31, 2003 compared to net cash used by operating activities of
($776,520) for the nine months ending January 31, 2002. The Company generated a
net profit of $943,025 for the nine months ended January 31, 2003, compared to a
net loss of $581,979 for the nine month period ended January 31, 2002. Non-cash
expenses relating to the issuance of stock for services, depreciation and
amortization, amortization of debt discounts, impairment of goodwill, and
provisions for gain and losses on settlements and obligations totaled $391,869
and $830,990 for the nine months ended January 31, 2003 and 2002, respectively.
Decrease in loans held for sale of $1,001,225 was also a significant contributor
to the cash provided by operating activities for the nine months ending January
31, 2003.
26
Our mortgage loans held for sale represent mortgage loans originated and held by
AMRES, pending sale, to interim and permanent investors. We sell loans AMRES
originates, typically within 30 days of origination, rather than hold them for
investment. We sell loans to institutional loan buyers under existing
contracts. AMRES sells the servicing rights to its loans at the time it sells
those loans. Typically, AMRES sells the loans with limited recourse to it. This
means that, with some exceptions, we reduce our exposure to default risk at the
time we sell the loan, except that we may be required to repurchase the loan if
AMRES breaches the representations or warranties that it makes in connection
with the sale of the loan, in the event of an early payment default, or if the
loan does not comply with the underwriting standards or other requirements of
the ultimate investor. In the event AMRES is required to repurchase a loan, we
will assess the impact of losses, which result from a repurchased loan. To
date, AMRES has not repurchased a loan as a result of its origination practices
(see below regarding HUD for recent events).
On December 9, 2002, AMRES received notification from HUD requesting
indemnification on up to 23 loans brokered by a former loan officer of AMRES.
This loan officer was terminated as a result of violation of AMRES policies and
procedures. Further on March 3, 2003, we were notified by one of our lenders
regarding potential irregularities with up to six loans submitted to and closed
with the lender. We are currently assessing losses, if any, associated with
each of these loans. AMRES carries errors and omissions insurance coverage,
which may offset any potential losses which may be incurred by AMRES with
respect to these loans. At the time of the filing of this quarterly report, it
is too early to determine what, if any, loss AMRES may ultimately incur with
these loans. AMRES has accrued $350,000 of expense as accrued liabilities to
account for the potential deductible that it could incur if all of these loans
result in losses. In the event we are required to purchase a significant amount
of loans during a short period of time, our financial condition, results of
operations and cash flows could be adversely affected. During the past 12 months
we have increased our awareness of the need to implement sound internal
controls.
Net cash used in investing activities was $54,823 and $11,650 for the nine
months ended January 31, 2003 and 2001, respectively. There were no
individually material transactions for either period presented.
Net cash used by financing activities was $1,243,022 for the nine months ending
January 31, 2003, relating primarily to payments on the Company's warehouse line
of credit and to the repayment of the bridge loan.
Net cash provided by financing activities for the nine months ending January 31,
2002 was $1,328,939 and relates primarily to advances on the Company's warehouse
line of credit and proceeds received from the bridge loan.
The Company is current in servicing its obligations as they become due. In the
previous fiscal years, the Company used its common stock to provide compensation
for outside services that were required. It is the belief of management, that
beginning in the current fiscal year, little or no common stock will be issued
for services.
The Company has generated a net income over the last twelve months. Management
plans to continue its growth plans to generate revenues sufficient to meet its
cost structure. Management believes that these actions will afford the Company
the ability to fund its daily operations and service its remaining debt
obligations primarily through the cash generated by operations; however, there
are no assurances that management's plans will be successful. Our independent
auditors modified their report, with an explanatory paragraph, stating that the
audited financial statements of Anza Capital, Inc. for the period ending April
30, 2002 have been prepared assuming the company will continue as a going
concern. They note that the Company's continued existence is dependent upon its
ability to generate sufficient cash flows from operations to support its daily
operations as well as provide sufficient resources to retire existing
liabilities and obligations on a timely basis. No adjustments have been made to
the carrying value of assets or liabilities as a result of these uncertainties.
27
ITEM 3 CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer (or those
persons performing similar functions), after evaluating the effectiveness of the
Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and
15d-14(c) under the Securities Exchange Act of 1934, as amended) as of a date
within 90 days of the filing of this quarterly report (the "Evaluation Date"),
have concluded that, as of the Evaluation Date, the Company's disclosure
controls and procedures were effective to ensure the timely collection,
evaluation and disclosure of information relating to the Company that would
potentially be subject to disclosure under the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder. There were no
significant changes in the Company's internal controls or in other factors that
could significantly affect the internal controls subsequent to the Evaluation
Date.
28
PART II
ITEM 1 LEGAL PROCEEDINGS
In March 2003, our wholly-owned subsidiary, American Residential Funding,
was served with a lawsuit brought by Oaktree Funding Corporation, in the
Superior Court of the State of California, County of San Bernardino, case number
RCV 070427. The defendants in the action are AMRES, the appraiser, escrow
company, notary public, and borrowers involved in six (6) different loan
transactions brokered by AMRES and funded by Oaktree.
The Complaint alleges, among other things, that the defendants committed
fraud, breach of contract, negligent misrepresentation, RICO violations, and
unfair business practices. The Complaint requests damages in excess of
$1,500,000, plus attorneys' fees, interest, penalties, and punitive damages.
The Company is vigorously defending this lawsuit although the Company
believes that the action lacks merit. The Company has not yet filed an Answer
to the Complaint. The case is at a stage where no discovery has been taken and
no prediction can be made as to the outcome of this case.
In the ordinary course of business, the Company is from time to time
involved in various pending or threatened legal actions. The litigation process
is inherently uncertain and it is possible that the resolution of such matters
might have a material adverse effect upon the financial condition and/or results
of operations of the Company. However, in the opinion of the Company's
management, other than as set forth herein, matters currently pending or
threatened against the Company are not expected to have a material adverse
effect on the financial position or results of operations of the Company.
ITEM 2 CHANGES IN SECURITIES
On November 4, 2002, we issued an aggregate of 7,000,000 shares of common
stock, restricted in accordance with Rule 144, to eleven individuals for
services rendered. The issuances were exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933, and the shareholders were all either
accredited or sophisticated individuals.
On December 10, 2002, we issued 2,269,286 shares of common stock to each of
Cranshire Capital, L.P. and EURAM Cap Strat "A" Fund Ltd upon the conversion
of Series C Convertible Preferred Stock. The shares were issued without
restrictive legend pursuant to Rule 144(k).
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
There have been no events which are required to be reported under this
Item.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There have been no events which are required to be reported under this
Item.
29
ITEM 5 OTHER INFORMATION
Termination of Homelife, Inc. Merger
----------------------------------------
On October 7, 2002, we issued a press release announcing the execution of a
Reorganization Agreement with Homelife, Inc.
On February 27, 2003, due to a number of factors including but not limited
to changing market conditions, the failure of Homelife to fulfill one or more of
its obligations under the agreement, and the extended period of time it would
take to complete the reorganization, we notified Homelife of our intent to
terminate the Reorganization Agreement. On March 14, 2003, Anza terminated the
Reorganization Agreement.
Closing of Matter with The Department of Housing and Urban Development
--------------------------------------------------------------------------------
On December 9, 2002, we received notification from HUD requesting
indemnification on up to 23 loans brokered by a former loan officer of AMRES.
We executed and provided an Indemnification Agreement to HUD as requested. On
February 13, 2003, HUD notified us that (i) without the loans originated by this
particular loan officer, AMRES' default and claim rate would be at an acceptable
level to HUD, and (ii) as a result of our termination of that loan officer, and
the indemnification agreement, the matter was closed. We carry errors and
omissions insurance coverage, which may offset any potential losses that may be
incurred by us, including under the indemnification agreement, with respect to
these loans.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
On November 4, 2002, the Company filed a Current Report on Form 8-K
regarding the Homelife, Inc. proposed merger.
30
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: March 21, 2003 /s/ Vince Rinehart
--------------------------------
By: Vincent Rinehart
Its: President, Chairman, Chief
Executive Officer, Chief
Financial Officer, Chief
Accounting Officer, and
Director
Dated: March 21, 2003 /s/ Scott A. Presta
--------------------------------
By: Scott A. Presta
Its: Director
31
CERTIFICATION OF CHIEF EXECUTIVE AND CHIEF FINANCIAL OFFICER
I, Vincent Rinehart, Chief Executive Officer and Chief Financial Officer of
the registrant, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Anza Capital, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rule 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons fulfilling the
equivalent functions):
(i) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize, and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
(ii) any fraud, whether or not material, that involves management or
other employees who have a significant role in the issuer's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: March 21, 2003
/s/ Vince Rinehart
----------------------------
Vincent Rinehart
Chief Executive Officer and
Chief Financial Officer
32