SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FIRST AMENDED
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 2001
[ ] 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 December 14, 2001,
there were 38,376,547 shares of common stock issued and outstanding.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT
(check one):
Yes _____ No __X__
-
ANZA CAPITAL, INC.
TABLE OF CONTENTS
-----------------
PART I
Item 1 Financial Statements
Item 2 Management's Discussion and Analysis or Plan of Operations
PART II
Item 1 Legal Proceedings
Item 2 Changes in Securities and Use of Proceeds
Item 3 Defaults Upon Senior Securities
Item 4 Submission of Matters to a Vote of Security Holders
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K
PART I
EXPLANATORY NOTE
In response to comments from the United States Securities and Exchange
Commission, Anza Capital, Inc. has restated its Quarterly Statement on Form
10-QSB. This Quarterly Statement is for the quarter ended October 31, 2001,
and was originally filed with the Commission on December 17, 2001. Effective on
January 2, 2002, the Company changed its name from e-Net Financial.com
Corporation to Anza Capital, Inc. References throughout this Quarterly
Statement are accurate as of the date originally filed, and other than on the
front page, references to the Company as e-Net Financial.com Corporation have
been left as originally drafted. The Company has not undertaken to update all
of the information in this Quarterly Report, but instead has updated only those
areas requested by the Commission. Please read all of the Company's filings
with the Commission in conjunction with this Quarterly Report.
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
E-NET FINANCIAL.COM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
October 31, 2001
------------------
ASSETS
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . $ 587,306
Accounts receivable, net of allowance for doubtful
accounts of $74,123 . . . . . . . . . . . . . . . . . . . . . . . . 602,810
Loans held for sale. . . . . . . . . . . . . . . . . . . . . . . . 439,924
Advances to employees. . . . . . . . . . . . . . . . . . . . . . . 185,000
Prepaid and other current assets . . . . . . . . . . . . . . . . . 95,999
------------------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . 1,910,539
Property and equipment, net of accumulated depreciation of $83,386 104,151
Goodwill, net of accumulated amortization
and impairments of $1,385,049 . . . . . . . . . . . . . . 425,247
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,807
------------------
$ 2,451,244
==================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . $ 449,539
Warehouse line of credit . . . . . . . . . . . . . . . . . . . . . 441,308
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . 149,720
Commissions payable. . . . . . . . . . . . . . . . . . . . . . . . 730,090
Short term notes payable . . . . . . . . . . . . . . . . . . . . . 177,118
------------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . 1,947,775
Convertible notes payable to related parties. . . . . . . . . . . . 541,211
Interest payable on notes to related parties. . . . . . . . . . . . 24,095
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 1,088
------------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 2,514,169
------------------
Stockholders' deficit:
Class C convertible preferred stock, no par value;
liquidation value of $100.00 per share;
17,984 shares issued and outstanding. . . . . . . . . . . . . . . . 1,798,400
Common stock, $0.001 par value; 100,000,000 shares
authorized; _38,326,547 issued and outstanding . . . . . . . . . . 38,327
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . 12,409,123
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . ( 14,252,775)
Deferred stock compensation. . . . . . . . . . . . . . . . . . . . (56,000)
------------------
Total stockholders' deficit . . . . . . . . . . . . . . . . . . . . ( 62,925)
------------------
$ 2,451,244
==================
E-NET FINANCIAL.COM CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months Three months Six months Six months
ended ended ended ended
October 31, October 31, October 31, October 31,
2001 2000 2001 2000
------------- ------------ ------------- -----------
REVENUES
Broker commissions $ 5,798,285 $ 2,575,247 $ 10,985,952 $ 4,844,837
Other 174,919 41,733 340,315 138,105
---------- ---------- ----------- ----------
5,973,204 2,616,980 11,326,267 4,982,942
---------- ---------- ----------- ----------
Cost and expenses
Commissions 3,143,056 1,662,345 5,995,586 3,363,951
---------- --------- --------- ----------
Gross profit 2,830,148 954,635 5,330,681 1,618,991
---------- --------- --------- ----------
General and administrative 2,800,614 1,139,152 5,121,381 2,564,288
Consulting fees 137,200 - 547,995 -
Non-recurring loss on settlements 221,000 - 282,494 -
---------- -------- --------- ---------
Total costs and expenses 3,158,814 1,139,152 5,885,104 2,564,288
Operating income (loss) (328,666) (184,517) (554,423) (945,297)
Goodwill - (144,186) - (288,372)
Interest expense (79,720) (61,406) (122,355) (108,748)
Other income (expense), net 17,343 14,620 23,212 88,375
----------- --------- --------- ----------
Net loss before extraordinary item (375,489) (653,566) (1,254,042)
Extraordinary item, gain on settlement or debt 56,185 - 56,185 -
Net income (loss) $ (334,858) $ (375,489) $ (597,381) $ (1,254,042)
=========== ========== ========= ===========
Basic and diluted net loss per share of
common stock, before extraordinary item $ (0.01) $ (0.02) $ (0.02) $ (0.06)
Extraordinary item - - - -
Basic and diluted net loss per share
of common stock (0.01) (0.02) (0.02) (0.06)
Weighted average common shares outstanding 37,774,349 21,821,568 32,901,648 21,614,969
=========== =========== ========== ===========
E-NET FINANCIAL.COM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Six Months
Ended Ended
Oct 31, 2001 Oct 31, 2000
-------------- --------------
Cash flows from operating activities:
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ ( 597,381) $ (1,254,042)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . 5,001 374,751
Non-recurring loss on settlements . . . . . . . . . . . . . . . . . . . . . 282,494 -
Extraordinary gain from settlement of capital leases. . . . . . . . . . . (56,185) -
Stock compensation to consultants . . . . . . . . . . . . . . . . . . . . . 405,173 386,728
Amortization of discounts on loans. . . . . . . . . . . . . . . . . . . . . 59,261 -
Amortization of deferred stock compensation . . . . . . . . . . . . . . . . 131,133 156,800
Changes in operating assets and liabilities:
Increase in accounts receivable, net. . . . . . . . . . . . . . . . . . . (138,687) (115,303)
Increase in loans held for sale . . . . . . . . . . . . . . . . . . . . . ( 82,575) -
Increase in other current assets. . . . . . . . . . . . . . . . . . . . . (10,895) (89,441)
Increase in due from employees. . . . . . . . . . . . . . . . . . . . . . (119,750) -
Decrease in accounts payable. . . . . . . . . . . . . . . . . . . . . . . (85,753) (64,044)
Increase in commissions payable . . . . . . . . . . . . . . . . . . . . . 469,777 9,161
(Decrease) increase in accrued liabilities. . . . . . . . . . . . . . . . (56,301) 235,764
Increase in other liabilities . . . . . . . . . . . . . . . . . . . . . . 18,610 11,422
-------------- --------------
Net cash provided by (used in) operating activities . . . . . . . . . . . . 223,922 (348,204)
-------------- --------------
Cash flows from investing activities:
Decrease in other assets. . . . . . . . . . . . . . . . . . . . . . . . . . - 39,000
Acquisitions of property and equipment. . . . . . . . . . . . . . . . . . . (19,167) (11,991)
- -
-------------- --------------
Net cash provided by (used in) investing activities . . . . . . . . . . . . (19,167) 27,009
-------------- --------------
Cash flows from financing activities:
(Payments on) Proceeds from notes payable to related parties, net . . . . . - (1,236,536)
Proceeds from issuance of bridge loan . . . . . . . . . . . . . . . . . . . 225,000 -
Payments on capital lease obligations . . . . . . . . . . . . . . . . . . (35,800) -
Advances from warehouse line of credit. . . . . . . . . . . . . . . . . . . 100,466 -
Proceeds from private placement . . . . . . . . . . . . . . . . . . . . . . - 1,699,973
-------------- --------------
Net cash provided by financing activities . . . . . . . . . . . . . . . . . 289,666 463,437
-------------- --------------
Net increase in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . 494,421 142,242
Cash at beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . 92,886 285,583
-------------- --------------
Cash at end of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 587,307 $ 427,825
============== ==============
E-NET FINANCIAL.COM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CON'T)
Non - cash financing activities:
Debt reduction through the issuance of common stock . . . . . . . . . . . . .$ - $ 801,675
============== ==============
Warrants issued for bridge-loan issue costs. . . . . . . . . . . . . . . . - $ 321,428
============== ==============
Conversion of C-Preferred to common stock . . . . . . . . . . . . . . . . . . - $ 515,925
============== ==============
Supplemental cash flow information:
Cash paid for interest and income taxes was not significant during the periods presented
NOTES TO INTERIM FINANCIAL STATEMENTS
NOTE 1. UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial data as of October 31, 2001, for the three and six months
ended October 31, 2001 and 2000 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 October 31, 2001, and the results of their operations
and their cash flows for the three and six months ended October 31, 2001 and
2000. The results of operations are not necessarily indicative of the
operations, which may result for the year ending April 30, 2002. Also, in the
opinion of management, all disclosures required on Form 10-QSB, were fully
furnished with exception of the per segment information required by Statement of
Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments
of an Enterprise and Related Information" issued by the Financial Accounting
Standards Board (FASB.) Management omitted this information since this
information was not readily available and due to the lack of resources to
compile this information. However, management determined that the omission of
this information is insignificant to the overall presentation of the Company's
financial position and will provide this information only in the annual
financial report in the Company's Form 10-KSB.
NOTE 2. GLOBAL SETTLEMENT
As part of the acquisition of AMRES, e-Net was obligated to file and
prosecute until completion a registration statement with the Securities and
Exchange Commission for the purpose of registering 7,500,000 shares of e-Net
common stock issued to EMB. Additionally, e-Net was obligated to pay the sum of
$4,000,000 under the terms of a promissory note issued to EMB.
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, the
then-chairman of e-Net executed a document on behalf of e-Net in favor of
Williams de Broe, which Williams de Broe believed acted as a guarantee of EMB's
obligation. e-Net disputed this assertion.
In order to settle the outstanding disputes among all the parties, on June
26, 2001, e-Net entered into a settlement agreement with EMB Corporation, AMRES
Holding LLC, Vincent Rinehart, and Williams de Broe (the "Global Settlement").
As part of the Global Settlement:
(i) e-Net 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 e-Net 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. e-Net issued to EMB a promissory note in the principal amount
of $103,404, which represents the reduced amount due to EMB by e-Net 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 e-Net (see below). The note bears interest at
the rate of 10% per annum and is convertible into common stock of e-Net.
(ii) e-Net 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 e-Net arising under the purported guarantee of EMB's
obligation to WdB by e-Net. 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 e-Net as
contemplated by the agreement.
iv) EMB assigns its rights of a portion of e-Net's note payable totaling
$485,446 to AMRES Holdings LLC, owned by Vincent Rinehart. The note bears
interest at 10% per annum. This note is convertible into shares of common stock
based on 80% of the closing stock price on the date of the conversion. The
Company assigned a value of approximately $54,000 to the beneficial conversion
feature imbedded in this note. The entire principal balance, together with
accrued interest, shall be due and payable, in full, on December 15, 2002.
v) EMB forgave principal and interest totaling $168,006. The balance of
$103,404 convertible notes was issued, bearing interest at 10% per annum. The
note has a mandatory conversion into the Company's common stock on December 15,
2001.
The following reflects the reduction of the note payable to EMB as follows:
Note payable $1,055,000
Accrued interest 160,856
---------
Total due EMB prior to settlement 1,215,856
Less:
Value of 3,000,000 shares to WdB (459,000)
Payable to AMRES Holdings, LLC (485,446)
Debt and interest relief (168,006)
-----------
Balance due EMB after settlement $ 103,404
=========
The following reflects the non-recurring charge to operations associated with
the Global Settlement:
Value of 1,500,000 shares to EMB $ 229,500
Debt and interest relief (168,006)
-----------
Total non-recurring loss $ 61,494
=========
NOTE 3. BRIDGE FINANCING
On June 27, 2001, the Company entered into an Investment Agreement and
related documents with Laguna Pacific Partners, LLP. Under the terms of the
agreements, in exchange for $225,000 received by the Company from Laguna
Pacific, the Company
(i) executed a promissory note in favor of Laguna Pacific in the principal
sum of $200,000, bearing interest at the rate of 7% per annum, secured by all of
the assets of the Company, and payable on the earlier of nine months from its
issuance date or the date the Company's common stock is listed on the NASDAQ
Small Cap market. The purpose of this bridge financing was to finance the
proposed start-up of Anza Properties and to provide working capital to the
Company, and
(ii) executed a Warrant Agreement which entitled Laguna Pacific to acquire
up to $225,000 worth of e-Net common stock for the total purchase price of
$1.00, calculated at 70% of the closing stock price on the date immediately
preceding the exercise date. The issuance of the warrant was negotiated between
Laguna Pacific and e-Net. The Company is required to allocate the proceeds
received to the value the warrant and the bridge loan using the relative value
method and resulting warrant value is reflected as an increase in additional
paid-in capital and corresponding reduction (discount) to the face value of the
note. Management established the fair value based on $225,000 in common stock,
divided by the discount to market of 30% which the holder of the warrants
receive when purchasing the shares of common stock for a computed value of
$321,428. The relative value of the warrant amounted to $132,345, and such
amount is reflected as a discount to the note. The discount on the note will be
amortized over the term of the note (March 27, 2002) using the effective
interest method.
Other than as set forth above, there is no affiliation between the Company
and Laguna Pacific or any of their respective officers or directors.
FORMATION OF ANZA PROPERTIES, INC.
Also on June 27, 2001, in transactions related to the agreements with
Laguna Pacific, the Company formed a wholly-owned subsidiary, Anza Properties,
Inc., a Nevada corporation ("Anza") capitalized with $75,000 from the proceeds
of the bridge loan, which
(i) executed a Bond Term Sheet with e-Net 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. This real estate would then provide the Company with improved cash flow
and net worth, on a consolidated basis.
(ii) entered into an Employment Agreement with Thomas Ehrlich beginning
thirty days from the date of the agreement and ending upon the earlier to occur
of the liquidation of the real estate portfolio to be owned by Anza or the
completion of a NASDAQ Small Cap listing by e-Net. The Employment Agreement
provides for a salary of $20,000 per month, payable only by Anza and
specifically not guaranteed of e-Net. Mr. Ehrlich will serve as Anza's Vice
President and will be a director thereof. In connection with the Employment
Agreement, e-Net executed a Stock Option Agreement which entitled Ehrlich to
acquire up to 2,000,000 shares of e-Net 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 is
successful in raising a minimum of $2,000,000 in a contemplated $5,000,000 bond
offering, and the holders thereof converting at least $2,000,000 of the bonds
into equity of e-Net (any amounts less than $2,000,000 will be applied,
pro-rata, to the total options exercisable under the Option Agreement). 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 10% 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.
(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 e-Net. In
addition, e-Net executed a Stock Option Agreement which entitled Horwitz to
acquire up to 1,000,000 shares of e-Net 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 e-Net 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 is primarily to improve the net worth of
e-Net by acquiring income producing real estate. If Anza Properties is
successful in acquiring such properties, its assets would be consolidated with
the assets of e-Net, thereby improving the net worth of e-Net.
NOTE 4. STOCKHOLDERS' EQUITY (DEFICIT)
From time to time, the Company's board of directors authorizes the issuance of
common stock. The Company values shares of common stock based on the closing
price of the securities on the date the directors approve such issuance. In the
event the Company issues common stock subject to transferability restrictions
under Rule 144a of the Exchange Act of 1933, the Company discounts the closing
prices by 10% to value its common stock transactions.
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. Also, 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. 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. No expense was recorded in either
transaction.
In June of 2001, the Company issued 400,000 shares of its restricted common
stock both as payment of a $14,482 liability due an outside consultant and as a
"buy-out" of the remaining guaranteed contract for this consultant who was
providing legal services to the Company. In connection with this transaction,
the Company charged operations $43,118 for the difference between the carrying
value of the liability and the value of the common stock.
On July 2, 2001, the Company issued 325,000 shares of its restricted common
stock valued at $55,575 as a partial satisfaction of a loan payable due an
unrelated party. The original amount of the loan, including interest payable
was $150,000. The Company continues to repay the note in monthly of payments of
$4,320 through May 2, 2002. As of October 31, 2001, $30,040 remained due on the
loan.
At various dates from May 1, 2001 through October 31, 2001, the Company issued
3,500,000 shares of common stock, valued at $531,200, to various consultants.
Consulting services performed during the three and six months ended October 31,
2001 is summarized below:
Period Ending October 31, 2001
--------------------------------------------
Three Months Six Months
--------------------------------------------
Costs Shares Costs Shares
Incurred Issued Incurred Issued
Financial and Internal Accounting Services $ - - $ 75,750 450,000
Mergers Acquisitions Consulting. . . . . . 51,000 450,000 242,000 1,575,000
Bravorealty Start-up Costs . . . . . . . . 56,000 400,000 161,000 1,100,000
Information Technology Consulting. . . . . - - 14,000 100,000
Legal Services 33,700 250,000 38,450 275,000
Total $140,700 1,100,000 $ 531,200 3,500,000
Amortization of deferred compensation arrangements was $52,500 and $106,000
during the three and six months ended October 31, 2001, respectively.
Refer to Notes 2 and 3 for discussion of transactions affecting stockholders'
equity (deficit).
NOTE 5. EMPLOYMENT AGREEMENT
On June 1, 2001, e-Net entered into an Employment Agreement with Vincent
Rinehart. Under the terms of the agreement, the Company is to pay to Mr.
Rinehart a salary equal to $275,000 per year, subject to an annual increase of
10% commencing January 1, 2002, plus an automobile allowance of $1,200 per month
and other benefits, including life insurance. The agreement is for a term of
five years and provides for a severance payment in the amount of $500,000 and
immediate vesting of all stock options in the event his employment is terminated
for any reason, including cause. Mr. Rinehart was granted options to acquire
2,500,000 shares of e-Net common stock at per share, which shall vest monthly
over a three- year period. The options are subject to an anti-dilution
provision in the event of future issuances of common stock or a reverse stock
split. The holder in no event can own more than 20% of the issued and
outstanding common stock in the event of a reverse stock split. The options are
exercisable at the fair market value at the date of the grant of $0.08 per
share. Using the variable method in accordance with Accounting Principles Board
Opinion No. 25, no expense was recognized from the issuance of the options.
NOTE 6. IMPACT OF RECENTLY ISSUED ACCOUNTING STATEMENTS
In July 2001, the FASB issued Statement No. 141, Business Combinations, and
Statement No. 142, Goodwill and Other Tangible Assets. Statement 141 requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001 as well as all purchase method business
combinations completed after June 30, 2001. Statement 141 also specifies
criteria intangible assets acquired in a purchase method business combination
must meet to be recognized and reported apart from goodwill, noting that all
purchase price allocable to an assembled workforce may not be accounted for
separately. Statement 142 will require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead be tested for
impairment at least annually in accordance with the provisions of Statement 142.
Statement 142 also requires that intangible assets with estimable useful lives
be amortized over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with FAS Statement
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of. The Company is required to adopt the provisions of
Statement 141 immediately, except with regard to business combinations initiated
prior to July 1, 2001, and to adopt Statement 142 effective with the fiscal year
beginning May 1, 2002.
The Company meets the criteria for early adoption of Statement 142, and has
elected early adoption of the statement during the first quarter of 2001 with no
material effect on the Company's financial condition and results of operations
based on the requirements of Statement 142. See Note 9 for further discussion.
In July 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. This statement provides accounting and reporting standards for
costs associated with the retirement of long-lived assets. This statement
requires entities to record the fair value of a liability for an asset
retirement obligation in the period in which it is incurred. When the liability
is initially recorded, the entity capitalizes a cost by increasing the carrying
amount of the related long-lived asset. Over time, the liability is accreted to
its present value each period, and the capitalized cost is depreciated over the
useful life of the related asset. Upon settlement of the liability, an entity
either settles the obligation for its recorded amount or incurs a gain or loss
upon settlement. The Company will be required to adopt this statement no later
than January 1, 2003. The Company is currently assessing the impact of this
statement on its results of operations, financial position and cash flows.
In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. This statement replaces SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of. However it retains the fundamental provisions of SFAS No. 121 for
recognition and measurement of the impairment of long-lived assets to be held
and used and for measurement of long-lived assets to be disposed of by sale.
This statement applies to all long-lived assets, including discontinued
operations, and replaces the provisions of APB Opinion No. 30, Reporting Results
of Operations-Reporting the Effects of Disposal of a Segment of a Business, for
the disposal of segments of a business. This statement requires that those
long-lived assets be measured at the lower of carrying amount or fair value less
cost to sell, whether reported in continuing operations or in discontinued
operations. The Company will be required to adopt this statement no later than
January 1, 2002. The Company is currently assessing the impact of this statement
on its results of operations, financial position and cash flows.
NOTE 7. INVESTMENT BANKING AGREEMENT
On May 27, 1999, the Company entered into an agreement with an investment banker
to seek debt financing through public or private offerings or debt or equity
securities and in seeking merger and acquisition candidates. Per the agreement,
the Company granted the investment banker options to purchase 200,000 shares of
the Company's common stock at an exercise price of $0.13, expiring on May 31,
2001. Additionally, the Company was required to pay $60,000 for the initial
twelve months. In addition, the agreement specified that the investment banker
will receive a percentage of consideration received in a merger, acquisition,
joint venture, debt or lease placement and similar transactions through May 31,
2001. The Company valued these options using the Black Scholes model at $3.14
per share for total consulting expenses of $627,200 and amortized such an
expense over the course of the contract. As of July 31, 2001, entire value of
this contract had been amortized. In April 2000, the parties agreed to amend the
agreement to eliminate the fee based on a percentage of the consideration of a
transaction, and to grant the investment banker 200,000 shares of the Common
Stock and to cancel the options to purchase 200,000 shares. On August 7, 2001,
the Company agreed to settle a dispute over the terms of the amendment by
canceling the 200,000 shares in exchange for 1,500,000 of the Company's
restricted common stock. The Company valued the additional 1,300,000 shares at
$0.17 each and charged operations a total of $221,000 for non-recurring loss on
settlement.
NOTE 8 EXTRAORDINARY ITEM
SFAS No. 4 "Reporting Gains and Losses from Extinguishment of Debt", specifies
that material debt extinguishment gains and losses be classified as
extraordinary items. During the three months ended October 20, 2001, the Company
had capital lease obligations in default totaling $91,985 that were settled
for $35,800. The remaining balance was recognized as an extraordinary
gain of $56,185. The Company used cash from operations to satisfy these
settlements.
NOTE 9 GOODWILL - ADOPTION OF STATEMENT 142
The Company has elected early adoption of SFAS No.142. Accordingly, the Company
has stopped amortization of goodwill effective May 1, 2001. However, goodwill
amortization continues to be presented in the three and six months ended October
31, 2000, statement of operations. Had the provision of SFAS No. 142 been
applied for the three and six months ended October 31, 2000, the Company's net
income and net income per share would have been as follows:
For the three months ended For the six months ended
October 31, October 31,
2001 2000 2001 2000
_______________________________________________________
Reported net income (loss) (334,858) (375,489) (597,381) (1,254,042)
Add back: Goodwill amortization - 144,186 - 288,372
---------- ----------- ---------- -----------
Adjusted net income (loss) (334,858) (231,303) (597,381) (965,670)
========== =========== ========== ============
Basic earnings per share:
Reported net income (loss) (0.009) (0.017) (0.018) (0.058)
========== =========== ========== ============
Goodwill amortization - 0.006 - 0.013
========== =========== ========== ============
Adjusted net income (0.009) (0.011) (0.018) (0.045)
========== =========== ========== ============
There was no goodwill amortization recognized in the first six months of fiscal
2002 and, as of October 31, 2001, net goodwill was $250,000 for Titus Real
Estate, Inc., and $175,247 for Expidoc.Com, Inc. The net goodwill balance as of
October 31, 2001 remains unchanged from the April 30, 2001, balance. There were
no intangible assets recorded for the Company as of October 31, 2001.
Management assessed the value of Titus during the fourth quarter of fiscal year
2001 based on a liquidation or residual value of the enterprise, and they
recorded an impairment at that time. In contemplating the adoption of SFAS No.
142, management assessed the intangible assets of Expidoc. At May 1, 2001, the
date of adoption, management believed that the primary intangible asset of
Expidoc was goodwill. Because of the relative immateriality of the carrying
value of the Expidoc goodwill, management did not believe that an appraisal was
necessary to determine what amount, if any, should be allocated to intangible
assets with definite lives. Management believes the enterprise value of Expidoc
exceeds the carrying value of goodwill.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW
The Company is an independent financial services company, whose primary
source of revenue is American Residential Funding "AMRES", a wholly owned
subsidiary. AMRES offers loan originators a "net-branch" opportunity, in which
AMRES provides licensing, accounting and lender approvals in over 40 states.
They maintain a web site, www.amres.net, which contains detailed information on
-------------
AMRES, as well as provides Net Branches with various corporate services.
Currently over 200 net-branches nationwide are operating, in addition to four
Corporate owned branches in four counties in Southern California. Further rapid
growth is anticipated, both from commissioned and corporate marketing staff.
Loan processing, mortgage banking and acquisitions will provide additional
revenues sources. During the three months ended October 31, 2001, AMRES
generated operating income in excess of $160,000.
The Company has seen improvement in other subsidiaries as well.
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.
BravoRealty.com (69% owned subsidiary) has established joint venture
branches in four locations. In addition, BravoRealty.com 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 within
120 days is expected to establish 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 the fiscal 3rd
quarter, excluding additional start-up costs of franchising. Due to these
start-up costs, Bravorealty had incurred an operating loss for the current
quarter.
Titus Real Estate, LLC, operates as the manager of Titus REIT, a real
estate investment trust. Current shareholders of the REIT have requested the
selling of assets in order to return their original investment. 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, LLC, has incurred small operating losses during the
current quarter.
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. It will be the intention of the Company to convert
these investors, whom originally invested in ANZA bonds, into the Company's
equity. The ultimate goal, if obtained, is to list the Company on a National
Market System, such as the NASDAQ (see Note 2). Anza is in the development
stage. The Company has incurred approximately $100,000 of expenses in
connection with the establishment of Anza.
Results of Operations
For the three and six month periods ended October 31, 2001, the Company
reported net losses of ($334,858) and ($597,381) respectively. For both
periods, the Company had significant non-cash expenses relating to stock issued
to consultants and amortization of warrants issued as part of the bridge loan
financing. In addition, the tragedy of Sept. 11 virtually stopped loan
production for a week, significantly reducing income for that period. As these
costs are expected to reduce in future periods, the Company remains positive
about its ability to obtain profitability in the near future.
Three Months Ended October 31, 2001 Compared To The Three Months Ended October
31, 2000
REVENUES
Revenues increased to $5,973,204 for the three months ended October 31,
2001, compared to $2,616,980 for the three months ended October 31, 2000. The
growth in revenues is primarily attributable to the expansion and growth of
AMRES through the brokering of loans. AMRES accounted for greater than 95% of
consolidated revenues for both periods. AMRES, as did most of the mortgage
industry, benefited greatly from the decline in interest rates over the last
several months. Typically, as interest rates fall, the refinance market heats
up expanding the market of interested borrowers beyond those borrowing for the
purchase of their primary residence. AMRES benefited from this market upturn, as
they had the capacity in terms of people and infrastructure to accommodate the
additional business.
More significantly, the growth of the net branch program at AMRES was the
major contributor to the growth in revenue. AMRES' net branch program comprised
approximately 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.
Revenues for Expidoc increased slightly to $116,110 for the three months
ended October 31, 2001 compared to $72,543 for the three months ended October
31, 2000. The increase is primarily a result of Expidoc refocusing its market
strategy to secure higher volume customers as compared to many low-volume
customers. This change in focus is evidenced by the addition of such customers
as Ditech.com.
Bravorealty became operational in January 2001. For the three months ended
October 31 2001, total revenues amounted to $58,809. These revenues were
generated based on approximately five closed real estate purchase transactions
during the quarter. Management believes that Bravorealty will be a significant
growth vehicle for the Company over the next 12 months, as evidenced by the
steady increase in the number of real estate sales' listings and closed
transactions generated by Bravorealty so far this fiscal year.
Revenues from Titus were not material for the periods presented.
Costs and Expenses
Commissions are paid to loan agents on funded loans. Commissions increased
by $1,480,711 or 89.1%, for the three months ended October 31, 2001, to
$3,143,056 from $1,662,345 for the three months ended October 31, 2000. This
increase is primarily related to the increased revenues discussed above. As a
percentage of revenue, the cost of revenue decreased by 10.9%, to 52.6% compared
to 63.5% for the three months ended October 31, 2001 and the three months ended
October 31, 2000, respectively. This decrease is attributable to the Company
leveraging its increased revenues as the Company earns a higher commission split
(compared to the loan agent) once certain revenue targets are reached.
General and Administrative Expenses
General and administrative expenses totaled $2,800,614 for the three months
ended October 31, 2001, compared to $1,139,152 for the three months ended
October 31, 2000. This increase of $1,661,462 can be primarily attributed to
the business growth of the operating subsidiaries, namely AMRES, as additional
personnel, office space and other administrative costs are required to handle
the expansion. Effective in the first quarter of fiscal 2001, the Company had
implemented significant cost reductions to reduce its administrative expenses at
its corporate offices.
The Company has elected early adoption of Statement 142 and as such, has
not recorded any goodwill amortization for the three months ended October 31,
2001. Goodwill amortization relating to the Company's acquisitions of Expidoc,
Titus, and LoanNet amounted to approximately $145,000 for the three months ended
October 31, 2000.
Consulting Expenses
To date, the Company has funded a portion of its operating costs through
the use of its common stock paid to outside consultants. During the three
months ended October 31, 2001, costs paid in the form of common stock to outside
consultants totaled approximately $137,200, representing 1,100,000 shares of
common stock. For the three months ended October 31, 2000, costs paid in the
form of common stock issued to outside consultants totaled $547,995. The stock
issued in connection with Bravorealty was reported as deferred compensation and
$52,500 was expensed during the three months ended October 31, 2001. Management
expects a reduction in the use of stock for this purpose in the future.
Interest Expense
Interest expense was $79,720 for the three months ending October 31, 2001,
compared to $61,406 for the three months ended October 31, 2000. This increase
is primarily related to the amortization of three month's interest expense in
the amount of $35,569 related to options issued as part of the bridge loan
financing with Laguna Pacific Partners, LLP.
Extraordinary Item
During, the three months ended October 31, 2001, the Company settled
certain lease obligations and recorded a gain on the settlement of debt in the
amount of 56,185.
Net Income (Loss)
The Company's net loss for the three months ending October 31, 2001 was
($334,858), or ($0.01) per share compared to a net loss of ($375,489), or
($0.02) per share for the three months ended October 31, 2000. The Company
believes that with its continued growth in revenues and its ability to leverage
its fixed costs against those revenues, it will be able to achieve profitability
in future quarters.
Six Months Ended October 31, 2001 Compared To The Six Months Ended October 31,
2000
REVENUES
Revenues increased by $6,343,325, or 127.3%, to $11,326,267 for the six
months ended October 31, 2001, compared to $4,982,942 for the six months ended
October 31, 2000. This increase is again the result of the growth and expansion
of AMRES, primarily the Net Branch program.
Revenues for Expidoc increased slightly to $172,927 for the six months
ended October 31, 2001 compared to $72,543 for the six months ended October 31,
2000. The increase in volume is a result of Expidoc adding such names as
Ditech.com to their customer list.
Bravorealty became operational in January 2001. For the six months ended
October 31 2001, total revenues amounted to $161,119. These revenues were
generated based on approximately fifteen closed real estate purchase
transactions during the period. Management believes that Bravorealty will be a
significant growth vehicle for the Company over the next 12 months, as evidenced
by the steady increase in the number of real estate sales' listings and closed
transactions generated by Bravorealty so far this fiscal year.
Revenues from Titus were not material for the periods presented.
Costs and Expenses
Commissions are paid to loan agents on funded loans. Commissions increased
by $2,631,635 or 78.2%, for the six months ended October 31, 2001, to $5,995,586
from $3,363,951 for the six months ended October 31, 2000. The primary reason
for the increase in commissions is the increase in revenue as discussed above.
Proportionally, total commissions as a percentage of revenue decrease as
revenues increase due to the Company earning a higher commission split (compared
to the loan agent) once certain revenue targets are meet.
General and Administrative Expenses
General and administrative expenses totaled $5,121,381 for the six months
ended October 31, 2001, compared to $2,564,288 for the six months ended October
31, 2000. The increase in general and administrative expense is a result of the
continued rapid growth and expansion of the operating subsidiaries. The Company
does expect that general and administrative costs will begin to level out,
compared to the growth in revenue, as the company continues to leverage its
fixed costs.
The Company has elected early adoption of Statement 142 and as such, has
not recorded any goodwill amortization for the six months ended October 31,
2001. Goodwill amortization relating to the Company's acquisitions of Expidoc,
Titus, and LoanNet amounted to approximately $290,000 for the six months ended
October 31, 2000.
Consulting Expenses
To date, the Company has funded a portion of its operating costs through
the use of its common stock paid to outside consultants. During the six months
ended October 31, 2001, costs paid in the form of common stock to outside
consultants totaled approximately $547,995 representing 3,500,000 shares of
common stock. For the six months ended October 31, 2000, costs paid in the form
of common stock issued to outside consultants totaled $519,290. The stock
issued in connection with Bravorealty was reported as deferred compensation and
$105,000 was expensed during the six months ended October 31, 2001
Interest Expense
Interest expense was $122,355 for the six months ending October 31, 2001,
compared to $108,748 for the six months ended October 31, 2000. This increase
is primarily related to the amortization of four month's interest expense in the
amount of $46,219related to options issued as part of the bridge loan financing
with Laguna Pacific Partners, LLP.
Net Losses
The Company's net losses for the six months ending October 31, 2001 and
2000 were ($597,381), and ($1,254,042), or ($0.018) and ($0.06) per share
respectively. During the most recent six-month period, the non-cash expense
component of the Company's net loss was significant. For the six months ending
October 31, 2001, non-cash expense relating to common stock issued to
consultants, for interest and for non-recurring settlements amounted to
$547,995, $122,355 and $282,494, respectively. The Company believes that with
its continued growth in revenues and its ability to leverage its fixed costs
against those revenues, it will be able to reduce its net losses in the future,
and possibly achieve profitability.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Net cash provided by (used in) operating activities was $223,922 and
($348,204) for the six months ending October 31, 2001 and 2000, respectively.
Net loss decreased significantly between the periods to ($597,381) for the
period ending October 31, 2001 compared to a net loss of ($1,254,042) for the
period ending October 31, 2000. Non-cash expenses relating to the issuance of
stock for services, depreciation and amortization totaled $823,801 and $918,279
for the six months ended October 31, 2001 and 2000, respectively.
Net cash from investing activities was ($19,167) and $27,009 for the six
months- ended October 31, 2001and 2000, respectively. There were no individually
significant sources or uses of funds from investing activities for either period
presented.
Net cash provided by financing activities was $289,666 and $463,437 for the
periods ending October 31, 2001 and October 31, 2000 respectively. Cash provided
by financing for the period ended October 31, 2000 relates primarily to net
proceeds received from private placements of the Company's stock, reduced by
payments made on the Company's note payable to EMB corporation related to the
acquisition of AMRES. Cash provided by financing for the period ended October
31, 2001 relates primarily to advances on the Company's warehouse line of credit
in the amount of $100,466 associated with its mortgage banking operations and to
the proceeds from the issuance of the bridge loan. The warehouse line of credit
is secured by first and second trust deed mortgages.
The Company generated cash flows from a bridge financing in the amount of
$225,000. The Company was required to issue warrants to purchase 225,000 shares
of common stock for $1.00, the exercise price of which is based on a 30%
discount from the closing bid price on the date of exercise. The total value of
the warrants amounted to $132,345 based on the relative fair value of the
warrants to the proceeds from the financing. The value is treated as a discount
to the carrying value the debt which is being amortized over the nine-month term
of the note using the effective interest method. The Company plans to repay the
note from proceeds generated from an offering of securities by Anza. In the
event the capital from the Anza is not received, management intends to repay the
note from cash on hand, or cash flows generated from operations, if any.
The Company significantly improved their financial position upon completing
a "Global Settlement" June 26, 2001. The Company substantially increased its net
worth and reduced its liability to EMB from $1,215,856 to $103,404, after
issuing a convertible note to AMRES Holding LLC and issuing 4.5 million shares
of its common stock. The original obligation to EMB further required the Company
to pursue an S-1 registration that had become very time consuming of management,
and costly in terms of cash, which has now been withdrawn.
The Company is current in servicing its obligations as they become due.
From time to time, the Company used its common stock to provide compensation for
outside services that were required. It is the belief of management, that
beginning the third quarter 2001, little or no common stock will be issued for
services.
The Company's stockholders deficit has been significantly reduced from
$1,184,382 to $69,925 primarily due to the issuance of common stock in relief of
debt.
Management is pleased with the current direction and financial improvement
of the Company. The operating subsidiaries are expanding in tough economic
times. AMRES and Expidoc.com are currently profitable. BravoRealty is performing
as projected, requiring budgeted initial investment in capital prior to ramping
up to full operations, including anticipated selling of franchises. And Titus,
with a small loss, is poised for a round of new investors when the markets
permit. The cash flow of the Company has markedly improved, with cash on hand
ending October 31 of $587,307 versus $427,825 the year earlier. Short-term debt
is manageable. A $43,000 note is being paid off in monthly payments through May
of 2002, with approximately $30,000 unpaid as of October 3, 2001. The $225,000
note due Bridgeloan is to be paid from fundraising in the new subsidiary, Anza
Properties, or can be paid with cash on hand. The $485,446 convertible note due
our Chief Executive, due in December 2002, will convert into common stock, or
extend the maturity date, at holder's option, if paying in cash proves too
difficult for E-net. The $103,404 convertible note due in December 2002, can be
converted to equity at E-net's option. And, the $1,798,400 in convertible
preferred is expected to convert to common stock. Significant debt has been
eliminated, and no current obligations are delinquent. It is our opinion, baring
some significant adverse change in our business, that E-net should but continue
to grow rapidly and continue to increase its profitability. Finally, through
recently established subsidiary Anza Properties, E-net has initiated plans to
establish sufficient net worth in order to file for listing on a national
exchange, such as NASDAQ, in mid-2002.
Our Interim financial statements have been prepared assuming the Company
will continue as a going concern. Because the Company has incurred significant
losses from operations and has excess current liabilities over current assets
totaling approximately $37,234, it may require financing to meet its cash
requirements. Our auditors included an explanatory paragraph in their annual
report raising substantial doubt about its ability to continue as a going
concern. However, during the six months ended October 31, 2001, the Company
executed relief from certain obligations by settlement of its creditors. Cash
requirements depend on several factors, including but not limited to, the pace
at which all subsidiaries continue to grow, become self supporting, and begin to
generate positive cash flow, as well as the ability to obtain additional
services for common stock or other non-cash consideration.
If capital requirements vary materially from those currently planned, the
Company may require additional financing sooner than anticipated. At present,
there are no firm commitments for any additional financing, and there can be no
assurance that any such commitment can be obtained on favorable terms, if at
all. Management has implemented several reductions of costs and expenses to
reduce its operating losses. Management plans to continue its growth plans to
generate revenues sufficient to meet its cost structure. Management believes
that these actions will afford the Company the ability to fund its daily
operations and service its remaining debt obligations primarily through the cash
generated by operations; however, there are no assurance that management's plans
will be successful. No adjustments have been made to the carrying value of
assets or liabilities as a result of these uncertainties.
Except for historical information, the materials contained in this
Management's Discussion and Analysis are forward-looking (within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934) and involve a number of risks and uncertainties. These
include the Company's historical losses, the need to manage its growth, general
economic downturns, intense competition in the financial services and mortgage
banking industries, seasonality of quarterly results, and other risks detailed
from time to time in the Company's filings with the Securities and Exchange
Commission. Although forward-looking statements in this Quarterly Report
reflect the good faith judgment of management, such statements can only be based
on facts and factors currently known by the Company. Consequently,
forward-looking statements are inherently subject to risks and uncertainties,
actual results and outcomes may differ materially from the results and outcomes
discussed in the forward-looking statements. Readers are urged to carefully
review and consider the various disclosures made by the Company in this
Quarterly Report, as an attempt to advise interested parties of the risks and
factors that may affect the Company's business, financial condition, and results
of operations and prospects.
PART II
ITEM 1 LEGAL PROCEEDINGS
There have been no material developments to the reportable events in the
Company's Form 10-KSB filed with the SEC on August 16, 2001.
ITEM 2 CHANGES IN SECURITIES
In August 2001, the Company issued 1,500,000 shares of common stock to D.
Weckstein and 100,000 shares of common stock to Food Service Industries in
settlement of disputed claims related to the value of services rendered. We had
not previously accounted for the disputes as a contingency. The issuances were
exempt from registration pursuant to Section 4(2) of the Securities Act of 1933.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 OTHER INFORMATION
Not applicable
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
/s/ Vincent Rinehart
Dated: February 20, 2002 _____________________________
By: Vincent Rinehart
Its: President, Chairman,
Chief Executive Officer,
Chief Financial Officer,
Chief Accounting Officer,
and Director
/s/ Scott A. Presta
Dated: February 20, 2002 _____________________________
By: Scott A. Presta
Its: Director