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 OCTOBER 31, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________ to _______________.
COMMISSION FILE NUMBER O-24512
ANZA CAPITAL, INC.
(Exact name of registrant as specified in its charter)
NEVADA 88-1273503
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3200 BRISTOL STREET, SUITE 700
COSTA MESA, CA 92626
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (714) 866-2100
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No.
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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 9, 2002, there
were 51,559,328 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
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PART I
ITEM 1 Financial Statements 3
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ITEM 2 Management's Discussion and Analysis or Plan of Operation 14
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PART II
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ITEM 1 Legal Proceedings 24
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ITEM 2 Changes in Securities 24
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ITEM 3 Defaults Upon Senior Securities 24
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ITEM 4 Submission of Matters to a Vote of Security Holders 24
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ITEM 5 Other Information 24
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ITEM 6 Exhibits and Reports on Form 8-K 25
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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
October 31, 2002
------------------
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . $ 3,900,310
Commissions and accounts receivable . . . . . . . . . . . . . . . . . 2,018,378
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,100
Advances to employees . . . . . . . . . . . . . . . . . . . . . . . . 194,407
Prepaid and other current assets. . . . . . . . . . . . . . . . . . . 63,805
------------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . 7,177,000
Property and equipment, net of accumulated depreciation of $182,716 . 117,615
Goodwill, net of accumulated amortization
and impairments of $1,535,049. . . . . . . . . . . . . . . . 275,247
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,085
------------------
$ 7,570,947
==================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,046,654
Warehouse line of credit. . . . . . . . . . . . . . . . . . . . . . . 976,867
Commissions payable . . . . . . . . . . . . . . . . . . . . . . . . . 3,795,370
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 232,841
------------------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . 6,051,732
Convertible notes payable to related party . . . . . . . . . . . . . . 353,336
Interest payable on notes to related party . . . . . . . . . . . . . . 54,621
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 18,848
------------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 6,478,537
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Stockholders' equity:
Class C convertible preferred stock, no par value;
liquidation value of $100.00 per share;
17,160 shares issued and outstanding . . . . . . . . . . . . . . . . . 1,716,000
Class A convertible preferred stock, no par value; liquidation
Value of $0.50 per share; 500,000 shares authorized, 462,053
Shares outstanding . . . . . . . . . . . . . . . . . . . . . 230,826
Common stock, $0.001 par value; 100,000,000 shares
authorized; 54,309,328 issued and 51,559,328 outstanding . . . . . . . 51,559
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . 12,401,422
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . (13,307,397)
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . 1,092,410
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$ 7,570,947
==================
See accompanying notes.
4
ANZA CAPITAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Three Six Six
Months Ended Months Ended Months Ended Months Ended
Oct 31, 2002 Oct 31, 2001 Oct 31, 2002 Oct 31, 2001
-------------- -------------- -------------- --------------
Revenues:
Broker commissions . . . . . . . . . . 14,780,927 5,798,285 25,825,800 10,985,952
Other. . . . . . . . . . . . . . . . . 367,609 174,919 730,668 340,315
-------------- -------------- -------------- --------------
15,148,536 5,973,204 26,556,468 11,326,267
-------------- -------------- -------------- --------------
Cost and expenses:
Broker Commissions . . . . . . . . . . . 10,825,142 4,196,940 19,004,204 7,803,898
Other . . . . . . . . . . . . . . . . 228,515 129,837 487,966 218,667
-------------- -------------- -------------- --------------
Gross profit . . . . . . . . . . . . . 4,094,879 1,646,427 7,064,298 3,303,702
General and administrative. . . . . . . . 1,611,172 958,393 3,197,592 1,678,511
Salaries and wages. . . . . . . . . . . . 1,731,052 658,294 2,966,156 1,349,124
Consulting fees . . . . . . . . . . . . . 193,809 137,406 221,805 547,996
Non-recurring loss on settlements . . . . - 221,000 - 282,494
Impairment of goodwill. . . . . . . . . . 150,000 - 150,000 -
-------------- -------------- -------------- --------------
Total costs and expenses . . . . . . . 3,686,033 1,975,093 6,535,553 3,858,125
-------------- -------------- -------------- --------------
Operating income (loss). . . . . . . . . 408,846 (328,666) 528,745 (554,423)
Interest expense. . . . . . . . . . . . . (45,106) (79,720) (64,608) (122,355)
Other income (expense), net . . . . . . . 51,543 73,528 54,887 79,397
-------------- -------------- -------------- --------------
Net income (loss). . . . . . . . . . . $ 415,283 $ (334,858) $ 519,024 $ (597,381)
============== ============== ============== ==============
Earnings per common share:
Basic:
Weighted average number of
common shares . . . . . . . . . . . . 42,790,101 37,774,349 42,588,080 32,901,640
============== ============== ============== ==============
Net earnings (loss) per common share. $ 0.01 $ (0.01) $ 0.01 $ (0.02)
Diluted:
Weighted average number of
common shares. . . . . . . . . . . . 202,931,705 37,774,349 202,729,684 32,901,640
============== ============== ============== ==============
Net earnings (loss) per
common share . . . . . . . . . . . $ 0.00 $ (0.01) $ 0.00 $ (0.02)
See accompanying notes.
5
ANZA CAPITAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Six Months
Ended Ended
Oct 31, 2002 Oct 31, 2001
-------------- --------------
Cash flows from operating activities:
Net income (loss). . . . . . . . . . . . . . . $ 519,024 $ (597,381)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization. . . . . . . . . 20,996 5,001
Non-recurring loss on settlements. . . . . . . - 282,494
Gain on settlement of obligations. . . . . . (51,543) (56,185)
Stock based compensation . . . . . . . . . . . 146,234 405,173
Amortization of discounts on loans . . . . . . 20,484 59,261
Impairment of goodwill . . . . . . . . . . . 150,000 -
Amortization of deferred stock compensation. . 57,958 131,133
Changes in operating assets and liabilities:
Increase in accounts receivable, net . . . . (689,920) (138,687)
Decrease (increase) in loans held for sale . 69,600 ( 82,575)
Increase in other current assets . . . . . . (20,133) (10,895)
Increase in due from employees . . . . . . . (107,473) (119,750)
Increase (decrease) in accounts payable. . . 830,651 (85,753)
Increase in commissions payable. . . . . . . 2,585,931 469,777
Increase (decrease) in accrued liabilities . 11,198 (56,301)
Decrease (increase) in other liabilities . . (14,331) 18,610
Net cash provided by operating activities . . 3,528,676 223,922
-------------- --------------
Cash flows from investing activities:
Decrease in other assets . . . . . . . . . . . (1,085) -
Acquisitions of property and equipment . . . . (24,502) (19,167)
- -
-------------- --------------
Net cash (used in) investing activities. . . . (25,587) (19,167)
-------------- --------------
Cash flows from financing activities:
Proceeds from issuance of bridge loan. . . . . - 225,000
Payments on bridge loan . . . . . . . . . (200,000) -
Payments on capital lease obligations . . (18,420) (35,800)
Net borrowings under warehouse line of credit. (68,009) 100,466
Repurchase of A Preferred. . . . . . . . . . . (12,383) -
Dividends on A Preferred . . . . . . . . . . (11,818) -
-------------- --------------
Net cash (used in) provided by financing
activities. . . . . . . . . . . . . . . . (310,630) 289,666
-------------- --------------
(Continued)
6
ANZA CAPITAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONTINUED
Net increase in cash. . . . . . . . . . . . . . . . . . . . 3,192,459 494,421
Cash at beginning of period . . . . . . . . . . . . . . . . 707,851 92,886
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Cash at end of period . . . . . . . . . . . . . . . . . . . $ 3,900,310 $ 587,307
=========== =========
Non-cash financing activities:
Debt reduction through the issuance of stock
Warrants issued for bridge-loan issue costs
$ - $ 459,000
Conversion of C Preferred to common stock
$ - $ 132,345
Supplemental cash flow information:
Cash paid for interest . . . . . . . . . . . . . . . . . $ 34,359 $ 515,925
Income tax was not significant during the periods presented $ 27,937 $ -
See accompanying notes.
7
NOTES TO INTERIM FINANCIAL STATEMENTS
NOTE 1. UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial data as of October 31, 2002, and for the three and six
months ended October 31, 2002 and 2001 are unaudited; however, in the opinion of
management, the interim data includes all adjustments, consisting of normal
recurring adjustments, necessary to present fairly the Company's consolidated
financial position as of October 31, 2002, and the results of their operations
and their cash flows for the three and six months ended October 31, 2002
and 2001. 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 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 infor-
mation was not readily available and American Residential Funding, Inc.'s
("AMRES") loan brokering business represents approximately 97% of the Company's
revenues and related expenses. However, management determined that the omission
of this information is insignificant to the overall presentation of the
Company's financial position and will provide this information only in the
Company's Annual Report on Form 10-KSB. 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 October 31, 2001
As Originally Filed As Reclassified Difference
Broker Commissions. . . . . . . . . $ 3,013,012 $ 4,196,940 $ 1,183,928
Other . . . . . . . . . . . . . . . 130,372 129,837 (535)
General and administrative expenses 2,270,059 958,393 (1,311,666)
Salaries and wages. . . . . . . . . 530,021 658,294 128,273
Six Months Ended October 31, 2001
As Originally Filed As Reclassified Difference
Broker Commissions. . . . . . . . . $ 5,778,506 $ 7,803,898 $ 2,025,392
Other . . . . . . . . . . . . . . . 217,079 218,667 1,588
General and administrative expenses 4,100,958 1,678,511 (2,422,447)
Salaries and wages. . . . . . . . . 953,657 1,349,124 395,467
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.
8
NOTE 3. 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.
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, since its
transfer of financial assets are considered complete at the time of transfer.
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 pronounce-
ments. 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 three months ended October 31, 2002, the Company had a
gain from the settlement of certain bridge loan obligations in the amount of
$51,543 as discussed in Note 6.
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.
9
NOTE 4. GOODWILL
The net carrying amount of goodwill is $275,247 ($100,000 related to Titus and
$175,247 related to Expidoc) at October 31, 2002. Goodwill, during the periods
presented, was not amortized in accordance with SFAS 142. During the three
months ended October 31, 2002, 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 October 31, 2002. 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 three months ended
October 31, 2002.
NOTE 5. EARNINGS PER SHARE
Anti-dilutive securities which are not included in the calculation of dilutive
EPS for the three months ended October 31, 2002 which could be dilutive in
future periods, include the C Preferred, A Preferred, and employee options
convertible into approximately 160,141,604 shares of common stock. If all
of these anti-dilutive securities were converted as of October 31, 2002,
the Company could exceed its authorized number of common shares. However,
management believes that based on certain restrictions within the agreements
related to these anti-dilutive securities, primarily the C Preferred and
restrictions on the C Preferred holders' ownership percentage in proportion to
total shares outstanding, it is unlikely that a series of conversions could
occur (based on the total common shares outstanding as of October 31, 2002)
which could result in the Company exceeding its authorized shares.
NOTE 6. BRIDGE FINANCING
On June 27, 2001, the Company obtained a short-term bridge loan 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 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 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 in satisfaction 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 current quarter, management recorded a gain on the settlement as
other income in the amount of $51,543.
10
NOTE 7. 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 options to acquire
2,500,000 shares of ANZA common stock at $0.08 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.
ANZA is also a party to other employment agreements in the normal course of
business. Also see Note 9 for Subsequent Events.
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 an
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 $0.005 per share, which shall vest over twelve months
period. On November 1, 2002, the board authorized the issuance of 1,000,000
shares to Mr. Hemm as per his employment contract. The value attributed these
shares ($27,000), less amounts already recorded as expense by the Company in
previous quarters, was expensed during the quarter as compensation expense - See
Note 8. Stockholders' Equity.
NOTE 8. 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 million shares to consultants and legal counsel, valued
at $82,350. The value of the shares were accrued in the accompanying financial
statements as consulting expense for the period ended October 31, 2002.
Further, on November 4, 2002, the Company issued 2,950,000 shares to current
employees and directors. The shares were valued at $79,650 and were accrued as
compensation expense in the accompanying financial statements since the services
were rendered prior to that date.
11
Also see Note 9 Subsequent events for proposed reorganization and reverse
acquisition.
SERIES A CONVERTIBLE PREFERRED STOCK
During the six months ended October 31, 2002, ANZA repurchased 24,765 shares of
A Preferred for $12,383. Also during the period, the Company declared and
distributed $14,616 of dividends relating to the A Preferred. At the same time,
the Company clarified the terms of the A Preferred and filed an amendment to its
certificate of designation.
SERIES C CONVERTIBLE PREFERRED STOCK
On May 14, 2002, Class C Preferred stockholders exercised their option and
converted 299 shares of Class C Preferred stock into 1,189,931 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 Class C Preferred
shares. The beneficial conversion feature embedded in the Class C Preferred was
originally charged to Anza's accumulated deficit at the date of issuance since
the right to convert into common stock at a discount was the same date. No
expense was associated with the transaction. C Preferred stock dividend
totaling $4,459 were charged to the Company's accumulated deficit during the six
months ended October 31, 2002.
NOTE 9. SUBSEQUENT EVENTS
Proposed Reorganization and Acquisition
On October 7, 2002, Anza Capital, Inc. issued a press release announcing the
execution of a Reorganization Agreement with Homelife, Inc. A copy of the press
release was included in the Company's Current Report on Form 8-K filed with the
Commission on November 4, 2002.
The Reorganization Agreement requires the approval of each of the company's
common and preferred shareholders. Our current management team will assume the
management responsibilities of the surviving company, which shall be named AMRES
Capital Inc., and will consist of Anza's current assets and subsidiaries and
HomeLife's Red Carpet Real Estate trademark and operations. In connection with
obtaining the approval of the Anza shareholders, a Proxy Statement describing
the transaction will be filed with the Securities and Exchange Commission and
mailed to all Anza shareholders, when completed.
For accounting purposes, the proposed acquisition will be accounted for as a
reverse acquisition whereby Anza is assumed to be the accounting acquirer. The
acquisition of the HomeLife assets, consisting primarily of the Red Carpet
Trademark, will be recorded as a purchase, whereby the net assets acquired will
be recorded at fair value. The purchase price is estimated at $420,000,
plus liabilities assumed of $110,000, for an aggregate purchase price of
approximately $530,000. The purchase price is estimated based upon the
approximate number of shares to be retained by the HomeLife Shareholders
immediately after the proposed acquisition. The assets of HomeLife do not
include enforceable contracts, an assembled workforce, leases, or customer's
lists. As a result, management believes that the net assets in the proposed
acquisition do not constitute a trade or business. Management believes that the
purchase price will be allocated to the Red Carpet Trademark, which has an
indefinite life, and will not be amortized. There are no assurances that the
transaction will be closed, and accordingly, management does not believe that,
at present, pro forma financial information is required until such time the
transaction is probable of being completed.
12
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. 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 $115,000 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.
13
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 through American Residential Funding "AMRES", a wholly owned
subsidiary. AMRES offers loan originators a "net-branch" opportunity, in which
AMRES provides licensing, accounting and lender approvals in over 40 states.
They maintain a web site, www.amres.net, which contains detailed information on
AMRES, as well as provides Net Branches with various corporate services.
Currently over 300 net-branches nationwide are operating, in addition to four
Corporate owned branches in 4 counties in Southern California. Further 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, averaging
over 400 loan document signings a month through their network of notaries in all
50 states. Expidoc has achieved profitability the last three fiscal quarters.
By adding staff, and implementing a new marketing initiative, Expidoc 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.
BravoRealty (69% owned subsidiary) has established joint venture branches in
four locations. In addition, BravoRealty has initiated a net branch of AMRES
inside Bravo, and has experienced an increase in revenues from home loans
brokered. Bravorealty has established the documentation, licensing, marketing
materials and operations to sell "Bravo Real Estate Network" franchises.
Management is still evaluating its options for franchising and has no immediate
plans to implement this strategy. BravoRealty 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.
We have never achieved an annual profit. However, 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 infor-
mation 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
14
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 recover-
ability 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.
Fair Value of Assets Acquired and Liabilities Assumed in Purchase Combinations
and Review for Impairments
The purchase 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.
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. 121, "Accounting for the Impairment of Long-Lived Assets
and Assets to Be Disposed Of" 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. During the three months ended
October 31, 2002, we determined that the residual value of Titus companies
exceeded the carrying value by $150,000 and thus a permanent impairment charge
was recorded on the accompanying financial statements.
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.
15
RESULTS OF OPERATIONS, THREE MONTHS ENDED OCTOBER 31, 2002 COMPARED TO THE THREE
MONTHS ENDED OCTOBER 31, 2001.
Revenues
Revenues increased by $9,175,332, or 153.6%, to $15,148,536 for the three months
ended October 31, 2002, compared to $5,973,204 for the three months ended
October 31, 2001. 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.
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 270 branches as of October 31, 2002, compared to 110 branches as
of October 31, 2001. For the three months ended October 31, 2002, the total
revenue associated with the Net Branches was approximately $12.2 Million,
compared to total revenue associated with the Net Branches of $4.1 Million for
the three months ended October 31, 2001. The Net Branch 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 also increased significantly, $233,475 for the period ended
October 31, 2002 compared to $116,110 for the period ended October 31, 2001.
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 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.
BravoRealty became operational in January of 2001. For the three months ended
October 31, 2002, revenues amounted to $134,134 compared with revenues of
approximately $58,809 for the period ending October 31, 2001. Management
believes that BravoRealty can be a significant growth vehicle for the company in
the future, as evidenced by the steady increase in the number of real estate
sales' listings and closed transactions generated by BravoRealty over the last
twelve months. Further, management believes that with its continued growth
pattern and the addition of four corporate real estate offices and thirteen
additional sales persons, the prospect for profitability in the next fiscal year
is obtainable.
There were no revenues from Titus during the three months ended October 31, 2002
and revenue from Titus for the three months ended October 31, 2001 were
insignificant.
16
Costs and Expenses
Commissions are paid to loan agents on funded loans. Commissions increased by
$6,726,880 or 155.5%, for the three months ended October 31, 2002, to
$11,053,657 from $4,326,777 for the three months ended October 31, 2001. This
increase is primarily related to the increased revenues discussed above. As a
percentage of revenue, the commissions increased by 0.6%, to 73.0% compared to
72.4% for the three months ended October 31, 2002 and the three months ended
October 31, 2001, 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. The breakout of revenues earned by net
branches compared to total revenues was consistent between the periods. Gross
profit increased by $2,448,452 or 148.7% for the three months ended October 31,
2002 to $4,094,879 from $ 1,646,427 for the three months ended October 31, 2001.
General and Administrative Expenses
General and administrative expenses totaled $1,611,172 for the three months
ended October 31, 2002, compared to $958,393 for the three months ended October
31, 2001. This increase of $652,779 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.
Salaries and Wages
Salaries and wages totaled $1,731,052 for the three months ended October 31,
2002, compared to $658,294 for the three months ended October 31, 2001. The
increase of $1,072,758 is directly related to the expansion of AMRES operations.
As of October 31, 2002, the Company employed approximately 675 employees
compared to 385 employees as of October 31, 2001.
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 October 31, 2001, costs paid in the form of stock to outside
consultants totaled approximately $137,406 representing approximately 1,100,000
shares of stock. Stock issued to outside consultants during the three months
ended October 31, 2002 amounted to $82,350 representing 3,050,000 shares.
Consulting expenses recorded for the three months ended October 31, 2002 also
included amortization of stock issued in the previous fiscal year and cash paid
for outside services totaling approximately $36,000.
Non-Recurring Settlement Expense
During the three months ended October 31, 2001, 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 October 31, 2001.
There were no non-recurring settlement expenses incurred for the six months
ended October 31, 2002.
17
Impairment of Goodwill
During the three months ended October 31, 2002, 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 October 31, 2002. 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 three months ended October 31, 2002.
Interest Expense
Interest expense was $45,106 as of October 31, 2002, compared to $79,720 as of
October 31, 2001. 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 the 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 October 31, 2002, 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. Other income in prior
periods was primarily related to gains on settlement of capital lease
obligations.
Net Income
The Company generated a net profit for the three and months ended October 31,
2002 of $415,283, or $0.01 per share. For the three months ended October 31,
2001, the Company recorded a net loss of ($334,858) or $0.01 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.
RESULTS OF OPERATIONS, SIX MONTHS ENDED OCTOBER 31, 2002 COMPARED TO THE SIX
MONTHS ENDED OCTOBER 31, 2001.
Revenues
Revenues increased by $15,230,201, or 134.5%, to $26,556,468 for the six months
ended October 31, 2002, compared to $11,326,267 for the six months ended October
31, 2001. 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.
18
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 270 branches as of October 31, 2002, compared to 110 branches as
of October 31, 2001. For the six months ended October 31, 2002, the total
revenue associated with the Net Branches was approximately $19.9 Million,
compared to total revenue associated with the Net Branches of $7.7 Million for
the six months ended October 31, 2001. The Net Branch 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 also increased significantly, to $390,160 for the six month
period ended October 31, 2002 compared to $172,927 for the six month period
ended October 31, 2001. 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 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.
BravoRealty became operational in January of 2001. For the six months ended
October 31, 2002, revenues amounted to $340,508 compared with revenues of
approximately $161,119 for the period ending October 31, 2001. Management
believes that BravoRealty can be a significant growth vehicle for the company in
the future, as evidenced by the steady increase in the number of real estate
sales' listings and closed transactions generated by BravoRealty over the last
twelve months. Further, management believes that with its continued growth
pattern and the addition of four corporate real estate offices and twelve
additional sales persons, the prospect for profitability in the next fiscal year
is obtainable.
There were no revenues from Titus during the six months ended October 31, 2002
and revenue from Titus for the six months ended October 31, 2001 were
insignificant.
Costs and Expenses
Commissions are paid to loan agents on funded loans. Commissions increased by
$11,469,605 or 143%, for the six months ended October 31, 2002, to $19,492,170
from $8,022,565 for the six months ended October 31, 2001. This increase is
primarily related to the increased revenues discussed above. As a percentage of
revenue, the commissions increased by 2.6%, to 73.4% compared to 70.8% for the
six months ended October 31, 2002 and the six months ended October 31, 2001,
respectively. This increase is directly associated with the proportional
increase in Net Branch revenue as a percentage of total revenue as 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 $3,760,596 or 113.8% for the six months ended October
31, 2002 to $7,064,298 from $ 3,303,702 for the six months ended October 31,
2001.
19
General and Administrative Expenses
General and administrative expenses totaled $3,197,592 for the six months ended
October 31, 2002, compared to $1,678,511 for the six months ended October 31,
2001. This increase of $1,519,081 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 six months ended October 31, 2002 or October
31, 2001.
Salaries and Wages
Salaries and wages expense totaled $2,966,156 for the six months ended October
31, 2002, compared to $1,349,124 for the six months ended October 31, 2001. The
increase of $1,617,032 is directly related to the expansion of AMRES operations.
As of October 31, 2002, the Company employed approximately 675 employees
compared to 385 employees as of October 31, 2001.
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 six
months ended October 31, 2001, costs paid in the form of stock to outside
consultants totaled approximately $531,200 representing approximately 3,500,000
shares of stock. In addition, the Company recorded an additional $16,795 in
cash compensation to outside consultants for the six months ended October 31,
2001. During the six months ended October 31, 2002 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 six months ended October
31, 2002 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 six months ended October 31, 2001, 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 October 31, 2001.
There were no non-recurring settlement expenses incurred for the six months
ended October 31, 2002.
Impairment of Goodwill
During the six months ended October 31, 2002, 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 October 31, 2002. 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 three months ended October 31, 2002.
20
Interest Expense
Interest expense was $64,608 as of October 31, 2002, compared to $122,355 as of
October 31, 2001. This decrease is associated with a reduction in the total
balance of notes payable during the period. 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.
Other Income Expense, net
During the six months ended October 31, 2002, 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. Other income in prior periods was
primarily related to gain recognized on the settlement of capital lease
obligations.
Net Income
The Company generated a net profit for the six months ended October 31, 2002 of
$519,024, or $0.01 per share. For the six months ended October 31, 2001, the
Company recorded a net loss of ($597,381) 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 $3,528,676 and $223,922 for the
six months ending October 31, 2002 and 2001, respectively. The Company
generated a net profit of $519,024 for the six months ended October 31, 2002,
compared to a net loss of $597,381 for the six month period ended October 31,
2001. Non-cash expenses relating to the issuance of stock for services,
depreciation and amortization and amortization of debt discounts totaled $21,564
and $818,800 for the six months ended October 31, 2002 and 2001, respectively.
Increase in commissions payable of $2,585,931 was also a significant contributor
to the cash provided by operating activities for the six months ending October
31, 2002. The increase in commissions payable relates to the significant
increase in business during the recent six month period, as well as the timing
of the payment of commissions which is generally 7 to 14 days after collection
by AMRES.
Our mortgage loans held for sale decreased approximately $69,600. 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 it 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).
21
On December 9, 2002, AMRES received notification from HUD requesting indem-
nification 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. 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 $115,000 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 $ 25,587 and $19,167 for the
six months ended October 31, 2002 and 2001, respectively. There were no
individually material transactions for either period presented.
Net cash used by financing activities was $310,630 for the six months ending
October 31, 2002, 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 six months ending October 31,
2001 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 nine 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
accountants 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.
22
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.
23
PART II
ITEM 1 LEGAL PROCEEDINGS
In the ordinary course of business, the Company is from time to time
involved in various pending or threatened legal actions. The litigation process
is inherently uncertain and it is possible that the resolution of such matters
might have a material adverse effect upon the financial condition and/or results
of operations of the Company. However, in the opinion of the Company's
management, matters currently pending or threatened against the Company are not
expected to have a material adverse effect on the financial position or results
of operations of the Company.
ITEM 2 CHANGES IN SECURITIES
In October 2002, we issued 3,000,000 shares of common stock, restricted in
accordance with Rule 144, to Laguna Pacific Partners, L.P., an accredited
investor, upon the exercise of outstanding warrants. The issuance was exempt
from registration pursuant to Section 4(2) of the Securities Act of 1933.
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.
ITEM 5 OTHER INFORMATION
Laguna Pacific Settlement
---------------------------
In our Quarterly Statement on Form 10-QSB for the quarter ended July 31,
2002, we disclosed that on or about June 27, 2002, we entered into a Settlement
Agreement and General Mutual Release with Laguna Pacific Partners, L.P. (the
"Laguna Settlement"). Subsequent to the Laguna Settlement, a dispute arose
regarding whether or not the Laguna Settlement included and consequently
cancelled warrants issued to Laguna Pacific. We have agreed with Laguna Pacific
that the warrants were not cancelled by the Laguna Settlement, and we further
agreed with Laguna Pacific to modify the terms of the warrants to fix the
exercise price at the equivalent of $0.075 per share. Laguna Pacific sub-
sequently exercised the warrants and acquired 3,000,000 shares of common stock
for total consideration of $1.00.
Homelife, Inc. Merger
-----------------------
On October 7, 2002, we issued a press release announcing the execution of a
Reorganization Agreement with Homelife, Inc. A copy of the press release was
included in the Company's Current Report on Form 8-K filed with the Commission
on November 4, 2002.
The Reorganization Agreement requires the approval of each of our common
and preferred shareholders. Our current management team will assume the
management responsibilities of the surviving company, which shall be named AMRES
Capital Inc., and will consist of Anza's current assets and subsidiaries and
HomeLife's Red Carpet Real Estate trademark and operations. In connection with
obtaining the approval of the our shareholders, a Proxy Statement describing the
transaction will be filed with the Securities and Exchange Commission and mailed
to all Anza shareholders.
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Notification From The Department of Housing and Urban Development
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On December 9, 2002, we received notification from HUD requesting
indemnification on up to 23 loans brokered by a former loan officer of the
Company. 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 that 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 $115,000 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.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Amendment No. 1 to the Laguna Pacific Warrant.
99.1 Certification as Adopted Pursuant to Sections 302 and 906 of
the Sarbanes-Oxley Act of 2002.
(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.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
/s/ Vincent Rinehart
Dated: December 16, 2002 ---------------------------------
By: Vincent Rinehart
Its: President, Chairman, Chief
Executive Officer, Chief
Financial Officer, Chief
Accounting Officer, and
Director
/s/ Scott A. Presta
Dated: December 16, 2002 ---------------------------------
By: Scott A. Presta
Its: Director
26