-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ShNmy+M0JBP36zGVC4yEe7Z/Awndq3MpVuwQQzjzTE1DCc1f8VTAr5otfsYXqhxs gkb3/31LryYSNdojpoHdyg== 0001050502-01-000278.txt : 20010323 0001050502-01-000278.hdr.sgml : 20010323 ACCESSION NUMBER: 0001050502-01-000278 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010131 FILED AS OF DATE: 20010322 FILER: COMPANY DATA: COMPANY CONFORMED NAME: E-NET FINANCIAL COM CORP CENTRAL INDEX KEY: 0000926844 STANDARD INDUSTRIAL CLASSIFICATION: FINANCE SERVICES [6199] IRS NUMBER: 841273503 STATE OF INCORPORATION: NV FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-24512 FILM NUMBER: 1576764 BUSINESS ADDRESS: STREET 1: 3200 BRISTOL STREET STREET 2: SUITE 710 CITY: COSTA MESA STATE: CA ZIP: 92626 BUSINESS PHONE: 7145572222 MAIL ADDRESS: STREET 1: 2102 BUSINESS CENTER DRIVE STREET 2: 115E CITY: IRVINE STATE: CA ZIP: 92612 FORMER COMPANY: FORMER CONFORMED NAME: E-NET COM CORP DATE OF NAME CHANGE: 20000127 FORMER COMPANY: FORMER CONFORMED NAME: E NET FINANCIAL CORP DATE OF NAME CHANGE: 19990920 FORMER COMPANY: FORMER CONFORMED NAME: E NET CORP/NV DATE OF NAME CHANGE: 19990513 10QSB 1 0001.txt 10QSB U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Quarterly Period Ended January 31, 2001 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Transition Period From _______________ To _______________ 0-24512 ---------------------- (Commission File Number) E-NET FINANCIAL.COM CORPORATION --------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Nevada 84-1273503 ------------------------------ -------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) 3200 Bristol Street, Suite 700, Costa Mesa, California, 92626 -------------------------------------- -------- (Address of principal executive offices) (Zip Code) (714) 866-2100 ------------------------- (Issuer's Telephone Number) 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 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 last practicable date: 22,909,939 as of March 19, 2001. Transitional Small Business Disclosure Format (Check one): Yes [ ] No [x]
PART I. FINANCIAL INFORMATION Item 1. Financial Statements E-NET FINANCIAL.COM CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET January 31, 2001 ------------ ASSETS Current Assets Cash $ 522,405 Accounts receivable, net of allowance for doubtful accounts of $37,436 412,139 Note receivable 41,163 Other current assets 716,528 ------------ Total Current Assets 1,692,235 Equipment, net 223,749 Goodwill, net of accumulated amortization of $475,775 3,561,394 Permanent impairment of goodwill related to LoanNet (1,985,011) Other Assets 7,000 ------------ $ 3,499,367 ============ LIABILITIES AND SHAREHOLDERS' DEFICIT Current Liabilities Accounts payable $ 269,220 Accrued liabilities 626,955 Notes payable to related parties 1,401,540 Notes payable 150,000 Other current liabilities 905,262 ------------ Total Current Liabilities 3,352,977 Other Liabilities 289,475 ------------ Total Liabilities 3,642,452 Shareholders' Equity Series C convertible preferred stock 1,140,697 Common stock, 100,000,000 shares authorized, $.00l par value, 22,049,939 22,050 shares issued and outstanding Additional paid-in capital 11,201,221 Accumulated deficit (10,411,520) Deferred compensation (104,533) Treasury stock, at cost (1,991,000) Total Shareholders' Equity (143,085) ------------ $ 3,499,367 ============ The accompanying notes are an integral part of these financial statements 2
E-NET FINANCIAL.COM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended Nine Months Ended January 31, January 31, ---------------------------- ---------------------------- 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Revenues Loan origination fees 2,507,877 $ 1,304,100 $ 7,352,714 $ 4,092,358 Referral revenues 45,927 -- 184,032 -- ------------ ------------ ------------ ------------ Total Revenues 2,553,804 1,304,100 7,536,746 4,092,358 Cost of Revenues 2,232,371 980,726 5,596,322 2,880,203 ------------ ------------ ------------ ------------ Gross Profit 321,433 323,374 1,940,424 1,212,155 Operating Expenses General and administrative 1,212,995 429,407 3,752,773 1,438,784 Goodwill amortization 64,654 -- 475,775 -- Charge for permanent impairment of goodwill 1,985,011 -- 1,985,011 -- Amortization of Deferred Compensation 78,400 -- 235,200 -- ------------ ------------ ------------ ------------ Total Operating Expenses 3,341,060 429,407 6,448,759 1,438,784 ------------ ------------ ------------ ------------ Loss from Operations (3,019,627) (106,033) (4,508,335) (226,629) Other Income (Expense) Interest expense (38,073) -- (146,821) (4,332) Other income (expense) 23,472 3,089 111,874 (5,483) ------------ ------------ ------------ ------------ Total Other Income (Expense) (14,601) 3,089 (34,947) (9,815) Loss Before Income Taxes (3,034,228) (102,944) (4,543,282) (236,444) Income Taxes -- ( 2,506) -- (2,506) Net Loss $ (3,034,228) $ (105,450) $ (4,543,282) $ (238,950) ============ ============ ============ ============ Basic and Diluted Net Loss Per Share $ (0.14) $ (0.01) $ (0.22) $ (0.03) Basic and Diluted Weighted Average Number of Common Shares Outstanding 21,502,831 7,500,000 21,089,148 7,500,000 The accompanying notes are an integral part of these financial statements 3
E-NET FINANCIAL.COM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended January 31, -------------------------- 2001 2000 ----------- ----------- Cash Flows From Operating Activities Net loss $(4,543,282) $ (238,950) Adjustments to reconcile net loss to net cash (used) provided by operating activities: Depreciation and amortization 382,813 2,225 Impairment of Goodwill 1,985,011 -- Amortization of deferred compensation 235,200 -- Stock issued for services rendered 1,234,343 -- (Increase) decrease in accounts receivable (151,701) 87,303 (Increase) in other current assets (630,819) (12,633) Increase/(Decrease) in accounts payable 14,558 (2,451) Increase (Decrease) in accrued expenses 626,955 (90,365) Increase in other current liabilities 447,237 21,500 Increase (Decrease) in other liabilities 149,826 (105,000) ----------- ----------- Net cash used by operating activities (249,859) (338,371) ----------- ----------- Cash flows from investing activities: Purchases of equipment (11,991) (61,233) Marketable Securities 21,800 -- Other assets 13,435 79,955 Issuance of notes receivable -- (146,600) ----------- ----------- Net cash provided by (used) in investing activities 23,244 (127,878) Cash flows from financing activities: Proceeds from the issuance of notes payable 150,000 -- Proceeds (Payments) on notes payable to related parties (1,386,536) 418,456 Proceeds from issuance of common stock 1,699,973 -- ----------- ----------- Net cash provided by financing activities 463,437 418,456 ----------- ----------- Net (decrease) increase in cash 236,822 (47,793) Cash, beginning of period 285,583 49,984 ----------- ----------- Cash, end of period $ 522,405 $ 2,191 =========== =========== The accompanying notes are an integral part of these financial statements 4
NOTES TO INTERIM FINANCIAL STATEMENTS Note 1. General On April 12, 2000, the Company acquired American Residential Funding, Inc. ("AMRES") from EMB Corporation ("EMB") for 7,500,000 shares of common stock, representing approximately 40% of the outstanding voting stock of the Company and a $4,000,000 note payable. AMRES is a Nevada corporation organized on March 13, 1998, for the purpose of originating and selling HUD-- insured mortgages and conventional loans. The Company, prior to a series of acquisitions in February and March 2000, was considered a blank-check company with limited operating history, and, accordingly, AMRES is considered the acquiror for financial reporting purposes. As such, the acquisition has been accounted for as a recapitalization of AMRES; therefore, the accompanying consolidated financial statements reflect the historical assets and liabilities and the related historical operations of AMRES, in a manner similar to a pooling of interests, for all periods presented. Note 2. Unaudited Interim Financial Statements The interim financial data as of January 31, 2001, for the three and nine months ended January 31, 2001 and 2000 is unaudited; however, in opinion of management, the interim data includes all adjustments, consisting of normal recurring adjustments, necessary to present fairly the company's consolidated financial position as of January 31, 2001, and the results of their operations and their cash flows for the three and nine months ended January 31, 2001 and 2000. The results of operations are not necessarily indicative of the operations which may result for the year ending April 30, 2001. Note 3. Private Placement On May 2, 2000, the Company sold 666,667 shares of common stock for $1,699,973, net of fees and commissions of $300,027 in a private placement. As additional consideration, the Company issued warrants to purchase 333,334 shares of the Company's common stock at an exercise price of $3.00 per share. No value was ascribed to these warrants since these were issued in connection with the private placement of commons stock, the effects of which are included in stockholders' equity. Note 4. Investment in LoanNet Mortgage, Inc. Due to a lack of revenue and cash flow, the officers of LoanNet have determined it necessary to cease operations at all three LoanNet offices. As such, and based on our understanding that they have no intentions to re-open these offices, the company has taken a charge of approximately $2,000,000 in the third quarter to write-off all remaining goodwill related to the LoanNet transaction. The Company is also currently reviewing its options in regard to its original investment in LoanNet. Note 5. Common Stock Common stock issued during the nine months ended January 31, 2001 is summarized as follows: Shares issued as of April 30, 2000 20,053,937 Shares issued for: Private placement (Note 2 above) 666,667 Consulting Services 1,227,646 Employee long-term incentives 60,000 Employee deferred salaries 41,689 Shares issued as of January 31, 2001 22,049,939 5 Changes to capital related to the above transactions amounted to the following: Private Placement $ 1,699,973 Consulting Services 1,095,805 Employee long-term incentives 108,000 Employee salaries 30,538 ------------ $ 2,934,316 ============ Stock issued for consulting services relates primarily to legal, accounting, and information technology services provided by outside consultants. Note 6. Titus Real Estate, LLC e-Net has entered into a non-binding letter of intent to sell Titus Real Estate LLC to Highland Investments for consideration of between $1.4 and $1.6 million. Whether this transaction will ultimately be consummated is unknown, and pending the outcome of further discussions and initial due diligence, e-net will re-evaluate the likelihood of this transaction occurring and will then offer the appropriate public disclosures. Note 7. Subsequent Events On February 1, 2001, the board of directors amended our stock plan to authorize an additional one million shares (bringing the total shares authorized to 3,000,000), which may be granted (as shares or options) to current employees, consultants and other key independent contractors in partial or full satisfaction of certain of our financial obligations to them. As of March 19, 2001, 860,000 shares of the total 1,000,000 additional shares registered have been distributed. In addition, the board of directors is currently considering a fourth amendment which would authorize additional shares under the Company's stock plan. The board is currently attempting to negotiate a settlement relating to a $300,000 note payable due to a former officer. The enclosed balance sheet as of January 31, 2001, reflects the note as a related party note payable. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 our historical losses, the need to manage our 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 our filings with the Securities and Exchange Commission. Although forward-looking statements in this Quarterly Report reflect our good faith judgment, such statements can only be based on facts and factors currently known by us. 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 review carefully and consider the various disclosures made by us in this Quarterly Report, as an attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects. 6 Plan of Operations Our business plan provides for us to develop and deliver through the Internet and through other means, mortgage loan brokerage services and other financial services (primarily related to real estate). The plan calls for the Company to be a leading source of technology driven financial service companies and to grow rapidly through strategic acquisitions, joint venture arrangements, and internal expansion of existing businesses. Results of Operations Three Months Ended January 31, 2001 Compared to the Three Months Ended January 31, 2000 Revenues Revenues from Titus Real Estate LLC and ExpiDoc.Com, Inc. amounted to less than 5% of total revenues for the period ended January 31, 2001. Significant fluctuations in revenue and cost of revenue are a direct result of the growth and operations of American Residential Funding,Inc.("AMRES"), while fluctuations in selling, general, and administrative expenses are primarily attributable to the activities of AMRES and the parent company, in general. Revenues increased by $1.25 million or 96% to $2.55 million for the three months ended January 31, 2001, compared to revenues of $1.30 million for the three months ended January 31, 2000, primarily due to the development and growth of the "net branch" program of AMRES. From its inception to January 31, 2001, the net branch program has steadily grown to its current count approaching 100 net branches. AMRES' four branch offices have also continued to expand their volume of loans closed each month. The average number of loans closed monthly has increased from approximately 55 per month in 2000 to approximately 100 per month for the quarter ended January 31, 2001. The growth in revenues can be attributed to several factors, most notably the development of the AMRES interactive website (used primarily as a marketing tool) and the inclusion of additional states in which AMRES is licensed to conduct business. AMRES has steadily increased the number of states in which it is licensed to conduct business (43 states, as of January 31, 2001). Cost of Revenue and Gross Profit The cost of revenue increased by $1.25 million or 128% to $2.23 million, for the three months ended January 31, 2001, compared to $.98 million for the comparative period in the prior year. The dollar increase in the cost of revenue is primarily attributable to the increase in revenues earned as discussed above. As a percentage of revenue, the cost of revenue and related gross profit fluctuate moderately based on the proportional breakout of loans closed through the company-owned branches compared to the net branches. AMRES earns an average net commission, based on loan value, of approximately 0.6% for loans completed by its company-owned branches. Under the net branch arrangement, AMRES earns a lower percentage commission on the loan value, typically 0.38%. For the three months ended January 31, 2001, a greater proportion of total loans closed were transacted through the net branches which contributed to the decrease in gross profit percentage for that period. Selling, General and Administrative Expenses Selling, general and administrative expenses totaled $3.91 million for the three months ended January 31, 2001, compared to $.43 million for the three months ended January 31, 2000. As a percentage of revenue, selling, general and administrative expenses increased to 131% (compared with 33% in the prior period), primarily as a result of the charge taken during the third quarter for the permanent impairment of goodwill related to the LoanNet Mortgage, Inc. transaction (see Note 4). Additionally, business growth of operating subsidiaries has required additional headcount, office space and other administrative costs to handle the expansion. 7 Nine Months Ended January 31, 2001 Compared to the Nine Months Ended January 31, 2000 Revenues Revenues increased by $3.44 or 84%, to $7.54 million for the nine months ended January 31, 2001, compared to $4.09 million for the nine months ended January 31, 2000, primarily due to the development and growth of the "net branch" program of AMRES. The growth in revenues can be attributed to such factors as the development of the AMRES interactive website and the inclusion of additional states in which AMRES is licensed to conduct business. Cost of Revenue and Gross Profit The cost of revenue increased by $2.72 million or 94%, for the nine-month period ended January 31, 2001, which is in proportion to the increase in revenue as discussed above. As a percentage of revenue, the cost of revenue remained fairly consistent between periods, 74% compared to 70% for the nine months ended January 31, 2001 and 2000, respectively. Selling, General and Administrative Expenses Selling, general and administrative expenses totaled $6.49 million for the nine month period ended January 31, 2001, compared to $1.44 million for the nine months ended January 31, 2000. This increase of $5.05 million can be attributed to several factors, most notably the charge taken during the quarter for permanent impairment of goodwill (see Note 4), and costs at the corporate level related to professional services for items such as the filing of our registration statement, outside consultants, and the completion of the private placement in May. In addition, this increase can also be attributed to the business growth of the operating subsidiaries, as additional headcount, office space and other administrative costs are required to handle the expansion. Liquidity and Capital Resources On April 7 and May 2, 2000, we completed two private placements raising a total of $4.0 million, less costs of $575,000. These funds were used to finance our current operations and reduce our indebtedness to EMB Corporation ("EMB") to approximately $1.2 million as of January 31, 2001. As part of the agreement for the April 7, 2000 private placement, we were required to file and cause to be declared effective a registration statement with the Securities and Exchange Commission by November 7, 2000. On August 4, 2000, we filed the registration statement and received an initial response from the Commission on or about September 7, 2000. On March 15, 2001, we filed our amended registration statement and response to the commissions' letter. As the private placement agreement called for the registration to be declared effective by November 7, 2000, we are incurring monthly liquidated damages of approximately $40,000 for each full month subsequent to November 7, 2000 in which the registration statement is not declared effective. On September 15, 2000, we received $125,000 (less costs and fees of $20,000) in exchange for a short-term note payable in the amount of $150,000 due on January 15, 2001. The proceeds were used to fund current operations. The note was guaranteed by an unrelated third party. As of March 19, 2001, we have not made any payments on the note. The third party guarantor has made approximately $20,000 in payments on this obligation. 8 We require financing to meet operating cash requirements, to service our obligations and to fund future operating cash flow deficiencies. These factors raise substantial doubt about our ability to continue as a going concern and no adjustments have been made to these consolidated financial statements as a result of these uncertainties. The accompanying consolidated financial statements have been prepared assuming we will continue as a going concern. Our cash requirements depend on several factors, including, but not limited to, the following: o The pace at which all subsidiaries continue to grow, become self supporting, and begin to generate positive cash flow; o The cash portion of future acquisition transactions, if any; and o The ability to obtain additional market share for our services. If capital requirements vary materially from those currently planned, we may require additional financing sooner than anticipated. We have no commitments for any additional financing, and there can be no assurance that any such commitment can be obtained on favorable terms, if at all. No adjustments have been made to the carrying value of assets or liabilities as a result of the uncertainty about obtaining cash required to pay obligations as they become due. Any additional equity financing may be dilutive to our stockholders, and debt financing, if available, may involve restrictive covenants with respect to dividends, raising capital and other financial and operational matters, which could restrict our operations or finances. If we are unable to obtain additional financing as needed, we may be required to reduce the scope of our operations or our anticipated expansion, which could have a material adverse effect on our financial condition, results of operations, and cash flows. PART II. OTHER INFORMATION Item 1. Legal Proceedings The Company is not engaged in any legal proceedings. Item 2. Changes In Securities None 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 (a) Exhibits. None (b) Reports on Form 8-K. None * Exhibits filed herewith. Other exhibits, if any, are incorporated by reference to previous filings. 9 SIGNATURES In accordance with the requirements of the Securities Exchange Act, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. E-NET FINANCIAL.COM CORPORATION Dated: March 22, 2001 By: /s/ Vincent Rinehart ------------------------------- Vincent Rinehart Director, President, and Chief Executive Officer Dated: March 22, 2001 By: /s/ Kevin Gadawski ------------------------------- Kevin Gadawski (Independent Consultant) Principal Accounting and Acting Chief Financial Officer 10 -----END PRIVACY-ENHANCED MESSAGE-----