0001135432-01-500188.txt : 20011008
0001135432-01-500188.hdr.sgml : 20011008
ACCESSION NUMBER: 0001135432-01-500188
CONFORMED SUBMISSION TYPE: 10QSB
PUBLIC DOCUMENT COUNT: 1
CONFORMED PERIOD OF REPORT: 20010731
FILED AS OF DATE: 20010919
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: 1934 Act
SEC FILE NUMBER: 000-24512
FILM NUMBER: 1740455
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 CORP/NV
DATE OF NAME CHANGE: 19990513
FORMER COMPANY:
FORMER CONFORMED NAME: E NET FINANCIAL CORP
DATE OF NAME CHANGE: 19990920
FORMER COMPANY:
FORMER CONFORMED NAME: E-NET COM CORP
DATE OF NAME CHANGE: 20000127
10QSB
1
doc1.txt
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 JULY 31, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________ to _______________.
COMMISSION FILE NUMBER O-24512
E-NET FINANCIAL.COM CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 88-1273503
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3200 BRISTOL STREET, SUITE 700
COSTA MESA, CA 92626
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (714) 866-2100
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No.
----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes____ No_____.
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. As of September 13, 2001,
there were 38,526,547 shares of common stock issued and outstanding.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT
(check one):
Yes _____ No __X__
1
E-NET FINANCIAL.COM CORPORATION
TABLE OF CONTENTS
-----------------
PART I
Item 1 Financial Statements
Item 2 Management's Discussion and Analysis or Plan of Operations
PART II
Item 1 Legal Proceedings
Item 2 Changes in Securities and Use of Proceeds
Item 3 Defaults Upon Senior Securities
Item 4 Submission of Matters to a Vote of Security Holders
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K
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
E-NET FINANCIAL.COM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
July 31, 2001
---------------
ASSETS
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . $ 431,487
Accounts receivable, net of allowance for doubtful
accounts of $74,123 . . . . . . . . . . . . . . . . . . . . . . . 598,752
Loans held for sale. . . . . . . . . . . . . . . . . . . . . . . . 1,460,950
Advances to employees. . . . . . . . . . . . . . . . . . . . . . . 110,000
Prepaid and other current assets . . . . . . . . . . . . . . . . . 65,594
---------------
Total current assets. . . . . . . . . . . . . . . . . . . . . . 2,666,783
Property and equipment, net of accumulated depreciation of $83,386 97,511
Goodwill, net of accumulated amortization
and impairments of $1,385,049 . . . . . . . . . . . . . . . . . . 425,247
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,807
---------------
$ 3,201,348
===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . $ 443,463
Warehouse line of credit . . . . . . . . . . . . . . . . . . . . . 1,414,762
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . 120,966
Commissions payable. . . . . . . . . . . . . . . . . . . . . . . . 484,903
Short term notes payable . . . . . . . . . . . . . . . . . . . . . 243,000
---------------
Total current liabilities . . . . . . . . . . . . . . . . . . . 2,707,094
Convertible notes payable to related parties. . . . . . . . . . . . 588,850
Interest payable on notes to related parties. . . . . . . . . . . . 5,485
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 101,277
---------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . 3,402,706
---------------
Stockholders' deficit:
Class C convertible preferred stock, no par value;
liquidation value of $100.00 per share;
17,984 shares issued and outstanding. . . . . . . . . . . . . . 1,798,400
Common stock, $0.001 par value; 100,000,000 shares
authorized; 32,509,884 issued and 29,759,884 outstanding. . . . 38,672
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . 12,498,661
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . (13,936,377)
Deferred stock compensation. . . . . . . . . . . . . . . . . . . . (52,500)
Deferred bridge-loan issue costs . . . . . . . . . . . . . . . . . (285,714)
Treasury stock, as adjusted, 2,750,000 shares. . . . . . . . . . . (262,500)
---------------
Total stockholders' deficit . . . . . . . . . . . . . . . . . . (201,358)
---------------
$ 3,201,348
===============
4
E-NET FINANCIAL.COM CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Three
Months Ended Months Ended
July 31, 2000 July 31, 2001
--------------- ---------------
Revenues:
Broker commissions. . . . . . . . . . . . . . . . 2,269,590 4,944,317
Other . . . . . . . . . . . . . . . . . . . . . . 96,372 165,396
--------------- ---------------
2,365,962 5,109,713
--------------- ---------------
Cost and expenses:
Commissions . . . . . . . . . . . . . . . . . . . . 1,701,606 3,478,073
General and administrative. . . . . . . . . . . . . 971,632 1,354,393
Consulting fees . . . . . . . . . . . . . . . . . . 519,290 410,795
Non-recurring loss on settlements . . . . . . . . . - 88,792
--------------- ---------------
Total costs and expenses. . . . . . . . . . . . . 3,192,528 5,332,053
--------------- ---------------
Operating loss. . . . . . . . . . . . . . . . . . . (826,566) (222,340)
Interest expense . . . . . . . . . . . . . . . . . . (47,342) (65,076)
Other income (expense), net. . . . . . . . . . . . . 73,755 6,432
--------------- ---------------
Net loss. . . . . . . . . . . . . . . . . . . . . $ (800,153) $ (280,984)
=============== ===============
Basic and diluted net loss per share of common stock $ (0.04) $ (0.01)
=============== ===============
Weighted average common shares outstanding . . . . . 20,418,454 26,414,775
=============== ===============
5
E-NET FINANCIAL.COM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Three Months
Ended Ended
July 31, 2000 July 31, 2001
--------------- ---------------
Cash flows from operating activities:
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (800,153) $ (280,984)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, and amortization of bridge loan issue costs . . . . . . . . . 154,205 5,001
Non-recurring loss on settlements . . . . . . . . . . . . . . . . . . . . . - 88,792
Stock compensation to consultants . . . . . . . . . . . . . . . . . . . . . 228,620 328,618
Amortization of bridge loan issuance cost . . . . . . . . . . . . . . . . . - 35,714
Amortization of deferred stock compensation . . . . . . . . . . . . . . . . - 80,439
Changes in operating assets and liabilities:
Increase in accounts receivable, net. . . . . . . . . . . . . . . . . . . (81,735) (134,628)
Increase in loans held for sale . . . . . . . . . . . . . . . . . . . . . - (1,103,600)
Decrease in other current assets. . . . . . . . . . . . . . . . . . . . . 802 18,510
Increase in due from employees. . . . . . . . . . . . . . . . . . . . . . - (44,750)
Decrease in accounts payable. . . . . . . . . . . . . . . . . . . . . . . (103,457) (80,676)
Increase in commissions payable . . . . . . . . . . . . . . . . . . . . . - 224,590
Increase (decrease) accrued liabilities . . . . . . . . . . . . . . . . . 582,036 (59,818)
Increase in other liabilities . . . . . . . . . . . . . . . . . . . . . . 11,422 -
Decrease in other current liabilities . . . . . . . . . . . . . . . . . . (408,907) -
--------------- ---------------
Net cash used in operating activities . . . . . . . . . . . . . . . . . . . (417,167) (922,792)
--------------- ---------------
Cash flows from investing activities:
Increase in other assets. . . . . . . . . . . . . . . . . . . . . . . . . . (59,489) -
Acquisitions of property and equipment. . . . . . . . . . . . . . . . . . . (11,227) (12,527)
Issuance (repayment) of note
receivable to related party . . . . . . . . . . . . . . . . . . . . . . . 41,163 -
--------------- ---------------
Net cash provided by (used in) investing activities . . . . . . . . . . . . (29,553) (12,527)
--------------- ---------------
Cash flows from financing activities:
Payments on notes payable to related parties. . . . . . . . . . . . . . . . (1,386,536) -
Proceeds from issuance of bridge loan . . . . . . . . . . . . . . . . . . . - 200,000
Advances from warehouse line of credit. . . . . . . . . . . . . . . . . . . - 1,073,920
Proceeds from private placement . . . . . . . . . . . . . . . . . . . . . . 1,699,973 -
--------------- ---------------
Net cash provided by financing activities . . . . . . . . . . . . . . . . . 313,437 1,273,920
--------------- ---------------
Net increase (decrease) in cash. . . . . . . . . . . . . . . . . . . . . . . (133,283) 338,601
Cash at beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . 285,583 92,886
--------------- ---------------
Cash at end of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 152,300 $ 431,487
=============== ===============
6
E-NET FINANCIAL.COM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CON'T)
Non - cash financing activities:
Debt reduction through the issuance of common stock - $801,675
======== ========
Warrants issued for bridge-loan issue costs - $321,428
======== ========
Conversion of C-Preferred to common stock - $515,925
======== ========
Supplemental cash flow information:
Cash paid for interest and income taxes was not significant during the periods presented
7
NOTES TO INTERIM FINANCIAL STATEMENTS
NOTE 1. UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial data as of July 31, 2001, for the three months ended July
31, 2001 and 2000 are unaudited; however, in the opinion of management, the
interim data includes all adjustments, consisting of normal recurring
adjustments, necessary to present fairly the Company's consolidated financial
position as of July 31, 2001, and the results of their operations and their cash
flows for the three ended July 31, 2001 and 2000. The results of operations are
not necessarily indicative of the operations, which may result for the year
ending April 30, 2002.
NOTE 2. GLOBAL SETTLEMENT
On June 26, 2001, e-Net entered into a settlement agreement with EMB
Corporation, AMRES Holding LLC, Vincent Rinehart, and Williams de Broe (the
"Global Settlement"). As part of the Global Settlement, (i) e-Net issued to EMB
1,500,000 shares of restricted common stock valued at $229,500 as consideration
for EMB's waiver of its registration rights for 7,500,000 shares of e-Net common
stock already held by EMB, (ii) e-Net issued to Williams de Broe ("WdB")
3,000,000 shares of restricted common stock valued at $459,000 as consideration
for WdB's release of all claims against e-Net arising under the purported
guarantee of EMB's obligation to WdB by e-Net, (iii) e-Net issued to AMRES
Holdings, LLC, an entity owned by Vincent Rinehart, a convertible note in the
principal amount of $485,446 relating to certain provisions of the AMRES
purchase and sale agreement between EMB and AMRES Holdings, LLC in May 1999.
This note is convertible into shares of common stock based on 80% of the closing
stock price on the date of the conversion. The Company assigned a value of
approximately $54,000 to the beneficial conversion feature imbedded in this
note.
For value of consideration tendered by e-Net, EMB ageed to relieve debt due by
e-Net in the amount of $951,596. In connection with the Global Settlement, the
Company reported a loss of $88,792 during the three months ended July 31, 2001.
NOTE 3. BRIDGE FINANCING
On June 27, 2001, the Company entered into an investment agreement and related
documents with Laguna Pacific Partners, LLP. Under the terms of the agreements,
in exchange for $200,000 received by the Company from Laguna Pacific, the
Company:
(i) executed a promissory note in favor of Laguna Pacific in the principal sum
of $200,000, bearing interest at the rate of 7% per annum, secured by all of the
assets of the Company, except loans held for sale, and payable on the earlier of
nine months from its issuance date or the date the Company's common stock is
listed on the NASDAQ Small Cap market, and
(ii) executed a warrant agreement which entitled Laguna Pacific to acquire up to
$225,000 worth of e-Net common stock for the total purchase price of $1.00,
calculated at 70% of the closing stock price on the date immediately preceding
the exercise date, if the exercise shares are traded in the over the counter
market, and not on any National Securities Exchange, and not in the NASDAQ
report system. The warrant is valued at $321,428 and is amortized over the term
of the note of nine months.
8
Also on June 27, 2001, in transactions related to the agreements with Laguna
Pacific, the Company formed a wholly-owned subsidiary, Anza Properties, Inc., a
Nevada corporation ("Anza") which was capitalized with $75,000 from the proceeds
of the bridge loan. Anza:
(i) executed a Bond Term Sheet with e-Net for an offering to raise up to
$7,000,000.
(ii) entered into an employment agreement with Thomas Ehrlich beginning thirty
days from the date of the agreement and ending upon the earlier to occur of the
liquidation of the real estate portfolio to be owned by Anza or the completion
of a NASDAQ Small Cap listing by e-Net. The Employment Agreement provides for a
salary of $20,000 per month, payable only by Anza and specifically not
guaranteed of e-Net. Mr. Ehrlich will serve as Anza's Vice President and will
be a director thereof. In connection with the Employment Agreement, e-Net
executed a stock option agreement which entitles Ehrlich to acquire up to
2,000,000 shares of e-Net common stock at $0.17 per share, vesting equally over
the 12 months following the date of the employment agreement, and exercisable
only in the event Anza is successful in raising a minimum of $2,000,000 in a
contemplated $5,000,000 bond offering, and the holders thereof converting at
least $2,000,000 of the bonds into equity of e-Net (any amounts less than
$2,000,000 will be applied, pro-rata, to the total options exercisable under the
option agreement), maximum of 10% of the fully diluted outstanding shares at the
time of the exercise. These options will be valued by management when the
contingencies are removed using, the intrinsic value method in accordance with
Accounting Principles Board Opinion No. 25.
(iii) entered into a consulting agreement with Lawrence W. Horwitz to provide
services to Anza. The Consulting Agreement provides for compensation of $20,000
to be paid on its date of execution, and $5,000 per month for eight months
beginning November 1, 2001, guaranteed by e-Net. In addition, e-Net executed a
Stock Option Agreement which entitled Horwitz to acquire up to 1,000,000 shares
of e-Net common stock on terms identical to those of Ehrlich, described above,
maximum of 5% of the fully diluted outstanding shares at the time of the
exercise. These options will be valued by management when the contingencies are
removed, using the fair-value method in accordance with Statement of Financial
Accounting Standards No. 123.
(iv) entered into an operating agreement with e-Net concerning the operations of
Anza Properties, Inc.
NOTE 4. STOCKHOLDERS' EQUITY (DEFICIT)
From time to time, the Company's board of directors authorizes the issuance of
common stock. The Company values shares of common stock based on the closing
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 144a of the Exchange Act of 1933, the Company discounts
the closing ask prices by 10% to value its common stock transactions.
On June 14, 2001, Class C Preferred stockholders exercised their option and
converted 1,616 shares of Class C Preferred stock into 3,741,671 of the
Company's restricted common stock. Also, on July 13, 2001 an additional 400
shares of the Class C were converted at the option of the shareholders into
924,992 shares of the Company's restricted common stock. The number of shares
received upon conversion was determined based on the conversion discount
specified in the agreement of 20%, taking into account the dividends which were
due on the Class C Preferred shares. No expense was recorded in either
transaction.
In June of 2001, the Company issued 400,000 shares of its restricted common
stock both as payment of a $14,482 liability due an outside consultant and as a
"buy-out" of the remaining guaranteed contract for this consultant who was
providing legal services to the Company. In connection with this transaction,
the Company charged operations $43,118 for the difference between the carrying
value of the liability and the value of the common stock.
9
On July 2, 2001, the Company issued 325,000 shares of its restricted common
stock valued at $55,575 as a partial satisfaction of a loan payable due an
unrelated party. The original amount of the loan, including interest payable
was $150,000. The Company continues to repay the note in monthly of payments of
$4,350 through May 2, 2002. As of July 31, 2001, $43,000 remained due on the
loan.
At various dates from May 1, 2001 through July 31, 2001, the Company issued
2,400,000 shares of common stock, valued at $390,500 to various consultants.
Consulting services performed during the three months ended July 31, 2001 is
summarized below:
Three Months Ended
July 31, 2001
Costs Shares
Incurred Issued
Financial and Internal Accounting Services $75,750 450,000
Mergers Acquisitions Consulting 191,000 1,125,000
Bravorealty Start-up Costs 105,000 700,000
Information Technology Consulting 14,000 100,000
Legal Services 4,750 25,000
---------- ----------
Total $ 390,500 2,400,000
========== ==========
Amortization of deferred compensation arrangements was $52,500 during the three
months ended July 31, 2001.
Refer to Notes 2 and 3 for discussion of transactions affecting stockholders'
equity (deficit).
NOTE 5. EMPLOYMENT AGREEMENT
On June 1, 2001, e-Net entered into an Employment Agreement with Vincent
Rinehart. Under the terms of the agreement, the Company is to pay to Mr.
Rinehart a salary equal to $275,000 per year, subject to an annual increase of
10% commencing January 1, 2002, plus an automobile allowance of $1,200 per month
and other benefits, including life insurance. The agreement is for a term of
five years and provides for a severance payment in the amount of $500,000 and
immediate vesting of all stock options in the event his employment is terminated
for any reason, including cause. Mr. Rinehart was granted options to acquire
2,500,000 shares of e-Net common stock at per share, which shall vest monthly
over a three- year period. The options are subject to an anti-dilution
provision in the event of future issuances of common stock or a reverse stock
split. The holder in no event can own more than 20% of the issued and
outstanding common stock in the event of a reverse stock split. The options are
exercisable at the fair market value at the date of the grant of $0.08 per
share. Using the intrinsic value method in accordance with Accounting Principles
Board Opinion No. 25 no expense was recognized from the issuance of the options.
10
NOTE 6. IMPACT OF RECENTLY ISSUED ACCOUNTING STATEMENTS
In July 2001, the FASB issued Statement No. 141, Business Combinations, and
Statement No. 142, Goodwill and Other Tangible Assets. Statement 141 requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001 as well as all purchase method business
combinations completed after June 30, 2001. Statement 141 also specifies
criteria intangible assets acquired in a purchase method business combination
must meet to be recognized and reported apart from goodwill, noting that all
purchase price allocable to an assembled workforce may not be accounted for
separately. Statement 142 will require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead be tested for
impairment at least annually in accordance with the provisions of Statement 142.
Statement 142 also requires that intangible assets with estimable useful lives
be amortized over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with FAS Statement
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of. The Company is required to adopt the provisions of
Statement 141 immediately, except with regard to business combinations initiated
prior to July 1, 2001, and to adopt Statement 142 effective with the fiscal year
beginning May 1, 2002.
The Company meets the criteria for early adoption of Statement 142, and has
elected early adoption of the statement during the first quarter of 2001 with no
material effect on our financial condition and results of operations based on
the requirements of Statement 142.
NOTE 7. SUBSEQUENT EVENTS
INVESTMENT BANKING AGREEMENT
On May 27, 1999, the Company entered into an agreement with an investment banker
to seek debt financing through public or private offerings or debt or equity
securities and in seeking merger and acquisition candidates. Per the agreement,
the Company granted the investment banker options to purchase 200,000 shares of
the Company's common stock at an exercise price of $0.13, expiring on May 31,
2001. Additionally, the Company was required to pay $60,000 for the initial
twelve months. In addition, the agreement specified that the investment banker
will receive a percentage of consideration received in a merger, acquisition,
joint venture, debt or lease placement and similar transactions through May 31,
2001. The Company valued these options using the Black Scholes model at $3.14
per share for total consulting expenses of $627,200 and amortized such an
expense over the course of the contract. As of July 31, 2001, entire value of
this contract had been amortized. In April 2000, the parties agreed to amend the
agreement to eliminate the fee based on a percentage of the consideration of a
transaction, and to grant the investment banker 200,000 shares of the Common
Stock and to cancel the options to purchase 200,000 shares. These shares were
not issued due to delays caused by the Company; however, through August 7, 2001,
the investment banker had rights to receive such shares by amendment amongst the
parties. Accordingly, such shares are included in the outstanding shares at
July 31, 2001. On August 7, 2001, the Company agreed to settle a dispute over
the terms of the amendment in exchange for 1,500,000 of the Company's restricted
common stock. No additional compensation charges were recorded in the statement
of operations during the three months ended July 31, 2001 as a result of the
final settlement since the historical financial statements since the date of
reverse acquisition of April 12, 2000 reflect the value of the services
rendered.
11
COMMON STOCK ACTIVITY
Subsequent to July 31, 2001, the Company issued 1,100,000 shares of the
Company's registered common stock under Form S-8 to consultants. The shares
were issued for legal, internal accounting, mergers and acquisition consulting,
information technology consulting and Bravorealty start-up costs. The shares
were valued at $144,000 and charged to consulting expense during the quarter
ended October 31, 2001.
12
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW
The Company is an independent financial services company, who's primary
source of revenue is 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. Currently over 180
net-branches are operating, in addition to four Corporate owned branches in four
counties in Southern California. Further rapid growth is anticipated, both from
commissioned and corporate marketing staff. Loan processing, mortgage banking
and acquisitions will provide additional revenues sources. During the three
months ended July 31, 2001, AMRES generated operating income in excess of
$300,000.
The Company has seen improvement in other subsidiaries as well.
Expidoc.com has added Ditech.com as a customer, and is now doing over 500
loan document signings a month through their network of notaries in all 50
states. By adding staff, and implementing a new marketing initiative, Expidoc
should improve its operations and achieve profitability in the near future.
BravoRealty.com (69% owned subsidiary) has established joint venture
branches in four locations. In addition, BravoRealty.com has initiated a net
branch of AMRES inside Bravo, and has experienced an increase in revenues from
home loans brokered. Bravorealty has incurred the expenses to begin, and within
120 days is expected to establish the documentation, licensing, marketing
materials and operations to sell "Bravo Real Estate Network" franchises. Former
officers of Century 21 have been acting as advisors to Bravorealty. Their
objective is being operationally profitable by the end of the fiscal 3rd
quarter, excluding additional start-up costs of franchising. Due to these
start-up costs, Bravorealty had incurred 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. As such, six of
the ten properties are in escrow to be sold. It is the intent of the management
of the Company to raise new capital for Titus REIT when the market permits,
estimating the summer of 2002 as a possible target date. The Company believes
the long term benefits of a REIT compliment the Company's business plan. Titus
Real Estate, LLC, has incurred small operating losses during the current
quarter.
ANZA Properties was established in July 2001, for the purpose of raising
investor funds from accredited investors, for the initial purpose of purchasing
Income Producing Real Estate. It will be the intention of the Company to convert
these investors, whom originally invested in ANZA bonds, into the Company's
equity. The ultimate goal, if obtained, is to list the Company on a National
Market System, such as the NASDAQ (see Note 2). Anza is in the development
stage. The Company has incurred approximately $75,000 of expenses in connection
with the establishment of Anza.
13
REVENUES
Revenues increased by $2,743,751, or 116%, to $5,109,713 for the year three
months ended July 31, 2001, compared to $2,365,962 for the three months ended
July 31, 2000. The growth in revenues is primarily attributable to the
expansion and growth of AMRES through the brokering of loans. AMRES accounted
for greater than 95% of consolidated revenues for both periods. AMRES, as did
most of the mortgage industry, benefited greatly from the decline in interest
rates over the last several months. Typically, as interest rates fall, the
refinance market heats up expanding the market of interested borrowers beyond
those borrowing for the purchase of their primary residence. AMRES benefited
from this market upturn, as they had the capacity in terms of people and
infrastructure to accommodate the additional business.
More significantly, the growth of the net branch program at AMRES was the
major contributor to the growth in revenue. AMRES' net branch program comprised
approximately 180 branches as of July 31, 2001, compared to less than ten
branches as of July 31, 2000. The Net Branch program is expected to continue to
be a primary growth vehicle for the Company in the future. In addition, the
mortgage banking division of AMRES is expected to continue its expansion over
the next six to nine months.
Revenues for Expidoc decreased slightly to $56,817 for the three months
ended July 31, 2001 compared to $72,543 for the three months ended July 31,
2000. The decrease is primarily a result of Expidoc refocusing its market
strategy to secure higher volume customers as compared to many low-volume
customers. Revenues declined for a brief period of time during the quarter
while Expidoc was reducing its customer base and ramping up with some of its new
larger customers.
Bravorealty became operational in January 2001. For the three months ended
July 31 2001, total revenues amounted to $102,310. These revenues were
generated based on approximately ten closed real estate purchase transactions
during the quarter. Management believes that Bravorealty will be a significant
growth vehicle for the Company over the next 12 months, as evidenced by the
steady increase in the number of real estate sales' listings and closed
transactions generated by Bravorealty so far this fiscal year.
Revenues from Titus were not material for the periods presented.
Costs and Expenses
Commissions are paid to loan agents on funded loans. Commissions increased
by $1,776,467 or 104.3%, for the three months ended July 31, 2001, to $3,478,073
from $1,701,606 for the three months ended July 31, 2000. This increase is
primarily related to the increased revenues discussed above. As a percentage of
revenue, the cost of revenue decreased by 3.9%, to 68.0% compared to 71.9% for
the three months ended July 31, 2001 and the three months ended July 31, 2000,
respectively. This decrease is attributable to the Company leveraging its
increased revenues as the Company earns a higher commission split (compared to
the loan agent) once certain revenue targets are reached.
General and Administrative Expenses
General and administrative expenses totaled $1,354,393 for the three months
ended July 31, 2001, compared to $971,632 for the three months ended July 31,
2000. This increase of $382,761 can be primarily attributed to the business
growth of the operating subsidiaries, namely AMRES, as additional personnel,
office space and other administrative costs are required to handle the
expansion. Effective in the first quarter of fiscal 2001, the Company had
implemented significant cost reductions to reduce its administrative expenses at
its corporate offices.
14
The Company has elected early adoption of Statement 142 and as such, has
not recorded any goodwill amortization for the three months ended July 31, 2001.
Goodwill amortization relating to the Company's acquisitions of Expidoc, Titus,
and LoanNet amounted to approximately $145,000 for the three months ended July
31, 2000.
Consulting Expenses
To date, the Company has funded a portion of its operating costs through
the use of its common stock paid to outside consultants. During the three
months ended July 31, 2001, costs paid in the form of common stock to outside
consultants totaled approximately $390,500, representing 2,400,000 shares of
common stock. For the three months ended July 31, 2000, costs paid in the form
of common stock issued to outside consultants totaled $519,290. The stock
issued in connection with Bravorealty was reported as deferred compensation and
$52,500 was expensed during the three months ended July 31, 2001
Interest Expense
Interest expense was $65,076 for the three months ending July 31, 2001,
compared to $47,342 for the three months ended July 31, 2000. This increase is
primarily related to the amortization of one month's interest expense in the
amount of $35,714 related to options issued as part of the bridge loan financing
with Laguna Pacific Partners, LLP.
Net Losses
The Company's net losses for the three months ending July 31, 2001 and 2000
were ($280,984), and ($800,153), or ($0.01) and ($0.04) per share respectively.
During the most recent three-month period, the non-cash expense component of the
Company's net loss was significant. For the three months ending July 31, 2001,
non-cash expense relating to common stock issued to consultants, for interest
and for non-recurring settlements amounted to $390,500, $35,714 and $88,792,
respectively. The Company believes that with its continued growth in revenues
and its ability to leverage its fixed costs against those revenues, it will be
able to reduce its net losses in the future, and possibly achieve profitability.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Net cash used in operating activities was $922,792 and $417,167 for the
three months ending July 31, 2001 and 2000, respectively. For both periods, the
Company incurred net losses from operations. Significant non-cash expenses
impacting the loss from operations for the period ending July 31, 2001 related
to stock compensation paid to outside consultants and employees in the amount of
$390,500. Increase in loans held for sale of $1,103,600 was also a significant
contributor to the cash used in operating activities for the three months ending
July 31, 2001.
Net cash used by investing activities were $12,527 and $29,553 for the
three months- ended July 31, 2001and 2000, respectively. There were no
individually significant sources or uses of funds from investing activities for
either period presented.
15
Net cash provided by financing activities was $1,273,920 and $313,437 for
the periods ending July 31, 2001 and July 31, 2000 respectively. Cash provided
by financing for the period ended July 31, 2000 relates primarily to net
proceeds received from private placements of the Company's stock, reduced by
payments made on the Company's note payable to EMB corporation related to the
acquisition of AMRES. Cash provided by financing for the period ended July 31,
2001 relates primarily to advances on the Company's warehouse line of credit in
the amount of $1,073,920 associated with its mortgage banking operations. This
obligation is secured by first and second trust deed mortgages.
The Company generated cash flows from a bridge financing in the amount of
$200,000. The Company was required to issue warrants to purchase 225,000 shares
of common stock for $1.00, the exercise price of which is based on a 30%
discount from the closing bid price on the date of exercise. The total cost of
the warrants amounted to $321,428, which increases the effective costs of such
funds; such cost is being amortized over the nine-month term of the note. The
Company plans to repay the note from proceeds generated from an offering of
securities by Anza. In the event the capital from the Anza is not received,
management intends to repay the note from cash on hand, or cash flows generated
from operations, if any.
The Company significantly improved their financial position upon completing
a "Global Settlement" June 26, 2001. The Company substantially increased its net
worth and reduced its liability to EMB from $1,215,856 to $103,404, after
issuing a convertible note to AMRES Holding LLC and issuing 4.5 million shares
of its common stock. The original obligation to EMB further required the Company
to pursue an S-1 registration that had become very time consuming of management,
and costly in terms of cash, which has now been withdrawn.
The Company is current in servicing its obligations as they become due.
From time to time, the Company used its common stock to provide compensation for
outside services that were required. It is the belief of management, that
beginning the third quarter 2001, little or no common stock will be issued for
services.
The Company's stockholders deficit has been significantly reduced from
$1,184,382 to $201,358 primarily due to the issuance of common stock in relief
of debt.
Management is pleased with the current direction and financial improvement
of the Company. The operating subsidiaries are expanding in tough economic
times. AMRES and Expidoc.com are currently profitable. BravoRealty is performing
as projected, requiring budgeted initial investment in capital prior to ramping
up to full operations, including anticipated selling of franchises. And, Titus
with a small loss, is poised for a round of new investors when the markets
permit. The cash flow of the Company has markedly improved, with cash on hand
ending July 31 of $431,487 versus $152,300 the year earlier. Short-term debt is
manageable. A $43,000 note is being paid off in monthly payments through May of
2002. The $200,000 note due Bridgeloan is to be paid from fundraising in the new
subsidiary, Anza Properties, or can be paid with cash on hand. The $485,446
convertible note due our Chief Executive, due in December 2002, will convert
into common stock, or extend the maturity date, at holder's option, if paying in
cash proves too difficult for E-net. The $103,404 convertible note due in
December 2002, can be converted to equity at E-net's option. And, the $1,798,400
in convertible preferred is expected to convert to common stock. Significant
debt has been eliminated, and no current obligations are delinquent. It is our
opinion, baring some significant adverse change in our business, that E-net
should not only be profitable in the near term, but continue to grow rapidly as
well. Finally, through recently established subsidiary Anza Properties, E-net
has initiated plans to establish sufficient net worth in order to file for
listing on a national exchange, such as NASDAQ, in mid-2002.
16
Our Interim financial statements have been prepared assuming the Company
will continue as a going concern. Because the Company has incurred significant
losses from operations and has excess current liabilities over current assets
totaling approximately $140,500, it may require financing to meet its cash
requirements. Our auditors included an explanatory paragraph in their annual
report raising substantial doubt about its ability to continue as a going
concern. However, during the three months ended July 31, 2001, the Company
executed relief from certain obligations by settlement of its creditors. Cash
requirements depend on several factors, including but not limited to, the pace
at which all subsidiaries continue to grow, become self supporting, and begin to
generate positive cash flow, as well as the ability to obtain additional
services for common stock or other non-cash consideration.
If capital requirements vary materially from those currently planned, the
Company may require additional financing sooner than anticipated. At present,
there are no firm commitments for any additional financing, and there can be no
assurance that any such commitment can be obtained on favorable terms, if at
all. Management has implemented several reductions of costs and expenses to
reduce its operating losses. Management plans to continue its growth plans to
generate revenues sufficient to meet its cost structure. Management believes
that these actions will afford the Company the ability to fund its daily
operations and service its remaining debt obligations primarily through the cash
generated by operations; however, there are no assurance that management's plans
will be successful. No adjustments have been made to the carrying value of
assets or liabilities as a result of these uncertainties.
Except for historical information, the materials contained in this
Management's Discussion and Analysis are forward-looking (within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934) and involve a number of risks and uncertainties. These
include the Company's historical losses, the need to manage its growth, general
economic downturns, intense competition in the financial services and mortgage
banking industries, seasonality of quarterly results, and other risks detailed
from time to time in the Company's filings with the Securities and Exchange
Commission. Although forward-looking statements in this Quarterly Report
reflect the good faith judgment of management, such statements can only be based
on facts and factors currently known by the Company. Consequently,
forward-looking statements are inherently subject to risks and uncertainties,
actual results and outcomes may differ materially from the results and outcomes
discussed in the forward-looking statements. Readers are urged to carefully
review and consider the various disclosures made by the Company in this
Quarterly Report, as an attempt to advise interested parties of the risks and
factors that may affect the Company's business, financial condition, and results
of operations and prospects.
17
PART II
20
ITEM 1 LEGAL PROCEEDINGS
There have been no material developments to the reportable events in the
Company's Form 10-KSB filed with the SEC on August 16, 2001.
ITEM 2 CHANGES IN SECURITIES
BRIDGE FINANCING
On June 27, 2001, the Company entered into an Investment Agreement and
related documents with Laguna Pacific Partners, LLP. Under the terms of the
agreements, in exchange for $225,000 received by the Company from Laguna
Pacific, the Company
(i) executed a promissory note in favor of Laguna Pacific in the
principal sum of $200,000, bearing interest at the rate of 7% per annum,
secured by all of the assets of the Company, and payable on the earlier of
nine months from its issuance date or the date the Company's common stock
is listed on the NASDAQ Small Cap market, and
(ii) executed a Warrant Agreement which entitled Laguna Pacific to
acquire up to $250,000 worth of e-Net common stock for the total purchase
price of $1.00, calculated at 70% of the closing stock price on the date
immediately preceding the exercise date.
Also on June 27, 2001, in transactions related to the agreements with
Laguna Pacific, the Company formed a wholly-owned subsidiary, Anza Properties,
Inc., a Nevada corporation ("Anza") capitalized with $75,000 from the proceeds
of the bridge loan, which
(i) executed a Bond Term Sheet with e-Net outlining the proposed terms
of an offering to raise up to $5,000,000.
(ii) entered into an Employment Agreement with Thomas Ehrlich. In
connection with the Employment Agreement, e-Net executed a Stock Option
Agreement which entitled Ehrlich to acquire up to 2,000,000 shares of e-Net
common stock at the closing price on the date of the Option Agreement,
vesting equally over the 12 months following the date of the Employment
Agreement, and exercisable only in the event Anza is successful in raising
a minimum of $2,000,000 in a contemplated $5,000,000 bond offering, and the
holders thereof converting at least $2,000,000 of the bonds into equity of
e-Net (any amounts less than $2,000,000 will be applied, pro-rata, to the
total options exercisable under the Option Agreement).
(iii) entered into a Consulting Agreement with Lawrence W. Horwitz. In
connection with the consulting agreement, e-Net executed a Stock Option
Agreement which entitled Horwitz to acquire up to 1,000,000 shares of e-Net
common stock on terms identical to those of Ehrlich, described above.
All issuances were exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933.
18
GLOBAL SETTLEMENT
On June 26, 2001, e-Net entered into a settlement agreement with EMB
Corporation, AMRES Holding LLC, Vincent Rinehart, and Williams de Broe (the
"Global Settlement"). As part of the Global Settlement:
(i) e-Net issued to EMB 1,500,000 shares of restricted common stock as
consideration for EMB's waiver of its registration rights for 7,500,000
shares of e-Net common stock already held by EMB. e-Net issued to EMB a
promissory note in the principal amount of $103,404.
(ii) e-Net issued to Williams de Broe ("WdB") 3,000,000 shares of
restricted common stock as consideration for WdB's release of all claims
against e-Net arising under the purported guarantee of EMB's obligation to
WdB by e-Net. e-Net received relief of debt to EMB in the amount of
$624,766.
(iii) e-Net issued to AMRES Holdings, an entity owned by Vincent
Rinehart, a convertible note in the principal amount of $485,446.
All issuances were exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933.
EXECUTIVE COMPENSATION
On July 1, 2001, e-Net entered into an Employment Agreement with Vincent
Rinehart. In accordance with the terms of the agreement, Mr. Rinehart was
granted options to acquire 2,500,000 shares of e-Net common stock at the closing
price on the date of the agreement, which shall vest over a three year period.
The number of shares to be acquired upon exercise of the options shall not be
adjusted for a stock split, and is limited to both a maximum value of
$1,900,000, and 20% of the outstanding common stock of the Company. The
issuance was exempt from registration pursuant to Section 4(2) of the Securities
Act of 1933.
OTHER CHANGES IN SECURITIES
On June 13, 2001, the Company issued 400,000 shares of common stock to
Karen Conway in settlement of a contractual dispute. The issuance was exempt
pursuant to Section 4(2) of the Securities Act of 1933.
On July 2, 2001, the Company issued 325,000 shares of common stock to James
Gonzales in settlement of a contractual dispute. The issuance was exempt
pursuant to Section 4(2) of the Securities Act of 1933.
On July 17, 2001, in connection with the conversion of 2,016 shares of
Series C Preferred Stock, a total of 4,666,663 shares of common stock were
issued to four accredited investors. The issuances were exempt pursuant to
Section 4(2) of the Securities Act of 1933. Following the conversion, there
were 17,984 shares of Series C Preferred Stock outstanding.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
19
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 OTHER INFORMATION
Not applicable
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
/s/ Vincent Rinehart
Dated: September 18, 2001 _______________________________________
By: Vincent Rinehart
Its: President, Chief Executive Officer,
Chief Financial Officer, Chief
Accounting Officer, and Director
/s/ Scott A. Presta
Dated: September 18, 2001 _______________________________________
By: Scott A. Presta
Its: Director
20