Conformed
_________________________________________________________
---------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the Quarter ended: Commission file number
September 30, 1998 0-19485
ADVANCED FINANCIAL, INC.
(Name of small business issuer in its charter)
DELAWARE 84-1069416
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5425 Martindale, Shawnee, KS 66218
(Address of principal executive offices) (Zip Code)
(913) 441-2466
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 and Exchange Act 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 ___ No X
State the number of shares outstanding of each of the issuer's classes
of common equity as of January 25, 1999: 5,836,476
Check whether the issuer has filed all documents and reports 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___
Transactional Small Business Disclosure Format Yes___ No X
<PAGE>
Advanced Financial, Inc.
ADVANCE FINANCIAL, INC. AND SUBSIDIARY
TABLE OF CONTENTS
Page No.
________
PART I. FINANCIAL INFORMATION
ITEM 1. - Financial Statements.................................. 1-5
ITEM 2. - Management's Discussion and Analysis or
Plan of Operation..................................... 7
PART II. OTHER INFORMATION
ITEM 1. - Legal Proceedings..................................... 9
ITEM 2. - Changes in Securities and Use of Proceeds............. 9
ITEM 3. - Default Upon Senior Securities........................ 9
ITEM 4. - Submission of Matters to a Vote of Security Holders... 9
ITEM 5. - Other Information..................................... 9
ITEM 6. - Exhibits and Reports on Form 8-K...................... 10
i
<PAGE>
Advanced Financial, Inc.
PART I - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
Page - 1
<PAGE>
Advanced Financial, Inc.
ADVANCED FINANCIAL, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
September 30, 1998 and March 31, 1997
Assets September 30, 1998 March 31, 1998
------------------ --------------
Cash and investments $ 60,124 $ 58,759
Mortgage servicing advances and
accounts receivable 3,264 151,097
Mortgage loans held for
investment 5,860 5,997
Property and equipment, net 1,055,447 1,070,553
Other 4,045 14,083
------------- -----------
Total assets $ 1,128,741 $ 1,300,490
============= ===========
Liabilities
Accounts payable and accrued
expenses $ 12,760 $ 24,292
Notes payable 717,156 717,357
------------- -----------
729,916 741,649
Liabilities Subject to
Compromise
Accounts payable and accrued 3,061,068 3,024,595
expenses
Notes payable 644,837 659,837
Notes payable on stock recission 200,000 200,000
Capitalized lease obligations 65,426 65,426
------------- -----------
3,971,331 3,949,858
------------- -----------
Total Liabilities $ 4,701,247 $ 4,691,507
Stockholders' Equity
Preferred stock, Series B,
$.005 par value;
100,000,00 shares
authorized; 363,000
issued and outstanding 1,815 1,815
Common Stock, $.001 par value;
25,000,000 shares authorized;
5,836,476 issued and
outstanding 5,836 5,836
Paid-in capital 9,959,840 9,959,840
Deficit (13,098,652) (12,917,163)
------------- -----------
(3,131,161) (2,949,672)
Treasury stock, 99,869 shares of
Common Stock, at cost (441,345) (441,345)
------------- -----------
Total stockholders' equity (3,572,506) (3,391,017)
Total liabilities and
stockholders' equity $ 1,128,741 $ 1,300,490
============= =+==========
See accompanying notes to condensed consolidated financial statements.
Page - 2
<PAGE>
Advanced Financial, Inc.
ADVANCED FINANCIAL, INC. AND SUBSIDIARY
Condensed Consolidated Statement of Operations
For the three month period ended September 30, 1998 and September 30, 1997
Three Months Ended
September 30, 1998 September 30, 1997
------------------ ------------------
(Unaudited) (Unaudited)
Revenues:
Servicing fee income $ - $ 1,584
Other fee income - 515
Gain/(Loss) on sale of mortgage
loans (95) (30,549)
Interest - 1,729
Other 37,125 40,806
---------- --------
Total operating revenues $ 37,030 14,085
---------- --------
Expenses:
Servicing expense (586) (842)
Personal 16,425 18,700
General and administrative 101,851 35,551
Interest 27,147 45,948
Depreciation and amortization 7,553 12,373
Other 105 (40,645)
----------- --------
Total operating expenses 152,495 71,085
----------- --------
Loss before income taxes (115,465) (57,000)
Income tax expense - -
----------- --------
Net loss
(115,465) (57,000)
=========== ========
Weighted average shares outstanding 5,736,607 5,736,607
Loss per common share $ (0.03) $ (0.02)
=========== ==========
See accompanying notes to condensed consolidated financial statements.
Page - 3
<PAGE>
Advanced Financial, Inc.
ADVANCED FINANCIAL, INC. AND SUBSIDIARY
Condensed Consolidated Statement of Operations
For the six month period ended September 30, 1998 and September 30, 1997
Six Months Ended
September 30, 1998 September 30, 1997
------------------ ------------------
(Unaudited) (Unaudited)
Revenues:
Servicing fee income $ - $ 55,222
Other fee income - 21,141
Gain/(Loss) on sale of mortgage
loans (95) (45,157)
Gain on sale of servicing rights 25,344 -
Interest 3,316 10,803
Other 79,211 99,204
---------- -----------
Total operating revenues 107,776 141,213
Expenses:
Servicing expense 268 81,147
Personal 33,982 136,545
General and administrative 196,890 91,743
Interest 56,045 100,802
Depreciation and amortization 15,107 49,298
Other (15,600) (1,892)
---------- -----------
Total operating expenses 286,692 457,643
---------- -----------
Loss before income taxes (178,916) (316,430)
Income tax expense - -
----------- -----------
Net loss $ (178,916) $ (316,430)
=========== ===========
Weighted average shares
outstanding 5,736,607 5,736,607
Loss per share of Common Stock $ (0.04) (0.07)
=========== ===========
See accompanying notes to condensed consolidated financial statements
Page - 4
<PAGE>
Advanced Financial, Inc.
ADVANCED FINANCIAL, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
For the six month period ended September 30, 1998 and September 30, 1997
Six Months Ended
September 30, 1998 September 30, 1997
------------------ ------------------
(Unaudited) (Unaudited)
Net cash (used in) provided by
operating activities $ 16,428 450,913
Cash flows from investing activities:
Acquisition of property and
equipment - 168,844
Acquisition/Principal payments
on mortgage loans held
for investment, net 137 372
----------- -----------
Net cash provided by (used
in) investing activities 137 169,216
Cash flows from financing activities:
Notes payable, net (15,200) (398,312)
Checks outstanding in excess
of bank balance - (106,676)
Payments on capitalized lease
obligations - (113,460)
----------- -----------
Net cash provided by (used
in) financing activities (15,200) (618,448)
Net increase/(decrease) in cash 1,365 (1,681)
Cash at beginning of period 58,759 0
----------- -----------
Cash at end of period $ 60,124 1,681
=========== ===========
Supplemental disclosure of cash flow:
Cash paid for interest $ 27,147 27,920
See accompanying notes to condensed consolidated financial statements
Page - 5
<PAGE>
Advanced Financial, Inc.
ADVANCED FINANCIAL, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1998 and September 30, 1997
(1) Organization and Summary of Significant Accounting Policies
-----------------------------------------------------------
The Company's financial statements include the accounts of Advanced
Financial, Inc. (the "Company" or "AFI") and its wholly-owned subsidiary AFI
Mortgage, Corp. ("AFIM").
The condensed consolidated financial statements have been prepared in
accordance with the instructions to Form 10-QSB. To the extent that information
and footnotes required by generally accepted accounting principles for complete
financial statements are contained in or consistent with the audited financial
statements incorporated by reference in the Company's Annual Report on Form
10-KSB for the year ended March 31, 1998, such information and footnotes have
not been duplicated herein. In the opinion of management, all adjustments
considered necessary for fair presentation of financial statements have been
reflected herein. The March 31, 1998 condensed consolidated balance sheet has
been derived from the audited balance sheet as of that date.
Page - 6
<PAGE>
Advanced Financial, Inc.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
---------------------------------------------------------
GENERAL
- -------
The Company and AFIM continued to suffer losses for the quarters ended
September 30, 1997 and 1998. In April 1997, the Company and its wholly-owned
subsidiary, AFI Mortgage, Corp. ("AFIM"), decided that it would be in the best
interest of the continuity of the Company's business enterprise to temporarily
suspend its active mortgage operations. On November 7, 1997, AFIM filed for
relief under Chapter 11 of the United States Bankruptcy Code ("Bankruptcy Code")
in the United States Bankruptcy Court, District of Kansas, Topeka Division, Case
No 97-43122. On May 8, 1998, the Company also filed for relief under Chapter 11
of the Bankruptcy Code in the United States Bankruptcy Court, District of
Kansas, Topeka Division, Case No. 98-41228. The two cases were consolidated on
July 2, 1998. On November 13, 1998, the United States Bankruptcy Court for the
District of Kansas entered an order (the "Confirmation Order") confirming the
First Amended Joint Plan of Reorganization dated July 29,1998 of the Company and
AFIM ("Plan of Reorganization"). The confirmation of the Plan of Reorganization
was reported in a Current Report on Form 8-K filed with the Securities and
Exchange Commission on November 25, 1998. A copy of the Plan was filed as
Exhibit 2.1 to the Form 8-K and a copy of the Confirmation Order was filed as
Exhibit 99.1 to the Form 8-K. See also the Company's Annual Report on Form
10-KSB Item 1: "Description of Business" and Item 7: "Note B to the Consolidated
Financial Statement of the Company."
Under the Plan of Reorganization, and subject to the terms and conditions
set forth in the Plan of Reorganization, the Company will sell its office
building to First Mortgage Investment Co. ("FMIC") for $1,030,000 and FMIC's
release of its FMIC's second mortgage. The net proceeds will satisfy the first
mortgage. The remaining net proceeds received by AFIM will be used to satisfy
the claims of creditors in accordance with the Plan of Reorganization.
The following discussion of the Company's financial condition as of
September 30, 1998 and the Company's results of operations for the quarter ended
September 30, 1998 should be read in conjunction with the discussion of events
subsequent to June 30, 1997 set forth in Item 1: "Description of Business"
contained in the Company's Annual Report on Form 10-KSB for the fiscal year
ended March 31, 1998 and set forth in the Current Report on Form 8-K filed
November 25, 1998, as described above.
RESULTS OF OPERATIONS
- ---------------------
Quarter and Six Months Ended September 30, 1998
- -----------------------------------------------
Compared To The Quarter and Six Months Ended September 30, 1997
- ---------------------------------------------------------------
Liquidity and Capital Resources
-------------------------------
The Company's cash and short-term investments increased from $58,759 at
March 31, 1998 to $60,124 at September 30, 1998. The increase in cash and
short-term investments is attributable to the fact that the Company suspended
its active mortgage operations and reduced its staff, to the limited extent
necessary to operate under protection of Chapter 11 of the Bankruptcy Code, sold
its remaining assets, other than its office building, and collected various
receivables due the Company. Also see Item 1: "Description of Business"
contained in the Company's Annual Report on Form 10-KSB for the fiscal year
ended March 31, 1998.
Losses
------
Consolidated operating results for the three months ended September 30,
1998 reflect a net loss of $115,465 as compared to a net loss of $57,000 for the
three months ended September 30, 1997. The increase in losses for the three
months ended September 30, 1998 were due to expenses associated with the
preparation and solicitation of the Company's Plan of Reorganization.
Consolidated operating results for the six months ended September 30, 1998
reflect a net loss of $178,916 as compared to a net loss of $316,430 for the six
months ended September 30, 1997. The decrease in losses for the six months is
attributable to the Company's suspension of its active mortgage operations and
sale of its remaining assets, other than its office building, thereby reducing
the quarterly depreciation expense, and the Company's reduction of staff from 20
full time employees to 1 full time employee and debt, thereby reducing its
interest expense, to the limited extent necessary to operate under protection of
Chapter 11
Page - 7
<PAGE>
Advanced Financial, Inc.
of the Bankruptcy Code. Also see Item 1: "Description of Business" of the
Company's Annual Report contained in Form 10-KSB for the fiscal year ended March
31, 1998.
FINANCIAL POSITION
- ------------------
During the six months ended September 30, 1998, the Company saw a continued
decrease in the Company's assets and stockholder(s') equity. The Company's total
assets were $1,128,741 at September 30, 1998 compared to $1,300,490 at March 31,
1998. Stockholder(s') equity was ($3,572,506) at September 30, 1998 compared to
($3,391,017) at March 31, 1998. These decreases were due to the fact that the
Company suspended its active mortgage operations and had limited revenues,
causing the Company to continue to operate at a loss during the six months ended
September 30, 1998. The Company had total liabilities of $4,701,247 of which
$3,971,331 are subject to compromise pursuant to the Company's Plan of
Reorganization.
At September 30, 1998, the Company had a cash position of $60,124 compared
to a cash position of $58,759 at March 31, 1998. During the six months ended
September 30, 1998, the Company continued to operate under the protection of
Chapter 11 of the Bankruptcy Code and was able to fund its limited operations
from the sale of various assets and the collection of various receivables.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
- ----------------------------------------------
None
Page - 8
<PAGE>
Advanced Financial, Inc.
PART II
-------
ITEM - 1 Legal Proceedings
Various lenders initiated lawsuits against the Company and AFIM as a result
of the Company's inability to make required payments on various debt. As a
result of AFIM and the Company filing for relief under Chapter 11 of the
Bankruptcy Code, all pending litigation was suspended pending the final outcome
of the Chapter 11 proceeding. See Item 2: "Management Discussion and Analysis or
Plan of Operation - General." Pursuant to the Plan of Reorganization, claims of
creditors, including persons asserting claims against the Company in litigation,
will be deemed satisfied and, upon discharge of the Company and AFIM from
bankruptcy, all litigation will have been dismissed.
ITEM - 2 Change in Securities.
See Item 3 (b) Below
ITEM - 3 Defaults upon Senior Securities.
(a) The following table sets forth any indebtedness which exceeds 5% of the
Company's assets, for which the Company was in default at the time of this
filing. Interest accrued on such indebtedness until November 7, 1997, the date
on which AFIM filed for protection under Chapter 11 of the Bankruptcy Code.
Default Default Default
Lender Principal Principal Principal
------ --------- --------- ---------
Commercial Federal Bank $364,393 $41,653 $406,046
Argo Federal Savings $75,148 $8,022 $83,170
(b) The Company suspended payment of its regular quarterly dividend on its
Series "B" Cumulative Convertible Preferred Stock in January 1996. The unpaid
cumulative dividends at the time of this filing were $499,275. Pursuant to the
Plan of Reorganization all preferred stock will be converted to common and each
shareholder shall receive such shareholder's pro rata share of new common stock
as defined in the Plan of Reorganization. No unpaid dividends will be paid
pursuant to the Plan of Reorganization.
ITEM - 4 Submission of Matters to a Vote of Securities Holders.
No matters were submitted to a vote of security holders during the quarter
ended September 30, 1998, either through the solicitation of proxies or
otherwise.
ITEM - 5 Other Information.
See Item 2: "Management's Discussion and Analysis or Plan of Operation --
General" and the Company's Annual Report on Form 10-KSB for the fiscal year
ended March 31, 1998 Item 1: "Description of Business."
Page - 9
<PAGE>
Advanced Financial, Inc.
ITEM - 6 Exhibits and Reports on Form 8-K.
(a) Exhibits
- ------------
*2.1 First Amended Joint Plan of Reorganization dated July 29, 1998 of
Advanced Financial, Inc. and AFI Mortgage Corp. (Exhibit 2.1 to the
Current Report on Form 8-K filed with the Securities and Exchange
Commission on November 25, 1998).
*3.1 Articles of incorporation and by-laws (Exhibit 3.2 to Registration
Statement on Form S-2 of Advanced Financial, Inc. filed with the
Securities and Exchange Commission on January 31, 1993(No. 33-45406)).
*4.1 Instruments Defining Rights of Holders (Exhibit 4.0 to Registration
Statement on Form S-2 of Advanced Financial, Inc. filed with the
Securities and Exchange Commission on January 31, 1993
(No. 33-45406)).
*4.2 Variable Rate Commercial Note Secured With Loan Servicing Rights dated
July 27, 1994 made by AFI Mortgage Corp., successor to Continental
Mortgage, Inc. ("AFIM"), to the order of Commercial Federal Bank,
successor to Railroad Savings Bank, FSB ("Lender") and Agreement dated
October 11, 1996 between Advanced Financial, Inc. and AFIM, as
Borrower, and Lender and Matrix Financial Servicers Corporation
(Exhibit 4.2 to Advanced Financial, Inc.'s Annual Report on Form
10-KSB for the fiscal year ended March 31, 1997 filed with the
Securities and Exchange Commission on February 16, 1999). (Exhibit 4.3
to Advance Financial Inc.'s Annual Report on Form 10-KSB for the
fiscal year ended March 31, 1997 filed with the Securities and
Exchange Commission on February 16, 1999).
*4.3 Variable Rate Commercial Balloon Note For Purchase of Loan Servicing
Rights dated December 31, 1993 made by AFI Mortgage Corp., successor
to Continental Mortgage, Inc. ("Borrower"), to the order of Argo
Federal Savings Bank, FSB ("Lender") and Security Agreement For Sale
of Mortgage Loan Servicing Rights dated December 31, 1993 between
Borrower and Lender (Exhibit 4.3 to Advanced Financial, Inc.'s Annual
Report on Form 10-KSB for the fiscal year ended March 31, 1997 filed
with the Securities and Exchange Commission on February 16, 1999).
(Exhibit 4.3 to Advance Financial Inc.'s Annual Report on Form 10-KSB
for the fiscal year ended March 31, 1997 filed with the Securities and
Exchange Commission on February 16, 1999).
*10.1 Commercial Real Estate Contract with Standard Builders (Exhibit 10.1
to Registration Statement on Form S-2 of Advanced Financial, Inc.
filed with the Securities and Exchange Commission on February 11, 1993
(No. 33-58186)).
*10.2 Contract for Services between the Company and Rollie C. Johnson
(Exhibit 10.1 to Registration Statement on Form S-2 of Advanced
Financial, Inc. filed with the Securities and Exchange Commission on
February 11, 1993 (No. 33-58186)).
*10.3 Real Estate Mortgage to Secure a Loan from Citizen's National Bank of
Fort Scott ("Bank") dated February 3, 1997 made by AFI Mortgage Corp.,
as Mortgagee, to Bank and accompanying notes as amended (Exhibit 10.3
to Advance Financial Inc.'s Annual Report on Form 10-KSB for the
fiscal year ended March 31, 1997 filed with the Securities and
Exchange Commission on February 16, 1999).
*10.4 Second Mortgage dated March 29, 1996 made by Advance Financial, Inc.
and AFI Mortgage Corp., as Mortgagor, to First Mortgage Investment
Co., as Mortgagee (Exhibit 10.4 to Advance Financial Inc.'s Annual
Report on Form 10-KSB for the fiscal year ended March 31, 1997 filed
with the Securities and Exchange Commission on February 16, 1999).
27.1 Financial Data Schedule
* Asterisk indicates exhibits incorporated by reference as indicated,
all other exhibits are filed herewith.
(b) Reports on Form 8-K
- -----------------------
None
Page - 10
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ADVANCED FINANCIAL, INC.
(Registrant)
Dated: February 16, 1999 By: /s/William B. Morris
--------------------
William B. Morris
Chairman
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Title Date
--------- ----- ----
/s/ William B. Morris Chairman, Secretary, February 16, 1999
- --------------------- Principal Accounting
William B. Morris Officer
Page - 11
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This Schedule contains summary financial informa-
tion extracted from financial statements for the
fiscal quarter ended September 30, 1998 and is
qualified in its entirety by reference to such
financial statements
</LEGEND>
<CIK> 823314
<NAME> Advanced Financial, Inc.
<MULTIPLIER> 1
<CURRENCY> United States
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-1-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 60,124
<SECURITIES> 0
<RECEIVABLES> 3,264
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 73,294
<PP&E> 1,055,447
<DEPRECIATION> 15,107
<TOTAL-ASSETS> 1,128,741
<CURRENT-LIABILITIES> 3,971,331
<BONDS> 0
0
1,815
<COMMON> 5,836
<OTHER-SE> (3,138,812)
<TOTAL-LIABILITY-AND-EQUITY> 1,128,741
<SALES> 0
<TOTAL-REVENUES> 107,776
<CGS> 0
<TOTAL-COSTS> 286,692
<OTHER-EXPENSES> (15,600)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56,045
<INCOME-PRETAX> (178,916)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (178,916)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
