Conformed
_________________________________________________________
---------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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
June 30, 1997 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>
Advance Financial, Inc. and Subsidiary
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements ................................. 1
Item 2. Management's Discussion and Analysis ................. 6
or Plan of Operation
PART II - OTHER INFORMATION
Item 1. Legal Proceedings .................................... 8
Item 2. Changes in Securities and Use of Proceeds ............ 8
Item 3. Defaults Upon Senior Securities ...................... 8
Item 4. Submission of Matters to a Vote of Security Holders .. 8
Item 5. Other Information .................................... 8
Item 6. Exhibits and Reports on Forms 8-K .................... 9
Signature...........................................................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
June 30, 1997 and March 31, 1997
Assets June 30, 1997 March 31, 1997
------------- --------------
(Unaudited)
Cash and Investments $ 22,732 $ -
Mortgage servicing advances and
accounts receivable 190,235 440,367
Mortgage loans held for sale - 305,193
Mortgage loans held for investment 12,713 12,713
Property and equipment, net 1,093,214 1,303,802
Prepaid expenses 4,819 23,121
Other 13,345 72,906
----------- --------------
Total Assets $ 1,337,059 $ 2,158,102
=========== ==============
Liabilities
Bank overdraft $ - $ 106,676
Accounts payable and
accrued expenses 2,972,345 2,919,541
Notes payable 1,374,147 1,768,427
Notes payable investors 200,000 200,000
Capitalized lease obligations 65,426 178,886
----------- --------------
Total Liabilities $ 4,611,917 $ 5,173,530
Stockholders' Equity
Preferred stock, Series B,
$.005 par value
100,000,000 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 (12,801,004) (12,541,574)
----------- --------------
(2,883,513) (2,574,083)
Treasury stock, 99,869
shares of Common
Stock, at cost (441,345) (441,345)
----------- --------------
Total stockholders' equity (3,274,858) (3,015,428)
----------- --------------
Total liabilities and
stockholders' equity $ 1,337,059 $ 2,158,102
=========== ==============
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 June 30, 1997 and June 30, 1996
Three Months Ended
June 30, 1997 June 30, 1996
------------- --------------
(Unaudited) (Unaudited)
Revenues:
Servicing fee income $ 53,638 $ 528,960
Other Fee Income 20,626 183,690
Gain/(Loss) on sale of
mortgage loans (14,608) 694,112
Interest 9,704 240,280
Other 58,398 15,443
----------- ----------
Total operating revenues $ 127,128 $1,662,485
----------- ----------
Expenses:
Servicing expense $ 81,989 $ 139,581
Personal 117,845 1,019,983
General and administrative 56,192 398,791
Interest 54,855 222,189
Depreciation and amortization 36,926 373,548
Loss on sale of servicing rights - 13,482
Other 38,752 57,041
----------- ----------
Total operating expenses 386,559 2,224,615
----------- ----------
Loss before income taxes (259,431) (562,130)
Income tax expense - -
----------- ----------
Net loss $ (259,431) $ (562,130)
=========== ==========
Weighted average shares
outstanding 5,736,607 3,819,563
Loss per common share $ (0.05) $ (0.16)
=========== ==========
See accompanying notes to condensed consolidated financial statements.
Page - 3
<PAGE>
Advanced Financial, Inc.
ADVANCED FINANCIAL, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
For the three month period ended June 30, 1997 and June 30, 1996
Three Months Ended
June 30, 1997 June 30, 1996
------------- --------------
(Unaudited) (Unaudited)
Net cash (used in) provided by
operating activities $ 463,486 $(3,864,476)
Cash flows from investing activities:
Acquisition of property and
equipment 173,662 27,272
Proceeds/Acquisition of
mortgage servicing rights - 216,049
Acquisition/Principal payments
on mortgage loans
held for investment, net - 7,608
----------- ----------
Net cash provided by (used in)
investing activities 173,662 250,929
Cash flows from financing activities:
Notes payable, net (394,280) 2,926,486
Checks outstanding in excess of
bank balance (106,676) 194,537
Payments on capitalized lease
obligations (113,460) (93,118)
----------- -----------
Net cash provided by (used in)
financing activities (614,416) 3,027,905
Net increase/(decrease) in cash 22,732 (585,642)
Cash at beginning of period 0 585,642
----------- -----------
Cash at end of period $ 22,732 $ 0
=========== ===========
Supplemental disclosure of cash flow:
Cash paid for interest $ 26,284 $ 203,103
Supplemental disclosure of noncash
financing activities:
Receivable recognized for
exercise of stock options $ - $ 65,000
See accompanying notes to condensed consolidated financial statements.
Page - 4
<PAGE>
Advanced Financial, Inc.
ADVANCED FINANCIAL, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1997 and June 30, 1996
(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, 1997, 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, 1997 condensed consolidated balance sheet has
been derived from the audited balance sheet as of that date.
Page - 5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
---------------------------------------------------------
GENERAL
- -------
The Company and AFIM continued to suffer substantial losses for the quarter
ended June 30, 1997. 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 for fiscal
year ended March 31, 1997 Item 1: "Description of Business" and Item 7: Note B
to the Consolidated Financial Statements.
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 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 June
30, 1997 and the Company's results of operations for the quarter ended June 30,
1997 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, 1997
and set forth in the Current Report on Form 8-K filed November 25, 1998,
described above.
RESULTS OF OPERATIONS
- ---------------------
Quarter Ended June 30, 1997 Compared To The Quarter Ended June 30, 1996
- -----------------------------------------------------------------------
Liquidity and Capital Resources
-------------------------------
The Company's cash and short-term investments increased from ($106,676) at
March 31, 1997, to $22,732 at June 30, 1997. 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, 1997.
Losses
------
Consolidated operating results for the three months ended June 30, 1997
reflect a net loss of $259,431 as compared to a net loss of $562,130 for the
three months ended June 30, 1996. The decrease in losses was 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. The decrease was also attributable to the Company's
reduction of its staff from 20 full time employees to 1 full time employee,
thereby reducing its administrative expense, and reduction of debt, thereby
reducing interest expenses, to the limited extent necessary to operate under
protection of Chapter 11 of the Bankruptcy Code. 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, 1997.
Page - 6
<PAGE>
FINANCIAL POSITION
- ------------------
During the three months ended June 30, 1997, the Company saw a continued
decrease in the Company's assets and stockholders' equity. The Company's total
assets were $1,337,059 at June 30, 1997 compared to $2,158,102 at March 31,
1997. Stockholders' equity was ($3,274,858) at June 30, 1997 compared to
($3,015,428) at March 31, 1997. 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 three months
ended June 30, 1997. The Company sold its loan production operations in
February, 1997 causing its loans held for sale to decrease to $0 at June 30,
1997 compared to $305,193 at March 31, 1997. Because the Company was no longer
borrowing on its warehouse facility to fund loan originations, Notes Payable
also decreased to $1,374,147 at June 30, 1997 compared to $1,768,427 at March
31, 1997.
At June 30, 1997, the Company had a cash position of $22,732 compared to a
negative cash position of $106,676 at March 31, 1997. During the three months
ended June 30, 1997, the Company covered its negative cash position from the
collection of receivables and the funding of the remaining Mortgage Loans Held
for Sale. Since June 30, 1997, and while operating under the protection of
Chapter 11 of the Bankruptcy Code, the Company was able to fund its limited
operations from the sale of various assets and the collection of additional
receivables.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
- ----------------------------------------------
None
Page - 7
<PAGE>
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's Decision and Analysis or
Plan of Operations - 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 is 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 Total
Lender Principal Interest Arrearage
------ --------- -------- ---------
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 June 30, 1997, 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, 1997 Item 1: "Description of Business."
Page - 8
<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).
*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).
*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 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).
*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 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).
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 - 9
<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 - 10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This Schedule contains summary financial info-
mation extracted from financial statements for
the fiscal quarter ended June 30, 1997 and is
qualified in its entirety by reference to such
financial statements
</LEGEND>
<CIK> 823314
<NAME> Advanced Financial, Inc.
<CURRENCY> United States
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 22,732
<SECURITIES> 0
<RECEIVABLES> 190,235
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 243,839
<PP&E> 1,093,214
<DEPRECIATION> 36,926
<TOTAL-ASSETS> 1,337,059
<CURRENT-LIABILITIES> 4,611,917
<BONDS> 0
0
1,815
<COMMON> 5,836
<OTHER-SE> (2,841,164)
<TOTAL-LIABILITY-AND-EQUITY> 1,337,059
<SALES> 0
<TOTAL-REVENUES> 127,128
<CGS> 0
<TOTAL-COSTS> 386,559
<OTHER-EXPENSES> 38,752
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54,855
<INCOME-PRETAX> (259,431)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (259,431)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
