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As Filed with the Securities and Exchange Commission on December 1, 2000
File No. 333-95407
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM S-8
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------------
E-NET FINANCIAL.COM CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Nevada 84-1273503
(State or Other Jurisdiction of (IRS Employer ID No.)
Incorporation or Organization)
3200 BRISTOL STREET, SUITE 710
COSTA MESA, CALIFORNIA 92626
(Address of Principal Executive Offices)
----------------
2000 Stock Compensation Plan
(Full Title of the Plan)
----------------
VINCENT RINEHART, PRESIDENT
E-NET FINANCIAL CORPORATION
3200 BRISTOL STREET, SUITE 710
COSTA MESA, CALIFORNIA 92626
(Name and Address of Agent for Service)
(714) 437-0700
(Telephone Number, Including Area Code, of Agent for Service)
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================================
PROPOSED PROPOSED
TITLE OF SECURITIES AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock............................................................ 1,000,000 $0.83 (1) $828,100 $218.62
TOTAL................................................................... 1,000,000 NA $828,100 $218.62
===================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
in accordance with Rules 457(h) and 457(c) under the Securities Act of 1933, as
amended and based upon an average of the high and low prices reported on the
Nasdaq Over The Counter Bulletin Board on November 29, 2000.
================================================================================
<PAGE>
EXPLANATORY NOTE
E-Net Financial.Com Corporation ("E-Net") files this registration statement
in accordance with the requirements of Form S-8 under the Securities Act of
1933, as amended (the "1933 Act"), to register an additional 1,000,000 shares of
stock, $.001 par value, to be issued to certain selling shareholders that are
employees or consultants who have been issued shares of E-Net's common stock
pursuant to the company's stock compensation plan. The Registrant has previously
file a registration statement on Form S-8 to register an initial 1,000,000
shares of stock and that registration statement, Commission File No. 0-24512, is
incorporated herein by reference.
Under cover of this Form S-8 is a Reoffer Prospectus that E-Net has
prepared in accordance with Part I of Form S-3 under the 1933 Act. The Reoffer
Prospectus may be utilized for reofferings and resales of up to 1,000,000 shares
of common stock acquired by the selling shareholders.
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REOFFER PROSPECTUS
E-NET FINANCIAL.COM CORPORATION
3200 BRISTOL STREET, SUITE 710
COSTA MESA, CALIFORNIA 92626
(714) 437-0700
1,000,000 SHARES OF COMMON STOCK
The shares of common stock, $.001 par value, of E-Net Financial.Com
Corporation ("E-Net" or the "Company") offered hereby (the "Shares") will be
sold from time to time by the individuals listed under the Selling Shareholders
section of this document (the "Selling Shareholders"). The Selling Shareholders
acquired the Shares pursuant to the Company's 2000 Stock Compensation Program
for employment or consulting services that the Selling Shareholders provided to
E-Net.
The sales may occur in transactions on the Nasdaq over-the-counter market
at prevailing market prices or in negotiated transactions. E-Net will not
receive proceeds from any of the sale of the Shares. E-Net is paying for the
expenses incurred in registering the Shares.
The Shares are "restricted securities" under the Securities Act of 1933
(the "1933 Act") before their sale under the Reoffer Prospectus. The Reoffer
Prospectus has been prepared for the purpose of registering the Shares under the
1933 Act to allow for future sales by the Selling Shareholders to the public
through compliance with Rule 144. To the knowledge of the Company, the Selling
Shareholders have no arrangement with any brokerage firm for the sale of the
Shares. The Selling Shareholders may be deemed to be an "underwriter" within the
meaning of the 1933 Act. Any commissions received by a broker or dealer in
connection with resales of the Shares may be deemed to be underwriting
commissions or discounts under the 1933 Act.
E-Net's common stock is currently traded on the Nasdaq Over-the-Counter
Bulletin Board under the symbol "ENNT." The common stock is also listed on the
Berlin Stock Exchange under the symbol "ENNT.DE."
-------------------------
This investment involves a high degree of risk. Please see "Risk Factors"
beginning on page 12. Certain statements contained in this Prospectus,
including, without limitation, statements containing the words "believes,"
"anticipates," "estimates," "expects," and words of similar import, constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements relate to our future plans,
objectives, expectations and intentions. In evaluating these statements, you
should consider the various factors identified in "Risk Factors" section
contained herein, which identify important considerations that could cause
actual results to differ materially from those contained in the forward-looking
statements. Such forward-looking statements speak only as of the date the
statement is made, and the forward-looking information and statements should not
be regarded as a representation by the Company or any other person that the
objectives and plans of the Company will be achieved.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED WHETHER
THIS REOFFER PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
--------------------------
December 1, 2000
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TABLE OF CONTENTS
Where You Can Find More Information................................... 4
Incorporated Documents................................................ 4
The Company........................................................... 5
Risk Factors.......................................................... 11
Use of Proceeds....................................................... 18
Selling Shareholders.................................................. 18
Plan of Distribution.................................................. 19
Legal Matters......................................................... 19
You should only rely on the information incorporated by reference or
provided in this Reoffer Prospectus or any supplement. We have not authorized
anyone else to provide you with different information. The common stock is not
being offered in any state where the offer is not permitted. You should not
assume that the information in this Reoffer Prospectus or any supplement is
accurate as of any date other than the date on the front of this Reoffer
Prospectus.
WHERE YOU CAN FIND MORE INFORMATION
We are required to file annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission
(the "SEC") as required by the Securities Exchange Act of 1934, as amended (the
"1934 Act"). You may read and copy any reports, statements or other information
we file at the SEC's Public Reference Rooms at: (i) 450 Fifth Street, N.W.,
Washington, D. C. 20549; and (ii) Seven World Trade Center, 13th Floor, New
York, N.Y. 10048. Please call the SEC at 1-800-SEC-0330 for further information
on the Public Reference Rooms. Our filings are also available to the public from
commercial document retrieval services and the SEC website (http://www.sec.gov).
INCORPORATED DOCUMENTS
The SEC allows us to "incorporate by reference" information into this
Reoffer Prospectus, which means that E-Net can disclose important information to
you by referring to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this Reoffer
Prospectus, except for any information superseded by information in this Reoffer
Prospectus. The following documents previously filed with the Securities and
Exchange Commission are incorporated herein by reference:
(a) Our Annual Report on Form 10-KSB for the fiscal year ended April 30,
2000;
(b) Our Quarterly Reports on Form 10-QSB for the fiscal quarter ended July
30, 2000; and
(c) Our Reports on Form 8-K dated March 5, 1999 and January 27, 2000.
(d) Our registration statement on Form S-8 as filed with the SEC on January
26, 2000.
(e) All documents subsequently filed by us pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Securities Exchange Act of 1934, as amended,
prior to the filing of a post-effective amendment which indicates that all
securities offered have been sold or which deregisters all securities then
remaining unsold, shall be deemed to be incorporated herein by reference
and to be part hereof from the date of filing of such documents.
We will provide without charge to each person to whom a copy of this
Reoffer Prospectus is delivered, upon oral or written request, a copy of any or
all documents incorporated by reference into this Reoffer Prospectus (excluding
exhibits unless the exhibits are specifically incorporated by reference into the
information the Reoffer Prospectus incorporates). Requests should be directed to
Investors Relations at our executive offices, located at 3200 Bristol Street,
Suite 710, Costa Mesa, Suite 710, Costa Mesa, California 92626. Our telephone
number is (714) 437-0700. Our corporate Web site address is
http://www.e-netfinancial.com.
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THE COMPANY
General
E-Net Financial Corporation, f/k/a E-Net Corporation and Suarro
Communications, Inc. (the "Company") was incorporated on August 18, 1988, under
the laws of the State of Nevada to engage in any lawful corporate undertaking.
On July 11, 1994 we submitted our Form 10-SB to the Securities and Exchange
Commission, which was declared effective on December 22, 1994, at which time we
became a reporting company under Section 12(g) of the 1934 Securities and
Exchange Act. On August 16, 1996 the we changed our name to Suarro
Communications, Inc., and on February 12, 1999 and May 12, 1999, respectively,
we changed our name to E-Net Corporation and E-Net Financial Corporation. More
recently, we changed our name to E-Net. Com Corporation on January 18, 2000, and
most recently, effective February 2, 2000, we changed our name to E-Net
Financial.Com Corporation.
Change in Control
Effective March 1, 1999 we acquired E-Net Mortgage Corporation, a Nevada
Corporation, and City Pacific International, U.S.A., Inc., a Nevada corporation
(currently known as "VPNCOM.NET"), in exchange for 2,500,000 restricted shares
of common stock of the Company (allocated 2 million shares for the mortgage
company and 500,000 shares for City Pacific). Pursuant to the Share Exchange
Agreement and Plan of Reorganization dated March 1, 1999, we issued these shares
in exchange for all of the issued and outstanding shares of both entities. E-Net
Mortgage and City Pacific were then operated as our wholly owned subsidiaries.
Members of our Board of Directors prior to the acquisitions resigned and a new
set of directors and officers was elected.
Recent Activities
On November 29, 1999, we issued Paul Stevens 250,000 shares of our common
stock in exchange for Mr. Stevens' transfer to us of 500,000 shares of common
stock of EMB Corporation ("EMB") that he owned (the "Stevens' EMB Shares"). On
December 21, 1999, and in connection with that exchange, we entered into
agreements with Digital Integrated Systems, Inc. ("DIS"), and EMB to acquire
their respective 50% interests in VPN.COM JV Partners, a Nevada joint venture
("VPN Partners") involved in vertically integrated communications systems. In
consideration of the purchase of the interests, we issued our one-year
promissory note to DIS in the amount of $145,000 (the "DIS Note") and tendered
to EMB the Stevens' EMB Shares. At the time of such transactions, Mr. Stevens
was the sole owner of DIS and the President and Chief Executive Officer of VPN
Partners. Upon the closing of the acquisitions, VPN Partners was integrated with
VPNCOM.NET.
On March 1, 2000, we sold VPNCOM.NET to E. G. Marchi, its President. The
sales consideration consisted of his 30-day promissory note in the principal
amount of $250,000 (paid in full on April 15, 2000), the assumption of the DIS
Note, and the return of 250,000 shares of our common stock owned by Mr. Marchi.
On January 12, 2000, as revised on April 12, 2000, we entered into an
agreement (the "Amended and Restated Purchase Agreement") with EMB to acquire
two of its wholly owned subsidiaries, i.e., American Residential Funding, Inc.,
a Nevada corporation ("AMRES"), and Bravo Real Estate, Inc., a California
corporation ("Brave Real Estate"). We also acquired all of EMB's rights to
acquire Titus Real Estate LLC, a California limited liability company
("Titus")from its record owners. Titus is the management company for Titus
Capital Corp., Inc., a California real estate investment trust (the "Titus
REIT").
On April 12, 2000, we acquired AMRES and Bravo Real Estate. Pursuant to the
Amended and Restated Purchase Agreement, we issued 7.5 million shares of Common
Stock to EMB, paid $1,595,000, and issued our promissory note in the initial
amount of $2,405,000, and AMRES and Bravo Real Estate became our wholly owned
subsidiaries. As of July 28, 2000, the remaining principal balance of the
promissory note was $1,066,022.
On February 11, 2000, we executed a Membership Interest purchase agreement
(the "Titus Purchase Agreement") for the acquisition of Titus and issued 100,000
shares of our Class B Convertible Preferred Stock (the "B Preferred") to AMRES
Holdings LLC ("AMRES Holdings"), a company controlled by Vincent Rinehart, and
300,000 shares of our common stock to Scott A. Presta, in their capacities as
the owner-members of Titus. Upon closing, Titus became our wholly owned
subsidiary.
On April 12, 2000, in accordance the provisions of the Certificate of
Designations, Preferences and Rights of Class B Convertible Preferred Stock,
AMRES Holdings demanded that its B Preferred be repurchased by the Company for
an aggregate of one million dollars. On April 20, 2000, the Company, AMRES
Holdings, and Mr. Presta amended the Titus Purchase Agreement to provide for a
potential return of certain of the Company's capital stock issued to AMRES
Holdings and Mr. Presta upon the occurrence of certain events. See Note 3 to the
Audited Consolidated Financial Statements for the ten months ended April 30,
2000, the year ended June 30, 1999 and the period from Inception to June 30,
1998 for further discussion.
On April 12, 2000, James E. Shipley was elected Chairman of our Board of
Directors of the Company and Vincent Rinehart was elected a Director, President,
and Chief Executive Officer. Mr. Rinehart also serves as President of AMRES and
Bravo Real Estate and an executive officer and director of Titus. On May 24,
2000, Vincent Rinehart and Jean Oliver, the sole remaining officers and
directors of prior management, resigned their remaining positions. On that date,
Mr. Presta, an executive officer and director of Titus, was elected a Director
and Secretary and James M. Cunningham, President of LoanNet Mortgage, Inc., a
Kentucky corporation ("LoanNet"), was elected a Director. On June 26, 2000,
Kevin Gadawski was engaged as a consultant to serve as our Acting Chief
5
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Financial Officer.
On February 14, 2000, we acquired all of the common stock of LoanNet , a
mortgage broker with offices in Kentucky and Indiana. Pursuant to the Stock
Purchase Agreement, dated February 14, 2000, we issued 250,000 shares of our
Common Stock to the selling shareholders of LoanNet, which became our
subsidiary. As of the closing of the transaction, LoanNet also had 400 shares
outstanding of 8% non-cumulative, non-convertible preferred stock, the ownership
of which has not changed. The preferred stock is redeemable for $100,000.
On March 17, 2000, we acquired all of the common stock of ExpiDoc.com,
Inc., a California corporation ("ExpiDoc"). ExpiDoc is an Internet-based,
nationwide notary service, with over 6,500 affiliated notaries, that provides
document signing services for various mortgage companies. Pursuant to the Stock
Purchase Agreement, dated February 14, 2000, we issued 24,000 shares of our
common stock to the selling shareholders of ExpiDoc, which became our wholly
owned subsidiary. As of the closing of the acquisition, we entered into
management and consulting agreements with ExpiDoc's owners and management,
including Messrs. Rinehart and Presta.
Operations as a Residential Mortgage Lender (E-Net Mortgage)
GENERAL
Through our wholly owned subsidiary, E-Net Mortgage, we have since 1999,
engaged in business as a retail mortgage broker. However, E-Net Mortgage was not
capitalized to the level that permitted it to expand its operations outside of
its offices in San Jose, and Costa Mesa, California, and Las Vegas, Nevada. With
the pending acquisition of AMRES, E-Net Mortgage stopped conducting business in
the fourth quarter of the fiscal year ended April 30, 2000. With the completion
of the acquisition of AMRES, AMRES has become the principal operating mortgage
subsidiary of the Company. It is the intent of the Company for AMRES to operate
primarily as a mortgage banker and mortgage broker through an expansion of its
existing company-owned and Net Branch operations. In addition, LoanNet will
operate as a retail mortgage broker in the central and southern regions of the
United States.
LOAN STANDARDS
Mortgage loans made by AMRES or LoanNet are loans with fixed or adjustable
rates of interest, secured by first mortgages, deeds of trust or security deeds
on residential properties with original principal balances that, generally, do
not exceed 95% of the value of the mortgaged properties, unless such loans are
FHA-insured or VA-guaranteed. Generally, each mortgage loan having a
loan-to-value ratio, as of the date of the loan, in excess of 80%, or which is
secured by a second or vacation home, will be covered by a Mortgage Insurance
Policy, FHA Insurance Policy or VA Guaranty insuring against default of all or a
specified portion of the principal amount thereof.
The mortgage loans are "one- to four-family" mortgage loans, which means
permanent loans (as opposed to construction or land development loans) secured
by mortgages on non-farm properties, including attached or detached
single-family or second/vacation homes, one- to four-family primary residences
and condominiums or other attached dwelling units, including individual
condominiums, row houses, townhouses and other separate dwelling units even when
located in buildings containing five or more such units. Each mortgage loan must
be secured by an owner occupied primary residence or second/vacation home, or by
a non-owner occupied residence. The mortgaged property may not be a mobile home.
In general, no mortgage loan is expected to have an original principal
balance less than $30,000. While most loans will be less than $700,000, loans of
up to $1,000,000 may be funded through their own wholesale credit lines or by
brokering such loans to unaffiliated third-party mortgage lenders. Fixed rate
mortgage loans must be repayable in equal monthly installments which reduce the
principal balance of the loans to zero at the end of the term.
CREDIT, APPRAISAL AND UNDERWRITING STANDARDS
Each mortgage loan must (i) be an FHA-insured or VA-guaranteed loan meeting
the credit and underwriting requirements of such agency, or (ii) meet the
credit, appraisal and underwriting standards established by us. For certain
mortgage loans which may be subject to a mortgage pool insurance policy, we may
delegate to the issuer of the mortgage pool insurance policy the responsibility
of underwriting such mortgage loans, in accordance with our credit appraisal and
underwriting standards. In addition, we may delegate to one or more lenders the
responsibility of underwriting mortgage loans offered to us by such lenders, in
accordance with our credit, appraisal and underwriting loans.
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Our underwriting standards are intended to evaluate the prospective
mortgagor's credit standing and repayment ability, and the value and adequacy of
the proposed mortgaged property as collateral. In the loan application process,
prospective mortgagors will be required to provide information regarding such
factors as their assets, liabilities, income, credit history, employment history
and other related items. Each prospective mortgagor will also provide an
authorization to apply for a credit report which summarizes the mortgagor's
credit history. With respect to establishing the prospective mortgagor's ability
to make timely payments, we will require evidence regarding the mortgagor's
employment and income, and of the amount of deposits made to financial
institutions where the mortgagor maintains demand or savings accounts. In some
instances, we may make mortgage loans under a Limited Documentation Origination
Program. For a mortgage loan to qualify for the Limited Documentation
Origination Program, the prospective mortgagor must have a good credit history
and be financially capable of making a larger cash down payment in a purchase,
or be willing to finance less of the appraised value, in a refinancing, than we
would otherwise require. Currently, only mortgage loans with certain
loan-to-value ratios will qualify for the Limited Documentation Origination
Program. If the mortgage loan qualifies, we waive some of its documentation
requirements and eliminate verification of income and employment for the
prospective mortgagor. The Limited Documentation Origination Program has been
implemented relatively recently and accordingly its impact, if any, on the rates
of delinquencies and losses experienced on the mortgage loans so originated
cannot be determined at this time.
Our underwriting standards generally follow guidelines acceptable to FNMA
("Fannie Mae") and FHLMC ("Freddie Mac"). Our underwriting policies may be
varied in appropriate cases. In determining the adequacy of the property as
collateral, an independent appraisal is made of each property considered for
financing. The appraiser is required to inspect the property and verify that it
is in good condition and that construction, if new, has been completed. The
appraisal is based on the appraiser's judgment of values, giving appropriate
weight to both the market value of comparable homes and the cost of replacing
the property.
Certain states where the mortgaged properties may be located are
"anti-deficiency" states, where, in general, lenders providing credit on one to
four-family properties must look solely to the property for repayment in the
event of foreclosure. See "Certain Legal Aspects of the Mortgage
Loans-Anti-Deficiency Legislation and Other Limitations on Lenders". Our
underwriting standards in all states (including anti-deficiency states) require
that the underwriting officers be satisfied that the value of the property being
financed, as indicated by the independent appraisal, currently supports and is
anticipated to support in the future the outstanding loan balance, and provides
sufficient value to mitigate the effects of adverse shifts in real estate
values.
Each mortgage broker agrees to indemnify us against any loss or liability
incurred by us on account of any breach of any representation or warranty made
by the borrower, any failure to disclose any matter that makes any such
representation and warranty misleading, or any inaccuracy in information
furnished by our borrower. Upon the breach of any misrepresentation or warranty
made by a borrower, we may require the mortgage broker to repurchase the related
mortgage loan.
TITLE INSURANCE POLICIES
We will usually require that, at the time of the origination of the
mortgage loans and continuously thereafter, a title insurance policy be in
effect on each of the mortgaged properties and that such title insurance policy
contain no coverage exceptions, except those permitted pursuant to the
guidelines established by FNMA.
Certain Legal Aspects of Mortgage Loans
GENERAL
The mortgages originated by us and our licensed affiliates are either
mortgages or deeds of trust, depending upon the prevailing practice in the state
in which the property subject to a mortgage loan is located. A mortgage creates
a lien upon the real property encumbered by the mortgage. It does not,
generally, have priority over liens for real estate taxes and assessments.
Priority between mortgages depends on their terms and generally on the order of
filing with a state or county office. There are two parties to a mortgage, the
mortgagor, who is the borrower and homeowner (the "Mortgagor"), and the
mortgagee, who is the lender. Under the mortgage instrument, the Mortgagor
delivers to the mortgagee a note or bond and the mortgage. Although a deed of
trust is similar to a mortgage, a deed of trust formally has three parties, the
borrower-homeowner called the trustor (similar to a Mortgagor), a lender
(similar to a mortgagee) called the beneficiary, and a third-party grantee
called the Trustee. Under a deed of trust, the borrower grants the property,
irrevocably until the debt is paid, in trust, generally with a power of sale, to
the Trustee to secure payment of the obligation. The Trustee's authority under a
deed of trust and the mortgagee's authority under a mortgage are governed by
law, the express provisions of the deed of trust or mortgage, and, in some
cases, the directions of the beneficiary.
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FORECLOSURE
Foreclosure of a deed of trust is generally accomplished by a non-judicial
Trustee's sale under a specific provision in the deed of trust which authorizes
the Trustee to sell the property to a third party upon any default by the
borrower under the terms of the note or deed of trust. In some states, the
Trustee must record a notice of default and send a copy to the borrower-trustor
and to any person who has recorded a requests for a copy of a notice of default
and notice of sale. In addition, the Trustee must provide notice in some states
to any other individual having an interest in the real property, including any
"junior lienholders". The borrower, or any other person having a junior
encumbrance on the real estate, may, during a reinstatement period, cure the
default by paying the entire amount in arrears, plus the costs and expenses
incurred in enforcing the obligation. Generally, state laws require that a copy
of the notice of sale be posted on the property and sent to all parties having
an interest in the real property.
Foreclosure of a mortgage is generally accomplished by judicial action. The
action is initiated by the service of legal pleadings upon all parties having an
interest in the real property. Delays in completion of the foreclosure may
occasionally result from difficulties in locating necessary parties. Judicial
foreclosure proceedings are often not contested by any of the parties. However,
even when the mortgagee's right to foreclose is contested, the court generally
issues a judgment of foreclosure and appoints a referee or other court officer
to conduct the sale of the property.
In the case of foreclosure under either a mortgage or a deed of trust, the
sale by the referee or other designated officer or by the Trustee is a public
sale. However, because of the difficulty a potential buyer at the sale would
have in determining the exact status of title and because the physical condition
of the property may have deteriorated during the foreclosure proceedings, it is
uncommon for a third party to purchase the property at the foreclosure sale.
Rather, it is common for the lender to purchase the property from the Trustee or
referee for an amount equal to the principal amount of the mortgage or deed of
trust, accrued and unpaid interest and the expense of foreclosure. Thereafter,
the lender will assume the burdens of ownership, including obtaining casualty
insurance and making such repairs at its own expense as are necessary to render
the property suitable for sale. The lender will commonly obtain the services of
a real estate broker and pay the broker's commission in connection with the sale
of the property. Depending upon market conditions, the ultimate proceeds of the
property may not equal the lender's investment in the property. Any loss may be
reduced by the receipt of any mortgage insurance proceeds.
RIGHTS OF REDEMPTION
In some states, after sale pursuant to a deed of trust or foreclosure of a
mortgage, the borrower and foreclosed junior lienors are given a statutory
period in which to "redeem" the property from the foreclosure sale. In some
states, redemption may occur only upon a payment of the entire principal balance
of the loan, accrued interest and expenses of foreclosure. In other states,
redemption may be authorized if the former borrower pays only a portion of the
sums due. The effect of a statutory right of redemption is to diminish the
ability of the lender to sell the foreclosed property. The rights of redemption
would defeat the title of any purchaser from the lender subsequent to
foreclosure or sale under a deed of trust. Consequently, the practical effort of
the redemption right is to force the lender to retain the property and pay the
expenses of ownership until the redemption period has expired.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states have imposed statutory prohibitions which limit the remedies
of a beneficiary under a deed of trust or a mortgage. In some states, statutes
limit the right of the beneficiary or mortgagee to obtain a deficiency judgment
against the borrower following foreclosure or sale under a deed of trust. A
deficiency judgment would be a personal judgment against the former borrower
equal in most cases to the difference between the net amount realized upon the
public sale of the real property and the amount due to the lender. Other
statutes require the beneficiary or mortgagee to exhaust the security afforded
under a deed of trust or mortgage by foreclosure in an attempt to satisfy the
full debt before bringing a personal action against the borrower. Finally, other
statutory provisions limit any deficiency judgment against the former borrower
following a judicial sale to the excess of the outstanding debt over the fair
market value of the property at the time of the public sale. The purpose of
these statutes is generally to prevent a beneficiary or a mortgagee from
obtaining a large deficiency judgment against the former borrower as a result of
low or no bids at the judicial sale.
In addition to laws limiting or prohibiting deficiency judgments, numerous
other statutory provisions, including the federal bankruptcy laws and state laws
affording relief to debtors, may interfere with or affect the ability of a
secured mortgage lender to realize upon collateral and/or enforce a deficiency
judgment. For example, with respect to federal bankruptcy law, a court with
federal
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bankruptcy jurisdiction may permit a debtor through his or her Chapter 11 or
Chapter 13 rehabilitative plan to cure a monetary default in respect of a
mortgage loan on a debtor's residence by paying arrears within a reasonable time
period and reinstating the original mortgage loan payment schedule even though
the lender accelerated the mortgage loan and final judgment of foreclosure had
been entered in state court (provided no sale of the residence had yet occurred)
prior to the filing of a debtor's petition. Some courts with federal bankruptcy
jurisdiction have approved plans based on the particular facts of the
reorganization case, that effected the curing of a mortgage loan default by
paying arrearages over a number of years.
Courts with federal bankruptcy jurisdiction have also indicated that the
terms of a mortgage loan secured by property of the debtor may be modified.
These courts have suggested that such modification may include reducing the
amount of each monthly payment, changing the rate of interest, altering the
repayment schedule, and reducing the lender's security interest to the value of
the residence, thus leaving the lender a general unsecured creditor for the
difference between the value of the residence and the outstanding balance of the
loan.
The Internal Revenue Code of 1986, as amended, provides priority to certain
tax liens over the lien of a mortgage. In addition, substantive requirements are
imposed upon mortgage lenders in connection with the origination and the
servicing of mortgage loans by numerous Federal and some state consumer
protection laws. These laws include the federal Truth-In-Lending Act, Real
Estate Settlement Procedures Act, Equal Credit Opportunity Act, Fair Credit
Billing Act, Fair Credit Reporting Act, and related statutes. These federal laws
impose specific statutory liabilities upon lenders who originate mortgage loans
and who fail to comply with the provisions of the law. In some cases, this
liability may affect assignees of the mortgage loans.
ENFORCEABILITY OF CERTAIN PROVISIONS
Certain of the mortgage loans contain due-on-sale clauses. These clauses
permit the lender to accelerate the maturity of the loan if the borrower sells,
transfer or conveys the property. The enforceability of these clauses has been
the subject of legislation and litigation in many states, and in some cases the
clauses have been upheld, while in other cases their enforceability has been
limited or denied.
Upon foreclosure, courts have imposed general equitable principles. These
equitable principles are generally designed to relieve the borrower from the
legal effect of a default under the loan documents. Examples of judicial
remedies that have been fashioned include judicial requirements that the lender
undertake affirmative and expensive actions to determine the causes for the
borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lender's judgment and have required that lenders reinstate loans or recast
payment schedules in order to accommodate borrowers who are suffering from
temporary financial disability. In other cases, courts have limited the right of
the lender to foreclose if the default under the mortgage instrument is not
monetary, such as the borrower failing to maintain the property adequately or
the borrower executing a second mortgage or deed of trust affecting the
property. Finally, some courts have been faced with the issue of whether federal
or state constitutional provisions reflecting due process concerns for adequate
notice require that borrowers under deeds of trust or mortgages receive notices
in addition to the statutorily-prescribed minimum. For the most part, these
cases have upheld the notice provision as being reasonable or have found that
the sale by a trustee under a deed of trust, or under a mortgage having a power
of sale, does not involve sufficient state action to afford constitutional
protections to the borrowers.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980 ("Title V"), provides that state usury limitations do not apply to
certain types of residential first mortgage loans originated by certain lenders
after March 31, 1980. The Federal Home Loan Bank Board is authorized to issue
rules and regulations and to publish interpretations governing implementation of
Title V, the statute authorizes any state to reimpose interest rate limits by
adopting a law or constitutional provision which expressly rejects application
of the federal law. In addition, even where Title V is not so rejected, any
state is authorized by the law to adopt a provision limiting discount points or
other charges on mortgage loans covered by Title V. As of the date hereof,
certain states have taken action to reimpose interest rate limits and/or to
limit discount points or other charges.
MORTGAGE SOFTWARE AND TECHNOLOGY
AMRES currently uses loan origination software developed by an independent
third party, which is accessible by our company-owned offices and at Net Branch
offices through an Intranet system. This software can quickly review the
underwriting guidelines for a vast number of loan products, including those
offered by Fannie Mae and Freddie Mac and select the appropriate loan
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product for the borrower. The software then allows the routing of pertinent
information to the automated underwriting systems employed by Fannie Mae and
Freddie Mac, the primary secondary-market purchasers of mortgages, and the
automated systems of independent lenders such as IndyMac. Thus, in less than one
hour, a borrower can receive loan approval, subject only to verification of
financial information and appraisal of the subject property. The software also
permits the contemporaneous ordering and review of preliminary title reports and
escrow instructions.
The AMRES Intranet system allows Net Branch offices around-the-clock access
to the system. Loan officers can also access the AMRES Intranet utilizing
Intel(R) Corporation's ProShare(R) video conferencing system which permits the
loan officer or borrower to see and talk directly to an underwriting staff
member or other individuals involved in the mortgage loan transaction.
CUSTOMER SERVICE AND SUPPORT
Our customer service and support organization provides Net
Branch owners with on-line technical support, training, consulting and
implementation services. These services consist of the following:
o Customer education and training; we offer training courses designed
to meet the needs of end users, integration experts and system
administrators. The Company also trains customer personnel who in
turn may train end-users in larger deployments. Training classes are
provided at the customers' offices or on-line with an on-line
tutorial. No fees are charged the to Net Branch for these services.
o System maintenance and support; we offer telephone, electronic mail
and facsimile customer support through its central technical support
staff at the Company's headquarters. The Company also provides
customers with product documentation and release notes that describe
features in new products, known problems and workarounds, and
application notes.
o Nationwide notary services; ExpiDoc is an Internet-based nationwide
notary service that specializes in providing mortgage brokers with a
solution to assist with the final step of the loan process:
notarizing signatures of the loan documents. This is accomplished
through ExpiDoc's automation of the process, its knowledgeable,
experienced staff, and proprietary technology. ExpiDoc provides its
clients with real-time access to the status of their documents, 24
hours a day. ExpiDoc's proprietary software executes both the front
office notary coordination and the back office administration.
Sales and Marketing
As of November 15, 2000, we marketed and sold our mortgage banking services
primarily through a direct sales force based in Costa Mesa, California. Our
sales and marketing organization consisted of approximately 10 employees as of
November 15, 2000. We market our mortgage loan products through our four
company-owned offices in Southern California and approximately 83 Net Branch
offices in California, Georgia, Oklahoma, Nevada, Tennessee, Washington, Arizona
and Florida. LoanNet also maintains offices in Bowling Green, Kentucky,
Louisville, Kentucky and Indianapolis, Indiana. Our sales efforts to market our
Net Branch opportunities are located primarily in our Costa Mesa, California
headquarters office.
Employees
As of November 15, 2000, we employed a total of 55 persons. Of the total, 3
officers and employees were employed at our principal executive offices in Costa
Mesa, California, of whom one was in investor relations and compliance, and 2
were in finance and administration. There were 52 employees of our subsidiaries,
of whom 36 were engaged in sales and marketing and 16 in finance and
administration. None of our employees is represented by a labor union with
respect to his or her employment.
Internet Presence
We have, since our reorganization in 1999, maintained a Website on the
Internet. Our corporate website underwent a update about October 1, 2000. The
website now features direct access to our press releases and announcements, a
link to stock price and
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investor information, and a link to public filings made with the Securities and
Exchange Commission on its EDGAR database. Future upgrades are planned to
provide interactive customer and investor features. See discussion of Expidoc
above.
Facilities
Our principal place of business is in Costa Mesa, California, where we
lease an approximately 4,500 square foot facility for $126,000 per annum
(subject to usual and customary adjustments). This location houses our corporate
finance and administration functions. ExpiDoc and the Costa Mesa office of AMRES
also lease space at this facility on a month-to-month basis for $1,000 and
$4,000, respectively. We are currently negotiating a new lease at this facility.
AMRES leases additional facilities in the following locations: Long
Beach, California (month-to-month, $3,450 per month); Menifee, California
(month-to-month, $2,236 per month); Palmdale, California (month-to-month, $
1,911 per month), and Riverside, California (term expiring in 2003, $2,117 per
month). LoanNet leases three facilities on month-to-month terms: Bowling Green,
Kentucky ($2,000 per month); Louisville, Kentucky ($2,538 per month), and
Indianapolis, Indiana ($1,925 per month).
We believe that our current facilities will be adequate to meet our needs,
and that we will be able to obtain additional or alternative space when and as
needed on acceptable terms. We may also hold real estate for sale from time to
time as a result of our foreclosure on mortgage loans that may become in
default.
RISK FACTORS
In this section we highlight some of the risks associated with our business and
operations. Prospective investors should carefully consider the following risk
factors when evaluating an investment in the common stock offered by this
Reoffer Prospectus.
WE HAVE INCURRED SUBSTANTIAL OPERATING LOSSES AND OUR AUDITORS HAVE ISSUED A
"GOING CONCERN" AUDIT OPINION
Our consolidated financial statements filed with the United States
Securities and Exchange Commission have been prepared assuming that we will
continue as a going concern, which contemplates the realization of assets and
liquidation of liabilities in the normal course of business. Our auditors have
expressed reservations in their audit letter for the fiscal year ended April 30,
2000 about our ability to continue as a going concern. As discussed in our
financial statements, we have incurred significant operating losses in our most
recent fiscal year and have a working capital deficit and negative tangible net
worth.
YOU MAY BE UNABLE TO EFFECTIVELY EVALUATE OUR COMPANY FOR INVESTMENT PURPOSES
BECAUSE OUR BUSINESSES HAVE EXISTED FOR ONLY A SHORT PERIOD OF TIME
We began our current operations in March 1999. As a result, we have only a
limited operating history upon which you may evaluate our business and
prospects. In addition, you must consider our prospects in light of the risks
and uncertainties encountered by companies in an early stage of development in
new and rapidly evolving markets. We had no revenues from operations prior to
the acquisition of our E-Net Mortgage and VPN subsidiaries in March 1999. In
addition, we had no significant assets or financial resources prior to these
acquisitions. The success of the our proposed plan of operation will depend to a
great extent on the operations, financial condition and management of these
recently acquired subsidiaries. Our ability to integrate these subsidiaries'
activities into our consolidated operations is uncertain. The success of our
operations may be dependent upon numerous factors beyond our control. No person
should invest in this offering unless they can afford to lose their entire
investment.
OUR FUTURE REVENUES ARE UNPREDICTABLE AND OUR OPERATING RESULTS ARE LIKELY TO
FLUCTUATE FROM QUARTER TO QUARTER
Our quarterly and annual operating results have fluctuated in the past and
are likely to fluctuate significantly in the future due to a variety of factors,
some of which are outside of our control. Accordingly, we believe that
period-to-period comparisons of our results of operations are not meaningful and
should not be relied upon as indications of future performance. Some of the
factors that could cause our quarterly or annual operating results to fluctuate
include market acceptance of our mortgage services and systems, business
development, ability to originate and process mortgage loans, and competitive
pressures.
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THE MORTGAGE LENDING BUSINESS IS AFFECTED BY INTEREST RATES AND OTHER FACTORS
BEYOND OUR CONTROL
The results of our operations will be affected by various factors, many of
which are beyond our control. The results of our operations will depend, among
other things, on the level of net cash flows generated by our mortgage assets
and the supply of and demand for mortgage loans. Our net cash flows will vary as
a result of changes in interest rates, the behavior of which involves various
risks and uncertainties as set forth below. Prepayment rates and interest rates
depend upon the nature and terms of the mortgage assets, the geographic location
of the properties securing the mortgage loans, conditions in financial markets,
the fiscal and monetary policies of the United States government and the Board
of Governors of the Federal Reserve System, international economic and financial
conditions, competition and other factors, none of which can be predicted with
any certainty. Because interest rates will significantly affect our activities,
our operating results will depend, in large part, upon our ability to utilize
appropriate strategies to maximize returns while attempting to minimize risks.
MORTGAGE LOANS ARE SUBJECT TO THE RISK OF DEFAULT BY BORROWERS AND CERTAIN
INHERENT RISKS RELATED TO REAL ESTATE
Mortgage loans are subject to varying degrees of risk, including the risk
of a default by the borrowers on a mortgage loan, and the added responsibility
on our part of foreclosing in order to protect its investment. The ability of
the borrowers to make payments on non-single-family mortgage loans is highly
dependent on the borrowers' ability to manage and sell, refinance or otherwise
dispose of the properties and will be dependent upon all the risks generally
associated with real estate investments which are beyond our control. We must
rely on the experience and ability of the borrowers to manage, develop and
dispose of or refinance the properties. Investing in real estate is highly
competitive and is subject to numerous inherent risks, including, without
limitation, changes in general or local economic conditions, neighborhood values
and interest rates, limited availability of mortgage funds which may render the
sale or refinancing of the properties difficult, increases in real estate taxes,
other operating expenses, the supply and demand for properties of the type
involved, toxic and hazardous wastes, environmental considerations, zoning laws,
entitlements, rent control laws, other governmental rules and fiscal policies
and acts of God, such as floods, which may result in uninsured losses.
WE MAY NOT DIVERSIFY OUR PORTFOLIO OF MORTGAGE LOANS
Our mortgage loans may be obligations of a limited number of borrowers on a
limited number of properties. The lack of diversity in the type, number and
geographic location of mortgage loans made could materially increase the risk of
an investment in the Common Stock. IN THE EVENT WE ARE NOT SUCCESSFUL IN
SECURITIZING MORTGAGE LOANS, WE WILL CONTINUE TO BEAR THE RISKS OF BORROWER
DEFAULTS AND BANKRUPTCIES, FRAUD LOSSES AND SPECIAL HAZARD LOSSES.
We may acquire and accumulate mortgage loans as part of its long-term
investment strategy or until a sufficient quantity has been acquired for
securitization into mortgage-backed securities. There can be no assurance that
we will be successful in securitizing mortgage loans. While holding mortgage
loans, we will be subject to risks of borrower defaults and bankruptcies, fraud
losses and special hazard losses. In the event of any default under mortgage
loans held by us, we will bear the risk of loss of principal to the extent of
any deficiency between the value of the mortgage collateral and the principal
amount of the mortgage loan. It may not be desirable, possible or economic for
us to complete the securitization of any or all mortgage loans which we acquire
or fund, in which case we will continue to hold the mortgage loans and bear the
risks of borrower defaults and special hazard losses.
Mortgage loans invested in by us will be secured by the properties and will
also be a recourse obligation of the borrower. In the event of a default, we
would be able to look to the borrower to make up any deficiency between the
value of the collateral and the principal amount of the mortgage loan.
It is expected that when the Company acquires mortgage loans, the sellers
will represent and warrant to the Company that there has been no fraud or
misrepresentation with respect to the origination of the mortgage loans and will
agree to repurchase any loan with respect to which there is fraud or
misrepresentation. There can be no assurance that the Company will be able to
obtain the repurchase agreement from the sellers. Although the Company may have
recourse to the sellers based on the sellers' representations and warranties to
the Company, the Company will be at risk for loss to the extent the sellers do
not perform their repurchase obligations.
The Company may acquire mortgage loans from failed savings and loan
associations or banks through United States
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government agencies such as the Resolution Trust Corporation or the Federal
Deposit Insurance Corporation. These institutions do not provide the seller's
typical representations against fraud and misrepresentation. The Company intends
to acquire third party insurance, to the extent that it is available at a
reasonable price, for such risks. In the event the Company is unable to acquire
such insurance, the Company would be relying solely on the value of the
collateral underlying the mortgage loans. Accordingly, the Company will be
subject to a greater risk of loss on obligations purchased from these
institutions.
Since April, 1999, the Company's growth in originating loans has been
significant. In light of this growth, the historical financial performance of
the Company may be of limited relevance in predicting future performance. Also,
the loans originated by the Company have been outstanding for a relatively short
period of time. Consequently, the delinquency and loss experience of the
Company's loans to date may not be indicative of future results. It is unlikely
that the Company will be able to maintain delinquency and loan loss ratios at
their present levels to the extent that the Company's loan portfolio becomes
more seasoned and are not resold by the Company.
TO THE EXTENT THAT WE ARE UNABLE TO MAINTAIN AN ADEQUATE WAREHOUSE LINE OF
CREDIT, WE MAY HAVE TO CURTAIL LOAN ORIGINATION AND PURCHASING ACTIVITIES
The Company relies significantly upon its access to warehouse credit
facilities in order to fund new originations and purchases. The Company has a
$1,000,000 warehouse line of credit with FirstPlus Bank and a $1,000,000
warehouse line of credit with First Collateral Services. The Company expects to
be able to maintain its existing warehouse line of credit (or to obtain
replacement or additional financing) as the current arrangements expire or
become fully utilized; however, there can be no assurance that such financing
will be obtainable on favorable terms, if at all. To the extent that the Company
is unable to maintain an adequate warehouse line of credit, the Company may have
to curtail loan origination and purchasing activities, which could have a
material adverse effect on the Company's operations and financial condition.
VARIATIONS IN MORTGAGE PREPAYMENTS MAY CAUSE CHANGES IN OUR NET CASH FLOWS
Mortgage prepayment rates vary from time to time and may cause changes in
the amount of the Company's net cash flows. To the extent that prepayments
occur, the yield on the Company's mortgage loans would be affected as well as
the Company's net cash flows. Prepayments of adjustable-rate mortgage loans
included in or underlying mortgage-backed securities generally increase when
then-current mortgage interest rates fall below the interest rates on such
adjustable-rate mortgage loans. Conversely, prepayments of such mortgage loans
generally decrease when then-current mortgage interest rates exceed the interest
rate on the mortgage loans included in or underlying such mortgage-backed
securities. Prepayment experience also may be affected by the geographic
location of the properties securing the mortgage loans included in or underlying
mortgage-backed securities, the assumability of such mortgage loans, the ability
of the borrower to convert to a fixed-rate loan, conditions in the housing and
financial markets and general economic conditions.
OUR PORTFOLIO OF MORTGAGE LOANS MAY INCLUDE PRIVATELY ISSUED PASS-THROUGH
CERTIFICATES WHICH ARE TYPICALLY NOT GUARANTEED BY THE UNITED STATES GOVERNMENT
The Company may include privately issued pass-through certificates backed
by pools of adjustable-rate single family and multi-family mortgage loans and
other real estate-backed mortgage loans in its investment portfolio. Because
principal and interest payments on privately issued pass-through certificates
are typically not guaranteed by the United States government or an agency of the
United States government, such securities generally are structured with one or
more types of credit enhancement. Such forms of credit enhancement are
structured to provide protection against risk of loss due to default on the
underlying mortgage loan, or bankruptcy, fraud and special hazard losses, such
as earthquakes. Typically, third parties insure against these types of losses,
and the Company would be dependent upon the credit worthiness of the insurer for
credit-rating, claims paying ability of the insurer and timeliness of
reimbursement in the event of a default on the underlying obligations.
Furthermore, the insurance coverage for various types of losses is limited in
amount, and losses in excess of the limitation would be the responsibility of
the Company.
The Company may also purchase mortgage loans issued by GNMA, FNMA or FHLMC.
Each of these entities provides guarantees against risk of loss for securities
issued by it. In the case of GNMA, the timely payment of principal and interest
on its certificates is guaranteed by the full faith and credit of the United
States government. FNMA guarantees the scheduled payments of interest and
principal and the full principal amount of any mortgage loan foreclosed or
liquidated on its obligations. FHLMC guarantees the timely payment of interest
and ultimate collection of principal on its obligations, while with respect to
certificates issued by FNMA and FHLMC, payment of principal and interest of such
certificates are guaranteed only by the respective entity and not by
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the full faith and credit of the United States government.
WE ARE DEPENDENT UPON INDEPENDENT MORTGAGE BROKERS AND OTHERS, NONE OF WHOM IS
CONTRACTUALLY OBLIGATED TO DO BUSINESS WITH THE COMPANY
The Company depends in part on independent mortgage brokers, financial
institutions, realtors(R) and mortgage bankers for its originations and
purchases of mortgage loans. The Company's competitors also seek to establish
relationships with such independent mortgage brokers, financial institutions,
realtors(R) and mortgage bankers, none of whom is contractually obligated to
continue to do business with the Company. In addition, the Company expects the
volume of wholesale loans that it originates and purchases to increase. The
Company's future results may become more exposed to fluctuations in the volume
and cost of its wholesale loans resulting from competition from other
originators and purchasers of such loans, market conditions and other factors.
WE WILL HAVE LITTLE CONTROL OVER THE OPERATIONS OF THE PASS-THROUGH ENTITIES IN
WHICH WE MAY PURCHASE INTERESTS
If the Company purchases interests in various pass-through entities, it
will itself be in the position of a "holder" of shares of such entities
including, real estate investment trusts, other trusts or partnerships, or a
holder of other types of pass-through interests. Therefore, the Company will be
relying exclusively on the management capabilities of the general partners,
managers and trustees of those entities for the management and investment
decisions made on their behalf. In particular, except for voting rights on
certain matters, the Company will have no control over the operations of the
pass-through entities in which it purchases interests, including all matters
relating to the operation, management, investment decisions, income and expenses
of such entities, including decisions with respect to actions to be taken to
collect amounts owed to such entities. If such managers, trustees or general
partners take actions or make decisions which are adverse to a pass-through
entity or the Company, it may not be cost-efficient for the Company to challenge
such actions or decisions. Moreover, if the Company does not become a
substituted owner of such interests, it would not have the right to vote on
matters on which other interest owners in such entities have a right to vote or
otherwise challenge management decisions. Finally, should any of such managers,
trustees or general partners experience financial difficulties for any reason,
the entities in which the Company invests could be adversely affected, thereby
adversely affecting the value of the Company's investments.
BORROWERS MAY NOT HAVE SUFFICIENT ASSETS TO PAY OFF THE BALLOON PAYMENTS AT
MATURITY
Mortgage loans, other than those representing mortgage loans on
single-family residential, may represent "balloon" obligations, requiring no
payments of principal over the term of the indebtedness with a "balloon" payment
of all of the principal due at maturity. "Balloon" payments will probably
require a sale or refinancing of properties at the time they are due. No
assurance can be given that the borrowers will have sufficient assets to pay off
the indebtedness when due, or that sufficient liquidity will be generated from
the disposition or refinancing of the properties to enable the owner to pay the
principal or interest due on such mortgage loans.
UPON FORECLOSURE OF A PROPERTY, WE MAY HAVE DIFFICULTY IN FINDING A PURCHASER OR
MAY HAVE TO SELL THE PROPERTY AT A LOSS
If a mortgaged property is not sold by the maturity date of the underlying
mortgage loan, the borrower may have difficulty in paying the outstanding
balance of such mortgage loan and may have to refinance the property. The
borrower may also experience difficulty in refinancing the property if that
becomes necessary due to unfavorable interest rates or the unavailability of
credit.
If any amounts under a mortgage loan are not paid when due, the Company may
foreclose upon the property of the borrower. In the event of such a default
which requires the Company to foreclose upon a property or otherwise pursue its
remedies in order to protect the Company's investment, the Company will seek to
obtain a purchaser for the property upon such terms as the Company deems
reasonable. However, there can be no assurance that the amount realized upon any
such sale of the underlying property will result in financial profit or prevent
loss to the Company. In addition, because of potential adverse changes in the
real estate market, locally or nationally, the Company may be forced to own and
maintain the property for a period of time to protect the value of its
investment. In that event, the Company may not be able to receive any cash flow
from such mortgage loan and the Company would be required to pay such sums as
may be necessary to maintain and manage the property.
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WE MAY BE REQUIRED TO INVESTIGATE AND CLEAN UP HAZARDOUS OR TOXIC SUBSTANCES OF
PROPERTIES SECURING LOANS THAT ARE IN DEFAULT
The Company has not been required to perform any investigation or clean up
activities, nor has it been subject to any environmental claims. There can be no
assurance, however, that this will remain the case in the future.
In the course of its business, the Company has acquired and may acquire in
the future properties securing loans that are in default. Although the Company
primarily lends to owners of residential properties, there is a risk that the
Company could be required to investigate and clean up hazardous or toxic
substances or chemical releases at such properties after acquisition by the
Company, and may be held liable to a governmental entity or to third parties for
property damage, personal injury and investigation and cleanup costs incurred by
such parties in connection with the contamination. In addition, the owner or
former owners of a contaminated site may be subject to common law claims by
third pies based on damages and costs resulting from environmental contamination
emanating from such property.
THE AMOUNT OF INTEREST CHARGED TO A BORROWER IS SUBJECT TO COMPLIANCE WITH STATE
USURY LAWS
The amount of interest payable by a borrower to the Company may exceed the
rate of interest permitted under the California Usury Law and the usury laws of
other states. Although the Company does not intend to make or invest in mortgage
loans with usurious interest rates, there are uncertainties in determining the
legality of interest rates. Such limitations, if applicable, may decrease the
yield on the Company's investments.
With respect to the interest rate charged by the Company to borrowers in
the State of California, the Company will be relying upon the exemption from its
usury law which provides that loans that are made or arranged by a licensed real
estate broker and which are secured by a lien on real property are exempt from
the usury law. The Company intends to use licensed real estate brokers to
arrange the mortgage loans so that no violation of the applicable usury law
would take place. Additionally, if any employee or director of the Company or
its subsidiaries is a licensed real estate broker in the State of California,
the Company may use such person to arrange all or a portion of the mortgage
loans to qualify for the usury exemption.
The consequences for failing to abide by the usury law include forfeiture
of all interest payable on the loan, treble damages with respect to excessive
interest actually paid, and criminal penalties. The Company believes that
because of the applicable exemptions and the provisions of California Civil Code
1917.005 exempting lenders who originate loan transactions from the California
usury laws, no violation of the California Usury Law will occur. The Company
shall attempt to rely on similar exemptions in other states if necessary but
there is no guarantee that it will be able to do so. IF A BORROWER ENTERS
BANKRUPTCY, AN AUTOMATIC STAY WILL PREVENT US OR ANY TRUSTEE FROM FORECLOSING ON
THE PROPERTY SECURING SUCH BORROWER'S LOAN UNTIL RELIEF FROM THE STAY CAN BE
SOUGHT.
If a borrower enters bankruptcy, either voluntarily or involuntarily, an
automatic stay of all proceedings against the borrower's property will issue.
This stay will prevent the Company or any trustee from foreclosing on the
property securing such borrower's loan until relief from the stay can be sought
from the bankruptcy court. No guaranty can be given that the bankruptcy court
will lift the stay, and significant legal fees and costs may be incurred in
attempting to obtain such relief.
WE FACE COMPETITION IN THE ACQUISITION OF MORTGAGE LOANS FROM COMPETITORS HAVING
GREATER FINANCIAL RESOURCES
The Company will face intense competition in the origination, acquisition
and liquidation of its mortgage loans. Such competition can be expected from
banks, savings and loan associations and other entities, including REITs. Many
of the Company's competitors have greater financial resources than the Company.
THE MARKET PRICE OF OUR COMMON STOCK MAY EXPERIENCE FLUCTUATION UNRELATED TO
OPERATING PERFORMANCE, INCLUDING FUTURE PRIVATE OR PUBLIC OFFERINGS OF OUR
CAPITAL STOCK
The market price of the Common Stock of the Company may experience
fluctuations that are unrelated to the Company's operating performance. In
particular, the price of the Common Stock may be affected by general market
price movements as well as developments specifically related to the mortgage
industry such as, among other things, interest rate movements. In addition, the
Company's operating income on a quarterly basis is significantly dependent upon
the successful completion of the Company's loan sales in the market, and the
Company's inability to complete these transactions in a particular quarter may
have a material adverse
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impact on the Company's results of operations for that quarter and could,
therefore, negatively impact the price of the Common Stock.
The Company may increase its capital by making additional private or public
offerings of its Common Stock, securities convertible into its Common Stock,
preferred stock or debt securities. The actual or perceived effect of such
offerings, the timing of which cannot be predicted, may be the dilution of the
book value or earnings per share of the Common Stock outstanding, which may
result in the reduction of the market price of the Common Stock and affect the
Company's ability to access the capital markets.
BECAUSE OF INTENSE COMPETITION FOR SKILLED PERSONNEL, WE MAY NOT BE ABLE TO
RECRUIT OR RETAIN NECESSARY PERSONNEL ON A COST-EFFECTIVE BASIS
Our future success will depend in large part upon our ability to identify,
hire, retain and motivate highly skilled employees. We plan to significantly
increase the number of our marketing, sales, customer support and operations
employees to effectively serve the evolving needs of our present and future
customers. Competition for highly skilled employees in our industry is intense.
In addition, employees may leave our company and subsequently compete against
us. Our failure to attract and retain these qualified employees could
significantly harm our business. The loss of the services of any of our
qualified employees, the inability to attract or retain qualified personnel in
the future or delays in hiring required personnel could hinder the development
and introduction of new and enhanced products and harm our ability to sell our
products. Moreover, companies in our industry whose employees accept positions
with competitors frequently claim that their competitors have engaged in unfair
hiring practices. We may be subject to such claims in the future as we seek to
hire qualified personnel, some of whom may currently be working for our
competitors. Some of these claims may result in material litigation. We could
incur substantial costs in defending ourselves against these claims, regardless
of their merits.
THE LOSS OF ANY OF OUR KEY PERSONNEL COULD SIGNIFICANTLY HARM OUR BUSINESS
Our success depends to a significant degree upon the continuing
contributions of our key management, technical, marketing and sales employees.
The loss of the services of any key employee could significantly harm our
business, financial condition and results of operations. There can be no
assurance that we will be successful in retaining our key employees or that we
can attract or retain additional skilled personnel as required. Failure to
retain key personnel could significantly harm our business, financial condition
and results of operations.
OUR FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY MAY SIGNIFICANTLY HARM OUR
BUSINESS
Our future success and ability to compete is dependent, in part, on our
proprietary technology. We rely on a combination of trade secret, copyright and
trademark laws to establish and protect our proprietary rights. To date, we have
relied primarily on proprietary processes and know-how to protect our
intellectual property. We also generally enter into confidentiality agreements
with our employees and consultants, strictly limit access to and distribution of
our source code and further limit the disclosure and use of our other
proprietary information. However, these agreements provide only limited
protection of our intellectual property rights. In addition, we may not have
signed agreements containing adequate protective provisions in every case, and
the contractual provisions that are in place and the protection they provide may
not provide us with adequate protection in all circumstances. Any infringement
of our proprietary rights could result in significant litigation costs, and any
failure to adequately protect our proprietary rights could result in our
competitors offering similar products, potentially resulting in loss of a
competitive advantage and decreased revenues. Despite our efforts to protect our
proprietary rights, existing trade secret, copyright and trademark laws afford
us only limited protection. In addition, the laws of some foreign countries do
not protect our proprietary rights to the same extent as do the laws of the
United States. Others may attempt to copy or reverse engineer aspects of our
products or to obtain and use information that we regard as proprietary.
Accordingly, we may not be able to prevent misappropriation of our technologies
or to deter others from developing similar technologies. Further, policing the
unauthorized use of our products is difficult. Litigation may be necessary in
the future to enforce our intellectual property rights or to determine the
validity and scope of the proprietary rights of others. This litigation could
result in substantial costs and diversion of resources and could significantly
harm our business.
CLAIMS THAT WE INFRINGE THIRD-PARTY INTELLECTUAL PROPERTY RIGHTS COULD RESULT IN
SIGNIFICANT EXPENSES OR RESTRICTIONS ON OUR ABILITY TO SELL OUR PRODUCTS
From time to time, other parties may assert patent, copyright, trademark
and other intellectual property rights to technologies and in various
jurisdictions that are important to our business. Any claims asserting that our
products infringe or may infringe proprietary rights of third parties, if
determined adversely to us, could significantly harm our business. Any claims,
with or without
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merit, could be time-consuming, result in costly litigation, divert the efforts
of our technical and management personnel, cause product shipment delays or
require us to enter into royalty or licensing agreements, any of which could
significantly harm our business. Royalty or licensing agreements, if required,
may not be available on terms acceptable to us, if at all. In the event a claim
against us was successful and we could not obtain a license to the relevant
technology on acceptable terms or license a substitute technology or redesign
our products to avoid infringement, our business would be harmed.
ANY ACQUISITIONS THAT WE MAY UNDERTAKE COULD BE DIFFICULT TO INTEGRATE, DISRUPT
OUR BUSINESS, DILUTE SHAREHOLDER VALUE AND SIGNIFICANTLY HARM OUR OPERATING
RESULTS
We expect to review opportunities to buy other businesses or technologies
that would complement our current products, expand the breadth of our markets or
enhance our technical capabilities, or that may otherwise offer growth
opportunities. While we have no current agreements or negotiations underway, we
may buy businesses, products or technologies in the future. If we make any
future acquisitions, we could issue stock that would dilute existing
stockholders' percentage ownership, incur substantial debt or assume contingent
liabilities. We have no experience in acquiring other businesses and
technologies. Potential acquisitions also involve numerous risks, including:
o problems assimilating the purchased operations, technologies or products;
o unanticipated costs associated with the acquisition;
o diversion of management's attention from our core business;
o adverse effects on existing business relationships with suppliers
and customers;
o risks associated with entering markets in which we have no or limited
prior experience; and
o potential loss of the purchased organization's or our own key employees.
We cannot assure you that we would be successful in overcoming problems
encountered in connection with such acquisitions, and our inability to do so
could significantly harm our business.
OUR HEADQUARTERS AND MANY OF OUR CUSTOMERS ARE LOCATED IN CALIFORNIA WHERE
NATURAL DISASTERS MAY OCCUR
Currently, our corporate headquarters, many of the borrowers for whom we
provide mortgages are located in California. California historically has been
vulnerable to natural disasters and other risks, such as earthquakes, fires and
floods, which at times have disrupted the local economy and posed physical risks
to our property. We presently do not have redundant, multiple site capacity in
the event of a natural disaster. In the event of such a disaster, our business
would suffer.
OUR EXECUTIVE OFFICERS, DIRECTORS, 5% OR GREATER STOCKHOLDERS AND ENTITIES
AFFILIATED WITH THEM WILL CONTINUE TO OWN A LARGE PERCENTAGE OF OUR VOTING STOCK
AFTER THIS OFFERING, WHICH WILL ALLOW THEM TO CONTROL SUBSTANTIALLY ALL MATTERS
REQUIRING STOCKHOLDER APPROVAL
Our executive officers, directors, 5% or greater stockholders and entities
affiliated with them beneficially own in excess of 60% of our outstanding shares
of common stock. These stockholders, acting together, are able to elect at least
a majority of our board of directors and to control all other matters requiring
approval by stockholders, including the approval of mergers or other business
combination transactions, going private transactions and other extraordinary
transactions, and the terms of any of these transactions. This concentration of
ownership could have the effect of delaying or preventing a change in our
control or otherwise discouraging a potential acquirer from attempting to obtain
control of us, which in turn could have an adverse effect on the market price of
our common stock or prevent our stockholders from realizing a premium over the
market price for their shares of common stock.
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<PAGE>
THE SALE OF A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK IN THE PUBLIC
MARKET AFTER THIS OFFERING MAY DEPRESS THE MARKET PRICE OF OUR STOCK
Sales of substantial amounts of our common stock in the public market due
to this offering, or the perception that substantial sales may be made could
cause the market price of our common stock to decline. In addition to the
adverse effect a price decline could have on holders of our common stock, such a
decline would likely impede our ability to raise capital through the issuance of
additional equity securities.
Certain outstanding shares of the Company's Common Stock presently
outstanding are "restricted securities" and under certain circumstances may in
the future be sold in compliance with Rule 144 or Rule 701 adopted under the
Securities Act of 1933, as amended, or some other exemption from registration
under the Securities Act of 1933. Future sales of those shares if sold under
Rule 144, Rule 701 or other exemption could depress the market price of the
Common Stock in the public market. However, there can be no assurance that Rule
144, Rule 701 or any other specific exemption may be available in the future.
CERTAIN "PENNY STOCK" REGULATIONS MAY APPLY TO OUR COMMON STOCK
As of the date of the prospectus, our stock is considered so-called "penny
stock." The so called "penny stock" low-priced securities regulations could
affect the resale of our stock. These regulations require broker-dealers to
disclose the risk associated with buying penny stocks and to disclose their
compensation for selling the stock. They may have the effect of reducing the
level of trading activity in the secondary market for the Common Stock.
FORWARD-LOOKING STATEMENTS ARE INHERENTLY UNCERTAIN
Some statements under the captions "The Company" and " "Risk Factors and
elsewhere in this prospectus are forward-looking statements. These
forward-looking statements include, but are not limited to, statements about our
industry, plans, objectives, expectations, intentions and assumptions and other
statements contained in the prospectus that are not historical facts. When used
in this prospectus, the words "expect," "anticipate," "intend," "plan,"
"believe," "seek," "estimate" and similar expressions are generally intended to
identify forward-looking statements. Because these forward-looking statements
involve risks and uncertainties, including those described in this "Risk
Factors" section, actual results may differ materially from those expressed or
implied by these forward-looking statements. We do not intend to update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise. Market data and forecasts used in this prospectus,
have been obtained from independent industry sources. Although we believe these
sources are reliable, we do not guarantee the accuracy and completeness of
historical data obtained from these sources and we have not independently
verified these data. Forecasts and other forward-looking information obtained
from these sources are subject to the same qualifications and the additional
uncertainties accompanying any estimates of future market size.
USE OF PROCEEDS
E-Net will not receive any of the proceeds form the sale of shares of
common stock by the Selling Shareholders.
SELLING SHAREHOLDERS
Our Shares to which this Reoffer Prospectus relates are being registered
for reoffers and resales by the Selling Shareholders, who acquired the Shares
pursuant to a compensatory benefit plan with E-Net for employment and consulting
services they provided to E-Net. The Selling Shareholders may resell all, a
portion or none of such Shares from time to time.
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The table below sets forth with respect to the Selling Shareholders, based
upon information available to us as of November 21, 2000, the number of Shares
owned, the number of Shares registered by this Reoffer Prospectus and the number
and percent of outstanding Shares that will be owned after the sale of the
registered Shares assuming the sale of all of the registered Shares.
<TABLE>
<CAPTION>
SELLING SHAREHOLDERS Number of Shares Number of Shares Number of Shares Percentage of Shares
-------------------- Owned Before Sale Registered by To Be Sold Owned by Shareholder
----------------- Prospectus ---------- After Sale(1)
---------- -------------
<S> <C> <C> <C> <C>
Kevin Gadawski 0 50,000 50,000 0%
Securities
Compliance Control 0 85,000 85,000 0%
David Villarreal 0 75,000 75,000 0%
Karen Conway 0 45,000 45,000 0%
Michael Jones 0 5,000 5,000 0%
Applied Media 0 5,000 5,000 0%
Vincent Rinehart 1,067,500 75,000 75,000 5.1%
Larry Roberts 27,500 5,000 32,500 0%
</TABLE>
PLAN OF DISTRIBUTION
The Selling Shareholders may sell the Shares for value from time to time
under this Reoffer Prospectus on one or more transactions on the
Over-the-Counter Bulletin Board maintained by Nasdaq, or other exchange, in a
negotiated transaction or in a combination of such methods of sale, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at prices otherwise negotiated. Such sales shall be in
compliance with all of the requirements of Rule 144. The Selling Shareholders
may effect such transactions by selling the Shares to or through broker-dealers,
and such broker-dealers may receive compensation in the form of underwriting
discounts, concessions or commissions from the Selling Shareholders and/or the
purchasers of the Shares for whom such broker-dealers may act as agent (which
compensation may be less than or in excess of customary commissions).
The Selling Shareholders and any broker-dealers that participate in the
distribution of the Shares may be deemed to be "underwriters within the meaning
of Section 2(11) of the 1933 Act, and any commissions received by them and any
profit on the resale of the Shares owned by them may be deemed to be
underwriting discounts and commissions under the 1933 Act. All selling and other
expenses incurred by the Selling Shareholders will be borne by the Selling
Shareholders.
There is no assurance that the Selling Shareholders will sell all or any
portion of the Shares offered. We will pay all expenses in connection with this
offering and will not receive any proceeds from sale of any shares by the
Selling Shareholders.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for us
by Law Office of David M. Griffith, a Professional Corporation, our counsel.
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PART II
INFORMATION NOT REQUIRED IN THE REGISTRATION STATEMENT
ITEM 8. EXHIBITS.
4. 2000 Employee Stock Compensation Program, as amended.
5. Opinion of the Law Office of David M. Griffith, a Professional
Corporation, as to the validity of the securities registered hereunder.
23.1. Consent of the Law Office of David M. Griffith, a Professional
Corporation (set forth in the opinion filed as Exhibit 5.1 to this Registration
Statement).
23.2. Consent of McKennon Wilson & Morgan LLP.
----------------------------------------------------
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, in the City of Costa Mesa, State of California on
November 30, 2000.
By: /s/ VINCENT RINEHART
---------------------------------------
VINCENT RINEHART
President and Chief
Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JAMES E. SHIPLEY Chairman of the Board November 30, 2000
---------------------------------
JAMES E. SHIPLEY
/s/ VINCENT RINEHART President and Chief Executive Officer November 30, 2000
--------------------------------- (Principal Executive Officer)
VINCENT RINEHART
/s/ KEVIN GADAWSKI Acting Chief Financial Officer (Principal November 30, 2000
--------------------------------- Financial and Accounting Officer)
KEVIN GADAWSKI
/s/ SCOTT PRESTA Secretary and Director November 30, 2000
--------------------------------
SCOTT PRESTA
</TABLE>
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
4. 2000 Employee Stock Compensation Program, as amended.
5. Opinion of the Law Office of David M. Griffith, a Professional
Corporation, as to the validity of the securities registered hereunder.
23.1. Consent of the Law Office of David M. Griffith, a Professional
Corporation (set forth in the opinion filed as Exhibit 5.1 to this
Registration Statement).
23.2. Consent of McKennon Wilson & Morgan LLP
-----------------------------------
22
