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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
[ X ] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended April 30, 2000
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the transition period from ___________ to ____________.
Commission File Number: 0-24512
E-NET FINANCIAL.COM CORPORATION
(Name of small business issuer in its charter)
NEVADA 84-1273503
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3200 BRISTOL STREET, SUITE 700, COSTA MESA, CALIFORNIA 92626
(Address of principal executive offices)
Issuer's telephone number: (714) 557-2222
Securities registered under Section 12(b) of the Exchange Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
N/A N/A
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the 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 X No
---- ----
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ X ]
The issuer's revenues for its most recent fiscal year: $4,689,170
The aggregate market value of voting stock held by non-affiliates of
the registrant as of July 28, 2000:
Common stock, $.001 par value: $13,098,716
The number of shares of the registrant's common stock outstanding as of
July 25, 2000: 21,035,484 shares
Documents incorporated by reference: Certain exhibits to the Form
10-KSB for the fiscal years ended April 30, 1997 and April 30, 1999 and
amendments thereto of the registrant are incorporated herein by reference.
Transitional Small Business Disclosure Format: Yes No X
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
General
e-Net Financial.Com Corporation (the "Company") was incorporated as
Solutions, Incorporated on August 18, 1988, under the laws of the State of
Nevada to engage in any lawful corporate undertaking. On July 11, 1994, the
Company filed a Registration Statement on Form 10-SB with the Securities and
Exchange Commission, which was declared effective on December 22, 1994. At that
time, the Company became a reporting company under Section 12(g) of the
Securities Exchange Act of 1934, as amended. On August 16, 1996, the Company
changed its name to Suarro Communications, Inc., and on February 12, 1999, May
12, 1999 and on January 18, 2000, the Company changed its name to e-Net
Corporation, e-Net Financial Corporation and e-Net.Com Corporation,
respectively. On February 2, 2000, the Company changed its name to e-Net
Financial.Com Corporation. In November of 1999, the Company split its Common
Stock on a two-for-one basis. All references in this Annual Report reflect such
forward split.
Recent Changes in Business Strategy and Change in Control
Effective March 1, 1999, the Company acquired E-Net Mortgage
Corporation, a Nevada corporation ("E-Net Mortgage"), and City Pacific
International, U.S.A., Inc., a Nevada corporation ("City Pacific"). Pursuant to
the Share Exchange Agreement and Plan of Reorganization, dated March 1, 1999,
regarding E-Net Mortgage, its shareholders received 2,000,000 shares of Common
Stock of the Company in exchange for all of the issued and outstanding stock of
E-Net Mortgage, which became a wholly owned subsidiary of the Company. Pursuant
to the Share Exchange Agreement and Plan of Reorganization, dated March 1, 1999,
regarding City Pacific, its shareholders received 500,000 shares of Common Stock
of the Company in exchange for all of the issued and outstanding stock of City
Pacific, which became a wholly owned subsidiary of the Company. Effective as of
that date, new directors and executive officers, of the Company were elected.
On November 29, 1999, the Company issued Paul Stevens 250,000 shares of
its Common Stock in exchange for Mr. Stevens' transfer to the Company 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, the
Company 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, the
Company issued its 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, Inc. (previously known as City
Pacific), the other communications entity then owned by the Company.
On March 1, 2000, the Company sold VPNCOM.Net, Inc., 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 Company
Common Stock owned by him.
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On January 12, 2000, as revised on April 12, 2000, the Company 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"). The Company 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, the Company acquired AMRES and Bravo Real Estate.
Pursuant to the Amended and Restated Purchase Agreement, the Company issued 7.5
million shares of Common Stock to EMB, paid $1,595,000, and issued its
promissory note in the initial amount of $2,405,000, and AMRES and Bravo Real
Estate became wholly owned subsidiaries of the Company. As of July 28, 2000, the
remaining principal balance of the promissory note was $1,066,022.
On February 11, 2000, the Company executed a Membership Interest
purchase agreement (the "Titus Purchase Agreement") for the acquisition of Titus
and issued 100,000 shares of its 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 its Common Stock to Scott A. Presta, in
their capacities as the owner-members of Titus. Upon closing, Titus became a
wholly owned subsidiary of the Company.
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 the 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, Michael Roth and Jean Oliver, the sole remaining officers and
directors of prior management, resigned their remaining positions with the
Company. On that date, Mr. Presta, an executive officer and director of Titus,
was elected a Director and Secretary of the Company and James M. Cunningham,
President of LoanNet Mortgage, Inc., a Kentucky corporation ("LoanNet"), was
elected a Director of the Company. On June 26, 2000, Kevin Gadawski was elected
Acting Chief Financial Officer of the Company. The Company and Mr. Gadawski, an
independent consultant, expect that he will become an employee of the Company on
or before August 31, 2000.
On February 14, 2000, the Company 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, the Company issued
250,000 shares of its Common Stock to the selling shareholders of LoanNet, which
became a subsidiary of the Company. As of the closing of the transaction,
LoanNet also had 400
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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, the Company 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, the Company issued
24,000 shares of Common Stock of the Company to the selling shareholders of
ExpiDoc, which became a wholly owned subsidiary of the Company. As of the
closing of the acquisition, the Company entered into management and consulting
agreements with ExpiDoc's owners and management, including Messrs. Rinehart and
Presta.
Operations as a Residential Mortgage Lender
GENERAL.
The Company, through its wholly owned subsidiary, E-Net Mortgage, had,
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.
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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 $2,000,000 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 the Company. For
certain mortgage loans which may be subject to a mortgage pool insurance policy,
the Company may delegate to the issuer of the mortgage pool insurance policy the
responsibility of underwriting such mortgage loans, in accordance with the
Company's credit appraisal and underwriting standards. In addition, the Company
may delegate to one or more lenders the responsibility of underwriting mortgage
loans offered to the Company by such lenders, in accordance with the Company's
credit, appraisal and underwriting loans.
The Company's 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, the Company 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, mortgage loans may be made by the Company 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 would otherwise be required by the Company.
Currently, only mortgage loans with certain loan-to-value ratios will qualify
for the Limited Documentation Origination Program. If the mortgage loan
qualifies, the Company waives some of its documentation requirements and
eliminates 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.
The Company's underwriting standards generally follow guidelines
acceptable to FNMA ("Fannie Mae") and FHLMC ("Freddie Mac"). The Company's
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.
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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". The
Company's 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 the Company against any loss
or liability incurred by the Company 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 the borrower to the Company. Upon the
breach of any misrepresentation or warranty made by a borrower, the Company may
require the mortgage broker to repurchase the related mortgage loan.
TITLE INSURANCE POLICIES.
The Company 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 the Company and its 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.
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
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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.
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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 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
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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 its 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 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.
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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.
The Company's 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:
CUSTOMER EDUCATION AND TRAINING.
The Company offers 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.
SYSTEM MAINTENANCE AND SUPPORT.
The Company offers 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.
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 July 28, 2000, the Company marketed and sold its mortgage banking
services primarily through a direct sales force based in Costa Mesa, California.
The Company's sales and marketing organization consisted of approximately 35
employees as of April 30, 2000. The Company markets its mortgage loan products
through its 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. The sales
efforts of the Company to market its Net Branch opportunities are located
primarily in the Company's Costa Mesa, California headquarters office.
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Competition
The Company faces 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 real estate
investment trusts. Many of the Company's competitors have greater financial
resources than the Company.
Proprietary Rights and Licensing
The Company's success is dependent, to a degree, upon proprietary
technology. The Company may rely on a combination of copyright and trademark
laws, trade secrets, confidentiality procedures and contractual provisions with
its employees, consultants and business partners to protect its proprietary
rights. The Company may seek to protect its electronic mortgage product delivery
systems, documentation and other written materials under trade secret and
copyright laws, which afford only limited protection. Despite the Company's
efforts to protect its proprietary rights, unauthorized parties may attempt to
copy aspects of the Company's systems or to obtain and use information that the
Company regards as proprietary. While the Company is not aware that any of its
systems infringe upon the proprietary rights of third parties, there can be no
assurance that third parties will not claim infringement by the Company with
respect to current or future products. Certain components of the electronic
mortgage products delivery system currently employed by the Company are not
proprietary to the Company and other competitors may acquire such components and
develop similar or enhanced systems for the electronic delivery of mortgage
products to mortgage brokers and borrowers.
In addition, the Company relies on certain software that it licenses
from third parties, including software which is used in conjunction with the
Company's mortgage products delivery systems. There can be no assurance that
such firms will remain in business, that they will continue to support their
products or that their products will otherwise continue to be available to the
Company on commercially reasonable terms. The loss or inability to maintain any
of these software or data licenses could result in delays or cancellations in of
contracts with Net Branch operations until equivalent software can be identified
and licensed or developed and integrated with the Company's product offerings.
Any such delay or cancellation could materially adversely affect the Company's
business, financial condition or results of operations.
Environmental Matters
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 may acquire 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
11
<PAGE>
claims by third parties based on damages and costs resulting from environmental
contamination emanating from such property.
Trade Names and Service Marks
The Company intends to file various applications to register its
service marks on the principal register of the United States Patent and
Trademark Office. The Company intends to register its service marks in such
states as it deems necessary and desirable.
The Company will devote substantial time, effort and expense toward
developing name recognition and goodwill for its trade names for its operations.
The Company intends to maintain the integrity of its trade names, service marks
and other proprietary names against unauthorized use and to protect the
licensees' use against claims of infringement and unfair competition where
circumstances warrant. Failure to defend and protect such trade name and other
proprietary names and marks could adversely affect the Company's sales of
licenses under such trade name and other proprietary names and marks. The
Company knows of no current materially infringing uses.
Employees
As of April 30, 2000, the Company employed a total of 79 persons. Of
the total, seven officers and employees were employed at the principal executive
offices of the Company in Costa Mesa, California, of whom one was engaged in
sales and marketing, one was in investor relations and compliance, and five were
in finance and administration. There were 72 employees of the Company's
subsidiaries, of whom 34 were engaged in sales and marketing and 38 in finance
and administration. None of the Company's employees is represented by a labor
union with respect to his or her employment by the Company.
ITEM 2. DESCRIPTION OF PROPERTY.
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: 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.
The Company may also hold real estate for sale from time to time as a
result of its foreclosure on mortgage loans that may become in default.
12
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
The Company is not engaged in any legal proceedings other than routine
litigation in the ordinary course of business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) Special Meeting of Stockholders
The Company held a Special Meeting of Stockholders on February 29, 2000
at the Marriott Suites Hotel, at 500 Anton Blvd., Costa Mesa,
California, at 2:30 p.m., PST.
(b) Not applicable.
(c) Items Voted Upon by Stockholders of the Registrant.
The following matters were voted upon by the stockholders of
the Company. The number of votes cast for and against are set
forth below (as well as abstentions and broker non-votes):
Votes Against Broker
Subject Votes For or Withheld Abstentions Non-Votes
------------------------------------------------------------------------------
Increase in number
Of authorized
Shares of Common
Stock from
20,000,000 to
100,000,000 5,781,653 2,100 -0- 4,437,784
Ratification of a
3:2 Stock split 117,394 5,666,359 -0- 4,437,784
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market for Common Equity
The Common Stock of the Company is currently quoted on the OTC Bulletin
Board, under the symbol "ENNT".
When the trading price of the Company's Common Stock is below $5.00 per
share, the Common Stock is considered to be "penny stock" that are subject to
rules promulgated by the Securities and Exchange Commission (Rule 15g-1 through
15g-9) under the Securities Exchange Act of 1934. These rules impose significant
requirements on brokers under these circumstances, including: (a) delivering to
customers the Commission's standardized risk disclosure document;
13
<PAGE>
(b) providing to customers current bid and offers; (c) disclosing to customers
the brokers-dealer and sales representatives compensation; and (d) providing to
customers monthly account statements.
For several years prior to March of 1999, the market price of the
Common Stock of the Company was either nominal or non-existent because the
Company had no substantial assets and had little or no operations. However,
after the Company entered into an acquisition agreement regarding the purchase
of certain assets of e-Net Mortgage and City Pacific in March 1999, the Common
Stock of the Company began trading. Following the execution of the initial
agreement with EMB to acquire certain of its assets, in January 2000, more
active trading of the Company's Common Stock commenced.
The following table sets forth the range of high and low closing bid
prices per share of the Common Stock as reported by National Quotation Bureau,
L.L.C., for the periods indicated.
High Low
Fiscal Year Ended April, 1999:
-----------------------------
1st Quarter ............................. $ .01 $ .01
2nd Quarter ............................. $ .01 $ .01
3rd Quarter ............................. $ .02 $ .01
4th Quarter ............................. $ 6.00 $ .02
Fiscal Year Ended April 30, 2000:
--------------------------------
1st Quarter ............................. $ 7.50 $ 2.00
2nd Quarter ............................. $ 7.00 $ 1.19
3rd Quarter ............................. $12.88 $ 1.00
4th Quarter ............................. $14.50 $ 3.25
The Company is unaware of the factors which resulted in the significant
fluctuations in the bid prices per share during the periods being presented,
although it is aware that there is a thin market for the Common Stock, that
there are frequently few shares being traded and that any sales significantly
impact the market.
On July 28, 2000, the closing bid and asked prices of the Common Stock
of the Company were $1.63 and $1.69 per share, respectively. The foregoing
prices represent inter-dealer quotations without retail mark-up, mark-down, or
commission, and may not necessarily represent actual transactions.
As of July 28, 2000, there were 21,035,484 shares of Common Stock
issued and outstanding which were held by approximately 65 holders of record and
approximately 1,100 beneficial holders. As of July 28, 2000, there were no
shares of Class A Convertible Preferred Stock or Class B Convertible Preferred
Stock outstanding and 20,000 shares of Series C Convertible Preferred Stock.
Dividends
The Company has not paid any dividends on its Common Stock and does not
expect to do so in the foreseeable future. The Company intends to apply its
earnings, if any, in expanding its
14
<PAGE>
operations and related activities. The payment of cash dividends in the future
will be at the discretion of the Board of Directors and will depend upon such
factors as earnings levels, capital requirements, the Company's financial
condition and other factors deemed relevant by the Board of Directors, and is
subject to the dividend rights of the Series C Convertible Preferred Stock. In
addition, the Company's ability to pay dividends may be limited under future
loan agreements of the Company which restrict or prohibit the payment of
dividends.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Except for historical information, the materials contained in this
Management's Discussion and Analysis are forward-looking (within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934) and involve a number of risks and uncertainties. These
include the Company's historical losses, the need to manage its growth, general
economic downturns, intense competition in the financial services and mortgage
banking industries, seasonality of quarterly results, and other risks detailed
from time to time in the Company's filings with the Securities and Exchange
Commission. Although forward-looking statements in this Annual Report reflect
the good faith judgment of management, such statements can only be based on
facts and factors currently known by the Company. Consequently, forward-looking
statements are inherently subject to risks and uncertainties, actual results and
outcomes may differ materially from the results and outcomes discussed in the
forward-looking statements. Readers are urged to carefully review and consider
the various disclosures made by the Company in this Annual Report, as an attempt
to advise interested parties of the risks and factors that may affect the
Company's business, financial condition, and results of operations and
prospects.
Results of Operations
The consolidated statement of operations for the ten months ended April
30, 2000, includes the operating results of Titus, LoanNet, and ExpiDoc from the
dates of acquisition, and the Company from April 12, 2000.
TEN MONTHS ENDED APRIL 30, 2000, COMPARED TO THE YEAR ENDED JUNE 30,
1999.
REVENUE.
Revenue increased by $1.11 million or 31% to $4.69 million during the
ten months ended April 30, 2000, from $3.55 million during the year ended June
30, 1999, primarily due to the development and growth of the "net branch"
program of AMRES. Revenues from Titus, ExpiDoc, and LoanNet amounted to less
than 10% of total revenues.
At the start of fiscal 1999, AMRES operated branch offices in Long
Beach and Colton, California. In January of 1999, the Menifee, California,
office was opened and in April of 1999, the Costa Mesa, California, office was
opened. The addition of these two branch offices has helped expand the volume of
loans closed each month from approximately an average of 55 loans per month in
1999 to an average of 80 loans per month in 2000. This growth is expected to
continue as evidenced by the closing of over 130 loans in the month of June
2000.
15
<PAGE>
The establishment and growth of the net branch program has also
positively impacted revenues. From its inception to the date of this filing, the
net branch program has steadily grown to its current count of 83 net branches.
Management believes that the net branch operations will continue to be a viable
growth vehicle in the future.
Another reason that revenues have increased relates to the inclusion of
additional states in which AMRES is licensed to conduct business. AMRES has
steadily increased the number of states in which it is licensed to conduct
business (23 states, as of April 30, 2000, in comparison with one state, as of
the start of the 1999 fiscal year).
COST OF REVENUE AND GROSS PROFIT.
The cost of revenue increased by $1.11 million or 48% to $3.41 million
during the ten months ended April 30, 2000, from $2.30 million during the year
ended June 30, 1999. The cost of revenue as a percentage of revenue increased by
nearly 8% to approximately 72% during the ten months ended April 30, 2000, in
comparison with the 1999 fiscal year. This increase in costs, or reduction in
gross profit percentage from 35% to approximately 27%, is directly attributable
to the increased volume of transactions closed with the advent of the net branch
program. AMRES earns an average net commission, based on loan value, of
approximately 0.6% for loans funded by its company-owned branches. Under the net
branch arrangement, AMRES earns a lower percentage commission on the loan value,
typically 0.38%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.
Selling, general and administrative expenses totaled $3.06 million and
$1.30 million for the ten months ended April 30, 2000, and the year ended June
30, 1999, respectively. Included in selling, general and administrative expense
for the ten months ended April 30, 2000, is a nonrecurring charge in connection
with the conversion of the B Preferred into Common Stock for the incremental
value of $1.0 million, based on the difference between the carrying value of the
B Preferred and the fair value of the Common Stock of $2.0 million, since the
holders are key management of the ongoing operations. Also included in selling,
general and administrative expense during the ten months ended April 30, 2000,
are the operating results of the newly acquired businesses for which selling,
general and administrative expenses totaled $0.4 million. As a percentage of
revenue, selling, general and administrative expenses increased by 28.5% to
65.2% for the ten months ended April 30, 2000 from 36.7% for the year ended June
30, 1999.
YEAR ENDED JUNE 30, 1999, COMPARED TO THE PERIOD FROM MARCH 13, 1998
(INCEPTION), THROUGH JUNE 30, 1998.
REVENUE AND COST OF REVENUE.
There was no revenue and, as such, no cost of revenue for the period
from Inception through June 30, 1998. During this period, the Company incurred
minimal costs associated with its incorporation and start-up. For the year ended
June 30, 1999, revenue and cost of revenue were $3.5 million and $2.3 million,
respectively.
16
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.
Selling, general and administrative expenses were minimal during the
period from Inception through June 30, 1998 and were associated with the
Company's incorporation and start-up. During the year ended June 30, 1999,
selling, general and administrative expenses totaled $1.30 million and related
primarily to costs of opening and maintaining the four branch offices, the
commencement of the net branch operations in January of 1999, and the costs
associated with employee compensation.
Liquidity and Capital Resources
At April 30, 2000, the Company had a working capital deficit of $2.8
million, compared to a deficiency of $80,000 at June 30, 1999. On May 2, 2000,
we completed a private placement raising a total of $2.0 million, less costs of
$300,000. These funds were used to finance our current operations and reduce
our indebtedness to EMB to approximately $2.4 million (as of July 31, 2000,
$1.066 million). We require financing to meet its cash requirements to service
our obligations and fund future operating cash flow deficiencies. These factors
raise substantial doubt about our ability to continue as a going concern and no
adjustments have been made to these consolidated financial statements as a
result of these uncertainties. The accompanying consolidated financial
statements have been prepared assuming we will continue as a going concern. Our
cash requirements depend on several factors, including, but not limited to, the
following:
o The pace at which all subsidiaries continue to grow, become
self supporting, and begin to generate positive cash flow;
o The cash portion of future acquisition transactions, if any;
and
o The ability to obtain additional market share for our
services.
Management is seeking one or more additional private placements under
Regulation D of the Securities Act of 1933 totaling three million dollars to
repay its current obligations and $1.5 million to provide working capital for
operations. If capital requirements vary materially from those currently
planned, we may require additional financing sooner than anticipated. We have no
commitments for any additional financing, and there can be no assurance that any
such commitment can be obtained on favorable terms, if at all. No adjustments
have been made to the carrying value of assets or liabilities as a result of the
uncertainty about obtaining cash required to obligations as they become due.
If capital requirements vary materially from those currently planned,
we may require additional financing sooner than anticipated. We have no
commitments for any additional financing, and there can be no assurance that any
such commitment can be obtained on favorable terms, if at all.
Any additional equity financing may be dilutive to our stockholders,
and debt financing, if available, may involve restrictive covenants with respect
to dividends, raising capital and other financial and operational matters, which
could restrict our operations or finances. If we are unable to obtain additional
financing as needed, we may be required to reduce the scope of our operations or
our anticipated expansion, which could have a material adverse effect on our
financial condition, results of operations, and cash flows.
17
<PAGE>
As we continue our growth plan into the next fiscal year, we will
require significant cash demands and aggressive cash management. In meeting our
objectives in the past, we raised significant funds through a combination of
issuances of common stock, preferred stock, and debt placements with affiliates.
Cash and cash equivalents were $285,583 at April 30, 2000, compared to
$105,317 at June 30, 1999. Cash outflows from operating activities for the ten
months ended April 30, 2000, totaled $702,248, compared to cash outflows of
$26,792 for the year ended June 30, 1999, and were due to the operating loss
caused by higher selling, general and administrative expenses. Cash flows from
operating activities for the period from Inception to June 30, 1998, were not
significant.
Cash inflows from investing activities for the ten months ended April
30, 2000, totaled $178,188, compared with cash outflows from investing
activities of $119,321 for the year ended June 30, 1999. This increase was
primarily due to cash received with our purchases of Titus, LoanNet, ExpiDoc,
and AMRES resulting in a total of $160,419. 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.
Cash generated from financing activities totaled $704,326 during the
ten months ended April 30, 2000, compared to $160,000 for the year ended June
30, 1999, and $95,000 for the period from Inception to June 30, 1998. The
increases during the earlier periods were due to proceeds received from related
parties. The increase during the ten months ended April 30, 2000, was primarily
due to the issuance of Series C Convertible Preferred Stock for total net
proceeds of approximately $1.7 million. Additionally, we received $459,326 from
related parties. These increases were offset by payments on notes to related
parties of approximately $1.53 million.
Inflation
Inflation rates in the United States have not had a significant impact
on the Company's operating results for the three years ended April 30, 2000.
Income Taxes
As of April 30, 2000, we had approximately $1.9 million and $930,000 of
Federal and state net operating loss carryforwards, respectively, available to
offset future taxable income. The net deferred tax assets at April 30, 2000, and
1999, before considering the effects of the Company's valuation allowance
amounted to approximately $710,000 and $25,000, respectively. We have provided
an allowance for substantially all the net deferred tax assets as management has
not been able to determine that it is more likely than not that the deferred tax
asset will be realized through future operations. In addition, included in the
net operating loss carryforwards are approximately $471,000 acquired in the
acquisitions discussed above. The Federal and state tax codes provide for
restrictive limitations on the annual utilization of net operating loss
carryforwards to offset taxable income when the stock ownership of a company
significantly changes. In light of the Company's significant stock activity,
certain of the net operating loss carryforwards are subject to such annual
limitations.
18
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
Information with respect to this Item is set forth in "Index to
Financial Statements."
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On March 1, 2000, the Company dismissed its independent accountants,
Cacciamatta Accountancy Corporation. The report of Cacciamatta Accountancy
Corporation for the fiscal year ended April 30, 1999 contained no adverse
opinion, disclaimers of opinion nor was it modified as to uncertainty, audit
scope or accounting principles. The decision to dismiss the firm of Cacciamatta
Accountancy Corporation was made by the Board of Directors of the Company. At no
time during the engagement of Cacciamatta Accountancy Corporation as independent
accountants for the Company were there any disagreements, whether or not
resolved, on any matter of accounting principles or practices, financial
statement disclosure or auditing scope of procedure. Disclosure of this
dismissal was first contained in the Current Report on Form 8-K dated March 1,
2000, which was filed by the Company with the Securities and Exchange Commission
on March 8, 2000. On March 1, 2000, the Company, as required by Item 304(a)(3)
of Regulation S-B, advised Cacciamatta Accountancy Corporation of this
disclosure. On March 24, 2000, the Company filed a Current Report on Form 8-K/A
with the Securities and Exchange Commission. Attached as an exhibit to that
filing was the response of Cacciamatta Accountancy Corporation, dated March 8,
2000, concerning its dismissal as the Company's principal accountant.
On March 1, 2000, the Company engaged the firm of McKennon Wilson &
Morgan LLP, of Irvine, California, as independent accountants for the Company.
Prior to March 1, 2000, neither the Company, nor anyone on its behalf, had
consulted with McKennon Wilson & Morgan LLP concerning the accounting principles
of any specific completed or contemplated transaction, any type of audit opinion
on the Company's financial statements nor any other material factor which might
be considered by the Company in reaching a decision as to any accounting,
auditing or financial reporting issue. Disclosure of this engagement was first
contained in the Current Report on Form 8-K dated March 1, 2000, which was filed
by the Company with the Securities and Exchange Commission on March 8, 2000.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.
Directors and Executive Officers
NAME(1)(2) AGE POSITION
---------- --- --------
James M. Cunningham 57 Director
Kevin Gadawski 32 Principal Accounting and Acting Chief Financial
Officer
Scott A. Presta 28 Director and Secretary
Vincent Rinehart 50 Director, President, and Chief Executive Officer
James E. Shipley 64 Chairman of the Board of Directors
19
<PAGE>
(1) The Company presently has no executive committee, nominating committee
or audit committee of the Board of Directors.
(2) The officers of the Company hold office until their successors are
elected and qualified, or until their death, resignation or removal.
There are no family relationships between any directors or executive
officers of the Company. The background and principal occupations of each
director and executive officer of the Company are as follows:
Mr. Cunningham has been a director of the Company since May 24, 2000.
He held the position of Vice Chairman of the Board of Mercantile Banc and Trust,
President of FSA Holdings, and CEO of Mercantile Bank in Dallas, Texas. In
addition, Mr. Cunningham has served in the capacity as an advisory director and
President and Director on the Boards of several financial and mortgage banking
entities. He received a Bachelor of Science Commerce Degree from St. Louis
University with majors in Finance and Accounting and attended the Stanford
University Mortgage Banking School through the Mortgage Bankers Association.
Mr. Gadawski has been the Acting Chief Financial Officer since
June 26, 2000. From May of 1995 to June of 2000, he held various financial
management positions at both the corporate and divisional levels of Huffy
Corporation, a public company in Miamisburg, Ohio. Mr. Gadawski, a Certified
Public Accountant, was employed for four years in the audit practice of KPMG
Peat Marwick, LLP, in Cincinnati, Ohio.
Mr. Presta has been a director and the Secretary of the Company since
April 12, 2000. A former member of the National Association of Securities
Dealers, Inc., he was the licensed General Securities Principal of Pacific Coast
Financial Services, Inc., ("Pacific Coast"), a brokerage firm in Long Beach,
California, from October of 1993 through November of 1995. Following his tenure
with the brokerage firm, Mr. Presta formed a series of companies that were
involved in the real estate and oil and gas industries, one of which, Titus, was
acquired by the Company. Mr. Presta attended California State University Long
Beach from 1989 through Spring of 1992, when he became employeed by Pacific
Coast.
Mr. Rinehart has been a director and the President and Chief Executive
Officer of the Company since April 12, 2000. He also serves in the following
capacities: Chairman of the Board of AMRES (commencing in 1997); Chief Executive
Officer of Firstline Mortgage, Inc., a HUD-approved originator of FHA, VA, and
Title 1 loans (commencing in 1985); and Chairman of the Board of Firstline
Relocation Services, Inc., a three office enterprise that provides real estate
sales, financing, destination, and departure services to Fortume 500 companies
(commencing in 1995). Mr. Rinehart received his B.A. in Business Administration
from California State University at Long Beach in 1972.
Mr. Shipley has been a director and Chairman of the Board of the
Company since April 12, 2000. Until June 21, 2000, he served as a director of
EMB (commencing January 15, 1996), as President and Chief Executive Officer
(commencing April 29, 1996), and as Principal Financial and Accounting Officer
(commencing March 1, 1999). From 1993 to July 2, 1998, Mr. Shipley was a
director and President of Sterling Alliance Group, Ltd., an affiliate of EMB,
which sold substantially all of its assets and operations to EMB in exchange for
shares of its common stock. He was the Managing Director of EMB Mortgage
Corporation from October of 1993 to April of 1996. Mr. Shipley has served as the
Managing Director of ERA Sterling Real Estate, a real estate brokerage firm,
from 1987 to 1998. He received a Bachelor of Science degree from Eastern
Illinois University in 1960.
20
<PAGE>
Compliance with Section 16(a) of Securities Exchange Act of 1934
To the best of the knowledge of the Company, its directors, officers
and 10% beneficial owners have filed all reports in compliance with the
reporting requirements of Section 16(a) of the Securities Exchange Act of 1934
during the fiscal year ended April 30, 2000.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth all compensation received for services
rendered to the Company in all capacities, for the last three fiscal years ended
April 30, 2000, by (i) the Company's former and current Chief Executive
Officers, and (ii) all other executive officers whose aggregate compensation
during fiscal 2000 exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
---------------
ANNUAL COMPENSATION NUMBER OF
------------------------------------------- SECURITIES
OTHER UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION OPTIONS/SARS
------------------------------------- -------- --------- --------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Michael Roth (1) 2000 $26,600 -0- $221,408 100,000
former Chief Executive Officer 1999 -0- -0- -0- -0-
1998 N/A N/A -0- N/A
Vincent Rinehart (2) 2000 $127,444 -0- $11,907 -0-
Chief Executive Officer and President 1999 N/A N/A N/A N/A
1998 N/A N/A N/A N/A
Jean Oliver (3) 2000 $39,188 -0- $126,103 50,000
former Secretary/Treasurer and Controller 1999 -0- -0- -0- -0-
1998 N/A N/A N/A N/A
Theodore Bohrer (4) 2000 $22,500 -0- $167,966 75,000
former Vice President 1999 -0- -0- -0- -0-
1998 N/A N/A N/A N/A
</TABLE>
--------------------
(1) In March of 1999, Mr. Roth was appointed Chief Executive Officer and
President of the Company. Other compensation consists of the fair
market value of the 138,381 shares of the Company's Common Stock issued
to Mr. Roth during the fiscal year indicated. In July of 1999, Mr. Roth
was granted options to purchase up to 100,000 shares of the Company's
Common Stock at an exercise price of $1.50 per share, which options
were cancelled in connection with the issuance of such 138,381
shares.
(2) In April of 2000, Mr. Rinehart was appointed Chief Executive Officer
and President of the Company. The compensation referenced in the above
chart relates to compensation earned during the relevant year as chief
Executive Officer of AMRES and includes non-salary compensation of
$11,907.
(3) In April of 1999, Ms. Oliver was appointed Secretary/Treasurer and
Controller of the Company. Other compensation consists of the fair
market value of the 65,364 shares of the Company's Common Stock issued
to Ms. Oliver during the fiscal year indicated. In connection with
her appointment, she was granted options to purchase up to 50,000
shares of the Company's Common Stock at an exercise price of $1.50
per share, which options were cancelled in connection with the
issuance of such 65,364 shares.
(4) In April of 1999, Mr. Bohrer was appointed Vice President of the
Company. Other compensation consists of the fair market value of
the 103,940 shares of the Company's Common Stock issued to Mr.
Bohrer during the fiscal year indicated. In connection with his
appointment, he was granted options to purchase up to 75,000 shares
of the Company's Common Stock at an exercise price of $1.50 per
share, which options were cancelled in connection with the
issuance of such 103,940 shares.
21
<PAGE>
2000 Stock Compensation Program
The Company has reserved shares of Common Stock for issuance under its
2000 Stock Compensation Program (the "Plan"), as amended. At April 30,
2000, no options or stock bonuses covering shares of Common Stock had been
granted and issued under the Plan to any employees, officers or directors.
During fiscal year 2000, the Company issued 687,908 shares of common stock as
compensation and stock bonuses to employees and in consideration of various
consulting agreements with third parties. These shares were issued
pursuant to that certain Registration Statement on Form S-8, as amended, which
became effective on January 26, 2000.
Board Compensation
Directors of the Company receive no compensation as a Director but they
are entitled to reimbursement for their travel expenses. The Company does not
pay additional amounts for committee participation or special assignments of the
Board of Directors.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information known to the Company
regarding the beneficial ownership of the Company's Common Stock as of July 25,
2000, by (a) each beneficial owner of more than five percent of the Company's
Common Stock, (b) each director of the Company, and (c) all directors and
executive officers of the Company as a group. Except as otherwise indicated,
each person has sole voting and investment power with respect to all shares
shown as beneficially owned, subject to community property laws where
applicable.
<TABLE>
<CAPTION>
BENEFICIAL OWNER (1) SHARES BENEFICIALLY OWNED PERCENTAGE BENEFICIALLY OWNED
-------------------- ------------------------- -----------------------------
<S> <C> <C>
EMB Corporation (2)........................ 7,500,000 36.0%
H-Group LLC (3)............................ 1,000,000 4.8%
Host Hospitality Management (3)............ 1,000,000 4.8%
Kingstreet Guaranty Inc. (3)............... 1,000,000 4.8%
M-Corp Financial (3)....................... 1,000,000 4.8%
James M. Cunningham (4, 5)................. 71,000 *
Scott A. Presta (4)........................ 244,500 1.2%
Vincent Rinehart (4, 6).................... 1,067,500 5.12%
James W. Shipley (4, 7).................... -0- *
All directors and executive officers
as a group (5 persons) (8) ................ 1,394,000 6.7%
</TABLE>
----------
* Less than one percent of the outstanding shares of Common Stock.
(1) Except as otherwise noted, it is believed by the Company that all
persons have full voting and investment power with respect to the
shares, except as otherwise specifically indicated. Under the rules of
the Securities and Exchange Commission, a person (or group of persons)
is deemed to be a "beneficial owner" of a security if he or she,
directly or indirectly, has or shares the power to vote or to direct
the voting of such security, or the power to dispose of or to direct
the disposition of such security. Accordingly, more than one person may
be deemed to be a beneficial owner of the same security. A person is
also deemed to be a beneficial owner of any security which that person
has the right to acquire within 60 days, such as warrants or options to
purchase the Common Stock of the Company.
22
<PAGE>
(2) Certain directors and executive officers of the Company are
shareholders of EMB. Its address is: 10159 E. 11th Streeet, Suite
415, Tulsa, Oklahoma 74128.
(3) This entity is solely owned by Michael Roth, fomerly a director and
President of the Company. Its address is: 12851 Haster Street, #10-B,
Garden Grove, California 90804.
(4) The person's address is: 3200 Bristol Street, Suite 700, Costa Mesa,
California 92626.
(5) Does not include approximately 25,000 shares of the Company's Common
Stock owned of record by EMB, which are potentially issuable to Mr.
Cunningham upon a dividend distribution of 7,500,000 shares of the
Company's Common Stock owned of record by EMB to its shareholders. Mr.
Cunningham is a shareholder of EMB.
(6) Represents shares of the Company owned by AMRES, an entity beneficially
owned by Mr. Rinehart, but does not include approximately 12,555 shares
of the Company's Common Stock owned of record by EMB and 207,960
shares of the Company's Common Stock owned of record by EMB, all of
which are potentially issuable to AMRES, upon a dividend
distribution of 7,500,000 shares of the Company's Common Stock
owned of record by EMB to its shareholders. Mr. Rinehart and
AMRES are shareholders of EMB.
(7) Does not include approximately 12,555 shares of the Company's Common
Stock owned of record by EMB, which are potentially issuable to Mr.
Shipley upon a dividend distribution of 7,500,000 shares of the
Company's Common Stock owned of record by EMB to its shareholders. Mr.
Shipley is a shareholder of EMB.
(8) Includes all of the shares of Common Stock set forth in the chart and
the shares of Common Stock owned by an executive officer who is not a
director of the Company. Does not include any of the excluded shares
referenced in footnotes 5, 6, and 7.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Effective March 1, 1999, the Company acquired E-Net Mortgage and City
Pacific. Pursuant to the Share Exchange Agreement and Plan of Reorganization,
dated March 1, 1999, regarding E-Net Mortgage, its shareholders received
2,000,000 shares of Common Stock of the Company in exchange for all of the
issued and outstanding stock of E-Net Mortgage, which became a wholly owned
subsidiary of the Company. Pursuant to the Share Exchange Agreement and Plan of
Reorganization, dated March 1, 1999, regarding City Pacific, its shareholders
received 500,000 shares of Common Stock of the Company in exchange for all of
the issued and outstanding stock of City Pacific, which became a wholly owned
subsidiary of the Company.
On November 29, 1999, the Company issued Mr. Stevens 250,000 shares of
its Common Stock in exchange for his transfer to the Company of the Stevens' EMB
Shares. On December 22, 1999, and in connection with that exchange, the Company
entered into agreements with DIS, and EMB to acquire their respective 50%
interests in VPN Partners. In consideration of the purchase of the interests,
the Company issued 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.
23
<PAGE>
On March 1, 2000, the Company sold VPNCOM.Net, Inc., 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 Company
Common Stock owned by him.
On February 11, 2000, the Company executed the Titus Purchase
Agreement for the acquisition of Titus and issued 100,000 B Preferred shares to
AMRES Holdings, a company controlled by Mr. Rinehart, and 300,000 shares of its
Common Stock to Mr. Presta, in their capacities as the owner-members of Titus.
In April of 2000, AMRES Holdings was issued 1,000,000 shares of the Company's
common Stock in exchange for the cancellation of 100,000 B Preferred shares.
On February 14, 2000, the Company acquired all of the common stock of
LoanNet. Pursuant to the Stock Purchase Agreement, dated February 14, 2000, the
Company issued 250,000 shares of its Common Stock to the selling shareholders of
LoanNet, which became a subsidiary of the Company.
On March 17, 2000, the Company acquired all of the common stock of
ExpiDoc. Pursuant to the Stock Purchase Agreement, dated February 14, 2000 , the
Company issued 24,000 shares of Common Stock of the Company to the selling
shareholders of ExpiDoc, which became a wholly owned subsidiary of the Company.
As of the closing of the acquisition, the Company entered into management and
consulting agreements with ExpiDoc's owners and management, including Messrs.
Rinehart and Presta.
On April 12, 2000, the Company acquired AMRES and Bravo Real Estate.
Pursuant to the Amended and Restated Purchase Agreement, the Company issued 7.5
million shares of Common Stock to EMB, paid $1,750,000, and issued its
promissory note in the initial amount of $2,250,000, and AMRES and Bravo Real
Estate became wholly owned subsidiaries of the Company.
On April 13, 2000, an officer loaned the Company $300,000, due April
12, 2001, together with interest at 10% per annum. Subsequent to April 30, 2000,
the note, including accrued interest, was settled with the issuance of 150,000
shares of Common Stock.
ITEM 13. EXHIBITS AND REPORTS ON FORM 10-KSB.
(a) EXHIBITS:
2.1 Share Exchange Agreement and Plan of Reorganization dated
March 1, 1999 between the Company and E-Net Mortgage
Corporation is incorporated by reference to Exhibit 2.3 to the
Annual Report on Form 10-KSB of the Registrant for the fiscal
year ended April 30, 1999, filed on August 13, 1999 (the "1999
10-KSB").
2.2 Share Exchange Agreement and Plan of Reorganization dated
March 1, 1999 between the Company and City Pacific
International, U.S.A., Inc., is incorporated by reference to
Exhibit 2.4 to the 1999 10-KSB.
3.1 Certificate and Articles of Incorporation, as filed with the
Nevada Secretary of State on August 18, 1988 is incorporated
by reference to the Exhibits to the Registration Statement on
Form 10-SB of the Registrant filed on September 1, 1994.
24
<PAGE>
3.2 Certificate of Amendment to Articles of Incorporation, as
filed with the Nevada Secretary of State on July 29, 1997, is
incorporated by reference to Exhibit 3.3 to the Annual Report
on Form 10-KSB of the Registrant for the fiscal year ended
April 30, 1997, filed on January 4, 1999.
3.3 Certificate of Amendment to Articles of Incorporation, as
filed with the Nevada Secretary of State on February 19, 1999,
is incorporated by reference to Exhibit 3.4 to the 1999
10-KSB.
3.4 Certificate of Amendment to Articles of Incorporation, as
filed with the Nevada Secretary of State on May 12, 1999, is
incorporated by reference to Exhibit 3.5 to the 1999 10-KSB.
3.5 Certificate of Amendment to Articles of Incorporation, as
filed with the Nevada Secretary of State on January 18, 2000,
are incorporated by reference to Exhibit 3.1 to the Current
Report on Form 8-K of the Registrant filed on January 27, 2000
(the "January 8-K").
3.6* Certificate of Amendment to Articles of Incorporation, as
filed with the Nevada Secretary of State on February 2, 2000.
3.7* Certificate of Amendment to Articles of Incorporation, as
filed with the Nevada Secretary of State on March 3, 2000.
3.8* Amended and Restated By-laws of the Registrant.
4.1* Certificate of Designations, Preferences and Rights of
Class A Convertible Preferred Stock, as filed with the
Nevada Secretary of State on April 7, 2000.
4.2* Certificate of Designations, Preferences and Rights of
Class B Convertible Preferred Stock, as filed with the
Nevada Secretary of State on April 7, 2000.
4.3* Certificate of Designations, Preferences and Rights of
Series C Convertible Preferred Stock, as filed with the
Nevada Secretary of State on April 7, 2000.
10.1 Joint Venture Agreement dated February 25, 1999 between City
Pacific International U.S.A., Inc., and Omnetrix
International, Inc., isincorporated by reference to Exhibit
10.1 to the 1999 10-KSB.
10.2 Limited Partnership Agreement dated July 1, 1999, between the
Registrant and Genesis Residential Healthcare, Inc., is
incorporated by reference to Exhibit 10.2 to the 1999 10-KSB.
10.2a* Termination Notice dated November 8, 1999, between the
Registrant and Genesis Residential Healthcare, Inc.
25
<PAGE>
10.2b* Release of All Claims dated December 2, 1999, between the
Registrant and Genesis Residential Healthcare, Inc.
10.3 Amended Employment Agreement dated March 1, 1999, between the
Registrant and Michael Roth, is incorporated by reference to
Exhibit 10.3 to the Amended Annual Report on Form 10-KSB/A of
the Registrant for the fiscal year ended April 30, 1999, filed
on September 22, 1999 (the "Amended 1999 10-KSB").
10.4 Amended Employment Agreement dated March 1, 1999 between
the Registrant and Theodore A. Bohrer, is incorporated by
reference to Exhibit 10.4 to the Amended 1999 10-KSB/A.
10.5 Amended Employment Agreement dated March 1, 1999 between
the Registrant and Jean Oliver, dated March 1, 1999, is
incorporated by reference to Exhibit 10.5 to the Amended 1999
10-KSB/A.
10.6 Amended Employment Agreement dated March 1, 1999, between City
Pacific International U.S.A., Inc., and E.G. Marchi, is
incorporated by reference to Exhibit 10.6 to the Amended 1999
10-KSB/A.
10.7 Purchase Agreement dated December 22, 1999 between the
Registrant, as purchaser, and Digital Integrated Systems,
Inc., as seller, of 50% interest in VPN.COM JV Partners is
incorporated by reference to Exhibit 10.1 to the January 8-K.
10.8 Purchase Agreement dated December 22, 1999 between the
Registrant, as purchaser, and EMB Corporation, as seller, of
50% interest in VPN.COM JV Partners is incorporated by
reference to Exhibit 10.2 to the January 8-K.
10.9* Agreement for the Purchase/Sale of Corporate Stock, dated
March 1, 2000, between the Registrant and E. G. Marchi.
10.10 Membership Interest Purchase Agreement dated February 11,
2000 between the Registrant, as purchaser, and Scott Presta
and AMRES Holdings LLC, as sellers, of all of the outstanding
stock of Titus Real Estate LLC is incorporated by this
reference to Exhibit 10.0 to the Current Report on Form 8-K of
the Registrant filed on February 25, 2000 (the "February
8-K").
10.11 Stock Purchase Agreement dated February 14, 2000 between
the Registrant, as purchaser, and James M. Cunningham, Joni
Baquerizo and The Mortgage Store LLC, as sellers, of all of
the outstanding common stock of LoanNet Mortgage, Inc. is
hereby incorporated by reference to Exhibit 10.1 to the
February 8-K.
10.12 Stock Purchase Agreement dated March 17, 2000 between the
Registrant, as purchaser, and Tony Tseng and Christina Lee, as
sellers, of all of the outstanding stock of ExpiDoc.com, Inc.,
is hereby incorporated by reference to Exhibit 10.1 to the
Current Report on Form 8-K of the Registrant filed on March
31, 2000 (the "March 8-K").
26
<PAGE>
10.13 Employment Agreement between ExpiDoc.com, Inc., and Tony Tseng
is hereby incorporated by reference to Exhibit 10.2 to the
March 8-K.
10.14 Employment Agreement between ExpiDoc.com, Inc., and Christina
Lee is hereby incorporated by reference to Exhibit 10.3 to the
March 8-K.
10.15 Management Agreement dated March 17, 2000, between
ExpiDoc.com, Inc., and Document Services Management, Inc., is
hereby incorporated by reference to Exhibit 10.4 to the March
8-K.
10.16 Consulting Agreement dated March 17, 2000, between
ExpiDoc.com, Inc., and Scott Presta, is hereby incorporated by
reference to Exhibit 10.5 to the March 8-K.
10.17 Consulting Agreement dated March 17, 2000, between
ExpiDoc.com, Inc., and Vincent Rinehart, is hereby
incorporated by reference to Exhibit 10.6 to the March 8-K.
10.18 Amended and Restated Purchase Agreement dated April 12, 2000,
by and between the Registrant and EMB Corporation, is hereby
incorporated by this reference to Exhibit 10.1 to the Current
Report on Form 8-K of the Registrant filed on April 19, 2000.
10.19 Securities Purchase Agreement, dated April 7, 2000, between
the Registrant and Cranshire Capital, L.P.; The dotCom Fund,
LLC; EURAM Cap Strat. "A" Fund Limited; and Keyway Investments
Ltd. is hereby incorporated by this reference to Exhibit 10.1
to the Current Report on Form 8-K of the Registrant filed
on April 19, 2000, (the "April 8-K").
10.20 Warrant to Purchase Common Stock dated April 7, 2000, issued
to Cranshire Capital, L. P., is hereby incorporated by
reference to Exhibit 10.2 to the April 8-K.
10.21 Warrant to Purchase Common Stock dated April 7, 2000, issued
to The dotCom Fund, LLC, is hereby incorporated by reference
to Exhibit 10.3 to the April 8-K.
10.22 Warrant to Purchase Common Stock dated April 7, 2000, issued
to EURAM Cap Strat. "A" Fund Limited is hereby incorporated by
reference to Exhibit 10.4 to the April 8-K.
10.23 Warrant to Purchase Common Stock dated April 7, 2000, issued
to Keyway Investments Ltd. is hereby incorporated by reference
to Exhibit 10.5 to the April 8-K.
10.24 Registration Rights Agreement dated April 7, 2000 between the
Registrant and Cranshire Capital, L.P.; The dotCom Fund, LLC;
EURAM Cap Strat. "A" Fund Limited; and Keyway Investments
Ltd., is hereby incorporated by reference to Exhibit 10.6 to
the April 8-K.
27
<PAGE>
10.25* Securities Purchase Agreement dated May 2, 2000, between the
Registrant and RBSTB Nominees Limited (A/C) as Trustee of
Jupiter European Special Situations Fund.
10.26* Warrant to Purchase Common Stock dated May 2, 2000, issued to
RBSTB Nominees Limited (A/C) as Trustee of Jupiter European
Special Situations Fund.
10.27* Registration Rights Agreement dated May 2, 2000, between the
Registrant and RBSTB Nominees Limited (A/C) as Trustee of
Jupiter European Special Situations Fund.
16.1 Letter from Kish, Leake & Associates, P.C., resigning as
independent accountant for the Registrant is incorporated by
reference to Exhibit 16 to the Current Report on Form 8-K of
the Registrant filed on September 4, 1996.
16.2 Letter dated March 8, 1999 from Cacciamatta Accountancy
Corporation in response to dismissal as independent
accountants for the Registrant is incorporated by reference to
Exhibit 1` to the Amended Current Report on Form 8-K/A of
the Registrant filed on March 24, 2000.
21.1* Description of the subsidiaries of the Registrant.
27.1* Financial Data Schedule.
(* denotes filed herewith)
(b) REPORTS ON FORM 8-K.
1. The Company filed a Current Report on Form 8-K on
February 25, 2000, reflecting the acquisition of LoanNet
Mortgage, Inc., and Titus Real Estate LLC.
2. The Company filed a Current Report on Form 8-K/A on
February 29, 2000, including the financial statements for the
acquisition of VPN.COM JV Partners.
3. The Company filed a Current Report on Form 8-K on
March 8, 2000, reflecting the change of independent
accountants.
4. The Company filed an Amended Current Report on Form
8-K/A on March 24, 2000, including the response of the former
independent accountants to the Form 8-K originally filed on
March 8, 2000.
5. The Company filed a Current Report on Form 8-K on
March 31, 2000, reflecting the acquisition of ExpiDoc.com,
Inc.
6. The Company filed an Amended Current Report on Form
8-K/A on April 3, 2000, including the financial statements for
the acquisition of VPN.COM JV Partners.
28
<PAGE>
7. The Company filed a Current Report on Form 8-K on
April 19, 2000, reflecting the sale of shares of Series C
Convertible Preferred Stock of the Company to Cranshire
Capital, L.P.; The dotCom Fund, LLC; EURAM Cap Strat. "A" Fund
Limited; and Keyway Investments Ltd.
8. The Company filed an Amended Current Report on Form
8-K/A on April 19, 2000, reflecting the Amended and Restated
Stock Purchase Agreement with EMB Corporation.
9. The Company filed an Amended Current Report on Form
8-K/A on April 26, 2000, including the financial statements
for the acquisition of Titus Real Estate LLC.
10. The Company filed an Amended Current Report on
Form 8-K/A on May 1, 2000, including the financial statements
for the acquisition of LoanNet Mortgage, Inc.
11. The Company filed an Amended Current Report on
Form 8-K/A on June 26, 2000, including the financial
statements for the acquisition of American Residential
Funding, Inc., from EMB Corporation.
29
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Registrant: e-Net Financial.Com Corporation
By: /S/ VINCENT RINEHART
----------------------------
Vincent Rinehart, President
In connection with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
Date: July 31, 2000
By: /S/ JAMES E. SHIPLEY /S/ VINCENT RINEHART
----------------------------- ----------------------------------
James E. Shipley Vincent Rinehart
Chairman of the Board Director, President and Chief
Executive Officer
By: /S/ KEVIN GADAWSKI /S/ SCOTT A. PRESTA
----------------------------- ----------------------------------
Kevin Gadawski Scott A. Presta
Principal Accounting and Director and Secretary
Acting Chief Financial Officer
By: /S/ JAMES M. CUNNINGHAM
-----------------------------
James M. Cunningham
Director
30
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors F-2
Consolidated Balance Sheets as of April 30, 2000 and June 30, 1999 F-3
Consolidated Statements of Operations for the Ten Months Ended April 30, 2000,
the Year Ended June 30, 1999, and the Period from March 31,1998 (Inception)
to June 30, 1998 F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the Ten Months
Ended April 30, 2000, the Year Ended June 30, 1999, and the Period from March
31,1998 (Inception) to June 30, 1998 F-5
Consolidated Statements of Cash Flows for the Ten Months Ended April 30, 2000,
the Year Ended June 30, 1999, and the Period from March 31,1998 (Inception)
to June 30, 1998 F-7
Notes to the Consolidated Financial Statements F-10
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
e-Net Financial.Com Corporation
We have audited the accompanying consolidated balance sheets of e-Net
Financial.Com Corporation ("e-Net") and subsidiaries (collectively, the
"Company") as of April 30, 2000, and June 30, 1999, and the related statements
of operations, stockholders' equity (deficit) and cash flows for the ten (10)
months ended April 30, 2000, for the year ended June 30, 1999, and the period
from March 13, 1998, ("Inception") to June 30, 1998. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of e-Net Financial.Com
Corporation and subsidiaries as of April 30, 2000, and June 30, 1999, and the
results of their operations and their cash flows for the ten months ended April
30, 2000, for the year ended June 30, 1999, and the period from Inception to
June 30, 1998, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has incurred operating losses,
has a working capital deficit and tangible net worth, and other adverse
financial indicators. These conditions raise substantial doubt about its ability
to continue as a going concern. Management's plans regarding those matters are
also described in Note 2. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
As discussed in Notes 1 and 2, e-Net entered into a merger agreement with
American Residential Funding, Inc. ("AMRES"), whereby e-Net is deemed to have
been acquired by AMRES for accounting purposes. Accordingly, the accompanying
consolidated financial statements have been retroactively restated to include
the historical assets and liabilities, and the historical operations of AMRES
for all periods presented. The operations of e-Net are included in the
accompanying consolidated financial statements from the date of acquisition,
April 12, 2000, to April 30, 2000.
/s/ MCKENNON, WILSON & MORGAN LLP
---------------------------------
Irvine, California
July 21, 2000
F-2
<PAGE>
e-NET FINANCIAL.COM CORPORATION
Consolidated Balance Sheets
As of April 30, 2000, and June 30, 1999
<TABLE>
<CAPTION>
2000 1999
---------------- ---------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 285,583 $ 105,317
Accounts receivable, net of allowance for doubtful
accounts of $37,436 and $0, respectively 260,438 128,325
Notes receivable from related parties (Note 4) 41,163 100,000
Prepaids and other current assets 107,509 8,525
---------------- ----------------
Total current assets 694,693 342,167
Property and equipment, net (Note 5) 241,545 16,524
Goodwill, net of accumulated amortization
of $122,749 (Note 3) 3,914,420 -
Other assets 20,435 572
---------------- ----------------
$ 4,871,093 $ 359,263
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 254,662 $ 23,517
Accrued registration and acquisition costs 175,000 -
Other accrued expenses 155,389 143,839
Notes payable to related parties (Note 6) 2,788,076 255,000
Other current liabilities 127,636 -
---------------- ----------------
Total current liabilities 3,500,763 422,356
Other liabilities (Note 7) 139,649 746
---------------- ----------------
Total liabilities 3,640,412 423,102
---------------- ----------------
Commitments and contingencies (Note 8)
Stockholders' equity (deficit) (Notes 9 and 12):
Series C convertible preferred stock 1,140,697 -
Common stock, $0.001 par value; 100,000,000 shares authorized;
20,053,937 and 7,500,000, respectively, issued and outstanding
19,854 7,500
Additional paid-in capital 8,269,101 -
Accumulated deficit (5,868,238) (71,339)
Deferred compensation (339,733) -
Treasury stock, at cost (1,991,000) -
---------------- ----------------
Total stockholders' equity (deficit) 1,230,681 (63,839)
---------------- ----------------
$ 4,871,093 $ 359,263
================ ================
</TABLE>
See accompanying notes to these consolidated financial statements
F-3
<PAGE>
e-NET FINANCIAL.COM CORPORATION
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the For the Period From
Ten-Months For the Year March 13, 1998,
Ended Ended (Inception) through
APRIL 30, 2000 JUNE 30, 1999 JUNE 30, 1998
----------------- ---------------- ------------------
<S> <C> <C> <C>
Revenues:
Loan origination fees $ 4,647,848 $ 3,547,932 $ -
Other 41,322 - -
---------------- --------------- --------------------
Total revenues 4,689,170 3,547,392 -
Cost of mortgage brokerage commissions 3,411,750 2,304,100 -
---------------- --------------- -------------------
Gross profit 1,277,420 1,243,832 -
Operating expenses-
Selling, general and administrative (Note 8) 3,059,374 1,301,013 3,570
---------------- --------------- -------------------
Operating loss (1,781,954) (57,181) (3,570)
Other income (expense), net (14,945) (3,088) -
---------------- --------------- --------------------
Net loss $ (1,796,899) $ (60,269) $ (3,570)
================ =============== ====================
Basic and diluted loss per share $ (0.22) $ (0.01)
================ ===============
Weighted average common shares outstanding 8,222,636 7,500,000
================ ===============
</TABLE>
See accompanying notes to these consolidated financial statements
F-4
<PAGE>
e-NET FINANCIAL.COM CORPORATION
Consolidated Statements of Stockholders' Equity (Deficit)
For the Period from March 13, 1998 (Inception), to June 30, 1998
the Year Ended June 30, 1999, and the Ten Months Ended April 30, 2000
<TABLE>
<CAPTION>
Class B
Convertible Series C
Preferred Convertible Preferred Common Stock
-------------------------- ------------------------ -------------------------
Shares Amount Shares Amount Shares Amount
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Common stock issued to founders of AMRES -- -- -- -- 7,500,000 $ 7,500
Net loss for the period from March 17, 1998
(inception), through June 30, 1998 -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balances, June 30, 1998 -- -- -- -- 7,500,000 7,500
Net loss -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balances, June 30, 1999 -- -- -- -- 7,500,000 7,500
Acquisition of Titus on February 11, 2000 100,000 1,000,000 -- -- 300,000 300
Acquisition of LoanNet on February 16, 2000
-- -- -- -- 250,000 250
Acquisition of Expidoc on March 17, 2000 -- -- -- -- 24,000 24
Shares retained by shareholders in
recapitalization on April 12, 2000 -- -- -- -- 10,979,937 10,780
Dividend deemed distributed at April 12, 2000,
for AMRES -- -- -- -- -- --
Issuance of Series C Convertible Preferred, net
costs of $225,000 -- -- 20,000 1,775,000 -- --
Value of warrant issued in connection with
Series C Convertible Preferred -- -- -- (281,362) -- --
Value of beneficial conversion feature of Series
C Convertible Preferred -- -- -- (352,941) -- --
Conversion of Class B Convertible
Preferred (100,000) (1,000,000) -- -- 1,000,000 1,000
Contributed capital from EMB -- -- -- -- -- --
Net loss -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balances, April 30, 2000 -- -- 20,000 $ 1,140,697 20,053,937 $ 19,854
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to these consolidated financial statements
F-5
<PAGE>
e-NET FINANCIAL.COM CORPORATION
Consolidated Statements of Stockholders' Equity (Deficit)
(continued)
For the Period from March 13, 1998 (Inception), to June 30, 1998
the Year Ended June 30, 1999, and the Ten Months Ended April 30, 2000
<TABLE>
<CAPTION>
Additional Deferred Accumulated
Paid-In Capital Treasury Stock Compensation Deficit Total
--------------- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Common stock issued to founders of AMRES
$ -- $ -- $ -- $ (7,500) $ --
Net loss for the period from March 17, 1998
(Inception), through June 30, 1998 -- -- -- (3,570) (3,570)
----------- ----------- ----------- ----------- -----------
Balances, June 30, 1998 -- -- -- (11,070) (3,570)
Net loss -- -- -- (60,269) (60,269)
----------- ----------- ----------- ----------- -----------
Balances, June 30, 1999 -- -- -- (71,339) (63,839)
Acquisition of Titus on February 11, 2000 599,700 -- -- -- 1,600,000
Acquisition of LoanNet on February 16, 2000 2,305,375 -- -- -- 2,305,625
Acquisition of Expidoc on March 17, 2000 196,486 -- -- -- 196,510
Shares retained by shareholders in recapitalization on
April 12, 2000 2,114,881 (1,991,000) (339,733) -- (205,072)
Dividend deemed distributed at April 12, 2000, for
AMRES
-- -- -- (4,000,000) (4,000,000)
Issuance of Class C Convertible Preferred, net of costs
of $225,000 -- -- -- 1,775,000
Value of warrant issued in connection with Series C
Convertible Preferred 281,362 -- -- --
Value of beneficial conversion feature of Series C
Convertible Preferred 352,941 -- -- --
Conversion of Class B Convertible
Preferred
1,999,000 -- -- -- 1,000,000
Contributed capital from EMB 419,356 -- -- -- 419,356
Net loss -- -- -- (1,796,899) (1,796,899)
----------- ----------- ----------- ----------- -----------
Balances, April 30, 2000 $ 8,269,101 $(1,991,000) $ (339,733) $(5,868,238) $ 1,230,681
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to these consolidated financial statements
F-6
<PAGE>
e-NET FINANCIAL.COM CORPORATION
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Period
For the From March 13,
Ten Months For the Year 1998 (Inception)
Ended Ended through
April 30, 2000 June 30, 1999 June 30, 1998
----------------- --------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (1,796,899) $ (60,269) $ (3,570)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 132,440 2,225 -
Provision for doubtful accounts 12,699 - -
Compensation on conversion of B Preferred 1,000,000 - -
Changes in operating assets and liabilities, net
of acquisitions:
Increase in accounts receivable (99,351) (128,325) -
Increase in other current assets (2,946) (8,525) -
Increase in accounts payable 131,789 23,517 -
Increase in accrued registration and
acquisition fees 100,000 - -
Increase (decrease) in other accrued expenses (179,234) 143,839 -
Increase (decrease) in other current liabilities (746) 746 -
----------------- --------------- ---------------
Net cash used in operating activities (702,248) (26,792) (3,570)
----------------- --------------- ---------------
Cash flows from investing activities:
Increase in other assets (1,845) (572) -
Issuance (repayment) of note
receivable to related party 39,400 (100,000) -
Purchase of property and equipment (19,786) (18,749) -
Purchase of companies, net of cash acquired 147,970 - -
Recapitalization of e-Net, net of cash acquired 12,449 - -
----------------- --------------- ---------------
Net cash provided by (used in) investing activities
178,188 (119,321) -
---------------- --------------- ---------------
Cash flows from financing activities:
Proceeds from notes payable to related parties 459,326 240,000 130,000
Payments on notes payable to related parties (1,530,000) (80,000) (35,000)
Proceeds from sale of C Preferred 1,775,000 - -
---------------- --------------- ---------------
Net cash provided by financing activities 704,326 160,000 95,000
---------------- --------------- ---------------
Net increase in cash 180,266 13,887 91,430
Cash at beginning of period 105,317 91,430 -
---------------- --------------- ---------------
Cash at end of period $ 285,583 $ 105,317 $ 91,430
================ =============== ===============
</TABLE>
See accompanying notes to these consolidated financial statements
F-7
<PAGE>
e-NET FINANCIAL.COM CORPORATION
Consolidated Statements of Cash Flows
(continued)
<TABLE>
<CAPTION>
For the Period
For the From March 13,
Ten Months For the Year 1998 (Inception)
Ended Ended through
April 30, 2000 June 30, 1999 June 30, 1998
----------------- --------------- ----------------
<S> <C> <C> <C>
Cash paid for interest and income taxes was not significant during the periods presented.
Supplemental disclosure of non-cash financing
and investing activities:
B Preferred and common stock issued for
acquisition of Titus $ 1,600,000 $ - $ -
================= =============== ================
Common stock issued for acquisition of
LoanNet
$ 2,305,625 $ - $ -
================= =============== ================
Common stock issued for acquisition of
ExpiDoc
$ 196,510 $ - $ -
================= =============== ================
Dividend deemed distributed resulting from
issuance of note payable $ 4,000,000 $ - $ -
================= =============== ================
Value of C Preferred beneficial conversion
feature $ 281,362 $ - $ -
================= =============== ================
Value of warrants issued with issuance of C
Preferred $ 352,941 $ - $ -
================= =============== ================
Issuance of common stock for conversion of B
Preferred $ 1,000,000 $ - $ -
================= =============== ================
Capital contributed in satisfaction of debt $ 419,356 $ - $ -
================= =============== ================
LoanNet Acquisition, Net of Cash Acquired:
Working capital deficit, other than cash
acquired $ (55,776) - -
Property and equipment 84,089 - -
Preferred stock not acquired (100,000) - -
Purchase price in excess of the net assets acquired
2,226,873 - -
Capital Stock issued in acquisition (2,305,625) - -
----------------- --------------- ----------------
Net cash obtained in acquisition of LoanNet $ (150,439) $ - $ -
================= =============== ================
ExpiDoc Acquisition, Net of Cash Used:
Working capital deficit, other than cash acquired $ (11,317) - -
Purchase price in excess of the net assets acquired 210,296 - -
Capital stock issued in acquisition (196,510) - -
----------------- --------------- ----------------
Net cash used to acquire ExpiDoc $ 2,469 $ - $ -
================= =============== ================
</TABLE>
See accompanying notes to these consolidated financial statements
F-8
<PAGE>
e-NET FINANCIAL.COM CORPORATION
Consolidated Statements of Cash Flows
(continued)
<TABLE>
<CAPTION>
For the Period
For the From March 13,
Ten Months For the Year 1998 (Inception)
Ended Ended through
April 30, 2000 June 30, 1999 June 30, 1998
----------------- --------------- ----------------
<S> <C> <C> <C>
Titus Acquisition, Net of Cash Acquired
Purchase price in excess of the net assets acquired $ 1,600,000 $ - $ -
Capital stock issued in acquisition (1,600,000) - -
----------------- ---------------- -----------------
$ - $ - $ -
================= ================ =================
</TABLE>
See accompanying notes to these consolidated financial statements
F-9
<PAGE>
e-NET FINANCIAL.COM CORPORATION
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
NOTE 1 - GENERAL
E-net Financial.Com Corporation ("e-Net"), a Nevada corporation, was originally
incorporated on August 18, 1988, under the name of Solutions, Inc. Subsequently,
its name was changed to Suarro Communications, Inc. on August 16, 1996, to e-Net
Corporation on February 12, 1999, and to e-Net Financial.Com Corporation on
February 2, 2000. Since inception, e-Net has had insignificant operations.
Effective March 1, 1999, e-Net, e-Net Mortgage Corporation ("e-Net Mortgage")
and City Pacific International, Inc. ("City Pacific") merged under a Plan of
Reorganization. E-Net Mortgage, a Nevada corporation, formally known as the
Hospitality Group, Inc., was formed on November 20, 1996, to engage in the
business of providing retail and wholesale mortgage products and service.
However, such operations did not commence. City Pacific, a Nevada corporation,
was formed on July 10, 1997, to provide telecommunications products and services
for commercial and residential customers, directly or through joint ventures
with strategic partners. City Pacific did not achieve material operations.
On December 21, 1999, e-Net completed its acquisition of VPN.COM JV Partners, a
Nevada Joint Venture. VPN.COM JV Partners provides comprehensive broadband
networks and connectivity. These networks facilitate customized telephone, video
teleconferencing, Internet access, and data transfer. City Pacific changed its
name to VPNCOM.NET, Inc. on December 23, 1999. E-Net sold VPNCOM.NET, Inc. on
March 1, 2000, at a gain of approximately $1.8 million, since this business did
not meet its business focus. The gain on the sale, and the historical results of
the discontinued operations of VPNCOM.NET, Inc., have been excluded from the
historical consolidated financial statements of e-Net due to the change in
reporting entity in connection with acquisitions of new businesses as discussed
below.
Through a series of acquisitions of new businesses, the new management team
delivers, through the Internet and through other means, mortgage loan brokerage
and notary public services. E-Net acquired companies with the intent to fund and
manage their business growth. On January 20, 2000, e-Net entered into, and
announced, a letter of intent to acquire all the issued and outstanding common
stock of American Residential Mortgage, Inc. ("AMRES") from EMB Corporation
("EMB"). Management believed the transaction was probable of being completed at
the date of the announcement. Additionally, e-Net acquired Titus Real Estate,
Inc., ("Titus"), LoanNet Mortgage, Inc. ("LoanNet") and Expidoc.com, Inc.
("Expidoc"), with the expectation that the AMRES acquisition would close in a
reasonable time period.
On April 12, 2000, e-Net acquired AMRES from EMB for 7,500,000 shares of common
stock, representing approximately 40% of the outstanding voting stock of e-Net
and a $4,000,000 note payable. AMRES is a Nevada corporation organized on March
13, 1998, for the purpose of originating and selling HUD-insured mortgages and
conventional loans. E-Net, prior to a series of acquisitions in February and
March 2000, was considered a blank-check company with limited operating history,
and, accordingly, AMRES is considered the acquiror for financial reporting
purposes. As such, the acquisition has been accounted for as a recapitalization
of AMRES; therefore, the accompanying consolidated financial statements reflect
the historical assets and liabilities and the related historical operations of
AMRES, in a manner similar to a pooling of interests, for all periods presented.
F-10
<PAGE>
e-NET FINANCIAL.COM CORPORATION
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of e-Net
and its wholly-owned subsidiaries, collectively, the "Company." All significant
intercompany transactions and balances have been eliminated in consolidation.
SIGNIFICANT ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
GOING CONCERN
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. The Company requires financing to
meet its cash requirements. Management is seeking one or more initial private
placement under Regulation D of the Securities Act of 1933 totaling $3.0 million
to repay its current obligations and $1.5 million to provide working capital for
operations. There are no assurances the Company will obtain financing on terms
acceptable to management. No adjustments have been made to the carrying value of
assets or liabilities as a result of this uncertainty.
FISCAL YEAR END
The Company has elected an April 30 fiscal year for financial and income tax
reporting purposes.
STOCK SPLIT
During November 1999, outstanding shares of common stock were split two-for-one.
All share and per share amounts have been retroactively restated for all periods
presented.
CASH AND CASH EQUIVALENTS
The Company considers all liquid investments with a remaining maturity of three
months or less to be cash equivalents. Balances in bank accounts may, from time
to time, exceed federally insured limits.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated using the
straight-line method over the estimated useful lives of the related assets,
ranging from three to seven years. Maintenance and repairs are charged to
expense as incurred. Significant renewals and betterments are capitalized. At
the time of retirement or other disposition of property and equipment, the cost
and accumulated depreciation are removed from the accounts and any resulting
gain or loss is reflected in operations.
F-11
<PAGE>
e-NET FINANCIAL.COM CORPORATION
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
GOODWILL
Goodwill represents the excess of purchase price over the fair value of the net
assets of acquired businesses. Goodwill is amortized on a straight-line basis
over the expected periods to be benefited. Management estimated the periods to
be benefited at seven to ten years. During the 10-months ended April 30, 2000,
amortization of goodwill amounted to $122,749.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company follows the provisions of SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of."
Long-lived assets, including goodwill, of the Company are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company evaluates
quarterly the recoverability of its long-lived assets based on estimated future
cash flows from and the estimated liquidation value of such long-lived assets,
and provides for impairment if such undiscounted cash flows are insufficient to
recover the carrying amount of the long-lived asset. The amount of impairment,
if any, is measured based on fair value or discounted cash flows, and is charged
to operations in the period in which such impairment is determined by
management.
INCOME TAXES
The Company accounts for income taxes under the provisions of SFAS No. 109,
"Accounting for Income Taxes," whereby deferred tax assets and liabilities are
recognized for the future tax consequences attributable to temporary differences
between bases used for financial reporting and income tax reporting purposes.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. A valuation allowance is
provided for certain deferred tax assets if it is more likely than not that the
Company will not realize tax assets through future operations.
REVENUE RECOGNITION
Notary services related revenue is recognized when the services are performed.
Loan origination fees are recognized when the corresponding loan has been closed
and funded.
REGISTRATION COSTS
Direct costs to register restricted common shares (the "Registration") are
accrued at the time the shares are issued. At April 30, 2000, the Company
accrued $125,000 for estimated legal, accounting, and filing fees directly
related to the Registration. The Company charged operations approximately
$100,000 relating to the costs of registering the 7,500,000 shares of its common
stock issued to acquire AMRES, since the acquisition of AMRES was accounted at
historical bases in a manner similar to a pooling of interest.
STOCK-BASED COMPENSATION
SFAS No. 123, "Accounting for Stock-Based Compensation," defines a fair value
based method of accounting for stock-based compensation. However, SFAS 123
allows an entity to continue to measure compensation cost related to stock and
stock options issued to employees using the intrinsic method of accounting
prescribed by Accounting Principles Board Opinion ("APB") No. 25, "Accounting
for Stock Issued to Employees." Entities electing to remain with the accounting
method of APB No. 25 must make
F-12
<PAGE>
e-NET FINANCIAL.COM CORPORATION
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
pro forma disclosures of net income (loss) and earnings (loss) per share, as if
the fair value method of accounting defined in SFAS 123 had been applied. The
Company continues to account for stock-based compensation under APB No. 25.
LOSS PER COMMON SHARE
The Company presents basic earnings per share ("EPS") and diluted EPS on the
face of all statements of operations. Basic EPS is computed as net income (loss)
divided by the weighted average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur from common
shares issuable through stock options, warrants, and other convertible
securities. Due to the net losses incurred during the ten months ended April 30,
2000, the year ended June 30, 1999, and the period from Inception to June 30,
1998, all common stock equivalents outstanding were considered anti-dilutive and
were excluded from the calculations of diluted net loss per share.
Anti-dilutive securities at April 30, 2000, which could be dilutive in future
periods, include the C Preferred, warrants, and options convertible into
approximately 763,774 shares of common stock. The incremental shares not
included in the weighted average shares outstanding for dilutive EPS in 2000,
are 202,349 shares.
REPORTING COMPREHENSIVE INCOME
SFAS No. 130, "Reporting Comprehensive Income" establishes standards for
reporting the components of comprehensive income and requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be included in a financial statement that is displayed with
the same prominence as other financial statements. Comprehensive income includes
net income (loss), as well as certain non-shareholder items that are reported
directly within a separate component of stockholders' equity and bypass net
income (loss). The Company adopted the provisions of this statement during
fiscal 1999, with no impact on the accompanying consolidated financial
statements.
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
SFAS No. 131, "Disclosures of an Enterprise and Related Information" requires
disclosures of financial and descriptive information about an enterprise's
operating segments in annual and interim financial reports issued to
stockholders. The statement defines an operating segment as a component of an
enterprise that engages in business activities that generate revenue and incur
expense, whose operating results are reviewed by the chief operating
decision-maker in the determination of resource allocation performance, and for
which discrete financial information is available. At April 30, 2000, the
Company, by definition, had only one segment.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes a new
model for accounting for derivatives and hedging activities and supersedes and
amends existing accounting standards and is effective for fiscal years beginning
after June 15, 2000. SFAS 133 requires that all derivatives be recognized in the
balance sheet at their fair market value, and the corresponding derivative gains
or losses be either reported in the statement of operations or as a component of
other comprehensive income depending on the type of hedge relationship that
exists with respect to such derivative. The Company does not expect the adoption
of SFAS 133 to have a material impact on its financial statements.
F-13
<PAGE>
e-NET FINANCIAL.COM CORPORATION
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
NOTE 3 - ACQUISITIONS
TITUS REAL ESTATE, INC.
On February 11, 2000, e-Net acquired all the issued and outstanding capital
stock of Titus in a tax-free exchange valued at $1.6 million. Titus is an entity
which retains rights to manage the operations of a Real Estate Investment Trust
("REIT") that owns certain apartment complexes consisting of 121 units. Titus
and AMRES have historically had common management, and such individuals are also
officers and key employees of e-Net. The purchase price consisted of 300,000
shares of common stock subject to a share-cancellation amendment dated March 1,
2000, valued at $600,000 and 100,000 shares of Class B Convertible Preferred
stock (the "B Preferred") with a redemption price of $1.0 million. A portion of
the common shares were subject to cancellation to the extent the value of the
300,000 common shares exceeded a fair market value of $600,000, based on the
average closing price of the Company's common stock five trading days prior to
June 11, 2000. The holder of the B Preferred was entitled to demand redemption
of such shares for $1.0 million at any time after the completion of the
acquisition of AMRES. The Board of Directors had the option to deliver ten (10)
shares of common stock for each share of B Preferred upon the receipt of demand
from the holder of the B Preferred in lieu of payment of cash.
On April 12, 2000, the holder of the B Preferred redeemed the 100,000 shares of
B Preferred for payment of $1 million. On April 20, 2000, the parties agreed to
amend the original contract and satisfy the demand through the issuance of
1,000,000 shares of e-Net's common stock, subject to certain share-cancellation
provisions. The amended contract dated April 20, 2000, required the holder of
the 1,000,000 common shares to return a number of such shares 90 days from the
amendment date (July 20, 2000) in the event the Company's common stock exceeds
$2.00 per share. The shares to be returned to the Company were determined based
on $2.0 million divided by the average closing bid price of the Company's common
stock five (5) trading days prior to July 20, 2000, subject to a maximum number
of shares to be retained of 1,000,000 shares of common stock. The average price
of the Company's common stock the five trading days prior to July 20, 2000, was
$1.81 per share. Since the number of shares computed exceeded 1,000,000 shares,
the holder retained the entire 1,000,000 million shares. Upon the conversion of
the B Preferred into common stock, the Company recorded a nonrecurring charge to
the accompanying statement of operations for the incremental value of $1.0
million, based on the difference between the carrying value of the B Preferred
and the fair value of the common stock of $2.0 million, since the holders are
key management of the ongoing operations.
Management allocated the excess of the purchase price over the fair value of the
assets acquired of $1.6 million to goodwill. New management of e-Net determined
the value of the REIT management contract be included in goodwill since the
estimated period to be benefited for both intangible assets is estimated to be
ten (10) years due to the limited operating history of Titus.
LOANNET MORTGAGE, INC.
On February 14, 2000, the Company acquired all the issued and outstanding common
stock of LoanNet, a privately held company providing mortgage loans primarily to
residential customers in three states. In connection with this acquisition, the
Company issued 250,000 shares of its common stock valued at $2.3 million. The
acquisition was accounted for under the purchase method of accounting with the
excess of cost over the fair value of the net assets acquired of $2.2 million
allocated to goodwill. Goodwill is being amortized on a straight-line basis over
seven years.
F-14
<PAGE>
e-NET FINANCIAL.COM CORPORATION
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
EXPIDOC.COM, INC.
On March 17, 2000, the Company acquired all the issued and outstanding capital
stock of ExpiDoc, a privately held company that provides notary services, for
24,000 shares of the Company's common stock valued at $196,510. The Company was
required to provide working capital of $125,000 to Expidoc. The acquisition was
treated under the purchase method of accounting with the excess of cost over the
fair value of the net assets acquired of $210,296 allocated to goodwill.
Goodwill is being amortized on a straight-line basis over seven years.
The unaudited pro forma statement of operations data for the ten months ended
April 30, 2000, assuming the acquisitions of Titus, LoanNet and Expidoc occurred
on July 1, 1999, are as follows:
2000
-----------
Revenues $ 4,780,305
===========
Net loss $(3,548,792)
===========
Basic and dilutive net loss per share $ (0.18)
===========
The data for the year ended June 30, 1999, and for the period from Inception to
June 30, 1998, are not shown since the pro forma effects are not significant.
The above unaudited proforma amounts for 2000 are not necessarily indicative of
what the actual results might have been if the acquisitions had occurred on July
1, 1999.
NOTE 4 - NOTES RECEIVABLE FROM RELATED PARTIES
As of June 30, 1999, the Company had a note receivable from EMB in the amount of
$100,000, interest at 12% per annum due on June 15, 2000. This note was
satisfied when EMB satisfied certain notes payable of the Company (Note 6).
As of April 30, 2000, the Company had amounts due from a related party of
$41,163. The amount is for reimbursable expenses paid by the Company on behalf
of the related party. Additionally, the Company charges this related party
monthly for certain general expenses related to the use of the Company's office
space, telephones, etc.
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of April 30, 2000, and June
30, 1999:
April 30, 2000 June 30, 1999
----------------- ---------------
Furniture and fixtures $ 97,855 $ 1,406
Equipment 177,741 17,343
----------------- ---------------
275,596 18,749
Less: accumulated depreciation (34,051) (2,225)
----------------- ---------------
$ 241,545 $ 16,524
================= ===============
F-15
<PAGE>
e-NET FINANCIAL.COM CORPORATION
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
During the ten months ended April 30, 2000, and the year ended June 30, 1999,
depreciation expense totaled $31,826 and $2,225, respectively. Depreciation
expense for the period from Inception to June 30, 1998, was not significant.
NOTE 6 - NOTES PAYABLE
As of June 30, 1999, the Company had a note payable outstanding to a party in
the amount of $255,000 with interest at 5% per annum. During the ten months
ended April 30, 2000, EMB satisfied the note payable in connection with certain
assets sold by EMB. The satisfaction of this obligation by EMB is reflected as a
capital contribution in the accompanying consolidated statements of
stockholders' equity (deficit).
In connection with the acquisition of AMRES, the Company issued a note payable
in the amount of $4,000,000. On April 12, 2000, the Company made a principal
reduction of $1,595,000 on this note. The balance of this note is due on
September 15, 2000, as extended, and bears interest at 10% per annum. At April
30, 2000, the balance due EMB Corporation was $2,405,000. Subsequent to April
30, 2000, the note was reduced to $1,066,022 through proceeds received from a
private placement of the Company's common stock, see Note 9.
On April 13, 2000, an officer loaned the Company $300,000, due April 12, 2001,
together with interest at 10% per annum. Subsequent to April 30, 2000, the note,
including accrued interest, was settled with the issuance of 150,000 shares of
common stock.
At April 30, 2000, the Company has two notes payable to related parties
aggregating $80,235, interest at 10% per annum due on August 31, 2000.
Subsequent to April 30, 2000, an aggregate of $40,118 was paid on the notes.
NOTE 7 - OTHER LIABILITIES
On February 9, 2000, LoanNet issued 400 shares of its preferred stock to an
officer of LoanNet for $100,000. Such shares were not acquired by e-Net as part
of the acquisition agreement on February 14, 2000, and accordingly, remain
outstanding and included in other liabilities in the accompanying balance sheet
at April 30,2000. This preferred stock has a non-cumulative preferred annual
dividend of 8.0%, payable on a quarterly basis and before any payments of
dividends of common stock. Additionally, LoanNet holds the right to redeem the
preferred stock at any time for $250 per share. Upon the liquidation or
dissolution of LoanNet, the holders of preferred stock are entitled to receive
$250 per share, plus any accrued but unpaid dividends. There are no voting
rights associated with the preferred stock.
F-16
<PAGE>
e-NET FINANCIAL.COM CORPORATION
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
NOTE 8 - COMMITMENTS AND CONTINGENCIES
CAPITAL LEASES
The Company acquired equipment and furniture under capital lease obligations
over 24 months. The present value of future annual minimum lease payments under
capital leases are as follows:
Years Ending
April 30,
------------
2001 $ 51,039
2002 40,365
------------
91,404
Less amount representing interest (17,277)
------------
74,127
Less current portion (36,037)
------------
Long-term portion $ 38,090
============
As of April 30, 2000, the Company had $82,732 of equipment and furniture under
capital leases, at cost.
OPERATING LEASES
The Company leases its corporate office located in Costa Mesa, California under
an operating lease from unrelated third parties that expires on March 31, 2002.
The Company also has various equipment leases that expire at various dates
ranging from one to five years. Rental expense for ten month period ended April
30, 2000, and the year ended June 30, 1999, was $186,322 and $125,660,
respectively. Rent expense for the period ended June 30, 1998, was not
significant.
Minimum future annual rental payments under the lease agreements with a term in
excess of one year at April 30, 2000, are as follows:
Years Ending
April 30,
------------
2001 $ 304,485
2002 315,544
2003 164,857
2004 12,913
2005 547
---------------
$ 798,346
================
LITIGATION
The Company is subject to a limited number of claims and actions, which arise in
the ordinary course of business. The litigation process is inherently uncertain,
and it is possible that the resolution of the company's existing and future
litigation may adversely affect the Company. Management is unaware of any
matters that may have material impact on the Company's consolidated financial
position, results of operations or cash flows.
F-17
<PAGE>
e-NET FINANCIAL.COM CORPORATION
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
EMPLOYMENT AGREEMENTS
In February 2000, the Company entered into employment agreements with six
individuals. The agreements provided for a term of one year, annual base
salaries ranging from $30,000 to $78,000, and are renewable automatically each
year unless terminated by either party with 30-days written notice. The
agreements also provided for participation in the 2000 Plan (see Note 10).
INVESTMENT BANKING AGREEMENT
On May 27, 1999, the Company entered into an agreement with an investment banker
to seek debt financing through public or private offerings or debt or equity
securities and in seeking merger and acquisition candidates. Per the agreement,
the Company granted the investment banker options to purchase 200,000 shares of
the Company's common stock at an exercise price of $0.13, expiring on May 31,
2001. Additionally, the Company was required to pay $60,000 for the initial
twelve months. In addition, the agreement specified that the investment banker
will receive a percentage of consideration received in a merger, acquisition,
joint venture, debt or lease placement and similar transactions through May 31,
2001. In April 2000, the parties agreed to amend the agreement to eliminate the
fee based on a percentage of the consideration of a transaction.
NOTE 9 - STOCKHOLDERS' EQUITY (DEFICIT)
GENERAL
In March 2000, the Company amended its Articles of Incorporation to change the
authorized number of shares of its $0.001 par value common stock from 20,000,000
to 100,000,000. Additionally, the Board of Directors authorized the issuance of
1,000,000 shares of preferred stock. The preferred stock may be divided into and
issued in one or more series.
CLASS B CONVERTIBLE PREFERRED STOCK
In connection with the acquisition of Titus Real Estate Inc. the Company issued
100,000 shares of B Preferred. The note was CONVERTED into 2,000,000 shares of
common stock on April 20, 2000, subject to certain cancellation provisions. See
Note 3 for further discussion of the Company's B Preferred.
SERIES C CONVERTIBLE PREFERRED STOCK
In April 2000, the Company issued 20,000 shares of Series C Convertible
Preferred Stock, (the "C Preferred") for $1,775,000, net of fees of $225,000 in
a private placement. As additional consideration, the Company issued warrants to
purchase 151,351 shares of the Company's common stock at an initial exercise
price of $6.73 per share. The C Preferred has a liquidation value of $2,000,000
and the holder is entitled to receive cumulative dividends at an annual rate of
$7.00 per share (7% per annum), payable semi-annually. The C Preferred is
convertible, at any time at the option of the holder, into shares of the
Company's common stock at a price equal to the lesser of (a) $6.91 per share or
(b) 95% of the average closing bid price of the Company's common stock during
the five trading days preceding the conversion after 150 days to 85% of the
average closing bid price of the common stock during the five trading days
immediately preceding such conversion after 240 days. The longer the C Preferred
is held the greater discount on conversion into common stock. In the event the
holders of C Preferred have not elected to convert at the time of mandatory
conversion, the C Preferred will convert at an amount equal to 85% of the
purchase price of the holder's C Preferred plus an amount equal to accrued and
unpaid dividends, if
F-18
<PAGE>
e-NET FINANCIAL.COM CORPORATION
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
any, up to and including the date fixed for redemption, whether or not earned or
declared. As of April 30, 2000, no shares of C Preferred have been converted
into common stock.
TRANSACTIONS EFFECTED PRIOR TO RECAPITALIZATION
The following table presents the number of shares issued by e-Net, and the
related amounts of common stock and additional paid-in capital prior to its
change in accounting as a result of the reverse acquisition:
<TABLE>
<CAPTION>
Common Stock and Additional
Paid-in Capital
------------------------------
Shares Value
---------- ----------------
<S> <C> <C>
Outstanding as of April 30, 1999 9,000,000 $ 49,675
Common stock issuances:
Private placements 177,900 128,600
Satisfaction of debt 644,129 572,770
Exercise of stock options 162,336 385,912
Compensation 525,572 827,644
Acquisition of VPNCOM.NET 250,000 250,000
Services rendered and to be rendered 220,000 627,200
---------- ----------------
Shares retained by e-Net stockholders in
recapitalization 10,979,937 $ 2,841,801
========== ================
</TABLE>
At various dates from September 1999 through February 2000, the Company issued a
total of 177,900 shares of common stock at prices ranging from $1.00 to $3.00
per share in private placements held pursuant to Regulation D Rule 144 of the
Securities Act of 1933. Total proceeds received by the Company were $128,600.
Certain officers and their affiliates of e-Net made loans to e-Net for various
cash flow requirements. These loans were unsecured interest-bearing notes with
interest rates ranging from 10%-12%. On October 31, 1999, and January 31, 2000,
e-Net issued 150,000 and 344,129 shares of restricted common stock,
respectively, at $0.69 and $1.25 per share, respectively, in satisfaction of
$572,770 of these notes.
Pursuant to the 2000 Stock Compensation Program, the Company issued 162,336
shares of common stock upon the exercise of stock options by employees and
non-employees at $1.00 per share.
On July 6, 1999, the Company executed stock purchase option agreements with
certain individuals granting them options to purchase a total of up to 475,000
shares of restricted common stock at a price of $1.50 per share. Subsequently,
on January 7, 2000, the stock purchase option agreements were terminated upon
the effectiveness of a stock bonus agreement with these same individuals.
Pursuant to the stock bonus agreement, the Company issued a total of 475,000
shares of common stock registered pursuant to Regulation S-8 of the Securities
Exchange Act of 1933. The fair value of the shares was $1.25 per share on the
date of issuance.
On November 29, 1999, the Company entered into a stock purchase agreement with
an unaffiliated company whereby it issued 250,000 shares of restricted common
stock at $1.00 per share in exchange for 500,000 shares of common stock of EMB
held by the unaffiliated company. Subsequently, on December 21, 1999, the
Company exchanged the 500,000 shares in connection with the purchase of VPN
discussed further in Note 1.
F-19
<PAGE>
e-NET FINANCIAL.COM CORPORATION
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
In February and March 2000, the Company issued a total of 20,000 shares of
restricted common stock at prices ranging from $7.31 to $9.38 per share for
certain outside services performed by three individuals. The total value of the
services received was $164,685. Additionally, in connection with the Company's
investment banking arrangement (see Note 8), the Company has a legal obligation
to issue 200,000 shares of common stock at total value of $627,200 or $3.14 per
share.
COMMON STOCK
On February 14, 2000, the Company issued 250,000 shares of restricted common
stock valued at $2,305,625 or $9.22 per share in exchange for all the
outstanding common stock of LoanNet in a transaction accounted for under the
purchase method of accounting. See Note 3 for further discussion.
On March 17, 2000, the Company issued 24,000 shares of restricted common stock
valued at $196,510 or $8.19 per share in exchange for all the outstanding common
stock of ExpiDoc in a transaction accounted for under the purchase method of
accounting. See Note 3 for further discussion.
In connection with the reverse acquisition of AMRES, the shares totaling
10,779,937 retained by the shareholders of e-Net are considered as issued in
connection with the recapitalization in the accompanying consolidated statements
of stockholders' equity (deficit).
STOCK OPTIONS
On July 6, 1999, the Company executed stock purchase option agreements with five
employees and two consultants. The agreements granted the individuals options to
purchase a total of up to 475,000 shares of restricted common stock at a price
of $1.50 per share. No options pursuant to these agreements were exercised. On
January 7, 2000, the stock purchase option agreements dated July 6, 1999, were
terminated upon the effectiveness of a stock bonus agreement with these
individuals. See discussion above regarding "Transactions Effected Prior to
Recapitalization".
Effective December 16, 1999, the Board of Directors adopted the 2000 Stock
Compensation Program (the "2000 Plan"). The 2000 Plan is composed of a Stock
Bonus Plan ("Bonus Plan") and a Stock Deferral Plan ("Deferral Plan") and the
maximum aggregate number of shares of common stock subject to the 2000 Plan is
1,000,000 shares. Under the Bonus Plan, shares of common stock may be granted to
key employees and consultants as a bonus for performing duties essential to the
growth of the Company. Under the Deferral Plan, participants may elect to defer
up to one-third of their gross quarterly compensation and receive options to
purchase shares of common stock at $1.00 per share. During the week after the
close of the calendar quarter, participants must choose to convert the deferred
amount into shares of common stock or receive cash. Eligible participants
include all officers, employees, directors, consultants or advisors and
independent contractors or agents of the Company or its subsidiaries. The 2000
Plan will remain in effect for five years or earlier at the discretion of the
Board of Directors. During fiscal 2000, the Company granted options to purchase
162,336 shares of common stock. The options were vested and converted on the
date granted. The Company recorded compensation expense for the difference
between the grant price of $1.00 and the fair market value on the date of the
grant.
F-20
<PAGE>
e-NET FINANCIAL.COM CORPORATION
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Stock option and warrant activity during the ten months ended April 30, 2000,
was as follows:
<TABLE>
<CAPTION>
Weighted Weighted
Range of Average Average
Exercise Exercise Fair Value of
Options Prices Price Options Granted
------------- ------------- --------- ---------------
<S> <C> <C> <C> <C>
Outstanding, June 30, 1999 - - - -
Granted 788,687 $1.00 - $6.73 $2.40 $2.84
Canceled (475,000) $1.50 $1.50 -
Exercised (162,336) $1.00 $1.00 -
------------
Outstanding, April 30, 2000 151,351 $6.73 $6.73 -
============
</TABLE>
The options and warrants outstanding and exercisable at April 30, 2000, expire
in April 2005. No options or warrants were granted prior to June 30, 1999.
Pro forma effects of options granted to employees are not significant.
NOTE 10 - INCOME TAXES
At April 30, 2000, the Company had net operating loss carry-forwards for federal
and state income tax purposes totaling approximately $1,860,000 and $930,000,
respectively, which for federal reporting purposes, begin to expire in 2018 and
fully expire in 2020. For state purposes, the net operating loss carry-forwards
begin to expire in 2003 and fully expire in 2005. The utilization of these net
operating losses may be substantially limited by the occurrence of certain
events, including changes in ownership. The net deferred tax assets at April 30,
2000 and 1999, before considering the effects of the Company's valuation
allowance amounted to approximately $710,000 and $25,000, respectively. The
Company provided an allowance for substantially all its net deferred tax assets
since they are unlikely to be realized through future operations. The valuation
allowance for net deferred tax assets increased approximately $685,000 and
$25,000 during the years ended April 30, 2000 and 1999, respectively. The
Company's provision for income taxes differs from the benefit that would have
been recorded, assuming the federal rate of 34%, due to the valuation allowance
for net deferred tax assets.
NOTE 11 - RELATED PARTY TRANSACTIONS
See Notes 4, 6 and 9 for a description of related party transactions.
NOTE 12 - SUBSEQUENT EVENTS
On May 2, 2000, the Company sold 666,667 shares of common stock for $1,699,973,
net of fees and commissions of $300,027 in a private placement. As additional
consideration, the Company issued warrants to purchase 333,334 shares of the
Company's common stock at an exercise price of $3.00 per share.
In May 2000, the Company entered into certain leases for computers and other
office equipment. The leases require aggregate monthly payments of $1,781
expiring in 24 months. In addition, the Company entered into a lease for certain
office space over 39 months at a rate of $2,118 per month.
F-21
<PAGE>
e-NET FINANCIAL.COM CORPORATION
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Subsequent to April 30, 2000, the Company issued 223,250 shares of common stock,
valued at $464,182 to various consultants. These consultants perform general
accounting and financial services, and legal and professional services.
Additionally, 65,000 shares of common stock valued at $130,000 were issued to
employees of the Company for services rendered.
For an additional subsequent event see Note 6.
F-22
<PAGE>
EXHIBIT INDEX
3.6 Certificate of Amendment to Articles of Incorporation, as
filed with the Nevada Secretary of State on February 2, 2000.
3.7 Certificate of Amendment to Articles of Incorporation, as
filed with the Nevada Secretary of State on March 3, 2000.
3.8 Amended and Restated By-laws of the Registrant.
4.1 Certificate of Designations, Preferences and Rights of
Class A Convertible Preferred Stock, as filed with the
Nevada Secretary of State on April 7, 2000.
4.2 Certificate of Designations, Preferences and Rights of
Class B Convertible Preferred Stock, as filed with the
Nevada Secretary of State on April 7, 2000.
4.3 Certificate of Designations, Preferences and Rights of
Series C Convertible Preferred Stock, as filed with the
Nevada Secretary of State on April 7, 2000.
10.2a Termination Notice dated November 8, 1999, between the
Registrant and Genesis Residential Healthcare, Inc.
10.2b Release of All Claims dated December 2, 1999, between the
Registrant and Genesis Residential Healthcare, Inc.
10.9 Agreement for the Purchase/Sale of Corporate Stock, dated
March 1, 2000, between the Registrant and E. G. Marchi.
10.25 Securities Purchase Agreement dated May 2, 2000, between the
Registrant and RBSTB Nominees Limited (A/C) as Trustee of
Jupiter European Special Situations Fund.
10.26 Warrant to Purchase Common Stock dated May 2, 2000, issued to
RBSTB Nominees Limited (A/C) as Trustee of Jupiter European
Special Situations Fund.
10.27 Registration Rights Agreement dated May 2, 2000, between the
Registrant and RBSTB Nominees Limited (A/C) as Trustee of
Jupiter European Special Situations Fund.
21.1 Description of the subsidiaries of the Registrant.
27.1 Financial Data Schedule.
