As Filed with the Securities and Exchange Commission on August 28, 2001
File No. 333-______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM S-8
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------------
E-NET FINANCIAL.COM CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Nevada 84-1273503
(State or Other Jurisdiction of (IRS Employer ID No.)
Incorporation or Organization)
3200 BRISTOL STREET, SUITE 700
COSTA MESA, CALIFORNIA 92626
(Address of Principal Executive Offices)
----------------
2000 Stock Compensation Plan
(Full Title of the Plan)
----------------
VINCENT RINEHART, PRESIDENT&CEO
E-NET FINANCIAL CORPORATION
3200 BRISTOL STREET, SUITE 700
COSTA MESA, CALIFORNIA 92626
(Name and Address of Agent for Service)
(714) 866-2100
(Telephone Number, Including Area Code, of Agent for Service)
1
CALCULATION OF REGISTRATION FEE
================================================================================================
PROPOSED PROPOSED
TITLE OF SECURITIES AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE
- ------------------------------------------------------------------------------------------------
Common Stock 1,000,000 $0.15(1) $150,000.00 $37.50
TOTAL 1,000,000 $0.15(1) $150,000.00 $37.50
================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rules 457(h) and 457(c) under the Securities Act of 1933, as
amended and based upon an average of the high and low prices reported on the
Nasdaq Over The Counter Bulletin Board on August 20, 2001.
================================================================================
EXPLANATORY NOTE
E-Net Financial.Com Corporation ("E-Net") files this registration
statement in accordance with the requirements of Form S-8 under the Securities
Act of 1933, as amended (the "1933 Act"), to register an additional 1,000,000
shares of stock, $.001 par value, to be issued to certain selling shareholders
that are employees or consultants who have been issued shares of E-Net's common
stock pursuant to the company's stock compensation plan. The Registrant has
previously filed registration statements on Form S-8 to register an initial
1,000,000 shares of stock and an additional 5,000,000 shares of stock and those
registration statements, as amended, Commission File Nos. 333-51108, 333-54920,
333-57906, 333-62370 and 333-95407, are incorporated herein by reference.
Under cover of this Form S-8 is a Reoffer Prospectus that E-Net
has prepared in accordance with Part I of Form S-3 under the 1933 Act. The
Reoffer Prospectus may be utilized for reofferings and resales of up to
1,000,000 shares of common stock acquired by the selling shareholders.
2
REOFFER PROSPECTUS
E-NET FINANCIAL.COM CORPORATION
3200 BRISTOL STREET, SUITE 700
COSTA MESA, CALIFORNIA 92626
(714) 557-2222
1,000,000 SHARES OF COMMON STOCK
The shares of common stock, $.001 par value, of E-Net Financial.Com
Corporation ("E-Net" or the "Company") offered hereby (the "Shares") will be
sold from time to time by the individuals listed under the Selling Shareholders
section of this document (the "Selling Shareholders"). The Selling Shareholders
acquired the Shares pursuant to the Company's 2000 Stock Compensation Program
for employment or consulting services that the Selling Shareholders provided to
E-Net.
The sales may occur in transactions on the Nasdaq over-the-counter
market at prevailing market prices or in negotiated transactions. E-Net will not
receive proceeds from any of the sale of the Shares. E-Net is paying for the
expenses incurred in registering the Shares.
The Shares are "restricted securities" under the Securities Act of 1933
(the "1933 Act") before their sale under the Reoffer Prospectus. The Reoffer
Prospectus has been prepared for the purpose of registering the Shares under the
1933 Act to allow for future sales by the Selling Shareholders to the public
through compliance with Rule 144. To the knowledge of the Company, the Selling
Shareholders have no arrangement with any brokerage firm for the sale of the
Shares. The Selling Shareholders may be deemed to be an "underwriter" within
themeaning of the 1933 Act. Any commissions received by a broker or dealer in
connection with resales of the Shares may be deemed to be underwriting
commissions or discounts under the 1933 Act.
E-Net's common stock is currently traded on the Nasdaq Over-the-Counter
Bulletin Board under the symbol "ENNT.OB" The common stock is also listed on the
Berlin Stock Exchange under the symbol "ENNT.DE."
-------------------------
This investment involves a high degree of risk. Please see "Risk
Factors" beginning on page 12. Certain statements contained in this Prospectus,
including, without limitation, statements containing the words "believes,"
"anticipates," "estimates," "expects," and words of similar import, constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements relate to our future plans,
objectives, expectations and intentions. In evaluating these statements, you
should consider the various factors identified in "Risk Factors" section
contained herein, which identify important considerations that could cause
actual results to differ materially from those contained in the forward-looking
statements. Such forward-looking statements speak only as of the date the
statement is made, and the forward-looking information and statements should not
be regarded as a representation by the Company or any other person that the
objectives and plans of the Company will be achieved.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED WHETHER
THIS REOFFER PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
August 21, 2001
3
TABLE OF CONTENTS
Where You Can Find More Information 4
Incorporated Documents 4
The Company 5
Risk Factors 13
Use of Proceeds 19
Selling Shareholders 19
Plan of Distribution 20
Legal Matters 20
You should only rely on the information incorporated by reference or
provided in this Reoffer Prospectus or any supplement. We have not authorized
anyone else to provide you with different information. The common stock is not
being offered in any state where the offer is not permitted. You should not
assume that the information in this Reoffer Prospectus or any supplement is
accurate as of any date other than the date on the front of this Reoffer
Prospectus.
WHERE YOU CAN FIND MORE INFORMATION
We are required to file annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission
(the "SEC") as required by the Securities Exchange Act of 1934, as amended (the
"1934 Act"). You may read and copy any reports, statements or other information
we file at the SEC's Public Reference Rooms at: (i) 450 Fifth Street, N.W.,
Washington, D. C. 20549; and (ii) Seven World Trade Center, 13th Floor, New
York, N.Y. 10048. Please call the SEC at 1-800-SEC-0330 for further information
on the Public Reference Rooms. Our filings are also available to the public from
commercial document retrieval services and the SEC website (http://www.sec.gov).
INCORPORATED DOCUMENTS
The SEC allows us to "incorporate by reference" information into this
Reoffer Prospectus, which means that E-Net can disclose important information to
you by referring to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this Reoffer
Prospectus, except for any information superseded by information in this Reoffer
Prospectus. The following documents previously filed with the Securities and
Exchange Commission (the "Commission") are incorporated herein by reference:
(a) Our Annual Report on Form 10-KSB for the fiscal year ended April 30,
2001;
(b) Our Quarterly Reports on Form 10-QSB for the fiscal quarters ended
July 31, 2000, October 31 2000 and January 31, 2001; and
(c) Our Reports on Form 8-K dated March 5, 1999, January 27, 2000,
February 25, 2000, March 8, 2000, March 31, 2000 and April 19, 2000, as
later amended; and
(d) All documents subsequently filed by us pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Securities Exchange Act of 1934, as amended,
prior to the filing of a post-effective amendment which indicates that
all securities offered have been sold or which deregisters all
securities then remaining unsold, shall be deemed to be incorporated
herein by reference and to be part hereof from the date of filing of
such documents.
We will provide without charge to each person to whom a copy of this
Reoffer Prospectus is delivered, upon oral or written request, a copy of any or
all documents incorporated by reference into this Reoffer Prospectus (excluding
exhibits unless the exhibits are specifically incorporated by reference into the
information the Reoffer Prospectus incorporates). Requests should be directed to
Investors Relations at our executive offices, located at 3200 Bristol Street,
Suite 700, Costa Mesa, California 92626. Our telephone number is (714) 866-2100.
Our corporate Web site address is http://www.e-netfinancial.com.
4
THE COMPANY
GENERAL
e-Net Financial.Com Corporation ("e-Net" or the "Company") was incorporated
in the State of Nevada on August 18, 1988 as Solutions, Incorporated. 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 forward-split its
Common Stock on a two-for-one basis, and all references in this Annual Report
reflect such forward split.
e-Net has had a rapid sequence of name changes which reflected significant
acquisitions that shifted the Company's primary business operations over very
short periods of time. Management has decided that one generic name would have
been preferable. As such, e-Net has reserved "ANZA Capital, Inc." with the
Nevada Secretary of State and, following and subject to the approval of its
shareholders, will undertake to effectuate a change in the name of the
corporation.
BUSINESS OVERVIEW
The Company is a holding company which currently operates through four (4)
subsidiaries, namely AMRES, Expidoc, BravoRealty.com, and Titus Real Estate.
Since March 1, 1999, the Company has acquired a total of nine companies, six of
which have failed, and five of these subsidiaries have never generated any net
revenue. e-Net has never developed a business of its own. Of the nine
companies purchased by e-Net since March 1, 1999, six were purchased from
then-current officers and directors, or parties affiliated with then-current
officers and directors, including EMB. The total dollar value attributed to the
purchase of these nine companies is approximately $4,400,000.
AMRES and Expidoc represent our only significant operations and greater
than 95% of our consolidated revenue. Please see further discussion of AMRES
and Expidoc below.
We have never been profitable, and our net losses have been significant.
For the year ended April 30, 2001, our net loss was $6,573,527, or $0.30 per
share. For the ten months ended April 30, 2000, our net loss was $1,796,899, or
$0.22 per share. See our discussion in Item 6 - Management's Discussion and
Analysis or Plan of Operations, for further details concerning our financial
results.
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, Michael Roth, who had owned 100% of e-Net Mortgage, became Chairman,
CEO, President, a director, and the owner of 44% of the common stock of the
Company. Also effective as of that date, Al Marchi, who had owned 100% of City
Pacific, became a director and the owner of 11% of the outstanding common stock
of the Company. Following this transaction, the Company entered into a series
of acquisitions as part of its strategy of horizontal market penetration and in
an effort to increase revenues.
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.
5
In consideration of the purchase of the interests, the Company issued a
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 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. At the time of the
transaction, our management believed that VPN Partners and Mr. Stevens would
contribute materially to the planned expansion of the Company.
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, namely American Residential Funding, Inc.,
a Nevada corporation ("AMRES"), and Bravo Real Estate, Inc., a California
corporation ("Bravo Real Estate"). At the time of the acquisition, AMRES was the
principle operating company of EMB, and EMB had previously acquired AMRES from
AMRES Holding LLC ("AMRES Holding"), a company controlled by Vincent Rinehart
(now an officer and director of the Company) and in which Mr. Rinehart currently
holds his e-Net common stock, in exchange for EMB common stock. The purpose of
the acquisition was to acquire market share, revenues, and certain key
management personnel. The Company also acquired all of EMB's rights to acquire
Titus Real Estate LLC, a California limited liability company ("Titus Real
Estate") from its record owners. Titus Real Estate is the management company for
Titus Capital Corp., Inc., a California real estate investment trust (the "Titus
REIT"), in which the Company has no ownership interest. Titus REIT currently
holds 10 apartment buildings in Long Beach, California, six of which are in
escrow to be sold.
On February 11, 2000, the Company executed a purchase agreement (the "Titus
Purchase Agreement") for the acquisition of Titus Real Estate and issued 100,000
shares of its Class B Convertible Preferred Stock (the "B Preferred") to AMRES
Holding/Rinehart, and 300,000 shares of its Common Stock to Scott A. Presta, in
their capacities as the owner-members of Titus Real Estate. The purchase was
valued at $1.6 million. Mr. Rinehart and Mr. Presta were not, at the time,
otherwise affiliated with the Company in any way, but both became members of
Management in April 2000 (see Item 9). Upon closing, Titus Real Estate became a
wholly owned subsidiary of the Company.
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 15 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 15 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
shares. Upon the conversion of the B Preferred into common stock, the Company
recorded a charge to general and administrative expenses for the incremental
value of $1.0 million, based on the difference between the $1.0 million carrying
value of the B Preferred and the $2.0 million fair value of the common stock.
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 goodwill and the management
contract is estimated to be ten years due to the limited operating history of
Titus. Accordingly, such excess purchase price over net assets acquired have
been combined and included in goodwill. The Company acquired Titus, a REIT
management company, to significantly increase the REIT assets by obtaining
funding of up to $30 million. The Company's then chief executive was in
negotiation for a commitment for the funding, however, no definitive commitment
was obtained by management of Titus. Due to the passage of time and the lack of
a firm commitment to raise capital to expand the operations of the REIT,
management determined that an impairment of goodwill was appropriate. Management
determined that future any significant cash flows would be generated through a
sale of the REIT, after liquidation of all assets. Management estimated that the
sale of the REIT would net the Company at least $250,000, net of costs to sell.
Accordingly, management determined an impairment of the net carrying value of
goodwill and the expected net cash flows to be recovered. The carrying value of
goodwill at April 30, 2001 is $250,000.
6
On February 14, 2000, in our continuing efforts to expand, the Company
acquired all of the common stock of LoanNet Mortgage, Inc., a Kentucky
corporation ("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 valued at $2.3 million to the selling
shareholders of LoanNet, which became a wholly-owned subsidiary of the Company.
As of the closing of the transaction, LoanNet also had 400 shares outstanding of
8% non-cumulative, redeemable for $100,000, non-convertible preferred stock, the
ownership of which has not changed. LoanNet had a limited and unprofitable
operating history, but provided the Company with projections and representations
which showed positive operational cash flow within the first year of operations.
During the first and second quarters of year ended April 30, 2001, the officers
of LoanNet began to express the need for a capital infusion of approximately
$300,000. These Officers indicated that without this infusion of capital, the
business would likely fail.
The Company did not have the capital requested by the Officers of LoanNet,
and was unable to raise additional capital primarily due to the market
conditions and the decline in the Company's stock price. During the third
quarter, the Company decided to close all three LoanNet offices and cease
operations. On March 30, 2001, the Board of Directors of e-Net, none of whom
were officers, directors or management of LoanNet, rescinded the acquisition of
LoanNet due to claimed misrepresentations by LoanNet's management, officers and
directors. E-Net management demanded the return of the 250,000 shares issued,
and attempted to deliver the shares of common stock it received in connection
with the acquisition to the original selling shareholder, whom is also the
preferred stockholder, the chief executive officer and director of LoanNet.
While in operation, LoanNet recorded cumulative net losses and did not
provide any cash flow for the Company. The Company wrote off its full investment
in LoanNet in the fourth quarter of 2001. LoanNet's preferred shareholder seized
the remaining assets of LoanNet, and took actions which e-Net has interpreted by
be his assumption of certain liabilities. Management of e-Net is not aware of
any claims against e-Net or its subsidiaries in connection with LoanNet.
At that point, the Company deemed it appropriate to write off its remaining
investment in LoanNet and as such, took a charge for the unamortized portion of
goodwill amounting to $1,985,012.
On March 1, 2000, the Company sold VPNCOM.Net, Inc., which had proven to be
unprofitable and inconsistent with the Company's changing business structure, to
Al Marchi, its then-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 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 Mr. Rinehart and Mr.
Presta. Mr. Rinehart and Mr. Presta were not, at the time, otherwise affiliated
with the Company in any way, but both became members of Management in April 2000
(see Item 9)
7
On April 12, 2000, the Company closed the acquisition of 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, representing nearly
40% of the then issued and outstanding common stock of the Company, paid
$1,595,000, and issued a 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 April 30, 2001, the remaining principal balance of the promissory note was
$1,055,000, and the note was reduced to $103,000 effective June 26, 2001, (see
discussion of Global Settlement below). On April 12, 2000, James E. Shipley, the
former CEO of EMB, was elected Chairman of the Board of Directors of the Company
and Vincent Rinehart was elected a Director, President, and Chief Executive
Officer of the Company. Bravo Real Estate never commenced operations, had no
assets, and is no longer an operating subsidiary.
Mr. Shipley was the CEO, President, and a less than 5% owner of EMB at the
time of the sale of AMRES and Bravo from EMB to e-Net. Mr. Shipley resigned as
Chairman of EMB and became Chairman of e-Net in April 2000, and resigned as an
officer of e-Net in December 2000.
Mr. Rinehart was never an officer or director of EMB, but was the owner of
2,000,000 shares of EMB common stock, making him an approximate 10% owner of EMB
at the time of the sales in April 2000, and continues as an officer and director
of the Company (e-Net) and as an officer of all wholly-owned subsidiaries of the
Company. Mr. Rinehart has no significant holdings of EMB.
On April 12, 2000, in accordance the provisions of the Certificate of
Designations, Preferences and Rights of Class B Convertible Preferred Stock,
AMRES Holding/Rinehart demanded that its B Preferred be repurchased by the
Company for an aggregate of one million dollars. On April 20, 2000, the Company,
AMRES Holding/Rinehart, and Mr. Presta amended the Titus Purchase Agreement to
provide for the return of 100,000 shares of the Company's preferred stock issued
to AMRES Holdings and Mr. Presta upon the issuance of 1,000,000 shares of common
stock to them.
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
Real Estate, was elected a Director and Secretary of the Company.
EVENTS SUBSEQUENT TO FISCAL YEAR END
BRIDGE FINANCING
On June 26, 2001, the Company entered into an Investment Agreement and
related documents with Laguna Pacific Partners, LLP. Under the terms of the
agreements, in exchange for $200,000 received by the Company from Laguna
Pacific, the Company
(i) executed a promissory note in favor of Laguna Pacific in the
principal sum of $200,000, bearing interest at the rate of 7% per annum,
secured by all of the assets of the Company, and payable on the earlier of
nine months from its issuance date or the date the Company's common stock
is listed on the NASDAQ Small Cap market, and
(ii) executed a Warrant Agreement which entitled Laguna Pacific to
acquire up to $250,000 worth of e-Net common stock for the total purchase
price of $1.00, calculated at 70% of the closing stock price on the date
immediately preceding the exercise date.
Also on June 26, 2001, in transactions related to the agreements with
Laguna Pacific, the Company formed a wholly-owned subsidiary, Anza Properties,
Inc., a Nevada corporation ("Anza") capitalized with $75,000 from the proceeds
of the bridge loan, which
(i) executed a Bond Term Sheet with e-Net outlining the proposed terms
of an offering to raise up to $5,000,000.
(ii) entered into an Employment Agreement with Thomas Ehrlich
beginning thirty days from the date of the agreement and ending upon the
earlier to occur of the liquidation of the real estate portfolio to be
owned by Anza or the completion of a NASDAQ Small Cap listing by e-Net. The
Employment Agreement provides for a salary of $20,000 per month, payable
only by Anza and specifically not guaranteed of e-Net. Mr. Ehrlich will
serve as Anza's Vice President and will be a director thereof. In
connection with the Employment Agreement, e-Net executed a Stock
8
Option Agreement which entitled Ehrlich to acquire up to 2,000,000 shares
of e-Net common stock at the closing price on the date of the Option
Agreement, vesting equally over the 12 months following the date of the
Employment Agreement, andexercisable only in the event Anza is successful
in raising a minimum of $2,000,000 in a contemplated $5,000,000 bond
offering, and the holders thereof converting at least $2,000,000 of the
bonds into equity of e-Net (any amounts less than $2,000,000 will be
applied, pro-rata, to the total options exercisable under the Option
Agreement). The options are subject to an anti-dilution provision in the
event of future issuances of common stock or a reverse stock split. The
holder in no event can the option holder own more than 10% of the issued
and outstanding common stock in the event of a reverse stock split. The
Company has yet to assess the value of these options.
(iii) entered into a Consulting Agreement with Lawrence W. Horwitz to
provide services to Anza. The Consulting Agreement provides for
compensation of $20,000 to be paid on its date of execution, and $5,000 per
month for eight months beginning September 1, 2001, guaranteed by e-Net. In
addition, e-Net executed a Stock Option Agreement which entitled Horwitz to
acquire up to 1,000,000 shares of e-Net common stock on terms identical to
those of Ehrlich, described above. The options are subject to an
anti-dilution provision in the event of future issuances of common stock or
a reverse stock split. The holder in no event can the option holder own
more than 5% of the issued and outstanding common stock in the event of a
reverse stock split. The Company has yet to assess the value of these
options.
(iv) entered into an Operating Agreement with e-Net concerning the
operations of Anza Properties, Inc.
GLOBAL SETTLEMENT
On June 26, 2001, e-Net entered into a settlement agreement with EMB
Corporation ("EMB"), AMRES Holding LLC, Vincent Rinehart, and Williams de Broe,
PLC (the "Global settlement"). As part of the Global Settlement:
i) E-Net issued to EMB 1,500,000 shares of restricted common stock as
consideration for EMB's waiver of its registration rights for 7,500,000
shares of e-Net common stock already held by EMB. The shares issued were
valued at $0.14 per share based on 10% discount from the closing price on
the date of the agreement. The Company will record a settlement expense of
$202,500 with regard to this issuance.
ii) E-Net issued to Williams de Broe ("WdB") 3,000,000 shares of
restricted common stock as consideration for WdB's release of all claims
against e-Net arising under the purported guarantee of EMB's obligation to
WbD by e-Net. The parties agreed that $424,766 be credited as additional
consideration to apply to the EMB notes payable.
iii) EMB acknowledges its obligations to pay all outstanding leases
covering equipment and/or furniture now in the possession of e-Net as
contemplated by the agreement. Management expects to settle these leases
for less than $20,000.
iv) EMB assigns its rights of a portion of e-Net's note payable
totaling $485,446 to AMRES Holdings LLC, a related party.
v) EMB forgave principal and interest totaling $172,000. The balance
of $103,000 convertible notes was issued, interest at 10% per annum. The
note has a mandatory conversion into the Company's common stock on December
15, 2001.
9
EXECUTIVE COMPENSATION
On July 1, 2001, e-Net entered into an Employment Agreement with
Vincent Rinehart. Under the terms of the agreement, the Company is to pay to
Mr. Rinehart a salary equal to $275,000 per year, subject to an annual increase
of 10% commencing January 1, 2002, plus an automobile allowance of $1,200 per
month and other benefits, including life insurance. The agreement is for a term
of five years and provides for a severance payment in the amount of $500,000 and
immediate vesting of all stock options in the event his employment is terminated
for any reason, including cause. Mr. Rinehart was granted options to acquire
2,500,000 shares of e-Net common stock at the closing price on the date of the
agreement which shall vest monthly over a one year period. The number of shares
to be acquired upon exercise of the options shall not be adjusted for a stock
split, and is limited to both a maximum value of $1,900,000, and 20% of the
outstanding common stock of the Company. The Company has yet to assess the value
of these options.
DISCUSSION OF SUBSIDIARY OPERATIONS
AMERICAN RESIDENTIAL FUNDING, INC. ("AMRES")
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 American Residential
Funding, Inc. ("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 branch operations.
The name "AMRES" is approved for use by American Residential Funding, Inc.
by the California Department of Real Estate, the primary governing body of
AMRES. An appropriate DBA filing of AMRES has been done, and the company is
regularly referred to as "AMRES".
LOAN MAKING
AMRES is primarily a loan broker, arranging approximately $50,000,000 a
month in home loans. AMRES, through their agents in some 140 branches (1-8
agents in each branch) is licensed in 39 states to originate loans. Although
AMRES has a $2,000,000 line of credit with which to fund loans, less than 5% of
total loan volume is funded this way. AMRES, through their loan agents, locates
prospective borrowers from real estate brokers, home developers, and marketing
to the general public. After taking a loan application, AMRES processes the
loan package, including obtaining credit and appraisal reports. AMRES then
presents the loan to one of approximately 200 approved lenders, who then approve
the loan, draw loan documents and fund the loan. AMRES receives a commission
for each brokered loan, less what is paid to each agent.
LOAN STANDARDS
Mortgage loans arranged by AMRES are generally 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
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 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. 95% of all loans originated by AMRES are brokered
to lenders and not underwritten or funded by AMRES.
The mortgage loans are "one-to-four-family" mortgage loans, which are
permanent loans (as opposed to construction or land development loans) secured
by mortgages on non-farm properties, including attached or detached
single-family or second/vacation homes, one-to-four-family primary residences
and condominiums or other attached dwelling units, including individual
condominiums, row houses, townhouses and other separate dwelling units even when
located in buildings containing five or more such units. Each mortgage loan must
be secured by an owner-occupied primary residence or second/vacation home, or by
a non-owner occupied residence. The mortgaged property may not be a mobile home.
In general, no mortgage loan is expected to have an original principal
balance less than $30,000. While most loans will be less than $700,000, loans of
up to $2,000,000 may be brokered to unaffiliated third-party mortgage lenders.
10
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 lender. For
certain mortgage loans which may be subject to a mortgage pool insurance policy,
the lender may delegate to the issuer of the mortgage pool insurance policy the
responsibility of underwriting such mortgage loans, in accordance with the
lender's credit appraisal and underwriting standards.
A lender'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 lender 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 arranged by the lender 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 lender
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 lender's underwriting standards generally follow guidelines acceptable
to FNMA ("Fannie Mae") and FHLMC ("Freddie Mac"). The lender'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. Over 95% of all loans processed are underwritten and
funded by approved lenders of AMRES. Very few loans, approximately 5%, are
funded by AMRES on their line of credit for future resell.
Title Insurance Policies
The lender 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.
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.
11
The above described laws do not have a material effect on the Company's
operations because it acts primarily as a broker to direct lenders.
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 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. The AMRES Intranet system allows branch offices to have
around-the-clock access to the system.
Customer Service and Support
AMRES provides branch owners with on-line technical support, training,
consulting and implementation services. These services consist of the
following:
Customer Education and Training
AMRES offers training courses designed to meet the needs of end users,
integration experts and system administrators. AMRES 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 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.
EXPIDOC 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. ExpiDoc currently employs 3 people, located in Costa Mesa.
SALES AND MARKETING
As of June 30, 2001, the Company marketed and sold its mortgage brokerage
services primarily through a direct sales force of loan agents totaling
approximately 24 persons based in Costa Mesa, California, as well as
approximately 120 loan agents at branch ocations. The Company maintains four
Company-owned offices in Southern California and approximately 140 branch
offices in 39 states. The sales efforts of the Company to market its branch
opportunities are located primarily in the Company's Costa Mesa, California
headquarters office. Once a branch is opened, a branch manager supervises a
licensed branch office and its employees, and receives a percentage of the
profits of that branch. AMRES provides accounting, licensing, legal, compliance
and lender access for each branch, retaining a percentage of commission
generated by loan correspondents at each branch. The branch managers must follow
all guidelines set forth by AMRES as well as all regulations of various
government agencies and are independently responsible for the expenses incurred
at the branch level, including personnel expenses.
12
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 claims by third parties based on damages and costs
resulting from environmental contamination emanating from such property.
TRADE NAMES AND SERVICE MARKS
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.
13
Employees
As of June 30, 2001, the Company employed a total of 143 persons. Of the total,
15 officers and employees were employed at the principal executive offices of
the Company in Costa Mesa, California, all of whom were engaged in finance and
administration. In addition, the Company, through its net branch operations,
employed 128 individuals, 29 of whom were engaged in loan administration and 99
of whom were engaged in loan production. None of the Company's employees is
represented by a labor union with respect to his or her employment by the
Company.
Facilities
Our principal place of business is in Costa Mesa, California, where we
lease an approximately 6,800 square foot facility for $190,000 per annum
(subject to usual and customary adjustments), under a written lease which
terminates in March 2003. This location houses our corporate finance,
administration, and sales and marketing functions. ExpiDoc and the Costa Mesa
office of AMRES sub-lease space at this facility from e-Net on a month-to-month
basis for $1,000 and $4,000, respectively.
AMRES leases additional facilities: Long Beach, California (month-to-month,
$3,450 per month); Palmdale, California (month-to-month, $ 1,911 per month), and
Riverside, California (term expiring in 2003, $2,117 per month).
All branch offices are leased in the name of its respective manager, with
lease payments made from revenues generated by that branch. The Company does not
undertake any liability for those locations.
We believe that our current facilities will be adequate to meet our needs,
and that we will be able to obtain additional or alternative space when and as
needed on acceptable terms. We may also hold real estate for sale from time to
time as a result of our foreclosure on mortgage loans that may become in
default.
BRAVOREALTY.COM
BravoRealty.com, which is not affiliated with the now non-operational Bravo
Real Estate, is an internet-based real estate brokerage which was incorporated
in May 2000 and began operations in January 2001. AMRES owns 69% of
BravoRealty.com, with the balance owned by Vincent Rinehart (15%), David
Villarreal (15%), and Kevin Gadawski (1%). Bravorealty.com's business model
targets real estate agents as its customers and offers 100% commission retention
for the agent, while charging a minimal fixed fee per closed transaction.
Bravorealty.com's web site is operational, but it is currently in need of
funding to complete its launch and implement the required infrastructure. If
e-Net is able to secure the required funding, e-Net will remain the majority
shareholder. If the required funding is secured from outside investors, e-Net
may retain only a minority ownership position.
14
RISK FACTORS
In this section we highlight some of the risks associated with our business and
operations. Prospective investors should carefully consider the following risk
factors when evaluating an investment in the common stock offered by this
Reoffer Prospectus.
WE HAVE INCURRED SUBSTANTIAL OPERATING LOSSES AND OUR AUDITORS HAVE ISSUED A
"GOING CONCERN" AUDIT OPINION
Our consolidated financial statements filed with the United States
Securities and Exchange Commission have been prepared assuming that we will
continue as a going concern, which contemplates the realization of assets and
liquidation of liabilities in the normal course of business. Our auditors have
expressed reservations in their audit letter for the fiscal year ended April 30,
2001 about our ability to continue as a going concern. As discussed in our
financial statements, we have incurred significant operating losses in our most
recent fiscal year and have a working capital deficit and negative tangible net
worth.
YOU MAY BE UNABLE TO EFFECTIVELY EVALUATE OUR COMPANY FOR INVESTMENT PURPOSES
BECAUSE OUR BUSINESSES HAVE EXISTED FOR ONLY A SHORT PERIOD OF TIME
We began our current operations in March 1999. As a result, we have only
a limited operating history upon which you may evaluate our business and
prospects. In addition, you must consider our prospects in light of the risks
and uncertainties encountered by companies in an early stage of development in
new and rapidly evolving markets. We had no revenues from operations prior to
the acquisition of our E-Net Mortgage and VPN subsidiaries in March 1999. In
addition, we had no significant assets or financial resources prior to these
acquisitions. The success of the our proposed plan of operation will depend to a
great extent on the operations, financial condition and management of these
recently acquired subsidiaries.
15
Our ability to integrate these subsidiaries' activities into our
consolidated operations is uncertain. The success of our operations may be
dependent upon numerous factors beyond our control. No person should invest in
this offering unless they can afford to lose their entire investment.
OUR FUTURE REVENUES ARE UNPREDICTABLE AND OUR OPERATING RESULTS ARE LIKELY TO
FLUCTUATE FROM QUARTER TO QUARTER
Our quarterly and annual operating results have fluctuated in the past
and are likely to fluctuate significantly in the future due to a variety of
factors, some of which are outside of our control. Accordingly, we believe that
period-to-period comparisons of our results of operations are not meaningful and
should not be relied upon as indications of future performance. Some of the
factors that could cause our quarterly or annual operating results to fluctuate
include market acceptance of our mortgage services and systems, business
development, ability to originate and process mortgage loans, and competitive
pressures.
THE MORTGAGE LENDING BUSINESS IS AFFECTED BY INTEREST RATES AND OTHER FACTORS
BEYOND OUR CONTROL
The results of our operations will be affected by various factors, many
of which are beyond our control. The results of our operations will depend,
among other things, on the level of net cash flows generated by our mortgage
assets and the supply of and demand for mortgage loans. Our net cash flows will
vary as a result of changes in interest rates, the behavior of which involves
various risks and uncertainties as set forth below. Prepayment rates and
interest rates depend upon the nature and terms of the mortgage assets, the
geographic location of the properties securing the mortgage loans, conditions in
financial markets, the fiscal and monetary policies of the United States
government and the Board of Governors of the Federal Reserve System,
international economic and financial conditions, competition and other factors,
none of which can be predicted with any certainty. Because interest rates will
significantly affect our activities, our operating results will depend, in large
part, upon our ability to utilize appropriate strategies to maximize returns
while attempting to minimize risks.
MORTGAGE LOANS ARE SUBJECT TO THE RISK OF DEFAULT BY BORROWERS AND CERTAIN
INHERENT RISKS RELATED TO REAL ESTATE
Mortgage loans are subject to varying degrees of risk, including the
risk of a default by the borrowers on a mortgage loan, and the added
responsibility on our part of foreclosing in order to protect its investment.
The ability of the borrowers to make payments on non-single-family mortgage
loans is highly dependent on the borrowers' ability to manage and sell,
refinance or otherwise dispose of the properties and will be dependent upon all
the risks generally associated with real estate investments which are beyond our
control. We must rely on the experience and ability of the borrowers to manage,
develop and dispose of or refinance the properties. Investing in real estate is
highly competitive and is subject to numerous inherent risks, including, without
limitation, changes in general or local economic conditions, neighborhood values
and interest rates, limited availability of mortgage funds which may render the
sale or refinancing of the properties difficult, increases in real estate taxes,
other operating expenses, the supply and demand for properties of the type
involved, toxic and hazardous wastes, environmental considerations, zoning laws,
entitlements, rent control laws, other governmental rules and fiscal policies
and acts of God, such as floods, which may result in uninsured losses.
WE MAY NOT DIVERSIFY OUR PORTFOLIO OF MORTGAGE LOANS
Our mortgage loans may be obligations of a limited number of borrowers
on a limited number of properties. The lack of diversity in the type, number and
geographic location of mortgage loans made could materially increase the risk of
an investment in the Common Stock.
16
IN THE EVENT WE ARE NOT SUCCESSFUL IN SECURITIZING MORTGAGE LOANS, WE WILL
CONTINUE TO BEAR THE RISKS OF BORROWER DEFAULTS AND BANKRUPTCIES, FRAUD LOSSES
AND SPECIAL HAZARD LOSSES.
We may acquire and accumulate mortgage loans as part of its long-term
investment strategy or until a sufficient quantity has been acquired for
securitization into mortgage-backed securities. There can be no assurance that
we will be successful in securitizing mortgage loans. While holding mortgage
loans, we will be subject to risks of borrower defaults and bankruptcies, fraud
losses and special hazard losses. In the event of any default under mortgage
loans held by us, we will bear the risk of loss of principal to the extent of
any deficiency between the value of the mortgage collateral and the principal
amount of the mortgage loan. It may not be desirable, possible or economic for
us to complete the securitization of any or all mortgage loans which we acquire
or fund, in which case we will continue to hold the mortgage loans and bear the
risks of borrower defaults and special hazard losses.
Mortgage loans invested in by us will be secured by the properties and
will also be a recourse obligation of the borrower. In the event of a default,
we would be able to look to the borrower to make up any deficiency between the
value of the collateral and the principal amount of the mortgage loan.
It is expected that when we acquire mortgage loans, the sellers will
represent and warrant to us that there has been no fraud or misrepresentation
with respect to the origination of the mortgage loans and will agree to
repurchase any loan with respect to which there is fraud or misrepresentation.
There can be no assurance that we will be able to obtain the repurchase
agreement from the sellers. Although we may have recourse to the sellers based
on the sellers' representations and warranties to us, we will be at risk for
loss to the extent the sellers do not perform their repurchase obligations.
We may acquire mortgage loans from failed savings and loan associations
or banks through United States government agencies such as the Resolution Trust
Corporation or the Federal Deposit Insurance Corporation. These institutions do
not provide the seller's typical representations against fraud and
misrepresentation. We intend to acquire third party insurance, to the extent
that it is available at a reasonable price, for such risks. In the event we are
unable to acquire such insurance, we would be relying solely on the value of the
collateral underlying the mortgage loans. Accordingly, we will be subject to a
greater risk of loss on obligations purchased from these institutions.
Since April, 1999, our growth in originating loans has been significant.
In light of this growth, our historical financial performance may be of limited
relevance in predicting future performance. Also, the loans we originate have
been outstanding for a relatively short period of time. Consequently, our
delinquency and loss experience to date may not be indicative of future results.
It is unlikely we will be able to maintain delinquency and loan loss ratios at
their present levels to the extent that our loan portfolio becomes more seasoned
and are not resold by us.
TO THE EXTENT THAT WE ARE UNABLE TO MAINTAIN AN ADEQUATE WAREHOUSE LINE OF
CREDIT, WE MAY HAVE TO CURTAIL LOAN ORIGINATION AND PURCHASING ACTIVITIES
We rely significantly upon our access to warehouse credit facilities in
order to fund new originations and purchases. We have a $1,000,000 warehouse
line of credit with FirstPlus Bank and a $1,000,000 warehouse line of credit
with First Collateral Services. We expect to be able to maintain its existing
warehouse line of credit (or to obtain replacement or additional financing) as
the current arrangements expire or become fully utilized; however, there can be
no assurance that such financing will be obtainable on favorable terms, if at
all. To the extent we are unable to maintain an adequate warehouse line of
credit, we may have to curtail loan origination and purchasing activities, which
could have a material adverse effect on our operations and financial condition.
17
VARIATIONS IN MORTGAGE PREPAYMENTS MAY CAUSE CHANGES IN OUR NET CASH FLOWS
Mortgage prepayment rates vary from time to time and may cause changes
in the amount of our net cash flows. To the extent that prepayments occur, the
yield on our mortgage loans would be affected as well as our net cash flows.
Prepayments of adjustable-rate mortgage loans included in or underlying
mortgage-backed securities generally increase when then-current mortgage
interest rates fall below the interest rates on such adjustable-rate mortgage
loans. Conversely, prepayments of such mortgage loans generally decrease when
then-current mortgage interest rates exceed the interest rate on the mortgage
loans included in or underlying such mortgage-backed securities. Prepayment
experience also may be affected by the geographic location of the properties
securing the mortgage loans included in or underlying mortgage-backed
securities, the assumability of such mortgage loans, the ability of the borrower
to convert to a fixed-rate loan, conditions in the housing and financial markets
and general economic conditions.
OUR PORTFOLIO OF MORTGAGE LOANS MAY INCLUDE PRIVATELY ISSUED PASS-THROUGH
CERTIFICATES WHICH ARE TYPICALLY NOT GUARANTEED BY THE UNITED STATES GOVERNMENT
We may include privately issued pass-through certificates backed by
pools of adjustable-rate single family and multi-family mortgage loans and other
real estate-backed mortgage loans in its investment portfolio. Because principal
and interest payments on privately issued pass-through certificates are
typically not guaranteed by the United States government or an agency of the
United States government, such securities generally are structured with one or
more types of credit enhancement. Such forms of credit enhancement are
structured to provide protection against risk of loss due to default on the
underlying mortgage loan, or bankruptcy, fraud and special hazard losses, such
as earthquakes. Typically, third parties insure against these types of losses,
and we would be dependent upon the credit worthiness of the insurer for
credit-rating, claims paying ability of the insurer and timeliness of
reimbursement in the event of a default on the underlying obligations.
Furthermore, the insurance coverage for various types of losses is limited in
amount, and losses in excess of the limitation would be our responsibility.
We may also purchase mortgage loans issued by GNMA, FNMA or FHLMC. Each
of these entities provides guarantees against risk of loss for securities issued
by it. In the case of GNMA, the timely payment of principal and interest on its
certificates is guaranteed by the full faith and credit of the United States
government. FNMA guarantees the scheduled payments of interest and principal and
the full principal amount of any mortgage loan foreclosed or liquidated on its
obligations. FHLMC guarantees the timely payment of interest and ultimate
collection of principal on its obligations, while with respect to certificates
issued by FNMA and FHLMC, payment of principal and interest of such certificates
are guaranteed only by the respective entity and not by the full faith and
credit of the United States government.
WE ARE DEPENDENT UPON INDEPENDENT MORTGAGE BROKERS AND OTHERS, NONE OF WHOM IS
CONTRACTUALLY OBLIGATED TO DO BUSINESS WITH US
We depend in part on independent mortgage brokers, financial
institutions, realtors(R) and mortgage bankers for our originations and
purchases of mortgage loans. Our competitors also seek to establish
relationships with such independent mortgage brokers, financial institutions,
realtors(R) and mortgage bankers, none of whom is contractually obligated to
continue to do business with us. In addition, we expect the volume of wholesale
loans that it originates and purchases to increase. Our future results may
become more exposed to fluctuations in the volume and cost of its wholesale
loans resulting from competition from other originators and purchasers of such
loans, market conditions and other factors.
18
WE WILL HAVE LITTLE CONTROL OVER THE OPERATIONS OF THE PASS-THROUGH ENTITIES IN
WHICH WE MAY PURCHASE INTERESTS
If we purchase interests in various pass-through entities, it will
itself be in the position of a "holder" of shares of such entities including,
real estate investment trusts, other trusts or partnerships, or a holder of
other types of pass-through interests. Therefore, we will be relying exclusively
on the management capabilities of the general partners, managers and trustees of
those entities for the management and investment decisions made on their behalf.
In particular, except for voting rights on certain matters, we will have no
control over the operations of the pass-through entities in which it purchases
interests, including all matters relating to the operation, management,
investment decisions, income and expenses of such entities, including decisions
with respect to actions to be taken to collect amounts owed to such entities. If
such managers, trustees or general partners take actions or make decisions which
are adverse to a pass-through entity or us, it may not be cost-efficient for us
to challenge such actions or decisions.
Moreover, we do not become a substituted owner of such interests, we will
not have the right to vote on matters on which other interest owners in such
entities have a right to vote or otherwise challenge management decisions.
Finally, should any of such managers, trustees or general partners experience
financial difficulties for any reason, the entities in which we invest could be
adversely affected, thereby adversely affecting the value of our investments.
BORROWERS MAY NOT HAVE SUFFICIENT ASSETS TO PAY OFF THE BALLOON PAYMENTS AT
MATURITY
Mortgage loans, other than those representing mortgage loans on
single-family residential, may represent "balloon" obligations, requiring no
payments of principal over the term of the indebtedness with a "balloon" payment
of all of the principal due at maturity. "Balloon" payments will probably
require a sale or refinancing of properties at the time they are due. No
assurance can be given that the borrowers will have sufficient assets to pay off
the indebtedness when due, or that sufficient liquidity will be generated from
the disposition or refinancing of the properties to enable the owner to pay the
principal or interest due on such mortgage loans.
UPON FORECLOSURE OF A PROPERTY, WE MAY HAVE DIFFICULTY IN FINDING A PURCHASER OR
MAY HAVE TO SELL THE PROPERTY AT A LOSS
If a mortgaged property is not sold by the maturity date of the
underlying mortgage loan, the borrower may have difficulty in paying the
outstanding balance of such mortgage loan and may have to refinance the
property. The borrower may also experience difficulty in refinancing the
property if that becomes necessary due to unfavorable interest rates or the
unavailability of credit.
If any amounts under a mortgage loan are not paid when due, we may
foreclose upon the property of the borrower. In the event of such a default
which requires us to foreclose upon a property or otherwise pursue its remedies
in order to protect the our investment, we will seek to obtain a purchaser for
the property upon such terms as we deem reasonable. However, there can be no
assurance that the amount realized upon any such sale of the underlying property
will result in financial profit or prevent loss to us. In addition, because of
potential adverse changes in the real estate market, locally or nationally, we
may be forced to own and maintain the property for a period of time to protect
the value of its investment. In that event, we may not be able to receive any
cash flow from such mortgage loan and we would be required to pay such sums as
may be necessary to maintain and manage the property.
19
WE MAY BE REQUIRED TO INVESTIGATE AND CLEAN UP HAZARDOUS OR TOXIC SUBSTANCES OF
PROPERTIES SECURING LOANS THAT ARE IN DEFAULT
We have not been required to perform any investigation or clean up
activities, nor have we 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 our business, we have acquired and may acquire in the
future properties securing loans that are in default. Although we primarily lend
to owners of residential properties, there is a risk that we could be required
to investigate and clean up hazardous or toxic substances or chemical releases
at such properties after acquisition, and may be held liable to a governmental
entity or to third parties for property damage, personal injury and
investigation and cleanup costs incurred by such parties in connection with the
contamination. In addition, the owner or former owners of a contaminated site
may be subject to common law claims by third pies based on damages and costs
resulting from environmental contamination emanating from such property.
THE AMOUNT OF INTEREST CHARGED TO A BORROWER IS SUBJECT TO COMPLIANCE WITH STATE
USURY LAWS
The amount of interest payable by a borrower to us may exceed the rate
of interest permitted under the California Usury Law and the usury laws of other
states. Although we do not intend to make or invest in mortgage loans with
usurious interest rates, there are uncertainties in determining the legality of
interest rates. Such limitations, if applicable, may decrease the yield on our
investments.
With respect to the interest rate charged by us to borrowers in the
State of California, we will be relying upon the exemption from its usury law
which provides that loans that are made or arranged by a licensed real estate
broker and which are secured by a lien on real property are exempt from the
usury law. We intend to use licensed real estate brokers to arrange the mortgage
loans so that no violation of the applicable usury law would take place.
Additionally, if any employee or director of ours or our subsidiaries is a
licensed real estate broker in the State of California, we may use such person
to arrange all or a portion of the mortgage loans to qualify for the usury
exemption.
The consequences for failing to abide by the usury law include
forfeiture of all interest payable on the loan, treble damages with respect to
excessive interest actually paid, and criminal penalties. We believe that
because of the applicable exemptions and the provisions of California Civil Code
1917.005 exempting lenders who originate loan transactions from the California
usury laws, no violation of the California Usury Law will occur. We will attempt
to rely on similar exemptions in other states if necessary but there is no
guarantee that it will be able to do so.
IF A BORROWER ENTERS BANKRUPTCY, AN AUTOMATIC STAY WILL PREVENT US OR ANY
TRUSTEE FROM FORECLOSING ON THE PROPERTY SECURING SUCH BORROWER'S LOAN UNTIL
RELIEF FROM THE STAY CAN BE SOUGHT.
If a borrower enters bankruptcy, either voluntarily or involuntarily, an
automatic stay of all proceedings against the borrower's property will issue.
This stay will prevent the Company or any trustee from foreclosing on the
property securing such borrower's loan until relief from the stay can be sought
from the bankruptcy court. No guaranty can be given that the bankruptcy court
will lift the stay, and significant legal fees and costs may be incurred in
attempting to obtain such relief.
WE FACE COMPETITION IN THE ACQUISITION OF MORTGAGE LOANS FROM COMPETITORS HAVING
GREATER FINANCIAL RESOURCES
We will face intense competition in the origination, acquisition and
liquidation of its mortgage loans. Such competition can be expected from banks,
savings and loan associations and other entities, including REITs. Many of our
competitors have greater financial resources than ours.
20
THE MARKET PRICE OF OUR COMMON STOCK MAY EXPERIENCE FLUCTUATION UNRELATED TO
OPERATING PERFORMANCE, INCLUDING FUTURE PRIVATE OR PUBLIC OFFERINGS OF OUR
CAPITAL STOCK
The market price of our Common Stock may experience fluctuations that
are unrelated to our operating performance. In particular, the price of the
Common Stock may be affected by general market price movements as well as
developments specifically related to the mortgage industry such as, among other
things, interest rate movements. In addition, our operating income on a
quarterly basis is significantly dependent upon the successful completion of our
loan sales in the market, and our inability to complete these transactions in a
particular quarter may have a material adverse impact on our results of
operations for that quarter and could, therefore, negatively impact the price of
the Common Stock.
We may increase our capital by making additional private or public
offerings of its Common Stock, securities convertible into its Common Stock,
preferred stock or debt securities. The actual or perceived effect of such
offerings, the timing of which cannot be predicted, may be the dilution of the
book value or earnings per share of the Common Stock outstanding, which may
result in the reduction of the market price of the Common Stock and affect our
ability to access the capital markets.
BECAUSE OF INTENSE COMPETITION FOR SKILLED PERSONNEL, WE MAY NOT BE ABLE TO
RECRUIT OR RETAIN NECESSARY PERSONNEL ON A COST-EFFECTIVE BASIS
Our future success will depend in large part upon our ability to
identify, hire, retain and motivate highly skilled employees. We plan to
significantly increase the number of our marketing, sales, customer support and
operations employees to effectively serve the evolving needs of our present and
future customers. Competition for highly skilled employees in our industry is
intense. In addition, employees may leave our company and subsequently compete
against us. Our failure to attract and retain these qualified employees could
significantly harm our business. The loss of the services of any of our
qualified employees, the inability to attract or retain qualified personnel in
the future or delays in hiring required personnel could hinder the development
and introduction of new and enhanced products and harm our ability to sell our
products. Moreover, companies in our industry whose employees accept positions
with competitors frequently claim that their competitors have engaged in unfair
hiring practices. We may be subject to such claims in the future as we seek to
hire qualified personnel, some of whom may currently be working for our
competitors. Some of these claims may result in material litigation. We could
incur substantial costs in defending ourselves against these claims, regardless
of their merits.
THE LOSS OF ANY OF OUR KEY PERSONNEL COULD SIGNIFICANTLY HARM OUR BUSINESS
Our success depends to a significant degree upon the continuing
contributions of our key management, technical, marketing and sales employees.
The loss of the services of any key employee could significantly harm our
business, financial condition and results of operations. There can be no
assurance that we will be successful in retaining our key employees or that we
can attract or retain additional skilled personnel as required. Failure to
retain key personnel could significantly harm our business, financial condition
and results of operations.
OUR FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY MAY SIGNIFICANTLY HARM OUR
BUSINESS
Our future success and ability to compete is dependent, in part, on our
proprietary technology. We rely on a combination of trade secret, copyright and
trademark laws to establish and protect our proprietary rights. To date, we have
relied primarily on proprietary processes and know-how to protect our
intellectual property.
21
We also generally enter into confidentiality agreements with our employees
and consultants, strictly limit access to and distribution of our source code
and further limit the disclosure and use of our other proprietary information.
However, these agreements provide only limited protection of our intellectual
property rights. In addition, we may not have signed agreements containing
adequate protective provisions in every case, and the contractual provisions
that are in place and the protection they provide may not provide us with
adequate protection in all circumstances. Any infringement of our proprietary
rights could result in significant litigation costs, and any failure to
adequately protect our proprietary rights could result in our competitors
offering similar products, potentially resulting in loss of a competitive
advantage and decreased revenues. Despite our efforts to protect our proprietary
rights, existing trade secret, copyright and trademark laws afford us only
limited protection. In addition, the laws of some foreign countries do not
protect our proprietary rights to the same extent as do the laws of the United
States. Others may attempt to copy or reverse engineer aspects of our products
or to obtain and use information that we regard as proprietary. Accordingly, we
may not be able to prevent misappropriation of our technologies or to deter
others from developing similar technologies. Further, policing the unauthorized
use of our products is difficult. Litigation may be necessary in the future to
enforce our intellectual property rights or to determine the validity and scope
of the proprietary rights of others. This litigation could result in substantial
costs and diversion of resources and could significantly harm our business.
CLAIMS THAT WE INFRINGE THIRD-PARTY INTELLECTUAL PROPERTY RIGHTS COULD RESULT IN
SIGNIFICANT EXPENSES OR RESTRICTIONS ON OUR ABILITY TO SELL OUR PRODUCTS
From time to time, other parties may assert patent, copyright, trademark
and other intellectual property rights to technologies and in various
jurisdictions that are important to our business. Any claims asserting that our
products infringe or may infringe proprietary rights of third parties, if
determined adversely to us, could significantly harm our business. Any claims,
with or without merit, could be time-consuming, result in costly litigation,
divert the efforts of our technical and management personnel, cause product
shipment delays or require us to enter into royalty or licensing agreements, any
of which could significantly harm our business. Royalty or licensing agreements,
if required, may not be available on terms acceptable to us, if at all. In the
event a claim against us was successful and we could not obtain a license to the
relevant technology on acceptable terms or license a substitute technology or
redesign our products to avoid infringement, our business would be harmed.
ANY ACQUISITIONS THAT WE MAY UNDERTAKE COULD BE DIFFICULT TO INTEGRATE, DISRUPT
OUR BUSINESS, DILUTE SHAREHOLDER VALUE AND SIGNIFICANTLY HARM OUR OPERATING
RESULTS
We expect to review opportunities to buy other businesses or
technologies that would complement our current products, expand the breadth of
our markets or enhance our technical capabilities, or that may otherwise offer
growth opportunities. While we have no current agreements or negotiations
underway, we may buy businesses, products or technologies in the future. If we
make any future acquisitions, we could issue stock that would dilute existing
stockholders' percentage ownership, incur substantial debt or assume contingent
liabilities. We have no experience in acquiring other businesses and
technologies. Potential acquisitions also involve numerous risks, including:
- - problems assimilating the purchased operations, technologies or products;
- - unanticipated costs associated with the acquisition;
- - diversion of management's attention from our core business;
- - adverse effects on existing business relationships with suppliers and
customers;
- - risks associated with entering markets in which we have no or limited prior
experience; and
- - potential loss of the purchased organization's or our own key employees.
22
We cannot assure you that we would be successful in overcoming problems
encountered in connection with such acquisitions, and our inability to do so
could significantly harm our business.
OUR HEADQUARTERS AND MANY OF OUR CUSTOMERS ARE LOCATED IN CALIFORNIA WHERE
NATURAL DISASTERS MAY OCCUR
Currently, our corporate headquarters, many of the borrowers for whom we
provide mortgages are located in California. California historically has been
vulnerable to natural disasters and other risks, such as earthquakes, fires and
floods, which at times have disrupted the local economy and posed physical risks
to our property. We presently do not have redundant, multiple site capacity in
the event of a natural disaster. In the event of such a disaster, our business
would suffer.
OUR EXECUTIVE OFFICERS, DIRECTORS, 5% OR GREATER STOCKHOLDERS AND ENTITIES
AFFILIATED WITH THEM WILL CONTINUE TO OWN A LARGE PERCENTAGE OF OUR VOTING STOCK
AFTER THIS OFFERING, WHICH WILL ALLOW THEM TO CONTROL SUBSTANTIALLY ALL MATTERS
REQUIRING STOCKHOLDER APPROVAL
Our executive officers, directors, 5% or greater stockholders and
entities affiliated with them beneficially own in excess of 60% of our
outstanding shares of common stock. These stockholders, acting together, are
able to elect at least a majority of our board of directors and to control all
other matters requiring approval by stockholders, including the approval of
mergers or other business combination transactions, going private transactions
and other extraordinary transactions, and the terms of any of these
transactions. This concentration of ownership could have the effect of delaying
or preventing a change in our control or otherwise discouraging a potential
acquirer from attempting to obtain control of us, which in turn could have an
adverse effect on the market price of our common stock or prevent our
stockholders from realizing a premium over the market price for their shares of
common stock.
THE SALE OF A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK IN THE PUBLIC
MARKET AFTER THIS OFFERING MAY DEPRESS THE MARKET PRICE OF OUR STOCK
Sales of substantial amounts of our common stock in the public market
due to this offering, or the perception that substantial sales may be made could
cause the market price of our common stock to decline. In addition to the
adverse effect a price decline could have on holders of our common stock, such a
decline would likely impede our ability to raise capital through the issuance of
additional equity securities.
Certain outstanding shares of our Common Stock presently outstanding are
"restricted securities" and under certain circumstances may in the future be
sold in compliance with Rule 144 or Rule 701 adopted under the Securities Act of
1933, as amended, or some other exemption from registration under the Securities
Act of 1933. Future sales of those shares if sold under Rule 144, Rule 701 or
other exemption could depress the market price of the Common Stock in the public
market. However, there can be no assurance that Rule 144, Rule 701 or any other
specific exemption may be available in the future.
CERTAIN "PENNY STOCK" REGULATIONS MAY APPLY TO OUR COMMON STOCK
As of the date of the prospectus, our stock is considered so-called
"penny stock." The so called "penny stock" low-priced securities regulations
could affect the resale of our stock. These regulations require broker-dealers
to disclose the risk associated with buying penny stocks and to disclose their
compensation for selling the stock.
23
They may have the effect of reducing the level of trading activity in the
secondary market for the Common Stock.
FORWARD-LOOKING STATEMENTS ARE INHERENTLY UNCERTAIN
Some statements under the captions "The Company" and " "Risk Factors and
elsewhere in this prospectus are forward-looking statements. These
forward-looking statements include, but are not limited to, statements about our
industry, plans, objectives, expectations, intentions and assumptions and other
statements contained in the prospectus that are not historical facts. When used
in this prospectus, the words "expect," "anticipate," "intend," "plan,"
"believe," "seek," "estimate" and similar expressions are generally intended to
identify forward-looking statements. Because these forward-looking statements
involve risks and uncertainties, including those described in this "Risk
Factors" section, actual results may differ materially from those expressed or
implied by these forward-looking statements. We do not intend to update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise. Market data and forecasts used in this prospectus,
have been obtained from independent industry sources. Although we believe these
sources are reliable, we do not guarantee the accuracy and completeness of
historical data obtained from these sources and we have not independently
verified these data. Forecasts and other forward-looking information obtained
from these sources are subject to the same qualifications and the additional
uncertainties accompanying any estimates of future market size.
USE OF PROCEEDS
E-Net will not receive any of the proceeds form the sale of shares of
common stock by the Selling Shareholders.
SELLING SHAREHOLDERS
Our Shares to which this Reoffer Prospectus relates are being registered
for reoffers and resales by the Selling Shareholders, who acquired the Shares
pursuant to a compensatory benefit plan with E-Net for employment and consulting
services they provided to E-Net. The Selling Shareholders may resell all, a
portion or none of such Shares from time to time.
The table below sets forth with respect to the Selling Shareholders,
based upon information available to us as of August 20, 2001, the number of
Shares owned, the number of Shares registered by this Reoffer Prospectus and the
number and percent of outstanding Shares that will be owned after the sale of
the registered Shares assuming the sale of all of the registered Shares.
Number of Number of Shares Number Percentage of Shares
Selling Shares Owned Registered By Of Shares Owned By Shareholders
Shareholders Before Sale Prospectus To Be Sold After Sale (1)
- --------------- -------------- ------------------ ------------ ---------------------
Myers Group. . . . 0 100,000 100,000 0%
- ------------------ -------------- ------------------- ------------ ---------------------
David Villarreal . 165,000 300,000 300,000 0%
- ------------------ -------------- ------------------- ------------ ---------------------
Jonathan Small . . 0 50,000 50,000 0%
- ------------------ -------------- ------------------- ------------ ---------------------
William Kroske . . 50,000 100,000 100,000 0%
- ------------------ -------------- ------------------- ------------ ---------------------
David Griffith . . 125,000 25,000 25,000 0%
- ------------------ -------------- ------------------- ------------ ---------------------
Brian Lebrecht . . 50,000 75,000 75,000 0%
- ------------------ -------------- ------------------- ------------ ---------------------
Investors Advocate 0 200,000 200,000 0%
================== ============== =================== ============ =====================
TOTALS:. . . . . . 365,000 850,000 850,000
24
PLAN OF DISTRIBUTION
The Selling Shareholders may sell the Shares for value from time to time
under this Reoffer Prospectus on one or more transactions on the
Over-the-Counter Bulletin Board maintained by Nasdaq, or other exchange, in a
negotiated transaction or in a combination of such methods of sale, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at prices otherwise negotiated. Such sales shall be compliance
with all of the requirements of Rule 144. The Selling Shareholders may effect
such transactions by selling the Shares to or through broker-dealers, and such
broker-dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Selling Shareholders and/or the purchasers
of the Shares for whom such broker-dealers may act as agent (which compensation
may be less than or in excess of customary commissions).
The Selling Shareholders and any broker-dealers that participate in the
distribution of the Shares may be deemed to be "underwriters within the meaning
of Section 2(11) of the 1933 Act, and any commissions received by them and any
profit on the resale of the Shares owned by them may be deemed to be
underwriting discounts and commissions under the 1933 Act. All selling and other
expenses incurred by the Selling Shareholders will be borne by the Selling
Shareholders.
There is no assurance that the Selling Shareholders will sell all or any
portion of the Shares offered. We will pay all expenses in connection with this
offering and will not receive any proceeds from sale of any shares by the
Selling Shareholders.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
us by Law Office of David M. Griffith, a Professional Corporation, our counsel.
Mr. Griffith is the beneficial owner of 125,000 shares of our Common Stock.
25
PART II
INFORMATION NOT REQUIRED IN THE REGISTRATION STATEMENT
ITEM 8. EXHIBITS.
4.1 2000 Employee Stock Compensation Program, as amended.
5.1 Opinion of the Law Office of David M. Griffith, a Professional
Corporation, as to the validity of the securities registered
hereunder.
23.1. Consent of the Law Office of David M. Griffith, a Professional
Corporation (set forth in the opinion filed as Exhibit 5 to this
Registration Statement).
23.2. Consent of McKennon Wilson & Morgan LLP.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, in the City of Costa Mesa, State of California on
August 21, 2001.
By: /s/ VINCENT RINEHART
---------------------------------
VINCENT RINEHART
President and Chief
Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates indicated.
SIGNATURE TITLE DATE
/s/ SCOTT PRESTA Director August 21, 2001
- ---------------------
SCOTT PRESTA
/s/ VINCENT RINEHART Chairman of the Board, August 21, 2001
- ----------------------- Chief Executive Officer,
VINCENT RINEHART President and Acting Chief
Financial Officer (Principal
Executive and Accounting Officer)
26
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
4.1 2000 Employee Stock Compensation Program, as amended.
5.1 Opinion of the Law Office of David M. Griffith, a Professional
Corporation,
as to the validity of the securities registered hereunder.
23.1. Consent of the Law Office of David M. Griffith, a Professional
Corporation (set forth in the opinion filed as Exhibit 5 to this
Registration Statement).
23.2. Consent of McKennon Wilson & Morgan LLP
- -----------------------------------
27