U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________________________
FORM 10-QSB
_____________________________________
(Mark One) [X] Quarterly report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 2003
OR
[ ] Transition report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
For the transition period from __________ to _________.
| America First Associates Corp. | Delaware | 11-3246880 |
| (Exact name of small business issuer as specified in its charter) | (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
160 E 56th ST, 6th fl New York, NY 10022
(Address of principal executive offices)
(212) 644-8520
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X No ____
On March 31, 2003 the registrant had 9,018,000 outstanding shares of common stock, $0.001 par value.
Transitional Small Business Disclosure Format (check one): Yes ______ No X
America First Associates Corp.
Financial Statements Three Months Ended March 31, 2003
Index to Financial Statements
| Statement of Financial Condition | F-2 |
| Statement of Operations | F-3 |
| Statement of Changes in Stockholders' Equity | F-4 |
| Statement of Cash Flow | F-5 |
| Notes to Financial Statements | F-6 |
| Management Discussion and Analysis | F-10 |
| All other schedules are not required to be filed by registrant. |
F-1
America First Associates Corp.
Statement of Financial Condition
For The Three Months Ended March 31, 2003
March 31, 2003 | ||
| Assets | ||
| Cash and cash equivalents | $ 633,646 | |
| Securities owned | 377,029 | |
| Office furniture and equipment, net of accumulated depreciation of $23,791; for three months ended 2003 | 3,782 | |
| Prepaid expenses | 1443 | |
| Other assets | 26,000 | |
| Total Assets | $ 1,041,900 | |
| Liabilities and shareholder's equity | ||
| Liabilities: | ||
| Accounts payable and accrued expenses | $ 15,000 | |
| Securities sold, not yet purchased | - | |
| Total Liabilities | $ 15,000 | |
| Commitments | ||
| Shareholders' equity: | ||
| Common stock, $.001 par value, 20,000,000 shares authorized, 9,018,000 shares issued and outstanding | 9,018 | |
| Additional paid-in capital | 2,121,230 | |
| Retained earnings | (1,048,732) | |
| Net Income | (54,616) | |
| Total shareholders' equity | $ 1,026,900 | |
| Total liabilities and shareholders' equity | $ 1,041,900 | |
The notes are an integral part of the Financial Statements
F-2
America First Associates Corp.
Statement of Operations
For the Three Months Ended March 31, 2003
And
For the Three Months Ended March 31, 2002
| Revenues: | 2003 | 2002 | ||
| Commissions | $ 110,141 | $ 82,358 | ||
| Syndicate income | - | 60,000 | ||
| Principal transactions | - | - | ||
| Interest and other income | 5,574 | 4,295 | ||
| Total Revenues | $ 115,715 | $ 146,653 | ||
| Expenses: | ||||
| Accrued Expense | $ 15,000 | $ - | ||
| Consulting and Professional Fees | 5,000 | - | ||
| Loss on Investments | 26,114 | 114,086 | ||
| Employee compensation and benefits | 43,113 | 44,285 | ||
| Clearing charges | 35,036 | 48,802 | ||
| Communications and data processing | 3,342 | 3,374 | ||
| Business development | 2,808 | - | ||
| Occupancy costs | 12,700 | 12,600 | ||
| Regulatory and registration fees | 16,975 | 17,351 | ||
| Depreciation and amortization | 540 | 540 | ||
| Travel and entertainment | 2,627 | 2,222 | ||
| Other expenses | 5,314 | 7,767 | ||
| Total expenses | 168,569 | 136,941 | ||
| Income (loss) before income taxes | (52,854) | (104, 374) | ||
| Provision for income taxes | 1,762 | - | ||
| Net income (loss) | $ (54,616) | $ (104,374) | ||
| Earnings Per Share | ||||
| Basic and Dilutive | (0.006) | (0.0115) | ||
| Weighted Average Common Shares Outstanding | 9,018,000 | 9,018,000 | ||
The notes are an integral part of the Financial Statements
F-3
America First Associates Corp.
Statements of Changes in Shareholders' Equity
For Three Months Ended March 31, 2003
| Common Stock | Paid-in Capital | Retained Earnings | Shareholder's Equity | ||
| Balance, December 31, 2002 | 9,018 | 2,121,230 | (1,048,732) | 1,081,516 | |
| Net income (loss) | ________ | _________ | (54,616) | (54,616) | |
| Balance, March 31,2003 | $ 9,018 | $ 2,121,230 | $ ( 1,103,348) | $ 1,026,900 | |
The notes are an integral part of the Financial Statements
F-4
America First Associates Corp.
Statement of Cash Flows
For the Three Months Ended March 31, 2003
2003 | |||
| Cash Flows from Operating Activities | |||
| Net income (loss) | $ (54,616) | ||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | |||
| Depreciation and amortization | 540 | ||
| Changes in assets and liabilities: | |||
| (Increase) Decrease in operating assets: | |||
| Marketable Securities | 34,537 | ||
| Prepaid expenses | 14,612 | ||
| Other assets | 5,175 | ||
| Increase (decrease) in operating liabilities: | |||
| Accounts payable and accrued expenses | (34,941) | ||
| Net cash provided by operating activities | (34,693) | ||
| Net increase in cash | (34,693) | ||
| Cash and cash equivalents Beginning | 668,339 | ||
| Cash and cash equivalents Ending | $ 633,646 | ||
The notes are an integral part of the Financial Statements
F-7
AMERICA FIRST ASSOCIATES CORP.
NOTES TO FINANCIAL STATEMENTS
March 31, 2003
Note 1 - Summary of Significant Accounting Policies
America First Associates Corp., (the "Company"), which became a broker-dealer in 1995, is a member of the National Association of Securities Dealers, Inc. and is subject to regulation by the United States Securities and Exchange Commission and the National Association of Securities Dealers, Inc.
The Company principally engages in executing general securities transactions on behalf of its clients. The Company operates principally under a clearance agreement with another broker, whereby such broker assumes and maintains the Company's customer accounts. The Company is responsible for payment of certain customer accounts (unsecured debits) as defined in the agreement. The Company also provides online brokerage services for its customers.
The Company transacts its business with customers located throughout the United States.
Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives.
| 2003 | 2002 | |
| Office Equipment | $27,573 | $27,573 |
| Accumulated Depreciation | ($23,791) | ($21,632) |
Revenue Recognition
Securities transactions and the related revenue and expenses are recorded on a settlement date basis. The recording of securities transactions on a trade date basis was considered, and the difference was deemed immaterial.
Securities Owned
Securities owned are carried at quoted market values, and the resulting difference between cost and market is included in income.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
F-8
Income Taxes
The Company accounts for income taxes under SFAS No. 109, Accounting for Income Taxes, which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense in the tax payable or refundable for the period plus or minus the change during he period in deferred tax assets and liabilities.
Earnings Per Share
Basic net income/loss per share has been calculated based on the weighted average number of shares of common stock outstanding during the period. Diluted net income/loss is computed by dividing the net income by the weighted average number of common shares outstanding plus potential dilutive securities.
Cash Equivalents
For purposes of the statement of cash flows, cash equivalents include highly liquid debt instruments with original maturities of three months or less.
Note 2 - Securities Owned and Securities Sold, Not Yet Purchased
Securities owned and sold not yet purchased consist of trading and investment securities at market value, as follows:
| Securities Owned | ||
| 2003 | 2002 | |
| U.S. Obligations: | ||
| Deposit with Clearing Firm | $ 100,783 | $ 99,971 |
| Corporate stocks | 276,246 | 455,948 |
| $ 377,029 | $ 555,919 | |
Note 3 - Deposit with Clearing Broker
The Company operates principally under a clearance agreement with its clearing broker, whereby such broker assumes and maintains the Company's customer accounts.
Note 4 - Due To/From Clearing Firm
Due To/From Clearing Firm arises as a result of the Company's normal security transactions.
F-9
Note 5 - Income Taxes
At December 31, 2002, the Company has net operating loss carryforwards of approximately $1,094,000 which expire in 2022. These net operating loss carryforwards may be used to offset future taxable income.
At December 31, 2002, the Company has recorded a deferred tax asset of $433,000 resulting primarily from net operating loss carryforwards. The valuation allowance of $433,000 has been recorded against the deferred tax asset since it is more likely than not that it will not be realized.
A reconciliation of income tax at the federal statutory income tax rate to total income taxes is as follows:
| 2002 | 2001 | |
| Computed at the federal statutory rate of 34% | $(211,000) | $ (10,000) |
| State and local tax (benefit) | (62,000) | (3,000) |
| Benefit of Carryover | - | |
| Valuation allowance adjustment | 273,000 | 13,000 |
| Other adjustments | - | 2,376 |
| $ 0 | $ 2,376 |
Note 6 - Commitments and Contingencies
Leases
The Company leases office space pursuant to an operating lease expiring March 31, 2003. For the years ended December 31, 2002 and 2001, rent expense amounted to $51,300 and $50,100 respectively.
The future minimum rental commitment through termination is as follows:
| For the year ending December 31, | Amount |
| 2002 | $51,300 |
| 2003 (3 months)* | 12,700 |
* Month to month tenancy thereafter at a monthly charge of $ 4,300
Pension Plan
The Company has a defined contribution plan under section 401(K) of the Internal Revenue Code. The plan covers substantially all its employees, and provides for participants to defer salary, up to statutory limitations. The Company is not required to make a matching contribution.
Concentration of Credit Risk
The Company maintains cash balances at a financial institution. Accounts at the institution are insured by the Federal Deposit Insurance Corporation up to $100,000.
F-10
Note 7 - Off-Balance-Sheet Risk and Concentration of Credit Risk
The Company, as an introducing broker, clears all transactions with and for customers on a fully disclosed basis with a clearing broker and promptly transmits all customer funds and securities to the clearing broker who carries all of the accounts of such customers. These activities may expose the Company to off-balance-sheet risk in the event that the customer and/or clearing broker is unable to fulfill its obligations.
The Company does not maintain margin accounts for its customers; and, therefore there were no excess margin securities.
The Company seeks to control off-balance-sheet risk by monitoring the market value of securities held in compliance with regulatory and internal guidelines.
The Company, as a part of its trading activities, assumes short positions in its inventory. The establishment of short positions exposes the Company to off-balance-sheet risk in the event prices increase, as the Company may be obligated to acquire the securities at prevailing market prices.
Note 10 - Earning Per Share
| For the Three Months Ended | ||
| 2003 | 2002 | |
| Net Earnings available to common shareholders | $ (54,616) | $ (104,374) |
| Weighted Ave. shares outstanding | 9,018,000 | 9,018,000 |
| Basic Earnings Per Share | $ (0.006) | $ (0.0115) |
F-11
AMERICA FIRST ASSOCIATES CORP.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 2002
| Year Ended December 31, | Account | Balance, January 31, | Additions | Reductions | Balance, December 31, |
| 2002 | Allowance for deferred taxes | $160,000 | $ 273,000 | $ - | $ 433,000 |
| 2001 | Allowance for deferred taxes | $147,000 | $ 13,000 | $ - | $ 160,000 |
F-12
MANAGEMENT DISCUSSION AND ANALYSIS
The following discussion of the financial condition and results of financial condition and the results of operation of the Company should be read in conjunction with the Consolidated Financial Statements and the related Notes and other financial information included elsewhere in this Prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. The Company's actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to, those set forth under Risk Factors and elsewhere in this Prospectus.
Overview
America First Associates (The "Company") was established in February 1995 and has conducted its operations as a fully disclosed brokerage firm registered with the Securities and Exchange Commission, the National Association of Securities Dealers and 50 State Securities divisions including the District of Columbia. The Company is a provider of cost-effective, full-service online financial service targeting the rapid growth momentum of individual investors who utilize the Internet for their personal investment objectives. The Company provides customers the ability to buy and sell securities, security options, mutual funds, bonds and other investment financial instruments as well as providing clients 24 hour account access and real-time electronic information on stocks, market indices, analysts' research and news. The Company plans to continue to provide quality service to our current customers while increasing brand awareness and customer loyalty. Management's strategy is to expand the Company's business and operations by strategically using the Internet and other advertising outlets to efficiently market and distribute our services to potential customers and build brand awareness on a national level to increase our customer base.
Results of Operations
Three Months Ended March 31, 2003 compared to Three Months Ended March 31, 2002
Total revenue for the three months ended March 31, 2003 were $115,715 compared to revenues of $146,653 for the three months ended March 31, 2002. The decrease in total revenue is attributed to the significant decrease in syndicate income. Revenues from syndicate income (i.e. private placements, pipes, syndicate participation of IPO's, investment banking activity) decreased from $60,000 for the three months ended March 31, 2002 to non existent for the three months ended March 31, 2003. Revenues from commissions increased to $110,141 for the three months ended March 31, 2003 from $82,358 for the three months ended March 31, 2002 due primarily to an increase in overall trading activity by online traders. Interest and other income increased to $5,574 for the three months ended March 31, 2003 from $4,295 for the three months ended March 31, 2002. Going forward as the stock market performs positively we anticipate an increase in revenues due to additional products being offered (check writing, debit card) adding to our customer base and investment banking activity with demand for syndicate.
Total expenses increased to 168,569 for the three months ended March 31, 2003 from $136,941 for the three months ended March 31, 2002. As a result of the decrease in syndicate income (directly related to commissions paid on private placements, IPO's as well as other investment banking activity), employee compensation and benefits decreased to $43,113 for the three months ended March 31, 2003 from $44,285 for the three months ended March 31, 2002. However, as we continue to grow we will need additional employees to service our growing customer base; therefore we anticipate a proportionate increase in employee compensation and benefit expenses. Clearing charges represent payments to our clearing firm who facilitate our clients' transactions. As a result of the decrease in the volume of business conducted by our online clients, such expenses decreased to $35,036 for the three months ended March 31, 2003 from $48,802 for the three months ended March 31, 2002. Loss on investments amounted to $26,114 for the three months ended March 31, 2003 compared a $114,086 loss for the three months ended March 31, 2002 which was attributed to a decline in the overall stock market
Consulting and Professional expenses amounted to $5,000 for the three months ended March 31, 2003 and non-existent for the three months ended March 31, 2002. Accrued Expense was $15,000 for the three months ended March 31, 2003 and non-existent for the three months ended March 31, 2002.
Communications and data processing expense remained constant at $3,342 for the three months ended March 31, 2003 and $3,374 for the three months ended March 31, 2002.
Business development costs consist of advertising costs which have mostly been for online and print advertising to obtain new clients. These expenses increased to $2,808 for the three months ended March 31, 2003 from non-existent for the three months ended March 31, 2002. As the Company increases its planned advertising and promotional efforts to promote its products and services and increase customer base we anticipate an increase in business development.
Occupancy costs increased by $100 to $12,700 for the three months ended March 31, 2003 from $12,600 for the three months ended March 31, 2002. Due to our three year lease terminating March 31, 2003 the Company negotiated a month to month lease at $4,300 per month until it signs a new lease at new office space.
Regulatory and Registration fees have remained consistent at $16,975 for the three months ended March 31, 2003 from $17,351 for the three months ended March 31, 2002. We anticipate a slight increase in regulatory and registration fees if we need to hire additional series 7 registered representatives to service our increased customer base.
Depreciation and Amortization costs for the three months ended March 31, 2003 and 2002 were $540. The need for additional computers is dependent on the firm's growth. Therefore, if we decide to expand and purchase additional hardware The Company anticipates that these costs will increase.
Travel and Entertainment increased to $2,627 for the three months ended March 31, 2003 from $2,222 for the three months ended March 31, 2002. Other expenses which include office supplies and expenses decreased to $5,314 for the three months ended March 31, 2003 from $7,767 for the three months ended March 31, 2002.
As a result of the foregoing, our net loss decreased to $(54,616) for the three months ended March 31, 2003 from $(104,374) for the three months ended March 31, 2002. Earning per share for the three months ended March 31, 2003 were $(0.006) compared to $(0.0115) for the three months ended March 31, 2002 and the weighted average number of common shares outstanding are 9,018,000.
Liquidity and Capital Resources
Since inception, the Company has financed its operation primarily through the sole shareholder of the firm. In April 1999, the Company sold 1,899,600 shares of common stock in a private placement offering. The common stock was issued at $1 per share. The private placement offering generated total proceeds of $1,900,000. Management believes that the cash proceeds from this offering, together with the existing cash balances will be sufficient to meet its anticipated working capital and capital expenditure requirements for the next eighteen months. However, the Company may need to raise additional funds in order to continue operations, support expansion, develop new or enhanced services, respond to competitive pressures or respond to unanticipated requirements. There can be no assurance, however, that additional capital will be available to us on reasonable terms, if at all.
Cash provided by operating activities for the three months ended March 31, 2003 were $243,075. The Company had a net loss of $54,616, a decrease in cash and cash equivalent of $258,412 a decrease in securities owned of $33,279 a decrease in prepaid expense of $14,612 and an increase in accounts payable of $34,941.
The Company is subject to the net capital rules of the SEC. At March 31, 2003, the Company had regulatory net capital of $951,701, which exceeded the minimum requirements by $851,701.
Management anticipates that the Company's total expenditures will be approximately $600,000 during the next twelve months. Based upon our current plans and assumptions relating to our business plan, we anticipate 15% of this expense to go toward marketing our financial services, which will increase the number of users capable of accessing our system. Other expenditures will include but will not be limited to, employee compensation, including benefits and insurance; occupancy and equipment rental; communications and data processing; and expansion of our network and infrastructure.
FORWARD-LOOKING INFORMATION
Statements contained in this report regarding the Company's future operations, growth strategy, future performance and results and anticipated liquidity are forward looking and therefore are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected or suggested in the forward looking statements, including those discussed in this report and in the Company's other filings with the SEC.
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the Registrant caused this Registration Statement to be signed by the undersigned, thereunto duly authorized.
| AMERICA FIRST ASSOCIATES CORP. | |
| Date: May 15, 2003 | By: /s/ Joseph Ricupero |
| Joseph Ricupero, Chief Executive Officer, Financial Operations Officer |
JOSEPH TROCHE********Certified Public Accountant
32 Main Street, Hastings on Hudson NY 10706, Tel. 914-478-1432; fax 914-478-1315
Board of Directors
America First Associates Corp.
RE: AMERICA FIRST ASSOCIATES CORP.
REVIEW REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
I have reviewed the accompanying balance sheet of America First Associates Corp., as of March 31, 2003, the statement of changes in stockholders' equity for the three months ended March 31, 2003 and March 31, 2002, and the related statements of income for the three months ended March 31, 2003 and March 31, 2002, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. All information included in these financial statements is the representation of the management of America First Associates Corp.
A review consists principally of inquiries of Company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, I do not express such an opinion.
Based on my review, I am not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with accounting principles generally accepted in the United States of America.
/s/Joseph Troche
Joseph Troche, CPA
May 15, 2003
Joseph Troche, CPA
32 Main Street
Hastings on Hudson NY 10706
| [LOGO HERE] | AMERICA FIRST ASSOCIATES INVESTMENT BANKING FIRM MEMBER: NASD * SIPC * MSRB 160 East 56th St. 6th FLOOR NEW YORK, NY 10022 TELEPHONE: (212) 644-8520 (888) OTC-NYSE FAX: (212) 644-3515 |
CERTIFICATION
I, Joseph Ricupero, certify that:
1. I have reviewed this quarterly report on Form 10-Q of America First Associates Corp;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's certifying officer is responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's certifying officer disclosed, based on our most recent evaluation, to the registrant's auditor: a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's certifying officer has indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Dated: May 15, 2003
Joseph Ricupero
By: /s/ Joseph Ricupero
Chief Executive Officer and Chief Financial Officer
