Conformed
_________________________________________________________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the Quarter ended: Commission file number
June 30, 1998 0-19485
ADVANCED FINANCIAL, INC.
(Name of small business issuer in its charter)
DELAWARE 84-1069416
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5425 Martindale, Shawnee, KS 66218
(Address of principal executive offices) (Zip Code)
(913) 441-2466
Issuer's telephone number
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities and Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes ___ No X
State the number of shares outstanding of each of the issuer's classes
of common equity as of January 25, 1999: 5,836,476
Check whether the issuer has filed all documents and reports to be filed
by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes___ No___
Transactional Small Business Disclosure Format Yes___ No X
Advanced Financial, Inc.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements ................................. 1
Item 2. Management's Discussion and Analysis ................. 6
or Plan of Operation
PART II - OTHER INFORMATION
Item 1. Legal Proceedings .................................... 8
Item 2. Changes in Securities and Use of Proceeds ............ 8
Item 3. Defaults Upon Senior Securities ...................... 8
Item 4. Submission of Matters to a Vote of Security Holders .. 8
Item 5. Other Information .................................... 8
Item 6. Exhibits and Reports on Forms 8-K .................... 9
Signatures..........................................................10
Advanced Financial, Inc.
PART I - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
Page - 1
Advanced Financial, Inc.
ADVANCED FINANCIAL, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
June 30, 1998 and March 31, 1998
Assets June 30, 1998 March 31, 1998
------------- --------------
(Unaudited)
Cash and investments $ 132,974 $ 58,759
Mortgage servicing advances and
accounts receivable 3,264 151,097
Mortgage loans held for investment 5,997 5,997
Property and equipment, net 1,063,000 1,070,553
Other 4,047 14,083
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Total assets $ 1,209,283 $ 1,300,490
============== ==============
Liabilities
Accounts payable and accrued
expenses $ 4,216 $ 24,292
Notes payable 721,962 717,357
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726,178 741,649
Liabilities Subject to Compromise
Accounts payable and accrued
expenses 3,029,883 3,024,595
Notes payable 644,837 659,837
Notes payable on stock recission 200,000 200,000
Capitalized lease obligations 65,426 65,246
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3,940,146 3,949,858
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Total liabilities $ 4,666,324 $ 4,691,507
Stockholders' Equity
Preferred stock, Series B,
$.005 par value;
100,000,000 shares
authorized; 363,000
issued and outstanding $ 1,815 $ 1,815
Common Stock, $.001 par
value; 25,000,000
shares authorized;
5,836,476 issued
and outstanding 5,836 5,836
Paid-in capital 9,959,840 9,959,840
Deficit (12,983,187) (12,917,163)
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(3,015,696) (2,949,672)
Treasury stock, 99,869 shares of
Common Stock, at cost (441,345) (441,345)
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Total stockholders' equity $ (3,457,041) $ (3,391,017)
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Total liabilities and
stockholders' equity $ 1,209,283 $ 1,300,490
============= ==============
See accompanying notes to condensed consolidated financial statements.
Page - 2
Advanced Financial, Inc.
ADVANCED FINANCIAL, INC. AND SUBSIDIARY
Condensed Consolidated Statement of Operations
For the three month period ended June 30, 1998 and June 30, 1997
Three Months Ended
June 30, 1998 June 30, 1997
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(Unaudited) (Unaudited)
Revenues:
Servicing fee income $ - $ 53,638
Other fee income - 20,626
Gain/(Loss) on sale of mortgage
loans - (14,608)
Gain on sale of mortgage
servicing 25,344 -
Interest 3,316 9,074
Other 42,085 58,398
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Total operating revenues 70,745 127,128
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Expenses:
Servicing expense $ 854 $ 81,989
Personnel 17,557 117,845
General and administrative 95,039 56,192
Interest 28,898 54,855
Depreciation and amortization 7,553 36,926
Other (15,705) 38,752
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Total operating expenses 134,196 386,559
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Loss before income taxes (63,451) (259,431)
Income tax expense - -
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Net loss $ (63,451) $ (259,431)
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Weighted average shares
outstanding 5,736,607 5,736,607
Loss per share of Common Stock $ (0.02) $ (0.05)
============= ==============
See accompanying notes to condensed consolidated financial statements.
Page - 3
Advanced Financial, Inc.
ADVANCED FINANCIAL, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
For the three month period ended June 30, 1998 and June 30, 1997
Three Months Ended
June 30, 1998 June 30, 1997
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(Unaudited) (Unaudited)
Net cash (used in) provided
by operating activities $ 84,610 463,486
Cash flows from investing activities:
Acquisition of property
and equipment - 173,662
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Net cash provided by (used in)
investing activities - 173,662
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Cash flows from financing activities:
Notes payable, net (10,395) (394,280)
Checks outstanding in excess
of bank balance - (106,676)
Payments on capitalized lease
obligations - (113,460)
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Net cash provided by
(used in) financing activities (10,395) (614,416)
Net increase/(decrease) in cash 74,215 22,732
Cash at beginning of period 58,759 0
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Cash at end of period $ 132,974 22,732
============ =========
Supplemental disclosure of cash flow:
Cash paid for interest $ 19,938 26,284
See accompanying notes to condensed consolidated financial statements.
Page - 4
Advanced Financial, Inc.
ADVANCED FINANCIAL, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1998 and June 30, 1997
(1) Organization and Summary of Significant Accounting Policies
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The Company's financial statements include the accounts of Advanced
Financial, Inc. (the "Company" or "AFI") and its wholly-owned subsidiary AFI
Mortgage, Corp. ("AFIM").
The condensed consolidated financial statements have been prepared in
accordance with the instructions to Form 10-QSB. To the extent that information
and footnotes required by generally accepted accounting principles for complete
financial statements are contained in or consistent with the audited financial
statements incorporated by reference in the Company's Annual Report on Form
10-KSB for the year ended March 31, 1998, such information and footnotes have
not been duplicated herein. In the opinion of management, all adjustments
considered necessary for fair presentation of financial statements have been
reflected herein. The March 31, 1998 condensed consolidated balance sheet has
been derived from the audited balance sheet as of that date.
Page - 5
Advanced Financial, Inc.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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GENERAL
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The Company and AFIM continued to suffer losses for the quarters ended June
30, 1997 and 1998. In April 1997, the Company and its wholly-owned subsidiary,
AFI Mortgage, Corp. ("AFIM"), decided that it would be in the best interest of
the continuity of the Company's business enterprise to temporarily suspend its
active mortgage operations. On November 7, 1997, AFIM filed for relief under
Chapter 11 of the United States Bankruptcy Code ("Bankruptcy Code") in the
United States Bankruptcy Court, District of Kansas, Topeka Division, Case No
97-43122. On May 8, 1998, the Company also filed for relief under Chapter 11 of
the Bankruptcy Code in the United States Bankruptcy Court, District of Kansas,
Topeka Division, Case No. 98-41228. The two cases were consolidated on July 2,
1998. On November 13, 1998, the United States Bankruptcy Court for the District
of Kansas entered an order (the "Confirmation Order") confirming the First
Amended Joint Plan of Reorganization dated July 29, 1998 of the Company and AFIM
("Plan of Reorganization"). The confirmation of the Plan of Reorganization was
reported in a Current Report on Form 8-K filed with the Securities and Exchange
Commission on November 25, 1998. A copy of the Plan was filed as Exhibit 2.1 to
the Form 8-K and a copy of the Confirmation Order was filed as Exhibit 99.1 to
the Form 8-K. See also the Company's Annual Report on Form 10-KSB for fiscal
year ended March 31, 1998 Item 1: "Description of Business" and Item 7: Note B
to the Consolidated Financial Statements.
Under the Plan of Reorganization, and subject to the terms and conditions
set forth in the Plan of Reorganization, the Company will sell its office
building to First Mortgage Investment Co. ("FMIC") for $1,030,000 and FMIC's
release of its second mortgage. The net proceeds will satisfy the first
mortgage. The remaining net proceeds received by AFIM will be used to satisfy
the claims of creditors in accordance with the Plan of Reorganization.
The following discussion of the Company's financial condition as of June
30, 1997 and the Company's results of operations for the quarter ended June 30,
1997 should be read in conjunction with the discussion of events subsequent to
June 30, 1997 set forth in Item 1: "Description of Business" contained in the
Company's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1998
and set forth in the Current Report on Form 8-K filed November 25, 1998,
described above.
RESULTS OF OPERATIONS
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Quarter Ended June 30, 1998 Compared To The Quarter Ended June 30, 1997
- -----------------------------------------------------------------------
Liquidity and Capital Resources
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The Company's cash and short-term investments increased from $58,759 at
March 31, 1998, to $132,732 at June 30, 1998. The increase in cash and
short-term investments is attributable to the fact that the Company suspended
its active mortgage operations and reduced its staff, to the limited extent
necessary to operate under protection of Chapter 11 of the Bankruptcy Code, sold
its remaining assets, other than its office building, and collected various
receivables due the Company. Also see Item 1: "Description of Business"
contained in the Company's Annual Report on Form 10-KSB for the fiscal year
ended March 31, 1998.
Losses
------
Consolidated operating results for the three months ended June 30, 1998
reflect a net loss of $63,451 as compared to a net loss of $259,431 for the
three months ended June 30, 1997. The decrease in losses is attributable to the
Company's suspension of its active mortgage operations and sale of its remaining
assets, other than its office building, thereby reducing the quarterly
depreciation expense and the Company's reduction of staff from 20 full time
employees to 1 full time employee and debt, thereby reducing interest expenses,
to the limited extent necessary to operate under protection of Chapter 11 of the
Bankruptcy Code. Also see Item 1: "Description of Business" contained in the
Company's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1998.
Page - 6
Advanced Financial, Inc.
FINANCIAL POSITION
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During the three months ended June 30, 1998, the Company saw a continued
decrease in the Company's assets and stockholders' equity. The Company's total
assets were $1,209,283 at June 30, 1998 compared to $1,300,490 at March 31,
1998. Stockholders' equity was ($3,457,041) at June 30, 1998 compared to
($3,391,017) at March 31, 1998. These decreases were due to the fact that the
Company suspended its active mortgage operations and had limited revenues,
causing the Company to continue to operate at a loss during the three months
ended June 30, 1998. At June 30, 1998, the Company had total liabilities of
$4,666,324 of which $3,940,146 are subject to compromise pursuant to the
Company's Plan of Reorganization.
At June 30, 1998, the Company had a cash position of $132,974 compared to a
cash position of $58,759 at March 31, 1998. During the three months ended June
30, 1998, the Company continued to operate under the protection of Chapter 11 of
the Bankruptcy code and was able to fund its limited operations from the sale of
various assets and the collection of various receivables.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
- ----------------------------------------------
None
Page - 7
Advanced Financial, Inc.
PART II
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ITEM - 1 Legal Proceedings
Various lenders initiated lawsuits against the Company and AFIM as a result
of the Company's inability to make required payments on various debt. As a
result of AFIM and the Company filing for relief under Chapter 11 of the
Bankruptcy Code, all pending litigation was suspended pending the final outcome
of the Chapter 11 proceeding. See Item 2: "Management's Decision and Analysis or
Plan of Operations -- General." Pursuant to the Plan of Reorganization, Claims
of Creditors, including persons asserting claims against the Company in
litigation, will be deemed satisfied and, upon discharge of the Company and AFIM
from bankruptcy, all litigation will have been dismissed.
ITEM - 2 Change in Securities.
See Item 3 (b) Below
ITEM - 3 Defaults upon Senior Securities.
(a) The following table sets forth any indebtedness which exceeds 5% of the
Company's assets, for which the Company was in default at the time of this
filing. Interest accrued on such indebtedness until November 7, 1997, the date
on which AFIM filed for protection under Chapter 11 of the Bankruptcy Code.
Default Default Total
Lender Principal Interest Arrearage
------ --------- -------- ---------
Commercial Federal Bank $364,393 $ 41,653 $406,046
Argo Federal Savings $ 75,148 $ 8,022 $ 83,170
(b) The Company suspended payment of its regular quarterly dividend on its
Series "B" Cumulative Convertible Preferred Stock in January 1996. The unpaid
cumulative dividends at the time of this filing were $499,275. Pursuant to the
Plan of Reorganization all preferred stock will be converted to common and each
shareholders shall receive such shareholde's pro rata share of new common stock
as defined in the Plan of Reorganization. No unpaid dividends will be paid
pursuant to the Plan of Reorganization.
ITEM - 4 Submission of Matters to a Vote of Securities Holders.
No matters were submitted to a vote of security holders during the quarter
ended June 30, 1998, either through the solicitation of proxies or otherwise.
ITEM - 5 Other Information.
See Item 2: "Management's Discussion and Analysis or Plan of Operation --
General" and the Company's Annual Report on Form 10-KSB for the fiscal year
ended March 31, 1997 Item 1: "Description of Business."
Page - 8
Advanced Financial, Inc.
ITEM - 6 Exhibits and Reports on Form 8-K.
(a) Exhibits
*2.1 First Amended Joint Plan of Reorganization dated July 29, 1998 of
Advanced Financial, Inc. and AFI Mortgage Corp. (Exhibit 2.1 to the
Current Report on Form 8-K filed with the Securities and Exchange
Commission on November 25, 1998).
*3.1 Articles of incorporation and by-laws (Exhibit 3.2 to Registration
Statement on Form S-2 of Advanced Financial, Inc. filed with the
Securities and Exchange Commission on January 31, 1993 (No.
33-45406)).
*4.1 Instruments Defining Rights of Holders (Exhibit 4.0 to Registration
Statement on Form S-2 of Advanced Financial, Inc. filed with the
Securities and Exchange Commission on January 31, 1993 (No.
33-45406)).
*4.2 Variable Rate Commercial Note Secured With Loan Servicing Rights dated
July 27, 1994 made by AFI Mortgage Corp., successor to Continental
Mortgage, Inc. ("AFIM"), to the order of Commercial Federal Bank,
successor to Railroad Savings Bank, FSB ("Lender") and Agreement dated
October 11, 1996 between Advanced Financial, Inc. and AFIM, as
Borrower, and Lender and Matrix Financial Servicers Corporation
(Exhibit 4.2 to Advanced Financial, Inc.'s Annual Report on Form
10-KSB for the fiscal year ended March 31, 1997 filed with the
Securities and Exchange Commission on February 16, 1999).
*4.3 Variable Rate Commercial Balloon Note For Purchase of Loan Servicing
Rights dated December 31, 1993 made by AFI Mortgage Corp., successor
to Continental Mortgage, Inc. ("Borrower"), to the order of Argo
Federal Savings Bank, FSB ("Lender") and Security Agreement For Sale
of Mortgage Loan Servicing Rights dated December 31, 1993 between
Borrower and Lender (Exhibit 4.3 to Advanced Financial, Inc.'s Annual
Report on Form 10-KSB for the fiscal year ended March 31, 1997 filed
with the Securities and Exchange Commission on February 16, 1999).
*10.1 Commercial Real Estate Contract with Standard Builders (Exhibit 10.1
to Registration Statement on Form S-2 of Advanced Financial, Inc.
filed with the Securities and Exchange Commission on February 11, 1993
(No. 33-58186)).
*10.2 Contract for Services between the Company and Rollie C. Johnson
(Exhibit 10.1 to Registration Statement on Form S-2 of Advanced
Financial, Inc. filed with the Securities and Exchange Commission on
February 11, 1993 (No. 33-58186)).
*10.3 Real Estate Mortgage to Secure a Loan from Citizen's National Bank of
Fort Scott ("Bank") dated February 3, 1997 made by AFI Mortgage Corp.,
as Mortgagee, to Bank and accompanying notes as amended (Exhibit 10.3
to Advanced Financial, Inc.'s Annual Report on Form 10-KSB for the
fiscal year ended March 31, 1997 filed with the Securities and
Exchange Commission on February 16, 1999).
*10.4 Second Mortgage dated March 29, 1996 made by Advance Financial, Inc.
and AFI Mortgage Corp., as Mortgagor, to First Mortgage Investment
Co., as Mortgagee (Exhibit 10.4 to Advanced Financial, Inc.'s Annual
Report on Form 10-KSB for the fiscal year ended March 31, 1997 filed
with the Securities and Exchange Commission on February 16, 1999).
27.1 Financial Data Schedule
* Asterisk indicates exhibits incorporated by reference as indicated,
all other exhibits are filed herewith.
(b) Reports on Form 8-K
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None
Page - 9
Advanced Financial, Inc.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ADVANCED FINANCIAL, INC.
(Registrant)
Dated: February 16, 1999 By: /s/William B. Morris
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William B. Morris
Chairman
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Title Date
--------- ----- ----
/s/ William B. Morris Chairman, Secretary, February 16, 1999
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William B. Morris Principal Accounting
Officer
Page - 10