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
December 31, 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.
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
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PART I. FINANCIAL INFORMATION
ITEM 1. - Financial Statements.................................. 1
ITEM 2. - Management's Discussion and Analysis or
Plan of Operation..................................... 7
PART II. OTHER INFORMATION
ITEM 1. - Legal Proceedings..................................... 9
ITEM 2. - Changes in Securities and Use of Proceeds............. 9
ITEM 3. - Default Upon Senior Securities........................ 9
ITEM 4. - Submission of Matters to a Vote of Security Holders... 9
ITEM 5. - Other Information..................................... 9
ITEM 6. - Exhibits and Reports on Form 8-K...................... 10
i
Advanced Financial, Inc.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Page - 1
Advanced Financial, Inc.
ADVANCED FINANCIAL, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
December 31, 1997 and March 31, 1997
Assets December 31, 1998 March 31, 1998
----------------- --------------
(Unaudited)
Cash and investments $ 72,775 $ 58,759
Mortgage servicing advances and
accounts receivable - 151,097
Mortgage loans held for investment 5,860 5,997
Property and equipment, net 1,047,893 1,070,553
Prepaid expenses 1,805 -
Other 35 14,083
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Total assets $ 1,128,369 $ 1,300,490
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Liabilities
Accounts payable and accrued expenses $ 15,352 $ 24,292
Notes payable 711,970 717,357
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727,322 741,649
Liabilities Subject to Compromise
Accounts payable and accrued
expenses 3,044,508 3,024,595
Notes payable 647,837 659,837
Notes payable stock recission 200,000 200,000
Capitalized lease obligations 65,426 65,426
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3,957,771 3,949,858
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Total liabilities $ 4,685,093 $ 4,691,507
Stockholder(s') 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 (13,082,870) (12,917,163)
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(3,115,379) (2,949,672)
Treasury stock, 99,869 shares of
Common Stock, at cost (441,345) (441,345)
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Total stockholder(s') equity (3,556,724) (3,391,017)
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Total liabilities and stockholder(s')
equity $ 1,128,369 $ 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 December 31, 1998 and December 31, 1997
Three Months Ended
December 31, 1998 December 31, 1997
----------------- -----------------
(Unaudited) (Unaudited)
Revenues:
Servicing fee income $ - $ 1,694
Other fee income - 1,170
Gain/(Loss) on sale of mortgage loans - (104)
Interest - 134
Other 89,574 37,125
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Total operating revenues $ 89,574 $ 40,019
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Expenses:
Servicing expense $ (1,778) $ (776)
Personnel 17,493 15,943
General and administrative 24,777 23,006
Interest 26,945 35,021
Depreciation and amortization 7,553 7,553
Other (1,200) (19,257)
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Total operating expenses $ 73,790 $ 61,490
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Loss before income taxes $ 15,784 $ (21,471)
Income tax expense - -
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Net loss $ 15,784 $ (21,471)
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Weighted average shares outstanding 5,736,607 5,736,607
Loss per share of Common Stock $ (0.00) $ (0.01)
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See accompanying notes to condensed consolidated financial statements.
Page - 3
Advanced Financial, Inc.
ADVANCED FINANCIAL, INC. AND SUBSIDIARY
Condensed Consolidated Statement of Operations
For the nine month period ended December 31, 1998 and December 31, 1997
Nine Months Ended
December 31, 1998 December 31, 1997
(Unaudited) (Unaudited)
Revenues:
Servicing fee income $ - $ 56,916
Other fee income - 22,311
Gain/(Loss) on sale of mortgage loans (95) (45,261)
Gain on sale of servicing rights 25,344 -
Interest 3,316 10,937
Other 168,785 136,329
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Total operating revenues 197,350 181,232
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Expenses:
Servicing expense $ (1,510) $ 80,371
Personnel 51,476 152,487
General and administrative 221,667 114,749
Interest 82,991 135,823
Depreciation and amortization 22,660 56,852
Other (16,801) (21,150)
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Total operating expenses 360,483 519,132
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Loss before income taxes (163,133) (337,900)
Income tax expense - -
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Net loss $ (163,133) $ (337,900)
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Weighted average shares outstanding 5,736,607 5,736,607
Loss per share of Common Stock $ (0.05) $ (0.08)
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See accompanying notes to condensed consolidated financial statements.
Page - 4
Advanced Financial, Inc.
ADVANCED FINANCIAL, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
For the nine month period December 31, 1998 and December 31, 1997
Nine Months Ended
December 31, 1998 December 31, 1997
(Unaudited) (Unaudited)
Net cash (used in) provided by
operating activities $ 31,266 438,585
Cash flows from investing activities:
Acquisition of property and equipment - 168,844
Acquisition/Principal payments
on mortgage loans
held for investment, net 137 754
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Net cash provided by (used in)
investing activities 137 169,598
Cash flows from financing activities:
Notes payable, net (17,387) (394,393)
Checks outstanding in excess
of bank balance - (106,676)
Payments on capitalized lease obligations - (101,085)
Net cash provided by (used in)
financing activities (17,387) (602,154)
Net increase/(decrease) in cash 14,016 6,029
Cash at beginning of period 58,759 0
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Cash at end of period $ 72,775 6,029
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Supplemental disclosure of cash flow:
Cash paid for interest $ 26,774 27,059
See accompanying notes to condensed consolidated financial statements.
Page - 5
Advanced Financial, Inc.
ADVANCED FINANCIAL, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998 and December 31, 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 - 6
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 continue to suffer losses for the nine months ended
December 31, 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 Item 1: "Description of Business" and Item 7: Note B to the Consolidated
Financial Statements of the Company
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
December 31, 1998 and the Company's results of operations for the quarter ended
December 31, 1998 should be read in conjunction with the discussion of events
subsequent to June 30, 1997 set forth in Item 1: "Description Of Business" of
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 and Nine Months Ended December 31, 1998
- -----------------------------------------------
Compared To The Quarter and Nine Months Ended December 31, 1997
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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 $72,775 at December 31, 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
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Consolidated operating results for the three months ended December 31, 1998
reflect a net gain of $15,784 as compared to a net loss of $21,471 for the three
months ended December 31, 1998. A gain for the three months was attributable the
sale of assets in accordance with the Company's Plan of Reorganization.
Consolidated operating results for the nine months ended December 31, 1998
reflect a net loss of $163,133 as compared to a net loss of $337,900 for the
nine months ended December 31, 1997. The decrease in losses was 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, and the Company's reduction of staff from 20 full time employees
to 1 full time employee and debt, thereby reducing interest expense, 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 - 7
Advanced Financial, Inc.
FINANCIAL POSITION
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During the nine months ended December 31, 1998, the Company saw a continued
decrease in the Company's assets and stockholder(s') equity. The Company's total
assets were $1,128,369 at December 31, 1998 compared to $1,300,490 at March 31,
1998. Stockholder(s') equity was ($3,556,724) at December 31, 1998 compared to
($3,391,017) at March 31, 1998. These decrease 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 nine months
ended December 31, 1998. At December 31, 1998, the Company had total liabilities
of $4,685,093 of which $3,957,771 are subject to compromise pursuant to the
Company's Plan of Reorganization.
At December 31, 1998, the Company had a cash position of $132,974 compared
to a cash position of $58,759 at March 31, 1998. During the nine months ended
December 31, 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
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None
Page - 8
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 Discussion and Analysis
or Plan of Operation-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 is 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 Default
Lender Principal Principal Principal
------ --------- --------- ---------
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
shareholder shall receive their prorata 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 December 31, 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 - 9
ITEM - 6 Exhibits and Reports on Form 8-K.
(a) Exhibits
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*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 Exchang 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 - 10
SIGNATURES
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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
- --------------------- Principal Accounting
William B. Morris Officer
Page - 11