THE LEBRECHT GROUP
A PROFESSIONAL LAW CORPORATION
Brian A. Lebrecht, Esq. Craig V. Butler, Esq. *
Edward H. Weaver, Esq.**
Admitted only in California*
Admitted only in Utah**
April 19, 2006
U.S. Securities and Exchange Commission
Division of Corporation Finance
450 5th Street, NW
Washington, D.C. 20549
Attn: Lisa Haynes
Re: Anza Capital, Inc. (the "Company")
Form 10-K for the Fiscal Year Ended April 30, 2005
Form 10-Q for the Fiscal Quarters Ended July 31, 2005
and October 31, 2005
File No. 000-19065
Dear Ms. Haynes:
In response to the comments in your letter dated March 21, 2006, we
respond herein on behalf of the Company:
Form 10-K for the Fiscal Year ended April 30, 2005
Financial Statements and Supplementary Data
General
1. Please revise future filings beginning with your Form 10-K for the fiscal
year ended April 30, 2006 to provide the selected quarterly financial data and
disclosures as prescribed by Item 302(a) of Regulation S-K.
The Company will revise future filings beginning with its Form 10-K for
the fiscal year ended April 30, 2006 to provide the selected quarterly financial
data and disclosures as prescribed by Item 302(a) of Regulation S-K.
- --------------------------------------------------------------------------------
IRVINE OFFICE: SALT LAKE CITY OFFICE:
9900 RESEARCH DRIVE 406 W. SOUTH JORDAN PARKWAY
IRVINE SUITE 160
CALIFORNIA o 92618 SOUTH JORDAN
UTAH o 84095
(949) 635-1240 o FAX (949) 635-1244 (801) 983-4948 o FAX (801) 983-4958
www.thelebrechtgroup.com
Lisa Haynes
U.S. Securities and Exchange Commission
April 19, 2006
Page 2
Consolidated Financial Statements
Note 2 - Basis of Presentation and Summary of Significant Accounting Policies,
page F-13
2. We note that on page F-13 you identified litigation loss provisions as a
primary area where financial information is subject to the use of estimates.
Please provide in your response letter the proposed revised disclosures you
intend to include in the financial statements on your Form 10-K for the period
ended April 30, 2006 to describe your accounting policies regarding litigation
loss contingencies. Refer to paragraphs 12-13 of APB 22, which prescribe
disclosure of policies which materially affect the determination of financial
position, cash flows, or results of operations.
The Company is subject to litigation in the normal course of business. The
management of the company assesses the probability and financial exposure when
determining when a liability for losses should be recorded following FAS-5
"Accounting for Contingencies."
According to FAS-5, two conditions must be met for a loss contingency to
be accrued as a charge to income as of the date of the financial statements.
That is, it is probable that as of the date of the financial statements a
liability has been incurred, based on the information available before the
actual issuance date of the financial statements, and the amount of loss can be
estimated reasonably. Based on these two conditions being met, the management of
the company recognizes the litigation loss in the income statement and discloses
the contingency in the notes to the financial statements accordingly.
3. Based upon your disclosures on page F-15, it appears that your restricted
cash balances as of April 30, 2005 and 2004 were not available for withdrawal
and/or use in current operations. If true, please revise future filings to
classify restricted cash balances as non-current assets. Please refer to
paragraphs 4-6 of Section 3A of ARB 43.
The Company will revise future filings to classify restricted cash
balances as non-current assets.
Note 10 - Commitments and Contingencies, page F-21
4. We note your disclosures on page 14 that you generally sell loans with 30
day recourse provisions relating to first payment defaults, breach of
representations and warranties or fraud. Please tell us whether the
indemnifications you discuss on page F-22 arose from these 30 day recourse
provisions. Please also tell us the terms of any other indemnification
agreements that you may have (if any) aside from the agreements described on
page F-22.
Yes, these indemnifications arose from the 30 day recourse provisions.
There are no other indemnification agreements aside from the agreements
described on page F-22.
Note 11 - Stockholders' Equity (Deficit), page F-26
Lisa Haynes
U.S. Securities and Exchange Commission
April 19, 2006
Page 3
5. Please tell us the following regarding the September 17, 2004 Securities
Exchange Agreement and Escrow Agreement:
o how you accounted for the reduction in value of the Cash
Technologies (TQ) shares from $1,320,000 at the inception of the
agreement to $1,090,000 as of April 30, 2005;
o whether both the warrants and the Series G convertible preferred
stock were returned to ANZA upon rescission of the agreement; and
o how you accounted for the rescission of the agreement and the
relevant accounting literature you relied upon to support your
treatment
Under the terms of the Securities Exchange Agreement and Escrow Agreement
(the "Agreement"), the Cash Technologies, Inc. shares ("TQ") were held as
available for sale. However, if the market value of those shares exceeded
$1,000,000, the excess amount would be payable to the holders of the Series G
preferred stock upon the sale of the TQ shares and under certain other
conditions.
Therefore, amounts in excess of $1,000,000 were included in current
liabilities, grouped with the related Series G preferred stock under the caption
"Redeemable Securities" at the balance sheet date. If the value of the TQ shares
decreased, the amounts recorded as redeemable were likewise reduced.
Upon rescission of the Agreement, only the Series G preferred stock was
returned to ANZA. The TQ shares were returned to the Gaulds, and the warrants
were kept by the Gaulds.
On May 5, 2005, the Company exercised its right to rescind the agreement.
As the rescission was subsequent to the year end, the Company reclassified the
Series G preferred stock from the equity section of the balance sheet to current
liabilities as of April 30, 2005 in order to properly reflect the eventual
redemption of the Series G preferred stock.
During the first quarter ended July 31, 2005, upon termination of the
contract and rescission of the Agreement, the Company immediately expensed the
unamortized value of the warrants totaling $96,716.
Under Emerging Issues Task Force Issue No. 00-27, "Application of Issue
No. 98-5 to Certain Convertible Instruments," if an entity redeems a convertible
preferred security with a beneficial conversion option, the excess of (a) the
fair value of the consideration transferred to the holders of the convertible
preferred security over (b) the carrying amount of the convertible preferred
security in the issuer's balance sheet plus (c) the amount previously recognized
for the beneficial conversion option should be subtracted from net earnings to
arrive at net earnings available to common shareholders. The Company recorded
the transaction in accordance with this guidance and recognized dividends
aggregating $225,821 related to this rescission.
6. You state on page F-34 that the Gauld's exercised their option to rescind
the Securities Exchange Agreement, however your disclosure on page F-29
indicates that the company exercised its right to rescind the agreement. Please
reconcile these statements in your response letter and revise your footnotes in
future filings beginning with your Form 10-K for the fiscal year ended April 30,
2006, to clarify the transaction as necessary.
Lisa Haynes
U.S. Securities and Exchange Commission
April 19, 2006
Page 4
The Company exercised the option to rescind. The reason for the deal was
to provide equity to Anza. If the Gaulds could exercise the option to rescind,
it would not have been equity. The Company will revise its footnotes in future
filings beginning with its Form 10-K for the fiscal year ended April 30, 2006,
to clarify the transaction as necessary.
7. We note your disclosure on page F-32 that you recognized $900,000 and
$678,980 of consulting expense in connection with the issuance of shares to
consultants for services rendered. Please tell us the following:
o whether the shares issued to the consultants were common stock of
AMRES or of Anza Capital, Inc.;
o the fair value of the services received from the consultants;
o how you determined that the fair value you assigned to the equity
instruments issued was more reliably measurable than the fair value
of the services received;
o What measurement date was used to determine the fair value of the
equity instruments issued; and
o your basis for determining the measurement date used.
On October 18, 2004 American Residential Funding, Inc. filed a Form D with
the SEC for a listing on the Pink Sheets. In connection with the filing, the
Company issued 15,000,000 shares of AMRES common stock to consultants as
advisors to facilitate the transaction and concurrently sold 3,000,000 shares of
common stock at $0.01 per share.
Additionally, during the period from December 2004 through April 2005,
AMRES issued an additional aggregate of 17,354,138 shares of common stock to
various consultants and service providers.
The fair value of the services to be provided by the consultants in the
transactions was not determinable with any objective measure and, as such, the
fair value of the shares issued to them was used to determine the expense
recorded by the Company.
In December 2004, the shares began trading at $0.05 per share. As the
issuance of the shares was in contemplation of the eventual trading at $0.05 per
share, the shares were valued at the $0.05 per share, the understood trading
value at the time of the transaction. For those shares issued after December
2004, the trading price on the date of the grant (prices ranging from $0.014 to
$0.06 per share) was used to value the shares issued. The shares were valued on
the date they were granted and all of the criteria for measurement were met.
Note 13 - Segment and Other Information, page F-33
8. We note you have included a footnote for segment reporting, however your
disclosure does not appear to include all the elements prescribed by paragraphs
25-39 of SFAS 131. Please provide us with the proposed revised segment reporting
disclosures you intend to use in the financial statement footnotes included in
your Form 10-K for the fiscal year ended April 30, 2006. Please carefully review
the guidance prescribed by the aforementioned paragraphs to ensure your revised
disclosure includes all general and specific elements, or explain why such
elements are note applicable.
Lisa Haynes
U.S. Securities and Exchange Commission
April 19, 2006
Page 5
FAS131, Par. 25
A brief description of the Company's compliance with FAS131, Par. 25 is
set forth below within the other responses.
FAS131, Par. 26
The Company has provided the general information required under FAS131,
Par. 26. on page F-33 of the Company's Form 10-K for the fiscal year ended April
30, 2005.
FAS131, Par. 27
The Company has provided the information about profit or loss and assets
required under FAS131, Par. 27. on page F-33 of the Company's Form 10-K for the
fiscal year ended April 30, 2005. Disclosure regarding revenues from external
customers; revenues from transactions with other operating segments of the same
enterprise; interest revenue; interest expense; depreciation, depletion, and
amortization expense; unusual items as described in paragraph 26 of APB Opinion
No. 30, Reporting the Results of Operations-Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions; equity in the net income of investees accounted for by
the equity method; income tax expense or benefit; and extraordinary items is not
applicable because the specified amounts are not included in the measure of
segment profit or loss reviewed by the chief operating decision maker or
regularly provided to the chief operating decision maker.
FAS131, Par. 28
The disclosure required by FAS131, Par. 28 regarding the amount of
investment in equity method investees and total expenditures for additions to
long-lived assets other than financial instruments, long-term customer
relationships of a financial institution, mortgage and other servicing rights,
deferred policy acquisition costs, and deferred tax assets is not applicable
because the specified amounts are not included in the measure of segment profit
or loss reviewed by the chief operating decision maker or regularly provided to
the chief operating decision maker.
FAS131, Par. 29
The Company has complied with FAS131, Par. 26 because the amount of each
segment item reported was the measure reported to the chief operating decision
maker for purposes of making decisions about allocating resources to the segment
and assessing its performance. Adjustments and eliminations made in preparing
the Company's general-purpose financial statements and allocations of revenues,
expenses, and gains or losses were included in determining reported segment
profit or loss only if they were included in the measure of the segment's profit
or loss that is used by the chief operating decision maker. Similarly, only
those assets that were included in the measure of the segment's assets that is
used by the chief operating decision maker were reported for that segment. Any
amounts allocated to reported segment profit or loss or assets, were allocated
on a reasonable basis.
Lisa Haynes
U.S. Securities and Exchange Commission
April 19, 2006
Page 6
FAS131, Par. 30
The Company has complied with FAS131, Par. 30 because the chief operating
decision maker used only one measure of a segment's profit or loss and only one
measure of a segment's assets in assessing segment performance and deciding how
to allocate resources, and reported segment profit or loss and assets shall at
those measures.
FAS131, Par. 31
The Company did not provide an explanation of the measurements of segment
profit or loss and segment assets for each reportable segment because it was
impracticable.
FAS131, Par. 32
The Company did not provide the disclosure required under FAS131, Par. 32
regarding reconciliations because it was impracticable.
FAS131, Par. 33
The disclosure required under FAS131, Par. 33 regarding interim period
information is not applicable because the disclosure document under review is
from the Form 10-K for the Fiscal Year and there is no interim period
information to disclose.
FAS131, Par. 34
The disclosure required under FAS131, Par. 34 regarding the Restatement of
Previously Reported Information is not applicable because the Company did not
change the structure of its internal organization in a manner that caused the
composition of its reportable segments to change.
FAS131, Par. 35
The disclosure required under FAS131, Par. 35 is not applicable because
the Company did not change the structure of its internal organization in a
manner that caused the composition of its reportable segments to change.
FAS131, Par. 36
Disclosure regarding paragraphs 37-39 is provided as set forth below.
FAS131, Par. 37
The Company did not provide the information required under FAS131, Par. 37
because it was impracticable to provide such information.
Lisa Haynes
U.S. Securities and Exchange Commission
April 19, 2006
Page 7
FAS131, Par. 38
The Company did not provide the information required under FAS131, Par. 38
because it was impracticable to provide such information.
FAS131, Par. 39
The Company did not provide the information required under FAS131, Par. 39
because it does not rely on one or a few major customers.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure, page 20
9. We note you have changed your registered independent accounting firm for
the audit of the fiscal year ended April 30, 2005. Please revise your future
filings beginning with your Form 10-K for the fiscal year ended April 30, 2006
to provide the disclosures prescribed by Item 304 of Regulation S-K.
The Company will revise its future filings beginning with its Form 10-K
for the fiscal year ended April 30, 2006, to provide the disclosures prescribed
by Item 304 of Regulation S-K.
Quarterly Report on Form 10-Q for the Quarters ended July 31, 2005 and October
31, 2005
Consolidated Financial Statements
General
10. It appears that your mortgage banking operations ceased on May 31, 2005.
Please tell us in your response letter why you have not provided certain
disclosures regarding your discontinued mortgage banking operations (such as the
manner and timing for disposal) and separately reported the operating results,
net of applicable income tax effects, and assets and liabilities attributable to
the discontinued operation for all periods presented. Please refer to the
guidance provided by Rule 5-03(15) of Regulation S-X and by paragraphs 41-44 and
47-48 of SFAS 144.
On May 31, 2005, Anza Capital, Inc. (the "Company") discontinued its
mortgage banking operations, as AMRES was unable to meet the maximum deductible
requirements for the errors and omissions insurance to maintain its warehouse
line of credit, which expired on May 31, 2005. The discontinuance of the
Company's mortgage banking operations was executed by stopping its operations
and running out the current business. As of the quarter ended July 31, 2005,
there were three loans held for sale. These loans were sold during the quarter
ended October 31, 2005.
Under SFAS 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, the decision to "run out" a business qualifies for disclosure in
continuing operations under the following circumstance:
Lisa Haynes
U.S. Securities and Exchange Commission
April 19, 2006
Page 8
"An entity may have a disposal strategy that involves the "run-off" of
operations (i.e., to cease accepting new business but to continue to provide
service under existing remaining contracts until they expire or are terminated).
After SFAS 144 is applied, the component of the entity that is to be abandoned
through the run-off of operations should not be reported as a discontinued
operation until all operations, including run-off operations, cease."
The Company was still in process of running off its mortgage banking
operations, and the Company continued to incur expenses related to these
operations. The company was involved in on-going efforts to clean up the
remaining operations, on-going discussions with the Company's agents, and
continued settling of agent and bank agreements related to mortgage banking
transactions as well as on-going attempts to dispose of the final loans held for
sale.
Therefore, the Company's inclusion of the mortgage banking activities in
continuing operations was appropriate and that the operations of the mortgage
banking division did not qualify to be disclosed as discontinued operations
until all operations have ceased.
Company's Statements
The Company is responsible for the adequacy and accuracy of the disclosure
in the filing;
Staff comments or changes to disclosure in response to staff comments do
not foreclose the Commission from taking any action with respect to the filing;
and
The Company may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities laws of
the United States.
Please do not hesitate to contact me if you have any questions. Thank you
for your time and attention to this matter.
Sincerely,
/s/ Brian A. Lebrecht
Brian A. Lebrecht, Esq.