UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
Commission File Number 000-29049
SILVERADO FINANCIAL, INC.
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(Exact name of small business issuer as specified in its charter)
Nevada 86-0824125
----------------------------------- ----------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
5976 W. Las Positas, Suite 112, Pleasanton, CA 94588
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(Address of principal executive offices) (Zip Code)
Telephone Number: (925) 227-1500
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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 [ ]
As of May 4, 2004, 16,247,833 of the registrant's common stock, $0.01 par value
per share, were issued and outstanding.
1
SILVERADO FINANCIAL, INC.
INDEX TO FORM 10-QSB
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements................................................. 3
Consolidated Balance Sheet as of March 31, 2004.............................. 3
Consolidated Statements of Operations
for the three months ended March 31, 2004 and 2003........................... 4
Consolidated Statements of Cash Flows
for the three months ended March 31, 2004 and 2003........................... 5
Notes to Financial Statements................................................ 6
Item 2. Management's Plan of Operation....................................... 12
Item 3. Controls and Procedures.............................................. 27
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................... 27
Item 2. Changes in Securities................................................ 28
Item 3. Defaults Upon Senior Securities...................................... 28
Item 4. Submissions of Matters to a Vote of Security Holders................. 28
Item 5. Other Information.................................................... 28
Item 6. Exhibits and Reports on Form 8-K..................................... 29
SIGNATURES .................................................................. 29
2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SILVERADO FINANCIAL, INC.
CONSOLIDATED BALANCE SHEET
AT MARCH 31, 2004
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 36,779
Receivables 2,957
Total Current Assets -----------
39,736
OTHER ASSETS
Intellectual property 1,398,020
Furniture, fixtures & equipment, net 109,656
Other 10,114
-----------
Total assets $ 1,557,526
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 268,761
Accrued officer salaries 18,340
Accrued interest 34,451
Due to affiliates 14,439
-----------
Total current liabilities 335,991
OTHER LIABILITIES
Convertible notes payable 36,000
Note payable 275,000
-----------
Total liabilities 646,991
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value,
5,000,000 shares authorized, none issued
Common stock, $.001 par value, 20,000,000 shares 16,214
authorized, 16,214,139 issued and outstanding
Additional paid-in capital 10,666,366
Deferred Stock Compensation (9,030)
Accumulated Deficit (9,763,015)
-----------
Total stockholders' equity 910,535
-----------
Total liabilities and stockholders' equity $ 1,557,526
===========
See accompanying notes to these consolidated financial statements.
3
SILVERADO FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the 3 months ended
-------------------------------------
March 31, 2004 March 31, 2003
---------------- ----------------
Revenues
Commission & processing revenue $ 108,685 $ -
---------------- ----------------
Operating expenses
Sales expenses and commissions 80,220
Consulting 82,501 121,300
Interest expense 6,382 6,068
Depreciation expense 6,714 159
Other general and administrative 145,156 66,661
---------------- ----------------
Total operating expenses 320,973 194,188
Net (Loss) from operations (212,288) (194,188)
Other income and expense
Gain (Loss) on sale of investments 9,814 (6,354)
---------------- ----------------
Net (Loss) $ (202,474) $ (200,542)
================ ================
NET (LOSS) PER SHARE:
Basic $ (0.01) $ (0.02)
================ ================
Diluted $ (0.01) $ (0.02)
================ ================
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 15,308,609 10,587,138
================ ================
Diluted
15,308,609 10,587,138
================ ================
See accompanying notes to these consolidated financial statements.
4
SILVERADO FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
For the three months ended
March 31,
-----------------------------
2004 2003
------------- -------------
OPERATING ACTIVITIES
Net (loss) income for the period $ (202,474) $ (200,542)
Adjustments to reconcile net
cash used by operations:
Depreciation and amortization expense 13,684 159
Loss (gain) on sale of marketable securities (9,814) 6,354
Common stock issued for services and trade payables 156,878 86,500
(Increase)/decrease in accounts receivable 8,448 (19,177)
(Increase)/decrease in other assets (3,214) -
Increase/(decrease) in accounts payable 23,941 126,609
Increase/(decrease) in accrued officer salaries (41,660) -
Increase/(decrease) in accrued interest 6 ,383 6,066
Increase/(decrease) in due to affiliates 439 (13,000)
------------- -------------
Net Cash (Used) by Operating Activities (47,389) (7,031)
------------- -------------
FINANCING ACTIVITIES
Proceeds from private placements 55,350
Cash provided from financing activities 55,350 -
------------- -------------
INVESTING ACTIVITIES
Proceeds from sale of marketable securities 27,588 7,421
Cash provided by investment activities 27,588 7,421
Increase (decrease) in cash 35,549 390
Cash at beginning of period 1,230 561
Cash at end of period $ 36,779 $ 951
============= =============
See accompanying notes to these consolidated financial statements.
5
SILVERADO FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2004
Note 1 - ORGANIZATION AND BASIS OF PRESENTATION
The unaudited financial statements included herein were prepared from the
records of the Company in accordance with Generally Accepted Accounting
Principles. These financial statements reflect all adjustments which are, in the
opinion of management, necessary to provide a fair statement of the results of
operations and financial position for the interim periods. Such financial
statements generally conform to the presentation reflected in our Forms 10-QSB
and 10-KSB filed with the Securities and Exchange Commission for the year ended
December 31, 2003. The current interim period reported herein should be read in
conjunction with our Form 10-KSB subject to independent audit at the end of the
year.
A majority of the shareholders of record on February 10, 2003 voted to amend the
Articles of Incorporation of the Registrant to change the name of the Company to
Silverado Financial, Inc. and to change the authorized common shares to
100,000,000 and the authorized preferred shares to 5,000,000 as described in an
information statement filed on Form 14C with the Securities and Exchange
Commission on February 11, 2003. The Registrant filed with the Secretary of
State of Nevada a Certificate of Amended Articles of Incorporation on March 21,
2003. Subsequently, on April 29, 2003 we effected a one for five reversal of its
authorized shares. See Note 2 below.
As shown in the accompanying financial statements, we had a net loss of $202,474
for the three months ended March 31, 2004. We have incurred an accumulated
deficit of $9,763,015 and have a deficit in working capital of approximately
$296,255 as of March 31, 2004. Our ability to continue as a going concern is
dependent on obtaining additional capital and financing and operating at a
profitable level. We intend to seek additional capital either through debt or
equity offerings, or a combination thereof, and to seek acquisitions which will
generate sales volume with operating margins sufficient to achieve
profitability. The financial statements do not include any adjustments that
might be necessary if we are unable to continue as a going concern. The
independent auditor's report on the financial statements for the year ended
December 31, 2003 expressed substantial doubt about our ability to continue as a
going-concern. The results of operations for the three months ended March 31,
2004 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2004.
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
RESTATEMENT OF SHARE AMOUNTS
Effective April 29, 2003 we changed our trading name and trading symbol to
"SLVO" on the OTCBB and decreased the number of issued and outstanding shares of
common stock by issuing one new share for each five shares held. This action was
authorized by the board of directors at a meeting of the board on April 3, 2003.
6
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
CONSOLIDATION
The consolidated financial statements include the results of operations, account
balances and cash flows of the Company and our wholly owned subsidiaries after
elimination of inter-company transactions. Realty Capital Corporation's
operations are consolidated from its acquisition of May 9, 2003.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH
Cash includes all short-term highly liquid investments that are readily
convertible to known amounts of cash and have original maturities of three
months or less. At times cash deposits may exceed government insured limits.
PROPERTY AND EQUIPMENT
Property and equipment consists of computer equipment, office furniture and is
stated at cost less accumulated depreciation. Depreciation is recorded on a
straight-line basis the estimated useful lives of the assets at 5 years.
Depreciation expense for the quarter ended March 31, 2004 was $6,714.
Accumulated depreciation for the quarter ended March 31, 2004 was $24,615.
REVENUE RECOGNITION
Commissions generated from brokering loans are recognized at the date of close.
FINANCIAL INSTRUMENTS
Financial instruments consist primarily of cash, receivables and obligations
under accounts payable and accrued expenses. The carrying amounts of cash,
accounts receivable, accounts payable, notes payable and accrued expenses
approximate fair value because of the short term maturity of those instruments.
INTELLECTUAL PROPERTY
Our intellectual property is comprised of a software platform acquired with the
acquisition of Financial Services Inc. in 2002. We periodically evaluates the
recoverability of intangible assets and takes into account events or
circumstances that warrant revised estimates of useful lives or that indicate
that impairment exists. Our intangible assets will be subject to amortization
when put into productive use.
IMPAIRMENT OF LONG-LIVED ASSETS
In the event that facts and circumstances indicate that the cost of long-lived
assets, primarily intellectual property and patents, may be impaired, we perform
a recoverability evaluation. If an evaluation is required, the discounted
estimated future cash flows associated with the assets are compared to the
assets' carrying amount to determine whether a write-down to fair value is
required.
7
IMPAIRMENT OF LONG-LIVED ASSETS- Continued
On January 1, 2002, we adopted SFAS No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets" which requires that long-lived assets to be held
and used be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
We evaluate its long-lived assets for impairment whenever changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future undiscounted cash flows
expected to be generated by the asset. If assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the carrying
amounts exceed the fair values of the assets. Assets to be disposed of are
reported at the lower of carrying values or fair values, less costs of disposal.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standard (SFAS) No. 123, "Accounting for
Stock-Based Compensation", ("SFAS 123") as amended by SFAS No. 148 "Accounting
for Stock-Based Compensation - Transition and Disclosure", established
accounting and disclosure requirements using a fair-value based method of
accounting for stock-based employee compensation. We have no outstanding options
to consultants or members of the Board of Directors.
INCOME TAXES
We have adopted the provisions of SFAS No. 109, "Accounting for Income Taxes".
SFAS 109 requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
consolidated financial statements or tax returns. Under this method, deferred
tax liabilities and assets are determined based on the difference between the
financial statement and tax basis of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
LOSS PER SHARE
(Loss) per common share is computed based on the weighted average number of
common shares outstanding during each period. Convertible equity instruments
such as convertible debentures and warrants are not considered in the
calculation of net loss per share, as their inclusion would be antidilutive.
Note 3 - INTELLECTUAL PROPERTY
Since its inception, we have entered into numerous agreements as a result of
having acquired certain rights to various complex intellectual scientific
properties. On November 19, 2002 we acquired intellectual property comprised of
a software platform acquired with Financial Services Inc. during 2002.
During the quarter ended June 30, 2003, in a non-arms length transaction with
Robert George Krushnisky, a director of the company, we received 62,000 shares
of its own common stock together with cancellation of an outstanding debt in the
amount of $1,100 in exchange for all of the scientific intellectual property
assets acquired prior to the acquisition of FSI in November of 2002 as well as
all shares of Rockford Technology held for sale by the company.
We periodically analyze its investment in intellectual property for impairment.
The stages of development in which the intellectual property is in make
estimation of value or determination of impairment a difficult task. There has
been no substantive revenues generated or value derived from the technology
8
INTELLECTUAL PROPERTY - Continued
since its acquisition. We have determined that there is no evidence that the
book value of the intellectual property is impaired until it has been determined
that there is no likely commercial application or one that will produce adequate
cash flow to support those values.
On November 19, 2002, in connection with the acquisition of Financial Software,
Inc., we acquired certain software, web sites and intellectual property which
can aggregate financial information from a large number of data sources on an
individual basis, amalgamate the data and provide accurate and detailed insight
into an individual's personal financial picture on a real time basis. This
software can manage a host of disparate objectives as they relate to a persons
financial goals, be they investment or debt related or any combination. This
software suite, together with mortgage generation capabilities can create a
variety of new and different mortgage, investment or insurance products. We
recorded the software on its books at the seller's basis of $1,398,020. We
engaged an experienced software developer based in Palo Alto, California to
perform an independent, third party valuation of the software during 2003. We
anticipate putting the software into service during the fourth quarter of 2004
and intend to amortize the software over a three year period commencing upon the
in-service date. Estimated amortization expense on this intangible asset is
estimated to be as follows for the years December 31:
2004 $ 116,505
2005 466,000
2006 466,000
2007 349,515
------------ --------------
------------ --------------
Total $ 1,398,020
============ ==============
Note 4 - ACCOUNTS AND NOTES PAYABLE
Accounts Payable
We owe our vendors a total of $268,761 of which $127,907 is outstanding payables
over ninety days.
Notes Payable
As part of the acquisition of Financial Services Software, we became obligated
under a note for $275,000 at 8% per annum, payable monthly, in arrears and
amortized over eighteen equal installments of $16,258. Principal and interest
payments due under the note will not be paid until we have raised sufficient
capital through the sale of stock and /or notes to raise a minimum of four times
the monthly payment due. Further, additional monthly payments are abated until
we are able to maintain sufficient capital to allow it to remain cash flow
positive and continue making the payments. There was $30,016 of accrued unpaid
interest at March 31, 2004.
Convertible Notes payable
We have three convertible notes payable totaling $36,000 at 10% per annum
maturing during 2004 as a result of our extensions of two convertible notes that
were originated during 2002. There was $4,435 of accrued unpaid interest at
March 31, 2004.
9
Convertible Notes payable - Continued
A Schedule of the maturity dates of the convertible debentures with their
attached warrants are as follows:
Amount Original Extended Warrants Outstanding
Maturity Date Maturity Date
----------- ---------------- ------------- -------------------------------
$ 16,000 10/11/03 10/11/04 40,000 shares at $.40 per share
$ 10,000 11/16/03 11/16/04 25,000 shares at $.40 per share
$ 10,000 7/23/04 7/23/05 25,000 shares at $.40 per share
All debentures can be converted into common stock for the same amount of shares
as their right to purchase the same number of shares through their warrants.
Assuming the Company has the ability to make all note payments under their terms
commencing October 1, 2003 and does not convert or extend the convertible notes
payable, the minimum annual payments are as follows:
Year Amount
------------ --------------
2004 $ 211,096
2005 89,904
--------------
$ 311,000
==============
Note 5 - STOCKHOLDERS' EQUITY
On February 27, 2004 the Company issued 360,000 restricted common shares for
fair value to the officers of the Company for accrued compensation of $83,937
and 235,500 restricted common shares for $45,036 for services through February
2004. The shares were issued under Section 4(2) of the 1933 Securities Act.
On January 13, 2004 the Company also issued 55,866 unrestricted shares under its
registered 2004 Officers, Directors, Employees and Consultants Stock
Compensation Plan at a fair value of $10,000 to a consultant for services
performed during the previous quarter for assistance with the rescission of San
Francisco Funding, Inc.
On January 13, 2004 the Company also issued 88,281 unrestricted shares under its
registered 2004 Officers, Directors, Employees and Consultants Stock
Compensation Plan to two individuals at a fair value of $14,505 for consulting
services in connection with work on the Company's web site, assistance with
acquisitions and consulting services related to planning for advertising our
mortgage business.
On March 11, 2004 the Company issued 20,000 unrestricted shares to one
consultant under its registered 2004 Officers, Directors, Employees and
Consultants Stock Compensation Plan for legal services at a fair value of $3,400
for legal work.
During the quarter ended March 31, 2004 the Company amortized a total of $6,970
of legal services which had been previously paid for in advance with restricted
common shares and recorded as deferred compensation.
10
STOCKHOLDERS' EQUITY- Continued
Also during the quarter ended March 31, 2004 the Company issued 615,000
restricted common shares to accredited investors for $61,500 of cash. A total of
$6,150 was paid in finders fees resulting in the Company receiving $55,350. The
shares were issued under Section 4(2) of the 1933 Securities Act.
Note 6 - SUBSEQUENT EVENTS:
On April 15, 2004 we signed a lease on 2,512 sq. ft. located at 5976 W. Las
Positas, Suite 112, Pleasanton, CA 94588. The monthly lease rate is $4,396. The
lease has a term of 36 months. Lease payments do not commence until June 15,
2004.
On April 20, 2004 and in connection with the lease, the Company acquired
furniture, fixtures and equipment in exchange for $12,000. The Company acquired
furniture, fixtures and equipment consist primarily of a digital telephone
system, office cubicles, file cabinets, a copier, lamps, chairs and office
kitchen appliances.
On May 5, 2004 the Company acquired of all of the issued and outstanding shares
of Lendingtech.com, Inc., (Lendingtech), from its sole owner and shareholder,
for $520,000 of debt with the following terms:
$ 200,000 15% Promissory Note
$ 144,000 8% Promissory Note
$ 176,000 5% Convertible Promissory Note
--------------- ----------------------------------
$ 520,000 Purchase Price
=============== ==================================
The Company did not tender any cash as consideration for the acquisition but was
required to issue 2,000,000 of its shares as collateral for the debt. The
Company acquired two computer servers, its web site, client base of
approximately 24,000 persons and loans in a pipeline which were all valued at
$520,000.
The acquisition was determined at arms length between the owners of Lendingtech
and the registrant.
Lendingtech.com was established in 1988 as a mortgage brokerage company called
Calabasas Mortgage. It has had a history of providing California homeowners and
investors with real estate financing options. Using Internet technology combined
with customer service it has been able to offer competitive rates in its product
line. Its technology enables loans to close quickly, at a low cost by combining
the use of the Internet along with its processing software and automated
underwriting systems.
As a result of this transaction, Lendingtech has become and shall continue to
operate as a wholly-owned subsidiary of the Registrant.
Subsequent to March 31, 2004, the Company issued 205,555 restricted common
shares to two accredited individuals for $17,000 in cash. The shares were issued
under Section 4(2) of the 1933 Securities Act.
On April 21, 2004, the Company settled a dispute with a public relations firm by
issuing 26,471 restricted common shares for fair value of $4,500 and $4,500 in
cash for a total settlement of $9,000.
11
SUBSEQUENT EVENTS: - Continued
On May 3, 2004, the Company issued 266,667 restricted common shares at a fair
value of $20,000 for future legal services in a private placement to an
accredited investor.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, INCLUDING, WITHOUT LIMITATION,
STATEMENTS REGARDING OUR EXPECTATIONS, BELIEFS, INTENTIONS OR FUTURE STRATEGIES
THAT ARE SIGNIFIED BY THE WORDS "EXPECTS", "ANTICIPATES", "INTENDS", "BELIEVES",
OR SIMILAR LANGUAGE. SUCH FORWARD-LOOKING STATEMENTS INCLUDE, BUT ARE NOT
LIMITED TO, THE SEEKING OF REVENUE PRODUCING ACQUISITIONS, THE DEVELOPMENT PLANS
FOR THE TECHNOLOGIES OF THE COMPANY, TRENDS IN THE RESULTS OF OUR DEVELOPMENT,
ANTICIPATED DEVELOPMENT PLANS, OPERATING EXPENSES AND OUR ANTICIPATED CAPITAL
REQUIREMENTS AND CAPITAL RESOURCES. THESE FORWARD-LOOKING STATEMENTS INVOLVE
RISKS, UNCERTAINTIES AND OTHER FACTORS. ALL FORWARD-LOOKING STATEMENTS INCLUDED
IN THIS DOCUMENT ARE BASED ON INFORMATION AVAILABLE TO THE COMPANY ON THE DATE
HEREOF AND SPEAK ONLY AS OF THE DATE HEREOF. THE FACTORS DISCUSSED BELOW UNDER
"FORWARD-LOOKING STATEMENTS" AND ELSEWHERE IN THIS QUARTERLY REPORT ON FORM
10-QSB ARE AMONG THOSE FACTORS THAT IN SOME CASES HAVE AFFECTED OUR RESULTS AND
COULD CAUSE THE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED IN THE
FORWARD-LOOKING STATEMENTS. IN ADDITION, THE FOLLOWING DISCUSSION IS INTENDED TO
PROVIDE AN ANALYSIS OF OUR FINANCIAL CONDITION AND PLAN OF OPERATION AND SHOULD
BE READ IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS AND THE NOTES THERETO.
MANAGEMENT'S PLAN OF OPERATION
During the next twelve months our ability to increase the number of offices and
revenue will depend on the availability of cash. We have raised $78,500 from
accredited investors through the sale of restricted common stock at 50% discount
to market on the day preceding investment. In order to continue to expand
operations, we intend to raise additional capital, up to $121,500, through
continued sale of restricted common stock on these terms. We believe that
continued increases in revenue from operations will preclude the need to raise
any additional amounts in the short term.
We plan to improve our FinanCenter software during the fourth quarter of 2004 as
part of our plan to increase the number of sales offices over the next twelve
months. We plan to apply for licensure under the California Department of
Corporations as a Consumer Finance Lender through our subsidiary Realty Capital
Corporation and, if approved as such, we expect to add significant numbers of
W-2 employees as we expand throughout California in contrast to the current
independent contractors who serve under our current California Department of
Real Estate license.
We also expect to continue seeking new acquisition candidates which may add to
our employee base.
From inception in 1994 until the fourth quarter of 2002, Silverado Financial,
Inc. (formerly, "Rhombic Corporation"), was primarily focused on the acquisition
of the rights to innovative technologies that could ultimately be developed into
numerous applications. During the years of 1999 through 2001wet began to focus
on the research and development of its portfolio of acquired technologies and to
develop specific applications in order to make them commercially marketable. Our
business strategy was to develop a specific application from a technology, then
commence or contract for a marketing effort for the developed application that
would generate sales.
12
PLAN OF OPERATION - Continued
In 2002 we concluded that we could not raise capital to pursue the planned
efforts for the scientific technology and began seeking potential acquisition
candidates. During the fourth quarter of 2002 we appointed John Hartman as Chief
Executive Officer and director and Sean Radetich as a director.
On November 11, 2002, the board of directors of the Registrant approved the
issuance of 22,000,000 restricted shares of its common stock for the acquisition
of all of the issued and outstanding shares of Financial Software, Inc. ("FSI").
The transaction was closed on November 19, 2002. The value of the consideration
in the exchange was determined at arms length by FSI and the registrant. FSI was
in the financial services technology and publishing industry. A majority of the
shareholders of record on February 10, 2003 voted to amend the Articles of
Incorporation of the Registrant to change the name of the Company to Silverado
Financial, Inc. and to change the authorized common shares to 100,000,000 and
the authorized preferred shares to 5,000,000 as described in an information
statement filed on Form 14C with the Securities and Exchange Commission on
February 11, 2003. The Registrant filed with the Secretary of State of Nevada a
Certificate of Amended Articles of Incorporation on March 21, 2003.
Our intention is to become a multifaceted real estate services company which
leverages advances in technology to increase our competitive advantages.
Silverado is currently considering the acquisition of firms and attempting to
establish business lines in the mortgage brokerage, mortgage banking and other
real estate related business sectors. To that end, we acquired Realty Capital
Corporation from our president, John Hartman, in a non-arms length transaction
on May 9, 2003 and, subsequent to the fiscal quarter covered by this report; we
have acquired Lendingtech.com, Inc. an on-line mortgage broker formerly based in
the Los Angeles metropolitan area and now headquartered within our offices in
Pleasanton, California.
The majority of our sales and telemarketing staff are independent contractors
although we do have four statutory employees and we utilize consultants for
matters pertaining to coordinating technology development and administration. In
an effort to expand our operations we have raised $78,500 from accredited
investors through the sale of restricted common stock at 50% discount to market
on the day preceding investment. In order to continue to expand operations, we
intend to raise additional capital, up to $121,500, through continued sale of
restricted common stock on these terms. We believe that continued increases in
revenue from operations may preclude the need to raise any additional amounts in
the short term.
Results of Operations
Comparison of Quarter Ended March 31, 2004 and 2003
We generated no revenue from operations during the first three months of 2003 or
since the company's inception; however, during the first three months of 2004,
we generated $108,685 in revenues. Management's objective during the first
quarter of 2004 was to increase revenues over the last quarter of 2003 and to
find potential acquisitions candidates. Management's objective during the first
quarter of 2003 was to restate its capital structure to attract investment
capital and to register an employee and consultants stock compensation plan in a
registration statement on Form S-8 in order to attract competent consultants to
assist in structuring the Company to attract potential acquisitions.
On February 27, 2004 we filed an employee and consultants stock compensation
plan in a registration statement on Form S-8 authorizing a Compensation
Committee to issue up to 2,000,000 common shares. During the first quarter of
2004, the Compensation Committee issued 164,147 common shares to a total of
three individuals at a fair value of $27,905 for services pertaining to
corporate legal and administrative matters. On January 31, 2003 we filed an
employee and consultants stock compensation plan in a registration statement on
Form S-8 authorizing a Compensation Committee to issue up to 1,600,000 (as
adjusted by the April 29, 2003 one for five share reversal) common shares.
13
Results of Operations - Continued
During the first quarter of 2003, the Compensation Committee issued 250,000
common shares to a total of three consultants at an agreed value of $37,500.
During the first quarter of 2004 we incurred $145,156 in general and
administrative expenses which were comprised of officer compensation expense of
$89,359, $2,500 in director fees, $11,799 of legal fees for acquisitions and
defense costs, $27,358 in office rental expense and approximately $14,140 in
office and advertising expenses. We also incurred $82,501 in consulting fees of
which approximately $24,000 was accrued. The consulting fees were for marketing,
general consulting pertaining to acquisitions and filings with the Securities
and Exchange Commission. We plan to pay for the $24,000 accrued consulting fees
incurred for corporate administrative matters by issuing common shares under its
2004 registered compensation plan.
During the first quarter of 2003 we incurred $121,300 in consulting fees of
which approximately $90,000 was accrued. The accrued consulting fees were
comprised of approximately $21,000 additional legal fees owed for general
consulting and filings with the Securities and Exchange Commission,
approximately $33,000 for software valuations and modifications to get FSI
operating, approximately $26,000 in administrative costs to integrate all
corporate and financial records of FSI with Silverado and $10,000 for additional
costs pertaining to marketing consulting for commencing and expanding a mortgage
brokerage business. A total of $66,661 in general and administrative expenses
was incurred which was comprised primarily of accrued compensation expense of
$30,000 to its officers and $15,000 of office expenses and out of pocket costs
involved with the restating our capital structure.
Liquidity and Capital Resources
At March 31, 2004 we had $36,779 in cash and $39,736 in current assets. We also
had $335,991 in current payables. Although we could probably settle debt to
affiliates in the amount of $14,439 for restricted common stock, it would still
have approximately $281,816 as a working capital deficit.
During the first quarter of 2004, we sold all of its remaining shares of
Limelight Media, Inc. and received $27,588 in cash which was used to pay
outstanding payables.
Our receivable from Realty Capital Corporation increased to $94,486 for various
items that Silverado had paid on its behalf and we paid $3,214 for a security
deposit on a second lease space which will used for the corporate headquarters.
We incurred $6,382 of interest expense on its debt of $311,000 of which $275,000
was incurred for the software of FSI and $36,000 were loans for cash in a
private placement from accredited investors.
We believe that we have sufficient capital and resources to support operations
through the remainder of 2004. However, we do not believe that we will be able
to successfully implement our long term plans without raising additional
capital. We anticipate that the capital requirements for the balance of the
period ending December 31, 2004 will require that additional cash be raised from
external sources. We believe that this requirement will be met by cash equity
investments.
14
Liquidity and Capital Resources - Continued
On February 1, 2004, we began a private placement to accredited investors for
$200,000. Subscribers receive shares at a 50% discount to the closing price of
SLVO common stock on the day preceding receipt of their subscription agreement
and investment. This offering is open only to accredited investors. As of May
15, 2004, we had received $78,500 under this private placement. We accrued
$7,850 in commissions in connection with the subscriptions, of which we have
paid $6,150 and $1,700 remains unpaid, and we have received $70,650 in net
proceeds. However, there is no assurance that we will be able to fully subscribe
this offering or generate capital sufficient to meet our long-term needs. If we
can not meet these requirements, we may not be able to continue as a going
concern.
SUBSEQUENT EVENTS
On April 15, 2004 we signed a lease on 2,512 sq. ft. located at 5976 W. Las
Positas, Suite 112, Pleasanton, CA 94588. The monthly lease rate is $4,396. The
lease has a term of 36 months. Lease payments do not commence until June 15,
2004.
On April 20, 2004 and in connection with the lease, we acquired furniture,
fixtures and equipment in exchange for $12,000. The acquired furniture, fixtures
and equipment consist primarily of a digital telephone system, office cubicles,
file cabinets, a copier, lamps, chairs and office kitchen appliances.
On May 5, 2004 we acquired of all of the issued and outstanding shares of
Lendingtech.com, Inc., (Lendingtech), from Michael Petrullo, its sole owner and
shareholder, for $520,000 of debt with the following terms:
$200,000 15% Promissory Note
$144,000 8% Promissory Note
$176,000 5% Convertible Promissory Note
$520,000 Purchase Price
We did not tender any cash as consideration for the acquisition but were
required to issue 2,000,000 of our shares as collateral for the debt. We
acquired two computer servers, its web site, client base of approximately 24,000
persons and loans in a pipeline which were all valued at $520,000.
The acquisition was determined at arms length between the owners of Lendingtech
and the registrant.
Lendingtech.com was established in 1988 as a mortgage brokerage company called
Calabasas Mortgage. It has had a history of providing California homeowners and
investors with real estate financing options. Using Internet technology combined
with customer service it has been able to offer competitive rates in its product
line. Its technology enables loans to close quickly, at a low cost by combining
the use of the Internet along with its processing software and automated
underwriting systems.
Lendingtech generated unaudited year-end 2003 revenue of $960,000, with an
adjusted EBITDA of $375,000 and generated unaudited year-end 2002 revenue of
961,000, with an adjusted EBITDA of $379,000. We believe that it can increase
Lendingtech's gross revenue to as much as $3,000,000 and $1,500,000 EBITDA
within the next 12-months of operation.
As a result of this transaction, Lendingtech has become and shall continue to
operate as a wholly-owned subsidiary of the Registrant
15
FORWARD LOOKING STATEMENTS
Certain statements made in this report on Form 10-QSB is "forward looking"
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Such statements involve known and unknown risks, uncertainties and other
factors that may cause our actual results, performance or achievements to be
materially different from any future results implied by such forward looking
statements. Although we believes that the expectations reflected in such forward
looking statements are based upon reasonable assumptions, our actual results
could differ materially from those set forth in the forward looking statements.
Certain factors that might cause such a difference might include: the failure of
the registrants efforts to secure additional equity capital, the inability to
successfully execute the revised business plan, the success or failure to
implement the management to operate possible acquisitions profitably, and the
registrant's planned marketing, public relations and promotional campaigns.
RISK FACTORS
Stockholders and prospective purchasers of our common stock should carefully
consider the risks described below before making a decision to buy our common
stock. If any of the following risks actually occurs, our business could be
harmed. In that case, the trading price of our common stock could decline, and
you may lose all or part of your investment. When determining whether to buy our
common stock, stockholders and prospective purchasers should also refer to the
other information in this Form 10-K, including our financial statements and the
related notes.
A prolonged economic slowdown or a lengthy or severe recession could hurt our
operations, particularly if it results in a decline in the real estate market.
The risks associated with our business are more acute during periods of economic
slowdown or recession because these periods may be accompanied by decreased
demand for consumer credit and declining real estate values. Declining real
estate values reduce the ability of borrowers to use home equity to support
borrowings because they negatively affect loan-to-value ratios of the home
equity collateral. In addition, because we make a substantial number of loans to
credit-impaired borrowers, the actual rates of delinquencies, foreclosures and
losses on these loans could be higher during economic slowdowns. Any sustained
period of increased delinquencies, foreclosures or losses could adversely affect
our ability to sell loans, the prices we receive for our loans, the value of our
mortgage loans held for investment or our residual interests in securitizations,
which could have a material adverse effect on our results of operations,
financial condition and business prospects.
Our earnings may decrease because of increases or decreases in interest rates.
Our profitability may be directly affected by changes in interest rates. The
following are some of the risks we face related to an increase in interest
rates:
o An interest rate increase may affect our earnings by reducing the
spread between the interest we receive on our loans and our funding
costs.
o A substantial and sustained increase in interest rates could adversely
affect our loan origination volume because refinancing an existing
loan would be less attractive and qualifying for a purchase loan may
be more difficult.
16
RISK FACTORS - Continued
o During periods of rising interest rates, the value and profitability
of our loans may be negatively affected between the date of
origination or purchase and the date we sell or securitize the loan.
o When and if we securitize loans, the value of residual interests we
retain and the income we receive from the securitizations structured
as financings are based primarily on the London Inter-Bank Offered
Rate ("LIBOR"). This is because the interest on the underlying
mortgage loans is based on fixed rates payable on the loans for the
first two or three years while the bondholders are generally paid
based on an adjustable LIBOR-based yield. An increase in LIBOR reduces
the net income we would receive from, and the value of, these mortgage
loans and residual interests.
o Our adjustable-rate mortgage loans have periodic and lifetime interest
rate caps above which the interest rate on the loans may not rise. In
the event of general interest rate increases, the rate of interest on
these mortgage loans could be limited, while the rate payable on the
senior certificates representing interests in a securitization trust
into which these loans are sold may be uncapped. This would reduce the
amount of cash we receive over the life of the loans in
securitizations structured as financings and our residual interests,
and could require us to reduce the carrying value of our residual
interests.
We are also subject to risks from decreasing interest rates. For example, a
significant decrease in interest rates could increase the rate at which loans
are prepaid, which also could require us to reduce the carrying value of any
residual interests. If prepayments are greater than expected, the cash we would
receive over the life of our residual interests would be reduced.
Higher-than-expected prepayments could also have a negative effect on the value
of any servicing portfolio.
Any such changes in interest rates could have a material adverse effect on our
results of operations, financial condition and business prospects.
An interruption or reduction in the securitization and whole loan markets could
hurt our financial position.
As we implement our plan to become a full service mortgage banking company, we
will become increasingly dependent on the securitization market for the sale of
our loans because we intend to securitize loans directly in the future and many
of the whole loan buyers who purchase loans do so with the intention to
securitize them. The securitization market is dependent upon a number of
factors, including general economic conditions, conditions in the securities
market generally and conditions in the asset-backed securities market
specifically. In addition, poor performance of previously securitized loans
could harm our access to the securitization market. Accordingly, a decline in
the securitization market or a change in the market's demand for loans could
have a material adverse effect on our results of operations, financial condition
and business prospects.
If we are unable to maintain adequate financing sources, our earnings and our
financial position will suffer and jeopardize our ability to continue
operations.
17
We require substantial cash to support our operating activities and growth
plans. Our primary sources of cash are profits generated by sales of mortgage
products and the sale of our capital stock; however, we intend to generate
income from warehouse and aggregation credit facilities, asset-backed commercial
paper and the proceeds from the sales and securitizations of loans. We also
intend to finance residual interests in securitization transactions using Net
Interest Margin, or NIM, structures. As of December 31, 2003, we had no
short-term warehouse and aggregation credit facilities or asset-backed
commercial paper providing us with any committed or uncommitted borrowing
capacity to fund loan originations and purchases pending the pooling and sale of
such loans. As of March 27, 2004, we are in negotiations to acquire a short term
warehouse facility. If we cannot maintain or replace these facilities on
comparable terms and conditions, we may incur substantially higher interest
expense that would reduce our profitability.
During volatile times in the capital and secondary markets, access to warehouse,
aggregation and residual financing as well as access to the securitization and
secondary markets for the sale of loans has been severely constricted. If we are
unable to maintain adequate financing or other sources of capital are not
available, we would be forced to suspend or curtail our operations, which could
have a material adverse effect on our results of operations, financial condition
and business prospects.
New legislation could restrict our ability to make mortgage loans, which could
adversely impact our earnings.
Several states and cities are considering or have passed laws, regulations or
ordinances aimed at curbing predatory lending practices. The federal government
is also considering legislative and regulatory proposals in this regard. In
general, these proposals involve lowering the existing federal Homeownership and
Equity Protection Act thresholds for defining a "high-cost" loan, and
establishing enhanced protections and remedies for borrowers who receive such
loans. However, many of these laws and rules extend beyond curbing predatory
lending practices to restrict commonly accepted lending activities, including
some of our planned activities. For example, some of these laws and rules
prohibit any form of prepayment charge or severely restrict a borrower's ability
to finance the points and fees charged in connection with his or her loan. In
addition, some of these laws and regulations provide for extensive assignee
liability for warehouse lenders, whole loan buyers and securitization trusts.
Because of enhanced risk and for reputational reasons, many whole loan buyers
elect not to purchase any loan labeled as a "high cost" loan under any local,
state or federal law or regulation. Accordingly, these laws and rules could
severely constrict the secondary market for a significant portion of our loan
production. This would effectively preclude us from continuing to originate
loans that fit within the newly defined thresholds. For example, after the
October 1, 2002 effective date of the Georgia Fair Lending Act, many lenders and
secondary market buyers refused to finance or purchase Georgia loans. As a
result, many companies were forced to cease providing mortgages in Georgia until
the law's amendment a few months later. Similar laws have gone into effect in
New Jersey, as of November 27, 2003 ("New Jersey Home Ownership Act of 2002"),
and in New Mexico, as of January 1, 2004 ("New Mexico Home Loan Protection
Act"), that have impacted origination of loans in those states. The potential
long term reduction in loans in New Jersey and in New Mexico could be quite
severe. Moreover, some of our competitors who are national banks or federally
chartered thrifts may not be subject to these laws and may as a consequence be
able to capture market share from us and other lenders. For example, the Office
of the Comptroller of the Currency recently issued regulations effective January
7, 2004 that preempt state and local laws that seek to regulate mortgage lending
practices. Passage of such laws could increase compliance costs, reduce fee
income and reduce origination volume, all of which would have a material adverse
effect on our results of operations, financial condition and business prospects.
18
We are no longer able to rely on the Alternative Mortgage Transactions Parity
Act to preempt certain state law restrictions on prepayment penalties, which
could adversely impact our earnings.
The value of a mortgage loan depends, in part, upon the expected period of time
that the mortgage loan will be outstanding. If a borrower pays off a mortgage
loan in advance of this expected period, the holder of the mortgage loan does
not realize the full value expected to be received from the loan. A prepayment
penalty payable by a borrower who repays a loan earlier than expected helps
offset the reduction in value resulting from the early payoff. Consequently, the
value of a mortgage loan is enhanced to the extent the loan includes a
prepayment penalty, and a mortgage lender can offer a lower interest rate and/or
lower loan fees on a loan which has a prepayment penalty. Prepayment penalties
are an important feature used to obtain value on loans.
Certain state laws restrict or prohibit prepayment penalties on mortgage loans,
and until July 2003, lenders could rely on the federal Alternative Mortgage
Transactions Parity Act (the "Parity Act") and related rules issued in the past
by the Office of Thrift Supervision (the "OTS") to preempt state limitations on
prepayment penalties. The Parity Act was enacted to extend to financial
institutions, other than federally chartered depository institutions, the
federal preemption that federally chartered depository institutions enjoy.
However, on September 25, 2002, the OTS released a new rule that reduced the
scope of the Parity Act preemption and, as a result; we are not able to rely on
the Parity Act to preempt state restrictions on prepayment penalties. The
effective date of the new rule, originally January 1, 2003, was subsequently
extended by the OTS until July 1, 2003 in response to concerns from interested
parties about the burdens associated with compliance. The elimination of this
federal preemption requires us to comply with state restrictions on prepayment
penalties. These restrictions prohibit us from charging any prepayment penalty
in eight states and limit the amount or other terms and conditions of our
prepayment penalties in several other states. This may place us at a competitive
disadvantage relative to financial institutions that continue to enjoy federal
preemption of such state restrictions. Such institutions are able to charge
prepayment penalties without regard to state restrictions and, as a result, may
be able to offer loans with interest rate and loan fee structures that are more
attractive than the interest rate and loan fee structures that we are able to
offer.
The scope of our lending operations exposes us to risks of noncompliance with an
increasing and inconsistent body of complex laws and regulations at the federal,
state and local levels.
Currently, we are licensed to originate mortgage loans only in California,
however we are in the process of applying for licenses to generate loans in all
50 states, and when licensed we will be forced to comply with the laws and
regulations, as well as judicial and administrative decisions, for all of these
jurisdictions, as well as an extensive body of federal law and regulations. The
volume of new or modified laws and regulations has increased in recent years,
and, individual cities and counties have begun to enact laws that restrict
non-prime loan origination activities in those cities and counties. The laws and
regulations of each of these jurisdictions are different, complex and, in some
cases, in direct conflict with each other. As our operations continue to grow,
it may be more difficult to comprehensively identify, to accurately interpret
and to properly program our technology systems and effectively train our
personnel with respect to all of these laws and regulations, thereby potentially
increasing our exposure to the risks of noncompliance with these laws and
regulations.
19
Our failure to comply with these laws can lead to:
o civil and criminal liability;
o loss of approved status;
o demands for indemnification or loan
repurchases from purchasers of our loans;
o class action lawsuits; or
o administrative enforcement actions.
Any of these results could have a material adverse effect on our results of
operations, financial condition and business prospects.
If warehouse lenders and securitization underwriters face exposure stemming from
legal violations committed by the companies to whom they provide financing or
underwriting services, this could increase our borrowing costs and negatively
affect the market for whole loans and mortgage-backed securities.
In June 2003, a California jury found a warehouse lender and securitization
underwriter liable in part for fraud on consumers committed by a lender to whom
it provided financing and underwriting services. The jury found that the
investment bank was aware of the fraud and substantially assisted the lender in
perpetrating the fraud by providing financing and underwriting services that
allowed the lender to continue to operate, and held the bank liable for 10% of
the plaintiff's damages. This is the first case we know of in which an
investment bank was held partly responsible for violations committed by the
bank's mortgage lender customer. If other courts or regulators adopt this
theory, investment banks may face increased litigation as they are named as
defendants in lawsuits and regulatory actions against the mortgage companies
with which they do business. Some investment banks may exit the business, charge
more for warehouse lending or reduce the prices they pay for whole loans in
order to build in the costs of this potential litigation. This could, in turn,
have a negative effect on our results of operations, financial condition and
business prospects.
High delinquencies or losses on mortgage loans in securitizations may decrease
cash flows or impair our ability to sell or securitize loans in the future.
Loans made to lower credit grade borrowers, including credit-impaired borrowers,
entail a higher risk of delinquency and higher losses than loans made to
borrowers with better credit. We plan to make a substantial portion of our loans
to borrowers who do not qualify for loans from conventional mortgage lenders. No
assurance can be given that our underwriting criteria or methods will afford
adequate protection against the higher risks associated with loans made to lower
credit grade borrowers. We will be subject to risks of default and foreclosure
following the sale of loans through securitization. To the extent such losses
are greater than expected; the cash flows received through residual interests
and from securitizations structured as financings would be reduced. Increased
delinquencies or losses may also reduce or eliminate our ability to sell or
securitize loans in the future and could have a substantial, material adverse
effect on our operations, financial condition and business prospects.
Our inability to realize cash proceeds from loan sales and securitizations in
excess of the loan acquisition cost could adversely affect our financial
position.
20
The net cash proceeds received from loan sales consist of the premiums received
on sales of loans in excess of the outstanding principal balance, plus the cash
proceeds received from securitizations, minus the discounts on any loans that
are sold for less than the outstanding principal balance. If we are unable to
originate loans at a cost lower than the cash proceeds realized from loan sales,
our results of operations, financial condition and business prospects could be
materially adversely affected.
Warehouse and aggregation financing is subject to margin calls based on the
lender's opinion of the value of loan collateral. An unanticipated large margin
call could adversely affect our liquidity.
The amount of financing we may receive under any warehouse and aggregation
financing agreements depends in large part on the lender's valuation of the
mortgage loans that secure the financings. Asset-backed commercial paper
facilities have similar provisions. Each such facility provides the lender the
right, under certain circumstances, to reevaluate the loan collateral that
secures outstanding borrowings at any time. In the event the lender determines
that the value of the loan collateral has decreased, it has the right to
initiate a margin call. A margin call would require us to provide the lender
with additional collateral or to repay a portion of the outstanding borrowings.
Any such margin call could have a material adverse effect on our results of
operations, financial condition and business prospects.
We face intense competition that could adversely affect our market share and our
revenues.
We face intense competition from finance and mortgage banking companies and from
Internet-based lending companies. In addition, certain government-sponsored
entities, such as Fannie Mae and Freddie Mac, are also expanding their
participation in the non-prime mortgage industry. These government-sponsored
entities have a size and cost-of-funds advantage that allows them to purchase
loans with lower rates or fees than we are willing to offer. While the
government-sponsored entities presently do not have the legal authority to
originate mortgage loans, including non-prime loans, they do have the authority
to buy loans. A material expansion of their involvement in the market to
purchase non-prime loans could change the dynamics of the industry by virtue of
their sheer size, pricing power and the inherent advantages of a government
charter. In addition, if as a result of their purchasing practices, these
government-sponsored entities experience significantly higher-than-expected
losses, such experience could adversely affect the overall investor perception
of the non-prime mortgage industry.
Competitors with lower costs of capital have a competitive advantage over us. In
addition, establishing a lending operation such as ours requires a relatively
small commitment of capital and human resources. This low barrier to entry
permits new competitors to enter our markets quickly and compete with us. This
could have a material adverse effect on our results of operations, financial
condition and business prospects.
Some thrifts, national banks and their operating subsidiaries are also expanding
their lending activities. By virtue of their charters, these institutions are
exempt from complying with many of the state and local laws that affect our
operations. For example, they can offer loans with prepayment charges in many
jurisdictions where we cannot. If more of these federally chartered institutions
are able to use their preemptive ability to provide more competitive pricing and
terms than we can offer, it could have a material adverse effect on our results
of operations, financial condition and business prospects.
21
The intense competition in the mortgage industry has also led to rapid
technological developments, evolving industry standards and frequent releases of
new products and enhancements. As mortgage products are offered more widely
through alternative distribution channels, such as the Internet, we may be
required to make significant changes to our information systems to compete
effectively. Our inability to continue enhancing our current capabilities, or to
adapt to other technological changes in the industry, could have a material
adverse effect on our results of operations, financial condition and business
prospects.
Our hedging strategies may not be successful in mitigating our risks associated
with changes in interest rates.
We intend to use various derivative financial instruments to provide a level of
protection against changes in interest rates, but no hedging strategy can
protect us completely. When rates change we expect to record a gain or loss on
derivatives which would be offset by an inverse change in the value of loans or
residual interests. We cannot assure you, however, that our use of derivatives
will offset the risks related to changes in interest rates. It is likely that
there will be periods in the future, during which we will incur losses after
accounting for our derivative financial instruments. The derivative financial
instruments we select may not have the effect of reducing our interest rate
risk. In addition, the nature and timing of hedging transactions may influence
the effectiveness of these strategies. Poorly designed strategies or improperly
executed transactions could actually increase our risk and losses. In addition,
hedging strategies involve transaction and other costs. We cannot assure you
that our hedging strategy and the derivatives that we use will adequately offset
the risk of interest rate volatility or that our hedging transactions will not
result in losses.
The complex federal, state and municipal laws governing loan servicing
activities could increase our exposure to the risk of noncompliance.
We intend to service the loan we originate on a nationwide basis. Therefore, we
must comply with the laws and regulations, as well as judicial and
administrative decisions, of all relevant jurisdictions pertaining to loan
servicing, as well as an extensive body of federal laws and regulations. The
volume of new or modified laws and regulations has increased in recent years,
and, in addition, some individual municipalities have begun to enact laws that
restrict loan servicing activities. The laws and regulations of each of these
jurisdictions are different, complex and, in some cases, in direct conflict with
each other. As our servicing operations continue to grow, it may be more
difficult to comprehensively identify, to accurately interpret and to properly
program our technology systems and effectively train our personnel with respect
to all of these laws and regulations, thereby potentially increasing our
exposure to the risks of noncompliance with the laws and regulations pertaining
to loan servicing. Our failure to comply with these laws could lead to, among
other things: (i) civil and criminal liability, including potential monetary
penalties; (ii) legal defenses causing delaying or otherwise adversely affecting
the servicer's ability to enforce loans, or giving the borrower the right to
rescind or cancel the loan transaction; (iii) class action lawsuits; and (iv)
administrative enforcement actions. This could result in a material adverse
effect on our results of operations, financial condition and business prospects.
Any non-prime loans we originate will generally have higher delinquency and
default rates, which could result in losses on loans that we are required to
repurchase.
Non-prime mortgage loans generally have higher delinquency and default rates
than prime mortgage loans. Delinquency interrupts the flow of projected interest
22
income from a mortgage loan, and default can ultimately lead to a loss if the
net realizable value of the real property securing the mortgage loan is
insufficient to cover the principal and interest due on the loan. Also, our cost
of financing and servicing a delinquent or defaulted loan is generally higher
than for a performing loan. We bear the risk of delinquency and default on loans
beginning when we originate them. In whole loan sales our risk of delinquency
typically only extends to the first payment, but when we securitize we continue
to bear some exposure to delinquencies and losses through our residual interests
and the loans underlying our on-balance sheet securitization transactions. We
are required to establish reserves based on our anticipated delinquencies and
losses. We also re-acquire the risks of delinquency and default for loans that
we are obligated to repurchase. We attempt to manage these risks with risk-based
loan pricing and appropriate underwriting policies and loan collection methods.
However, if such policies and methods are insufficient to control our
delinquency and default risks and do not result in appropriate loan pricing and
appropriate loss reserves, our business, financial condition, liquidity and
results of operations could be harmed.
We are subject to losses due to fraudulent and negligent acts on the part of
loan applicants, mortgage brokers, other vendors and our employees.
When we originate mortgage loans, we rely heavily upon information supplied by
third parties including the information contained in the loan application,
property appraisal, title information and employment and income documentation.
If any of this information is intentionally or negligently misrepresented and
such misrepresentation is not detected prior to loan funding, the value of the
loan may be significantly lower than expected. Whether a misrepresentation is
made by the loan applicant, the mortgage broker, another third party or one of
our employees, we generally bear the risk of loss associated with the
misrepresentation. A loan subject to a material misrepresentation is typically
unsaleable or subject to repurchase if it is sold prior to detection of the
misrepresentation, and the persons and entities involved are often difficult to
locate and it is often difficult to collect any monetary losses that we have
suffered from them.
There are controls and processes designed to help us identify misrepresented
information in our loan origination operations. We cannot assure you, however,
that we have detected or will detect all misrepresented information in our loan
originations.
We may be subject to fines or other penalties based upon the conduct of our
independent brokers.
The mortgage brokers from which we obtain loans have parallel and separate legal
obligations to which they are subject. While these laws may not explicitly hold
the originating lenders responsible for the legal violations of mortgage
brokers, increasingly federal and state agencies have sought to impose such
assignee liability. Recently, for example, the United States Federal Trade
Commission ("FTC") entered into a settlement agreement with a mortgage lender
where the FTC characterized a broker that had placed all of its loan production
with a single lender as the "agent" of the lender. The FTC imposed a fine on the
lender in part because, as "principal," the lender was legally responsible for
the mortgage broker's unfair and deceptive acts and practices. The United States
Justice Department in the past has sought to hold a non-prime mortgage lender
responsible for the pricing practices of its mortgage brokers, alleging that the
mortgage lender was directly responsible for the total fees and charges paid by
the borrower under the Fair Housing Act even if the lender neither dictated what
the mortgage broker could charge nor kept the money for its own account.
Accordingly, we may be subject to fines or other penalties based upon the
conduct of our independent mortgage brokers.
23
Our business is dependent upon conditions in California where we conduct a
significant amount of our business.
In 2003, 100% of the mortgage loans we originated were secured by property in
California. An overall decline in the economy or the residential real estate
market, or the occurrence of a natural disaster, such as an earthquake, or a
major terrorist attack in California could adversely affect the value of the
mortgaged properties in California and increase the risk of delinquency,
foreclosure, bankruptcy, or loss on mortgage loans in our portfolio. This would
negatively affect our ability to purchase, originate and securitize mortgage
loans, which could have a material adverse effect on our business, financial
condition and results of operations.
If many of our borrowers become subject to the Soldiers' and Sailors' Civil
Relief Act of 1940, as amended our cash flows from our residual securities and
our securitizations structured as financings may be adversely affected.
Under the Soldiers' and Sailors' Civil Relief Act of 1940, a borrower who enters
military service after the origination of his or her mortgage loan generally may
not be charged interest above an annual rate of 6% during the period of the
borrower's active duty status. The Act also applies to a borrower who was on
reserve status and is called to active duty after origination of the mortgage
loan. A prolonged, significant military mobilization as part of the war on
terrorism or the war in Iraq could increase the number of the borrowers in our
securitized pools who are subject to this Act and thereby reduce the interest
payments collected from those borrowers. To the extent the number of borrowers
who are subject to this Act is significant, the cash flows we receive from loans
underlying our on-balance sheet securitizations and from our residual interests
would be reduced, which could cause us to reduce the carrying value of our
residual interests and would decrease our earnings. In addition, the Soldiers'
and Sailors' Civil Relief Act of 1940, imposes limitations that would impair the
ability of the servicer to foreclose on an affected mortgage loan during the
borrower's period of active duty status, and under certain circumstances, during
an additional three month period thereafter. Any such reduction in our cash
flows or impairment in our performance could have a material adverse effect on
our results of operations, financial condition and business prospects.
The inability to attract and retain qualified employees could significantly harm
our business.
We are dependent on our account executives and retail loan officers to attract
borrowers by, among other things, developing relationships with financial
institutions, other mortgage companies and brokers, real estate agents,
borrowers and others. We believe that these relationships lead to repeat and
referral business. The market for skilled account executives and loan officers
is highly competitive and historically has experienced a high rate of turnover.
In addition, if a manager leaves New Century, there is an increased likelihood
that other members of his or her team will follow. Competition for qualified
account executives and loan officers may lead to increased hiring and retention
costs. If we are unable to attract or retain a sufficient number of skilled
account executives at manageable costs, we will be unable to continue to
originate quality mortgage loans that we are able to sell for a profit, which
would have a material adverse effect on our results of operations, financial
condition and business prospects.
An interruption in or breach of our information systems may result in lost
business.
We rely heavily upon communications and information systems to conduct our
business. Any failure or interruption or breach in security of our information
24
systems or the third-party information systems on which we rely could cause
underwriting or other delays and could result in fewer loan applications being
received, slower processing of applications and reduced efficiency in loan
servicing. We are required to comply with significant federal and state
regulations with respect to the handling of customer information, and a failure,
interruption or breach of our information systems could result in regulatory
action and litigation against us. We cannot assure you that such failures or
interruptions will not occur or if they do occur that they will be adequately
addressed by us or the third parties on which we rely. The occurrence of any
failures or interruptions could have a material adverse effect on our results of
operations, financial condition and business prospects.
The success and growth of our business will depend upon our ability to adapt to
and implement technological changes.
Our mortgage loan origination business is currently dependent upon our ability
to effectively interface with our brokers, borrowers and other third parties and
to efficiently process loan applications and closings. The origination process
is becoming more dependent upon technological advancement, such as the ability
to process applications over the Internet, accept electronic signatures, provide
process status updates instantly and other customer-expected conveniences that
are cost-efficient to our process. In addition, we are in the process of
implementing a new loan origination system. Implementing and becoming proficient
with the new loan origination system and other new technology will require
significant financial and personnel resources. There is no guarantee that the
implementation of our new loan origination system or other new technology will
be successful. To the extent that we become reliant on any particular technology
or technological solution, we may be adversely affected to the extent that such
technology or technological solution (i) becomes non-compliant with existing
industry standards, (ii) fails to meet or exceed the capabilities of our
competitors' equivalent technologies or technological solutions, or (iii)
becomes increasing expensive to service, retain and update. Any failure to
acquire technology or technology solutions when necessary could limit our
ability to remain competitive in our industry and could also limit our ability
to increase the cost-efficiencies of our operating model, which would have a
material adverse effect on our results of operations, financial condition and
business prospects.
We may be required to repurchase mortgage loans or indemnify investors if we
breach representations and warranties, which could adversely impact our
earnings.
When we sell loans, we are required to make customary representations and
warranties about such loans to the loan purchaser. Our whole loan sale
agreements require us to repurchase or substitute loans in the event we breach a
representation or warranty given to the loan purchaser or make a
misrepresentation during the mortgage loan origination process. In addition, we
may be required to repurchase loans as a result of borrower fraud or in the
event of early payment default on a mortgage loan. Likewise, we are required to
repurchase or substitute loans if we breach a representation or warranty in
connection with our securitizations. The remedies available to a purchaser of
mortgage loans are generally broader than those available to us against the
originating broker or correspondent. Further, if a purchaser enforces its
remedies against us, we may not be able to enforce the remedies we have against
the sellers. The repurchased loans typically can only be financed at a steep
discount to their repurchase price, if at all. They are also typically sold at a
significant discount to the unpaid principal balance. Significant repurchase
activity could negatively affect our cash flow and results of operations.
25
We are exposed to risk of environmental liabilities with respect to properties
to which we take title.
In the course of our business, we may foreclose and take title to residential
properties, and could be subject to environmental liabilities with respect to
these properties. We may be held liable to a governmental entity or to third
parties for property damage, personal injury, investigation, and clean-up costs
incurred by these parties in connection with environmental contamination, or may
be required to investigate or clean up hazardous or toxic substances, or
chemical releases at a property. The costs associated with investigation or
remediation activities could be substantial. In addition, as the owner or former
owner of a contaminated site, we may be subject to common law claims by third
parties based on damages and costs resulting from environmental contamination
emanating from the property. If we ever become subject to significant
environmental liabilities, our business, financial condition and results of
operations could be materially and adversely affected.
Our charter and bylaws and Nevada law contain provisions that could discourage a
takeover.
Our amended and restated certificate of incorporation and our amended and
restated bylaws include various provisions that could delay, defer or prevent a
takeover attempt that may be in the best interest of our stockholders. These
provisions include the existence of a classified board of directors, the ability
of our board of directors to issue shares of our preferred stock without any
further stockholder approval and requirements that (i) our stockholders give
advance notice with respect to certain proposals they may wish to present for a
stockholder vote, (ii) our stockholders act only at annual or special meetings
and (iii) two-thirds of all directors approve a change in the number of
directors on our board of directors. Issuance of our preferred stock could
discourage bids for the common stock at a premium as well as create a depressive
effect on the market price of our common stock.
We are also subject to Nevada General Corporation Law which could discourage
potential acquisition proposals, delay or prevent a change of control and
prevent changes in our management.
If we do not manage our growth effectively, our financial performance could be
harmed.
Rapid growth places, and will continue to place, certain pressures on our
management, administrative, operational and financial infrastructure. As of
December 31, 2003, we had no employees as all of our personnel were independent
contractors; however, we have recently applied for licensure under the
California Department of Corporations as a Consumer Finance Lender and will
begin hiring loan executives as employees. Many of these employees have a
limited understanding of our systems and controls. The increase in the size of
our operations may make it more difficult for us to ensure that we originate
quality loans and that we service them effectively. We will need to attract and
hire additional sales and management personnel in an intensely competitive
hiring environment in order to preserve and increase our market share. At the
same time, we will need to continue to upgrade and expand our financial,
operational and managerial systems and controls.
Various factors may cause the market price of our common stock to become
volatile, which could adversely affect our ability to access the capital markets
in the future.
The market price of our common stock may experience fluctuations that are
unrelated to our operating performance. In particular, the price of our common
26
stock may be affected by general market price movements as well as developments
specifically related to the consumer finance industry and the financial services
sector. These could include, among other things, interest rate movements,
quarterly variations or changes in financial estimates by securities analysts,
or a significant reduction in the price of the stock of another participant in
the consumer finance industry. This volatility may make it difficult for us to
access the capital markets through additional secondary offerings of our common
stock, regardless of our financial performance.
ITEM 3: CONTROLS AND PROCEDURES
a) Evaluation of disclosure controls and procedures. Our chief executive officer
and principal financial officer, after evaluating the effectiveness of the our
"disclosure controls and procedures" (as defined in the Securities Exchange Act
of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by
this annual report (the "Evaluation Date"), has concluded that as of the
Evaluation Date, our disclosure controls and procedures were adequate and
designed to ensure that material information relating to the Company and our
consolidated subsidiaries would be made known to him by others within those
entities.
(b) Changes in internal control over financial reporting. There were no
significant changes in the our internal control over financial reporting during
the fourth fiscal quarter that materially affected, or are reasonably likely to
materially affect, the our internal control over financial reporting.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On January 27, 2004 DL Pacific Center LP ("DL Pacific") filed a lawsuit for
$40,444 plus costs and attorney's fees against us in San Diego County Superior
Court. The suit alleges that, after we purchased San Francisco Funding, Inc.
("SFF") in November 2003, we assumed SFF's obligations pursuant to DL Pacific's
lease with SFF by accepting the benefits of such lease and by negotiating with
DL Pacific for amendments to the lease. We are vigorously defending the lawsuit.
It is managements opinion, that we have meritorious defenses based upon the
facts that (1) we did not accept the benefits of the lease and/or (2) the
alleged promise(s) made by us is (are) unenforceable under the California
Statute of Frauds because the alleged lease was for more than one year and was
not in writing, as required under the Statute.
On March 9, 2004 Robert E. Vener ("Vener") filed an amendment to his lawsuit for
$7,500 per month from November 2003 to March 2006 plus costs and attorney's fees
against us in Marin County Superior Court. The suit alleges that, after we
purchased San Francisco Funding, Inc. ("SFF") in November 2003, we assumed SFF's
obligations pursuant to Vener's lease with SFF by stating and representing to
Vener that we would be responsible for any amounts due from SFF pursuant to the
lease, and that Vener relied on our representations by allowing SFF to remain on
the premises following SFF's default in the payment of rent on the lease. We are
vigorously defending the lawsuit. It is managements opinion, that we have
meritorious defenses based upon the facts that (1) we did not state or represent
that we would be responsible for any amounts due from SFF pursuant to the lease
and/or (2) the alleged promise(s) made by us is (are) unenforceable under the
California Statute of Frauds because the alleged lease was for more than one
year and was not in writing, as required under the Statute.
27
In regard to the DL Pacific and/or Vener lawsuit(s), management intends to file
a cross-complaint against the SFF and its major stockholder(s) MR. and Mrs.
Daniel Selis, for indemnity for the cost of defending the actions and for breach
of contract, fraud and/or interference with our advantageous business
relationships because of : (1) SFF's material breaches of the SFF stock purchase
agreement and SFF's material misrepresentations to us of their liabilities and
obligations, (2) SFF's written false statements to its creditors that we had
assumed their debts, and (3) SFF's forwarding of its phone calls tour offices
and directing their creditors to call our offices concerning payment of their
liabilities and obligations. We anticipate that SFF will file a non-meritorious
cross-complaint against us for breach of the stock purchase agreement.
ITEM 2. CHANGES IN SECURITIES
On February 27, 2004 we issued 595,500 restricted common shares to the officers
of the Company for accrued compensation of $83,937 and $45,036 of compensation
through February 2004. The shares were issued under Section 4(2) of the 1933
Securities Act.
On January 13, 2004 we issued 144,147 unrestricted shares under its registered
2004 Officers, Directors, Employees and Consultants Stock Compensation Plan to
two individuals at a fair value of $24,505 for consulting services in connection
with work on our web site, assistance with development of our acquisition plans
and consulting services related to planning for advertising our mortgage
business.
On March 11, 2004 we issued 20,000 unrestricted shares to one consultant under
its registered 2004 Officers, Directors, Employees and Consultants Stock
Compensation Plan for legal services at a fair value of $3,400 for legal work.
During quarter ended March 31, 2004 we issued 615,000 restricted common shares
to accredited investors for $61,500 of cash. The shares were issued under
Section 4(2) of the 1933 Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
Not applicable.
28
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
23.1 Consent of The O'Neal Law Firm dated February 25, 2004 pertaining to the
Year 2004 Officers, Directors, Employees and Consultants Stock Compensation
as filed on Form S-8 Registration Statement under the Securities Act of
1933 filed February 27, 2004 incorporated herein by reference.
31.1 Chief Executive Officer QUARTERLY CERTIFICATION PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
31.2 Chief Financial Officer QUARTERLY CERTIFICATION PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
32.1 Certificate of Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certificate of Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
A Form 8-K was filed on March 19, 2004, reported in Items 4 pertaining to the
Change in the Registrant's Certifying Accountants.
A Form 8-K/A was filed on April 7, 2004, reported in Items 4 pertaining to the
Change in the Registrant's Certifying Accountants.
A Form 8-K was filed on May 20, 2004, reported in Items 2 and 7 pertaining to
the acquisition of Lendingtech.com, Inc. We will file a Form 8-K/A with audited
financials of Lendingtech.com, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SILVERADO FINANCIAL, INC.
/s/ John E. Hartman
-------------------------------------
Date: June 4, 2004
By: John E. Hartman
President and Chief Executive Officer
/s/ Albert A. Golusin
-------------------------------------
Date: June 4, 2004
By: Albert A. Golusin
Chief Financial Officer
29
Exhibit 31.1
QUARTERLY CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John E. Hartman., certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Silverado Financial,
Inc.;
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 other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, 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 other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
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 other certifying officer and I have 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.
IN WITNESS WHEREOF, the undersigned has executed this certification as of the
1st day of June 2004.
/s/ John E. Hartman.
-----------------------------
Chief Executive Officer
30
Exhibit 31.2
QUARTERLY CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Albert Golusin, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Silverado Financial,
Inc.;
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 other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, 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 other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
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 other certifying officer and I have 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.
IN WITNESS WHEREOF, the undersigned has executed this certification as of the
1st day of June 2004.
/s/ Albert Golusin
-----------------------------
Chief Financial Officer
31
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Silverado Financial, Inc. (the
"Company") on Form 10-QSB for the period ending March 31, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, John E.
Hartman., Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
IN WITNESS WHEREOF, the undersigned has executed this certification as of the
1st day of June 2004.
/s/ John E. Hartman.
-----------------------------
Chief Executive Officer
32
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Silverado Financial, Inc. (the
"Company") on Form 10-QSB for the period ending March 31, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Albert
Golusin, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
IN WITNESS WHEREOF, the undersigned has executed this certification as of the
1st day of June, 2004.
/s/ Albert Golusin
-----------------------------
Chief Financial Officer
33