Changes
in Internal Control over Financial Reporting
.
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting for our company, as such term is defined
in
Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934,
as
amended. Our internal control system was
designed
to provide reasonable assurance to our management and board of directors
regarding the reliability, preparation and fair presentation of published
financial statements in accordance with generally accepted accounting
principles.
As
previously disclosed in the Company's Annual Report on Form 10-K for the
fiscal
year ended December 31, 2006 filed with the SEC on April 2, 2007, we identified
a material weakness in our internal control over financial reporting as
of
December 31, 2006. A material weakness is a control deficiency or combination
of
control deficiencies that results in more than a remote likelihood that
a
material misstatement of the annual or interim financial statements will
not be
prevented
or detected. The material weakness identified was an inadequacy in the
operation
of
our
control activities involving the completion and review of the accounting
period
closing
process.
The sale of substantially all of the operating assets of our mortgage lending
platform to IndyMac Bank,
F.S.B.,
which
closed as of March 31, 2007, significantly increased the workload
demands
of the existing accounting staff, thereby disrupting the timely completion
and
review of
the
accounting period closing process. In addition, in connection with the
uncertainty of the
consummation
and effect of the Indymac transaction, the accounting department was affected
by
the
departure of certain key accounting personnel during this time. The increased
workload and
decreased
staff levels resulted in a significant number of post-closing journal entries
and
contributed
to a request for additional time to file our Annual Report on Form
10-K.
In
making
our assessment of the internal control over financial reporting, our management
used the criteria issued by the Committee of Sponsoring Organizations of
the
Treadway Commission
(COSO)
in
Internal
Control-Integrated Framework.
Because
of the material weaknesses
described
above, management concluded that our internal control over financial reporting
was
not
effective as of December 31, 2006. At March 31, 2007, due to post-closing
transition
requirements
related to the IndyMac transaction, we determined that the material weakness
had
not
yet
been remediated.
As
previously disclosed in our Annual Report on Form 10-K for the year ended
December 31, 2006, during the first quarter of 2007, our management actively
assessed our accounting needs to
determine
appropriate staffing levels. Subsequent to March 31, 2007, management has
identified a candidate to fill a position as controller of our company
and
expects to name such person
controller
during the second quarter of 2007. In addition, we expect that all post-closing
requirements
related to the IndyMac transaction will be completed, or substantially
completed, by the end of the 2007 second quarter, which will reduce the
workload
demands on our
accounting
staff and limit disruptions during the accounting period closing process.
Management believes that our internal controls will improve as a result
of these
actions and events and will continue to assess our accounting needs and
take
such necessary steps to hire and retain additional accounting staff with
the
requisite accounting experience and skill to effectively
remediate
this material weakness.
