UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
| [X] | Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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| | For the quarterly period ended September 30, 2005 |
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| [ ] | Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934 |
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| | For the transition period to __________ |
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| | Commission File Number: 333-115444 |
MV Fund II, LLC
(Exact name of small business issuer as specified in its charter)
Nevada
(State or other jurisdiction of incorporation or organization) | 20-0987069
(IRS Employer Identification No.) |
7311 W. Charleston Blvd., Suite 110, Las Vegas, Nevada 89117 |
| (Address of principal executive offices) |
702-228-7105 |
| (Issuer’s telephone number) |
_______________________________________________________________ |
| (Former name, former address and former fiscal year, if changed since last report) |
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days [X] Yes [ ] No
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [X ] Yes [ ] No
State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 0 common shares as of September 30, 2005
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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PART I - FINANCIAL INFORMATION
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PART II - OTHER INFORMATION
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PART I - FINANCIAL INFORMATION
Our un-audited financial statements included in this Form 10-QSB are as follows:
| (a) | Balance Sheet as of September 30, 2005. |
| (b) | Statements of Operations for the three months ended September 30, 2005 and 2004 and for the period from September 2, 2003 (inception) to September 30, 2005. |
| (c) | Statement of Changes in Member’s Equity for period from September 2, 2003 (inception) to September 30, 2005 |
| (d) | Statements of Cash Flow for the three months ended September 30, 2005 and 2004 and for the period from September 2, 2003 (inception) to September 30, 2005. |
| (e) | Notes to Financial Statements. |
These un-audited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-QSB. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended September 30, 2005 are not necessarily indicative of the results that can be expected for the full year.
MV FUND II, LLC
(a Development Stage Company)
Balance Sheet
(Unaudited)
| | | September 30,
2005 |
| | | |
Assets | | |
| | | |
| Current assets: | | |
| Due from managing member | $ | - |
| Total current assets | | - |
| | | |
| | $ | - |
| | | |
| | | |
Liabilities and Member's Equity | | |
| | | |
| Current liabilities | | |
| Accrued expenses | $ | 126,789 |
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| Member's (deficit) - no units issued at 9/30/05 | | (126,789) |
| | | |
| | $ | - |
MV FUND II, LLC
(a Development Stage Company)
Statements of Operations
(Unaudited)
| | Three months ended
September 30,2005 | | Three months ended September 30,2004 | | September 2, 2003(Inception) to
September 30,2005 |
| | | | | | |
| | | | | | |
| Net Revenue | $ | - | | $ | - | | $ | - |
| | | | | | | | | |
| Expenses: | | | | | | | | |
| General and administrative expenses | | 24,476 | | | 40,091 | | | 150,082 |
| Total expenses | | 24,476 | | | 40,091 | | | 150,082 |
| | | | | | | | | |
| Net (loss) | $ | (24,476) | | $ | (40,091) | | $ | (150,082) |
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| Net (loss) allocated to members | $ | (24,476) | | $ | (40,091) | | $ | (150,082) |
| | | | | | | | | |
| Weighted average membership units | | - | | | - | | | - |
| | | | | | | | | |
| Net (loss) allocated to members per | | | | | | | | |
| weighted average membership units | $ | - | | $ | - | | $ | - |
MV FUND II, LLC
(a Development Stage Company)
Statement of Changes in Member's Equity
(Unaudited)
| | | | Additional paid- in capital | | | | |
| | | | | | | | |
| September 2, 2003 (Inception) | | - | | $ | - | | $ | - | | $ | - |
| | | | | | | | | | | | |
| Managing member donated capital | | | | | 18,793 | | | - | | | 18,793 |
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Net loss for the period September 2, 2003 thru June 30, 2004 (Restated) | | | | | | | | (33,682) | | | (33,682) |
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| Balance, June 30, 2004 (Restated) | | - | | | 18,793 | | | (33,682) | | | (14,889) |
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| Managing member donated capital | | | | | 4,500 | | | | | | 4,500 |
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Net loss for the year ended June 30, 2005 | | | | | | | | (91,924) | | | (91,924) |
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| Balance, June 30, 2005 | | - | | | 23,293 | | | (125,606) | | | (102,313) |
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Net loss for the three months ended Septmeber 30, 2005 | | | | | | | | (24,476) | | | (24,476) |
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| Balance, September 30, 2005 | | - | | $ | 23,293 | | $ | (150,082) | | $ | (126,789) |
MV FUND II, LLC
(a Development Stage Company)
Statements of Cash Flows
(Unaudited)
| | Three months ended
September 30,
2005 | | Three months ended
September 30,
2004 | | September 2, 2003
(Inception) to
September 30,
2005 |
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Cash flows from operating activities | | | | | | | | |
| Net (loss) | $ | (24,476) | | $ | (40,091) | | $ | (150,082) |
| Changes in operating assets and liabilities: | | | | | | | | |
| Increase in accrued expenses | | 24,476 | | | 40,091 | | | 126,789 |
| Net cash (used) by operating activities | | - | | | - | | | (23,293) |
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Cash flows from financing activities | | | | | | | | |
| Expenses paid in capital | | | | | | | | |
| by managing member | | - | | | - | | | 23,293 |
| Net cash provided by financing activities | | - | | | - | | | 23,293 |
| | | | | | | | | |
| Net increase in cash | | - | | | - | | | - |
| Cash - beginning | | - | | | - | | | - |
| Cash - ending | $ | - | | $ | - | | $ | - |
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| Non-cash transactions: | | | | | | | | |
| Expenses paid for by the managing member | $ | - | | $ | - | | $ | 23,293 |
NOTE 1 - BASIS OF PRESENTATION
The interim financial statements included herein, presented in accordance with United States generally accepted accounting principles and stated in US dollars, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.
These statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these interim financial statements be read in conjunction with the financial statements of the Company for the year ended June 30, 2005 and notes thereto included in the Company's Form 10-KSB. The Company follows the same accounting policies in the preparation of interim reports.
Results of operations for the interim periods are not indicative of annual results.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
MV Fund II, LLC, a Nevada Limited Liability Company, (the Company) is a development stage company primarily engaged in investing in mortgage loans on real estate. The Company was organized on September 2, 2003 (date of inception) and will continue until August 27, 2047, unless dissolved prior or extended thereto under the provisions of the Operating Agreement.
The Manager of the Company is MV Funding Group, Inc. a Nevada corporation engaged in the investment business of mortgages, specifically the selection and origination of mortgages.
For the period from September 2, 2003 (date of inception) through September 30, 2005, the Company has not commenced its planned operations and the only transactions were costs associated with the offering (i.e., legal and accounting fees).
The fiscal year end of MV Fund II, LLC is June 30.
NOTE 3 - MEMBER’S EQUITY
Membership units
The Company is offering and selling to the public, up to a maximum of 20,000 membership interests. The members shall contribute to the capital of the Company an amount equal to $2,500 for each unit subscribed for by each member. The total Capital contributions of the members will not exceed $50,000,000. The Manager shall be entitled to 4% of any capital contributions made by members paid as an organization fee.
Allocations and distributions
In accordance with the Operating Agreement, the Company's income, gains and losses are to be credited to and charged against each member in proportion to their respective capital accounts as of the close of business on the last day of each calendar month.
Distributions of net income are paid monthly in cash or as reinvested distributions. Net income available for distribution, as defined in the operating agreement, is cash flow less amounts set aside for restoration of reserves during the month.
Issuance of membership units
As of September 30, 2005, the Company has not issued any membership units.
NOTE 4 - GOING CONCERN
As shown in the accompanying financial statements, the Company has accumulated net losses from operations totaling $150,082, and as of September 30, 2005, has had no revenue from operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The Company’s financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company has generated no revenue from its planned principal operations. In order to obtain the necessary capital, the Company plans to begin operations with the receipt of a minimum investment of membership units and negotiating the purchase of the Fund’s first loans with this investment. However, the Company is dependent upon its ability to secure financing, and there are no assurances that the Company will be successful. Without sufficient financing it would be unlikely for the Company to continue as a going concern. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 5 - RELATED PARTY TRANSACTIONS
Fees paid by the Company
The Managing Member shall be entitled to a 4% share of any capital contributions obtained from Members as provided by the Operating Agreement. In addition, the Managing Member shall be entitled to one quarter of one percent (0.25%) of the interest income generated by loans made by the Fund.
The Managing Member shall pay all expenses including but not limited to, all expenses incurred in the offering of Interests and any operating expenses out of its Organizational Fee and its Managing Membership Interest Income.
Forward-Looking Statements
Historical results and trends should not be taken as indicative of future operations. Management’s statements contained in this report that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934 (the “Exchange Act”), as amended. Actual results may differ materially from those included in the forward-looking statements. The Company intends such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words “believe,”“expect,”“intend,”“anticipate,”“estimate,”“project,”“prospects,” or similar expressions. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on the operations and future prospects of the Company on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Further information concerning the Company and its business, including additional factors that could materially affect the Company’s financial results, is included herein and in the Company’s other filings with the SEC.
Plan of Operation
We were organized on September 2, 2003 and currently have no operational activities. The Fund will begin operations and will be capitalized concurrent with the receipt of the minimum investment of $500,000 (200 units) under our Registration Statement which was declared effective by the Securities Exchange Commission on January 25, 2005. We must sell a minimum of 200 units or $500,000 in order to begin the operations of the Fund. Until this minimum is reached all investment money received will be held in a segregated account, unused. If this minimum is not reached, any and all investment money received by us will be returned to investors promptly, without interest. Once the minimum is reached, all money held in the segregated account will be released into the Fund to start operations. If we do not sell the minimum by December 22, 2005, the offering will close and we will be required to seek other sources of funding.
To date, we have not earned any revenue as we have no operations. We have incurred expenses in the amount of $150,082 since inception, primarily in connection with the expenses of our ongoing offering.
Management intends to begin with loans that have an upfront interest component of one year. Thus, there will be less need to hire staff to support the loans during this early period of operation. Management anticipates that its officers will be able to negotiate, purchase, process and manage all loans for the first six months following the initial funding. As new investment monies are received, management will actively seek to use these funds, net of the fees described herein, to purchase additional loans.
Our primary business objective is to generate monthly income by investing in mortgage loans with the money we receive from this offering. We believe there is a significant market opportunity to make
mortgage loans to owners and developers of real property whose financing needs are not met by traditional mortgage lenders. The loan underwriting standards that our Manager, MV Funding, utilizes will be less strict than traditional mortgage lenders. In addition, one of our competitive advantages is expected to be our ability to approve loan applications more quickly than traditional lenders. As a result, in certain cases, we may make mortgage loans which are riskier than mortgage loans made by commercial banks. However, in return we will seek a higher interest rate and will take steps to mitigate the lending risks such as imposing a lower loan to value ratio. While we may assume more risk than traditional mortgage lenders, in return, we will seek to generate higher yields from our mortgage loans.
Our operating results will be affected primarily by (i) the amount of capital we will have to invest in mortgage loans, (ii) the level of real estate lending activity in the markets we will service, (iii) our ability to identify and work with suitable borrowers, (iv) the interest rates we are able to charge on our loans and (v) the level of delinquencies, foreclosures and related loan losses which we experience. We expect to raise funds through the sale of our Membership interests and accordingly the size of our investment portfolio will be contingent upon the success of this offering.
Adverse economic conditions during the next year could have a material impact on the collectibility of any loans we will make. Recognizing this risk, we will seek to maintain low loan to value ratios. In this manner, we will hope to maintain a sufficient cushion in the underlying equity position to protect the value of any loan in the event of a default. Nevertheless, there can be no assurance that a marked increase in loan defaults accompanied by a rapid decline in real estate values would have a material adverse effect upon our operating results when we commence operations.
Because MV Funding’s officers have a significant degree of knowledge with respect to the real estate markets in Nevada and certain Western states, it is likely most of our loans will be concentrated in such states. Geographical concentration creates greater risk that any downturn in such local real estate markets could have a significant adverse effect upon our operating results when we commence operations. Commercial real estate markets in Nevada have continued to prosper, with significant borrowing activity.
We expect to commence our operations when we receive financing from the offering of our membership interests.
Significant Accounting Policies
Income taxes
Income tax effects resulting from the Company's operations pass through to the members individually and, accordingly, no provision for income taxes is included in the financial statements.
Revenue recognition
Interest is recognized as revenue when earned according to the terms of the loan. The Company does not recognize interest income on loans once they are determined to be impaired or non-performing. A loan is impaired when based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement.
Debt securities
The Company will classify its debt securities as held-to-maturity, as the Company has the ability and the intent to hold the securities until maturity. These securities will be recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts. A decline in the market value of any held-to-maturity security below cost that is deemed to be other than temporary will result in a reduction in carrying amount to fair value. The impairment would be charged to earnings and a new
cost basis for the security would be established. Premiums and discounts will be amortized or accreted over the life of the related security as an adjustment to yield using the effective interest method.
Purchase mortgage loans
The Company has both the intent and ability to hold mortgage loans until maturity and, therefore, mortgage loans are classified and accounted for as held for investment and are carried at cost. Interest income on loans is accrued by the effective interest method. The Company does not intend to purchase loans using forward purchase commitments.
Investments in mortgage loans
Investments in mortgage loans are secured by trust deeds and mortgages. Such investments in mortgage loans may include commercial, construction, acquisition and development and land. Generally, all of the Company’s mortgage loans require interest only payments with a balloon payment of the principal at maturity. The Company has both the intent and ability to hold mortgage loans until maturity and therefore, mortgage loans are classified and accounted for as held for investment and are carried at amortized cost. Periodically, the Company will evaluate investments in mortgage loans based upon loan to value ratios. Loan to value ratios are based on appraisals obtained at the time of loan origination and may not reflect subsequent changes in value estimates. Such appraisals, which may be commissioned by the borrower, are generally dated within 12 months of the date of loan origination. The appraisals may be for the current estimate of the “as-if developed” value of the property, which approximates the post-construction value of the collateralized property assuming that such property is developed. As-if developed values on raw land loans or acquisition and development loans often dramatically exceed the immediate sales value and may include anticipated zoning changes and timely successful development by the purchaser. As most of the appraisals will be prepared on an as-if developed basis, if a loan goes into default prior to any development of a project, the market value of the property may be substantially less than the appraised value. As a result, there may be less security than anticipated at the time the loan was originally made. If there is less security and a default occurs, the Company may not recover the full amount of the loan.
Real estate held for sale
Upon a foreclosure of the underlying real property securing the investments in mortgage loans, the Company will reclassify such asset as investments in real estate held for sale. Investments in real estate held for sale are accounted for at the lower of cost or fair value less costs to sell with fair value based on appraisals and knowledge of local market conditions. It is not the Company’s intent to invest in or own real estate as a long-term investment. The Company seeks to sell properties acquired through foreclosure as quickly as circumstances permit. Any costs of managing, maintaining and developing a real property acquired through foreclosure shall be expensed in the period such costs are incurred. Gain/loss related to real estate held for sale will be recognize within the period of such sale assuming 25% or more of the sales price has been collected within the same period.
Allowance for loan losses
Investments in loans are carried at their principal amount outstanding less any unearned income or unamortized discount. Interest on loans is accrued and credited to interest income based on the daily principal amount outstanding. Loans are generally placed in nonaccrual status when principal or interest is delinquent for 30 days (unless adequately secured and in the process of collection) or circumstances indicate that full collection of principal and interest is in doubt.
We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2005. This evaluation was carried out under the supervision and with the participation of the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”) of MV Funding Group, Inc., the Company’s Manager, who functions as the equivalent of the CEO and CFO of the Company. Based upon such evaluation, the Manager’s CEO and CFO have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures were effective. There have been no significant changes in our internal controls over financial reporting during the quarter ended September 30, 2005 that have materially affected or are reasonably likely to materially affect such controls.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Limitations on the Effectiveness of Internal Controls
Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
PART II - OTHER INFORMATION
None
On January 25, 2005, the registration statement filed on Form S-1 (Commission file number 333-115444) was declared effective. This offering has commenced and is ongoing.
None
None
Exhibit Number | Description of Exhibit |
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SIGNATURES
In accordance with the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | MV Fund II, LLC |
| | By: MV Funding Group, Inc., its sole manager |
| Date: | November 15, 2005 |
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| | By: /s/ Sam Medley Sam Medley Title: Chief Executive Officer of MV Funding Group, Inc., sole Manager of MV Fund II, LLC |
