UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
(Mark one)
[X] Annual Report Under Section 13 or 15(d) of The Securities Exchange Act of
1934
For the quarterly period ending June 30, 2005
[ ] Transition Report Under Section 13 or 15(d) of The Securities Exchange Act
of 1934
For the transition period from ______________ to _____________
Mortgage Assistance Center Corporation
(Exact name of small business issuer as specified in its charter)
Florida 06-1413994
- ------------------------ ------------------------
(State of incorporation) (IRS Employer ID Number)
2614 Main St., Dallas, TX 75226
-------------------------------
(Address of principal executive offices)
(214) 670-0005 (Issuer's
telephone number)
Securities registered under Section 12 (b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock - $0.001 par value
Check whether the issuer has (1) filed all reports required to be files by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period the Company was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes___ No ___
APPLICABLE ONLY TO CORPORATE ISSUERS
As of June 30, 2005, there were 12,725,720 shares of Common Stock issued and
outstanding.
Transitional Small Business Disclosure Format : Yes No X
----- -----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MORTGAGE ASSISTANCE CENTER CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
AND
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
JUNE 30, 2005
Mortgage Assistance Center Corporation
Table of Contents
Page
----
Report of Independent Registered Public Accounting Firm......................F-2
Financial Statements
Consolidated Balance Sheets
as of June 30, 2005 and December 31, 2004..........................F-4
Consolidated Statements of Operations and Comprehensive Loss
for the three and six months ended June 30, 2005 and 2004..........F-6
Consolidated Statements of Cash Flows
for the six months ended June 30, 2005 and 2004.....................F-7
Notes to Consolidated Financial Statements.............................F-9
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Mortgage Assistance Center Corporation
Dallas, Texas
We have reviewed the accompanying consolidated balance sheet of Mortgage
Assistance Center Corporation (formerly Safe Alternatives Corporation of
America, Inc., a Florida corporation) as of June 30, 2005 and the consolidated
statements of operations and comprehensive loss for the three-month and
six-month periods ended June 30, 2005 and 2004 and the consolidated statements
of cash flows for the six-month periods ended June 30, 2005 and 2004. These
interim financial statements are the responsibility of the Company's management.
The consolidated financial statements as of December 31, 2004 and for the
periods ended June 30, 2004 have been restated to reflect the business
combination with Mortgage Assistance Corporation (a Texas Corporation) as
described in Note 3 to the consolidated financial statements. We previously
audited the December 31, 2004 financial statements of Mortgage Assistance
Corporation, and reviewed the June 30, 2004 financial statements which reflect
total assets of $1,850,162 at December 31, 2004 and total revenue of $662,691
for the six-month period ended June 30, 2004.
We conducted our review in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying interim financial statements for them to be in
conformity with U.S. generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has sustained
recurring losses from operations and had an accumulated stockholders' deficit
and a working capital deficiency at June 30, 2005. These circumstances create
substantial doubt about the Company's ability to continue as a going concern and
are discussed in Note 5. The financial statements do not contain any adjustments
that might result from the outcome of these uncertainties.
F-2
The December 31, 2004 financial statements of Mortgage Assistance Center
Corporation and Mortgage Assistance Corporation were audited by us and we
expressed an unqualified opinion in our report dated March 28, 2005, but we have
not performed any auditing procedures since that date.
Sutton Robinson Freeman & Co., P.C.
Certified Public Accountants
Tulsa, Oklahoma
July 29, 2005
F-3
Mortgage Assistance Center Corporation
Consolidated Balance Sheets
June 30, 2005 (Unaudited) and December 31, 2004 (Audited)
ASSETS
June 30, December 31,
2005 2004
(Unaudited) (Audited)
(Restated)
------------ ------------
Current Assets:
Cash and cash equivalents $ 10,500 $ 572,884
Portfolio assets, at cost 706,530 764,868
Accounts receivable-related parties 125,582 49,668
Prepaid expenses 13,915 34,866
------------ ------------
856,527 1,422,286
------------ ------------
Property and Equipment, at cost:
Furniture, equipment and computers 63,249 58,532
Less accumulated depreciation 18,066 11,313
------------ ------------
45,183 47,219
------------ ------------
Investments And Other Assets:
Investment in public company -- 295,000
Investment in MAP/MAC, LLC 150,028 39,797
Deposits 3,000 3,000
------------ ------------
153,028 337,797
------------ ------------
Total Assets $ 1,054,738 $ 1,807,302
============ ============
The accompanying notes are an integral part of these consolidated financial
statements
F-4
Mortgage Assistance Center Corporation
Consolidated Balance Sheets
June 30, 2005 (Unaudited) and December 31, 2004 (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
2005 2004
(Unaudited) (Audited)
(Restated)
------------ ------------
Current Liabilities:
Notes payable-individuals $ 889,200 $ 948,000
Accounts payable-trade 157,490 177,622
Accounts payable-others 89,784 89,784
Accounts payable-related parties -- 18,422
Accrued interest payable 35,075 8,274
Other accrued liabilities 26,737 4,051
------------ ------------
1,198,286 1,246,153
------------ ------------
Long-term Debt:
Notes payable-individuals 378,083 373,200
------------ ------------
Stockholders' Equity (Deficit):
Common stock, par value $0.001 per share;
authorized 50,000,000 shares; issued 12,725,720
and 12,625,720 shares in 2005 and 2004, respectively 12,726 12,626
Additional paid-in capital 23,972,449 23,971,949
Retained earnings (deficit) (24,508,966) (23,798,786)
------------ ------------
(523,791) 185,789
Subscriptions issuable 2,160 2,160
------------ ------------
(521,631) 187,949
------------ ------------
Total Liabilities and Stockholders' Equity $ 1,054,738 $ 1,807,302
============ ============
The accompanying notes are an integral part of these consolidated financial
statements
F-5
Mortgage Assistance Center Corporation
Consolidated Statements of Operations and Comprehensive Loss
Three and Six Months Ended June 30, 2005 and 2004
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
(Restated) (Restated)
------------ ------------ ------------ ------------
Revenues:
Sales of portfolio assets $ 213,015 $ 530,924 $ 334,015 $ 662,691
Cost of portfolio assets sold 150,160 379,483 220,943 475,673
------------ ------------ ------------ ------------
Gain on sale of portfolio assets 62,855 151,441 113,072 187,018
Servicing fees from affiliates and
others 67,766 190 94,907 190
Income from joint venture 26,384 -- 110,231 --
Other income 6,592 4,964 13,049 7,140
------------ ------------ ------------ ------------
Total Revenues 163,597 156,595 331,259 194,348
------------ ------------ ------------ ------------
Operating Expenses:
Selling, general and administrative expenses 357,882 278,930 647,730 443,123
Compensation expense related to
common stock issuances at less
than "fair value" -- -- -- 838,736
Depreciation and amortization 3,541 2,360 6,932 4,553
------------ ------------ ------------ ------------
Total operating expenses 361,423 281,290 654,662 1,286,412
------------ ------------ ------------ ------------
Operating loss (197,826) (124,695) (323,403) (1,092,064)
Other income (expense):
Interest expense (36,393) (20,927) (91,777) (31,297)
Merger expense -- -- (295,000) --
------------ ------------ ------------ ------------
Loss before provision for income taxes (234,219) (145,622) (710,180) (1,123,361)
Income tax benefit (expense) -- -- -- --
------------ ------------ ------------ ------------
Net Loss (233,219) (145,622) (710,180) (1,123,361)
Other comprehensive income -- -- -- --
------------ ------------ ------------ ------------
Comprehensive Loss $ (233,219) (145,622) (710,180) (1,123,361)
============ ============ ============ ============
Net loss per weighted-average share
of common stock outstanding, calculated
on Net Loss - basic and fully diluted $ (0.02) $ (0.01) $ (0.06) $ (0.09)
============ ============ ============ ============
Weighted-average number of shares of
common stock outstanding 12,634,609 12,625,720 12,630,164 12,625,720
============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements
F-6
Mortgage Assistance Center Corporation
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2005 and 2004
(Unaudited)
Six Months Ended
June 30, June 30,
2005 2004
(Restated)
----------- -----------
Cash Flows From Operating Activities
Net loss $ (710,180) $(1,123,361)
----------- -----------
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Depreciation 6,933 4,553
Professional fees paid with common stock 600 8,472
Compensation expense related to common stock issuances
at less than "fair value" -- 838,736
Income from joint venture (110,231) --
Merger expense 295,000 (235,000)
Change in assets and liabilities, excluding effect of
merger with MAC:
(Increase) decrease in portfolio assets 58,338 550,920
(Increase) decrease in accounts receivable from related parties (94,336) (39,575)
(Increase) decrease in prepaid expenses 20,951 (8,607)
Increase (decrease) in accounts payable-trade (20,132) (1,874)
Increase (decrease) in accounts payable-other -- (58,195)
Increase (decrease) in accrued interest 26,801 --
Increase (decrease) in other accrued liabilities 22,686 19,057
----------- -----------
Total adjustments 206,610 1,078,487
----------- -----------
Net Cash Provided (Used) by Operating Activities (503,570) (44,874)
----------- -----------
Cash Flows From Investing Activities
Purchase of property and equipment (4,897) (12,727)
----------- -----------
Net Cash Used by Investing Activities (4,897) (12,727)
----------- -----------
The accompanying notes are an integral part of these consolidated financial
statements
F-7
Mortgage Assistance Center Corporation
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2005 and 2004
(Unaudited)
Six Months Ended
June 30, June 30,
2005 2004
(Restated)
----------- -----------
Cash Flows From Financing Activities
Proceeds from issuance of common stock -- 25,000
Proceeds from issuance of debt to individuals 509,083 260,000
Repayment of debt to individuals (563,000) --
Repyament of advances from officers -- (21,699)
----------- -----------
Net Cash Provided (Used) by Financing Activities (53,917) 263,301
----------- -----------
Net Increase (Decrease) in Cash (562,384) 205,700
Cash at Beginning of Period 572,884 76,533
----------- -----------
Cash at End of Period $ 10,500 $ 282,233
=========== ===========
Supplemental Disclosures of Cash Flow Information
- -------------------------------------------------
Cash Paid During the Period for:
Interest $ 64,976 $ 31,297
Income taxes $ -- $ --
The accompanying notes are an integral part of these consolidated financial
statements
F-8
Mortgage Assistance Center Corporation
Notes to Consolidated Financial Statements
June 30, 2005
(Unaudited)
Note 1 - Organization
------------
Mortgage Assistance Center Corporation (formerly Safe Alternatives
Corporation of America, Inc.) (the "Company" or "MACC") was organized
in 1976, under the name Knight Airlines, Inc. In October 1978, the
Company completed an initial public offering of its common stock in
Florida, pursuant to an exemption from registration under Regulation A
promulgated under the Securities Act of 1933, as amended. The Company
ceased operations in April 1983 and was inactive through September
1995. In May 1994, the name of the Company was changed to Portsmouth
Corporation.
On September 15, 1995, pursuant to an Asset Purchase Agreement and Plan
of Reorganization between the Company and Safe Alternatives Corporation
of America, Inc., a Delaware corporation ("SAC-Delaware"), the Company
purchased all of the assets of SAC-Delaware, and assumed all of the
liabilities of SAC-Delaware. On March 4, 1996, the Company changed its
name to Safe Alternatives Corporation of America, Inc. (a Florida
corporation).
On September 17, 2002, the Board of Directors of the Company agreed to
sell all of the Company's assets to Environmental Alternatives, Inc.
("EAI"), a privately held Vermont corporation, in exchange for EAI's
assumption of and agreement to indemnify and hold the Company harmless
from paying any and all claims that could attach to the Company as of
June 30, 2002.
From July 1, 2002 to May 2005 the Company had no assets or operating
activities.
Pursuant to a Majority Shareholder Consent, on May 14, 2004, the
Company's Board of Directors authorized a change in the Company name to
Mortgage Assistance Center Corporation. The Company's Articles of
Incorporation were amended on December 22, 2004 and became effective
January 17, 2005. The changes were made in connection with the
requirements of a Letter of Intent executed between the Company and
Mortgage Assistance Corporation ("MAC"), a Texas corporation, in which
re-organizational steps were undertaken to create a change in control
of MACC prior to the completion of a business combination agreement.
Upon completion and signing of a definitive Business Combination
Agreement, in May 2005 MACC acquired all of the issued and outstanding
capital stock of Mortgage Assistance Corporation. MAC is now a wholly
owned subsidiary of MACC as described in Note 3.
F-9
Mortgage Assistance Center Corporation
Notes to Consolidated Financial Statements
June 30, 2005
(Unaudited)
Note 2 - Preparation of Financial Statements
-----------------------------------
The Company follows the accrual basis of accounting in accordance with
accounting principles generally accepted in the United States of
America and has a year end of December 31.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.
Management further acknowledges that it is solely responsible for
adopting sound accounting practices, establishing and maintaining a
system of internal accounting control and preventing and detecting
fraud. The Company's system of internal accounting control is designed
to assure, among other items, that 1) recorded transactions are valid;
2) valid transactions are recorded; and 3) transactions are recorded in
the proper period in a timely manner to produce financial statements
which present fairly the financial condition, results of operations and
cash flows of the Company for the respective periods being presented.
During interim periods, the Company follows the accounting policies set
forth in its annual audited financial statements filed with the U. S.
Securities and Exchange Commission on its Annual Report on Form 10-KSB
for the year ended December 31, 2004. The information presented within
these interim financial statements may not include all disclosures
required by generally accepted accounting principles, and the users of
financial information provided for interim periods should refer to the
annual financial information and footnotes when reviewing the interim
financial results presented herein.
In the opinion of management, the accompanying interim financial
statements, prepared in accordance with the U. S. Securities and
Exchange Commission's instructions for Form 10-QSB, are unaudited and
contain all material adjustments, consisting only of normal recurring
adjustments necessary to present fairly the consolidated financial
condition, results of operations and cash flows of the Company for the
respective interim periods presented. The current period results of
operations are not necessarily indicative of results which ultimately
will be reported for the full fiscal year ending December 31, 2005.
F-10
Mortgage Assistance Center Corporation
Notes to Consolidated Financial Statements
June 30, 2005
(Unaudited)
Note 3 - Business Combination
--------------------
On May 14, 2004, the Company's President, Dale Hensel, executed a
Letter of Intent with Mortgage Assistance Corporation ("MAC"), a Texas
corporation controlled by Mr. Hensel, whereby MAC offered to be
acquired by the Company. Under the terms and conditions of the letter
of intent the MACC board obtained a majority shareholder consent in
lieu of a special meeting according to the Florida Business Corporation
Statutes and approved the following actions:
1. The reverse split of the Company's common shares on a One
for Two Hundred Fifty (1:250) basis;
2. The corporate name change from Safe Alternatives Corporation
of America, Inc. to Mortgage Assistance Center Corporation;
3. The change in the authorized number of common stock shares
from 175,000,000 to 50,000,000 shares;
4. Authorized a business combination whereby the Company
exchanged 12,000,000 post reverse split common shares for
all of the issued and outstanding common stock of MAC; and
5. Any such further recommendations as may be considered
reasonable and in the best interest of the shareholders.
In May 2004, a majority shareholder action approved the reverse stock
split and the reduction in the authorized number of common shares.
On May 10, 2005, the Company entered into a Business Combination
Agreement to acquire all of the issued and outstanding capital stock of
Mortgage Assistance Corporation, a Texas corporation, consisting of
7,500,000 shares, in exchange for twelve million (12,000,000) shares of
MACC stock. The Company issued 1.6 MACC shares for each MAC share held
by the 34 shareholders of MAC in an exempt transaction under Section
4(2) and Regulation D Rule 506 of the Securities Act of 1933, as
amended (the "Securities Act"). These shares are restricted securities
and may not be publicly resold absent registration with the Securities
and Exchange Commission (SEC) or exemption from the registration
requirements of the Securities Act. MAC became a wholly owned
subsidiary of MACC upon MACC's complete acquisition of all the MAC
shares.
As of May 10, 2005, MACC received 6,896,556 MAC shares (92%) and has
caused 11,034,489 (87.1%) of the Company shares to be issued to three
individuals who will comprise a control group consisting of Dale
Hensel, Dan Barnett and Michelle Taylor. Together they will control
87.1% of the voting common stock of the Company. Dale Hensel is the
sole officer and director of the
F-11
Mortgage Assistance Center Corporation
Notes to Consolidated Financial Statements
June 30, 2005
(Unaudited)
Note 3 - Business Combination (Continued)
--------------------
Company. Mr. Hensel is also the President and director of MAC. Dan
Barnett is the Vice President and director of MAC. Ms. Taylor is a Vice
President and director of MAC. Subsequently, the remainders of the MAC
shares were surrendered and 12,000,000 shares were issued for 100% of
MAC.
A conflict of interest existed in May 2004 when Mr. Hensel recommended
that the Company acquire all of the issued and outstanding capital
stock of MAC because Mr. Hensel was the Company president and director
and also the president, director and shareholder of MAC. The decisions
to acquire MAC, change the corporate name, implement the reverse split
and capital change were actions over which Mr. Hensel had exercised
degrees of control and in which he had a financial interest by virtue
of being a shareholder of MAC. All of these transactions were disclosed
to, authorized and approved by the written consent of the Company's
majority shareholders who held 75.9% of the voting stock. At the time
of voting, Mr. Hensel was not a shareholder of the Company and did not
vote for approval of these transactions.
The number of shares authorized for issuance in this Business
Combination transaction between MACC and the MAC shareholders was
negotiated between Mr. Hensel and MAC management in a transaction with
management. The management of MACC and MAC shared a common director and
officer in Dale Hensel. The transaction did not represent an
arms-length transaction.
At that time, MAC incurred $295,000 of expenses in connection with
legal fees and other costs related to the acquisition. At that time a
market value for MACC's common shares was difficult to ascertain
because of the limited and illiquid market for the Company shares.
There was no active market for our common stock at that time.
The acquisition of MAC constituted an exchange of equity interests
between entities under common control and resulted in a change in the
reporting entity. This type of transaction is not a business
combination under Statement of Financial Accounting Standards Number
141 and, consequently, has been accounted for in a manner similar to a
pooling of interests rather than as a purchase. Accordingly, the equity
interests that were issued to MAC shareholders in May 2005 in exchange
for the net assets of MAC were given effect as of January 1, 2005,
based on the net book value of MAC on a historical cost basis. The
results of operations for the interim periods ending June 30, 2005
present the combined results of MACC and MAC for those periods. The
results of operations for the three months and six months ended June
30, 2004 have been restated to furnish comparative information.
F-12
Mortgage Assistance Center Corporation
Notes to Consolidated Financial Statements
June 30, 2005
(Unaudited)
Note 4 - Summary of Significant Accounting Policies
------------------------------------------
Description of Business:
Through MAC, the Company operates as a financial services company,
acquiring and managing pools of distressed real estate-based mortgages.
The types of mortgages pools acquired include non-performing,
charged-off, sub-prime mortgages, typically between ninety days and two
years past due and secured by residential real estate. The Company
acquires both priority ("first") and subordinate ("second") mortgage
loans or "liens". Approximately 1% of the loans acquired are
subordinate liens, which bear the risk of being reclassified as an
unsecured loan should the first lien holder foreclose on the property.
The Company primarily acquires non-performing first lien loan pools of
varying amounts from banks and other lenders at a significant discount
from the loans' outstanding legal principal amount, the total of the
aggregate of expected future sales price and the total payments to be
received from obligors.
After the Company acquires the loans, the process of resolution begins
with the borrower, changing the status of the non-performing loans into
either performing loans or foreclosing on the real estate. The Company
will resell a substantial portion of its re-performing loans in
various-sized loan pools. The Company will be required to foreclose on
certain properties when loans held in its portfolio continue to be in
default. As a result, the Company will be engaged in owning single-
family dwellings and possibly other real estate. Such foreclosed real
estate will be held, rehabilitated where necessary, and sold.
Principles of Consolidation:
The consolidated financial statements include the accounts of MACC and
its wholly owned subsidiary, MAC. All significant intercompany accounts
and transactions are eliminated in consolidation.
Portfolio Assets:
Portfolio assets are held for sale and reflected in the accompanying
financial statements as mortgage note receivable pools or real estate
portfolios. The following is a description of each classification and
the related accounting policy accorded to each portfolio type:
Mortgage Note Receivable Pools:
Mortgage note receivable pools consist primarily of first lien
distressed real estate based mortgages. The cost basis of loan pools
acquired consists of their purchase price from banks or other sellers
F-13
Mortgage Assistance Center Corporation
Notes to Consolidated Financial Statements
June 30, 2005
(Unaudited)
Note 4 - Summary of Significant Accounting Policies (Continued)
------------------------------------------
plus purchase commissions, if any. Loan pool costs are allocated to
individual loans based on the face value of the unpaid principal of the
loans and their performance status based on the note's expected cash
flow. Any payments of due diligence costs, property taxes, or insurance
required are charged to operations.
Subsequent to acquisition, the adjusted cost of the mortgage note
receivable pools is evaluated for impairment on a quarterly basis. The
evaluation of impairment is determined based on the review of estimated
future cash receipts, which represents the net realizable value of the
note pool. Once it is determined that there is impairment, a valuation
allowance is established for any impairment identified through
provisions charged to operations in the period of the impairment is
identified. The Company determined that no impairment allowance was
required at June 30, 2005 and December 31, 2004.
The Company recognizes gain or loss upon the resale or other resolution
of mortgage loans pools based upon the difference between the selling
price of the loan pool and the cost basis of the individual loans
included in the pool being sold. Collections of delinquent principal
and interest payments are credited against the cost basis of the
respective loan.
Real Estate Portfolios:
Real estate portfolios consist of real estate acquired by foreclosures
of individual mortgage notes receivable. Such portfolios are carried at
the lower of cost or fair value less estimated costs to sell. The cost
of foreclosed real estate consists of original loan costs plus any
costs relating to the development and improvement of the real estate
for its intended use. The costs of foreclosure and any required
refurbishment costs to bring the property to resalable condition, as
well as any maintenance, taxes and insurance costs required during the
holding period are charged to operations. Income or loss is recognized
upon the disposal of real estate at the date of closing, based on the
difference between selling prices, less commissions, and capitalized
costs. Rental income, net of expenses, on real estate portfolios is
recognized when received. Accounting for portfolios is on an individual
asset-by-asset basis as opposed to a pool basis.
Subsequent to acquisition, the amortized cost of real estate portfolios
is evaluated for impairment on a quarterly basis. The evaluation of
impairment is determined based on the review of the estimated future
cash receipts, which represents the net realizable value of the real
estate portfolio. A valuation allowance is established for any
impairment identified through provisions charged to operations in the
period the impairment is identified. The Company determined that no
allowance for impairment was required at June 30, 2005 and December 31,
2004.
F-14
Mortgage Assistance Center Corporation
Notes to Consolidated Financial Statements
June 30, 2005
(Unaudited)
Note 4 - Summary of Significant Accounting Policies (Continued)
------------------------------------------
Cash and Cash Equivalents:
The Company considers all highly liquid debt or equity instruments
purchased with an original maturity at the date of purchase of 90 days
or less to be cash equivalents.
Fair Value of Financial Instruments:
The Company's financial instruments include cash, receivables,
short-term payables, and notes payable. The carrying amounts of cash,
receivables, and short-term payables approximate fair value due to
their short-term nature. The carrying amounts of notes payable
approximate fair value based on borrowing terms currently available to
the Company.
Advertising Costs:
Advertising costs are expensed as incurred as selling, general and
administrative expenses in the accompanying statement of operations.
Property and Equipment:
Property and equipment acquired are recorded at cost. Depreciation of
property and equipment is determined by the straight line and
double-declining balance methods over estimated useful lives ranging
from two to seven years.
Upon sale, retirement or other disposal of property and equipment, the
related cost and accumulated depreciation are removed from the
accounts. All gains or losses arising from the sale, retirement or
other disposition of property or equipment are reflected in earnings.
Maintenance, repairs, renewals and betterments, in general, are charged
to expense as incurred, except that of major renewals and betterments
which extend the life on an asset or increase the value thereof are
capitalized
Income Taxes:
The Company accounts for income taxes based on Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes".
SFAS No. 109 requires the recognition of deferred tax assets and
liabilities for the future tax consequences attributable to temporary
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. In
addition, SFAS No. 109 requires the recognition of future tax benefits,
such as net operating loss carry forwards, to the extent that
F-15
Mortgage Assistance Center Corporation
Notes to Consolidated Financial Statements
June 30, 2005
(Unaudited)
Note 4 - Summary of Significant Accounting Policies (Continued)
------------------------------------------
realization of such benefits is more likely than not. The amount of
deferred tax liabilities or assets is calculated by applying the
provisions on enacted tax laws to determine the amount of taxes payable
or refundable currently or in future years. Valuation allowances are
established, when necessary, to reduce deferred tax assets when it is
more likely than not that all or a portion of the deferred tax asset
will not be realized.
Net Loss Per Share:
The Company computes net income (loss) per share in accordance with
SFAS No. 128, Earnings per Share and SEC Staff Accounting Bulletin No.
98 ("SAB 98").
Under the provisions of SFAS No. 128 and SAB 98, basic net income
(loss) per share is calculated by dividing net income (loss) available
to common stockholders for the period by the weighted average number of
common shares outstanding during the period.
In November 2004, a one-for-two hundred fifty (1:250) reverse stock
split was effected. Accordingly, all historical weighted average share
and per share amounts have been restated to reflect the stock split.
Note 5 - Going Concern Uncertainty
-------------------------
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
settlement of liabilities and commitments in the normal course of
business. As shown in the financial statements, the Company has
incurred significant operating losses in 2005 and prior periods,
resulting in an accumulated stockholders' deficit and a working capital
deficit as of June 30, 2005. These factors, among others, may indicate
that the Company will be unable to continue as a going concern for a
reasonable period of time.
The financial statements do not include any adjustment relating to the
recoverability of assets and classification of liabilities that might
be necessary should the Company be unable to continue as a going
concern. The Company's continuation as a going concern is dependent
upon its ability to generate sufficient cash flow to meet its
obligations on a timely basis, to obtain additional financing or
refinancing as may be required, and ultimately to sustain
profitability.
The Company is actively pursuing alternative financing plans to fund
the Company's requirements, and those plans include, but are not
limited to, additional equity sales or debt financing under appropriate
market conditions, allegiances or partnership agreements, or other
F-16
Mortgage Assistance Center Corporation
Notes to Consolidated Financial Statements
June 30, 2005
(Unaudited)
Note 5 - Going Concern Uncertainty (Continued)
-------------------------
business transactions which could generate adequate funding
opportunities. While the Company is confident in its ability to secure
additional capital in the future, there is no guarantee that the
Company will receive sufficient funding to sustain operations or
implement any future business plan steps.
Note 6 - Portfolio Assets
----------------
Portfolio assets were comprised of the following at June 30, 2005:
Mortgage note receivable pools $ 473,125
Real Estate portfolios 159,291
Other 74,114
----------
Total portfolio assets 706,530
Valuation allowance for impairment --
----------
Net portfolio assets $ 706,530
==========
Portfolio assets are pledged to secure non-recourse notes payable to
individuals (See Note 8).
Note 7 - Investment in Joint Venture
---------------------------
Effective September 30, 2004, MAC acquired a 50% interest in MAP/MAC,
LLC, a joint venture with an unrelated party formed for the purpose of
acquiring mortgage note receivable pools in the secondary market. MAC's
investment in MAP/MAC, LLC is accounted for using the equity method.
A summary of the results of operations for the six months ended June
30, 2005 and net assets at June 30, 2005 for MAP/MAC, LLC is as
follows:
F-17
Mortgage Assistance Center Corporation
Notes to Consolidated Financial Statements
June 30, 2005
(Unaudited)
Results of operations:
Total revenues $ 966,260
Operating profit 220,462
Net income 220,462
Net assets:
Current assets $ 898,174
Noncurrent assets --
----------
Total assets 898,174
Current liabilities 598,117
----------
$ 300,057
==========
Note 8 - Notes Payable
At June 30, 2005, notes payable to individuals were comprised of the
following:
F-18
Mortgage Assistance Center Corporation
Notes to Consolidated Financial Statements
June 30, 2005
(Unaudited)
Loan due principal and accrued interest
at 12% at maturity in November 2006 $ 378,083
Loan due interest only monthly at 16%
maturing February 2006 223,200
Loans due principal and accrued interest at
12% at maturity in April 2006 200,000
Loan due $50,000 January 2005, with balance of $100,000 due
February 2006, issuance of 30,000 shares of common stock at
inception and 1,800 shares monthly beginning April 2005
through maturity in lieu of interest 100,000
Loan due interest only on a monthly basis at
18%, maturing July 2005 150,000
Loans due interest only on a monthly or
quarterly basis at 10%, maturing July 2005
through August 2006 216,000
----------
Total 1,267,283
Less portion due within one year 889,200
----------
$ 378,083
==========
Certain real estate mortgage note receivable pools secure the loans
from individuals.
F-19
Mortgage Assistance Center Corporation
Notes to Consolidated Financial Statements
June 30, 2005
(Unaudited)
Note 8 - Notes Payable (Continued)
-------------
As described above, the Company's loans from individuals have interest
rates ranging from 10% to 18% and/or require the issuance of shares of
common stock in addition to or in lieu of interest, using an assumed
value of $1.00 per share.
No shares of common stock were issued under such arrangements in 2005,
however, accrued interest payable at June 30, 2005 includes a provision
for interest payable via future stock issuances. At June 30 2005, the
Company was obligated for approximately $29,000 worth of future stock
issuances in order to satisfy interest requirements through maturity of
the related loans.
Note 9 - Related Party Transactions
--------------------------
During the period ended June 30, 2005, MAC engaged in certain
transactions with three affiliated entities, MAP/MAC, LLC, an
unincorporated joint venture, and ABOVO Corporation and Vision Ads,
Inc. ("VA"), (dba "Red Horse Realty"), two corporations owned by MAC's
vice president.
MAC paid certain expenses on behalf of MAP/MAC, LLC, a 50%-owned joint
venture of MAC, (See Note 7) and charged MAP/MAC, LLC fees for
servicing its note pools. For the six months ended June 30, 2005,
$92,621 in servicing fees were recognized in income. At June 30, 2005,
MAC had an account receivable from MAP/MAC, LLC of $72,541.
MAC charges VA, a real estate management firm, for usage of office
space, personnel and other administrative costs. MAC had an account
receivable from VA of $49,905 at June 30, 2005.
ABOVO Corporation engages in the purchase and sale of residential real
estate, and often carries the notes receivable with its purchasers. In
2004, MAC began servicing ABOVO Corporation's real estate loans. MAC
recognized $2,272 of servicing fees from ABOVO Corporation for the
six-months ended June 30, 2005.
Note 10 - Income Taxes
The components of income tax (benefit) expense, on continuing
operations, for the six-months ended June 30, 2005 and 2004,
respectively, are as follows:
F-20
Mortgage Assistance Center Corporation
Notes to Consolidated Financial Statements
June 30, 2005
(Unaudited)
Note 10 - Income Taxes (Continued)
------------
Six-Months Ended Six-Months Ended
June 30, 2005 June 30, 2004
---------------- ----------------
Federal:
Current $ -- $ --
Deferred -- --
---------------- ----------------
-- --
---------------- ----------------
State:
Current -- --
Deferred -- --
---------------- ----------------
Total $ -- $ --
================ ================
As of June 30, 2005 the Company had a net operating loss carryforward
of approximately $10,400,000 to offset future taxable income. Subject
to current regulations, this carryforward will begin to expire in 2007.
Due to the reverse acquisition transaction with MAC in May 2005, the
usage of the Company's net operating loss carryforward will be severely
limited. The amount and availability of the net operating loss
carryforwards may be subject to limitations set forth by Section 338 of
the Internal Revenue Code. Factors such as the number of shares
ultimately issued within a three year look-back period; whether there
is a deemed more than 50 percent change in control; the applicable
long-term tax exempt bond rate; continuity of historical business; and
subsequent income of the Company all enter into the annual computation
of allowable annual utilization of the carryforwards.
The Company's income tax expense for the periods ended June 30, 2005
and 2004, respectively, differed from the statutory tax rate of 34.0%
as follows:
F-21
Mortgage Assistance Center Corporation
Notes to Consolidated Financial Statements
June 30, 2005
(Unaudited)
Note 10 - Income Taxes (continued)
------------
Six-Months Ended
June 30, 2005 June 30, 2004
------------- -------------
Statutory rate applied to income
before income taxes $ (241,300) $ (371,300)
Increase (decrease) in income taxes
resulting from:
State income taxes
Non-deductible compensation expense related
to common stock issued at less than "fair value" -- 285,200
Other, including reserve for deferred tax asset and
application of net operating loss carryforward 241,300 86,100
------------- -------------
Income tax expense $ -- $ --
============= =============
Deferred tax assets and liabilities consisted of the following at June
30, 2005 and December 31, 2004:
June 30, December 31,
2005 2004
------------ ------------
Deferred tax assets
Net operating loss carryforwards $ 3,552,700 $ 3,174,500
Less valuation allowance (3,552,700) (3,174,500)
------------ ------------
Net Deferred Tax Asset $ -- $ --
============ ============
Note 11 - Common Stock Transactions
-------------------------
During July 2002, in order to facilitate the Company's merger or other
business combination transaction with MAC, the Company issued a total
of 84,720,733 pre-split shares of the Company's unregistered,
restricted common stock to be held in escrow for the benefit of the
Company's merger or combination partner. No value had been assigned to
this issuance pending the consummation of a business combination
transaction. On March 9, 2004, the Company's Board of Directors
authorized the issuance of these shares held in escrow to the Company's
legal counsel, Loper & Seymour, P.A. of St. Paul, Minnesota for legal
services. The transaction was valued at approximately $8,500, which
equaled the common stock's par value of $.0001 per share, and these
shares were deemed fully paid and non-assessable. Pursuant to Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", the imputed fair value of this transaction was
calculated as approximately $847,200, using the discounted closing
quoted stock price on March 9, 2004. The differential between the
imputed fair value and the agreed-upon value of the services provided,
approximately $838,700, was recorded as "compensation expense related
to common stock issuances at less than "fair value" upon exercise of
outstanding stock options in the accompanying statement of operations
for the six months ended June 30, 2004.
On May 14, 2004, the Stockholders approved an amendment to the
Company's Articles of Incorporation which increased the par value of
each share of common stock from $0.0001 per share to $0.001 per share
and decreased the number of authorized common shares from 175,000,000
shares to 50,000,000 shares. The stockholders also approved a
one-for-two hundred fifty (1:250) reverse stock split. Pursuant to
authorization by the Board of Directors, the reverse stock split became
effective for stockholders of record as of November 22, 2004. Stock
certificates representing pre-split denominations may be exchanged for
stock certificates representing the post-split denominations, at the
election of stockholders, as mandatory certificate exchange is not
required.
F-22
Mortgage Assistance Center Corporation
Notes to Consolidated Financial Statements
June 30, 2005
(Unaudited)
Note 11 - Common Stock Transactions (Continued)
-------------------------
Common stock and additional paid-in capital at December 31, 2004 were
restated to reflect this split. The number of common shares issued at
December 31, 2004, after giving effect to the split, was determined to
be 664,603 (165,853,058 shares issued before the split), including 1191
shares estimated to be issued to fractional stockholders.
The effect of the reverse stock split has been reflected as of January
1, 2004 in the balance sheet, but activity for 2004 and prior periods
has not been restated in those statements. All references to the number
of common shares and per share amounts elsewhere in the financial
statements and related footnotes have been restated as appropriate to
reflect the effect of the reverse split for all periods presented.
In connection with a Business Combination Agreement between the Company
and MAC on May 10, 2005 (See Note 3), the Company issued 12,000,000
post-split shares to the MAC shareholders in exchange for all of the
issued and outstanding shares of MAC. As the acquisition of MAC
represented an exchange of equity interests between entities under
common control, the equity interests issued were recorded at
approximately $257,000, representing the net book value of MAC on a
historical cost basis as of January 1, 2005, the beginning of the
period in which the transaction occurred. The effect of the MAC
acquisition has been reflected as of January 1, 2004 to provide
comparable weighted average per share amounts for all periods
presented.
F-23
Mortgage Assistance Center Corporation
Notes to Consolidated Financial Statements
June 30, 2005
(Unaudited)
In accordance with the Letter of Agreement with MAC in March 2004,
Loper & Seymour, P.A., an escrow agent, agreed to return 338,883
(84,720,733 pre-split) shares to the Company. The Company elected to
cancel the shares. The effect of this cancellation has been applied
retroactive to January 1, 2004. On June 23, 2005, the Company issued
400,000 post-split shares for legal services pursuant to certain Legal
Services Compensation Agreements. Of these issuances, 300,000 shares
were issued to the Company's former legal counsel, Mary F. Seymour,
Attorney at Law.
F-24
Item 2. Management's Discussion and Analysis or Plan of Operation
Business Overview
On May 10, 2005, the Company entered into a Business Combination Agreement
to acquire all of the issued and outstanding capital stock of Mortgage
Assistance Corporation (MAC), a Texas corporation, consisting of 7,500,000
shares, in exchange for twelve million (12,000,000) shares of MACC stock. On
that date, the Company acquired 6,896,556 MAC shares (92%) and issued 11,034,489
(87.1%) of our Company shares to three individuals who comprise a control group
consisting of Dale Hensel, Dan Barnett and Michelle Taylor. As of August 10,
2005, we had completed the acquisition of the balance of the MAC shares. We will
issue 965,509 common shares in exchange for the balance of these MAC shares. MAC
has become a wholly owned subsidiary of our company.
Through MAC, the Company operates as a financial services company,
acquiring and managing pools of distressed real estate-based mortgages. The
types of mortgages pools acquired include non-performing, charged-off, sub-prime
mortgages, typically between ninety days and two years past due and secured by
residential real estate. The Company acquires both priority ("first") and
subordinate ("second") mortgage loans or "liens". Approximately 1% of the loans
acquired are subordinate liens, which bear the risk of being reclassified as an
unsecured loan should the first lien holder foreclose on the property. The
Company primarily acquires non-performing first lien loan pools of varying
amounts from banks and other lenders at a significant discount from the loans'
outstanding legal principal amount, the total of the aggregate of expected
future sales price and the total payments to be received from obligors.
After the Company acquires the loans, the process of resolution begins with
the borrower, changing the status of the non-performing loans into either
performing loans or foreclosing on the real estate. The Company will resell a
substantial portion of its re-performing loans in various-sized loan pools. The
Company will be required to foreclose on certain properties when loans held in
its portfolio continue to be in default. As a result, the Company will be
engaged in owning single- family dwellings and possibly other real estate. Such
foreclosed real estate will be held, rehabilitated where necessary, and sold.
Plan of Operation
- -----------------
The acquisition of MAC constituted an exchange of equity interests between
entities under common control and resulted in a change in the reporting entity.
This type of transaction is not considered a business combination under
Statement of Financial Accounting Standards Number 141 and, consequently, has
been accounted for in a manner similar to a pooling of interests rather than as
a purchase. Accordingly, the equity interests that were issued to MAC
shareholders in May 2005 in exchange for the net assets of MAC were given effect
as of January 1, 2005, based on the net book value of MAC on a historical cost
basis. The results of operations for the interim periods ending June 30, 2005
present the combined results of MACC and MAC for those periods. The results of
operations for the three months and six months ended June 30, 2004 have been
restated to furnish comparative information.
The company plans to continue to buy and sell real estate based investments over
the next year. As additional funds become available for investments, the company
expects to increase investments, and thus, the number of employees to manage the
additional inventory. Significant acquisitions of investments, and thus higher
operation costs, are possible. The company will plan on continued sales of
mortgage pools and real estate assets. We anticipate raising money through the
sale of stock, issuance debt instruments, or entering into joint venture
arrangements in order to fund our operations over the next 12 months.
Presently, there are no commitments to provide additional money. There can be no
assurance that we will be able to raise the necessary money to fund operations
or make new investments.
FORWARD-LOOKING STATEMENTS:
We have included forward-looking statements in this report. For this purpose,
any statements contained in this report that are not statements of historical
fact may be deemed to be forward looking statements. Without limiting the
foregoing, words such as "may", "will", "expect", "believe", "anticipate",
"estimate", "plan" or "continue" or the negative or other variations thereof or
comparable terminology are intended to identify forward-looking statements.
These statements by their nature involve substantial risks and uncertainties,
and actual results may differ materially depending on a variety of factors.
Factors that might cause forward-looking statements to differ materially from
actual results include, among other things, overall economic and business
conditions, demand for the Company's products, competitive factors in the
industries in which we compete or intend to compete, and other uncertainties of
our future acquisition plans.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:
The Company does not issue or invest in financial instruments or their
derivatives for trading or speculative purposes. The operations of the Company
are conducted primarily in the United States, and, are not subject to material
foreign currency exchange risk. Although the Company has outstanding debt and
related interest expense, market risk of interest rate exposure in the United
States is currently not material.
Item 3. Controls and Procedures
As of the end of the reporting period, June 30, 2005, we carried out an
evaluation, under the supervision and with the participation of our management,
including the Company's Chairman and Chief Executive Officer and the Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures pursuant to Rule 13a-15(e) of the Securities
Exchange Act of 1934 (the "Exchange Act"), which disclosure controls and
procedures are designed to insure that information required to be disclosed by a
company in the reports that it files under the Exchange Act is recorded,
processed, summarized and reported within required time periods specified by the
SEC's rules and forms. Based upon that evaluation, the Chairman and the Chief
Financial Officer concluded that our disclosure controls and procedures are
effective in timely alerting them to material information relating to the
Company required to be included in the Company's period SEC filings.
(b) Changes in Internal Control.
Subsequent to the date of such evaluation as described in subparagraph(a)above,
there were no changes in our internal controls or other factors that could
significantly affect these controls, including any corrective action with regard
to significant deficiencies and material weaknesses.
(c) Limitations.
Our management, including our Principal Executive Officer and Principal
Financial Officer, does not expect that our disclosure controls or internal
controls over financial reporting will prevent all errors or all instances of
fraud. A control system, no matter how well designed and operated, can provide
only reasonable, not absolute, assurance that the control system's objectives
will be 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 our 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. Controls can also be circumvented by the individual acts of
some persons, by collusion of two or more people, or by management override of
the controls. The design of any system of controls is based in part upon certain
assumptions about the likelihood of future events, and any design may not
succeed in achieving its stated goals under all potential future conditions.
Over time, controls may become inadequate because of changes in conditions or
deterioration in the degree of compliance with policies or procedures. Because
of the inherent limitation of a cost-effective control system, misstatements due
to error or fraud may occur and not be detected.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are not aware of any material legal proceedings against the Company.
We are not aware of any material legal proceedings to which, any director,
officer or affiliate of the Company, any owner of record or beneficial owner of
more than 5% of our Company common stock, is a party to a legal proceeding
adverse to our Company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
All unregistered sales of equity securities were disclosed on Current
Reports filed on Form 8-K during the quarter covered by this report.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of the security holders, through the
solicitation of proxies or otherwise, during the first quarter of the fiscal
year covered by this report.
Item 5. Other Information
None.
Item 6. Exhibits.
a) Exhibits
Exhibit No. Exhibit Name
31 Chief Executive and Financial Officer-Section 302
Certification pursuant to Sarbanes-Oxley Act.
32 Chief Executive and Financial Officer-Section 906
Certification pursuant to Sarbanes-Oxley Act.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
August 12, 2005 MORTGAGE ASSISTANCE
CENTER CORPORATION
By: /s/ Dale Hensel
--------------------------
Dale Hensel
Title: President, CEO, CFO