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 March 31, 2006
[_] 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 March 31, 2006, there were 12,725,720 shares of Common Stock issued and
outstanding.
Transitional Small Business Disclosure Format : Yes No X
Indicate by check mark whether the registrant is a shell company (as defined by
Rule 12b-2of the Exchange Act. 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
MARCH 31, 2006
Mortgage Assistance Center Corporation
Table of Contents
Page
----
Report of Independent Registered Public Accounting Firm......................F-3
Financial Statements
Consolidated Balance Sheets
as of March 31, 2006, and December 31, 2005........................F-4
Consolidated Statements of Operations and Comprehensive Loss
for the three months ended March 31, 2006 and 2005.................F-6
Consolidated Statements of Cash Flows
for the three months ended March 31, 2006 and 2005..................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 March 31, 2006 and the consolidated
statements of operations and comprehensive loss, and cash flows for the
three-month period ended March 31, 2006. These interim financial statements are
the responsibility of the Company's management.
The consolidated financial statements as of December 31, 2004 and for the three
months ended March 31, 2005 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 March 31, 2005 financial statements, which reflect
total assets of $1,850,162 at December 31, 2004, and total revenue of $121,000
for the three-month period ended March 31, 2005.
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 March 31, 2006. 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, 2005 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 3, 2006, but we have
not performed any auditing procedures since that date.
Sutton Robinson Freeman & Co., P.C.
Certified Public Accountants
Tulsa, Oklahoma
May 12, 2006
F-3
Mortgage Assistance Center Corporation
Consolidated Balance Sheets
March 31, 2006 (Unaudited) and December 31, 2005 (Audited)
ASSETS
March 31, December 31,
2006 2005
(Unaudited) (Audited)
------------ ------------
Current Assets:
Cash and cash equivalents $ 57,804 $ 72,740
Portfolio assets, at cost (net of impairment reserve
of $202,690) 769,105 832,891
Accounts receivable-related parties 31,381 58,995
Prepaid expenses 19,557 30,547
------------ ------------
Total Current Assets 877,847 995,173
------------ ------------
Property and Equipment, at cost:
Furniture, equipment and computers 103,579 103,579
Less accumulated depreciation 35,929 30,286
------------ ------------
Total Property and Equipment 67,650 73,293
------------ ------------
Investments And Other Assets:
Investment in MAP/MAC, LLC 175,293 292,536
Investment in Metromedia Partnership 82,138 98,916
Deposits 3,000 3,000
------------ ------------
Total Investments and Other Assets 260,431 394,452
------------ ------------
Total Assets $ 1,205,928 $ 1,462,918
============ ============
The accompanying notes are an integral part of these consolidated financial
statements
F-4
Mortgage Assistance Center Corporation
Consolidated Balance Sheets
March 31, 2006 (Unaudited) and December 31, 2005 (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
2006 2005
(Unaudited) (Audited)
------------ ------------
Current Liabilities:
Notes payable-individuals and others $ 1,120,682 $ 1,280,152
Accounts payable-trade 224,801 170,434
Accounts payable-others 289,784 289,784
Accrued interest payable 85,696 72,983
Other accrued liabilities 101,327 98,306
------------ ------------
Total Current Liabilities 1,822,290 1,911,659
------------ ------------
Long-term Debt:
Notes payable-individuals 699,744 639,105
Note payable-stockholder 60,574 60,574
Mortgages payable 151,333 71,104
------------ ------------
Total Long-Term Debt 911,651 770,783
------------ ------------
Total Liabilities 2,733,941 2,682,442
------------ ------------
Commitments (Note 13)
Stockholders' Equity (Deficit):
Common stock, par value $0.001 per share; authorized
authorized 50,000,000 shares; issued 12,725,720 shares 12,726 12,726
Additional paid-in capital 173,663 173,663
Retained earnings (deficit) after December 31, 2004 (1,816,562) (1,508,073)
------------ ------------
(1,630,173) (1,321,684)
Subscriptions issuable 102,160 102,160
------------ ------------
Total Stockholders' Equity (deficit) (1,528,013) (1,219,524)
------------ ------------
Total Liabilities and Stockholders' Equity $ 1,205,928 $ 1,462,918
============ ============
The accompanying notes are an integral part of these consolidated financial
statements
F-5
Mortgage Assistance Center Corporation
Consolidated Balance Sheets
March 31, 2006 (Unaudited) and December 31, 2005 (Audited)
Three Three
Months Ended Months Ended
March 31, March 31,
2006 2005
(Restated)
------------ ------------
Revenues:
Sales of portfolio assets $ 213,884 $ 121,000
Cost of portfolio assets sold 138,872 70,783
------------ ------------
Gain (loss) on sale of portfolio assets 75,012 50,217
Servicing fees from affiliates and others 71,418 27,141
Income (loss) from joint venture and partnership (46,522) 83,847
Other income (loss) 2,880 6,457
------------ ------------
Total Revenues 102,788 167,662
------------ ------------
Operating Expenses:
Salaries, wages and contract labor 214,493 139,986
Selling, general and administrative expenses 143,071 149,862
Depreciation and amortization 5,643 3,391
------------ ------------
Total operating expenses 363,207 293,239
------------ ------------
Operating loss (260,419) (125,577)
Other income (expense):
Interest expense (54,731) (55,384)
Merger expense -- (295,000)
Investor relations expense 6,661 --
------------ ------------
Loss before provision for income taxes (308,489) (475,961)
Income tax benefit (expense) -- --
------------ ------------
Net Loss (308,489) (475,961)
Other comprehensive income -- --
------------ ------------
Comprehensive Loss $ (308,489) $ (475,961)
============ ============
Net loss per weighted-average share
of common stock outstanding, calculated
on Net Loss - basic and fully diluted $ (0.02) $ (0.04)
============ ============
Weighted-average number of shares of
common stock outstanding 12,725,720 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
Three Months Ended March 31, 2006 and 2005
(Unaudited)
Three Months Ended
March 31,
2006 2005
(Restated)
--------- ---------
Cash Flows From Operating Activities
Net loss $(308,489) $(475,961)
--------- ---------
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Depreciation 5,643 3,391
Professional fees paid with common stock -- --
(Income) loss from joint venture 29,744 (83,847)
(Income) loss from partnership 16,778 --
Merger expense -- 295,000
Change in assets and liabilities:
(Increase) decrease in portfolio assets 145,263 34,214
(Increase) decrease in accounts receivable from related parties 27,614 3,881
(Increase) decrease in prepaid expenses 10,989 (15,063)
Increase (decrease) in bank overdraft -- --
Increase (decrease) in accounts payable 54,367 134,590
Increase (decrease) in accrued interest 23,352 7,856
Increase (decrease) in other accrued liabilities 3,021 27,061
--------- ---------
Total adjustments 316,771 407,083
--------- ---------
Net Cash Provided (Used) by Operating Activities 8,282 (68,878)
--------- ---------
Cash Flows From Investing Activities
Purchase of property and equipment -- (2,500)
--------- ---------
Net Cash Used by Investing Activities -- (2,500)
--------- ---------
Mortgage Assistance Center Corporation
Consolidated Statements of Cash Flows
March 31, 2006 (Unaudited) and December 31, 2005 (Audited)
Three Months Ended
March 31,
2006 2005
(Restated)
---------- ----------
Cash Flows From Financing Activities
Proceeds from issuance of common stock -- --
Proceeds from issuance of debt to individuals and others 50,000 30,000
Repayment of debt to individuals and others (160,718) (538,000)
Distribution from joint venture 87,500 --
Net advances from officers -- 23,392
---------- ----------
Net Cash Provided (Used) by Financing Activities (23,218) (484,608)
---------- ----------
Net Increase (Decrease) in Cash (14,936) (555,986)
Cash at Beginning of Period 72,740 572,884
---------- ----------
Cash at End of Period $ 57,804 $ 16,898
========== ==========
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Period for:
Interest $ 31,379 $ 47,528
Income taxes $ -- $ --
The accompanying notes are an integral part of these consolidated financial
statements
F-7
Mortgage Assistance Center Corporation
Notes to Consolidated Financial Statements
March 31, 2006
(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 of a definitive Business Combination Agreement in
August 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-8
Mortgage Assistance Center Corporation
Notes to Consolidated Financial Statements
March 31, 2006
(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, 2005. 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, 2006.
F-9
Mortgage Assistance Center Corporation
Notes to Consolidated Financial Statements
March 31, 2006
(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 caused
11,034,489 (87.1%) of the Company shares to be issued to three
individuals who comprise a control group consisting of Dale Hensel, Dan
Barnett and Michelle Taylor. Together they control 87.1% of the voting
common stock of the Company. Dale Hensel is the sole officer and
director of the Company.
Mortgage Assistance Center Corporation
Notes to Consolidated Financial Statements
March 31, 2006
(Unaudited)
Note 3 - Business Combination (Continued)
--------------------
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 the date of the merger, MAC expensed $295,000 of legal fees and
other costs related to the acquisition. These costs had previously been
capitalized pending successful completion of a merger. 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 MACC 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 period ending March 31, 2006
present the combined results of MACC and MAC for that period. The
results of operations for the three months ended March 31, 2005 have
been restated to furnish comparative information.
F-10
Mortgage Assistance Center Corporation
Notes to Consolidated Financial Statements
March 31, 2006
(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-11
Mortgage Assistance Center Corporation
Notes to Consolidated Financial Statements
March 31, 2006
(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 or their performance status based on the note's expected cash
flow. Any payments of due diligence costs, property taxes, or insurance
required are capitalized and included in the cost basis of the
individual loans involved.
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 an impairment allowance of
$202,690 was required at March 31, 2006 and December 31, 2005.
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.
The Company has adopted Statement of Position No. 03-3, Accounting for
Certain Loans or Debt Securities Acquired in a Transfer ("SOP 03-3").
SOP 03-3 addresses accounting for differences between contractual cash
flows and cash flows expected to be collected from an investor's
initial investment in loans or debt securities acquired in a transfer
if those differences are attributable, at least in part, to credit
quality. SOP 03-3 was effective for all loans acquired after 2004;
however, all of the loans in the Company's portfolio are accounted for
in accordance with SOP 03-3, regardless of date acquired.
Real Estate Portfolios:
Real estate portfolios consist of real estate acquired by several means
including purchase, foreclosing or obtaining Deeds-in-Lieu of
Foreclosure on properties that continue to be non-performing. 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 capitalized. Income or
F-12
Mortgage Assistance Center Corporation
Notes to Consolidated Financial Statements
March 31, 2006
(Unaudited)
Note 4 - Summary of Significant Accounting Policies (Continued)
------------------------------------------
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 on real estate portfolios was required at
March 31, 2006 and December 31, 2005.
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.
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.
F-13
Mortgage Assistance Center Corporation
Notes to Consolidated Financial Statements
March 31, 2006
(Unaudited)
Note 4 - Summary of Significant Accounting Policies (Continued)
------------------------------------------
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
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 March 31, 2006. These factors, among others, may indicate
that the Company will be unable to continue as a going concern for a
reasonable period of time.
F-14
Mortgage Assistance Center Corporation
Notes to Consolidated Financial Statements
March 31, 2006
(Unaudited)
Note 5 - Going Concern Uncertainty (Continued)
-------------------------
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
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 March 31, 2006:
Mortgage note receivable pools $ 555,192
Real Estate portfolios 331,901
Other 84,702
----------
Total portfolio assets 971,795
Valuation allowance for impairment 202,690
----------
Net portfolio assets $ 769,105
==========
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 and an unrelated third party formed
MAP/MAC, LLC, a joint venture, for the purpose of acquiring pools of
mortgage and promissory notes in the secondary market. MAC and the
unrelated third party each own 50% of the venture. MAC's investment in
MAP/MAC, LLC is accounted for using the equity method.
F-15
Mortgage Assistance Center Corporation
Notes to Consolidated Financial Statements
March 31, 2006
(Unaudited)
Note 7 - Investment in Joint Venture (Continued)
---------------------------
A summary of the results of operations for the three months ended March
31, 2006 and net assets at March 31, 2006 for MAP/MAC, LLC is as
follows:
Results of operations:
Total revenues $ 29,533
Operating profit (loss) (59,488)
Net income (loss) (59,488)
Net assets:
Current assets $ 886,366
Noncurrent assets --
-----------
Total assets 886,366
Current liabilities 535,781
-----------
Total Equity $ 350,585
===========
F-16
Mortgage Assistance Center Corporation
Notes to Consolidated Financial Statements
March 31, 2006
(Unaudited)
Note 8 - Notes Payable
At March 31, 2006, notes payable to individuals and others were
comprised of the following:
Loan due principal and accrued interest
at 12% at maturity in April - November 2006 $ 578,083
Loan due interest only monthly at 16%
maturing February 2006 (Maturity extended) 223,200
Loan due principal and accrued interest at 3% at
maturity in January 2007 200,000
Non-interest bearing loan payable out of joint
venture distributions 175,000
Loan 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 March 2006 (maturity extended) 112,000
Loan due interest only monthly at 16% renewable
on a monthly basis 75,000
Loan due principal and accrued interest at 14%
at maturity in October 2006 50,000
Loans due interest only on a monthly or
quarterly basis at 10%, maturing July 2005
through August 2006 306,543
Other
600
------------
Total 1,820,426
Less portion due within one year 1,120,682
------------
Long Term Portion of Notes Payable $ 699,744
============
Certain real estate mortgage note receivable pools secure the loans
from individuals.
F-17
Mortgage Assistance Center Corporation
Notes to Consolidated Financial Statements
March 31, 2006
(Unaudited)
Note 9 - Related Party Transactions
--------------------------
During the period ended March 31, 2006, 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 three months ended March 31, 2006,
$66,900 in servicing fees were recognized in income.
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 $41,444 at March 31, 2006.
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 $3,354 of servicing fees from ABOVO Corporation for the
three-months ended March 31, 2006.
F-18
Mortgage Assistance Center Corporation
Notes to Consolidated Financial Statements
March 31, 2006
(Unaudited)
Note 10 - Income Taxes
------------
The components of income tax (benefit) expense, on continuing
operations, for the three months ended March 31, 2006 and 2005,
respectively, are as follows:
Three Months Ended
March 31, 2006 March 31, 2005
-------------- --------------
Federal:
Current $ -- $ --
Deferred
-------------- --------------
-------------- --------------
State:
Current
-------------- --------------
Deferred
-------------- --------------
Total $ -- $ --
============== ==============
As of March 31, 2006, the Company had a net operating loss carryforward
of approximately $11,200,000 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 March 31, 2006
and 2005, respectively, differed from the statutory tax rate of 34.0%
as follows:
F-19
Mortgage Assistance Center Corporation
Notes to Consolidated Financial Statements
March 31, 2006
(Unaudited)
Note 10 - Income Taxes (Continued)
------------
Three Months Ended
March 31, 2006 March 31, 2005
-------------- --------------
Statutory rate applied to income
before income taxes $ (104,900) $ (161,800)
Increase (decrease) in income taxes
resulting from:
State income taxes
- --------
Other, including reserve for deferred tax asset and
application of net operating loss carryforward
104,900 161,800
-------------- --------------
Income tax expense $ -- $ --
============== ==============
Deferred tax assets and liabilities consisted of the following at March
31, 2006 and December 31, 2005:
March 31 December 31,
2006 2005
------------ ------------
Deferred tax assets
Net operating loss carryforwards $ 3,327,000 $ 3,222,000
Less valuation allowance (3,327,000) (3,222,000)
------------ ------------
Net Deferred Tax Asset $ -- $ --
============ ============
Note 11 - Common Stock Transactions
-------------------------
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-20
Mortgage Assistance Center Corporation
Notes to Consolidated Financial Statements
March 31, 2006
(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.
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-21
Mortgage Assistance Center Corporation
Notes to Consolidated Financial Statements
March 31, 2006
(Unaudited)
Note 12 - Quasi-Reorganization
--------------------
Effective January 1, 2006, the Company, with the consent of its
stockholders, completed a quasi-reorganization, whereby the retained
deficit at January 1, 2005, of $23,798,786, accumulated prior to the
merger of the Company with MAC, was eliminated against additional
paid-in capital. The purpose of the quasi-reorganization is to more
clearly reflect the stockholders' equity accounts based upon the
Company's operations and activities as a financial services company,
which commenced on January 1, 2005. The equity section of the December
31, 2005 Balance Sheet has been restated to reflect the
quasi-reorganization.
Note 13 - Commitments
-----------
Consulting Contracts:
The Company has contracted with RJ Falkner & Company, Inc. to provide
consulting services in regard to preparation of a Research Profile on
the Company, distribution of such reports, identification of potential
institutional investors and other matters related to investor
relations. The contract is for twelve months, continues monthly after
January 15, 2006 unless cancelled by either party. Under the terms of
the contract FJ Falkner & Company, Inc. will be compensated $3,000
monthly and will be issued 50,000 shares of MACC common stock. MACC has
agreed to register these shares with the SEC upon the registration of
any other shares or within twenty-four months, whichever occurs first.
Mortgage Assistance Corporation has signed a Letter Agreement dated
September 1, 2005 with Michael Caolo & Associates, Attorneys and
Counselors ("Caolo") as a non-exclusive legal and business advisor and
consultant in the position of General Counsel for MAC to provide legal
and business Advice, counsel and services in connection with the
coordination of all legal matters of MAC, including coordination with
special securities counsel for S.E.C. reporting requirements, and
including but not limited to possible private placements, mergers,
consolidations, recapitalization, acquisitions or purchases of assets
or equity interest, or similar transactions. The agreement has an
initial term of six months with a minimum fee of $4,000 per month.
Additionally, provided MAC does not terminate the Letter Agreement
during the first ninety (90) days of its duration, Caolo shall be
entitled to additional compensation of equity in MACC ("Equity Fee") in
the form of a common stock purchase warrant for three hundred seventeen
thousand (317,000) shares of common tock of MACC for no additional
consideration other than an exercise price of ten cents ($.10) per
share. Provided Caolo continues to serve MAC as its legal counsel to
the reasonable satisfaction of the Board of Directors and is not
terminated for "good cause", such common stock purchase warrant may be
exercised according to the following schedule:
F-22
Mortgage Assistance Center Corporation
Notes to Consolidated Financial Statements
March 31, 2006
(Unaudited)
Note 13 - Commitments (Continued)
-----------
Consulting Contracts: (continued)
1. Fifty thousand (50,000) of such shares on the 91st day after the
execution of the Letter Agreement
2. Sixty-six thousand seven hundred fifty (66,750) of such shares
after July 1, 2006
3. Sixty-six thousand seven hundred fifty (66,750) of such shares
after December 31, 2006
4. Sixty-six thousand seven hundred fifty (66,750) of such shares
after July 1, 2007 and
5. Sixty-six thousand seven hundred fifty (66,750) of such shares
after December 31, 2007.
F-23
Item 2 - Management's Discussion and Analysis or Plan of Operation
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and Notes thereto, and other financial
information included elsewhere in this Form 10-QSB. This report contains
forward-looking statements that involve risks and uncertainties. Actual results
in future periods may differ materially from those expressed or implied in such
forward-looking statements as a result of a number of factors, including, but
not limited to, the risks discussed under the heading "Risk Factors" and
elsewhere in this Form 10-QSB.
Business Overview:
On May 10, 2005, Mortgage Assistance Center Corporation ("MACC" or the
"Company") entered into a Business Combination Agreement with Mortgage
Assistance Corporation ("MAC"), a Texas corporation. MAC became a wholly owned
subsidiary of MACC upon MACC's complete acquisition of all MAC shares in August,
2005. MACC buys, sells and manages distressed real estate and non-performing
mortgages secured by real estate in the secondary market in the United States
through its subsidiary, MAC.
MAC purchases non-performing, charged-off, sub-prime first and second lien
mortgages. These mortgages are secured by real estate, and are typically 90 days
to 2 years past due at the time we buy them. These mortgages are purchased in
pools or portfolios of assets from lending institutions and usually at discounts
to the outstanding principal balance. This business model enables MAC to provide
assistance to borrowers and to provide liquidity to lenders that need to remove
non-performing loans from their books in order to restore their lending power or
comply with government rules regarding non-performing loans.
The Company generates revenue through three primary activities including: (a)
immediate resale of its mortgage notes to other investors; (b) reforming the
note to performing status and reselling it to a secondary investor; and (c)
foreclosing or obtaining Deeds-in-Lieu of Foreclosure on properties that
continue to be non-performing and either renting or selling the real estate.
Secondarily, MAC generates additional revenue via servicing fees charged to
certain partnership investors when MAC maintains an equity ownership position in
the commonly owned note pool. After the Company acquires a loan or pool of
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 may resell a portion of its re-performing loans in
various-sized loan pools. The Company may 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 may be held, rehabilitated where necessary,
and sold.
The Company has sustained recurring losses from operations and had an
accumulated stockholders' deficit and a working capital deficiency at December
31, 2005 which continues as of March 31, 2006. The Company has incurred
substantial indebtedness, including certain currently due and past due notes and
interest payments which the Company must now restructure in order to avoid
default. These circumstances create substantial doubt about the Company's
ability to continue as a going concern and are discussed in this section and
elsewhere in this Form 10-QSB.
Liquidity and Capital Resources:
The Company has historically financed the purchase of its mortgage notes and its
operating expenses through the issuance of debt to individuals or investment
partnerships. During the first calendar quarter of 2006 the Company issued
$50,000 in new debt and paid $160,718 to retire currently due or past due debt.
Almost all debt is secured by mortgage loans or foreclosed real estate held in
the Company's portfolio of assets. As of March 31, 2006 the Company had a total
of $1,820,426 in notes payable to individuals and investment partnerships,
including $1,120,682 in principal due within one year and an additional $85,696
accrued interest currently payable. Of the notes payable within one year, and at
the time of this filing, the Company had $665,200 in principal, past due, or
without extensions from the note holder. The company currently has no past due
interest. The Company's continued reliance on debt financing has been required
in order to adequately establish its portfolio of mortgage notes and properties
for resale, fund operations currently being conducted at a net loss during a
period of ramp-up and infrastructure build-out and to fund large transactions.
The Company anticipates that it will continue to be dependent on the use of
external financing in the foreseeable future, and it cannot be assured that
adequate financing will be available at all or at terms acceptable to
management. While no lawsuits have resulted from the currently due or past due
notes payable, the Company is now attempting to restructure this debt through
various means including securing voluntary extensions with additional penalties
and interest to the Company, securing voluntary conversions to equity, and
raising additional external financing to be used for the express purpose of
restructuring notes. These conditions are described in more detail in this
section and elsewhere throughout this Form 10-QSB.
In addition to its financing activities, the Company has incurred and is
currently carrying other substantial accounts payable items. As of March 31,
2006 the Company owed vendors and various trade accounts a total of $224,801. As
of March 31, 2006 the Company lists other accounts payable of $289,784. Of this
amount, $200,000 consists of a short-term loan provided by an individual and
which is currently due and payable.
As of March 31, 2006 and as a result of the continued operating losses and the
impact of the Company's business combination transaction described in this
section and elsewhere in this Form 10-QSB, the Company shows an accumulated
total stockholders' equity deficit of $(1,528,013), net of a stock subscription
agreement currently issuable.
As of March 31, 2006 the Company lists cash and cash equivalents of $57,804 and
total assets of $1,205,928. This is down from the fourth calendar quarter of
2005 ending cash and cash equivalents of $72,740 and down from the fourth
quarter total assets of $1,462,918. Of the total assets of MAC, the portion
consisting of portfolio assets (which includes purchased sub-prime and
non-performing mortgage notes and other foreclosed property which the Company
subsequently reforms or resells) is listed at a total actual aggregate cost
basis of $769,105 net of an impairment reserve. If stated on a fair market value
basis, the Company anticipates that these directly owned portfolio assets would
have an estimated fair market value of approximately $2,100,000.
In addition, and when combined with the percentage of portfolio assets that the
Company owns and controls through its joint ventures and partnerships, if these
consolidated portfolio assets were to be stated on a fair market value basis,
the Company anticipates that they would have an estimated fair market value of
approximately $6,000,000. However, consistent with generally accepted accounting
principles, the Company's portfolio assets are listed on the balance sheet at
the actual acquisition costs plus continued servicing costs, rather than at
estimated market values. In addition, the Company uses the equity method of
partnership accounting which records the Company's equity interest in a
partnership on the balance sheet instead of the Company's percentage of
portfolio assets owned through these partnerships. Similarly, any and all
revenues or losses associated with these joint ventures and partnerships appear
on the Consolidated Statements of Operations and Comprehensive Loss as a single
line item under the Revenues section.
Management's Plans to Raise Capital:
The continued operation of the Company will be largely influenced by our ability
to raise funds for the restructuring of debt, acquisition of mortgage pools and
operating expenses of the Company. The Company is actively pursuing
opportunities to raise additional external financing in order to be able to
purchase significantly larger inventories of non-performing mortgage pools and
operations expenses. Funding sources include any combination of debt, equity,
and profit sharing with partners.
On October 20, 2005 the Company executed two financing contracts with Mercatus &
Partners, LP which would potentially provide for the purchase of a combined
total of 1,532,568 shares of Common Stock and combined gross financing proceeds
to the Company of $2,000,001. This contract is purely contingent, and as of the
date of this filing, the Company has received no funding from these
transactions. The Company can make no assurance that these transactions will be
completed in the foreseeable future or at all.
During the fourth calendar quarter of 2005 and continuing to the date of this
filing, the Company has entered preliminary discussions with other major
potential investors regarding equity and debt financing at a level sufficient to
restructure the Company debts, fund continuing operations until consistent
profitability is achieved and provide capital for the purchase of additional
pools of mortgage loans. While the Company is optimistic and has been successful
in raising money in the past, there is no guarantee that future funds will be
available at all or at terms acceptable to management.
Results of Operations:
Revenues
- --------
For the three months ended March 31, 2006, the Company recorded total sales of
portfolio assets of $213,884. Total revenues for the quarter, net of the cost of
portfolio assets held for sale, were $102,788 compared to $167,662, total
revenue net of cost of assets for Q1 2005 recorded in the three months ended
March 31 2005. The total revenue results of the current period include $71,418
in servicing fees, as well as a net loss of $(46,522) from the Company's joint
ventures and partnerships. Sales of portfolio assets for the quarter were
hampered by the protracted due diligence and negotiations with a single buyer
for the purchase of essentially all of the available inventory. Sales during
this due diligence and negotiations period were restricted to preserve the
composition and value of the pool of notes under consideration by the buyer.
When satisfactory terms could not be reached, all available inventory was then
released and normal sales activities were resumed. As a result, the Company has
clarified its sales policies and processes to prevent unusually large blocks of
portfolio assets from being tied up in negotiations at any one time.
Operating Expenses
- ------------------
Total salaries, wages and contract labor expenses for the current period were
$214,493 compared to $139,986 for the same period in the prior year. This
reflects the required additions to staff and contract labor resources necessary
to buy, service, reform and resell the Company's portfolio assets. Additionally,
the Company's CEO and COO did not receive any salary from the Company during the
same period in the prior year, whereas this additional expense is reflected in
the current period's salary expense. The Company's current level of staffing is
considered by management to be adequate to support substantial growth in
transaction volume without significant increases to staffing levels, wages, and
contract labor expense. Collectively, the total compensation for the four MAC
management team members accounted for approximately one-third of the total
amount recorded in the current period for salaries, wages, and contract labor.
Other selling, general and administrative expenses for the current period were
$143,071 which was approximately $7,000 less than the selling, general and
administrative expenses recorded in the same period during the prior year. This
reflects normal and customary SG&A expense, plus the non-salary component of
continued investment in the infrastructure development projects described below.
Build-out of infrastructure and capabilities to facilitate substantial growth
and profitability. The Company and its management team dedicated itself in
calendar year 2005 to building a scalable enterprise that will be able to
maintain its efficiency and profitability as the Company experiences rapid
growth made possible by additional capitalization planned to commence during
calendar year 2006. Two major internal infrastructure build-out projects were
conducted during 2005 and are now being fully implemented by the Company. As a
result of these infrastructure upgrades, the Company is now able to service a
much larger volume of mortgages than is currently being serviced and this
increased transaction flow is expected to postively impact the Company's
financial performance. These capabilities and upgrades are anticipated to begin
demonstrating results during calendar year 2006. These projects include the
following:
The Affiliate Network. The Company has recruited and cultivated a nationwide
network of individual and boutique investors that serve as an important part of
MAC's ability to quickly resell its notes, note pools, and owned real estate. At
present the Company maintains a network or approximately 2,500 investors in
approximately 37 states. This unique capability ensures liquidity for MAC's
inventory of notes, and ensures MAC's profitability by providing the investor
with a convenient source of notes beyond that which they could easily source for
themselves. Going forward, the Company will continue to build and maintain this
valuable resource, and will increasingly provide additional services on a
for-fee basis to Affiliate Network investors thereby further extending the
Company's revenue model and profitability.
The Interlink Loan Servicing system ("ILS"). During calendar year 2005 and
continuing through the first calendar quarter of 2006, the Company has
implemented an industry leading enterprise software platform that will
substantially improve MAC's administrative efficiency, create automated workflow
through to the financial accounting system, provide real-time access to
inventory, support management's data requests and internal reporting needs, and
enhance the Company's ability to comply with external reporting and regulatory
requirements. Due to the Company's unique business model, it has adapted the ILS
system to fully accommodate MAC's needs both currently and well into the future.
ILS is fully scalable to vastly increased numbers of transactions with little to
no additional infrastructure investment required beyond normal and customary
maintenance and upgrades.
Net Loss
- --------
Accordingly, the net loss for the three months ended March 31, 2006 was
$(308,489) compared to a net loss of $(475,961) for the same period during the
prior year. On a weighted-average basis of the number of shares of common stock
outstanding for the period, this equals a net loss per share of $(0.02) as of
March 31, 2006, compared to a net loss per share of $(0.04) during the same
period of the prior year.
Critical Accounting Policies and Estimates:
Management's discussion and analysis of results of operations and financial
condition are based on the Company's consolidated financial statements that have
been prepared in accordance with accounting principles generally accepted in the
U.S. The preparation of these financial statements requires that management make
estimates and assumptions that affect the amounts reported for revenues,
expenses, assets, liabilities and other related disclosures. Actual results may
or may not differ from these estimates. These key accounting policies include
revenue recognition, income taxes, insurance, stock options, and valuation of
long-lived assets.
Portfolio Assets:
Portfolio assets are defined as assets that 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.
|X| 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 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 capitalized and
included in the cost basis of the individual loans involved.
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. As of March 31, 2006, the Company
determined that an allowance for impairment of $202,690 was required.
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.
|X| Real Estate Portfolios. Real estate portfolios consist of real estate
acquired by foreclosures or Deed-in-Lieu of Foreclosures of individual
mortgage notes receivable or acquisition of the real estate. 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 capitalized.
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 on real estate portfolios
was required at March 31, 2006 and December 31, 2005.
Revenue Recognition:
The Company recognizes revenue from real estate and mortgage product sales when
title and risk passes to the buyer and when the conditions to the sales contract
are satisfied. Provisions for certain sales incentives, trade promotions and
discounts to customers are accounted for as reductions in determining sales in
the same period the related sales are recorded.
Long-Lived and Intangible Assets:
The Company assesses changes in economic conditions and makes assumptions
regarding estimated future cash flows in evaluating the value of the Company's
inventory of notes, real estate, fixed assets, goodwill and other non-current
assets. As these assumptions and estimates may change over time, it may or may
not be necessary for the Company to record impairment charges. Under Generally
Accepted Accounting Principles, our portfolio asset value on our balance sheet
is recorded based on actual acquisition costs, not the face value of the unpaid
principle of the notes receivable or value of the underlying real estate. If
assets are deemed impaired, those assets will be discounted to the net
realizable value. This conservative approach does make it a little harder for
someone to see the underlying asset value.
Insurance:
The Company carries directors and officers insurance in addition to standard
liability and casualty insurance for the Company and its offices. Property
hazard insurance on other Real Estate is carried on properties that the Company
deems significant, and is not carried on certain low value properties.
Stock Options:
Currently the Company does not have an employee stock option plan. The Company
is always exploring ways to reward and retain key personnel. Stock, stock
options, and stock warrants are possible alternatives that we may consider in
the future.
Employee Benefit Plans:
The Company has no retirement or pension plans at this time. Benefits include
health insurance, sick pay, and paid vacation as outlined in the Company
Employee's Manual.
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, March 31, 2006, 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.
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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 and 8-K/A during the quarter covered by this report.
Item 3. Defaults Upon Senior Securities
As of the March 31, 2006 the Company had a total of five promissory notes which
are past due. These notes include various interest rates and various maturity
dates ranging from January 31, 2006 through March 31, 2006. Cumulatively, these
notes represent $565,200 in principal. There is no additional past due interest
as all interest has been paid current on either a monthly or quarterly basis per
the terms of the notes. All notes are secured for the full principal amount with
portfolio assets of the Company consisting of mortgage notes and real estate
owned by the Company which is currently for sale as a part of its normal and
customary ongoing operations. The Company is currently in active dialogue with
all holders of past due notes and anticipates that it will be able to
voluntarily extend the maturities of the vast majority of these past due notes.
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.
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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.
May 19, 2006 MORTGAGE ASSISTANCE
CENTER CORPORATION
/s/ Dale Hensel
--------------------------
By: Dale Hensel
Title: President, CEO
/s/ Dale Hensel
--------------------------
By: Dale Hensel
Title: CFO
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