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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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|X| QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2005
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 000-27277
ACS HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Nevada 88-0503197
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7658 Municipal Dr. Orlando, Florida 32819
(Address of principal executive offices)
Registrant's telephone number, including area code: (407) 226-6866
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Class Outstanding at March 31, 2005
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Common Stock, $.001 par value 1,099,688,000
TABLE OF CONTENTS
Item 1. Business 1
Item 2. Properties 11
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Market for Registrant's Common Equity and Related
Stockholders Matters 11
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of Financial
Condition and Result of Operations. 13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 17
Item 8. Financial Statements and Supplementary Data F-1
ITEM 9. Control & Procedures 18
Item 10. Exhibits and Reports On Form 10-Q 19
Signatures 20
ITEM 1. BUSINESS
Overview
On August 3, 2004 the Company shareholders approved the proposal to allow the
Company to adopt business development company ("BDC") status under the
Investment Company Act of 1940 ("1940 Act"). A BDC is a specialized type of
Investment Company under the 1940 Act. A BDC may primarily be engaged in the
business of furnishing capital and managerial expertise to companies that do not
have ready access to capital through conventional financial channels; such
companies are termed "eligible portfolio companies". The Company as a BDC, may
invest in other securities, however such investments may not exceed 30% of the
Company's total asset value at the time of such investment. The Company filed
its BDC election with the SEC (Form N-54A) on August 3, 2004.
ACS Holdings, Inc. ("ACSH"), formally Maxxzone.com, Inc., is a publicly traded
Nevada corporation formed in April 2002, with its principal offices and
operations center in Orlando, FL. ACSH has an investment in and presently owns
all (100%) of the outstanding stock in American Card Services, Inc.
On November 15, 2004, the Chief Executive Officer, Walter H. Roder, II, tendered
his resignation to the Board of Directors. The resignation was accepted by the
Board of Directors on November 16, 2004. Mr. Roder, while he remains a
significant shareholder, elected to relinquish day-to-day management to the
current management of the stored-value debit card business. He has also elected
to step down from the board so that new independent directors could be appointed
consistent with the requirements and process of the Company's election to be
governed as a business development company.
On February 28, 2005 the Company restructured $1,818,101 of notes with creditors
of both the Company and American Card Services, Inc. by entering into a
Settlement and Release Agreement whereby the creditor's notes would be converted
into preferred equity. Terms of the agreement call for the issuance of preferred
shares and warrants and revenue sharing of 25% of the net revenue of the
Company.
ACSH intends to provide equity and long-term debt financing to small and
medium-sized private companies in a variety of industries throughout the United
States. The Company investment objective is to achieve long-term capital
appreciation in the value of its investments and to provide current income
primarily from interest, dividends and fees paid by the Company's portfolio
companies.
Portfolio Investments
The Company has investments in one controlled (portfolio) Company as of March
31, 2005.
1. American Card Services, Inc.
American Card Services, Inc. ("ACS") is a Delaware corporation which prior to
November, 2004 sought to capture a large portion of the rapidly emerging
stored-value debit card market that provides unbanked ethnic customers with a
viable alternative to cash and traditional money transfers. ACS has since
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changed its direction and is seeking out investments in financial services and
real estate entities. The Company currently owns 100% of the stock of American
Card Services, Inc.
American Card Services, Inc. owns 100% of ACS Transaction Processing, Inc. a
Delaware Corporation incorporated in August, 2003. ACS Transaction Processing
had no business activity through March 31, 2005.
American Card Services, Inc. owns 100% of ACS Sales, Inc. a Delaware Corporation
incorporated in August, 2003. ACS Sales, Inc. had no business activity through
March 31, 2005.
Valuation of Investments
The most significant estimate inherent in the preparation of the Company's
financial statements is the valuation of its investment and the related
unrealized appreciation or depreciation.
Upon the Company's conversion to a business development company, the Board of
Directors determined the value of its portfolio companies and investments at
fair market value under a good faith standard.
Investments in Private Companies
The Company intends to provide privately negotiated long-term debt and equity
investment capital. The Company will provide capital in the form of debt with or
without equity features, such as warrants or options, often referred to as
mezzanine financing. In certain situations the Company may choose to take a
controlling equity position in a company. The Company's private financing will
be used to fund growth, buyouts, and acquisitions and bridge financing.
As of March 31, 2005 the Company's portfolio consisted 100% of equity
securities.
The Company intends to fund new investments using cash through the issuance of
common stock. The Company intends to reinvest accrued interest, dividends and
management fees into its various investments. When the Company acquires a
controlling interest in a company, the Company may have the opportunity to
acquire the company's equity with its common stock. The issuance of its stock as
consideration may provide the Company with the benefit of raising equity without
having to access the public markets in an underwritten offering, including the
added benefit of the elimination of any underwriting commission.
As a business development company, the Company is required to provide
significant managerial assistance available to the companies in its investment
portfolio. In addition to the interest and dividends received from the Company's
private finance investments, the Company will often generate additional fee
income for the structuring, due diligence, transaction and management services
and guarantees we provide to its portfolio companies.
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Governmental Regulation
Business Development Company
A business development company is defined and regulated by the 1940 Act.
Although the 1940 Act exempts a business development company from registration
under the Act, it contains significant limitations on the operations of a
business development company.
A business development company must be organized in the United States for the
purpose of investing in or lending to primarily private companies and making
managerial assistance available to them. A business development company may use
capital provided by public shareholders and from other sources to invest in
long-term, private investments in businesses. A business development company
provides shareholders the ability to retain the liquidity of a publicly traded
stock, while sharing in the possible benefits, if any, of investing in primarily
privately owned companies. To qualify as a business development company, a
company must:
o Have registered a class of its equity securities or have filed a
registration statement with the Securities and Exchange Commission
pursuant to Section 12 of the Securities and Exchange Act of 1934
o Operate for the purpose of investing in securities of certain types
of portfolio companies, namely emerging companies and businesses
suffering or just recovering from financial distress
o Extend significant managerial assistance to such portfolio companies
and
o Have a majority of "disinterested" directors (as defined in the 1940
Act).
Generally, a business development company must be primarily engaged in the
business of furnishing capital and providing managerial expertise to companies
that do not have ready access to capital through conventional financial
channels. An eligible portfolio company is generally a domestic company that is
not an investment company (other than a small business investment company wholly
owned by a business development company), and that:
o Does not have a class of securities registered on an exchange or
included in the Federal Reserve Board's over-the-counter margin
list; or
o Is actively controlled by a business development company and has an
affiliate of a business development company on its board of
directors; or
o Meets such other criteria as may be established by the Securities
and Exchange Commission
Control under the 1940 Act is presumed to exist where a business development
Company beneficially owns more than 25% of the outstanding voting securities of
the portfolio company.
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The 1940 Act prohibits or restricts companies subject to the 1940 Act from
investing in certain types of companies such as brokerage firms, insurance
companies, investment banking firms and investment companies.
As a business development company, the Company may not acquire any asset other
than "qualifying assets" unless, at the time the Company makes the acquisition,
the value of its qualifying assets represent at least 70% of the value of its
total assets. The principal categories of qualifying assets relevant to our
business are:
o Securities purchased in transactions not involving any public
offering, the issuer of which is an eligible portfolio company;
o Securities received in exchange for or distributed with respect to
securities described in the bullet above or pursuant to the exercise
of options, warrants or rights relating to such securities; and
o Securities of bankrupt or insolvent companies that were eligible at
the time of the business development company's initial acquisition
of their securities but are no longer eligible, provided that the
business development company has maintained a substantial portion of
its initial investment in those companies.
o Cash, cash items, government securities or high quality debt
securities (within the meaning of the 1940 Act), maturing in one
year or less from the time of investment
A business development company is permitted to invest in the securities of
public companies and other investments that are not qualifying assets, but those
kinds of investments may not exceed 30% of the business development companies'
total asset value at the time of the investment.
As a business development company, the Company is entitled to issue senior
securities in the form of stock or senior securities representing indebtedness,
including debt securities and preferred stock, as long as each class of senior
security has asset coverage of at least 200% immediately after each such
issuance.
The Company is also prohibited under the 1940 Act from knowingly participating
in certain transactions with its affiliates without the prior approval of its
board of directors who are not interested persons and, in some cases, prior
approval by the Securities and Exchange Commission.
A business development company must make significant managerial assistance
available to the issuers of eligible portfolio securities in which it invests.
Making available significant managerial assistance means among other things, any
arrangement whereby the business development company, through its directors,
officers or employees, offers to provide and, if accepted does provide,
significant guidance and counsel concerning the management, operation or
business objectives and policies of a portfolio company.
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The Company may be periodically examined by the Securities and Exchange
Commission for compliance with the 1940 Act. As of the date of this filing the
Company has inquires from the Commission and has answered such inquiries
received.
As with other companies regulated by the 1940 Act, a business development
company must adhere to certain substantive regulatory requirements. A majority
of its directors must be persons who are not interested persons, as that term is
defined in the 1940 Act. Additionally, the Company is required to provide and
maintain a bond issued by a reputable fidelity insurance company to protect us
against larceny and embezzlement.
Furthermore, as a business development company, the Company is prohibited from
protecting any director or officer against any liability to the Company or our
shareholders arising from willful malfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such person's
office.
The Company maintains a Code of Ethics that establishes procedures for personal
investment and restricts certain transactions by its personnel. The Company's
Code of Ethics generally does not permit investment by its employees in
securities that may be purchased or held by the Company.
The Company may not change the nature of its business so as to cease to be, or
withdraw our election as, a business development company unless authorized by
vote of a "majority of the outstanding voting securities," as defined in the
1940 Act, of its shares. A majority of the outstanding voting securities of a
company is defined under the 1940 Act as the lesser of: (i) 67% or more of such
company's shares present at a meeting if more than 50% of the outstanding shares
of such company are present and represented by proxy or (ii) more than 50% of
the outstanding shares of such company. Since the Company elected to become a
business development company election, it has not made any substantial change in
the nature of its business.
Regulated Investment Company
The Company has not elected to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986.
Compliance with the Sarbanes-Oxley Act of 2002 and NYSE Corporate Governance
Regulations.
On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002
(the "Sarbanes-Oxley Act"). The Sarbanes-Oxley Act imposes a wide variety of new
regulatory requirements on publicly held companies and their insiders. Many of
these requirements will affect us. For example:
o The Company's chief executive officer and chief financial officer
must now certify the accuracy of the financial statements contained
in our periodic reports;
o The Company's periodic reports must disclose conclusions about the
effectiveness of its disclosure controls and procedures;
o The Company's periodic reports must disclose whether there were
significant changes in its internal controls or in other factors
that could significantly affect these controls subsequent to the
date of their evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses; and
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o The Company may not make any loan to any director or executive
officer and may not materially modify any existing loans.
The Sarbanes-Oxley Act has required the Company to review its current policies
and procedures to determine whether it complies with the Sarbanes-Oxley Act and
the new regulations promulgated thereunder. The Company will continue to monitor
its compliance with all future regulations that are adopted under the
Sarbanes-Oxley Act and will take actions necessary to ensure that we are in
compliance.
Employees
As of March 31, 2005 the Company had no employees.
Risk Factors and Other Considerations
Investing in the Company's common stock involves a high degree of risk. Careful
consideration should be given to the risks described below and all other
information contained in this Quarterly Report, including our financial
statements and the related notes and the schedules as exhibits to this Quarterly
Report.
Limited Operating History as a Business Development Company Which May Impair
Your Ability to Assess Our Prospects.
Prior to August 2004 the Company had not operated as a business development
company under the Investment Company Act of 1940. As a result the Company has
limited operating results under this regulatory framework that can demonstrate
either its effect on our business or management's ability to manage the Company
under these frameworks. In addition, the Company's management has no prior
experience managing a business development company. The Company cannot assure
that management will be able to operate successfully as a business development
company.
Because there is generally no established market for which to value its
investments, the Company's board of directors' determination of the value of our
investments may differ materially from the values that a ready market or third
party would attribute to these investments.
Under the 1940 Act the Company is required to carry its portfolio investments at
market value, or, if there is no readily available market value, at fair value
as determined by the board. The Company is not permitted to maintain a general
reserve for anticipated loan losses. Instead, the Company is required by the
1940 Act to specifically value each individual investment and to record any
unrealized depreciation for any asset that has decreased in value. Because,
there is typically no public market for the loans and equity securities of the
companies in which it invests, the Company's board will determine the fair value
of these loans and equity securities pursuant to its valuation policy. These
determinations of fair value may necessarily be somewhat subjective.
Accordingly, these values may differ materially from the values that would be
determined by a party or placed on the portfolio if there existed a market for
our loans and equity securities.
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Investing in Private Companies Involves a High Degree of Risk.
The Company's portfolio consists of primarily investments in private companies.
Investments in private businesses involve a high degree of business and
financial risk, which can result in substantial losses and accordingly should be
considered speculative. There is generally no publicly available information
about the companies in which the Company invests, and the Company relies
significantly on the due diligence of its employees and agents to obtain
information in connection with its investment decisions. If the Company is
unable to uncover all material information about these companies, it may not
make a fully informed investment decision and the Company may lose money on its
investments.
In addition, some smaller businesses have narrower product lines and market
shares that their competition, and may be more vulnerable to customer
preferences, market conditions or economic downturns, which may adversely affect
the return on, or the recover of, the Company's investment in such business.
The Lack of Liquidity of the Company's Privately Held Investments may Adversely
Affect Our Business.
Substantially all of the investments the Company expects to acquire in the
future will be, subject to restrictions on resale, including in some instances,
legal restrictions, or will otherwise be less liquid than publicly traded
securities. The illiquidity of our investments may make it difficult for us to
quickly obtain cash equal to the value at which we record our investments if the
need arises. This could cause us to miss important business opportunities. In
addition, if we are required to quickly liquidate all or a portion of our
portfolio, we may realize significantly less than the value at which we have
previously recorded our investments.
If the Industry Sectors in which the Company's Portfolio is Concentrated
Experience Adverse Economic or Business Conditions, Our Operating Results may be
Negatively Impacted.
The Company's customer base will be in diversified industries. These customers
can experience adverse business conditions or risks related to their industries.
Accordingly, if the Company's customers suffer due to these adverse business
conditions or risks or due to economic slowdowns or downturns in these industry
sectors the Company will be more vulnerable to losses in its portfolio and our
operating results may be negatively impacted.
Some of these companies may be unable to obtain financing from public capital
markets or from traditional credit sources, such as commercial banks.
Accordingly, advances made to these types of customers may entail a higher
degree of risk than advances made to customers who are able to utilize
traditional credit sources. These conditions may also make it difficult for us
to obtain repayment of our loans.
Economic downturns or recessions may impair the Company's customers' ability to
repay our loans and harm our operating result.
Many of the companies in which the Company will make investments may be
susceptible to economic slowdowns or recessions. An economic slowdown may affect
the ability of a company to engage in a liquidity event. The Company's
non-performing assets are likely to increase and the value of its portfolio is
-7-
likely to decrease during these periods. These conditions could lead to
financial losses in its portfolio and a decrease in its revenues, net income and
assets.
The Company's business of making private equity investments and positioning them
for liquidity events also may be affected by current and future market
conditions. The absence of an active senior leading environment may slow the
amount of private equity investment activity generally. As a result, the pace of
the Company's investment activity may slow. In addition, significant changes in
the capital markets could have an effect on the valuations of private companies
and on the potential for liquidity events involving such companies. This could
affect the amount and timing of gains realized on its investments.
The Company's Borrowers May Default on Their Payments, Which May Have an Effect
on Financial Performance.
Some of these companies may be unable to obtain financing from public capital
markets or from traditional credit sources, such as commercial banks.
Accordingly, advances made to these types of customers may entail a higher
degree of risk than advances made to customers who are able to utilize
traditional credit sources. These conditions may also make it difficult for the
Company to obtain repayment of its loans. Numerous factors may affect a
borrower's ability to repay its loan; including the failure to meet is business
plan, a downturn in its industry, or negative economic conditions. Deterioration
in a borrower's financial condition and prospects may be accompanied by
determination in any related collateral.
If the Company Fails to Manage Its Growth, its Financial Results Could be
Adversely Affected.
The Company's growth may place a significant strain on its management systems
and resources. The Company must continue to refine and expand its marketing
capabilities, its management of the investing process, access to financing
resources and technology. As the Company grows, it must continue to hire, train,
supervise and manage new employees. The Company may not develop sufficient
lending and administrative personnel and management and operating systems to
manage its expansion effectively. Failure to manage the Company's future growth
could have a material adverse effect on the Company's business, financial
condition and results of operation.
The Company's Private Finance Investments May Not Produce Current Returns or
Capital Gains.
The Company's private finance investments will be structured as debt securities
with a relatively high fixed rate or interest and with equity features such as
conversion rights, warrants or other options. As a result, the Company's private
finance investments will be structured to generate interest income from the time
they are made and may also produce a realized gain from an accompanying equity
feature. The Company cannot be sure that its portfolio will generate a current
return or capital gain.
The Company Operates in a Competitive Market for Investment Opportunities
The Company competes for investments with a large number of private equity funds
and mezzanine funds, investment banks and other equity and non-equity based
investment funds, and other sources of financing, including traditional
financial services companies such as commercial banks. Some of its competitors
have greater resources than the Company. Increased competition would make it
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more difficult for the Company to purchase or originate investments at
attractive prices. The Company cannot assure you that the competitive pressures
we face will not have a material adverse effect on our business, financial
condition and results of operations. As a result of this competition, sometimes
the Company may be precluded from making otherwise attractive investments.
Investing in the Company's Stock Is Highly Speculative and an Investor Could
Lose Some or All of the Amount Invested
The value of the Company's common stock may decline and may be affected by
numerous market conditions, which could result in the loss of some or the entire
amount invested in its shares. The securities markets frequently experience
extreme price and volume fluctuations, which affect market prices for securities
of companies generally, and very small capitalization companies in particular.
The price of its common stock may be higher or lower than the price you pay for
your shares, depending on many factors, some of which are beyond are control and
may not be directly related to our operating performance. These factors include
the following:
o Price and volume fluctuations in the overall stock market from time
to time; which are often unrelated to the operating performance of
particular companies;
o Significant volatility in the market price and trading volume of
securities of business development companies or other financial
service companies; which is not necessarily related to the operating
performance of these companies;
o Changes in the regulatory policies or tax guidance with respect to
business development companies;
o Actual or anticipated changes in our earnings or fluctuations in our
operating results or changes in the experience of securities
analysts;
o Loss of BDC status
o Changes in the value of our portfolio of investments
o Operating performance of companies comparable to us;
Fluctuations in the trading prices of our shares may adversely affect the
liquidity of the trading market of our shares and, if we seek to raise capital
through future equity financings, our ability to raise such equity capital.
The Company's Business Depends on Key Personnel
The Company depends on the continued service of its executive officers and other
key management personnel. If the Company were to lose any of these officers or
other management personnel, such a loss could result in inefficiencies in the
Company's operations and the loss of business opportunities. The Company does
not maintain any key man life insurance on any of its officers or employees.
The Company's Business Plan is dependent upon External Financing which may
Expose the Company to Risks Associated with Leverage
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The Company will require a substantial amount of cash to operate and grow. The
Company may acquire additional capital from the following sources:
Senior Securities. The Company intends to issue debt securities, other evidences
and preferred stock, up to the maximum amount permitted by the 1940 Act. The
1940 Act currently permits us, as a business development company, to issue debt
securities and preferred stock, to which we refer collectively as senior
securities, in amounts such that our asset coverage, as defined in the 1940 Act,
is at least 200% after each issuance of senior securities. As a result of
issuing senior securities, we will be exposed to the risks associated with
leverage. Although borrowing money for investments increases the potential for
gain, it also increases the risk of a loss. A decrease in the value of our
investments will have a greater impact on the value of our common stock to the
extent that we have borrowed money to make investments. There is a possibility
that the costs of borrowing could exceed the income we receive on the
investments we make with such borrowed funds. In addition, our ability to pay
dividends or incur additional indebtedness would be restricted if asset coverage
is not at least twice our indebtedness. If the value of our assets declines, we
might be unable to satisfy that test. If this happens, we may be required to
liquidate a portion of our loan portfolio and repay a portion of our
indebtedness at a time when a sale may be disadvantageous. Furthermore, any
amounts that we use to service our indebtedness will not be available for
distributions to our stockholders.
Common Stock. Because the Company is limited in its ability to issue debt for
the reasons given above, the Company is dependent on the issuance of equity as a
financing source. If the Company raises additional funds by issuing more common
stock or debt securities convertible into or exchangeable for our common stock,
the percentage ownership of our stockholders at the time of the issuance would
decrease and they may experience dilution. In addition, any convertible or
exchangeable securities that we issue in the future may have rights, preferences
and privileges more favorable than those of our common stock.
Securitization. In addition to issuing securities to raise capital as described
above, the Company anticipates that in the future it will securitize loans to
generate cash for funding new investments. An inability to successfully
securitize the Company's loan portfolio could limit our ability to grow our
business, fully execute our business strategy and impact our profitability.
Moreover, successful securitization of our loan portfolio might expose us to
losses as the loans in which we do not plan to sell interests will be those that
are riskier and more apt to generate losses.
Shares of Closed-End Investment Companies Frequently Trade at a Discount from
Net Asset Value.
Shares of closed-end investment companies frequently trade at a discount from
net asset value. This characteristic of shares of closed-end investment
companies is separate and distinct from the risk that the Company's net asset
value per share will decline.
Changes in the Law or Regulations That Govern the Company Could Have a Material
Impact on its Operations
The Company is regulated by the Securities and Exchange Commission. In addition,
changes in the laws or regulations that govern business development companies
may significantly affect its business. Any changes in the law or regulations
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that govern its business could have a material impact on operations. The Company
is subject to federal, state and local laws and regulations and is subject to
judicial and administrative decisions that affect its operations. If these laws,
regulations or decisions change, or if the Company expands its business into
jurisdictions that have adopted more stringent requirements than those in which
it currently conduct business, the Company may incur significant expenses in
order to comply or might restrict operations.
ITEM 2. PROPERTIES
The Company's principal offices are located at 7658 Municipal Drive, Orlando,
Florida. The office is equipped with an integrated network of computers for word
processing, financial analysis, accounting and loan services. The Company
believes its office space is suitable for its needs for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
The Company has been named as a defendant in a case involving breach of contract
and one or more collection cases. Management's position is that each case can be
contested on its merits; no claim involves a potential exposure of more than
$50,000.
The Company filed on March 22, 2005, a civil suit in Orange County District
Court, Orlando Florida against the former CEO of the Company, Walter Roder. The
litigation alleges among other causes of action, various breaches of fiduciary
and statutory duties. The Company intends to vigorously pursue its remedies
against Mr. Roder.
All other matters involving pending or prospective litigation have been
dismissed or resolved.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
ACS Holdings, Inc. common stock, par value, $.001 per share ("Common Stock") is
traded on the Over the Counter NADAQ Electronic Bulletin Board ("OTC") under the
symbol "ACSJ.OB" The following table sets forth, for the period indicated, the
range of high and low closing prices reported by the OTC. Such quotations
represent prices between dealers and may not include markups, markdowns, or
commissions and may not necessarily represent actual transactions.
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HIGH LOW
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2005 Quarter Ended
- ------------------------------------------------ --------------- -----------
March 31st .0034 .0003
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- ------------------------------------------------ --------------- -----------
2004 Quarter Ended
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March 31st 2.36 .32
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June 30th 1.60 .10
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September 30th .108 .0025
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December 31st .006 .0003
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2003 Quarter Ended
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September 30th 1.60 .52
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December 31st 2.00 .44
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As of March 31, 2005 the authorized capital of the company is 2,400,000,000
shares of common voting stock par value $.001 per share. The Company also has
authorized and issued 600,000,000 shares of preferred shares with a par value of
$.001 per share.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data should be read in conjunction with the Company's
"Management's Discussion and Analysis of Financial Condition and Result of
Operations" and the Financial Statements and notes thereto. As discussed in Note
A to the Financial Statements, the Company converted to a Business Development
Company effective August 3, 2004. The financial statements are divided into two
periods, the "Post Conversion as a Business Development Company period" and
"Pre-Conversion prior to becoming a Business Development Company" period.
Different accounting principles are used in the preparation of financial
statements of a business development company under the Investment Company Act of
1940 and, as a result, the financial results for periods prior to August 1, 2004
are not comparable to the period commencing on August 1, 2004 and are not
expected to be representative of its financial results in the future.
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Quarter Ended Year Ended
March 31, 2005 December 31, 2004
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Total Assets 12,091 3,413
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Total Liabilities 433,824 576,697
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Total Stockholders (Deficit) (421,733) (573,284)
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Revenue 0 29,777
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Net Unrealized Depreciation (1,378,234) (896,708)
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Operating (Loss) (471,715) (2,537,388)
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT
OF OPERATIONS.
The following information should be read in conjunction with our financial
statements and notes thereto appearing elsewhere in this Form 10-Q.
Forward Looking Statements
This Form 10-Q including the Management's Discussion and Analysis of Financial
Condition and Results of Operation contains forward-looking statements that
involve substantial risk and uncertainties. These forward-looking statements are
not historical facts but rather are based on current expectations, estimates and
projections about the Company's industry, beliefs, and assumptions. Such
forward-looking statements involve risks and uncertainties that could cause
risks or outcomes to differ materially from those expressed in the
forward-looking statements. Forward-looking statements may include without
limitation statements relating to the Company's plans, strategies, objectives,
expectations and intentions and are intended to be made pursuant to the Safe
Harbor provisions of the Private Securities Litigation Reform Act of 1995. Words
such as "anticipates", "expects", "intends", "plans", "believes", "seeks", and
"estimates" and variations of these words and similar expressions are intended
to identify forward-looking statements. These statements are not guarantees of
future performance and are subject to certain risks, uncertainties, and other
factors, some of which are beyond our control and difficult to predict and could
cause actual results to differ materially from those expressed or forecasted in
the forward-looking statements including without limitation:
o The state of securities markets in which the securities of the
Company's portfolio company trade or could be traded.
o Liquidity within the national financial markets.
o Economic downturns or recessions may impair the Company's customers'
ability to repay our loans and increase our non-performing assets.
o A contraction of available credit and/or inability to access the
equity markets could impair our lending and investment activities.
o The risks associated with the possible disruption in the Company's
operations due to terrorism and,
o The risks and uncertainties described under the caption "Risk
Factors and Other Considerations" contained in Part I, Item I, which
is incorporated herein by reference.
Although the assumptions on which these forward looking statements are based are
reasonable, any of those assumptions also could be incorrect. In light of these
and other uncertainties, the inclusion of a projection or forward-looking
statements in this Quarterly Report should be regarded as a representation of
the Company that its plans and objectives will be achieved. Undue reliance
should not be placed on these forward-looking statements, which apply only as of
the date of this Quarterly Report.
-13-
Overview
ACS Holdings, Inc. is a financial service company providing financing and
advisory services to small and medium-sized companies throughout the United
States. Effective August 3, 2004 the Company shareholders approved the proposal
to allow the Company to convert to a business development company ("BDC") under
the Investment Company Act of 1940 ("1940 Act").
ACS Holdings, Inc. intends to make long-term debt and equity investments in
cash-flow positive companies with perceived growth potential primarily in the
technology sectors. The Investment Committee has adopted a charter wherein these
two criteria are weighed against other criteria including strategic fit,
investment amount, management ability, etc. In principle, the Company will
prefer to make investments in companies where it can acquire at least a 51%
ownership interest in the outstanding capital of the portfolio company.
Investment opportunities will be identified for the Company by the management
team. Investment proposals may, however, come to the Company from many sources,
and may include unsolicited proposals from the public and from referrals from
banks, lawyers, accountants and other members of the financial community. The
management team brings an extensive network of investment referral
relationships.
Critical Accounting Policies and Estimates
The Company prepared its financial statements in accordance with accounting
principles generally accepted in the United States of America for investment
companies. For a summary of all of its significant accounting policies,
including the critical accounting policies, see Note A to the financial
statements in Item 8.
The increasing complexity of the business environment and applicable
authoritative accounting guidance requires the Company to closely monitor its
accounting policies. The Company has identified three critical accounting
policies that require significant judgment. The following summary of the
Company's critical accounting policies is intended to enhance your ability to
assess its financial condition and results of operation and the potential
volatility due to changes in estimates.
Valuation of Investments
At March 31, 2005 0% of the Company's total assets represented investments
recorded at fair value. Value as defined in Section 2(a)(41) of the 1940 Act, is
(i) the market price for those securities for which a market quotation is
readily available and (ii) for all other securities and assets, fair value is
determined in good faith by the board of directors. Since there is typically no
readily ascertainable market value for the investments in its portfolio, the
Company values substantially all of its investments at fair value as determined
in good faith by the board of directors pursuant to a valuation policy and
consistent valuation process. Because of the inherent uncertainty in determining
the fair value of investments that do not have a readily ascertainable market
value, the fair value of its investments determined in good faith by the board
of directors may differ significantly from the values that would have been used
had a ready market existed for the investments, and the differences could be
material.
-14-
Initially, the fair value of each such portfolio investment is based upon
original cost. There is no single standard for determining fair value in good
faith. As a result, determining fair value requires the judgment be applied to
the specific facts and circumstances of each portfolio investment. The Board of
Directors considers fair value to be the amount which the Company may reasonable
expect to receive for portfolio securities when sold on the valuation date. The
Company analyzes and values each individual investment on a quarterly basis, and
records unrealized depreciation for an investment that it believes has become
impaired, including where collection of a loan or realization of an equity
security is doubtful. Conversely, the Company will record unrealized
appreciation if it believes that the underlying portfolio company has
appreciated in value and, therefore, the Company's equity security has also
appreciated in value. Without a readily ascertainable market value and because
of the inherent uncertainty of valuation the fair value of the Company's
investments determined in good faith by the Board of Directors may differ
significantly from the values that would have been used had a ready market
existed for the investments, and the favorable or unfavorable differences could
be material.
In the valuation process, the Company uses financial information received
monthly, quarterly, and yearly from the portfolio companies, which include both
audited, and unaudited financial information supplied by portfolio companies
management. This information is used to determine financial condition,
performance and valuation of the portfolio investments. Valuation should be
reduced if a company's performance and potential have significantly
deteriorated. If the factors, which led to the reduction in valuation, are
overcome, the valuation may be restated.
Another key factor used in valuation the equity investments is recent
arms-length equity transactions entered into by the investment company that the
Company utilizes to form a basis for its underlying value. Many times the terms
of these equity transactions may not be identical to those of the Company and
the impact on these variations as it relates to market value may be impossible
to quantify.
Any changes in estimated fair value are recorded in our statements of operations
as "Net increase (decrease) in unrealized (deprecation) appreciation."
Valuation of Equity Securities
With respect to private equity securities, each investment is valued using
industry valuation benchmarks and then the value is assigned a discount
reflecting the illiquid nature of the investment, as well as the Company's
minority non-control positions. When an external event such as a purchase
transaction, public offering, or subsequent equity sale occurs, the pricing
indicated by the external event will be used to corroborate the Company's
private equity valuation. Securities that are traded in the over-the-counter
market or on a stock exchange will generally be valued at the prevailing bid
price on the valuation date. However, restricted and unrestricted publicly
traded securities may be valued at discounts from the public market value due to
restrictions on sale, the size of its investment or market liquidity concerns.
-15-
Valuation of Loans and Debt Securities
As a general rule, the Company does not value its loans or debt securities above
cost, but loans and debt securities will be subject to fair value write-down
when the asset is considered impaired.
Financial Condition
The Company's total assets increased by $8,678 to $12,091 from the prior year.
The increase in total assets can be attributed to an increase in the Company's
cash position and the Company no longer reporting on a consolidated basis.
The Company's financial condition is dependent on the success of its portfolio
holdings. Many of the businesses the Company intends to invest in tend to be
thinly capitalized and may lack experienced management. The following summaries
the Company's investment portfolio as of March 31, 2005, the Company's third
quarter as a business development corporation
March 31, 2005
--------------
Investment at Cost $2,277,192
Unrealized (depreciation) appreciation, net (2,277,192)
-----------
Investment at fair value $ 0
===========
During the first quarter of 2005, the Company valued its equity and investment
holdings in accordance with the established valuation policies (see "Valuation
of Investments and Equity Holdings") above.
The cash and cash equivalents approximated 35.49% of net assets of the Company
as of March 31, 2005.
Results of Operations
The results of operations for the quarter ended March 31, 2005 reflect our
results as a business development company under the Investment Company Act of
1940. The results of operations prior to August 1, 2004 reflect our results of
operations prior to operating as a business development company under the
Investment Company Act of 1940. The principal differences between these two
reporting period relate to accounting for investments. See Note A to our
Financial Statements. In addition, certain prior year items have been
reclassified to conform to the current year presentation as a business
development company.
Dividends and Interest
Dividends and interest income on investments for the quarter ended March 31,
2005 was $0.
-16-
Management Fees
Management fees for the three months ended March 31, 2005 and year ended
March 31, 2004 were $0 and $0 respectively.
Operating Expenses
Total operating expenses for the quarter ended March 31, 2005 and 2004 was
$471,715 and $369,924 respectfully. A significant component of total operating
expenses was professional fees of $469,938 for the three months ended March 31,
2005 and $78,704 for the three months ended March 31, 2004. The increase in
professional fees is primarily due to the Company engagement of KMA Capital
Partners, Ltd. A second component of total operating expenses is general and
administrative expenses of $2,077 for the three months ended March 31, 2005 and
$288,687 for the three months ended March 31, 2004. The decrease in general and
administrative expenses is primarily due to the Company no longer reporting on a
consolidated basis.
Liquidity and Capital Resources
At March 31, 2005 and December 31, 2004, the Company had $4,291 and $3,413
respectively in cash and cash equivalents. The Company's objective is to have
sufficient cash on hand to cover current funding requirements and operations.
The Company expects its cash on hand and cash generated from operations to be
adequate to meet our cash needs at our current level of operations, including
the next twelve months. The Company generally funds new originations using cash
on hand and equity financing and outside investments.
Private Portfolio Company Investments
The following is a list of the private companies in which the Company had an
investment in and the cost and fair market value of such securities at March 31,
2005:
Name of Company Cost FMV
--------------- ---- ---
American Card Services, Inc. $ 2,277,192 $ 0
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's investment activities contain elements of risk. The portion of the
Company's investment portfolio consisting of equity or equity-linked debt
securities in private companies is subject to valuation risk. Because there is
typically no public market for the equity and equity-linked debt securities in
which it invests, the valuation of the equity interest in the portfolio is
stated at "fair value" and determined in good faith by the Board of Directors on
a quarterly basis in accordance with the Company's investment valuation policy.
In the absence of a readily ascertainable market value, the estimated value of
the Company's portfolio may differ significantly from the value that would be
placed on the portfolio if a ready market for the investments existed. Any
changes in valuation are recorded in the Company's statement of operations as
"Net unrealized appreciation (depreciation) on investment".
At times a portion of the Company's portfolio may include marketable securities
traded in the over-the-counter market. In addition, there may be a portion of
the Company's portfolio for which no regular trading market exists. In order to
realize the full value of a security, the market must trade in an orderly
fashion or a willing purchaser must be available when a sale is to be made.
Should an economic or other event occur that would not allow the markets to
trade in an orderly fashion the Company may not be able to realize the fair
value of its marketable investments or other investments in a timely manner.
As of March 31, 2005, the Company did not have any off-balance sheet investments
or hedging investments.
Impact of Inflation
The Company does not believe that its business is materially affected by
inflation, other than the impact inflation may have on the securities markets,
the valuations of business enterprises and the relationship of such valuation to
underlying earnings all of which will influence the value of the Company's
investments.
-17-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ACS HOLDINGS, INC.
BALANCE SHEETS
DECEMBER 31, 2004 AND MARCH 31, 2005
ASSETS
12/31/2004 3/31/2005
----------- -----------
Cash $ 3,413 $ 4,291
Other current assets -- 7,800
----------- -----------
TOTAL ASSETS $ 3,413 $ 12,091
=========== ===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
LIABILITIES
Accounts payable and accrued expenses $ 69,866 $ 117,975
Accounts payable - Related parties -- 236,000
Notes payables 506,831 79,849
Deferred income tax -- --
----------- -----------
TOTAL LIABILITIES 576,697 433,824
----------- -----------
STOCKHOLDERS' (DEFICIT)
Convertible Preferred stock, $001 par value,
600,000,000 sharesauthorized, issued and outstanding -- --
Common stock, $.001 par value, 2,400,000,000 shares
1,099,688,000 issued and outstanding 529,688 1,099,688
Additional paid-in capital 1,413,365 2,257,716
Accumulated deficit (2,516,337) (4,370,387)
Stock Subscription Receivable -- (8,750)
----------- -----------
TOTAL STOCKHOLDERS' (DEFICIT) (573,284) (421,733)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 3,413 $ 12,091
=========== ===========
The accompanying notes are an integral part of these financial statements
F-1
ACS HOLDINGS, INC.
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2005
3/31/2004 3/31/2005
------------- -------------
REVENUES $ 26,376 $ --
COST OF SALES -- --
------------- -------------
GROSS PROFIT 26,376 --
------------- -------------
OPERATING EXPENSES
Depreciation and amortization 2,553 --
Professional fees 78,704 469,638
General and administrative 288,667 2,077
------------- -------------
369,924 471,715
------------- -------------
OPERATING LOSS (343,548) (471,715)
------------- -------------
UNREALIZED DEPRECIATION ON INVESTMENTS -- (1,378,234)
------------- -------------
OTHER INCOME (EXPENSE)
Interest Income 11 --
Interest Expense (71,140) (4,101)
Other -- --
------------- -------------
(71,129) (4,101)
------------- -------------
INCOME BEFORE INCOME TAX (414,677) (475,816)
INCOME TAX EXPENSE -- --
------------- -------------
NET LOSS (414,677) (1,854,050)
Deemed dividend on Preferred Stock -- 120,000
Net loss Available to Common stockholders (414,677) (1,974,050)
============= =============
NET LOSS PER SHARE BASIC AND FULLY DILUTED NIL NIL
============= =============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
BASIC AND FULLY DILUTED 72,954,560 871,187,858
============= =============
The accompanying notes are an integral part of these financial statements
F-2
ACS HOLDINGS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS (DEFICIT)
FOR THE THREE MONTHS YEARS ENDED MARCH 31, 2005
Preferred Stock Common Stock
-------------------------------- ------------------------------------
Shares Amount Shares Amount
--------------- ------------ ----------------- --------------
Balance at December 31, 2004 -- $ -- 529,687,869 $ 529,688
Stock issued for
services related to reorganization 300,000,000 300,000 375,000,000 375,000
Issuance of
preferred stock for convertible debt 300,000,000 300,000
Stock issued for convertible debt 195,000,000 195,000
Issuance of
stock warrants for convertible debt
Deemed dividend on preferred stock
Net loss -- -- -- --
--------------- ----------- ----------------- --------------
Balance at March 31, 2005 600,000,000 $600,000 1,099,687,869 $ 1,099,688
=============== =========== ================= ==============
Additional Total
Paid in Accumulated Stockholders
Capital (Deficit) (Deficit)
--------------- --------------- ----------------
Balance at December 31, 2004 $1,413,365 ($2,516,337) $ (573,284)
Stock issued for
services related to reorganization (525,000) 150,000
Issuance of
preferred stock for convertible debt 1,057,069 1,172,541
Stock issued for convertible debt (148,750) 46,250
Issuance of
stock warrants for convertible debt 461,032 765,560
Beneficial Conversion
feature of Convertible
preferred stock for convertible debt 120,000 120,000
Deemed dividend on preferred stock (120,000) (120,000)
Stock Subscription Receivable (8,750) (8,750)
Net loss -- (1,854,050) (1,854,050)
--------------- --------------- ----------------
Balance at March 31, 2005 $2,248,966 ($4,370,387) $ (421,733)
=============== =============== ================
The accompanying notes are an integral part of these financial statements
F-3
ACS HOLDINGS, INC.
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS YEARS ENDED MARCH 31, 2005
3/31/2004 3/31/2005
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ (414,677) $(1,854,050)
RECONCILIATION OF NET INCOME (LOSS) TO CASH FLOWS
(USED) IN PROVIDED BY OPERATING ACTIVITIES
Stock issued for services -- 150,000
Unrealized depreciation on investments -- 1,378,234
Depreciation and amortization 27,553 --
Increase in receivables (6,965) --
(Increase) decrease in prepaid expenses 607 (7,800)
Increase in unearned revenue (9,247) --
Increase in accounts payable and accrued expenses 122,168 290,156
----------- -----------
CASH FLOWS USED IN OPERATING ACTIVITIES (280,561) (43,460)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments -- (21,165)
----------- -----------
CASH FLOWS USED BY INVESTING ACTIVITIES -- (21,165)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable 230,000 65,503
Proceeds from borrowing from related parties 45,000 --
Payments on capital lease obligations (3,873) --
Officer advances (7,855) --
----------- -----------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES 263,272 65,503
----------- -----------
NET INCREASE (DECREASE) IN CASH (17,289) 878
CASH, BEGINNING OF THE PERIOD 37,903 3,413
----------- -----------
CASH, END OF THE PERIOD $ 20,614 $ 4,291
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest Paid $ 71,140 $ 0
Non-cash Investing Activities
Preferred stock issued to pay off debt $ 0 $ 461,032
Non-cash Financing Activities
Preferred stock issued to payoff debt of
portfolio company $ 0 $ 1,357,069
The accompanying notes are an integral part of these financial statements
F-4
ACS HOLDINGS, INC.
SCHEDULE OF INVESTMENTS
MARCH 31, 2005
Title of
Portfolio Securities Percentage of
Company Industry Held Class Held Cost Fair Value
- ---------------------------- ------------ ----------------- ------------- ------------ ------------
American Card Services, Inc. Financial Common 100% 2,277,192 --
Services Stock
----------- ------------
Total $ 2,277,192 $0
=========== ============
The accompanying notes are an integral part of these financial statements
F-5
ACS HOLDINGS, INC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2005
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Company Activities
ACS Holdings Inc. & Subsidiaries (the "Company" or "Holdings") was incorporated
in the state of Nevada in April, 2002.
On April 28, 2004 the Company (formerly maxxZone.com, Inc.) agreed to acquire
the assets, subject to certain liabilities of American Card Services, Inc (ACS)
for 3,570,000,000 shares of the Company, representing approximately 85% of the
Company's stock. In connection with this acquisition, the assets and liabilities
of maxxZone were transferred to Global Capital Trust, a St. Kitts and Nevis
Trust, and holder of 84,000,000 shares of company stock. The assets and
liabilities acquired from ACS and resulting operations have been put into ACS
Holdings, Inc., a wholly-owned subsidiary. The acquisition was completed on
May 12, 2004, after the Company increased authorized shares to a total
sufficient to effect the transaction.
Since the shareholders of American Card Services, Inc. will own a majority of
the Company's outstanding shares the business acquisition has been accounted for
as a reverse acquisition, with ACS being the accounting parent and Holdings
being the accounting subsidiary. The consolidated financial statements include
the operations of Holdings, the accounting subsidiary, from the date of
acquisition. Since the business acquisition was accounted for as a reverse
acquisition, the accompanying consolidated financial statements reflect the
historical financial statements of ACS, the accounting acquiror, and the
inclusion of assets and liabilities of the accounting subsidiary as of May 12,
2004 on their historical basis and the inclusion of the accounting subsidiary's
results of operations from that date through the date that the Company became a
Business Development Company (see below).
On August 3, 2004 the Company's shareholders consented to the proposal to allow
the Company to adopt business development company ("BDC") status under the
Investment Company Act of 1940 ("1940 Act"). A BDC is a specialized type of
Investment Company under the 1940 Act. A BDC may primarily be engaged in the
business of furnishing capital and managerial expertise to companies that do not
have ready access to capital through conventional financial channels; such
companies are termed "eligible portfolio companies". The Company as a BDC, may
invest in other securities, however such investments may not exceed 30% of the
Company's total asset value at the time of such investment. The Company filed
its BDC election with the SEC (Form N-54A) on August 3, 2004.
On November 15, 2004, the Chief Executive Officer, Walter H. Roder, II, tendered
his resignation to the Board of Directors. The resignation was accepted by the
Board of Directors on November 16, 2004. Mr. Roder, while he remains a
significant shareholder, elected to relinquish day-to-day management to the
current management of the stored-value debit card business. He has also elected
to step down from the board so that new independent directors could be appointed
consistent with the requirements and process of the Company's election to be
governed as a business development company.
On February 28, 2005 the Company restructured $1,818,101 of notes with creditors
of both the Company and American Card Services, Inc. by entering into a
F-6
ACS HOLDINGS, INC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2005
Settlement and Release Agreement whereby the creditor's notes would be converted
into preferred equity. Terms of the agreement call for the issuance of preferred
shares and warrants and revenue sharing of 25% of the net revenue of the
Company.
The Company plans to provide equity and long-term debt financing to small and
medium-sized private companies in a variety of industries throughout the United
States. The Company's investment object is to achieve long-term capital
appreciation in the value of its investments and to provide current income
primarily from interest, dividends and fees paid by its portfolio companies.
Basis of Presentation
The financial statements are divided into two periods, the "Post Conversion as a
Business Development Company period" and "Pre-Conversion prior to becoming a
Business Development Company" period. Different accounting principles are used
in the preparation of financial statements of a business development company
under the Investment Company Act of 1940 and, as a result, the financial results
for periods prior to August 1, 2004 are not comparable to the period commencing
on August 1, 2004 and are not expected to be representative of its financial
results in the future. By becoming a BDC, the Company has effected a change in
accounting principle and no longer consolidates its investments in portfolio
companies, as further described below.
The accompanying financial statements for the period prior to August 1, 2004
include the accounts of the Company and its wholly owned subsidiaries American
Card Services, Inc. and ACS Processing, Inc. American Card Services, Inc. is a
Delaware corporation which owns 100% of ACS Transaction Processing, Inc. a
Delaware Corporation and ACS Sales, Inc. a Delaware Corporation incorporated in
August, 2003. For the period subsequent to August 1, 2004 the company in
accordance with Article 6 of Regulation S-X under the Securities Act of 1933 and
Securities Act of 1934 does not consolidate portfolio company investments,
including those in which it has a controlling interest.
Going Concern
The accompanying financial statements assume the Company will continue as a
going concern. As shown in the accompanying financial statements, the Company
has incurred a net loss of $1,854,050 for the three months ended March 31, 2005
and a net loss of, $414,677 for the three months ended March 31, 2004. The
Company has limited income. The future of the Company is dependent upon its
ability to obtain financing and upon future profitable operations from the
development of its business. Management has plans to seek additional capital
through debt and/or equity financing. The financial statements do not include
any adjustments relating to the recoverability and classification of recorded
assets, or the amounts of and classification of liabilities that might be
necessary in the event the Company cannot continue its existence.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. These financial statements do not include any adjustments
that might arise from such uncertainty.
F-7
ACS HOLDINGS, INC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2005
Reclassification
Certain amounts in the prior years' financial statements have been reclassified
to conform to the current year presentation.
Income Recognition
The Company's recognizes revenue using the accrual method of accounting. The
accrual method provides for a better matching of revenues and expenses. ACS
revenues arose from two primary sources: card pack sales to distributors and
recurring fees. ACS recognized revenue on card pack sales upon shipment., and
transaction fee revenue was recognized when received.
The Company's policy is to accrue interest income on loans made to portfolio
companies. The Company accrues the interest on such loans until the portfolio
company has the necessary cash flow to repay such interest. If the Company's
analysis of the portfolio's company's performance indicates that the portfolio
company may not have the ability to pay the interest and principal on a loan,
the Company will make an allowance provision on that entity and in effect cease
recognizing interest income on that loan until all principal has been paid.
However, the Company will make exceptions to this policy if the investment is
well secured and in the process of collection.
For certain investment transactions the Company provides management services and
recognizes an agreed upon fixed monthly fee and expenses.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These estimates and assumptions 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 these estimates.
Cash and Cash Equivalents
For the propose of the statement of cash flows, cash and cash equivalents
includes time deposits with original maturities of three months or less.
Income Taxes:
The Company complies with SFAS No. 109, "Accounting for Income Taxes," which
requires an asset and liability approach to financial accounting and reporting
for income taxes. Deferred income tax assets and liabilities are computed for
temporary differences between the financial statement and tax bases of assets
and liabilities that will result in future taxable or deductible amounts, based
on enacted tax laws and rates applicable to the periods in which the differences
are expected to affect taxable income. Valuation allowances are established,
when necessary, to reduce deferred tax assets to the amount expected to be
realized.
F-8
ACS HOLDINGS, INC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2005
Following the change in control of the Company on November 11, 2004, the
Company's pre-change-in-control net operating loss carryforwards will be
substantially limited, if not completely eliminated, due to a lack of continuity
of business enterprise under Section 382 of the Tax Reform Act of 1986. No
federal tax expense or benefit has been recorded in the financial statements due
to the uncertainty of future operations.
Net (Loss) Per Common Share
Net (Loss) per common share is computed using the weighted average of shares
outstanding during the periods presented in accordance with Statement of
Financial Accounting Standards No. 128, Earnings Per Share. Basic net income
(loss) per common share excludes the effect of potentially dilutive securities
and is computed by dividing net income or loss by the weighted average number of
common shares outstanding for the period. Diluted net income (loss) per share is
adjusted for the effect of convertible securities, warrants and other
potentially dilutive financial instruments only in the periods in which such
effect would have been dilutive.
The following securities were not included in the computation of diluted net
loss per share because to do so would have had an anti-dilutive effect for the
periods presented:
March 31 December 31
2005 2004
------------ --------------
Stock options 0 0
Warrants 328,553,261 4,340,695
Segments
The Company operates as one segment as defined by the Statement of Financial
Accounting Standards No. 131 Disclosures about Segments of an Enterprise and
Related Information.
Fixed Assets
Fixed assets are stated at cost. The cost of equipment is charged against income
over their estimated useful lives, using the straight-line method of
depreciation. Repairs and maintenance which are considered betterments and do
not extend the useful life of equipment are charged to expense as incurred. When
property and equipment are retired or otherwise disposed of, the asset and
accumulated depreciation is removed from the accounts and the resulting profit
and loss are reflected in income.
F-9
ACS HOLDINGS, INC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2005
Fair Value of Financial Instruments
The recorded amounts for financial instruments, including cash equivalents,
restricted cash, receivables, investments, accounts payable and accrued
expenses, and long-term debt approximate their market values as of March 31,
2005. The Company has no investments in derivative financial instruments.
Goodwill and Other Intangibles
The Company records Goodwill in accordance with Statement of Financial
Accounting Standards No.142, Goodwill and Other Intangible Assets. Intangible
assets such as goodwill are not amortized; instead the Company will review the
goodwill not less than annually to see if it has been impaired. If an impairment
has incurred, it will be recorded as an expense in that period.
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (" SFAS 123 "), provides for the use of a fair value based method
of accounting for employee stock compensation. However, SFAS 123 also allows an
entity to continue to measure compensation cost for stock options granted to
employees using the intrinsic value method of accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (" APB 25 "), which only requires charges to compensation expense for
the excess, if any, of the fair value of the underlying stock at the date a
stock option is granted (or at an appropriate subsequent measurement date) over
the amount the employee must pay to acquire the stock, if such amounts differ
materially from the historical amounts. The Company has elected to continue to
account for employee stock options using the intrinsic value method under APB
25.
In accordance with SFAS 123, all other issuances of Common Stock, stock options
or other equity instruments issued to employees and non-employees as
consideration for goods or services received by the Company are accounted for
based on the fair value of the consideration received or the fair value of the
equity instrument, whichever is more readily measurable. Such fair value is
measured at an appropriate date pursuant to the guidance in EITF Issue No. 96-18
and capitalized or expensed as appropriate.
As a result of amendments to SFAS 123, the Company will be required to expense
the fair value of employee stock options over the vesting period in the first
annual reporting period beginning after June 15, 2005.
NOTE B - INVESTMENTS
Valuation of Investments
The most significant estimate inherent in the preparation of the Company's
financial statements is the valuation of its investments and the related
unrealized appreciation or depreciation.
F-10
ACS HOLDINGS, INC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2005
Upon conversion to a BDC, the Board of Directors states all other portfolio
companies and investments at fair market value as determined under a good faith
standard. The Company has investments in 1 controlled (portfolio) corporation as
of March 31, 2005.
1. American Card Services, Inc.
American Card Services, Inc. ("ACS") is a Delaware corporation which prior to
November, 2004 sought to capture a large portion of the rapidly emerging
stored-value debit card market that provides unbanked ethnic customers with a
viable alternative to cash and traditional money transfers. ACS has since
changed its direction and is seeking out investments in financial services and
real estate entities. The Company currently owns 100% of the stock of American
Card Services, Inc.
American Card Services, Inc. owns 100% of ACS Transaction Processing, Inc. a
Delaware Corporation incorporated in August, 2003. ACS Transaction Processing
had no business activity through March 31, 2005.
American Card Services, Inc. owns 100% of ACS Sales, Inc. a Delaware Corporation
incorporated in August, 2003. ACS Sales, Inc. had no business activity through
March 31, 2005.
NOTE C - STOCK ISSUED FOR SERVICES
During the quarter ended March 31, 2005 the Company issued shares of the
Company's common and preferred stock to KMA Capital Partners, Ltd. as part of
the reorganization of the Company. A summary of these activities is as follows:
-------------- --------------- -----------
Preferred Common
Shares Shares Amount
-------------- --------------- -----------
Professional consulting services 300,000.000 375,000,000 $ 150,000
-------------- --------------- -----------
Total 300,000,000 375,000,000 $ 150,000
============== =============== ===========
The value assigned to the above shares is based on the stocks' traded market
price on or about the date the shares were issued. For the year ended March 31,
2005, the above amounts are included in professional fees.
NOTE D -- COMMITMENTS AND CONTINGENCIES
The Company lease office and operating facilities under short-term operating
leases.
Rent expense for the three months ending March 31, 2005 and 2004 was $926 and
$15,509 respectively.
F-11
ACS HOLDINGS, INC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2005
The Company has been named as a defendant in a case involving breach of contract
and one or more collection cases. Management's position is that each case can be
contested on its merits; no claim involves a potential exposure of more than
$50,000.
The Company filed on March 22, 2005, a civil suit in Orange County District
Court, Orlando Florida against the former CEO of the Company, Walter Roder. The
litigation alleges among other causes of action, various breaches of fiduciary
and statutory duties. The Company intends to vigorously pursue its remedies
against Mr. Roder.
All other matters involving pending or prospective litigation have been
dismissed or resolved.
NOTE E - NOTES PAYABLE
Notes payable as of March 31, 2005 consisted of the following:
0% unsecured demand note payable to KMA Capital Partners, Ltd. $ 64,295
8% convertible debenture net of stock subscription receivable
in the amount of 16,946 to an individual due no later than
September, 2005 convertible to 85% of the closing bid price
of the common stock on the date the Company issues such
conversion notice. 10,554
8% convertible debenture to Javelin Advisory Group due no later
than October, 2005 convertible to 50% of the closing bid price
of the common stock on the date the Company issues such conversion
notice. 5,000
--------
Total $ 79,849
At March 31, 2005 the future maturities of the notes payable are as follows:
Amount
-------
March 31, 2006 $79,849
=======
NOTE F - STOCKHOLDERS EQUITY
As of March 31, 2005 the authorized capital of the company is 2,400,000,000
shares of common voting stock par value $.001 per share. The Company has
authorized and issued 600,000,000 shares of convertible preferred stock par
value $.001 per share.
The convertible preferred shares are convertible into common stock one to one.
The preferred shares shall be entitled to one vote per share. The preferred
shares as a group shall be entitled to revenue sharing dividend of 25% of net
revenue of the Company. Net revenue is defined as the net revenue as reported
under SEC filings. Said dividend may be payable in cash or common stock at the
option of the investors. The preferred shares are callable by the company at
120% of value after 24 months.
F-12
ACS HOLDINGS, INC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2005
NOTE G - REVERSE STOCK SPLIT
On August 12, 2004, the Board of Directors authorized a 40-1 reverse stock split
of the Company's $.001 par value common stock. All references to the
accompanying financial statements to the number of common shares and per
share amounts for 2004 and 2005.
NOTE H - UNAUDITED PRO FORMA
As described in Note A the assets and liabilities acquired from American Card
Services, Inc. and resulting operations have been put into ACS Holdings, Inc., a
wholly-owned subsidiary. The acquisition was completed on May 12, 2004, after
the Company increased authorized shares to a total sufficient to effect the
transaction. The following unaudited pro forma information summarizes the
combined results of the Company and American Card Services as if the merger
took place at the beginning of 2004.
CONDENSED CONSOLIDATED BALANCE SHEET OF ACS
The condensed unaudited consolidated balance sheet of American Card Services,
Inc. and Subsidiaries as of July 31, 2004 (as of a date near the time that ACS
became a portfolio company of the Company) was as follows:
Current Assets $ 5,584
Fixed Assets 76,063
Other Assets 2,500
------------
Total Assets $ 84,147
============
Current Liabilities $ 2,371,824
Long Term Liabilities 665,525
Stockholder (Deficiency) (2,953,202)
------------
Total Liabilities and Stockholders (Deficiency) $ 84,147
============
F-13
ACS HOLDINGS, INC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2005
NOTE I - CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially expose the Company to concentrations of
credit risk, consist principally of cash.
The Company maintains its cash accounts with financial institutions located in
Florida. Federal Deposit Insurance Corporation (FDIC) guarantees the Company's
deposits in financial institutions up to $100,000 per account.
The Company's deposits with financial institutions that exceeded federally
insured guarantees amounted to $0 and $0 as of March 31, 2005 and December 31,
2004, respectively. Historically, the Company has not experienced any losses on
its deposits in excess of federally insured guarantees.
NOTE J - RELATED PARTY TRANSACTIONS
ACS owed Mr. Roder and affiliates $474,000 in notes payable at March 31, 2005
and December 31, 2004, respectively, and approximately $148,896 and $128,923 in
accrued interest at March 31, 2005 and December 31, 2004, respectively.
The Company owed KMA Capital Partners, Ltd. $64,295 and $19,900 in notes payable
as of March 31, 2005 and December 31, 2004 respectively.
During the quarter ended March 31, 2005, the Company incurred $400,000 of
professional fees from KMA Captial Partners, Ltd. for reorganization services,
of which $150,000 represented the value of common stock issued for serices. The
Company also paid $9,000 of consulting fees to its former Chief Operating
Officer during the first quarter 2005.
The Company occupies office space and utilizes office equipment and utilities
from a related party for a nominal cost.
F-14
ITEM 9. CONTROL & PROCEDURES
Evaluation of Disclosure Control and Procedures
The Company's management, with the participation of our principal executive
officer and principal financial officer, has evaluated the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), as
of the end of the period covered by this Quarterly Report on Form 10-Q. Based on
such evaluation, our principal executive officer and principal financial officer
have concluded that such disclosure controls and procedures were deficient and
designed new controls and procedures to ensure that information required to be
disclosed by us in reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported with the time periods specified in
applicable SEC rules and forms were effective.
Changes in Internal Control Over Financial Reporting
There have been no significant changes in our internal control or in other
factors that could significantly affect those controls subsequent to our
evaluation, including corrective actions with regard to significant deficiencies
and material weaknesses.
-18-
PART III
ITEM 10. EXHIBITS AND REPORTS ON FORM 10-Q
- ------------------ -------------------------------------------------------------
Exhibit
No. Description
- ------------------ -------------------------------------------------------------
31.1 Certification of President and Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the
Sarbanes Oxley Act of 2002
- ------------------ -------------------------------------------------------------
31.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 302 of the Sarbanes
Oxley Act of 2002
- ------------------ -------------------------------------------------------------
32.1 Certification of President and Chief Executive Officer pursuant to
18 U.S.C. Section 906, as adopted pursuant to Section 302 of the
Sarbanes Oxley Act of 2002
- ------------------ -------------------------------------------------------------
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes
Oxley Act of 2002
- ------------------ -------------------------------------------------------------
Company Financial Statements March 31, 2005
-19-
SIGNATURES
In accordance with Section 13or 15(d) of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ACS Holdings, Inc.
BY: /s/ James V. Sadrianna
----------------------------
James V. Sadrianna
Chief Financial Officer
Dated: May 16, 2005
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities as indicated
and on the dates indicated.
ACS Holdings, Inc.
BY: /s/ Mark Width
----------------------------
Mark Width
President and CEO
Dated: May 16, 2005
BY: /s/ James V. Sadrianna
----------------------------
James V. Sadrianna
Chief Financial Officer
Dated: May 16, 2005
-20-