UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

R	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the Quarterly Period ended September 30, 2010.
	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: 333-129919

True North Finance Corporation

(Exact name of small business issuer as specified in its charter)

DELAWARE	20-3345780
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

950 Peninsula Corporate Circle Suite 2010

Palm Beach, FL 33487

(Address of principal executive offices)

Issuer’s Telephone Number: (561) 994-4804

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 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 R No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes £ No £

Indicate by check mark whether the registrant is a large-accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No R

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: The number of shares outstanding of the Registrant’s Series A common stock and Series B common stock as of  May 5, 2010, was 1,000,000, and 67,354,092, respectively, and the number of the Registrant’s preferred shares outstanding was 48,643.

Transitional Small Business Disclosure Format (check one): Yes £ No R

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INDEX

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PART  I.   FINANCIAL INFORMATION

Item  1.   Financial Statements (Unaudited).

FINANCIAL STATEMENTS

TRUE NORTH FINANCE COPORATION

FINANCIAL STATEMENTS

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TABLE OF CONTENTS

FINANCIAL SECTION

4

The accompanying notes are an integral part of these financial statements.

5

The accompanying notes are an integral part of these financial statements.

6

The accompanying notes are an integral part of these financial statements.

7

 

 

 

 

 

The accompanying notes are an integral part of these financial statements.

 

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TRUE NORTH FINANCE CORPORATION

(FORMERLY CS FUND GENERAL PARTNER, LLC)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – Nature of Operations and Summary of Significant Accounting Policies

Reference to the Company

 

References to “we”, “us”, “our”, “True North” or the “Company” in these notes to the consolidated financial statements refer to True North Finance Corporation, a Delaware corporation, and its subsidiaries.  On June 22, 2009, CS Financing Corporation changed its name to True North Finance Corporation.  As discussed below, the financial statements prior to June 30, 2009 are those of CS Fund General Partner, LLC.

 

Reverse Acquisition Accounting

 

CS Fund General Partner, LLC became a wholly owned subsidiary of True North Finance Corporation pursuant to a merger on June 30, 2009.  Under the purchase method of accounting in a business combination effected through an exchange of equity interests, the entity that issues the equity interests is generally the acquiring entity.  In some business combinations (commonly referred to as reverse acquisitions), however, the acquired entity issues the equity interests.  FASB ASC 805-10, “Business Combinations” requires consideration of the facts and circumstances surrounding a business combination that generally involve the relative ownership and control of the entity by each of the parties subsequent to the merger.  Based on a review of these factors, the June 2009 merger with CS Fund General Partner, LLC (“the Merger”) was accounted for as a reverse acquisition (i.e. True North Finance Corporation was considered as the acquired company and CS Fund General Partner, LLC was considered as the acquiring company).  As a result, True North Finance Corporation’s assets and liabilities as of June 30, 2009, the date of the Merger closing, have been incorporated into CS Fund General Partner, LLC’s balance sheet based on the fair values of the net assets acquired, which equaled the consideration paid for the acquisition.  FASB ASC 805-10 also requires an allocation of the acquisition consideration to individual assets and liabilities including tangible assets, and financial assets.  Further, the Company’s operating results (post Merger) include CS Fund General Partner, LLC’s operating results prior to the date of closing and the results of the combined entity following the closing of the Merger.  Although CS Fund General Partner, LLC was considered the acquiring entity for accounting purposes, the Merger was structured so that CS Fund General Partner, LLC became a wholly owned subsidiary of True North Finance Corporation.

 

Also on June 30, 2009, the Company issued 40,000 shares of preferred stock to Capital Solutions Monthly Income Fund, L.P.  On that same date, Capital Solutions Monthly Income Fund, L.P. distributed 36,643 shares of the preferred stock to certain limited partners in complete liquidation of their capital accounts.  Other limited partners indicated an interest in converting their limited partner interests to Series 1 Notes.  Accordingly, they did not receive preferred stock and remained as limited partners on June 30, 2009.  These limited partners are reflected on the balance sheet as non-controlling interests.  In July 2009, $886,707 of the limited partnership interests was liquidated in exchange for Series 1 Notes.  As a result of these transactions, the Company obtained control of Capital Solutions Monthly Income Fund, L.P. and True North Finance Corporation.

 

CS Fund General Partner, LLC is the general partner of Capital Solutions Monthly Income Fund.  The investment in Capital Solutions Monthly Income Fund, L.P. is reflected on the balance sheet as Non-controlling interest of ($0) and ($3,932,242) as of September 30, 2010 and December 31, 2009 respectively.  

 

  Deconsolidation

 

On June 30, 2010 the Company transferred the assets and liabilities of their subsidiary Capital Solutions Monthly Income Fund, LP, after these assets had been voluntarily surrendered to the Company pursuant to the Company’s security interest, to a liquidating trust not controlled by the Company.  The Company has no continuing involvement with the Capital Solutions Monthly Income Fund, LP. The Company received no cash consideration in the transfer.  In addition, the Company issued 12,000 shares of preferred stock to Capital Solutions Monthly Income Fund, LP’s Series 1 Note-holders. At the time of the deconsolidation, Capital Solutions Monthly Income Fund, LP’s liabilities exceeded their assets by $26,611,512.  Accordingly, the Company recognized a gain for this amount as a gain from deconsolidation on June 30, 2010.

 

Nature of Operations

 

The Company was incorporated in Delaware on August 19, 2005.  The Company primarily finances real estate and other transactions from proceeds of the Company’s offering of Five Year Notes-Series A (the “Notes Offering”).

 

CS Fund General Partner, LLC, a Delaware Limited Liability Company, was formed on November 24, 2004.  CS Fund General Partner, LLC was the general partner of Capital Solutions Monthly Income Fund.

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NOTE 1 – Nature of Operations and Summary of Significant Accounting Policies (cont.)

Capital Solutions Monthly Income Fund, L.P. (the Partnership), a Delaware limited partnership, was formed on November 4, 2004.  The Partnership was originally formed to achieve advantageous rates of return through purchasing secured, but subordinated, notes relating to the financing for residential and commercial real estate development, construction and investment property.  In June of 2008, the Partnership foreclosed on assets secured by the outstanding notes.  The Partnership continues to own real estate for the purpose of investment and development.

 

On June 30, 2010, the Company transferred the assets and liabilities of their subsidiary Capital Solutions Monthly Income Fund, LP to a liquidating trust not controlled by the Company.

Condensed Financial Statements

 

The accompanying condensed unaudited financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles for interim financial statements and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. In the opinion of management, the accompanying unaudited financial statements reflect all adjustments consisting of normal recurring adjustments necessary for a fair presentation of its financial position and results of operations. Interim results of operations are not necessarily indicative of the results that may be achieved for the full year. The financial statements and related notes do not include all information and footnotes required by U.S. generally accepted accounting principles for annual reports. This quarterly report should be read in conjunction with the financial statements included in the Company’s report on Form 10-K filed on May 28, 2009 with the U.S. Securities and Exchange Commission for the year ended December 31, 2009.

 

Consolidated Financial Statements

 

In the consolidated financial statements and the notes thereto, all references to historical information, balances and results of operations are related to CS Fund General Partner LLC as the predecessor company pursuant to reverse acquisition accounting rules. Although pre-merger True North Finance Corporation was an operating company since 2006, under reverse acquisition accounting rules, the merged Company’s consolidated financial statements reflect our results as an operating company since January 1, 2008. Accordingly, the Company’s operating results (post-Merger) include the operating results of CS Fund General Partner LLC prior to the date of the Merger and the results of the combined entity following the closing of the Merger.

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated. Certain amounts previously reported have been reclassified to conform to the current year presentation.

 

Management Estimates

 

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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

 

Property and Equipment

 

Property and equipment are stated at cost, net of accumulated depreciation and amortization.  Depreciation is provided using the straight-line method over the estimated useful lives of the related assets, generally three to seven years.  Amortization on capital leases is over the lesser of the estimated useful life or the term of the lease.  Expenditures for repairs and maintenance are charged to operations as incurred.  We periodically evaluate whether events and circumstances have occurred that may warrant revision of the estimated useful lives of fixed assets or whether the remaining balance of fixed assets should be evaluated for possible impairment.  We use an estimate of the related undiscounted cash flows over the remaining life of the fixed assets in measuring their recoverability.

 

Revenue Recognition

 

Interest on our investments in notes receivable is recognized as revenue when earned according to the terms of the loans, using the effective interest method.  We do not accrue interest income on loans once they are determined to be non-performing.  A loan is considered non-performing:  (1) when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement; or (2) when the payment of interest is 90 days past due.  

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NOTE 1 – Nature of Operations and Summary of Significant Accounting Policies (cont.)

 

Cash receipts will be allocated to interest income, except when such payments are specifically designated by the terms of the loan as principal reduction or when management does not believe our investment in the loan is fully recoverable.

  

Investments in Real Estate Loans

 

We may from time to time acquire or sell investments from or to our manager or other related parties without a premium.  The primary purpose is to either free up capital to provide liquidity for various reasons, such as loan diversification, or place excess capital in investments to maximize the use of our capital.  Selling or buying loans allows us to diversify our loan portfolio within these parameters.  Due to the short-term nature of the loans we make and the similarity of interest rates in loans we normally would invest in, the fair value of a loan typically approximates its carrying value.  Accordingly, discounts or premiums typically do not apply upon sales of loans and therefore, generally no gain or loss is recorded on these transactions, regardless of whether to a related or unrelated party.  

 

Investments in real estate loans are generally secured by deeds of trust or mortgages.  Generally, our real estate loans require interest only payments with a balloon payment of the principal at maturity.  We have also made loans that defer interest and principal until maturity.  We have both the intent and ability to hold real estate loans until maturity and therefore, real estate loans are classified and accounted for as held for investment and are carried at amortized cost.  Loans sold to or purchased from affiliates are accounted for at the principal balance and no gain or loss is recognized by us or any affiliate.

 

Loan-to-value ratios are initially based on appraisals obtained at the time of loan origination and are updated, when new appraisals are received, to reflect subsequent changes in value estimates.  Such appraisals are generally dated within 12 months of the date of loan origination and may be commissioned by the borrower.

 

The Company considers a loan to be impaired when, based upon current information and events, it believes it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement.  The Company’s impaired loans include troubled debt restructuring, and performing and non-performing loans in which full payment of principal or interest is not expected.  The Company calculates an allowance required for impaired loans based on the present value of expected future cash flows discounted at the loan’s effective interest rate, or at the loan’s observable market price of the fair value of its collateral.  

 

Loans that have been modified from their original terms are evaluated to determine if the loan meets the definition of a Troubled Debt Restructuring (“TDR”).  When the Company modifies the terms of an existing loan that is considered a TDR, it is considered performing as long as it is in compliance with the modified terms of the loan agreement.  If the modification calls for deferred interest, it is recorded as interest income as cash is collected.  

 

Allowance for Loan Losses

 

We maintain an allowance for loan losses on our investments in real estate loans for estimated credit impairment.  Management’s estimate of losses is based on a number of factors including the types and dollar amounts of loans in the portfolio, adverse situations that may affect the borrower’s ability to repay, prevailing economic conditions and the underlying collateral securing the loan.  Additions to the allowance are provided through a charge to earnings and are based on an assessment of certain factors, which may indicate estimated losses on the loans.  Actual losses on loans are recorded as a charge-off or a reduction to the allowance for loan losses.  Generally, subsequent recoveries of amounts previously charged off are added back to the allowance and included as income.

 

Estimating allowances for loan losses requires significant judgment about the underlying collateral, including liquidation value, condition of the collateral, competency and cooperation of the related borrower and specific legal issues that affect loan collections or taking possession of the property. 

 

Additional facts and circumstances may be discovered as we continue our efforts in the collection and foreclosure processes.  This additional information often causes management to reassess its estimates.  Circumstances that may cause significant changes in our estimated allowance include, but are not limited to:

·

Changes in the level and trends relating to non-performing receivables including past due interest payments and past due principal payments;

·

Declines in real estate market conditions, which can cause a decrease in expected market value;

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NOTE 1 – Nature of Operations and Summary of Significant Accounting Policies (cont.)

·

Discovery of undisclosed lines (including but not limited to, community improvement bonds, easements and delinquent property taxes);

·

Lack of progress on real estate developments after we advance funds.  We will customarily monitor progress of real estate developments and approve loan advances.  After further inspection of the related property, progress on construction occasionally does not substantiate an increase in value to support the related loan advances;

·

Unanticipated legal or business issues that may arise subsequent to loan origination or loan advances or upon the sale of foreclosed property; and

·

Appraisals, which are only opinions of value at the time of the appraisal, may not accurately reflect the current value of the property.

The Company considers a loan to be impaired when based on current information and events, it is probable that Company will be unable to collect all amounts due according to the contractual terms of the loan agreement or when the payment of interest or principal is 90 days past due. 

 

Fair Value Disclosures

 

As of September 30, 2010, we had no assets or liabilities utilizing Level 1 or Level 2 inputs and assets and liabilities utilizing Level 3 inputs included investments in real estate loans, unsecured borrowings.

 

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment.  Accordingly, our degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.  In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy.  In such cases, an asset or liability will be classified in its entirety based on the lowest level of input that is significant to the measurement of fair value.

 

Fair value is a market-based measure considered from the perspective of a market participant who holds the asset or owes the liability rather than an entity-specific measure.  Therefore, even when market assumptions are not readily available, our own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date.  We use prices and inputs that are current as of the measurement date, including during periods of market dislocation, such as the recent illiquidity in the auction rate securities market.  In periods of market dislocation, the observability of prices and inputs may be reduced for many instruments.  This condition may cause our financial instruments to be reclassified from Level 1 to Level 2 or Level 3 and/or vice versa.

 

Our valuation techniques will be consistent with at least one of the three possible approaches: the market approach, income approach and/or cost approach.  Our Level 1 inputs are based on the market approach and consist primarily of quoted prices for identical items on active securities exchanges.  Our Level 2 inputs are primarily based on the market approach of quoted prices in active markets or current transactions in inactive markets for the same or similar collateral that do not require significant adjustment based on unobservable inputs.  Our Level 3 inputs are primarily based on the income and cost approaches, specifically, discounted cash flow analyses, which utilize significant inputs based on our estimates and assumptions.

 

The following tables presents the valuation of our financial assets and liabilities as of September 30, 2010, measured at fair value on a recurring basis by input levels:

 

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NOTE 1 – Nature of Operations and Summary of Significant Accounting Policies (cont.)

The following table presents the changes in our financial assets and liabilities that are measured at fair value on a recurring basis using significant unobservable inputs (Level 3) from December 31, 2009 to September 30, 2010:

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NOTE 1 – Nature of Operations and Summary of Significant Accounting Policies (cont.)

Stock Based Compensation

The Company applies Generally Accepted Accounting Principles (GAAP) for all compensation related to stock, options, or warrants.  GAAP requires the recognition of compensation cost using a fair value based method whereby compensation is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period.  The Company uses the Black-Scholes pricing model to calculate the fair value of options and warrants issued to employees and non-employees.  Stock issued for compensation is valued using the market price of the stock on the date of the related agreement.

Real Estate Held for Sale

Real estate held for sale includes real estate acquired through purchases and foreclosure and will be carried at the lower of the recorded amount, inclusive of any senior indebtedness, or the property’s estimated fair value, less estimated costs to sell, with fair value based upon appraisals and knowledge of local market conditions.  The carrying values of real estate held for sale are assessed on a regular basis from updated appraisals, comparable sales values or purchase offers.  Third party appraisals are obtained annually.  Impairment losses are recorded if the third party appraisals are less than the net recorded value.  

Management classifies real estate held for sale when the following criteria are met:

·

Management commits to a plan to sell the properties;

·

The property is available for immediate sale in its present condition subject only to the terms that are usual and customary;

·

An active program to locate a buyer and other actions required to complete a sale have been initiated;

·

The sale of the property is probable;

·

The property is being actively marketed for sale at a reasonable price;

·

Withdrawal or significant modification of the sale is not likely.

Our investments in real estate held for sale are accounted for at the lower of cost or fair value less costs to sell with fair value based on appraisals and knowledge of local market conditions.

Classification of Operating Results from Real Estate Held for Sale

US GAAP generally requires operating results from long lived assets held for sale to be classified as discontinued operations as a separately stated component of net  income. Our operations related to real estate held for sale are separately identified in the accompanying consolidated statements of income.

Income Taxes

The Company accounts for its income taxes in accordance with GAAP, which requires recognition of deferred tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry forwards.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The Company accounts for uncertainty in tax positions in accordance with GAAP which requires the recognition of a tax position when it is more likely than not that the tax position will be sustained upon examination by relevant taxing authorities, based on the technical merits of the position.

Earnings Per Share

 

Basic earnings per common shares (“EPS”) is calculated by dividing net income available to common stockholders by the weighted average number of shares outstanding during the period.  For periods prior to the Merger, to determine the weighted average number of shares outstanding, the number of True North Finance Corporation common shares issued for outstanding CS Fund General Partner, LLC member shares was equated to member shares issued and outstanding during prior periods.

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NOTE 1 – Nature of Operations and Summary of Significant Accounting Policies (cont.)

Recent accounting policies

In January 2010, the FASB issued ASU No. 2010-06 regarding fair value measurements and disclosures and improvement in the disclosure about fair value measurements.  This ASU requires additional disclosures regarding significant transfers in and out of Levels 1 and 2 of fair value measurements, including a description of the reasons for the transfers.  Further, this ASU requires additional disclosures for the activity in Level 3 fair value measurements, requiring presentation of information about purchases, sales, issuances, and settlements in the reconciliation for fair value measurements.  This ASU is effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.  We are currently evaluating the impact of this ASU; however, we do not expect the adoption of this ASU to have a material impact on our consolidated financial statements.

In July 2010, the FASB issued ASU No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.  The ASU amends FASB Accounting Standards Codification Topic 310, Receivables, to improve the disclosures that an entity provides about the credit quality of its financing receivables and the related allowance for credit losses.  As a result of these amendments, an entity is required to disaggregate, by portfolio segment or class of financing receivables, certain existing disclosures and provide certain new disclosures about its financing receivables and related allowance for credit losses.  This ASU is effective for interim and annual reporting periods ending on or after December 15, 2010.  The adoption of this standard may require additional disclosures, but we do not expect the adoption to have a material effect on our consolidated financial statements.

On December 21, 2010, the FASB issued Accounting Standards Update ("ASU") 2010-29, which impacts any public entity that enters into business combinations that are material on an individual or aggregate basis. The guidance specifies that if a public entity presents comparative financial statements, the entity should disclose revenues and earnings of the combined entity as though the business combination(s) that occurred during the year had occurred at the beginning of the prior annual period when preparing the pro forma financial information for both the current and prior reporting periods.  The guidance also requires that pro forma disclosures be accompanied by a narrative description regarding the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in reported pro forma revenues and earnings. This guidance is effective for business combinations consummated in periods beginning after December 15, 2010.  We do not believe the adoption of this guidance will have a material impact on our Consolidated Financial Statements.

NOTE 2 – Going Concern and Management’s Plan of Action

The Company’s financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has experienced losses from operations during the last year that raise substantial doubt as to its ability to continue as a going concern. The Company’s ability to continue as a going concern is contingent upon its ability to obtain the capital necessary to attain profitable operations, devising a management plan to develop a profitable operation and lowering the level of problem assets to an acceptable level and meeting current working capital requirements.

In this regard, management has developed a capital plan, which includes, but is not limited to: (1) raising capital through the Company’s Bond offering which we anticipate will occur in 2011; and  (2) fund operations with short term borrowing.  

The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

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NOTE 3 – Investments in Notes Receivable

Investments in Notes receivable consist of the following as of September 30, 2010:

 

As indicated in Note 10 (Subsequent events), the balance of the notes receivable was transferred to Transactional Finance in full satisfaction of     the note payable to Transactional Finance.

Investments in Notes receivable consist of the following as of December 31, 2009:

 

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NOTE 4 – Deposits and Other Assets

The Company’s deposits and other assets consist of the following:

Debt placement costs are cost the company continues to amortize in connection with their Bond Offering.  In June of 2010, the company acquired from Capital Solutions Monthly Income Fund, LP an option to acquire the 1^st mortgage on Gulf Lakes (real property in Lee County, Florida) and was recorded at net carrying cost, which approximates fair value.  The option price was $899,577 less than the net fair value mortgage.  The company failed to make the monthly payments required by the option agreement and accordingly wrote off the entire value of the option as of September 30, 2010.

NOTE 5 – Real Estate Held for Sale

At September 30, 2010 and December 31, 2009, we held properties with a total carrying value of approximately $0 and $39.5 million respectfully and recorded as investments in real estate held for sale.  Our investments in real estate held for sale are accounted for at the lower of cost or fair value less costs to sell with fair value based on appraisals and knowledge of local market conditions.  It is our intent to hold the marina property and maximize our investment.  However, it is not our intent to invest in or own real estate as a long term investment.  We seek to sell our properties held for sale as quickly as possible taking into account current economic conditions.  Set forth below is a summary of investments in real estate held for sale.  As a result of the Spin-off on June 30, 2010, all of the Real Estate Held for Sale except for (2) Village of Lloyd Harbor was transferred to the liquidating trust in the Spin-off transaction.  In September of 2010, the Company wrote off the entire balance of Lloyd Harbor and the note payable (each totaling $4,000,000) due to delinquency and foreclosure of the property.  The company recognized a $650,000 gain in the transaction due to the write-off of accrued interest payable.

* These properties are subject to senior debt which is currently delinquent.  The Company is at risk of losing these properties to foreclosure if the senior debt is not brought current.  M&I Bank, the senior lender on the Marina at Cape Haze property has begun foreclosure proceedings.  We are working with M&I Bank to avoid the continuation of the foreclosure.  

(1)

Marina at Cape Haze LLC – An operating marina located on an overall area of approximately 37.75 acres of property.  The property is divided into two sub-tracts.  Sub-tract A has a boat storage building which contains 30,340 square feet of gross building area.  The Cabana/Recreational hall contains 1,493 square feet of gross building area.  The sub-tract contains 106 wet slips and 200 dry slips.  Subtract B has a shell building which is a commercial sales office building containing 1,560 square feet of gross building area.  As of 3/31/10 we have evaluated the carrying value of the property based on an updated appraisal obtained January 25, 2010.  It is our intention to hold this property and develop it in order to maximize our investment.  

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(2)

Village of Lloyd Harbor – Approximately 17.6 acres of vacant land.  The parcel contains roughly 700 feet of water frontage on Long Island Sound.  The property is currently in the platting process to be subdivided into two separate lots to take advantage of its prime beachfront location.  As of 3/31/10 we have evaluated the carrying value of the property based on an updated appraisal obtained January 26, 2010.

NOTE 5 – Real Estate Held for Sale (cont.)

(3)

Hidden Canyon – A 53 lot residential subdivision in Cave Creek, AZ. In April 2010, this property transferred to the lienholder in full payment of the amount owed.  Accordingly, the book value as of March 31, 2010 was equal to the liability at March 31, 2010 of $7,291,667.

(4)

Oak Vista Property – Approximately 2.34 acres of vacant land intended to be held for future development.  As of 3/31/10 we have evaluated the carrying value of the property based on an updated appraisal obtained February 4, 2010.  

(5)

SLP of Spring Lake Garden, LLC – Approximately 130,796 square feet or 3 acres of property located in Spring Lake Park Minnesota.  The lot is zoned with a provision for the elderly and handicapped and is available for future development.  As of 3/31/10 we have evaluated the carrying value of the property based on an updated appraisal obtained May 6, 2009.

(6)

Reserve at Royal Oaks, LLC –Approximately 1,094 acres or 2 blocks of property containing 20 townhome sites.  As of 3/31/10 we have evaluated the carrying value of the property based on an updated appraisal obtained January 26, 2010.  

(7)

Wrights Crossing, LLC – Approximately 12.2 acres of vacant land located in the City of Big Lake Minnesota.  As of 3/31/10 we have evaluated the carrying value of the property to be $165,000 based on our evaluation of the property and negotiations of a recent purchase involving the property.

NOTE 6 – Notes Payable

The Company’s notes payable as of September 30, 2010 and December 31, 2009 are summarized as follows:

* Reflects the default rate for notes that are delinquent.  

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NOTE 7 – Related Parties

The Company’s related party transactions can be summarized as follows:

Notes Receivable – The Company held a note receivable from Transactional Finance (our controlling shareholder) in the amount of $0 and $171,489 as of June 30, 2010 and December 31, 2009 respectively.

Notes Payable – The Company had notes payable to related parties as follows:

Note offering (Friends & Family controlled by officers directors)	September 30, 2010    $    2,473,985	December 31, 2009 $        628,000
Notes payable to Officer’s of the company	-	1,300,000
Notes payable to Transactional Finance	276,953	-
Total	$     2,750,938	$     1,928,000

Current Payables – The Company had the following current payables to related parties:

Due to Capital Solutions Management (for pre-acquisition fees)	September 30, 2010 $        24,417	December 31, 2009 $       200,885
Accrued interest on notes payable to officers	-	58,500
Accrued interest on Friends & Family notes payable	12,151	2,486
Amounts due to limited partners	-	276,913
Total	$        36,568	$      538,784

Related party accounts payable - $7,450 and $59,464 was due to officers of the Company as of September 30, 2010 and December 31, 2009 respectively.

Interest income – The Company reported $0 and $0 of interest income from Transactional Finance for the three months period ended September 30, 2010 and September 30, 2009 respectively. The Company reported $4,951 and $0 of interest income from Transactional Finance for the nine months period ended September 30, 2010 and September 30, 2009 respectively.

Interest expense - The Company recognized interest expense of $72,906 and $0 on the related party notes payable described above for the three months period ended September 30, 2010 and September 30, 2009 respectively. The Company recognized interest expense of $269,579 and $0 on the related party notes payable described above for the nine months period ended September 30, 2010 and September 30, 2009 respectively.

Other expense – The Company recognized other expenses of $0 and $0 paid to Transactional Finance for advisory fees for the three months period ended September 30, 2010 and September 30, 2009 respectively. The Company recognized other expenses of $1,580,486 and $0 paid to Transactional Finance for advisory fees for the nine months period ended September 30, 2010 and September 30, 2009 respectively.

NOTE 8 – Stockholders’ Deficit

Preferred Stock

 

On June 30, 2009 the Board of Directors authorized the issuance of 36,642 shares of preferred stock, stated value $1,000 per share to Capital Solutions Monthly Income Fund, L.P. On June 30, 2010, the Company issued an additional 12,000 shares of preferred stock to the Series 1 Note holders of Capital Solutions Monthly Income Fund, L.P. in connection with the Deconsolidation. The additional shares issued were recorded at $0 based on an evaluation performed by the Company at the time of issuance.

 

Common Stock

 

In June of 2009 the Company increased the authorized shares of common stock (referred to as Series B) from 70,000,000 to 150,000,000 and issued 36,331,993 to Transactional Finance, LLC in connection with the Merger.  Total shares issued and outstanding of the Series B common stock is 67,354,092 as of December 31, 2009.

 

In June of 2009 the authorized and issued 1,000,000 shares of Series A common stock to Transactional Finance, LLC in connection with the Merger.  The Series A common stock has a priority voting position.  As a result of the issuance of the Series B and Series A common stock in June of 2009, Transactional Finance, LLC has voting control of 70% of the Company.  For periods prior to the Merger, to determine the weighted average number of shares outstanding, the number of True North Finance Corporation common shares issued for outstanding CS Fund General Partner, LLC member shares was equated to member shares issued and outstanding during prior periods.  

Stock Options

 

On August 1, 2009, Christopher Clouser received 11,476,094 stock options of which 50% vested immediately and 50% vesting when the Company raises $50,000,000 in new capital.  

 

 

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NOTE 9 – Commitments and Contingencies

Except as stated below, currently we are not party to any legal proceedings.  We may initiate legal proceedings, from time to time, when borrowers breach their lending agreements.  From time to time, we may be subject to legal actions, initiated by borrowers, governmental authorities or others that arise from the running of our business.

On September 21, 2010, the U.S. Securities and Exchange Commission (the “SEC”) filed a civil action in the US District Court in Minnesota.  The civil action alleges that the Company, and its Chief Financial Officer engaged in transactions in violation of Section 17(a) of the Securities Act of 1933 (“Securities Act”) and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rules 10b-5, 12b-20, 13a-1, and 13a-13 thereunder.  Included in the allegations against the Company are violations of federal securities laws stemming from the accrual of income on subsequently written-off real estate loans in 2008.  The total income reported by the Company in 2008 was approximately $554,000. The Company believes it acted appropriately and the Company intends to defend itself from these charges. The filing of this civil action against us may have a material adverse effect on our business.

The Company entered into a lease for office space in Minnesota.  The lease obligates the Company to the following annual lease payments:

In November of 2010, the company abandoned the office space on 4999 France Avenue in Minnesota.  The company discontinued paying on the monthly lease obligation in November 2010.  On April 20, 2011 the company received a notice from the landlord indicating they were in default of the lease agreement and calculated an obligation including base rent, CAM charges parking fees and late charges totaling $843,127.  As of September 30, 2010, the Company has not recorded any liability in connection with this notice as the Company intends to dispute the amount requested and negotiate a final pay-off with the landlord.

NOTE 10 – Subsequent Events

Events Subsequent to September 30, 2010

 

On December 22, 2010 Todd Duckson transferred control of the Company to Steven Levenson by transferring all of his shares (900,000 shares of Series A common and 36,331,993 shares of Series B common) to Steven Levenson.  Additionally, on or around that date, all of the officers and directors of the Company resigned and Steven Levenson was appointed as the Chairman of the Board of Directors.  Steven Levenson assumed the role of CEO and CFO on interim basis.  

 

On December 15, 2010 the Company transferred the notes receivable from  Impact Solutions and from Infinity Sports to Transactional Finance in full satisfaction notes payable to Transactional Finance.  The balance on the notes receivable at that time was $297,506, and the balance of the notes payable to Transaction Finance  on that date was $268,933.  The notes receivable were in default at the time of the transfer.  Accordingly, the company recognized a loss in September 2010 of $28,573.

 

The Company has funded its operations after November 30, 2010 by borrowing funds each month from New Dawn Finance, an entity related to Steven Levenson.  As of the date of this filing, the company has borrowed $826,750, and signed promissory notes payables due upon demand.  The notes payable bear an interest rate of 18%.

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Item  2.   Management’s Discussion and Analysis or Plan of Operation.

Some of the statements in this Quarterly Report on Form 10-Q, including, but not limited to this Management’s Discussion and Analysis or Plan of Operation, contain forward-looking statements regarding the Company’s business, financial condition, and results of operations and prospects that are based on the Company’s current expectations, estimates and projections. In addition, other written or oral statements which constitute forward-looking statements may be made by the Company or on the Company’s behalf. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “would” or variations of such words and similar expressions are intended to identify such forward-looking statements. You can also identify forward-looking statements by discussions of strategy, plans or intentions. These statements are not guarantees of future performance, and are inherently subject to risks and uncertainties that are difficult to predict. As a result, actual outcomes and results may differ materially from the outcomes and results discussed in or anticipated by the forward-looking statements. All such statements are therefore qualified in their entirety by reference to the factors specifically addressed in the section entitled “Factors That May Affect Future Results of Operations” in the Company’s Annual Report on Form 10-K. New risks can arise and it is not possible for management to predict all such risks, nor can management assess the impact of all such risks to the Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. The Company undertakes no obligation to revise or update publicly any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Quarterly Report on Form 10-Q, other than as required by law.

Overview

We have recently modified our mission as follows: the mission of the Company is to source safe, high yielding investments by utilizing custom financing structures, performing extensive due diligence and maintaining a broad referral network.  After much consideration, we have elected to pursue our mission by creating numerous new “investment pods” which will be individually managed and initially focused on certain market niches.  The primarily objective of these investment pods is to source and service investments that provide current yields between 400 to 800 basis points above our cost of funds.

Despite our operating history, we are positioned as an early stage finance company.  We will initially focus on financing completed transactions in our intended investment markets of:  opportunistic equity, trade finance, distressed sellers, bridge finance and real estate finance.      

Our business model is to originate, service and collect unique and custom finance transactions.  We may do this by primarily financing or investing directly in “completed transactions” in our intended investment markets. A completed transaction is a transaction where the ultimate liquidity has already been contracted for (i.e. pre-sold goods, pre-leased real estate, etc.). We plan to invest for our own account directly on our balance sheet.  We seek to generate revenue and profits by making loans and investments at yields higher than the interest rates we must pay on our debt and other future potential obligations of the Company.    This interest yield spread will consist of interest on the loan plus points and other fees.

Due to the lack of competition in the credit market and other factors, we continue to see an abundance of excellent, and perhaps historical, high yield finance opportunities.  With the demand for our lending clearly established, we continue to attempt to structure, and restructure, the Company to attract investment capital.  We contemplate formally pursuing a registered debt offering within the next 30 days.  We anticipate pricing the debt at a per annum coupon rate of 8¾ to 9½ percent. Interest would be paid monthly and principal would balloon in five years.  The proceeds of the offering would be used to retire existing debt, make investments in our lending business and for working capital. We are also seeking a secured credit facility and have identified numerous investment prospects.  This secured credit facility, if received, would only be available for investments and not working capital.  

In addition to preparing for our capital campaign, we will also continue the process of interviewing and recruiting members of our board and investment committee.  To the extent we are able to raise investable capital, our investment committee will assume the primary responsibility of approving pod level investments and identifying and correlating new pod investment strategies.  Our existing investment pod strategies were chosen, in part, due to their attractive correlation and historical track record of providing consistent consolidated long term positive returns.  We expect the investment committee to maintain market awareness and fund our investment pods accordingly.  We have also spent considerable effort on a process to establish clear, performance orientated and ethical investment protocols for our investment pod managers.  The launch of the investment pods will be aligned with the progress of our capital campaign.  

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On December 22, 2010 Todd Duckson transferred control of the Company to Steven Levenson by transferring all of his shares (900,000 shares of Series A common and 36,331,993 shares of Series B common) to Steven Levenson.  Additionally, on or around that date, all of the officers and directors of the Company resigned and Steven Levenson was appointed as the Chairman of the Board of Directors.  Steven Levenson assumed the role of CEO and CFO on interim basis.  

We have had net losses since inception.  We had an accumulated deficit as of September 30, 2010 of $32,688,026, which primarily reflects loss on the value of our real estate and expenditures including professional fees and services necessary for the start of our operations, as compared to an accumulated deficit as of June 30, 2010, of $31,252,482.  

The Company has funded its operations after November 30, 2010 by borrowing funds each month from New Dawn Finance, an entity related to Steven Levenson.  As of the date of this filing, the company has borrowed $826,750, and signed promissory notes payables due upon demand.  The notes payable bear an interest rate of 18%.

We believe our ability to continue as a going concern depends in large part on our ability to immediately raise sufficient capital to enable us to make loans and receive revenue from our lending activities in excess of our debt obligations and our operating expenses.  If we are unable to raise such additional capital, we may be forced to discontinue our business.   

Liquidity

Liquidity is a measure of our sources of funds available to meet our obligations as they arise. We require cash to fund new and existing loan commitments, repay and service indebtedness, make new investments, and pay expenses related to general business operations. Our sources of liquidity are cash and cash equivalents, new borrowings, proceeds from asset sales, principal and interest collections, and additional equity and debt financings. We currently have only nominal revenue.  We anticipate continued investments by principals and affiliates of the Company.  We are seeking, but have not secured, additional sources of liquidity beyond the  4^th quarter of 2010.  Thereafter, to the extent we are successful in raising investable capital, and historically we have not been, we expect that the primary source of our liquidity will come from interest and fees earned on our loans and other investments made with the proceeds from new investments. Nevertheless, some short-term liquidity will be provided by the net proceeds from any new capital received.  

Capital Resources and Results of Operations

As we have yet to raise sufficient capital to pursue our business strategy, we have limited operations to discuss.  Our current capital resources have been provided primarily through debt financing.  To date, our material commitments include payments to existing creditors and administrative personnel.  These expenses will be paid from cash flow from asset sales or from the net proceeds of the financings.  We are still seeking additional capital to better capitalize our business and will endeavor to commence a debt offering, which, in turn, will generate cash to fund our finance operations thereby producing net income and additional revenue.  We currently have limited revenue from operations and in all likelihood will be required to make future expenditures in connection with our distribution efforts along with general and administrative expenses before we will earn any material revenue.  

 

The results of operations are related to CS Fund General Partner LLC as the predecessor company pursuant to the reverse acquisition accounting rules. Accordingly, the Company’s operating results (pre-Merger) include the operating results of CS Fund General Partner LLC prior to the date of the Merger (June 30, 2009). Prior to June 30, 2009 CS Fund General Partner LLC had $0 operating income.

 

Consolidated operating expenses decreased to $2,007,549 for the three months ended September  30, 2010 from $4,654,919 for the three months ended September 30, 2009. The decrease was primarily due to a $1,359,387 decrease in interest expense, and a $663,735 decrease in the provision for doubtful accounts.

 

Consolidated operating expenses increased to $10,431,304 for the nine months ended September 30, 2010 from $4,654,919 for the nine months ended September 30, 2009. The increase was primarily due to a $341,058 increase in compensation and benefits, a $693,045 increase in professional fees and a $3,200,354 increase in interest expense.   Additionally, the increase was due to only three months of activity reported for the nine months ended September 30, 2009 as a result of the Merger on June 30, 2009.

 

On April 22, 2010, the Company received a loan from its principal shareholder in the amount of $1,250,000. The loan is secured by all the assets of the Company, bears interest at the approximate rate of 15.5%, has no prepayment penalty and is amortized in twelve equal monthly installments. On December 15, 2010, the company transferred notes receivable with a balance of $297,506 in full satisfaction of this note payable which had a balance due of  $268,933 on that date.  The notes receivable were in default at the time of the transfer.  Accordingly, the company recognized a loss in September 2010 of $28,573.

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Capital Raising Challenges

Our funding has considerably been below our expectations.  We continue to encounter significant practical and regulatory challenges in successfully commencing an offering sufficient to make significant investments.

Concentration Restrictions

We expect to establish formal concentration restrictions that will require the investment committee or board’s approval for any investment.  As we increase our portfolio of investments, our concentration restrictions will evolve.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements, as defined in Item 303(a)(4) of Regulation S-K promulgated under the Securities Act.

Critical Accounting Estimates

Revenue Recognition

Interest on our investments in notes receivable is recognized as revenue when earned according to the terms of the loans, using the effective interest method.  We do not accrue interest income on loans once they are determined to be non-performing.  A loan is considered non-performing:  (1) when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement; or (2) when the payment of interest is 90 days past due.  

 

Cash receipts will be allocated to interest income, except when such payments are specifically designated by the terms of the loan as principal reduction or when management does not believe our investment in the loan is fully recoverable.

 

Investments in Real Estate Loans

We may from time to time acquire or sell investments from or to our manager or other related parties without a premium.  The primary purpose is to either free up capital to provide liquidity for various reasons, such as loan diversification, or place excess capital in investments to maximize the use of our capital.  Selling or buying loans allows us to diversify our loan portfolio within these parameters.  Due to the short-term nature of the loans we make and the similarity of interest rates in loans we normally would invest in, the fair value of a loan typically approximates its carrying value.  Accordingly, discounts or premiums typically do not apply upon sales of loans and therefore, generally no gain or loss is recorded on these transactions, regardless of whether to a related or unrelated party.  

Investments in real estate loans are generally secured by deeds of trust or mortgages.  Generally, our real estate loans require interest only payments with a balloon payment of the principal at maturity.  We have also made loans that defer interest and principal until maturity.  We have both the intent and ability to hold real estate loans until maturity and therefore, real estate loans are classified and accounted for as held for investment and are carried at amortized cost.  Loans sold to or purchased from affiliates are accounted for at the principal balance and no gain or loss is recognized by us or any affiliate.

Loan-to-value ratios are initially based on appraisals obtained at the time of loan origination and are updated, when new appraisals are received, to reflect subsequent changes in value estimates.  Such appraisals are generally dated within 12 months of the date of loan origination and may be commissioned by the borrower.

The Company considers a loan to be impaired when, based upon current information and events, it believes it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement.  The Company’s impaired loans include troubled debt restructuring, and performing and non-performing loans in which full payment of principal or interest is not expected.  The Company calculates an allowance required for impaired loans based on the present value of expected future cash flows discounted at the loan’s effective interest rate, or at the loan’s observable market price of the fair value of its collateral.  

Loans that have been modified from their original terms are evaluated to determine if the loan meets the definition of a Troubled Debt Restructuring (“TDR”).  When the Company modifies the terms of an existing loan that is considered a TDR, it is considered performing as long as it is in compliance with the modified terms of the loan agreement.  If the modification calls for deferred interest, it is recorded as interest income as cash is collected.  

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Allowance for Loan Losses

We maintain an allowance for loan losses on our investments in real estate loans for estimated credit impairment.  Management’s estimate of losses is based on a number of factors including the types and dollar amounts of loans in the portfolio, adverse situations that may affect the borrower’s ability to repay, prevailing economic conditions and the underlying collateral securing the loan.  Additions to the allowance are provided through a charge to earnings and are based on an assessment of certain factors, which may indicate estimated losses on the loans.  Actual losses on loans are recorded as a charge-off or a reduction to the allowance for loan losses.  Generally, subsequent recoveries of amounts previously charged off are added back to the allowance and included as income.

Estimating allowances for loan losses requires significant judgment about the underlying collateral, including liquidation value, condition of the collateral, competency and cooperation of the related borrower and specific legal issues that affect loan collections or taking possession of the property. 

Additional facts and circumstances may be discovered as we continue our efforts in the collection and foreclosure processes.  This additional information often causes management to reassess its estimates.  Circumstances that may cause significant changes in our estimated allowance include, but are not limited to:

·

Changes in the level and trends relating to non-performing receivables including past due interest payments and past due principal payments;

·

Declines in real estate market conditions, which can cause a decrease in expected market value;

·

Discovery of undisclosed lines (including but not limited to, community improvement bonds, easements and delinquent property taxes);

·

Lack of progress on real estate developments after we advance funds.  We will customarily monitor progress of real estate developments and approve loan advances.  After further inspection of the related property, progress on construction occasionally does not substantiate an increase in value to support the related loan advances;

·

Unanticipated legal or business issues that may arise subsequent to loan origination or loan advances or upon the sale of foreclosed property; or

·

Appraisals, which are only opinions of value at the time of the appraisal, may not accurately reflect the current value of the property.

The Company considers a loan to be impaired when based on current information and events, it is probable that Company will be unable to collect all amounts due according to the contractual terms of the loan agreement or when the payment of interest or principal is 90 days past due. 

Real Estate Held for Sale

Real estate held for sale includes real estate acquired through purchases and foreclosure and will be carried at the lower of the recorded amount, inclusive of any senior indebtedness, or the property’s estimated fair value, less estimated costs to sell, with fair value based upon appraisals and knowledge of local market conditions.  The carrying values of real estate held for sale are assessed on a regular basis from updated appraisals, comparable sales values or purchase offers.  Third party appraisals are obtained annually.  Impairment losses are recorded if the third party appraisals are less than the net recorded value.  

 

Management classifies real estate held for sale when the following criteria are met:

·

Management commits to a plan to sell the properties;

·

The property is available for immediate sale in its present condition subject only to the terms that are usual and customary;

·

An active program to locate a buyer and other actions required to complete a sale have been initiated;

·

The sale of the property is probable;

·

The property is being actively marketed for sale at a reasonable price;

·

Withdrawal or significant modification of the sale is not likely.

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Directors and Officers Insurance

On November 15, 2007, November 15, 2008 and November 15, 2009, the Company renewed an insurance policy which covers its officers and directors in the event they are sued in connection with the performance of their duties as they relate to the company.  The premiums for such insurance policy have been financed by a third party.

Employees

The Company expects to hire up to an additional 0 employees during calendar year 2010.

Contractual Commitments

The table below summarizes our contractual obligations as of September 30, 2010.  Amounts relating to our Notes reflect the principal due to Notes investors and do not include interest payments on the Notes.

Item  3.   Quantitative and Qualitative Disclosures about Market Risk.

Disclosure not required as a result of the Company’s status as a smaller reporting company.

 

Item  4.   Controls and Procedures.

Evaluation of disclosure controls and procedures  

As of September  30, 2010, the Company carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-14 of the Exchange Act.  This evaluation was done under the supervision and with the participation of the Company’s Principal Executive Officer and Principal Financial Officer. Based upon that evaluation, the Company’s Principal Executive Officer and Principal Financial Officer concluded that the Company’s disclosure controls and procedures were not effective in gathering, analyzing and disclosing information needed to satisfy our disclosure obligations under the Exchange Act.  The new management team is evaluating the company’s controls and procedures and will establish controls and procedures pursuant to Rule 13a-14 of the Exchange Act.  

Changes in Internal Controls over Financial Reporting  

There were no changes in our internal controls that materially affected or are reasonably likely to materially affect the Company’s internal controls over financial reporting.

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PART  II.   OTHER INFORMATION

Item  1.   Legal Proceedings.

Except as stated below, currently we are not party to any legal proceedings.  We may initiate legal proceedings, from time to time, when borrowers breach their lending agreements.  From time to time, we may be subject to legal actions, initiated by borrowers, governmental authorities or others that arise from the running of our business.

On September 21, 2010, the U.S. Securities and Exchange Commission (the “SEC”) filed a civil action in the US District Court in Minnesota.  The civil action alleges that the Company, and its former Chief Financial Officer engaged in transactions in violation of Section 17(a) of the Securities Act of 1933 (“Securities Act”) and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rules 10b-5, 12b-20, 13a-1, and 13a-13 thereunder.  Included in the allegations against the Company are violations of federal securities laws stemming from the accrual of income on subsequently written-off real estate loans in 2008.  The total income reported by the Company in 2008 was approximately $554,000. The Company believes it acted appropriately and the Company intends to defend itself from these charges. The filing of this civil action against us may have a material adverse effect on our business.

Item  2.   Unregistered Sales of Equity Securities and Use of Proceeds.  None

Item  3.   Defaults Upon Senior Securities.  None

Item  4.   Submission of Matters to a Vote of Security Holders.  None

Item  5.   Other Information.  None

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Item  6.   Exhibits.

Index to Exhibits

Exhibit Number	Exhibit	Method of Filing
31.1	Rule 13a-14(a)/15d-14(a) Certifications: Certification of Chief Executive Officer pursuant to Rule 15d.	Filed herewith.
31.2	Rule 13a-14(a)/15d-14(a) Certifications: Certification of Chief Financial Officer pursuant to Rule 15d.	Filed herewith.
32.1	Section 1350 Certifications of Chapter 63 of Title 18 of the United States Code.	Filed herewith.
32.2	Section 1350 Certifications of Chapter 63 of Title 18 of the United States Code.	Filed herewith.

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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.

By:

/s/ Steven Levenson

Steven Levenson

Chief Executive Officer

(Principal Executive Officer)

Dated: May 5, 2011

By:

/s/ Steven Levenson

Steven Levenson

Chief Financial Officer

(Principal Financial and Accounting Officer)

Dated: May 5, 2011

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