<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the quarterly period ended March 31, 2000.
Commission file number 000-29039
SECURITY ASSET CAPITAL CORPORATION
(Exact Name of Small Business Issuer as Specified in Its Charter)
NEVADA 95-4729666
---------------------------- -------------
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
701 B Street, Suite 1775, San Diego, California 92101
-----------------------------------------------------
(Address of Principal Executive Offices)
(619) 232-9950
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
UNIVERSAL VIEW CORPORATION
270 N. Canon Drive, Suite 203
Beverly Hills, California 90210
(Former Name or Former Address, if Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 requirement for the past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 11,961,000 of common stock shares as
of March 31, 2000.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of 3/31/00:
<TABLE>
<CAPTION>
Number of Shares
----------------
<S> <C>
Common Stock, $.001 par Value 10,961,000
Additional Common Stock, $.001 par Value Issuable 1,000,000
Total Common Stock Outstanding 11,961,000
</TABLE>
These consolidated financial statements of Security Asset Capital Corporation
(the "Company") do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements and
should be read in conjunction with the financial statements and notes thereto
included in the Company's Form 8K/A filed May 5, 2000. In the opinion of
management, the financial information set forth in the accompanying consolidated
financial statements reflect all adjustments necessary for a fair statement of
the periods reported, and all such adjustments were of a normal and recurring
nature. Interim results are not necessarily indicative of results for a full
year.
2
<PAGE> 3
SECURITY ASSET CAPITAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2000 and December 31, 1999
ASSETS
<TABLE>
<CAPTION>
(Unaudited) (Audited)
March 31, 2000 December 31, 1999
-------------- -----------------
<S> <C> <C>
Current assets:
Cash $ 1,420,331 $ 29,580
Cash in Transit
1,649,972
Loan portfolio assets 2,242,359 3,243,864
Related party receivables - directors 37,638 14,000
Notes and advances receivable 148,649 36,149
----------- -----------
Total current assets 3,848,977 4,973,565
----------- -----------
Rental real estate, net 4,087,814 4,069,663
Furniture and equipment, net 48,025 49,489
Other assets:
Patent and patents pending 1,552,500 1,552,500
Investment The Debt Registry 1,373,980 B
Deferred financing costs, net 472,861 404,247
Miscellaneous assets 15,800 15,800
----------- -----------
7,550,980 1,972,547
----------- -----------
Total assets $11,399,957 $11,065,264
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
3
<PAGE> 4
SECURITY ASSET CAPITAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2000 and December 31, 1999
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
March 31, 1999 December 31, 1999
-------------- -----------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 101,723 $ 97,882
Loan sales payable to third parties 999,428
Loan portfolio payable 100,000 732,736
Due to related parties 18,066 18,066
Accrued expenses and other liabilities B 46,578
Notes payable (including accrued interest of
$198,399 and $170,795 at March 31, 2000 and
December 31, 1999, respectively) 6,166,004 4,987,110
Current portion of long term debt 49,499 119,513
------------ ------------
Total current liabilities 6,435,292 7,001,313
------------ ------------
Long term debt, net of current portion 3,019,976 2,908,780
Deferred income taxes 250,000 250,000
------------ ------------
Total liabilities 9,705,268 10,160,093
------------ ------------
Commitments and contingencies (Notes 12 and 18)
Shareholders' equity (deficit):
Common stock, $0.001 par value, 25,000,000
shares authorized; 10,961,000 and 9,910,000
shares issued and outstanding in March 31, 2000
and 1999, respectively; and 1,000,000 and
925,000 shares issuable at
March 31, 2000 and December 31, 1999, respectively 11,961 10,826
Additional paid-in capital 4,869,783 3,422,274
Accumulated deficit (3,187,055) (2,527,929)
------------ ------------
Total shareholders' equity (deficit) 1,694,689 905,171
------------ ------------
Total liabilities and shareholders' equity (deficit) $ 11,399,957 $ 11,065,264
============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
4
<PAGE> 5
SECURITY ASSET CAPITAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Quarter Ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Revenues:
Portfolio revenue $ 1,225,070 $ 295
Rental revenue 114,804 B
------------ ------------
Total revenues 1,339,874 295
------------ ------------
Expenses:
Portfolio expenses 989,475 B
Rental expenses 10,800 B
General and administrative 502,108 54,273
------------ ------------
Total expenses 1,502,383 54,273
------------ ------------
Loss from operations (162,509) (53,978)
Other income (expense):
Other income 5,977 B
Interest expense (including amortization of deferred
Financing costs of $281,153 and $35,351 in
1st Quarter 2000 and 1999, respectively) (502,594) (55,352)
Other expenses B B
------------ ------------
Total other expense (496,617) (55,352)
------------ ------------
Loss before income taxes and
extraordinary item (659,126) (109,330)
Income tax expense B B
------------ ------------
Loss before extraordinary item (659,126) (109,330)
Extraordinary item - debt forgiveness,
net of tax effect of $0 B B
------------ ------------
Net loss $ (659,126) $ (109,330)
============ ============
Basic and diluted loss before extraordinary item per share $ (0.06) $ (0.02)
============ ============
Basic and diluted net loss per share $ (0.06) $ (0.02)
============ ============
Shares used to compute basic and diluted net loss per share and
loss before extraordinary item per share 11,400,000 6,910,000
============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
5
<PAGE> 6
SECURITY ASSET CAPITAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' (DEFICIT) EQUITY
For the Quarter Ended March 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Accumulated
Stock Amount Capital Deficit Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1999 10,826,000 10,826 $ 3,422,274 $(2,527,929) $ 905,171
(See Note Below)
Acquisition of the Debt Registry
Shares Issuable 600,000 600 1,349,400 B 1,350,000
Settlement of legal dispute 75,000 75 12,300 B 12,375
Issuance of stock for consulting
services 310,000 310 50,840 B 51,150
Issuance of stock to officer and
an employee for Services 150,000 150 24,600 B 24,750
Contribution of Executives Services B B 10,369 B 10,369
Net loss for the Quarter ended
March 31, 2000 B B B (659,126) (659,126)
----------- ----------- ----------- ----------- -----------
Balance, March 31, 2000 11,961,000 $ 11,961 $ 4,869,783 $(3,187,055) $ 1,694,689
=========== =========== =========== =========== ===========
</TABLE>
Note: 400,000 shares of the beginning balance of share of 10,826,000 remain
issuable at March 31, 2000. The shares are issuable to ownership of the
Four D Corporation, which was acquired on October 31, 1999 by Security
Asset Capital Corporation.
The accompanying notes are an integral part of the
consolidated financial statements.
6
<PAGE> 7
SECURITY ASSET CAPITAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS For the
Quarter Ended March 31, 2000 and March 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (659,126) $(109,330)
Adjustments to reconcile net loss to net cash flows
(used in) provided by operating activities:
Depreciation & Amortization 28,130 B
Amortization of deferred financing costs 281,153 35,351
Issuances of common stock for settlement of dispute 12,375 B
Issuances of common stock for consulting and other services 51,150 B
Issuances of common stock for other employee 24,750 B
Contributed services of executive officers 10,369 B
Changes in operating assets and liabilities:
(Increase) decrease in:
Cash in transit 1,649,972 B
Loan portfolio receivable 1,001,505 (15,000)
Advances receivable and other current assets (136,138) B
Increase (decrease) in:
Payables, accrued expenses and other liabilities (1,674,900) (31,259)
Deferred income taxes payable B B
----------- ---------
Net cash flows (used in) provided by
operating activities 589,240 (120,238)
----------- ---------
Cash flows from investing activities:
Acquisition/additions to other assets B (2,500)
Purchase of property and equipment (44,819) (38,295)
Purchase of The Debt Registry
(Cash outlay in addition $1,350,000 in stock was issued) (23,980) B
Proceeds from sale of rental properties, net B B
----------- ---------
Net cash flows provided by
investing activities (68,799) (40,795)
----------- ---------
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
7
<PAGE> 8
SECURITY ASSET CAPITAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) For the
Period Ended March 31, 2000 and March 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Cash flows from financing activities:
Increase in deferred financing costs $ (349,767) (146,338)
Repayments of notes payable (1,290,142) B
Borrowings of notes payable 2,469,036 968,547
Borrowings of long-term debt 41,182 B
Repayment of notes payable - related parties B B
Borrowing (Repayments) of notes payable - related parties B (1,884)
----------- -----------
Net cash flows provided by
financing activities 870,309 820,325
----------- -----------
Net (decrease) increase in cash 1,390,751 659,292
Cash at beginning of year 29,850 115,138
----------- -----------
Cash at end of year $ 1,420,331 $ 774,430
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 221,441 20,001
=========== ===========
Income taxes $ B B
=========== ===========
Supplemental disclosure of non-cash investing
and financing activities:
Issuance of common stock for The Debt Registry $ 1,350,000 B
=========== ===========
Settlement and conversion of note payable
for common stock $ 12,375 B
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
8
<PAGE> 9
SECURITY ASSET CAPITAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Security Asset Capital Corporation, a Nevada corporation, traded under
the symbol ("SCYA"), operates through the following wholly owned
subsidiaries:
Security Asset Management, Inc. ("SAM"), a California corporation,
which, together with the Company, acquires, manages, collects and
markets distressed consumer credit portfolios for their own account
and third parties.
Security Asset Properties, Inc. ("SAP"), a Nevada corporation, owns
and operates nineteen income producing residential properties in San
Diego County, California. This corporation, formerly known as Four D
Corporation, was acquired in a stock swap on October 31, 1999,
whereby the Company acquired 100% of the outstanding common stock of
Four D Corporation in exchange for 900,000 shares of Security Asset
Capital Corporation's common stock. This transaction has been
recorded as a purchase. The excess fair value of assets acquired
over liabilities assumed of $1,067,810 was allocated to rental real
estate. The results of operations of the acquired business have been
included in Security Asset Capital Corporation and subsidiaries'
consolidated results of operations from the date of acquisition. Had
the acquisition occurred on January 1, 1999, the pro forma net
rental real estate at December 31, 1999 would have been $4,025,228,
a decrease of $25,500, and the pro forma net loss and basic and
diluted net loss per share for the year ended December 31, 1999
would have been $(1,738,987) and $(0.19), respectively, an increase
of $147,806 and no change, respectively. The pro forma charge for
the 1st Quarter 1999 for Four D would have been $(59,120).
Broadband Technologies, Inc. ("Tech"), a Nevada corporation, was
formed in 1999. Tech was capitalized by the contribution from the
Company of a patent and certain patents pending and licensing for
direct on-line full screen video technology, which was acquired for
cash and stock in 1999 by the Company. Tech will continue
development of its capability for video streaming on-line and
enhanced distributive database management on the Internet.
The Company acquired certain technology and rights related to an
online market place for buyers and sellers of distressed debt
portfolios in 1999, internally known as TheDebtTrader.Com. These
assets were contributed to a new wholly owned subsidiary,
TheDebtTrader.Com, LLC ("Trader") in January 2000.
The consolidated group, collectively referred to as the "Company", has
incurred losses from operations since inception. During the 1st Quarter
of 2000, the Company acquired the right for the Debt Registry for cash
and stock.
9
<PAGE> 10
SECURITY ASSET CAPITAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements consolidate the accounts of
Security Asset Capital Corporation and its wholly owned subsidiaries,
Security Asset Management, Inc., Security Asset Properties, Inc., and
Broadband Technologies, Inc. All significant inter-company accounts and
transactions have been eliminated in consolidation.
FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance sheets for
cash, cash in transit, accounts payable, loan sales payable to third
parties, loan portfolio payable, accrued expenses and notes payable
approximate fair value due to the immediate short-term maturity of these
financial instruments. The fair value of the Company's long-term
obligations approximates the carrying amount based on the current rates
offered to the Company for debt of the same remaining maturities with
similar collateral requirements.
FAIR VALUE OF LOAN PORTFOLIO ASSETS
The fair value of the Loan Portfolio Assets as evaluated by management
is estimated by using available market information and other valuation
methodologies. The fair value of the Company's Loan Portfolio Assets is
estimated to exceed the related book value, unless otherwise indicated.
Management estimates that the gross potential collections from the Loan
Portfolio Assets held as of March 31, 1999 will be in the range of
$5,600,000 to $6,730,000, with estimated related collection costs of
approximately 30% or $1,680,000 to $2,019,000, for an estimated net
value of $3,920,000 to $4,711,000. These assets are carried on the books
of the Company at cost, which approximates $2,242,000.
CONCENTRATIONS
During 1999, the Company purchased a substantial portion of its debt
portfolios from and jointly with one company, Exterra Credit. The
Company has access to multiple sellers of debt portfolios and does not
believe the reliance on Exterra Credit limits its ability to acquire
debt portfolios economically in the future.
10
<PAGE> 11
SECURITY ASSET CAPITAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
CASH AND CASH EQUIVALENTS
The Company considers all cash accounts, which are not subject to
withdrawal restrictions or penalties, and certificates of deposit and
money market funds purchased with an original maturity of three months
or less to be cash equivalents.
The Company maintains its primary checking and savings accounts at two
financial institutions located in California. Accounts at these banks
are insured by the Federal Deposit Insurance Corporation (FDIC) up to
$100,000. The Company has not experienced any losses in such accounts
and management believes it places its cash on deposit with financial
institutions that are financially stable.
LOAN PORTFOLIO ASSETS AND REVENUE RECOGNITION
Loan Portfolio Assets ("Portfolio Assets") represent liquidating loan
portfolios of delinquent accounts, that have been purchased by the
Company for collection and resale and are stated at cost. The cost of
the Loan Portfolio Assets is the actual dollars spent for the purchase
of the portfolio, including related brokerage commissions, if any.
Management believes that the net realizable value of these assets
exceeds the cost.
Loan Portfolio Asset costs are written off by a percentage of cash
collections on a portfolio-by-portfolio basis. Management presently
estimates that Portfolio Assets in collection will realize gross
collections equal to approximately three times the purchase price of the
Portfolio Assets. The Company, therefore, writes off one dollar of cost
of Portfolio Assets for every three dollars in gross collection.
Certain Loan Portfolio Assets are sold in part or in whole by the
Company. Gains and losses from the sale of all or part of Loan Portfolio
Assets are recorded as appropriate when Loan Portfolio Assets are sold.
The amount of the portfolio cost written off is the cost of percentage
of the face amount sold using the experiences, if any, in sales of the
specific loan portfolio assets. As a number of sales have and will in
the future occur, with any one portfolio, various sales prices are
considered in determining the write off of the portfolio costs against
the sales proceeds.
The Company considers a sale to have taken place when there has been a
transfer of Loan Portfolio Assets and where the Company surrenders
control over the Loan Portfolio Assets to the extent that consideration
other than beneficial interests in the transferred Loan Portfolio Assets
is received in exchange for the Loan Portfolio Assets.
11
<PAGE> 12
SECURITY ASSET CAPITAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
FURNITURE AND EQUIPMENT
Furniture and equipment is recorded at cost. Depreciation is calculated
on the straight-line basis over the estimated useful life of five years.
INVESTMENTS IN REAL ESTATE AND REVENUE RECOGNITION
Real estate is carried as cost, net of accumulated depreciation.
Improvements, major renovations and certain costs directly related to
the acquisition, improvement and leasing of real estate are capitalized.
Expenditures for maintenance and repairs are charged to operations as
incurred. Depreciation for buildings and improvements is computed using
the straight-line method over the estimated useful lives of the assets,
which is estimated to be 27.5 years. Depreciation for furniture and
fixtures is computed using the declining balance method over the
estimated useful lives of the assets, which is estimated to be 7 years.
An impairment loss is recognized, on a property-by-property basis, when
expected undiscounted cash flows are less than the carrying value of the
asset. In cases where the Company does not expect to recover its
carrying costs, the Company reduces its carrying costs to fair value. No
such reductions have occurred to date.
SAP, a wholly owned subsidiary owns and operates nineteen (19) rental
real estate properties located in San Diego County, California. The
properties include fifteen (15) single-family dwellings, three (3)
residential duplexes and one (1) apartment property consisting of 24
units. All rental property units are rented as of December 31, 1999 with
current monthly rents of approximately $39,000. Several of the
single-family dwellings are leased with an option granted to the tenant
to purchase the properties. The appraised value of the properties as of
October 31, 1999, the date of acquisition is approximately $4,365,000.
The properties are encumbered by various notes payable secured by deeds
of trust totaling approximately $3,028,000. The cumulative debt service
for the properties is approximately $26,000 per month. The individual
properties are security for their related long-term notes payable.
Certain of the notes payable were taken out and remain in the name of an
executive of SAP.
As of March 31, 2000, SAP has liabilities to tenants of approximately
$30,000 for security deposits. These funds are not segregated as most
are applied to the final months rental payments.
The Company, as a lessor, has retained substantially all of the risks
and benefits of ownership of the rental properties and accounts for its
leases as operating leases. Income on leases, which includes scheduled
increases in rental rates during the lease term, is recognized on a
straight-line basis.
DEFERRED FINANCING COSTS
Deferred financing costs represent debt financing costs, which have been
capitalized and are being amortized on a straight-line basis over the
terms of the respective loans.
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
12
<PAGE> 13
SECURITY ASSET CAPITAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NET LOSS PER SHARE
Basic net loss per share excludes dilution and is computed by dividing
net loss by the weighted average number of common shares outstanding
during the reported periods. Diluted net loss per share reflects the
potential dilution that could occur if stock options and other
commitments to issue common stock were exercised. During the years ended
December 31, 1999, options to purchase 1,350,000 common shares,
respectively, were anti-dilutive and have been excluded from the
weighted average share computation. No options were issued during first
quarter 2000.
INCOME TAXES
The Company accounts for income taxes using the asset and liability
method. Under the asset and liability method, deferred income taxes are
recognized for the tax consequences of "temporary differences" by
applying enacted statutory tax rates applicable to future years to
differences between the financial statement carrying amounts and the tax
bases of existing assets and liabilities. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it
is more likely than not that some portion or all of the deferred tax
assets will not be realized.
STOCK BASED COMPENSATION
The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation. This statement encourages, but does not
require, companies to recognize compensation expense for grants of
stock, stock options, and other equity instruments based on a fair-value
method of accounting.
Companies that do not choose to adopt the expense recognition rules of
SFAS No. 123 will continue to apply the existing accounting rules
contained in Accounting Principles Board Opinion (APB) No. 25, but will
be required to provide pro forma disclosures of the compensation expense
determined under the fair-value provisions of SFAS No. 123. APB No. 25
requires no recognition of compensation expense for most of the
stock-based compensation arrangements provided by the Company, namely,
broad-based employee stock purchase plans and option grants where the
exercise price is equal to the market price at the date of the grant.
The Company has adopted the disclosure provisions of SFAS No. 123
effective January 1, 1998. The Company has opted to follow the
accounting provisions of APB No. 25 for stock-based compensation and to
furnish the pro forma disclosures required under SFAS No. 123. See Note
14.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Significant estimates include the
estimation of the fair value of rental real estate acquired and the fair
value of the broadband technology acquired. Actual results could
materially differ from those estimates.
13
<PAGE> 14
SECURITY ASSET CAPITAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
COMPREHENSIVE INCOME
The FASB issued Statement of Financial Accounting Standards (SFAS) No.
130, "Reporting Comprehensive Income." This statement establishes
standards for reporting and display of comprehensive income and its
components. The Company adopted this statement effective January 1,
1998. For the quarter ended March 31, 2000, the Company had no material
items that were required to be recognized as components of comprehensive
income.
ACCOUNTING FOR INTERNAL COSTS RELATING TO REAL ESTATE PROPERTY
ACQUISITIONS
In March 1998, the Emerging Issues Task For ("EITF") of the FASB issued
EITF 97-11, "Accounting for Internal Costs Relating to Real Estate
Property Acquisitions," which provides that internal costs of
identifying and acquiring operating property should be expensed as
incurred. This pronouncement was effective March 19,1998.
SEGMENT INFORMATION
The FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement requires companies
to report certain information about operating segments. The Company
adopted this statement effective January 1, 1998. For the year ended
December 31, 1999, the Company had three operating segments; (i)
consumer credit portfolio, (ii) rental real estate, and (iii) broadband
technology. The Company rental real estate operations are located in
only one geographic area, the County of San Diego, California.
DERIVATIVE INSTRUMENTS
In November 1998, the FASB issued SFAS No. 133, "Accounting For
Derivative Instruments And Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and
hedging activities. It requires that entities recognize all derivatives
as either assets or liabilities in the statement of financial position
and measure those instruments at fair value. Depending on the intended
use of the derivatives, changes in its fair value will be reported in
the period of change as either a component of earnings or a component of
other comprehensive income.
In June 1999, the FASB issued SFAS No. 137, "Accounting For Derivatives
Instruments And Hedging Activities - Deferral Of The Effective Date Of
FASB Statement No. 133, ("SFAS No. 137"). SFAS No. 137 delays the
effective date of implementation of SFAS No. 133 for one year making
SFAS No. 133 effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. Retroactive application to periods prior
to adoption is not allowed. The Company has not quantified the impact of
adoption on its consolidated financial statements or the date it intends
to adopt.
14
<PAGE> 15
SECURITY ASSET CAPITAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
MANAGEMENT'S PLANS FOR FUTURE OPERATIONS AND FINANCING
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. At present,
the Company's working capital plus limited capital resources will not be
sufficient to meet the Company's objectives as structured. The Company
estimates it needs substantial new capital to achieve its operations as
planned, and is seeking up to $5 million in equity financing via a
private offering exempted under Sections 4(2) and 4(6) of the Securities
Act of 1933 and Regulation D promulgated there under. In the event
financing is not obtained the Company will adjust its corporate
infrastructure to reflect current operations.
NOTE 2 - CASH IN TRANSIT
On December 30, 1999 the Company sold portions of certain loan
portfolios totaling $1,649,972. As of December 31, 1999 the proceeds
from this sale were held in escrow. The Company received these funds on
January 4, 2000 (See Note 8).
NOTE 3 - LOAN PORTFOLIO ASSETS
Loan portfolio assets are comprised of liquidating loan portfolios,
which have been purchased by the Company for collection and resale. As
discussed in Note 1 the Loan Portfolio Assets are recorded at $2,242,359
at March 31, 2000.
NOTE 4 - INVESTMENTS IN RENTAL REAL ESTATE
<TABLE>
<CAPTION>
(Unaudited)
March 31, 2000
--------------
<S> <C>
Land $ 1,724,483
Buildings and improvements 2,540,745
Furniture and fixtures 30,234
-----------
4,295,462
Less: accumulated depreciation (194,898)
$ 4,100,564
===========
</TABLE>
<TABLE>
<CAPTION>
NOTE 5 - FURNITURE AND EQUIPMENT
(Unaudited)
March 31, 2000
--------------
<S> <C>
Furniture and fixtures $ 58,067
Less: accumulated depreciation (10,042)
-----------
$ 48,025
===========
</TABLE>
NOTE 6 - PATENTS AND PATENTS PENDING
15
<PAGE> 16
SECURITY ASSET CAPITAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
During 1999, the Company acquired a patent, certain patents pending and
licensing for direct on-line full screen video technology in exchange
for stock. The patent and patents pending have been recorded at fair
market value at the date of acquisition based on an appraisal obtained
by management. The Company will begin amortizing these intangible assets
when the product pertaining to the patents is available for use by
outside parties.
NOTE 7 - DEFERRED FINANCING COSTS
Deferred financing costs consist of the following at March 31, 2000:
<TABLE>
<CAPTION>
2000
-----------
<S> <C>
Deferred financing costs on notes payable
(See Note 10) $ 1,280,574
Deferred financing costs associated with
long-term mortgages secured by
rental real estate - Net 45,817
Less: accumulated amortization (853,530)
-----------
$ 472,861
===========
</TABLE>
NOTE 8 - ACQUISITION OF "THE DEBT REGISTRY"
On February 28, 2000, the Company acquired ownership of certain assets
and the rights to non-binding letters of intent, which will be known as
the "Debt Registry", in return for 600,000 shares of Company common
stock. Using the technology acquired in 1999, the Company will develop
the Debt Registry. The Debt Registry will use the acquired technology,
develop it further, and apply it to the registration and tracking of
individual debt accounts sold by lending institutions to third parties.
The CUSIP type tracking system will bring order and accountability to
the buying and selling of debt portfolios in a manner similar to what
the title companies did for the real estate industry. The Company has
tentative agreements with five major banks and companies to require the
registration of their credit card accounts when they are sold to third
parties. The Company anticipates the Debt Registry will be operating
prior to the end of the year 2000.
NOTE 9 - Not Used
16
<PAGE> 17
SECURITY ASSET CAPITAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 10 - NOTES PAYABLE
In December 1998, the Company entered into a funding agreement with
Secure Investments, Inc. in which Secure Investments, Inc. has agreed to
provide up to $24,000,000 in notes payable ("Investor Notes") to be used
for the purchase of debt portfolios and related note expenses. The
Investor Notes are structured as nine (9) month notes carrying interest
at 12% per annum. The investor has a choice of being paid interest
quarterly or at the end of the term. The agreement with Secure
Investments, Inc. provides that any notes that are not renewed at the
end of nine (9) months will be replaced by Secure Investments, Inc. with
a new investor of like or greater amount.
At March 31, 2000 the Company has outstanding liabilities of
approximately $5,967,615 to various individuals, family trusts,
retirement accounts and organizations. The Investor Notes carry an
annual interest rate of 12%. The Company pays significant commissions to
various entities and individuals for arranging the funding of the
Investor Notes (See Note 7).
Funds from the Investor Notes have been used primarily to fund
acquisitions of distressed consumer loan portfolios and pay costs
related to notes including commissions and interest.
Through April 13, 2000, the Company's experience has been that
approximately eighty-three (83%) percent of the principal amount of the
Investor Notes and more than twenty (20%) percent of the accrued
interest related to the Investor Notes are renewed.
17
<PAGE> 18
SECURITY ASSET CAPITAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 11 - LONG-TERM DEBT
<TABLE>
<CAPTION>
<S> <C>
Long-term debt consists of the following as of March 31, 2000:
Fixed rate first trust deeds payable with interest ranging from 7.02% to
14.00% per annum, maturing through February 2029; the loans are secured
by the subject properties. $ 1,017,744
Variable rate first trust deeds payable with interest ranging from 7.16%
to 8.25% per annum (the interest rates on these loans are subject to
adjustment based on certain indices; the maximum rates under these loans
can range from 11.95% to 15.75%), maturing through December 2035; the
loans are secured by the subject properties. 1,882,292
Fixed rate second trust deeds payable with interest ranging from 8.00%
to 15.00% per annum, maturing through May 2002; the loans are secured by
the subject properties. 119,940
-----------
3,019,976
Less: Current portion (216,592)
-----------
$ 2,803,384
===========
Aggregate maturities of long-term obligations at December 31 are as
follows:
Year Ending Amount
----------- -----------
2000 $ 216,592
2001 73,776
2002 53,924
2003 37,118
Thereafter 2,638,566
-----------
$ 3,019,976
===========
</TABLE>
In April 200, SAP sold two properties. The total debt paid in connection the
sales was $252,655. The payoff includes $113,000 of the current portion of the
long-term debt.
18
<PAGE> 19
SECURITY ASSET CAPITAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 11 - LONG-TERM DEBT (Continued)
TRANSFER OF PROPERTY TITLE AND ASSUMPTION OF OBLIGATIONS
Properties acquired and the related borrowings against these properties
were originally obtained in the name of the shareholders of SAP. At the
time of acquisition of each property, the shareholder transferred each
property and the related borrowing to SAP. As of March 31, 2000, the
obligations associated with SAP's rental properties were in the original
borrower's name. Additionally, many of these borrowings contain "due on
sale" terms. Prior to and during the year ended March 31, 2000, the
title transfer to several of the properties was recorded with the County
Recorders Office of San Diego. Subsequent to year-end all of the
properties but one (1) have had the title transferred to SAP. SAP has
not been notified by any of the lenders of their desire to demand
repayment of the loan. Management believes that any loans, which are
required to be repaid, can be replaced with loans of similar terms.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
LITIGATION
As of December 31, 1999, The Company has no significant litigation
pending.
LEASES
The Company, as of March 31, 2000, does not have any long term or
operating lease obligations. The Company's corporate office lease was
renewed for one year in January 2000 at the rate of approximately $2,600
per month.
RENTAL RECEIPTS UNDER OPERATING LEASES
The Company receives rental income from the leasing of single-family
residences and apartments under operating leases. The majority of the
Company's properties are leased on a month-to-month basis
OPTIONS TO PURCHASE PROPERTY GRANTED TO TENANTS
SAP grants certain tenants the option to purchase the property being
leased in exchange for an option deposit paid by the tenant. SAP
recognizes these deposits as income upon the termination of the lease
and the election of the tenant not to exercise the option.
19
<PAGE> 20
SECURITY ASSET CAPITAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 13 - SHAREHOLDERS' EQUITY (DEFICIT)
CONTRIBUTED SERVICES OF EXECUTIVE OFFICERS
SAP occupies office space in a building owned by one of the
shareholders. The shareholders use this building to house the office of
related business entities owned by the shareholders. In addition, the
executive officers of SAP contributed services at no cost. The fair
value of the space occupied and the contributed services amounted to
$10,369 in the first quarter 2000. This amount is included in additional
paid-in capital and in general and administrative expenses for the year
ended March 31, 2000.
STOCKHOLDERS EQUITY
In the 1st Quarter 2000, the Company committed to issue a total of
1,135,000 shares of common stock. The shares were granted in the amount
and for the purposes described below:
<TABLE>
<CAPTION>
Purpose Number of Shares
------- ----------------
<S> <C>
Acquisition of the Debt Registry 600,000
Issued to employees for services 150,000
Issued to third parties for services (See below) 310,000
Issued in settlements (See below) 75,000
</TABLE>
During January 2000 the Company issued a total of 310,000 shares of
common stock to third parties as compensation for consulting services
provided to the Company. For the quarter ended March 31, 2000 the
Company recognized $51,150 as compensation expense associated with these
grants, based on the fair value of the stock at the time of grant.
In January 2000, the following shares were issued to obtain general
release from legal issues. The Company recognized expense totaling
approximately $12,375 as a result of these issuances.
Archie Fischer 25,000 Share of Common Stock
14th St. & Beardsly Ltd. Prshp 25,000 Shares of Common Stock
Payson Ridge Co., Inc. 25,000 Shares of Common Stock
20
<PAGE> 21
SECURITY ASSET CAPITAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 14 - STOCK OPTION PLAN
The Company adopted a stock option plan on November 15, 1993 (the
"Plan") under which options to purchase up to 10,000,000 shares of
common stock may be granted to officers, employees or directors of the
Company, as well as consultants, independent contractors or other
service providers of the Company. "Nonqualified" options may be granted
under the Plan. Nonqualified options may be granted at an exercise price
determined by the Board of Directors. Individual option agreements will
contain such additional terms as may be determined by the Board of
Directors at the time of the grant. The Plan provides for grants of
options with a term of up to ten years.
STOCK OPTIONS
The Company has elected to account for nonqualified grants and grants
under its Plan following APB No. 25 and related interpretations.
Accordingly, no compensation costs have been recognized for nonqualified
options for the quarter ended March 31, 2000 or for years ended December
31, 1999 and 1998, respectively. Under FASB Statement No. 123,
Accounting for Stock-Compensation, the fair value of each option granted
during the years ended December 31, 1999 and 1998 was estimated on the
measurement date utilizing the then current fair value of the underlying
shares less the exercise price discounted over the average expected life
of the options of ten years, with an average risk free interest rate of
4.88% to 6.29%, price volatility of 1 and no dividends. Had compensation
cost for all awards been determined based on the fair value method as
prescribed by FASB Statement No. 123, reported net (loss) and (loss) per
common share would have been as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
-------------- --------------
<S> <C> <C>
Net (loss):
As reported $ (1,591,181) $ (38,075)
Pro forma $ (1,591,181) $ (70,888)
Basic and diluted net (loss) per share:
As reported $ (0.19) $ (0.01)
Pro forma $ (0.19) $ (0.01)
</TABLE>
21
<PAGE> 22
SECURITY ASSET CAPITAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 14 - STOCK OPTION PLAN (Continued)
A summary of the activity of the stock options for the years ended
December 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1999 December 31, 1998
-------------------------- --------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of 450,000 $ 0.08 B $ B
period
Granted 900,000 0.25 450,000 0.08
Forfeited B B B B
Expired B B B B
--------- --------- --------- ---------
Outstanding at end of period 1,350,000 $ 0.19 450,000 $ 0.08
========= ========= ========= =========
Exercisable at end of period 1,350,000 $ 0.19 450,000 $ 0.08
========= ========= ========= =========
Weighted-average fair value of options
granted during the period $ 0.75 $ 0.08
========= =========
</TABLE>
A further summary of options outstanding at December 31, 1999 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------- ----------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Outstanding Life Price Exercisable Price
------------- ---------- -------- ------------- ---------
<S> <C> <C> <C> <C>
450,000 9.0 years $ 0.08 450,000 $ 0.08
100,000 9.5 years 0.25 100,000 0.25
500,000 9.75 years 0.25 500,000 0.25
300,000 10.0 years 0.25 300,000 0.25
------------- -------------
1,350,000 1,350,000
============= =============
</TABLE>
22
<PAGE> 23
SECURITY ASSET CAPITAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 15 - INCOME TAXES
Deferred income taxes reflect the net tax effects of the temporary
differences between the carrying amounts of assets and liabilities for
financial reporting and the amounts used for income tax purposes. The
tax effect of temporary differences consisted of the following as of
December 31:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carry forwards $ 704,000 $ 189,300
Compensation element of
stock options issued 34,800 B
Cash to accrual adjustment
of subsidiary 7,600 B
--------- ---------
Gross deferred tax assets 746,400
189,300
Less valuation allowance (481,300) (189,300)
--------- ---------
Net deferred tax assets 265,100 B
Deferred tax liabilities, difference in basis
on rental real estate between financial and
tax purposes (515,100) B
--------- ---------
Net deferred tax liability $ 250,000
=========
B
---------
</TABLE>
Realization of deferred tax assets is dependant upon sufficient future
taxable income during the period that deductible temporary differences
and carry forwards are expected to be available to reduce taxable
income. As the achievement of required future taxable income is
uncertain, the Company recorded a valuation allowance. The valuation
allowance increased by $292,000 and $13,700 from 1998 and 1997,
respectively. The Company will continue to assess the valuation
allowance and to the extent it is determined that such allowance is no
longer required, the tax benefit of the remaining net deferred tax
assets will be recognized in the future.
As of December 31, 1999, the Company has net operating loss carry
forwards for both federal and state income tax purposes. Federal net
operating loss carry forwards totaling approximately $1,908,000
(approximately $220,000 available solely to SAP) expire in the years
2008 through 2019. State net operating loss carry forwards totaling
approximately $976,000 expire in the years 2000 through 2004. Due to
Internal Revenue Service regulations, the availability of the operating
loss carry forwards may be limited upon a substantial change in
ownership. During 1999 such a change occurred with respect to SAP.
Therefore the utilization of SAP's operating loss carry forwards will be
limited to approximately $64,000 a year and can only be offset against
future SAP taxable income.
Due to the limited availability of SAP's operating loss carry forwards
to offset the financial reporting and tax basis difference associated
with its rental real estate the Company has recorded
23
<PAGE> 24
SECURITY ASSET CAPITAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
a net deferred tax liability and related tax expense of $250,000.
Nothing has materially change during the 1st quarter 2000 related to the
provision for income taxes.
24
<PAGE> 25
SECURITY ASSET CAPITAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 15 - INCOME TAXES (Continued)
A reconciliation of the effective tax rates with the federal statutory
rate is as follows as of December 31:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Income tax benefit at 35% statutory rate $(473,700) $ (13,300)
Change in valuation allowance 292,000 13,700
State income taxes, net (78,500) (2,200)
Other 10,200 1,800
--------- ---------
$(250,000) $ B
========= =========
</TABLE>
Nothing materially has changed in the 1st quarter 2000 related to the
reconciliation of the effective tax rates.
NOTE 16 - Not Used
NOTE 17 - SEGMENT INFORMATION
The Company has three reportable segments: consumer credit portfolio,
rental real estate portfolio and broadband. The consumer credit
portfolio segment acquires, manages, collects and markets distressed
consumer credit portfolios. The rental real estate portfolio acquires,
manages and sells residential properties located in San Diego County,
California. The broadband segment holds a patent, certain patents
pending and licensing for direct on-line full screen video technology.
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies. The Company evaluates
performance based on income or loss from operations before income taxes
not including nonrecurring gains and losses. The Company's reportable
segments are strategic business units that offer different products or
services. They are managed separately because each business requires
different marketing strategies.
25
<PAGE> 26
SECURITY ASSET CAPITAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 17 - SEGMENT INFORMATION (Continued)
Information about reported segment profit or loss and segment assets for
the quarters ended March 31, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
Consumer Rental
Credit Real Estate TheDebtTrader.Com
Portfolio Portfolio Broadband Total
------------ ------------ ---------- ------------
<S> <C> <C> <C> <C>
2000 Revenues $ 1,225,070 $ 114,804 $ B $ 1,339,874
1999 Revenues B B B B
2000 Interest expense 158,956 62,448 B 221,404
1999 Interest expense 18,614 B B 18,614
2000 Profit (loss) (641,567) 5,938 (23,494) (659,126)
1999 Profit (loss) (109,330) B B (109,330)
2000 Assets 4,385,663 4,087,814 2,926,480 11,399,957
1999 Assets 973,789 B B 384,393
</TABLE>
26
<PAGE> 27
SECURITY ASSET CAPITAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 18 - SUBSEQUENT EVENTS
During January 2000, the Company granted an option to acquire 50,000
shares of common stock, exercisable at $0.25 per share to it Chief
Financial Officer.
On March 28, 2000, the Company began soliciting capital funds (the
"Private Placement") for the Broadband Technologies, Inc. subsidiary. In
return of the full $5,000,000 in equity, investors will receive a 10%
ownership in Broadband Technologies, Inc. In addition, the Broadband
investors receive warrants to purchase up to 2,500,000 shares of the
Company's common stock for $2.00 per share. The Private Placement seeks
to raise $4,500,000 after costs for Broadband Technologies, Inc. and the
Company. The funds are to be used for development of the broadband
technologies including specific applications for use in the Debt
Registry and operating costs of the Company. As of April 21, 2000, the
Company has obtained written letters of intent to fund $3,600,000 of the
$5,000,000 Private Placement. The Company anticipates the entire Private
Placement will be committed and funded.
27
<PAGE> 28
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
selected historical financial data, financial statements and notes thereto and
the other historical financial information of Security Asset Capital Corporation
contained elsewhere in this Form 10-QSB. The statements contained in this Form
10-QSB that are not historical are forward looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Exchange Act of 1934, including statements regarding Security Asset Capital
Corporation's expectations, intentions, beliefs or strategies regarding the
future. Forward-looking statements include Security Asset Capital Corporation's
statements regarding liquidity, anticipated cash needs and availability and
anticipated expense levels. All forward-looking statements included in this Form
10-QSB are based on information available to Security Asset Capital Corporation
on the date hereof, and Security Asset Capital Corporation assumes no obligation
to update any such forward-looking statement. It is important to note that
Security Asset Capital Corporation's actual results could differ materially from
those in such forward-looking statements.
Overview
Security Asset Capital Corporation was founded on September 22, 1993, and has
pursued its original objective to build through acquisition and develop a team
of vertically integrated companies structured to achieve maximum economic
advantage within the asset liquidation industry. The Company, inclusive of its
management company, Security Asset Management Inc., has acquired over the past
several years; (1) an income property company, Security Asset Properties, Inc.,
which purchases performing rental real estate, (2) the premiere Internet portal
for buying and selling assets in the asset liquidation and purchasing
industry,TheDebtTrader.Com, 3) a proprietary technology company with one patent
and four patents pending, all directed toward providing direct on-line full
motion video, Broadband Technologies, Inc., and 4) The Debt Registry, a company
providing a structured approach to documenting ownership of assets in the
unsecured debt markets similar to CUSIP numbers for publicly held stocks.
The core competency for Security Asset Capital Corporation is the acquisition of
debt assets. The Company targets debt assets for acquisition, acquires those
debt assets at the best possible price with funds generated by the Company's
fund raising efforts and internal capital. Then, with the services of our
strategically aligned collection firms, (i) collect the receivables, (ii)
restructure the debt assets into performing portfolios and resell them at a
substantial profit, or (iii) repackage the non-performing accounts and sell them
to the wholesale or retail markets for substantial present value profits.
The Company plans to raise approximately $5,000,000 through a private placement
offering to accredited investors for the development and implementation of
Broadband Technologies, Inc.'s patent and patent pending technologies.
Broadband's mission is to become an industry leader in multimedia storage and
delivery by servicing existing industries that would benefit from casting video
to their clients and bring video on demand to the home through an alliance with
an established service provider.
Broadband Technologies Inc. is dedicated to bringing full screen, on-demand
video to the consumer via the Internet. Just as companies rely on express mail
services to rapidly deliver packages, companies will rely on a
28
<PAGE> 29
service provider to store and deliver video content. Some industries that will
benefit from the ability to cast video content directly to its consumers include
pay TV, video rental, high-end product sales, corporate advertising,
infomercials, travel and real estate, auction centers, and corporate training.
The challenge of bringing on-demand video to the consumer hinges mainly on the
storage of dense video content. Broadband Technology Inc.'s data warehousing
methods, combined with currently available technology, could allow us to
infinitely scale for the inventory demands of the future. Broadband
Technologies, Inc. has filed five patent applications, of which one patent has
been issued and the others have patent pending status. These applications cover
the key proprietary features of the video delivery system. The following is a
summary of these five patent applications:
1. Distributive Network. The system utilizes a very complex and specific
"Intranet" network configuration. It allows for complete redundancy of the
information contained within the network and provides for fail-proof
communications.
2. Hardware and Software Configurations. The configuration of hardware and
software that the system employs in its viewing centers is both specific and
very unique. The combination of software provided allows for the proper
functionality of all hardware components.
3. Dual MPEG Streaming. This patent pertains to the heart of the system. It
protects the actual process of delivering MPEG video streams. In addition, it
will guard the only method known to date for allowing a single processor CPU to
stream two different MPEG files simultaneously.
4. Graphical User Interface. Under this patent, the "look and feel" of the
system is protected. The graphical user interface ("GUI") is created by a unique
combination of display device drivers, file types and formats, that creates an
environment extremely intricate in delivery, yet very intuitive and user
friendly.
5. Design. The design and engineering of the "viewing center" is protected under
this claim.
We anticipate that the bulk of the video on demand revenue will come from
storage and delivery fees, as these will be our primary services. Companies
wishing to deliver "infomercials" or training videos, as well as those that
store product content in video format constitute our prospective industrial
market. We foresee industries such as real estate, education, travel and tourism
all depending upon technology and services, like those that Broadband
Technologies, Inc. intends to provide, for their success.
Consumers who want to watch movies on-demand and pay "per-view" fees comprise
the private market. The Company operates under the assumption that the
movie-watching consumer does not want to browse the Internet on their
television, nor does the average person want to watch full-length feature films
on their PC. It is believed that consumers would, however, purchase and/or
subscribe to an Internet service via their television if they could watch movies
on demand.
Broadband Technologies Inc.'s short term objective is to implement The Debt
Registry into a bottom line cash producing vehicle while improving its existing
proprietary technologies through investment in qualified technical personnel.
The Debt Registry provides us with a potential money making application
immediately
29
<PAGE> 30
available for Broadband Technologies, Inc.'s technology while we continue to
develop the technology into the many niches of video on-demand industry.
The Company is presently developing The Debt Registry (the "Registry") as a
registering system for loan portfolio accounts. The Registry is intended to
provide the financial lending and asset liquidation industry with much needed
structure and technological expansion. The Registry will develop an integrated
hardware and software system for this innovative and new financial sector. This
system will be implemented utilizing Broadband Technologies' Inc.'s proprietary
data warehousing methods. It will be e-commerce and Internet oriented. The
Registry will offer a structured approach to documenting ownership of loan
assets specifically in the unsecured debt market place of credit card, consumer
loan, and medical debt. The Registry is currently in discussions with Bank of
America, GE Capital, and Bank One to participate in the system. The Registry is
projected to be operational with cash flow within the next six months and has
projections estimating a significant after tax net profit within two years.
Other revenues are anticipated to come from Broadband Technologies, Inc.'s
storage and delivery fees, as these will be its primary services. Companies
wishing to deliver "infomercials" or training videos, as well as those that
store product content in video format, constitute our prospective industrial
market. Customers for Broadband Technologies, Inc.'s technology services are
likely to include the real estate, education, travel and tourism industry
segments that have already moved forward in technology by offering video as part
of their presentation package. Consumers who want to watch movies on-demand and
pay "per-view" fees comprise the private market. We believe that the home
movie-watching consumer does not want to browse the Internet on their television
for movies, nor does the average person want to watch full-length feature films
on their personal computer. However, a consumer would purchase or subscribe to
an Internet service via their television if they could watch movies on demand.
TheDebtTrader.Com brokers and auctions charged-off debt portfolios and notes
over the Internet. Previously known to the asset liquidation industry as "The
Note and Paper Trader", this innovative Internet portal was acquired by the
Security Asset Capital Corporation in 1999 and is an industry recognized forum
for information and portfolio exchange. Membership spans 50 states and 5 foreign
countries and includes financial institutions, law firms, resellers, collectors
and product companies. Over $40 million of debt portfolios were sold through the
site in 1999 alone. TheDebtTrader.Com made history in February 2000 by hosting
the industry's first online chat session. Revenues are earned from service fees
arising out of the online sale of portfolios and notes.
TheDebtTrader.Com is modeled as a national exchange for debt buyers and sellers.
It was the first to offer a Multiple Listing Site for debt portfolios (Credit
Card Charge-off, Auto, Consumer Loan, etc.). By incorporating much of Broadband
Technologies' expertise, TheDebtTrader.Com is well placed to play an integral
role with the Debt Registry, a listing of all debt portfolio accounts sold by
many of the nation's financial institutions.
The Company's most recent acquisition, Security Asset Properties, Inc., a Nevada
corporation, was previously known as "Four D Corporation". The company, founded
in 1993, purchases cash-flowing multi-family residential rental properties in
San Diego and currently owns and manages more than twenty properties. The
Company plans to expand Security Asset Properties' capital base through
exchanges and acquisitions and to
30
<PAGE> 31
later convert it into a real estate investment trust (REIT).
The Security Asset groups of companies possess several distinct advantages over
competitors in the dot COM and e-commerce world. The company is one of the few
corporate structures with not just the vision of future technological advances
but also the base of solid earnings potential now. The debt purchasing, selling
and collecting revenues plus the real estate rental income form a solid business
nucleus. The Debt Registry, an application of the Broadband Technologies, Inc.'s
technology, is expected to produce income within six months. The interrelated
solid business structure coupled with the potential future applications of
direct full motion on line video give Security Asset Capital Corporation a
distinct advantage over competitors. The Debt Registry will be the first of its
kind in innovative structures to assist the financial institutions in the debt
purchasing and selling arena.
The position of being first to market with the best product has always been a
proven and solid business precept. The Debt Registry can be a solid profit
center and it is Security Asset Capital Corporation's corporate strategy to grow
this base operation into a dominance in the financial services business sector.
The Company is working on a plan to restructure up to five million of its debt
into equity. Our intention is to qualify and apply for admission onto the NASDAQ
National Market System Board as soon as possible.
RESULTS OF OPERATIONS FOR EACH OF THE THREE MONTHS ENDED MARCH 31, 2000 AND
1999.
REVENUE
Revenue for the three months ended March 31, 2000 increased by $1,339,579 to
$1,339,874, as compared to $295 for the three months ended March 31, 1999. The
increase is primarily attributable to added revenues from Portfolio Revenue.
LOSS FROM OPERATIONS
Loss from operations is calculated by subtracting expenses from net revenue.
Loss from operations for the three months ended March 31, 2000 increased by
$108,531 to $(162,509), as compared to $(53,978) for the three months ended
March 31, 1999. This increase was primarily attributable to increase in
portfolio revenues. As a percentage of revenue, gross profit increased to 12.5%
for the three months ended March 31, 2000 from loss for the three months ended
March 31, 1999, as a result of the increase in Portfolio activities.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expense include administrative and management
benefits and salaries, advertising and promotion, office and general, general
and administrative expense, professional fees and occupancy costs. General and
administrative expense for the three months ended March 31, 2000 increased by
$471,329, or 868%, to $525,602, as compared to $54,273 for the three months
ended March 31, 1999. This increase was primarily attributable to increase in
Portfolio activities and related increase in costs and staff. As a percentage of
revenue however, General and administrative expense decreased from 184% for the
three months ended March 31, 2000 amounted to 39%.
31
<PAGE> 32
NET LOSS
Net loss for the three months ended March 31, 2000 increased by $549,796 or 503%
from a net loss of $109,330 for the three months ended March 31, 1999 to a net
loss of $659,126 for the three months ended March 31, 2000. As a percentage of
revenue, net loss amounted to 49% for the three months ended March 31, 2000.
Amortization of deferred financing costs increased $245,802 or 795% from $35,351
for the three months ended March 31, 1999 to $281,153 for the three months ended
March 31, 2000. This increase is primarily attributable to the increase in
financial costs. Interest expense increased $201,440 or 1007% to $221,441 for
the three months ended March 31, 2000 from $20,001 for the three months ended
March 31, 1999. This increase is a result of our increased short-term and
long-term debt.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of cash and cash flow from operations are its
short-term and long-term debt and increased gross revenues. At March 31, 2000,
the Company had cash and cash equivalents of $1,420,331. During the three months
ended March 31, 2000, the Company had cash flow from operations of $589,240, due
primarily to an increase in receipt of cash in transit, sales of Loan portfolio
receivables. At March 31, 1999, the Company had cash and cash equivalents of
$774,430. During the three months ended March 31, 1999 the Company had cash
deficit from operations of $120,238, due primarily to limited gross revenues.
The Company plans to continue funding operations through revenue earned from its
asset portfolio purchase and sale operations, additional debt and equity capital
raises. Broadband Technologies, Inc. currently through a private placement is
raising $5,000,000 to fund ongoing operation and development of the Debt
Registry and other technologies of Broadband Technologies, Inc.
32
<PAGE> 33
PART II
OTHER INFORMATION
Item 1. Legal Proceedings. None.
Item 2. Changes In Securities. 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.
Item 6. Exhibits and Reports on Form 8-K.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
3.1 Articles of Incorporation of Securities Asset Capital
Corporation are incorporated herein by reference to Exhibit
3.1 to the report on Form 8-K filed April 5, 2000.
3.2 By-Laws of Security Asset Capital Corporation incorporated
herein by reference to Exhibit 3.2 to the report on Form 8-K
filed April 5, 2000.
4. Form of Security Asset Capital Corporation's Common Stock
Certificate.
27. Financial Data Schedule.
</TABLE>
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.
SECURITY ASSET CAPITAL CORPORATION,
a Nevada corporation
Date: 5/18/2000 /S/ DAVID R. WALTON
David R. Walton, Chief Executive Officer
33
<PAGE> 1
EXHIBIT 4
NUMBER SHARES
- ------------- [SECURITY ASSET CAPITAL CORPORATION LOGO] -------------
This INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA
25,000,000 SHARES COMMON STOCK AUTHORIZED, $.001
certifies CUSIP
The shares represented by this
that certificate have not been
registered under the Securities Act
of 1933, as amended, and they may
is the owners of not be sold, or otherwise
transferred unless compliance with
the registration provisions of such
Act has been made, or unless
availability of an exemption from
such registration provisions has
been established, or unless sold
pursuant to rule 144 under the
Securities Act of 1933
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF
[SECURITY ASSET CAPITAL CORPORATION LOGO]
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this certificate properly endorsed. This
certificate is not valid unless countersigned by the Transfer Agent. WITNESS
the facsimile seal of the Corporation and the facsimile signature of its
duly authorized officers.
DATED:
[SECURITY ASSET CAPITAL CORPORATION SEAL]
/s/ David R. Walton /s/ Darell Musick
SECRETARY PRESIDENT
COUNTERSIGNED
PACIFIC STOCK TRANSFER COMPANY
P.O. Box 93385
Las Vegas, NV 89193
By
------------------------------
AUTHORIZED SIGNATURE
- --------------------------------------------------------------------------------
NOT VALID UNLESS COUNTERSIGNED BY TRANSFER AGENT
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,420,331
<SECURITIES> 0
<RECEIVABLES> 2,428,646
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,848,977
<PP&E> 2,629,046
<DEPRECIATION> 217,690
<TOTAL-ASSETS> 11,399,957
<CURRENT-LIABILITIES> 6,435,292
<BONDS> 0
0
0
<COMMON> 4,881,744
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 11,399,957
<SALES> 1,225,070
<TOTAL-REVENUES> 1,339,874
<CGS> 989,475
<TOTAL-COSTS> 1,502,383
<OTHER-EXPENSES> 281,153
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 221,441
<INCOME-PRETAX> (659,126)
<INCOME-TAX> 0
<INCOME-CONTINUING> (659,126)
<DISCONTINUED> 0
<EXTRAORDINARY> (659,125)
<CHANGES> 0
<NET-INCOME> (659,125)
<EPS-BASIC> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
