ITEM 1. BUSINESS
Overview
On August 3, 2004 the Company shareholders approved the proposal to allow the Company to adopt business development company ("BDC") status under the Investment Company Act of 1940 ("1940 Act"). A BDC is a specialized type of Investment Company under the 1940 Act. A BDC may primarily be engaged in the business of furnishing capital and managerial expertise to companies that do not have ready access to capital through conventional financial channels; such companies are termed "eligible portfolio companies". The Company as a BDC, may invest in other securities, however such investments may not exceed 30% of the Company's total asset value at the time of such investment. The Company filed its BDC election with the SEC (Form N-54A) on August 3, 2004.
ACS Holdings, Inc. ("ACSH"), formally Maxzone.com, Inc., is a publicly traded Nevada corporation formed in April 2002, with its principal offices and operations center in Orlando, FL. ACSH has an investment in and presently owns all (100%) of the outstanding stock in American Card Services, Inc.
On November 15, 2004, the Chief Executive Officer, Walter H. Roder, II, tendered his resignation to the Board of Directors. The resignation was accepted by the Board of Directors on November 16, 2004. Mr. Roder, while he remains a significant shareholder, elected to relinquish day-to-day management to the current management of the stored-value debit card business. He has also elected to step down from the board so that new independent directors could be appointed consistent with the requirements and process of the Company's election to be governed as a business development company.
ACSH intends to provide equity and long-term debt financing to small and medium-sized private companies in a variety of industries throughout the United States. The Company's investment objective is to achieve long-term capital appreciation in the value of its investments and to provide current income primarily from interest, dividends and fees paid by the Company's portfolio companies.
Portfolio Investments
The Company has investments in one controlled (portfolio) Company as of December 31, 2004.
1. American Card Services, Inc.
American Card Services, Inc. ("ACS") is a Delaware corporation which prior to November, 2004 sought to capture a large portion of the rapidly emerging stored-value debit card market that provides unbanked ethnic customers with a viable alternative to cash and traditional money transfers. ACS has since changed its direction and is seeking out investments in financial services and real estate entities. The Company currently owns 100% of the stock of American Card Services, Inc.
American Card Services, Inc. owns 100% of ACS Transaction Processing, Inc. a Delaware Corporation incorporated in August, 2003. ACS Transaction Processing had no business activity through December 31, 2004.
American Card Services, Inc. owns 100% of ACS Sales, Inc. a Delaware Corporation incorporated in August, 2003. ACS Sales, Inc. had no business activity through December 31, 2004.
Valuation of Investments
The most significant estimate inherent in the preparation of the Company's financial statements is the valuation of its investment and the related unrealized appreciation or depreciation.
Upon the Company's conversion to a business development company, the Board of Directors determined the value of its portfolio companies and investments at fair market value under a good faith standard.
Investments in Private Companies
The Company intends to provide privately negotiated long-term debt and equity investment capital. The Company will provide capital in the form of debt with or without equity features, such as warrants or options, often referred to as mezzanine financing. In certain situations the Company may choose to take a controlling equity position in a company. The Company's private financing will be used to fund growth, buyouts, and acquisitions and bridge financing.
As of December 31, 2004 the Company's portfolio consisted 100% of equity securities.
The Company intends to fund new investments using cash through the issuance of common stock. The Company intends to reinvest accrued interest, dividends and management fees into its various investments. When the Company acquires a controlling interest in a company, the Company may have the opportunity to acquire the company's equity with its common stock. The issuance of its stock as consideration may provide the Company with the benefit of raising equity without having to access the public markets in an underwritten offering, including the added benefit of the elimination of any underwriting commission.
As a business development company, the Company is required to provide significant managerial assistance available to the companies in its investment portfolio. In addition to the interest and dividends received from the Company's private finance investments, the Company will often generate additional fee income for the structuring, due diligence, transaction and management services and guarantees we provide to its portfolio companies.
Governmental Regulation
Business Development Company
A business development company is defined and regulated by the 1940 Act. Although the 1940 Act exempts a business development company from registration under the Act, it contains significant limitations on the operations of a business development company.
A business development company must be organized in the United States for the purpose of investing in or lending to primarily private companies and making managerial assistance available to them. A business development company may use capital provided by public shareholders and from other sources to invest in long-term, private investments in businesses. A business development company provides shareholders the ability to retain the liquidity of a publicly traded stock, while sharing in the possible benefits, if any, of investing in primarily privately owned companies. To qualify as a business development company, a company must:
o Have registered a class of its equity securities or have filed a registration statement with the Securities and Exchange Commission pursuant to Section 12 of the Securities and Exchange Act of 1934
o Operate for the purpose of investing in securities of certain types of portfolio companies, namely emerging companies and businesses suffering or just recovering from financial distress
o Extend significant managerial assistance to such portfolio companies and
o Have a majority of "disinterested" directors (as defined in the 1940 Act).
Generally, a business development company must be primarily engaged in the business of furnishing capital and providing managerial expertise to companies that do not have ready access to capital through conventional financial channels. An eligible portfolio company is generally a domestic company that is not an investment company (other than a small business investment company wholly owned by a business development company), and that:
o Does not have a class of securities registered on an exchange or included in the Federal Reserve Board's over-the-counter margin list; or
o Is actively controlled by a business development company and has an affiliate of a business development company on its board of directors; or
o Meets such other criteria as may be established by the Securities and Exchange Commission
Control under the 1940 Act is presumed to exist where a business development Company beneficially owns more than 25% of the outstanding voting securities of the portfolio company.
The 1940 Act prohibits or restricts companies subject to the 1940 Act from investing in certain types of companies such as brokerage firms, insurance companies, investment banking firms and investment companies.
As a business development company, the Company may not acquire any asset other than "qualifying assets" unless, at the time the Company makes the acquisition, the value of its qualifying assets represent at least 70% of the value of its total assets. The principal categories of qualifying assets relevant to our business are:
o Securities purchased in transactions not involving any public offering, the issuer of which is an eligible portfolio company;
o Securities received in exchange for or distributed with respect to securities described in the bullet above or pursuant to the exercise of options, warrants or rights relating to such securities; and
o Securities of bankrupt or insolvent companies that were eligible at the time of the business development company's initial acquisition of their securities but are no longer eligible, provided that the business development company has maintained a substantial portion of its initial investment in those companies.
o Cash, cash items, government securities or high quality debt securities (within the meaning of the 1940 Act), maturing in one year or less from the time of investment
A business development company is permitted to invest in the securities of public companies and other investments that are not qualifying assets, but those kinds of investments may not exceed 30% of the business development companies' total asset value at the time of the investment.
As a business development company, the Company is entitled to issue senior securities in the form of stock or senior securities representing indebtedness, including debt securities and preferred stock, as long as each class of senior security has asset coverage of at least 200% immediately after each such issuance.
The Company is also prohibited under the 1940 Act from knowingly participating in certain transactions with its affiliates without the prior approval of its board of directors who are not interested persons and, in some cases, prior approval by the Securities and Exchange Commission.
A business development company must make significant managerial assistance available to the issuers of eligible portfolio securities in which it invests. Making available significant managerial assistance means among other things, any arrangement whereby the business development company, through its directors, officers or employees, offers to provide and, if accepted does provide, significant guidance and counsel concerning the management, operation or business objectives and policies of a portfolio company.
The Company may be periodically examined by the Securities and Exchange Commission for compliance with the 1940 Act. As of the date of this filing the Company has inquires from the Commission and has answered such inquiries received.
As with other companies regulated by the 1940 Act, a business development company must adhere to certain substantive regulatory requirements. A majority of its directors must be persons who are not interested persons, as that term is defined in the 1940 Act. Additionally, the Company is required to provide and maintain a bond issued by a reputable fidelity insurance company to protect us against larceny and embezzlement.
Furthermore, as a business development company, the Company is prohibited from protecting any director or officer against any liability to the Company or our shareholders arising from willful malfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person's office.
The Company maintains a Code of Ethics that establishes procedures for personal investment and restricts certain transactions by its personnel. The Company's Code of Ethics generally does not permit investment by its employees in securities that may be purchased or held by the Company.
The Company may not change the nature of its business so as to cease to be, or withdraw our election as, a business development company unless authorized by vote of a "majority of the outstanding voting securities," as defined in the 1940 Act, of its shares. A majority of the outstanding voting securities of a company is defined under the 1940 Act as the lesser of: (i) 67% or more of such company's shares present at a meeting if more than 50% of the outstanding shares of such company are present and represented by proxy or (ii) more than 50% of the outstanding shares of such company. Since the Company elected to become a business development company election, it has not made any substantial change in the nature of its business.
Regulated Investment Company
The Company has not elected to be taxed as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986.
Compliance with the Sarbanes-Oxley Act of 2002 and NYSE Corporate Governance Regulations.
On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act"). The Sarbanes-Oxley Act imposes a wide variety of new regulatory requirements on publicly held companies and their insiders. Many of these requirements will affect us. For example:
o The Company's chief executive officer and chief financial officer must now certify the accuracy of the financial statements contained in our periodic reports;
o The Company's periodic reports must disclose conclusions about the effectiveness of its disclosure controls and procedures;
o The Company's periodic reports must disclose whether there were significant changes in its internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses; and
o The Company may not make any loan to any director or executive officer and may not materially modify any existing loans.
The Sarbanes-Oxley Act has required the Company to review its current policies and procedures to determine whether it complies with the Sarbanes-Oxley Act and the new regulations promulgated thereunder. The Company will continue to monitor its compliance with all future regulations that are adopted under the Sarbanes-Oxley Act and will take actions necessary to ensure that we are in compliance.
Employees
As of December 31, 2004 the Company had no employees.
Risk Factors and Other Considerations
Investing in the Company's common stock involves a high degree of risk. Careful consideration should be given to the risks described below and all other information contained in this Annual Report, including our financial statements and the related notes and the schedules as exhibits to this Annual Report.
Limited Operating History as a Business Development Company Which May Impair Your Ability to Assess Our Prospects.
Prior to August 2004 the Company had not operated as a business development company under the Investment Company Act of 1940. As a result the Company has limited operating results under this regulatory framework that can demonstrate either its effect on our business or management's ability to manage the Company under these frameworks. In addition, the Company's management has no prior experience managing a business development company. The Company cannot assure that management will be able to operate successfully as a business development company.
Because there is generally no established market for which to value its investments, the Company's board of directors' determination of the value of our investments may differ materially from the values that a ready market or third party would attribute to these investments.
Under the 1940 Act the Company is required to carry its portfolio investments at market value, or, if there is no readily available market value, at fair value as determined by the board. The Company is not permitted to maintain a general reserve for anticipated loan losses. Instead, the Company is required by the 1940 Act to specifically value each individual investment and to record any unrealized depreciation for any asset that has decreased in value. Because, there is typically no public market for the loans and equity securities of the companies in which it invests, the Company's board will determine the fair value of these loans and equity securities pursuant to its valuation policy. These determinations of fair value may necessarily be somewhat subjective. Accordingly, these values may differ materially from the values that would be determined by a party or placed on the portfolio if there existed a market for our loans and equity securities.
Investing in Private Companies Involves a High Degree of Risk.
The Company's portfolio consists of primarily investments in private companies. Investments in private businesses involve a high degree of business and financial risk, which can result in substantial losses and accordingly should be considered speculative. There is generally no publicly available information about the companies in which the Company invests, and the Company relies significantly on the due diligence of its employees and agents to obtain
information in connection with its investment decisions. If the Company is unable to uncover all material information about these companies, it may not make a fully informed investment decision and the Company may lose money on its investments.
In addition, some smaller businesses have narrower product lines and market shares that their competition, and may be more vulnerable to customer preferences, market conditions or economic downturns, which may adversely affect the return on, or the recover of, the Company's investment in such business.
The Lack of Liquidity of the Company's Privately Held Investments may Adversely Affect Our Business.
Substantially all of the investments the Company expects to acquire in the future will be, subject to restrictions on resale, including in some instances, legal restrictions, or will otherwise be less liquid than publicly traded securities. The illiquidity of our investments may make it difficult for us to quickly obtain cash equal to the value at which we record our investments if the need arises. This could cause us to miss important business opportunities. In addition, if we are required to quickly liquidate all or a portion of our portfolio, we may realize significantly less than the value at which we have previously recorded our investments.
If the Industry Sectors in which the Company's Portfolio is Concentrated Experience Adverse Economic or Business Conditions, Our Operating Results may be Negatively Impacted.
The Company's customer base will be in diversified industries. These customers can experience adverse business conditions or risks related to their industries. Accordingly, if the Company's customers suffer due to these adverse business conditions or risks or due to economic slowdowns or downturns in these industry sectors the Company will be more vulnerable to losses in its portfolio and our operating results may be negatively impacted.
Some of these companies may be unable to obtain financing from public capital markets or from traditional credit sources, such as commercial banks. Accordingly, advances made to these types of customers may entail a higher degree of risk than advances made to customers who are able to utilize traditional credit sources. These conditions may also make it difficult for us to obtain repayment of our loans.
Economic downturns or recessions may impair the Company's customers' ability to repay our loans and harm our operating result.
Many of the companies in which the Company will make investments may be susceptible to economic slowdowns or recessions. An economic slowdown may affect the ability of a company to engage in a liquidity event. The Company's non-performing assets are likely to increase and the value of its portfolio is likely to decrease during these periods. These conditions could lead to financial losses in its portfolio and a decrease in its revenues, net income and assets.
The Company's business of making private equity investments and positioning them for liquidity events also may be affected by current and future market conditions. The absence of an active senior leading environment may slow the amount of private equity investment activity generally. As a result, the pace of
the Company's investment activity may slow. In addition, significant changes in the capital markets could have an effect on the valuations of private companies and on the potential for liquidity events involving such companies. This could affect the amount and timing of gains realized on its investments.
The Company's Borrowers May Default on Their Payments, Which May Have an Effect on Financial Performance.
Some of these companies may be unable to obtain financing from public capital markets or from traditional credit sources, such as commercial banks. Accordingly, advances made to these types of customers may entail a higher degree of risk than advances made to customers who are able to utilize traditional credit sources. These conditions may also make it difficult for the Company to obtain repayment of its loans. Numerous factors may affect a borrower's ability to repay its loan; including the failure to meet is business plan, a downturn in its industry, or negative economic conditions. Deterioration in a borrower's financial condition and prospects may be accompanied by determination in any related collateral.
If the Company Fails to Manage Its Growth, its Financial Results Could be Adversely Affected.
The Company's growth may place a significant strain on its management systems and resources. The Company must continue to refine and expand its marketing capabilities, its management of the investing process, access to financing resources and technology. As the Company grows, it must continue to hire, train, supervise and manage new employees. The Company may not develop sufficient lending and administrative personnel and management and operating systems to manage its expansion effectively. Failure to manage the Company's future growth could have a material adverse effect on the Company's business, financial condition and results of operation.
The Company's Private Finance Investments May Not Produce Current Returns or Capital Gains.
The Company's private finance investments will be structured as debt securities with a relatively high fixed rate or interest and with equity features such as conversion rights, warrants or other options. As a result, the Company's private finance investments will be structured to generate interest income from the time they are made and may also produce a realized gain from an accompanying equity feature. The Company cannot be sure that its portfolio will generate a current return or capital gain.
The Company Operates in a Competitive Market for Investment Opportunities
The Company competes for investments with a large number of private equity funds and mezzanine funds, investment banks and other equity and non-equity based investment funds, and other sources of financing, including traditional financial services companies such as commercial banks. Some of its competitors have greater resources than the Company. Increased competition would make it more difficult for the Company to purchase or originate investments at attractive prices. The Company cannot assure you that the competitive pressures we face will not have a material adverse effect on our business, financial condition and results of operations. As a result of this competition, sometimes the Company may be precluded from making otherwise attractive investments.
Investing in the Company's Stock Is Highly Speculative and an Investor Could Lose Some or All of the Amount Invested
The value of the Company's common stock may decline and may be affected by numerous market conditions, which could result in the loss of some or the entire amount invested in its shares. The securities markets frequently experience extreme price and volume fluctuations, which affect market prices for securities of companies generally, and very small capitalization companies in particular. The price of its common stock may be higher or lower than the price you pay for your shares, depending on many factors, some of which are beyond are control and may not be directly related to our operating performance. These factors include the following:
o Price and volume fluctuations in the overall stock market from time to time; which are often unrelated to the operating performance of particular companies;
o Significant volatility in the market price and trading volume of securities of business development companies or other financial service companies; which is not necessarily related to the operating performance of these companies;
o Changes in the regulatory policies or tax guidance with respect to business development companies;
o Actual or anticipated changes in our earnings or fluctuations in our operating results or changes in the experience of securities analysts;
o Loss of BDC status
o Changes in the value of our portfolio of investments
o Operating performance of companies comparable to us;
Fluctuations in the trading prices of our shares may adversely affect the liquidity of the trading market of our shares and, if we seek to raise capital through future equity financings, our ability to raise such equity capital.
The Company`s Business Depends on Key Personnel
The Company depends on the continued service of its executive officers and other key management personnel. If the Company were to lose any of these officers or other management personnel, such a loss could result in inefficiencies in the Company's operations and the loss of business opportunities. The Company does not maintain any key man life insurance on any of its officers or employees.
The Company's Business Plan is dependent upon External Financing which may Expose the Company to Risks Associated with Leverage
The Company will require a substantial amount of cash to operate and grow. The Company may acquire additional capital from the following sources:
Senior Securities. The Company intends to issue debt securities, other evidences and preferred stock, up to the maximum amount permitted by the 1940 Act. The 1940 Act currently permits us, as a business development company, to issue debt securities and preferred stock, to which we refer collectively as senior securities, in amounts such that our asset coverage, as defined in the 1940 Act,
is at least 200% after each issuance of senior securities. As a result of issuing senior securities, we will be exposed to the risks associated with leverage. Although borrowing money for investments increases the potential for gain, it also increases the risk of a loss. A decrease in the value of our investments will have a greater impact on the value of our common stock to the extent that we have borrowed money to make investments. There is a possibility that the costs of borrowing could exceed the income we receive on the investments we make with such borrowed funds. In addition, our ability to pay dividends or incur additional indebtedness would be restricted if asset coverage is not at least twice our indebtedness. If the value of our assets declines, we might be unable to satisfy that test. If this happens, we may be required to liquidate a portion of our loan portfolio and repay a portion of our indebtedness at a time when a sale may be disadvantageous. Furthermore, any amounts that we use to service our indebtedness will not be available for distributions to our stockholders.
Common Stock. Because the Company is limited in its ability to issue debt for the reasons given above, the Company is dependent on the issuance of equity as a financing source. If the Company raises additional funds by issuing more common stock or debt securities convertible into or exchangeable for our common stock, the percentage ownership of our stockholders at the time of the issuance would decrease and they may experience dilution. In addition, any convertible or exchangeable securities that we issue in the future may have rights, preferences and privileges more favorable than those of our common stock.
Securitization. In addition to issuing securities to raise capital as described above, the Company anticipates that in the future it will securitize loans to generate cash for funding new investments. An inability to successfully securitize the Company's loan portfolio could limit our ability to grow our business, fully execute our business strategy and impact our profitability. Moreover, successful securitization of our loan portfolio might expose us to losses as the loans in which we do not plan to sell interests will be those that are riskier and more apt to generate losses.
Shares of Closed-End Investment Companies Frequently Trade at a Discount from Net Asset Value.
Shares of closed-end investment companies frequently trade at a discount from net asset value. This characteristic of shares of closed-end investment companies is separate and distinct from the risk that the Company's net asset value per share will decline.
Changes in the Law or Regulations That Govern the Company Could Have a Material Impact on its Operations
The Company is regulated by the Securities and Exchange Commission. In addition, changes in the laws or regulations that govern business development companies may significantly affect its business. Any changes in the law or regulations that govern its business could have a material impact on operations. The Company is subject to federal, state and local laws and regulations and is subject to judicial and administrative decisions that affect its operations. If these laws, regulations or decisions change, or if the Company expands its business into jurisdictions that have adopted more stringent requirements than those in which it currently conduct business, the Company may incur significant expenses in order to comply or might restrict operations.
ITEM 2.
ITEM 2. PROPERTIES
The Company's principal offices are located at 7658 Municipal Drive, Orlando, Florida. The office is equipped with an integrated network of computers for word processing, financial analysis, accounting and loan services. The Company believes its office space is suitable for its needs for the foreseeable future.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company has been named as a defendant in a case involving breach of contract and one or more collection cases. Management's position is that each case can be contested on its merits; no claim involves a potential exposure of more than $50,000.
The Company filed on March 22, 2005, a civil suit in Orange County District Court, Orlando Florida against the former CEO of the Company, Walter Roder. The litigation alleges among other causes of action, various breaches of fiduciary and statutory duties. The Company intends to vigorously pursue its remedies against Mr. Roder.
All other matters involving pending or prospective litigation have been dismissed or resolved.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
ACS Holdings, Inc. common stock, par value, $.001 per share ("Common Stock") is traded on the Over the Counter NADAQ Electronic Bulletin Board ("OTC") under the symbol "ACSJ.OB" The following table sets forth, for the period indicated, the range of high and low closing prices reported by the OTC. Such quotations represent prices between dealers and may not include markups, markdowns, or commissions and may not necessarily represent actual transactions.
HIGH LOW ---- --- - -------------------------------------------------------------------------------- 2004 Quarter Ended - -------------------------------------------------------------------------------- March 31st .060 .010 - -------------------------------------------------------------------------------- June 30th .030 .025 - -------------------------------------------------------------------------------- September 30th .007 .003 - -------------------------------------------------------------------------------- December 31st .0003 .0012 - -------------------------------------------------------------------------------- 2003 Quarter Ended - -------------------------------------------------------------------------------- September 30th .030 .010 - -------------------------------------------------------------------------------- December 31st .040 .010 - --------------------------------------------------------------------------------
As of December 31, 2004 the authorized capital of the company is 2,400,000,000 shares of common voting stock par value $.001 per share. The Company also has authorized 600,000,000 shares of preferred shares with a par value of $.01 per share. No preferred shares are outstanding as of December 31, 2004.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data should be read in conjunction with the Company's "Management's Discussion and Analysis of Financial Condition and Result of Operations" and the Financial Statements and notes thereto. As discussed in Note A to the Financial Statements, the Company converted to a Business Development Company effective August 3, 2004. The results of operations for the year ended December 31, 2004 are divided into two periods, the "Post Conversion as a Business Development Company period" and "Pre-Conversion prior to becoming a Business Development Company" period. Different accounting principles are used in the preparation of financial statements of a business development company under the Investment Company Act of 1940 and, as a result, the financial results for periods prior to August 1, 2004 are not comparable to the period commencing on August 1, 2004 and are not expected to be representative of its financial results in the future.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS.
The following information should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this Form 10-K.
Forward Looking Statements
This Form 10-K including the Management's Discussion and Analysis of Financial Condition and Results of Operation contains forward-looking statements that involve substantial risk and uncertainties. These forward-looking statements are not historical facts but rather are based on current expectations, estimates and projections about the Company's industry, beliefs, and assumptions. Such
forward-looking statements involve risks and uncertainties that could cause risks or outcomes to differ materially from those expressed in the forward-looking statements. Forward-looking statements may include without limitation statements relating to the Company's plans, strategies, objectives, expectations and intentions and are intended to be made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Words such as "anticipates", "expects", "intends", "plans", "believes", "seeks", and "estimates" and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements including without limitation:
o The state of securities markets in which the securities of the Company's portfolio company trade or could be traded.
o Liquidity within the national financial markets.
o Economic downturns or recessions may impair the Company's customers' ability to repay our loans and increase our non-performing assets.
o A contraction of available credit and/or inability to access the equity markets could impair our lending and investment activities.
o The risks associated with the possible disruption in the Company's operations due to terrorism and,
o The risks and uncertainties described under the caption "Risk Factors and Other Considerations" contained in Part I, Item I, which is incorporated herein by reference.
Although the assumptions on which these forward looking statements are based are reasonable, any of those assumptions also could be incorrect. In light of these and other uncertainties, the inclusion of a projection or forward-looking statements in this Annual Report should be regarded as a representation of the Company that its plans and objectives will be achieved. Undue reliance should not be placed on these forward-looking statements, which apply only as of the date of this Annual Report.
Overview
ACS Holdings, Inc. is a financial service company providing financing and advisory services to small and medium-sized companies throughout the United States. Effective August 3, 2004 the Company shareholders approved the proposal to allow the Company to convert to a business development company ("BDC") under the Investment Company Act of 1940 ("1940 Act").
ACS Holdings, Inc. intends to make long-term debt and equity investments in cash-flow positive companies with perceived growth potential primarily in the technology sectors. The Investment Committee has adopted a charter wherein these two criteria are weighed against other criteria including strategic fit, investment amount, management ability, etc. In principle, the Company will prefer to make investments in companies where it can acquire at least a 51% ownership interest in the outstanding capital of the portfolio company.
Investment opportunities will be identified for the Company by the management team. Investment proposals may, however, come to the Company from many sources, and may include unsolicited proposals from the public and from referrals from banks, lawyers, accountants and other members of the financial community. The management team brings an extensive network of investment referral relationships.
Critical Accounting Policies and Estimates
The Company prepared its financial statements in accordance with accounting principles generally accepted in the United States of America for investment companies. For a summary of all of its significant accounting policies, including the critical accounting policies, see Note A to the financial statements in Item 8.
The increasing complexity of the business environment and applicable authoritative accounting guidance requires the Company to closely monitor its accounting policies. The Company has identified three critical accounting policies that require significant judgment. The following summary of the Company's critical accounting policies is intended to enhance your ability to assess its financial condition and results of operation and the potential volatility due to changes in estimates.
Valuation of Investments
At December 31, 2004 0% of the Company's total assets represented investments recorded at fair value. Value as defined in Section 2(a)(41) of the 1940 Act, is (i) the market price for those securities for which a market quotation is readily available and (ii) for all other securities and assets, fair value is determined in good faith by the board of directors. Since there is typically no readily ascertainable market value for the investments in its portfolio, the Company values substantially all of its investments at fair value as determined in good faith by the board of directors pursuant to a valuation policy and consistent valuation process. Because of the inherent uncertainty in determining the fair value of investments that do not have a readily ascertainable market value, the fair value of its investments determined in good faith by the board of directors may differ significantly from the values that would have been used had a ready market existed for the investments, and the differences could be material.
Initially, the fair value of each such portfolio investment is based upon original cost. There is no single standard for determining fair value in good faith. As a result, determining fair value requires the judgment be applied to the specific facts and circumstances of each portfolio investment. The Board of Directors considers fair value to be the amount which the Company may reasonable expect to receive for portfolio securities when sold on the valuation date. The Company analyzes and values each individual investment on a quarterly basis, and records unrealized depreciation for an investment that it believes has become impaired, including where collection of a loan or realization of an equity security is doubtful. Conversely, the Company will record unrealized appreciation if it believes that the underlying portfolio company has
appreciated in value and, therefore, the Company's equity security has also appreciated in value. Without a readily ascertainable market value and because of the inherent uncertainty of valuation the fair value of the Company's investments determined in good faith by the Board of Directors may differ significantly from the values that would have been used had a ready market existed for the investments, and the favorable or unfavorable differences could be material.
In the valuation process, the Company uses financial information received monthly, quarterly, and annually from the portfolio companies, which include both audited, and unaudited financial information supplied by portfolio companies management. This information is used to determine financial condition, performance and valuation of the portfolio investments. Valuation should be reduced if a company's performance and potential have significantly deteriorated. If the factors, which led to the reduction in valuation, are overcome, the valuation may be restated.
Another key factor used in valuation the equity investments is recent arms-length equity transactions entered into by the investment company that the Company utilizes to form a basis for its underlying value. Many times the terms of these equity transactions may not be identical to those of the Company and the impact on these variations as it relates to market value may be impossible to quantify.
Any changes in estimated fair value are recorded in our statements of operations as "Net increase (decrease) in unrealized (deprecation) appreciation."
Valuation of Equity Securities
With respect to private equity securities, each investment is valued using industry valuation benchmarks and then the value is assigned a discount reflecting the illiquid nature of the investment, as well as the Company's minority non-control positions. When an external event such as a purchase transaction, public offering, or subsequent equity sale occurs, the pricing indicated by the external event will be used to corroborate the Company's private equity valuation. Securities that are traded in the over-the-counter market or on a stock exchange will generally be valued at the prevailing bid price on the valuation date. However, restricted and unrestricted publicly traded securities may be valued at discounts from the public market value due to restrictions on sale, the size of its investment or market liquidity concerns.
Valuation of Loans and Debt Securities
As a general rule, the Company does not value its loans or debt securities above cost, but loans and debt securities will be subject to fair value write-down when the asset is considered impaired.
Financial Condition
The Company's total assets decreased by $106,701 or (96.9%) to $3,413 from the prior year. The decrease in total assets can be attributed to decrease in the Company's cash position and the Company no longer reporting on a consolidated basis.
The Company's financial condition is dependent on the success of its portfolio holdings. Many of the businesses the Company intends to invest in tend to be thinly capitalized and may lack experienced management. The following summaries the Company's investment portfolio as of December 31, 2004, the Company's second quarter as a business development corporation
December 31, 2004 ----------------- Investment at Cost $ 896,708
Unrealized (depreciation) appreciation, net (896,708) ---------
Investment at fair value $ 0 =========
During the fourth quarter of 2004, the Company valued its equity and investment holdings in accordance with the established valuation policies (see "Valuation of Investments and Equity Holdings") above.
The cash and cash equivalents approximated 100% of net assets of the Company as of December 31, 2004.
Results of Operations
The results of operations for the year ended December 31, 2004 reflect our results as a business development company under the Investment Company Act of 1940. The results of operations prior to August 1, 2004 reflect our results of operations prior to operating as a business development company under the Investment Company Act of 1940. The principal differences between these two reporting period relate to accounting for investments. See Note A to our Financial Statements. In addition, certain prior year items have been reclassified to conform to the current year presentation as a business development company.
Dividends and Interest
Dividends and interest income on investments for the year ended December 31, 2004 was $9.
Management Fees
Management fees for the year ended December 31, 2004 and 2003 were $0 and $0 respectively.
Operating Expenses
Total operating expenses for the year ended December 31, 2004 and December 31, 2003 was $2,495,093 and $1,696,766 respectfully. A significant component of total operating expenses was general and administrative expenses of $802,466 for the year ended December 31, 2004 and $1,308,080 for the year ended December 31, 2003. The decrease in general and administrative expenses is primarily due to the Company decreased operations in its portfolio company. A second component of total operating expenses is professional fees of $1,680,995 for the year ended December 31, 2004 and $384,268 for the year ended December 31, 2003.
Liquidity and Capital Resources
At December 31, 2004 and December 31, 2003, the Company had $3,413 and $32,903 respectively in cash and cash equivalents. The Company's objective is to have sufficient cash on hand to cover current funding requirements and operations.
The Company expects its cash on hand and cash generated from operations to be adequate to meet our cash needs at our current level of operations, including the next twelve months. The Company generally funds new originations using cash on hand and equity financing and outside investments.
Private Portfolio Company Investments
The following is a list of the private companies in which the Company had an investment in and the cost and fair market value of such securities at December 31, 2004:
NAME OF COMPANY COST FMV
American Card Services, Inc. $ 896,708 $ 0
Recent Developments
On February 28, 2005 the Company restructured $1,639,737 of notes with creditors of both the Company and its portfolio company America Card Services, Inc. by entering into a Settlement and Release Agreement whereby the notes of the Company would be converted into preferred equity. Terms of the agreement call for the issuance of preferred shares and warrants and revenue sharing of 25% of the net revenue of the Company.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's investment activities contain elements of risk. The portion of the Company's investment portfolio consisting of equity or equity-linked debt securities in private companies is subject to valuation risk. Because there is typically no public market for the equity and equity-linked debt securities in which it invests, the valuation of the equity interest in the portfolio is stated at "fair value" and determined in good faith by the Board of Directors on a quarterly basis in accordance with the Company's investment valuation policy.
In the absence of a readily ascertainable market value, the estimated value of the Company's portfolio may differ significantly from the value that would be placed on the portfolio if a ready market for the investments existed. Any changes in valuation are recorded in the Company's statement of operations as "Net unrealized appreciation (depreciation) on investment".
At times a portion of the Company's portfolio may include marketable securities traded in the over-the-counter market. In addition, there may be a portion of the Company's portfolio for which no regular trading market exists. In order to realize the full value of a security, the market must trade in an orderly fashion or a willing purchaser must be available when a sale is to be made. Should an economic or other event occur that would not allow the markets to trade in an orderly fashion the Company may not be able to realize the fair value of its marketable investments or other investments in a timely manner.
As of December 31, 2004, the Company did not have any off-balance sheet investments or hedging investments.
Impact of Inflation
The Company does not believe that its business is materially affected by inflation, other than the impact inflation may have on the securities markets, the valuations of business enterprises and the relationship of such valuation to underlying earnings all of which will influence the value of the Company's investments.
REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM
To the Board of Directors and Stockholders of ACS Holdings, Inc.
We have audited the accompanying balance sheet of ACS Holdings, Inc. (the "Company") as of December 31, 2004, and the related consolidated statement of operations, changes in stockholders' equity and cash flows for the year then ended. The financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The consolidated financial statements of the Company as at and for the year ended December 31, 2003 were audited by other auditors whose report dated August 6, 2004 included an explanatory paragraph describing conditions that raised substantial doubt about the Company's ability to continue as a going concern.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2004 and the results of their operations and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
The financial statements referred to above have been prepared assuming that the Company will continue as a going concern. As discussed in Note A to the financial statements, the Company's recurring losses and negative cash flows from operations raise substantial doubt about the Company's ability to continue as a going concern. Management's plans concerning these matters are also described in Note A. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ ROTENBERG MERIL SOLOMON BERTIGER & GUTTILLA, P.C.
Saddle Brook, New Jersey March 16, 2005
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The accompanying notes are an integral part of the financial statements
The accompanying notes are an integral part of the financial statements
ACS HOLDINGS, INC. SCHEDULE OF INVESTMENTS DECEMBER 31, 2004
The accompanying notes are an integral part of the financial statements
ACS HOLDINGS, INC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004, 2003 AND 2002
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Company Activities
ACS Holdings Inc. & Subsidiaries (the "Company" or "Holdings") was incorporated in the state of Nevada in April, 2002.
On April 28, 2004 the Company (formerly maxxZone.com, Inc.) agreed to acquire the assets, subject to certain liabilities of American Card Services, Inc (ACS) for 3,570,000,000 shares of the Company, representing approximately 85% of the Company's stock. In connection with this acquisition, the assets and liabilities of maxxZone were transferred to Global Capital Trust, a St. Kitts and Nevis Trust, and holder of 84,000,000 shares of company stock. The assets and liabilities acquired from ACS and resulting operations have been put into ACS Processing, Inc., a wholly-owned subsidiary. The acquisition was completed on May 12, 2004, after the Company increased authorized shares to a total sufficient to effect the transaction.
Since the shareholders of American Card Services, Inc. will own a majority of the Company's outstanding shares the business acquisition has been accounted for as a reverse acquisition, with ACS being the accounting parent and Holdings being the accounting subsidiary. The consolidated financial statements include the operations of Holdings, the accounting subsidiary, from the date of acquisition. Since the business acquisition was accounted for as a reverse acquisition, the accompanying consolidated financial statements reflect the historical financial statements of ACS, the accounting acquiror, and the inclusion of assets and liabilities of the accounting subsidiary as of May 12, 2004 on their historical basis and the inclusion of the accounting subsidiary's results of operations from that date through the date that the Company became a Business Development Company (see below).
On August 3, 2004 the Company's shareholders consented to the proposal to allow the Company to adopt business development company ("BDC") status under the Investment Company Act of 1940 ("1940 Act"). A BDC is a specialized type of Investment Company under the 1940 Act. A BDC may primarily be engaged in the business of furnishing capital and managerial expertise to companies that do not have ready access to capital through conventional financial channels; such companies are termed "eligible portfolio companies". The Company as a BDC, may invest in other securities, however such investments may not exceed 30% of the Company's total asset value at the time of such investment. The Company filed its BDC election with the SEC (Form N-54A) on August 3, 2004.
On November 15, 2004, the Chief Executive Officer, Walter H. Roder, II, tendered his resignation to the Board of Directors. The resignation was accepted by the Board of Directors on November 16, 2004. Mr. Roder, while he remains a significant shareholder, elected to relinquish day-to-day management to the current management of the stored-value debit card business. He has also elected to step down from the board so that new independent directors could be appointed consistent with the requirements and process of the Company's election to be governed as a business development company.
The Company plans to provide equity and long-term debt financing to small and medium-sized private companies in a variety of industries throughout the United States. The Company's investment object is to achieve long-term capital appreciation in the value of its investments and to provide current income primarily from interest, dividends and fees paid by its portfolio companies.
Basis of Presentation
The results of operations for the year ended December 31, 2004 are divided into two periods, the "Post Conversion as a Business Development Company period" and "Pre-Conversion prior to becoming a Business Development Company" period. Different accounting principles are used in the preparation of financial statements of a business development company under the Investment Company Act of 1940 and, as a result, the financial results for periods prior to August 1, 2004 are not comparable to the period commencing on August 1, 2004 and are not expected to be representative of its financial results in the future. By becoming a BDC, the Company has effected a change in accounting principle and no longer consolidates its investments in portfolio companies, as further described below.
The accompanying financial statements for the period prior to August 1, 2004 include the accounts of the Company and its wholly owned subsidiaries American Card Services, Inc. and ACS Processing, Inc. American Card Services, Inc. is a Delaware corporation which owns 100% of ACS Transaction Processing, Inc. a Delaware Corporation and ACS Sales, Inc. a Delaware Corporation incorporated in August, 2003. For the period subsequent to August 1, 2004 the company in accordance with Article 6 of Regulation S-X under the Securities Act of 1933 and Securities Act of 1934 does not consolidate portfolio company investments, including those in which it has a controlling interest.
Going Concern
The accompanying financial statements have been assuming the Company will continue as a going concern. As shown in the accompanying financial statements, the Company has incurred a net loss of $3,629,710, $ 1,709,082 and $473,195 for the periods ended December 31, 2004, December 31, 2003 and December 31 2002 respectfully. The Company has limited income. The future of the Company is dependent upon its ability to obtain financing and upon future profitable operations from the development of its business. Management has plans to seek additional capital through debt and/or equity financing. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue its existence.
These conditions raise substantial doubt about the Company's ability to continue as a going concern. These financial statements do not include any adjustments that might arise from such uncertainty.
ACS HOLDINGS, INC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004, 2003 AND 2002
Reclassification
Certain amounts in the prior years' financial statements have been reclassified to conform to the current year presentation with no effect to net increase in stockholders' equity resulting from operations.
Income Recognition
The Company's recognizes revenue using the accrual method of accounting. The accrual method provides for a better matching of revenues and expenses. ACS revenues arose from two primary sources: card pack sales to distributors and recurring fees. ACS recognized revenue on card pack sales upon shipment., and transaction fee revenue was recognized when received.
The Company's policy is to accrue interest income on loans made to portfolio companies. The Company accrues the interest on such loans until the portfolio company has the necessary cash flow to repay such interest. If the Company's analysis of the portfolio's company's performance indicates that the portfolio company may not have the ability to pay the interest and principal on a loan, the Company will make an allowance provision on that entity and in effect cease recognizing interest income on that loan until all principal has been paid. However, the Company will make exceptions to this policy if the investment is well secured and in the process of collection.
For certain investment transactions the Company provides management services and recognizes an agreed upon fixed monthly fee and expenses.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Cash and Cash Equivalents
For the propose of the statement of cash flows, cash and cash equivalents includes time deposits with original maturities of three months or less.
Advertising Costs
Advertising costs, except for costs associated with direct-response advertising, are charged to operations when incurred.
Inventory
Inventory consists principally of debit card packs.
ACS HOLDINGS, INC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004, 2003 AND 2002
Income Taxes:
The Company complies with SFAS No. 109, "Accounting for Income Taxes," which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for temporary differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
Following the change in control of the Company on November 11, 2004, the Company's pre-change-in-control net operating loss carryforwards will be substantially limited, if not completely eliminated, due to a lack of continuity of business enterprise under Section 382 of the Tax Reform Act of 1986. No federal tax expense or benefit has been recorded in the financial statements due to the uncertainty of future operations.
Net (Loss) Per Common Share
Net (Loss) per common share is computed using the weighted average of shares outstanding during the periods presented in accordance with Statement of Financial Accounting Standards No. 128, Earnings Per Share. Basic net income (loss) per common share excludes the effect of potentially dilutive securities and is computed by dividing net income or loss by the weighted average number of common shares outstanding for the period. Diluted net income (loss) per share is adjusted for the effect of convertible securities, warrants and other potentially dilutive financial instruments only in the periods in which such effect would have been dilutive.
The following securities were not included in the computation of diluted net loss per share because to do so would have had an anti-dilutive effect for the periods presented:
December 31,
2004 2003 2002 ---- ---- ---- Stock options 0 0 0 Warrants 4,340,695 4,260,695 0
Restricted Cash
ACS was required to maintain a clearing account for debit card transactions with the issuing bank. ACS has to maintain a minimum balance in this account, and that balance, along with any debit card user transactions that have not cleared is restricted. As of December 31, 2003 and 2004 the restricted account balance was $5,000 and zero.
Segments
The Company operates as one segment as defined by the Statement of Financial Accounting Standards No. 131 Disclosures about Segments of an Enterprise and Related Information.
ACS HOLDINGS, INC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004, 2003 AND 2002
Fixed Assets
Fixed assets are stated at cost. The cost of equipment is charged against income over their estimated useful lives, using the straight-line method of depreciation. Repairs and maintenance which are considered betterments and do not extend the useful life of equipment are charged to expense as incurred. When property and equipment are retired or otherwise disposed of, the asset and accumulated depreciation is removed from the accounts and the resulting profit and loss are reflected in income.
Fair Value of Financial Instruments
The recorded amounts for financial instruments, including cash equivalents, restricted cash, receivables, investments, accounts payable and accrued expenses, and long-term debt approximate their market values as of December 31, 2004. The Company has no investments in derivative financial instruments.
Goodwill and Other Intangibles
The Company records Goodwill in accordance with Statement of Financial Accounting Standards No.142, Goodwill and Other Intangible Assets. Intangible assets such as goodwill are not amortized; instead the Company will review the goodwill not less than annually to see if it has been impaired. If an impairment has incurred, it will be recorded as an expense in that period.
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (" SFAS 123 "), provides for the use of a fair value based method of accounting for employee stock compensation. However, SFAS 123 also allows an entity to continue to measure compensation cost for stock options granted to employees using the intrinsic value method of accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (" APB 25 "), which only requires charges to compensation expense for the excess, if any, of the fair value of the underlying stock at the date a stock option is granted (or at an appropriate subsequent measurement date) over the amount the employee must pay to acquire the stock, if such amounts differ materially from the historical amounts. The Company has elected to continue to account for employee stock options using the intrinsic value method under APB 25.
In accordance with SFAS 123, all other issuances of Common Stock, stock options or other equity instruments issued to employees and non-employees as consideration for goods or services received by the Company are accounted for based on the fair value of the consideration received or the fair value of the equity instrument, whichever is more readily measurable. Such fair value is measured at an appropriate date pursuant to the guidance in EITF Issue No. 96-18 and capitalized or expensed as appropriate.
ACS HOLDINGS, INC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004, 2003 AND 2002
As a result of amendments to SFAS 123, the Company will be required to expense the fair value of employee stock options over the vesting period in the first interim or annual reporting period beginning after June 15, 2005.
NOTE B - INVESTMENTS
Valuation of Investments
The most significant estimate inherent in the preparation of the Company's financial statements is the valuation of its investments and the related unrealized appreciation or depreciation.
Upon conversion to a BDC, the Board of Directors states all other portfolio companies and investments at fair market value as determined under a good faith standard. The Company has investments in 1 controlled (portfolio) corporation as of December 31, 2004.
1. American Card Services, Inc.
American Card Services, Inc. ("ACS") is a Delaware corporation which prior to November, 2004 sought to capture a large portion of the rapidly emerging stored-value debit card market that provides unbanked ethnic customers with a viable alternative to cash and traditional money transfers. ACS has since changed its direction and is seeking out investments in financial services and real estate entities. The Company currently owns 100% of the stock of American Card Services, Inc.
American Card Services, Inc. owns 100% of ACS Transaction Processing, Inc. a Delaware Corporation incorporated in August, 2003. ACS Transaction Processing had no business activity through December 31, 2004.
American Card Services, Inc. owns 100% of ACS Sales, Inc. a Delaware Corporation incorporated in August, 2003. ACS Sales, Inc. had no business activity through December 31, 2004.
NOTE C - ACCOUNTS RECEVABLE
The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company's estimate is based on historical collection experience and a review of the current status of trade accounts receivable. It is reasonably possible that the Company's estimate of the allowance for doubtful accounts will change. Accounts receivable consist of the following at:
DECEMBER 31,
2004 2003
Accounts Receivable Trade $ -- 14,925 Less: Allowances -- 14,425
$ -- $ 500
ACS HOLDINGS, INC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004, 2003 AND 2002
The December 31, 2003 and 2002 balances represent the accounts of American Card Services, Inc.
The Company provided for estimated doubtful accounts through charges to selling, general and administrative expenses for $ - 0 - , $14,425 and $ - 0 - for the periods ended December 31, 2004, 2003 and 2002, respectively, and wrote-off $ - 0 - against this allowance for these periods.
NOTE D - STOCK ISSUED FOR SERVICES
During the year ended December 31, 2004 the Company issued shares of the Company's common stock for various professional consulting services. A summary of these activities is as follows:
Shares Amount ------ ------ Professional consulting services 278,680,430 $ 1,483,410 ----------- ----------- Total 278,680,430 $ 1,483,410 =========== ===========
The value assigned to the above shares is based on the stocks' traded market price on or about the date the shares were issued. For the year ended December 31, 2004, the above amounts are included in professional fees. Of the 278,680,430 shares issued for professional fees, 250,000,000 shares were issued to KMA Capital Partners, Ltd. as part of a reorganization of the Company.
NOTE E - FIXED ASSETS
Major categories of property and equipment, including their useful lives are as follows for the Company at December 31, 2004 and 2003:
DECEMBER 31,
2004 2003
Office furniture and fixtures $ -- $24,003 Office equipment -- 37,729 ------- 0 61,732 Less: Accumulated depreciation 0 4,419 ------- $ -- $57,313 ======= =======
Depreciation expense for the periods ending December 31, 2004, 2003 and 2002 was $ 11,612, $4,419 and $0 respectfully.
NOTE F -- COMMITMENTS AND CONTINGENCIES
The Company lease office and operating facilities under short-term operating leases.
Rent expense for the years ending December 31, 2004. 2003 and 2002 was $9,035, $43,923 and $0 respectively.
The Company has been named as a defendant in a case involving breach of contract and one or more collection cases. Management's position is that each case can be contested on its merits; no claim involves a potential exposure of more than $50,000.
The Company filed on March 22, 2005, a civil suit in Orange County District Court, Orlando Florida against the former CEO of the Company, Walter Roder. The litigation alleges among other causes of action, various breaches of fiduciary and statutory duties. The Company intends to vigorously pursue its remedies against Mr. Roder.
All other matters involving pending or prospective litigation have been dismissed or resolved.
NOTE G- CAPITAL LEASES PAYABLE
The Company had the following capital lease obligations as of December 31, 2003:
DECEMBER 31,
2004 2003 Capital leases payable for office furniture and equipment, dated between June and November 2003, with terms from 26 to 36 months, monthly Payments total $1,945 $ -- $46,559
Current portion -- 16,804 ------- Long-term portion $ -- $29,755 =======
The December 31, 2003 amounts represent the accounts of American Card Services, Inc.
NOTE H - NOTES PAYABLE
Notes payable as of December 31, 2004 and 2003 consisted of the following:
ACS HOLDINGS, INC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004, 2003 AND 2002
DECEMBER 31, 2004 2003
7% note payable to Nelana Holdings, Inc. due in 2005 $456,931 $ --
12%, security interest in company's Assets -- 175,000
Short-term notes payable issued with 14,312 mandatory redeemable common stock warrants (see note 12) due May 2004 with interest only at 15% for six months from November ,2003 collateralized by subordinated security interest in Company assets and personal guarantee of Walter H. Roder, II -- 100,000
Short-term notes payable with interest at 15%; due in one year from January to March, 2004 collateralized by subordinated security interest in Company assets Demand note payable due with interest at 18% -- 152,000 -------- -------- $456,931 $427,000 ======== ========
The December 31, 2003 amounts represent the accounts of American Card Services, Inc. At December 31, 2004, the future maturities of notes payable are as follows:
December 31, Amount ------ 2005 $ 456,931 =========
The Company accrued interest of $20,500 of interest expense for the year ended December 31, 2004.
NOTE I - STOCKHOLDERS EQUITY
As of December 31, 2004 the authorized capital of the company is 2,400,000,000 shares of common voting stock par value $.001 per share. The Company has authorized but not issued 600,000,000 shares of preferred stock par value $.001 per share.
NOTE J - REVERSE STOCK SPLIT
On August 12, 2004, the Board of Directors authorized a 40-1 reverse stock split of the Company's $.001 par value common stock. As a result of the reverse split 658,125,000 shares were returned to the Company and additional paid in capital was increased by $658,125. All references to the accompanying financial statements to the number of common shares and per share amounts for 2004, 2003 and 2002 have been restated to reflect the reverse stock split.
ACS HOLDINGS, INC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004, 2003 AND 2002
NOTE K - UNAUDITED PRO FORMA AND CONDENSED INFORMATION
As described in Note A the assets and liabilities acquired from American Card Services, Inc. and resulting operations have been put into ACS Processing, Inc., a wholly-owned subsidiary. The acquisition was completed on May 12, 2004, after the Company increased authorized shares to a total sufficient to effect the transaction. The following unaudited pro forma information summarizes the combined results of the Company and American Card Services if the merger took place at the beginning of 2002.
Year Ended December 31 ---------------------- 2004 2003 2002 ---- ---- ---- Net Loss $ (6,225,970) $(1,709,082) $(473,195) ============ =========== ========= Basic and diluted net loss per share $ (.014) $ (5.15) $ (2.30) ============ =========== ========= Weighted average shares outstanding 456,642,680 351,549 206,077 ============ =========== =========
CONDENSED CONSOLIDATED BALANCE SHEET OF ACS
The condensed unaudited consolidated balance sheet of American Card Services, Inc. and Subsidiaries as of July 31, 2004 (as of a date near the time that ACS became a portfolio company of the Company) was as follows:
Current Assets $ 29,103 Fixed Assets 75,770 Other Assets 2,500 ----------- Total Assets $ 107,373 =========== Current Liabilities $ 2,136,837 Long Term Liabilities 685,149 Stockholders Equity (Deficiency) (2,714,613) ----------- Total Liabilities and Stockholders Equity (Deficiency) $ 107,373 ===========
NOTE L - CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially expose the Company to concentrations of credit risk, consist principally of cash.
ACS HOLDINGS, INC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004, 2003 AND 2002
The Company maintains its cash accounts with financial institutions located in Florida. Federal Deposit Insurance Corporation (FDIC) guarantees the Company's deposits in financial institutions up to $100,000 per account.
The Company's deposits with financial institutions that exceeded federally insured guarantees amounted to $0 and $0 as of December 31, 2004 and 2003, respectively. Historically, the Company has not experienced any losses on its deposits in excess of federally insured guarantees.
NOTE M - RELATED PARTY TRANSACTIONS
ACS owed Mr. Roder and affiliates $450,000 and $430,000 in notes payable at December 31, 2004 and 2003, respectively, and approximately $128,923 and $63,500 in accrued interest at December 31, 2004 and 2003, respectively.
On November 29, 2004 the Company entered into a consulting contract with KMA Capital Partners, Ltd to provide consulting advice regarding the Company's business plan, contemplated business operations, strategic planning, financing advisory services and merger and acquisition advisory services in relation to the restructuring of the Company.
NOTE N - SUBSEQUENT EVENTS
On February 28, 2005 the Company restructured $1,639,737 of notes with creditors of both the Company and American Card Services, Inc. by entering into a Settlement and Release Agreement whereby the creditor's notes would be converted into preferred equity. Terms of the agreement call for the issuance of preferred shares and warrants and revenue sharing of 25% of the net revenue of the Company.
ITEM 9.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
The Company's Directors, at a meeting held in January, 2005, selected Rotenberg, Meril, Solomon, Bertiger & Guttila, PC. as the independent auditors for the year ending December 31, 2004.
The previous independent accountants of the Company, Samuel Klein & Company (Klein) communicated to the Corporation on January 19, 2005 that as a result of the firm discontinuing it's SEC practice, the firm, although they would be willing to conduct the audit of the Corporation for the year ended December 31, 2004, they would not continue as the Company's independent accountant subsequent to that date. The Directors approved the decision to change independent accountants.
The reports of Klein on the Company's financial statements for each of the two years ended December 31, 2003 and 2002 do not contain an adverse opinion or a disclaimer of opinion, nor were such reports qualified or modified as to uncertainty, audit scope or accounting principles.
During the years ended December 31, 2003 and 2002, and the subsequent interim period preceding the date of Klein's dismissal, there have been no disagreements between the Company and Klein on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Klein, would have caused Klein to make reference to the subject matter of the disagreements in its reports on the Company's financial statements. Also, during the aforementioned period, there occurred no "reportable events" within the meaning of Item 304(a) (v) of Regulation S-K.
ITEM 9A.
ITEM 9A. CONTROL & PROCEDURES
Evaluation of Disclosure Control and Procedures
The Company's management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), as of the end of the period covered by this Annual Report on Form 10-K. Based on such evaluation, our principal executive officer and principal financial officer have concluded that such disclosure controls and procedures were deficient and designed new disclosure controls and procedures to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported with the time periods specified in applicable SEC rules and forms were effective.
Changes in Internal Control Over Financial Reporting
There have been no significant changes in our internal control or in other factors that could significantly affect those controls subsequent to our evaluation, including corrective actions with regard to significant deficiencies and material weaknesses.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Compliance with Section 16(a) of the Exchange Act The following table sets forth the names, ages, and offices held with the Company by its directors and executive officers:
- -------------------------------------------------------------------------------- Name Position Director/Officer Age Since - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Mark Width President and Chief 2005 Executive Officer 52 - -------------------------------------------------------------------------------- David Eison Director 2004 58 - -------------------------------------------------------------------------------- James V Sadrianna Chief Financial 2004 45 Officer - -------------------------------------------------------------------------------- James Jenkins Director 2004 49 - -------------------------------------------------------------------------------- Charles Giannetto Director 2004 49 - --------------------------------------------------------------------------------
All directors hold office until the next annual meeting of stockholders and until their successors have been duly elected and qualified. There are no agreements with respect to the election of directors. The Company does not pay any directors fees
Any non-employee director of the Company is reimbursed for expenses incurred for attendance at meetings of the Board of Directors and any committee of the Board of Directors. The Executive Committee of the Board of Directors, to the extent permitted under Utah law, exercises all of the power and authority of the Board of Directors in the management of the business and affairs of the Company between meetings of the Board of Directors. Each executive officer serves at the discretion of the Board of Directors.
The business experience of each of the persons listed above during the past five years is as follows:
Mark Width is the President of the Company. Mr. Width has been in the business of technical and management consulting for the past 28 years. Prior being in the technological business, Mr. Width worked at the University of Michigan as a Engineering Technician in the Electrical and Computer Engineering Department, Mechanical Engineering CAD Lab and College of Engineering Computer Graphics Lab. Mr. Width has consulted for small emerging companies, troubled companies, and projects for Fortune 500 companies, domestically and abroad. Mr. Width attended Lake Superior State College and received his degrees in Electrical Engineering Technology and Computer Engineering Technology.
James V. Sadrianna is the Chief Financial Officer of the Company. Mr. Sadrianna is also Chief Financial Officer of Cali Holdings, Inc. Mr. Sadrianna has been Chief Financial Officer for a number of sport related companies as well as a package goods company shipping in the food and beverage industry. Mr. Sadrianna has worked for Coopers & Lybrand and the Internal Revenue Service. Mr. Sadrianna received his MBA & BBA and Juris Doctorate from Pace University. Mr. Sadrianna is a Certified Public Accountant in Florida and New York and admitted before the bar in New York.
James E. Jenkins is a Director of the Company Mr. Jenkins is also the President and Chief Executive Officer of Cali Holdings, Inc. Prior to his position with TS & B Holdings, Mr. Jenkins was Co-Managing General Partner for Marco Cat, LLP; a partnership formed to acquire the Olde Marco Island Inn. Mr. Jenkins has founded and operated several companies in manufacturing and financial services. Mr. Jenkins has over 20 years of diversified experience in senior management, operations and financial positions. Mr. Jenkins attended Northern Essex Community College and Daniel Webster Community College for business management.
Charles Giannetto is a Director of the Company. Mr. Giannetto is also the Secretary/Treasurer of Cali Holdings, Inc. Mr. Giannetto is a graduate of the University of Minnesota. He received his law degree from William Mitchell College of Law in 1980 and was in private practice for 20 years.
David Eison is a Director of the Company. Mr. Eison has over 25 years experience in technology and operations at Banco Popular, Network One, Ideon Group, Alltel Mortgage, and Sears World Trade and US Marine Corps Exchange Service. Mr. Eison served in the U.S. Marine Corps Reserves. He attended Kingsboro College and Brooklyn College, Brooklyn, NY.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The Company does not have a bonus, profit sharing, or deferred compensation plan for the benefit of its employees, officers or directors. The Company does not currently pay directors any directors' fee.
Cash Compensation
The following table sets forth all cash compensation paid by the Company for services rendered to the Company for the years ended December 31, 2002, 2003 and 2004, to the Company's Chief Executive Officer.
Summary Compensation Table
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership of the Company's common stock as of December 31, 2004 by: (i) each director and nominee for director, (ii) each of the compensated persons named in Item 11 above (iii) all executive officers and directors of the Company as a group; and (iv) all those known by the Company to be beneficial owners of more than five percent of its common stock.
(1) Shares are beneficially held through Roder Revocable Living Trust (36,005,269), Rodering, Inc. Profit Sharing Plan & Trust (27,709,419) and Rodering Incorporated (6,369,982).
*** Less than 1%
The Company had 529,687,859 shares of common stock outstanding as of December 31, 2004
Section 16(a) of the Exchange Act requires the Company's directors and executive officers, and persons who own more than 10% of a registered class of the Company's equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Officers, directors and greater than ten percent stockholders are required by the SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On November 29, 2004 the Company entered into a consulting contract with KMA Capital Partners, Ltd to provide consulting advice regarding the Company's business plan, contemplated business operations, strategic planning, financing advisory services and merger and acquisition advisory services in relation to the restructuring of the Company.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT AND SERVICES
The following table represents the aggregate fees billed by the Company's previous accounting firm Samuel Klein & Company for the year ended December 31, 2003 and December 31, 2004.
- ------------------------------------------------------------------------------- 2003 2004 - ------------------------------------------------------------------------------- Audit Fees $ 9,250 $ 28,100 - ------------------------------------------------------------------------------- Audit Related Fees - ------------------------------------------------------------------------------- Tax Fees - ------------------------------------------------------------------------------- Any other Fees - -------------------------------------------------------------------------------
- ------------------------------------------------------------------------------- Total $ 9, 250 $ 28,100 - -------------------------------------------------------------------------------
PART III
ITEM 15.
ITEM 15. EXHIBITS AND REPORTS ON FORM 10-K
Exhibit No. Description
31.1 Certification of President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002
32.1 Certification of President and Chief Executive Officer pursuant to 18 U.S.C. Section 906, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002
Company Financial Statements December 31, 2004
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ACS Holdings, Inc.
By: /s/ James V. Sadrianna ---------------------------- James V Sadrianna, Chief Financial Officer Dated: April 18, 2005
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
ACS Holdings, Inc.
By: /s/ Mark Width ---------------------------- Mark Width, President and CEO Dated: April 18, 2005
ACS Holdings, Inc.
By: /s/ James V. Sadrianna ---------------------------- James V Sadrianna, Chief Financial Officer Dated: April 18, 2005
S-1