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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Velocity Asset Management, | AMEX:JVI | AMEX | Ordinary Share |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 0.00 | - |
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C.
20549
FORM 10-Q
|
|
x |
Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended March 31 , 2008 or |
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|
|
o |
Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from ______ to ______ |
000-161570
(Commission
file No.)
VELOCITY ASSET MANAGEMENT, INC.
(Exact name of Smaller Reporting Company as specified in its charter)
|
|
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DELAWARE |
|
65-0008442 |
(State or other jurisdiction of incorporation or
|
|
(I.R.S. employer identification no.) |
1800 Route 34N, Suite 404A, Wall, NJ
07719
(Address of principal executive offices)
(732)
556-9090
(Issuers telephone number, including area code)
Check whether the registrant (1) has 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 requirements for the past 90 days. Yes x No o .
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated filer o Accelerated filer o Non-Accelerated filer o Smaller reporting company x
Indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
o
No
x
As of May 20, 2008, there were 17,730,824 shares of the Companys common stock outstanding.
VELOCITY ASSET MANAGEMENT, INC.
TABLE OF CONTENTS
FORM 10-Q
March 31, 2008
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Exhibit 31.1 |
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Certification of Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002 |
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Exhibit 31.2 |
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Certification of Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002 |
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Exhibit 32.1 |
|
Certification of Chief Executive Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002 |
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Exhibit 32.2 |
|
Certification of Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002 |
|
i
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
VELOCITY ASSET MANAGEMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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March 31,
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December 31,
|
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||
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|
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||
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(Unaudited) |
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|
||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
99,688 |
|
$ |
162,180 |
|
Consumer receivables, net |
|
|
46,606,524 |
|
|
46,971,014 |
|
Property and equipment, net of accumulated depreciation |
|
|
58,191 |
|
|
64,420 |
|
Deferred income tax asset, net |
|
|
80,100 |
|
|
98,600 |
|
Security deposits |
|
|
30,224 |
|
|
30,224 |
|
Other assets (including $0 and $115,146 employee loan to a related party at March 31, 2008 and December 31, 2007, respectively) |
|
|
438,523 |
|
|
487,071 |
|
Assets of discontinued operations |
|
|
6,501,582 |
|
|
6,793,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
53,814,832 |
|
$ |
54,606,828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
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|
|
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|
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LIABILITIES |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
506,241 |
|
$ |
552,269 |
|
Estimated court and media costs |
|
|
6,492,813 |
|
|
7,374,212 |
|
Line of credit |
|
|
12,922,838 |
|
|
14,429,138 |
|
|
|
|
|
|
|
|
|
Notes payable to related parties |
|
|
200,000 |
|
|
200,000 |
|
Convertible subordinated notes |
|
|
2,350,000 |
|
|
2,350,000 |
|
Income taxes payable |
|
|
1,100,160 |
|
|
820,222 |
|
Liabilities from discontinued operations (including notes payable to related parties of $2,300,000 at March 31, 2008 and December 31, 2007) |
|
|
5,539,664 |
|
|
4,374,441 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
29,111,716 |
|
|
30,100,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A 10% convertible preferred stock, $0.001 par value, 10,000,000 shares authorized, 1,380,000 shares issued and outstanding (liquidation preference of $13,800,000) |
|
|
1,380 |
|
|
1,380 |
|
Common stock, $0.001 par value, 40,000,000 shares authorized, 16,930,821 and 17,066,821 shares issued and outstanding, respectively |
|
|
16,930 |
|
|
17,066 |
|
Additional paid-in-capital |
|
|
25,128,934 |
|
|
25,243,944 |
|
Accumulated deficit |
|
|
(444,128 |
) |
|
(755,844 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
24,703,116 |
|
|
24,506,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
53,814,832 |
|
$ |
54,606,828 |
|
|
|
|
|
|
|
|
|
See accompanying notes to the condensed consolidated financial statements.
1
VELOCITY ASSET MANAGEMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
|
|
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|
|
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|
For the Three Months Ended |
|
||||
|
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March 31, |
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||||
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||||
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2008 |
|
2007 |
|
||
|
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|
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|
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REVENUES |
|
|
|
|
|
|
|
Income on consumer receivables |
|
$ |
3,834,853 |
|
$ |
3,056,043 |
|
Other income |
|
|
1,356 |
|
|
18,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
3,836,209 |
|
|
3,074,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
Professional fees (including fees paid to related parties of $210,541 and $337,584 for the periods ended March 31, 2008 and 2007, respectively) |
|
|
1,169,544 |
|
|
915,724 |
|
General and administrative expenses |
|
|
541,427 |
|
|
820,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
1,710,971 |
|
|
1,736,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Income from operations |
|
|
2,125,238 |
|
|
1,338,548 |
|
|
|
|
|
|
|
|
|
OTHER EXPENSE |
|
|
|
|
|
|
|
Interest expense (including interest incurred to related parties of $3,500 and $3,500 for the periods ended March 31, 2008 and 2007, respectively) |
|
|
(335,070 |
) |
|
(345,318 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before provision for income taxes |
|
|
1,790,168 |
|
|
993,230 |
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
742,250 |
|
|
426,953 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
1,047,918 |
|
|
566,277 |
|
|
|
|
|
|
|
|
|
Loss from discontinued operations (including fees paid and interest incurred to related parties of $-0- and $167 and $58,139 and $54,250, respectively, at March 31, 2008 and 2007, respectively, and net of tax benefit of $64,164 and $45,827, respectively) |
|
|
(391,202 |
) |
|
(36,469 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
656,716 |
|
|
529,808 |
|
|
|
|
|
|
|
|
|
Preferred dividends |
|
|
(345,000 |
) |
|
(345,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders |
|
$ |
311,716 |
|
$ |
184,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) Per Share: |
|
|
|
|
|
|
|
Income from continuing operations: |
|
|
|
|
|
|
|
Basic |
|
$ |
0.04 |
|
$ |
0.01 |
|
Diluted |
|
$ |
0.04 |
|
$ |
0.01 |
|
Discontinued operations: |
|
|
|
|
|
|
|
Basic |
|
$ |
(0.02 |
) |
$ |
0.00 |
|
Diluted |
|
$ |
(0.02 |
) |
$ |
0.00 |
|
Net income: |
|
|
|
|
|
|
|
Basic |
|
$ |
0.02 |
|
$ |
0.01 |
|
Diluted |
|
$ |
0.02 |
|
$ |
0.01 |
|
|
|
|
|
|
|
|
|
Average Common Shares - Basic |
|
|
17,047,392 |
|
|
16,138,210 |
|
Average Common Shares - Diluted |
|
|
17,105,751 |
|
|
17,885,494 |
|
See accompanying notes to the condensed consolidated financial statements.
2
VELOCITY ASSET MANAGEMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS EQUITY
For the Three Months Ended March 31, 2008
(Unaudited)
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock |
|
Common Stock |
|
Additional
|
|
|
|
Total
|
|
|||||||||||
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|
|
|
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|
|
|||||||||||||
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Number of
|
|
Par Value |
|
Number of
|
|
Par Value |
|
|
Accumulated
|
|
|
|||||||||
|
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|||||||
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCES, December 31, 2007 |
|
|
1,380,000 |
|
$ |
1,380 |
|
|
17,066,821 |
|
$ |
17,066 |
|
$ |
25,243,944 |
|
$ |
(755,844 |
) |
$ |
24,506,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid on preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(345,000 |
) |
|
(345,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase and retirement of common stock |
|
|
|
|
|
|
|
|
(136,000 |
) |
|
(136 |
) |
|
(115,010 |
) |
|
|
|
|
(115,146 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
656,716 |
|
|
656,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCES, March 31, 2008 |
|
|
1,380,000 |
|
$ |
1,380 |
|
|
16,930,821 |
|
$ |
16,930 |
|
$ |
25,128,934 |
|
$ |
(444,128 |
) |
$ |
24,703,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the condensed consolidated financial statements.
3
VELOCITY ASSET MANAGEMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
|||
|
|
|
|
|
|||
|
|
2008 |
|
2007 |
|
||
|
|
|
|
|
|
||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
Net income |
|
$ |
656,716 |
|
$ |
529,808 |
|
Loss from discontinued operations |
|
|
391,202 |
|
|
36,469 |
|
|
|
|
|
|
|
||
Income from continuing operations |
|
|
1,047,918 |
|
|
566,277 |
|
Adjustments to reconcile net income to net cash provided by operating activities |
|
|
|
|
|
|
|
Non-cash expenses related to stock compensation |
|
|
|
|
|
55,000 |
|
Depreciation and amortization |
|
|
45,390 |
|
|
44,440 |
|
Deferred income tax |
|
|
18,500 |
|
|
700 |
|
Increase in: |
|
|
|
|
|
|
|
Other assets |
|
|
(40,958 |
) |
|
(70,357 |
) |
Increase (decrease) in: |
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
|
(46,030 |
) |
|
181,317 |
|
Estimated court and media costs |
|
|
(881,399 |
) |
|
(329,600 |
) |
Income taxes payable |
|
|
279,938 |
|
|
(85,215 |
) |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
423,359 |
|
|
362,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
Acquisition of property and equipment |
|
|
|
|
|
(9,377 |
) |
Acquisition of consumer receivables |
|
|
(265,181 |
) |
|
(2,850,623 |
) |
Collections applied to principal on consumer receivables |
|
|
614,872 |
|
|
625,760 |
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
349,691 |
|
|
(2,234,240 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
(Repayments) borrowings under lines of credit, net |
|
|
(1,556,300 |
) |
|
767,533 |
|
Payment of preferred dividends |
|
|
(345,000 |
) |
|
(345,000 |
) |
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(1,901,300 |
) |
|
422,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM DISCONTINUED OPERATIONS, NET |
|
|
|
|
|
|
|
Operating activities |
|
|
(131,060 |
) |
|
(397,185 |
) |
Investing activities |
|
|
100,000 |
|
|
|
|
Financing activities |
|
|
1,096,818 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) discontinued operations |
|
|
1,065,758 |
|
|
(397,185 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(62,492 |
) |
|
(1,846,330 |
) |
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period |
|
|
162,180 |
|
|
2,444,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
99,688 |
|
$ |
598,026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
Cash paid for interest - continuing operations |
|
$ |
333,071 |
|
$ |
345,317 |
|
Cash paid for income taxes - continuing operations |
|
$ |
330,712 |
|
$ |
451,361 |
|
|
|
|
|
|
|
|
|
Non-cash item: |
|
|
|
|
|
|
|
Purchase and retirement of common stock |
|
$ |
115,146 |
|
$ |
|
|
See accompanying notes to the condensed consolidated financial statements.
4
VELOCITY ASSET MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2008
(UNAUDITED)
NOTE 1 ORGANIZATION AND BUSINESS
The condensed consolidated financial statements of Velocity Asset Management, Inc. (VAMI) and its wholly-owned subsidiaries, Velocity Investments, LLC (Velocity), J. Holder, Inc. (J. Holder), VOM, LLC, (VOM), TLOP Acquisition Company, LLC (TLOP) and SH Sales, Inc. (SH) (the Subsidiaries, and together with Velocity Asset Management, Inc., the Company) included herein have been prepared by the Company and are unaudited; however, such information is in accordance with Securities and Exchange Commission regulations and reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations, and cash flows for the interim periods to which the report relates. The results of operations for the periods ended March 31, 2008 and 2007 are not necessarily indicative of the operating results that may be achieved for the full year. The assets, liabilities and results of operations of J. Holder and VOM, have been presented as discontinued operations of these entities in these financial statements.
Certain information and footnote disclosures, normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the audited, consolidated financial statements and notes thereto included in the Companys Form 10-K for the year ended December 31, 2007.
The Company has one continuing industry segment - the acquisition, management, collection, and servicing of consumer receivables.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Properties Held for Sale
Properties held for sale consists of real property purchased by the Company for resale and are carried at the lower of cost or market value. This includes the cost to purchase the property and repairs or other costs required to present the property ready for resale. The Company recognizes income and related expenses from the sale of real property at the date the sale closes. These properties are maintained by the Companys subsidiary, J. Holder and are reflected as discontinued operations.
Tax Certificates Held and Accrued Interest Receivable
The Company records its New Jersey municipal tax liens at cost plus accrued interest. Interest income is recognized using the effective interest method (interest method). These assets are maintained by the Companys subsidiary, VOM and are reflected as discontinued operations.
Consumer Receivables
The Company purchases consumer receivable portfolios at a substantial discount from their face amount due to a deterioration of credit quality between the time of origination and the Companys acquisition of the portfolios. Income is recognized using either the interest method or cost recovery method. Upon acquisition, the Company reviews each consumer receivable portfolio to determine whether each such portfolio is to be accounted for individually or whether such portfolio will be assembled into static pools of consumer receivable portfolios based on common risk characteristics. Once the static portfolio pools are created, management estimates the future anticipated cash flows for each pool. If management can reasonably estimate the expected timing and amount of future cash flows, the interest method is applied. However, if the expected future cash flows cannot be reasonably estimated, the Company uses the cost recovery method.
The Company accounts for its investment in consumer receivable portfolios using the interest method under the guidance of American Institute of Certified Public Accountants (AICPA) Statement of Position (SOP) 03-3, Accounting for Loans or Certain Securities Acquired in a Transfer. SOP 03-3 addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investors initial investment in loans or debt if those differences are attributable, at least in part, to credit quality. Increases in expected cash flows are recognized prospectively through adjustment of the internal rate of return (IRR) while decreases in expected cash flows are recognized as an impairment.
Under the guidance of SOP 03-3, when expected cash flows are higher than prior projections, the increase in expected cash flows results in an increase in the IRR and therefore, the effect of the cash flow increase is recognized as increased revenue prospectively over the remaining life of the affected pool. However, when expected cash flows are lower than prior projections, SOP 03-3 requires that the expected decrease be recognized as an impairment by decreasing the carrying value of the affected pool (rather than lowering the IRR) so that the pool will amortize over its expected life using the original IRR. A pool can become fully amortized (zero carrying balance on the balance sheet) while still generating cash collections. In this case, all cash collections are recognized as revenue when received.
5
VELOCITY ASSET MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2008
(UNAUDITED)
Under the cost recovery method, no revenue is recognized until the Company has fully collected the cost of the portfolio, or until such time that the Company considers the collections to be probable and estimable and begins to recognize income based on the interest method as described above. The Company currently has no consumer receivable portfolios accounted for under the cost recovery method.
The Company estimates and capitalizes certain fees paid and to be paid to third parties related to the direct acquisition and collection of a portfolio of accounts. These fees are added to the cost of the individual portfolio and amortized over the life of the portfolio using the interest method. An offsetting liability is included as Estimated court and media costs on the balance sheet.
The Company establishes valuation allowances for all acquired loans subject to SOP 03-3 to reflect only those losses incurred after acquisition (that is, the present value of cash flows initially expected at acquisition that are no longer expected to be collected). Valuation allowances are established only subsequent to acquisition of the loans, if necessary. At March 31, 2008 and December 31, 2007, the Company had no valuation allowances on its consumer receivables.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
With respect to income recognition under the interest method, significant estimates have been made by management with respect to the collectability of future cash flows of portfolios. The Company takes into consideration the relative credit quality of the underlying receivables constituting the portfolio acquired, the strategy implemented to maximize collections thereof as well as other factors to estimate the anticipated cash flows. Actual results could differ from these estimates making it reasonably possible that a change in these estimates could occur within one year. On a quarterly basis, management reviews the estimate of future cash collections, and whether it is reasonably possible that its assessment of collectability may change based on actual results and other factors.
Reclassifications
Certain reclassifications, which have no effect on net income, have been made to the prior period financial statements to conform to the current presentation. The operations of J. Holder and VOM, LLC have been reclassified as discontinued operations for all periods presented.
Fair Value
In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No.157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value to be the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and emphasizes that fair value is a market-based measurement, not an entity-specific measurement. It establishes a fair value hierarchy and expands disclosures about fair value measurements in both interim and annual periods. SFAS 157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Company adopted SFAS 157 on January 1, 2008 which did not have an impact on its consolidated financial position and results of operations.
6
VELOCITY ASSET MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2008
(UNAUDITED)
Recently Issued Accounting Pronouncements
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115 (SFAS No. 159). This statement permits entities to choose to measure many financial instruments and certain other items at fair value. Most of the provisions of SFAS No. 159 apply only to entities that elect the fair value option. However, the amendment to SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, applies to all entities with available-for-sale and trading securities SFAS No. 159 is effective as of the beginning of an entitys first fiscal year that begins after November 15, 2007. Management has not made an election to adopt this pronouncement.
In December 2007, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141R, Business Combinations , and Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 . These new standards significantly change the accounting for and reporting of business combination transactions and noncontrolling interests (previously referred to as minority interests) in consolidated financial statements. Both standards are effective for fiscal years beginning on or after December 15, 2008, with early adoption prohibited. These Statements are effective for the Company beginning on January 1, 2009. The Company is currently evaluating the provisions of FAS 141(R) and FAS 160.
In March 2008, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 161, Disclosures About Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 . This new standard enhances the disclosure requirements related to derivative instruments and hedging activities required by FASB Statement No. 133 . This standard is effective for fiscal years and interim periods beginning after November 15, 2008, with early adoption encouraged. The Company is currently evaluating the potential impact, if any, of the adoption of SFAS 161 and does not believe that it will have a significant impact on its consolidated financial position and results of operations.
In May 2008, the FASB issued FAS No. 162 The Hierarchy of Generally Accepted Accounting Principles (FAS 162). FAS 162 identifies the sources of accounting generally accepted accounting principles in the United States. FAS 162 is effective sixty days following the SECs approval of PCAOB amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The Company is currently evaluating the potential impact, if any, of the adoption of FAS 162 on its condensed consolidated financial statements.
7
VELOCITY ASSET MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2008
(UNAUDITED)
NOTE 3 CONSUMER RECEIVABLES
Consumer receivable activity for the three months ended March 31, 2008 and 2007 was as follows:
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
Three Months
|
|
||
|
|
|
|
|
|
||
Balance at beginning of period |
|
$ |
46,971,014 |
|
$ |
38,327,926 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions and capitalized costs, net of returns |
|
|
265,181 |
|
|
2,850,623 |
|
Amortization of capitalized costs |
|
|
(14,799 |
) |
|
(14,799 |
) |
|
|
|
|
|
|
|
|
|
|
|
250,382 |
|
|
2,835,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash collections (1) |
|
|
(4,421,118 |
) |
|
(3,681,803 |
) |
|
|
|
|
|
|
|
|
Income recognized on consumer receivables (1) |
|
|
3,806,246 |
|
|
3,056,043 |
|
|
|
|
|
|
|
|
|
Cash collections applied to principal |
|
|
(614,872 |
) |
|
(625,760 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
46,606,524 |
|
$ |
40,537,990 |
|
|
|
|
|
|
|
|
|
(1) Excludes $28,607 derived from fully amortized interest method pools for the three months ended March 31, 2008.
As of March 31, 2008, based upon managements current estimation of projected future collections, principal reductions will be as follows:
|
|
|
|
|
|
|
March 31, |
|
|
|
|
|
|
|
2009 |
|
$ |
10,012,304 |
|
2010 |
|
|
12,092,327 |
|
2011 |
|
|
11,110,269 |
|
2012 |
|
|
9,580,292 |
|
2013 |
|
|
3,584,132 |
|
Thereafter |
|
|
227,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
46,606,524 |
|
|
|
|
|
|
8
VELOCITY ASSET MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2008
(UNAUDITED)
The accretable yield represents the amount of income the Company can expect to generate over the remaining lives of its existing portfolios based on estimated cash flows as of March 31, 2008 and 2007. Changes in the accretable yield are as follows:
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
Three Months
|
|
||
|
|
|
|
|
|
||
Balance at beginning of period |
|
$ |
31,442,803 |
|
$ |
29,643,803 |
|
Income recognized on consumer receivables (1) |
|
|
(3,806,246 |
) |
|
(3,056,043 |
) |
Additions |
|
|
235,339 |
|
|
2,405,503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
27,871,896 |
|
$ |
28,993,263 |
|
|
|
|
|
|
|
|
|
(1) Excludes $28,607 derived from fully amortized interest method pools for the three months ended March 31, 2008.
NOTE 4 DISCONTINUED OPERATIONS
On December 31, 2007, the Board of Directors voted to discontinue operations of its wholly-owned subsidiaries J. Holder and VOM. The operations of J. Holder will cease upon the liquidation of all real properties, assignments and judgments. This is expected to occur before December 31, 2008. The Company is currently liquidating all of VOMs tax certificates and is accepting proposals for the sale of VOM. The Company expects the liquidation or sale to be completed prior to December 31, 2008.
The divestiture of the businesses is consistent with the Companys strategy of concentrating resources in the core product area of consumer receivables.
Revenues and net loss for the discontinued operations were as follows:
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
Three Months
|
|
||
|
|
|
|
|
|
||
Revenues |
|
$ |
41,426 |
|
$ |
95,865 |
|
|
|
|
|
|
|
||
Loss from discontinued operations before income taxes |
|
|
(455,366 |
) |
|
(82,296 |
) |
|
|
|
|
|
|
Assets and liabilities of the discontinued businesses were as follows:
|
|
|
|
|
|
|
|
|
|
March 31, 2008 |
|
December 31, 2007 |
|
||
|
|
|
|
|
|
||
Notes receivable |
|
$ |
25,000 |
|
$ |
25,000 |
|
Notes receivable from related party |
|
|
|
|
|
100,000 |
|
Deposits on properties |
|
|
10,000 |
|
|
10,000 |
|
Properties held for sale |
|
|
5,926,119 |
|
|
5,962,739 |
|
Tax certificates held and accrued interest receivable, net |
|
|
247,659 |
|
|
325,339 |
|
Deferred income tax asset, net |
|
|
280,600 |
|
|
325,000 |
|
Other assets |
|
|
12,204 |
|
|
45,241 |
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
6,501,582 |
|
$ |
6,793,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
941,846 |
|
$ |
873,441 |
|
Line of credit |
|
|
412,818 |
|
|
316,000 |
|
Notes payable |
|
|
1,885,000 |
|
|
885,000 |
|
Notes payable to related parties |
|
|
2,300,000 |
|
|
2,300,000 |
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
5,539,664 |
|
$ |
4,374,441 |
|
|
|
|
|
|
|
|
|
9
VELOCITY ASSET MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2008
(UNAUDITED)
NOTE 5 LINES OF CREDIT
In February 2008, Velocity entered into a Fourth Amendment to the Loan and Security Agreement (the Fourth Amendment to the Loan Agreement) with the Lender pursuant to amend the Loan and Security Agreement dated January 27, 2005 (the Original Loan Agreement). Pursuant to the Fourth Amendment to the Loan Agreement, the Lender increased the amount of credit available under the credit facility from $17,500,000 to $22,500,000 and extended the maturity date until January 27, 2011. The Lender has agreed to eliminate the requirement that certain executive officers of the Company provide the Lender with joint and several limited guarantees of Velocitys obligations under the Original Loan Agreement.
Use of the credit facility is subject to certain restrictive covenants under the Fourth Amendment to the Loan Agreement including but not limited to: a restriction on incurring additional indebtedness or liens; a change of control of Velocity; and a restriction on entering into transactions with affiliates outside the course of Velocitys ordinary business. Velocity has agreed to maintain at least $14,000,000 in members equity and subordinated debt. The Company has also agreed to maintain at least $25,000,000 in stockholders equity and subordinated debt for the duration of the facility. In addition, Velocity and the Company covenant that net income for each subsequent quarter shall not be less than $375,000 and $200,000, respectively.
As of March 31, 2008 and December 31, 2007, the Company had $12,922,838 and $14,429,138 outstanding on the credit facility, respectively. The rate of interest at March 31, 2008 was 6.75%.
On June 14, 2007, the Company entered into an agreement for a revolving credit line for $800,000 with Northern State Bank. Interest on the outstanding principal balance will be the banks prime rate plus one-half percent per annum. Any sums loaned under the note may be repaid at any time, without premium or penalty, and reborrowed from time to time, until July 1, 2008. Payments of interest only are due on the 1st day of each and every month until July 1, 2008, on which date the entire balance or principal, interest and fees then unpaid shall be due and payable. The credit line is secured by various mortgages of real property held by the Companys subsidiary, J. Holder. The Company had $412,818 and $316,000 outstanding on the credit line as of March 31, 2008 and December 31, 2007, respectively, which is reported in net liabilities of discontinued operations.
NOTE 6 NOTE PAYABLE
On January 25, 2008, the Company issued a promissory note for $1,000,000 with a financial institution. The note bears interest at a rate of 7% per annum, payable monthly in arrears, on the first day of each month with the original principal amount plus accrued interest due October 25, 2008. The note is collateralized by specified real property owned by the Companys subsidiary, J. Holder. The note is guaranteed by the Company and personally by certain executive officers of the Company. J. Holder has agreed to maintain a loan to value ratio of 33% at all times.
NOTE 7 RELATED PARTY TRANSACTIONS
The Company received a note receivable in the amount of $205,000 in partial payment of the $455,000 purchase price from an officer and related party, John C. Kleinert for the assignment of membership interests in Ridgedale Avenue Commons, LLC, and Morris Avenue Commons, LLC, previously owned by J. Holder, Inc. As of December 31, 2007, the note had a balance of $100,000 which is included in the assets of discontinued operations, along with interest at the rate of 12% which shall accrue only on and after December 26, 2007, and is payable by means of one lump sum payment of principal and accrued interest on August 25, 2008. As of March 14, 2008, Mr. Kleinert made a $100,000 lump sum payment to the Company and the promissory note was retired. The Company waived $2,630 in accrued interest on the prepayment.
On December 28, 2007, the Company paid $115,146 in withholding taxes in connection with the vesting of 175,000 shares of restricted stock granted to James J. Mastriani. On March 14, 2008, Mr. Mastriani has returned 136,000 of such shares for cancellation and retirement to offset this payment.
The Company has notes payable with various related parties. Total interest expense to related parties for the three months ended March 31, 2008 and 2007 was $61,639 and $57,750, respectively. For the three months ended March 31, 2008 and March 31, 2007, $58,139 and $54,250, respectively, is included in the results of operations of discontinued operations.
The Company engages Ragan & Ragan, PC, an entity owned by Messrs. Ragan & Ragan, a director and officer of the Company, respectively, to pursue legal collection of its receivable portfolios with respect to obligors and properties located in the State of New Jersey. The fee arrangements between the Companys subsidiaries Velocity, J. Holder and VOM and Ragan & Ragan, P.C., each dated as of January 1, 2005, have been reviewed and approved by all the members of a committee appointed by the Board of Directors other than Mr. Ragan, Sr. who abstained. John C. Kleinert and James J. Mastriani comprised the committee. In May 2007, the fee arrangements were approved by Unanimous Written Consent of the Board of Directors other than Mr. Ragan, Sr. who abstained.
10
VELOCITY ASSET MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2008
(UNAUDITED)
Ragan and Ragan, P.C. routinely advances court costs associated with their servicing of consumer receivable portfolios, which are subsequently reimbursed by the Company. These costs are included in the estimated court and media costs in the consolidated balance sheets.
Legal fees paid to Ragan & Ragan, P.C., by the Companys subsidiaries were as follows:
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
Three Months
|
|
||
|
|
|
|
|
|
||
Velocity Investments, LLC |
|
$ |
210,541 |
|
$ |
337,584 |
|
VOM, LLC |
|
|
|
|
|
167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
210,541 |
|
$ |
337,751 |
|
|
|
|
|
|
|
|
|
NOTE 8 EARNINGS PER SHARE
Basic earnings per share are computed using the weighted average number of shares outstanding during each period. Diluted earnings per share are computed using the weighted average number of shares outstanding during each period, plus the dilutive effects of potential convertible securities related to preferred stock, convertible notes, options and warrants. Outstanding options and warrants to non-employees convertible into 1,390,910 and 1,177,160 shares of common stock, convertible preferred stock, convertible into 5,520,000 shares of common stock and convertible notes, convertible into 940,000 and -0- shares for the three months ended March 31, 2008 and 2007, respectively, were not included in the dilutive per share calculations because their effect would have been anti-dilutive.
The following table sets forth the computation of basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
Three Months
|
|
||
|
|
|
|
|
|
||
Numerator: |
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
1,047,918 |
|
$ |
566,277 |
|
Preferred stock dividends |
|
|
(345,000 |
) |
|
(345,000 |
) |
|
|
|
|
|
|
|
|
Income from continuing operations available to common shareholders |
|
|
702,918 |
|
|
221,277 |
|
Discontinued operations, net of tax |
|
|
(391,202 |
) |
|
(36,469 |
) |
|
|
|
|
|
|
|
|
Net income attributable to common shareholders - Basic and Diluted |
|
$ |
311,716 |
|
$ |
184,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
Average shares of common stock outstanding - Basic |
|
|
17,047,392 |
|
|
16,138,210 |
|
Effect of dilutive instruments: |
|
|
|
|
|
|
|
Stock options |
|
|
58,359 |
|
|
1,747,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares - Diluted |
|
|
17,105,751 |
|
|
17,885,494 |
|
|
|
|
|
|
|
|
|
NOTE 9 SUBSEQUENT EVENTS
On May 6, 2008, the Company consummated an initial closing of its private placement offering of units comprised of shares of common stock (the Shares) and warrants to purchase shares of common stock to accredited investors. The Company sold an aggregate of 800,003 shares at a purchase price of $0.90 per Share with three year warrants to purchase an aggregate of 200,001 shares of the Companys common stock at an exercise price of $1.125 per share. The Company intends to use the net proceeds from the offering primarily for the purchase of portfolios of unsecured consumer receivables and for general corporate purposes, including working capital.
The Company received net proceeds of $599,600 from the placement, after payment of offering expenses of approximately $70,000 and commissions of approximately $50,400. The Company retained a registered FINRA broker dealer to act as placement agent. In addition, the placement agent will receive three-year warrants to acquire 80,000 shares of the Companys common stock at an exercise price of $1.125 per share.
11
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and notes thereto and the other financial information included elsewhere in this report.
NOTE ON FORWARD LOOKING STATEMENTS
This quarterly report on Form 10-Q includes and incorporates by reference forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934 with respect to our financial condition, results of operations, plans, objectives, future performance and business, which are usually identified by the use of words such as will, may, anticipates, believes, estimates, expects, projects, plans, predicts, continues, intends, should, would, or similar expressions. We intend for these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with these safe harbor provisions.
These forward-looking statements reflect our current views and expectations about our plans, strategies and prospects, which are based on the information currently available and on current assumptions.
We cannot give any guarantee that these plans, intentions or expectations will be achieved. Investors are cautioned that all forward-looking statements involve risks and uncertainties, and actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including those Risk Factors set forth in our Form 10-K for the year ended December 31, 2007. Listed below and discussed elsewhere in this prospectus are some important risks, uncertainties and contingencies that could cause our actual results, performances or achievements to be materially different from the forward-looking statements included or incorporated by reference in this prospectus. These risks, uncertainties and contingencies include, but are not limited to, the following:
|
|
|
|
|
the availability for purchase of consumer receivable portfolios, interests in distressed real property and tax lien certificates that satisfy our criteria; |
|
|
|
|
|
competition in the industry; |
|
|
|
|
|
the availability of debt and equity financing; |
|
|
|
|
|
future acquisitions; |
|
|
|
|
|
the availability of qualified personnel; |
|
|
|
|
|
international, national, regional and local economic and political changes; |
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general economic and market conditions, including the current economic and housing crisis; |
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changes in applicable state and federal laws; |
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trends affecting our industry, our financial condition or results of operations; |
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the timing and amount of collections on our consumer receivable portfolios; and |
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increases in operating expenses associated with the growth of our operations. |
You should read this document with the understanding that our actual future results may be materially different from what we expect. We may not update these forward-looking statements, even though our situation may change in the future. We qualify all of our forward-looking statements by these cautionary statements.
Overview
We were organized in the State of Delaware in December 1986 as Tele-Optics, Inc. We were inactive until February 3, 2004, when we acquired STB, Inc. Since that acquisition, we have engaged in the business of acquiring, managing and servicing distressed assets, consisting of consumer receivable portfolios, interests in distressed real property and tax lien certificates. Historically, the business had been carried on by our three wholly-owned subsidiaries: Velocity Investments, LLC, which invests in non-performing consumer debt purchased in the secondary market at a discount from face value and then seeks to liquidate these debt portfolios through legal collection means; J. Holder, Inc. (JHI), which invested in distressed real property interests, namely real property being sold at sheriffs foreclosure and judgment execution sales, defaulted mortgages, partial interests in real property and the acquisition of real property with clouded title; and VOM, LLC (VOM), which invested in New Jersey municipal tax liens with the focus on realization of value through legal collection and owned real estate opportunities presented by the current tax environment. On December 31, 2007, the Board of Directors of the Company unanimously approved managements plan to discontinue the operation of the Companys JHI and VOM subsidiaries and to sell and dispose of the assets or membership interests/capital stock of such subsidiaries. Accordingly, these operations are shown as discontinued operations in the accompanying financial statements.
12
Our consumer receivable portfolios are purchased at a discount from the amount actually owed by the obligor. Our interests in distressed real property were purchased following an extensive due diligence process concerning the legal status of each property and a market analysis of the value of the property or underlying property. Our tax lien certificates were purchased at a discount from par following a due diligence analysis similar to that performed in connection with the purchase of interests in distressed real property. Our profitability as a company depends upon our ability to purchase and collect on a sufficient volume of our consumer receivables to generate revenue that exceeds our cost.
After careful consideration of trends in revenues and future opportunities for growth, management has made the determination that the consumer receivables business will be the sole operating focus of the Company in 2008. As a result, the Company is currently considering all strategic alternatives for JHI and VOM, including, but not limited to, the sale of some or all of each entitys assets, partnering or other collaboration agreements, or a merger, spin-off or other strategic transaction. On December 31, 2007, the Board of Directors of the Company unanimously approved managements plan to discontinue the operation of the Companys JHI and VOM subsidiaries and to sell and dispose of the assets or membership interests/capital stock of such subsidiaries. The operations of JHI will cease upon the liquidation of all real properties, assignments and judgments. This is expected to occur before December 31, 2008. The Company is currently liquidating all of VOMs tax certificates and is accepting proposals for the sale of VOM. The Company expects the liquidation or sale to be completed prior to December 31, 2008.
The divestiture of the businesses is consistent with the Companys strategy of concentrating resources in the core product area of consumer receivables. The Company does not expect managements plan with respect to the disposal of the assets of the discontinued operations to have a material effect on reported results of operations.
Critical Accounting Policies
Our discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the fair value of consumer receivables, the fair value of properties held for sale and the reported amounts of revenues and expenses. On an on-going basis, we evaluate our estimates, including those related to the recognition of revenue, future estimated cash flows and income taxes. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. We believe the following critical accounting policies affect the significant judgment and estimates used in the preparation of our consolidated financial statements.
Purchased Consumer Receivable Portfolios and Revenue Recognition
We purchase portfolios of consumer receivable accounts at a substantial discount from their face amounts, usually discounted at 75% to 98% from face value. We record these accounts at our acquisition cost, plus the estimated cost of court filing fees and account media. The portfolios of consumer receivables contain accounts that have experienced deterioration of credit quality between origination and our acquisition of the consumer receivable portfolios. The discounted amount paid for a portfolio of consumer receivable accounts reflects our determination that it is probable we will be unable to collect all amounts due according to the contractual terms of the accounts. At acquisition, we review the consumer receivable accounts in the portfolio to determine whether there is evidence of deterioration of credit quality since origination and whether it is probable that we will be unable to collect all amounts due according to the contractual terms of the accounts. If both conditions exist, we determine whether each such portfolio is to be accounted for individually or whether such portfolios will be assembled into static pools based on common risk characteristics. We consider expected prepayments and estimate the amount and timing of undiscounted expected principal, interest and other cash flows for each acquired portfolio of consumer receivable accounts and subsequently aggregated pools of consumer receivable portfolios. We determine the excess of the pools scheduled contractual principal and contractual interest payments over all cash flows expected at acquisition as an amount that should not be accreted based on our proprietary acquisition models. The remaining amount, representing the excess of the loans cash flows expected to be collected over the amount paid, is accreted into income recognized on consumer receivables over the remaining life of the loan or pool using the interest method.
13
We acquire these consumer receivable portfolios at a significant discount to the amount actually owed by the borrowers. We acquire these portfolios after a qualitative and quantitative analysis of the underlying receivables and calculate the purchase price so that our estimated cash flow provides us with a sufficient return on our acquisition costs and servicing expenses. After purchasing a portfolio, we actively monitor its performance and review and adjust our collection and servicing strategies accordingly.
We account for our investment in consumer receivables using the interest method under the guidance of American Institute of Certified Public Accountants Statement of Position 03-3, Accounting for Loans or Certain Securities Acquired in a Transfer. In accordance with Statement of Position 03-03 (and the amended Practice Bulletin 6), revenue is recognized based on our anticipated gross cash collections and the estimated rate of return over the useful life of the pool.
We believe that the amounts and timing of cash collections for our purchased receivables can be reasonably estimated and, therefore, we utilize the interest method of accounting for our purchased consumer receivables prescribed by Statement of Position 03-3. Such belief is predicated on our historical results and our knowledge of the industry. Each static pool of receivables is statistically modeled to determine its projected cash flows based on historical cash collections for pools with similar risk characteristics. Statement of Position 03-3 requires that the accrual basis of accounting be used at the time the amount and timing of cash flows from an acquired portfolio can be reasonably estimated and collection is probable.
Where the future cash collections of a portfolio cannot be reasonably estimated, we use the cost recovery method as prescribed under Statement of Position 03-3. Under the cost recovery method, no revenue is recognized until we have fully collected the initial acquisition cost of the portfolio. We currently have no consumer receivable portfolios that are accounted for under the cost recovery method.
Under Statement of Position 03-3, to the extent that there are differences in actual performance versus expected performance, increases in expected cash flows are recognized prospectively through adjustment of the internal rate of return while decreases in expected cash flows are recognized as an impairment. Under both the guidance of Statement of Position 03-3 and the amended Practice Bulletin 6, when expected cash flows are higher than prior projections, the increase in expected cash flows results in an increase in the internal rate of return and therefore, the effect of the cash flow increase is recognized as increased revenue prospectively over the remaining life of the affected pool. However, when expected cash flows are lower than prior projections, Statement of Position 03-3 requires that the expected decrease be recognized as an impairment by decreasing the carrying value of the affected pool (rather than lowering the internal rate of return) so that the pool will amortize over its expected life using the original internal rate of return.
Generally, these portfolios are expected to amortize over a five year period based on our estimated future cash flows. Historically, a majority of the cash we ultimately collect on a portfolio is received during the first 40 months after acquiring the portfolio, although additional amounts are collected over the remaining period. The estimated future cash flows of the portfolios are re-evaluated quarterly.
The internal rate of return is estimated and periodically recalculated based on the timing and amount of anticipated cash flows using our proprietary collection models. A pool can become fully amortized (zero carrying balance on the balance sheet) while still generating cash collections. In this case, all cash collections are recognized as revenue when received. Additionally, we would use the cost recovery method when collections on a particular pool of accounts cannot be reasonably predicted.
14
We establish valuation allowances for all acquired consumer receivable portfolios subject to Statement of Position 03-3 to reflect only those losses incurred after acquisition (that is, the present value of cash flows initially expected at acquisition that are no longer expected to be collected). Valuation allowances are established only subsequent to acquisition of the loans. At March 31, 2008 and March 31, 2007, we had no valuation allowance on our consumer receivables.
Application of Statement of Position 03-3 requires the use of estimates to calculate a projected internal rate of return for each pool. These estimates are based on historical cash collections. If future cash collections are materially different in amount or timing than projected cash collections, earnings could be affected either positively or negatively. Higher collection amounts or cash collections that occur sooner than projected cash collections will have a favorable impact on yield and revenues. Lower collection amounts or cash collections that occur later than projected cash collections will have an unfavorable impact on operations. Consumer receivable activity for the three month periods ended March 31, 2008 and 2007 consisted of the following:
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For the Three Months Ended |
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||||
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|
||||
|
|
March 31,
|
|
March 31,
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||
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|
||
Balance at beginning of period |
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$ |
46,971,014 |
|
$ |
38,327,926 |
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|
|
|
|
|
|
|
|
Acquisitions and capitalized costs, net of returns |
|
|
265,181 |
|
|
2,850,623 |
|
Amortization of capitalized costs |
|
|
(14,799 |
) |
|
(14,799 |
) |
|
|
|
|
|
|
|
|
|
|
|
250,382 |
|
|
2,835,824 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash collections (1) |
|
|
(4,421,118 |
) |
|
(3,681,803 |
) |
Income recognized on consumer receivables (1) |
|
|
3,806,246 |
|
|
3,056,043 |
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|
|
|
|
|
|
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Cash collections applied to principal |
|
|
(614,872 |
) |
|
(625,760 |
) |
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|
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|
Balance at end of period |
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$ |
46,606,524 |
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$ |
40,537,990 |
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(1) Excludes $28,607 derived from fully amortized interest method pools for the three months ended March 31, 2008.
15
Stock Based Compensation
We have adopted the fair value recognition provisions of Share-Based Payment (SFAS No. 123R), which supersedes Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. The revised statement addresses the accounting for share-based payment transactions with employees and other third parties, eliminates the ability to account for share-based transactions using APB No. 25 and requires that the compensation costs relating to such transactions be recognized in the consolidated financial statements. SFAS No. 123R requires additional disclosures relating to the income tax and cash flow effects resulting from share-based payments. Additionally, regarding the treatment of non-employee stock based compensation, we have followed the guidance of EITF 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.
New Accounting Pronouncements
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115 (SFAS No. 159). This statement permits entities to choose to measure many financial instruments and certain other items at fair value. Most of the provisions of SFAS No. 159 apply only to entities that elect the fair value option. However, the amendment to SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, applies to all entities with available-for-sale and trading securities SFAS No. 159 is effective as of the beginning of an entitys first fiscal year that begins after November 15, 2007. Management has not made an election to adopt this pronouncement.
In December 2007, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141R, Business Combinations , and Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 . These new standards significantly change the accounting for and reporting of business combination transactions and noncontrolling interests (previously referred to as minority interests) in consolidated financial statements. Both standards are effective for fiscal years beginning on or after December 15, 2008, with early adoption prohibited. These Statements are effective for the Company beginning on January 1, 2009. The Company is currently evaluating the provisions of FAS 141(R) and FAS 160.
In March 2008, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 161, Disclosures About Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 . This new standard enhances the disclosure requirements related to derivative instruments and hedging activities required by FASB Statement No. 133 . This standard is effective for fiscal years and interim periods beginning after November 15, 2008, with early adoption encouraged. The Company is currently evaluating the potential impact, if any, of the adoption of SFAS 161 and does not believe that it will have any impact on its consolidated financial position and results of operations.
In May 2008, the FASB issued FAS No. 162 The Hierarchy of Generally Accepted Accounting Principles (FAS 162). FAS 162 identifies the sources of accounting generally accepted accounting principles in the United States. FAS 162 is effective sixty days following the SECs approval of PCAOB amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The Company is currently evaluating the potential impact, if any, of the adoption of FAS 162 on its condensed consolidated financial statements.
16
Results of Operations
Total Revenues
Comparison of the 2008 First Quarter to the 2007 First Quarter
Total revenues from continuing operations for the three month period ended March 31, 2008 (the 2008 First Quarter) were $3,836,209 as compared to $3,074,875 during the three month period ended March 31, 2007 (the 2007 First Quarter), representing a 24.8% increase. The increase in revenues was primarily attributable to a significant increase in interest income related to collections on consumer receivables at our Velocity Investments subsidiary.
Total Operating Expenses
Comparison of the 2008 First Quarter to the 2007 First Quarter
Total operating expenses in the 2008 First Quarter were $1,710,971 as compared to $1,736,237 during the 2007 First Quarter, representing a 1.5% decrease. The decrease in total operating expenses was primarily attributable to a decrease in general and administrative expenses slightly offset by an increase in professional fees.
Other Income (Expense)
Comparison of the 2008 First Quarter to the 2007 First Quarter
Interest expense in the 2008 First Quarter was $335,070 as compared to $345,318 in the 2007 First Quarter, representing a 3.0% decrease. The decrease in interest expense was primarily attributable to a decline in the Wells Fargo Prime Rate in connection with Velocity Investments line of credit with Wells Fargo Foothill, Inc.
Net Income (Loss)
Comparison of the 2008 First Quarter to the 2007 First Quarter
Net income for the 2008 First Quarter was $656,716 as compared to net income of $529,808 for the 2007 First Quarter, a 24.0% increase. Income from continuing operations for the 2008 First Quarter was $1,047,918 as compared to income from continuing operations for the 2007 First Quarter of $566,277, an 85.1% increase. The Company had a $391,202 loss from discontinued operations in the 2008 First Quarter compared to $36,469 in the 2007 First Quarter. The loss in the 2008 First Quarter was primarily attributable to the payment of approximately $230,000 in property taxes in connection with an investment property in Melbourne, Florida.
Liquidity and Capital Resources
Liquidity and Capital Resources
The term liquidity refers to our ability to generate adequate amounts of cash to fund our operations, including portfolio purchases, operating expenses, tax payments and dividend payments, if any. Historically, we have generated working capital primarily from cash collections on our portfolios of consumer receivables in excess of the cash collections required to make principal and interest payments on our senior credit facility, and from offerings of equity securities and debt instruments. At March 31, 2008, the Company had approximately $100,000 in cash and cash equivalents, approximately $9,600,000 in credit available from our credit facility and trade accounts payable of approximately $506,000. Management believes that the revenues expected to be generated from operations, the May 2008 equity offering discussed below and the Companys line of credit will be sufficient to finance operations through the first quarter of 2009. However, in order to continue to execute our business plan, the Company will need to raise additional capital by way of the sale of equity securities or debt instruments. If, for any reason, our available cash otherwise proves to be insufficient to fund operations (because of future changes in the industry, general economic conditions, unanticipated increases in expenses, or other factors, including acquisitions), we will be required to seek additional funding.
On December 31, 2007, the Board of Directors of the Company unanimously approved managements plan to discontinue the operation of the Companys JHI and VOM subsidiaries. The Company does not expect managements plan with respect to the disposal of assets of the discontinued operations to have a material effect on the Companys liquidity. The discontinued operations have no employees and management believes that it will require an immaterial amount of general and administrative expense to execute managements plan.
17
Net cash provided by operating activities was approximately $423,000 during the three months ended March 31, 2008, compared to net cash provided by operating activities of approximately $363,000 during the three months ended March 31, 2007. The increase in net cash provided by operating activities was primarily related to an increase in net income partially offset by estimated court and media costs. Net cash provided by investing activities was approximately $350,000 during the three months ended March 31, 2008, compared to net cash used in investing activities of $2,234,000 during the three months ended March 31, 2007. The decrease in net cash used in investing activities was primarily due to a decrease in acquisition of consumer receivables portfolios. Net cash used in financing activities was approximately $1,900,000 during the three months ended March 31, 2008, compared to net cash provided by financing activities of approximately $423,000 during the three months ended March 31, 2007. The decrease in net cash provided by financing activities was primarily due to collections of consumer receivables at Velocity Investments paying down the principal amount outstanding on the Wells Fargo Loan. Net cash provided by discontinued operations was approximately $1,066,000 during the three months ended March 31, 2008 as compared to net cash used by discontinued operations of approximately $397,000 during the three months ended March 31, 2007. The increase in cash provided by discontinued operations was primarily due to a $1,000,000 promissory note issued by J. Holder collateralized by a specified real property.
On January 27, 2005, VI entered into a Loan and Security Agreement with Wells Fargo, Inc., a California corporation, in which Wells Fargo agreed to provide VI with a three year $12,500,000 senior credit facility to finance the acquisition of individual pools of unsecured consumer receivables that are approved by Wells Fargo under specific eligibility criteria set forth in the Loan and Security Agreement.
Simultaneous with the Loan and Security Agreement, the following agreements were also entered into with Wells Fargo, a Continuing Guaranty, in which we unconditionally and irrevocably guaranteed our obligations under the Loan and Security Agreement; a Security and Pledge Agreement, in which we pledged all of our assets to secure the credit facility, including, but not limited to, all of our stock ownership of JHI and all our membership interests in VI and VOM; and a Subordination Agreement, in which all sums owing to us by VI as an intercompany payable for advances or loans made or property transferred to VI will be subordinated to the credit facility to the extent that their sums, when added to VI membership interest in the parent does not exceed $3,250,000. In addition, three of our executive officers, John C. Kleinert, W. Peter Ragan, Sr. and W. Peter Ragan, Jr., provided joint and several limited guarantees of VIs obligations under the Loan and Security Agreement.
On February 27, 2006, VI entered into a First Amendment to the Loan and Security Agreement pursuant to which Wells Fargo extended the credit facility until January 27, 2009 and agreed to increase the advance rate under the facility to 75% (up from 60%) of the purchase price of individual pools of unsecured consumer receivables that are approved by the lender. Under the First Amendment to the Loan and Security Agreement, Wells Fargo also agreed to reduce the interest rate on the loan from 3.5% above the prime rate of Wells Fargo Bank, N.A. to 1.5% above such prime rate. On February 23, 2007, we entered into a Third Amendment to the Loan Agreement dated January 27, 2005. Pursuant to the Amended and Restated Loan Agreement, the Lender agreed to permanently increase our credit facility up to $17,500,000. On March 3, 2008 (effective February 29, 2008), the Lender increased the amount of credit available under the Credit Facility from $17,500,000 to $22,500,000 and extended the maturity date until January 27, 2011. The Lender also agreed to eliminate the requirement that certain executive officers of VI and the Company provide the Lender with joint and several limited guarantees of VIs obligations under the Original Loan Agreement.
Use of the Credit Facility is subject to VI meeting certain restrictive covenants under the Fourth Amendment to the Loan Agreement including but not limited to: a restriction on incurring additional indebtedness or liens; a change of control of Velocity; a restriction on entering into transactions with affiliates outside the course of Velocitys ordinary business; and a restriction on making payments to the Company in compliance with the Subordination Agreement. Velocity has agreed to maintain at least $14,000,000 in members equity and subordinated debt. The Company has also agreed to maintain at least $25,000,000 in stockholders equity and subordinated debt for the duration of the facility. In addition, Velocity and the Company covenant that net income for each subsequent quarter shall not be less than $375,000 and $200,000, respectively. The Company had $12,923,000 outstanding on the credit line as of March 31, 2008.
18
On January 25, 2008, the Company issued a promissory note for $1,000,000 with a financial institution. The note bears interest at a rate of 7% per annum, payable monthly in arrears, on the first day of each month with the original principal amount plus accrued interest due October 25, 2008. The note is collateralized with specified real property owned by the Companys subsidiary, J. Holder. The Note is guaranteed by the Company and personally by certain executive officers of the Company. J. Holder has agreed to maintain a loan to value ratio of 33% at all times.
On May 6, 2008, the Company consummated an initial closing of its private placement offering of units comprised of shares of common stock and warrants to purchase shares of common stock to accredited investors. The Company sold an aggregate of 800,003 shares at a purchase price of $0.90 per share and delivered three-year warrants to purchase 200,001 shares of the Companys common stock at an exercise price of $1.125 per share. The Company intends to use the net proceeds from the offering primarily for the purchase of portfolios of unsecured consumer receivables and for general corporate purposes, including working capital.
The Company received net proceeds of $599,600 from the placement, after payment of offering expenses of approximately $70,000 and commissions of approximately $50,400. The Company retained a registered FINRA broker dealer to act as placement agent. In addition, the placement agent is entitled to receive three-year warrants to acquire 80,000 shares of the Companys common stock at an exercise price of $1.125 per share.
The Company anticipates that it will be undertaking additional financing from time to time to increase its working capital and to increase its ability to purchase additional pools of consumer receivables. Such financings may be private placement or public offerings, and may include common stock, debt securities or other equity based securities. Although we have no specific capital raising transactions currently under negotiation, we may determine to undertake such transactions at any time. Such transactions could include the sale of equity at less than the market price of our common stock at the time of such transaction, although we have no present intention to undertake below market transactions, and could be for gross proceeds of as low as $1,000,000 to approximately $10,000,000 or more. The terms of any such capital raising transaction would be considered by the Board of Directors at the time it is proposed by management.
19
Supplementary Information on Consumer Receivables Portfolios:
The following tables show certain data related to our entire owned portfolios. These tables describe the purchase price, cash collections and related multiples. We utilize a long-term legal approach to collecting our portfolios of consumer receivables. This approach has historically caused us to realize significant cash collections from pools of consumer receivables years after they are initially acquired. When we acquire a new pool of consumer receivables, our estimates typically result in a 60 month projection of cash collections.
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Portfolio Purchases/Collections
|
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Gross Cash
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|
||||||||
Reporting Period |
|
Outstanding
|
|
Portfolios
|
|
Purchase Price |
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|
|||||
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||||
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Period Ended March 31, 2007 |
|
$ |
41,860 |
|
|
6 |
|
$ |
1,763 |
|
$ |
3,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ended March 31, 2008 |
|
$ |
129,893 |
|
|
2 |
|
$ |
169 |
|
$ |
4,450 |
|
20
|
|
|
|
|
|
|
|
|
|
|
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Portfolio Purchases and Performance |
|
||||||||||||||||||
Year |
|
Total #
|
|
Initial
|
|
Purchase
|
|
Gross Cash
|
|
Gross Cash
|
|
Average Price
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
2003 |
|
5 |
|
|
$ |
11,497,833 |
|
$ |
2,038,950 |
|
$ |
8,409,543 |
|
412.44 |
% |
|
$ |
0.1773 |
|
2004 |
|
10 |
|
|
$ |
9,511,088 |
|
$ |
1,450,115 |
|
$ |
3,251,611 |
|
224.23 |
% |
|
$ |
0.1525 |
|
2005 |
|
22 |
|
|
$ |
133,103,213 |
|
$ |
11,449,557 |
|
$ |
15,741,075 |
|
137.48 |
% |
|
$ |
0.0860 |
|
2006 |
|
26 |
|
|
$ |
199,042,032 |
|
$ |
15,367,940 |
|
$ |
11,218,057 |
|
73.00 |
% |
|
$ |
0.0772 |
|
2007 |
|
19 |
|
|
$ |
129,892,667 |
|
$ |
9,316,779 |
|
$ |
2,565,948 |
|
27.54 |
% |
|
$ |
0.0717 |
|
2008 |
|
2 |
|
|
$ |
1,960,656 |
|
$ |
168,621 |
|
$ |
2,383 |
|
1.41 |
% |
|
$ |
0.0860 |
|
|
|
(1) |
Initial Outstanding Amount represents the original face amount purchased from sellers and has not been reduced by any adjustments including payments and returns. (Returns are defined as purchase price refunded by the seller due to the return of non-compliant accounts, such as deceased and bankrupt accounts.) |
|
|
(2) |
Purchase Price represents the cash paid to sellers to acquire portfolios of defaulted consumer receivables, and does not include certain capitalized acquisition costs. |
|
|
(3) |
Gross Cash Collections include gross cash collections on portfolios of consumer receivables as of March 31, 2008. |
|
|
(4) |
Gross Cash Collections as a Percentage of Cost represents the gross cash collections on portfolios of consumer receivables as of March 31, 2008 divided by the purchase price such portfolios in the related calendar year. |
|
|
(5) |
Average Price Per Dollar Outstanding represents the Purchase Price of portfolios of consumer receivables divided by the Initial Outstanding Amount of such portfolios purchased in the related calendar year. |
The prices we pay for our consumer receivable portfolios are dependent on many criteria including the age of the portfolio, the type of receivable, our analysis of the percentage of obligors who owe debt that is collectible through legal collection means and the geographical distribution of the portfolio. When we pay higher prices for portfolios that may have a higher percentage of obligors whose debt we believe is collectible through legal collection means, we believe it is not at the sacrifice of our expected returns. Price fluctuations for portfolio purchases from quarter to quarter or year over year are indicative of the economy or overall mix of the types of portfolios we are purchasing.
During the three months ended March 31, 2008, we acquired 2 portfolios of consumer receivables aggregating approximately $2 million in initial outstanding amount at a purchase price of approximately $169,000, bringing the aggregate initial outstanding amount of consumer receivables under management as of March 31, 2008 to approximately $487 million, an increase of 23.3% as compared to approximately $395 million as of March 31, 2007. For the three months period ended March 31, 2008, we posted gross collections of approximately $4.45 million, compared to gross collections of $3.68 million in the three month period ended March 31, 2007, representing a 20.1% increase. Additionally, in April 2008, we acquired two portfolios of consumer receivables aggregating approximately $9.65 million in initial outstanding amount at a purchase price of approximately $581,000.
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Trends
As a result of the March 2008 increase in our senior line of credit and our outstanding preferred stock, we anticipate that we will incur significant increases in interest expense and dividend payments, offset over time, by expected increased revenues from consumer receivable portfolios purchased utilizing funds under such line of credit. No assurance can be given that the expected revenues from such purchased portfolios will exceed the additional interest expense and dividend payments. While we are not presently aware of any other known trends that may have a material impact on our revenues, we are continuing to monitor our collections to assess whether the current economic and housing crisis will have a long term impact on collections. We do not believe that the recent decreases in interest rates has had or will have a material adverse effect upon our business.
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Item 3. Quantitative and Qualitative Disclosure About Market Risks
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer, are responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Securities Exchange Act of 1934, as amended (the Exchange Act).
Internal control over financial reporting is promulgated under the Exchange Act as a process designed by, or under the supervision of, our CEO and CFO and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition or disposition of our assets that could have a material effect on the financial statements.
Readers are cautioned that internal control over financial reporting, no matter how well designed, has inherent limitations and may not prevent or detect misstatements. Therefore, even effective internal control over financial reporting can only provide reasonable assurance with respect to the financial statement preparation and presentation.
Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and15d-15(e) as of the end of the period covered by this Report based upon the framework in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based upon that evaluation and for the reasons discussed below, our Chief Executive Officer and our Chief Financial Officer concluded that as of the end of such period, our disclosure controls and procedures were not effective as of the end of period covered by this report in timely alerting them to material information relating to Velocity Asset Management, Inc. required to be disclosed in our periodic reports with the Securities and Exchange Commission. As a result of this conclusion, we have initiated the remedial actions disclosed below.
As a result of an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by our periodic report on Form 10-Q for the period ended March 31, 2008, with the participation of our Chief Executive Officer and Chief Financial Officer, we identified a material weakness in our internal controls over financial reporting relating to the compliance of certain related party transactions with the Sarbanes-Oxley Act.
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A material weakness is a control deficiency, or a combination of control deficiencies, that results in a more than remote likelihood that a material misstatement of the Companys annual or interim financial statements will not be prevented or detected. Management has concluded that material weaknesses existed in the following areas with respect to Compliance with Section 402 of the Sarbanes Oxley Act as of March 31, 2008:
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The Company received a note receivable in the amount of $205,000 in partial payment of the $455,000 purchase price from an officer and related party, John C. Kleinert, for the assignment of membership interests in Ridgedale Avenue Commons, LLC, and Morris Avenue Commons, LLC, previously owned by J. Holder, Inc. As of December 31, 2007, the note had a balance of $100,000, along with interest at the rate of 12% which accrued only on and after December 26, 2007, and was payable by means of one lump sum payment of principal and accrued interest on August 25, 2008. As of March 14, 2008, Mr. Kleinert made a $100,000 lump sum payment to the Company and the promissory note was retired. The Company waived approximately $2,600 in accrued interest. |
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On December 28, 2007, the Company paid $115,146 in withholding taxes in connection with the vesting of 175,000 shares of restricted stock granted to James J. Mastriani. As of March 14, 2008, Mr. Mastriani returned 136,000 of such shares for cancellation and retirement in order to offset such payment. |
The following remedial actions were undertaken immediately.
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The Company has engaged BDO Seidman, LLP as its Sarbanes-Oxley consultant to advise and assist the Company in its compliance with internal controls over financial reporting in the future. |
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Prior to presenting any related party transaction to the Board of Directors for approval, management of the Company will submit any such transition to securities law counsel for review to ensure compliance with applicable securities law. |
Velocity continues the process to complete a thorough review of its internal controls as part of its preparation for compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. Section 404 requires our management to report on, and our external auditors to attest to, the effectiveness of our internal control structure and procedures for financial reporting. As a non-accelerated filer under Rule 12b-2 of the Exchange Act, our first report under Section 404 as a smaller reporting company will be contained in our Form 10-K for the period ended December 31, 2009.
Changes in Internal Control over Financial Reporting
Further, other than the above, there were no changes in the Companys internal control over financial reporting during the first quarter that materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1 Legal Proceedings
In the ordinary course of our business we are involved in numerous legal proceedings. We regularly initiate collection lawsuits against consumers using our network of third party law firms. Also, consumers may occasionally initiate litigation against us in which they allege that we have violated a Federal or state law in the process of collecting on their account. We do not believe that these matters are material to our business and financial condition.
As of March 31, 2008, there are presently no material pending legal proceedings to which we or any of our subsidiaries is a party or to which any of our property is the subject and, to the best of our knowledge, no such actions against us is contemplated or threatened.
Item 2 Unregistered Sales of Securities and Use of Proceeds
None.
Item 3 Defaults Upon Senior Securities
None.
Item 4 Submission of Matters to a Vote of Security Holders
None.
Item 5 Other Information
None.
Item 6 Exhibits
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31.1 |
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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31.2 |
Certification of Principal financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32.1 |
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 |
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32.2 |
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350. |
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In accordance with the requirements of the Securities Exchange Act of 1934 the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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VELOCITY ASSET MANAGEMENT, INC. |
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Dated: May 23, 2008 |
By: |
/s/ John C. Kleinert |
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John C. Kleinert |
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Chief Executive Officer and President |
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1 Year Velocity Asset Management, Chart |
1 Month Velocity Asset Management, Chart |
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