UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-Q


(Mark One)


x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended June 30, 2009o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from __________ to __________.





Commission file number 000-30601


WHY USA FINANCIAL GROUP, INC.


(Exact name of registrant as specified in its charter)




Nevada

87-0390603(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)2801 S. Wayzata Boulevard, Suite 100,
Minneapolis, MN

55405(Address of principal executive offices)

(Zip Code)




(612) 767-5037


(Registrants telephone number, including area code)




N/A


(Former name, former address, and former fiscal year, if changed since last report)




Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.Yes o     No x





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):Large accelerated filer  o
Accelerated filer  o
Non-accelerated filer  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




Shares outstanding of the Registrant’s common stock:




Class
Shares Outstanding at August 14, 2009Common Stock, $.001 par value
108,866,522













WHY USA FINANCIAL GROUP, INC.


FORM 10-Q


FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2009


INDEX





PART I. FINANCIAL INFORMATIONItem 1.
Financial StatementsCondensed Consolidated Balance Sheets as of June 30, 2009 (unaudited) and December 31, 2008
3Condensed Consolidated Statements of Operations for the six months ended June 30, 2009, 2008 and 2007 (unaudited)
4Condensed Consolidated Statements of Operations for the three months ended June 30, 2009, 2008 and 2007 (unaudited)
5Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2009, 2008 and 2007 (unaudited)
6Notes to Condensed Consolidated Financial Statements (unaudited)
7Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
18Item 3.
Quantitative and Qualitative Disclosures about Market Risk
30Item 4.
Controls and Procedures
30PART II. OTHER INFORMATIONItem 1.
Legal Proceedings
31Item 1A.
Risk Factors
31Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
31Item 3.
Defaults Upon Senior Securities
31Item 4.
Submission of Matters to a Vote of Security Holders
31Item 5.
Other Information
31Item 6.
Exhibits
31Signature
32Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2










PART I.    Financial Information





ITEM 1.
Financial Statements





WHY USA FINANCIAL GROUP, INC.


Condensed Consolidated Balance Sheets as of





June 30, 2009
(unaudited)


December 31, 2008
(audited)ASSETSCURRENT ASSETS:Cash and cash equivalents

$
9,726


$
52,921Accounts receivables, net of allowance for doubtful accounts


9,320



18,771Prepaid assets and other  assets


24,697



22,823Total current assets


43,743



94,515PROPERTY AND EQUIPMENT—Net


461,074



479,223GOODWILL


445,878



729,028OTHER NONCURRENT ASSETS


10,020



-RESTRICTED CASH


50,756



50,000TOTAL

$
1,011,471


$
1,352,766LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)CURRENT LIABILITIES:Warehouse and bank lines

$
100,645


$
97,570Current portion of obligation under capital leases


1,995



2,392Current portion of notes payable and convertible debentures


708,262



544,767Current portion of mortgage notes payable


37,534



36,112Bank overdraft


14,222



2,066Accounts payable


635,186



499,649Accrued expense and other liabilities


1,135,979



975,890Total current liabilities


2,633,823



2,158,446MORTGAGE NOTES PAYABLE


792,449



809,672NOTES PAYABLE AND CONVERTIBLE DEBENTURES


950,200



950,200OBLIGATIONS UNDER CAPITAL LEASES


-



736Total Liabilities


4,376,472



3,919,054COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS’ EQUITY (DEFICIT):Common stock, $.001 par value, 250,000,000 shares authorized; 108,866,522 and 108,268,022 shares issued and outstanding as of June 30, 2009 and December 31, 2008, respectively


108,867



108,269Additional paid in capital


10,036,499



10,005,408Preferred Stock, $.01 par value, 50,000,000 shares authorized; 40,000 shares issued and outstanding as of June 30, 2009 and December 31, 2008, respectively


400



400Accumulated deficit


(13,510,767
)


(12,680,365
)Total stockholders’ deficit


(3,365,001
)


(2,566,288
)TOTAL

$
1,011,471


$
1,352,766




See accompanying notes to condensed consolidated financial statements.


3




WHY USA FINANCIAL GROUP, INC.


Condensed Consolidated Statements of Operations for the Six months Ended


(Unaudited)




Six Months


Six Months


Six MonthsJune 30, 2009


June 30, 2008


June 30, 2007NET REVENUES

$
638,592


$
706,099


$
1,494,462COST OF REVENUES


372,137



403,132



971,268Gross margin


266,455



302,967



523,194SELLING, GENERAL AND ADMINISTRATIVE EXPENSES


675,360



898,265



824,155DEPRECIATION AND AMORTIZATION EXPENSE


16,276



20,384



24,535IMPAIRMENT OF LONG-LIVED ASSETS


283,150



-



-LOSS ON DISPOSAL OF FIXED ASSETS


1,873



-



-OPERATING LOSS


(710,204
)


(615,682
)


(325,496
)OTHER INCOME (EXPENSE):Interest expense


(118,598
)


(88,955
)


(85,891
)Interest income


-



38



4Other income


-



9,804



116,552Total other (expense) income


(118,598
)


(79,113
)


30,665LOSS BEFORE TAXES


(828,802
)


(694,795
)


(294,831
)Income tax expense


(1,600
)


(1,600
)


(1,600
)NET LOSS

$
(830,402
)

$
(696,395
)

$
(296,431
)BASIC AND DILUTED LOSS PER SHARE:Net loss

$
(0.01
)

$
(0.01
)

$
(0.00
)WEIGHTED AVERAGE SHARES USED :Basic and Diluted


108,816,647



108,848,482



92,319,434





See accompanying notes to condensed consolidated financial statements.


4





WHY USA FINANCIAL GROUP, INC.


Condensed Consolidated Statements of Operations for the Three months Ended


(Unaudited)





Three Months


Three Months


Three MonthsJune 30, 2009


June 30, 2008


June 30, 2007NET REVENUES

$
398,949


$
338,253


$
792,867COST OF REVENUES


236,471



199,304



527,745Gross margin


162,478



138,949



265,122SELLING, GENERAL AND ADMINISTRATIVE EXPENSES


325,925



452,300



391,472DEPRECIATION AND AMORTIZATION EXPENSE


7,764



9,485



12,345IMPAIRMENT OF LONG-LIVED ASSETS


283,150



-



-LOSS ON DISPOSAL OF FIXED ASSETS


-



-



-OPERATING LOSS


(454,361
)


(322,836
)


(138,695
)OTHER INCOME (EXPENSE):Interest expense


(61,848
)


(51,838
)


(39,034
)Interest income


-



19



1Other income


-



30



10,795Total other expense


(61,848
)


(51,789
)


(28,238
)LOSS BEFORE TAXES


(516,209
)


(374,625
)


(166,933
)Income tax expense


-



-



-NET LOSS

$
(516,209
)

$
(374,625
)

$
(166,933
)BASIC AND DILUTED LOSS PER SHARE:Net loss

$
(0.01
)

$
(0.00
)

$
(0.00
)WEIGHTED AVERAGE SHARES USED :Basic and Diluted


108,866,522



108,704,804



92,319,434





See accompanying notes to condensed consolidated financial statements.


5





WHY USA FINANCIAL GROUP, INC.


Condensed Consolidated Statements of Cash Flows for the Six months Ended


(Unaudited)





Six Months


Six Months


Six MonthsJune 30, 2008


June 30, 2008


June 30, 2007CASH FLOWS FROM OPERATING ACTIVITIES:Net loss from continuing operations

$
(830,402
)

$
(696,395
)

$
(296,431
)Adjustments to reconcile net loss to net cash (used in) provided by operating activities:Depreciation and amortization


16,276



20,384



24,535Provision for doubtful accounts


24,470



49,250



75Cancellation/relief of stock compensation expense


-



(100,000
)


-Loss on disposal of fixed assets


1,873



-



-Impairment of long-lived assets


283,150



-



-Effect of changes in operating assets and liabilities:Trade receivables


(15,020
)


(25,219
)


(8,816
)Prepaid expenses and other current assets


(1,874
)


59,286



(16,863
)Accounts payable


142,227



73,666



36,410Accrued expenses


160,089



206,982



83,556Other


(10,020
)


19,116



13,642Net cash used in operating activities


(229,231
)


(392,930
)


(163,892
)CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment


-



(11,390
)


(5,861
)Interest income earned on restricted cash


(756
)


-



-Purchase of certificate of deposit


-



(50,000
)


-Net cash used in investing activities


(756
)


(61,390
)


(5,861
)CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds on revolving credit facility


3,075



(1,276
)


196Repayments of mortgages payable


(15,801
)


(65,536
)


(3,579
)Repayment of notes payable and convertible debentures


-



(551
)


(7,455
)Proceeds from notes payable and convertible debentures


188,495



486,500



162,500Bank overdraft


12,156



6,717



12,745Repayment of obligations under capital leases


(1,133
)


(1,722
)


(3,121
)Borrowing under capital leases


-



4,416



-Net cash provided by financing activities


186,792



428,548



161,286NET DECREASE IN CASH AND CASH EQUIVALENTS


(43,195
)


(25,772
)


(8,467
)CASH AND CASH EQUIVALENTS—Beginning of period


52,921



46,176



14,267CASH AND CASH EQUIVALENTS—End of period

$
9,726


$
20,404


$
5,800SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash paid for taxes

$
1,600


$
1,600


$
1,600Cash paid for interest

$
30,087


$
27,412


$
49,011Common stock issued pursuant to conversion of debenture, principal and interest

$
31,689


$
-


$
-








See accompanying notes to condensed consolidated financial statements.


6





WHY USA FINANCIAL GROUP, INC. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





NOTE 1 – BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND SIGNIFICANT ACCOUNTS




Financial Statement Preparation




The unaudited consolidated financial statements have been prepared by WHY USA Financial Group, Inc.  according to the rules and regulations of the Securities and Exchange Commission (SEC) and, therefore, certain information and disclosures normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States have been omitted.




In the opinion of management, the accompanying unaudited condensed consolidated financial statements for the periods presented reflect all adjustments, which are normal and recurring, necessary to fairly state the financial position, results of operations and cash flows. These unaudited condensed consolidated financial
statements should be read in conjunction with the audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed with the SEC on March 31, 2009.




Principles of Consolidation and Basis of Accounting




The condensed consolidated financial statements include the accounts of WHY USA Financial Group, Inc. and its wholly-owned subsidiaries (the Company). All significant intercompany accounts and transactions have been eliminated in consolidation.





The Company’s policy is to use the accrual method of accounting and to prepare and present the consolidated financial statements in accordance with accounting principles generally accepted in the United States.





Business Activity and Organization





The condensed consolidated financial statements of the Company include the parent company, WHY USA Financial Group, Inc., which was incorporated as a Utah corporation in 1980 and reorganized as a Nevada corporation in 1983, Northwest Financial Ltd. (Northwest), acquired in 1999, incorporated as a Minnesota corporation,
WHY USA North America, Inc. (NA) acquired in 1999, incorporated as a Wisconsin corporation, and TCS Mortgage, Inc. and its wholly-owned subsidiaries (TCS). TCS includes the parent company, TCS Mortgage, Inc. (acquired in 2003 by WHY USA Financial Group, Inc. and incorporated as a California corporation), TCS Realty, Inc. (Realty) formed in 2004 as a California corporation, and Discover Mortgage Corporation (Discover) acquired through a capital contribution from WHY USA Financial Group, Inc. and incorporated as
a Minnesota corporation.





The Company through its subsidiary TCS, is currently a mortgage broker only and prior to year ending December 31, 2006, TCS was a mortgage banker with its own line of credit; the Company through Realty is a full service realtor operating in the Southern California market; the Company through Discover provides mortgage
broker services in the state of Minnesota; and the Company through its subsidiary NA provides franchised real estate operations to franchisees located in 14 states, these services center around the WHY USA –“America’s Real Estate Alternative”® - $990 program.





Estimates





The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures 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.





Cash Equivalents and Concentration of Risk





The Company maintains checking, money market and savings accounts at financial institutions located in California and Minnesota. Accounts at each bank are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 (FDIC temporary increase through December 31, 2009). As of June 30, 2009 the Company
did not have any uninsured cash balances. The Company has not experienced losses in such accounts and management believes it places its cash on deposit with financial institutions which are financially stable.




7




As of June 30, 2009 and December 31, 2008, the Company held $50,000 in restricted cash classified as a non-current asset held to maturity. The restricted cash secures a letter of credit held with a financial institution. The certificate of deposit matures on May 5, 2012 and is held with an FDIC insured financial
institution.




Instruments and Fair Value Measurement





The Company adopted SFAS 157, Fair Value Measurements,which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The Company adopted this standard partially in 2008 for financial assets
and liabilities measured at fair value on a recurring basis due to the deferral period provided by FSP 157-2, Effective Date of SFAS 157. Subsequently, the Company adopted the standard for non-financial assets and liabilities measured at fair value on a nonrecurring basis in the current year. The framework requires for the valuation of assets and liabilities subject to fair value measurements using a three tiered approach.





The statement requires fair value measurement be classified and disclosed in one of the following three categories:





Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;





Level 2: Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability;





Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported by little or no market activity).





Assets and Liabilities Measured at Fair Value on a Recurring Basis





The following table represents the financial instruments measured at fair value on a recurring basis on the consolidated financial statements of the Company subject to SFAS 157 and the valuation approach applied to each class of the financial instruments:





Fair Value Measurements at Reporting Date Using (unaudited)Quoted Prices inBalance at

Active Markets

Significant Other

SignificantJune 30,

for Identical Assets

Observable Inputs

Unobservable InputsDescription

2009

(Level 1)

(Level 2)

(Level 3)Bank time deposits


$
50,000


$
50,000


$
-


$
-Assets-derivative



-



-



-



-Total assets


$
50,000


$
50,000


$
-


$
-Liabilities-derivative


$
-



-


$
-


$
-Total liabilities


$
-



-


$
-


$
-





At June 30, 2009, the carrying value of the financial instruments measured and classified within Level 1 are based on quoted prices and marked to market. As of June 30, 2009 there are no unrealized gains or losses required to be recorded as related to these investments.





Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis





The non-financial assets and liabilities are recognized at fair value subsequent to initial recognition when they are deemed to be other-than-temporarily impaired. There were no non-financial assets and liabilities measured at fair value on a nonrecurring basis for the six months ended June 30, 2009.




8




Accounts and Notes Receivable, Allowances and Fair Market Value





In accordance with Financial Accounting Standard No. 107, the Company's receivables and notes represent credit risks associated with real estate transactions originating with its franchisees. The Company extends credit as a result of its franchise agreements with its franchisees. The franchisee's ability to repay
is generally predicated upon their ability to earn income from their real estate transactions. Franchisees are generally paid a commission on real estate transactions and must then remit a portion of that income to the Company. The Company has an allowance for doubtful accounts of $75,140 at June 30, 2009. Bad debts totaled $24,470 and $49,250 for the six month periods ended June 30, 2009 and 2008, respectively.





Segment Information





The Company operates in two segments: Real Estate Franchise (REF) and Mortgage Brokerage (MB). The Company has no intersegment revenues that are material to the overall consolidated financial statements. The Company does not currently segregate assets by segment as a majority of the Company’s total assets are
shared or considered non-segment assets which are segregated as “corporate.” The Company has determined that it is not useful to assign its shared assets to individual segments. Based on the aggregation criteria of Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information,” (SFAS 131) the Company’s service offerings in the MB segment share similar economic characteristics, but are different from the economic characteristics
of the service offerings of our REF segment. As a result of using the aggregation guidelines under SFAS 131, there is no logical subgrouping of service offerings within either the MB or REF segments.





No material changes have occurred since year end requiring additional disclosure on an interim basis. Please refer to our annual report filed on Form 10-K with the SEC, March 31, 2009 for further information relative to our segments.





Financial Instruments





The carrying amounts of financial instruments such as cash, accounts receivable, prepaid and other current assets, accounts payable, accrued expenses and other current liabilities, bank lines, mortgage notes payable, promissory notes and debentures payable and capital leases approximate the related fair values due
to the short-term maturities of these instruments.





Brokered Loan Fees





Loan fees include brokered loan fees. Brokered loan fees represent fees received by TCS and Discover for placing a loan with a lender, whereby no further obligation exists.  The loan fee is recognized at the time the borrower and lender sign final loan documents and the loan is funded.





Property and Equipment Capitalization Policies





Property and equipment is stated at cost and depreciated over the estimated useful lives of the assets using the straight-line method.  Amortization of leasehold improvements is computed on the straight-line method over the shorter of the lease term or the estimated useful lives of the assets. Maintenance
and repairs are charged to operations as incurred. When assets are sold, or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in operating expense.





Impairment of Goodwill





Goodwill represents the excess purchase price of net tangible and intangible assets acquired in business combinations over their estimated fair value. Goodwill is allocated to the Company’s segments based on the nature of the product line of the acquired entity. In accordance with Statement of Financial Accounting
Standards No. 141, “Business Combinations” (SFAS 141) and Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (SFAS 142), goodwill is tested for impairment on an annual basis and earlier if there is an indicator of impairment. Furthermore, SFAS 142 requires purchased intangible assets other than goodwill to be amortized over their useful lives unless these lives are determined to be indefinite.





9




The Company performs its goodwill impairment tests annually during the fourth quarter of its fiscal year and earlier if an event or circumstance indicates that impairment has occurred. During the years ended December 31, 2008 and 2007, we determined that it was necessary to evaluate goodwill for impairment between
annual tests, in accordance with SFAS 142. The evaluation between annual testing dates was due to the deteriorating conditions in certain housing markets and the significant reduction in loans being funded during those years. The process of evaluating goodwill for impairment involves the determination of the fair value of our reporting units. Inherent in such fair value determinations are certain judgments and estimates relating to future cash flows, including our interpretation of current economic indicators
and market valuations, and assumptions about our strategic plans with regard to our operations. Due to the uncertainties associated with such estimates, actual results could differ from such estimates.  Goodwill associated with our reporting unit is determined by that fair value of the building owned by the reporting unit. We estimate the fair value of the building by obtaining an appraisal each year which occurs during the winter months (which corresponded to our refinancing in 2007). This appraisal
provides management with a realistic fair value during a period which activities for like-kind property sales are at its lowest. In addition the Company utilized a combination of valuation methods including a discounted cash flow analysis and the guideline companies’ method to estimate the fair value of the reporting unit. Based on this analysis, the Company determined that impairment did exist, and as a result, an impairment charge was recorded during the year which coincided with the 4th quarter
of 2007 and 2008, respectively.





Goodwill is attributable to the acquisition of Discover. The Company, in connection with the acquisition of Discover, recorded goodwill of $1,016,570. The Company did not record any impairment losses for the six month period ended June 30, 2008. For the six month period ended June 30, 2009, the Company recognized goodwill
impairment on the acquisition of Discover in the amount $283,150. Subsequent to June 30, 2009 the Company sold the building owned by our operating unit to a related party (see Note 10 - Subsequent Events). Since the building is no longer owned by the Company management determined that a triggering event had occurred and that goodwill was impaired.





As of June 30, 2009, goodwill associated with the Discover acquisition is $445,878. The remaining goodwill will be recognized and offset against any gain that the Company has with respect to the sale of the building. That transaction will be recorded in the 3rd quarter
for calendar year 2009.





Accrued Expense and Other Liabilities





Accrued expenses and other liabilities consist of the following:




June 30, 2009
(unaudited)


December 31, 2008
(audited)Accrued compensation - officer

$
797,500


$
710,000Accrued compensation - other - and taxes


96,766



93,269Accrued interest


241,713



172,621$
1,135,979


$
975,890





Revenue Recognition




Revenue from loan originations are recognized at the time the mortgage loan closes or is funded. The majority of revenue receivables are collected within five business days. Real estate transaction fees are recognized at the closing of a real estate transaction by a franchisee. The Company does not service a loan
portfolio and sells all of the loans it originates.





In accordance with Financial Accounting Standard No. 45, the Company defers recognition of new franchise sales until the commencement of operations by the new franchisee. The new franchisee opens his/her real estate sales office in his/her “protected” territory and receives training and marketing support,
real estate documents and other sales aids from the Company. These activities generally occur within one month of the purchase of the franchise. All costs, services and conditions related to new franchise sales have been incurred or performed prior to the recognition of income from new franchise sales.





Accounting for Share-Based Compensation





The Company accounts for share based compensation using Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (SFAS 123R) using the modified-prospective-transition method. Under this method, share-based compensation cost is measured at the grant date based on the estimated
fair value of the award and is recognized as expense over the employee’s requisite service period for all share-based awards granted, modified or cancelled as of January 1, 2006.




10




Prior to January 1, 2006, the Company accounted for its share-based awards under the recognition and measurement principles of APB 25 and its related interpretations and adopted the disclosure only provision of SFAS 123. Accordingly, no compensation cost was recognized for the employee stock option plan or employee
stock purchase plan under the fair value recognition provisions of SFAS 123.




Income Taxes





Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation
allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.





Effective January 1, 2008, the Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN48). FIN48 prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a return. The adoption of
this interpretation did not have a material impact on our financial statements.





Earnings per Share




Basic income (loss) per share excludes dilution and is computed by dividing income (loss) by the weighted average number of common shares outstanding during the reported periods. Diluted income (loss) per share reflects the potential dilution that could occur if stock options and other commitments to issue common
stock were exercised.




Diluted income (loss) per share reflects the potential dilution that could occur from the following items:




•

Convertible debentures where the effect of those securities are dilutive;




•

Dilutive stock options; and




•

Dilutive common stock warrants.




As the Company has incurred losses, it has excluded shares related to convertible debentures, stock options or warrants from its calculation of diluted net loss per share, as the effect of their inclusion would be anti-dilutive.




Going Concern and Management’s Plan




The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate the continuation of the Company as a going concern and assume realization of assets and the satisfaction of liabilities in the normal course
of business. The Company has incurred losses from operations since inception. Management anticipates incurring additional losses in 2009. Further, the Company may incur additional losses thereafter, depending on its ability to generate revenues from the offering of its varied services, or to enter into any or a sufficient number of joint ventures. The Company’s revenue to date has been steadily decreasing, even with the acquisition of TCS in 2003. There is no assurance that the Company can successfully
rebuild its revenue base for the remainder of 2009 and into 2010 to the scale that it will need to provide positive cash flow from operations. The Company’s service offerings along with the new FHA qualifying loan limits seem to be receiving market acceptance as the Company’s anticipated or projected revenue projects seem to be increasing after hitting bottom during the 4th quarter of 2008, measured by its “pipeline”
tool. There is no assurance that the Company can improve upon its service offerings and projected revenue to reach positive cash flow let alone breakeven.




Since inception through June 30, 2009, the Company had an accumulated deficit of $13,510,767. Management of the Company believes that recent funding from the use of convertible debentures and the issuance of common stock in satisfaction of certain debt obligations will allow us to continue operations and execute our business
plan.




Management believes the Company can raise adequate capital to keep the Company functioning through June 30, 2010. Management believes sufficient funding can be secured through the use of its convertible debentures, as well as offerings of preferred and common stock through private placements to institutional and other
finance sources. However, no assurance can be given that the Company can obtain additional working capital, or if obtained, that such funding will not cause substantial dilution to shareholders of the Company. If the Company is unable to raise additional funds, it may be forced to change or delay its contemplated expansion and business plan.




11




These condensed consolidated financial statements do not require any additional adjustments relating to the recoverability of recorded asset amounts that might be necessary as a result of the above uncertainty.




Subsequent Events




In May 2009, FASB issued SFAS No. 165, “Subsequent Events.” This Statement establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It defines subsequent events and also
requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. This Statement is effective for interim and annual periods ending after June 15, 2009. The Company adopted SFAS No. 165 for the quarter ended June 30, 2009, and have evaluated subsequent events through August 14, 2009.




NOTE 2 – BUSINESS SEGMENTS





The Company has two reportable segments: real estate franchise (REF) and mortgage origination/brokering (MB). The Company operations are conducted regionally within the United States; Upper Midwestern states as well as the Southwest (which includes Southern California and Nevada).





The Company does not have intersegment revenues that are material to the condensed consolidated financial statements. In addition, the Company does not segregate all assets by segment as a majority of the Company’s total assets are shared or considered non-segment assets. As a result, the Company has determined
it is not useful, nor appropriate, to assign its shared assets to individual segments.





The Company’s accounting policies for both of its segments are the same as those described in the summary of significant accounting policies and significant accounts. Management evaluates segment performance based on segment profit or loss before income taxes and non-recurring gains and losses. Transfers between
segments, if occurring, are valued at market.




The table below reports segment financial information. Our segment entitled “Other” includes assets and operations not specifically associated with the other defined segments, including corporate assets and investments. We measure the performance of our segments based on total net revenues less costs of revenues
and general and administrative expenses, a measure we define as net operating income (loss) (NOI). We believe that NOI is an important supplemental measure of operating performance for our segments because it provides a measure of the core operations that is unaffected by depreciation, amortization, financing and other non-core expenses; this measure is particularly useful in our opinion in evaluating the performance of segments, as well as individual subsidiaries.




Real Estate


MortgageFranchise


Brokerage


Other


TotalFor six month period ending June 30, 2009 (unaudited)Revenues

$
50,938


$
587,654


$
-


$
638,592Cost of revenues


-



372,137



-



372,137General and administrative expenses


68,268



396,814



210,278



675,360Net operating loss

$
(17,330
)

$
(181,297
)

$
(210,278
)

$
(408,905
)Additions(dispositions) to segmented assets

$
(5,656
)

$
(335,692
)

$
59


$
(341,289
)Segment assets at June 30, 2009

$
17,912


$
993,392


$
167


$
1,011,471For six month period ending June 30, 2008 (unaudited)Revenues

$
73,493


$
632,606


$
-


$
706,099Cost of revenues


20,948



382,184



-



403,132General and administrative expenses


92,842



528,845



276,578



898,265Net operating loss

$
(40,297
)

$
(278,413
)

$
(276,578
)

$
(595,298
)




12


The following table reconciles our NOI for reportable segments to income from continuing operations as reported on our condensed consolidated statement of operations:





June 30, 2009
(unaudited)


June 30, 2008
(unaudited)NET OPERATING LOSS FROM SEGMENTS

$
(408,905
)

$
(595,298
)LOSS ON DISPOSAL OF FIXED ASSETS


1,873



-IMPAIRMENT OF LONG-LIVED ASSETS


283,150



-DEPRECIATION AND AMORTIZATION EXPENSE


16,276



20,384OPERATING LOSS


(710,204
)


(615,682
)Interest expense


(118,598
)


(88,955
)Interest income


-



38Other income


-



9,804LOSS BEFORE TAXES

$
(828,802
)

$
(694,795
)





NOTE 3 - BANK LINE OF CREDIT





The Company through its Discover operations has a line of credit with a financial institution to meet short-term working capital requirements. Under this credit facility the Company has $100,000 of unsecured revolving line credit which bears interest payable monthly at prime plus 3.75% per annum. There are no parent guarantees
or covenants associated with this facility.





NOTE 4 – MORTGAGE NOTES PAYABLE





Mortgage notes payable consist of the following at June 30, 2009 and December 31, 2008, respectively:





June 30,
2009
(unaudited)


December 31,
2008
(audited)Mortgage Payable - financial institution (secured by property), monthly installments of principal and interest of $8,294 including interest at 7.75% per annum with all unpaid principal due November 2010, collateralized by a building

$
829,983


$
845,784Less current maturities


37,534



36,112Long term portion of mortgage notes payable

$
792,449


$
809,672





Refinance of Discover Building and Land





During the year ended December 31, 2008 the Company refinanced its property located in Minneapolis, Minnesota. The prior mortgage note payable was set to mature in February 2009. The Company through another financial institution entered into a new mortgage note payable to refinance its mortgage. The new mortgage
note matures in November 2010 and is collateralized by the building and land. The new mortgage note is personally guaranteed by a director of the Company in the event of default.





Subsequent to June 30, 2009 the Company sold the building subject to the new mortgage note payable to a related party (see Note 10 - Subsequent Events).




13


NOTE 5 – NOTES PAYABLE AND CONVERTIBLE DEBENTURES





Notes payable and convertible debentures consist of the following at June 30, 2009 and December 31, 2008, respectively:




June 30, 2009


December 31, 2008(unaudited)


(audited)Convertible Debentures - TCS acquisition, 21 members, principal and interest due and payable November 2006, monthly payments of interest in arrears at 7.5% per annum. Certain payment restrictions apply and the debentures are convertible into common stock of the Company at a price of $0.20 per share


300,000



300,000Note Payable - individual, principal and interest due and payable December 2008, interest at 5.03% per annum and the note is unsecured.


72,767



72,767Note Payable - individual, principal and interest due and payable December 2008, interest at 16% per annum and the note is unsecured.


7,000



7,000Note Payable - individual, principal and interest due and payable December 2008, interest at 8% per annum and the note is unsecured.


5,000



5,000Note Payable - individual, principal and interest due and payable May 2009, interest at 8% per annum and the note is unsecured.


6,000



-Note Payable - related party (individual) principal and interest due and payable December 2009, interest at 8% per annum and the note is unsecured.


57,495



-Note Payable - individual principal and interest due and payable April 2009, interest at 10% per annum and the note is unsecured. The note is convertible into the Company’s convertible debenture instrument yielding 7% interest and terms. Note contains a feature to extend for a 1⁄2 point


125,000



-Convertible Debentures - 2005 investment by five investors, principal and interest due and payable 36 months from the date of investment, monthly payments of interest in arrears at 7.0% per annum. The debentures are convertible into common stock of the Company based on a discount to market of 7% of the 30-day trailing average
price of the Company's common stock


75,000



100,000Convertible Debentures - 2006 investment by four investors, principal and interest due and payable 36 months from the date of investment, monthly payments of interest in arrears at 7.0% per annum. The debentures are convertible into common stock of the Company based on a discount to market of 7% of the 30-day trailing average
price of the Company's common stock.


60,000



60,000Convertible Debentures - 2007/2008 investment by one investor, principal and interest due and payable 36 months from the date of investment, monthly payments of interest in arrears at 7.0% per annum. The debentures are convertible into common stock of the Company based on a discount to market of 7% of the 30-day trailing
average price of the Company's common stock


950,200



950,200Total notes payable and convertible debentures


1,658,462



1,494,967Less current maturities


708,262



544,767Long term portion of notes payable and convertible debentures

$
950,200


$
950,200





Convertible Debentures 2003





As of June 30, 2009 the Company was in default with respect to its $300,000 in convertible debentures (the 2003 Debentures). The 2003 Debentures were due and payable May 30, 2007.  The 2003 Debentures bear interest at a rate of 7.5% per annum payable in arrears by one month. Interest payments may be deferred
until maturity, based on a formula provided that the Company is showing a net loss or negative earnings before interest, taxes, depreciation and amortization (EBITDA). The Company has the right to pay principal and accrued interest through common stock of the Company provided that the average closing price of the Company's common stock exceeds $0.20 for ten consecutive trading days prior to the date of payment. The 10 holders of the 2003 Debentures have the option to convert into shares of common stock at anytime
subject to 30 days prior notice to the Company. The 2003 Debentures are convertible at $0.20 per common share at any time by the holder.




14




Convertible Debentures 2005, 2006, 2007, 2008





As of June 30, 2009 the Company had outstanding $1,085,200 in convertible debentures (the Post-2003 Debentures). The Post-2003 Debentures are due and payable three years from the date of the original issuance.  The Post-2003 Debentures bear interest at a rate of 7.0% per annum payable monthly. The 10 holders
of the Post-2003 Debentures have the option to convert into shares of common stock upon written notice to the Company. The debentures are convertible into common stock at a price equal to 93% of the average 30 day closing price of the Company’s publicly traded common stock prior to notice of conversion.





During the six month period ended June 30, 2009 we issued a total of 598,500 shares of common stock to a holder of a convertible debenture, in the amount of $25,000, as conversion of the debenture and accrued interest.




Short Term Note Payable Due April 2009


During the six month period ended June 30, 2009, the Company entered into a short-term note payable with a former director in the amount of $100,000. Under the short term note payable principal and interest is due and payable April 30 2009, interest accrues at 10% per annum and is unsecured. The short term note payable
is convertible into the Company’s convertible debenture instrument yielding 7% interest per annum. The short term note contains a feature to extend for a 1⁄2 point. Under the extension the Company borrowed an additional $25,000 for working capital.





Management’s Plan on Note Defaults





As of June 30, 2009 the Company is in default on several unsecured notes payable and convertible debentures. Management has discussed the possibility of default and repayment with each and every holder of the debt instruments. Currently no holders of the debt instruments have demanded repayment or entered into default
proceedings with the Company. It is management’s intent to repay or convert the debt instruments into new debt instruments with extended payment terms or into equity of the Company.





NOTE 6 – COMMITMENTS AND CONTINGENCIES





Operating Leases





The Company leases office space for its subsidiaries in two markets, San Diego and Las Vegas. The Company’s corporate and REF operations occupied space in its Minneapolis building. TCS’s San Diego and Las Vegas operations lease office space under operating leases that both expire in 2010.





Lease Income





The Company leased a portion of its Minneapolis commercial property to various tenants, which required them to pay a monthly base rent. Most tenants were on month-to-month agreements with the Company. Currently one long term lease tenant occupied space in this building with the remainder being occupied by Discover and
other short term tenants.





Executive Employment Agreements





The Company has an executive employment agreement with its chief executive officer which provides for cash compensation of $100,000 per annum as well as equity compensation of $75,000 per annum. As of June 30, 2009 the Company has included in accrued expense approximately $798,000 in compensation due to its executive
officer. As part of the Company’s agreement with the executive officer the Company will issue shares of common stock based on a pre-determined formula for past due compensation and enter into a new employment agreement with the executive officer. As part of the Company’s efforts to conserve cash and control expenditures during its cost-cutting plan the executive officer had deferred payment of his compensation during the past four years.




15


Litigation





The Company is subject to other potential liabilities under government regulations and various claims and legal actions that may be asserted. Matters may arise in the ordinary course and conduct of the Company’s business, as well as through its acquisitions. Claim estimates that are probable and can be reasonably
estimated are reflected as liabilities of the Company. The ultimate resolution of these matters is subject to many uncertainties. It is reasonably possible that matters, which may be asserted, could ultimately be decided unfavorably for the Company. Although the amount of liability at June 30, 2009, currently cannot be ascertained, the Company believes that any resulting liability should not materially affect the Company’s consolidated financial statements.





The Company for the six months ended June 30, 2009 had a complaint brought against them by three individuals who were represented by an employee of the Company (see Note 10 - Subsequent Events).




NOTE 7 - PROPERTY AND EQUIPMENT





The Company's property and equipment by significant category consist of the following at June 30, 2009 and December 31, 2008, respectively:





June 30, 2009
(unaudited)


December 31, 2008
(audited)Furniture and equipment

$
148,356


$
162,424Building and improvements


468,716



468,716Land


100,000



100,000Total property and equipment


717,072



731,140Less accumulated depreciation


(255,998
)


(251,917
)$
461,074


$
479,223





Subsequent to June 30, 2009 the Company sold the building to a related party (see Note 10 - Subsequent Events).





NOTE 8 - RELATED PARTY TRANSACTIONS





During the six month period ended June 30, 2009, the Company entered into several short-term arrangements with a current director of the Company for working capital funds. For the six month period ended June 30, 2009 funds received under these short-term arrangements totaled $57,495 which is included in notes payable
and convertible debentures.





Subsequent to June 30, 2009 the Company sold the building to a related party (see Note 10 - Subsequent Events).


NOTE 9 - INCOME TAXES




In June 2006, the FASB issued Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes,” an interpretation of SFAS 109, “Accounting for Income Taxes.” FIN 48 clarifies the accounting for uncertain tax positions. FIN 48 prescribes a comprehensive model for how companies
should recognize, measure, present and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under FIN 48, tax benefits shall initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions shall initially and subsequently be measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement
with the tax authority, assuming full knowledge of the position and all relevant facts. FIN 48 also revises disclosure requirements to include an annual tabular rollforward of unrecognized tax benefits. The provisions of this interpretation are required to be adopted for fiscal periods beginning after December 15, 2006. The Company adopted this provision beginning January 1, 2007. Net impact due to the adoption of FIN 48 was no decrease to retained earnings.




16




Prior to their acquisitions, Discover Mortgage was taxed as a Sub S Corporation, and TCS Mortgage, Inc. was party to a tax sharing agreement with its former parent. The Company pays minimum franchise taxes of $800 per year for each California corporate entity that does business as part of the consolidated entity.




At June 30, 2009, the Company had $8.6 million and $4.8 million of federal and state net operating losses (NOL) carry forwards, respectively. It is more likely than not that the Company will not fully realize certain federal or states’ NOL’s. The federal and state NOL carry forwards begin to expire in 2019
and 2014, respectively.




The realization of any future income tax benefits from the utilization of net operating losses may be severely limited. Federal and state tax laws contain complicated change of control provisions (generally when a more than 50 percent ownership change occurs within a three-year period), which, if triggered, could limit
or eliminate the use of the Company's net operating loss carry-forwards.




NOTE 10 – SUBSEQUENT EVENTS




On July 23, 2009 the Company sold its commercial building to a related party. The sale included the assumption of a mortgage note payable in the amount of $829,983, payment of other expenses (including property taxes and assessments) of $55,259, for a total price of $885,242. The Company and the related party entered
into a month-to-month lease for its corporate offices. The Company’s adjusted cost basis in the commercial building at the time of the sale was $439,365 due to that the building was initially purchased from a shareholder/affiliate and the Company recorded the acquisition based on the shareholders cost (Topic 5-G). The difference between the cost and the fair value of the building justified the Company’s goodwill recorded balance in a separate business acquisition. The remaining goodwill balance of
$445,878 at June 30, 2009 will be recognized and offset against any gain that the Company has with respect to the sale of the building, which will be recorded during the period ended September 30, 2009.




The Company on or about June 30, 2009 had a complaint brought against them by three individuals that were previously represented by an employee of the Company involving the Trump Resorts project located in Mexico. This project failed to materialize and the individuals sued for restitution from the Company and its employee.
The Company settled out of court and incurred expenses of approximately $7,000. The actual damages could not be assessed at June 30, 2009 however the Company was able to settle before this report date for payments of approximately $5,000, which was included as an expense as part of the Company’s net loss for the six month period ended June 30, 2009.




17





ITEM 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations




The following discussion and analysis of financial condition and results of operations should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and Notes thereto included elsewhere in this report and the Consolidated Financial Statements and Notes thereto included in our annual report
on Form 10-K.




OVERVIEW




We are in the business of providing real estate and mortgage financial services primarily for transactions involving sales, purchases or financing of residential properties. Our business is conducted through three wholly-owned subsidiaries, Discover Mortgage Corporation and TCS Mortgage, Inc. which operate in the mortgage
brokerage and mortgage banking business; and WHY USA North America Inc. which operates in the real estate franchise business. Our primary mission is to develop and provide professional residential real estate and mortgage banking services and support both to our network of franchise real estate brokers and their customers and to new home, resale home and refinancing mortgage borrowers dealing directly with our mortgage lending offices.




We conduct our business through two principal segments:





Ø
Real Estate Franchise (REF).The Company’s REF operations are conducted regionally within the United States; Upper Midwestern states as well as several other states with limited franchise areas.





Ø
Mortgage Broker and Originations (MB). The Company’s MB operations are conducted regionally within the United States; Upper Midwestern states as well as the Southwest (which includes Southern California and Nevada).





The Company has incurred significant losses, and as of June 30, 2009 had an accumulated deficit of approximately $14.0 million. The Company intends to expend considerable financial and management resources on sales and marketing, development of additional financial service offerings, strategic acquisitions and alliances,
and expanded operations to support larger-scale business operations. Accordingly, the Company may continue incurring losses incident to future growth. There can be no assurance that the Company's revenues will increase to the levels necessary to achieve profitability or generate enough cash from operations in the future.




The Company's prospects must also be considered in light of the risks, difficulties, and expenses frequently encountered by companies in their early stage of development, particularly companies in rapidly changing markets such as ours. To address these risks, the Company must, among other things, maintain existing, and
develop new relationships with mortgage lenders, real estate brokers and franchisees, and potential residential customers in the general public; implement and successfully execute its business and marketing strategy; continue to develop and upgrade transaction-processing systems; provide quality customer service; respond to competitive developments; and attract, retain and motivate qualified personnel. There can be no assurance the Company will be successful in addressing such risks, and the failure to do so
would harm the Company's business, financial condition, and results of operations. The Company's current and future expense levels are based on its planned operations and estimates of future revenues. Revenue and operating results generally depend upon the volume and timing of mortgages originated and real estate closings completed, which are rather difficult to forecast. The Company may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfalls. Any significant shortfall
of revenue would have an immediate adverse effect on the Company's business. In view of the changing nature of both the financial services industry and the overall national economy, the Company is unable to accurately forecast its revenue. Accordingly, we believe that period-to-period comparisons of our operating results are not very meaningful and should not be relied upon as an indication of future performance.




The Company's material sources of revenue in order of priority are from: (1) mortgage origination and related mortgage lending fees, (2) WHY USA franchise fees/royalties received from our franchisees based on their ongoing business, (3) new franchise sales, and (4) real estate sales commissions.




18


RESULTS OF OPERATIONS





Comparison of the Six Month Periods Ended June 30, 2009 and 2008


Revenues




Net revenues decreased $67,507 or 10% for the six months ended June 30, 2009 compared to the six months ended June 30, 2008. The decrease was a continued result of the significant softening of the mortgage and real estate industry. Summer 2008 was a time of great turmoil for the financial services industry. WHY USA was
not in the business of sub-prime single-family residential mortgages, so the Company was not exposed to the disruption in the market. However, the general market continues to experience a ripple effect that business both in mortgage and real estate transactions have almost ceased to exist. It is important to note that the Company continued to maintain the highest underwriting standards in its loan portfolio, regardless of the loan type, a decision that is part of its core business philosophy. By maintaining historically
excellent credit standards, the Company was able to focus on providing high levels of customer service and expanding its product offerings in spite of these difficult market conditions.




Over the prior two years it was readily apparent that the sub-prime mortgage market continues to be strained which in turn affected the overall financial services industry. As a mortgage broker, WHY USA and its business practices did not have any specific exposure to the sub-prime market, no liability to purchase defaulted
loans. As a result, management believes that even though the sub-prime market has ceased to exist, the negative impact from the sub-prime market fallout continues to affect future revenues. Given that we continue to work on stabilizing ourselves in a weakened sub-prime market, revenues continued to decrease through 2009, even though we are experiencing a growing demand and need for FHA insured loans. The purpose of the FHA insured program is to allow non- Fannie Mae and Freddie Mac approved borrowers’ access
to non sub-prime loan programs. Therefore we are experiencing an increase of the “Government” sponsored loan programs that allow more flexible lending criteria, picking up much of the slack in the traditional “sub-prime” loans.




Cost of Revenues




Cost of revenues decreased $30,995 or 8% for the six months ended June 30, 2009 compared to the six months ended June 30, 2008. Cost of revenues dropped at the same rate compared to our decrease in net revenues for the six month period. Costs of revenue which consists primarily of direct costs associated with our products
and services, as well were affected by the sub-prime and financial services market weakening. Commission expense and direct costs continue to remain fairly constant as a percentage with slight cost savings due to a competitive environment. Cost of revenues as a percentage of net revenues increased slightly to 58% for the six months ended June 30, 2009 compared to 57% for the six months ended June 30, 2008. Gross margin as a percentage of net revenues decreased slightly to 42% for the six months ended June 30,
2009 compared to 43% for the six months ended June 30, 2008.




While we believe that gross margin in future periods may be affected by, among other things, the integration of newly acquired businesses in addition to increased services, competitive conditions, our ability to make additional productivity improvements and the acceptance of government products as a replacement for non-government
products is not guaranteed.




Operating Expenses




Selling, General and Administrative.For the six months ended June 30, 2009, selling, general and administrative expenses decreased by $222,905 or 25% compared to the six months ended June 30, 2008. The decrease for the six months ended June 30, 2009 resulted from
a continued reduction in professional services for the Company’s year end audits as well as continued cost saving initiatives which include staffing and salary reductions along with reductions in employee benefits, professional services, occupancy costs, and other expenses.




We continue to pursue programs and initiatives to improve our efficiency in the general and administrative area. These programs focus in the areas of process improvement and automation relative to our mortgage and non-franchise real estate business and its support as well as support services needed for our holding company.
We expect that over time these actio ns will result in additional declines in our general and administrative expenses as a percent of revenues.




19




Loss/Gain on Disposal of Assets. Loss on disposal of fixed assets for the six months ended was $1,873, compared to none for the six months ended June 30, 2008, which for the six month period ended in 2009 represents the excess of cost basis over the proceeds received
from the sale or disposal of the fixed or intangible assets used in its operations.




Depreciation and Amortization. Depreciation and amortization for the six months ended June 30, 2009 decreased $4,108 or 20% compared to the six months ended June 30, 2008. Depreciation and amortization expense for the six months ended June 30, 2009 was $16,276.




Impairment of Long-Lived Assets. Impairment of long-lived assets for the six months ended June 30, 2009 increased by $283,150, compared to none for the six months ended June 30, 2008. This increase is directly caused by the change in carrying value and resulting
disposition of the Company’s located in Minneapolis, Minnesota subsequent to period end. Impairment was recognized in accordance with the requirements of SFAS 142. See Note 10 to the Condensed Consolidated Financial Statements included in Item 1 to this Report.




Other Income (Expense)




Interest Expense. Interest expense was $118,598 for the six months ended June 30, 2009 compared to $88,955 for the six months ended June 30, 2008. The primary reason for the $29,643 increase in interest expense was an overall increase in borrowings from related party
and third parties.




Other Income (Expense), Net. Other income (expense), net, for the six months ended June 30, 2009 and the six months ended June 30, 2008 was $0 and $9,804, respectively. For six months ended June 30, 2008 the Company received reimbursements from non-mortgage/real
estate business which are non-recurring in nature.




Comparison of the Six Month Periods Ended June 30, 2008 and 2007





Revenues




Net revenues decreased $788,363 or 53% for the six months ended June 30, 2008 compared to the six months ended June 30, 2007. The decrease was a result of the continued significant softening of the mortgage and real estate industry. 2007 was a time of great turmoil for the financial services industry and 2008 is turning
out to be as well. WHY USA was not in the business of sub-prime single-family residential mortgages, so the Company was not exposed to the disruption in the market. However, the general market experienced a ripple effect that business both in mortgage and real estate transactions almost ceased to exist. It is important to note that the Company continued to maintain the highest underwriting standards in its loan portfolio, regardless of the loan type, a decision that is part of its core business philosophy. By
maintaining historically excellent credit standards, the Company was able to focus on providing high levels of customer service and expanding its product offerings in spite of these difficult market conditions.




Even late into 2007, it became apparent that the sub-prime mortgage market continues to be strained which in turn affects the financial services industry. As a mortgage broker, WHY USA does not have any exposure to the weakening sub-prime market, and has no liability to purchase defaulted loans. As a result, management
believes that even though the sub-prime market has weakened, the negative impact on future revenues will be minimal. Given that we have stabilized ourselves for 2008 even with the weakened sub-prime market, we believe that revenues will soon be increasing on a quarter to quarter basis, as we experience a growing demand for FHA insured loans. The purpose of the FHA insured program is to allow non- Fannie Mae and Freddie Mac approved borrowers’ access to non sub-prime loan programs. Therefore we are experiencing
an increase of “Government” sponsored loan programs that allow more flexible lending criteria, picking up much of the slack in the traditional “sub-prime” loans.




Cost of Revenues




Cost of revenues decreased $568,136 or 58% for the six months ended June 30, 2008 compared to the six months ended June 30, 2007. Cost of revenues dropped at a higher rate compared to our decrease in net revenues for the six month period. Costs of revenue which consists of primarily direct costs associated with our products
and services, was as well affected by the sub-prime and financial services market weakening. Commission expense and direct costs continue to remain constant as a percentage with slight cost savings due to a competitive environment. Cost of revenues as a percentage of net revenues decreased to 57% for the six months ended June 30, 2008 compared to 65% for the six months ended June 30, 2007. Gross margin increased to 43% for the six months ended June 30, 2008 compared to 35% for the six months ended June 30, 2007.




20




Operating Expenses




Selling, General and Administrative.For the six months ended June 30, 2008, selling, general and administrative expenses increased by $74,110 or 9% compared to the six months ended June 30, 2007. The increase for the six months ended June 30, 2008 resulted from
approximately $160,000 in accounting and professional services incurred in preparing for and filing our audits and annual report on Form 10-KSB for fiscal 2004 through 2007, along with our quarterly report on Form 10-QSB offset by continuing cost savings initiatives which include staffing and salary reductions along with reductions in employee benefits, professional services, occupancy costs, and other expenses.




We continue to pursue programs and initiatives to improve our efficiency in the general and administrative area. These programs focus in the areas of process improvement and automation relative to our mortgage and non-franchise real estate business and its support as well as support services needed for our holding company.
We expect that over time these actions will result in additional declines in our general and administrative expenses as a percent of revenues.




Depreciation and Amortization. Depreciation and amortization for the six months ended June 30, 2008 decreased $4,151 or 17% compared to the six months ended June 30, 2007. Depreciation and amortization expense for the six months ended June 30, 2008 was $20,384.




Other Income (Expense)




Interest Expense. Interest expense was $88,955 for the six months ended June 30, 2008 compared to $85,891 for the six months ended June 30, 2007. The $3,064 increase in interest expense is attributable to the increased borrowings during the six months ended June
30, 2008 offset by the conversion of several convertible debentures which were retired late in 2007.




Other Income (Expense), Net. Other income (expense), net, for the six months ended June 30, 2008 and the six months ended June 30, 2007 was $9,804 and $116,552, respectively. For six months ended June 30, 2007 the Company received payment on a liquidating distribution
from a policy holder ownership interest. This distribution payment was a one-time event for the Company and is not a recurring event.





Comparison of the Three Month Periods Ended June 30, 2009 and 2008





Revenues




Net revenues increased $60,696 or 18% for the three months ended June 30, 2009 compared to the three months ended June 30, 2008. The increase is a result of hitting the bottom of the softening mortgage and real estate industry. WHY USA was not in the business of sub-prime single-family residential mortgages, so the Company
was not exposed to the disruption in the market. However, the general market experienced a ripple effect that business both in mortgage and real estate transactions almost ceased to exist. It is important to note that the Company continued to maintain the highest underwriting standards in its loan portfolio, regardless of the loan type, a decision that is part of its core business philosophy. By maintaining historically excellent credit standards, the Company was able to focus on providing high levels of customer
service and expanding its product offerings in spite of these difficult market conditions.




Cost of Revenues




Cost of revenues increased $37,167 or 19% for the three months ended June 30, 2009 compared to the three months ended June 30, 2008. Cost of revenues rose at a slightly lower rate compared to our increase in net revenues for the three month period. Costs of revenue which consists of primarily direct costs associated with
our products and services, was as well affected by the sub-prime and financial services market weakening. Commission expense and direct costs continue to remain constant as a percentage with slight cost savings due to a very competitive environment. Cost of revenues as a percentage of net revenues remained the same at 59% for the three months ended June 30, 2009 compared to the three months ended June 30, 2008. Gross margin remained the same at 41% for the three months ended June 30, 2009 compared to the three
months ended June 30, 2008.




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Operating Expenses




Selling, General and Administrative.For the three months ended June 30, 2009, selling, general and administrative expenses decreased by $126,375 or 28% compared to the three months ended June 30, 2008. The decrease for the three months ended June 30, 2009 resulted
from a decrease in accounting and professional services that were incurred in completing our audits and annual report on Form 10-KSB for fiscal 2004 through 2008, as well as our quarterly report on Form 10-Q coupled with continued cost saving initiatives which include staffing and salary reductions along with reductions in employee benefits, professional services, occupancy costs, and other expenses.




We continue to pursue programs and initiatives to improve our efficiency in the general and administrative area. These programs focus in the areas of process improvement and automation relative to our mortgage and non-franchise real estate business and its support as well as support services needed for our holding company.
We expect that over time these actions will result in additional declines in our general and administrative expenses as a percent of revenues.




Depreciation and Amortization. Depreciation and amortization for the three months ended June 30, 2009 decreased $1,721 or 18% compared to the three months ended June 30, 2008. Depreciation and amortization expense for the three months ended June 30, 2009 was $7,764.




Impairment of Long-Lived Assets. Impairment of long-lived assets for the three months ended June 30, 2009 increased by $283,150, compared to none for the three months ended June 30, 2008. This increase is directly caused by the change in carrying value and resulting
disposition of the Company’s located in Minneapolis, Minnesota subsequent to period end. Impairment was recognized in accordance with the requirements of SFAS 142. See Note 10 to the Condensed Consolidated Financial Statements included in Item 1 to this Report.




Other Income (Expense)




Interest Expense. Interest expense was $61,848 for the three months ended June 30, 2009 compared to $51,838 for the three months ended June 30, 2008. The primary reason for the $10,010 increase in interest expense was additional borrowings from our related party
as well as debt service on our other borrowings from year to year.




Comparison of the Three Month Periods Ended June 30, 2008 and 2007


Revenues




Net revenues decreased $454,614 or 57% for the three months ended June 30, 2008 compared to the three months ended June 30, 2007. The decrease was a result of the continued significant softening of the mortgage and real estate industry. 2007 was a time of great turmoil for the financial services industry and 2008 is turning
out to be as well. WHY USA was not in the business of sub-prime single-family residential mortgages, so the Company was not exposed to the disruption in the market. However, the general market experienced a ripple effect that business both in mortgage and real estate transactions almost ceased to exist. It is important to note that the Company continued to maintain the highest underwriting standards in its loan portfolio, regardless of the loan type, a decision that is part of its core business philosophy. By
maintaining historically excellent credit standards, the Company was able to focus on providing high levels of customer service and expanding its product offerings in spite of these difficult market conditions.




Even late into 2007, it became apparent that the sub-prime mortgage market continues to be strained which in turn affects the financial services industry. As a mortgage broker, WHY USA does not have any exposure to the weakening sub-prime market, and has no liability to purchase defaulted loans. As a result, management
believes that even though the sub-prime market has weakened, the negative impact on future revenues will be minimal. Given that we have stabilized ourselves for 2008 even with the weakened sub-prime market, we believe that revenues will soon be increasing on a quarter to quarter basis, as we experience a growing demand for FHA insured loans. The purpose of the FHA insured program is to allow non- Fannie Mae and Freddie Mac approved borrowers’ access to non sub-prime loan programs. Therefore we are experiencing
an increase of “Government” sponsored loan programs that allow more flexible lending criteria, picking up much of the slack in the traditional “sub-prime” loans.




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Cost of Revenues




Cost of revenues decreased $328,441 or 62% for the three months ended June 30, 2008 compared to the three months ended June 30, 2007. Cost of revenues dropped at a higher rate compared to our decrease in net revenues for the three month period. Costs of revenue which consists of primarily direct costs associated with
our products and services, was as well affected by the sub-prime and financial services market weakening. Commission expense and direct costs continue to remain constant as a percentage with slight cost savings due to a very competitive environment. Cost of revenues as a percentage of net revenues decreased to 59% for the three months ended June 30, 2008 compared to 67% for the three months ended June 30, 2007. Gross margin increased to 41% for the three months ended June 30, 2008 compared to 33% for the three
months ended June 30, 2007.




Operating Expenses




Selling, General and Administrative.For the three months ended June 30, 2008, selling, general and administrative expenses increased by $60,828 or 16% compared to the three months ended June 30, 2007. The increase for the three months ended June 30, 2008 resulted
from approximately $100,000 in accounting and professional services incurred in completing our audits and annual report on Form 10-KSB for fiscal 2004 through 2007, as well as our quarterly report on Form 10-QSB offset by continuing cost savings initiatives which include staffing and salary reductions along with reductions in employee benefits, professional services, occupancy costs, and other expenses.




We continue to pursue programs and initiatives to improve our efficiency in the general and administrative area. These programs focus in the areas of process improvement and automation relative to our mortgage and non-franchise real estate business and its support as well as support services needed for our holding company.
We expect that over time these actions will result in additional declines in our general and administrative expenses as a percent of revenues.




Depreciation and Amortization. Depreciation and amortization for the three months ended June 30, 2008 decreased $2,860 or 23% compared to the three months ended June 30, 2007. Depreciation and amortization expense for the three months ended June 30, 2008 was $9,485.




Other Income (Expense)




Interest Expense. Interest expense was $51,838 for the three months ended June 30, 2008 compared to $39,034 for the three months ended June 30, 2007. The primary reason for the $12,804 increase in interest expense was additional borrowings from our related party
as well as debt service on our other borrowings from year to year.




Other Income (Expense), Net. Other income (expense), net, for the three months ended June 30, 2008 and the three months ended June 30, 2007 was $30 and $10,795, respectively. For three months ended June 30, 2007 the Company received reimbursement from non-mortgage/real
estate business which is non-recurring in nature.




LIQUIDITY AND CAPITAL RESOURCES




Operating Activities. Operating activities used net cash of $229,231 during the six month period ended June 30, 2009 primarily from a net loss of $830,402 offset by non-cash charges of $325,769. Changes in operating assets and liabilities provided a net increase
of $275,402 in cash during the period. Within non-cash charges, the primary drivers were impairment of long-lived assets of approximately $283,000 and bad debt expense of approximately $24,500. The primary drivers of cash savings from changes in operating assets and liabilities was an increase in accounts payable and accrued expenses of approximately $302,000 which was partially offset by a increase in trade receivables of approximately $15,000.




As a result of working capital improvement and cost reduction programs, we expect to utilize our working capital more effectively in the future resulting in our ability to reinvest in activities that will increase the Company’s presence in the marketplace. Our working capital factors, such as accounts receivable
collection and payables, are seasonal and, on an interim basis during the year, may require an influx of short-term working capital.




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Investing Activities. Net cash used in investing activities for the six month period ended June 30, 2009 was $756. We received $756 in interest income on our certificate of deposit which we classify as restricted cash on the balance sheet.




Financing Activities. Net cash provided by financing activities totaled $186,792 for the six month period ended June 30, 2009 which includes payments on existing debt of approximately $16,000.  For the six month period ended June 30, 2009 we received approximately
$189,000 in proceeds from various short-term note obligations entered into by a director and a shareholder of the Company. The Company for the six month period ended June 30, 2009 increased its bank overdraft from year end by approximately $12,000.




We continue to seek acquisition opportunities that support our Real Estate Franchise and Mortgage Brokerage platforms. While we cannot predict the timing or size of any future acquisitions, or if any will occur at all, a significant amount of our cash and/or stock may be used to acquire companies, assets or technologies.
We could also choose to fund any acquisitions, at least partly, with new debt or stock.




As of June 30, 2009, we had cash and cash equivalents of approximately $10,000. Our working capital deficit was $2,590,080 as of June 30, 2009. This includes $635,186 of accounts payable outstanding, bank line of credit of $100,645, bank overdraft of $14,222, short term debt and lease obligations of $747,791, as well
as accrued expense and other of $1,135,979. Cash used in operations primarily comes from our service offerings with non-recurring expenses funded through the issuance of convertible debentures.




We expect that our current cash and cash equivalents, short-term and long-term investments, short-term borrowings and/or the raising of additional capital, along with funds from operations and interest income earned thereon will be sufficient to fund our current operations through at least the end of 2009. Our future
capital requirements and the adequacy of our available funds will depend on many factors, including future business acquisitions, our ability to establish collaborative business arrangements, the cost involved in preparing, filing, prosecuting, maintaining and enforcing business claims and competing technological and market developments.




RECENT ACCOUNTING PRONOUNCEMENTS




In June 2009, FASB issued Statement of Financial Accounting Standard (SFAS) No. 168, “The FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162.” Codification will become the source of authoritative
U.S. generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The Codification will supersede all then-existing non-SEC accounting and reporting standards and all other nongrandfathered non-SEC accounting literature not included in the Codification will become nonauthoritative.
This statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company will adopt this guidance in the interim period beginning January 1, 2010 and it is not expected to have a material impact on the Company’s condensed consolidated financial results.





In May 2009, FASB issued SFAS No. 165, “Subsequent Events.” This Statement establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It defines subsequent events and also
requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. This Statement is effective for interim and annual periods ending after June 15, 2009. The Company has adopted this guidance in the interim period beginning April 1, 2009 and has included all necessary disclosures.




In December 2007, FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51,” which impacts the accounting for noncontrolling interest in the consolidated financial statements of filers. The statement requires the reclassification
of noncontrolling interest from the liabilities section or the mezzanine section between liabilities and equity to the equity section of the balance sheet. The statement also requires that the results from operations attributed to the noncontrolling interest to be disclosed separately from those of the parent, in addition to the change in accounting and reporting requirement for deconsolidated subsidiaries. The Company has adopted this guidance in the year beginning January 1, 2009 without material impact.





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FASB Statement No. 157 (FAS 157), “Fair Value Measurements,” issued in September 2006, defines fair value, establishes a framework for measuring fair value and expands disclosures about assets and liabilities measured at fair value in the financial statements. In February 2008, the FASB issued
FASB Staff Position 157-2 (FSP 157-2) which allows for the delay of the effective date of FAS 157 for one year for all nonfinancial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company adopted FAS 157 for financial assets and liabilities effective January 1, 2008 but elected a partial deferral under the provision of FSP 157-2 related to nonfinancial assets and liabilities that are measured at fair value on a nonrecurring
basis, including goodwill, wireless licenses, other intangible and long-lived assets, guarantees and asset retirement obligations. The Company has adopted this guidance in the year beginning January 1, 2009 without material impact.




In December 2007, the FASB revised Statement No. 141 (FAS 141R), “Business Combinations,” which establishes principles and requirements for how the acquirer in a business combination (i) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed
and any noncontrolling interest in the acquiree, (ii) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase and (iii) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. FAS 141R became effective January 1, 2009. The Company adopted this guidance in the year beginning January 1, 2009 without material impact.




In April 2009, the FASB issued FASB Staff Position FAS 115-2 and FAS 124-2 (FSP 115-2 and 124-2), “Recognition and Presentation of Other-Than-Temporary Impairments,” which amends the existing guidance on determining whether an impairment is other-than-temporary for investments in debt securities. In addition,
the FASB issued FASB Staff Position FAS 157-4 (FSP 157-4), “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly,” which provides additional guidance on determining the fair value of financial assets in an inactive market or when a distressed transaction is present. FSP 115-2 and 124-2 and FSP 157-4 will be effective for the Company’s third quarter of fiscal 2009, as the Company
has not elected to early adopt either FSP. The Company has adopted this guidance in the year beginning January 1, 2009 without material impact.




CRITICAL ACCOUNTING POLICIES




Application of Critical Accounting Policies




Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate these estimates, including those related to the allowance for doubtful accounts, goodwill, intangible assets, stock-based compensation income taxes, commitments and accrued liabilities. 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 may differ from these estimates under different assumptions or conditions.




We consider accounting policies relating to the following areas to be both those most important to the portrayal of our financial condition and those that require the most subjective judgment:




•

revenue recognition;•

accounting for goodwill and other intangible assets;•

accounting for franchise costs;•

accounting for stock-based compensation; and•

accounting for acquisition charges




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Forward-looking Statements




Any statements in this Quarterly Report on Form 10-Q about our expectations, beliefs, plans, objectives, prospects, financial condition, assumptions or future events or performance are not historical facts and are “forward-looking statements” as that term is defined under the Federal Securities Laws. These
statements are often, but not always, made through the use of words or phrases such as “believe,” “anticipate,” “should,” “intend,” “plan,” “will”, “expects”, “estimates,” “projects,” “positioned,” “strategy,” “outlook,” and similar words. You should read statements that contain these types of words carefully. Such forward-looking statements are subject to a number of
risks, uncertainties and other factors that could cause actual results to differ materially from what is expressed or implied in such forward-looking statements. There may be events in the future that we are not able to predict accurately or over which we have no control. Potential risks and uncertainties include, but are not limited to, those discussed below under “Risk Factors” and elsewhere in this Quarterly Report as well as other risks and uncertainties detailed in our Annual Report on Form 10-K,
filed with the Securities and Exchange Commission on March 31, 2009. We do not undertake any obligation to release publicly any revisions to such forward-looking statements to reflect events or uncertainties after the date hereof or to reflect the occurrence of unanticipated events.




Business




WHY USA Financial Group, Inc. (the Company), is a Nevada corporation. Prior to acquiring our real estate franchise subsidiary and our Minneapolis mortgage brokerage business in December 1999, the Company was an inactive public company under the name Triam Ltd., Inc. with no assets, which had not been engaged in active
operations for many years.  Our principal offices are located in Minneapolis, Minnesota. Our website is http://www.whyusa.com. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q/Form 10-QSB, Current Reports on Form 8-K and any amendments thereto are made available without charge from our website or may be obtained from the United States Securities and Exchange Commission website – http://www.sec.gov.




Financial Information - Segments and Geographic Areas




We focus our business on two principal business segments, Real Estate Franchise (REF) and Mortgage Brokerage (MB). Financial information regarding these segments is included within the notes to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.




The Company has limited geographic concentrations within its business segments. Our REF business segment currently operates in several Midwestern states, with offices elsewhere in the continental United States. Our MB business segment currently operates in California, Nevada, Minnesota and Wisconsin.




Description of Our Business




Overview




WHY USA Financial Group, Inc. (the Company), a Nevada corporation, is engaged in the business of providing real estate and mortgage financial services primarily for transactions involving the sale, purchase or financing of residential properties. Our business is primarily conducted through three wholly-owned subsidiaries:
Discover Mortgage Corporation and TCS Mortgage, Inc. both operate in the mortgage brokerage and mortgage banking business; and WHY USA North America Inc., which operates in the real estate franchise business. Our primary mission is to develop and provide professional residential real estate and mortgage brokerage services and support, both to our network of franchise real estate brokers and their customers and to new home, resale home and refinancing mortgage borrowers dealing directly with our mortgage lending
offices.




The Company was incorporated in Utah in 1980 and in 1983 was duly reorganized as a Nevada corporation. Prior to acquiring our real estate franchise subsidiary and our initial mortgage business in December 1999, the Company was an inactive public company under a former name with no assets, which had not been engaged in
active operations for many years.




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The Company acquired both its real estate business, WHY USA North America, Inc. and its first mortgage business, Northwest Financial Ltd., through a reorganization and merger which occurred in 1999. Incident to this merger, the former shareholders of these two companies acquired a majority interest in the outstanding
common stock of the Company. This was a reverse merger for financial statement and operational purposes, and NA and Northwest became wholly-owned subsidiaries. Northwest transferred 100% of its operations to Discover during 2002.





Acquisition Strategy and Transactions




Since our reorganization in 1999, a principal element of our business strategy has been to expand our business through acquisitions of established operations in our industry. The primary goal of our newfound acquisition strategy is to establish a national presence in our industry over the coming years, which we believe
will provide economies of scale for our operations due to an increase in revenue base through acquisitions. Moreover, we believe more favorable terms will be achieved from financial institutions that provide mortgage funding as our lending transactions increase through size.




Target Markets




We divide our target customer base into principally two categories:




•

Mortgagers; and





•

Real estate buyers and sellers.





While we do not believe that any single customer or small group of customers is material to our business as a whole or to either of our product segments (described below), more than 50% of our customers in our target markets are located in the Southern California region of the United States.





Service Offerings




The Company’s principal service offerings are outlined below.




WHY USA Real Estate Franchise Program




Through our WHY USA franchise system we offer independent real estate brokers and agents a unique proprietary real estate management and marketing program. Our WHY USA national franchise system, which is registered in 41 states, was developed in the 1980's by an Arizona company. Its operations were moved to Wisconsin
in the 1990's and we acquired this franchise program in 1999.  This business is owned and operated under a wholly owned subsidiary, WHY USA North America, Inc. a Wisconsin corporation. Our WHY USA franchise operations are headquartered in Minneapolis.




The WHY USA franchise is available to qualified licensed real estate brokers and their agents, who must enter into a WHY USA Franchise Agreement in order to conduct business under the WHY USA name and proprietary operational system. WHY USA provides a unique, confidential plan for operating a real estate office, consisting
of a number of successful listing, selling, marketing and management techniques developed over the years and supported by training programs, copyrighted marketing methods, and educational materials.




The initial franchise fee for a WHY USA real estate office is $9,990 for a designated territory. Franchisees also pay ongoing transaction fees of $100 per transaction or 6% of commission revenues; whichever is the lower of, providing they must pay at least a monthly minimum of $400. Transactions are defined as any closing
or rental as a listing or selling agent, any referral or advance fees received from a client, and any consulting, assistance or materials purchase fees related to leasing or selling a property. The estimated initial investment to commence business as a WHY USA franchisee is approximately $50,000 including the initial franchise fee. We provide substantial initial and ongoing support to our franchisees including, assistance with locating an office, provision of a confidential comprehensive Operations Manual, a
training seminar for new franchisees, training and promotional videos and brochures, sample marketing materials, continuing advisory assistance regarding operations, supplemental marketing and advertising materials, and advice regarding Internet access capabilities and procedures.




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The basic WHY USA method for listing real property offers the selling owner an alternative, whereby they can sell their home with full service from their WHY USA broker for a fee of just $990. Sell the property to a friend, relative or acquaintance without paying commissions in excess of $990.  This proprietary
system is designed to create listing opportunities for our franchise brokers as well as offer the listing seller a true alternative to the traditional real estate commission structure.




We currently have 30 WHY USA franchise owners, with WHY USA offices in 14 states.  A majority of these offices are located in Minnesota and several nearby Midwestern states, with the rest spread across the country. We currently do not have a material presence in Eastern and Southern states, although our future
marketing plan includes directing substantial efforts toward expansion.




Mortgage Brokerage Services - Overview




We acquired TCS Mortgage, Inc., as a wholly owned subsidiary, in December 2003.  In 2004 we contributed another wholly owned subsidiary, Discover Mortgage, under the TCS umbrella.  TCS is a full service mortgage broker, specializing in residential mortgage finance.  TCS was formed in January 1984,
and has established a reputation for providing fair and equitable home loans to its clients and a high quality volume of mortgage product for its correspondent lenders.  TCS has grown since its inception, averaging revenues of more than $3.6 million over the past five years.  Over the past twenty-five years, TCS has originated more than 7,000 mortgage transactions, in excess of $3.0 billion in funded loan volume.




While TCS specializes in loans that meet Freddie Mac or Fannie Mae underwriting criteria, it also provides Federal Housing Administration, Veteran’s Administration, non-conforming mortgage product, and home equity products for individuals across a wide range of incomes and credit risks. TCS has established relationships
with many correspondents and wholesale lenders across the United States, and has the ability to conduct operations in California, Nevada, Minnesota, and Wisconsin, with fully staffed offices in San Diego, Las Vegas, and Minneapolis, as well as satellite origination offices.




In this highly competitive marketplace, TCS’s growth and success reflects a number of essential factors: a skilled and professional client-oriented sales team, an effective lending criterion with dependable high quality mortgage product, repeat business from a large client base, as well as their referrals. With
a broad spectrum of products to offer its clients, TCS has been able to develop solid relationships with homebuyers, realtors, homebuilders, financial planners, accountants, and insurance agents; all of which provide TCS with loan applicants.




As an established mortgage broker, our objective is to continue to build a nationwide broker infrastructure to further its mortgage business distribution channel. TCS continues to focus on borrowers who meet conforming underwriting guidelines. Our business principles are focused on originating loans based upon the borrower’s
credit worthiness and ability to repay the loan, as well as the adequacy of the real estate collateral, while providing a high degree of service to our clients. We believe that this business approach will continue to contribute to our growth.




TCS’s focus is to continue to generate organic growth within its existing markets of; California, Nevada, Minnesota, and Wisconsin, where TCS is currently licensed, through the recruitment of additional professional mortgage personnel. In addition, we may seek expansion through acquisitions, mergers, or strategic
alliances in other market areas as the opportunity may arise. The Company, nor TCS, has identified any merger or acquisition targets at this time. States where property appreciation is constant or shows signs of growth will be targeted.




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Market Overview




The residential mortgage industry has grown significantly over the past 10 years, with loan originations totaling over $2.8 trillion in 2004. The Mortgage Bankers Association reported total originations in 2006 of $2.50 trillion, $2.28 trillion for 2007, and estimates $1.86 trillion
for 2008 and $1.67 trillion for 2009, indicating a steady decline from its highs early 2004/2005.




Large banks and mortgage lenders like Wells Fargo, Bank of America/Countrywide, and Washington Mutual/Chase fund the majority of mortgage loans originated. Currently TCS delivers loan product to many industry leaders such as these, under agreements and contractual relationships. However, the industry is in a state of
flux and TCS must continue to obtain and retain these relationships in a difficult environment.




One of the factors of recent growth in the mortgage industry was the impact of sub-prime and Alt-A lenders. The majority of sub-prime loans are Adjustable Rate Mortgages (ARMs). Unlike a traditional Fixed Rate Mortgage, where the interest and monthly payments remain fixed for the term of the loan, with an ARM, the interest
rate is fixed only for a specific term, after which it will periodically (annually or monthly) adjust up or down as a function of some market index. Inasmuch as an ARM transfers part of the interest rate risk from the lender to the borrower, less “qualified” borrowers are more easily able to secure loans. Generally not long-term instruments, ARMs essentially serve as a “bridge” loan for individuals to purchase a home, establish or improve their credit and then secure a traditional mortgage
at a more attractive rate. These loans are then pooled into mortgage backed securities; credit enhanced, rated, and then sold as financial instruments to a wide range of investors. This portion of the market is currently in a state of contraction.




Recently many lenders that specialized in this type of sub-prime product have gone out of business. Most loan products have been discontinued due to the current credit crunch and this has had a negative effect on the industry as a whole. The current trend is towards fixed rate, “A” paper product, which requires
greater documentation and “equity” in the property from the borrower. Currently there are a number of governmental proposals that would further restrict and regulate the Mortgage Industry. Also, there are a number of proposals that would in fact assist the borrowers and provide additional product such as new FHA guidelines, further capacity at Freddie Mac and Fannie Mae, and new capacity at the rating agencies.




TCS generated more than 200 mortgages and gross fee income of $1.0 million in 2008 from over $65 million in loans funding. This is largely attributable to the diversification of mortgage products, a professional sales force, excellent lender relationships, and strong attention to customer service.  While many
of our competitors have exited the market place we have maintained our staff and facilities and are actively recruiting highly skilled talent that is available in the market place.




Current Business Model – Mortgage Broker




Today, TCS operates strictly as a mortgage broker, securing loans on behalf of its correspondent and wholesale lenders. The primary function of TCS is to originate mortgage loans and broker those loans to approved lenders. We offer conventional, FHA, VA, conforming and non-conforming mortgage products for individuals
across a wide range of incomes and credit risks. We do not make underwriting decisions; underwriting decisions are ultimately the decision of the funding lenders.




TCS maintains stringent guidelines with regard to the mortgages it originates. All candidates, whether identified through direct solicitation by the sales team or an individual contacting the company through the website, are required to provide a completed residential loan application, W-2's and/or tax returns for the
previous two (2) years, and recent bank, stock and retirement account statements. Applicants may be required to provide additional documents or verifications based upon their particular history – i.e., have they ever filed for bankruptcy.




With every completed application package, TCS’s primary objective is to ensure that the borrower has the capacity to carry the anticipated payment schedule. For each of its loan products, TCS has specific qualification parameters, as designated by each lender, and it will review the applicant’s credit history,
asset portfolio, employment history, and property values. Each situation is unique and evaluated on a case by case basis, with the resulting loan specifically for that individual.




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Competition




The major competition for TCS comes from the following, but is not limited to; large national lending institutions, local banks, credit unions, mortgage bankers, and other privately owned mortgage companies which provide a variety of products. There is substantial competition on both the national and local level and TCS
originates only a small portion of all loans originated in the areas in which it is licensed.




TCS is licensed with HUD as a Supervised Loan Correspondent. As such, we compete with all HUD approved lenders in the areas we originate mortgage loans. TCS is required to maintain a minimum adjusted net worth which was $113,000 ($63,000 for the main office plus $25,000 for each of its two HUD branch offices) at December
31, 2008. Although the Company may be out of compliance with this requirement for the quarter ended June 30, 2009, management believes that the annual renewal requirement will be met by or prior to December 31, 2009. Maintaining a license with HUD allows TCS to originate FHA loans that it would not otherwise be able to originate. Approximately thirteen percent of our business is currently derived from HUD/FHA loans; we expect this percentage to grow dramatically with the improvements suggested by the government-controlled
agency. It has become difficult for smaller competitors to maintain these requirements.




For the year ended December 31, 2008 the Company through its wholly-owned subsidiary TCS fell below the minimum adjusted net worth requirements as a Supervised Loan Correspondent. The Company submitted with its required Lender Assessment an action plan to correct the deficiency to its minimum adjusted net worth and requested
that HUD maintain its licensure as a Supervised Loan Correspondent. As of the date of this report the Company received HUD’s response with regards to its proposed action plan and minimum adjusted net worth deficiency. The Company has been informed that we are in danger of losing our Supervised Loan Correspondent licensing with which we intend to appeal any action in order to allow us time to put our action plan in place.




ITEM 3.
Quantitative and Qualitative Disclosures about Market Risk




Not required for smaller reporting companies.




ITEM 4.
Controls and Procedures




We maintain a system of disclosure controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the U.S. Securities Exchange Act of 1934, as amended (Exchange Act), is recorded, processed, summarized and reported within the time periods
specified in the SEC rules and forms. These controls and procedures are also designed to ensure that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate to allow timely decisions regarding required disclosure. Internal controls are procedures designed to provide reasonable assurance that: transactions are properly authorized; assets are safeguarded against unauthorized or improper use;
and transactions are properly recorded and reported, to permit the preparation of our financial statements in conformity with generally accepted accounting principles.




A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative
to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management
override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with its policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due
to error or fraud may occur and not be detected. We continuously evaluate our internal controls and make changes to improve them as necessary. Our intent is to maintain our disclosure controls as dynamic systems that change as conditions warrant.




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An evaluation was carried out, under the supervision of and with the participation of our management, including our CEO and CFO, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a–15(e) and 15d–15(e) under the Exchange Act) as of the end of the period covered
by this report. Based upon the controls evaluation, our CEO and CFO have concluded that, as of the end of the period covered by this Form 10-Q, the Company’s disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and is accumulated and communicated to our management, including our CEO and CFO, as appropriate
to allow timely decisions regarding required disclosure.




There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended June 30, 2009 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.




PART II. OTHER INFORMATION





ITEM 1.
Legal Proceedings




The Company is subject to other potential liabilities under government regulations and various claims and legal actions that may be asserted. Matters may arise in the ordinary course and conduct of the Company’s business, as well as through its acquisitions. Claim estimates that are probable and can be reasonably
estimated are reflected as liabilities of the Company. The ultimate resolution of these matters is subject to many uncertainties. It is reasonably possible that matters, which may be asserted, could ultimately be decided unfavorably for the Company. Although the amount of liability at June 30, 2009, currently cannot be ascertained, the Company believes that any resulting liability should not materially affect the Company’s consolidated financial statements.




The Company on or about June 30, 2009 had a complaint brought against them by three individuals that were represented by an employee of the Company involved in the Trump Resorts project in Mexico. This project failed to materialize and the individuals sued for restitution from the Company and its employee. The Company
settled out of court and incurred expenses of approximately $7,000.




ITEM 1A.
Risk Factors




There are no material changes from risk factors disclosed in our Form 10-K for the year ended December 31, 2008, as filed on March 31, 2009.




ITEM 2.
Unregistered Sales of Equity Securities and Use of Proceeds




None.




ITEM 3.
Defaults Upon Senior Securities




None.




ITEM 4.
Submission of Matters to a Vote of Security Holdersa)
None.b)
None.c)
None.d)
None.





ITEM 5.
Other Information




None.




ITEM 6.
Exhibits and Reports on Form 8-K




Exhibits: For a list of exhibits filed with this report, refer to the Index to Exhibits.




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SIGNATURES




Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated:





SIGNATURE

TITLE

DATE/s/ JAMES B. KYLSTAD
James B. Kylstad

Chairman and Chief Executive Officer and Director (Principal Executive Officer)

August 14, 2009/s/  KENNETH J. YONIKA
Kenneth J. Yonika

Chief Financial Officer (Principal Financial Officer)

August 14, 2009











32




INDEX TO EXHIBITS




EXHIBIT
NUMBER

DESCRIPTION OF DOCUMENT2.1

Reorganization between the Black Butte Petroleum, Inc. and Triam Ltd., dated March 23, 1983 (1)2.2

Acquisition Agreement between Triam Ltd. and Northwest Financial Ltd., dated December 16, 1999 (1)2.3

Acquisition Agreement Addendum, datedDecember 20, 1999 (1)2.4

Stock Purchase Agreement dated September 24, 1999 between Northwest Financial Group, Inc., WHY USA NA, and its selling shareholders (1)2.5

Addendum to Stock Purchase Agreement, dated December 30, 1999 including Assignment to Donald Riesterer    (1)2.6

Share Exchange Agreement – Cashline transaction, dated February 8, 2001 (3)2.7

Business Combination Agreement to acquire Discover Mortgage Corp. effective January 1, 2002 (2)3.1.1

Articles of Triam Ltd., dated January 6, 1983 (1)3.1.2

Amendment to Articles of Incorporation, March 4, 1983 (1)3.1.3

Amendment to Articles of Incorporation, filed March 29, 1983 (1)3.1.4

Articles of Merger, filed on May 9, 1999 (1)3.1.5

Amendment to Articles of Incorporation, Jan. 10, 2000 (1)3.2

Bylaws (1)10.2

Stock Option Plan (2)10.3

Sample Option Agreement (4)10.4

Assignment and Assumption Agreement between Northwest Investment Trust and the Company Re: Cashline (4)10.5

Assignment and Assumption Agreement between Northwest Investment Trust and the Company Re: Alliance West  (4)10.6

Franchise Purchase Agreement, dated June 30, 2001 (4)





(1) Filed with the Company's initial Filing on Form 10-SB on May 10, 2000.




(2) Filed with the Company's Form 10-SB/A No. 1 on August 28, 2000.




(3) Filed with the Company's Report on 8-K dated February 21, 2002.




(4) Filed with the Company's Annual Report on 10-KSB on April 16, 2001.




EXHIBIT
NUMBER

DESCRIPTION OF DOCUMENT31.1

Certification of Chief Executive Officer31.2

Certification of Chief Financial Officer32.1

Certification of Chief Executive Officer32.2

Certification of Chief Financial Officer







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