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 September 30, 2008[   ]
            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
          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
          No X




Shares
outstanding of the Registrant’s common stock:




Class
            Shares
      Outstanding at November 5, 2008Common
      Stock, $.001 par value
            108,268,022


1


WHY USA FINANCIAL GROUP, INC.


FORM
10-Q


FOR
THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2008


INDEX




PART
      I. FINANCIAL INFORMATIONItem 1.
            Financial
      StatementsCondensed
      Consolidated Balance Sheets as of September 30, 2008 (unaudited) and
      December 31, 2007
            3Condensed Consolidated Statements of Operations for the three
      months and nine months ended September 30, 2008 and 2007
      (unaudited)
            4Condensed
      Consolidated Statements of Cash Flows for the nine months ended September
      30, 2008 and 2007 (unaudited)
            5Notes
      to Condensed Consolidated Financial Statements (unaudited)
            6Item 2.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            14Item 3.
            Quantitative
      and Qualitative Disclosures about Market Risk
            26Item 4.
            Controls
      and Procedures
            26PART
      II. OTHER INFORMATIONItem 1.
            Legal
      Proceedings
            27Item 1A.
            Risk
      Factors
            27Item 2.
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            27Item 3.
            Defaults
      Upon Senior Securities
            27Item 4.
            Submission
      of Matters to a Vote of Security Holders
            27Item 5.
            Other
      Information
            27Item 6.
            Exhibits
            27Signature
            28Exhibit
      31.1Exhibit
      31.2Exhibit
      32.1Exhibit
      32.2




2




PART
      I.
            Financial
      Information


ITEM
      1.
              Financial
      Statements





WHY USA FINANCIAL GROUP, INC.


Condensed
Consolidated Balance Sheets as of





September
      30, 2008
            
            
            December
      31, 2007(unaudited)
            
            
            (audited)ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
            
            $
            35,468
            
            
            $
            46,176Accounts
      receivables, net of allowance for doubtful accounts
            
            
            23,734
            
            
            
            59,325Prepaid
      assets and other
            
            
            27,581
            
            
            
            106,287Total
      current assets
            
            
            86,783
            
            
            
            211,788PROPERTY
      AND EQUIPMENT—Net
            
            
            485,109
            
            
            
            497,484GOODWILL
            
            
            784,815
            
            
            
            784,815RESTRICTED
      CASH
            
            
            50,000
            
            
            
            -OTHER
      NONCURRENT ASSETS
            
            
            7,681
            
            
            
            29,226TOTAL
            
            $
            1,414,388
            
            
            $
            1,523,313LIABILITIES
      AND STOCKHOLDERS’ EQUITY (DEFICIT)CURRENT
      LIABILITIES:Bank
      line
            
            $
            98,165
            
            
            $
            99,789Current
      portion of obligation under capital leases
            
            
            2,392
            
            
            
            1,538Current
      portion of notes payable and convertible debentures
            
            
            1,247,267
            
            
            
            473,319Current
      portion of mortgage notes payable
            
            
            34,421
            
            
            
            88,427Bank
      overdraft
            
            
            6,614
            
            
            
            -Accounts
      payable
            
            
            504,767
            
            
            
            347,174Accrued
      expense and other liabilities
            
            
            845,284
            
            
            
            689,187Total
      current liabilities
            
            
            2,738,910
            
            
            
            1,699,434MORTGAGE
      NOTES PAYABLE
            
            
            815,464
            
            
            
            839,307NOTES
      PAYABLE AND CONVERTIBLE DEBENTURES
            
            
            60,000
            
            
            
            110,000OTHER
      LONG-TERM LIABILITIES
            
            
            1,288
            
            
            
            -COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDERS’
      EQUITY (DEFICIT):Common
      stock, $.001 par value, 250,000,000 shares authorized;108,268,022
      and 108,992,160 shares issued and outstandingfor
      September 30, 2008 and December 31, 2007, respectively
            
            
            108,269
            
            
            
            108,993Additional
      paid in capital
            
            
            10,005,408
            
            
            
            10,059,684Preferred
      Stock, $.01 par value, 50,000,000 shares authorized;
40,000shares
      issued and outstanding for September 30, 2008 and December 31, 2007,
      respectively
            
            
            400
            
            
            
            400Accumulated
      deficit
            
            
            (12,315,351
            )
            
            
            (11,294,505
            )Total
      stockholders’ equity (deficit)
            
            
            (2,201,274
            )
            
            
            (1,125,428
            )TOTAL
            
            $
            1,414,388
            
            
            $
            1,523,313See
      accompanying notes to condensed consolidated financial
      statements.


3





WHY
USA FINANCIAL GROUP, INC.


Condensed
Consolidated Statements of Operations for the


(Unaudited)





Nine
      Months
            
            
            Nine
      Months
            
            
            Three
      Months
            
            
            Three
      MonthsSeptember
      30, 2008
            
            
            September
      30, 2007
            
            
            September
      30, 2008
            
            
            September
      30, 2007NET
      REVENUES
            
            $
            971,071
            
            
            $
            2,099,520
            
            
            $
            264,972
            
            
            $
            605,058COST
      OF REVENUES
            
            
            565,783
            
            
            
            1,323,832
            
            
            
            162,651
            
            
            
            352,564Gross
      margin
            
            
            405,288
            
            
            
            775,688
            
            
            
            102,321
            
            
            
            252,494SELLING,
      GENERAL AND ADMINISTRATIVE EXPENSES
            
            
            1,275,734
            
            
            
            1,400,957
            
            
            
            377,469
            
            
            
            576,802DEPRECIATION
      AND AMORTIZATION EXPENSE
            
            
            29,294
            
            
            
            36,538
            
            
            
            8,910
            
            
            
            12,003OPERATING
      INCOME (LOSS)
            
            
            (899,740
            )
            
            
            (661,807
            )
            
            
            (284,058
            )
            
            
            (336,311
            )OTHER
      INCOME (EXPENSE):Interest
      expense
            
            
            (129,357
            )
            
            
            (171,707
            )
            
            
            (40,402
            )
            
            
            (85,816
            )Interest
      income
            
            
            47
            
            
            
            92
            
            
            
            9
            
            
            
            88Other
      income
            
            
            9,804
            
            
            
            133,748
            
            
            
            -
            
            
            
            17,196Total
      other income (expense)
            
            
            (119,506
            )
            
            
            (37,867
            )
            
            
            (40,393
            )
            
            
            (68,532
            )INCOME
      (LOSS) BEFORE TAXES
            
            
            (1,019,246
            )
            
            
            (699,674
            )
            
            
            (324,451
            )
            
            
            (404,843
            )Income
      tax expense
            
            
            (1,600
            )
            
            
            (1,600
            )
            
            
            -
            
            
            
            -NET
      INCOME (LOSS)
            
            $
            (1,020,846
            )
            
            $
            (701,274
            )
            
            $
            (324,451
            )
            
            $
            (404,843
            )BASIC
      AND DILUTED INCOME (LOSS) PER SHARE:Net
      income (loss)
            
            $
            (0.01
            )
            
            $
            (0.01
            )
            
            $
            (0.00
            )
            
            $
            (0.00
            )WEIGHTED
      AVERAGE SHARES USED :Basic
      and Diluted
            
            
            108,377,217
            
            
            
            95,466,236
            
            
            
            107,434,689
            
            
            
            101,759,841See
      accompanying notes to condensed consolidated financial
      statements.




4


WHY
USA FINANCIAL GROUP, INC.


Condensed
Consolidated Statements of Cash Flows for the Nine Months Ended


(Unaudited)





September
      30, 2008
            
            
            September
      30, 2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss from operations
            
            $
            (1,020,846
            )
            
            $
            (701,274
            )Adjustments
      to reconcile net loss to used in provided byoperating
      activities:Depreciation
      and amortization
            
            
            29,294
            
            
            
            36,538Cancellation/relief
      of stock compensation expense
            
            
            (100,000
            )
            
            
            -Stock
      issued for services
            
            
            45,000
            
            
            
            150,373Provision
      for (benefit from) doubtful accounts
            
            
            71,256
            
            
            
            75Effect
      of changes in operating assets and liabilities:Trade
      receivables
            
            
            (35,666
            )
            
            
            27,382Prepaid
      expenses and other current assets
            
            
            78,706
            
            
            
            (10,362
            )Accounts
      payable
            
            
            157,593
            
            
            
            92,439Accrued
      expenses
            
            
            156,097
            
            
            
            148,271Other
            
            
            19,813
            
            
            
            15,705Net
      cash used in operating activities
            
            
            (598,753
            )
            
            
            (240,853
            )CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchases
      of property and equipment
            
            
            (15,187
            )
            
            
            (8,424
            )Purchase
      of certificate of deposit
            
            
            (50,000
            )
            
            
            -Net
      cash used in investing activities
            
            
            (65,187
            )
            
            
            (8,424
            )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      on revolving credit facility, net
            
            
            (1,624
            )
            
            
            340Repayments
      of mortgages payable
            
            
            (77,849
            )
            
            
            (5,197
            )Repayment
      of notes payable and convertible debentures
            
            
            (551
            )
            
            
            (7,455
            )Proceeds
      from notes payable and convertible debentures
            
            
            724,500
            
            
            
            280,000Bank
      overdraft
            
            
            6,614
            
            
            
            3,984Repayment
      of obligations under capital leases
            
            
            (2,274
            )
            
            
            (4,546
            )Borrowing
      under capital leases
            
            
            4,416
            
            
            
            -Net
      cash provided by financing activities
            
            
            653,232
            
            
            
            267,126NET
      DECREASE IN CASH AND CASH EQUIVALENTS
            
            
            (10,708
            )
            
            
            17,849CASH
      AND CASH EQUIVALENTS—Beginning of period
            
            
            46,176
            
            
            
            14,267CASH
      AND CASH EQUIVALENTS—End of period
            
            $
            35,468
            
            
            $
            32,116SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATION:Cash
      paid for taxes
            
            $
            1,600
            
            
            $
            1,600Cash
      paid for interest
            
            $
            72,956
            
            
            $
            79,930See
      accompanying notes to condensed consolidated financial
      statements.


5


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-KSB for the fiscal year
ended December 31, 2007 filed with the SEC on May 5, 2008.




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 the 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 September 30, 2008 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.




6




As of
September 30, 2008, the Company held $50,000 in restricted cash classified
as a non-current asset held to maturity. As of December 31, 2007, there was
no restricted cash. The restricted cash as of September 30, 2008 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.




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 $52,475 at September 30, 2008.
Bad debts totaled $71,256 and $75 for the nine month periods ended September 30,
2008 and 2007, 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-KSB with
the SEC, May 5, 2008 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, mortgage loans held for resale,
accounts payable, accrued expenses and other current liabilities, warehouse and
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 direct origination fees and 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 Long-Lived
Assets





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.




7




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. 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 fourth quarter 2007. For the nine months ended
September 30, 2008 and 2007, no impairment charges existed,
respectively.




Goodwill
is attributable to the acquisitions of Discover and TCS. The Company in
connection with the acquisition of Discover recorded goodwill of $1,016,570. The
Company in connection with the acquisition of TCS recorded goodwill of
$1,318,456. The Company has recorded impairment losses accumulating $1,550,211,
to reflect goodwill impairment on the acquisitions of Discover and
TCS.





As of
September 30, 2008 goodwill associated with the Discover acquisition is recorded
at $784,815.





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.





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.




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, 2007, 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.




8


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 2008. 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 in 2008 and
into 2009 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 2007, 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 September 30, 2008, the Company had an accumulated deficit of
$12,315,351. 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 September 30, 2009. 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.




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.




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.




9




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
      nine month period ending September 30, 2008Revenues
            
            $
            103,339
            
            
            $
            867,732
            
            
            $
            -
            
            
            $
            971,071Cost
      of revenues
            
            
            27,198
            
            
            
            538,585
            
            
            
            -
            
            
            
            565,783General
      and administrative expenses
            
            
            130,311
            
            
            
            697,731
            
            
            
            447,692
            
            
            
            1,275,734Net
      operating income(loss)
            
            $
            (54,170
            )
            
            $
            (368,584
            )
            
            $
            (447,692
            )
            
            $
            (870,446
            )Additions(dispositions)
      to segmented assets
            
            $
            (11,347
            )
            
            $
            13,314
            
            
            $
            (23,692
            )
            
            $
            (21,725
            )Segment
      assets at September 30, 2008
            
            $
            27,158
            
            
            $
            1,365,888
            
            
            $
            21,342
            
            
            $
            1,414,388For
      nine month period ending September 30, 2007Revenues
            
            $
            144,368
            
            
            $
            1,955,152
            
            
            $
            -
            
            
            $
            2,099,520Cost
      of revenues
            
            
            31,425
            
            
            
            1,292,407
            
            
            
            -
            
            
            
            1,323,832General
      and administrative expenses
            
            
            75,478
            
            
            
            900,845
            
            
            
            424,634
            
            
            
            1,400,957Net
      operating income(loss)
            
            $
            37,465
            
            
            $
            (238,100
            )
            
            $
            (424,634
            )
            
            $
            (625,269
            )





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





September
      30, 2008
            
            
            September
      30, 2007NET
      OPERATING INCOME (LOSS) FROM SEGMENTS
            
            $
            (870,446
            )
            
            $
            (625,269
            )DEPRECIATION
      AND AMORTIZATION EXPENSE
            
            
            29,294
            
            
            
            36,538OPERATING
      INCOME (LOSS)
            
            
            (899,740
            )
            
            
            (661,807
            )OTHER
      INCOME (EXPENSE):Interest
      expense
            
            
            (129,357
            )
            
            
            (171,707
            )Interest
      income
            
            
            47
            
            
            
            92Other
      income
            
            
            9,804
            
            
            
            133,748INCOME
      (LOSS) BEFORE TAXES
            
            $
            (1,019,246
            )
            
            $
            (699,674
            )





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.


10




NOTE 4 –
MORTGAGE NOTES PAYABLE





Mortgage
notes payable consist of the following at September 30, 2008 and December 31,
2007, respectively:





September
      30,2008
            
            
            December
      31, 2007(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
            
            $
            849,885
            
            
            $
            872,734Note
      Payable - individual (secured by property), interest due monthly. Interest
      payable at 7.5%, note due and payable January 2005.
            
            
            -
            
            
            
            55,000Total
      mortgage notes payable
            
            
            849,885
            
            
            
            927,734Less
      current maturities
            
            
            34,421
            
            
            
            88,427Long
      term portion of mortgage notes payable
            
            $
            815,464
            
            
            $
            839,307





Settlement and Mediated
Judgment $150,000 Mortgage Note Payable





During
the year ended December 31, 2007 the Company entered into a settlement and
mediated judgment with the holder of the $150,000 mortgage note payable. The
settlement required payments of $175,000 in cash and the issuance of 1,000,000
shares of the Company’s common stock to the holder. At December 31, 2007 the
Company owed $55,000 on the mediated judgment. Pursuant to the settlement
agreement the Company made final payment to the holder on March 11, 2008. The
Company has the right to redeem or first right of refusal to repurchase the
shares from the holder at any time for 3 years in whole or in part at a price of
$0.05 per share.





Refinance of Discover
Building and Land





During
the year ended December 31, 2007 the Company refinanced its property located in
Minneapolis, Minnesota. The prior mortgage note payable was set to mature in
February 2008. 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 as well by a director of the Company in
the event of default.





NOTE 5 –
NOTES PAYABLE AND CONVERTIBLE DEBENTURES





Notes
payable and convertible debentures consist of the following at September 30,
2008 and December 31, 2007, respectively:





September
      30, 2008
            
            
            December
      31, 2007(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
            
            
            
            73,319Note
      Payable - individual, principal and interest due and payable December
      2008, interest at 16% per annum and the note is unsecured.
            
            
            7,000
            
            
            
            -Note
      Payable - individual, principal and interest due and payable December
      2008, interest at 8%per
      annum and the note is unsecured.
            
            
            5,000
            
            
            
            -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
            
            
            100,000
            
            
            
            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 three investors, principal and
      interest due and payable, monthly payments of interest in arrears at
      7.0-12.0% 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
            
            
            762,500
            
            
            
            50,000Total
      notes payable and convertible debentures
            
            
            1,307,267
            
            
            
            583,319Less
      current maturities
            
            
            1,247,267
            
            
            
            473,319Long
      term portion of notes payable and convertible debentures
            
            $
            60,000
            
            
            $
            110,000





11




Convertible Debentures
2003





As of
September 30, 2008 the Company was in default with respect to its $300,000 in
convertible debentures (the 2003 Debentures). The 2003 Debentures were due and
payable November 30, 2006.  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.





Convertible Debentures 2005,
2006, 2007, 2008





As of
September 30, 2008 the Company had outstanding $922,500 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.





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 occupy space in its
Minneapolis building. TCS’s San Diego and Las Vegas operations lease office
space under operating leases that expires in 2010 and 2009,
respectively.





Lease
Income





The
Company leases a portion of its Minneapolis commercial property to various
tenants, which require them to pay a monthly base rent. Most tenants are on
month-to-month agreements with the Company. Currently one long term lease tenant
occupies space in this building with the remainder being occupied by Discover
and 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 September 30, 2008 the Company has
included in accrued expense approximately $660,000 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.





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 September 30, 2008, currently
cannot be ascertained, the Company believes that any resulting liability should
not materially affect the Company’s consolidated financial
statements.


12




NOTE 7 -
PROPERTY AND EQUIPMENT





The
Company's property and equipment by significant category consist of the
following at September 30, 2008 and December 31, 2007,
respectively:





September
      30, 2008
            
            
            December
      31, 2007(audited)Furniture
      and equipment
            
            $
            160,467
            
            
            $
            168,911Building
      and improvements
            
            
            468,716
            
            
            
            468,716Land
            
            
            100,000
            
            
            
            100,000Total
      property and equipment
            
            
            729,183
            
            
            
            737,627Less
      accumulated depreciation
            
            
            (244,074
            )
            
            
            (240,143
            )$
            485,109
            
            
            $
            497,484





NOTE 8 -
RELATED PARTY TRANSACTIONS





During
the nine month period ended September 30, 2008, the Company entered into several
short-term arrangements with a current director of the Company for working
capital funds. For the nine month period ended September 30, 2008 funds received
under these short-term arrangements totaled $724,500 which is included in notes
payable and convertible debentures.





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.




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
September 30, 2008, the Company had $8.6 million and $4.1 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.





13


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-KSB.


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 believes that with the acquisitions of Discover Mortgage and TCS
Mortgage it may soon reach the size and scope of business that will produce
continued growth in revenues and cash flows. In addition, with improving
economies of scale, additional skill sets, increased service offerings,
improving margins and the sale of selected assets the Company expects to begin
showing operating income. The Company has incurred significant losses, and as of
September 30, 2008 had an accumulated deficit of approximately $12.3 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,
and (3) new franchise sales.





RESULTS
OF OPERATIONS




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




Revenues




Net
revenues decreased $340,086 or 56% for the three months ended September 30, 2008
compared to the three months ended September 30, 2007. The decrease was a result
of the continued 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.




14




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 $189,913 or 54% for the three months ended September 30, 2008
compared to the three months ended September 30, 2007. Cost of revenues dropped
at a slightly lower rate compared to our decrease in net revenues for the three
month period. Costs of revenue which consists primarily of 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 fairly constant as a percentage with slight cost savings due
to a competitive environment. Cost of revenues as a percentage of net revenues
increased to 61% for the three months ended September 30, 2008 compared to 58%
for the three months ended September 30, 2007. Gross margin as a percentage of
net revenues decreased to 39% for the three months ended September 30, 2008
compared to 42% for the three months ended September 30, 2007.






We
believe that gross margin in future periods may be affected by, among other
things, the integration of 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.




Operating
Expenses




Selling,General and Administrative.For the three months ended September 30, 2008, selling, general and
administrative expenses decreased by $199,333 or 35% compared to the three
months ended September 30, 2007. The decrease for the three months ended
September 30, 2008 resulted from more than $150,000 in professional services
incurred in three months ended September 30, 2007 for investment banking
services (of which we recovered $100,000 of those services in Q2 – 2008 through
settlement) 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 September 30, 2008 decreased
$3,093 or 26% compared to the three months ended September 30, 2007.
Depreciation and amortization expense for the three months ended September 30,
2008 was $8,910.




15


Other
Income (Expense)




Interest Expense. Interest
expense was $40,402 for the three months ended September 30, 2008 compared to
$85,816 for the three months ended September 30, 2007. The primary reason for
the $45,414 decrease in interest expense was an overall increase in
borrowings from our related party as well as changes in debt service on our
other borrowings from year to year.




Other Income (Expense), Net.
Other income (expense), net, for the three months ended September 30, 2008 and
the three months ended September 30, 2007 was $0 and $17,196, respectively. For
three months ended September 30, 2007 the Company received reimbursements from
non-mortgage/real estate business which were non-recurring in
nature.




Comparison
of the Three Month Periods Ended September 30, 2007 and 2006




Revenues




Net
revenues decreased $374,944 or 38% for the three months ended September 30, 2007
compared to the three months ended September 30, 2006. The decrease was a result
of the continued softening of the mortgage and real estate industry and the
decision to exit the mortgage banking business. Management believed the market
was entering into a high risk period and that the sub-prime market meltdown
would start to affect the integrity of the Company’s core business as
well.




Cost
of Revenues




Cost of
revenues decreased $233,188 or 40% for the three months ended September 30, 2007
compared to the three months ended September 30, 2006. Cost of revenues
increased as a percentage relative to our decrease in net revenues for the year.
Costs of revenue which consists of primarily direct costs associated with our
products and services, was 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 58%
for the three months ended September 30, 2007 compared to 60% for the three
months ended September 30, 2006. Gross margin as a percentage of net
revenues increased to 42% for the three months ended September 30, 2007
compared to 40% for the three months ended September 30, 2006.




Operating
Expenses




Selling, General and Administrative.For the three months ended September 30, 2007, selling, general and
administrative expenses increased $103,848 or 22% compared to the three months
ended September 30, 2006. The increase was a result of professional fees
relative to investment banking services as well as preparation for the Company’s
year end audit and filing of its annual report for the prior four years offset
by several cost savings initiatives which include staffing and salary reductions
along with reductions in employee benefits, professional services, occupancy
costs, and other expenses.




Depreciation and Amortization.
Depreciation and amortization for the three months ended September 30, 2007
decreased $3,325 or 22% compared to the three months ended September 30, 2006.
Depreciation and amortization expense for the three months ended September 30,
2007 was $12,003.




Other
Income (Expense)




Interest Expense. Interest
expense was $85,816 for the three months ended September 30, 2007 compared to
$178,327 for the three months ended September 30, 2006. The reason for the
$92,511 reduction in interest expense was the conversion of several convertible
debentures that occurred during late 2006 as well as the retirement of other
debt and financial obligations, which were not in place in 2007.




Gain on Extinguishment of
Debt. Gain
on extinguishment of debt was $0 for the three months ended September 30, 2007
compared to $664,345 for the three months ended September 30, 2006. Gain on
extinguishment of debt for the three months ended September 30, 2006 was
comprised of accrued interest, termination fees and other expenses along with
the termination of several debt instruments with financial institutions. The
settlement of these obligations along with the carrying value of the underlying
assets created one time gains for settlement.




16




Other Income (Expense), Net.
Other income (expense), net, for the three months ended September 30, 2007 and
the three months ended September 30, 2006 was $17,196 and $0,
respectively.




Comparison
of the Nine Month Periods Ended September 30, 2008 and 2007




Revenues




Net
revenues decreased $1,128,449 or 54% for the nine months ended September 30,
2008 compared to the nine months ended September 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 $758,049 or 57% for the nine months ended September 30, 2008
compared to the nine months ended September 30, 2007. Cost of revenues dropped
at a higher rate compared to our decrease in net revenues for the nine 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 58% for the nine months ended September 30, 2008 compared to 63%
for the nine months ended September 30, 2007. Gross margin as a percentage of
net revenues increased to 42% for the nine months ended September 30, 2008
compared to 37% for the nine months ended September 30, 2007.




We
believe that gross margin in future periods may be affected by, among other
things, the integration of 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.




Operating
Expenses




Selling,General and Administrative.For the nine months ended September 30, 2008, selling, general and
administrative expenses decreased by $125,223 or 9% compared to the nine months
ended September 30, 2007. The decrease for the nine months ended September 30,
2008 resulted from more than $150,000 in professional services incurred in three
months ended September 30, 2007 for investment banking services (of which we
recovered $100,000 of those services in Q2 – 2008 through settlement) 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.




17




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 nine months ended September 30, 2008 decreased
$7,244 or 20% compared to the nine months ended September 30, 2007.
Depreciation and amortization expense for the nine months ended September 30,
2008 was $29,294.




Other
Income (Expense)




Interest Expense. Interest
expense was $129,357 for the nine months ended September 30, 2008 compared to
$171,707 for the nine months ended September 30, 2007. The $42,350 reduction in
interest expense in 2008 was the conversion of several convertible debentures
that occurred during 2007 as well as the retirement of other debt and financial
obligations.




Other Income (Expense), Net.
Other income (expense), net, for the nine months ended September 30, 2008 and
the nine months ended September 30, 2007 was $9,804 and $133,748, respectively.
For nine months ended September 30, 2007 the Company received payment on a
liquidating distribution from a policy holder ownership interest which accounted
for a significant percentage of the other income amount. This distribution
payment was a one-time event for the Company and is not a recurring
event.




Comparison
of the Nine Month Periods Ended September 30, 2007 and 2006




Revenues




Net
revenues decreased $990,428 or 32% for the nine months ended September 30, 2007
compared to the nine months ended September 30, 2006. The decrease was a result
of the continued softening of the mortgage and real estate industry and the
decision to exit the mortgage banking business. Management believed the market
was entering into a high risk period and that the sub-prime market meltdown
would start to affect the integrity of the Company’s core business as
well.




Cost
of Revenues




Cost of
revenues decreased $572,900 or 30% for the nine months ended September 30, 2007
compared to the nine months ended September 30, 2006. Cost of revenues increased
as a percentage relative to our decrease in net revenues for the year. Costs of
revenue which consists of primarily direct costs associated with our products
and services, was 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 increased to 63% for the nine months
ended September 30, 2007 compared to 61% for the nine months ended September 30,
2006. Gross margin as a percentage of net revenues decreased to 37% for the nine
months ended September 30, 2007 compared to 39% for the nine months ended
September 30, 2006.




Operating
Expenses




Selling, General and Administrative.For the nine months ended September 30, 2007, selling, general and
administrative expenses decreased $217,303 or 13% compared to the nine months
ended September 30, 2006. The decrease was a result of several cost savings
initiatives which include staffing and salary reductions along with reductions
in employee benefits, professional services, occupancy costs, and other
expenses.




Depreciation and Amortization.
Depreciation and amortization for the nine months ended September 30, 2007
decreased $11,204 or 23% compared to the nine months ended September 30, 2006.
Depreciation and amortization expense for the nine months ended September 30,
2007 was $36,538.




18




Other
Income (Expense)




Interest Expense. Interest
expense was $171,707 for the nine months ended September 30, 2007 compared to
$391,448 for the nine months ended September 30, 2006. The reason for the
$219,741 reduction in interest expense in 2007 was the conversion of several
convertible debentures that occurred during 2006 as well as the retirement of
other debt and financial obligations.




Gain on Extinguishment of
Debt. Gain on extinguishment of debt was $0 for the nine months ended
September 30, 2007 compared to $1,411,492 for the nine months ended September
30, 2006. Gain on extinguishment of debt for the nine months ended September 30,
2006 was comprised of accrued interest, termination fees and other expenses
along with the reduced cash payment of the $1.3 million note payable and the
sheriff’s sale disposition of the two Woodbury properties along with three debt
instruments. The settlement of these obligations along with the carrying value
of the underlying assets created one time gains for the settlement of the note
payable for less than its principal value, and the disposition of the mortgage
notes payable associated with the two Woodbury properties.




Other Income (Expense), Net.
Other income (expense), net, for the nine months ended September 30, 2007 and
the nine months ended September 30, 2006 was $133,748 and $0, respectively. For
the nine months ended September 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.




LIQUIDITY
AND CAPITAL RESOURCES




Operating Activities.
Operating activities used net cash of $598,753 during the nine month period
ended September 30, 2008 primarily from a net loss of $1,020,846 offset by
non-cash charges of $145,550 and a non-cash recovery of previously issued shares
of $100,000 through cancellation. Changes in operating assets and liabilities
provided a net increase of $376,543 in cash during the period. Within non-cash
charges, the primary driver was bad debt expense of approximately $71,000.
The primary drivers of cash savings from changes in operating assets and
liabilities was an increase in accounts payable and accrued expenses
of approximately $314,000 which was partially offset by a increase in trade
receivables of approximately $36,000.




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.




Investing Activities. Net cash
used in investing activities for the nine month period ended September 30, 2008
was $65,187. For the nine month period ended September 30, 2008 we invested
$15,187 in equipment purchases relative to our new office space as well as
$50,000 with a certificate of deposit with an FDIC insured institution which
secures our letter of credit with the state of Minnesota licensing authority.
This letter of credit enables the Company to provide correspondent lending
service for the Minnesota area through our subsidiary Discovery.




Financing Activities. Net cash
provided by financing activities totaled $653,232 for the nine month period
ended September 30, 2008 which includes payments on existing debt of
approximately $78,000. Of the payments on existing debt the Company made final
payment on its arbitrated settlement of $55,000 to a former mortgage note
holder.  For the nine month period ended September 30, 2008 we received
approximately $725,000 in proceeds from various short-term note obligations
entered into by two of our directors and an employee of the Company. The Company
for the nine month period ended September 30, 2008 incurred a bank overdraft of
$6,614.




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
September 30, 2008, we had cash and cash equivalents of approximately $35,000.
Our working capital deficit was $2,652,127 as of September 30, 2008. This
includes along with $504,767 of accounts payable outstanding, bank overdraft of
$6,614, bank line of credit of $98,165, short term debt and lease obligations of
$1,284,080, as well as accrued expense and other of $845,284. Cash used in
operations primarily comes from our service offerings with non-recurring
expenses funded through the issuance of convertible debentures.




19




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 third quarter 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
2008, the Financial Accounting Standards Board (FASB) ratified EITF 07-5,
“Determining Whether an Instrument (or Embedded Feature) is Indexed to an
Entity’s Own Stock,” which addresses the accounting for certain instruments as
derivatives under SFAS 133, “Accounting for Derivative Instruments and Hedging
Activities.” In September 2008, the FASB issued FASB Staff Position No. FAS
133-1 and FIN 45-4, effective for reporting periods (annual or interim) ending
after November 15, 2008. The Company does not currently have any outstanding
convertible debt with embedded features which are considered indexed to the
entity’s own stock and as a stand alone instrument would have been included in
stockholders’ equity, and therefore subject to a scope exception in SFAS 133.
Under this new pronouncement, specific guidance is provided regarding
requirements for an entity to consider embedded features as indexed to the
entity’s own stock. The guidance is effective for fiscal years beginning after
December 15, 2008. Based on the Company’s review of the pronouncement, the
Company does not believe the guidance will have an impact on our consolidated
financial statements.




In May
2008, the FASB issued FASB Staff Position No. APB 14-1, “Accounting for
Convertible Debt Instruments that May be Settled in Cash upon Conversion
(Including Partial Cash Settlement) (FSP APB 14-1)” that significantly impacts
the accounting for convertible debt. The FSP requires cash settled convertible
debt, to be separated into debt and equity components at issuance and a value to
be assigned to each. The value assigned to the debt component would be the
estimated fair value, as of the issuance date, of a similar bond without the
conversion feature. The difference between the bond cash proceeds and this
estimated fair value would be recorded as a debt discount and amortized to
interest expense over the expected life of the bond. Although FSP APB 14-1 has
no impact on the Company’s actual past or future cash flows, it may require the
Company to record non-cash interest expense as the debt discount is amortized
for any cash settled convertible debt entered into. The Company is currently
evaluating the impact on operations upon the adoption. In addition, if any cash
settled convertible debt is redeemed or converted prior to maturity, any
unamortized debt discount would result in a loss on extinguishment. FSP APB 14-1
will become effective for fiscal years beginning after December 15, 2008,
and early adoption is not permitted. The adoption will require retrospective
application.




In May
2008, the FASB issued SFAS No. 163, "Accounting for Financial Guarantee
Insurance Contracts" ("SFAS No. 163"). SFAS No. 163 clarifies how FASB Statement
No. 60, "Accounting and Reporting by Insurance Enterprises"
("SFAS No. 60"), applies to financial guarantee insurance contracts issued by
insurance enterprises, including the recognition and measurement of premium
revenue and claim liabilities. It also requires expanded disclosures about
financial guarantee insurance contracts. SFAS No. 163 is effective for financial
statements issued for fiscal years beginning after December 15, 2008, and all
interim periods within those fiscal years, except for disclosures about the
insurance enterprise's risk-management activities. Disclosures about the
insurance enterprise's risk-management activities are effective the first period
beginning after issuance of SFAS No. 163. Except for those disclosures, earlier
application is not permitted. The Company does not expect the adoption of this
pronouncement to have material impact on its financial statements.




In
May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally
Accepted Accounting Principles,” or SFAS 162. This standard reorganizes the GAAP
hierarchy in order to improve financial reporting by providing a consistent
framework for determining what accounting principles should be used when
preparing U.S. GAAP financial statements. SFAS 162 is scheduled to become
effective 60 days after the SEC’s approval of the Public Company Accounting
Oversight Board’s amendments to Interim Auditing Standard, AU Section 411, “The
Meaning of Present Fairly in Conformity with Generally Accepted Accounting
Principles.” We are currently evaluating the impact, if any; this new standard
will have on our financial position and results of operations.


20


In March
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments
and Hedging Activities, an amendment of FASB Statement No. 133" (SFAS 161). This
statement is intended to improve transparency in financial reporting by
requiring enhanced disclosures of an entity's derivative instruments and hedging
activities and their effects on the entity's financial position, financial
performance, and cash flows. SFAS 161 applies to all derivative instruments
within the scope of SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133) as well as related hedged items, bifurcated derivatives,
and non-derivative instruments that are designated and qualify as hedging
instruments. Entities with instruments subject to SFAS 161 must provide more
robust qualitative disclosures and expanded quantitative disclosures. SFAS 161
is effective prospectively for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
permitted. We are currently evaluating the disclosure implications of this
statement.




The
Company adopted the provisions of FASB Statement No. 157, “Fair Value
Measurements” (SFAS No. 157) effective January 1, 2008. In February
2008, the FASB issued FASB Staff Position No. FAS 157-2, “Effective Date of FASB
Statement No. 157”, which provides a one year deferral of the effective
date of SFAS 157 for non-financial assets and non-financial liabilities, except
those that are recognized or disclosed in the financial statements at fair value
at least annually. In October 2008, the FASB issued FASB Staff Position No. FAS
157-3, effective upon issuance, including prior periods for which financial
statements have not been issued. Therefore, the Company deferred adoption of
SFAS 157 as it relates to its non financial assets and liabilities. SFAS
No. 157 defines fair value, establishes a framework for measuring fair
value under generally accepted accounting principles and enhances disclosures
about fair value measurements. Fair value is defined under SFAS No. 157 as
the exchange price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market participants on the
measurement date. Valuation techniques used to measure fair value under SFAS 157
must maximize the use of observable inputs and minimize the use of unobservable
inputs.




The
standard describes a fair value hierarchy based on three levels of inputs, of
which the first two are considered observable and the last unobservable, that
may be used to measure fair value. The Company’s assessment of the significance
of a particular input to the fair value measurements requires judgment, and may
affect the valuation of the assets and liabilities being measured and their
placement within the fair value hierarchy. The three levels of input
are:




Level 1 -
Quoted prices in active markets for identical assets or
liabilities.




Level 2 -
Inputs other than Level 1 that are observable, either directly or indirectly,
such as quoted prices for similar assets or liabilities; quoted prices in
markets that are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the full term of the
assets or liabilities.




Level 3 -
Unobservable inputs that are supported by little or no market activity and that
are significant to the fair value of the assets or liabilities.




The
adoption of this statement did not have a material impact on the Company’s
consolidated results of operations and financial condition.




In
February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for
Financial Assets and Financial Liabilities” (SFAS 159). SFAS 159 allows an
entity the irrevocable option to elect fair value for the initial and subsequent
measurement for specified financial assets and liabilities on a
contract-by-contract basis. It is effective as of the beginning of the first
fiscal year that begins after November 15, 2007. The Company does not believe
the adoption of SFAS 159 has a material impact on its consolidated financial
statements. The Company did not elect to adopt the fair value option for any
financial assets or liabilities under this Statement.




In
December 2007, the FASB issued SFAS No. 141(R) “Business Combinations”
(hereafter SFAS 141(R)). This statement is to improve the relevance,
representational, faithfulness, and comparability of the information that a
reporting entity provides in its financial reports about a business combination
and its effects. It is effective for business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. The Company does not believe
that adoption of SFAS 141(R) will have a material impact on its consolidated
financial statements.




21


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




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-KSB, filed with the Securities and Exchange Commission on May 5, 2008.
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-KSB, Quarterly Reports on Form 10-Q/Form 10-QSB,
our Current Reports on Form 8-K and any amendments thereto are made available
without charge on our website.




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.




22




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 nine 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.




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.




23




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; which ever 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.




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. We estimate that our current franchisees include more than 350
licensed real estate agents who in the aggregate generate between 250 and 275
monthly real estate transactions.




Mortgage
BrokerageServices - 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 $4.3 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.




24




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.




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 and estimates $2.28 trillion for 2007,
$2.23 trillion for 2008 and $2.14 trillion in 2009.




Large
banks and mortgage lenders like Wells Fargo, Bank of America/Countrywide, and
Washington Mutual/JP Morgan 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 primary 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 360 mortgages and fee income of $2.0 million in 2007, for
2008 we have dropped approximately 40% from prior year’s numbers. 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.




25




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.




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, 2007. Although the Company may be out of compliance with this
requirement for the quarter ended September 30, 2008, management believes that
the annual renewal requirement will be met by or prior to December 31, 2008.
Maintaining a license with HUD allows TCS to originate FHA loans that it would
not otherwise be able to originate. Approximately five 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.




ITEM
      3.
                Quantitative
      and Qualitative Disclosures about Market
  Risk




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.




26




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 September 30, 2008 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 September 30, 2008, currently
cannot be ascertained, the Company believes that any resulting liability should
not materially affect the Company’s consolidated financial
statements.




ITEM 1A.
            Risk
      Factors




There are
no material changes from risk factors disclosed in our Form 10-KSB for the year
ended December 31, 2007, as filed on May 5, 2008.




ITEM 2.
            Unregistered
      Sales of Equity Securities and Use of Proceedsa)
            None.b)
            None.c)
            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.




27




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
            
            Chairman
      and Chief Executive Officer
            
            November
      14, 2008James
      B. Kylstad
            
            and Director (Principal Executive Officer)/s/  KENNETH
      J. YONIKA
            
            Chief
      Financial Officer (Principal
            
            November
      14, 2008Kenneth
      J. Yonika
            
            Financial
      Officer)




28




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 November 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




29