UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
(Mark one)
[X] Annual Report Under Section 13 or 15(d) of The Securities Exchange Act
of 1934
For the quarterly period ending June 30, 2004
[ ] Transition Report Under Section 13 or 15(d) of The Securities Exchange
Act of 1934
For the transition period from _________ to _________
Safe Alternatives Corporation of America, Inc.
(Exact name of small business issuer as specified in its charter)
Florida 06-1413994
- ------------------------ ------------------------
(State of incorporation) (IRS Employer ID Number)
2614 Main St., Dallas, TX 75226
----------------------------------------
(Address of principal executive offices)
(214) 670-0005
---------------------------
(Issuer's telephone number)
Securities registered under Section 12 (b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock -
$0.001 par value
Check whether the issuer has (1) filed all reports required to be files by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period the Company was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS Check whether the registrant filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act
after the distribution of securities under a plan confirmed by a court.
Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
As of June 30, 2004, there were 165,853,058 shares of Common Stock issued and
outstanding.
Transitional Small Business Disclosure Format : Yes No X
--- ---
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis or Plan of Operation
The Company had no business operations during 2003 and the second quarter of
2004.
The Company's future operating results may be affected by a number of factors,
including general economic conditions, the Company's ability to settle its
remaining debt, future corporate reoganization and its ability to implement the
proposed acquisition of Mortgage Assistance Corporation. The Company's proposed
corporate reorganization and business combination will cause dilution of the
current shareholders' interest in the Company.
The report of the Company's independent auditor contains a paragraph as to the
Company's ability to continue as a going concern. Among the factors cited by the
auditors as raising substantial doubt as to the Company's ability to continue as
a going concern are: (i) the Company has incurred recurring operating losses;
and, (ii) the Company has a working capital deficiency.
The Company has been financing its operations through capital contributions by
significant shareholders, which aggregated approximately $23,000 as of June
30, 2004.
It is the intent of management and significant stockholders to provide
sufficient working capital to preserve the integrity of the corporate entity,
however, there are no commitments to provide additional funds have been made by
management or other stockholders. There can be no assurance that any additional
funds will be available to the Company to allow it to cover its expenses.
The Company may seek to compensate providers of services by issuances of stock
in lieu of cash.
Item 3. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures.
Within the 90 days prior to the date of this Quarterly Report for the
period ended June 30, 2004, we carried out an evaluation, under the supervision
and with the participation of our management, including the Company's Chairman
and Chief Executive Officer and the Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Rule 13a-14 of the Securities Exchange Act of 1934 (the
"Exchange Act"), which disclosure controls and procedures are designed to insure
that information required to be disclosed by a company in the reports that it
files under the Exchange Act is recorded, processed, summarized and reported
within required time periods specified by the SEC's rules and forms. Based upon
that evaluation, the Chairman and the Chief Financial Officer concluded that our
disclosure controls and procedures are effective in timely alerting them to
material information relating to the Company required to be included in the
Company's period SEC filings.
(b) Changes in Internal Control.
Subsequent to the date of such evaluation as described in subparagraph
(a)above, there were no significant changes in our internal controls or other
factors that could significantly affect these controls, including any corrective
action with regard to significant deficiencies and material weaknesses.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of the security holders, through the
solicitation of proxies or otherwise, during the quarter of the fiscal year
covered by this report.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit No. Exhibit Name
31 Chief Executive and Financial Officer-Section 302
Certification pursuant to Sarbane-Oxley Act.
32 Chief Executive and Financial Officer-Section 906
Certification pursuant to Sarbanes-Oxley Act.
(b) Reports on Form 8-K. During the quarter covered by this report, we
filed three Current Report on Form 8-K as follows: (1) May 19, 2004 reporting
under Item 5, Other Events and Regulation FD Disclosure, (2) May 20, 2004 8-K/A
reporting under Items 5 and 7, and (3) July 30, 2004 reporting under Items 4 and
7.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Safe Alternatives Corporation of America, Inc.
Dated: August 12, 2004 /s/ Dale Hensel
--------------------------
By: Dale Hensel
Title: President, CEO, CFO
SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITOR'S REVIEW REPORT
JUNE 30, 2004
SUTTON ROBINSON FREEMAN & CO., P.C.
Safe Alternatives Corporation of America, Inc.
Financial Statements
June 30, 2004
Table of Contents
Independent Auditor's Review Report ...........................................3
Balance Sheets ................................................................4
Statements of Operations and Comprehensive Loss ...............................5
Statements of Cash Flows ......................................................6
Notes to Financial Statements .................................................7
Independent Review Report
Board of Directors and Stockholders
Safe Alternatives Corporation of America, Inc.
We have reviewed the accompanying balance sheet of Safe Alternatives Corporation
of America, Inc. (a Florida corporation) as of June 30, 2004, and the
accompanying statements of operations and comprehensive loss for the six and
three months ended June 30, 2004 and the accompanying statement of cash flows
for the six months ended June 30, 2004. These financial statements are prepared
in accordance with the instructions for Form 10-QSB, as issued by the U.S.
Securities and Exchange Commission, and are the sole responsibility of the
Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of the interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has no viable operations or significant assets
and is dependent upon significant shareholders to provide sufficient working
capital to maintain the integrity of the corporate entity. These circumstances
create substantial doubt about the Company's ability to continue as a going
concern and are discussed in Note 3. The financial statements do not contain any
adjustments that might result from the outcome of these uncertainties.
The June 30, 2003 financial statements of Safe Alternatives Corporation of
America, Inc. were reviewed by other accountants whose report dated July 24,
2003, stated that they were not aware of any material modifications that should
be made to those statements in order for them to be in conformity with generally
accepted accounting principles.
Sutton Robinson Freeman & Co., P.C.
Certified Public Accountants
Tulsa, Oklahoma
August 12, 2004
3
Safe Alternatives Corporation of America, Inc.
Balance Sheets
June 30, 2004 and 2003
(Unaudited)
ASSETS
June 30, June 30,
2004 2003
------------ ------------
Current Assets
Cash on hand and in bank $ -- $ --
------------ ------------
Total current assets -- --
------------ ------------
Total Assets $ -- $ --
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable-trade $ 451 $ 5,756
Advances from affiliate 23,074 --
Accrued interest payable -- --
------------ ------------
Total current liabilities 23,525 5,756
------------ ------------
Commitments and contingencies
Stockholders' Equity (Deficit)
Common stock - $0.0001 par value
175,000,000 shares authorized
165,853,058 shares issued and outstanding 16,585 8,113
Additional paid in capital 23,711,311 22,857,223
Accumulated deficit (23,753,580) (22,873,251)
------------ ------------
(25,684) (7,915)
Subscriptions issuable 2,160 2,160
Treasury stock - at cost (11,682 shares) (1) (1)
------------ ------------
Total stockholders' equity (deficit) (23,525) (5,756)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ -- $ --
============ ============
4
The financial information presented herein has been
prepared by management without audit by independent
certified public accountants.
The accompanying notes are an integral part of these
financial statements.
Safe Alternatives Corporation of America, Inc.
Statements of Operations and Comprehensive Loss
Six and Three months ended June 30, 2004 and 2003
(Unaudited)
Six months Six months Three months Three months
ended ended ended ended
June 30, June 30, June 30, June 30,
2004 2003 2004 2003
------------- ------------- ------------- -------------
Revenues $ -- $ -- $ -- $ --
------------- ------------- ------------- -------------
Operating Expenses
General and administrative expenses 30,070 4,771 10,010 2,284
Interest expense -- 3,162 -- 2,787
Compensation expense related to
common stock issuances at less
than "fair value" 838,736 -- 838,736 --
Depreciation and amortization -- -- -- --
------------- ------------- ------------- -------------
Total operating expenses 868,806 7,933 848,746 5,071
------------- ------------- ------------- -------------
Loss before provision for income taxes (868,806) (7,933) (848,746) (5,071)
Income tax benefit (expense) -- -- -- --
------------- ------------- ------------- -------------
Net Loss (868,806) (7,933) (848,746) (5,071)
Other comprehensive income -- -- -- --
------------- ------------- ------------- -------------
Comprehensive Loss $ (868,806) $ (7,933) $ (848,746) $ (5,071)
============= ============= ============= =============
Net loss per weighted-average share
of common stock outstanding, calcuated
on Net Loss - basic and fully diluted $ (0.01) $ (0.00) $ (0.01) $ (0.00)
============= ============= ============= =============
Weighted-average number of shares of
common stock outstanding 165,853,058 165,853,058 165,853,058 165,853,058
============= ============= ============= =============
The financial information presented herein has been
prepared by management without audit by independent
certified public accountants.
The accompanying notes are an integral part of these
financial statements.
5
Safe Alternatives Corporation of America, Inc.
Statements of Operations and Comprehensive Loss
Six and Three months ended June 30, 2004 and 2003
(Unaudited)
Six months Six months
ended ended
June 30, June 30,
2004 2003
--------- ---------
Cash Flows from Operating Activities
Net loss for the period $(868,806) $ (7,933)
Adjustments to reconcile net loss to net cash
provided by operating expenses
Depreciation -- --
Professional fees paid with common stock 8,472 --
Compensation expense related to common
stock issuances at less than "fair value" 838,736 --
Increase (Decrease) in
Accounts payable - trade (1,476) (15,183)
Accrued interest payable -- (7,216)
--------- ---------
Net cash used in operating activities (23,074) (30,332)
--------- ---------
Cash Flows from Investing Activities -- --
--------- ---------
Cash Flows from Financing Activities
Cash advanced by affiliate to support operations 23,074 --
Cash contributed to support operations -- 55,332
Cash used to pay convertible debt -- (25,000)
--------- ---------
Net cash provided by financing activities 23,074 30,332
--------- ---------
Increase (Decrease) in Cash -- --
Cash at beginning of period -- --
--------- ---------
Cash at end of period $ -- $ --
========= =========
Supplemental Disclosure of
Interest and Income Taxes Paid
Interest paid for the period $ -- $ 10,378
========= =========
Income taxes paid for the period $ -- $ --
========= =========
The financial information presented herein has been
prepared by management without audit by independent
certified public accountants.
The accompanying notes are an integral part of these
financial statements.
6
Safe Alternatives Corporation of America, Inc.
Notes to the Financial Statements
June 30, 2004
Note 1 - Organization and Description of Business
----------------------------------------
Safe Alternatives Corporation of America, Inc. (Company) was organized
in 1976, under the name Knight Airlines, Inc., to engage in the
commuter airline business. In October 1978, the Company completed an
initial public offering of its common stock in Florida, pursuant to an
exemption from registration under Regulation A promulgated under the
Securities Act of 1933, as amended. The Company operated as a commuter
airline from its inception through April 1983, when it ceased
operations, and all of the assets of the Company were sold to satisfy
all outstanding indebtedness. From April 1983, through September 1995,
the Company was dormant. In May 1994, the name of the Company was
changed to Portsmouth Corporation.
On September 15, 1995, pursuant to the terms of an Asset Purchase
Agreement and Plan of Reorganization dated as of August 21, 1995 (the
"Agreement") between Safe Alternatives Corporation of America, Inc., a
Delaware corporation ("SAC-Delaware") and the Company, the Company
purchased the business (the "Business"), including, without
limitation, all of the assets of SAC-Delaware, and assumed all of the
liabilities of SAC-Delaware (the "Reorganization"), and commenced
operations. Prior to the Reorganization, the Company had no meaningful
operations. On March 4, 1996, the Company changed its name to Safe
Alternatives Corporation of America, Inc. (a Florida corporation).
On September 17, 2002, the Board of Directors of the Company agreed to
sell, as of June 30, 2002, all of the Company's assets to
Environmental Alternatives, Inc. ("EAI"), a privately held Vermont
corporation, in exchange for EAI's assumption of and agreement to
indemnify and hold the Company harmless from paying any and all
claims, causes of action, or other liabilities, including but not
limited to interest, costs, expenses, disbursements and attorneys'
fees, that could, may or does attach to the Company as of June 30,
2002 as a result of, or is in any way related to any of the Company's
obligations to its creditors and all adverse judgments entered against
the Company except any obligations to the following:
(A) Continental Stock Transfer and Trust Company, the Company's
independent stock transfer agent;
(B) Green Holman, Frenia & Company, L.L.P., the Company's former
independent auditors;
(C) Arab Commerce Bank, a holder of a 6% Convertible Note; and
(D) any settlement amounts due upon the completion of a merger
or other combination between the Company and another
company.
7
Safe Alternatives Corporation of America, Inc.
Notes to the Financial Statements
June 30, 2004
Note 1 - Organization and Description of Business (Continued)
---------------------------------------------------
Except as provided above, the agreement to assume the Company's
liabilities and to indemnify and hold the Company harmless from paying
the same is unlimited as to amount or as to time. A copy of the
Agreement was filed by the Company as an exhibit in a Current Report
on Form 8-K as of September 17, 2002. Since July 1, 2002, the Company
has had no assets or operating activities.
Note 2 - Preparation of Financial Statements
-----------------------------------
The Company follows the accrual basis of accounting in accordance with
accounting principles generally accepted in the United States of
America and has a year-end of December 31.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Management further acknowledges that it is solely responsible for
adopting sound accounting practices, establishing and maintaining a
system of internal accounting control and preventing and detecting
fraud. The Company's system of internal accounting control is designed
to assure, among other items, that 1) recorded transactions are valid;
2) valid transactions are recorded; and 3) transactions are recorded
in the proper period in a timely manner to produce financial
statements which present fairly the financial condition, results of
operations and cash flows of the Company for the respective periods
being presented.
During interim periods, the Company follows the accounting policies
set forth in its annual audited financial statements filed with the U.
S. Securities and Exchange Commission on its Annual Report on Form
10-KSB for the year ended December 31, 2003. The information presented
within these interim financial statements may not include all
disclosures required by generally accepted accounting principles, and
the users of financial information provided for interim periods should
refer to the annual financial information and footnotes when reviewing
the interim financial results presented herein.
In the opinion of management, the accompanying interim financial
statements, prepared in accordance with the U. S. Securities and
Exchange Commission's instructions for Form 10-QSB, are unaudited and
contain all material adjustments, consisting only of normal recurring
adjustments necessary to present fairly the financial condition,
results of
8
Safe Alternatives Corporation of America, Inc.
Notes to the Financial Statements
June 30, 2004
Note 2 - Preparation of Financial Statements (Continued)
----------------------------------------------
operations and cash flows of the Company for the respective interim
periods presented. The current period results of operations are not
necessarily indicative of results which ultimately will be reported
for the full fiscal year ending December 31, 2004.
Note 3 - Going Concern Uncertainty
-------------------------
Since July 1, 2002, the Company has had no assets or operations and
intends to seek a suitable business combination transaction through
either a purchase or merger. The Company's continued existence is
dependent upon its ability to generate sufficient cash flows from
operations to support its daily operations as well as provide
sufficient resources to retire existing liabilities and obligations on
a timely basis. Additionally, as a result of having no assets, several
liabilities and no operations, the Company's auditors have issued an
audit opinion on the accompanying financial statements which includes
a statement describing the Company's going concern status. This means,
in the auditors' opinion, substantial doubt about the Company's
ability to continue as a going concern existed at the date of their
opinion.
On May 14, 2004, the Company's President, Dale Hensel, executed a
Letter of Intent with Mortgage Assistance Corporation, a Texas
corporation controlled by Mr. Hensel, whereby subject to the approval
of the Company's shareholders, Mortgage Assistance Corporation offered
to be acquired by the Company on the following terms and conditions:
SACA board will call a special shareholder meeting or obtain a
majority shareholder consent in lieu of a special meeting according to
the Florida Business Corporation Statutes and recommend and approve
the following actions:
1. Effect a reverse split of the Company's common shares on a
One for Two Hundred Fifty (1:250) basis;
2. Effect a corporate name change from Safe Alternatives
Corporation of America, Inc. to Mortgage Assistance
Corporation;
3. Change the authorized number of common stock shares to be
issued from 175,000,000 to 50,000,000 shares;
4. Authorize a business combination whereby the Company will
exchange 12,000,000 post reverse split common shares for all
of the issued and outstanding common stock of Mortgage
Assistance Corporation; and
5. Any such further recommendations as may be considered
reasonable and in the best interest of the shareholders.
While the Company is of the opinion that good faith estimates of the
Company's ability to secure additional capital in the future to reach
our goals have been made, there is no guarantee that the Company will
receive sufficient funding to sustain operations or implement any
future business plan steps.
9
Safe Alternatives Corporation of America, Inc.
Notes to the Financial Statements
June 30, 2004
Note 3 - Going Concern Uncertainty (Continued)
------------------------------------
If no additional operating capital is received during the next twelve
months, the Company will be forced to rely on existing cash in the
bank and upon additional funds loaned by management and/or significant
stockholders to preserve the integrity of the corporate entity during
this time. In the event the Company is unable to acquire advances from
management and/or significant stockholders, the Company's ongoing
operations would be negatively impacted.
It is the intent of management and significant stockholders to provide
sufficient working capital necessary to support and preserve the
integrity of the corporate entity. However, no formal commitments or
arrangements to advance or loan funds to the Company or repay any such
advances or loans exist. There is no legal obligation for either
management or significant stockholders to provide additional future
funding.
Note 4 - Summary of Significant Accounting Policies
------------------------------------------
Cash and cash equivalents:
For Statement of Cash Flows purposes, the Company considers all cash
on hand and in banks, including accounts in book overdraft positions,
certificates of deposit and other highly-liquid investments with
maturities of three months or less, when purchased, to be cash and
cash equivalents.
Income Taxes:
The Company uses the asset and liability method of accounting for
income taxes. At June 30, 2004 and 2003, respectively, the deferred
tax asset and deferred tax liability accounts, as recorded when
material to the financial statements, are entirely the result of
temporary differences. Temporary differences represent differences in
the recognition of assets and liabilities for tax and financial
reporting purposes, primarily accumulated depreciation and
amortization, allowance for doubtful accounts and vacation accruals.
As of June 30, 2004 and 2003, the deferred tax asset related to the
Company's net operating loss carryforward was fully reserved. Due to
the provisions of Internal Revenue Code Section 338, the Company may
have limited net operating loss carryforwards available to offset
financial statement or tax return taxable income in future periods as
a result of a Fiscal 2000 change in control involving 50 percentage
points or more of the issued and outstanding securities of the
Company.
10
Safe Alternatives Corporation of America, Inc.
Notes to the Financial Statements
June 30, 2004
Note 4 - Summary of Significant Accounting Policies ( Continued)
------------------------------------------------------
Income (Loss) per share:
Basic earnings (loss) per share is computed by dividing the net income
(loss) by the weighted-average number of shares of common stock
outstanding. The calculation of fully diluted earnings (loss) per
share assumes the dilutive effect of the exercise of outstanding
options and warrants, using the treasury stock method, at either the
beginning of the respective period presented or the date of issuance,
whichever is later. As of June 30, 2004 and 2003, respectively, the
Company had no outstanding stock warrants, options or convertible
securities which could be considered as dilutive for purposes of the
loss per share calculation.
Note 5 - Fair Value of Financial Instruments
-----------------------------------
The carrying amounts of cash, accounts receivable, accounts payable
and notes payable, as applicable, approximate fair value due to the
short term nature of these items and/or the current interest rates
payable in relation to current market conditions.
Interest rate risk is the risk that the Company's earnings are subject
to fluctuations in interest rates on either investments or on debt and
is fully dependent upon the volatility of these rates. The Company
does not use derivative instruments to moderate its exposure to
interest rate risk, if any.
Financial risk is the risk that the Company's earnings are subject to
fluctuations in interest rates or foreign exchange rates and are fully
dependent upon the volatility of these rates. The company does not use
derivative instruments to moderate its exposure to financial risk, if
any.
Note 6 - Convertible Notes Payable
-------------------------
On March 10, 1998, the Company entered into an Agency Agreement with
Alexander Wescott & Co., Inc. (AWC) for the offer and sale of 6%
Convertible Notes, with maximum gross proceeds not to exceed
$1,000,000.
In March and April 1998, the Company issued its 6% Convertible Notes
(the "Notes") in the aggregate principal amount of $726,500 in a
private placement under Rule 505 of Regulation D. The Notes bore
11
Safe Alternatives Corporation of America, Inc.
Notes to the Financial Statements
June 30, 2004
Note 6 - Convertible Notes Payable ( Continued)
--------------------------------------
interest at 6.0% per annum, payable semi-annually inarrears, in cash
or, at the Company's option, in shares of common stock of the Company.
The notes matured on the earlier of (i) the first anniversary of the
initial closing of the proposed offer (April 10, 1999), and (ii) a
sale of all or substantially all of the Company's assets or a merger,
acquisition or consolidation in which the Company was not the
surviving corporation. The notes ranked senior to all other
indebtedness of the Company now or hereafter existing, other than
indebtedness to banks, in terms of priority and security.
The Notes were convertible into shares of common stock at the option
of the holder at any time following the earlier of (i) 90 days after
the filing of a registration statement with the U. S. Securities and
Exchange Commission (SEC) covering the shares to be received upon
conversion or (ii) the date the SEC declared such registration
statement effective. The conversion price per share was the lesser of
(i) 70% of the average closing bid price per share of common stock for
the five trading days prior to the conversion date or (ii) $0.25. Upon
conversion, any accrued and unpaid interest was waived by the holder.
The Company had the option to repurchase the Notes from the holder
prior to registration of the underlying shares at a premium of 10%
over the purchase price of the Notes. The Company agreed to file a
registration statement with the SEC not later than June 3, 1998, and
use its best efforts to have the registration statement declared
effective not later than July 3, 1998. Through June 30, 2002, the
Company made no payments on these notes; had not repurchased any of
these Notes, and was in default with regard to its registration
obligation
AWC received a commission of 10% plus 3% non-accountable expense
reimbursement on the gross proceeds raised. In addition, AWC was
issued warrants exercisable for 400,000 shares of common stock at an
exercise price of $0.30 per share, expiring June 28, 2003. On
September 30, 2002, the Company and AWC reached a settlement agreement
whereby AWC agreed to cancel the outstanding warrant in exchange for
800,000 shares of restricted, unregistered shares of the Company's
common stock.
As of December 31, 2001 two note holders with notes totaling $50,000
notified the Company that they had written off the balances owed to
them by the Company and therefore had discharged the Company from any
further liability. As a result the Company recognized a $56,000
forgiveness of debt income as of December 31, 2001, which included
$6,000 of accrued interest.
During 2002, all but one of the Holders of the Notes, totaling
approximately $651,500, agreed to release all obligations under the
Notes, including accrued interest of approximately $157,273, in
exchange for the issuance of an aggregate of 21,303,264 shares of
restricted, unregistered shares of the Company's common stock.
12
Safe Alternatives Corporation of America, Inc.
Notes to the Financial Statements
June 30, 2004
Note 6 - Convertible Notes Payable (Continued)
-------------------------------------
During the quarter ended June 30, 2003, the Company exercised it's
option to repurchase the remaining outstanding Note from the
Noteholder with a cash payment aggregating approximately $35,389,
which included $25,000 in principal, the stated 10% repurchase premium
and all accrued, but unpaid, interest.
Note 7 - Advances from Affiliates
------------------------
During 2003, an affiliate of the Company made unsecured advances of
approximately $70,700 to support operations and provide working
capital. At December 31, 2003, the affiliate contributed these
advances as additional paid-in capital.
During the six months ended June 30, 2004, in anticipation of the
reverse acquisition transaction discussed in previous footnotes,
Mortgage Assistance Corporation advanced to or paid expenses on behalf
of the Company of approximately $23,000. These advances are unsecured
and are repayable upon demand.
13
Safe Alternatives Corporation of America, Inc.
Notes to the Financial Statements
June 30, 2004
Note 8 - Income Taxes
------------
The components of income tax (benefit) expense, on continuing
operations, for the six months ended June 30, 2004 and 2003,
respectively, are as follows:
Six months Six months
ended ended
June 30, June 30,
2004 2003
----------------- -----------------
Federal:
Current $ -- $ --
Deferred -- --
----------------- -----------------
-- --
----------------- -----------------
State:
Current -- --
Deferred -- --
----------------- -----------------
Total $ -- $ --
================= =================
As of June 30, 2004, the Company had a net operating loss carryforward
of approximately $9,500,000 to offset future taxable income. If the
reverse acquisition transaction discussed previously occurs, the usage
of the Company's net operating loss carryforward will be severely
limited. The amount and availability of the net operating loss
carryforwards may be subject to limitations set forth by Section 338
of the Internal Revenue Code. Factors such as the number of shares
ultimately issued within a three year look-back period; whether there
is a deemed more than 50 percent change in control; the applicable
long-term tax exempt bond rate; continuity of historical business; and
subsequent income of the Company all enter into the annual computation
of allowable annual utilization of the carryforwards.
14
Safe Alternatives Corporation of America, Inc.
Notes to the Financial Statements
June 30, 2004
Note 8 - Income Taxes (Continued)
------------------------
The Company's income tax expense for the six months ended June 30,
2004 and 2003, respectively, differed from the statutory tax rate of
34.0% as follows:
Six months Six months
ended ended
June 30, June 30,
2004 2003
--------- ---------
Statutory rate applied to income
before income taxes $(295,390) $ (2,700)
Increase (decrease) in income taxes
resulting from:
State income taxes -- --
Non-deductible compensation expense related
to common stock issued at less than "fair value" 285,170
Other, including reserve for deferred tax asset and
application of net operating loss carryforward 10,220 2,700
--------- ---------
Income tax expense $ -- $ --
========= =========
Temporary differences, consisting primarily of statutory deferrals of
expenses for organizational costs and statutory differences in the
depreciable lives for property and equipment, between the financial
statement carrying amounts and tax bases of assets and liabilities
give rise to the following deferred tax assets and liabilities as of
June 30, 2004 and 2003,
June 30, June 30,
2004 2003
----------- -----------
Deferred tax assets
Net operating loss carryforwards $ 3,246,420 $ 3,230,000
Less valuation allowance (3,246,420) (3,230,000)
----------- -----------
Net Deferred Tax Asset $ -- $ --
=========== ===========
During the years ended December 31, 2003 and 2002, respectively, the
reserve for the deferred tax asset did not significantly change.
15
Safe Alternatives Corporation of America, Inc.
Notes to the Financial Statements
June 30, 2004
Note 9 - Common Stock Transactions
-------------------------
During the year ended December 31, 2002, the Company issued an
aggregate 21,303,264 shares of restricted, unregistered shares of the
Company's common stock in settlement of approximately $651,000 in face
amount of 6.0% Convertible Notes and accrued interest of approximately
$157,273.
During the year ended December 31, 2002, the Company issued 448,101
shares of restricted, unregistered common stock to various unsecured
creditors in exchange for their release of any further claims related
to trade accounts payable. These transactions were valued at
approximately $448,100, including a "fair value" adjustment of
approximately $410,597 for shares issued at less than the "fair value"
of the shares based on the valuation established by equivalent
transactions on equivalent dates.
Effective September 30, 2002, the Company issued 800,000 shares of
restricted, unregistered common stock in exchange for the retirement
of an outstanding warrant to purchase up to 400,000 shares of the
Company's common stock at a price of $0.30 per share, expiring June
28, 2003. This transaction was valued at approximately $80, which
approximates the "fair value" of the Company's common stock on the
date of the transaction.
During July 2002, in order to facilitate the Company's merger or other
business combination transaction with another company, the Company
issued a total of 84,720,733 shares of the Company's unregistered,
restricted common stock to be held in escrow for the benefit of the
Company's merger or combination partner. No value had been assigned to
this issuance pending the consummation of a business combination
transaction. On March 9, 2004, the Company's Board of Directors
authorized the issuance of these shares held in escrow to the
Company's legal counsel, Loper & Seymour, P.A. of St. Paul, Minnesota
for legal services. The transaction was valued at approximately
$8,470, which equaled the common stock's par value of $.0001 per
share, and these shares were deemed fully paid and non-assessable.
Pursuant to Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation", the imputed fair value of
this transaction was calculated using the discounted closing quoted
stock price on March 9, 2004. The differential between the imputed
fair value and the agreed-upon value of the services provided,
approximately $838,700, was recorded as "compensation expense related
to common stock issuances at less than "fair value" upon exercise of
outstanding stock options in the accompanying statement of operations.
16
Safe Alternatives Corporation of America, Inc.
Notes to the Financial Statements
June 30, 2004
Note 10 - Treasury Stock
--------------
Treasury stock represents 11,682 shares (recorded at cost) being held
in trust to be used for future issuance to employees, investors, and
other potential funding sources. As the Company directly benefits from
the sales of the shares in the trust, these shares have been recorded
as treasury stock.