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 September 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
Safe Alternatives Corporation of America, Inc.
Financial Statements
September 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
2
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 September 30, 2004, and the
accompanying statements of operations and comprehensive loss for the nine and
three months ended September 30, 2004 and the accompanying statement of cash
flows for the nine months ended September 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 September 30, 2003 financial statements of Safe Alternatives Corporation of
America, Inc. were reviewed by other accountants whose report dated October 17,
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
October 14, 2004
3
Safe Alternatives Corporation of America, Inc.
Balance Sheets
September 30, 2004 and 2003
(Unaudited)
ASSETS
September 30, September 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 $ 1,050 $ 4,813
Advances from affiliate 31,237 --
Accrued interest payable -- --
------------- -------------
Total current liabilities 32,287 4,813
------------- -------------
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 22,860,925
Accumulated deficit (23,762,342) (22,876,010)
------------- -------------
(34,446) (6,972)
Subscriptions issuable 2,160 2,160
Treasury stock - at cost (11,682 shares) (1) (1)
------------- -------------
Total stockholders' equity (deficit) (32,287) (4,813)
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ -- $ --
============= =============
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.
4
Safe Alternatives Corporation of America, Inc.
Statements of Operations and Comprehensive Loss
Nine and Three months ended September 30, 2004 and 2003
(Unaudited)
Nine months Nine months Three months Three months
ended ended ended ended
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
------------- ------------- ------------- -------------
Revenues $ -- $ -- $ -- $ --
------------- ------------- ------------- -------------
Operating Expenses
General and administrative expenses 38,832 9,530 8,762 2,759
Interest expense -- 3,162 -- --
Compensation expense related to
common stock issuances at less
than "fair value" 838,736 -- -- --
Depreciation and amortization -- -- -- --
------------- ------------- ------------- -------------
Total operating expenses 877,568 12,692 8,762 2,759
------------- ------------- ------------- -------------
Operating loss (877,568) (12,692) (8,762) (2,759)
Other income (expense):
Forgiveness of debt -- 7,000 -- 7,000
Settlement of judgement -- (5,000) -- (5,000)
------------- ------------- ------------- -------------
-- 2,000 -- 2,000
------------- ------------- ------------- -------------
Loss before provision for income taxes (877,568) (10,692) (8,762) (759)
Income tax benefit (expense) -- -- -- --
------------- ------------- ------------- -------------
Net Loss (877,568) (10,692) (8,762) (759)
Other comprehensive income -- -- -- --
------------- ------------- ------------- -------------
Comprehensive Loss $ (877,568) (10,692) $ (8,762) $ (759)
============= ============= ============= =============
Net loss per weighted-average share
of common stock outstanding, calcuated
on Net Loss - basic and fully diluted $ (0.01) $ (0.00) $ (0.00) $ (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 Cash Flows
Nine months ended September 30, 2004 and 2003
(Unaudited)
Nine months Nine months
ended ended
September 30, 2004 September 30, 2003
------------------ ------------------
Cash Flows from Operating Activities
Net loss for the period $ (877,568) $ (10,692)
Adjustments to reconcile net loss to net cash
provided by operating expenses
Depreciation -- --
Professional fees paid with common sock 8,472 --
Compensation expense related to commn
stock issuances at less than "fair value" 838,736 --
Forgiveness of trade accounts payable -- (7,000)
Increase (Decrease) in
Accounts payable - trade (877) (9,126)
Accrued interest payable -- (7,216)
------------------ ------------------
Net cash used in operating activities (31,237) (34,034)
------------------ ------------------
Cash Flows from Investing Activities -- --
------------------ ------------------
Cash Flows from Financing Activities
Cash advanced by affiliate to support operations 31,237 --
Cash contributed to support operations -- 59,034
Cash used to pay convertible debt -- (25,000)
------------------ ------------------
Net cash provided by financing activities 31,237 34,034
------------------ ------------------
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
September 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, 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
September 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,
8
Safe Alternatives Corporation of America, Inc.
Notes to the Financial Statements
September 30, 2004
Note 2 - Preparation of Financial Statements (Continued)
-----------------------------------
results of 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 revenues 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
September 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 continued
existence as a going concern would be jeopardized.
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 September 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 September 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
September 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
interest at 6.0% per annum, payable semi-annually in arrears, in cash
11
Safe Alternatives Corporation of America, Inc.
Notes to the Financial Statements
September 30, 2004
Note 6 - Convertible Notes Payable ( Continued)
-------------------------
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
September 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 nine months ended September 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 $31,000. These advances are unsecured
and are repayable upon demand.
13
Safe Alternatives Corporation of America, Inc.
Notes to the Financial Statements
September 30, 2004
Note 8 - Income Taxes
------------
The components of income tax (benefit) expense, on continuing
operations, for the nine months ended September 30, 2004 and 2003,
respectively, are as follows:
Nine months Nine months
ended ended
September 30, September 30,
2004 2003
------------- -------------
Federal:
Current $ -- $ --
Deferred -- --
------------- -------------
-- --
------------- -------------
State:
Current -- --
Deferred -- --
------------- -------------
Total $ -- $ --
============= =============
As of September 30, 2004, the Company had a net operating loss
carryforward of approximately $9,300,000 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
September 30, 2004
Note 8 - Income Taxes (Continued)
The Company's income tax expense for the nine months ended September
30, 2004 and 2003, respectively, differed from the statutory tax rate
of 34.0% as follows:
Nine months Nine months
ended ended
September 30, September 30,
2004 2003
------------- -------------
Statutory rate applied to income
before income taxes $ (298,400) $ (3,600)
Increase (decrease) in income taxes
resulting from:
State income taxes -- --
Non-deductible compensation expense related
to common stock issued at less than "fair value" 285,200
Other, including reserve for deferred tax asset and
application of net operating loss carryforward
13,200 3,600
------------- -------------
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
September 30, 2004 and 2003,
September 30, September 30,
2004 2003
------------- -------------
Deferred tax assets
Net operating loss carryforwards $ 3,162,100 $ 3,230,000
Less valuation allowance (3,162,100) (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
September 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
September 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.
17
Item 2. Management's Discussion and Analysis or Plan of Operation
The Company had no business operations during 2003 and the third 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 $31,000 for the nine
months ending September 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 September 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
18
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
On August 17, 2004, we filed a Definitive Information Statement with the
Securities and Exchange Commission on Schedule 14C and mailed it to our
shareholders.
This Information Statement was provided to our shareholders in connection with
our prior receipt of approval by written consent, in lieu of a special meeting,
of the holder of a majority of our common stock (1) authorizing an amendment to
our Articles of Incorporation changing our corporate name to Mortgage Assistance
Corporation, (2) effecting a reverse split of our issued and outstanding common
stock on a one for two hundred fifty (1:250) basis (the "Reverse Split"), (3)
changing our authorized common stock capital from 700,000 common post reverse
split shares, par value $0.0001 to 50,000,000 common shares, par value $0.001
and; (4) authorizing the acquisition of Mortgage Assistance Corporation, a Texas
corporation, (MAC) from its shareholders in a share exchange transaction (the
"Share Exchange"). The shareholders holding shares representing 75.9% of the
votes entitled to be cast at a meeting of the Company's shareholders, consented
in writing to the proposed actions.
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The Amendment to the Articles of Incorporation will be filed with the Florida
Secretary of State and will be effective when filed. We experienced an obstacle
to filing our amended articles because during the time we mailed the Information
Statement and the time we expected to file, the proposed new corporate name,
Mortgage Assistance Corporation, was utilized by another group which filed the
corporate name Mortgage Assistance, Inc. The Florida Secretary of States Office
informed us that our proposed name was too similar and therefore would not
accept our name change filing. We anticipate filing a derivation of Mortgage
Assistance by adding the word "Center". As of the date of this quarterly report,
we have not implemented any of the authorized corporate changes. We anticipate
completing the corporate changes in two stages during November and December
2004. We anticipate implementing the reverse split on, or about November 22,
2004. We anticipate implementing the name change in early December 2004.
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. None during this quarter.
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: November 12, 2004 /s/ Dale Hensel
----------------------------------------------
By: Dale Hensel
Title: President, CEO, CFO