U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: May 10, 2005
MORTGAGE ASSISTANCE CENTER CORPORATION
(Exact Name of registrant as specified in its Charter)
Florida 000-21627 06-1413994
- ------------------------ ------------------ -------------------
(State of Incorporation) Commission File No. (IRS Employer
Identification No.)
2614 Main St., Dallas, TX 75226
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number (214) 670-0005
SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
(Registrant's former name and address)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions below:
[_] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[_] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17CFR 240-14d-2(b))
[_] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240-13e-4(c))
Item 1.01 Entry into a Material Definitive Agreement
Item 2.01 Completion of Acquisition or Disposition of Assets
Item 3.02 Unregistered Sales of Equity Securities
On May 10, 2005, we entered into a Business Combination Agreement to acquire all
of the issued and outstanding capital stock of Mortgage Assistance Corporation
("MAC"), a Texas corporation, in exchange for Twelve Million (12,000,000)shares
of our common stock. We propose to acquire 7,500,000 MAC shares in exchange for
12,000,000 of our shares. We will issue 1.6 of our shares for each MAC share.
We have authorized the issuance of up to 12,000,000 shares to 34 shareholders of
MAC in an exempt transaction under Section 4(2) and Regulation D Rule 506 of the
Securities Act of 1933, as amended (the "Securities Act"). These shares are
restricted securities and may not be publicly resold absent registration with
the Securities and Exchange Commission (SEC) or exemption from the registration
requirements of the Securities Act. MAC will become a wholly owned subsidiary of
our company when we complete the acquisition of all the MAC shares.
As of May 10, 2005, we have received 6,896,556 MAC shares (92%) and have caused
11,034,489 (87.1%) of our shares to be issued to three individual who will
comprise a control group consisting of Dale Hensel, Dan Barnett and Michelle
Taylor. Together they will control 87.1% of the voting common stock of our
company. Dale Hensel is the sole officer and director of our company. Mr. Hensel
is the President and a director of MAC. Dan Barnett is the Vice President and
director of MAC. Ms. Taylor is a Vice President and director of MAC. The
additional MAC shareholders will have the opportunity to participate in the
share exchange under the terms of the Business Combination Agreement. The MAC
shareholders are not obligated to exchange their shares. Their decision to
execute the Business Combination Agreement will be voluntary. There is a
possibility that we may not acquire 100% of the MAC shares because the exchange
offer is voluntary.
A conflict of interest existed at the time Mr. Hensel recommended that our
company acquire all of the issued and outstanding capital stock of MAC because
Mr. Hensel was our company president and director and also the president,
director and shareholder of MAC. The decisions to acquire MAC, change our
corporate name, implement the reverse split and capital change were actions over
which Mr. Hensel has exercised degrees of control and in which he had a
financial interest by virtue of being a shareholder of MAC. As a result of this
conflict of interest, under Section 607.0832 of Florida Law, the conflict of
interest transactions were required to be disclosed to our shareholders. Under
Florida law our shareholders were also required to authorize, approve or ratify
the transactions. All of these transactions were disclosed to, authorized and
approved by the written consent of our company's majority shareholders who held
75.9% of the voting stock. At the time of voting, Mr. Hensel was not a
shareholder of our company and did not vote for approval of these transactions.
The number of shares authorized for issuance in this Business Combination
transaction between our Company and the MAC shareholders was negotiated between
Mr. Hensel and MAC management in a transaction with management. The management
of our Company and MAC share a common director and officer in Dale Hensel. The
transaction did not represent an arms-length transaction. At that time the
transaction was valued at $295,000 or $0.025 per share. At that time a market
value for our Company's common shares was difficult to ascertain because of the
limited and illiquid market for our company shares. Presently, our company's
shares are quoted on the NASD OTC Electronic Bulletin Board under the symbol
MTGC. The ask price for company shares is presently $1.25 per share. Our common
stock market is limited, illiquid and subject to price volatility. There is no
active market for our common stock at this time.
Item 5.01 Changes in Control of Registrant
Dale Hensel will continue to act as our principal corporate officer and director
until such time as he qualifies and appoints additional officers and directors
to fill vacancies on the board of directors and officer positions. Mr. Hensel
anticipates nominating Dan Barnett and Michelle Taylor to officer and director
positions with our company, subject to qualification and consent.
Shareholder voting control of our company will be vested in Dale Hensel, Dan
Barnett and Michelle Taylor, the principal officers, directors and shareholders
of MAC, who have received a total of 11,034,489 (87.1%) of our shares in the
share exchange with MAC.
The following table shows the shares of our common stock which will be
beneficially owned Dale Hensel, Dan Barnett and Michelle Taylor after completion
of the MAC business combination, as well as the principal shareholders (greater
than 5%) of the Company individually and, as to the directors and officers, as a
group.
The number of shares beneficially owned by each person or entity is determined
under rules of the Securities and Exchange Commission, and the information is
not necessarily indicative of beneficial ownership for any other purpose. Under
such rules, beneficial ownership includes any shares as to which the person has
the sole or shared voting power or investment power and also any shares which
the person has the right to acquire as of a date within 60 days after the
relevant date through the exercise of any stock option or other right.
Based on 12,664,603 shares issued and outstanding after 12,000,000 shares are
issued under the Business Combination Agreement with MAC.
Table 1. Beneficial Ownership after our share are issued in the
business combination agreement with MAC
Percent of Class
Name and address Number of Shares Beneficially Owned
- ---------------- ---------------- ------------------
Dale J. Hensel(1) 5,031,058 39.7%
Dan Barnett(2) 4,967,058 39.2%
Michelle Taylor(2) 1,036,375 8.2%
Total 11,034,489 87.1%
All Directors and
Officers as a Group 5,031,058 39.2%
(1) Dale Hensel is our sole officer and director. He is a director and president
of MAC.
(2) Dan Barnett and Michelle Taylor are officers and directors of MAC. Mr.
Hensel expects to nominate them to board and officer positions with our company
in the near future, subject to qualification and consent.
Item 8.01 Other Events
Summary of MAC's Business Operations.
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Mortgage Assistance Corporation is a financial services company that purchases,
manages and resells first and second real estate mortgages and, or deed of trust
promissory notes. MAC purchases these mortgages at a substantial discount to the
mortgage obligation. Additionally, when necessary, it will foreclose,
rehabilitate and, or sell the real estate securing the purchased mortgages and
deed of trust promissory notes.
MAC purchases and manages pools of distressed real estate secured mortgages and
promissory notes. The types of mortgage pools acquired include non-performing,
charged-off, sub-prime mortgages, typically between 90 days and two years past
due. The liens are secured by residential real estate. MAC acquires both first
and second mortgages or liens. Approximately, 1% of the acquired loans are
subordinate liens, which bear risk of being reclassified as unsecured loans if
the priority lienholder forecloses on the real estate. These pools of
non-performing real estate mortgages and notes are purchased from banks and
other lending institutions. Non-performing loan pools are purchased in either
negotiated transactions or public bidding transactions.
MAC principally purchases non-performing first lien loan pools of varying
amounts from banks and other lenders at a significant discount from the loans'
outstanding legal principal balances, the total of the aggregate of expected
future sales price and the total payments to be received from the mortgage or
note obligors. MAC acquires portfolios after a quantitative and qualitative
analysis of the underlying mortgage, the collateral and calculate the purchase
price of the portfolio so that the estimated cash flow offers MAC an adequate
return on the acquisition cost and servicing expenses. After the company
purchases the loan pool, the process of debt resolution commences. The company
works the loan portfolio with the purpose of changing the non-performing loans
into either performing loans or forecloses on the real estate. The company will
resell a substantial portion of its re-performing loans in various sized loan
pools. The company will be required to foreclose on certain real estate
properties when portfolio loans continue in default. As a result of the
foreclosure actions, the company will own single family real estate and other
real estate. These properties may be rehabilitated, held and ultimately sold.
They may be sold for cash or MAC may finance the sale by use of real estate
installment sale contract.
MAC also enters into joint venture agreements from time to time with various
investors in the purchase of loan pools.
RISK FACTORS
There Has Been An Volatile Public Market For Our Common Stock And The Price Of
Our Stock May Be Subject To Fluctuations.
We cannot assure you that a liquid transparent trading market for our common
stock will develop or be sustained. You may not be able to resell your shares at
any price. The market price of our common stock is likely to be volatile and
could be subject to fluctuations in response to factors such as the following,
most of which are beyond our control:
o operating results that vary from the expectations of securities
analysts and investors;
o changes in expectations as to our future financial performance,
including financial estimates by securities analysts and investors;
o the operations, regulatory, market and other risks discussed in this
section;
o announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
o announcements by third parties of significant claims or proceedings
against us; and
o future sales of our common stock.
In addition, the market for our stock has from time to time experienced extreme
price and volume fluctuations. These broad market fluctuations may adversely
affect the market price of our common stock in the future.
Risks Relating To Low-Price Stocks.
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Because our stock is quoted on the NASD OTC Electronic Bulletin Board and
subject to the Penny Stock Regulations, an investor may find it difficult to
dispose of, or to obtain accurate quotations as to the market value of, our
Company's securities. The regulations governing low-priced or penny stocks could
limit the ability of broker-dealers to sell the Company's securities and thus
the ability of the purchasers and shareholders to sell their securities in the
secondary market.
Limited Market Due To Penny Stock
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The Company's stock differs from many stocks, in that it is a "penny stock." The
Securities and Exchange Commission has adopted a number of rules to regulate
"penny stocks." These rules include, but are not limited to, Rules 3a5l-l,
15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6 and 15g-7 under the Securities and
Exchange Act of 1934, as amended. Because our securities probably constitute
"penny stock" within the meaning of the rules, the rules would apply to us and
our securities. The rules may further affect the ability of owners of our stock
to sell their securities in any market that may develop for them. There may be a
limited market for penny stocks, due to the regulatory burdens on
broker-dealers. The market among dealers may not be active. Investors in penny
stock often are unable to sell stock back to the dealer that sold them the
stock. The mark-ups or commissions charged by the broker-dealers may be greater
than any profit a seller may make. Because of large dealer spreads, investors
may be unable to sell the stock immediately back to the dealer at the same price
the dealer sold the stock to the investor. In some cases, the stock may fall
quickly in value. Investors may be unable to reap any profit from any sale of
the stock, if they can sell it at all. Stockholders should be aware that,
according to the Securities and Exchange Commission Release No. 34- 29093, the
market for penny stocks has suffered in recent years from patterns of fraud and
abuse. These patterns include: - Control of the market for the security by one
or a few broker- dealers that are often related to the promoter or issuer; -
Manipulation of prices through prearranged matching of purchases and sales and
false and misleading press releases; - "Boiler room" practices involving high
pressure sales tactics and unrealistic price projections by inexperienced sales
persons; - Excessive and undisclosed bid-ask differentials and markups by
selling broker- dealers; and - The wholesale dumping of the same securities by
promoters and broker- dealers after prices have been manipulated to a desired
level, along with the inevitable collapse of those prices with consequent
investor losses. Furthermore, the "penny stock" designation may adversely affect
the development of any public market for the Company's shares of common stock
or, if such a market develops, its continuation. Broker-dealers are required to
personally determine whether an investment in "penny stock" is suitable for
customers. Penny stocks are securities (i) with a price of less than five
dollars per share; (ii) that are not traded on a "recognized" national exchange;
(iii) whose prices are not quoted on the NASDAQ automated quotation system
(NASDAQ-listed stocks must still meet requirement (i) above); or (iv) of an
issuer with net tangible assets less than $2,000,000 (if the issuer has been in
continuous operation for at least three years) or $5,000,000 (if in continuous
operation for less than three years), or with average annual revenues of less
than $6,000,000 for the last three years. Section 15(g) of the Exchange Act, and
Rule 15g-2 of the Commission require broker-dealers dealing in penny stocks to
provide potential investors with a document disclosing the risks of penny stocks
and to obtain a manually signed and dated written receipt of the document before
effecting any transaction in a penny stock for the investor's account. Potential
investors in the Company's common stock are urged to obtain and read such
disclosure carefully before purchasing any shares that are deemed to be "penny
stock." Rule 15g-9 of the Commission requires broker- dealers in penny stocks to
approve the account of any investor for transactions in such stocks before
selling any penny stock to that investor. This procedure requires the
broker-dealer to (i) obtain from the investor information concerning his or her
financial situation, investment experience and investment objectives; (ii)
reasonably determine, based on that information, that transactions in penny
stocks are suitable for the investor and that the investor has sufficient
knowledge and experience as to be reasonably capable of evaluating the risks of
penny stock transactions; (iii) provide the investor with a written statement
setting forth the basis on which the broker-dealer made the determination in
(ii) above; and (iv) receive a signed and dated copy of such statement from the
investor, confirming that it accurately reflects the investor's financial
situation, investment experience and investment objectives. Compliance with
these requirements may make it more difficult for the Company's stockholders to
resell their shares to third parties or to otherwise dispose of them.
Future Capital Needs Could Result In Dilution To Investors; Additional Financing
Could Be Unavailable Or Have Unfavorable Terms.
Our Company's future capital requirements will depend on many factors, including
cash flow from operations, general state of the economy, available mortgage
pools, competing market developments, and the Company's ability to market its
proposed products successfully. It will be necessary to raise additional funds
through equity or debt financings. Any equity financings could result in
dilution to our Company's then-existing stockholders. Sources of debt financing
may result in higher interest expense. Any financing, if available, may be on
terms unfavorable to the Company. If adequate funds are not obtained, the
Company may be required to reduce or curtail operations.
Need for Additional Financing. Our Company has no funds. Even if the Company's
future available funds prove to be sufficient to pay for its operations, such
funds will clearly not be sufficient to enable MAC to exploit its business
opportunities. Thus, the ultimate success of the Company and MAC will depend, in
large part, upon its ability to raise additional capital. There is no assurance
that additional capital will be available from any source or, if available, that
it can be obtained on terms acceptable to the Company. If not available, the
Company's and MAC's operations will be limited to those that can be financed
with its modest capital.
No Assurance of Success or Profitability. There is no assurance that the Company
or MAC will generate revenues or profits, or that the market price of the
Company's outstanding shares will be increased by this business combination with
MAC.
Limited Operating History
- -------------------------
MAC has a limited operating history and our Company's and MAC's financial health
will be subject to all the risks inherent in the establishment of a new business
enterprise. The likelihood of success of our company and MAC must be considered
in the light of the problems, expenses, difficulties, complications, and delays
frequently encountered in connection with the startup and growth of a new
business, and the competitive environment in which we will operate. Our success
is dependent upon the successful financing and development of our business plan.
No assurance of success is offered. Unanticipated problems, expenses, and delays
are frequently encountered in establishing a new business and marketing and
developing products. These include, but are not limited to, financing,
competition, the need to develop customers and market expertise, market
conditions, sales, marketing and governmental regulation. The failure of the
Company to meet any of these conditions would have a materially adverse effect
upon the Company and may force the Company to reduce or curtail operations. No
assurance can be given that the Company or MAC can or will ever operate
profitably.
Caution Regarding Forward-Looking Information
- ---------------------------------------------
We have included forward-looking statements in this report. For this purpose,
any statements contained in this report that are not statements of historical
fact may be deemed to be forward looking statements. Without limiting the
foregoing, words such as "may", "will", "expect", "believe", "anticipate",
"estimate", "plan" or "continue" or the negative or other variations thereof or
comparable terminology are intended to identify forward-looking statements.
These statements by their nature involve substantial risks and uncertainties,
and actual results may differ materially depending on a variety of factors.
Factors that might cause forward-looking statements to differ materially from
actual results include, among other things, overall economic and business
conditions, demand for the Company's products, competitive factors in the
industries in which we compete or intend to compete, and other uncertainties of
our future acquisition plans.
Given these uncertainties, readers of this Current Report Form 8-K and investors
are cautioned not to place undue reliance on such forward-looking statements.
The Company disclaims any obligation to update any such factors or to publicly
announce the result of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.
REPORTS FILED WITH THE SEC
Our Company is a reporting company. The public may read and copy the Annual
Report (Form 10-KSB) and any other materials filed by the Company at the SEC's
Public Reference Room at 450 Fifth Street N.W., Washington, D.C. 20549. The
public may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC maintains an internet site that
contains reports, information statements, and other information regarding the
company at http://www.sec.gov.
Item 9.01 Financial Statements and Exhibits
(a) Financial Statements of business acquired.
We have attached the audited financial statements of Mortgage
Assistance Corporation (MAC), the Texas corporation.
(b) Pro Forma financial information.
We have attached proforma financial information for comparative
purposes only which is not indicative of the operating results that actually
would have occurred had the MAC acquisition been consummated on December 31,
2004. These results are not intended to be a projection of future results and do
not reflect any synergies that might have been achieved from combined
operations.
(c) Exhibits
Exhibit No. Description of Exhibit
2.0 Business Combination Agreement dated May 10, 2005
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: May 10, 2005 MORTGAGE ASSISTANCE CENTER CORPORATION
/s/ Dale Hensel
--------------------------------------
By: Dale Hensel
Title: President
MORTGAGE ASSISTANCE CORPORATION
FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
WITH
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Mortgage Assistance Corporation
Financial Statements
Year Ended December 31, 2004
and
Period from Inception (March 28, 2003) through December 31, 2003
Contents
Report of Independent Registered Public Accounting Firm......................F-3
Audited Financial Statements:
Balance Sheets..........................................................F-4
Statements of Operations................................................F-6
Statements of Changes in Stockholders' Equity...........................F-8
Statements of Cash Flows................................................F-9
Notes to Financial Statements..........................................F-11
F-2
The Board of Directors
Mortgage Assistance Corporation
Dallas, Texas
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have audited the accompanying balance sheets of Mortgage Assistance
Corporation (A Texas corporation) as of December 31, 2004 and 2003, and the
related statements of operations, changes in stockholders' equity and cash flows
for the year ended December 31, 2004, and period from inception (March 28, 2003)
through December 31, 2003. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mortgage Assistance Corporation
as of December 31, 2004 and 2003, and the results of its operations, cash flows
and changes in stockholders' equity for the year ended December 31, 2004 and
period from inception through December 31, 2003, in conformity with U.S.
generally accepted accounting principles.
- --------------------------------------
Sutton Robinson Freeman & Co., P.C.
Certified Public Accountants
Tulsa, Oklahoma
April 12, 2005
F-3
Mortgage Assistance Corporation
Balance Sheets
December 31, 2004 and 2003
ASSETS
2004 2003
----------- -----------
Current Assets
Cash and cash equivalents $ 572,884 $ 76,533
Portfolio assets, at cost (Notes 2 and 4) 764,868 586,228
Accounts receivable-related parties (Note 7) 92,528 78,177
Prepaid expenses 34,866 90,006
----------- -----------
1,465,146 830,944
----------- -----------
Property And Equipment, at cost
Furniture, equipment & computers 58,352 21,208
Less accumulated depreciation 11,133 806
----------- -----------
47,219 20,402
----------- -----------
Investments And Other assets
Investment in public company (Note 11) 295,000 295,000
Investment in MAP/MAC, LLC (Note 5) 39,797 --
Rent & utility deposits 3,000 3,000
----------- -----------
337,797 298,000
----------- -----------
Total Assets $ 1,850,162 $ 1,149,346
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-4
Mortgage Assistance Corporation
Balance Sheets
December 31, 2004 and 2003
LIABILITIES AND STOCKHOLDERS' EQUITY
2004 2003
----------- -----------
Current Liabilities
Notes payable-individuals (Note 6) $ 948,000 $ 478,000
Accounts payable-trade 151,751 --
Accounts payable-others 89,784 137,784
Accounts payable-related parties (Note 7) 18,422 36,360
Accrued fees & wages 188,344 98,955
Accrued interest payable 32,024 1,387
Other accrued liabilities 4,051 160
Note payable-corporate acquisition (Note 11) -- 235,000
Notes payable-stockholders (Note 7) -- 66,963
----------- -----------
1,432,376 1,054,609
----------- -----------
Long-term Debt
Notes payable-individuals (Note 6) 373,200 150,000
----------- -----------
Stockholders' Equity
Common stock, par value $0.001 per share;
authorized 100,000,000 shares; issued 5,331,350
and 5,306,350 shares in 2004 and
2003, respectively 5,331 5,306
Additional paid-in capital 448,646 326,024
Retained earnings (deficit) (409,391) (386,593)
----------- -----------
44,586 (55,263)
----------- -----------
Total Liabilities and Stockholders' Equity $ 1,850,162 $ 1,149,346
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-5
Mortgage Assistance Corporation
Statement of Operations
Year December 31, 2004 and
Period from Inception (March 28, 2003) through December 31, 2003
2004 2003
----------- -----------
Revenues
Sales of portfolio assets (Note 2) $ 3,953,712 $ --
Cost of portfolio assets sold (Note 2) 2,786,562 --
----------- -----------
Gain on sale of portfolio assets 1,137,150 --
Servicing fees from affiliates and others (Note 7) 53,120 --
Income from joint venture (Note 5) 27,797 --
Other income 15,413 6,141
----------- -----------
Total Revenues 1,233,480 6,141
----------- -----------
Expenses
Sales Expenses
Commission expense 32,707 5,000
Travel, lodging & meals 38,304 1,173
Due diligence cost & fees 10,072 1,890
Property taxes 3,529 --
----------- -----------
84,612 8,063
----------- -----------
General & Administrative Expenses
Wages & contract labor 566,613 105,825
Corporate expenses 83,085 --
Legal & professional fees 71,959 38,746
Office supplies & miscellaneous 62,800 33,574
Payroll taxes & employee benefits 44,526 3,275
Rent 38,314 10,190
Telephone & utilities 20,044 8,776
Printing & postage 16,279 1,089
Travel, lodging & vehicles 12,121 6,066
----------- -----------
915,741 207,541
----------- -----------
Other Expenses
Interest expense 199,414 11,324
Software development 46,646 --
Depreciation expense 9,865 806
Expired option fee (Note 11) -- (165,000)
----------- -----------
255,925 177,130
----------- -----------
Total Expenses 1,256,278 392,734
----------- -----------
Income (loss) before income taxes (22,798) (386,593)
The accompanying notes are an integral part of these financial statements.
F-6
Mortgage Assistance Corporation
Statement of Operations
Year December 31, 2004 and
Period from Inception (March 28, 2003) through December 31, 2003
2004 2003
----------- -----------
Provision (benefit) for income taxes (Note 8) -- --
----------- -----------
Net loss $ (22,798) $ (386,593)
=========== ===========
Net loss per share (Note 10) $ (0.01) $ (0.13)
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-7
Mortgage Assistance Corporation
Statement of Cash Flows
Year December 31, 2004 and
Period from Inception (March 28, 2003) through December 31, 2003
2004 2003
--------- ---------
Cash Flows From Operating Activities
Net loss $ (22,798) $(386,593)
--------- ---------
Adjustments to reconcile net loss to net
cash provided (used) by operating activities
Depreciation 9,865 806
Amortization of prepaid interest 71,740 9,260
Amortization of deferred rent 10,767 2,500
Income from joint venture (27,797) --
Change in assets and liabilities, excluding effect of
MSP acquisition
(Increase) decrease in mortgage note receivable pools 225,775 (586,228)
(Increase) decrease in accounts receivable from related parties (104,527) (78,177)
(Increase) decrease in prepaid insurance (27,367) (766)
(Increase) decrease in deposits -- (3,000)
Increase (decrease) in accounts payable-trade 150,408 137,784
Increase (decrease) in accounts payable-others (58,195) --
Increase (decrease) in accounts payable-related parties (106,026) 36,360
Increase (decrease) in accrued fees & wages 89,389 98,955
Increase (decrease) in accrued interest 30,637 1,387
Increase (decrease) in other accrued liabilities 3,891 160
--------- ---------
Total adjustments 268,560 (380,959)
--------- ---------
Net Cash Provided (Used) by Operating Activities 245,762 (767,552)
--------- ---------
Cash Flows From Investing Activities
Purchases of property and equipment (24,695) (19,858)
Investment in partnership (12,000) --
Investment in public shell corporation (235,000) (60,000)
--------- ---------
Net Cash Used by Investing Activities (271,695) (79,858)
--------- ---------
The accompanying notes are an integral part of these financial statements.
F-8
Mortgage Assistance Corporation
Statement of Cash Flows
Year December 31, 2004 and
Period from Inception (March 28, 2003) through December 31, 2003
2004 2003
--------- ---------
Cash Flows From Financing Activities
Issuance of common stock 25,000 228,980
Proceeds from issuance of debt to individuals 470,000 628,000
Proceeds from loans from stockholders 30,784 66,963
Repayment of loans from stockholders (3,500) --
--------- ---------
Net Cash Provided by Financing Activities 522,284 923,943
--------- ---------
Net Increase in Cash 496,351 76,535
Cash at Beginning of Period 76,533 --
--------- ---------
Cash at End of Period $ 572,884 $ 76,535
========= =========
Supplemental Disclosures
Noncash Investing and Financing Activities:
Stockholders' debt contributed to
additional paid-in capital $ 97,647 $ --
Investment in public corporate shell financed by short-term debt $ -- $ 235,000
Equipment acquired by issuance of common stock $ -- $ 1,350
Cash Paid During the Year for:
Interest $ -- $ 676
Income taxes $ -- $ --
The accompanying notes are an integral part of these financial statements.
F-9
Mortgage Assistance Corporation
Statement of Changes in Stockholders' Equity
Year December 31, 2004 and
Period from Inception (March 28, 2003) through December 31, 2003
Additional
Common Par Paid In Retained
Shares Value Capital Deficit Total
---------- ---------- ---------- ----------- ----------
Balances, March 28, 2003 -- $ -- $ -- $ -- $ --
Common shares issued:
For cash 5,204,000 5,204 223,776 -- 228,980
In lieu of rent 20,000 20 19,980 -- 20,000
In lieu of interest 81,000 81 80,919 -- 81,000
For computer equipment 1,350 1 1,349 -- 1,350
Net loss -- -- -- (386,593) (386,593)
---------- ---------- ---------- ----------- ----------
Balances, December 31, 2003 5,306,350 5,306 326,024 (386,593) (55,263)
Common shares issued for cash 25,000 25 24,975 -- 25,000
Stockholders' debt contributed
to additional paid in capital -- -- 97,647 -- 97,647
Net loss -- -- -- (22,798) (22,798)
---------- ---------- ---------- ----------- ----------
Balances, December 31, 2004 5,331,350 $ 5,331 $ 448,646 $ (409,391) $ 44,586
========== ========== ========== =========== ==========
The accompanying notes are an integral part of these financial statements.
F-10
Mortgage Assistance Corporation
Notes to Financial Statements
December 31, 2004 and 2003
Note 1 - Organization and Nature of Business
-----------------------------------
Mortgage Assistance Corporation ("MAC" or the "Company") was incorporated
in the State of Texas on March 28, 2003. The Company is a financial
services company that acquires, manages, and resells first and second
liens. Additionally, when necessary the Company will foreclose,
rehabilitate and sell the homes that are securing the mortgage notes that
were purchased.
The Company acquires and manages pools of distressed real estate-based
mortgages. The types of mortgage pools acquired include non-performing,
charged-off, sub-prime mortgage, typically between ninety days and two
years past due and secured by residential real estate. The Company acquires
both priority ("first") and subordinate ("second") mortgage loans or
"liens". Approximately 1% of the loans acquired are subordinate liens,
which bear the risk of being reclassified as an unsecured loan should the
first lien holder foreclose on the property. The Company primarily acquires
non-performing first lien loan pools of varying amounts from banks and
other lenders at a significant discount from the loans' outstanding legal
principal amount, the total of the aggregate of expected future sales price
and the total payments to be received from obligors.
After the Company acquires the loans, the process of resolution begins with
the borrower, changing the status of the non-performing loans into either
performing loans or foreclosing on the real estate. The Company will resell
a substantial portion of its re-performing loans in various-sized loan
pools. The Company will be required to foreclose on certain properties when
loans held in its portfolio continue to be in default. As a result, the
Company will be engaged in owning single- family dwellings and possibly
other real estate. Such foreclosed real estate will be held, rehabilitated
where necessary, and sold.
The Company commenced full scale operations during the first quarter of
2004. Through December 31, 2003, the Company had purchased three loan pools
on the secondary market and made nominal collections of delinquent loan
principal and interest. Sales of loan pools had not been consummated, nor
were there any foreclosures of secured real estate through December 31,
2003.
Note 2 - Summary of Significant Accounting Policies
------------------------------------------
Portfolio Assets:
Portfolio assets are held for sale and reflected in the accompanying
financial statements as mortgage note receivable pools or real estate
portfolios. The following is a description of each classification and the
related accounting policy accorded to each portfolio type:
F-11
Mortgage Assistance Corporation
Notes to Financial Statements
December 31, 2004 and 2003
Note 2 - Summary of Significant Accounting Policies (Continued)
------------------------------------------
Mortgage Note Receivable Pools:
Mortgage note receivable pools consist primarily of first lien distressed
real estate based mortgages. The cost basis of loan pools acquired consists
of their purchase price from banks or other sellers plus purchase
commissions, if any. Loan pool costs are allocated to individual loans
based on the face value of the unpaid principal of the loans and their
performance status based on the note's expected cash flow. Any payments of
due diligence costs, property taxes, or insurance required are charged to
operations.
Subsequent to acquisition, the adjusted cost of the mortgage note
receivable pools is evaluated for impairment on a quarterly basis. The
evaluation of impairment is determined based on the review of estimated
future cash receipts, which represents the net realizable value of the note
pool. Once it is determined that there is impairment, a valuation allowance
is established for any impairment identified through provisions charged to
operations in the period the impairment is identified. The Company
determined that no impairment allowance was required at December 31, 2004
and 2003.
The Company recognizes gain or loss upon the resale or other resolution of
mortgage loan pools based upon the difference between the selling price of
the loan pool and the cost basis of the individual loans included in the
pool being sold. Collections of delinquent principal and interest payments
are credited against the cost basis of the respective loan.
Real Estate Portfolios:
Real estate portfolios consist of real estate acquired by foreclosures of
individual mortgage notes receivable. Such portfolios are carried at the
lower of cost or fair value less estimated costs to sell. The cost of
foreclosed real estate consists of original loan costs plus any costs
relating to the development and improvement of the real estate for its
intended use. The costs of foreclosure and any required refurbishment costs
to bring the property to resaleable condition, as well as any maintenance,
taxes and insurance costs required during the holding period are charged to
operations. Income or loss is recognized upon the disposal of real estate
at date of closing, based on the difference between selling prices, less
commissions, and capitalized costs. Rental income, net of expenses, on real
estate portfolios is recognized when received. Accounting for the
portfolios is on an individual asset-by-asset basis as opposed to a pool
basis.
Subsequent to acquisition, the amortized cost of real estate portfolios is
evaluated for impairment on a quarterly basis. The evaluation of impairment
is determined based on the review of the estimated future cash receipts,
F-12
Mortgage Assistance Corporation
Notes to Financial Statements
December 31, 2004 and 2003
Note 2 - Summary of Significant Accounting Policies (Continued)
------------------------------------------
which represents the net realizable value of the real estate portfolio. A
valuation allowance is established for any impairment identified through
provisions charged to operations in the period the impairment is
identified. The Company determined that no allowance for impairment was
required at December 31, 2004.
Cash and Cash Equivalents:
The Company considers all highly liquid debt or equity instruments
purchased with an original maturity at the date of purchase of 90 days or
less to be cash equivalents.
Fair Value of Financial Instruments:
The Company's financial instruments include cash, receivables, short-term
payables, and notes payable. The carrying amounts of cash, receivables, and
short-term payables approximate fair value due to their short-term nature.
The carrying amounts of notes payable approximate fair value based on
borrowing terms currently available to the Company.
Advertising Costs:
Advertising costs are expensed as incurred as selling, general and
administrative expenses in the accompanying statement of operations.
Property and Equipment:
Property and equipment acquired are recorded at cost. Depreciation of
property and equipment is determined by the straight line and
double-declining balance methods over estimated useful lives ranging from
two to seven years.
Upon sale, retirement or other disposal of property and equipment, the
related cost and accumulated depreciation are removed from the accounts.
All gains or losses arising from the sale, retirement or other disposition
of property or equipment are reflected in earnings.
Maintenance, repairs, renewals and betterments, in general, are charged to
expense as incurred, except that of major renewals and betterments which
extend the life on an asset or increase the value thereof are capitalized.
Income Taxes:
The Company accounts for income taxes based on Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". SFAS
No. 109 requires the recognition of deferred tax assets and liabilities for
F-13
Mortgage Assistance Corporation
Notes to Financial Statements
December 31, 2004 and 2003
Note 2 - Summary of Significant Accounting Policies (Continued)
------------------------------------------
the future tax consequences attributable to temporary differences between
the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. In addition, SFAS No. 109 requires the
recognition of future tax benefits, such as net operating loss carry
forwards, to the extent that realization of such benefits is more likely
than not. The amount of deferred tax liabilities or assets is calculated by
applying the provisions on enacted tax laws to determine the amount of
taxes payable or refundable currently or in future years. Valuation
allowances are established, when necessary, to reduce deferred tax assets
when it is more likely than not that all or a portion of the deferred tax
asset will not be realized.
Net Loss Per Share:
The Company computes net income (loss) per share in accordance with SFAS
No. 128, Earnings per Share and SEC Staff Accounting Bulletin No. 98 ("SAB
98"). Under the provisions of SFAS No. 128 and SAB 98, basic net income
(loss) per share is calculated by dividing net income (loss) available to
common stockholders for the period by the weighted average number of common
shares outstanding during the period.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the 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.
Reclassifications:
Certain prior year amounts have been reclassified to conform to the 2004
presentation. These changes had no impact on previously reported results of
operations or stockholders' equity.
Note 3 - Asset Acquisition
-----------------
Effective January 1, 2004, the Company acquired the assets of Mortgage
Solution Partners ("MSP"), a proprietorship owned by a principal officer of
the Company. Under the terms of the agreement, the Company acquired assets
with a cost basis of $416,549, of which $404,415 represented the cost basis
of certain mortgage note receivable pools. No cash was required for the
acquisition, with the Company assuming debt of $416,549, including a
long-term note payable obligation to an individual in the amount of
$223,200.
F-14
Mortgage Assistance Corporation
Notes to Financial Statements
December 31, 2004 and 2003
Note 4 - Portfolio Assets
----------------
Portfolio assets were comprised of the following at December 31, 2004 and
2003:
2004 2003
---------- ----------
Mortgage note receivable pools $ 554,642 $ 586,228
Real estate portfolios 150,976 --
Other 59,250 --
---------- ----------
Total portfolio assets 764,868 586,228
Valuation allowance for impairment -- --
---------- ----------
Net portfolio assets $ 764,868 $ 586,228
========== ==========
Portfolio assets are pledged to secure non-recourse notes payable to
individuals (See Note 6).
Note 5 - Investment in Joint Venture
---------------------------
Effective September 30, 2004, the Company acquired a 50% interest in
MAP/MAC, LLC, a joint venture with an unrelated party formed for the
purpose of acquiring mortgage note receivable pools in the secondary
market. The Company's investment in MAP/MAC, LLC is accounted for using the
equity method.
F-15
Mortgage Assistance Corporation
Notes to Financial Statements
December 31, 2004 and 2003
Note 5 - Investment in Joint Venture (Continued)
---------------------------
A summary of the results of operations for the period ended December 31,
2004, and net assets at December 31, 2004 for MAP/MAC, LLC is as follows:
Results of operations:
Total revenues $ 176,378
Operating profit 55,594
Net income 55,594
Net assets:
Current assets $ 393,229
Noncurrent assets --
------------
Total assets 393,229
Current liabilities (313,635)
------------
$ 79,594
============
Note 6 - Notes Payable
-------------
At December 31, 2004, notes payable to individuals were comprised of the
following:
2004 2003
-------- --------
Loan due interest only monthly at 16%,
maturing February 2006 $223,200 $ --
Loans due interest only on a monthly
basis, maturing January 2005, with a
weighted average interest rate of 12.8% 258,000 258,000
Loans due principal and accrued interest at
10% at maturity in March 2005 210,000 --
F-16
Mortgage Assistance Corporation
Notes to Financial Statements
December 31, 2004 and 2003
Note 6 - Notes Payable (Continued)
-------------
2004 2003
---------- ----------
Loan due $50,000 January 2005, with balance
of $150,000 due March 2005, interest at 2%
payable monthly (10% beginning January 2005)
plus issuance of 50,000 shares of common
stock at inception and 5,000 shares monthly,
beginning November 2004, in lieu of additional
interest $ 200,000 $ 200,000
Loan due $50,000 January 2005, with balance
of $100,000 due February 2006, issuance of
30,000 shares of common stock at inception
and 1,800 shares monthly beginning April 2005
through maturity in lieu of interest 150,000 150,000
Loan due interest only on a monthly basis at 18%,
maturing July 2005 150,000 --
Loans due interest only on a monthly or
quarterly basis at 10%, maturing March
2005 through 2006 130,000 20,000
---------- ----------
Total 1,321,200 628,000
Less portion due within one year 948,000 478,000
---------- ----------
$ 373,200 $ 150,000
========== ==========
The loans from individuals are secured by certain real estate mortgage note
receivable pools.
As described above, the Company's loans from individuals have interest
rates ranging from 2% to 18% and/or require the issuance of shares of
common stock in addition to or in lieu of interest, using an assumed value
of $1.00 per share. In 2003, 81,000 shares of the Company's common stock
were issued to certain individuals to satisfy loan interest requirements.
F-17
Mortgage Assistance Corporation
Notes to Financial Statements
December 31, 2004 and 2003
Note 6 - Notes Payable (Continued)
-------------
No shares of common stock were issued under such arrangements in 2004,
however accrued interest payable at December 31, 2004 includes a provision
for interest payable via future stock issuances. At December 31, 2004, the
Company was obligated for approximately $45,000 worth of future stock
issuances in order to satisfy interest requirements through maturity of the
related loans.
The weighted average interest rate on debt to individuals was 17.1% and
20.0% for 2004 and 2003, respectively.
At December 31, 2004, maturities of notes payable to individuals were as
follows:
2005 $948,000
2006 373,200
Note 7 - Related Party Transactions
--------------------------
During the periods ended December 31, 2004 and 2003, the Company engaged in
certain transactions with the Company's three principal officers and
stockholders and with three affiliated entities, Mortgage Solutions
Partners ("MSP"), a proprietorship, Abovo Corporation, and Vision Ads, Inc.
("VA"), a corporation dba "Red Horse Realty", all owned by the Company's
Vice-President. During the year ended December 31, 2004, the Company also
engaged in certain transactions with two other affiliated entities,
MAP/MAC, LLC (an unincorporated joint venture) and Mortgage Assistance
Center Corporation ("MACC").
In 2003, the Company earned $6,141 for advances to MSP for the purchase and
management of mortgage note receivable pools acquired by MSP. Additionally,
the Company incurred fee expense of $20,259 to MSP for the management and
administration of certain MAC loans by MSP. MSP was engaged in
substantially the same business as the Company. MSP's assets were acquired
by the Company in a purchase transaction effective January 1, 2004 (See
Note 3). The Company had a receivable of $78,177 from MSP at December 31,
2003 which was eliminated in the purchase transaction.
Upon the acquisition of MSP, the Company assumed debts owed to Abovo
Corporation by MSP. Abovo Corporation engages in the purchase and sale of
residential real estate, and often carries the note receivable with its
purchasers. In 2004, the Company began servicing Abovo Corporation's real
estate loans and recognized $25,234 in service fee income.
F-18
Mortgage Assistance Corporation
Notes to Financial Statements
December 31, 2004 and 2003
Note 7 - Related Party Transactions (Continued)
--------------------------
At December 31, 2004, the Company had an account payable to Abovo
Corporation of $18,422.
The Company and VA, a real estate management firm, share certain office
space, personnel and other administrative costs. The Company and VA record
their proportionate share of the common expenses based on the relative
proportion of total personnel utilized by the two entities. As a result of
these transactions, VA owed the Company $19,490 at December 31, 2004, while
the Company owed VA $36,360 at December 31, 2003.
Two of the Company's principal officers and stockholders made cash advances
to, and paid certain expenses on behalf of the Company. Such unpaid
advances were non-interest bearing and due upon demand and amounted to
$66,963 at December 31, 2003. Effective December 31, 2004, the outstanding
balance of debt owed to the officers, $97,647, was forgiven by the officers
and contributed to additional paid-in-capital.
During the periods ended December 31, 2004 and 2003, the Company's
principal officers did not receive salaried compensation for their
services. The Company paid an officer and stockholder $69,050 and $17,500
for consulting services during the periods ended December 31, 2004 and
2003, respectively.
During 2004, the Company paid certain expenses on behalf of MAP/MAC, LLC, a
50%-owned joint venture of the Company (See Note 5) and Mortgage Assistance
Center Corporation, a planned merger partner (See Note 11). The Company
also charged MAP/MAC, LLC fees for servicing its note pools. Such fees
amounted to $21,279 for the year ended December 31, 2004. At December 31,
2004, the Company had accounts receivable from MAP/MAC and MACC of $27,261
and $42,860, respectively.
Note 8 - Income Taxes
------------
The deferred tax consequences of temporary differences in reporting items
for financial statement and income tax purposes are recognized, if
appropriate. Realization of the future tax benefits related to the deferred
tax assets is dependent on many factors, including the Company's ability to
generate taxable income within the net operating loss carry forward period.
Management has considered these factors in reaching its conclusion as to
the valuation allowance for financial reporting purposes. The income tax
effect of temporary differences comprising the deferred tax assets and
deferred tax liabilities on the accompanying balance sheets at December 31,
2004 and 2003 is a result of the following:
F-19
Mortgage Assistance Corporation
Notes to Financial Statements
December 31, 2004 and 2003
Note 8 - Income Taxes (Continued)
------------
2004 2003
--------- ---------
Deferred tax assets:
Federal tax operating loss carryforward $ 74,900 $ 99,400
Accrued fees and wages 64,000 33,200
Other (3,800) (1,800)
--------- ---------
Total gross deferred tax assets 135,100 130,800
Valuation allowance (135,100) (130,800)
--------- ---------
Net deferred tax assets $ -- $ --
========= =========
A reconciliation between the statutory federal income tax rate (34%) and
the effective rate of income tax expense (benefit) for the periods ended
December 31, 2004 and 2003 follows:
2004 2003
--------- ---------
Statutory federal tax rate (34%) (34%)
Increase (decrease) in taxes resulting from:
State tax, net of federal benefit -- --
Increase (decrease) in valuation allowance 34 34
--------- ---------
Effective rate -- --
========= =========
At December 31, 2004 the Company had an available net operating loss carry
forward of approximately $220,000 to offset future taxable income. The net
operating loss will expire if not utilized by 2023.
F-20
Mortgage Assistance Corporation
Notes to Financial Statements
December 31, 2004 and 2003
Note 9 - Lease
-----
The Company leases space for its corporate offices under a two-year
operating lease expiring in September 2005. The lease terms require total
rentals of $56,285 in cash over the two-year period plus 20,000 shares of
the Company's common stock in order to compensate for below-market cash
rent over the lease term. The lease is guaranteed by an officer of the
Company.
The lease requires the Company to pay all taxes, insurance and maintenance
costs associated with the leased premises. The lease contains a renewal
option for an additional three years. Rent expense under this lease was
$38,314 and $10,190 for the periods ended December 31, 2004 and 2003,
respectively.
At December 31, 2004, minimum future cash rentals under this noncancellable
operating lease were $22,455.
Note 10 - Earnings Per Share
------------------
December 31, December 31,
2004 2003
------------ ------------
Primary earnings per share:
Common shares outstanding 5,331,350 5,306,350
------------ ------------
Weighted average shares outstanding 5,331,213 2,955,768
------------ ------------
Earnings (loss) per share $ (0.01) $ (0.13)
============ ============
Fully diluted earnings per share:
Common shares outstanding 5,331,350 5,306,350
------------ ------------
Weighted average shares outstanding 5,331,213 2,955,768
------------ ------------
Earnings (loss) per share $ (0.01) $ (0.13)
============ ============
F-21
Mortgage Assistance Corporation
Notes to Financial Statements
December 31, 2004 and 2003
Note 11 - Proposed Business Combination
-----------------------------
In May 2003 the Company signed a letter agreement with an unrelated third
party to acquire the common shares of Mortgage Assistance Center
Corporation (formerly Safe Alternatives Corporation of America, Inc.) a
publicly traded (NASDQ) Florida corporation. Since July 1, 2002, MACC has
not had assets or operating activities. Under the terms of the agreement
the Company agreed to pay $460,000 in varying installments to the third
party by September 2003. The Company, after paying $165,000, failed to make
the remaining installment payments and the agreement was terminated in
2004. The $165,000 was charged to operations in the period ending December
31, 2003.
On May 14, 2004 the Company executed a Letter of Intent with MACC, whereby
subject to the approval of MACC's shareholders, the Company offered to be
acquired by MACC on the following terms and conditions: MACC board will
call a special shareholders 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 MACC 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 Center Corporation;
3. Change the authorized number of common shares to be issued from
175,000,000 to 50,000,000 shares;
4. Authorize a business combination whereby MACC 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.
Under the terms of the agreement, the Company agreed to pay $175,000 to a
third party agent and sign a promissory note for $120,000, to be paid by
June 15, 2004. Additionally the Company agreed to assume the responsibility
to pay for certain costs and expenses for auditor's fees, legal fees,
transfer agent fees and EDGAR filing fees incurred by MACC after September
2003. Through December 31, 2004, the Company had incurred $42,860 of such
costs and expenses, and the Company has complied with the terms of the
agreement as of the date of the auditor's report.
To facilitate the merger or business combination with the Company and MACC,
in March 2004, the board of directors of MACC resigned, and the
shareholders elected Dale Hensel sole Director, President, Chief Executive
Officer and Chief Financial Officer. Mr. Hensel is also President of the
Company.
The completion of the merger is expected to occur in the second quarter of
2005.
F-22
Mortgage Assistance Corporation
Notes to Financial Statements
December 31, 2004 and 2003
Note 11 - Proposed Business Combination (Continued)
-----------------------------
The proforma combined balance sheet at December 31, 2004 is as follows:
Mortgage
Mortgage Assistance
Assistance Center Proforma
Corporation Corporation Combined*
----------- ----------- -----------
Assets
Current Assets $ 1,465,146 $ -- $ 1,422,286
Property and Equipment (Net) 47,219 -- 47,219
Investments & Other Assets 337,797 -- 42,797
----------- ----------- -----------
Total Assets $ 1,850,162 $ -- $ 1,512,302
=========== =========== ===========
Liabilities & Equity (Deficit)
Current Liabilities $ 1,432,376 $ 68,731 $ 1,458,247
Long-term Debt 373,200 -- 373,200
Equity (Deficit) 44,586 (68,731) (319,145)
----------- ----------- -----------
Total Liabilities & (Deficit) $ 1,850,162 $ -- $ 1,512,302
=========== =========== ===========
*After elimination of intercompany balances of $42,860 and cost of
investment in public company of $295,000.
F-23
Mortgage Assistance Corporation
Notes to Financial Statements
December 31, 2004 and 2003
Note 11 - Proposed Business Combination (Continued)
-----------------------------
The proforma combined statement of operations for the year ended December
31, 2004 is as follows
Mortage
Mortgage Assistance
Assistance Center Proforma
Corporation Corporation Combined*
----------- ----------- -----------
Revenues $ 3,992,245 $ -- $ 3,992,245
----------- ----------- -----------
Cost of Portfolios Sold 2,786,562 -- 2,786,562
Selling, General &
Administrative Expenses 1,046,999 72,955 1,119,954
Interest Expense 199,414 2,321 201,735
Compensation expense related
to common stock issuances
at less than fair value -- 838,736 838,736
Costs of acquisition
of public company -- -- 295,000
Other (income)
expenses (net) (17,932) -- (17,932)
----------- ----------- -----------
Total Expenses 4,015,043 914,012 5,224,055
----------- ----------- -----------
Net Operating Income (loss) (22,798) (914,012) (1,231,810)
Benefit For Income Taxes -- -- --
----------- ----------- -----------
Net Loss $ (22,798) $ (914,012) $(1,231,810)
=========== =========== ===========
F-24
MORTGAGE ASSISTANCE CENTER CORPORATION
(Formerly Safe Alternatives Corporation of America, Inc.)
And
MORTGAGE ASSISTANCE CORPORATION
PRO FORMA COMBINED FINANCIAL STATEMENTS
December 31, 2004
Mortgage Assistance Center Corporation
(Formerly Safe Alternatives Corporation of America, Inc.)
TABLE OF CONTENTS
Page
----
Report of Independent Public Accountant's on Examination of
Pro Forma Adjustments ....................................................F-1
Financial Statements:
Pro Forma Combined Balance Sheet as of December 31, 2004=....................F-2
Pro Forma Combined Statement of Income for the
Year Ended December 31, 2004..............................................F-3
Notes to Pro Forma Combined Financial Statements.......................F-4 - F-5
Report of Independent Public Accountants on
Examination of Pro Forma Financial Information
To the Board of Directors and Stockholders of Mortgage Assistance Center
Corporation
We have examined the pro forma adjustments reflecting the transaction described
in Note 1 and the application of those adjustments to the historical amounts in
the accompanying pro forma combined balance sheet of Mortgage Assistance Center
Corporation as of December 31, 2004, and the pro forma combined statement of
income for the year then ended. The historical condensed financial statements
are derived from the historical financial statements of Mortgage Assistance
Center Corporation (formerly Safe Alternatives Corporation of America, Inc.),
and Mortgage Assistance Corporation, both of which we audited, and appearing
elsewhere herein. Such pro forma adjustments are based upon management's
assumptions described in Note 2. Our examination was made in accordance with
standards established by the American Institute of Certified Public Accountants
and, accordingly, included such procedures as we considered necessary in the
circumstances.
The objective of this pro forma financial information is to show what the
significant effects on the historical information might have been had the
transaction occurred at an earlier date. However, the pro forma condensed
financial statements are not necessarily indicative of the results of operations
or related effect on financial position that would have been attained had the
above-mentioned transaction actually occurred earlier.
In our opinion, management's assumptions provide a reasonable basis for
presenting the significant effects directly attributable to the above mentioned
transaction described in Note 1, the related pro forma adjustments give
appropriate effect to those assumptions, and the pro forma column reflects the
proper application of those adjustments to the historical financial statement
amounts in the pro forma combined balance sheet as of December 31, 2004 and the
pro forma combined statement of income for the year then ended.
Sutton Robinson Freeman & Co., P.C.
Certified Public Accountants
April 12, 2005
Tulsa, Oklahoma
F-1
Mortgage Assistance Center Corporation
(Formerly Safe Alternatives Corporation of America, Inc.)
Pro Forma Combined Balance Sheet
December 31, 2004
Historical
Mortgage Historical Pro Forma
Assistance Mortgage Combining and
Center Assistance Consolidating Pro Forma
Corporation Corporation Entries Combined
------------- ------------- ------------- -------------
ASSETS
Current Assets $ -- $ 1,465,146 $ (42,860) $ 1,422,286
Property and Equipment (net) -- 47,219 -- 47,219
Investment and other assets -- 337,797 (295,000) 42,797
------------- ------------- ------------- -------------
Total Assets $ -- $ 1,850,162 $ (337,860) $ 1,512,302
============= ============= ============= =============
LIABILITIES & STOCKHOLDERS' EQUITY
Liabilities
Current Liabilities $ 68,731 $ 1,432,376 $ (42,860) $ 1,458,247
Long-Term Debt 0 373,200 373,200
------------- ------------- -------------
68,731 1,805,576 1,831,447
------------- ------------- -------------
Stockholders' Equity
Stockholders' equity (68,731) 44,586 (295,000) (319,145)
------------- ------------- ------------- -------------
Total Liabilities & Stockholders' Equity $ -- $ 1,850,162 $ (337,860) $ 1,512,302
============= ============= ============= =============
See Accountant's Report on Pro Forma Financial Information.
The accompanying notes to pro forma combined financial information are an
integral part of these financial statements.
F-2
Mortgage Assistance Center Corporation
(Formerly Safe Alternatives Corporation of American, Inc.)
Pro Forma Statement of Operations
For the Year Ended December 31, 2004
Historical
Mortgage Historical
Assistance Mortgage
Center Assistance Pro forma Pro Forma
Corporation Corporation Transactions Combined
------------ ------------ ------------ ------------
Revenues $ -- $ 3,992,245 $ 3,992,245
Cost of Revenues -- 2,786,562 2,786,562
------------ ------------ ------------
Gross Profit -- 1,205,683 1,205,683
------------ ------------ ------------
Operating Expenses:
Compensation expense related to common stock
issuance at less than fair market value 838,736 -- 838,736
Selling, general & administrative expense 72,955 1,046,999 1,119,954
Interest expense 2,321 199,414 201,735
Merger related expenses -- -- 295,000 295,000
Other (income) expense, net -- (17,932) (17,932)
------------ ------------ ------------
Operating Expenses 914,012 1,228,481 2,437,493
------------ ------------ ------------
Operating Income (Loss) (914,012) (22,798) (1,231,810)
Income Tax Expense (Benefit) -- -- --
------------ ------------ ------------
Net Income (Loss) (914,012) (22,798) (1,231,810)
Weighted Average Shares Outstanding 664,603 5,331,213 12,664,603
============ ============ ============
Loss Per Share $ (1.38) $ (0.01) $ (0.10)
============ ============ ============
See Accountant's Report on Pro Forma Financial Information.
The accompanying notes to pro forma combined financial information are an
integral part of these financial statements.
F-3
MORTGAGE ASSISTANCE CENTER CORPORATION
(Formerly Safe Alternatives corporation of America,
Inc.)
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2004
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Summary of Pro Forma Transactions - The December 31, 2004 pro forma
combined balance sheet of Mortgage Assistance Center Corporation ("MACC")
has been prepared assuming the Company consummated the acquisition of
Mortgage Assistance Corporation (MAC) on December 31, 2004. The pro forma
combined statement of income for the year ended December 31, 2004, has been
prepared assuming the Company consummated the transaction on January 1,
2004.
2. ACQUISITION OF MORTGAGE ASSISTANCE CORPORATION
These adjustments give effect to the business combination on a purchase
basis of Mortgage Assistance Corporation at January 1, 2004 for the
statements of income and at December 31, 2004 for the balance sheet.
To facilitate the merger or business combination with the Company and MAC,
in March 2004, the board of directors of MACC resigned, and the
shareholders elected Dale Hensel sole Director, President, Chief Executive
Officer and Chief Financial Officer. Mr. Hensel is also President of the
MAC.
On May 14, 2004 MAC executed a Letter of Intent with the Company, whereby
subject to the approval of MACC's shareholders, MAC offered to be acquired
by MACC on the following terms and conditions: MACC board will call a
special shareholders 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 MACC 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 Center Corporation;
3. Change the authorized number of common shares to be issued from
175,000,000 to 50,000,000 shares;
4. Authorize a business combination whereby MACC will exchange
12,000,000 post reverse split common shares for all of the issued
and outstanding common stock of MAC; and
5. Any such further recommendations as may be considered reasonable
and in the best interest of the shareholders.
On May 14, 2004, majority shareholder consent in lieu of a special meeting
of shareholders approved the actions required above. As of December 31,
2004, the Company's Articles of Incorporation had been amended for the name
change and the reduction in authorized number of common shares. The reverse
stock split was initiated in May 2004.
F-4
MORTGAGE ASSISTANCE CENTER CORPORATION
(Formerly Safe Alternatives of America, Inc.)
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2004
2. ACQUISITION OF MORTGAGE ASSISTANCE CORPORATION (continued)
Under the terms of the agreement, MAC agreed to assume the responsibility
to pay for certain costs and expenses for auditor's fees, legal fees,
transfer agent fees and EDGAR filing fees incurred by MACC after September
2003. Through December 31, 2004, MAC had incurred $42,860 of such costs and
expenses, and complied with the terms of the agreement through the date of
the auditor's report.
The preceding statements with respect to the business combination are a
brief summary thereof. While the summary is accurate, it does not purport
to be complete and reference is made to the Schedule 14C and Form 8-K for a
complete statement of the Merger. The letter of intent is filed as an
Exhibit to the Current Report on Form 8-K and is incorporated herein by
this reference.
The historical financial statement information of Mortgage Assistance
Center Corporation and Mortgage Assistance Corporation, as of and for the
year ended December 31, 2004 is derived from their audited financial
statements, which were audited by us.
F-5