PSM HOLDINGS INC - FORM 8-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K/A-1

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported): March 15, 2011

PSM Holdings, Inc.

(Exact Name of Registrant as Specified in its Charter)

Nevada	333-151807	90-0332127
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)

1112 N. Main Street, Roswell, NM	88201
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code: (575) 624-4170

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:

	[ ]	Written communications pursuant to Rule 425 under the Securities Act

	[ ]	Soliciting material pursuant to Rule 14a-12 under the Exchange Act

	[ ]	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act

	[ ]	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act

Item 9.01 Financial Statements and Exhibits

On March 16, 2011, our acquisition of United Community Mortgage Corporation (“UCMC”), a New Jersey corporation, was completed. A report on Form 8-K disclosing the transaction was filed with the Commission on March 17, 2011. The following audited financial statements of UCMC and pro forma financial information required pursuant to this item for this transaction are included with this amended report:

(a) Financial statements of business acquired. (page 3)

Independent Auditor's Report - 2010 (page 3)

Balance Sheets at December 31, 2010 and 2009

Statements of Income for the Years Ended December 31, 2010 and 2009

Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2010 and 2009

Statements of Cash Flows for the Years Ended December 31, 2010 and 2009

Notes to Financial Statements for the Years Ended December 31, 2010 and 2009

Independent Auditor's Report - 2009 (page 14)

Balance Sheet at December 31, 2009

Statement of Income for the Year Ended December 31, 2009

Statement of Changes in Stockholders’ Equity for the Year Ended December 31, 2009

Statement of Cash Flows for the Year Ended December 31, 2009

Notes to Financial Statements for the Year Ended December 31, 2009

(b) Pro forma financial information. (page 24)

Pro forma financial information required by this item is included in this amended report.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this amended report to be signed on its behalf by the undersigned hereunto duly authorized.

	PSM Holdings, Inc.



Date: May 31, 2011	By:	/s/ Ron Hanna
		Ron Hanna, President

(a) Financial statements of business acquired.

UNITED COMMUNITY MORTGAGE CORPORATION

FINANCIAL REPORT

DECEMBER 31, 2010 AND 2009

UNITED COMMUNITY MORTGAGE CORPORATION

F.H.A. LICENSE NO. 12782-0000-5

CONTENTS


		PAGE

INDEPENDENT AUDITOR'S REPORT - 2010		5

FINANCIAL STATEMENTS:

	Balance Sheets	6

	Statements of Income	7

	Statements of Changes in Stockholders' Equity	8

	Statements of Cash Flows	9

	Notes to Financial Statements	10-13

INDEPENDENT AUDITOR’S REPORT

To the Stockholders of

United Community Mortgage Corporation

Keyport, New Jersey

I have audited the accompanying balance sheet of the United Community Mortgage Corporation as of December 31, 2010 and the related statements of income, changes in stockholders’ equity, and cash flows for the year then ended. The financial statements are the responsibility of the Company’s management. My responsibility is to express an opinion on these financial statements based on my audit. The financial statements of United Community Mortgage Corporation as of December 31, 2009, were audited by other auditors whose report dated March 27, 2010,expressed an unqualified opinion on those statements.

I conducted my audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Corporation’s internal control over financial reporting. An audit also includes examining, on a test basis, evidence supporting the amount and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provide a reasonable basis for my opinion.

In my opinion, the 2010 financial statements referred to above present fairly, in all material respects, the financial position of the United Community Mortgage Corporation as of December 31, 2010, and the results of its operations, changes in stockholders’ equity, and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

Matawan, New Jersey

April 12, 2011

UNITED COMMUNITY MORTGAGE CORPORATION

F.H.A. LICENSE NO. 12782-0000-5

BALANCE SHEETS

DECEMBER 31, 2010 AND 2009

ASSETS
	2010		2009
CURRENT ASSETS
Cash and equivalents	$	228,469	$	110,829
Other receivables		856,213		683,886
Mortgage loans available-for-sale		-		542,871

Total current assets		1,084,682		1,337,586

PROPERTY AND EQUIPMENT, Net of accumulated depreciation and amortization		19,219		43,469

OTHER ASSETS
Note receivable		-		550,000
Security deposits		8,375		10,439

Total other assets		8,375		560,439

TOTAL ASSETS	$	1,112,276	$	1,941,494

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable and accrued expenses	$	18,141	$	35,360
Note payable - warehouse credit line		-		907,203

Total current liabilities		18,141		942,563

STOCKHOLDERS' EQUITY

Common stock, no par value; 1,000 share authorized; issued and outstanding		495,000		495,000
Preferred stock, $1,000 par value; 571.2 and 550 shares authorized; 2009 and 2010, respectively issued and outstanding		571,200		550,000
Retained earnings		27,935		(46,069	)

Total stockholders' equity		1,094,135		998,931

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	1,112,276	$	1,941,494

The accompanying notes are an integral part of these financial statements.

UNITED COMMUNITY MORTGAGE CORPORATION

F.H.A. LICENSE NO. 12782-0000-5

STATEMENTS OF INCOME

YEARS ENDED DECEMBER 31, 2010 AND 2009

	2010			2009
REVENUE
Loan origination fees	$	851,657		$	2,067,709
Loss on sale of fixed asset		(7,000	)		-

Total revenue		844,657			2,067,709

EXPENSES
Direct costs		95,558			664,378
Salaries		257,858			607,250
Payroll taxes and employee benefits		71,412			172,386
Occupancy		54,623			85,622
Advertising and promotion		8,096			16,454
Interest expense		48,285			167,447
Office supplies and expense		51,112			94,942
Telephone		18,745			29,727
Audit fees		11,100			18,000
Legal fees		9,410			4,300
Other professional fees		33,433			57,860
Insurance		9,027			16,421
Auto and travel		57,624			56,954
Repairs and maintenance		15,097			9,782
Miscellaneous		2,297			51,804
License and permits		7,392			4,812
Depreciation and amortization		17,250			17,250

Total expenses		768,319			2,075,389

INCOME (LOSS) FROM OPERATIONS		76,338			(7,680	)

Provision for income taxes		2,334			2,345

NET INCOME (LOSS)	$	74,004		$	(10,025	)

The accompanying notes are an integral part of these financial statements.

UNITED COMMUNITY MORTGAGE CORPORATION

F.H.A. LICENSE NO. 12782-0000-5

STATEMENTS OF CHANGES IN STOCKHOLDER' EQUITY

YEARS ENDED DECEMBER 31, 2010 AND 2009

	Common		Preferred		Retained
	Stock		Stock		Earnings			Total

BALANCE, JANUARY 1, 2009	$	495,000	$	550,000	$	(36,044	)	$	1,008,956

Net loss		-		-		(10,025	)		(10,025	)

BALANCE, JANUARY 1, 2010		495,000		550,000		(46,069	)		998,931

Issuance of Perferred Stock		-		21,200		-			21,200

Net income		-		-		74,004			74,004

BALANCE, DECEMBER 31, 2010	$	495,000	$	571,200	$	27,935		$	1,094,135

The accompanying notes are an integral part of these financial statements.

UNITED COMMUNITY MORTGAGE CORPORATION

F.H.A. LICENSE NO. 12782-0000-5

STATEMENTS OF CHANGES IN CASH FLOWS

YEARS ENDED DECEMBER 31, 2010 AND 2009

	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	74,004		$	(10,025	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Loss on sale of fixed asset		7,000			-
Depreciation and amortization		17,250			17,250
Changes in operating assets and liabilities:
Mortgage loans available-for-sale		542,871			2,097,057
Other receivables		377,673			(451,192	)
Security deposits		2,064			-
Accounts payable and accrued expenses		(17,219	)		(47,015	)

NET CASH PROVIDED BY OPERATING ACTIVITIES		1,003,643			1,606,075

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		-			(14,633	)

NET CASH PROVIDED BY INVESTING ACTIVITIES		-			(14,633	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on note payable - warehouse credit line, net		(907,203	)		(1,597,770	)
Shareholder contribution		21,200			-
Repayment on long-term debt		-			(4,186	)

NET CASH USED IN FINANCING ACTIVITIES		(886,003	)		(1,601,956	)

NET INCREASE (DECREASE) IN CASH		117,640			(10,514	)

CASH, beginning of year		110,829			121,343

CASH, end of year	$	228,469		$	110,829

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest	$	48,285		$	167,447
Income taxes	$	1,560		$	2,352

The accompanying notes are an integral part of these financial statements.

UNITED COMMUNITY MORTGAGE CORPORATION

NOTES TO THE FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2010 AND 2009

NOTE 1 - NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Nature of the Business – United Community Mortgage Corporation (the “Corporation”) was formed under the laws of the State of New Jersey. The Corporation is a HUD Approved Title II loan correspondent licensed In the State of New Jersey as a mortgage banker, whose principle activity is the origination of mortgages for assignment to other institutions.

Use of Estimates - The preparation of financial statements in conformity with general accepted accounting principles in the United States (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.

Cash and Equivalents - The Corporation considers all investments with a maturity date of three months or less to be cash equivalents.

Other Receivables – The other receivables arise in the normal course of business. It is the policy of management to review the outstanding other receivables at year end, as well as the bad debt write-offs experienced in the past, and establish an allowance for doubtful accounts for uncollectible amounts. No allowance for doubtful accounts has been established as of December 31, 2010 and 2009.

Mortgage Loans Available-for-Sale – Mortgage loans originated and intended for sale are carried at the lower of cost or estimated market value in the aggregate.

Revenue Recognition – Loan origination and other fees from loans originated for sponsoring lenders represent points, application fees, and premiums and recognized as income at closing. Loan origination and other fees from loans held for sale to investors represent points and application fees received at closing and premiums received upon sales of mortgages. These receipts are deferred until mortgages are sold, at which time they are recognized in income. Interest is recognized upon receipt at the date of the mortgage sale.

Property, Equipment and Depreciation – Property and equipment are carried at cost less accumulated depreciation. Depreciation of property and equipment is provided using the straight-line method over estimated useful lives. Expenditures for major renewals and betterment that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred.

UNITED COMMUNITY MORTGAGE CORPORATION

NOTES TO THE FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2010 AND 2009

NOTE 1 - NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

Income Taxes – Current income taxes are based on the year’s tax table for Federal and State income tax reporting purposes. Deferred income taxes arise due to timing differences resulting from the recording of income and expense items in different periods.

In 2009, the Corporation adopted FASB ASC 740-10-05, Accounting for Uncertainty in Income Taxes. The Corporation recognizes the tax benefits from uncertain tax positions only if it is more likely than not that a tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. There was no cumulative effect on the Corporation resulting from the adoption of this new accounting principle.

Management has determined that there are no unrecognized tax benefits that will significantly increase or decrease over the next twelve months, nor has the Corporation incurred any interest or penalties related to income tax expense during the years ended December 31, 2010 and 2009.

Advertising Costs – Advertising costs for the years ended December 31, 2010 and 2009 were $8,096 and $16,454, respectively, and are charged to operations as incurred, and are included under advertising and promotion on the accompanying financial statements.

Subsequent Events – The Corporation has evaluated subsequent events through March 30, 2010, which is the date the financial statements were available to be issued.

NOTE 2 – MORTGAGE LOANS AVAILABLE-FOR-SALE AND WAREHOUSE LOANS PAYABLE:

Mortgage loans available-for-sale consist of the Corporation’s inventory of customer mortgage notes receivable. Mortgage loans available-for-sale are stated at the lower of aggregate cost, net of origination discounts, or market value. Market value is determined by purchase commitments from investors. The mortgages are subject to notes payable by the Corporation to a financial institution providing financing under a warehouse line-of-credit.

The Corporation maintains a warehouse line-of-credit with a financial institution for $3,000,000, used to fund mortgages held for sale to investors. Funds are advanced to the Corporation under the line-of-credit, subject to various terms and conditions specified in the mortgage warehouse loan and security agreement including the receipt by the lender of an assignment of the mortgages held for sale. The warehouse line-of-credit matures May 31, 2011.

Interest accrues on any funds advanced under the warehouse line-of-credit at varying rates, payable monthly. Interest incurred under the warehouse line-of-credit during the years ended December 31, 2010 and 2009 were $29,921 and $167,447, respectively.

Under the terms of the warehouse line-of-credit, the Corporation must meet certain minimum net worth requirements as well as comply with other restrictive covenants.

UNITED COMMUNITY MORTGAGE CORPORATION

NOTES TO THE FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2010 AND 2009

NOTE 3 – PROPERTY AND EQUIPMENT:

Property and equipment at December 31, 2010 and 2009 consist of the following:

	2010		2009
Furniture and equipment	$	111,218	$	111,218
Leasehold improvements		9,795		9,795
Software		1,272		1,272
Vehicle		-		7,000
		122,285		129,285
Less: Accumulated Depreciation		103,066		85,816
	$	19,219	$	43,469

NOTE 4 – CONCENTRATIONS OF CREDIT RISK:

The Corporation’s lending activities are concentrated in one-to-four family and home improvement loans that are secured by property located within the New Jersey area. HUD insured loans represented approximately for the years ended December 31, 2010 and 2009 73% and 1%, respectively, of the originated loans. All originated loans insured by HUD must be assigned to HUD approved sponsors.

The Corporation maintains cash with various financial institutions. The Federal Deposit Insurance Corporation insures accounts at each institution up to $250,000. At times, cash balances may exceed insured limits.

NOTE 5 – RELATED PARTY TRANSCATIONS:

The Corporation rents office space from an entity controlled by the stockholder. Rent paid to the related entity was $6,250 and $15,000 in 2010 and 2009, respectively.

NOTE 6 – REGULATORY MATTERS:

The corporation is subject to various regulatory capital requirements administered by HUD and various state agencies. Failure to meet minimum capital requirements can result in certain mandatory and discretionary actions from state regulators and HUD that, if undertaken, could have a direct material effect on the financial statements. The Corporation must maintain minimum net worth for New Jersey of $50,000 and $63,000 for HUD. As of December 31, 2010 and 2009, the Corporation was in compliance with these requirements.

UNITED COMMUNITY MORTGAGE CORPORATION

NOTES TO THE FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2010 AND 2009

NOTE 7 – LEASE COMMITMENTS:

The Corporation occupies office space under an operating lease agreement effective March 1, 2007 and ending February 28, 2012. Rent expense charged to operations was $48,373 and $53,234 for the years ended December 31, 2010 and 2009, respectively.

The required minimum rental payments under the terms of the lease are as follows:

Year Ending December 31,
2011	$	36,150
2012		9,400

	$	45,500

The Corporation also rents other office space on a month-to-month basis from a related party see Note 5.

UNITED COMMUNITY MORTGAGE CORPORATION

FINANCIAL REPORT

DECEMBER 31, 2009

UNITED COMMUNITY MORTGAGE CORPORATION

F.H.A. LICENSE NO. 12782-0000-5

CONTENTS


		PAGE

INDEPENDENT AUDITOR'S REPORT - 2009		16

FINANCIAL STATEMENTS:

	Balance Sheet	17

	Statement of Income	18

	Statement of Changes in Stockholders' Equity	19

	Statement of Cash Flows	20

	Notes to Financial Statements	21-23

(b) Pro Forma financial information

PSM Holdings, Inc. and Subsidiaries

Unaudited Pro Forma Financial Information

The following presents our unaudited pro forma financial information. The pro forma statements of operations give effect to the business acquisition of United Community Mortgage Corp. (“UCMC”), a New Jersey corporation, as if the acquisition had occurred at July 1, 2009. The unaudited pro forma balance sheet as of December 31, 2010 has been prepared as if the acquisition occurred on that date. The pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable.

The unaudited pro forma financial information is for informational purposes only and does not purport to present what our results would actually have been had these transactions actually occurred on the dates presented or to project our results of operations or financial position for any future period. The information set forth below should be read together with the significant notes and assumptions to the pro forma statements, and the PSM Holdings, Inc. Annual Report on Form 10-K for the fiscal year ended June 30, 2010 and Quarterly Report on Form 10-Q for the quarter ended December 31, 2010 which are incorporated by reference in this Form 8-K/A, and the audited financial statements of UCMC for the years ended December 31, 2010 and 2009, including the notes thereto, included in this Form 8-K/A.

PSM HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA BALANCE SHEET

DECEMBER 31, 2010

	Historical
	Acquirer			Acquiree		Proforma Adjustments
	PSM Holdings			UCMC		Debit			Credit		Pro Forma
ASSETS
Current Assets:
Cash & cash equivalents	$	122,774		$	228,469		13,664	1, 2,		228,469	$	118,438
								3		18,000
Accounts receivable, net		65,208			-							65,208
Current portion of notes receivable		-			189,654		189,654	1, 2		189,654		189,654
Other assets		636			4,763		250	1, 2		4,763		886
Total current assets		188,618			422,886							374,186

Property and equipment, net		13,568			19,219		15,625	1, 2		19,219		29,194

Goodwill		-			-		1,087,432	2				1,087,432
Loan receivable		90,891			-							90,891
Note Receivable		-			675,000		360,000	1, 2		675,000		360,000
NWBO License, net		547,387			-							547,387
Security deposits		-			8,375		8,375	1, 2		8,375		8,375
Total Assets	$	840,465		$	1,125,480						$	2,497,465

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts payable	$	160,578		$	24,345		24,345	1, 2			$	160,578
Accrued liabilities		2,374			7,000		7,000	1, 2				2,374
Total current liabilities		162,952			31,345							162,952

Long-term Liabilities:
Due to related party		100,000			-							100,000
Total long-term liabilities		100,000			-							100,000

Total Liabilities		262,952			31,345							262,952

Stockholders' Equity:
Common stock		14,195			260,000		260,000	1, 2		2,393		16,588
Preferred stock		-			806,200		806,200	1, 2				-
Treasury stock		(22,747	)		-							(22,747	)
Additional paid in capital		8,387,102			-					1,672,607		10,059,709
Accumulated deficit		(7,801,038	)		27,935		27,935	1, 2				(7,819,038	)
							18,000	3
Total stockholders' equity		577,513			1,094,135							2,234,514

Total Liabilities and Stockholders' Equity	$	840,465		$	1,125,480	$	2,818,480		$	2,818,480	$	2,497,465

See Unaudited Significant Notes and Assumptions to Pro Forma Financial Statements.

PSM HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2010

	Historical
	Acquirer			Acquiree			Pro Forma Adjustments
	PSM Holdings			UCMC			Debit			Credit		Pro Forma
Revenues	$	2,414,314		$	514,681							$	2,928,996

Operating expenses
Selling, general & administrative		2,412,730			327,925								2,740,656
Depreciation and amortization		34,425			17,250			3,906	5				55,581
Total operating expenses		2,447,155			345,175								2,796,237

Income (loss) from operations		(32,841	)		169,506								132,759

Non-operating income (expense):
Interest expense		(4,540	)		(9,172	)							(13,712	)
Interest and dividend		1,324			13,353								14,677
Realized gain (loss) on sale of securities		5,057			-								5,057
Other Income (Expense)		13,174			-								13,174
Total non-operating income (expense)		15,016			4,181								19,197

Income (loss) from continuing operations before income tax		(17,825	)		173,687								151,956

Provision for income tax		-			520								520

Net Income (loss)		(17,825	)		174,207								152,476

Other comprehensive income (loss):
Unrealized gain (loss) on marketable securities		(2,666	)		-								(2,666	)

Comprehensive income (loss)	$	(20,491	)	$	174,207		$	3,906		$	-	$	149,810

Net income (loss) per common share and equivalents -
basic and diluted loss from operations	$	(0.00	)									$	(0.00	)

Weighted average shares of share capital outstanding
- basic & diluted		14,166,152											16,559,010

Weighted average number of shares used to compute basic and diluted loss per share for the six month periods ended December 31, 2010 is the same since the effect of dilutive securities is anti-dilutive.

See Unaudited Significant Notes and Assumptions to Pro Forma Financial Statements.

PSM HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA STATEMENT OF OPERATIONS

FOR THE YEAR ENDED JUNE 30, 2010

	Historical
	Acquirer			Acquiree			Pro Forma Adjustments
	PSM Holdings			UCMC			Debit			Credit		Pro Forma
Revenues	$	3,832,902		$	919,000							$	4,751,901

Operating expenses
Selling, general & administrative		8,149,526			1,497,697								9,647,223
Depreciation and amortization		69,501			10,009			7,813	4				87,322
Total operating expenses		8,219,027			1,507,706								9,734,546

Loss from operations		(4,386,125	)		(588,707	)							(4,982,645	)

Non-operating income (expense):
Interest expense		(11,466	)		(18,718	)							(30,183	)
Interest and dividend		12,690			107,221								119,911
Realized gain (loss) on sale of securities		(3,084	)		-								(3,084	)
Other Income (Expense)		23,056			(26,990	)							(3,934	)
Total non-operating income (expense)		21,196			61,514								82,710

Loss from continuing operations before income tax		(4,364,929	)		(527,193	)							(4,899,935	)

Provision for income tax		-			1,345								1,345

Net loss		(4,364,929	)		(528,538	)							(4,901,280	)

Other comprehensive income (loss):
Unrealized gain (loss) on marketable securities		12,436			-								12,436

Comprehensive income (loss)	$	(4,352,493	)	$	(528,538	)	$	7,813		$	-	$	(4,888,843	)

Net loss per common share and equivalents -
basic and diluted loss from operations	$	(0.33	)									$	(0.31	)

Weighted average shares of share capital outstanding
- basic & diluted		13,233,786											15,626,644

See Unaudited Significant Notes and Assumptions to Pro Forma Financial Statements.

PSM Holdings, Inc. and Subsidiaries

Significant Notes and Assumptions to Pro-Forma Financial Statements

(Unaudited)

On March 15, 2011, we completed a business acquisition of United Community Mortgage Corp. The closing was held for the Agreement and Plan of Merger dated March 9, 2011, (the “Merger Agreement”) with United Community Mortgage Corp. (“UCMC”), a New Jersey corporation, and its sole shareholder, Edward Kenmure, Prime Source Mortgage, Inc. (“PSMI”), and PSM Acquisition, Inc., a newly created New Jersey corporation and wholly-owned subsidiary of PSMI (“Merger Sub”). On March 16, 2011, the closing became effective with the filing of the Articles of Merger in the State of New Jersey to complete the merger of the Merger Sub with and into UCMC. UCMC was the surviving corporation of the merger and has become a wholly-owned subsidiary of PSMI. Mr. Kenmure, as the sole shareholder of UCMC received 2,392,858 shares of PSM Holdings, Inc. (PSMH) in exchange for all of the outstanding equity securities of UCMC. As a result of the transaction, Mr. Kenmure owned approximately 14% of the outstanding common shares of PSMH. The common shares issued by us to Kenmure have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

The accompanying unaudited pro-forma financial information reflects the financial statements of PSM Holdings, Inc. and Subsidiary, and UCMC. The pro-forma adjustments to the balance sheet give effect to the acquisition as if it occurred on December 31, 2010. The pro-forma adjustments to the statements of operations give effect to the acquisition as it occurred on July 1, 2009.

Significant assumptions include:

The shares issued to Edward Kenmure, owner of UCMC were calculated contractually valued at $1,675,000 based on issuance of 2,392,858 shares of our common stock at $0.70 per share which was based on the closing price per share on the date of closing the Agreement.

We incurred a non-recurring $18,000 of professional fees for legal and accounting related to the acquisition which is reflected as adjustments to accumulated deficit at December 31, 2010.

The purchase price was allocated first to record identifiable assets and liabilities at fair value and the remainder to goodwill, pending completion of independent valuation at which time the goodwill amount may change and will be allocated to licenses and permits and other intangible assets. The purchase price was allocated as follows:

Cash and cash equivalents	$	13,664
Notes receivable		549,654
Other current assets		250
Property and equipment		15,625
Other assets		8,375
Total assets acquired		587,568
Liabilities assumed		-
Net assets acquired		587,568
Goodwill		1,087,432
Total purchase price	$	1,675,000

Notes receivable consist of (a) Letter of Repayment with three employees in the amount of $189,654 for funds advanced to them as a loan. These loans are unsecured, non-interest bearing and due on demand, and (b) a Promissory Note with an unrelated third party for a principal sum of $360,000, principal and unpaid interest shall be due and payable in full on December 1, 2016. The Promissory Note is secured by real estate parcels.

Depreciation of property and equipment has been given effect to the acquisition as if it occurred on July 1, 2009.

The following reflect the pro forma adjustments as at December 31, 2010:

PSM HOLDINGS, INC. AND SUBSIDIARIES

Unaudited Pro Forma Adjustments

		Debit		Credit
1	Cash and cash equivalents			$	228,469
	Current portion of notes receivable				189,654
	Other assets				4,763
	Property and equipment				19,219
	Note receivable				675,000
	Security deposits				8,375
	Accounts payable	$	24,345
	Accrued liabilities		7,000
	Common stock		260,000
	Preferred stock		806,200
	Accumulated deficit		27,935
	To remove assets not acquired and liabilities not assumed.

2	Cash and cash equivalents	$	13,664
	Current portion of notes receivable		189,654
	Other current assets		250
	Property and equipment		15,625
	Notes receivable		360,000
	Security deposits		8,375
	Goodwill		1,087,432
	Common stock			$	2,393
	Additional paid in capital				1,672,607
	To record at fair market value assets acquired and liabilities assumed pursuant to the Stock Purchase Agreement.

3	Accumulated deficit	$	18,000
	Cash			$	18,000
	To record non-recurring professional fees (acquirer expense) incurred in the acquisition for the year ended June 30, 2010.

4	Depreciation expense	$	7,813
	Accumulated deficit			$	7,813
	To record annual amortization of tangible assets acquired for year ended June 30, 2010.

5	Depreciation expense	$	3,906
	Accumulated deficit			$	3,906
	To record amortization of tangible assets acquired for the six months ended December 31, 2010.
	Total	$	2,830,200	$	2,830,200

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