1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C., 20549
FORM 10-KSB
ANNUAL REPORT FILED PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the fiscal year ended May 31, 2001
Commission file No. 0-5141
PRINCETON AMERICAN CORPORATION
(Name of small business issuer in its charter)
Nevada 22-1848644
(state or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
2222 East Camelback Road, Suite 105
Phoenix, AZ 85016
(Address of principal office) (Zip code)
Issuer's telephone number, including area code: (602) 522-2444
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year were $927,445.
The aggregate market value of voting stock held by non-affiliates of the
registrant is not determinable as of August 31, 2001 as the trading was halted
on October 9, 2000.
The number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date of August 28, 2001 was 10,923,918.
2
Princeton American Corporation
FORM 10-KSB
FOR THE FISCAL YEAR ENDED MAY 31, 2001
TABLE OF CONTENTS
(Check page numbers)
PART I........................................................................ 1
Item 1 - Description of Business........................................ 1
Item 2 - Description of Property........................................ 1
Item 3 - Legal Proceedings.............................................. 7
Item 4 - Submission of Matters to a Vote of Security Holders............ 8
PART II....................................................................... 9
Item 5 - Market for Common Equity and Related Shareholder Matters....... 9
Item 6 - Management's Discussion and Analysis or Plan of Operation...... 10
Item 7 - Financial Statements and Supplementary Data.................... 11
Item 8 - Changes in and Disagreements with Accountants on Accounting
Financial Disclosure........................................... 11
PART III...................................................................... 12
Item 9 - Directors and Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a) of the Exchange Act...... 12
Item 10 - Executive Compensation........................................ 13
Item 11 - Security Ownership of Certain Beneficial Owners and
Management.............................................................. 13
Item 12 - Certain Relationships and Related Transactions................ 14
Item 13 - Exhibits and Reports on Form 8-K.............................. 14
SIGNATURES.................................................................... 15
FINANCIAL STATEMENTS.......................................................... F-1
3
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this report discuss future expectations,
contain projections of results of operations or financial condition or state
other "forward-looking" information. Those statements are subject to known and
unknown risks, uncertainties and other factors that could cause the actual
results to differ materially from those contemplated by the statements. The
forward-looking information is based on various factors and was derived using
numerous assumptions. Important factors that may cause actual results to differ
from forward-looking statements and projections include, for example:
- a downturn in the Phoenix, Arizona real estate market, particularly one
which would adversely affect commercial lease rates;
- an adverse result in litigation referred to in this report;
- any change in tax laws which would change the Company's ability to utilize
its tax loss carryforward or the inability under existing tax laws for the
full utilization of such tax loss carryforward;
- an inability of the Company to regain a listed or trading status on the
Over-the-Counter Bulletin Board, NASDAQ, the American Stock Exchange, or
some other recognized market or exchange;
- certain operations of the Company, including the formation of alliances
with other entities, will indefinitely remain under the jurisdiction of and
be subject to the confirmation and approval of the U.S. Bankruptcy Court.
Disagreements between the Bankruptcy Court and the Company regarding
business decisions could adversely affect the Company;
- the inability of the Company to secure renewals of existing leases at
commercially reasonable rates or to promptly replace tenants following the
expiration of existing leases;
- the effect of changing economic conditions; and
- other risks which may be described in our future filings with the
Securities and Exchange Commission. We do not promise to update
forward-looking information to reflect actual results or changes in
assumptions or other factors that could affect those statements.
4
PART I
ITEM 1. DESCRIPTION OF BUSINESS
CURRENT COMPANY BUSINESS.
As of May 31, 2001, Princeton's primary business activity is the management of
its two office buildings totaling 50,000 square feet in Phoenix, Arizona. The
Company has 2 employees. None of the Company's employees is represented by a
labor union and we believe that employee relations are good.
BANKRUPTCY FILING; APPOINTMENT OF A TRUSTEE.
On December 11, 1996 the Company filed for protection under Chapter 11 of the
U.S. Bankruptcy code. (Case number 96-13675 PHX JMM) On January 21, 1977, the
then existing management of Princeton submitted a Plan of Reorganization. The
Plan was challenged by William C. Taylor, a former principal and creditor of the
Company, who petitioned the Court for the appointment of a trustee.
The case was tried and on February 4, 1997, the Court issued its order
appointing Roger W. Brown as Trustee. Shortly thereafter, the Trustee terminated
the then existing management of Princeton and assumed day to day management of
the Company.
CONFIRMATION OF JOINT PLAN OF REORGANIZATION.
After Roger W. Brown was appointed Trustee in February 1997, William C. Taylor
submitted his proposed Plan of Reorganization of Princeton on May 30, 1997.
During the course of extensive litigation among competing plan proponents, other
concerned parties and creditors, on August 28, 1997, Trustee Brown and Mr.
Taylor filed a joint Plan of Reorganization. Their Joint Plan was confirmed by
the Court on November 19, 1997 and was published in its entirety in a current
Report on Form 8K which was filed with the Securities and Exchange Commission
(the "Commission") on December 20, 1997, the Effective Date of the Plan.
ITEM 2. DESCRIPTION OF PROPERTY
2222 EAST CAMELBACK ROAD, PHOENIX, ARIZONA.
On March 12, 1992 Princeton acquired this two story building which contains
approximately 30,778 rentable square foot of office space. The property includes
a banking facility with a drive-in window and a vault on the ground floor. The
Company paid approximately $296,000 cash for the building including closing
costs and commissions.
1
5
Princeton occupies 1497 square feet (4.89%) of the total leasable space in this
building. As of May 31, 2001, 86.09% of the remaining leasable space was
occupied by unaffiliated tenants, producing $591,000 of income annually. The
remaining space has since been leased or committed to existing tenants.
Additional information about this property is included in the Property
Information and Operating Data Table at the end of this Item 2. The property tax
for 2000 was approximately $65,000.
4808 NORTH 22ND STREET, PHOENIX, ARIZONA.
On December 1, 1994, Princeton acquired this 19,226 rentable sq. ft. two story
office building. The Company paid $1,000,000 for the building, of which $900,000
was borrowed from the seller at 8% annual interest. As of May 31, 2001 the
building is 100% leased and produces $397,214 of income annually. Additional
information about this property is included in the Property Information and
Operating Data Table at the end of this Item 2. The property tax for 2000 was
approximately $40,000.
MESA TRAILER PARK COMMISSION RECEIVABLE.
In March, 1994 Princeton acquired a long term real estate brokerage commission
of 5% of the total lease payments generated from a 55 year ground lease of a
55-acre mobile home park in Mesa, Arizona. The Company purchased the commission
for $60,000 cash and 174,400 shares of restricted Princeton common stock. The
lease was executed in 1980, runs through 2031, and provides revenue equal to 5%
of each lease payment. The commission agreement presently provides quarterly
payments of $3,687.50 which are made through an escrow at Security Title
Company. The quarterly payments escalate annually to $7,437 per quarter at year
2030. Through May 31, 2001 approximately $92,750 had been paid and approximately
$702,000 of additional commission will be paid to Princeton through year 2031
pursuant to the agreement. While there can be no assurance that Princeton will
receive any or all of these assigned brokerage fees in the future, as of the
date of this report all payments have been received on time.
PROPERTY INFORMATION AND OPERATING DATA
2222 East Camelback Road
Phoenix, Arizona
1. Character and Location. Two story office building; 30,778 rentable
square feet; includes a banking facility with a drive-in window and a
bank vault.
2. Title to Property. Building is subject to a First Deed of Trust:
Principal: $677,320.70
Interest rate: 8%
Payment: $5,136.60
Maturity: December 2004
2
6
The original terms of this loan (interest rate of 15% and maturity in 1999) were
adjusted by the Bankruptcy Court, and the revised terms are currently being
contested by the lender. The deed of Trust on this property and the second deed
of trust on the 4808 Building are held by the same lender and evidenced by one
note. The original loan was for $1,000,000 with 70% being secured by the 2222
building and 30% by the 4808 Building.
3. Lease Terms. Subject to two net ground leases with terms of 99 years,
expiring in 2073 and 2076. Rent adjusts each 10 years based upon 8% of the fair
market value of the ground, excluding improvements. The first lease has a
monthly base payment of $4,933, and will next adjust in 2009. The second lease
has a monthly payment of $3,100 and will next adjust in 2002.
4. Renovation or Improvement Plans. In March, 2001, the Company commenced
remodeling of the common areas of the building including a renovated lobby and
four bathrooms. When completed the cost of these improvements is estimated to be
$120,000. Interim financing for this project was obtained from Southwest Bank,
one of the Company's tenants in the 2222 East Camelback Building.
5. Competitive Conditions. This property is located in an area known as
the "Camelback Corridor" which is comprised predominately of office
buildings. This building competes with both higher and lower priced office
space in the immediate vicinity. The current market is strong, with high
renewals.
6. Insurance. Management believes that the property is adequately covered
by insurance.
7. General Information.
(i) Occupancy Rate - 86.09% - as of May 31, 2001. The building was 100%
as of August 31,2001
(ii) Tenants - Rent Roll As of May 31, 2001
Effective Current
Rentable Tenant Months to Rate/YR/ Base
Tenant Square Feet Share Expiration Square Feet Per Month
------ ----------- ----- ---------- ----------- ---------
Princeton American 1,497 4.86% N/A N/A N/A
Corp. &
Eubanks Consulting 325 1.06% N/A $24.00 $650(1)
VACANT 1,840 5.98% N/A N/A N/A
Southwest
Commercial Bank 8,057 26.17% 52 $24.81 $15,410
Vacant 2,419 7.86% N/A N/A N/A
GBLS Commercial
Real Estate
Services 3,301 10.73% 15 $24.00 $6,602
United Title Agency 5,282 17.16% 56(4) $23.00 $9,684
Nationwide Vision 5,084 16.52% 57 $23.00 $9,744
International
Circuit Sales 2,973 9.66% 14 $21.00 $5,203
3
7
(1) Sublease, month to month.
(2) Lessee has two (2) five-year options to renew
(3) Lessee has extended lease to December 1, 2002 with right to terminate after
May 1, 2002.
(4) Lessee has leased 2,419 sq ft and committed to lease 1,840 sq. Ft all
co-terminus with the original space
(iii) Tenants principal business, occupations and professions -
Princeton American Corporation - owner and manager of building
Southwest Commercial Bank - banking
GBLS Commercial Real Estate Services - real estate brokers
United Title Agency - title insurance and escrow services
Nationwide Vision Centers - outpatient laser eye surgery
International Circuit Sales - computer component sales
(iv) Average rental per square foot for the year ending 12/31/01 -
$20.09
(v) Lease Expirations: All leases will expire no later than five years
from the date of this filing unless renewed or extended by the
lessee.
(vi) Depreciation Components: The Company depreciates the buildings
primarily over lives of 39 years, using the Modified Accelerated
Cost Recovery Method for federal income tax purposes. The tax
basis in this property is approximately $500,000 at May 31, 2001.
PROPERTY INFORMATION AND OPERATING DATA
4808 North 22nd Street
Phoenix, Arizona
1. Character and Location. Two story office building; 19,226 square feet;
located at 4808 North 22nd Street, Phoenix, Arizona.
2. Title to Property. Building is subject to
(a) First Deed of Trust:
Principal: $806,826
Interest rate: 8%
Payment: $6,946
Maturity: January 2020
4
8
(b) Second Deed of Trust:
Principal: $290,280.30
Interest rate: 8%
Payment: $2,201
Maturity: December 2004
3. Lease Terms.
Subject to a ground lease which expires July 31, 2031. The current rent
rate is $2,395, subject to annual adjustment based on the Consumer Price
Index.
4. Renovation or Improvement Plans. None, other than normal maintenance. On
December 5, 2000, the Company leased the second floor (comprised of 10,075
square feet) to Alliance Investors, LLC. for a period of five years. As a
condition of this lease, the Tenant completely renovated this space at a
cost in excess of $200,000 of which approximately $70,000 was contributed
by the Company.
5. Competitive Conditions.
This property is located in an area known as the "Camelback Corridor,"
which is comprised predominantly of office buildings. This building
competes with both higher and lower priced office space in the immediate
vicinity. Current market conditions are strong, with high renewals.
6. Insurance. Management believes that the property is adequately covered by
insurance.
7. General Information.
(i) Occupancy Rate: 100% - effective as of May 31, 2001.
5
9
(ii) Tenants - Rent Roll as of May 31, 2001.
Effective
Rate/YR/
Rentable Tenant Months to Square Current
Tenant Square Feet Share Expiration Feet Base
------ ----------- ----- ---------- ---- ----
Alliance Investors, 10,075 52.40% 55 $20.44 $16,581
LLC
Schafer-Smith Ankeny 5,820 30.28% 5 $19.62 $9,758
WRG Design 3,331 17.32% 26 $20.75 $5,759
(iii) Principal business, occupations and professions -
Alliance Investors, LLC - residential real estate
Schafer-Smith-Ankeny - insurance agency
WRG Design - architects
(iv) Average effective rental per square foot for year ending 12/31/01 -
$20.66
(v) Lease Expirations: All leases will expire no later than five
years from the date of this filing unless renewed or extended by
lessee.
(vi) Depreciation Components: The Company depreciates the buildings
primarily over lives of 39 years, using the Modified Accelerated
Cost Recovery Method for federal income tax purposes. The tax basis
in this property is approximately $1,150,000 at May 31, 2001.
6
10
ITEM 3. LEGAL PROCEEDINGS
CHAPTER 11 BANKRUPTCY LITIGATION.
ADMINISTRATIVE CLAIMS.
Administrative claims for professional and other fees have either been paid or
will be paid by the Company.
UNSECURED CREDITOR CLAIMS.
During the initial stage of the bankruptcy proceedings, creditors filed 65
proofs of claim aggregating $5,001,503. These proofs of claim have been
litigated or settled, reducing the number of claims to 20 and the amount to
$733,632, including principal and interest as of May 31, 2001.
SHAREHOLDER CLAIMS.
As reported in the May 31,2000 10KSB, equity shareholders filed approximately
900 proof of interest claims, allegedly representing 14,840,000 shares. These
claims were reviewed by management and litigated or settled by agreements which
were confirmed by a Court orders reducing such outstanding shares to
approximately 8,488,828 shares. During the current reporting year, the
outstanding shares were further reduced to 6,554,351 by taking into
consideration the 10 to 1 reverse split which occurred in December 1995 and
which had not been calculated with respect to some of the shareholder's
interests.
Unresolved Claims. All proof of interest claims have been resolved by the
Court with the exception of the following three matters:
Onset Investment Limited. Onset filed a claim for damages in the amount of
$200,713 based on an alleged breach of a stock purchase agreement by
Princeton. The Company has objected to this claim and the matter is
awaiting determination by the Court. Settlement negotiations are pending,
and Princeton anticipates its maximum exposure to be approximately $25,000
cash and 70,000 shares of common stock. If the Onset claim is allowed in
whole or in part, the Company intends to seek a ruling by the Bankruptcy
Court subordinating the Onset claim from that of a creditor to that of an
equity holder.
Harry and Irene Weiss. On February 9, 2001, the Weisses and the Company engaged
in a settlement conference before the Hon. Charles G. Case of the United
States Bankruptcy Court for the District of Arizona which culminated in an
agreement which is contingent on Bankruptcy Court Approval. Under the
agreement, the Company will recognize that the Weisses have an allowed
claim of $560,000 with interest accruing at ten percent per annum from
February 9, 2001 until paid. The Company must pay the claim when it sells
or refinances the office building at 4808 North 22nd Street in Phoenix
and, in any event, no later than February 9, 2002. The Weisses, in turn
will renounce and release their shareholder interest in the Company. Both
parties will dismiss all pending appeals relating to the Weisses' claim.
7
11
CURRENT LITIGATION:
Testasecca, et al v. Princeton American Corporation and William C. Taylor.
On May 22, 2001 Lawrence Testasecca and others filed a complaint in an
adversary pleading in the Bankruptcy Court. Among other things, the
Plaintiffs allege that they should be recognized as owners of an
unspecified number of shares purchased by them after the Bankruptcy Court
proceedings began without establishing that these shares were the subject
of allowed interests under the Plan of Reorganization. The Plaintiffs
asked the Court to vacate its September 15, 2001 order canceling all
outstanding Princeton American share certificates and issuing new
certificates reflecting the allowed interests of shareholders under the
Plan of Reorganization for Princeton American and the Court's prior
orders. At least three of the Plaintiffs (Larry Testasecca, Charles
Crehore and Eugene Targosz) had received actual notice of the bankruptcy,
had filed Proofs of Interest pursuant to the July 1997 order of the Court
establishing a deadline for filing Proofs of Interest and had voted in
favor of the Plan. The remaining Plaintiffs are relatives of two them.
Princeton American believes that all allegations of the Plaintiffs are
without merit and is vigorously defending all claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters have been submitted to a vote of security holders since the
annual meeting on September 14, 1995, when shareholders voted to (i)
change the name of the Company from Princeton Electronic Products, Inc. to
Princeton American Corporation, and (ii) to change the domicile of the
Company from New Jersey to the State of Nevada.
8
12
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
Princeton's Common Stock had traded on the over-the-counter market "pink
sheets"since the Company was delisted from the NASDAQ (Small Capital) Market in
November 1996, until the following events took place:
On September 15, 2000, the Bankruptcy Court ordered Princeton American and its
transfer agent to cancel all outstanding share certificates and issue new
certificates reflecting the allowed interests under the Plan of Reorganization
and the Court's prior orders. The Court further ordered that Princeton and its
transfer agent are not subject to any claim based upon the cancellation of
outstanding share certificates and the issuance of new certificates in
accordance with the Court's orders.
Effective as of October 9, 2000 the trading symbol "PELT" was cancelled by the
NASD and no further trades will be made under that symbol. After new
certificates have been issued to a majority of those shareholders possessing an
allowed interest, a new trading symbol will be issued to Princeton American
Corporation. The Company is currently processing exchanges of cancelled share
certificates for new certificates.
The Company has applied to the NASD through the sponsoring brokerage firm of
Peacock, Hislop, Staley and Given, Inc. to be listed on the Over the Counter
Bulletin Board (OTCBB) with a view toward establishing a broader market for
Princeton Shares.
Princeton has never paid any cash dividends on any equity securities, and no
change of this policy is under consideration by the Board of Directors.
Recent Sales of Unregistered Securities. None.
CONFIRMATION OF SECURITIES HOLDINGS
The final shareholder equity base established by Order of the Bankruptcy
Court is set forth below:
Shares recognized as of May 31, 2001. 6,554,351
Shares recognized for issuance to William C. Taylor.(1) 4,369,567
TOTAL SHARES(2) 10,923,918
(1) Represents forty percent (40%) of the total of all of Princeton's common
stock which was outstanding as of the Final Order Allowing Shares. In the
event that the Onset claim is subordinated to Class 12 Claims pursuant to
Section 510(b) of the Bankruptcy Code, Taylor's shares will be increased in
order to maintain his 40% ownership of the stock of Princeton American Corp.
This could result in a dilution in the value of shares held by other
shareholders."
(2) Represents a downward adjustment in total shares from 14,148,047 as set
forth in the May 31, 2000 10KSB in conformity with the Final Order Allowing
Shares, after taking into consideration certain shares for which the 10:1
reverse split calculation had not been made.
9
13
ITEM 6 MANAGEMENT DISCUSSION AND ANALYSIS
BACKGROUND:
During the past year we have focused on:
1. Upgrading the Company's two office buildings and solving the problems
resulting from the "deferred maintenance" policies of prior management;
2. Completing the task of establishing a final shareholder base and
revitalizing the market for Princeton's shares;
3. Returning the Company to financial stability; and
4. Moving Princeton closer to emergence from the bankruptcy proceedings.
Only one of 65 Unsecured Creditor's Claims against the Company has not been
authenticated or litigated and resolved. The shareholder base has been carefully
analyzed and significantly modified by Court Orders. All old share certificates
have been cancelled, and new share certificates issued to shareholders who have
tendered their old shares. This procedure has had the effect of validating all
the shares that were legitimately acquired. The legal, accounting and consulting
expenses incurred to achieve these results are in excess of $ 450,000 of which $
65,000 has been incurred in the last year.
The Company also focused its attention on the rehabilitation and marketing of
its two office buildings, which have benefited from the increase in demand for
office space in the Phoenix market over the past four years. Several tenant
leases have matured and have either been rolled over at higher prices, or the
tenants have moved elsewhere allowing the Company to replace them with higher
rent paying tenants. The office building at 2222 East Camelback Road is fully
occupied with annual gross revenues exceeding $591,000. It is now known as the
"Southwest Bank Building" in acknowledgement of that financial institution's
lease of the west half of the ground floor including the banking facilities
formerly occupied by Wells Fargo Bank. The lease runs for five years with two
five year renewal options. Southwest Bank has completely refurbished this 8,057
square foot space.
Princeton has signed five year leases with two new tenants, United Title Agency
and Nationwide Vision Centers. As of 5-31-01 the 2222 East Camelback Road
building was 86.09% occupied. The remaining two suites have been taken by United
Title; 2419 square feet was occupied in August 2001 and 1840 square feet will be
delivered in October 2001.
10
14
The second floor of the office building at 4808 North 22nd Street was leased to
Alliance Investors, LLC. for a five year term commencing in February, 2001. Now
fully occupied, this building is currently producing approximately $400,000 in
annual revenues. Management believes that the completion of these "clean up"
activities this year will put Princeton one year closer to attracting potential
investors and merger prospects (in particular those that can take advantage of
the Company's $14,000,000 tax loss carry forward). Armed with a fundamentally
sound financial statement, management intends to pursue all available
opportunities for strategic alliances, with a view toward enhancing shareholder
value. While there can be no assurance that the Company will be successful in
doing so, Princeton has applied to the NASD to have its securities qualify for
trading on the OTC Bulletin Board.
ITEM 7. FINANCIAL STATEMENTS
The full text of the Company's audited, consolidated financial statements for
the fiscal years ended May 31, 2001 and 2000 begins on page F-1 of this Report
and is incorporated herein by reference.
ITEM 8. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
11
15
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The Directors and Executive Officers of the Company as of May 31, 2001 were:
Name Age Position Date Elected (*)
---- --- -------- ----------------
William C. Taylor 69 Chairman, CEO & December 20, 1997
Director
Roderick W. McKinnon III 55 Secretary, Treasurer December 20, 1997
& Director
Scott E. Bird 77 Director December 20, 1997
(*) Pursuant to Article III Section 3.9 of the Plan of Reorganization, the
Directors took office on the "Effective Date" of the Plan.
On May 1, 2001 Mr. Bird resigned as Treasurer and CFO of the Company. Mr.
McKinnon assumed that office on the same date.
RESUMES
Scott E. Bird is the Managing Consultant of SASolutions, LLC, an integrated
business and information technology consulting group. He is the Vice President
and General Manager of Uservco, Inc., a national receivables recovery company
and Pacific Aviation Services, an international aviation procurement and support
company. Mr. Bird has served as Director and Chief Financial Officer of the
Company since its reorganization. His term of office will expire on the date of
the next Annual Shareholder's Meeting, the date of which has not been set.
William C. Taylor served the Company as Executive Vice-President from July 1991
to April 1995 and as a Director from August 1994 to April 1995. Mr. Taylor is a
member (inactive) of the State Bar of Arizona and is a licensed realtor. He is a
managing partner in several real estate development companies. Mr. Taylor has
served as Chairman and Chief Executive Officer of the Company since its
reorganization. His term of office will expire on the date of the next Annual
Shareholders Meeting, the date of which has not been set.
Roderick W. McKinnon III has been a Director and Secretary of the Company
since 1998. Since 1974 Mr. McKinnon has been President of R.W. McKinnon &
Co., Inc., an investment banking and development service company. He holds
Bachelor of Science Degree from Northern Arizona University and serves on
several boards of directors.
12
16
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation received
for the fiscal year ended May 31, 2001 for services rendered to the Company in
all capacities by the Company's Chief Executive Officer and other executive
officers.
SUMMARY COMPENSATION TABLE
Name and Principal Annual Cash Securities All Other
Position Compensation Other (1) Options Compensation
William C. Taylor $96,000 $1,200 -0- -0-
Chairman CEO and
Director
Roderick W McKinnon -0- $1,200 -0- -0-
Secretary Treasurer
Director
Scott E Bird (2)
Director -0- $1,200 -0- -0-
(1) Directors are compensated at the rate of @200 for each formal
meeting of the Board of Directors. There were six meetings in fiscal
year 2001. These fees are unpaid as of May 31, 2001
(2) Mr. Bird is a shareholder of SASolutions, L.L.C. a financial
consulting firm which received approximately $49,650 through May 31,
2001 for consulting services to the company.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as to shares of common stock
owned by (i) each person known to beneficially own more than 5% of the
outstanding common stock , (ii) each director and named executive officer of the
Company, and (iii) all executive officers and directors of the Company as a
group.
Name Title Common Shares Percent of Class
William C. Taylor Chairman & CEO 4,502,529 (1) 41.22%
2222 East Camelback Road
Suite 105
Phoenix, Arizona 85016
Laurence J. and Diane K.
Testasecca Shareholder 800,000 (2) 7.32%
5669 Walnut Ridge Circle
West Bloomfield, MI 48322
13
17
(1) Includes 132,962 shares which Mr. Taylor owned prior to the
Effective Date of the Plan of Reorganization.
(2) Based solely upon information contained in a Form 13G filed with the
Commission on October 18, 1999. Mr. and Mrs. Testasecca are among
the Plaintiffs who are seeking to have the Bankruptcy Court overturn
its September 15, 2000 Order Canceling Certificates. The Company's
records indicate that the Testaseccas have been issued new
certificates evidencing ownership of 50,000 shares only with respect
to shares claimed by them in the Proof of Interest filed by them in
1997.
The above percentages of ownership are based on 10,923,918 shares of the
Company's common stock outstanding based upon the Bankruptcy Court Order dated
February 3, 2000. Beneficial ownership has been determined in accordance with
rule 13d-3 of the Securities and Exchange Act of 1934. Pursuant to the rules of
the securities and Exchange Commission, shares of common stock that each named
person and group has the right to acquire within 60 days pursuant to options,
warrants, conversion privileges or other rights are deemed outstanding for
purposes of computing shares beneficially owned by and the percentage of
ownership of each such person and group. However, such shares are not deemed
outstanding for purposes of computing the shares beneficially owned by, or
percentage of ownership of, any other person or group.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding Princeton's transactions with related parties since
November 1996 is included above in: Item 1 "Description of Business - Sales and
Transfers Prior to Bankruptcy, and Sales and Transfers of Assets"; Item 3 -
"Legal Proceedings"; and Item 5 - "Market for the Registrant's Common Stock and
Related Shareholders Matters - Adjustments of Outstanding Shares and
Shareholders."
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
8K Dated September 15, 2000 Order (1) Approving Cancellation
of Outstanding Shares and Issuance of New Certificates and (2) Barring
Claims
8K Dated June 27, 2001 Regarding Testasecca, et al v.
Princeton American and William C. Taylor
14
18
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PRINCETON AMERICAN CORPORATION
By: /s/ William C. Taylor
--------------------------
William C. Taylor
Chairman, CEO and Director
Date: 8/28/00
-------------------------
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Signature Title Date
--------- ----- ----
By: /s/ William C. Taylor Chairman, CEO and 8/28/00
----------------------------- Director -------
William C. Taylor
By: /s/ Scott E. Bird Treasurer, CFO and 8/28/00
----------------------------- Director -------
Scott E. Bird
By: /s/ Roderick W. McKinnon III Secretary and Director 8/28/00
----------------------------- -------
Roderick W. McKinnon III
15
19
PRINCETON AMERICAN CORPORATION
FINANCIAL STATEMENTS
For the Years Ended
May 31, 2001 and 2000
Independent Auditors' Report
The Board of Directors
Princeton American Corporation
We have audited the accompanying balance sheets of Princeton American
Corporation as of May 31, 2001 and 2000, and the related statements of
operations and comprehensive loss, changes in stockholders' deficit, and cash
flows for the years then ended. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. 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 Princeton American Corporation
as of May 31, 2001 and 2000, the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 1 to the
financial statements, the Company has a stockholders' deficit of $2,452,053 and
a working capital deficit of $2,305,270. As discussed in notes 9 and 10, the
Company also is involved in litigation and is operating under a Joint Plan of
Reorganization following a bankruptcy filing in December 1996. These items raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans with regard to these matters are discussed in Notes 9 and 10.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
The Plan of Reorganization will not be substantially consummated until payment
of unsecured creditors. Prior to that time, the Company is under the supervision
of the Bankruptcy Court. The Company is involved in litigation, which is being
overseen by the Bankruptcy Court. The Bankruptcy Court may exert significant
influence over the operations of the Company, which may result in changes to the
estimates described in the accompanying financial statements. Please read notes
1, 9 and 10; they describe certain uncertainties regarding the Company's
operations, litigation and the bankruptcy filing.
/s/ Evers & Company Ltd.
Phoenix, Arizona
July 3, 2001
F-1
20
PRINCETON AMERICAN CORPORATION
BALANCE SHEETS
MAY 31, 2001 AND 2000
2001 2000
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 2,541 1,650
Notes receivable, current portion -- 947
Accounts receivable - trade 6,068 --
Investments in marketable securities 61,678 107,265
Prepaid expenses 33,442 20,167
Other assets 11,009 --
----------- ----------
Total current assets 114,738 130,029
----------- ----------
Notes receivable, net of current portion -- 17,202
Prepaid expenses 59,798 --
Investment in commission contract 206,161 202,756
Property and equipment, net 1,379,143 1,283,735
----------- ----------
$ 1,759,840 1,633,722
=========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Mortgage notes payable - current $ 30,558 28,284
Notes payable - other 133,931 --
Notes payable, officers 130,000 100,000
Accounts payable 184,678 161,152
Bankruptcy claims 679,289 679,289
Liabilities in dispute 619,603 619,603
Accrued interest 189,924 122,163
Accrued real estate taxes 310,221 222,690
Payroll and sales taxes payable 15,487 13,172
Deferred rental income and tenant security deposits 126,317 30,773
----------- ----------
Total current liabilities 2,420,008 1,977,126
Tenant security deposits - long term 48,016 26,616
Mortgage notes payable 1,743,869 1,773,541
----------- ----------
4,211,893 3,777,283
----------- ----------
Commitments, contingencies and subsequent events (see notes)
Stockholders' deficit:
Common stock, par value $.001, 100,000,000 shares authorized
see note 9 regarding shares issued and outstanding 15,000 15,000
Additional paid-in-capital 2,460,350 2,460,350
Accumulated deficit (4,506,852) (4,243,720)
----------- ----------
(2,031,502) (1,768,370)
Net unrealized loss on marketable securities (420,551) (375,191)
----------- ----------
Total stockholders' deficit (2,452,053) (2,143,561)
----------- ----------
Total liabilities and stockholders' deficit $ 1,759,840 1,633,722
=========== ==========
See accompanying notes to financial statements
F-2
21
PRINCETON AMERICAN CORPORATION
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE YEARS ENDED MAY 31, 2001 AND 2000
2001 2000
---- ----
Revenues
Rental income $ 837,326 842,565
Parking and other 90,119 6,710
--------- ---------
927,445 849,275
--------- ---------
Costs and expenses
Building operating costs 334,956 354,723
Professional fees 166,993 176,794
Payroll and payroll taxes 140,986 135,425
Ground lease 124,972 123,088
Depreciation 93,472 107,046
Consulting 49,650 83,115
Other 50,912 99,108
--------- ---------
Total costs and expenses 961,941 1,079,299
--------- ---------
Loss from operations (34,496) (230,024)
--------- ---------
Other income (expense)
Interest and dividend income 19,766 21,836
Interest expense (235,928) (227,796)
Gain on settlement of lawsuits -- 183,225
Other (12,424) 5,534
--------- ---------
(228,586) (17,201)
--------- ---------
Net loss before income taxes (263,082) (247,225)
Income taxes 50 100
--------- ---------
Net loss $(263,132) (247,325)
========= =========
Net loss per common share, basic and diluted $ (0.02) (0.02)
========= =========
Net loss $(263,132) (247,325)
Net unrealized gain (loss) on marketable securities (45,360) 77,527
--------- ---------
Comprehensive loss $(308,492) (169,798)
========= =========
See accompanying notes to financial statements
F-3
22
PRINCETON AMERICAN CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED MAY 31, 2001 AND 2000
Unrealized
Additional Gain (Loss)
Common Paid-in Accumulated on
Stock Capital Deficit Securities
----- ------- ------- ----------
Balance at May 31, 1999 $15,000 2,460,350 (3,996,395) (452,718)
Net loss for the year
ended May 31, 2000 -- -- (247,325) --
Unrealized gain on
marketable securities -- -- -- 77,527
------- --------- ---------- --------
Balance at May 31, 2000 15,000 2,460,350 (4,243,720) (375,191)
Net loss for the year
ended May 31, 2001 -- -- (263,132) --
Unrealized loss on
marketable securities -- -- -- (45,360)
------- --------- ---------- --------
Balance at May 31, 2001 $15,000 2,460,350 (4,506,852) (420,551)
======= ========= ========== ========
See accompanying notes to financial statements
F-4
23
PRINCETON AMERICAN CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MAY 31, 2001 AND 2000
2001 2000
---- ----
Cash flows from operating activities:
Net loss $(263,132) (247,325)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 93,472 107,046
Interest income on investment contract (18,155) (17,844)
Rental income allowance in exchange for tenant payment of costs (33,634) --
Loss on disposition of assets 1,248 --
Gain on investment -- (2,440)
Gain on sale of real estate -- (8,481)
Non-cash gain on settlement of claim -- (62,524)
Change in:
Receivables (6,068) 448
Prepaid expenses (73,073) 21,073
Other assets (11,009) --
Accounts payable and accrued expenses 113,372 185,442
Accrued interest 67,761 50,912
Rent deposits 43,353 (58,452)
--------- --------
Net cash used in operating activities (85,865) (32,145)
--------- --------
Cash flows from investing activities:
Payments on notes receivable 18,149 25,304
Purchase of property and equipment (82,903) (46,373)
Payments on investments 14,977 14,250
--------- --------
Net cash used in investing activities (49,777) (6,819)
--------- --------
Cash flows from financing activities:
Refund of deposit -- 9,930
Proceeds from sale of real estate -- 20,981
Repayment of notes payable to officers -- (20,000)
Conversion of account payable to note payable 19,821
Proceeds from loan from officers 30,000 50,000
Payments on mortgage notes payable (27,398) (26,117)
Proceeds from bank loan 114,110
--------- --------
Net cash provided by financing activities 136,533 34,794
--------- --------
Net decrease in cash and cash equivalents 891 (4,170)
Cash and cash equivalents, beginning of year 1,650 5,820
--------- --------
Cash and cash equivalents, end of year $ 2,541 1,650
========= ========
Supplementary Disclosure of Cash Flow Information
Cash paid during the year for interest $ 153,443 176,884
========= ========
Cash paid during the year for income taxes $ 50 100
========= ========
Non-cash investing activities:
Issuance of rent credits for tenant improvements paid by tenant $ 107,225 --
========= ========
See accompanying notes to financial statements
F-5
24
1. Summary of Significant Accounting Policies
a. Basis of Presentation
The following is a summary of the significant accounting policies followed
by Princeton American Corporation (the Company). The policies conform with
generally accepted accounting principles and require management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses as well as disclosures of contingent
assets and liabilities in the financial statements. Actual results could
differ from those estimates.
During the years ended May 31, 1998 and 1997, the Company did not have
access to adequate records to file audited financial statements, as
required by the Securities and Exchange Commission. The Company requested
a waiver of its filing requirements for the years ended May 31, 1997 and
1998 and its quarterly filings through February 28, 2000. The Company can
not obtain a waiver; however, the Securities and Exchange Commission has
indicated that action is unlikely for failure to file missing reports
prior to May 31, 2000. The Company included in their February 28, 2001
10Q, reissued May 31, 2000 financial statements, which included an audited
balance sheet as of May 31, 1998.
The financial statements of the Company are presented on a historical cost
basis. The estimated fair market value of the Company's assets at the time
of reorganization exceeded the Company's post-petition liabilities and
allowed claims. Consequently, assets and liabilities were not restated to
fair market value as provided by SOP 90-7.
At May 31, 2001, the Company had a stockholders' deficit of $2,452,053 and
a working capital deficit of $2,305,270. Additionally, the Company has
been unable to generate net income from operations since its
reorganization. The Company is currently under the jurisdiction of the
Bankruptcy Court and is involved in litigation, as described in Notes 9
and 10 to these financial statements. Management's plans with regard to
these matters are also discussed in Note 9. These financial statements
have been prepared assuming the Company will be able to continue
operations and do not include any adjustments that might result from the
outcome of these uncertainties.
b. Organization and Operations
Princeton American Corporation is organized under the laws of the State of
Nevada and currently owns two office buildings in Phoenix, Arizona. The
Company was previously engaged in both the real estate and hair care
products industries. The Company filed for bankruptcy in December 1996 and
subsequently disposed of substantially all its assets
F-6
25
1. Summary of Significant Accounting Policies, continued
during the years ended May 31, 1997 and 1998, except for the two
commercial buildings and certain investments. The trustee combined
substantially all the Company's operating subsidiaries into Princeton
American Corporation. The Court approved the Plan of Reorganization for
the Company in November 1997.
c. Cash Equivalents
Cash equivalents include highly liquid debt instruments and other
short-term investments with an original maturity of three months or less.
d. Marketable Securities, Available for Sale
Marketable securities available for sale are recorded at their quoted
market prices. Unrealized gains and losses on these securities are
included as a separate component of comprehensive income and shareholders'
equity until realized. Realized gains and losses on securities available
for sale are computed based upon the average cost of the investment.
e. Property and Equipment
Property and equipment are recorded at cost and are being depreciated
principally on the straight-line method over the estimated useful lives of
the assets, which range from three to forty years.
f. Stock Options
The Company has elected to follow Accounting Principles Board Opinion No.
25 "Accounting for Stock Issued to Employees" (APB25) and related
interpretations in accounting for its employee stock options and awards.
Under APB 25, no compensation expense is recognized when the exercise
price of the options equals the fair value (market price) of the
underlying stock on the date of grant. The Company has adopted the
disclosure provisions of Statement of Financial Accounting Standards No.
123 Accounting for Stock-Based Compensation.
F-7
26
g. Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequence attributable to differences between the financial statement
carrying amount of existing assets and liabilities; and their respective
tax bases, including operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary
differences are expected to be recovered or
1. Summary of Significant Accounting Policies, continued
settled. The effect in deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the
enactment date. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized.
h. Earnings Per Share
The Company has adopted Statement of Financial Accounting Standards No.
128 "Earnings Per Share". The standard simplifies the standards of
computing earnings per share and requires presentation of two new amounts,
basic and diluted earnings per share. Net loss per share is computed by
dividing the loss attributable to common shareholders by the weighted
average number of shares outstanding during the period, which was assumed
to be approximately 15,000,000 for the years ended May 31, 2001 and 2000.
There is uncertainty regarding the number of shares outstanding. Please
read note 9.
2. Notes Receivable
Notes receivable consist of the following at May 31, 2000. The note was
paid off during the year ended May 31, 2001.
2000
-------
Note receivable, secured by a first deed of trust on $18,149
real property, payable in monthly installments of
$219 including interest at 9.5%, remaining principal
and interest due August 2001
Less current portion (947)
-------
Notes receivable, net of current portion $17,202
F-8
27
3. Investments in Marketable Securities Available for Sale
Marketable securities consist of the following investments in common stock
at May 31, 2001 and 2000:
2001 2000
---- ----
Exten Industries $55,465 90,241
Stratford American 4,000 14,584
Other securities 2,213 2,440
------- -------
$61,678 107,265
Total net unrealized losses at May 31, 2001 and 2000 were $420,551 and
$375,191, respectively. The net unrealized loss increased by $45,360
during the year ended May 31, 2001 and decreased by $77,527 during the
year ended May 31, 2000.
The Company also has an investment in Sgarlato Laboratories, a
privately-held company, which management estimates has minimal value at
year-end. As such, the investment has been written down to zero.
4. Investment in Commission Contract
In March 1994, the Company acquired the rights to the commission on a
ground lease for a mobile home park in Mesa, Arizona. The commission is
based upon a fifty-five (55) year ground lease. Annual payments ranged
from $11,750 in 1994 to $27,000 in 2031. For the years ended May 31, 2001
and 2000, the commission contract was valued at $206,161 and $202,756,
respectively. The valuation is determined by calculating the net present
value of the quarterly payments at an imputed interest rate of twelve
percent (12%). The Company recognizes any fluctuation in the investment as
interest income or expense in the year of fluctuation.
5. Property and Equipment
Property and equipment consist of the following at May 31, 2001 and
2000:
2001 2000
---- ----
Office buildings $1,296,786 1,296,786
Leasehold improvements 577,950 515,686
Office furniture and equipment 4,140 4,139
---------- ----------
1,878,876 1,816,611
Less: Accumulated depreciation (499,733) (532,876)
---------- ----------
$1,379,143 $1,283,735
F-9
28
6. Investment in Real Estate
At May 31, 1999 the Company owned a parcel of undeveloped land with a cost
of $12,500. The property was sold during the year ended May 31, 2000 for
$20,981 resulting in a gain of $8,481 after selling expenses.
7. Notes Payable
Mortgage notes payable consist of the following at May 31, 2001 and 2000:
2001 2000
---- ----
Mortgage note payable, secured by a first $ 806,826 824,846
deed of trust on the building at 4808 N.
22nd St., payable in monthly installments of
$6,946 including interest at 8% through
January 2020
Mortgage note payable, Vanderford, secured 967,601 976,979
by a first deed of trust on the building at
2222 E. Camelback and a second deed of trust
on the building at 4808 N. 22nd St., payable
in monthly installments of $7,338 including
interest at 8%, remaining principal and
interest due December 2004
---------- ---------
1,774,427 1,801,825
Less current portion (30,558) (28,284)
---------- ---------
Long-term debt, net of current portion $1,743,869 1,773,541
The terms of the Vanderford mortgage note payable are being disputed. The
original loan, which was made shortly before the bankruptcy filing, called
for an interest rate of 15%, with a maturity date of December 1999. The
terms of the note were revised by the court to the current terms. The
Company and the lender have reached a verbal agreement to modify the
terms; however, the Company must obtain the approval of the Bankruptcy
Court.
F-10
29
7. Notes Payable, continued
Notes payable - other consist of the following at May 31, 2001:
Line of credit loan of $200,000, interest $114,110
accrues at prime plus 2%, interest and
principal due August 16, 2001, extended to
November 16, 2001
Note due in monthly installments of $3,500 19,821
with a balloon payment of $12,821 in August
2001, secured by investment in Exten stock
--------
$133,931
Maturities of long-term debt at May 31, 2001 are as follows:
Year ended May 31, Amount
------------------ ------
2002 $ 30,558
2003 33,095
2004 35,842
2005 956,437
2006 26,847
Thereafter 691,648
----------
$1,774,427
8. Notes Payable, Officers and Related Party Transactions
At May 31, 2000, Notes Payable, Officers included two $25,000 notes, with
an interest rate of 12% that were due and payable on or before May 1,
2001. One of the Company's officers also paid a $50,000 administrative
claim directly for the Company. The Company is obligated to repay the
officer under the terms of a 12% promissory note that required payments of
$5,000 per month beginning January 2000. An officer of the Company
advanced an additional $30,000 during the year ended May 31, 2001. This
note also earns interest at 12% and was due May 1, 2001. The Company has
not complied with the repayment terms of these agreements. Accrued
interest of $7,700 was paid to one of the officers during the year ended
May 31, 2001. Interest expense on the notes totaled $14,700 in 2001 and
$9,876 in 2000.
During the years ended May 31, 2001 and 2000 the Company paid a director
consulting fees of $49,650 and $82,115, respectively.
F-11
30
9. Bankruptcy Claims
The Company filed for bankruptcy on December 11, 1996 and is currently
operating as a reorganized debtor under a Joint Plan of Reorganization
confirmed by the United States Bankruptcy Court for the District of
Arizona on November 19, 1997.
Subsequent to the Company's filing in December 1996 and prior to the
reorganization in December 1997, the Company was operated by a
court-appointed trustee. During that time, the trustee liquidated various
assets of the Company other than certain real estate holdings in Phoenix,
Arizona and certain investments in marketable securities. William Taylor
and the Trustee filed a Joint Plan of Reorganization in November 1997,
which was approved in December 1997. Some of the key provisions of the
Plan are:
- The Plan classifies various secured, unsecured and non-priority
unsecured claims. The Plan also classifies post petition administrative
claims. As confirmed, the Plan called for the reorganized debtor to make
distributions to unsecured creditors within one year of the Plan's
effective date, December 20, 1998. Once distributions were made to
unsecured creditors, the Plan would be substantially consummated within
the meaning of the Bankruptcy Code.
- Preferred shareholders received common stock of the Company.
- Approved common shareholders will retain their interest in the Company.
The interest of shareholders with 10,000 shares or less (as listed on the
records of American Stock Transfer only) shall be allowed, unless an
objection was filed and upheld.
- William Taylor is to receive 40% of the Company's outstanding stock,
upon payment of all unsecured claims. Prior to payment, Taylor's stock is
to be held in escrow. Taylor's interest is based upon his claim of
$990,134 for consulting fees and other costs.
- The Company's wholly-owned subsidiaries, 88 Redevelopment and 4808
Corporation, were merged into Princeton American Corporation.
The Plan was subsequently modified in January 1999 to extend certain
deadlines of the Plan, including the deadline for making distributions to
unsecured creditors. These deadlines were extended to 180 days following
the entry of a final, non-appealable order resolving the claim of Harry
and Irene Weiss (Note 10).
The deadline for filing proof of ownership interest was also extended
several times in an effort to give stockholders ample opportunity to file
their proofs of interest. The Company and the Court compiled a final
listing of valid proofs of interest. Initially, management estimated that
there were approximately 15,000,000 shares of common stock (including
Taylor's 40%
F-12
31
Bankruptcy Claims, continued
interest), which were established by this process. Management currently
believes that the number of shares to be issued may be reduced to
approximately 11,000,000 shares. In May 2001 there was new litigation
(described in Note 10) regarding the shares outstanding. Because of this
new litigation there is still uncertainty as to the exact number of shares
that will ultimately be issued. The Court initially disallowed
approximately 12,000,000 shares in this process primarily because the
stockholders, including many of those held by brokers, failed to file
proofs of interest. Upon completion of this process, stockholders' equity
was restated effective to the year ended May 31, 1997 to reflect total
capitalization of $2,475,350. Capitalization was computed based upon
Taylor's ownership interest of 40% of all common stock in settlement of
his claim for $990,134.
On September 15, 2000, the Bankruptcy Court ordered Princeton American and
its transfer agent, American Stock Transfer & Trust ("AST") to cancel all
outstanding Princeton American share certificates and issue new share
certificates reflecting the allowed interest of shareholders under the
Plan of Reorganization for Princeton American and the Court's prior
orders. The Court further ordered that Princeton American and AST are not
subject to any claim based upon the cancellation of outstanding share
certificates and the issuance of new certificates in accordance with the
Court's orders. The final order became final and non-appealable on
September 29, 2000.
Princeton American is in the process of implementing the Court's order,
and new share certificates will be issued for the allowed interests as
soon as reasonably practicable. As of May 31, 2001, 2,286,430 shares had
been issued.
In connection with the issuance of new certificates, Princeton American
has also initiated a process to change its trading symbol. Effective as of
October 9, 2000, the trading symbol, PELT, has been officially cancelled,
and no further trades will be made under that symbol. After new
certificates have been issued to a majority of those shareholders
possessing an allowed interest, a new trading symbol will be issued to
Princeton American.
During the year ended May 31, 2000 a settlement was reached with Hyman
Center, the Company's former president, for a claim related to
compensation due for services rendered prior to the bankruptcy. The
settlement called for a cash payment of $4,300 and an unsecured claim of
$100,000. The claim is to bear interest from January 1, 2000 until paid in
full. A gain of $58,225 was recorded from this settlement.
The Company has accrued interest at 8% on all unpaid bankruptcy claims
since December 1997, with the exception of the Center claim.
Upon resolution of the Weiss claim, management intends to explore the
possibility of refinancing the buildings or the viability of merger
candidates.
F-13
32
10. Litigation and Liabilities in Dispute
The Company is involved in litigation, arising from actions of the Company
prior to the bankruptcy filing.
In September 1993, the Company acquired residential real estate from Harry
& Irene Weiss in exchange for 600,000 shares of the Company's restricted
common stock, with an agreed upon value of $1.00 per share. As part of the
agreement, the Company agreed that it would not sell or offer its stock
for two years at a price less than $1.00 per share. However, the Company
subsequently violated that agreement.
Weiss filed a proof of claim with the Bankruptcy Court for an unsecured,
pre-petition claim of $812,707. The Company objected to both the priority
and amount of the claim. The Bankruptcy Court initially upheld the
Company's objection and found that the Weiss claim was subordinated to the
level of a shareholder claim, rather than an unsecured claim. The Court
determined the amount of the claim to be $619,603. The District Court
subsequently reversed the Bankruptcy Court and found that the Weiss's were
entitled to assert an unsecured non-priority claim in the same amount. The
Company has appealed this decision.
The Weiss's also applied for an award of attorney's fees, which was
denied. They also sought to convert the bankruptcy proceedings to Chapter
7, which would require liquidation of the Company's assets. The Bankruptcy
Court denied their motion.
As the result of mediation proceedings, on February 9, 2001 the Company
and Weiss agreed to settle their dispute for $560,000 in cash, plus
interest at 10%, payable on the earlier of February 9, 2002 or the sale or
refinancing of the 4808 Building. The Company is currently negotiating
certain wording in the settlement agreement. The claim will be secured by
a third position deed of trust on the 4808 Building. The Weiss's will also
release all shareholder interest in the Company. The Company will have six
months from the date of the order to settle all bankruptcy claims.
Onset Investments has filed two proofs of claim, totaling $200,713 for
damages resulting from securities transactions prior to the bankruptcy
filing. The Company has objected to the validity, priority and amount of
these claims and intends to defend these claims vigorously. To date, the
Company and Onset have been unable to settle the dispute and therefore the
claim is currently unresolved and scheduled for a hearing.
Legal counsel is unable to determine the outcome and amount of potential
loss from these claims. However, the Company has recorded a liability for
the amount of the Weiss claim originally approved by the Court. The
liability will be adjusted to the amount of the settlement once the Order
Approving Settlement has been issued.
F-14
33
10. Litigation and Liabilities in Dispute, continued
During the year ended May 31, 2000, the Company reached a settlement with
a former officer and director, which required him to pay the Company
$125,000 in exchange for certain promissory notes, assets received upon
his termination from the Company and other claims filed by the Company.
The terms of the mortgage note described in Note 7 are also being
contested.
In May 2001 a group of individuals filed a motion to set aside the Court
Order which canceled all outstanding share certificates and ordered the
issuance of new shares. The group of individuals obtained stock in the
Company after confirmation of the Plan in November 1997 and they assert
that the Company and its president failed to adequately notify them that
the stock obtained might not be valid under the plan. They have also filed
a separate Complaint asserting claims for equitable relief, securities
fraud, breach of fiduciary duty and negligence. The Company believes the
Motion and the Complaint are without merit and has vigorously defended
against them. Several hearings have been held in the Bankruptcy Court and
the Company is awaiting the Judge's decision.
Legal counsel is unable to reasonably evaluate the Company's potential
loss if the Court grants the group of individuals their requested relief.
If the Order is set aside, the Company will be currently unable to pursue
its application with the NASD to obtain OTC Bulletin Board status for
trading in its shares.
11. Accrued Real Estate Taxes
The Company was delinquent on its real estate tax obligations during the
years ended May 31, 2001 and 2000, which resulted in tax liens being
placed on both its commercial properties. Interest incurred on real estate
tax obligations was approximately $20,000 in 2001 and $30,000 in 2000.
12. Lease Commitments
The Company leases office space in its commercial buildings located at
2222 E Camelback and 4808 North 22nd Street in Phoenix, Arizona. Future
minimum lease payments required under these leases are as follows:
Year ended May 31, Amount
------------------ ------
2002 $ 910,558
2003 801,230
2004 748,763
2005 748,631
2006 435,751
----------
$3,644,933
F-15
34
12. Lease Commitments, continued
Effective April 30, 2000, the Company and a former tenant entered into a
Lease Termination and Release Agreement, whereby the Company was required
to pay the tenant $50,000 in five equal monthly payments beginning July 1,
2000. In connection with the new five-year lease, the tenant paid a
$75,000 fee to obtain the right to lease the space.
The office building located at 2222 E. Camelback Road is subject to two
ground leases. The first lease was entered into on November 1, 1974. The
second lease was entered into on August 1, 1977. Both leases are net
leases, with terms of 99 years. On the 15th anniversary and for each
succeeding ten-year term, the rent is to be adjusted to an annual rate
equal to 8% of the fair market value of the leased premises, excluding
improvements. The rate on the first lease was adjusted on November 1, 1999
to a monthly rate of $4,933. The second lease was adjusted to a monthly
rate of $3,100 on the 15th anniversary of the lease and will be adjusted
in 2002. Rent expense on these two leases for the years ended May 31, 2001
and 2000 was $96,400 and $95,444, respectively.
The office building located at 4808 N. 22nd Street is subject to a ground
lease, the term of which extends through July 31, 2031. The lease is a net
lease. The rental rate as of May 31, 2001 was $2,395 and is subject to an
annual adjustment based on the Consumer Price Index. Rent expense on this
lease for the years ended May 31, 2001 and 2000 was $28,572 and $27,644,
respectively.
The Company has a limited number of tenants in both buildings. As such,
the loss of certain tenants could adversely impact the Company.
The Company's future minimum lease obligations on the ground leases for
the next five years are approximately $125,000 per year, based upon the
current valuation.
13. Deferred Rental Income
During the year ended May 31, 2001, the Company negotiated two leases that
provided for a tenant improvement allowance and lease commission to be
paid by the tenants and then deducted from the rent due during the 3rd
through 12th months of the leases. The total amounts of the tenant
improvements of $107,225 and the leasing commission of $17,540 were
capitalized and are being amortized over the life of the lease. The
deferred rental income is being amortized straight-line over ten months.
Deferred rental income of $33,634 was recognized during the year ended May
31, 2001 leaving a balance of $91,131 at May 31, 2001.
F-16
35
14. Disclosures about Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments", requires that the Company disclose
estimated fair values for its financial instruments. The following summary
presents a description of the methodologies and assumptions used to
determine such amounts.
Fair value estimates are made at a specific point in time and are based on
relevant market information and information about the financial
instrument; they are subjective in nature and involve uncertainties,
matters of judgment and, therefore, cannot be determined with precision.
These estimates do not reflect any premium or discount that could result
from offering for sale at one time the Company's entire holdings of a
particular instrument. Changes in assumptions could significantly affect
the estimates.
Since the fair value is estimated as of May 31, 2001, the amounts that
will actually be realized or paid at settlement of the instruments could
be significantly different.
The carrying amount of cash and cash equivalents is assumed to be the fair
value because of the liquidity of these instruments. The recorded amount
of the investment in marketable securities approximates market based upon
quoted market values. The investment in the commission contract has been
discounted to its estimated present value using market rates of interest.
Accounts payable and accrued expenses approximate fair value because of
the short maturity of these instruments. The recorded balance of notes
payable and bankruptcy claims are assumed to be the fair value, since the
rates specified approximate current market rates.
15. Income Taxes
The components of net deferred tax assets at May 31, 2001 and 2000,
assuming an effective tax rate of 40%, are as follows:
2001 2000
---- ----
Net operating loss carryforward 5,780,000 $5,730,000
Depreciation of marketable securities 170,000 150,000
Difference in basis of property & equipment 110,000 170,000
Accrued real estate taxes 120,000 90,000
Less valuation allowance (6,180,000) (6,140,000)
Net deferred tax assets - -
The expected tax benefit from the net loss before income taxes was offset
by a valuation allowance, since the Company has not yet developed a
history of profitable operations. During the periods ended May 31, 2001
the valuation allowance increased by approximately $40,000. For 2000, it
decreased by approximately $40,000.
F-17
36
15. Income Taxes, continued
At May 31, 2000, the Company has approximately $14,000,000 in unused
federal net operating loss carryforwards, which expire from 2002 through
2021. The state net operating loss carryforwards, which approximate
$4,800,000 expire from 2002 through 2006.
Due to significant changes in ownership in prior years and changes in the
Company's operations, the amount of operating losses available to offset
future income taxes may be significantly limited. The Company has not yet
completed an evaluation of the amount of losses that are available for
utilization by the Company or a prospective merger candidate.
F-18