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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission File No.0-25803
December 31, 2001
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
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(Exact name of small business issuer as specified in its charter)
Florida 65-0181535
- ---------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10800 Biscayne Blvd. Suite 500
Miami, FL 33161
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(Address of principal executive offices)
(305) 751-3232
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(Registrant's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.001 par value per share
(Title of Class)
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 period 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 [ ]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will 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. [ ]
State issuer's revenues for the most recent fiscal year. $8,643,658
The aggregate market value of the common equity held by non-affiliates of the
registrant as of February 28, 2002 was $1,515,300. This calculation is based
upon the closing price ($0.09) of the voting stock on February 28, 2002.
The number of outstanding shares of the issuer's $0.001 par value common stock
was 18,370,983 as of February 28, 2002.
PART I
Item 1. DESCRIPTION OF BUSINESS
GENERAL
America's Senior Financial Services, Inc. ("AMSE") along with its
wholly-owned subsidiaries, Dow Guarantee Corp. ("Dow") and Jupiter Mortgage
Corporation ("Jupiter"), is a licensed mortgage lender active in originating,
processing and obtaining funding for forward and reverse mortgage loans
secured by single family residences which are funded by financial institutions
or independent investors. AMSE, Dow and Jupiter are collectively referred to
herein as the Company. All significant inter-company transactions are
eliminated in consolidation.
We receive income from two sources in connection with our mortgage
lending activities. We charge certain non-refundable mortgage application fees
to potential borrowers. Additionally, upon closing a loan, we receive
additional fees payable by the borrower or investor, which fees are based upon
a percentage of the loan and/or the interest rates charged.
Our executive offices are located at 10800 Biscayne Blvd. Suite 500
Miami, Florida 33161 and our telephone number is (305) 751-3232. We are a
Florida corporation, which was incorporated in 1990.
BUSINESS DEVELOPMENTS
The Company's Jupiter Mortgage Corporation subsidiary originated in
excess of $289 million dollars of gross loan originations for the year ended
December 31, 2001, and funded approximately $252 million dollars.
The Company's Reverse Mortgage operations provided another $15
million dollars in gross loan originations, and funded another $7.5 million
dollars. Combined with the forward operations named above, the company
achieved almost $304 million dollars in gross loan originations, and funded
$260 million dollars in loans.
During 2000 the Company executed a $259,000 secured convertible
demand promissory note with a third party, which retired existing lines of
credit and provided the Company with additional working capital. The Company
also funded certain types of loans through such third party's mortgage
subsidiary. In 2001 the $259,000 note referenced above has been paid off from
working capital, and the creditor placed the original note and collateral with
the Company's special counsel pending completion of a final compliance audit
by the parties. The third party has ceased operations and this affected the
Company's ability to recover fees due to the Company from the third party's
mortgage subsidiary.
The results for the full year of 2001 includes losses of $306,000
related to the third party's apparent breach of contract and subsequent
collapse of their business units. The collateral has been returned to the
Company.
Investment agreement with JJ&T, L.L.C.
On November 16, 2001 we entered into an investment agreement with JJ&T, L.L.C.
The investment agreement entitles us to issue and sell our common stock. to
The Company announced that it is seeking to restructure the equity credit line
that it announced in February 2002. The amount of the equity credit line would
be reduced to $2,500,000 and restructured to meet the SEC's current
requirements for registration of shares to be issued in such transactions.
There can be no assurances that the Company will be successful in
restructuring the equity credit line, or that any funding will be available to
the Company from the line.
Asset Purchase regarding Dupont Mortgage Corporation, Inc.
Jupiter Mortgage Corporation purchased the assets of Dupont Mortgage Group,
Inc. consisting of its mortgage wholesale lending business and certain
furniture, equipment and office lease in Tampa, Florida where Dupont conducted
such business. The agreement calls for the Company to pay Dupont a total of
$200,000 to operate the business as a subsidiary of Jupiter under the trade
name Synergy Mortgage Solutions. The effective date on this transaction was
December 31, 2001.
The Company is currently working with several advisors to identify
potential acquisition candidates for potential expansion. While there are
three candidates under consideration, there can be no assurances that any
additional acquisitions will occur in the immediate future.
FINANCINGS
In 2001, the company raised equity capital through the use of private
placements of restricted common stock to private individuals. There is a table
included in this report that shows the reader who invested and the amount that
they subscribed for.
OPERATIONS
During 2001, the company remained focused on building its core
business, mortgage loan origination.
In the second half of 2000 the Company launched major efforts to
reduce costs and eliminate redundancies in its overall operations. These
initiatives affected both forward and reverse mortgage operations. Forward
originations continued to improve while these initiatives were ongoing.
However, reverse mortgage operations were impacted deeply because of their
dependence on marketing, advertising, and Trade Show participation. For the
1st 9 months of 2001, most of these activities were eliminated. In the 4th
quarter 2001, the reverse mortgage processing function was re-assigned to
Jupiter and training commenced. Once this was completed, the Company launched
an aggressive Radio, TV, and broker campaign. The campaign was launched too
late to impact on 2001 results, but has increased originations dramatically
during the current quarter. The Company should start to see the financial
benefit of these changes, in the 2nd quarter 2002.
The company's combined forward mortgage loan originations constitute over 95%
of our total loan originations. Largely, our forward business is purchase or
relationship driven. Since the company does very little forward mortgage
retail advertising, our refinance business is small. Of the forward mortgage
loan origination, we estimate that 30% are government products (FHA and VA),
50% are conforming products (FNMA and FHLMC) and the balance (20%) is non-
conforming and sub prime customers.
The FHA "HECM" dominates our reverse mortgage sales program, accounting for
almost 90% of our reverse mortgage production. The balance of our reverse
mortgage loans are FNMA "Home Keepers". During 1999 through 2001, we worked to
develop a third product, a private reverse mortgage that would offer greater
flexibility and ease of use to a wider base of seniors. As of December 31,
2001, we had not secured the facility necessary to fund and warehouse the
product. However the present model is viable and AMSE continues to search for
a credit facility to launch the product.
COMPETITION
We face intense competition in the business of originating
mortgage loans. Our competitors in the industry include consumer
finance companies, mortgage banking companies, savings banks, commercial
banks, credit unions, thrift institutions, credit card issuers and insurance
companies. Many of these competitors are substantially larger and have
considerably greater financial and marketing resources than the
Company. In addition, many financial services organizations that are much
larger than the Company have formed national loan origination networks or
purchased home equity lenders. Competition among industry participants can
take many forms, including convenience in obtaining a loan, customer service,
marketing and distribution channels, amount and term of the loan, loan
origination fees and interest rates.
To the extent any of these competitors significantly expand their activities
in our market, our business could be materially adversely affected.
Fluctuations in interest rates and general economic conditions may also affect
our competition and us. During periods of rising rates, competitors that have
locked in lower rates to potential borrowers may have a competitive advantage.
We believe our competitive strengths include emphasizing customer
education to attract borrowers for reverse mortgages, and level of customer
service.
SALES AND MARKETING
As an independent mortgage originator, we seek to identify
persons who are seeking mortgage loan funding. Currently, we
advertise in local and regional newspapers, yellow page telephone directories,
internet websites, direct mail and cable television. We market
through national trade association participation, senior oriented direct mail,
participation in senior events, free video tapes given to potential clients,
state level trade shows, and HUD/Fannie Mae focus group activities.
For the fiscal year ended December 31, 2001, 2000, 1999 and 1998, we
expended approximately $27,000, $66,000, $393,000 and $155,000, respectively
for sales and marketing activities. In 1999 we expanded marketing activities
to consistently include nationwide advertising of its reverse mortgage effort.
In 2001, marketing and advertising expenses were reduced from the previous
year as we continued to limit our advertising to select venues in Florida
only.
REGULATORY AGENCIES
Our operations are subject to extensive regulation, supervision
and licensing by federal, state and local governmental authorities and are
subject to various laws and judicial and administrative decisions imposing
requirements and restrictions on part or all of its operations. Our
consumer lending activities are subject to the Federal Truth-in-Lending Act
and Regulation Z (including the Home Ownership and Equity Protection Act of
1994),the Federal Equal Credit Opportunity Act, as amended, and Regulation B,
the Fair Credit Reporting Act of 1970, as amended, the Federal Real Estate
Settlement Procedures Act and Regulation X, the Home Mortgage Disclosure Act,
the Federal Debt Collection Practices Act and the National Housing Act of
1934, as well as other federal and state statutes and regulations affecting
our activities.
We are also subject to the rules and regulations of, and examinations by,
state regulatory authorities with respect to originating and processing loans.
These rules and regulations, among other things, impose licensing obligations,
establish eligibility criteria for mortgage loans, prohibit discrimination,
govern inspections and appraisals of properties and credit reports on loan
applicants, regulate assessment, collection, foreclosure and claims handling,
investment and interest payments on escrow balances and payment features,
mandate certain disclosures and notices to borrowers and, in some cases, fix
maximum interest rates, fees and mortgage loan amounts. Failure to comply with
these requirements can lead to loss of approved status, certain rights of
rescission for mortgage loans, class action lawsuits and administrative
enforcement action.
EMPLOYEES
As of March 11, 2002 the company employs approximately 100 persons.
The Company believes it has satisfactory relationships with all of its
employees.
ENVIRONMENTAL MATTERS
None.
FACTORS AFFECTING THE COMPANY'S BUSINESS AND PROSPECTS
OUR BUSINESS DEPENDS ON THE AVAILABILITY OF MORTGAGES AT REASONABLE
RATES.
The success of our mortgage origination business is dependent upon the
availability of mortgage funding at reasonable rates. Although there has been
no limitation on the availability of mortgage funding in the last few years,
there can be no assurance that mortgages at attractive rates will continue to
be available.
OUR BUSINESS IS SUBJECT TO COMPETITION FROM MANY SOURCES.
There are many sources of mortgages available to potential borrowers
today. These sources include consumer finance companies, mortgage banking
companies, savings banks, commercial banks, credit unions, thrift
institutions, credit card issuers and insurance companies. Many of these
alternative sources are substantially larger and have considerably greater
financial, technical and marketing resources than we do. Additionally, many
financial services organizations against whom we compete for business have
formed national loan origination networks or have purchased home equity
lenders. We compete for mortgage loan business in several ways, including
convenience in obtaining a loan, customer service, marketing and distribution
channels, amount and term of the loan, loan origination fees and interest
rates. If any of these competitors significantly expand their activities in
our market, our business could be materially adversely affected. Changes in
interest rates and general economic conditions may also affect our business
and our competitors. During periods of rising interest rates, competitors who
have locked into lower rates with potential borrowers may have a competitive
advantage.
ITEM 2. DESCRIPTION OF PROPERTY
All of the operations of the Company are conducted from premises
leased from independent landlords.
The following table sets forth information concerning these
facilities:
AMERICA'S SENIOR FINANCIAL SERVICES
LOCATION TENANT APPROX. LEASE EXPIRATION MONTHLY
SIZE RENT
- -------- ------------ -------
10800 Biscayne Blvd. #500 250 sf Dec. 2001 $ -0-
Miami Shores, FL 33161
JUPITER MORTGAGE CORPORATION:
10800 Biscayne Blvd. 2,200 sf Nov. 2004 $3,503
Miami Shores, FL 33138
2737 E. Oakland Park Blvd. 175 sf Month to Month $ 329
Oakland Park, FL 33306
1070 E. Indiantown Road 5,500 sf November 2004 $8,247
Jupiter, FL 33477
11398 Okeechobee Blvd.,
Suite 2 1,500 sf October 2003 $2,034
Royal Palm Beach, FL 33411
1874 S.E. Port St. Lucie Blvd. 1,800 sf Feb. 2003 $2,688
Port St. Lucie, FL 34952
1000 S. Federal Hwy. 500 sf Month to Month $1,000
Stuart, FL 34994
1100 W. Littleton Boulevard 1,762sf April 2004 $1,825
Suite 350
Littleton, CO. 80120
103 US Highway 1 250sf Dec. 2002 $ 600
Jupiter, FL. 33477
101 Bridge Road 250sf July 2002 $ 600
Jupiter, FL. 33477
129 Center Street 500sf Dec. 2002 $1,060
Jupiter, FL. 33458
1408 N. Westshore Blvd. 5,500sf Dec. 2004 $6,050
Suite 1004
Tampa, FL.
Leases may provide for rent escalations tied to increases in operating
expenses or fluctuations in the consumer price index.
ITEM 3. LEGAL PROCEEDINGS
In December of 1998 we advanced $250,000 to Home Care America,
Inc. (HCAI), an acquisition candidate, pursuant to a promissory note. The
purpose of the note was for HCAI to use as working capital. There is no
affiliation between ourselves and HCAI.
In April 1999 we sued HCAI and Robert G. Williams in the Circuit
Court of the 11th Judicial Circuit, Miami-Dade County, Florida for repayment
of the $250,000 promissory note.
As of March 15, 2002 no settlement or judgment has been made pursuant
to this litigation. No assurances can be given as to the final outcome of this
matter.
On April 9, 2001 a legal action was filed in the Eleventh Circuit
Court in Dade County by Michael Shelley, a former director of the company who
was removed from his position by a majority vote of the shareholders on
November 30, 2000. The former director has sued the Company and Company's
Chairman, Nelson A. Locke, in a derivative action alleging mismanagement and
other matters. The Company's Board of Directors has investigated these
allegations. After an investigation described below, the Company's Board
determined these allegations to be without merit and a continuation of the
former director's behaviors, which resulted in his removal from the board. To
respond as completely as possible, the Board formed an Investigative Committee
which consisted of directors deemed independent of the controversy, and the
Committee researched all of the former director's complaints. An
investigative report was compiled by the Committee and filed with the Court in
January 2002. The Company intends to petition the Court to dismiss the suit,
award costs and damages and impose certain other legal sanctions on behalf of
the Company.
The Company is also working on an amicable settlement with several former
employees acquired as part of the Company's acquisitions, whose positions were
subsequently eliminated. The Company expects to settle the matter completely
during the second quarter of 2002.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On March 6, 2002 a proposal to increase the number of authorized common
shares to 100,000,000 was submitted to a vote of the security holders of the
Company. The filing of a pre 14-C on 2/13/02 evidenced this.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Our Common Stock has been trading on the over-the-counter market
since February 20, 1998. The following sets forth the range of high and low
bid quotations for the periods indicated as reported by National Quotation
Bureau, Inc. Such quotations reflect prices between dealers, without retail
mark-up, markdown or commission and may not represent actual transactions.
HIGH BID LOW BID
-------- -------
February 20, 1998 through March 31, 1998 ......... $5.75 $5.75
April 1, 1998 through June 30, 1998 .............. 6.625 5.75
July 1, 1998 through September 30, 1998 .......... 7.375 5.50
October 1, 1998 through December 31, 1998 ........ 7.50 6.375
January 1, 1999 through March 31, 1999 ........... 5.75 7.00
April 1, 1999 through June 30, 1999 .............. 7.625 6.6875
July 1, 1999 through September 30, 1999 .......... 6.96875 5.00
October 1, 1999 through December 31, 1999 ........ 8.50 2.25
January 1, 2000 through March 31, 2000 .......... 3.9688 0.625
April 1, 2000 through June 30, 2000 0.9988 0.0781
July 1, 2000 through September 30, 2000 ......... 1.3125 0.2812
October 1, 2000 through December 31, 2000 0.625 0.0938
January 1, 2001 through March 31, 2001 0.4062 0.125
April 1, 2001 through June 30, 2001 0.22 0.125
July 1, 2001 through September 30, 2001 0.47 0.18
October 1, 2001 through December 31, 2001 0.7969 0.4681
January 1, 2002 through March 11, 2002 0.22 0.13
As of March 11, 2002, there were approximately 1,196 holders of
record of our common stock.
DIVIDENDS
We have not previously paid any dividends to our shareholders and we do not
anticipate that any dividends will be paid in the foreseeable future. The
Board of Directors intends to follow a policy of using retained earnings,
if any, to finance the growth of the company. The declaration and payment
of dividends in the future will be determined by the Board of Directors in
light of conditions then existing, including the company's earnings,
financial condition, capital requirements and other factors.
SALES OF UNREGISTERED SECURITIES
The following provides information concerning all sales of securities
within the last three years which were not registered under the Securities Act
of 1933.
In December 1997, the Company sold 600,000 shares of common stock and
700,000 Common Stock Purchase Warrants to 41 investors for $100,000. Such
offering was made pursuant to Rule 504 of Regulation D. Each Common Stock
Purchase Warrant entitled to the holder to purchase one share of common stock
for $1.00 per share. During 1998, 700,000 of the Warrants were exercised and
the Company issued 700,000 shares of common stock pursuant to Rule 504 of
Regulation D.
The Company issued 74,400 shares to employees as restricted stock awards
in 1998 and 128,300 shares during 1999. Such shares were issued without
registration pursuant to an exemption from registration under Section 4(2) of
the Securities Act of 1933.
In 1999 and 2000 the Company issued shares to investors pursuant to an
exemption from registration under Section 4(2) of the Securities Act of 1933.
DATE CONSIDERATION SHARES PURCHASER ACCREDITED/SOPHISTICATED
- ---- ------------- ------ -------- ------------------------
1/4/99 $ 4,000 2,000 Deery, Scott Sophisticated
2/17/99 100 100 Charlesworth, Steven Sophisticated
2/17/99 100 100 Charlesworth, Joan Sophisticated
2/17/99 100 100 Charlesworth, Carrie Sophisticated
2/17/99 1,000 1,000 Charlesworth, David E. Sophisticated
2/17/99 1,000 1,000 Hersha, Julia Jean Sophisticated
2/17/99 1,000 1,000 Langston, Timothy Sophisticated
2/17/99 1,000 1,000 Edgar, Derek Sophisticated
2/17/99 4,000 4,000 Fleming, Carol Sophisticated
2/17/99 4,000 4,000 Locke, Victor M. Sophisticated
DATE CONSIDERATION SHARES PURCHASER ACCREDITED/SOPHISTICATED
- ----- -------------- ------ --------- -----------------------
2/26/99 15,000 15,000 Snyder, Scott A. Sophisticated
2/26/99 15,000 15,000 Aurelia Holdings Ltd. Sophisticated
2/23/99 10,000 10,000 Biondo, Jane M. Sophisticated
3/1/99 1,500 1,500 Locke, Edwin Sophisticated
2/25/99 40,000 40,000 Brickell Equity Group, Ltd. Sophisticated
2/25/99 60,000 60,000 Palmun Associates Sophisticated
3/15/99 7,000 7,000 Donahue, Edwin Sophisticated
3/15/99 100 100 Frantz, Arlee Sophisticated
5/5/99 75,000 37,500 Palmun Associates Sophisticated
6/9/99 25,000 12,500 Rosen, Kenneth Sophisticated
6/9/99 50,000 25,000 Kahn, Marc A & Laurie D Kahn Sophisticated
10/4/99 100,048 29,644 Buono, Michael J Sophisticated
0/15/99 5,002 1,482 Buono, Michael J Sophisticated
0/12/99 25,012 7,411 Pargulski, John M Sophisticated
0/12/99 25,002 7,408 Girard, Dean J Sophisticated
10/4/99 100,001 29,630 Buono, Ronald J Sophisticated
10/4/99 33,800 10,015 Glass, Michael Sophisticated
10/4/99 60,000 17,778 Anderson, Deanne J Sophisticated
10/4/99 25,012 7,411 Bashwiner, Robert T Sophisticated
10/4/99 27,040 8,012 Douglas, James R Sophisticated
10/4/99 67,600 20,030 Kauff, Richard L Sophisticated
1/24/99 50,625 15,000 Palmun Associates A Partnership Sophisticated
12/1/99 50,625 15,000 Kahn, Albert L and Ellen B Kahn Sophisticated
2/16/99 27,000 8,000 Kahn, Marc Sophisticated
1/25/00 7,500 5,000 Bailey, Darryl L Sophisticated
2/1/00 5,000 3,333 Rindo, John M. Sophisticated
3/25/00 75,000 150,000 Palmun Associates A Partnership Sophisticated
3/21/00 25,000 50,000 Rosen, Kenneth Sophisticated
3/28/00 75,000 115,386 Palmun Associates A Partnership Sophisticated
1/24/01 24,000 133,333 Frank Donahue Sophisticated
1/24/01 2,000 11,111 Jeffrey Donahue Sophisticated
1/24/01 2,000 11,111 Rachel Donahue Sophisticated
1/24/01 2,000 11,111 Jackie Donahue Sophisticated
---------- ----------
$1,129,167 905,106
=========== ===========
In 1999 the Company issued the following shares to investors pursuant to
504 of Regulation D.
DATE CONSIDERATION SHARES PURCHASER ACCREDITED/SOPHISTICATED
- ---- ------------- ------ --------- -----------------------
- -
1/26/99 $ 100,000 100,000 Fidra Holdings, Ltd. Accredited
1/26/99 34,000 34,000 Fidra Holdings, Ltd. Accredited
1/26/99 50,000 50,000 Fidra Holdings, Ltd. Accredited
1/26/99 50,000 50,000 Fidra Holdings, Ltd. Accredited
2/25/99 16,666 16,666 Weltman, Louis Sophisticated
2/25/99 16,667 16,667 Brickell Equity Group Sophisticated
2/25/99 16,667 16,667 Palmun Associates Sophisticated
--------- -------
$ 284,000 284,000
======== =======
On January 29, 1999 we issued 221,664 shares of our common stock as
follows
to the former shareholders and the investment banker of Capital Funding of
South Florida, Inc. Such shares were issued without registration pursuant to
section 4(2) of the Securities Act of 1933.
George & Tracy Pollis 105,228
Paula Police 105,228
First Fidelity Capital Markets, Inc. 11,088
We also issued 16,000 shares to our investment banker Vistra Growth
Partners, Inc. in connection with the acquisition.
On October 30, 2000 we issued 200,000 shares to George Pollis and 200,000
shares to Michael Pollis of Preferred B stock as the final settlement on the
purchase of Capital Funding per the terms of the original purchase contract.
During May of 1999 we issued 185,500 shares to placement agents and
advisors in connection with the $2,500,000 convertible debenture sold on May
5, 1999.
On August 12, 1999 we issued 23,000 shares of our Common Stock in
connection with two new employees and in exchange for various assets of theirs
in order to open our offices in New York and New Jersey.
In November of 1999 we issued 125,000 shares of common stock to the
shareholders of a potential acquisition candidate. These shares were returned
and voided during February of 2000.
We also issued 5,200 shares of our common stock to Brickell Equity Group,
Inc. for consulting services on December 20, 1999.
Through November 30, 2000 we issued a total of 550,757 shares to Fennell
Avenue Associates LLP in connection with the conversion of, and applicable
interest on $1,000,000 principal of the convertible debenture issued in May of
1999. On February 5, 2001 we issued 1,250,000 shares of to Fennell in
settlement of the total debt that was still outstanding related to the
debenture.
On August 18, 1999 we issued 360,750 shares of our common stock as follows
to the former shareholders and the investment banker of Jupiter Mortgage
Corporation. Such shares were issued without registration pursuant to Section
4(2) of the Securities Act of 1933.
Deanne J. Anderson 169,553
Michael J. Buono 169,553
First Fidelity Capital Markets, Inc. 21,644
On December 26, 2000 we issued 716,500 shares to Michael Buono and 716,500
shares to DeAnne Anderson of Preferred A stock as the final settlement on the
purchase of Jupiter Mortgage Corporation per the terms of the original
purchase
contract.
On February 11, 2000 50,000 shares were issued to Pinnacle Financial
Corporation, a potential acquisition. (Accredited investor)
On February 11, 2000 50,000 shares were issued to First Jefferson Mortgage
Corporation, a potential acquisition. (Accredited investor)
On February 14, 2000 75,000 shares were issued to Capitalink LC. For
financial advisory services. (Sophisticated investor)
On March 1, 2000 10,000 shares were issued to Robert Sennott, an employee,
for retention. (Sophisticated investor)
On March 1, 2000 6,000 shares were issued to Goodman Realty for a lease
settlement. (Sophisticated investor)
On March 27, 2000 150,000 shares were issued to Brickell Equity Group for
financial consulting services. (Sophisticated investor)
On May 5, 2000 50,000 shares were issued to Jace Simmons, an employee for
services rendered and retention. (Sophisticated investor) These were
subsequently cancelled in 2001.
On May 5, 2000 23,600 shares were issued to The Charterbridge Financial
Group Inc. for advisory services. (Sophisticated investor)
On May 25, 2000 66,666 shares were issued to Jace Simmons, an employee for
services rendered and retention. (Sophisticated investor) These were
subsequently cancelled in 2001.
On May 25, 2000 7,000 shares were issued to Alexander Avella for a lease
settlement. (Sophisticated investor)
On May 25, 2000 10,000 shares were issued to Edward Saltzman, an employee
for retention. (Sophisticated investor)
On July 5, 2000 387,097 shares were issued to Wall Street Financial Group
for consulting services. On October 6, 2000 258,065 of these shares were
cancelled. (Sophisticated investor)
On July 5, 2000 120,000 shares were issued to Gary Barcus, Attorney for
legal services to be provided. (Sophisticated investor)
On September 27, 2000 520,000 shares were issued to 21st Equity Partners
for investor relations services. (Sophisticated investor)
On September 27, 2000 15,000 were issued to E-Trek designs for internet
property maintenance. (Sophisticated investor)
On September 27, 2000 250,000 shares were issued to Global Financial
Strategies for investor relation's services. (Sophisticated investor)
On November 1, 2000 200,000 shares were issued to National Financial
Communications Inc. for public relations services. (Sophisticated investor)
On November 8, 2000 15,000 shares were issued to Beral Inc. for research
services. (Sophisticated investor)
On December 6, 2000 426,108 shares of Preferred A stock were issued to
Nelson Locke in lieu of unpaid salary and unreimbursed expenses.
(Sophisticated investor)
On December 29, 2000 720,671 shares of Preferred A stock were issued to
Charles Kluck in lieu of unpaid salary and unreimbursed expenses.
(Sophisticated investor)
On December 29, 2000 138,224 shares of Preferred A stock were issued to
Linda Kluck in lieu of unpaid salary and unreimbursed expenses.
(Sophisticated investor)
On January 4, 2001 100,000 shares were issued to Brickell Equity Group for
financial consulting services. (Sophisticated investor)
On January 4, 2001 47,200 shares were issued to Charterbridge Financial
for investor relations consulting services. (Sophisticated investor)
On January 4, 2001 50,000 shares were issued to Eric Horton for
investor relations consulting services. (Sophisticated investor)
On January 30, 2001 10,000 shares were issued to Douglas Wheeler for
a legal settlement. (Sophisticated investor)
On January 30, 2001 2,000 shares were issued to Alt & Rubino for
Legal services. (Sophisticated investor)
On January 30, 2001 5,000 shares were issued to Alan Jotkoff as
a lease settlement. (Sophisticated investor)
On January 30, 2001 100 shares were issued to Richard Meltzer for
employee retention. (Sophisticated investor)
On January 30, 2001 2,000 shares were issued to Rhoda Stolar for
a legal settlement. (Sophisticated investor)
On February 7, 2001 125,000 shares were issued to Beral Inc. for
advisory services related to a legal settlement. (Sophisticated investor)
On April 3, 2001 150,000 shares were issued to Brickell Equity for
financial consulting services. (Sophisticated investor)
On May 10, 2001 50,000 shares were issued to Dean Girard for
employee retention. (Sophisticated investor)
On May 10, 2001 20,000 shares were issued to Joe Martinez for
employee retention. (Sophisticated investor)
On May 10, 2001 60,000 shares were issued to Palmun Associates for
services. (Sophisticated investor)
On May 15, 2001 5,000 shares were issued to James Douglas for
employee retention. (Sophisticated investor)
On May 15, 2001 8,000 shares were issued to Robert Bashwiner for
employee retention. (Sophisticated investor)
On May 15, 2001 15,000 shares were issued to Greg Ryan for
employee retention. (Sophisticated investor)
On May 15, 2001 7,000 shares were issued to Rachil Bracha for
employee retention. (Sophisticated investor)
On May 15, 2001 5,000 shares were issued to Steve Maione for
employee retention. (Sophisticated investor)
On June 21, 2001 30,000 shares were issued to Stratos Research for
research services. (Sophisticated investor)
On July 2, 2001 300,000 shares of Preferred A stock were issued to
Michael Buono for employee retention. (Sophisticated investor)
On July 2, 2001 350,000 shares of Preferred A stock were issued to
Nelson Locke and Cheryl Locke in lieu of unpaid expense reimbursements and
employee retention. (Sophisticated investor)
On July 2, 2001 100,000 shares of Preferred A stock were issued to
Brickell Equity for consulting services. These shares were subsequently
cancelled. (Sophisticated investor)
On August 21, 2001 125,000 shares were issued to Tequesta Capital for
investor relations. (Sophisticated investor)
On October 4, 2001 300,000 shares were issued to Lawrence Handler for
marketing consulting services. (Sophisticated investor)
On October 4, 2001 30,000 shares were issued to Roberto Moreno for
internet and computer consulting services. (Sophisticated investor)
On October 4, 2001 41,000 shares were issued to Rodney Owens for
legal services. These shares were subsequently cancelled in April 2002.
(Sophisticated investor)
On October 22, 2001 129,032 shares were issued to Clifford Wilson for
marketing consulting services. (Sophisticated investor)
On November 1, 2001 300,000 shares were issued to The Investor Online for
investor relations consulting services. (Sophisticated investor)
On November 19, 2001 88,235 shares were issued to Clifford Wilson for
marketing consulting services. (Sophisticated investor)
On November 19, 2001 20,000 shares were issued to Jace Simmons as a legal
settlement. (Sophisticated investor)
On November 19, 2001 400,000 shares were issued to Lawrence Handler for
marketing consulting services. (Sophisticated investor)
On November 19, 2001 27,500 shares were issued to Steven Sonberg for
legal services. (Sophisticated investor)
On December 26, 2001 2,000,000 shares were issued to Jupiter Mortgage
Corporation for future use in employee retention. (Sophisticated investor)
All of the securities listed in the charts above were issued pursuant to
individual subscription agreements provided by each purchaser, or were issued
pursuant to a services contract relationship between the shareholder and the
Company. Each purchaser has represented that they are sophisticated investors,
as documented in their subscription agreement or other documents. All of the
individuals listed upon proper request were given access to all documents,
financial statements, stockholder records, minute books and all other records
of the company in which they desired. These individuals also had the
opportunity upon proper request to meet with and ask questions of the officers
of the Company.
None of the securities discussed above were registered under the
Securities Act of 1933, exemption being claimed in each case pursuant to
Regulation D or Section 4(2) thereof. All shares which were not issued under
Rule 504 exemption were issued with restrictive legend and stop transfer
orders. No general advertising or solicitation was utilized in connection with
any such sales. All investors were offered upon proper request access to the
Company's books and records and the opportunity to meet with officers of the
Company.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Total revenues for the Year Ended December 31, 2001 increased 32% to
$8,643,658 from $6,559,976 for the Year Ended December 31, 2000. Included in
the revenues for the year ended December 31, 2002 there is a one-time gain in
the amount of $989,690 as a result of the settlement of the debenture lawsuit.
Revenues from loan operations increased by 17% to $7,653,968. This growth in
revenues was attributable to the contributions of the forward mortgage aspect
of the business whose revenues totaled $7,600,753 in 2001, compared to
6,179,246 in 2000. The reverse mortgage platform decreased in 2001 to $53,215
from $380,730 in 2000 as a result of the restructuring of this business
sector. This is discussed in greater detail in the Operations Section of Part
One above.
Our forward mortgage origination platform experienced a sales increase
in 2001 directly benefiting from demand created by declining interest rates
and from our internal focus on better execution. We believe that these results
demonstrate our ability to capture greater sales from existing branch offices
while continuing to execute our strategy for "organic growth".
During 2001, several aspects of the Company's business were restructured
in order to maximize future potential and eliminate duplicative services.
Dow Guarantee Mortgage consolidated its entire back office operation into
the Jupiter unit. Jupiter modified Dow's lending practices to fit into
the Jupiter model. Dow now operates as a branch of Jupiter Mortgage
Corporation.
During 2001, we worked to improve our reverse mortgage platform.
We have recently signed a contract with a Florida based insurance provider
to assist in marketing reverse mortgage products to Florida seniors. We have
trained over 150 of the new senior advisors to date. These advisors are
being trained regarding how reverse mortgages work, and how to identify
potential candidates for the program. They are also being trained to gather
the information necessary for the Company to quote benefits to their clients.
Continued training is ongoing and this new platform will continue to grow by
adding new qualified advisors. The Company expects to realize revenues from
these efforts starting in the second quarter of 2002.
Total Expenses for the Year Ended December 31, 2002 compared to the Year
Ended December 31, 2001 increased 8% to $9,357,779 from $8,651,738. This
increase in expenses is primarily due to the additional commission costs
associated with the increased revenue production.
Included in the above expenses are AMSE corporate office expenses of
$1,997,298. These are from accruals and other operational costs NOT directly
attributable to the Company's loan production, of which $1,081,954 was non-
cash. The majority of these expenses are related to the amortization of
marketing and advisor contracts that date back into the prior year.
During 2000 the Company paid off several outstanding lines of credit,
retiring $210,000 in short term debt. The Company executed a $259,000 secured
convertible demand promissory note with a third party, which retired the
above-mentioned lines of credit and provided the Company with additional
working capital. The Company also funded certain types of loans through such
third party's mortgage subsidiary. Prior to this filing, the $259,000 note
referenced above has been paid off from working capital, and the creditor has
returned the collateral to the Company. The third party has ceased operations
and this affected the Company's ability to recover fees due to the Company
from the third party's mortgage subsidiary. The results for the full year of
2001 includes losses of $306,208 related to the third party's apparent breach
of contract and subsequent collapse of their business units.
Operational costs decreased in relationship to revenues produced
on a full year. This improvement in expenses is partially attributable to the
ongoing consolidation strategy that will ultimately result in the company
combining all its back office and production processes into its Jupiter
Mortgage Corporation subsidiary. This strategy was completed in December
2001.
By the end of the 4th quarter 2001 all duplicated functions were
eliminated. Certain branch office processing functions will be preserved.
However, the Company's loan operations, accounting, personnel, and certain
marketing functions have been centralized.
Total Other Expenses for the Year Ended December 31, 2001 compared to
the Year Ended December 31, 2000 increased to $155,859 from $84,934. This
increase in expenses was primarily due to interest payments on debt
instruments.
ACQUISITION CANDIDATES
In July 1998, January 1999 and August 1999, the Company acquired
Dow, Capital Funding and Jupiter respectively. The Company is seeking to
acquire additional mortgage originators and may also consider the acquisition
of ancillary organizations such as title companies, health care providers, and
other financial service organizations focused on the senior citizen market.
In October 2001 we signed a letter of intent to acquire certain assets of
Dupont Mortgage Group, Inc. of Tampa, Florida for a purchase price of $200,000
and 1,100,000 shares of our common stock. This acquisition closed with an
effective date of December 31, 2001 and was disclosed on an 8-K filed on
February 12, 2002.
While the Company has other acquisition candidates that it is pursuing
at this time, there have been no other agreements signed and there can be no
assurances that any may occur.
LIQUIDITY AND CAPITAL RESOURCES
We currently manage the payment of our current liabilities and
obligations on a monthly basis as cash becomes available. Based on the current
success in raising capital from investors, the costs of operations may
increase as these funds are invested to enhance operations.
We believe we can achieve profitability if we can increase our revenues.
The operating and administrative infrastructure to manage the growth of the
Company is currently in place. Management plans to increase marketing of its
mortgage products. Our marketing efforts are dependent upon our
ability to fund such efforts; and there can be no assurance that we
will reach profitability without accessing additional capital resources.
There are no assurances that we will be able to raise the required capital
through the sale of our debt or equity securities or that we will have access
to other sources of capital on terms that are acceptable to us. We have
entered into an equity line agreement for up to $15 million dollars.
The Company announced that it is seeking to restructure the equity credit line
that it announced in February 2002. The amount of the equity credit line would
be reduced to $2,500,000 and restructured to meet the SEC's current
requirements for registration of shares to be issued in such transactions.
There can be no assurances that the Company will be successful in
restructuring the equity credit line, or that any funding will be available to
the Company from the line.
ITEM 7. FINANCIAL STATEMENTS
The financial statements of the Company required by Item 310(a) of
Regulation S-B are attached to this Report. Reference is made to page F-1 of
this Report for an index to the financial statements and financial statement
schedules.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL
DISCLOSURE.
There have been no disagreements with the accountants in the past two
years.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
MANAGEMENT
The directors and executive officers of the Company are:
NAME AGE POSITION
- ---- --- -------
Nelson A. Locke 51 Chairman of the Board,
CEO / Director
Michael J. Buono 37 President/COO/Director
Dean J. Girard 42 Vice President
Treasurer/ Chief
Financial Officer
Director
Cheryl D. Locke 45 Director
Secretary
Thomas G. Sherman, Esq. 51 Director
Charles M. Kluck 57 Director
Nelson A. Locke and Cheryl D. Locke are married.
Our directors serve for terms of three years. The terms of Cheryl D.
Locke and Dean Girard extend to the 2002 annual meeting of shareholders, the
terms of Thomas G. Sherman and Nelson A. Locke extend until the 2003 annual
meeting of Shareholders and the terms of Michael J. Buono and Charles M. Kluck
extend until the 2004 annual meeting of shareholders.
Nelson A. Locke founded the Company in 1990 and served as its President
until September 2001 and Chairman since 1990 and Director since 1990. He is
the architect of the Company's business model. He is the past President of the
Florida Association of Mortgage Brokers-Miami Chapter and has earned the
NAMB's Certified Residential Mortgage Lender designation. In 1997 he was named
FAMB's 'Broker of the Year', and in 1998 was awarded the prestigious FAMB
'President's Award' for his public relations efforts on behalf of the Florida
Mortgage Brokerage Industry. In 1999, he was elected by his 2,000 FAMB peers
to serve on the association's Executive Committee. He is a founding member of
the National Reverse Mortgage Lenders Association. Mr. Locke is a Marine
Corps. veteran (non commissioned officer) and holds a B.A. from California
State University.
Cheryl D. Locke has been the Secretary and a member of the Board of
Directors since 1998. She joined the Company in 1990 on a part time basis,
as a loan officer. By 1994, she had risen to senior loan officer. From 1995
to 1998, she directly supervised all loan production and closing. In January
1998, she was appointed Executive Vice President and elected to the
Company's Board of Directors. She served as Executive Vice President until
July 2000, when she assumed her current duties as corporate Secretary and
Director.
Michael Buono was elected to the Board of Directors in 2000.
He was elected as corporate Chief Operating Officer in November 2000 and
appointed corporate President in September 2001. Mr. Buono was a co-owner and
CEO of Jupiter Mortgage since March of 1995. He is Chairman of the corporate
Audit Committee.
Dean J. Girard was elected to the Board of Directors in September 2001.
He has been the Chief Financial Officer of America's Senior Financial
Services since November 2000. Prior to joining America's Senior, he was the
Chief Financial Officer for Jupiter Mortgage from August 1999 to November
2000. He serves on the Audit Committee.
Thomas J. Sherman has been an attorney in private practice in Coral
Gables, Florida since 1980. He is also President and owner of Union Title
Services, Inc., a full service title insurance agency. There are no ownership
ties between Union Title and the Company. Mr. Sherman is a graduate of the
University of Miami School of Law. Since 1990, Mr. Sherman has served as the
Company's general counsel. He became a director in January 1998. He also
serves on both the Audit and Compensation Committee.
Charles M. Kluck has been the President of Dow Guarantee Corp. since its
founding in 1985. Dow was acquired by the Company on July 31, 1998. He
continues to serve in that capacity. He became an director in July 1998. In
May 2000, he was appointed to the Company's Compensation Committee.
BOARD COMMITTEES
The Board of Directors has established an Audit Committee and a
Compensation Committee. The Audit Committee, consisting of Thomas J. Sherman,
Michael Buono, and Dean J. Girard, reviews the adequacy of internal controls
and results and scope of the audit and other services provided by the
Company's independent auditors. The Compensation Committee, consisting of
Thomas Sherman and Charles Kluck, establishes and recommends salaries,
incentives and other forms of Compensation for officers and other key
employees.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Based upon review of the of information furnished to the Company late filing
of Form 5 was performed by Mssrs. Buono and Girard.
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the total compensation paid to the
Company's chief executive officer for the last three completed fiscal years.
NAME AND OTHER ANNUAL
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
------------------ ---- ------ ----- ------------
Nelson A. Locke 2001 $200,000 (1) -0- $ -0-
Chairman 2000 $ 14,653 -0- 213,054
CEO 1999 $ 62,750 -0- -0-
1998 $ 70,000 -0- 5,000
Michael J. Buono 2001 $125,000 -0- $ -0-
CEO Jupiter Mortgage Corp.2000 $135,500 -0- -0-
NAME AND RESTRICTED SECURITIES OTHER ALL
STOCK UNDERLYING LTIP OTHER
PRINCIPAL POSITION YEAR AWARDS OPTIONS/SARS PAYOUTS COMPENSATION
------------------ ---- ------ ----- ---------- ------------
Nelson A. Locke 2001 $ -0- -0- -0- 2,842 (2)
Chairman 2000 $ -0- -0- -0- -0-
CEO 1999 $ -0- -0- -0- -0-
1998 $ -0- -0- -0- -0-
Michael J. Buono 2001 $ -0- -0- -0- -0-
CEO Jupiter Mortgage Corp.2000 -0- -0- -0- -0-
(1) Nelson Locke received no cash salary during the year 2001. He was issued
stock in the amount of $54,000 to offset expenses incurred and paid for by him
that were covered under his employment agreement. He also received cash
payments in the amount of $94,500 for repayment of corporate and contract
expenses incurred by the Company but paid by Mr. Locke for items on behalf of
the Company in previous periods. These amounts had been accrued.
(2) Life insurance premiums paid for Mr. Locke were in the amount of 2,842.
DIRECTOR COMPENSATION
No material fees were paid for director services.
EXECUTIVE EMPLOYMENT AGREEMENTS
EXECUTIVE EMPLOYMENT AGREEMENTS
In July 1998 the Company entered into a five (5) year employment
agreement with Nelson A. Locke. Originally, Mr. Locke was employed as
President and Chairman at an annual salary of $70,000 and such additional
compensation as he determines. The agreement provided certain health, life and
disability insurance, and autos to Mr. Locke. The Agreement provided for the
establishment of an "Executive Performance Bonus Pool" described below. The
agreement provided that in any calendar year when the Company's stock price
increased by at least 20%, that he shall be eligible for stock options equal
to 5% of his total common stock holdings at the end of the calendar year which
may be exercised at $1.00 per share and may be paid for by interest-free
promissory note. Mr. Locke waived these options for 1998, 1999, 2000 and 2001
as this event may have been harmful to future business and investor prospects.
In December 1998 the Board discussed Mr. And Mrs. Locke's
employment contracts, and discussed revising the terms of the Locke employment
arrangement. Subsequently, in October 1999 the Board of Directors approved a
change in Mr. Locke's annual base salary to $200,000. His health, life, option
plan, disability insurance and auto allowances remain the same. As part of
this revision, Mrs. Locke agreed to eliminate her separate salary. This is
discussed in greater detail in the next paragraph. Cash flow circumstances
have been such that Mr. Locke has been continually unable to collect his cash
salary and had to defer most of the cash payments related to his other
benefits. In 2000, Mr. Locke settled the matter by accepting additional
restricted stock at $0.50 a share, at a time when the stock was trading at
less than $0.10. This action benefited the Company in that it reduced the
actual cost by 75%. For 2001, Mr. Locke is owed an estimated $160,239. Mr.
Locke is currently negotiating a similar stock settlement for 2001. In
February 2002 he proposed to take common stock at a value of 25 cents per
share, which would effectively save the Company another $90,000.
In January 1998 the Company entered into a five (5) year employment
agreement with Cheryl D. Locke. Mrs. Locke was employed as Executive Vice
President, Secretary and Director at an annual salary of $50,000. The
agreement provided certain health, life and disability insurance, an auto to
Mrs. Locke, special performance bonus of up to $25,000 to be paid at the
discretion of the President. She was entitled to commission on loan
originations for which she was submitting loan officer. The agreement provided
that in any calendar year when the Company's loan origination's increase by at
least 20%, that she shall be eligible for stock options equal to 5% of her
total common stock holdings at the end of the calendar year which may be
exercised at $1.00 per share and may be paid for by interest-free promissory
note. Mrs. Locke waived these options for 1998, 1999, 2000 and 2001 as this
event may have been harmful to future business and investor prospects. In
January 2000, the cash portion of Mrs. Locke's salary was rolled incorporated
into Mr. Locke's contract, consistent with the intent of the Board of
Directors as discussed in December 1998 and reflected by the changes made to
Mr. Locke's contract when it was revised in October of 1999. Subsequently in
2000 and 2001, Mrs. Locke did not receive any material amount of cash
compensation.
In July 1998 the Company's subsidiary, Dow Guarantee Corp., entered into
an employment agreement with Charles M. Kluck for a term of five years, under
which Mr. Kluck would have been paid an annual salary of $110,000. This
contract is currently under review.
In July 1998 the Company's subsidiary, Dow Guarantee Corp., entered into
an employment agreement with Linda C. Kluck for a term of five years, under
which Ms. Kluck would have been paid an annual salary of $70,000. This
contract is currently under review.
In August of 1999 the Company's subsidiary, Jupiter Mortgage Corp.,
entered into an employment agreement with Michael J. Buono for a term of 5
years, under which Mr. Buono will be paid an annual salary of $150,000.
In August of 1999 the Company's subsidiary, Jupiter Mortgage Corp.,
entered into an employment agreement with Deanne J. Anderson for a term of 1
year, under which Ms. Anderson will be paid an annual salary of $120,000. In
August of 2000, this contract was extended on a year-to-year basis.
In April 2000 Nelson and Cheryl Locke were issued an option to acquire
300,000 shares of common stock jointly for $.50 per share. See Exhibit 9.0.
OTHER OPTION PLAN
On April 12,2000 the Board of Directors granted options pursuant to two
special option plans which have been designated Form A & B. Form A was
developed as an anti-dilution full ratchet option plan to protect the Company
in the event of any takeover attempt. Format B was developed to recognize
certain shareholders who had supported the Company with cash and/or
significant personal efforts during the prior twenty-four months.
Any shares issued under this option agreement will be deemed "restricted
shares" under the Act, and the public sale thereof even after the expiration
of the lock up period absent registration of such securities under the Act may
only be made in compliance with Rule 144 promulgated under the Act. The shares
will bear an appropriate restrictive legend reflecting the foregoing. The lock
up period is for 24 months.
Format "A" is to be used in relation to any options exercised by Directors
and Officers and Format "B" relates to all of the other optionees. All options
are exercisable for 50 cents per share which was the closing price of the
stock as of April 18, 2000.
The following options were granted as a result of the action taken by the
Board on April 12, 2000. Each option expires on April 12, 2003.
Format A
Name # of Options Granted
- ---- --------------------
Locke, Cheryl and Nelson 300,000
Shelley, Michael 75,000
Sherman, Thomas 75,000
Kluck, Charles 75,000
Kluck, Linda 75,000
Buono, Michael 50,000
Anderson, Dee 25,000
Hetzel, Lori 15,000
Girard, Dean 10,000
--------
Total 700,000
Format B
Name # of Options Granted
- ---- --------------------
Brickell Equity Group 200,000
Palmun Associates 150,000
Rosen Kenneth 25,000
Kahn, Mark 20,000
Kahn, A 10,000
Hoffberger, Robert 30,000
Aurelia Partners 20,000
Schnelder Trust 20,000
Biondo, Jane 10,000
Donahue, Edwin 15,000
--------
Total 500,000
In addition, by accepting these options, the optionees agreed to
grant voting rights on the underlying shares to the Company. This assignment
of voting rights expires upon arm's length sale of the underlying shares into
the market. None of these options have been exercised as of the date of this
prospectus.
EXECUTIVE PERFORMANCE BONUS POOL
The Company's employment agreement with its President, Nelson A. Locke,
provides that ten percent (10%) of the Company's pre-tax net income for 1998
through 2002 in excess of the pre-tax net income for December 31, 1997 shall
be contributed to an annual bonus pool for the benefit of Mr. Locke and other
key employees of the Company. The allocation of any bonus is to be made by the
Compensation Committee.
No bonus was allocated for 1998, 1999, 2000 or 2001.
STOCK OPTION PLANS
INCENTIVE STOCK OPTION PLAN
The Company's Board of Directors and shareholders have adopted two stock
option plans. Pursuant to the Incentive Stock Option Plan (the "ISO Plan"),
options to acquire a maximum of 2,000,000 shares, but not more than eight
percent (8%) of the total authorized shares of the Company, may be granted to
directors, officers, employees, consultants and other independent contractors
and persons who performed services relating to the Company, including wholly
or partially owned subsidiaries.
The plan is administered by the Compensation Committee consisting of two
non-employee directors or in the absence of such a committee, the Board of
Directors.
Pursuant to the ISO Plan, the Company may grant Incentive Stock Options
as defined in ss. 422(b) of the Internal Revenue Code of 1986 and non-
qualified stock options not intended to qualify under such section. The price
at which the Company's common stock may be purchased upon exercise of
Incentive Stock Options granted under the Plan will be required to be at least
equal to the fair market value of the common stock on the date of grant. Non-
qualified stock options may be at any price designated by the Committee on the
date of grant. Options granted under the Plan may have maximum terms of not
more than ten (10) Years and are not transferable except by will or the laws
of descent and distribution. No Incentive Stock Options under the Plan may be
granted to an individual owning more than ten percent (10%) of the total
combined voting power of all classes of stock issued by the Company unless the
purchase price of the common stock under such option is at least one hundred
ten percent (110%) of the Fair Market Value of the shares issuable on exercise
of the option at the date of grant and such option is not exercisable more
than five (5) years from the date of grant.
Generally, options granted under the Plan terminate upon the grantee's
employment or affiliation with the Company, but the Committee may authorize an
expiration date of up to ninety (90) days following such termination. If
termination was due to death or disability, the options expire one (1) year
after such termination or the termination date set forth in the option,
whichever is earlier. If termination is due to retirement the option expires
ninety (90) days after termination or the termination date set forth in the
option, whichever is earlier.
If the Change of Control takes place, the Board may vote to immediately
terminate all outstanding options or may vote to accelerate the expiration of
options to the tenth day after the effective date of the Change of Control. If
the Board votes to immediately terminate the options, it shall make a cash
payment to the grantees equal to the difference between the exercise price and
the Fair Market Value of the shares that would have been subject to the
terminated option on the date of the Change of Control. A Change of Control of
the Company is generally deemed to occur when any person becomes the
beneficial owner of or acquires voting control with respect forty percent
(40%) or more of the total voting shares of the Company, the Company is merged
into any other company, or substantially all of its assets are acquired by
another company, or three or more directors nominated by the Board to serve as
a director, each having agreed to serve in such capacity, failed to be elected
in a contested election of directors.
Incentive Stock Options granted under the Plan are subject to the
restriction of the aggregate Fair Market Value as of the date of grant of
options which first become exercisable in any calendar year cannot exceed
$100,000.
The Plan provides for appropriate adjustments in the number and type of
shares covered by the Plan and options granted thereunder in the event of any
reorganization, merger, recapitalization or certain other transactions
involving the Company.
Until the closing of an underwritten public offering by the Company,
pursuant to a registration statement filed and declared effective under the
Securities Act of 1933 covering offer and sale of the Company's common stock
for the account of the Company, the Company has the right of first refusal to
acquire any shares which were acquired pursuant to the exercise of options
under the Plan at the Fair Market Value on the date of the shareholder's
notice to the Company and the Company shall have the right to repurchase any
option shares following holder's termination of service or affiliation with
the Company for any reason at the original exercise price of the option.
No options have been issued under this plan.
NON-QUALIFIED STOCK OPTION PLAN.
Pursuant to the Non-Qualified Stock Option Plan (the "Non-ISO Plan"),
options to acquire a maximum of two percent (2%) of the total authorized
shares of the Company may be granted to any person who performed services for
the Company and its subsidiaries.
Non-qualified stock options may be at any price designated by the
Committee on the date of grant. Options granted under the Plan may have
maximum terms of not more than ten (10) years and are not transferable except
by will or the laws of descent in distribution.
Generally, options granted under the Plan terminate thirty (30) days
after termination of the grantee's employment or affiliation with the Company.
If termination was due to death or disability, the options expire one (1) year
after such termination or the termination date set forth in the option,
whichever is earlier.
Any conditions or restrictions on exercise lapse on a Change of Control
unless otherwise set forth in the Option Agreement.
The Plan is administered by a Stock Option Committee consisting of two
or more non-employee directors or in the absence of such a committee, the
Board of Directors.
The Plan provides for appropriate adjustments in the number and type of
shares covered by the Plan and options granted there under in the event of any
reorganization, merger, re-capitalization or certain other transactions
involving the Company.
Until the closing of an underwritten public offering by the Company,
pursuant to a registration, filed and declared effective under the Securities
Act of 1933 covering offer and sale of the Company's common stock for the
account of the Company, the Company has the right of first refusal to acquire
any shares which were acquired pursuant to the exercise of options under the
Plan. At the Fair Market Value on the date of the shareholder's notice to the
Company and the Company shall have the right to repurchase any option shares
following holder's termination of service or affiliation with the Company for
any reason at the original exercise price of the option.
No options have been issued under this plan.
NON-PLAN STOCK INCENTIVES.
In 1998, the Company issued 74,400 shares of its common stock to
employees as incentive compensation. These shares vest at three years. There
is no prorated vesting schedule. During 2001, 2000 and 1999 we issued an
additional 377,350, 12,600 and 151,300 shares respectively to employees as
incentive compensation. In this number Dean Girard was issued 50,000 shares
in 2001 and Michael Buono was issued 300,000 shares.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
DESCRIPTION OF SECURITIES
The following table sets forth, as of February 28, 2002, the
beneficial Ownership of the Company's 18,370,983 outstanding shares of Common
Stock by (1) the only persons who own of record or are known to own,
beneficially, more than 5% of the Company's Common Stock; (2) each director
and executive officer of the Company; and (3) all directors and officers as a
group.
NUMBER OF
NAME COMMON SHARES PERCENT(1)
- ---- ------------- ----------------
Nelson A. Locke(2)(4) 3,491,842 17.1%
Cheryl D. Locke(2)(4) 3,491,842 17.1%
Charles M. Kluck(3)(4) 1,483,895 7.7%
Michael Buono(4) 1,273,179 6.6%
Thomas G. Sherman, Esq.(4) 185,000 1.0%
Dean J. Girard (4) 78,408 .0
All officers and directors
as a group(6 persons) 6,102,408 28.9%
- ----------
(1) Based upon 18,370,983 shares outstanding as of February 28, 2002 and
additional shares which may be acquired pursuant to options and
conversion of preferred stock.
(2) Nelson A. Locke and Cheryl D. Locke own such shares as joint tenants.
(3) Includes 61,776 owned by his sister, Linda Kluck.
(4) Includes options to acquire shares under Form A Stock Option Plan as
follows: Cheryl and Nelson Locke 300,000 shares, Charles Kluck 75,000
shares, Michael Buono 50,000 shares, Thomas Sherman 75,000 shares
Dean Girard 10,000 shares.
(5) Includes Convertible Preferred shares as follows:
Cheryl and Nelson Locke 1,776,108 shares, Charles Kluck 858,895
shares, Michael Buono 1,016,500.
The following table sets forth, as of February 28, 2002, the beneficial
Ownership of the Company's 5,034,669 outstanding shares of Preferred
Stock by (1) the only persons who own of record or are known to own,
beneficially, more than 5% of the Company's Common Stock; (2) each director
and executive officer of the Company; and (3) all directors and officers as a
group.
NUMBER OF
NAME PREFERRED SHARES PERCENT(1)
- ---- ------------- ----------------
Nelson A. Locke(2) 1,776,108 35.3%
Cheryl D. Locke(2) 1,776,108 35.3%
Charles M. Kluck(3) 858,895 17.1%
Michael Buono 1,016,500 20.2%
Thomas G. Sherman, Esq -0- -0-
Dean J. Girard -0- -0-
All officers and directors
as a group (6 persons) 3,651,503 72.5%
- ----------
(1) Based upon 5,034,669 shares outstanding as of February 28, 2002.
(2) Nelson A. Locke and Cheryl D. Locke own such shares as joint tenants.
(3) Includes 138,224 owned by his sister, Linda Kluck.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
A shareholder, Brickell Equity Group received fees for services
during 1999 consisting of 5,200 shares of the Company's common stock valued at
$17,550 for investment services.
During 2000 the Company's Chairman, Nelson Locke owed the Company $20,700
(including accrued interest) under a note bearing 5% interest. Also, Mr. Locke
bought a vehicle from the Company for $5,000, which was approximately the net
book value at the time of the sale. Mr. Locke has since repaid the note.
During 2000, with full Board authorization, the Company's CEO, Nelson Locke
exchanged 1,000,000 shares of common stock (par value $1,000) for 1,000,000
shares of preferred stock A (par value $1,000). In addition he exchanged
$213,054 of unpaid deferred salary and other unpaid expense reimbursements he
made to the Company for 426,108 shares of preferred stock. In April 2000, the
Board of Directors authorized the issuance of an option for the CEO Nelson
Locke to acquire 300,000 shares of common stock for $.50 per share under the
same terms and conditions as the Form A stock option plan.
A shareholder of AMSE formerly acted as financial advisor to the Company.
In connection with his services, the shareholder received fees in 1999
consisting of $250,000 in cash and 170,600 shares of common stock, which were
issued pursuant to the placement of the convertible debentures (see Note 5).
During 1999, the shareholder also received fees consisting of $74,000 cash and
16,000 shares of common stock were issued pursuant to the acquisition of
Capital Funding, and an additional $25,000 has been paid to this shareholder
pursuant to the Jupiter acquisition.
Two shareholders of the Company (the former owners of Capital Funding) ,
Michael Pollis and George Pollis, each owed the Company $50,000 under
promissory notes dated December 31, 1997. These notes bore interest at 6% per
annum and the interest was payable annually on December 31st. These notes
were due on January 1, 2004. During the year 2000 these notes and the related
accrued interest were written off as uncollectible.
The Company owes the Chairman, Nelson Locke $160,329.00 in deferred
Salary and benefits, and other money that was loaned to the Company during the
course of the last twelve months. There is no fixed repayment schedule and
interest on the amount is provided for by the January 1998 revolving
promissory note between the Chairman's family and the Company. Mr. Locke is
currently negotiating to convert this amount to common stock at a stated value
of 25 cents per share. The stock is currently trading at less than 10 cents a
share. This action will save the Company about $90,000.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
The following Exhibits are incorporated by reference to the Exhibits of the
same number filed with the Company's Registration Statement on Form 10-SB
filed April 16, 1999:
EXHIBIT NO. DESCRIPTION
------------ -----------
2(a) Articles of Incorporation of the Registrant
2(b) Articles of Amendment to Articles of
Incorporation
2(c) By-Laws of the Registrant
2(d) Incentive Stock Option Plan
2(e) Non-Qualified Stock Option Plan
6(a) Employment Agreement as of January 2, 1998
between Registrant and Nelson A. Locke
6(b) Employment Agreement as of January 2, 1998
between Registrant and Cheryl D. Locke
6(c) Employment Agreement as of July 31, 1998 between
Registrant and Dow Guarantee Corp. and Charles
M.Kluck
6(d) Employment Agreement as of July 31, 1998 between
Registrant and Dow Guarantee Corp. and Linda C.
Kluck
6(e) Employment Agreement as of August 10, 1998
between Registrant and Vistra Growth Partners,
Inc.
6(f) Agreement for purchase of Dow Guarantee Corp.
6(g) Agreement for purchase of Capital Funding of
South Florida, Inc.
6(h) Consulting Agreement with Vistra Growth
Partners, Inc.
The following Exhibits are incorporated by reference to Exhibit 10.1
filed on Form 8-K on September 11, 1999:
6(i) Agreement for purchase of Jupiter Mortgage Corporation
The following Exhibits are incorporated by reference to the Exhibits of the
same number filed with the Company's Form SB-2 filed on November 16, 2000:
9.0 Other Option Plan*
10.0 Consulting Agreement dated September 20, 2000
with 21st Equity Partners L.L.C.*
The following Exhibits are incorporated by reference to the Exhibits of the
same number filed with the Company's Form SB-2A filed on December 15, 2000:
10.1 Financial Advisory Agreement Consulting
Agreement dated February 2, 2000 with Capital
Link, L.L.C.
10.2 Consulting Agreement dated January 1, 2000 with
Brickell Equity Group, Inc.
10.3 Investor Relations Agreement dated January 7,
2000 with Charterbridge Financial Group
10.4 Investor Banking Agreement dated January 7,
2000 with Charterbridge
10.5 Consulting Agreement with Speight and
Associates, Inc.
The following Exhibits are incorporated by reference to the Exhibits of the
same number filed with the Company's Form SB-2 filed on December 21, 2001:
10.7 Equity Agreement with JJ&T L.L.C.
10.8 Warrant Agreement with First Montauk Securities
10.9 Agreement with The Investor Online
The following Exhibit is incorporated by reference to the Exhibit of the
same number filed with the Company's Form 8-K filed on February 12, 2002:
15.0 Dupont Mortgage Group, Inc. Acquisition Agreement
The following Exhibits are filed herewith:
21 Subsidiaries
(b) Reports on Form 8-K:
One report on Form 8-K was filed during the last quarter for the
period covered by this report. This was filed to disclose the asset purchase
acquisition of Dupont Mortgage Group, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICA'S SENIOR FINANCIAL SERVICES,
INC.
Dated: April 12, 2002 By: /s/ Nelson A. Locke
----------------------------------
Nelson A. Locke,
Chairman of the Board
Chief Executive Officer
Dated: April 12, 2002 By: /s/ Dean J. Girard
----------------------------------
Dean J. Girard,
Vice President / Treasurer
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the Capacities and on the dates indicated.
/s/ Nelson A. Locke Chairman of the Board April 12, 2002
- ---------------------- CEO / Director
Chairman of the Board
Nelson A. Locke
/s/ Michael J. Buono President / COO April 12, 2002
- ---------------------- Director
President
Michael J. Buono
/s/ Dean J. Girard Vice President /Treasurer April 12, 2002
- ---------------------- CFO / Director
Chief Financial Officer
Dean J. Girard
/s/ Cheryl D. Locke Secretary / Director April 12, 2002
- ----------------------
Secretary Directory
Cheryl D. Locke
/s/ Thomas Sherman Esq. Director April 12, 2002
- ----------------------
Director
Thomas Sherman
/s/ Charles M. Kluck Director April 12, 2002
- ----------------------
Director
Charles M. Kluck
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2001 AND 2000
INDEX TO FINANCIAL STATEMENTS
Page
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Consolidated Balance Sheets 2-3
Consolidated Statements of Operations 4
Consolidated Statements of Changes in Stockholders' Equity 5-6
Consolidated Statements of Cash Flows 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8-22
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
and Stockholders of
America's Senior Financial Services, Inc.
We have audited the accompanying consolidated balance sheets of America's
Senior Financial Services, Inc. and subsidiaries as of December 31, 2001 and
2000, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of America's
Senior Financial Services, Inc. and subsidiaries as of December 31, 2001 and
2000, and the results of their operations and their cash flows for the years
then ended in conformity with accounting principles generally accepted in the
United States of America.
West Palm Beach, Florida
March 8, 2002
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
ASSETS
2001 2000
CURRENT ASSETS:
Cash and cash equivalents $ 1,316,406 $ 463,079
Brokerage fees receivable 144,877 289,891
Employee loans 16,837 1,300
Mortgage loans held for sale 2,991,322 3,976,845
Prepaid expenses 324,483 346,561
TOTAL CURRENT ASSETS 4,793,925 5,077,676
PROPERTY AND EQUIPMENT, net 359,538 368,558
OTHER ASSETS
Goodwill, net 4,836,911 4,838,953
Notes receivable 250,000 250,000
Other assets 70,216 73,585
TOTAL OTHER ASSETS 5,157,127 5,162,538
TOTAL ASSETS $10,310,590 $10,608,772
LIABILITIES
CURRENT LIABILITIES:
Current portion of capital
lease obligations $ 2,734 $ 44,471
Lines of credit 421,476 149,091
Warehouse lines of credit 2,966,795 3,961,286
Accounts payable 593,457 648,415
Accrued expenses 2,365,608 1,026,085
TOTAL CURRENT LIABILITIES 6,350,067 5,829,348
CAPITAL LEASE OBLIGATIONS,
less current portion - 32,600
LONG TERM DEBT, convertible debentures - 1,136,000
TOTAL LIABILITIES $ 6,350,070 $ 6,997,948
-2-
See notes to consolidated financial statements.
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, continued
DECEMBER 31, 2001 AND 2000
STOCKHOLDERS' EQUITY:
Preferred stock:
Series A Convertible, $0.001 par value;
5,000,000 shares authorized, 4,468,003
and 3,718,003 shares issued and out-
standing in 2001 and 2000, respectively 4,468 3,718
Series B Convertible, $0.001 par value;
1,000,000 shares authorized, none issued
Series C Convertible, $0.001 par value;
900,000 shares authorized, 566,666 and
400,000 shares issued and outstanding in
2001 and 2000, respectively 567 400
Common stock, $0.001 par value;
100,000,000 shares authorized,
17,006,150 and 9,406,326 shares
issued and outstanding in 2001
and 2000, respectively 17,006 9,406
Additional paid in capital 15,567,887 14,086,285
Retained earnings (deficit) (11,265,959) (10,395,979)
Unearned compensation-
restricted stock (363,449) (93,006)
TOTAL STOCKHOLDERS' EQUITY 3,960,520 3,610,824
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 10,310,590 $ 10,608,772
-3-
See notes to consolidated financial statements.
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
DECEMBER 31,
2001 2000
REVENUES $ 7,653,968 $6,559,976
EXPENSES:
Payroll and related expense 5,768,220 5,149,098
Administrative, processing, and occupancy 3,331,667 3,244,752
Goodwill amortization 257,892 257,888
TOTAL EXPENSES 9,357,779 8,651,738
LOSS FROM OPERATIONS (1,703,811) (2,091,762)
OTHER
Interest Income (7,160)
Interest expense 155,858 92,094
Total other, net 155,858 84,934
LOSS BEFORE EXTRAORDINARY ITEM
AND INCOME TAXES (1,859,669) (2,176,696)
EXTRAORDINARY ITEM
Gain on settlement of Debentures 989,690 -
(No applicable income tax)
PROVISION FOR INCOME TAXES
NET LOSS $ (869,979) $(2,176,692)
LOSS PER COMMON SHARE:
Basic $ (.069) $ (.237)
Diluted $ (.069) $ (.237)
Weighted average common
shares outstanding 12,568,000 9,166,000
-4-
See notes to consolidated financial statements.
AMERICA'S SENIOR FINANCIAL SERVICES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2000
PREFERRED COMMON PREFERRED COMMON
STOCK STOCK STOCK AT STOCK AT
# OF SHARES # OF SHARES PAR VALUE PAR
VALUE
STOCKHOLDERS' EQUITY,
January 1, 2000 7,690,262 7,690
Stock issued pursuant to
debenture conversions 398,497 398
Issuances of common stock for cash,
net of expenses 323,719 324
Stock issued for services 1,881,248 1,881
Restricted stock issued to employees,
net of stock earned 12,600 13
Conversion of common stock to
Preferred stock 1,000,000 (1,000,000) 1,000 (1,000)
Conversion of debt to preferred
Stock 426,108 426
Stock issued for acquisitions 2,691,895 100,000 2,692 100
Net loss for the year ended
December 31, 2000
STOCKHOLDERS' EQUITY,
December 31, 2000 4,118,003 9,406,326 4,118 9,406
ADDITIONAL TOTAL
PAID-IN RESTRICTED STOCKHOLDER
CAPITAL STOCK DEFICIT EQUITY
STOCKHOLDERS' EQUITY,
January 1, 2000 12,498,553 (171,881) (8,219,283) 4,115,079
Stock issued pursuant to
debenture conversions 675,602 676,000
Issuances of common stock for cash,
net of expenses 187,386 187,710
Stock issued for services 477,221 479,102
Restricted stock issued to employees,
net of stock earned 12,587 78,875 91,475
Conversion of common stock to
Preferred stock -
Conversion of debt to preferred
Stock 212,628 213,054
Stock issued for acquisitions 22,308 25,100
Net loss for the year ended
December 31, 2000 (2,176,696)(2,176,696)
STOCKHOLDERS' EQUITY,
December 31, 2000 14,086,285 (93,006) (10,395,979) 3,610,824
-5-
See notes to consolidated financial statements.
AMERICA'S SENIOR FINANCIAL SERVICES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2001
PREFERRED COMMON PREFERRED COMMON
STOCK STOCK STOCK AT STOCK AT
# OF SHARES # OF SHARES PAR VALUE PAR
VALUE
STOCKHOLDERS' EQUITY,
January 1, 2001 4,118,003 9,406,326 4,118 9,406
Stock issued pursuant to
debenture conversions 1,375,000 1,375
Issuances of preferred stock
for cash 166,666 167
Stock issued for services 100,000 4,249,040 100 4,249
Restricted stock issued to employees,
net of stock earned 650,000 1,975,784 650 1,976
Net loss for the year ended
December 31, 2001
STOCKHOLDERS' EQUITY,
December 30, 2001 5,034,669 17,006,150 5,035 17,006
ADDITIONAL TOTAL
PAID-IN RESTRICTED STOCKHOLDER
CAPITAL STOCK DEFICIT EQUITY
STOCKHOLDERS' EQUITY,
January 1, 2001 14,086,285 (93,006) (10,395,979) 3,610,824
Stock issued pursuant to
debenture conversions 170,500 171,875
Issuances of preferred
stock for cash 29,833 30,000
Stock issued for services 832,457 836,806
Restricted stock issued to employees,
net of stock earned 448,812 (270,443) 180,995
Net loss for the year ended
December 31, 2001 (869,980) (869,980)
STOCKHOLDERS' EQUITY,
December 31, 2001 15,567,887 (363,449) (11,265,959) 3,960,520
-6-
See notes to consolidated financial statements.
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS
ENDED DECEMBER 31,
CASH FLOWS FROM OPERATING ACTIVITIES 2001 2000
Net Loss $ (869,980) $ (2,176,696)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 342,369 341,544
Extraordinary item settlement of debentures (986,690) -
Common stock issued for services 1,017,801 504,202
Common stock issued for debenture financing costs - 62,002
Changes in current assets and liabilities:
Brokerage fee receivable 145,014 (75,287)
Employee loans (15,537) 174,414
Prepaid expenses 22,078 (289,710)
Accounts payable and accrued expenses 1,242,828 831,823
Other 3,369 188,348
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 901,252 (439,360)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (75,457) (13,155)
Changes in other assets (255,850) 599,951
(Increase) decrease in mortgage loans 985,523 (1,587,683)
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 654,216 (1,000,887)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock, net 30,000 187,709
Other capital contributions 213,054
Net borrowings (payments) under lines of credit (722,106) 1,104,887
Payments on long-term capital lease obligations (32,600) (4,697)
Other 22,565
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES(702,141) 1,500,953
NET INCREASE IN CASH AND CASH EQUIVALENTS 853,327 60,706
CASH AND CASH EQUIVALENTS, beginning of period 463,079 402,373
CASH AND CASH EQUIVALENTS, end of period $ 1,316,406 $ 463,079
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid in cash during the period $ 147,338 $ 34,099
Income taxes paid in cash during the period none none
-7-
See notes to consolidated financial statements.
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
America's Senior Financial Services, Inc. ("AMSE") was incorporated on
February 26, 1990. On July 31, 1998, AMSE acquired Dow Guarantee Corp.
("DOW"), on January 29, 1999, AMSE acquired Capital Funding of South Florida,
Inc. ("Capital Funding") and on August 18, 1999, AMSE acquired Jupiter
Mortgage Corp. ("Jupiter"). On September 30, 1999, Capital Funding and
Jupiter were merged and Jupiter was the surviving corporation. On December
31, 2001, Jupiter acquired the assets of Dupont Mortgage Group, Inc. (Dupont).
AMSE and its subsidiaries are collectively referred to as "the Company". All
significant intercompany balances and transactions are eliminated in
consolidation.
The Company is engaged in originating, processing, and concurrently funding
mortgage loans. In addition to providing traditional (or forward) mortgage
loan services, the Company also arranges reverse mortgages specifically
developed to serve the special needs of the senior citizen community, and has
generated a substantial portion of the reverse mortgages originated in
Florida. The Company sells its closed loans to investors for resale into the
secondary market.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition and Credit Risks
The Company, as a licensed mortgage company, derives its revenues primarily
from mortgage application fees paid by potential borrowers, by brokerage and
processing fees, and service release premiums payable by the borrower and
others at the time of closing. The brokerage and processing fees are
recognized as revenue at the time the loans are closed.
The Company operates in the mortgage banking industry; therefore, it is highly
dependent on the status of the economy and interest rates.
-8-
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Property and Equipment
Property and equipment is recorded at cost and depreciated using the straight-
line method over the estimated useful lives of the assets, typically seven
years. Expenditures for routine maintenance and repairs are charged to
expense as incurred.
Intangible Assets
The excess of investment cost over the fair value of net assets acquired
(goodwill) is being amortized using the straight-line method over a period of
20 years. Amortization of goodwill for the years ended December 31, 2001 and
2000 were approximately $257,892 and $257,888, respectively.
Advertising
The costs of advertising, promotion and marketing programs are generally
charges to operations in the year incurred. Total advertising expense was
approximately $26,576 and $66,386 for the years ended December 31, 2001 and
2000, respectively.
Income Taxes
The Company accounts for income taxes in accordance with the Statement of
Financial Accounting Standards No. 109 (SFASS No. 109), "Accounting for Income
Taxes." Deferred taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences, operating loss
carryforwards, and tax credit carryforwards, and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are
differences between the reported amounts of assets and liabilities and their
tax bases. Deferred tax assets are reduced by a valuation allowance when in
the opinion of management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates
on the date of enactment. State minimum taxes are expensed as paid.
-9-
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Net Loss Per Common Share
The Company has adopted SFAS No. 128, "Earnings Per Share." SFAS 128 requires
companies with complex capital structures or common stock equivalents to
present both basic and diluted earnings per share ("EPS") on the face of the
income statement. Basic EPS is calculated as the income or loss available to
stockholders divided by the weighted average number of common shares
outstanding during the period. Diluted EPS is calculated using the "if
converted" method for convertible securities and the treasury stock method for
options and warrants as previously prescribed by Accounting Principles Board
Opinion No. 15, "Earnings Per Share." The effect of common shares issuable
under the terms of the Company's preferred stock outstanding are excluded from
the calculation of diluted EPS since the effect is antidilutive. The adoption
of SFAS 128 did not have an impact on the Company's reported results.
Stock Based Compensation
In October 1995, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 encourages,
but does not require, companies to record compensation plans at fair value.
The Company has chosen, in accordance with the provision of SFAS No. 123, to
apply Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
Employees" (APB 25) for its stock plans. Under APB 25, if the exercise price
of the Company's stock options is less than the market price of the underlying
stock on the date of grant, the Company must recognize compensation expense.
SFAS No. 123 will be adopted for disclosure only and will not impact the
Company's financial position, annual operating results, or cash flows.
For transactions with other than employees in which services were performed in
exchange for stock, the transactions were recorded on the basis of the fair
value of the services received or the fair value of the issued equity
instrument, whichever was more readily measurable.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments purchased with
an original maturity of three months or less. The Company occasionally
maintains cash balances in financial institutions in excess of the federally
insured limits.
-10-
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Fair Value of Financial Instruments
Cash, receivables, mortgage loans held for sale, accounts payable and accrued
expenses are reflected in the financial statements at fair value due to the
short-term nature of these instruments. The fair value of the Company's
obligations under credit agreements, as disclosed in Note 3, are the same as
the recorded amounts because the rates and terms approximate current market.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS 141,
"Business Combinations." SFAS 141 supersedes APB 16, "Business Combinations,"
and SFAS 38, "Accounting for Preacquisition Contingencies of Purchased
Enterprises." SFAS 141 requires the purchase method of accounting for all
business combinations initiated after June 30, 2001 and eliminates the
pooling-of-interests method. AMSE does not expect the adoption of SFAS 141 to
have a material effect on its financial condition or results of operations.
In July 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible
Assets." SFAS 142 supersedes APB 17, "Intangible Assets," and requires the
discontinuance of goodwill amortization. In addition, SFAS 142 includes
provisions regarding the reclassification of certain existing recognized
intangibles as goodwill, reassessment of the useful lives of existing
recognized intangibles, reclassification of certain intangibles out of
previously reported goodwill and the testing for impairment of existing
goodwill and other intangibles. SFAS 142 is required to be applied for fiscal
years beginning after December 15, 2001, with certain early adoption
permitted. AMSE expects to adopt SFAS 142 for its first fiscal quarter of
2002, and does not expect the adoption to have a material effect on its
financial condition or results of operations. The Company expects that a
substantial amount of its intangible assets will no longer be amortized.
In October 2001, the FASB issued SFAS 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," which supersedes SFAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
SFAS 144 addresses financial accounting and reporting for the impairment of
long-lived assets and for long-lived assets to be disposed of. However, SFAS
144 retains the fundamental provisions of SFAS 121 for: 1) recognition and
measurement of the impairment of long-lived assets to be held and used; and 2)
measurement of long-lived assets to be disposed of by sale. SFAS 144 is
effective for fiscal years beginning after December 15, 2001. AMSE plans to
adopt SFAS 144 in 2002 and does not expect that the adoption will have a
material impact on its consolidated results of operations and financial
position.
-11-
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Statement of Comprehensive Income
A statement of comprehensive income has not been included, per SFAS No. 130,
"Reporting Comprehensive Income," as the Company has no items of other
comprehensive income.
Segment Information
The Company adopted SFAS No. 131, "Disclosure about Segments of an Enterprise
and Related Information," effective January 1, 1999. SFAS No. 131 establishes
standards for the way that public companies report selected information about
operating segments in annual and interim financial reports to shareholders.
It also establishes standards for related disclosers about an enterprise's
business segments, products, services, geographic areas and major customers.
The Company operates its business as a single segment. As a result, no
additional disclosure was required.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
2001 2000
Office equipment $ 394,446 $ 335,463
Furniture and fixtures 260,787 244,314
Leasehold improvements 52,890 52,890
Vehicles 47,098 47,098
Total cost 755,221 679,765
Less accumulated depreciation (395,683) (311,207)
Property and equipment, net 359,538 $ 368,558
Depreciation expense for the years ended December 31, 2001 and 2000 was
approximately $84,477 and $83,656, respectively.
-12-
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
3. CREDIT AGREEMENTS
Lines of Credit
The Company maintains several lines of credit with different financial
institutions. Interest rates vary, and include prime and prime plus 3%.
As of December 31, 2001 and 2000, the total amounts outstanding under these
lines of credit was approximately $421,000 and $149,000, respectively.
Mortgage Warehouse Agreement
The Company maintains warehouse facilities with a financial institution to
assist the Company in originating and closing mortgages. The Company is
liable under this agreement only if defaults occur during a mortgage closing
process. As of December 31, 2001, there was approximately $2,967,000
outstanding bearing interest at prime with a floor of 6%.
4. LONG-TERM DEBT, CONVERTIBLE DEBENTURES
2001 2000
Convertible debentures bearing interest at 3% - $ 1,136,000
(These debentures were converted into
1,250,000 shares of common stock in 2001
resulting in an extraordinary gain of $989,690.)
5. INCOME TAXES
A summary of income taxes for the years ended December 31st, are as follows:
2001 2000
Currently payable
Federal $ - $ -
State - -
Deferred tax benefit 50,100 669,850
Income tax benefit 50,100 669,850
Valuation allowance (50,100) (669,850)
Net income tax provision - -
-13-
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
5. INCOME TAXES, continued
Temporary differences between the financial statement carrying amounts and tax
bases of assets and liabilities that give rise to net deferred income tax
assets at December 31, 2001 and 2000 relate to the following:
2001 2000
Net operating loss carryforward $ 1,507,340 $ 1,696,240
Restricted stock awards 155,170 16,170
Valuation allowance (1,662,510) (1,712,410)
Net deferred income tax asset $ - $ -
There are no significant deferred tax liabilities. The Company has used a
combined estimated federal and state tax rate of approximately 35% for all
deferred tax computations. The tax benefit prior to the allowance differs
from the Federal statutory rate of 34% because of non-deductible expenses
(primarily resulting from the goodwill amortization and impairment charges)
and the effect of state income taxes.
The Company has recorded a valuation allowance in accordance with the
provisions of SFAS No. 109 to reflect the estimated amount of deferred tax
assets that may not be realized. In assessing the realizability of deferred
tax assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation future
taxable income during the periods in which temporary differences and/or
carryforward losses become deductible.
The Company has available tax net operating loss carryovers ("NOLS") as of
December 31, 2001 of approximately $6,850,000. The NOLs will begin to expire
in the year 2013. Certain provisions of the tax law may limit the net
operating loss carryforwards available for use in any given year in the event
of a significant change in ownership interest. There have been significant
changes in stock ownership; however, management believes that an ownership
change has not yet occurred which would cause the net operating loss carryover
to be significantly limited.
-14-
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
6. RELATED PARTY TRANSACTIONS
Notes Receivable
Two shareholders of the Company (the former owners of Capital Funding) each
owed the Company $50,000 under promissory notes dated December 31, 1997.
These notes bore interest at 6% per annum and the interest was payable
annually on December 31st. These notes were due on January 1, 2004. During
the year 2000 these notes and the related accrued interest were written off as
uncollectible.
Other
During 2000, the Company's president exchanged 1,000,000 shares of Common
Stock (par value $1,000) for 1,000,000 shares of Preferred Stock (par value
$1,000). In addition, he converted $213,054 of loans he made to the Company
to include deferred salary and items purchased for the Company with personal
funds into 426,108 shares of Preferred Stock. In April 2000, the Board of
Directors authorized the issuance of an option for the President to acquire
300,000 shares of common stock for $.50 per share under the terms and
conditions of the Form A Stock Option Plan (See note 9).
7. STOCKHOLDER'S EQUITY
Common Stock
The Company has authorized 100,000,000 shares of $0.001 par value Common Stock
(the "Common Stock"). The holders of the Common Stock are entitled to one
vote per share and have non-cumulative voting rights. The holders are also
entitled to receive dividends when, as, and if declared by the Board of
Directors. Additionally, the holders of the Common Stock do not have any
preemptive right to subscribe for, or purchase, any shares of any class of
stock.
Preferred Stock
On March 23, 1999, the Company amended its Articles of Incorporation to
authorize up to 10,000,000 shares of $0.001 par value Preferred Stock (the
"Preferred Stock"). The shares of Preferred Stock may be issued from time to
time in one or more series. The Board of Directors is authorized to fix the
number of shares in each series, the designation thereof and the related
rights, preferences and limitations of each series. Specifically the Board of
Directors is authorized to fix with respect to each series (a) the dividend
rate; (b) redeemable features, if any; (c) rights upon liquidation; (d)
whether or not the shares of such series shall be subject to a purchase,
retirement or sinking fund provision, (e) whether or not the shares of such
series shall be convertible into or exchangeable for shares of any other class
and, if so, the rate of conversion or exchange; (f) restriction, if any, upon
the payment of
-15-
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
7. STOCKHOLDER'S EQUITY, continued
Preferred Stock, continued
dividends on commons stock; g) restrictions, if any, upon the creation of
indebtness; (h) voting powers, if any, of the shares of each series; and (i)
such other rights, preferences and limitations as shall not be inconsistent
with the laws of the state of Florida.
Series A Convertible Preferred Stock
On October 24, 2000, the Board of Directors authorized the Series A
Convertible Preferred Stock consisting of 8,100,000 shares, par value $0.001
per share, such series ranking superior to any other class or series of
capital stock of the corporation. The Series A Convertible Preferred Stock is
not entitled to receive any dividend. The shares are convertible into common
stock on a one for one basis. Each holder of Series A stock shall be entitled
to three times the number of votes as the common stock. During the year 2000,
1,000,000 Series A shares were issued to the Company's President in exchange
for 1,000,000 shares of common stock, 426,108 Series A shares were issued to
the President on a conversion of loans he made to the Company (including
deferred salary), 1,433,000 Series A shares were issued to the former owners
of Jupiter Mortgage to finalize the purchase of that subsidiary, and 858,895
Series A shares were issued to the former owners of Dow Guarantee Corp.
Series B Convertible Preferred Stock
On October 24, 2000 the Board of Directors authorized the Series B Convertible
Preferred Stock, consisting of 1,000,000 shares, par value $0.001 per share,
such series ranking junior to the Series A Preferred. The Series B
Convertible Preferred Stock is not entitled to receive any dividends. The
shares are convertible into common stock on a one for one basis. This special
series has no voting rights as preferred stock. Upon conversion into common
stock the holders shall be entitled to vote. During the year 2000, 400,000
Series B Preferred Stock were issued to the former owners of Capital Funding
to finalize the purchase of that subsidiary. No shares of Series B
Convertible Preferred Stock have been issued as of December 31, 2001.
Series C Convertible Preferred Stock
On October 24, 2000 the Board of Directors authorized the Series C Convertible
Preferred Stock, consisting of 900,000 shares, par value $0.001 per share,
such series ranking junior to the Series A and Series B Preferred. The Series
C Convertible Preferred Stock is not entitled to receive any dividends. In
the event of liquidation, the Series C stockholders are entitled to an amount
per share equal to $.3281 and no more. The shares are convertible into common
stock on a one for one basis. This series has no voting rights as preferred
stock. Upon conversion into common stock, the holders shall be entitled to
vote. No shares of Series B Convertible Preferred Stock have been issued as
of December 31, 2001.
-16-
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
7. STOCKHOLDER'S EQUITY, continued
Dow, Capital Funding and Jupiter Acquisitions
In conjunction with the acquisition of Dow, Capital Funding and Jupiter, the
Company agreed to an aggregate value guarantee for the shares of the Company's
common stock issued in those transactions. The Company issued 2,691,895
shares of Series A Preferred Stock pursuant to these provisions during 2000.
No additional shares will be issued in connection with these acquisitions.
Stock Purchase Agreement, Debentures, and Warrants
As described in Note 5, the Company entered into a Securities Purchase
Agreement, pursuant to which the Company issued $2,500,000 of 3% convertible
debentures, and common stock purchase warrants for 34,383 shares at $8.70 per
share, which expire on May 31, 2004. Warrants were also issued to placement
agents involved in this transaction in the aggregate of 17,241 warrants with
an exercise price of $8.70 and an expiration date of May 31, 2004.
During the year 2000, $614,000 of the principal of the debenture was converted
by the debenture holder into 368,671 shares of the Company common stock.
During the year 2001, the remainder of the debentures were converted into
1,250,000 shares of common stock. An additional 125,000 shares were issued
for professional fees in connection with this transaction.
Restricted Stock Awards
During 2001 and 2000, a total of 377,350 and 12,600 restricted shares of the
Company's common stock were granted to certain employees with a market value
of $377,350 and $12,600, respectively. These amounts were recorded as
unearned compensation, restricted stock and are shown as a separate component
of stockholder's equity. Unearned compensation is being amortized to expense
over the three-year vesting period and, net of forfeitures, amounted to
$106,907 and $91,475 in 2001 and 2000, respectively.
Stock Option Plan
On March 15, 1999, the shareholders of the Company approved the adoption of a
stock option plan. The plan calls for a maximum of 2,000,000 incentive stock
options and 500,000 non-qualified stock options to be issued, at the
discretion of the Board of Directors, over the next ten years.
-17-
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
7. STOCKHOLDER'S EQUITY, continued
Stock Option Plan, continued
Terms of the options, when issued, are as follows: (a) for non-qualified
options, the term of the option may exceed ten years, the options may be
granted to any eligible person with the remaining terms to be determined by
the designated Board Committee; and (b) for incentive options, the term of the
option may not exceed ten years, the exercise price may not be less than the
fair market value of the optioned share on the date of grant, the option may
contain vesting provisions, and the option may contain other terms to be
determined by the designated Board Committee. When options are granted under
this plan, the company will account for such options under SFAS No. 123 which
requires entities that account for awards of stock-based compensation to
employees in accordance with APB 25 to present pro forma disclosures of
results of operations and earnings per share. This pro forma disclosure
presents the results of operations as if compensation cost was measured at the
date of grant based on the fair value of the award. The fair value for
options will be estimated, at the date of grant, using a Black-Scholes option-
pricing model. The Black-Scholes option pricing model uses the following
weighted-average assumptions, (a) a risk-free interest rate, (b) a dividend
yield, (c) a volatility factor of the expected market price of the Company's
common stock and (d) the weighted-average expected life of the options. The
Black Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Non-Qualified Stock Option Plan
Pursuant to the Non-Qualified Plan (the "Non-ISO Plan"), options to acquire a
maximum of 500,000 shares, but not more than two percent (2%) of the total
authorized shares of the Company may be granted to any person who performed
services for the Company and its subsidiaries. Non-qualified stock options
may be at any price designated by the Committee on the date of grant. Options
granted under the Plan may have maximum terms of not more than ten (10) years
and are not transferable except by will or the laws of descent in
distribution.
Directors. The Plan provides for appropriate adjustments in the number and
type of shares covered by the Plan and options granted thereunder in the event
of any reorganization, merger, recapitalization or certain other transactions
involving the Company.
-18-
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
7. STOCKHOLDER'S EQUITY, continued
Non-Qualified Stock Option Plan, continued
Generally, options granted under the Plan terminate thirty (30) days after
termination of the grantee's employment or affiliation with the Company. If
termination was due to death or disability, the options expire one (1) year
after such termination or the termination date set forth in the option,
whichever is earlier. Any conditions or restrictions on exercise lapse on a
Change of Control unless otherwise set forth in the Option Agreement. The
Plan is administered by a Stock Option Committee consisting of two or more
non-employee directors or in the absence of such a committee, the Board of
Until the closing of an underwritten public offering by the Company pursuant
to a registration, filed and declared effective under the Securities Act of
1933 covering the offer and sale of the Company's common stock for the account
of the Company, the Company has the right of first refusal to acquire any
shares which were required pursuant to the exercise of options to the Company
and the Company shall have the right to repurchase any option shares following
holder's termination of services or affiliation with the Company for any
reason at the original exercise price of the option.
Other Option Plans
In April 2000, the Board of Directors granted options pursuant to two special
option plans which have been designated Form A & B. Form A was developed as
an anti-dilution option plan to protect the Company in the event of any
takeover attempt. Format B was developed to recognize certain shareholders
who had supported the Company with cash and/or significant personal efforts
during the past two years.
All shares issued pursuant to these two formats will be restricted shares.
The restrictions call for volume limitations that state that a person or
persons whose shares are aggregated may not sell within any three month period
a number of shares which exceeds the greater of 1% of the then outstanding
shares of the Company's Common Stock or the average weekly trading value
during the four calendar weeks prior to such sale.
The Board of Directors authorized the issuance of Form A options to acquire
700,000 shares and Form B options to acquire 500,000 shares at $.50 per share.
All options, regardless of format, will convert into restricted shares under
Rule 144. In addition, by accepting these options, the optionees agree to
grant voting rights on the underlying shares to the Company. This assignment
of voting rights expires upon arm's length sale of underlying shares into the
market.
-19-
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
7. STOCKHOLDER'S EQUITY, continued
Other Option Plans, continued
The following table summarizes the Company's stock option activity:
Exercise
Shares Price
Outstanding at beginning of period - -
Granted in 2000
Format A 700,000 $ .50
Format B 500,000 $ .50
Granted in 2001 - -
Exercised - -
Expired - -
________ ___
Outstanding and exercisable at
end of period 1,200,000 $ .50
Investment Agreement
On November 16, 2001, the Company entered into an investment agreement
entitling it to issue and sell common stock for up to an aggregate of $15
million from time to time during a three-year period beginning on the date
that the stock is registered for trading. Each election by the Company to
sell stock under this agreement is referred to as a "put right."
The Company entered into an agreement with a placement agent for the
investment agreement. Under such agreement, the Company will pay a placement
fee of 3% of the purchase price of each sale of stock under the investment
agreement.
In connection with the investment agreement, the Company issued 750,000 common
stock purchase warrants. Such warrants may be exercised for three years
following the effective date of a registration covering resale of such shares.
These warrants can be exercised at the lower of (i)110% of the closing bid
price on the date the agreement was signed (.18) or (ii)110% of the closing
bid price on the date the registration becomes effective.
-20-
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
8. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases office space in various locations as well as certain office
equipment and a vehicle. Future minimum lease payments subsequent to December
31, 2001 under these operating leases are as follows: $15,100 in 2002 and
$17,500 in 2003. Rent expense for the years ended December 31, 2001 and 2000
was $354,069 and $397,316, respectively.
Litigation
From time to time, the Company is exposed to claims, regulatory, and legal
actions in the normal course of business, some of which are initiated by the
Company. At December 31, 2001, management believes that any such outstanding
issues will be resolved without significantly impairing the financial
condition of the Company.
9. NET LOSS PER SHARE
For the year ended December 31, 2001 and 2000, basic and diluted weighted
average common shares include only common shares outstanding. The inclusion
of common share equivalents would be anit-dilutive and, as such, they are not
included. However, the common stock equivalents, if converted, would have
increased common shares outstanding at December 31, 2001 and 2000 by 7,036,293
and 6,654,934 shares, respectively. The December 31, 2001 equivalents are
comprised of 5,034,669 preferred shares, 1,200,000 related to the stock option
plan and 801,624 shares applicable to warrants.
A reconciliation of the number of shares shown as outstanding in the
consolidated financial statements with the number of shares used in the
computation of weighted average common shares outstanding is shown below:
2001
(Preferred) (Common)
Shares outstanding at December 31,
2001 5,034,669 17,006,150
Effect of weighting (386,986) (4,438,253)
Weighted average shares outstanding 4,647,683 12,567,897
-21-
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
9. NET LOSS PER SHARE, continued
2000
(Preferred) (Common)
Shares outstanding at December 31,
2000 4,118,003 9,406,326
Effect of weighting (3,928,043) (240,326)
Weighted average shares outstanding 189,960 9,166,000
10. NOTE TO CONSOLIDATED STATEMENTS OF CASH FLOWS
2001 2000
Non-Cash Investing and Financing Activities
Conversion of debentures payable for stock
(See notes 4 and 7) 1,136,000 614,000
Issuance of restricted stock to employees 377,350 12,600
(See note 7)
Conversion of related party debt to preferred stock 213,054
(See note 7)
Other
During 2000, the Company's president exchanged 1,000,000 shares of Common
Stock (par value $1,000) for 1,000,000 shares of Preferred Stock (par value
$1,000) (See note 7). The exchange was recorded at par value.
-22-
Exhibit 21.
Subsidiaries of America's Senior Financial Services, Inc.
As of December 31, 2001
Organized Percentages
Under of Voting
Laws of: Power
---------- -----------
America's Senior Financial Service's Inc.
Subsidiaries:
Jupiter Mortgage Corporation Florida 100
Dow Guarantee Mortgage Florida 100