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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, 2002
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
- ------------------------------------------------------------------------------
(name of small business issuer 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)
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)
(Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 no 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 or any amendments to this Form 10-KSB. [ ]
State issuer's revenues for the most recent fiscal year. $8,232,953
The aggregate market value of the common equity held by non-affiliates of the
registrant as of March 31, 2003 was $2,271,729. This calculation is based upon
the closing price $0.095 of the voting stock on March 27, 2003.
The number of outstanding shares of the issuer's $0.001 par value common stock
was 23,912,934 as of March 27, 2003.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Transitional Small Business Disclosure Format:
Yes[ ] No [ X ]_
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 that originates,
processes, and closes forward and reverse mortgage loans secured by single-
family residences that are subsequently funded by financial institutions or
independent investors. AMSE, Dow and Jupiter are collectively referred to
herein as the Company. The Company conducts business on a retail and wholesale
basis. All significant inter-company transactions are eliminated in
consolidation.
We receive income from several sources. Under certain circumstances we may
charge certain non-refundable mortgage application fees. We may also charge
origination points. Upon closing a loan, we may 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. Finally, we derive income from our
secondary marketing efforts.
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
$390 million dollars of gross loan originations for the year ended December
31, 2002, and funded approximately $312 million dollars.
The Company's Reverse Mortgage operations provided another $10 million dollars
in gross loan originations, and funded another $2.5 million dollars. Combined
with the forward operations named above and certain other commercial mortgage
transactions, the company achieved slightly over $400 million dollars in gross
loan originations, and funded $315 million dollars in loans.
Asset Purchase regarding Dupont Mortgage Corporation, Inc.
Jupiter Mortgage Corporation purchased certain assets of Dupont Mortgage
Group, Inc. ("Dupont") consisting of its mortgage wholesale lending
relationships and certain furniture, equipment, and the assumption of a
suitable office lease in Tampa, Florida where Dupont formerly conducted such
business. The agreement called for the Company to pay Dupont a total of
$200,000 for the assets. The effective date on this transaction was December
31, 2001. Jupiter did not assume any liabilities of Dupont or purchase any
stock of Dupont or any of its affiliates. Jupiter subsequently utilized these
assets to form its own wholesale operation. The operations were at a start-up
level through the first half of 2002. During 2002 the Company further
developed the acquired operations and fully integrated the systems toward the
end of 2002 and in early 2003.
The Company is currently working with several advisors to identify potential
acquisition candidates for potential expansion. While there are several
candidates under consideration, there can be no assurances that any additional
acquisitions will occur in the immediate future.
OPERATIONS
During 2002, the company remained focused on building its core business while
developing its newly formed wholesale operation.
The company's combined forward mortgage loan originations constitute over 95%
of our total loan originations. Previous to 2002, our forward business was
primarily retail based. In 2002, our wholesale operation
made a significant contribution to our total loan originations. Since the
company does very little forward mortgage retail advertising, our refinance
business is less than the industry average. Because our business is not based
on refinances, we are not overly interest rate sensitive. Of the retail
forward mortgage loan origination, we estimate that 47% are government
products (FHA and VA), 36% are conforming products (FNMA and FHLMC), 8% are
Jumbo products (large loans exceeding FHMA limits) and the balance of 9% is
non-conforming and sub prime customers. Of the wholesale mortgage loan
origination, 100% is government products.
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,
2002, 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. While searching for financing, the
company continues to expand its correspondent database for this product. The
company has numerous correspondents in several states waiting for us 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 superior customer service and
experience, and emphasizing customer education to attract borrowers for
reverse mortgages.
SALES AND MARKETING
As an independent mortgage originator, we seek to identify
persons who are seeking mortgage loan funding. Currently, we do a small
amount of advertising in local newspapers, yellow page telephone
directories, Internet websites, and direct mail. 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 years ended December 31, 2002, 2001, 2000, 1999 and 1998, we
expended approximately $39,000, $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 2002 and 2001, marketing and advertising expenses were
reduced from the previous year as we continued to limit our advertising to
select venues in Florida only and further develop our wholesale relationships
with correspondent brokers who then deliver loans to us without any material
marketing or advertising expense to the company.
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 30, 2003 the company employed 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 by Jupiter Mortgage Corporation. The corporate offices
of America's Senior Financial Services, Inc. are in the Miami location listed
below.
The following table sets forth information concerning these facilities:
LOCATION APPROX. LEASE EXPIRATION MONTHLY
SIZE RENT
- -------- ------------ -------
10800 Biscayne Blvd. 2,200 sf Month to Month $2,200
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., Ste. 2 1,500 sf October 2003 $2,117
Royal Palm Beach, FL 33411
1874 S.E. Port St. Lucie Blvd. 1,800 sf Feb. 2008 $2,780
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
106 E. Janeaux 200sf Month to Month $ 200
Lewistown, Montana 59457
103 US Highway 1 250sf Dec. 2003 $ 600
Jupiter, FL. 33477
2137 S. US One 250sf July 2003 $ 600
Jupiter, FL. 33477
129 Center Street 500sf Dec. 2003 $1,060
Jupiter, FL. 33458
1408 N. Westshore Blvd., Ste. 1004 5,500sf Dec. 2004 $6,050
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.
During 2002 the Company wrote off the $250,000 note The Company retains
collateral in the form of 2.4 million free trading marketable securities which
were valued at $48,239 as of December 31, 2002. The Company recorded bad debt
net of the collateral in the amount of $201,761. As of March 31, 2003 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 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 investigated these
allegations. After an investigation described below, the Company's Board
determined these allegations to be without merit. To respond as completely as
possible, the Board formed an Investigative Committee that 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 has
petitioned the Court to dismiss the suit and award the appropriate costs and
damages. However, management believes that a settlement is in the best
interest of the Company's shareholders and all parties involved in the
litigation. Management has met with the former director's
counsel to discuss a mutually acceptable settlement to all matters open
between the parties that would result in the full dismissal of all legal
actions. Negotiations are ongoing and management expects to conclude them
during the second quarter of 2003.
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 Company filed a related pre 14-C on February 13, 2002.
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
-------- -------
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 31, 2002 0.15 0.06
April 1, 2002 through June 30, 2002 0.14 0.07
July 1, 2002 through September 30, 2002 0.09 0.02
October 1, 2002 through December 31, 2002 0.12 0.02
As of March 31, 2003, there were approximately 1,200 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
In 2002 which were not registered under the Securities Act of 1933.
On January 2, 2002 50,000 shares of Preferred Class A shares were issued to
Thomas Sherman, attorney, for legal services. (Sophisticated investor)
On February 1, 2002 200,000 shares of common stock and 200,000 shares of
Preferred Class B stock were issued to George Bennett in a legal settlement.
(Sophisticated investor)
On February 1, 2002 333,333 shares of common stock and 666,667 shares of
Preferred Class A stock were issued to Joseph Telese in partial payment on a
note related to an acquisition of assets and operations of a business.
(Sophisticated investor)
On February 1, 2002 100,000 shares of were issued to Darla Koch for employee
retention. (Sophisticated investor)
On February 4, 2002 1,500 shares were issued to Goldy Lowry for employee
retention. (Sophisticated investor)
On February 11, 2002 25,000 shares were issued to Douglas Avella and 10,000
shares were issued to Jeffrey Avella in anticipation of a legal settlement; on
May 31, 2002 these shares were cancelled. (Sophisticated investor)
On April 9, 2002 200,000 common shares were issued to Paula Police in a
conversion in which Michael Pollis cancelled 200,000 shares of Preferred B
shares. As part of this transaction, 26,000 common shares issued to Meadows
Owens Collier were cancelled. (Sophisticated investor)
On May 1, 2002 250,000 shares were issued to Palmun Associates for consulting
services. (Nelson A. Locke, Chairman, provided Palmun 250,000 shares from his
personal portfolio to be kept by Palmun as a deposit until future services had
been rendered. On October 15, 2002 250,000 shares of Preferred Class A stock
was issued to Mr. Locke to reimburse him for his personal shares provided in
the transaction.)
On May 1, 2002 100,000 shares were issued to Alan Soloman for investment
consulting services. (Sophisticated investor)
On May 20, 2002 200,000 shares of common stock were issued to George Pollis in
a conversion in which 200,000 shares of his Preferred Class B shares were
cancelled. (Sophisticated investor)
On July 2, 2002 200,000 shares of Preferred Class A shares of Brickell Equity
were cancelled as part of a contract re-negotiation. (Sophisticated
investor)
On October 15, 2002 250,000 shares of Preferred Class A stock were issued to
Nelson A. Locke, Chairman, in reimbursement of 250,000 shares of his personal
stock he provided as a deposit to Palmun Associates (See May 1, 2002).
(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 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 OR PLAN OF OPERATION
RESULTS OF OPERATIONS: YEAR 2002
Total revenues for the year ended December 31, 2002 were $8,232,953, an
increase of $578,985 or 7.6% from prior year revenues of $7,653,968. The
primary reason for the overall growth was the additional sales of $1,299,000
derived from the new wholesale division offset by a decrease of approximately
$720,000 in retail sales due largely to a continued decline in retail loan
origination in the Company's Miami office, and the effect of a reorganization
of the Company's Port St. Lucie office.
Total operating expenses for the year ended December 31, 2002 were $9,021,444,
a decrease of $336,335 or 3.6% over the prior year operating expenses of
$9,357,779. Included in the decrease was an increase in payroll and related
expenses of $253,524 due to the increase in commissions related to the
increase in sales, a decrease of $351,137 in administrative, processing and
occupancy expense due to management achieving certain new efficiencies, and an
increase in depreciation of $24,170 due primarily to adjustment to accelerate
depreciation on certain assets.
Operating expenses include bad debt expense of $201,761 from write off of a
Promissory note receivable established in 1998 of $250,000 net of $48,239
collateral as detailed under Item 3, Legal Proceedings.
Total interest expense was $397,256 for the year ended December 31, 2002, an
increase of $241,398 over the prior year expense of $155,858. The increase
was primarily due to interest expense of $199,925 in the new wholesale
division and interest expense of $37,500 associated with a note executed in
May 2002.
Net loss before taxes and extraordinary item for the year ended December 31,
2002 was $1,185,747 which was a $673,922 (36.2%) decrease in loss over the
prior year loss before taxes and extraordinary item of $1,859,669. In the
prior year there was an extraordinary income item of $989,690 resulting from
settlement of debt on debentures; there was no extraordinary item in the year
2002. Adjusted for the extraordinary gain that occurred in 2001, the
Company's net loss for 2002 was $1,185,747 compared to $869,979 in 2001.
The reduction in loss in 2002 compared to 2001 is attributed in part to the
establishment of the profitable wholesale operation, which was in a start-up
mode as of the second half of 2002.
RESULTS OF OPERATIONS: YEAR 2001
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, 2001 there was 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 was 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
demonstrated 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 signed a contract with a Florida based insurance provider
to assist in marketing reverse mortgage products to Florida seniors. During
2001 we trained over 150 of the new senior advisors. Results were not as
expected, and the project was reduced in scope during 2002.
Total Expenses for the year ended December 31, 2001 compared to the year ended
December 31, 2000 increased 8% to $9,357,779 from $8,651,738. This increase in
expenses was primarily due to the additional commission costs associated with
the increased revenue production.
Included in the above expenses were 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 were related to the amortization of
marketing and advisor contracts that dated back into 2000 and 1999.
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 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
included a loss of $306,208 related to the third party's apparent breach of
contract and the subsequent collapse of their business units. The company has
sued to recover as much as possible. The litigation is ongoing.
Operational costs decreased in relationship to revenues produced
on a full year. This improvement in expenses was partially attributable to the
ongoing consolidation strategy that ultimately resulted 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 were 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.
LIQUIDITY AND CAPITAL RESOURCES
Management believes that liquidity and capital resources are sufficient to
support operations at the present level. On an ongoing basis management
reviews options and opportunities which may provide favorable debt restructure,
financing for acquisitions, and working capital.
During 2002 cash provided by operating activities was $356,767, an increase
of $351,039 from the prior year amount of $5,728. This increase consisted of
an increase of $248,351 in operating loss net of non-cash items added back
and a net increase of $102,088 resulting from net increases and decreases in
operating assets and liabilities. The non-cash items include depreciation and
amortization, non-cash gains, and expenses paid with common stock given for
services.
Net cash used in investing activities was $134,356 compared to $340,275 in the
prior year, a decrease of $205,919. The decrease was due to a decrease of
$122,287 in the net of mortgage loans held for sale and warehouse lines
of credit, decrease in other assets of $255,850 in 2001, and a decrease in
purchase of property and equipment of $72,356 in 2002 compared to 2001.
Net cash used in financing activities was $386,554, an increased use of
$678,904 over the prior year in which net cash provided by financing
activities was $292,350. The increase in use was due primarily for reduction
of lines of credit in 2002 compared to a net increase in 2001.
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 ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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 52 Chairman of the Board,
CEO / Director
Michael J. Buono 38 President/COO/Director
Dean J. Girard 43 Director
Cheryl D. Locke 45 Director/ Secretary
Thomas G. Sherman, Esq. 52 Director
Charles M. Kluck 58 Director
Robert F. Kendall 54 Vice President/
Treasurer/ Chief
Financial Officer
Nelson A. Locke and Cheryl D. Locke are married.
Our directors serve staggered terms. 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. In 2001 he was
appointed to chair the company's Executive Committee. 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 the current President-Elect
of the Florida Association of Mortgage Brokers, State. He 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. Mr. Locke also completed certain graduate studies in Law at
Western State College of Law in San Diego, California.
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. During 2002, she continued to serve as corporate secretary and
director.
Michael J. 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. In 1999 he was named the Palm
Beach FAMB's Broker of the Year. He serves on the FAMB Board of Directors.
He is a member of Mensa. He is Chairman of the corporate Audit Committee.
In 2001, he was also appointed to the company's Executive Committee.
Dean J. Girard was elected to the Board of Directors in September 2001.
He was the Chief Financial Officer of America's Senior Financial Services from
November 2000 through August 2002 and currently is an independent director.
Prior to joining America's Senior, he was the Chief Financial Officer for
Jupiter Mortgage from August 1999 to November 2000.
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 the 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 a director in July 1998. In May
2000, he was appointed to the Company's Compensation Committee. In 2001, he
was also appointed to the company's Executive Committee.
BOARD COMMITTEES
The Board of Directors has established an Audit Committee and a
Compensation Committee. The Audit Committee, consisting of Michael Buono,
reviews the adequacy of internal controls and results and scope of the audit
and other services provided by the Company's independent auditors. The Board
is seeking additional members of the Committee. 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.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based upon review of the information furnished to the Company Mr. Sherman was
late in filing of Form 4 for 50,000 shares of Preferred A received January 1,
2002 and 72,000 shares of common received on March 19, 2002. Mr. Sherman.
promptly filed upon discovery of the error.
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 2002 $200,000 -0- -0-
Chairman/ CEO 2001 $200,000 -0- -0-
2000 $ 14,653 -0- $213,054
Michael J. Buono 2002 $150,000 -0- -0-
President/COO/Director/ 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 2002 $ -0- -0- -0- $ 1,000 (2)
Chairman/CEO 2001 $ -0- -0- -0- 2,842
2000 $ -0- -0- -0- -0-
Michael J. Buono 2002 $ -0- -0- -0- -0-
President/COO/ 2001 -0- -0- -0- -0-
Director 2000 -0- -0- -0- -0-
(1) During 2002 Mr. Locke received direct salary in the amount of
$131,250. As of year end he entered into a settlement agreement in which he
received 687,500 shares of stock valued at $68,750 in lieu of unpaid wages
of the same amount.
(2) During 2002 life insurance premiums paid for Mr. Locke were in the
approximate amount of $1,000.
DIRECTOR COMPENSATION
No material fees were paid for director services.
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 a discretionary
bonus not to exceed $50,000. The Agreement provided for the establishment of
an "Executive Performance Bonus Pool" described below, which Mr. Locke could
also share in under certain conditions. In addition, 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 and 1999 as this event may have been
harmful to future business and investor prospects. He did not qualify for this
bonus in 2000, 2001 and 2002.
In December 1998 the Company revised Mr. and Mrs. Locke's employment
contracts, essentially combining the economic benefits into one document that
serves as Mr. Locke's basic contract. Subsequently, in October 1999 the Board
of Directors approved a change in Mr. Locke's annual base salary to $200,000.
The Locke's health, life, disability insurance, discretionary bonuses, option
plan, and auto allowances remained the same. As part of this revision, Mrs.
Locke agreed to eliminate her separate salary or basic contract. During 2000
and most of 2001 cash flow circumstances were such that Mr. Locke was 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 preferred stock at $0.50 a share, at a time when the stock was
trading at less than $0.10. This action benefited the Company. At year end
2001, Mr. Locke was owed an estimated $160,239. Mr. Locke settled this amount
for 700,000 shares of common stock valued $0.25 a share. This action
also benefited the Company. At year end 2002, Mr. Locke was owed $68,750.
Mr. Locke accepted 687,500 shares of common stock at a value of $.10 per share
in lieu of payment in cash.
In January 1998 the Company entered into a five-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, and a cash 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
would 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, 2001, and again in 2002. In January 2000,
the cash portions of Mrs. Locke's salary were incorporated into Mr. Locke's
contract, consistent with the intent of the changes made to Mr. Locke's
contract when it was revised in October of 1999. Subsequently in 2000, 2001,
and 2002 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. During
2001 this contract was reduced to $75,000 a year and to date, due to cash flow
circumstances, the cash portion has not been paid. The company accrued this
liability. At year-end 2002, Mr. Kluck was owed approximately $144,000. Mr.
Kluck has accepted 500,000 shares of stock valued at $.10 a share in lieu of
cash payment of $50,000 of this liability.
In August of 1999 the Company's subsidiary, Jupiter Mortgage Corp., entered
into an employment agreement with Michael J. Buono for a term of five years,
under which Mr. Buono will be paid an annual salary of $150,000, subject to
annual review and inclusive of certain health, life, and auto benefits. At
year-end 2002, Mr. Buono was owed $84,215 for unpaid salaries and
reimbursable expenses. Mr. Buono has accepted 842,147 shares of stock valued
at $.10 a share in lieu of cash payment of this liability.
STOCK OPTION PLANS
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.
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. However,
certain of these options may be extended at the discretion of the company's
Executive Committee, where the options relate to financing agreements or were
given in lieu of wages or for services that have been performed.
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 plan 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 the key management 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, 2001 or 2002.
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
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 days following such termination. If
termination was due to death or disability, the options expire one 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 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 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 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.AND
RELATED STOCKHOLDER MATTERS
DESCRIPTION OF SECURITIES
The following table sets forth, as of March 31, 2003, the beneficial Ownership
of the Company's 23,912,934 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, all of whom can be contacted at 1070 E. Indiantown
Road, Suite 410, Jupiter, Florida 33411; (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) 4,279,432 17.9%
Cheryl D. Locke(2)(4) 4,279,434 17.9%
Charles M. Kluck(3)(4) 2,823,895 11.8%
Michael J. Buono(4) 2,250,679 9.4%
Thomas G. Sherman, Esq.(4) 307,000 1.3%
Dean J. Girard (4) 138,408 0.6%
Robert F. Kendall - -
All officers and directors
as a group(7 persons) 9,799,414 41.0%
- ----------
(1) Based upon 23,912,934 shares outstanding as of March 31, 2003 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 common stock which may be issued on conversion of Convertible
Preferred shares as follows: Cheryl and Nelson Locke 2,026,108 shares,
Charles Kluck 858,895 shares, Michael Buono 1,016,500.shares.
The following table sets forth, as of March 31, 2003, the beneficial
Ownership of the Company's 5,701,336 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 preferred stock, all of whom can
be contacted at 1070 E. Indiantown Road, Suite 410, Jupiter, Florida 33411;
(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) 2,026,108 35.5%
Cheryl D. Locke(2) 2,026,108 35.5%
Charles M. Kluck(3) 858,895 15.1%
Michael Buono 1,016,500 17.8%
Thomas G. Sherman, Esq 50,000 0.9%
Dean J. Girard -0- -0-
Robert F. Kendall -0- -0-
All officers and directors
as a group (6 persons) 3,951,503 69.3%
- ----------
(1) Based upon 5,701,336 shares outstanding as of March 31, 2003.
(2) Nelson A. Locke and Cheryl D. Locke own such shares as joint tenants.
(3) Includes 138,224 owned by his sister, Linda Kluck.
Restricted Stock Awards
EQUITY COMPENSATION PLANS
During 2001, a total of 377,350 restricted shares of the Company's common
stock were granted to certain employees with a market value of $377,350.
There were no such issuances during 2002. 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 in 2001. In 2002 the restricted balance was adjusted for
forfeitures and no additional amount was amortized.
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.
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.
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.
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 and 2002 - -
Exercised - -
Expired - -
________ ___
Outstanding and exercisable at
end of period 1,200,000 $ .50
EQUITY COMPENSATION PLAN INFORMATION
See notes below (a) (b) (c)
PLAN CATEGORY
Equity Compensation 2,000,000 Priced at 2,000,000
Plans approved time of plus 2% of
By Security Holders grant outstanding shares
Equity Compensation
Plans Not approved
By Security Holders 1,200,000 $0.50 share None.
Total 3,200,000 2,000,000
(a) Number of securities to be issued upon exercise of outstanding options,
warrants, and rights
(b) Weighted average exercise price of outstanding options, warrants and
rights
(c) Number of securities remaining available for future issuance under
equity compensation plans (excluding securities reflected in column (a)
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
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. During 2002 the
Company issued 704,856 shares of common stock in lieu of cash payment for a
loan from officer of $71,249.from 2001 and 687,500 shares in lieu of cash
payment for deferred compensation. The Company issued 250,000 shares of
Preferred Class A shares to reimburse Mr. Locke for 250,000 shares of common
stock of his personal stock he contributed in a corporate transaction.
During 2002 the Company's president, Michael Buono, received 200,000 shares
of common stock for employee retention and accepted 842,147 shares
of common stock in lieu of cash payment of $84,215 in cash for salary and
reimbursable expenses.
During the year a director, Charles Kluck, received 200,000 shares of common
stock for employee retention and accepted 500,000 shares of common
stock in lieu of cash payment for salary of $50,000. His sister, Linda
Kluck, accepted 340,000 shares in lieu of cash payment for salary of $34,000.
During the year a director, Thomas Sherman, received 72,000 shares of common
stock for employee retention and 50,000 shares of preferred stock.
During the year Dean Girard received 60,000 shares of common stock for
employee retention.
During the year an officer of Jupiter Mortgage Corporation, Deanne Anderson,
Received 120,000 shares of common stock for employee retention and accepted
640,000 shares of common stock in lieu of cash payment for salary of $64,000.
During the year an officer of Jupiter Mortgage Corporation, Lori Hetzel,
received 60,000 shares of common stock for employee retention.
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.
22 Subsidiaries
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
99.1 Certification of CEO
99.2 Certification of CFO
(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 a radio interview with the
Chairman of the Board discussing the future of the company.
ITEM 14 CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the Company's Exchange Act
reports is recorded, processed, summarized, and reported within the time
periods specified in the SEC's rules and forms, and that such information is
accumulated and communicated to the Company's management, including its Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure based closely on the definition of
"disclosure controls and procedures" in Rule 13a-14(c). In designing and
evaluating the disclosure controls and procedures, management recognized that
any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives,
and management necessarily was required to apply its judgment in evaluating
the cost-benefit relationship of possible controls and procedures.
Within 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and the Company's
Chief Financial Officer, of the effectiveness of the design and operation of
the design and operation of the Company's disclosure controls and procedures.
Based on the foregoing, the Company's disclosure controls and procedures were
effective.
There have been no significant changes in the Company's internal controls or
in other factors that could significantly affect the internal controls
subsequent to the date the Company completed its evaluation.
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2002 AND 2001
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 7-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9-22
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, 2002 and
2001, 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, 2002 and
2001, 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.
/s/ HOLYFIELD AND THOMAS, LLC
HOLYFIELD AND THOMAS, LLC
West Palm Beach, Florida
March 31, 2002)
-1-
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
ASSETS
2002 2001
CURRENT ASSETS:
Cash and cash equivalents $ 256,738 $ 420,881
Cash, restricted 1,050,898 895,525
Brokerage fees receivable 516,901 144,877
Employee loans 6,000 16,837
Mortgage loans held for sale 13,260,174 2,991,322
Prepaid expenses 78,449 324,483
TOTAL CURRENT ASSETS 15,169,160 4,793,925
PROPERTY AND EQUIPMENT, net 253,992 359,538
OTHER ASSETS
Goodwill, net 4,836,911 4,836,911
Notes receivable - 250,000
Other assets 109,127 70,216
TOTAL OTHER ASSETS 4,946,038 5,157,127
TOTAL ASSETS $20,369,190 $10,310,590
LIABILITIES
CURRENT LIABILITIES:
Current portion of capital
lease obligations $ 5,000 $ 2,734
Lines of credit 101,618 421,476
Warehouse lines of credit 13,104,392 2,966,795
Accounts payable 491,935 593,457
Accrued expenses 1,890,812 1,470,083
Escrow payable 1,050,898 895,525
TOTAL CURRENT LIABILITIES 16,644,655 6,350,070
CAPITAL LEASE OBLIGATIONS,
less current portion 6,000 -
TOTAL LIABILITIES $16,650,655 $ 6,350,070
(Continued)
-2-
See notes to consolidated financial statements.
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, continued
DECEMBER 31, 2002 AND 2001
(Continued)
STOCKHOLDERS' EQUITY:
Preferred stock:
Series A Convertible, $0.001 par value;
8,100,000 shares authorized, 5,334,670
and 4,468,003 shares issued and out-
standing in 2002 and 2001, respectively 5,335 4,468
Series B Convertible, $0.001 par value;
1,000,000 shares authorized, 366,666 and
566,666 shares issued and outstanding
in 2002 and 2001, respectively 366 567
Series C Convertible, $0.001 par value;
900,000 shares authorized, none issued - -
Common stock, $0.001 par value;
100,000,000 shares authorized,
23,912,934 and 17,006,150 shares
issued and outstanding in 2002
and 2001, respectively 23,913 17,006
Additional paid in capital 16,181,016 15,567,887
Retained earnings (deficit) (12,451,706) (11,265,959)
Unearned compensation, restricted stock ( 40,389) ( 363,449)
TOTAL STOCKHOLDERS' EQUITY 3,718,535 3,960,520
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 20,369,190 $ 10,310,590
-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,
2002 2001
REVENUES $ 8,232,953 $7,653,968
EXPENSES:
Payroll and related expense 6,021,744 5,768,220
Administrative, processing, and occupancy 2,891,053 3,247,190
Depreciation 108,647 84,477
Goodwill amortization - 257,892
TOTAL EXPENSES 9,021,444 9,357,779
LOSS FROM OPERATIONS ( 788,491) (1,703,811)
OTHER
Interest expense 397,256 155,858
Total other, net 397,256 155,858
LOSS BEFORE EXTRAORDINARY ITEM
AND INCOME TAXES (1,185,747) (1,859,669)
EXTRAORDINARY ITEM
Gain on settlement of Debentures - 989,690
(No applicable income tax)
PROVISION FOR INCOME TAXES - -
NET LOSS (1,185,747) (869,979)
RETAINED EARNINGS, BEGINNING OF THE YEAR (11,265,959) (10,395,980)
RETAINED EARNINGS, END OF THE YEAR $(12,451,706)$(11,265,959)
LOSS PER COMMON SHARE:
Basic $ (.062) $ (.069)
Diluted $ (.062) $ (.069)
Weighted average common
shares outstanding 18,985,228 12,568,000
-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, 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
-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, 2002
PREFERRED COMMON PREFERRED COMMON
STOCK STOCK STOCK AT STOCK AT
# OF SHARES # OF SHARES PAR VALUE PAR VALUE
STOCKHOLDERS' EQUITY,
January 1, 2002 5,034,669 17,006,150 $5,035 $17,006
Issuances of common stock
for cash 300,000 300
Stock issued for services 150,000 5,340,270 150 5,341
Stock issued in payment of
note for acquisition 666,667 333,333 666 334
Restricted stock cancellation
of terminated employees (171,675) ( 172)
Stock issued in settlement of
officer loans 704,856 704
Stock issued as deposit on
toward future services 250,000 250
Conversion of common stock to
preferred stock (400,000) 400,000 (400) 400
Treasury stock purchase
Net loss for the year ended
December 31, 2002
STOCKHOLDERS' EQUITY,
December 31, 2002 5,701,336 23,912,934 $5,701 $23,913
ADDITIONAL TOTAL
PAID-IN RESTRICTED STOCKHOLDER
CAPITAL STOCK DEFICIT EQUITY
STOCKHOLDERS' EQUITY,
January 1, 2002 $15,567,887 $(363,449) $(11,265,959) $3,960,520
Issuances of common stock
for cash 29,700 30,000
Stock issued for services 694,514 700,005
Stock issued in payment of
note for acquisition 120,000 121,000
Restricted stock cancellation
of terminated employees (322,888) 323,060 -
Stock issued in settlement of
officer loans 71,249 71,953
Stock issued as deposit on
toward future services 22,250 22,500
Conversion of common stock to
preferred stock
Treasury stock purchased (1,696) (1,696)
Net loss for the year ended
December 31, 2002 (1,185,747) (1,185,747)
STOCKHOLDERS' EQUITY,
December 31, 2002 $16,181,016 $( 40,389) $(12,451,706) $3,718,535
-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 2002 2001
Net loss $(1,185,747) $ ( 869,979)
Adjustments to reconcile net loss to net cash
Provided by operating activities:
Depreciation and amortization 108,647 342,369
Gain on forgiveness of debt (121,053) -
Extraordinary item settlement of debentures - (986,690)
Common stock issued for services 700,005 1,017,801
Write off of note receivable 250,000 -
Changes in operating assets and liabilities
(Increase) decrease in operating assets:
Brokerage fee receivable (372,024) 145,014
Employee loans 10,837 (15,537)
Prepaid expenses 246,034 22,078
Other assets (16,411) 3,369
Increase (decrease) in operating liabilities:
Accounts payable and accrued liabilities 736,479 347,303
NET CASH PROVIDED BY OPERATING ACTIVITIES 356,767 5,728
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (3,101) (75,457)
Changes in other assets - (255,850)
Decrease in net mortgage loans held for sale
over warehouse lines of credit (131,255) ( 8,968)
NET CASH USED IN INVESTING ACTIVITIES (134,356) (340,275)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock, net 30,000 30,000
Payments on note, acquisition ( 95,000) -
Net borrowings (payments) under lines of credit (319,858) 272,385
Payments on long-term capital lease obligations - (32,600)
Other - 22,565
Purchase of treasury stock ( 1,696) -
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES(386,554) 292,350
NET DECREASE IN CASH AND CASH EQUIVALENTS (164,143) ( 42,197)
CASH AND CASH EQUIVALENTS, beginning of period 420,881 463,078
CASH AND CASH EQUIVALENTS, end of period $ 256,738 $ 420,881
(Continued)
-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, 2002 AND 2001
(Continued)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid in cash during the period $ 386,943 $ 147,338
Income taxes paid in cash during the period none none
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Conversion of debentures payable for stock - $1,136,000
Issuance of restricted stock to employees - $377,350
Issuance of stock in settlement of officer loans $ 71,953 -
Issuance of common stock and preferred stock
in payment on note for acquisition $121,000 -
Issuance of preferred stock as deposit $ 22,500 -
-8-
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, 2002 AND 2001
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.
-9-
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
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
Until an accounting change which the Company adopted as of January 1, 2002,
the excess of investment cost over the fair value of net assets acquired
(goodwill) was amortized using the straight-line method over a period of 20
years. As detailed below under "Recent Accounting Changes," there was no
amortization expense taken in 2002. Amortization of goodwill for the year
ended December 31, 2001 was approximately $257,892. The valuation of goodwill
is reviewed on an ongoing basis and adjusted accordingly.
Advertising
The costs of advertising, promotion and marketing programs are generally
charges to operations in the year incurred. Total advertising expense was
approximately $38,812 and $26,576 for the years ended December 31, 2002 and
2001, 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.
-10-
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
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.
-11-
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
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 adopted SFAS 142 as of January 1, 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 adopted
SFAS 144 in 2002 and that adoption has not had material impact on its
consolidated results of operations and financial position.
-12-
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
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.
Reclassification
Certain 2001 amounts have been reclassified to conform with 2002
classifications. Such classifications had no effect on net income.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
2002 2001
Office equipment $ 397,547 $ 394,446
Furniture and fixtures 260,787 260,787
Leasehold improvements 52,890 52,890
Vehicles - 47,098
Total cost 711,224 755,221
Less accumulated depreciation (457,232) (395,683)
Property and equipment, net $ 253,992 $ 359,538
Depreciation expense for the years ended December 31, 2002 and 2001 was
approximately $108,647 and $84,477, respectively.
-13-
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
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, 2002 and 2001, the total amounts outstanding under these
lines of credit was approximately $102,000 and $421,000, respectively.
Mortgage Warehouse Agreements
The Company maintains warehouse facilities with several financial institutions
to assist the Company in originating and closing mortgages. The Company is
liable under these agreements only if defaults occur during a mortgage closing
process. As of December 31, 2002, there was approximately $13,100,000
outstanding bearing interest at prime with a floor of 6%.
4. ESCROW OF ASSETS
Under an agreement for the purchase of certain assets and operations that now
constitute the wholesale division, a credit line available to the Buyer was
established as of December 31, 2002 and 2001. The credit line was established
to ensure credit was available to the Buyer during the start-up phase of the
new operations. Advances were at the sole discretion of the seller and have
been repaid as of year end. Balances of escrowed assets were $1,050,897 and
$895,525 as of December 31, 2002 and December 31, 2001, respectively.
5. INCOME TAXES
A summary of income taxes for the years ended December 31st, are as follows:
2002 2001
Currently payable
Federal $ - $ -
State - -
Deferred tax benefit 460,000 295,000
Income tax benefit 460,000 295,000
Valuation allowance (460,000) (295,000)
Net income tax provision - -
-14-
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
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, 2002 and 2001 relate to the following:
2002 2001
Net operating loss carryforward $ 2,856,000 $ 2,380,000
Valuation allowance (2,856,000) (2,380,000)
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, 2002 of approximately $8,400,000. The NOLs will begin
to expire in the year 2022. 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.
-15-
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
6. RELATED PARTY TRANSACTIONS
At year end the Company entered into an agreement with certain officers to pay
off $300,965 of salaries and reimbursable expenses payable with 3,009,647
shares of common stock.
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 dividends on commons stock; g) restrictions, if any, upon the
creation of indebtedness; (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.
-16-
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
7. SHAREHOLDERS' EQUITY (Continued)
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. In
2001, 300,000 shares were issued to the COO and 350,000 shares were issued to
the Chairman of the Board. In 2002 666,667 shares were issued in conjunction
with an acquisition, 250,000 shares were issued to the Chairman of the Board
to replace his personal common shares used in a corporate transaction, and
50,000 shares were issued to a Director.
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. In 2001, 166,666 shares were
issued to employees. In 2002, 400,000 shares were exchanged for common and
200,000 shares were issued for services rendered.
-17-
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
7. STOCKHOLDER'S EQUITY, continued
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 Series C shares have been issued.
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
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, a total of 377,350 restricted shares of the Company's common
stock were granted to certain employees with a market value of $377,350.
There were no such issuances during 2002. 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 in 2001. In 2002 the restricted balance was adjusted for
forfeitures and no additional amount was amortized.
-18-
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
7. STOCKHOLDER'S EQUITY, continued
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.
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.
-19-
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
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.
-20-
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
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 and 2002 - -
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.
-21-
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
8. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases office space in various locations as well as certain office
equipment. Future minimum lease payments subsequent to December 31, 2002
under these operating leases are as follows: $39,017 in 2003, $29,038 in 2004,
$23,739 in 2005 and $19,310 in 2006. Rent expense for the years ended
December 31, 2002 and 2001 was $368,595 and $354,069, 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, 2002, 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, 2002 and 2001, 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, 2002 and 2001 by 7,702,960
and 7,036,293 shares, respectively. The December 31, 2002 equivalents are
comprised of 5,701,536 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:
2002
(Preferred) (Common)
Shares outstanding at December 31,
2002 5,701,336 23,912,934
Effect of weighting (94,338) ( 4,927,706)
Weighted average shares outstanding 5,606,998 18,985,228
2001
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
-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
EXHIBIT 99.1
CERTIFICATION BY CHIEF EXECUTIVE OFFICER
PURSUANT TO rule 13 A-14 Under the Securities Exchange Act of 1934
In connection with the annual report of America's Senior Financial
Services, Inc. (the "Company") on Form 10-QSB for the year ended
December 31, 2002 as filed with the Securities and Exchange Commission on the
date hereof (the "Report"), I, Nelson A. Locke, Chief Executive Officer of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) I have reviewed this annual report on Form 10-KSB of America's Senior
Financial Services, Inc.;
(2) Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the year presented in this annual report;
(4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for registrant and have:
a.) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b.) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c.) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation to the registrant's auditors and the audit
committee of registrant's board of directors:
a.) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b.) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
March 31, 2003 s/Nelson A. Locke_______________________
Nelson A. Locke
Chief Executive Officer
Exhibit 99.2
CERTIFICATION BY CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13A-14 Under the Securities Exchange Act of 1934
In connection with the annual report of America's Senior Financial
Services, Inc. (the "Company") on Form 10-QSB for the period ended
December 31, 2002 as filed with the Securities and Exchange Commission on the
date hereof (the "Report"), I, Robert F. Kendall, Chief Financial Officer of
the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 that:
(1) I have reviewed this annual report on Form 10-QSB of America's Senior
Financial Services, Inc.;
(2) Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
(4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for registrant and have:
a.) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b.) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c.) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation to the registrant's auditors and the audit
committee of registrant's board of directors:
a.) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b.) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
March 31, 2003
s/Robert F. Kendall
Robert F. Kendall
Chief Financial Officer
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Jupiter,
Florida, on April 11, 2003
In accordance with the Exchange Act, 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
Chief Executive Officer/
Chairman of the Board April 11, 2003
CEO / Director
Chairman of the Board
Nelson A. Locke
/s/ Michael J. Buono
President / COO April 11, 2003
Director/ President
Michael J. Buono
/s/ Dean J. Girard
Director April 11, 2003
Director
Dean J. Girard
/s/ Cheryl D. Locke
Secretary / Director April 11, 2003
Secretary Directory
Cheryl D. Locke
/s/ Thomas Sherman Esq.
Director April 11, 2003
Director
Thomas Sherman
/s/ Charles M. Kluck
Director April 11, 2003
Director
Charles M. Kluck
Chief Financial Officer
Robert F. Kendall
/s/ Robert F. Kendall
Chief Financial Officer April 11, 2003
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
The undersigned, Nelson A. Locke, the Chief Executive Officer of America's
Senior Financial Services, Inc., a Florida corporation (the "Company"),
pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the
Sarbanes Oxley Act of 2002, hereby certifies that:
(1) the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2002 (the "Report") fully complies with the requirements of
Section 13(a) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/Nelson A. Locke
Chief Executive Officer
Dated April 11, 2003
This certification accompanies this Report on Form 10-K pursuant to
Section 906 of the Sarbanes Oxley Act and shall not, except to the extent
required by such Act, be deemed filed by the Company for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
The undersigned, Robert F. Kendall, the Chief Executive Officer of America's
Senior Financial Services, Inc., a Florida corporation (the "Company"),
pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the
Sarbanes Oxley Act of 2002, hereby certifies that:
(1) the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2002 (the "Report") fully complies with the requirements of
Section 13(a) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/Robert F. Kendall
Chief Financial Officer
Dated April 11, 2003
This certification accompanies this Report on Form 10-K pursuant to
Section 906 of the Sarbanes Oxley Act and shall not, except to the extent
required by such Act, be deemed filed by the Company for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.