<PAGE> 1
Registration No. 333-81217
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT 1 TO
Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
(Name of Small Business Issuer in its charter)
FLORIDA 6162 65-0181535
- ------------------------ ------------------------- ----------------
(State of Incorporation) (Primary Standard (I.R.S. Employer
Industrial Classification I.D. Number)
Number
15544 N.W. 77th Court, Miami Lakes, Florida 33016 (305) 828-2599
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(Address and telephone number of principal executive offices)
15544 N.W. 77th Court, Miami Lakes, Florida 33016
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(Address of principal place of business)
Nelson Locke, President
America's Senior Financial Services, Inc.
15544 N.W. 77th Court
Miami Lakes, Florida 33016
(305) 828-2599
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(Name, address and telephone number of agent for service)
Copies to:
Joel Bernstein, Esq., P.A.
11900 Biscayne Blvd., Suite 604
Miami, Florida 33181
(305) 892-1122
Fax:(305) 892-0822
Approximate date of proposed commencement of sale to the public: From time to
time after the Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed
Amount of Proposed Maximum
Shares Maximum Aggregate Amount of
Title of Each Class of To be Offering Price Offering Registration
Securities to be Registered Registered Per Unit(1) Price Fee
- --------------------------- ---------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Common Stock 1,356,335 $7.50 $10,172,512.50 $2,827.96
</TABLE>
================================================================================
(1) Estimated solely for purposes of calculating the registration fee.
(2) 280,612 shares are issuable on exercise of Warrants. Pursuant to Rule
416 the number of shares may be increased by operation of anti-dilution
provisions contained in the Warrants.
The Company hereby amends the Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Acts of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8 (a),
may determine.
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Subject to completion dated September _____ 1999.
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
PROSPECTUS
SEPTEMBER ___ , 1999
1,356,335 shares of common stock
Our common stock is traded on the over-the-counter market and is quoted on the
OTC Electronic Bulletin Board under the symbol AMSE.
The shares for this offering are being sold by the selling security holders
named under Plan of Distribution Selling Security Holders.
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 4.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<PAGE> 4
PROSPECTUS SUMMARY
THE OFFERING
Common stock offered by selling security holders 1,356,335 shares
Shares of common stock to be outstanding assuming
all shares to which this prospectus relates are sold 8,664,516 shares
OUR COMPANY
America's Senior Financial Services, Inc. ("AMSE", or "America's Senior"), along
with its wholly-owned subsidiaries, Dow Guarantee Corp. ("Dow"), Capital Funding
of South Florida ("Capital Funding"), and Jupiter Mortgage Corporation
("Jupiter"), is a licensed mortgage lender active in originating, processing and
obtaining funding for forward and reverse mortgage loans secured by single
family residences which are funded by financial institutions or independent
investors. AMSE and its subsidiaries are collectively known as the "Company".
We receive income from two sources in connection with our mortgage lending
activities: we charge certain non-refundable mortgage application fees to
potential borrowers and upon closing a loan, receive additional fees payable by
the borrower or investor which fees are based upon a percentage of the loan
and/or the interest rates charged.
Our executive offices are located at: 15544 N.W. 77th Court, Miami Lakes,
Florida 33016 and our telephone number is: 305-828-2599. We are a Florida
corporation which was incorporated in 1990.
RISK FACTORS
The matters described below address some of the factors that make an
investment in our common stock risky.
WE HAVE HAD A HISTORY OF OPERATING LOSSES AND THIS MAY CONTINUE TO BE THE CASE
Our expenses are currently greater than our revenues. Our ability to
operate profitably depends on increasing our sales revenues and achieving
sufficient gross profit margins. We cannot assure that we will operate
profitably in the future.
IF WE LOSE OUR KEY PERSONNEL, OUR BUSINESS AND PROSPECTS MAY BE ADVERSELY
AFFECTED.
We only have a few key officers and directors. If any of them should
leave our company, this could have an adverse effect on our business and
prospects.
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.
COMPETITION.
There are many sources of mortgages available to potential borrowers
today.
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GROWTH BY ACQUISITIONS
We made three major acquisitions and will seek to make more. In July
1998, we acquired Dow Guarantee Corp. ("DOW"), a south Florida mortgage lender
since 1985. In January 1999, we acquired Capital Funding of South Florida, Inc.
("Capital Funding"), a central and north Florida mortgage lender since 1994. In
August 1999, we acquired Jupiter Mortgage Corporation ("Jupiter"), a central
Florida mortgage lender since 1984. Additional acquisitions may result in the
issuance of more common stock and debt. Acquisitions may also require additional
management and financial controls and could place a strain on our current
resources. No assurance can be given as to the Company's ability to successfully
integrate any of such acquisitions.
ADDITIONAL SHARES COULD DEPRESS OUR STOCK PRICE
If our stockholders sell substantial amounts of our common stock in the
public market, the market price of our common stock could fall. This would
include shares issued upon the exercise of outstanding warrants and the
conversion of our convertible debentures into common stock.
CONVERSION OF OUR DEBENTURES AND EXERCISE OF WARRANTS WILL RESULT IN ISSUANCE OF
MORE SHARES OF COMMON STOCK
We issued $2,500,000 of convertible debentures in May 1999. Each
debenture is convertible into common stock. The number of shares of common stock
that may be issued upon conversion of the convertible debentures depends upon
the market price of our common stock at the time of the conversion. Based upon
the recent price of common stock of $7.25 per share, if the debentures were
converted into common stock, we would issue 405,680 shares of common stock. See
"Recent Sale of Convertible Debentures." We may sell up to $7,500,000 of
additional convertible debentures, which if converted at our recent common stock
price of $7.25 would result in the issuance of an additional 1,215,559 shares of
our common stock. We also issued warrants to purchase 34,483 shares of our
common stock at $8.70 per share, to the purchaser of the debentures and
warrants to purchase 246,129 shares of our common stock at $8.70 per share to
other placement agents and consultants, we will issue more warrants in the event
of the sale of additional debentures.
USE OF PROCEEDS
No assurance can be given that any or all of our warrants will be
exercised. Accordingly, as far as can be determined as of the date of the
prospectus, the proceeds we will receive upon any exercise of warrants will be
used for general corporate purposes and for working capital which may include
payment of salaries, rent, marketing and advertising expenses. Such proceeds
would aggregate $2,441,324 if all the warrants were exercised in full for cash.
The warrants allow exercise without a cash payment to the Company.
MARKET FOR THE SHARES
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.
<TABLE>
<CAPTION>
High bid Low bid
-------- -------
<S> <C> <C>
February 20, 1998 through March 31, 1998 $ 5.75 $5.75
April 1, 1998 through June 30, 1998 6.625 5.75
July 1, 1998 through September 30, 1998 7.375 5.50
October 1, 1998 through December 31, 1998 7.50 6.375
January 1, 1999 through March 31, 1999 5.75 7.00
</TABLE>
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April 1, 1999 through June 30, 1999 7.625 6.6875
July 1, 1999 through Sept. 15, 1999 6.96875 5.875
As of August 31, 1999 there were approximately 515 holders of record of
our common stock.
DIVIDEND POLICY
It is not anticipated 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.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the financial statements and notes thereto that appear elsewhere herein.
This Form SB-2 contains forward looking statements including, without
limitation, statements relating to the Company's plans, expectations,
intentions, and adequate resources, and are made pursuant to the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995. The words
"believes" "intends" "expects" "plans" "anticipates" "estimates" or "potential"
and similar expressions identify forward looking statements. The Company does
not undertake to update, revise, or correct any of the forward looking
information. Actual results may differ materially from those expressed in any
forward looking statement made by or on behalf of the Company. Some important
factors that could cause the Company's actual results or expectations to differ
materially from those discussed in the forward looking statements include, but
are not limited to loss of the Company's significant customers, changes in
consumer demand for the Company's core products, interest rates in general,
actions of regulatory or consumer protection agencies that have an effect on the
Company's ability to market its products, Federal and State legislation, capital
expenditures, economic conditions in general and inability to retain qualified
employees.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997:
Results of Operations:
These results for fiscal 1998 are pro-forma, and include the following:
1998 - AMSE, Dow and Capital Funding pro-forma combined twelve month
performance.
1997 - AMSE "stand alone" (prior to the acquisition of Dow and Capital Funding).
<TABLE>
<CAPTION>
1998 1997 Change
---- ---- ------
<S> <C> <C> <C>
Gross loans originated $192,000,000 $41,600,000 +362%
Total dollars funded $145,000,000 $32,000,000 +353%
Units funded 1,477 320 +362%
Gross Fee Income $4,703,000 $542,000 +767%
</TABLE>
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<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Earnings (loss) before
non-recurring items: (439,379) (67,300)
Non-recurring
expense items: 15,142 4,900
Net income (loss): (454,521) (72,200)
% of Gross Fee Income 9.7% 13%
</TABLE>
In the mortgage industry, there are several benchmarks used to measure
a company's growth. The first benchmark offered is loan origination volume. In
1998, the Company's pro-forma loan origination volume increased by $150,400,000
or 362% from our 1997 level of $41,600,000. This increase includes the
origination benefit derived from our acquisitions of Dow Guarantee Mortgage and
Capital Funding of South Florida. The second benchmark to review is our closed
loan unit volume. This number represents true unit production, and ties directly
to the Company's gross fee income level. In 1998, the Company closed 1,477
units, versus 320 units in 1997. This is an increase in closed loans of 362%.
The third benchmark to be considered is gross fee income. This number represents
the commissions and other fees the Company earns on its closed loans. In 1998,
the Company grossed $4,703,000 in fees, versus $542,000 in 1997, primarily due
to the acquisition of Dow and Capital Funding.
The Company's business strategy involves developing a mix of forward
and reverse mortgage originations, where the forward (or traditional) mortgage
products subsidize the costs to grow the reverse mortgage production. In 1998,
reverse mortgage production was limited to the Miami Lakes facility. In 1998,
Miami Lakes originated over 300 reverse mortgages, compared to the 1997
production level of under 100 loans. In 1999 the Company plans to increase its
training and development of the employees of its subsidiaries, and expects their
contribution to increase total reverse mortgage production. Ultimately, the
Company seeks a balance of business that is about 65% forward and 35% reverse.
In 1998, on a consolidated basis, the Company achieved a balance of about 80%
forward and 20% reverse. In 1997, less than 10% of the Company's total
production was reverse mortgages.
In 1998, the Company's pro-forma loss was $454,521. While most expense
categories showed increases, the increases relate to the acquisitions that
occurred. Several categories stand out because they are key to the development
of the Company's growth strategy. $267,060 is directly attributable to goodwill
amortization caused by acquisitions. The Company has elected to amortize the
goodwill over a shorter term than the maximum allowed by accounting rules,
thereby increasing the annual charge to earnings. In 1998, the Company spent
$64,800 in employee retention activity. By spending these funds, we saw
continuity in staff and avoided a drop in sales that could have resulted from a
less efficient staff. Another major expense increase occurred in advertising and
marketing. Consistent with the Company goal of establishing itself as a national
source for Reverse Mortgages, the Company spent over $175,000 on advertising,
versus $50,000 in 1997. In 1998 we expanded our direct mail efforts and began
utilizing cable television and radio. All the effort was directed at development
of the reverse mortgage origination, which increased by over 500%. The benefits
will be felt in 1999, when we close these loans. By way of this discussion, the
reader can see that these few categories account for $506,860 which exceeds our
entire year's pro-forma loss. These expenses should be considered an investment
in the Company's growth plan. Once our subsidiaries begin to
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<PAGE> 8
implement certain efficiencies derived from this consolidation, these expense
dollars should be offset by increased sales at higher margins, and should result
in a planned return to profitability.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999:
These results are proforma, unaudited, and include the following:
2nd Quarter 1999 -- AMSE, Dow, and Capital Funding combined six month
performance.
2nd Quarter 1998 -- AMSE "stand alone" (prior to the acquisition of Dow and
Capital Funding).
<TABLE>
<CAPTION>
6 months
ended June 30th
-------------------------------
1999 1998 Change
------- ------- ------
<S> <C> <C> <C>
Gross Loans Originated (thousands) 76,395 15,208 402%
Total Dollars Funded (thousands) 62,087 12,318 404%
Gross Fee Income (thousands) 1,971 365 440%
Earnings (Loss) before (2,287,473) (105,461) n/a
Goodwill Charges:
Goodwill Expense: (2,484,363) 0 n/a
Net Income (Loss): (4,771,836) (105,461) n/a
% of Gross Fee Income: 242.1% 28.9% n/a
</TABLE>
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Revenues for the three-month period ending June 30, 1999 increased to
$1,010,756 from $205,219 for the three-month period ending June 30, 1998.
Revenues for the six months ending June 30, 1999 increased to $1,970,688 from
$365,010 for the six months ended June 30, 1998. This growth in revenues was
primarily attributable to the contributions of the Dow and Capital
subsidiaries, whose results were not part of AMSE's 1998 results.
Total Expenses for the three-month period ended June 30, 1998 compared to the
three-month period ended June 30, 1999 increased to $5,149,138 from $243,822.
Total Expenses for the six-month period ending June 30, 1999 compared to the six
months ended June 30, 1998 increased to $6,282,042 from $469,463. This increase
in expenses was partially attributable to the inclusion of the costs associated
with the Dow and Capital subsidiaries, which were not a part of AMSE during the
second quarter of 1998.
These expenses also include an impairment write-down of $2,359,311 against the
goodwill of Dow Guarantee Corp. (Dow). This impairment was taken due to Dow
having negative operations in the last five months of 1998 and during the
second quarter of 1999. These negative operations were specifically the result
of increased professional fees relating to the stringent reporting requirements
to AMSE, and represent approximately a $12,000 increase over what Dow would
typically have spent on such fees. Dow also recognized approximately $10,000 of
non capitalized expenses pertaining to the move of their primary office. During
the second quarter of 1999 Dow lost some key sales personnel, these individuals
had historically been responsible for approximately 10% of Dow's revenues.
These personnel have been replaced. Dow also has had no growth in revenues from
the date of acquisition.
The Company has also recognized approximately $1,491,628 of Debenture Financing
Costs. These Debentures are immediately convertible into Common Stock and
therefor the expenses are recognized immediately and not amortized over the
life of the debenture. These expenses include approximately $280,000 of fees
paid out of the debenture financing and the issuance of 185,548 shares of the
Company's Common Stock issued to consultants and placement agents. The Common
Stock issued is valued with a 10% discount from the 7.25 average trading price
at the time the debenture was issued, due to the restrictions imposed on the
transferability of the shares.
Total Other Expenses for the three-month period ended June 30, 1998 compared to
the three-month period ended June 30, 1999 increased to $446,835 from $447.
Total Other Expenses for the six-month period ending June 30, 1999 compared to
the six months ended June 30, 1998 increased to $460,482 from $1,008. This
increase in expenses was primarily due to the Interest expense of the
conversion benefit of the convertible debentures of $441,176.
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Liquidity and Capital Resources
We sold a $2,500,000 convertible debenture in May 1999. The debentures
are convertible into our common stock at the option of the debenture holder. If
converted, the debentures will be converted into common stock at a price of the
lower of (a) $8.70 per share or (b) 85% of the average closing bid price for the
common stock for 5 trading days selected by the debenture holder from the 20
trading days ending immediately before the conversion of the debenture. However,
the Company may not issue more than 9.9% of its outstanding common stock to the
holder. We also issued warrants to purchase 34,483 shares of our common stock at
$8.70 per share to the purchaser of the debentures and will issue more warrants
in the event of the sale of additional debentures. The material risk associated
with this type of debenture is that if our stock price were lower it could have
a significant dilutive effect.
The Company may seek to obtain additional equity and/or debt financing
in the future on terms deemed favorable by the Company. No assurances can be
given as to the Company's ability to procure any such debt and/or equity
financing in the future.
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"Y2K" ISSUE:
The "Y2K" issue arises because the Company uses PC microcomputer
systems, some of which were originally designed to handle a two digit year, not
a four digit year. The Company has inventoried its entire PC ownership, and has
determined that about 25% of its inventory needs to be replaced in 1999. The
Company estimates that this will result in an investment of about $50,000 in new
equipment. Some of this investment will be recovered by the sale (or donation)
of the obsolete equipment. In general, the Company does not foresee much impact
from the "Y2K" issue, because the Company relies on third party software and a
funding network that has, in most cases, represented to the Company that it has
completed its own internal "Y2K" audit and plans to make changes where necessary
to insure seamless entry into the year 2000.
INDUSTRY OBSTACLES:
The Reverse Mortgage Industry is fragmented, dominated by small
regional firms, and generally lacks nationwide leadership. We saw this as an
opportunity to aggregate production, and used this weakness as the core of our
growth strategy. In 1998, we were involved in the formation of the National
Reverse Mortgage Lenders Association (NRMLA). NRMLA was created to help this
Industry become mainstream, and we are a driving member of NRMLA.
AMSE's results have started to reflect its business model which is
built on a mix of revenue weighted toward a higher forward mortgage
contribution. However, our overhead allocation is weighted toward the
development of our Reverse Mortgage business. In 1998, we used the more
predictable cash flows of forward mortgages to subsidize the growth of reverse
mortgages (RM). Specific percentages have been developed that allow AMSE to
invest heavily in its RM marketing and development, which should allow the
Company to achieve profitable operation in the future.
In 1998, AMSE spent considerable resources to develop a program whereby
mortgage brokers, financial planners, and other advisors to the senior
demographic could participate in the growth of the Reverse Mortgage Industry.
Surveys have shown (National Association of Mortgage Brokers 1998) there were
about 200,000 brokers operating in the United States. Yet, less than 2,000
brokers (internal estimate) know anything significant about the product and even
fewer know where to direct their clients. By developing a program that allows
them to participate in the growth of our business, AMSE is opening a huge
channel of potential RM distribution.
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FUTURE PLANS FOR GROWTH AND PROFITABILITY:
The Company has developed a specific strategy for the future. The
strategy addresses several key needs.
1. The Company plans to grow through internal development of its captive
(and growing) loan origination staff. Our training focus is on the
Reverse Mortgage segment of our business. In 1998, by following this
strategy, the Miami Lakes office increased its Reverse Mortgage
origination pipeline by almost 500%. Along the way, valuable lessons
were learned about the training involved with regular mortgage sales
people. In 1999, these internal techniques are being used to train our
subsidiaries to produce RMs.
2. Currently, the key growth engine is acquisition activity. In July 1998
the Company acquired Dow Guarantee Mortgage, adding approximately
$84,000,000 in loan production. In January of 1999, the Company
acquired Capital Funding of South Florida, adding another $62,500,000
in loan production. In August of 1999, the Company acquired Jupiter
Mortgage Corporation, adding approximately $125,000,000 in loan
production. On June 23, 1999 we signed a letter of intent to acquire
Senior Income Reverse Mortgage Corporation of Chicago, Illinois. A
definitive merger agreement is being drafted and appropriate due
diligence has commenced. However, there are terms of the merger which
are not yet resolved, therefore, no assurances can be given that the
acquisition will take place.
3. Simultaneous with growth through acquisitions, we are continuing to
develop our "participant network" of mortgage brokers, financial
planners, and other persons dedicated to working with the senior
demographic.
RECENT SALE OF CONVERTIBLE DEBENTURES
In May 1999 we entered into a Securities Purchase Agreement with
Fennell Avenue, L.L.C.
Pursuant to the Agreement, Fennell Avenue, L.L.C. purchased a
$2,500,000 3% convertible debenture which is due May 6, 2002 and a common stock
purchase warrant to purchase up to 34,483 shares at $8.70 per share which
expires on May 31, 2004. From time-to-time commencing 90 days after the date of
this Prospectus and until the last day of the month which is 36 months after the
date of this Prospectus, but no more frequently than once every 30 days, we can
require Fennell Avenue, L.L.C. to purchase between $250,000 and $500,000 of our
3% convertible debentures until all the purchases total $10,000,000 (including
the $2,500,000 already purchased). Fennell Avenue, L.L.C. may at its choice take
the interest on the debentures in our common stock rather than in cash.
Fennell Avenue L.L.C.'s obligation to purchase additional debentures is
subject to various conditions, the principal conditions being:
The average closing bid price of our common stock for the 30
consecutive trading days preceding the sale of additional debentures has been at
least $5.75 the average daily trading volume for the 30 consecutive trading days
prior to the purchase has been at least 17,000 shares and the aggregate dollar
volume of the reported market transactions of our common stock for the 30
consecutive trading days prior to the sale of additional debentures was
$2,150,000 or more.
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All Registration Statements required to be filed on behalf of Fennell
have been declared effective.
At the time a 3% convertible debenture is sold, the Company will also
deliver to the Buyer a common stock purchase warrant for the purchase of 1 share
of common stock for every 10 shares into which the debentures purchase are
convertible on the date of sale. The exercise price of such warrants shall be
120% of the average closing bid price of the common stock for the 5 trading days
ending on the trading day immediately before the date of debenture sale. Such
warrants expire on the last day of the month in which the second anniversary of
the date of debenture sales occurs. Such warrants will also provide cashless
exercise rights by Fennell.
Under a related registration rights agreement, we have agreed to file
and maintain effectiveness of a Registration Statement for resale by Fennell
Avenue, L.L.C. of all shares of our common stock which may acquire upon
conversion of the debentures or exercise of the warrants. If we fail to obtain
effectiveness of the Registration Statement by August 31, 1999, we are required
to pay a penalty to the investor and we are subject to certain penalties in the
event we fail to maintain the effectiveness of such Registration Statement.
The debentures are convertible into our common stock at the option of
Fennell Avenue, L.L.C. If converted, the debentures will be converted into
common stock at a price of the lower of (a) 120% of the average closing bid
price of the common stock for the 10 trading days immediately before the sale of
a debenture or (b) 85% of the average closing bid price for the common stock for
5 trading days selected by the debenture holder from the 20 trading days ending
immediately before the conversion of a debenture. However, the company may not
issue more than 9.9% of its outstanding common stock to Fennell Avenue, L.L.C.
Accordingly, the lower the market price of our common stock at the time
of conversion the more common stock will be issued to the debenture holder at
the time of conversion. The Company has agreed to register 200% of the shares
which would be issued upon conversion of the outstanding debentures at the time
of filing of the registration statement based upon the price of the common
stock.
In connection with the sale of the initial $2,500,000 3% convertible
debenture and common stock purchase warrant to Fennell Avenue, L.L.C., we paid
$268,780 in fees to placement agents and consultants.
We also issued 246,129 common stock purchase warrants and 185,548
shares of common stock to such placements agents and consultants which warrants
expire on May 31, 2004 and have an option exercise price of $8.70 per share. The
warrants allow a cashless exercise of the warrant.
BUSINESS
We are a licensed mortgage lender active in originating, processing and
obtaining funding for forward and reverse mortgage loans secured by single
family residences which are funded by financial institutions or independent
investors. We receive income from two sources in connection with our mortgage
lending activities: we charge certain non-refundable mortgage application fees
to potential borrowers and upon closing a loan, receive an additional fees
payable by the borrower or investor which fees are based upon a percentage of
the loan and/or the interest rates charged.
We are a Florida corporation which was incorporated on February 26,
1990 under the name Phoenix Management Associates, Inc. We changed our name to
America's Senior Financial Services, Inc. on December 11, 1997. We do business
under the trade names America's Senior Financial Services, Dow Guarantee and
Capital Funding of South Florida.
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The following table sets forth the approximate loan production and fee
income for America's Senior, Dow and Capital Funding during the periods
indicated.
FISCAL YEARS ENDED DECEMBER 31
------------------------------
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Loans originated by America's Senior(1)
Gross dollars originated $45,550,000 $41,600,000
Total dollars funded $35,000,000 $32,000,000
Number of loans 350 320
Gross fee revenue $830,000 $542,000
Loans originated by Dow (2)
Gross dollars originated $84,000,000 $84,000,000
Total dollars funded $60,000,000 $60,000,000
Number of loans 615 630
Gross fee revenue $2,454,000 $2,600,000
Loans originated by Capital Funding (3)
Gross dollars originated $62,500,000 $35,000,000
Total dollars funded $50,000,000 $28,000,000
Number of loans 512 287
Gross fee revenue $1,419,000 $773,000
</TABLE>
- ------------------------
(1) American Senior's retail production only. Does NOT include subsidiaries.
(2) Acquired in July 1998. The figures include the period before acquisition by
the Company.
(3) Acquired in January 1999.
The Company currently originates all types of residential mortgage
products, and serves all age groups and credit categories. We have implemented a
plan to specialize in serving the senior citizen homeowner market using the
"Reverse Mortgage" as a base. Reverse Mortgages (RM) are a special type of
mortgage loan specifically developed to serve the unique needs of the senior
community. AMSE has been originating Reverse Mortgages since 1994. On March 1,
1999, the Company launched a training program for the employees of Dow and
Capital Funding to support the Company's overall business model, and to maximize
consolidated Reverse Mortgage production through the addition of this product
category at its subsidiaries and the education of its captive employee base to
properly market and sell RM product.
14
<PAGE> 15
HOW REVERSE MORTGAGES WORK
A reverse mortgage (RM) is a type of home equity loan that allows
homeowners to convert some of the equity in their homes into cash without an
obligation on their part for monthly repayment. RMs works much like forward
mortgages, only in reverse. Rather than making a payment to the lender each
month, the lender pays the borrower. Unlike conventional home equity loans, RMs
do not require any repayment of principal, interest, or servicing fees for as
long as the borrower lives in their home. Funds obtained from an RM may be used
for any purpose, including meeting housing expenses such as taxes, insurance,
fuel, and maintenance costs, as well as any personal expenses such as health
care expenses. The loan does not come due until the borrower dies, sells, or
moves out of the home permanently.
REQUIREMENTS AND RESPONSIBILITIES OF THE REVERSE MORTGAGE BORROWER
The RM funds may be paid to the borrower in a lump sum, in monthly
advances, through a line-of-credit, or in a combination of the three, depending
on the type of RM and the lender. The amount the homeowner is eligible to borrow
is based on age, the equity in the home, and the interest rate the lender is
charging. The calculation is done utilizing special software developed by the
secondary market investors.
Because the borrower retains title to the home with an RM, the borrower
also remains responsible for taxes, repairs, and maintenance. Depending on the
plan selected, the RM becomes due with interest either when the borrower
permanently moves, sells the home or dies. The lender does not take title to the
home when the borrower dies, but the heirs must pay off the loan. The debt is
usually repaid by refinancing the loan into a forward mortgage (if the heirs are
eligible) or by using the proceeds from the sale of the home.
The Company has established ongoing correspondent relationships with
selected mortgage funding organizations such as Federal National Mortgage
Association (Fannie Mae), Federal Housing Administration and several
non-governmental lenders which have established reverse mortgage funding
programs. These organizations buy reverse mortgages which meet their individual
and agency or government underwriting requirements. The Company receives a fee
upon funding which is generally 2% of the appraised value of the subject
property.
LOAN OFFICE NETWORK. The Company originates mortgage loans through its
network of 15 retail loan offices. As of September 15, 1999 the following are
the locations of the loan origination offices maintained by America's Senior,
Dow, Capital Funding, and Jupiter.
America's Senior:
-----------------
Addresses: 15544 NW 77th Court; Miami Lakes FL 33016
911 East 86th Street, Suite #30, Indianapolis IN 46240
5250 77 Center Drive-#350; Charlotte NC 28217
DOW:
----
Addresses: 9501 NE 2nd Ave; Miami Shores FL 33138
One SW 29 Ave; Suite 207; Pembroke Pines FL 33027
Jupiter:
--------
Addresses: 1070 E. Indiantown Road; Jupiter FL 33477
11398 Okeechobee Boulevard, Suite 2,
Royal Palm Beach, FL 33411
29 E. Osceola Street, Stuart, Florida 34994
628 N.W. Avenue "L", #2, Belle, Glade,
FL 33430
15
<PAGE> 16
Capital Funding:
----------------
Addresses: 1000 South Federal Highway; Stuart FL 34994
729 SE Federal Highway; Stuart FL 34994
2014 SE Port St. Lucie Blvd.; Port St. Lucie FL 34952
1874 SE Port St. Lucie Blvd.; Port St. Lucie FL 34952
1380 E. Vine St.; Kissimmee FL 34744
22 W. Monument Ave.; Kissimmee FL 34741
The Company's loan officers at its 15 retail loan offices assist the
applicant in explaining the various mortgage loan programs available, completing
the loan application, arranging for appraisals, credit reports,
pre-underwriting, quality control, fraud prevention, state and federal
compliance issues, and various other tasks in connection with the proper
preparation of a loan package. The loan package is then forwarded to the
Company's funding sources for compliance review and loan approval. If the loan
package is approved, the loan can be closed and funded and the Company receives
its fees, which are based upon a percentage on the amount of the loan and/or
interest rates.
Generally, the Company acts only to originate mortgage loans which are
funded by third party financing sources. While the Company has credit
arrangements to fund loans with its own funds, these are used in a very limited
manner, and loans funded with these facilities are generally not held longer
than 90 days. Accordingly, the risks of collection, delinquencies and
foreclosures are very limited.
MARKETING AND ADVERTISING
As an independent mortgage originator, the Company seeks to identify
persons who are seeking mortgage loan funding. Currently, the Company advertises
in local and regional newspapers, yellow page telephone directories, internet
websites, direct mail and cable television. The Company markets through national
Trade Association participation, senior oriented direct mail, participation in
senior events, free video tapes given to potential clients, state level trade
shows, and HUD/Fannie Mae focus group activities.
For the fiscal year ended December 31, 1998, the Company expended
approximately $175,000 for sales and marketing activities. In 1999 the Company
is seeking to expand its marketing activities to consistently include nationwide
advertising of its Reverse Mortgage effort, and expects to invest more than
$250,000 in marketing and advertising costs.
FUNDING SOURCES
The Company has established ongoing correspondent relationships with
selected mortgage funding organizations such as Federal National Mortgage
Association (Fannie Mae), the FHLMC (Freddie Mac), the Federal Housing
Administration (FHA), the Veteran's Administration (VA), and certain conforming
and non-conforming non-governmental wholesale lenders.
The Company generally functions as a concurrent lender ('table
funding'), and has pre-sold its whole loans on a flow basis, prior to the
closing of the loan. This means that at the actual closing (or upon the
expiration of any applicable loan rescission period, such as would apply in the
case of a refinance) the funding organization wires the necessary monies
directly to the third party closing the loan. The funds generally do not flow in
to any of the Company's accounts. The Company then receives from the closer, the
fees due the Company.
16
<PAGE> 17
The funding organizations have no contractual obligation to fund any
mortgage loans originated by the Company. Each loan is considered for funding
based upon the underwriting standards established by the individual funding
organization, in compliance with the government (FHA, VA) or quasi-governmental
agency (FNMA, FHLMC) which will ultimately acquire the loan as part of a
mortgage backed security (MBS).
The funding organizations are all major wholesale funding sources, and
the Company represents that it only sells loans to those organizations which are
properly licensed to conduct business in the states that the Company operates
in, and that the funding organizations are generally HUD, VA, FNMA, or FHLMC
approved conduits.
EXPANSION STRATEGY
In July 1998 and January 1999, the Company acquired Dow and Capital
Funding respectively. The Company is seeking to acquire additional mortgage
originators and may also consider the acquisition of ancillary organizations
such as title companies, health care providers, and other financial service
organizations focused on the senior citizen market. During May of 1999 the
Company raised $2.5M for operating and acquisition capital and has an
additional $7.5M available per the convertible debentures previously discussed.
COMPETITION
The Company faces intense competition in the business of originating
mortgage loans. The Company's 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, technical 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
the Company's market, the business of the Company could be materially adversely
affected. Fluctuations in interest rates and general economic conditions may
also affect the Company and its competition. During periods of rising rates,
competitors that have locked in lower rates to potential borrowers may have a
competitive advantage.
The Company believes its competitive strengths include emphasizing
customer education to attract borrowers for reverse mortgages, and its ongoing
high level of customer service which causes it to retain a very high percentage
of its clients.
REGULATION
The Company's 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. The
Company's 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
17
<PAGE> 18
Act and the National Housing Act of 1934, as well as other federal and state
statutes and regulations affecting the Company's activities.
The Company is 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 on the Company, 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
At September 15, 1999, the Company employed approximately 175 persons.
The Company has satisfactory relations with its employees.
FACILITIES
All of the operations of the Company are conducted from premises leased
from independent landlords.
The following table sets forth information concerning these facilities:
America's Senior Financial Services
<TABLE>
<CAPTION>
Location Tenant Approx. Size Lease Expiration Monthly Rent
--------------- ------------ ---------------- ------------
<S> <C> <C> <C>
15544 NW 77th Court,
Miami Lakes, FL 33016 3,250 sf Aug. 2001 $3,500
911 East 86th Street, #30 1,227 sf May 2000 1,278
Indianapolis, IN 46240
5250 77 Center Dr., Suite 350 400 sf Month to Month 625
Charlotte, NC 28217
Dow Guarantee Mortgage
<CAPTION>
Location Tenant Approx. Size Lease Expiration Monthly Rent
--------------- ------------ ---------------- ------------
<S> <C> <C> <C>
9501 NE 2nd Ave.
Miami Shores, FL 33138 5,500 sf Dec. 2001 $6,000
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
<S> <C> <C> <C>
One SW 129th Ave., Suite 207 1,420 sf Dec. 1999 2,012
Pembroke Pines, Florida
Capital Funding of South Florida
<CAPTION>
Location Tenant Approx. Size Lease Expiration Monthly Rent
--------------- ------------ ---------------- ------------
<S> <C> <C> <C>
1380 E. Vine St. 580 sf April 2000 $800
Kissimmee, FL 34744
1674 S.E. Port St. Lucie Blvd. 1,800 sf Feb. 2003 1,886
Port St. Lucie, FL 34952
2014 S.E. Port St. Lucie Blvd.
Port St. Lucie, FL 34952 850 sf Feb. 2000 780
729 SE Federal Hwy., Suite 100 550 sf Month to Month 2,000
Stuart, FL 34994
22 W. Monument Ave. 450 sf Jan. 2000 800
Kissimmee, FL 34741
100 S. Federal Hwy. 500 sf Month to Month 1,000
Stuart, FL 34994
</TABLE>
JUPITER MORTGAGE CORPORATION
<TABLE>
<CAPTION>
Location Tenant Approx. Size Lease Expiration Monthly Rent
--------------- ------------ ---------------- ------------
<S> <C> <C> <C>
1070 E Indiantown Road 5,500 sf Nov. 2004 $5,750
Jupiter, FL 33477
11398 Okeechobee Blvd., Suite 2 1,500 sf Oct. 2000 1,800
Royal Palm Beach, FL 33411
29 E. Osceola St. 1,000 sf June 2001 980
Stuart, FL 34994
628 N.W. Avenue "L", #2 700 sf Month to Month 750
Belle Glade, FL 33430
</TABLE>
Leases may provide for rent escalations tied to increases in operating
expenses or fluctuations in the consumer price index.
MANAGEMENT
The directors and executive officers of the Company are:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Nelson A. Locke 48 Chairman of the Board,
President and Treasurer.
Cheryl D. Locke 43 Executive Vice President-
Personnel, Director.
Audit Committee.
Elly Shea 56 Senior Vice President, Production.
Thomas G. Sherman, Esq. 45 Director.
Compensation Committee.
Michael J. Shelley 37 Director.
Compensation and Audit Committees.
Charles M. Kluck 48 Director-President of Dow.
Nelson A. Locke and Cheryl D. Locke are married.
</TABLE>
19
<PAGE> 20
Nelson A. Locke founded the Company in 1990 and has served as its
President and Director since that time. He is the architect of the Company's
business model. He is the past President of the Florida Association of Mortgage
Brokers - Miami Chapter and has earned the NAMB's certified residential mortgage
lender designation. In 1997 he was named FAMB's 'Broker of the Year', and in
1998 was awarded the prestigious FAMB 'President's Award' for his public
relations efforts on behalf of the Florida Mortgage Brokerage Industry. He is a
founder and director of the National Reverse Mortgage Lenders Association. Mr.
Locke is a Marine Corps. veteran (non commissioned officer) and holds a B.A.
from California State University.
Cheryl D. Locke is the Company's Executive Vice President. She is a
member of the Board of Directors, and serves on the Company's audit committee.
She is directly responsible for the HR function, supervising the Company's
personnel department and reviewing AMSE's compliance with state and federal
employment issues. 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 EVP and elected to the Company's Board of Directors.
Elly Shea has been an advocate of Reverse Mortgages since their
inception. Working in the industry for over 10 years, she has participated in RM
product development and marketing. From 1994 to 1998, she was Southeast
Correspondent Manager for TransAmerica HomeFirst. She understands the special
needs of senior citizens, and has worked diligently to help bring ethical
products to Florida seniors. She has been Senior Vice President-Production of
the Company since August 1998.
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. 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.
Michael J. Shelley has been President and CEO of MJS Financial, Inc.
since 1993. From 1991 to 1993 he was senior sales representative for Siemens
Automotive. Mr. Shelley is a Phi Beta Kappa graduate of the University of
Illinois with a B.A. in Economics and also has a Master of Science degree from
the University of Illinois in Finance. He became a director in January 1998.
Charles M. Kluck has been the President of Dow Guarantee Corp. since
its founding in 1985. Dow was acquired by the Company on July 31, 1998. He
continues to serve in that capacity. He became an director in July 1998.
BOARD COMMITTEES
The Board of Directors has established an Audit Committee and a
Compensation Committee. The Audit Committee, consisting of Cheryl Locke and
Michael Shelley, reviews the adequacy of internal controls and results and scope
of the audit and other services provided by the Company's independent auditors.
The Compensation Committee, consisting of Thomas Sherman and Michael Shelley,
establishes and recommends salaries, incentives and other forms of compensation
for officers and other key employees.
20
<PAGE> 21
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. No
executive officer of the Company received compensation of $100,000 or more
during any such year.
<TABLE>
<CAPTION>
Other Annual
Principal Position Year Salary Bonus Compensation
------------------ ---- ------ ----- ------------
<S> <C> <C> <C> <C>
Nelson A. Locke 1998 $70,000 -0- $5,000
President 1997 $50,000 -0- -0-
1996 $30,000 -0- -0-
</TABLE>
DIRECTOR COMPENSATION No fees are paid for director services.
EXECUTIVE EMPLOYMENT AGREEMENTS
In July 1998 the Company entered into a five (5) year employment
agreement with Nelson A. Locke. Mr. Locke is employed as President and Chairman
at an annual salary of $70,000 and such additional compensation as he
determines. The agreement provides certain health, life and disability
insurance, and autos to Mr. Locke. The Agreement provides for the establishment
of an "Executive Performance Bonus Pool" described below. The agreement provides
that in any calendar year when the Company's stock price increases 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 as this event would have been harmful to future business
and investor prospects.
In January 1998 the Company entered into a five (5) year employment
agreement with Cheryl D. Locke. Mrs. Locke is employed as Executive Vice
President, Secretary and Director at an annual salary of $50,000. The agreement
provides certain health, life and disability insurance, an auto to Mrs. Locke,
special performance bonus of up to $25,000 to be paid at the discretion of the
President. She is entitled to commission on loan originations for which she was
submitting loan officer. The agreement provides that in any calendar year when
the Company's loan origination's increase by at least 20%, that she shall be
eligible for stock options equal to 5% of her total common stock holdings at the
end of the calendar year which may be exercised at $1.00 per share and may be
paid for by interest-free promissory note. Mrs. Locke waived these options for
1998 as this event would have been harmful to future business and investor
prospects.
In July 1998 the Company's subsidiary, Dow Guaranty Corp., entered into
an employment agreement with Charles M. Kluck for a term of five years, under
which Mr. Kluck will be paid an annual salary of $110,000.
21
<PAGE> 22
In July 1998 the Company's subsidiary, Dow Guarantee Corp., entered
into an employment agreement with Linda C. Kluck for a term of five years, under
which Ms. Kluck will be paid an annual salary of $70,000.
In August 1998 the Company entered into an employment agreement with
Elly Shea for a term of three years, under which Mrs. Shea will be paid an
annual salary of $65,000, an auto, certain health and life insurance, and
certain other performance bonuses which may be in the form of cash compensation
or stock.
In January 1999 the Company's subsidiary, Capital Funding of South
Florida, Inc., entered into an employment agreement with George Pollis for a
term of five years, under which Mr. Pollis will be paid an annual salary of
$50,000, plus commissions on his personal sales.
In January 1999 the Company's subsidiary, Capital Funding of South
Florida, Inc., entered into an employment agreement with Michael Pollis for a
term of five years, under which Mr. Pollis will be paid an annual salary of
$50,000, plus commissions on his personal sales.
EXECUTIVE PERFORMANCE BONUS POOL
The Company's employment agreement with its President, Nelson A. Locke, provides
that ten percent (10%) of the Company's pre-tax net income for 1998 through 2002
in excess of the pre-tax net income for December 31, 1997 shall be contributed
to an annual bonus pool for the benefit of the President and other key employees
of the Company. The allocation of any bonus among the President and other key
employees is made by the Compensation Committee.
No bonus was allocated for 1998.
STOCK OPTION PLANS.
INCENTIVE STOCK OPTION PLAN
The Company's Board of Directors and Shareholders have adopted two
stock option plans. Pursuant to the Incentive Stock Option Plan (the "ISO
Plan"), options to acquire a maximum of 2,500,000 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 a Stock Option Committee consisting of two
or more 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
22
<PAGE> 23
ten (10) years and are not transferable except by will or the laws of descent
and distribution. No Incentive Stock Options under the Plan may be granted to an
individual owning more than ten percent (10%) of the total combined voting power
of all classes of stock issued by the Company unless the purchase price of the
common stock under such option is at least one hundred ten percent (110%) of the
Fair Market Value of the shares issuable on exercise of the option at the date
of grant and such option is not exercisable more than five (5) years from the
date of grant.
Generally, options granted under the Plan terminate upon the grantee's
employment or affiliation with the Company, but the Committee may authorize an
expiration date of up to ninety (90) days following such termination. If
termination was due to death or disability, the options expire one (1) year
after such termination or the termination date set forth in the option,
whichever is earlier. If termination is due to retirement the option expires
ninety (90) days after termination or the termination date set forth in the
option, whichever is earlier.
If the Change of Control takes place, the Board may vote to immediately
terminate all outstanding options or may vote to accelerate the expiration of
options to the tenth day after the effective date of the Change of Control. If
the Board votes to immediately terminate the options, it shall make a cash
payment to the grantees equal to the difference between the exercise price and
the Fair Market Value of the shares that would have been subject to the
terminated option on the date of the Change of Control. A Change of Control of
the Company is generally deemed to occur when any person becomes the beneficial
owner of or acquires voting control with respect forty percent (40%) or more of
the total voting shares of the Company, the Company is merged into any other
company, or substantially all of its assets are acquired by another company, or
three or more directors nominated by the Board to serve as a director, each
having agreed to serve in such capacity, failed to be elected in a contested
election of directors.
Incentive Stock Options granted under the Plan are subject to the
restriction of the aggregate Fair Market Value as of the date of grant of
options which first become exercisable in any calendar year cannot exceed
$100,000.
The Plan provides for appropriate adjustments in the number and type of
shares covered by the Plan and options granted thereunder in the event of any
reorganization, merger, recapitalization or certain other transactions involving
the Company.
Until the closing of an underwritten public offering by the Company,
pursuant to a registration statement filed and declared effective under the
Securities Act of 1933 covering offer and sale of the Company's common stock for
the account of the Company, the Company has the right of first refusal to
acquire any shares which were acquired pursuant to the exercise of options under
the Plan at the Fair Market Value on the date of the shareholder's notice to the
Company and the Company shall have the right to repurchase any option shares
following holder's termination of service or affiliation with the Company for
any reason at the original exercise price of the option.
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.
23
<PAGE> 24
Non-qualified stock options may be at any price designated by the
Committee on the date of grant. Options granted under the Plan may have maximum
terms of not more than ten (10) years and are not transferable except by will or
the laws of descent in distribution.
Generally, options granted under the Plan terminate thirty (30) days
after termination of the grantee's employment or affiliation with the Company.
If termination was due to death or disability, the options expire one (1) year
after such termination or the termination date set forth in the option,
whichever is earlier.
Any conditions or restrictions on exercise lapse on a Change of Control
unless otherwise set forth in the Option Agreement.
The Plan is administered by a Stock Option Committee consisting of two
or more non-employee directors or in the absence of such a committee, the Board
of Directors.
The Plan provides for appropriate adjustments in the number and type of
shares covered by the Plan and options granted 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, 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.
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.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
A shareholder, Louis Weltman of Vistra Growth Partners, Inc. provides
investment banking services to the Company. In 1998 such shareholder was paid
fees of $60,000 and 66,667 shares of the Company's common stock for services in
connection with the Company's acquisition of Dow. In 1999 he was paid $74,000,
issued 170,600 shares of common stock and a warrant to purchase 228,888 shares
of common stock in connection with the sale of our 3% Convertible Debentures.
Also in 1999 he was paid $90,000 in connection with the acquisition of Jupiter.
The Company's President borrowed $22,500 from the Company in December
1998, which was repaid in January 1999 with interest at 5%.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of September 8, 1999, the beneficial
ownership of the Company's 7,308,181 outstanding shares of Common Stock by (1)
the only persons who own of record or are known
24
<PAGE> 25
to own, beneficially, more than 5% of the Company's Common Stock; (2) each
director and executive officer of the Company; and (3) all directors and
officers as a group.
<TABLE>
<CAPTION>
Number of
Name Shares Percent(1)
---- --------- ----------
<S> <C> <C>
Nelson A. Locke(2) 2,650,000 36.3%
Cheryl D. Locke(2) 2,650,000 36.3%
Charles M. Kluck(3) 550,000 7.5%
Elly Shea 31,000 .4%
Thomas G. Sherman, Esq. 107,500 1.5%
Michael J. Shelley 107,500 1.5%
Louis Weltman(4) 487,267 6.7%
All officers and directors
as a group (6 persons) 3,446,000 47.2%
</TABLE>
--------------------------
(1) Based upon 7,308,181 shares outstanding as of September 8, 1999.
(2) Nelson A. Locke and Cheryl D. Locke own such shares as joint
tenants.
(3) Includes 200,000 owned by his sister, Linda Kluck.
(4) Represents shares owned by Vistra, Quickseed Fund, LLC and Mr.
Weltman. Mr. Weltman also has 228,888 additional shares available
via the exercise of certain stock purchase warrants. Mr. Weltman
has signed an irrevocable seven year proxy assigning all voting
rights associated with these shares, and all future shares to be
earned, to Mr. Nelson A. Locke.
DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized to issue 25,000,000 shares of Common Stock,
$.001 par value. The holders of Common Stock are entitled to one vote for each
share held of record on all matters to be voted on by stockholders. There is no
cumulative voting with respect to the election of directors, with the result
that the holders of more than 50% of the shares voting for the election of
directors can elect all of the directors then up for election. The holders of
Common Stock are entitled to receive dividends when, as and if declared by the
Board of Directors out of funds legally available therefor. In the event of
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining which are available
for distribution to them after payment of liabilities and after provision has
been made for each class of stock, if any, having preference over the Common
Stock. Holders of shares of Common Stock, as such, have no conversion,
preemptive or other subscription rights, and there are no redemption provisions
applicable to the Common Stock. All of the outstanding shares of Common Stock
are fully paid and nonassessable.
25
<PAGE> 26
PREFERRED STOCK
The Company is authorized to issue 10,000,000 shares of Preferred Stock
with rights, preferences and limitations to be determined by the Board of
Directors. As of the date hereof, no shares of Preferred Stock have been issued.
INDEMNIFICATION
The Florida Business Corporation Act provides that a person who is
successful on the merits or otherwise in defense of an action because of service
as an officer or director or a corporation, such person is entitled to
indemnification of expenses actually and reasonably incurred in such defense.
F.S. 607.0850(3).
Such Act also provides that the corporation may indemnify an officer or
director, advance expenses, if such person acted in good faith and in a manner
the person reasonably believed to be in, or not opposed to, the best interests
of the corporation and, with respect to a criminal action, had no reasonable
cause to believe his conduct was unlawful. F.S. 607.0850(1)(2).
A court may order indemnification of an officer or director if it
determines that such person is fairly and reasonably entitled to such
indemnification in view of all the relevant circumstances. F.S. 607.0850(9).
INDEMNIFICATION AGAINST PUBLIC POLICY
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or person controlling the
company, the company has been informed that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is therefore unenforceable.
PLAN OF DISTRIBUTION/SELLING SECURITY HOLDERS
Plan of distribution
The shares offered hereby may be sold from time to time directly by the
selling security holders. Alternatively, these selling security holders may from
time to time offer the shares through underwriters, dealers or agents. The
distribution of the shares by the selling security holders may be effected in
one or more transactions that may take place on the over-the-counter market,
including:
o ordinary broker's transactions,
o privately-negotiated transactions or
o through sales to one or more broker-dealers for resale, at market
prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
Customary or specifically negotiated brokerage fees or commissions may
be paid by the selling security holders in connection with such sales of shares.
The shares offered by the selling security holders may be sold by one or more of
the following methods, without limitations:
26
<PAGE> 27
o a block trade in which a broker or dealer so engaged will attempt to
sell the shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
o purchases by a broker or dealer as principal and resale by such broker
or dealer for its account pursuant to this Prospectus;
o ordinary brokerage transactions and transactions in which the broker
solicits purchasers, and
o face-to-face transactions between sellers and purchasers without a
broker-dealer.
In effecting sales, brokers or dealers engaged by the selling security
holders may arrange for other brokers or dealers to participate. The selling
security holders and intermediaries through whom such shares are sold may be
deemed "underwriters" within the meaning of the Securities Act of 1933 with
respect to the shares offered, and any profits realized or commissions received
may be deemed underwriting compensation.
At the time a particular offer of shares is made by or on behalf of a
selling security holder, to the extent required, a prospectus will be
distributed which will set forth the number of shares being offered and the
terms of the offering, including the name or names of any underwriters, dealers
or agents, if any, the purchase price paid by any underwriter for shares
purchased from the selling security holder and any discounts, commissions or
concessions allowed or reallowed or paid to dealers and the proposed selling
price to the public.
The following security holder may offer shares of common stock issuable
upon conversion of debentures and exercise of warrants.
Except as indicated below, none of the selling security holders having
any affiliation with the Company other than as security holders:
27
<PAGE> 28
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF SHARES NUMBER OF
SHARES AND WHICH MAY BE SHARES TO BE
WARRANTS OFFERED PURSUANT TO OWNED AFTER THE
NAME OWNED(1) THIS PROSPECTUS(2) OFFERING*
- ---- ------ ------------------ -----------
<S> <C> <C> <C>
Fennell Avenue, L.L.C. 34,483 918,865 -0-
warrants
</TABLE>
The following security holders may sell shares of common stock now owned and to
be owned upon exercise of stock purchase warrants:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF SHARES NUMBER OF
SHARES AND WHICH MAY BE SHARES TO BE
WARRANTS OFFERED PURSUANT TO OWNED AFTER THE
NAME OWNED THIS PROSPECTUS OFFERING*
- ---- ------ ------------------ -----------
<S> <C> <C> <C>
Louis Weltman (a) 716,155 416,729 299,426
Caldwell Capital Corp. 15,556 15,556 -0-
Meridian Capital, Inc. 2,593 2,593 -0-
Speight and Associates, Inc. 2,592 2,592 -0-
</TABLE>
- ------------------
(a) Mr. Weltman is principal of Vistra Growth Partners, Inc. which provides
investment banking services to the Company pursuant to an agreement.
* Assuming all shares are sold.
- ------------------
(1) Does not include shares issuable upon conversion of the debenture by
the selling security holder. Because the number of shares of common
stock issuable upon debenture conversion is dependent upon the market
price of the common stock prior to each conversion, the actual number
of shares of common stock that will be issued in respect of such
conversion cannot be determined at this time.
(2) Includes shares issuable upon debenture conversion and debenture
interest as well as the exercise of warrants. Because the number of
shares of common stock issuable upon debenture conversion is dependent
upon the market price at the time of debenture conversion, the actual
number of shares of common stock that will be issued in respect of such
debenture conversion and, consequently, offered for sale under this
Prospectus, cannot be determined at this time. In order to provide a
cushion for any fluctuations in the market price of the common stock,
the Company has contractually agreed to include herein 200% of the
number of shares as would be issuable upon conversion of the debentures
as of the date hereof.
28
<PAGE> 29
REGULATION M
We have informed the selling security holders that Regulation M
promulgated under the Securities Exchange Act may be applicable to them with
respect to any purchase or sale of our common stock. In general, Rule 102 under
Regulation M prohibits any person connected with a distribution of our common
stock from directly or indirectly bidding for, or purchasing for any account in
which it has a beneficial interest, any of our common stock or any right to
purchase our common stock for a period of one business day before and after
completion of its participation in the distribution.
During any distribution period, Regulation M prohibits the selling
security holders and any other persons engaged in the distribution from engaging
in any stabilizing bid or purchasing our common stock except for the purpose of
preventing or retarding a decline in the open market price of our common stock.
No person may effect any stabilizing transaction to facilitate any offering at
the market.
The selling security holders may be entitled, under agreements entered
in to with us, to indemnification against liabilities under the Securities Act,
the Securities Exchange Act and otherwise.
LEGAL MATTERS
The validity of the shares offered hereby is being passed upon for the
Company by Joel Bernstein Esq., P.A., Miami, Florida.
EXPERTS
The consolidated financial statements of America's Senior Financial
Services, Inc. and subsidiary as of and for the years ended December 31, 1998
and 1997, the financial statements of Dow Guarantee Corp. as of and for the
years ended December 31, 1998 and 1997, and the financial statements of Capital
Funding of South Florida, Inc. as of and for the year ended December 31, 1998,
which are included in this prospectus and incorporated by reference in the
Registration Statement, have been audited by Ahearn, Jasco + Company, P.A.,
independent auditors, as stated in their reports appearing herein and
incorporated by reference in the Registration Statement, and are included and
incorporated by reference in reliance upon the reports of such firm given upon
their authority as experts in accounting and auditing.
The consolidated financial statements of Jupiter Mortgage Corporation
as of and for the years ended December 31, 1998 and 1997,which are included in
this prospectus and incorporated by reference in the Registration Statement,
have been audited by Wisneski, Blakiston & Leslie, P.A., independent auditors,
as stated in their reports appearing herein and incorporated by reference in the
Registration Statement, and are included and incorporated by reference in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
registration statement on Form SB-2 under the Securities Act with respect to the
securities being offered. This prospectus, filed as a part of the registration
statement, does not contain certain information contained in or annexed as
exhibits to the registration statements. Reference is made to exhibits to the
registration statement for the complete text. For further information with
respect to the Company and the securities hereby offered, reference is made to
the registration statement and to the exhibits filed as part of it, which may be
inspected and copied at the public reference facilities of the commission in
Washington D.C., and at the Commission's regional offices at
o 500 West Madison Street, Chicago, IL 60604;
o 7 World Trade Center, New York, NY 10048;
o and 5757 Wilshire Boulevard, Los Angeles, CA 90034;
o and copies of such material can be obtained from the Public Reference
Section of the Commission, 450 5th Street, N.W., Washington, D.C. 20549,
at prescribed rates and are available on the World Wide Web
at: http://www.sec.gov.
29
<PAGE> 30
<TABLE>
<S> <C>
Index to Financial Statements
America's Senior Financial Services, Inc.
1998 Audited Financial Statements ......................................... F-1
Dow Guarantee Corporation
1998 Audited Financial Statements ......................................... F-18
Capital Funding of South Florida
1998 Audited Financial Statements ......................................... F-29
Jupiter Mortgage Corporation
1998 Audited Financial Statements ......................................... F-39
America's Senior Financial Services, Inc.
Unaudited Financial Statements for the six months ended June 30, 1999
Consolidated Balance Sheets ............................................... F-47
Statements of Operations .................................................. F-48
Statements of Cash Flows .................................................. F-49
Statement of Changes in Stockholders' Equity .............................. F-50
Notes to the six months ended financial statements ........................ F-51
Pro forma Financial Information
Balance Sheets at December 31, 1998 ....................................... F-53
Statements of Operations at December 31, 1998 ............................. F-54
Balance Sheets at June 30, 1999 ........................................... F-55
Statements of Operations at June 30, 1999 ................................. F-56
</TABLE>
<PAGE> 31
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND
INDEPENDENT AUDITORS' REPORT
F-1
<PAGE> 32
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
AND SUBSIDIARY
TABLE OF CONTENTS
PAGE
----
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statement of Changes in Stockholders' Equity 4
Consolidated Statements of Cash Flows 5-6
NOTES TO FINANCIAL STATEMENTS 7-15
F-2
<PAGE> 33
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 subsidiary (collectively, the "Company") as
of December 31, 1998 and 1997, and the related consolidated statements of
operations, changes in stockholders' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of America's Senior
Financial Services, Inc. and subsidiary as of December 31, 1998 and 1997, and
the consolidated results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
/s/ Ahearn, Jasco + Company, P.A.
------------------------------------------
AHEARN, JASCO + COMPANY, P.A.
Certified Public Accountants
Pompano Beach, Florida
February 26, 1999, except for Note 10,
for which the date is March 26, 1999
F-3
<PAGE> 34
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 195,728 $ 86,376
Brokerage fees receivable 49,853 5,495
Employee advances 70,528 --
Due from shareholder 22,618 --
Prepaid expenses 46,699 --
---------- --------
TOTAL CURRENT ASSETS 385,426 91,871
PROPERTY AND EQUIPMENT, net 254,783 61,418
GOODWILL, net 3,348,215 --
OTHER ASSETS 319,940 27,770
---------- --------
TOTAL $4,308,364 $181,059
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 5,798 $ 10,754
Accounts payable 173,904 17,126
Accrued compensation and related taxes 49,054 17,640
---------- --------
TOTAL CURRENT LIABILITIES 228,756 45,520
---------- --------
LONG-TERM DEBT, less current portion 13,287 19,702
---------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $0.001 par value; 25,000,000 shares
authorized, shares issued and outstanding, 5,898,867
in 1998 and 4,367,000 in 1997 5,899 4,367
Additional paid-in capital 4,584,932 169,647
Retained earnings (deficit) (457,443) (58,177)
Unearned compensation - restricted stock (67,067) --
---------- --------
TOTAL STOCKHOLDERS' EQUITY 4,066,321 115,837
---------- --------
TOTAL $4,308,364 $181,059
========== ========
</TABLE>
See notes to financial statements.
F-4
<PAGE> 35
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARY
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
REVENUES $1,797,632 $ 541,546
---------- ----------
EXPENSES:
Payroll and related expenses 1,335,488 307,690
Administrative, processing, and occupancy 722,828 301,106
Employee recruitment 50,333 --
Goodwill amortization 71,239 --
---------- ----------
TOTAL EXPENSES 2,179,888 608,796
---------- ----------
LOSS FROM OPERATIONS (382,256) (67,250)
---------- ----------
OTHER EXPENSES:
Acquisition costs 14,969 --
Interest expense 2,041 4,906
---------- ----------
TOTAL OTHER EXPENSES 17,010 4,906
---------- ----------
LOSS BEFORE INCOME TAXES (399,266) (72,156)
PROVISION FOR INCOME TAXES -- --
---------- ----------
NET LOSS $ (399,266) $ (72,156)
========== ==========
EARNINGS (LOSS) PER SHARE:
Basic $ (0.082) $ (0.025)
========== ==========
Diluted $ (0.082) $ (0.025)
========== ==========
Weighted average common shares outstanding 4,849,247 2,854,400
========== ==========
</TABLE>
See notes to financial statements.
F-5
<PAGE> 36
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARY
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
COMMON Common Additional Retained Total
STOCK Stock, at Paid-in Restricted Earnings Stockholders'
# OF SHARES par value Capital Stock (Deficit) Equity
----------- --------- ----------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
STOCKHOLDERS' EQUITY, January 1, 1997 2,650,000 $2,650 $ 15,620 $ -- $ 120,126 $ 138,396
S corporation distributions -- -- -- -- (29,032) (29,032)
Issuances of common stock 1,117,000 1,117 1,650 -- -- 2,767
Record distribution payable and other
adjustments upon S corporation termination -- -- 59,580 -- (77,115) (17,535)
Private placement offering 600,000 600 92,797 -- -- 93,397
Net loss for the year ended
December 31, 1997 -- -- -- -- (72,156) (72,156)
--------- ------ ---------- ----------- --------- ----------
STOCKHOLDERS' EQUITY, December 31, 1997 4,367,000 4,367 169,647 -- (58,177) 115,837
Stock issued pursuant to the Dow acquisition 616,667 617 3,436,883 -- -- 3,437,500
Restricted stock issued to employees 74,400 74 74,326 (74,400) -- --
Recognition of restricted stock earned -- -- -- 7,333 -- 7,333
Issuances of common stock for cash, net
of expenses 840,800 841 904,076 -- -- 904,917
Net loss for the year ended
December 31, 1998 -- -- -- -- (399,266) (399,266)
--------- ------ ---------- --------- --------- ----------
STOCKHOLDERS' EQUITY, December 31, 1998 5,898,867 $5,899 $4,584,932 $ (67,067) $(457,443) $4,066,321
========= ====== ========== ========= ========= ==========
</TABLE>
See notes to financial statements.
F-6
<PAGE> 37
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(399,266) $(72,156)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 106,195 21,259
Recognition of restricted stock earned 7,333 --
Changes in certain assets and liabilities, net of amounts
from an acquisition:
Brokerage fee receivable 6,429 74,343
Employee advances 28,544 --
Prepaid expenses and other (46,464) 12,538
Accounts payable, accrued compensation and related taxes 14,046 10,806
--------- --------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (283,183) 46,790
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (205,302) (18,538)
Acquisition expenditures, net of cash acquired (294,395) --
Changes in other assets 21,304 --
--------- --------
NET CASH USED IN INVESTING ACTIVITIES (478,393) (18,538)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net 904,917 96,164
Change in long-term debt (11,371) (12,130)
S corporation distributions -- (46,567)
Loan to shareholder (22,618) --
--------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 870,928 37,467
--------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 109,352 65,719
CASH AND CASH EQUIVALENTS, Beginning of year 86,376 20,657
--------- --------
CASH AND CASH EQUIVALENTS, End of year $ 195,728 $ 86,376
========= ========
</TABLE>
See notes to financial statements.
F-7
<PAGE> 38
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(continued)
<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid in cash during the period $ 18,135 $ 4,906
========= ========
Income taxes paid in cash during the period $ -- $ --
========= ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
On July 31, 1998, the Company recorded net tangible assets of $189,157 and goodwill of $3,419,454
in connection with the Dow acquisition (see Note 9). During 1998, the Company issued restricted
stock to employees valued at $74,400.
</TABLE>
See notes to financial statements.
F-8
<PAGE> 39
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
America's Senior Financial Services, Inc. ("AMSE") was
incorporated on February 26, 1990 and does business as Value Financial -
Senior Funding. On July 31, 1998, AMSE acquired Dow Guarantee Corp.
("Dow"). AMSE and its subsidiary Dow (collectively referred to as "the
Company"), are licensed mortgage lenders in the State of Florida. The
Company is engaged in originating, processing, and concurrently funding
mortgage loan applications. 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. All significant
intercompany balances and transactions are eliminated in consolidation.
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 derives its revenues primarily from mortgage
application fees paid by potential borrowers and from brokerage and
processing fees 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.
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.
Useful lives for most assets range from five to seven years. Expenditures
for routine maintenance and repairs are charged to expense as incurred.
INTANGIBLE ASSETS
The excess of investment cost over the fair value of net assets
acquired (goodwill) is being amortized over a period of 20 years. The
goodwill arose from the Dow acquisition. Amortization of goodwill in the
amount of $71,239 was charged to operations in 1998.
ADVERTISING
The costs of advertising, promotion, and marketing programs are
charged to operations in the year incurred. Advertising expense was
$155,132 and $46,586 for the years ended December 31, 1998 and 1997,
respectively.
INCOME TAXES
Through November 2, 1997, AMSE, with the consent of its
shareholders, had elected under provisions of the Internal Revenue Code
to be an S corporation. In lieu of corporation income taxes, the
shareholders of an S corporation are taxed on their proportionate share
of taxable income. Therefore, no provision or liability for income is
included in the accompanying financial statements for results of
operations through November 2, 1997. Effective that date, this election
was terminated when AMSE issued common stock to a corporation. This S
corporation status termination results in AMSE directly paying taxes on
its earnings.
F-9
<PAGE> 40
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
INCOME TAXES (continued)
Effective November 3, 1997, the Company accounts for its income
taxes in accordance with Financial Accounting Standards Board Statement
No. 109, "Accounting for Income Taxes." Deferred tax liabilities and
assets are recognized for the expected future tax consequences of events
that have been included in the financial statements or tax returns. Under
this method, deferred tax liabilities and assets are determined based on
the difference between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse.
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 income
available to common 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.
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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, receivables, and accounts payable and accrued expenses are
reflected in the financial statements at fair value because of the
short-term maturity of those instruments. The fair values of the
Company's debt obligations, as disclosed in Note 3, are the same as the
recorded amounts because rates and terms approximate current market
conditions.
RECLASSIFICATIONS
Certain amounts in the 1997 financial statements have been
reclassified to conform to the 1998 presentation.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS 130 and 131 are effective for
fiscal years beginning after December 15, 1997. The Company adopted these
standards in 1998, and such adoption did not have any impact on the
Company's results of operations or financial position, as the new
standards are limited to the form and content of disclosures.
F-10
<PAGE> 41
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31,
1998 and 1997:
1998 1997
------------ ---------
Office equipment $ 31,080 $ 47,930
Furniture and fixtures 176,674 18,525
Leasehold improvements 87,022 --
Vehicles 42,586 42,586
---------- --------
Total cost 337,362 109,041
Less: Accumulated depreciation (82,579) (47,623)
---------- --------
Property and equipment, net $ 254,783 $ 61,418
========== ========
Depreciation expense for the years ended December 31, 1998 and
1997 was $34,956 and $21,259, respectively.
NOTE 3 - LONG-TERM DEBT AND CREDIT AGREEMENTS
INSTALLMENT NOTES
Long-term debt consists of installment notes for the Company's
vehicles. The terms of the notes and the balances owed as of December 31,
1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Payable in monthly installments of $549, including interest at the rate of
4.9% per annum, through January 2002, secured by a vehicle. $ 19,085 $ 24,351
Other, repaid in 1998. -- 6,105
-------- --------
Total long-term debt 19,085 30,456
Less: Current portion (5,798) (10,754)
-------- --------
Long-term debt, net of current portion $ 13,287 $ 19,702
======== ========
</TABLE>
Future maturities of long-term debt are approximately $5,800 in
1999, $6,300 in 2000, $6,500 in 2001, and $500 in 2002.
CREDIT AGREEMENTS
The Company has two credit lines with a financial institution.
The credit lines are guaranteed by a director/shareholder. The total
amount available under the agreements is $50,000. As of December 31,
1998, no amounts were outstanding.
The Company has an agreement with a financial institution to
provide a $1,000,000 mortgage warehousing facility which assists the
Company in originating and closing mortgages. The Company is liable under
the agreement only if there is a default during a mortgage closing
process. There were no amounts owed under this agreement as of December
31, 1998. Interest paid during 1998 for borrowings under this agreement
totaled $16,094 and is included in operating expenses.
F-11
<PAGE> 42
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 4 - INCOME TAXES
As discussed in Note 1, AMSE was taxed as an S corporation from
inception through November 2, 1997. Effective that date, the S
corporation status was terminated, and therefore, AMSE must directly pay
taxes on its earnings. As a result of the termination, a final S
corporation distribution of $17,535 was accrued, $59,580 of undistributed
S corporation earnings were reclassified to additional paid-in capital,
and deferred income tax assets of $240 (net of an allowance of the same
amount) were established for the tax bases of assets and liabilities that
are different than those recognized for financial reporting purposes.
A summary of income taxes for the year ended December 31, 1998
and for the period from November 3, 1997 through December 31, 1997 is as
follows:
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Currently payable:
Federal $ -- $ --
State -- --
Deferred tax benefit (112,220) (2,200)
---------- --------
Income tax benefit for the applicable period (112,220) (2,200)
Deferred tax asset established November 2, 1997 -- (240)
---------- --------
Income tax benefit, prior to allowance (112,220) (2,440)
Valuation allowance 112,220 2,440
---------- --------
Net income tax provision $ -- $ --
========== ========
</TABLE>
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, 1998 and 1997 relate to the
following:
<TABLE>
<CAPTION>
1998 1997
---------- --------
<S> <C> <C>
Allowance accounts $ -- $ 2,240
Net operating loss carryforward 111,040 200
Restricted stock awards 3,620 --
Valuation allowance (114,660) (2,440)
--------- -------
Net deferred income tax liability $ -- $ --
========= =======
</TABLE>
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 (including the goodwill amortization), the surtax
exemptions and rate brackets, 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 which 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.
F-12
<PAGE> 43
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 4 - INCOME TAXES (continued)
The Company has available tax net operating loss carryovers
("NOLs") as of December 31, 1998 of approximately $339,200. The NOLs
expire beginning in 2012. 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
already 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 limited.
NOTE 5 - RELATED PARTY TRANSACTIONS
A shareholder of AMSE provides investment banking services to
the Company. In connection with these investment banking activities, this
shareholder received fees consisting of cash of $60,000 and 66,667 shares
of restricted AMSE stock [which were issued pursuant to the Dow
acquisition (see Note 9)].
At December 31, 1998, the Company's president and majority
shareholder owed the Company $22,500 (plus accrued interest of $118)
under notes bearing interest at 5%. These notes were repaid on January
28, 1999.
NOTE 6 - STOCKHOLDERS' EQUITY
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
Subsequent to December 31, 1998, the Company amended its
Articles of Incorporation to authorize preferred stock (see Note 10).
RECAPITALIZATION AND SHARE OFFERINGS
In November 1997, the Board of Directors voted to amend the
Company's articles of incorporation to change the number of authorized
shares to 25,000,000 with a par value of $0.001. The outstanding shares
of common stock at that date were converted into 2,650,000 shares of the
new $0.001 par value stock. The shares of the Company have been restated
to January 1, 1997, as well as other share and per share amounts, as if a
stock split had occurred.
During November and December 1997, 1,117,000 shares of common
stock were issued to various accredited investors and employees. In
December 1997, 600,000 shares were issued to new investors through a
Regulation D, Rule 504 private placement offering, as well as 700,000
common stock purchase warrants. In 1998, certain accredited investors
purchased 140,800 shares for $231,500 in cash (before expenses) and
66,667 shares were issued to the Company's investment banker pursuant to
the Dow acquisition, in which 550,000 shares were issued to the sellers.
F-13
<PAGE> 44
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 6 - STOCKHOLDERS' EQUITY (continued)
RECAPITALIZATION AND SHARE OFFERINGS (continued)
Each of the 700,000 stock purchase warrants issued pursuant to
the private placement offering entitled the registered holder to purchase
one share of the Company's common stock for $1. The warrants were
exchanged in 1998 with proceeds to the Company, before expenses, of
$700,000.
The Company had also issued 133,333 stock purchase warrants to
certain accredited investors. Each of these warrants entitled the holder
to purchase one share of common stock for $1 per share. The warrants
expired February 19, 1999.
CONTINGENT STOCK ISSUANCES
In conjunction with the acquisition of Dow in July 1998 (see
Note 9), the Company agreed to an aggregate value guarantee for the
550,000 shares of the Company's common stock issued in that transaction.
If, at such time as a registration statement has been declared effective
by the U.S. Securities and Exchange Commission (the initial measurement
date) and the value of the shares at that date is not at least
$2,750,000, then the Company shall issue additional shares of its common
stock so that the total shares received by the former Dow shareholders
multiplied by the then fair market value (as defined) equals $2,750,000.
There is also an additional measurement date if an underwriter of a
public offering of the Company's stock imposes a lock-up on the stock
issued to the former Dow shareholders; this date is one year after the
expiration of the lock-up period, and the adjustment formula is similar
to the initial formula. As of February 26, 1999, no shares would be due
to the former Dow shareholders if this date were the initial measurement
date.
RESTRICTED STOCK AWARDS
During 1998, a total of 74,400 restricted shares of the
Company's common stock were granted to certain employees. The market
value of shares awarded was $74,400. This amount was recorded as unearned
compensation - restricted stock and is shown as a separate component of
stockholders' equity. Unearned compensation is being amortized to expense
over the three-year vesting period and, net of forfeitures, amounted to
$7,333 in 1998.
NASD OTC BULLETIN BOARD TRADING
The Company's common stock began public trading on the
over-the-counter market in April 1998 under the symbol AMSE.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
OFFICE LEASES
The Company leases office space in various locations as well as
certain office equipment. Future minimum lease payments subsequent to
December 31, 1998 under these operating leases are as follows: $144,377
in 1999, $137,417 in 2000, $118,062 in 2001, and $12,956 in years 2002
and 2003. Rent expense for the years ended December 31, 1998 and 1997
totaled $60,841 and $40,906, 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, 1998, management believes that
any such outstanding issues will be resolved without significantly
impairing the financial condition of the Company.
F-14
<PAGE> 45
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 8 - NET INCOME (LOSS) PER COMMON SHARE
For the year ended December 31, 1998 and 1997, basic and diluted
weighted average common shares include only common shares outstanding.
The inclusion of common share equivalents would be anti-dilutive and, as
such, they are not included.
A reconciliation of the number of common 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:
<TABLE>
<CAPTION>
1998 1997
------------- --------------
<S> <C> <C>
Common shares outstanding at December 31st 5,898,867 4,367,000
Effect of weighting (1,049,620) (1,512,600)
---------- ----------
Weighted average common shares outstanding 4,849,247 2,854,400
========== ==========
</TABLE>
The number of shares have been restated to reflect the number of
shares issued upon the 1997 amendment of the articles of incorporation,
as if a stock split had occurred (see Note 6).
NOTE 9 - ACQUISITION ACTIVITIES
DOW GUARANTEE CORP.
The acquisition of Dow was completed on July 31, 1998 and was
accounted for as a purchase. Identified tangible assets and liabilities
were recorded at their estimated fair market values and the excess of the
total cost over the net fair values of identified assets and liabilities
was recorded as goodwill. The purchase price for these assets totaled
$3,782,757, with 550,000 shares of common stock of the Company being
issued to the sellers (valued at $3,437,500), costs of $171,111
(including 66,667 shares issued to the Company's investment banker), and
assumed liabilities of $174,146. The cost of the acquisition was
allocated to tangible assets and goodwill totaling $363,303 and
$3,419,454, respectively.
CAPITAL FUNDING OF SOUTH FLORIDA, INC.
On January 29, 1999, the Company completed an acquisition of
Capital Funding of South Florida, Inc. ("CFSF"). This acquisition will be
accounted for as a purchase. Identified tangible assets and liabilities
will be recorded at their estimated fair market values and the excess of
the total cost over the net fair values of identified assets and
liabilities will be recorded as goodwill. The financial statements of the
Company will include the operating results of the acquired entity from
the date of its acquisition.
Based on preliminary information, the purchase price for these
assets was estimated at $2,172,000, with 221,664 shares of common stock
of the Company being issued to the sellers (valued at $1,552,000), cash to
the sellers of $300,000, costs of $165,000, and assumed liabilities of
approximately $155,000. The cost of the acquisition is anticipated to be
allocated to the assets as follows:
Depreciable tangible property and equipment $ 80,000
Receivables and other current assets, net 75,000
Other assets 90,000
Goodwill 1,927,000
----------
Total $2,172,000
==========
F-15
<PAGE> 46
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 9 - ACQUISITION ACTIVITIES (continued)
CAPITAL FUNDING OF SOUTH FLORIDA, INC. (continued)
The acquisition agreement with CFSF contains an aggregate value
guarantee whereby the former shareholders of CFSF may be entitled to
additional shares of the Company's common stock. If the value of the
shares issued in the transaction are not at least $6.42 per share at the
first anniversary of the transaction, the Company must issue additional
shares so that the total shares received multiplied by the then market
value (as defined) equals this guaranteed amount.
OTHER ACTIVITIES
In December 1998, the Company advanced $250,000 to a potential
acquisition target pursuant to a promissory note. The note is secured by
263,445 unrestricted and 2,148,500 restricted shares of the target's
stock, which have an aggregate value of approximately $580,000. The note
is non-interest bearing and presently has no due date. The Company also
advanced $10,000 to the target pursuant to a letter of intent to
negotiate an acquisition. These amounts are recorded as other assets on
the accompanying balance sheet at December 31, 1998.
PRO-FORMAS
The following pro forma summary presents the results of
operations as if the Dow and CFSF acquisitions had occurred at January 1,
1998, after giving effect to certain adjustments, including amortization
of goodwill. These pro forma results have been prepared for illustrative
purposes only and do not purport to be indicative of what would have
occurred had the acquisitions been made as of those dates, or results of
which may occur in the future.
<TABLE>
<CAPTION>
1998 Consolidated 1998 Consolidated
Pro forma (12 months) Pro forma (12 months)
AMSE and Dow AMSE, Dow and CFSF
--------------------- ---------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues $3,287,900 $4,720,500
Expenses 3,757,700 5,170,000
----------- ----------
Loss from operations (469,800) (449,500)
Interest expense 2,000 6,700
----------- ----------
Net loss $ (471,800) $ (442,800)
=========== ==========
</TABLE>
NOTE 10 - SUBSEQUENT EVENTS
PREFERRED STOCK
Effective March 23, 1999, the Company amended its Articles of
Incorporation to add the following provision: "THE CORPORATION IS ALSO
AUTHORIZED TO ISSUE TEN MILLION (10,000,000) SHARES OF PREFERRED STOCK
HAVING A PAR VALUE OF $.001 PER SHARE (THE `PREFERRED STOCK'). 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 RELATIVE RIGHTS, PREFERENCES AND
LIMITATIONS OF EACH SERIES, AND 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) RESTRICTIONS, IF ANY,
UPON THE PAYMENT OF DIVIDENDS ON COMMON 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."
F-16
<PAGE> 47
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 10 - SUBSEQUENT EVENTS (continued)
PREFERRED STOCK (continued)
As of March 26, 1999, no preferred stock has been issued.
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 not 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. As of March 26, 1999, no options have been issued.
The Company will account for these options following the
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation."
SFAS No. 123 establishes optional alternative accounting methods for
stock-based compensation as well as certain required disclosures. The
Company has elected to account for stock-based employee compensation
under previously existing accounting guidance. As such, SFAS No. 123 for
employee compensation will be adopted for disclosure purposes 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 received in exchange for stock or options, the
transactions will be recorded on the basis of the fair value of the
services received, or the fair value of the equity instrument issued,
whichever can be more reliably measured.
SEC REGISTRATION STATEMENT
In April 1999, the Company expects to file a Form 10-SB
registration statement with the U.S. Securities & Exchange Commission for
purposes of registering its common stock under the Securities Exchange
Act of 1934.
NOTE 11 - PRO FORMA INCOME TAXES AND EARNINGS (UNAUDITED)
As discussed in Note 1, having elected status as an S
corporation, the shareholders of AMSE paid the federal income tax on
AMSE's earnings through November 2, 1997. Additionally, AMSE was exempt
from Florida income tax on its earnings during that period since Florida
does not separately tax S corporations. As a result, no income tax
expense was provided in the historical financial statements for taxable
income through November 2, 1997.
Below is a pro forma schedule estimating the amount of income
tax benefit, and the resulting loss after taxes for the period ended
December 31, 1997, as if AMSE had not made the election to be taxed as an
S corporation.
Loss before income taxes - historical $(72,156)
Pro forma benefit for federal and state taxes 25,250
Valuation allowance for deferred tax asset (25,250)
--------
Net income (loss), after pro forma tax provision $(72,156)
========
F-17
<PAGE> 48
DOW GUARANTEE CORP.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND
INDEPENDENT AUDITORS' REPORT
F-18
<PAGE> 49
DOW GUARANTEE CORP.
TABLE OF CONTENTS
PAGE
----
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Balance Sheets 2
Statements of Operations 3
Statement of Changes in Stockholders' Equity 4
Statements of Cash Flows 5
NOTES TO FINANCIAL STATEMENTS 6-9
F-19
<PAGE> 50
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Dow Guarantee Corp.
We have audited the accompanying balance sheets of Dow Guarantee Corp. (the
"Company"), as of December 31, 1998 and 1997, and the related statements of
operations, changes in stockholders' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 financial statements referred to above present fairly, in
all material respects, the financial position of Dow Guarantee Corp. as of
December 31, 1998 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
As discussed in Note 1, on July 31, 1998, all of the outstanding shares of the
Company were acquired by America's Senior Financial Services, Inc.
/s/ Ahearn, Jasco + Company, P.A.
------------------------------------------
AHEARN, JASCO + COMPANY, P.A.
Certified Public Accountants
Pompano Beach, Florida
February 26, 1999
F-20
<PAGE> 51
DOW GUARANTEE CORP.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 90,808 $185,767
Brokerage fees receivable 27,929 54,478
Employee advances 60,778 33,120
Prepaid expenses and taxes 18,268 1,890
---------- --------
TOTAL CURRENT ASSETS 197,783 275,255
PROPERTY AND EQUIPMENT, net 116,602 39,113
GOODWILL, net 3,348,215 --
DUE FROM PARENT 24,080 --
OTHER ASSETS 10,784 9,965
---------- --------
TOTAL $3,697,464 $324,333
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 106,259 $ 126,974
Accrued compensation and related taxes 40,724 29,963
---------- --------
TOTAL CURRENT LIABILITIES 146,983 156,937
---------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par value; 1,000,000 shares
authorized, 1,000,000 shares issued and outstanding 90,462 90,462
Additional paid-in capital 3,593,149 --
Retained earnings (deficit) (133,130) 76,934
---------- --------
TOTAL STOCKHOLDERS' EQUITY 3,550,481 167,396
---------- --------
TOTAL $3,697,464 $324,333
========== ========
</TABLE>
See notes to financial statements.
F-21
<PAGE> 52
DOW GUARANTEE CORP.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
REVENUES $2,454,062 $2,599,574
---------- ----------
EXPENSES:
Payroll and related expenses 1,560,504 1,742,832
Administrative, processing, and occupancy 933,689 854,831
Goodwill amortization 71,239 --
---------- ----------
TOTAL EXPENSES 2,565,432 2,597,663
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (111,370) 1,911
PROVISION FOR INCOME TAXES -- 820
---------- ----------
NET INCOME (LOSS) $ (111,370) $ 1,091
========== ==========
</TABLE>
See notes to financial statements.
F-22
<PAGE> 53
DOW GUARANTEE CORP.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Common Additional Retained Total
Stock Common Paid-in Earnings Stockholders'
# of Shares Stock Capital (Deficit) Equity
-------------- ------------- -------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
STOCKHOLDERS' EQUITY,
January 1, 1997 1,000,000 $ 90,462 $ -- $ 75,843 $ 166,305
Net income for the year ended
December 31, 1997 -- -- -- 1,091 1,091
--------- -------- ---------- --------- ----------
STOCKHOLDERS' EQUITY,
December 31, 1997 1,000,000 90,462 -- 76,934 167,396
Recapitalization based on a
July 31, 1998 acquisition of the
shares of the Company (Note 1)
-- -- 3,518,149 (98,694) 3,419,455
Capital contributed by parent
-- -- 75,000 -- 75,000
Net loss for the year ended
December 31, 1998
-- -- -- (111,370) (111,370)
--------- -------- ---------- --------- ----------
STOCKHOLDERS' EQUITY,
December 31, 1998 1,000,000 $ 90,462 $3,593,149 $(133,130) $3,550,481
========= ======== ========== ========= ==========
</TABLE>
See notes to financial statements.
F-23
<PAGE> 54
DOW GUARANTEE CORP.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (111,370) $ 1,091
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 97,648 25,483
Changes in certain assets and liabilities:
Brokerage fees receivable 26,549 (4,225)
Employee advances (27,658) 67,747
Prepaid expenses and taxes (16,378) (1,407)
Accounts payable, accrued compensation and other (9,954) 19,270
---------- ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (41,163) 107,959
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in other assets and due from parent (24,899) --
Acquisition of property and equipment (103,897) (9,294)
---------- ---------
NET CASH USED IN INVESTING ACTIVITIES (128,796) (9,294)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITY - Capital
contribution by parent 75,000 --
---------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (94,959) 98,665
CASH AND CASH EQUIVALENTS, Beginning of year 185,767 87,102
---------- ---------
CASH AND CASH EQUIVALENTS, End of year $ 90,808 $ 185,767
========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid in cash during the period $ 16,094 $ --
========== =========
Income taxes paid in cash during the period $ 10,000 $ 3,294
========== =========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
On July 31, 1998, the Company recorded goodwill and additional
paid-in capital and adjusted its assets and liabilities to fair value in
connection with a purchase of the Company's stock.
See notes to financial statements.
F-24
<PAGE> 55
DOW GUARANTEE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
Dow Guarantee Corp. (the "Company") was incorporated on March 20,
1985. The Company is a licensed mortgage lender in the State of Florida
and is engaged in originating, processing, and funding mortgage loan
applications.
On July 31, 1998, the shareholders of the Company exchanged all
of the issued and outstanding common stock of the Company to America's
Senior Financial Services, Inc. ("AMSE") for 550,000 shares of AMSE
common stock in a tax-free transaction. As a result, the Company became a
wholly-owned subsidiary of AMSE on that date. In accordance with
applicable accounting principles, this transaction has been recorded as a
purchase of the Company by AMSE for financial reporting purposes.
Management of AMSE has placed a value of $3,437,500 on the common stock
of AMSE issued to the shareholders of the Company. This value was
determined at a discount from the common stock's trading level during the
time the transaction was completed, as the shares are restricted as to
transfer. According to "push down" accounting rules, this transaction,
including costs incurred, is recorded on the books of the Company. As a
result, the recorded values of the assets and liabilities of the Company
were adjusted to their fair values at that date and goodwill was recorded
for the excess of the purchase price over the net fair value.
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 derives its revenues primarily from mortgage
application fees paid by potential borrowers and from brokerage and
processing fees 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.
INTANGIBLE ASSETS
The excess of investment cost over the fair value of net assets
acquired (goodwill) is being amortized over a period of 20 years.
Amortization of goodwill in the amount of $71,239 was charged to
operations in 1998.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at acquisition cost and
depreciated using the straight-line method over the estimated useful
lives of the assets. Useful lives range from five to seven years.
Expenditures for routine maintenance and repairs are charged to expense
as incurred.
ADVERTISING
The costs of advertising, promotion, and marketing programs are
charged to operations in the year incurred. Advertising expense was
$30,717 and $31,002 for the years ended December 31, 1998 and 1997,
respectively.
F-25
<PAGE> 56
DOW GUARANTEE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
INCOME TAXES
The Company accounts for its income taxes in accordance with
Financial Accounting Standards Board Statement No. 109, "Accounting for
Income Taxes." Deferred tax liabilities and assets are recognized for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted
tax rates in effect for the year in which the differences are expected to
reverse. The Company anticipates filing a consolidated return with AMSE.
The tax provision shown on the accompanying statement of operations was
calculated as if the Company filed a separate income tax return.
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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, receivables, and accounts payable and accrued expenses are
reflected in the financial statements at fair value because of the
short-term maturity of those instruments.
STATEMENT OF COMPREHENSIVE INCOME
A statement of comprehensive income has not been included, per
SFAS 130, "Reporting Comprehensive Income," as the Company has no items
of other comprehensive income.
RECLASSIFICATIONS
Certain amounts in the 1997 financial statements have been
reclassified to conform to the 1998 presentation.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31,
1998 and 1997:
1998 1997
---------- ---------
Office equipment $ 77,906 $ 122,116
Furniture and fixtures 15,445 57,271
Leasehold improvements 31,080 5,991
---------- ---------
Total cost 124,431 185,378
Less: Accumulated depreciation (7,829) (146,265)
---------- ---------
Property and equipment, net $ 116,602 $ 39,113
========== =========
F-26
<PAGE> 57
DOW GUARANTEE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 2 - PROPERTY AND EQUIPMENT (continued)
Depreciation expense for the years ended December 31, 1998 and
1997 was $26,409 and $25,483, respectively. At July 31, 1998, the
historical cost of all property and equipment was adjusted to fair value
in connection with an acquisition (see Note 1).
NOTE 3 - CREDIT AGREEMENTS
LINES OF CREDIT
In October 1996, the Company established two credit lines with a
financial institution. The credit lines are guaranteed by an officer and
former shareholder. The total amount available under the agreements is
$50,000. As of December 31, 1998 and 1997, no amounts were used from the
credit facilities.
MORTGAGE WAREHOUSING AGREEMENT
In May 1997, the Company entered into an agreement with a
financial institution to provide a $1,000,000 mortgage warehousing
facility that assists the Company in originating and closing mortgages.
The Company is liable under the agreement only if there is a default
during a mortgage closing process. There were no amounts owed under this
agreement as of December 31, 1998 or 1997. Interest paid during 1998 for
borrowings under this agreement totaled $16,094.
NOTE 4 - INCOME TAXES
A summary of income taxes for the years ended December 31, 1998
and 1997 is as follows:
1998 1997
-------- --------
Currently payable:
Federal $ -- $ 800
State -- 20
Deferred benefit from net operating loss (14,050) --
Valuation allowance 14,050 --
-------- -----
Total income tax provision $ -- $ 820
======== =====
The tax provision differs from the Federal statutory rate of 34%
because of non-deductible expenses (including the goodwill amortization),
the surtax exemptions and rate brackets, and the effect of state income
taxes. There are no significant deferred tax assets or liabilities other
than from the net operating loss.
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 Company has available tax net operating loss carryovers as
of December 31, 1998 of approximately $84,400.
F-27
<PAGE> 58
DOW GUARANTEE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 5 - COMMITMENTS AND CONTINGENCIES
OFFICE LEASE
The Company leases office space in various locations, as well as
certain office equipment. Future minimum lease payments subsequent to
December 31, 1998 under these operating leases are as follows: $94,956 in
years 1999 and 2000, $93,293 in 2001, and $12,956 in years 2002 and 2003.
Rent expense for the years ended December 31, 1998 and 1997 totaled
$86,725, and $92,633, 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 may be
initiated by the Company. At December 31, 1998, management believes that
any such outstanding issues will be resolved without significantly
impairing the financial condition of the Company.
F-28
<PAGE> 59
CAPITAL FUNDING OF SOUTH FLORIDA, INC.
FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
AND
INDEPENDENT AUDITORS' REPORT
F-29
<PAGE> 60
CAPITAL FUNDING OF SOUTH FLORIDA, INC.
TABLE OF CONTENTS
PAGE
----
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Balance Sheet 2
Statement of Operations 3
Statement of Changes in Stockholders' Equity 4
Statement of Cash Flows 5
NOTES TO FINANCIAL STATEMENTS 6-8
F-30
<PAGE> 61
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Capital Funding of South Florida, Inc.
We have audited the accompanying balance sheet of Capital Funding of South
Florida, Inc. (the "Company"), as of December 31, 1998, and the related
statement of operations, changes in stockholders' equity, and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Capital Funding of South
Florida, Inc. as of December 31, 1998, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
As discussed in Note 1, on January 29, 1999, all of the outstanding shares of
the Company were acquired by America's Senior Financial Services, Inc.
/s/ Ahearn, Jasco + Company, P.A.
------------------------------------------
AHEARN, JASCO + COMPANY, P.A.
Certified Public Accountants
Pompano Beach, Florida
April 9, 1999
F-31
<PAGE> 62
CAPITAL FUNDING OF SOUTH FLORIDA, INC.
BALANCE SHEET
DECEMBER 31, 1998
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 23,543
Brokerage fees receivable 45,828
Interest receivable from shareholders 6,000
---------
TOTAL CURRENT ASSETS 75,371
PROPERTY AND EQUIPMENT, net 79,983
NOTES RECEIVABLE FROM SHAREHOLDERS 100,000
OTHER ASSETS 67,739
---------
TOTAL $ 323,093
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable - lines of credit $ 110,455
Accounts payable 25,909
Accrued compensation 17,873
Other accrued liabilities 35,000
---------
TOTAL CURRENT LIABILITIES 189,237
---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1 par value; 10,000 shares
authorized, 2,000 shares issued and outstanding 2,000
Additional paid-in capital 59,369
Retained earnings 72,487
---------
TOTAL STOCKHOLDERS' EQUITY 133,856
---------
TOTAL $ 323,093
=========
See notes to financial statements.
F-32
<PAGE> 63
CAPITAL FUNDING OF SOUTH FLORIDA, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
REVENUES $1,419,184
----------
EXPENSES:
Compensation 826,415
Administrative, processing, and occupancy 476,956
----------
TOTAL EXPENSES 1,303,371
----------
INCOME FROM OPERATIONS 115,813
INTEREST INCOME 7,735
INTEREST EXPENSE (4,742)
----------
NET INCOME $ 118,806
==========
See notes to financial statements.
F-33
<PAGE> 64
CAPITAL FUNDING OF SOUTH FLORIDA, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMMON Additional Total
STOCK Common Paid-in Retained Stockholders'
# OF SHARES Stock Capital Earnings Equity
-------------- ------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
STOCKHOLDERS' EQUITY,
January 1, 1998 2,000 $2,000 $59,369 $ 228,984 $ 290,353
S corporation distributions -- -- -- (275,303) (275,303)
Net income for the year ended
December 31, 1998 -- -- -- 118,806 118,806
----- ------ ------- --------- ---------
STOCKHOLDERS' EQUITY,
December 31, 1998 2,000 $2,000 $59,369 $ 72,487 $ 133,856
===== ====== ======= ========= =========
</TABLE>
See notes to financial statements.
F-34
<PAGE> 65
CAPITAL FUNDING OF SOUTH FLORIDA, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 118,806
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and valuation allowance 59,518
Changes in certain assets and liabilities:
Brokerage fees receivable (38,406)
Interest receivable from shareholders (6,000)
Accounts payable and accrued liabilities 34,003
---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 167,921
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in other assets 87
Purchases of property and equipment (34,524)
---------
NET CASH USED IN INVESTING ACTIVITIES (34,437)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
S corporation distributions (275,303)
Repayment of shareholder advances (150,000)
Proceeds from lines of credit, net 70,580
---------
NET CASH USED IN FINANCING ACTIVITIES (354,723)
---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (221,239)
CASH AND CASH EQUIVALENTS, Beginning of year 244,782
---------
CASH AND CASH EQUIVALENTS, End of year $ 23,543
=========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid in cash during the period $ 4,742
=========
Income taxes paid in cash during the period $ --
=========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
Property and equipment with a net book value of $66,514 was
transferred from depreciable assets to other assets when the property was
removed from current use in the business.
See notes to financial statements.
F-35
<PAGE> 66
CAPITAL FUNDING OF SOUTH FLORIDA, INCORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
Capital Funding of South Florida, Inc. (the "Company") was
incorporated on August 29, 1994. The Company is a licensed mortgage
lender in the State of Florida and is engaged in originating, processing,
and funding mortgage loan applications.
On January 29, 1999, the shareholders of the Company exchanged
all of the issued and outstanding common stock of the Company to
America's Senior Financial Services, Inc. ("AMSE") for 221,664 shares of
AMSE common stock in a tax-free transaction. As a result, the Company
became a wholly-owned subsidiary of AMSE on that date.
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 derives its revenues primarily from mortgage
application fees paid by potential borrowers and from brokerage and
processing fees 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.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at acquisition cost and
depreciated using the straight-line method over the estimated useful
lives of the assets. Useful lives range from five to seven years.
Expenditures for routine maintenance and repairs are charged to expense
as incurred.
ADVERTISING
The costs of advertising, promotion, and marketing programs are
charged to operations in the year incurred. Advertising expense was
$15,955 for the year ended December 31, 1998.
INCOME TAXES
The Company, with the consent of its shareholders, has elected
under the Internal Revenue Code to be an S corporation. In lieu of
corporation income taxes, shareholders of an S corporation are taxed on
their proportionate share of the Company's taxable income. Therefore, no
provision or liability for income taxes has been included in the
accompanying financial statements.
On January 29, 1999, as a result of the acquisition by AMSE of
the Company's common stock, the Company ceased to be an S corporation.
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.
F-36
<PAGE> 67
CAPITAL FUNDING OF SOUTH FLORIDA, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, receivables, accounts payable and accrued expenses, and
notes payable are reflected in the financial statements at fair value
because of the short-term maturity of those instruments.
STATEMENT OF COMPREHENSIVE INCOME
A statement of comprehensive income has not been included, per
SFAS 130, "Reporting Comprehensive Income," as the Company has no items
of other comprehensive income.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31,
1998:
Office and other equipment $ 78,100
Furniture and fixtures 13,125
Leasehold improvements 40,377
----------
Total cost 131,602
Less: Accumulated depreciation (51,619)
----------
Property and equipment, net $ 79,983
==========
Depreciation expense for the year ended December 31, 1998 was
$25,732. The balance sheet caption, "other assets," includes property not
currently in use in the operation of the Company; a valuation allowance
of $33,786 was charged to earnings in 1998 to reduce this property to its
estimated net realizable value of $66,514.
NOTE 3 - NOTES PAYABLE
The Company has two credit lines with financial institutions.
The balances due at December 31, 1998 were $61,455, with interest at
10.25%, and $49,000, with interest at 8.5%. The notes are due on demand,
are unsecured, and are guaranteed by a shareholder.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
OFFICE LEASE
The Company leases office space in various locations, as well as
certain office equipment. Future minimum lease payments subsequent to
December 31, 1998 under these operating leases are as follows: $43,900 in
1999, $24,000 in 2000, and $12,000 in 2001. Rent expense for the year
ended December 31, 1998 totaled $70,359.
LITIGATION
From time to time, the Company is exposed to claims, regulatory,
and legal actions in the normal course of business, some of which may be
initiated by the Company. At December 31, 1998, management believes that
any such outstanding issues will be resolved without significantly
impairing the financial condition of the Company.
F-37
<PAGE> 68
CAPITAL FUNDING OF SOUTH FLORIDA, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
NOTE 5 - RELATED PARTY TRANSACTIONS
NOTES RECEIVABLE
Two shareholders each owe the Company $50,000 under promissory
notes dated December 31, 1997. Both notes bear interest at 6% per annum
and the interest is payable annually on December 31st. The notes are due
on January 1, 2004. The interest due December 31, 1998 was not paid and
is therefore recorded as a receivable from shareholders.
The fair value of these notes is not subject to reasonable
estimation because of their related party nature.
DISTRIBUTIONS TO SHAREHOLDERS
The shareholders of the Company received S corporation
distributions totaling $275,303 in 1998.
SHAREHOLDER ADVANCES
At December 31, 1997, the Company owed its shareholders $150,000
pursuant to non-interest bearing advances received in December 1997.
These amounts were repaid in January 1998.
F-38
<PAGE> 69
INDEPENDENT AUDITOR'S REPORT
To the Stockholders
Jupiter Mortgage Corporation
We have audited the accompanying balance sheets of Jupiter Mortgage Corporation
(an S Corporation) as of December 31, 1998 and 1997, and the related statements
of income, changes in stockholders' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 financial statements referred to above present fairly, in
all material respects, the financial position of Jupiter Mortgage Corporation
as of December 31, 1998 and 1997, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ WISNESKI, BLAKISTON & LESLIE, P.A.
Jupiter, Florida
March 12, 1999
F-39
<PAGE> 70
JUPITER MORTGAGE CORPORATION
BALANCE SHEETS
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 214,835 $ 60,282
Brokerage fees receivable 67,714 16,078
Loan to employees 7,628 3,776
Prepaid expenses 889 5,514
----------- ------------
TOTAL CURRENT ASSETS 291,066 85,650
PROPERTY AND EQUIPMENT, net 66,865 49,832
DEPOSITS 11,334 4,302
----------- -----------
$ 369,265 $ 139,784
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Escrow deposits $ 4,452 $ 9,690
Accounts payable -- 5,338
Line of credit 93,609 36,000
----------- -----------
TOTAL CURRENT LIABILITIES 98,061 51,028
STOCKHOLDERS' EQUITY
Common stock, $1 par value; 1,000 shares
authorized, issued and outstanding 1,000 1,000
Paid-in capital 124,106 24,106
Retained earnings 146,098 63,650
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 271,204 88,756
----------- -----------
$ 369,265 $ 139,784
=========== ===========
</TABLE>
See accompanying notes.
F-40
<PAGE> 71
JUPITER MORTGAGE CORPORATION
STATEMENTS OF INCOME
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
REVENUES $ 2,746,104 $ 1,725,225
EXPENSES
Payroll and related expenses 1,632,728 1,044,275
Administrative, processing, and occupancy 995,928 633,424
------------ -----------
TOTAL EXPENSES 2,628,656 1,677,699
------------ -----------
NET INCOME $ 117,448 $ 47,526
============ ==========
</TABLE>
See accompanying notes.
F-41
<PAGE> 72
JUPITER MORTGAGE CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Common Additional Total
Stock Common Paid-in Retained Stockholders'
# of Shares Stock Capital Earnings Equity
----------- ------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C>
STOCKHOLDERS' EQUITY,
January 1, 1997 1,000 $1,000 $ 24,106 $ 27,185 $ 52,291
Net income for the year ended
December 31, 1997 -- -- -- 47,526 47,526
Distributions to stockholders' -- -- -- (11,061) (11,061)
--------- ------ -------- -------- --------
STOCKHOLDERS' EQUITY,
December 31, 1997 1,000 1,000 24,106 63,650 88,756
Capital contributed by stockholders' -- -- 100,000 -- 100,000
Net income for the year ended
December 31, 1998 -- -- -- 117,448 117,448
Distributions to stockholders' -- -- -- (35,000) (35,000)
--------- ------ -------- -------- --------
STOCKHOLDERS' EQUITY,
December 31, 1998 1,000 $1,000 $124,106 $146,098 $271,204
========= ====== ======== ======== ========
</TABLE>
See accompanying notes.
F-42
<PAGE> 73
JUPITER MORTGAGE CORPORATION
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 117,448 $ 47,526
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 16,797 22,084
Increase in current liabilities 47,033 43,930
Increase in current assets (50,863) (19,260)
Increase in deposits (7,032) (4,042)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 123,383 90,238
CASH FLOWS FROM INVESTING ACTIVITIES
Cash used to purchase equipment (33,830) (62,467)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (33,830) (62,467)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term debt -- (1,927)
Capital contributed 100,000 --
Distributions to stockholders (35,000) (11,061)
------------ -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 65,000 (12,988)
----------- -----------
NET INCREASE IN CASH 154,553 14,783
CASH, Beginning of year 60,282 45,499
------------ ------------
CASH, End of year $ 214,835 $ 60,282
=========== ============
SUPPLEMENTAL DISCLOSURES
Interest paid in cash during the period $ 4,578 $ 624
=========== ============
</TABLE>
See accompanying notes.
F-43
<PAGE> 74
JUPITER MORTGAGE CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
Jupiter Mortgage Corporation (the Company), is a Florida Corporation
incorporated on June 29, 1984. The Company is a licensed correspondent mortgage
lender in the Palm Beach County Florida area.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
Property and equipment
Property and equipment is stated at cost less accumulated depreciation.
Improvements are capitalized if they have a useful life of more than one year.
Maintenance and repairs are charged to expense as incurred. Depreciation is
computed using various methods over the estimated useful lives of the assets.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that directly affect the reported amounts of assets and liabilities and
disclosure of continent 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 these estimates.
Revenue recognition and credit risks
The company derives its revenues primarily from mortgage application fees paid
by potential borrowers and from brokerage and processing fees 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.
Advertising
The costs of advertising, promotion, and marketing programs are charged to
operations in the year incurred. Advertising expense was $44,128 and $44,621
for the years ended December 31, 1998 and 1997, respectively.
F-44
<PAGE> 75
JUPITER MORTGAGE CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income taxes
The Company has elected under the Internal Revenue Code to be an S Corporation.
In lieu of corporation income taxes, the stockholders are taxed on their
proportionate share of the Company's taxable income. Therefore, no provision or
liability for income taxes is included in the financial statements.
Fair value of financial instruments
Cash, receivables, and accounts payable and accrued expenses are reflected in
the financial statements at fair value because of the short-term maturity of
those instruments.
Statement of comprehensive income
A statement of comprehensive income has not been included, per SFAS 130,
"Reporting Comprehensive Income", as the Company has no items of other
comprehensive income.
Reclassifications
Certain amounts in the 1997 financial statements have been reclassified to
conform to the 1998 presentation.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Computer and other office equipment $ 54,655 $ 27,277
Furniture and fixtures 56,540 49,822
Vehicles 47,098 47,098
Leasehold improvements 9,158 14,942
----------- -----------
167,451 139,139
Less allowance for depreciation (100,586) (89,307)
----------- -----------
$ 66,865 $ 49,832
=========== ===========
</TABLE>
Depreciation expense for the years ended December 31, 1998 and 1997 was $29,940
and $22,084, respectively.
F-45
<PAGE> 76
JUPITER MORTGAGE CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
3. CREDIT ARRANGEMENTS
Lines of credit
The Company has two lines of credit. One is a $50,000 line which expires
September 30, 1999, with interest at 11% paid monthly. The second line, entered
into in 1998, is for $50,000 with interest at 11% paid monthly. At December 31,
1998 and 1997, approximately $94,000 and $36,000, respectively, was outstanding
on the lines. The lines are personally guaranteed by the Company's
shareholders.
Mortgage warehousing agreement
During 1998, the Company entered into an agreement with a financial institution
to provide a $2,000,000 mortgage warehousing facility that assists the Company
in originating and closing mortgages. The Company becomes liable under the
agreement if the loans are not resold and all amounts in process at December
31, 1998 were subsequently sold. Interest paid during 1998 was less than
$5,000. The line is personally guaranteed by the Company's shareholders.
4. COMMITMENTS AND CONTINGENCIES
Office leases
The Company operated six offices during 1998 (4 in 1997) with aggregate monthly
rents approximating $7,000 and $5,000 during most of the years ended December
31, 1998 and 1997, respectively. One of the offices is leased on a
month-to-month basis. The other leases expire at various times through November
2003. The leases are personally guaranteed by the Company's shareholders.
Minimum future commitments under existing leases are as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
1999 $ 107,700 $ 37,800
2000 $ 107,400 $ 23,000
2001 $ 83,800 $ 19,200
2002 $ 79,700 $ --
2003 $ 69,100 $ --
</TABLE>
Litigation
From time to time, the Company is exposed to claims, regulatory, and legal
actions in the normal course of business, some of which may be initiated by the
Company. At December 31, 1998 and 1997, management believes that any such
outstanding issues will be resolved without significantly impairing the
financial condition of the Company.
F-46
<PAGE> 77
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
30-Jun-99 31-Dec-98
--------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,936,194 $ 195,728
Brokerage fees receivable 106,962 49,853
Due from employees and shareholders 226,537 93,146
Prepaid expenses 117,503 46,699
----------- -----------
TOTAL CURRENT ASSETS 2,387,196 385,426
PROPERTY AND EQUIPMENT, net 474,053 254,783
GOODWILL, net 2,785,241 3,348,215
OTHER ASSETS 600,313 319,940
----------- -----------
TOTAL $ 6,246,803 $ 4,308,364
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 17,129 $ 5,798
Accounts payable 277,413 173,904
Accrued compensation and related taxes 107,078 49,054
----------- -----------
TOTAL CURRENT LIABILITIES 401,620 228,756
----------- -----------
LONG-TERM DEBT, less current portion 2,680,517 13,287
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, $.001 par value; 10,000,000 shares
authorized, no shares issued and outstanding -- --
Common stock, $0.001 par value; 25,000,000 shares
authorized, shares issued and outstanding, 6,909,431
and 5,898,867 in 1999 and 1998, respectively 6,909 5,899
Additional paid-in capital 8,500,326 4,584,932
Retained earnings (deficit) (5,229,279) (457,443)
Unearned compensation - restricted stock (113,290) (67,067)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 3,164,673 4,066,321
----------- -----------
TOTAL $ 6,246,803 $ 4,308,364
=========== ===========
</TABLE>
F-47
<PAGE> 78
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES 1,010,756 205,219 1,970,688 365,010
----------- ----------- ----------- -----------
EXPENSES:
Payroll and related expenses 656,894 150,031 1,331,418 256,098
Administrative, processing and occupancy 563,954 93,791 974,633 213,365
Debenture Financing Costs 1,491,628 -- 1,491,628 --
Employee recruitment 11,031 -- -- --
Goodwill amortization 2,425,631 -- 2,484,363 --
----------- ----------- ----------- -----------
TOTAL EXPENSES 5,149,138 243,822 6,282,042 469,463
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (4,138,382) (38,603) (4,311,354) (104,453)
----------- ----------- ----------- -----------
OTHER EXPENSES:
Interest expense 5,659 447 19,306 1,008
Interest expense -
Convertible Debentures Conversion discount 441,176 -- 441,176 --
----------- ----------- ----------- -----------
TOTAL OTHER EXPENSES 446,835 447 460,482 1,008
----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES (4,585,217) (39,050) (4,771,836) (105,461)
PROVISION FOR INCOME TAXES -- -- -- --
----------- ----------- ----------- -----------
NET LOSS $(4,585,217) $ (39,050) $(4,771,836) $ (105,461)
=========== =========== =========== ===========
LOSS PER SHARE:
Basic $ (0.677) $ (0.009) $ (0.729) $ (0.024)
=========== =========== =========== ===========
Diluted $ (0.677) $ (0.009) $ (0.729) $ (0.024)
=========== =========== =========== ===========
Weighted average common shares outstanding
(basic and diluted) 6,773,361 4,413,560 6,546,657 4,390,119
=========== =========== =========== ===========
</TABLE>
F-48
<PAGE> 79
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1999 1998
----------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(4,771,836) $(105,461)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,523,486 6,425
Non-Cash Interest expense and Other Non-Cash Costs-
Convertible debentures 1,932,804
Recognition of restricted stock earned 19,229 --
Changes in certain assets and liabilities, net of amounts from an
acquisition:
Brokerage fee receivable (57,109) (46,230)
Employee advances (52,509) --
Prepaid expenses and other (70,804) 10,000
Accounts payable, accrued compensation and related taxes 161,533 (3,258)
----------- ---------
NET CASH USED IN
OPERATING ACTIVITIES (315,206) (138,524)
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (119,775) (36,795)
Acquisition expenditures, net of cash acquired (452,571) (24,537)
Changes in other assets (626,873) 16,616
----------- ---------
NET CASH USED IN INVESTING ACTIVITIES (1,199,219) (44,716)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net 598,948 108,500
Change in long-term debt 2,678,561 (4,774)
Change in due from shareholders (22,618) 11,919
----------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,254,891 115,645
----------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,740,466 (67,595)
CASH AND CASH EQUIVALENTS, Beginning of period 195,728 86,376
----------- ---------
CASH AND CASH EQUIVALENTS, End of period $ 1,936,194 $ 18,781
=========== =========
</TABLE>
F-49
<PAGE> 80
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARIES
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Common Common Additional Retained Total
Stock Stock, at Paid-in Restricted Earnings Stockholders'
# of Shares par value Capital Stock (Deficit) Equity
----------- --------- ---------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
STOCKHOLDERS' EQUITY, December 31, 1998 5,898,867 $5,899 $4,584,932 $ (67,067) $ (457,443) $4,066,321
Stock issued pursuant to an acquisition 237,664 237 1,558,963 1,559,200
Contribution to Capital 40,000 40,000
Stock issued for debenture financing costs 185,548 186 1,211,442 1,211,628
Beneficial conversion feature of
Convertible Debentures 441,176 441,176
Restricted stock issued to employees 65,452 65 65,387 (65,452) --
Recognition of restricted stock earned 19,229 19,229
Issuances of common stock for cash,
net of expenses 521,900 522 598,426 598,948
Net loss for the period ended June 30, 1999 (4,771,836) (4,771,836)
--------- ------ ---------- --------- ----------- ----------
STOCKHOLDERS' EQUITY, June 30, 1999 6,909,431 $6,909 $8,500,326 $(113,290) $(5,229,279) $3,164,666
========= ====== ========== ========= =========== ==========
</TABLE>
F-50
<PAGE> 81
Note 1. Basis of Presentation
The unaudited, condensed, consolidated financial statements included
herein, commencing at page F-1, have been prepared in accordance with the
requirements of Regulation S-B, and supplementary financial information included
herein, if any, has been prepared in accordance with Item 310(b) of Regulation
S-B and, therefore, omit or condense certain footnotes and other information
normally included in financial statements prepared in accordance with generally
accepted accounting principles. In the opinion of Management, all adjustments
(consisting only of normal recurring accruals) necessary for a fair presentation
of the financial information for the interim periods reported have been made.
Certain reclassifications have been made to the 1998 financial information to
conform to the presentation used in 1999. Results of operations for the three
months ended June 30, 1999 and the six months ended June 30, 1999, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999. These financial statements should be read in conjunction with
the Company's Form 10-SB as originally filed with the Securities and Exchange
Commission (SEC) on April 16, 1999, and as subsequently amended. The Company has
received certain accounting comments from the SEC with respect to such filing on
form 10-SB, as amended, and is in the process of reviewing such comments. As a
consequence thereof, the Company may amend or revise certain of the financial
disclosure set forth herein based upon such comments. Particularly, such
comments relate to the Company's accounting treatment of its acquisition of Dow
Guarantee Corp. (Dow).
Note 2. Loss Per Share
The Company follows the provisions of SFAS No. 128, "Earnings Per
Share", which requires presentation of basic earnings per share including only
outstanding common stock, and diluted earnings per share including the effect
of dilutive common stock equivalents. The Company's basic and diluted losses
per share for all periods presented are the same since the Company's
convertible debentures, stock options, and warrants are anti-dilutive.
Note 3. Income Taxes
The Company follows the provisions of SFAS No. 109, "Accounting for
Income Taxes". In accordance with this statement, the Company records valuation
allowance so that the deferred tax asset balance reflects the estimated amount
of deferred tax assets that may be realized. Therefore, the deferred tax assets
generated by the net losses in the periods presented have been offset in their
entirety by a deferred tax asset valuation allowance.
Note 4. Convertible Debentures
In May 1999, the Company entered into a Securities Purchase Agreement,
pursuant to which the Company issued $2,500,000 of 3% convertible debentures,
which are due May 6, 2002, and common stock purchase warrants for 34,483 shares
at $8.70 per share, which expire May 31, 2004. The Securities Purchase
Agreement, among other terms, allows the Company to require the buyer to
purchase additional convertible debentures up to $7,500,000. The holder of the
debentures may take the interest in either cash or Company common stock. The
debentures are convertible into common stock at the option of the holder, and
are converted at a price of the lower of (a) $8.70 per share, or (b) 85% of the
average closing bid price for the common stock for 5 of the 20 trading days
ending immediately before the conversion. At the time the Company entered into
this agreement the debentures would be convertible at $6.16 per share of the
Company's common stock. Under EITF Topic D-60 this beneficial conversion rate
has resulted in the Company recognizing an interest expense of $441,176. In
connection with the placement, the Company issued 185,548 shares of common
stock and paid approximately $280,000 in fees to consultants and placement
agents, which resulted in additional costs recognized of $1,491,628.
Note 5. Impaired Asset
On July 31, 1998, the Company acquired Dow Guarantee Corp. ("Dow") in
a tax free reorganization which was accounted for as a purchase per APB 16. The
recorded purchase price was approximately $3,437,500. Substantially all of the
purchase price was allocated to goodwill. For the period from acquisition
through December 31, 1998, Dow recorded a loss before goodwill amortization of
$40,131. During the three month period ended March 31, 1999, however, Dow
recorded a profit before goodwill amortization of $14,521. During the three
month period ended June 30, 1999, Dow lost $20,205 before goodwill
amortization. Because the subsidiary has operated at a cumulative loss since
the Company acquired it, an impaired asset review of Dow was initiated.
Pursuant to SFAS 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of", the Company evaluated the
recoverability of the long-lived Dow asset, including goodwill. Based on the
second quarter of 1999 results, the Company has determined that Dow's estimated
future non-discounted cash flows are below the carrying value of Dow as a
long-lived asset. Accordingly, the Company has recorded an impairment charge to
adjust the carrying value of Dow's goodwill, the only long-lived asset deemed
to be presently affected, to fair value. The adjustment recorded was to reduce
the estimated fair value of the goodwill of Dow to approximately $903,418 by
recording a non-cash impairment loss of approximately $2,359,311. The estimated
fair value of Dow was based, among other factors, on the price of Company
securities, which were sold during June 1999; management believes that the fair
value of Dow approximates the amount to which it was written down.
Note 6. Other Assets
The following accounts make up the Balance Sheet line "Other Assets"
F-51
<PAGE> 82
<TABLE>
<S> <C>
Notes Receivable $365,000
Deposit on Acquisition Candidate 100,000
Legal fees paid for pending acquisitions 72,000
Accounting fees paid for pending acquisitions 27,000
Advertising & Marketing Supplies 23,000
Security Deposits and other 13,313
--------
Total $600,313
</TABLE>
F-52
<PAGE> 83
AMSE/CFSF/JUPITER Comparative Proforma
CONSOLIDATED FINANCIAL STATEMENTS
AMERICA'S SENIOR FINANCIAL SERVICES,INC. AND SUBSIDIARIES
CONSOLIDATED PROFORMA BALANCE SHEET AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
PROFORMA
AMSE CFSF JUPITER ADJUSTMENTS CONSOLIDATED
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents $ 195,728 $ 23,543 $ 214,835 $ 434,106
Brokerage fee's receivable 49,853 45,828 67,714 163,395
Notes & Other Receivable 22,618 106,000 128,618
Employee advances 70,528 -- 7,628 78,156
Prepaid expenses 46,699 -- 889 47,588
Property and equipment, net 254,783 79,983 66,865 401,631
Other Assets 319,940 67,739 11,334 (319,940)a 79,073
Goodwill, Net 3,348,215 -- 4,763,398 a 8,111,613
- ----------------------------------------------------------------------------------------------------------------
Total Assets $ 4,308,364 $ 323,093 $ 369,265 $9,444,180
LIABILITIES:
Current portion of long-term debt $ 5,798 $ 110,455 $ 93,609 $ 209,861
Accounts payable and accrued expenses 173,904 60,909 4,452 143,871 a 383,136
Commission payable 49,054 17,873 -- 66,927
Income taxes payable -- -- -- --
Long-Term debt, less current portion 13,287 -- -- 13,287
- ----------------------------------------------------------------------------------------------------------------
Total Liabilities 242,043 189,237 98,061 673,211
STOCKHOLDERS' EQUITY:
Common Stock 5,899 2,000 1,000 599 a 9,498
Additional paid-in capital 4,584,932 59,369 124,106 4,517,574 a 9,285,981
Retained earnings (58,177) (46,317) 28,650 17,668 a (58,177)
Income YTD (399,266) 118,806 117,448 (236,254)a (399,266)
Unearned Compensation - restricted stock (67,067) -- -- (67,067)
- ----------------------------------------------------------------------------------------------------------------
Total stockholders' equity 4,066,321 133,856 271,204 $8,770,969
- ----------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders'
equity $ 4,308,364 $ 323,093 $ 369,265 $9,444,180
================================================================================================================
</TABLE>
(a) To record estimated purchase accounting entry as if the Capital & Jupiter
acquisition took place on December 31, 1998.
F-53
<PAGE> 84
AMERICA'S SENIOR FINANCIAL SERVICES,INC. AND SUBSIDIARIES
PROFORMA STATEMENTS OF OPERATIONS AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
1998 01/01/98 to 1998 1998
HISTORIC 7/31/98 HISTORIC HISTORIC PROFORMA
AMSE DOW CFSF JUPITER ADJUSTMENTS CONSOLIDATED
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES: $ 1,797,632 $ 1,490,249 $ 1,419,184 $ 2,746,104 $ 7,460,904
------------------------------------------------------ ----------- -----------
EXPENSES:
Payroll and related expenses 1,335,488 822,372 826,415 1,632,728 4,617,003
Administrative, processing, and occupancy 722,828 630,023 476,956 995,928 2,825,735
Acquisition costs 14,969 -- -- -- 14,969
Employee recruitment 50,333 -- -- -- 50,333
Goodwill amortization 71,239 -- -- -- 339,811 (a) 411,050
------------------------------------------------------ ----------- -----------
TOTAL EXPENSES 2,194,857 1,452,395 1,303,371 2,628,656 339,811 7,919,090
------------------------------------------------------ ----------- -----------
PROFIT (LOSS) FROM OPERATIONS (397,225) 37,854 115,813 117,448 (339,811) (458,186)
------------------------------------------------------ ----------- -----------
INTEREST EXPENSE, (INCOME) NET 2,041 16,094 (2,993) -- 22,877
------------------------------------------------------ ----------- -----------
PROFIT (LOSS) BEFORE INCOME TAXES (399,266) 21,760 118,806 117,448 (339,811) (481,063)
PROVISION FOR INCOME TAXES -- -- -- -- 0
------------------------------------------------------ ----------- -----------
NET PROFIT (LOSS) $ (399,266) $ 21,760 $ 118,806 $ 117,448 $ (339,811) $ (481,063)
====================================================== =========== ===========
</TABLE>
(a) To annualize goodwill expense as if these acquisitions took place on Jan 1,
1998.
F-54
<PAGE> 85
AMSE/ CFSF/ JUPITER Comparative Proforma
CONSOLIDATED FINANCIAL STATEMENTS
AMERICA'S SENIOR FINANCIAL SERVICES,INC. AND SUBSIDIARIES
CONSOLIDATED PROFORMA BALANCE SHEET AT JUNE 30, 1999
<TABLE>
<CAPTION>
PROFORMA
AMSE JUPITER Adjustments CONSOLIDATED
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
ASSETS:
Cash and cash equivalents $ 1,936,194 $ 135,689 $ 2,071,883
Brokerage fee's receivable 106,962 76,645 183,607
Notes & Other Receivable 345,295 -- 345,295
Employee advances 126,537 6,476 133,013
Prepaid expenses 117,503 -- 117,503
Property and equipment, net 407,553 55,990 463,543
Other Assets 701,518 12,134 713,652
Goodwill, Net 2,711,823 -- 2,960,145 a 5,671,968
- -------------------------------------------------------------------------------------------------------
Total Assets $ 6,453,385 $ 286,934 $ 9,700,464
LIABILITIES:
Current portion of long-term debt $ 167,852 $ 91,070 $ 258,922
Accounts payable and accrued expenses 277,413 5,009 282,422
Commission payable 107,078 -- 107,078
Income taxes payable -- -- --
Long-Term debt, less current portion 2,529,794 -- 2,529,794
- -------------------------------------------------------------------------------------------------------
Total Liabilities 3,082,137 96,079 3,178,216
STOCKHOLDERS' EQUITY:
Common Stock 6,909 1,000 361 a 8,270
Additional paid-in capital 6,734,232 124,106 3,025,533 a 9,883,871
Retained earnings (457,443) 1,098 (1,098)a (457,443)
Income YTD (2,912,450) 64,651 (64,651)a (2,912,450)
Unearned Compensation - restricted stock -- -- --
- -------------------------------------------------------------------------------------------------------
Total stockholders' equity 3,371,248 190,855 6,522,248
- -------------------------------------------------------------------------------------------------------
Total liabilities and stockholders'
equity $ 6,453,385 $ 286,934 $ 9,700,464
=======================================================================================================
</TABLE>
a- To record estimated purchase accounting entry as if the Jupiter acquisition
took place on June 30, 1999.
F-55
<PAGE> 86
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARIES
PROFORMA STATEMENTS OF OPERATIONS INCLUDING JUPITER
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
HISTORIC HISTORIC PROFORMA
AMSE JUPITER ADJUSTMENTS CONSOLIDATED
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES: $ 1,970,688 $ 1,473,075 $ 3,443,763
EXPENSES:
Payroll and related expenses 1,328,013 878,072 2,206,085
Administrative, processing, and occupancy 978,038 530,352 1,508,390
Goodwill amortization 2,557,781 -- 74,004 (a) 2,631,785
-------------------------- --------- -----------
TOTAL EXPENSES 4,863,832 1,408,424 74,004 6,346,260
-------------------------- --------- -----------
PROFIT (LOSS) FROM OPERATIONS (2,893,144) 64,651 (74,004) (2,902,497)
-------------------------- --------- -----------
INTEREST EXPENSE (NET) 19,306 -- 19,306
-------------------------- --------- -----------
PROFIT (LOSS) BEFORE INCOME TAXES (2,912,450) 64,651 (2,921,803)
PROVISION FOR INCOME TAXES -- -- --
-------------------------- --------- -----------
NET PROFIT (LOSS) $(2,912,450) $ 64,651 (74,004) $(2,921,803)
========================== ========= ===========
</TABLE>
(a) Goodwill expense for Jupiter as if this acquisition took place Jan. 1, 1999.
F-56
<PAGE> 87
<TABLE>
<CAPTION>
<S> <C>
No dealer, salesman or other person is authorized
to give any information or make any information or make
any representations not contained in this Prospectus with
respect to the offering made hereby. This Prospectus does 1,356,335 Shares of Common Stock
not constitute an offer to sell any of the securities offered
hereby in any jurisdiction where, or to any person to
whom it is unlawful to make such an offer. Neither the AMERICA'S SENIOR
delivery of this Prospectus nor any sale made hereunder FINANCIAL SERVICES, INC.
shall, under any circumstances, create an implication that
there has been no change in the information set forth
herein or in the business of the Company since the date
hereof.
TABLE OF CONTENTS
PROSPECTUS
Prospectus Summary................................................. 4
Risk Factors....................................................... 4
Use of Proceeds.................................................... 5 SEPTEMBER __, 1999
Market for the Shares.............................................. 5
Dividend Policy.................................................... 6
Management's Discussion and Analysis
of Financial Condition and Results of
Operations........................................................ 6
Recent Sale of Convertible Debentures.............................. 9
Business........................................................... 10
Management......................................................... 16
Executive Compensation............................................. 18
Security Ownership of certain Beneficial
Owners and Management............................................ 21
Indemnification.................................................... 23
Certain Relationships and Related
Transactions......................................................
Plan of Distribution/Selling Security Holders...................... 23
Description of Securities..........................................
Legal Matters...................................................... 26
Experts............................................................ 26
Additional Information............................................. 26
Financial Statements...............................................F-1
</TABLE>
<PAGE> 88
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Reference is hereby made to the provisions of Section F.S. 607.0850 of
the Florida Business Corporation Act which provides for indemnification of
directors and officers under certain circumstances.
Reference is hereby made to Article IX of Registrant's By-laws which is
filed as Exhibit 2(c)and Article VI of the Articles of Incorporation which is
filed as Exhibit 2(a).
Item 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses in connection with the
issuance and distribution of the securities offered hereby.
Registration Fee $ 2,828
Printing Expenses* 1,500
Legal Fees and Expenses* 40,000
Accounting Fees and Expenses* 10,000
Blue Sky Fees and Expenses* 3,000
Transfer Agent Fees and Expenses* 1,000
Misc.* 569
-------
Total $58,897
- --------------------
*Estimated
Item 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following provides information concerning all sales of securities
within the last three years which were not registered under the Securities Act
of 1933.
On December 1997, the Company issued 1,117,000 shares of common stock
to its founders, directors, certain employees and advisors. Such shares were
issued for $2,767, which was received in cash or services. Such shares were
issued without registration pursuant to an exemption from registration under
Section 4(2) of the Securities Act of 1933.
In December 1997, the Company sold 600,000 shares of common stock and
700,000 Common Stock Purchase Warrants to 41 investors for $100,000. Such
offering was made pursuant to Rule 504 of Regulation D. Each Common Stock
Purchase Warrant entitled to the holder to purchase one share of common stock
for $1.00 per share. During 1998, 700,000 of the Warrants were exercised and the
Company issued 700,000 shares of common stock pursuant to Rule 504 of Regulation
D.
In July 1998, the Company issued a total of 550,000 shares of common
stock to Charles and Linda Kluck in connection with the acquisition of Dow and
66, 667 to Vista Growth Partners, Inc. for services in connection with such
acquisition. Such shares were issued without registration pursuant to an
exemption from registration under Section 4(2) of the Securities Act of 1933.
II-1
<PAGE> 89
The Company issued 74,400 shares to employees as restricted stock
awards in 1998 and 65,452 as of June 30, 1999. Such shares were issued without
registration pursuant to an exemption from registration under Section 4(2) of
the Securities Act of 1933.
In 1998, the Company issued shares to investors pursuant to an
exemption from registration under Section 4(2) of the Securities Act of 1933.
<TABLE>
<CAPTION>
Date Consideration Shares Purchaser Accredited/Sophisticated
---- ------------- ------ --------- ------------------------
<S> <C> <C> <C> <C>
9/11/98 $ 1,000 500 Carpenter, Michael Sophisticated
9/11/98 1,000 (a) 500 Shea, Elly Sophisticated
9/11/98 20,000 10,000 Weinstein, Mitchell D. Sophisticated
9/11/98 20,000 10,000 Snyder, Scott A. Sophisticated
9/14/98 20,000 10,000 Hoffberger, Robert Sophisticated
9/11/98 20,000 10,000 Aurelia Holdings Ltd. Sophisticated
9/11/98 15,000 7,500 Donahue, Edwin Sophisticated
9/16/98 10,000 5,000 Antosek, Richard B. Sophisticated
9/16/98 15,000 7,500 Gittelman, Marc C. Sophisticated
9/18/98 5,000 2,500 Stott, Robert S. Sophisticated
9/23/98 10,000 5,000 Bailey, Darryl L. Sophisticated
10/12/98 10,000 10,000 Snyder, Scott A. Sophisticated
10/12/98 7,500 17,500 Gittleman, Marc C. Sophisticated
10/12/98 10,000 10,000 Aurelia Holdings Ltd. Sophisticated
10/12/98 5,000 2,500 Antosek, Richard Sophisticated
10/12/98 10,000 10,000 Weinstein, Mitchell D. Sophisticated
10/12/98 10,000 10,000 Hoffberger, Robert Sophisticated
10/28/98 10,000 5,000 Shelley, Michael J. Sophisticated
10/26/98 1,000 (a) 500 Shea, Elly Sophisticated
12/11/98 3,000 1,500 Perez, Jorge Sophisticated
12/11/98 15,000 7,500 Gibson, Paul D. Sophisticated
12/11/98 5,000 2,500 Prado, Gary Sophisticated
12/11/98 4,000 2,000 Allen, Robert W. Sophisticated
12/11/98 1,576 1,300 Prado, Gary Sophisticated
12/11/98 1,212 1,000 Prado, Gary Sophisticated
12/11/98 1,212 1,000 Prado, Gary Sophisticated
-------- -------
$231,500 140,800
======== =======
</TABLE>
- --------------------
(a) These shares were purchased for cash by Elly Shea an officer of the
corporation.
II-2
<PAGE> 90
In 1999 the Company issued shares to investors pursuant to an
exemption from registration under Section 4(2) of the Securities Act of 1933.
<TABLE>
<CAPTION>
Date Consideration Shares Purchaser Accredited/Sophisticated
---- ------------- ------ --------- ------------------------
<S> <C> <C> <C> <C>
1/4/99 $ 4,000 2,000 Deery, Scott Sophisticated
2/17/99 100 100 Charlesworth, Steven Sophisticated
2/17/99 100 100 Charlesworth, Joan Sophisticated
2/17/99 100 100 Charlesworth, Carrie Sophisticated
2/17/99 1,000 1,000 Charlesworth, David E. Sophisticated
2/17/99 1,000 1,000 Hersha, Julia Jean Sophisticated
2/17/99 1,000 1,000 Langston, Timothy Sophisticated
2/17/99 1,000 1,000 Edgar, Derek Sophisticated
2/17/99 4,000 4,000 Fleming, Carol Sophisticated
2/17/99 4,000 4,000 Locke, Victor M. Sophisticated
2/26/99 15,000 15,000 Snyder, Scott A. Sophisticated
2/26/99 15,000 15,000 Aurelia Holdings Ltd. Sophisticated
2/23/99 10,000 10,000 Biondo, Jane M. Sophisticated
3/1/99 1,500 1,500 Locke, Edwin Sophisticated
2/25/99 40,000 40,000 Brickell Equity Group, Ltd. Sophisticated
2/25/99 60,000 60,000 Palmun Associates Sophisticated
-------- -------
$157,900 155,800
======== =======
</TABLE>
In 1999 the Company issued the following shares to investors pursuant
to 504 of Regulation D.
<TABLE>
<CAPTION>
Date Consideration Shares Purchaser Accredited/Sophisticated
---- ------------- ------ --------- ------------------------
<S> <C> <C> <C> <C>
1/26/99 $100,000 100,000 Fidra Holdings, Ltd. Accredited
1/26/99 34,000 34,000 Fidra Holdings, Ltd. Accredited
1/26/99 50,000 50,000 Fidra Holdings, Ltd. Accredited
1/26/99 50,000 50,000 Fidra Holdings, Ltd. Accredited
2/25/99 16,666 16,666 Weltman, Louis Sophisticated
2/25/99 16,667 16,667 Brickell Equity Group, Inc. Sophisticated
2/25/99 16,667 16,667 Palmun Associates Sophisticated
-------- -------
$284,000 284,000
======== =======
</TABLE>
On January 29, 1999 we issued 221,664 shares of our common stock as
follows to the former shareholders and the investment banker of Capital Funding
of South Florida, Inc. Such shares were issued without registration pursuant to
section 4(2) of the Securities Act of 1933.
George & Tracy Pollis 105,228
Paula Police 105,228
First Fidelity Capital Markets, Inc. 11,088
We also issued 16,000 shares to our investment banker Vistra Growth
Partners, Inc. in connection with the acquisition.
All of the securities listed in the charts above were issued pursuant
to individual subscription agreements provided by each purchaser. Each purchaser
is a sophisticated investor, as documented in their subscription agreement.
All of the individuals listed 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 to
meet with and ask questions of the officers of the Company.
None of the securities discussed above were registered under the
Securities Act of 1933, exemption being claimed in each case pursuant to
Regulation D or Section 4(2) thereof. All shares which were not issued under
Rule 504 exemption were issued with restrictive legend and stop transfer orders.
No general advertising or solicitation was utilized in connection with any such
sales. All investors were offered access to the Company's books and records and
the opportunity to meet with officers of the Company.
II-3
<PAGE> 91
Item 27. 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:
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
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 filed herewith:
3(d) Form of Stock Purchase Warrant expiring
3(e) Form of 3% Convertible Debenture
</TABLE>
II-4
<PAGE> 92
<TABLE>
<CAPTION>
<S> <C>
5.1 Opinion of Counsel**
6(i) Securities Purchase Agreement dated May , 1999 with Fennell Avenue, L.L.C.**
6(j) Registration Rights Agreement dated May , 1999 with Fennell Avenue, L.L.C.
23 Consent of counsel is contained in Exhibit 5.1
23.1 Independent Auditors Consent
23.2 Independent Auditors Consent
27 Financial Data Schedule
</TABLE>
* Originally filed on June 21, 1999.
** To be filed by amendment.
Item 28. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel, the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the questions whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes:
4. To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
5. That for the purpose of determining any liability under the
Securities Act of 1935, each such post-effective amendment shall be deemed to be
a new registration statement relating
II-5
<PAGE> 93
to the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
6. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB- 2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Miami
Lakes and State of Florida on June 15, 1999.
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
By: /s/ Nelson A. Locke
-------------------------------
Nelson A. Locke
President/principal executive officer/principal accounting officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
Nelson A. Locke President and Director, Principal Executive September 20, 1999
Officer/Principal Accounting Officer
Cheryl D. Locke Director September 20, 1999
Thomas G. Sherman Director September 20, 1999
Michael J. Shelley Director September 20, 1999
Charles M. Kluck Director September 20, 1999
</TABLE>
II-6
<PAGE> 1
Exhibit 3(d)
NO. W-001
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR EXERCISE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED UNLESS
COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, A "NO ACTION"
LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO SUCH
TRANSFER, A TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OF THE SECURITIES AND
EXCHANGE COMMISSION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO THE
EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH REGISTRATION.
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
COMMON STOCK PURCHASE WARRANT
1. ISSUANCE; CERTAIN DEFINITIONS. In consideration of good and valuable
consideration, the receipt of which is hereby acknowledged by AMERICA'S SENIOR
FINANCIAL SERVICES, INC., a Florida corporation (the "Company"), FENNELL AVENUE,
L.L.C. or registered assigns (the "Holder") is hereby granted the right to
purchase at any time until 5:00 P.M., New York City time, on May 31, 2004 (the
"Expiration Date"), Thirty Four Thousand Four Hundred Eighty Three (34,483)
fully paid and nonassessable shares of the Company's Common Stock, $.001 par
value per share (the "Common Stock"), at an initial exercise price per share
(the "Exercise Price") of $8.70, subject to further adjustment as set forth
herein.
2. EXERCISE OF WARRANTS.
2.1 GENERAL. This Warrant is exercisable in whole or in part
at any time and from time to time at the Exercise Price per share of Common
Stock payable hereunder, payable in cash or by certified or official bank check,
or by "cashless exercise," by means of tendering this Warrant Certificate to the
Company to receive a number of shares of Common Stock equal in Market Value to
the difference between the Market Value of the shares of Common Stock issuable
upon exercise of this Warrant and the total cash exercise price thereof. Upon
surrender of this Warrant Certificate with the annexed Notice of Exercise Form
duly executed (which Notice of Exercise Form may be submitted either by delivery
to the Company or by facsimile transmission as provided in Section 8 hereof),
together with payment of the Exercise Price for the shares of Common Stock
purchased, if applicable, the Holder shall be entitled to receive a certificate
or certificates for the shares of Common Stock so purchased. For the purposes of
this Section 2, "Market Value" shall be an amount equal to the average closing
ask price of a share of Common Stock, as reported by Bloomberg, LP, for the five
(5) trading days preceding the Company's receipt of the Notice of Exercise Form
duly executed multiplied by the number of shares of Common Stock to be issued
upon surrender of this Warrant Certificate.
2.2 LIMITATION ON EXERCISE. Notwithstanding the provisions of
this Warrant, the Securities Purchase Agreement (as defined below) or of the
other Transaction Agreements (as defined in the
<PAGE> 2
Securities Purchase Agreement), in no event (except (i) with respect to an
automatic conversion, if any, of a Debenture as provided in the Debentures or a
conversion pursuant to a Redemption Notice Conversion [as defined in the
Debentures], (ii) as specifically provided in the Debentures as an exception to
this provision, or (iii) if the Company is in default hereunder or under any of
the Transaction Agreements, and the Holder has asserted such default in writing
and the applicability of this provision to such default) shall the Holder be
entitled to exercise this Warrant or shall the Company have the obligation, to
issue shares upon such exercise of all or any portion of this Warrant to the
extent that, after such conversion, the sum of (1) the number of shares of
Common Stock beneficially owned by the Holder and its affiliates (other than
shares of Common Stock which may be deemed beneficially owned through the
ownership of the unconverted portion of the Debentures or unexercised portion of
the Warrants), and (2) the number of shares of Common Stock issuable upon the
conversion of the Debentures or exercise of the Warrants with respect to which
the determination of this proviso is being made, would result in beneficial
ownership by the Holder and its affiliates of more than 9.99% of the outstanding
shares of Common Stock (after taking into account the shares to be issued to the
Holder upon such conversion or exercise). For purposes of the proviso to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended
(the "1934 Act"), except as otherwise provided in clause (1) of such sentence.
The Holder, by its acceptance of this Warrant, further agrees that if the Holder
transfers or assigns any of the Warrants to a party who or which would not be
considered such an affiliate, such assignment shall be made subject to the
transferee's or assignee's specific agreement to be bound by the provisions of
this Section 2.2 as if such transferee or assignee were the original Holder
hereof.
3. RESERVATION OF SHARES. The Company hereby agrees that at all times
during the term of this Warrant there shall be reserved for issuance upon
exercise of this Warrant such number of shares of its Common Stock as shall be
required for issuance upon exercise of this Warrant (the "Warrant Shares").
4. MUTILATION OR LOSS OF WARRANT. Upon receipt by the Company of
evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and (in the case of loss, theft or destruction) receipt of
reasonably satisfactory indemnification, and (in the case of mutilation) upon
surrender and cancellation of this Warrant, the Company will execute and deliver
a new Warrant of like tenor and date and any such lost, stolen, destroyed or
mutilated Warrant shall thereupon become void.
5. RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in this Warrant and
are not enforceable against the Company except to the extent set forth herein.
-2-
<PAGE> 3
6. PROTECTION AGAINST DILUTION.
6.1 ADJUSTMENT MECHANISM. If an adjustment of the Exercise
Price is required pursuant to this Section 6, the Holder shall be entitled to
purchase such number of additional shares of Common Stock as will cause (i) the
total number of shares of Common Stock Holder is entitled to purchase pursuant
to this Warrant, multiplied by (ii) the adjusted purchase price per share, to
equal (iii) the dollar amount of the total number of shares of Common Stock
Holder is entitled to purchase before adjustment multiplied by the total
purchase price before adjustment.
6.2 CAPITAL ADJUSTMENTS. In case of any stock split or reverse
stock split, stock dividend, reclassification of the Common Stock,
recapitalization, merger or consolidation, or like capital adjustment affecting
the Common Stock of the Company, the provisions of this Section 6 shall be
applied as if such capital adjustment event had occurred immediately prior to
the date of this Warrant and the original purchase price had been fairly
allocated to the stock resulting from such capital adjustment; and in other
respects the provisions of this Section shall be applied in a fair, equitable
and reasonable manner so as to give effect, as nearly as may be, to the purposes
hereof. A rights offering to stockholders shall be deemed a stock dividend to
the extent of the bargain purchase element of the rights.
6.3 ADJUSTMENT FOR SPIN OFF. If, for any reason, prior to the
exercise of this Warrant in full, the Company spins off or otherwise divests
itself of a part of its business or operations or disposes all or of a part of
its assets in a transaction (the "Spin Off") in which the Company does not
receive compensation for such business, operations or assets, but causes
securities of another entity (the "Spin Off Securities") to be issued to
security holders of the Company, then
(a) the Company shall cause (i) to be reserved Spin Off
Securities equal to the number thereof which would have been issued to
the Holder had all of the Holder's unexercised Warrants outstanding on
the record date (the "Record Date") for determining the amount and
number of Spin Off Securities to be issued to security holders of the
Company (the "Outstanding Warrants") been exercised as of the close of
business on the trading day immediately before the Record Date (the
"Reserved Spin Off Shares"), and (ii) to be issued to the Holder on the
exercise of all or any of the Outstanding Warrants, such amount of the
Reserved Spin Off Shares equal to (x) the Reserved Spin Off Shares
multiplied by (y) a fraction, of which (I) the numerator is the amount
of the Outstanding Warrants then being exercised, and (II) the
denominator is the amount of the Outstanding Warrants; and
(b) the Exercise Price on the Outstanding Warrants shall be
adjusted immediately after consummation of the Spin Off by multiplying
the Exercise Price by a fraction (if, but only if, such fraction is
less than 1.0), the numerator of which is the numerator of which is the
Average Market Price of the Common Stock for the five (5) trading days
immediately following the fifth trading day after the Record Date, and
the denominator of which is the Average Market Price of the Common
Stock on the five (5) trading days immediately following the fifth
trading day after the Record Date, and the denominator of which is
-3-
<PAGE> 4
the Average Market Price of the Common Stock on the five (5) trading
days immediately preceding the Record Date; and such adjusted Exercise
Price shall be deemed to be the Exercise Price with respect to the
Outstanding Warrants after the Record Date.
For the purposes of this Section 6.3, the "Average Market Price of the Common
Stock" shall mean, for the relevant period, (x) the average closing bid price of
a share of Common Stock, as reported by Bloomberg, LP or, if not so reported, as
reported on the over-the-counter market or (y) if the Common Stock is listed on
a stock exchange, the closing price on such exchange on the date indicated in
the relevant provision hereof, as reported in The Wall Street Journal.
7. TRANSFER TO COMPLY WITH THE SECURITIES ACT; REGISTRATION RIGHTS.
(a) This Warrant has not been registered under the Securities Act of
1933, as amended, (the "Act") and has been issued to the Holder for investment
and not with a view to the distribution of either the Warrant or the Warrant
Shares. Neither this Warrant nor any of the Warrant Shares or any other security
issued or issuable upon exercise of this Warrant may be sold, transferred,
pledged or hypothecated in the absence of an effective registration statement
under the Act relating to such security or an opinion of counsel satisfactory to
the Company that registration is not required under the Act. Each certificate
for the Warrant, the Warrant Shares and any other security issued or issuable
upon exercise of this Warrant shall contain a legend on the face thereof, in
form and substance satisfactory to counsel for the Company, setting forth the
restrictions on transfer contained in this Section.
(b) The Company agrees to file a registration statement, which shall
include the Warrant Shares, on Form SB-2 (as so amended, the "Registration
Statement"), pursuant to the Act, by the 30th calendar day after the date the
Closing Date (as defined in the Securities Purchase Agreement) on which this
Warrant was issued to the Holder or the Holder's predecessor in interest (the
"Original Issuance Date") and to have the registration of the Warrant Shares
completed and effective by the 120th calendar day after such Closing Date. The
term "Securities Purchase Agreement" means the Securities Purchase Agreement,
dated May 3, 1999, between the Company and the Holder (or the Holder's
predecessor in interest).
8. NOTICES. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission or sent by certified, registered or
express mail, postage pre-paid. Any such notice shall be deemed given when so
delivered personally, telegraphed, telexed or sent by facsimile transmission,
or, if mailed, two days after the date of deposit in the United States mails, as
follows:
(i) if to the Company, to:
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
15544 N.W. 77th Court
Miami Lakes, FL 33016
ATTN: Nelson Locke, Pres.
Telephone No.: (305) 828-2599
Telecopier No.: (305) -
-4-
<PAGE> 5
(ii) if to the Holder, to:
FENNELL AVENUE, L.L.C.
c/o Citco Trustees (Cayman) Limited
P.O. Box 3116
Grand Cayman, BWI
Telephone No.: (345) 949-3977
Telecopier No.: (345) 945-7566
with a copy to:
Krieger & Prager, Esqs.
319 Fifth Avenue
New York, New York 10016
Telecopier No. (212) 213-2077
Telephone No.: (212) 689-3322
Any party may be notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices hereunder.
9. SUPPLEMENTS AND AMENDMENTS; WHOLE AGREEMENT. This Warrant may be
amended or supplemented only by an instrument in writing signed by the parties
hereto. This Warrant of even date herewith contain the full understanding of the
parties hereto with respect to the subject matter hereof and thereof and there
are no representations, warranties, agreements or understandings other than
expressly contained herein and therein.
10. GOVERNING LAW. This Warrant shall be deemed to be a contract made
under the laws of the State of New York for contracts to be wholly performed in
such state and without giving effect to the principles thereof regarding the
conflict of laws. Each of the parties consents to the jurisdiction of the
federal courts whose districts encompass any part of the City of New York or the
state courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Warrant and hereby waives, to the
maximum extent permitted by law, any objection, including any objection based on
FORUM NON CONVENIENS, to the bringing of any such proceeding in such
jurisdictions. To the extent determined by such court, the Company shall
reimburse the Holder for any reasonable legal fees and disbursements incurred by
the Buyer in enforcement of or protection of any of its rights under any of the
Transaction Agreements.
-5-
<PAGE> 6
11. COUNTERPARTS. This Warrant may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
12. DESCRIPTIVE HEADINGS. Descriptive headings of the several Sections
of this Warrant are inserted for convenience only and shall not control or
affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of
the 6th day of May, 1999.
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
By:
-----------------------------
Nelson A. Locke, President
-6-
<PAGE> 7
NOTICE OF EXERCISE OF WARRANT
The undersigned hereby irrevocably elects to exercise the right,
represented by the Warrant Certificate, dated as of May 6, 1999, to purchase
shares of the Common Stock, no par value per share, of AMERICA'S SENIOR
FINANCIAL SERVICES, INC. and tenders herewith payment in accordance with
Section 1 of said Common Stock Purchase Warrant.
Please deliver the stock certificate to:
Dated:
----------------------
- ----------------------------
[Name of Holder]
By:
-------------------------
[ ] CASH: $
-----------------
[ ] CASHLESS EXERCISE
-7-
<PAGE> 1
Exhibit 3(e)
DEBENTURE
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION
HEREOF HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE OR UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES ARE RESTRICTED
AND MAY NOT BE OFFERED, RESOLD, PLEDGED OR TRANSFERRED EXCEPT AS
PERMITTED UNDER THE ACT PURSUANT TO REGISTRATION OR EXEMPTION OR SAFE
HARBOR THEREFROM.
No. 001 US $2,500,000.00
AMERICA_S SENIOR FINANCIAL SERVICES, INC.
3% CONVERTIBLE DEBENTURE DUE May 6, 2002
THIS DEBENTURE is one of a duly authorized issue of up to
$10,000,000 Debentures of AMERICA_S SENIOR FINANCIAL SERVICES, INC., a
corporation organized and existing under the laws of the State of Florida (the
"Company") designated as its 3% Convertible Debentures. Such Debentures may be
issued in series, each of which may have a different maturity date, but which
otherwise have substantially similar terms.
FOR VALUE RECEIVED, the Company promises to pay to FENNELL AVENUE,
L.L.C., the registered holder hereof (the "Holder"), the principal sum of Two
Million Five Hundred Thousand and 00/100 Dollars (US $2,500,000) on May 6, 2002
(the "Maturity Date") and to pay interest on the principal sum outstanding from
time to time in arrears (i) prior to the Maturity Date, quarterly, on the last
day of March, June, September and December of each year, (ii) upon conversion as
provided herein or (iii) on the Maturity Date, at the rate of 3% per annum
accruing from the May 6, 1999, the date of initial issuance of this Debenture.
Accrual of interest shall commence on the first such business day to occur after
the date hereof and shall continue to accrue on a daily basis until payment in
full of the principal sum has been made or duly provided for.
This Debenture is subject to the following additional provisions:
1. The Debentures are issuable in denominations of Ten Thousand Dollars
(US$10,000) and integral multiples thereof. The Debentures are exchangeable for
an equal aggregate principal amount of Debentures of different authorized
denominations, as requested by the Holder surrendering the same. No service
charge will be made for such registration or transfer or exchange.
2. The Company shall be entitled to withhold from all payments of
principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions of the United States income tax laws or
other applicable laws at the time of such payments, and Holder shall execute and
deliver all required documentation in connection therewith.
<PAGE> 2
3. This Debenture has been issued subject to investment representations
of the original purchaser hereof and may be transferred or exchanged only in
compliance with the Securities Act of 1933, as amended (the "Act"), and other
applicable state and foreign securities laws. In the event of any proposed
transfer of this Debenture, the Company may require, prior to issuance of a new
Debenture in the name of such other person, that it receive reasonable transfer
documentation including legal opinions that the issuance of the Debenture in
such other name does not and will not cause a violation of the Act or any
applicable state or foreign securities laws. Prior to due presentment for
transfer of this Debenture, the Company and any agent of the Company may treat
the person in whose name this Debenture is duly registered on the Company's
Debenture Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Debenture be
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary.
4. A. The Holder of this Debenture is entitled, at its option, subject
to the following provisions of this Section 4, to convert all or a portion of
this Debenture into shares of Common Stock of the Company, $.001 par value per
share ("Common Stock") of the Company at any time until the Maturity Date, at a
conversion price for each share of Common Stock (the _Conversion Rate_) equal to
the lower of (x) the Initial Market Price ( as defined below, which amount is
subject to adjustment as hereinafter provided; the _Base Price_) multiplied by
one hundred twenty percent (120%) or (y) the Current Market Price (as defined
below) multiplied by eighty-five percent (85%); provided that the principal
amount being converted is the lower of (x) at least US $10,000 (unless if at the
time of such election to convert the aggregate principal amount of all
Debentures registered to the Holder is less than Ten Thousand Dollars [US
$10,000], then the whole amount thereof) or (y) the maximum amount which the
Holder can then convert pursuant to the terms of Section 4(E) hereof .
B. For purposes of this Debenture, the following terms have the
meanings indicated below:
(i) _Market Price of the Common Stock_ means (x) the closing
bid price of the Common Stock for the period indicated in the relevant
provision, as reported by Bloomberg, LP or, if not so reported, as reported on
the over-the-counter market or (y) if the Common Stock is listed on a stock
exchange, the closing price on such exchange, as reported in The Wall Street
Journal.
(ii) _Initial Market Price_ means the average Market Price of
the Common Stock for the ten (10) trading days ending on the trading day
immediately before the Initial Closing Date (as that term is defined in the
Securities Purchase Agreement defined below).
(iii) _Current Market Price_ means the average Market Price of
the Common Stock for the five (5) trading days (which need not be consecutive)
selected by the Holder from the twenty (20) trading days ending on the trading
day immediately before the relevant Conversion Date (as defined below).
-2-
<PAGE> 3
C. The Holder of this Debenture is entitled, at its option, to
convert this Debenture at any time which is after the earlier of (x) the
ninetieth (90th) day after the Initial Closing Date or (y) the Effective Date of
the Registrable Securities applicable to the Initial Debentures (as those terms
are defined in the Securities Purchase Agreement); provided, however, that the
Holder may not convert more than thirty-three percent (33%) of the original
principal amount of the Debentures issued to the Holder (or Holder_s
predecessors in interest) on or about such date the (as defined in the
Securities Purchase Agreement defined below) during any thirty (30) calendar day
period. [To be omitted after Initial Debentures]
D. Conversion shall be effectuated by surrendering the
Debentures to be converted to the Company, accompanied by or preceded by
facsimile or other delivery to the Company of the form of conversion notice
attached hereto as Exhibit A, executed by the Holder of the Debenture evidencing
such Holder's intention to convert this Debenture or a specified portion hereof,
and accompanied, if required by the Company, by proper assignment hereof in
blank. Subject to the provisions of Section 4(E) hereof, interest accrued or
accruing from the date of issuance to the date of conversion shall, at the
option of the Company, be paid in cash or Common Stock upon conversion at the
Conversion Rate applicable to such conversion. No fractional shares of Common
Stock or scrip representing fractions of shares will be issued on conversion,
but the number of shares issuable shall be rounded to the nearest whole share.
The date on which notice of conversion is given (the "Conversion Date") shall be
deemed to be the date on which the Holder faxes or otherwise delivers the
conversion notice ("Notice of Conversion"), substantially in the form annexed
hereto as Exhibit A, duly executed, to the Company, provided that the Holder
shall deliver to the Company's transfer agent or the Company the original
Debentures being converted within five (5) business days thereafter (and if not
so delivered within such time, the Conversion Date shall be the date on which
the later of the Notice of Conversion and the original Debentures being
converted is received by the Company). Facsimile delivery of the Notice of
Conversion shall be accepted by the Company at facsimile number (305) 556-7509
ATTN: NELSON A. LOCKE, PRESIDENT. Certificates representing Common Stock upon
conversion will be delivered within three (3) business days from the date later
of the Notice of Conversion is delivered to the Company as contemplated in the
first sentence of this paragraph C or the original Debenture is delivered to the
Company_s transfer agent or the Company.
E. Notwithstanding any other provision hereof, of the Warrants
or of any of the other Transaction Agreements (as those terms are defined in the
Securities Purchase Agreement), in no event (except (i) with respect to an
automatic conversion, if any, of a Debenture as provided in the Debentures, (ii)
as specifically provided in this Debenture as an exception to this provision, or
(iii) while there is outstanding a tender offer for any or all of the shares of
the Company_s Common Stock) shall the Holder be entitled to convert any
Debenture or shall the Company have the obligation, to convert all or any
portion of this Debenture (and the Company shall not have the right to pay
interest on this Debenture) to the extent that, after such conversion, the sum
of (1) the number of shares of Common Stock beneficially owned by the Holder and
its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion of the
Debentures or unexercised portion of the Warrants), and (2) the number of
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<PAGE> 4
shares of Common Stock issuable upon the conversion of the Debentures or
exercise of the Warrants with respect to which the determination of this proviso
is being made, would result in beneficial ownership by the Holder and its
affiliates of more than 9.99% of the outstanding shares of Common Stock (after
taking into account the shares to be issued to the Holder upon such conversion
or exercise). For purposes of the proviso to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended (the _1934 Act_), except as
otherwise provided in clause (1) of such sentence. The Holder, by its acceptance
of this Debenture, further agrees that if the Holder transfers or assigns any of
the Debentures to a party who or which would not be considered such an
affiliate, such assignment shall be made subject to the transferee_s or
assignee_s specific agreement to be bound by the provisions of this Section 4(E)
as if such transferee or assignee were the original Holder hereof.
F. Anything herein to the contrary notwithstanding, in the
event the Company breaches the provisions of Section 4(g) of the Securities
Purchase Agreement, the Conversion Rate shall be amended to be equal to (i) 90%
of (ii) the Conversion Rate determined in accordance with the other provisions
of this Debenture without regard to this Section 4(D), and the Holder may
require the Company to immediately redeem the outstanding portion of this
Debenture in accordance with clause (y) of Section 6 hereof.
5. Any Debentures not previously converted as of the Maturity Date,
shall be deemed to be automatically converted, without further action of any
kind by the Company or any of its agents, employees or representatives, as of
the Maturity Date at the Conversion Rate applicable on the Maturity Date
(_Mandatory Conversion_).
6. The Holder recognizes that the Company may be limited in the number
of shares of Common Stock it may issue by (i) reason of its authorized shares,
or (ii) the applicable rules and regulations of the principal securities market
on which the Common Stock is listed or traded (collectively, the"Cap
Regulations"). Without limiting the other provisions hereof, (i) the Company
will take all steps reasonably necessary to be in a position to issue shares of
Common Stock on conversion of the Debentures without violating the Cap
Regulations and (ii) if, despite taking such steps, the Company still can not
issue such shares of Common Stock without violating the Cap Regulations, the
Holder of this Debenture (to the extent the same can not be converted in
compliance with the Cap Regulations (an _Unconverted Debenture_), shall have the
option, exercisable in the Holder's sole and absolute discretion, to elect any
one of the following remedies:
(x) require the Company to issue shares of Common
Stock in accordance with such Holder's Notice of Conversion relating to
the Unconverted Debenture at a conversion purchase price equal to the
average of the closing bid price per share of Common Stock for any five
(5) consecutive trading days (subject to the equitable adjustments for
certain events occurring during such period as provided in this
Debenture) during the sixty (60) trading days immediately preceding the
date of the Notice of Conversion; or
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<PAGE> 5
(y) require the Company to redeem each Unconverted
Debenture for an amount (the "Cap Redemption Amount"), payable in cash,
equal to:
V x M
-------
CP
where:
"V" means the outstanding principal plus accrued
interest through the Cap Redemption Date (as defined below) of an
Unconverted Debenture;
"CP" means the Conversion Rate in effect on the date
of redemption (the "Cap Redemption Date") specified in the notice from
the Holder electing this remedy; and
"M" means the highest closing ask price during the
period beginning on the Cap Redemption Date and ending on the date of
payment of the Cap Redemption Amount.
The holder of an Unconverted Debenture may elect one of the above remedies with
respect to a portion of such Unconverted Debenture and the other remedy with
respect to other portions of the Unconverted Debenture.
7. Subject to the terms of the Securities Purchase Agreement, dated May
3, 1999 (the "Securities Purchase Agreement"), between the Company and the
Holder (or the Holder's predecessor in interest), no provision of this Debenture
shall alter or impair the obligation of the Company, which is absolute and
unconditional, to pay the principal of, and interest on, this Debenture at the
time, place, and rate, and in the coin or currency, herein prescribed. This
Debenture and all other Debentures now or hereafter issued of similar terms are
direct obligations of the Company.
8. No recourse shall be had for the payment of the principal of, or the
interest on, this Debenture, or for any claim based hereon, or otherwise in
respect hereof, against any incorporator, shareholder, officer or director, as
such, past, present or future, of the Company or any successor corporation,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise, all such liability being,
by the acceptance hereof and as part of the consideration for the issue hereof,
expressly waived and released.
9. If the Company merges or consolidates with another corporation or
sells or transfers all or substantially all of its assets to another person and
the holders of the Common Stock are entitled to receive stock, securities or
property in respect of or in exchange for Common Stock, then as a condition of
such merger, consolidation, sale or transfer, the Company and any such
successor, purchaser or transferee agree that the Debenture may thereafter be
converted on the terms and subject
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<PAGE> 6
to the conditions set forth above into the kind and amount of stock, securities
or property receivable upon such merger, consolidation, sale or transfer by a
holder of the number of shares of Common Stock into which this Debenture might
have been converted immediately before such merger, consolidation, sale or
transfer, subject to adjustments which shall be as nearly equivalent as may be
practicable. In the event of any proposed merger, consolidation or sale or
transfer of all or substantially all of the assets of the Company (a "Sale"),
the Holder hereof shall have the right to convert by delivering a Notice of
Conversion to the Company within fifteen (15) days of receipt of notice of such
Sale from the Company. In the event the Holder hereof shall elect not to
convert, the Company may prepay all outstanding principal and accrued interest
on this Debenture by paying the Redemption Amount contemplated by Section 5(A)
hereof, less all amounts required by law to be deducted, upon which tender of
payment following such notice, the right of conversion shall terminate.
10. If, for any reason, prior to the Conversion Date or the Redemption
Payment Date, the Company spins off or otherwise divests itself of a part of its
business or operations or disposes all or of a part of its assets in a
transaction (the _Spin Off_) in which the Company does not receive compensation
for such business, operations or assets, but causes securities of another entity
(the _Spin Off Securities_) to be issued to security holders of the Company,
then the Company shall cause (i) to be reserved Spin Off Securities equal to the
number thereof which would have been issued to the Holder had all of the
Holder_s Debentures outstanding on the record date (the _Record Date_) for
determining the amount and number of Spin Off Securities to be issued to
security holders of the Company (the _Outstanding Debentures_) been converted as
of the close of business on the trading day immediately before the Record Date
(the _Reserved Spin Off Shares_), and (ii) to be issued to the Holder on the
conversion of all or any of the Outstanding Debentures, such amount of the
Reserved Spin Off Shares equal to (x) the Reserved Spin Off Shares multiplied by
(y) a fraction, of which (I) the numerator is the principal amount of the
Outstanding Debentures then being converted, and (II) the denominator is the
principal amount of the Outstanding Debentures.
11. If, at any time while any portion of this Debenture remains
outstanding, the Company effectuates a stock split or reverse stock split of its
Common Stock or issues a dividend on its Common Stock consisting of shares of
Common Stock, the Base Price shall be equitably adjusted to reflect such action.
By way of illustration, and not in limitation, of the foregoing (i) if the
Company effectuates a 2:1 split of its Common Stock, thereafter, with respect to
any conversion for which the Company issues the shares after the record date of
such split, the Base Price shall be deemed to be one-half of what it had been
calculated to be immediately prior to such split; (ii) if the Company
effectuates a 1:10 reverse split of its Common Stock, thereafter, with respect
to any conversion for which the Company issues the shares after the record date
of such reverse split; and (iii) if the Company declares a stock dividend of one
share of Common Stock for every 10 shares outstanding, thereafter, with respect
to any conversion for which the Company issues the shares after the record date
of such dividend, the Base Price shall be deemed to be the amount of such Base
Price calculated immediately prior to such record date multiplied by a fraction,
of which the numerator is the number of shares (10) for which a dividend share
will be issued and the denominator is such number of shares plus the dividend
share(s) issuable or issued thereon (11).
-6-
<PAGE> 7
12. All payments contemplated hereby to be made _in cash_ shall be made
in immediately available good funds in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts. All payments of cash and each delivery of shares of
Common Stock issuable to the Holder as contemplated hereby shall be made to the
Holder at the address last appearing on the Debenture Register of the Company as
designated in writing by the Holder from time to time; except that the Holder
can designate, by notice to the Company, a different delivery address for any
one or more specific payments or deliveries.
13. The Holder of the Debenture, by acceptance hereof, agrees that this
Debenture is being acquired for investment and that such Holder will not offer,
sell or otherwise dispose of this Debenture or the Shares of Common Stock
issuable upon conversion thereof except under circumstances which will not
result in a violation of the Act or any applicable state Blue Sky or foreign
laws or similar laws relating to the sale of securities.
14. This Debenture shall be governed by and construed in accordance
with the laws of the State of New York. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on FORUM NON COVENIENS, to the bringing of any such
proceeding in such jurisdictions. To the extent determined by such court, the
Company shall reimburse the Holder for any reasonable legal fees and
disbursements incurred by the Holder in enforcement of or protection of any of
its rights under any of this Debenture.
15. The following shall constitute an "Event of Default":
a. The Company shall default in the payment of principal
or interest on this Debenture and same shall continue
for a period of three (3) days; or
b. Any of the representations or warranties made by the
Company herein, in the Securities Purchase Agreement,
the Registration Rights Agreement or in any
certificate or financial or other written statements
heretofore or hereafter furnished by the Company in
connection with the execution and delivery of this
Debenture or the Securities Purchase Agreement shall
be false or misleading in any material respect at the
time made; or
c. The Company fails to issue shares of Common Stock to
the Holder or to cause its Transfer Agent to issue
shares of Common Stock upon exercise by the Holder of
the conversion rights of the Holder in accordance
with the terms of this Debenture, fails to transfer
or to cause its Transfer Agent to transfer any
certificate for shares of Common Stock issued to the
Holder upon conversion of this Debenture and when
required by this Debenture or
-7-
<PAGE> 8
the Registration Rights Agreement, and such transfer
is otherwise lawful, or fails to remove any
restrictive legend or to cause its Transfer Agent to
transfer on any certificate or any shares of Common
Stock issued to the Holder upon conversion of this
Debenture as and when required by this Debenture, the
Agreement or the Registration Rights Agreement and
such legend removal is otherwise lawful, and any such
failure shall continue uncured for five (5) business
days.
d. The Company shall fail to perform or observe, in any
material respect, any other covenant, term,
provision, condition, agreement or obligation of any
Debenture in this series and such failure shall
continue uncured for a period of thirty (30) days
after written notice from the Holder of such failure;
or
e. The Company shall fail to perform or observe, in any
material respect, any covenant, term, provision,
condition, agreement or obligation of the Company
under the Securities Purchase Agreement or the
Registration Rights Agreement and such failure shall
continue uncured for a period of thirty (30) days
after written notice from the Holder of such failure
(other than a failure to cause the Registration
Statement to become effective no later than the
Required Effective Date, as defined and provided in
the Registration Rights Agreement, as to which no
such cure period shall apply); or
f. The Company shall (1) admit in writing its inability
to pay its debts generally as they mature; (2) make
an assignment for the benefit of creditors or
commence proceedings for its dissolution; or (3)
apply for or consent to the appointment of a trustee,
liquidator or receiver for its or for a substantial
part of its property or business; or
g. A trustee, liquidator or receiver shall be appointed
for the Company or for a substantial part of its
property or business without its consent and shall
not be discharged within sixty (60) days after such
appointment; or
h. Any governmental agency or any court of competent
jurisdiction at the instance of any governmental
agency shall assume custody or control of the whole
or any substantial portion of the properties or
assets of the Company and shall not be dismissed
within sixty (60) days thereafter; or
i. Any money judgment, writ or warrant of attachment, or
similar process in excess of Two Hundred Thousand
($200,000) Dollars in the aggregate shall be entered
or filed against the Company or any of its properties
or other assets and shall remain unpaid, unvacated,
unbonded or unstayed for a period of sixty (60) days
or in any event later than five (5) days prior to the
date of any proposed sale thereunder; or
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<PAGE> 9
j. Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors
shall be instituted by or against the Company and, if
instituted against the Company, shall not be
dismissed within sixty (60) days after such
institution or the Company shall by any action or
answer approve of, consent to, or acquiesce in any
such proceedings or admit the material allegations
of, or default in answering a petition filed in any
such proceeding; or
k. The Company shall have its Common Stock suspended or
delisted from an exchange or over-the-counter market
from trading for in excess of five (5) trading days.
Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Holder and in the Holder's sole discretion, the Holder may consider this
Debenture immediately due and payable, without presentment, demand, protest or
notice of any kinds, all of which are hereby expressly waived, anything herein
or in any note or other instruments contained to the contrary notwithstanding,
and the Holder may immediately enforce any and all of the Holder's rights and
remedies provided herein or any other rights or remedies afforded by law.
16. Nothing contained in this Debenture shall be construed as
conferring upon the Holder the right to vote or to receive dividends or to
consent or receive notice as a shareholder in respect of any meeting of
shareholders or any rights whatsoever as a shareholder of the Company, unless
and to the extent converted in accordance with the terms hereof.
17. In the event for any reason, any payment by or act of the Company
or the Holder shall result in payment of interest which would exceed the limit
authorized by or be in violation of the law of the jurisdiction applicable to
this Debenture, the IPSO FACTO the obligation of the Company to pay interest or
perform such act or requirement shall be reduced to the limit authorized under
such law, so that in no event shall the Company be obligated to pay any such
interest, perform any such act or be bound by any requirement which would result
in the payment of interest in excess of the limit so authorized. In the event
any payment by or act of the Company shall result in the extraction of a rate of
interest in excess of a sum which is lawfully collectible as interest, then such
amount (to the extent of such excess not returned to the Company) shall, without
further agreement or notice between or by the Company or the Holder, be deemed
applied to the payment of principal, if any, hereunder immediately upon receipt
of such excess funds by the Holder, with the same force and effect as though the
Company had specifically designated such sums to be so applied to principal and
the Holder had agreed to accept such sums as an interest-free prepayment of this
Debenture. If any part of such excess remains after the principal has been paid
in full, whether by the provisions of the preceding sentences of this Section 17
or otherwise, such excess shall be deemed to be an interest-free loan from the
Company to the Holder, which loan shall be payable immediately upon demand by
the Company. The provisions of this Section 17 shall control every other
provision of this Debenture.
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<PAGE> 10
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed
by an officer thereunto duly authorized.
Dated: May 6, 1999
AMERICA_S SENIOR FINANCIAL SERVICES, INC.
By:
-------------------------------
Nelson A. Locke, President
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<PAGE> 11
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert $ ________________
of the principal amount of the above Debenture No. ___ into Shares of Common
Stock of AMERICA_S SENIOR FINANCIAL SERVICES, INC. (the "Company") according to
the conditions hereof, as of the date written below.
Conversion Date*
- ------------------------------------------------------------
Applicable Conversion Price
- ------------------------------------------------------------
Signature
- ------------------------------------------------------------
[Name]
Address:
- ------------------------------------------------------------
- ------------------------------------------------------------
X This original Debenture must be received by the Company by the fifth
business date following the Conversion Date
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<PAGE> 1
Exhibit 5.1
Law Offices
JOEL BERNSTEIN, ESQ., P.A.
11900 BISCAYNE BLVD., SUITE 604 TELEPHONE: 305.892.1122
MIAMI, FLORIDA 33181 FACSIMILE: 305.892.0822
June 10, 1999
America's Senior Financial Services, Inc.
15536 N.W. 77th Court
Miami Lakes, FL 33016
Gentlemen:
I have acted as special counsel to America's Senior Financial Services, a
Florida corporation (the "Corporation"), in connection with the offering of
1,361,339 shares of Common Stock. The offering of the shares is to be made
pursuant to Registration Statement on Form SB-2 to be filed with the Securities
and Exchange Commission (the "Registration Statement").
I have acted as special counsel to the Corporation in connection with the
shares.
Please be advised that I am of the opinion that the Corporation's Common
Stock to be offered pursuant to the Registration Statement has been duly
authorized by the Corporation. The outstanding Common Stock and the Common
Stock to be issued upon exercise of Common Stock Purchase Warrants and upon
conversion of outstanding Debentures and for interest thereon in accordance
with the terms thereof will be validly issued by the Corporation and fully paid
and non-assessable.
I consent to the use of my name in the Registration Statement in the section of
the Prospectus entitled "Legal Matters" and the filing of this letter as an
exhibit to the Registration Statement.
Your very truly,
/s/ Joel Bernstein
----------------------------------
JB: jm
<PAGE> 1
Exhibit 6(j)
ANNEX IV
TO
SECURITIES PURCHASE
AGREEMENT
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of May 3, 1999
(this "Agreement"), is made by and between AMERICA_S SENIOR FINANCIAL SERVICES,
INC., a Florida corporation, with headquarters located at 15544 N.W. 77th Court,
Miami Lakes, FL 33016 (the _Company_), and each entity named on a signature page
hereto (each, an _Initial Investor_) (each agreement with an Initial Investor
being deemed a separate and independent agreement between the Company and such
Initial Investor, except that each Initial Investor acknowledges and consents to
the rights granted to each other Initial Investor under such agreement).
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the
Securities Purchase Agreement, dated as of May 3, 1999, between the Initial
Investor and the Company (the "Securities Purchase Agreement"; terms not
otherwise defined herein shall have the meanings ascribed to them in the
Securities Purchase Agreement), the Company has agreed to issue and sell to the
Initial Investor one or more 3% Convertible Debentures of the Company, in an
aggregate principal amount not exceeding $10,000,000 (the "Debentures"); and
WHEREAS, the Company has agreed to issue the Warrants to the
Initial Investor in connection with the issuance of the Debentures; and
WHEREAS, the Debentures are convertible into shares of Common
Stock (the "Conversion Shares"; which term, for purposes of this Agreement,
shall include shares of Common Stock of the Company issuable in lieu of accrued
interest on conversion as contemplated by the Debentures) upon the terms and
subject to the conditions contained in the Debentures and the Warrants may be
exercised for the purchase of shares of Common Stock (the _Warrant Shares_) upon
the terms and conditions of the Warrants; and
WHEREAS, to induce the Initial Investor to execute and deliver
the Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), with respect to the Conversion Shares and the Warrant Shares;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Initial Investor hereby agree as follows:
<PAGE> 2
1. DEFINITIONS. As used in this Agreement, the following terms
shall have the following meanings:
(a) "Investor" means the Initial Investor and any permitted
transferee or assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof and who holds Debentures, Warrants
or Registrable Securities.
(b) _Potential Material Event_ means any of the following: (i)
the possession by the Company of material information not ripe for disclosure in
a registration statement, which shall be evidenced by determinations in good
faith by the Board of Directors of the Company that disclosure of such
information in the registration statement would be detrimental to the business
and affairs of the Company; or (ii) any material engagement or activity by the
Company which would, in the good faith determination of the Board of Directors
of the Company, be adversely affected by disclosure in a registration statement
at such time, which determination shall be accompanied by a good faith
determination by the Board of Directors of the Company that the registration
statement would be materially misleading absent the inclusion of such
information.
(c) "Register," "Registered," and "Registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
(d) "Registrable Securities" means the Conversion Shares and
the Warrant Shares applicable to the Debentures and Warrants issued on the
Initial Closing Date or the relevant Additional Closing Date, as the case may
be.
(e) "Registration Statement" means a registration statement of
the Company under the Securities Act.
2. REGISTRATION.
(a) MANDATORY REGISTRATION.
(i) The Company shall prepare and file with the SEC,
as soon as possible after the Initial Closing Date no later than a date (the
_Required Filing Date_) which is thirty (30) days following the Initial Closing
Date and thirty (30) days after the relevant Additional Closing Date, as the
case may be, either a Registration Statement on Form SB-2 or an amendment to an
existing Registration Statement, in either event registering for resale by the
Investor a sufficient number of shares of Common Stock for the Initial Investors
to sell the Registrable Securities (or such lesser number as may be required by
the SEC, but in no event less than two hundred percent (200%) of the aggregate
number of shares (A) into which the relevant Debentures and all interest thereon
through their respective Maturity Dates would be convertible at the time of
filing of such
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<PAGE> 3
Registration Statement (assuming for such purposes that all such Debentures
had been eligible to be converted, and had been converted, into Conversion
Shares in accordance with their terms, whether or not such accrual of interest,
eligibility or conversion had in fact occurred as of such date) and (B) which
would be issued upon exercise of all of the relevant Warrants at the time of
filing of the Registration Statement (assuming for such purposes that such
Warrants had been eligible to be exercised and had been exercised in accordance
with their terms, whether or not such eligibility or exercise had in fact
occurred as of such date). The Registration Statement (W) shall include only the
Registrable Securities and (X) shall also state that, in accordance with Rule
416 and 457 under the Securities Act, it also covers such indeterminate number
of additional shares of Common Stock as may become issuable upon conversion of
the Debentures and the exercise of the Warrants to prevent dilution resulting
from stock splits or stock dividends. The Company will use its reasonable best
efforts to cause such Registration Statement to be declared effective on a date
(a "Required Effective Date") which is no later than is the earlier of (Y) five
(5) days after notice by the SEC that it may be declared effective or (Z) one
hundred twenty (120) days after the Initial Closing Date or thirty (30) days
after the relevant Additional Closing Date, as the case may be.
(ii) If at any time (an _Increased Registered Shares
Date_), the number of shares of Common Stock represented by the Registrable
Shares, issued or to be issued as contemplated by the Transaction Agreements,
exceeds the aggregate number of shares of Common Stock then registered, the
Company shall, within ten (10) business days after receipt of a written notice
from any Investor, either (X) amend the relevant Registration Statement filed by
the Company pursuant to the preceding provisions of this Section 2, if such
Registration Statement has not been declared effective by the SEC at that time,
to register two hundred percent (200%) of such Registrable Shares, computed as
contemplated by the immediately preceding subparagraph (i), or (Y) if such
Registration Statement has been declared effective by the SEC at that time, file
with the SEC an additional Registration Statement on Form SB-2 or other
appropriate registration statement form (an _Additional Registration Statement_)
to register two hundred percent (200%) of the shares of Common Stock represented
by the Registrable Shares, computed as contemplated by the immediately preceding
subparagraph (i), that exceed the aggregate number of shares of Common Stock
already registered. The Company will use its reasonable best efforts to cause
such Registration Statement to be declared effective on a date (a "Required
Effective Date") which is no later than (Q) with respect to a Registration
Statement under clause (X) of this subparagraph (ii), the Required Effective
Date contemplated by the immediately preceding subparagraph (i) and (R) with
respect to an Additional Registration Statement, the earlier of (I) five (5)
days after notice by the SEC that it may be declared effective or (II) thirty
(30) days after the Increased Registered Shares Date.
(b) PAYMENTS BY THE COMPANY.
(i) If the Registration Statement covering the
Registrable Securities is not filed in proper form with the SEC by the Required
Filing Date, the Company will make payment to the Initial Investor in such
amounts and at such times as shall be determined pursuant to this Section 2(b).
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<PAGE> 4
(ii) If the Registration Statement covering the
Registrable Securities is not effective by the relevant Required Effective Date
or if the Investor is restricted from making sales of Registrable Securities
covered by a previously effective Registration Statement at any time (the date
such restriction commences, a _Restricted Sale Date_) after the Effective Date
other than during a Suspension Period (as defined below), then the Company will
make payments to the Initial Investor in such amounts and at such times as shall
be determined pursuant to this Section 2(b).
(iii) The amount (the "Periodic Amount") to be paid
by the Company to the Initial Investor shall be determined as of each
Computation Date (as defined below) and such amount shall be equal to the
Periodic Amount Percentage (as defined below) of the Purchase Price for all
Debentures for the period from the date following the relevant Required Filing
Date, Required Effective Date or Restricted Sale Date, as the case may be, to
the first relevant Computation Date, and thereafter to each subsequent
Computation Date. The _Periodic Amount Percentage_ means (A) one percent (1%) of
the Purchase Price for all the Debentures previously purchased for the period
from the date following the relevant Required Filing Date, Required Effective
Date or Restricted Sale Date, as the case may be, to the first relevant
Computation Date (prorated on a daily basis if such period is less than thirty
[30] days), and (B) two percent (2%) of the Purchase Price of all Debentures to
each Computation Date thereafter (prorated on a daily basis if such period is
less than thirty [30] days). Anything in the preceding provisions of this
paragraph (iii) to the contrary notwithstanding, after the Effective Date the
Purchase Price shall be deemed to refer to the sum of (X) the principal amount
of all Debentures previously purchased but not yet converted and (Y) the Held
Shares Value (as defined below). The _Held Shares Value_ means, for shares
acquired by the Investor upon a conversion within the thirty (30) days preceding
the Restricted Sale Date, but not yet sold by the Investor, the principal amount
of the Debentures converted into such Conversion Shares; provided, however, that
if the Investor effected more than one conversion during such thirty (30) day
period and sold less than all of such shares, the sold shares shall be deemed to
be derived first from the conversions in the sequence of such conversions (that
is, for example, until the number of shares from the first of such conversions
have been sold, all shares shall be deemed to be from the first conversion;
thereafter, from the second conversion until all such shares are sold). By way
of illustration and not in limitation of the foregoing, if the Registration
Statement for the Registrable Securities relating to the Debentures and Warrants
issued on the Initial Closing Date is timely filed but is not declared effective
until one hundred sixty-five (165) days after the Initial Closing Date, the
Periodic Amount will aggregate three percent (3%) of the Purchase Price of the
Initial Debentures (1% for days 120-150, plus 2% for days 151-165).
(iv) Each Periodic Amount will be payable by the
Company in cash or other immediately available funds to the Investor monthly,
without requiring demand therefor by the Investor.
(v) The parties acknowledge that the damages which
may be incurred by the Investor if the Registration Statement is not filed by
the Required Filing Date or if the Registration Statement has not been declared
effective by a Required Effective Date, including if the right to sell
Registrable Securities under a previously effective Registration Statement is
suspended,
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<PAGE> 5
may be difficult to ascertain. The parties agree that the Periodic Amounts
represent a reasonable estimate on the part of the parties, as of the date of
this Agreement, of the amount of such damages.
(vi) Notwithstanding the foregoing, the amounts
payable by the Company pursuant to this provision shall not be payable to the
extent any delay in the effectiveness of the Registration Statement occurs
because of an act of, or a failure to act or to act timely by the Initial
Investor or its counsel, or in the event all of the Registrable Securities may
be sold pursuant to Rule 144 or another available exemption under the Act.
(vii) "Computation Date" means (A) the date which is
the earlier of (1) thirty (30) days after the Required Filing Date, any relevant
Required Effective Date or a Restricted Sale Date, as the case may be, or (2)
the date after the Required Filing Date, such Required Effective Date or
Restricted Sale Date on which the Registration Statement is filed (with respect
to payments due as contemplated by Section 2(b)(i) hereof) or is declared
effective or has its restrictions removed (with respect to payments due as
contemplated by Section 2(b)(ii) hereof), as the case may be, and (B) each date
which is the earlier of (1) thirty (30) days after the previous Computation Date
or (2) the date after the previous Computation Date on which the Registration
Statement is filed (with respect to payments due as contemplated by Section
2(b)(i) hereof) or is declared effective or has its restrictions removed (with
respect to payments due as contemplated by Section 2(b)(ii) hereof), as the case
may be.
3. OBLIGATIONS OF THE COMPANY. In connection with the
registration of the Registrable Securities, the Company shall do each of the
following.
(a) Prepare promptly, and file with the SEC by the Required
Filing Date a Registration Statement with respect to not less than the number of
Registrable Securities provided in Section 2(a) above, and thereafter use its
reasonable best efforts to cause such Registration Statement relating to
Registrable Securities to become effective by the Required Effective Date and
keep the Registration Statement effective at all times during the period (the
"Registration Period") continuing until the earliest of (i) the date that is two
(2) years after the last day of the calendar month following the month in which
the closing of the last tranche of Debentures occurs, (ii) the date when the
Investors may sell all Registrable Securities under Rule 144 or (iii) the date
the Investors no longer own any of the Registrable Securities, which
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading;
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the
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<PAGE> 6
Company covered by the Registration Statement until such time as all of such
Registrable Securities have been disposed of in accordance with the intended
methods of disposition by the seller or sellers thereof as set forth in the
Registration Statement;
(c) The Company shall permit a single firm of counsel
designated by the Initial Investors to review the Registration Statement and all
amendments and supplements thereto a reasonable period of time (but not less
than three (3) business days) prior to their filing with the SEC, and not file
any document in a form to which such counsel reasonably objects.
(d) Notify each Investor, such Investor_s legal counsel
identified to the Company (which, until further notice, shall be deemed to be
Krieger & Prager, ATTN: Samuel Krieger, Esq.; each, an _Investor_s Counsel_),
and any managing underwriters immediately (and, in the case of (i)(A) below, not
less than five (5) days prior to such filing) and (if requested by any such
Person) confirm such notice in writing no later than one (1) business day
following the day (i)(A) when a Prospectus or any Prospectus supplement or
post-effective amendment to the Registration Statement is proposed to be filed;
(B) whenever the SEC notifies the Company whether there will be a _review_ of
such Registration Statement; (C) whenever the Company receives (or a
representative of the Company receives on its behalf) any oral or written
comments from the SEC respect of a Registration Statement (copies or, in the
case of oral comments, summaries of such comments shall be promptly furnished by
the Company to the Investors); and (D) with respect to the Registration
Statement or any post-effective amendment, when the same has become effective;
(ii) of any request by the SEC or any other Federal or state governmental
authority for amendments or supplements to the Registration Statement or
Prospectus or for additional information; (iii) of the issuance by the SEC of
any stop order suspending the effectiveness of the Registration Statement
covering any or all of the Registrable Securities or the initiation of any
Proceedings for that purpose; (iv) if at any time any of the representations or
warranties of the Company contained in any agreement (including any underwriting
agreement) contemplated hereby ceases to be true and correct in all material
respects; (v) of the receipt by the Company of any notification with respect to
the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction, or the initiation or
threatening of any Proceeding for such purpose; and (vi) of the occurrence of
any event that to the best knowledge of the Company makes any statement made in
the Registration Statement or Prospectus or any document incorporated or deemed
to be incorporated therein by reference untrue in any material respect or that
requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. In addition, the Company shall furnish the Investors with
copies of all intended written responses to the comments contemplated in clause
(C) of this Section 3(d) not later than one (1) business day in advance of the
filing of such responses with the SEC so that the Investors shall have the
opportunity to comment thereon.
(e) Furnish to each Investor and such Investor_s Counsel (i)
promptly after the same
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<PAGE> 7
is prepared and publicly distributed, filed with the SEC, or received by the
Company, one (1) copy of the Registration Statement, each preliminary prospectus
and prospectus, and each amendment or supplement thereto, and (ii) such number
of copies of a prospectus, and all amendments and supplements thereto and such
other documents, as such Investor may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Investor;
(f) As promptly as practicable after becoming aware thereof,
notify each Investor of the happening of any event of which the Company has
knowledge, as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and use its best efforts promptly to prepare a supplement
or amendment to the Registration Statement or other appropriate filing with the
SEC to correct such untrue statement or omission, and deliver a number of copies
of such supplement or amendment to each Investor as such Investor may reasonably
request;
(g) As promptly as practicable after becoming aware thereof,
notify each Investor who holds Registrable Securities being sold (or, in the
event of an underwritten offering, the managing underwriters) of the issuance by
the SEC of a Notice of Effectiveness or any notice of effectiveness or any stop
order or other suspension of the effectiveness of the Registration Statement at
the earliest possible time;
(h) Notwithstanding the foregoing, if at any time or from time
to time after the date of effectiveness of the Registration Statement, the
Company notifies the Investors in writing of the existence of a Potential
Material Event, the Investors shall not offer or sell any Registrable
Securities, or engage in any other transaction involving or relating to the
Registrable Securities, from the time of the giving of notice with respect to a
Potential Material Event until such Investor receives written notice from the
Company that such Potential Material Event either has been disclosed to the
public or no longer constitutes a Potential Material Event; PROVIDED, HOWEVER,
that the Company may not so suspend the right to such holders of Registrable
Securities for more than two twenty (20) day periods in the aggregate during any
12-month period (_Suspension Period_) with at least a ten (10) business day
interval between such periods, during the periods the Registration Statement is
required to be in effect;
(i) Use its reasonable efforts to secure and maintain the
designation of all the Registrable Securities covered by the Registration
Statement on the "OTC Bulletin Board Market" of the National Association of
Securities Dealers Automated Quotations System ("NASDAQ") within the meaning of
Rule 11Aa2-1 of the SEC under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the quotation of the Registrable Securities on The
NASDAQ Bulletin Board Market; and, without limiting the generality of the
foregoing, to arrange for at least two market makers to register with the
National Association of Securities Dealers, Inc. ("NASD") as such with respect
to such Registrable Securities;
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<PAGE> 8
(j) Provide a transfer agent , which may be a single entity,
for the Registrable Securities not later than the effective date of the
Registration Statement;
(k) Cooperate with the Investors to facilitate the timely
preparation and delivery of certificates for the Registrable Securities to be
offered pursuant to the Registration Statement and enable such certificates for
the Registrable Securities to be in such denominations or amounts as the case
may be, as the Investors may reasonably request, and, within three (3) business
days after a Registration Statement which includes Registrable Securities is
ordered effective by the SEC, the Company shall deliver, and shall cause legal
counsel selected by the Company to deliver, to the transfer agent for the
Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an appropriate
instruction and opinion of such counsel; and
(l) Take all other reasonable actions necessary to expedite
and facilitate disposition by the Investor of the Registrable Securities
pursuant to the Registration Statement.
4. OBLIGATIONS OF THE INVESTORS. In connection with the
registration of the Registrable Securities, the Investors shall have the
following obligations:
(a) It shall be a condition precedent to the obligations of
the Company to complete the registration pursuant to this Agreement with respect
to the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of the Registrable
Securities held by it, as shall be reasonably required to effect the
registration of such Registrable Securities and shall execute such documents in
connection with such registration as the Company may reasonably request. At
least ten (10) days prior to the first anticipated filing date of the
Registration Statement, the Company shall notify each Investor of the
information the Company requires from each such Investor (the "Requested
Information") if such Investor elects to have any of such Investor's Registrable
Securities included in the Registration Statement. If at least two (2) business
days prior to the filing date the Company has not received the Requested
Information from an Investor (a "Non-Responsive Investor"), then the Company may
file the Registration Statement without including Registrable Securities of such
Non-Responsive Investor;
(b) Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(e)
or 3(f), above, such Investor will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Investor's receipt of the copies of the
supplemented
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<PAGE> 9
or amended prospectus contemplated by Section 3(e) or 3(f) and, if so directed
by the Company, such Investor shall deliver to the Company (at the expense of
the Company) or destroy (and deliver to the Company a certificate of
destruction) all copies in such Investor's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice.
5. EXPENSES OF REGISTRATION. (a) All reasonable expenses
(other than underwriting discounts and commissions of the Investor) incurred in
connection with registrations, filings or qualifications pursuant to Section 3,
but including, without limitation, all registration, listing, and qualifications
fees, printers and accounting fees, the fees and disbursements of counsel for
the Company and a fee for a single counsel for the Investors (as a group and not
individually) not exceeding $3,500 for the Registration Statement covering the
Registrable Securities applicable to the Debentures and Warrants issued on the
Initial Closing Date and $1,000 for each Registration Statement covering
Registrable Securities applicable to the Additional Debentures and related
Warrants issued on each Additional Closing Date, shall be borne by the Company.
(b) The Buyer acknowledges that the Company either intends to
issue shares or has already issued shares as of the date of this agreement
pursuant to (i) its advisory agreement with ViStra Growth Partners, Inc. (the
_Registrable ViStra Shares_); (ii) the acquisition of (a) Dow Guarantee Corp.
(_Dow_) or (b) Capital Funding of South Florida, Inc. (_Capital_), collectively
referred to herein as the (the _Registrable Acquisition Shares_) or (iii) the
subsequent acquisition of companies as detailed in the Company_s SEC documents
(the _Future Registrable Acquisition Shares_).
(c) The Registrable ViStra Shares, Registrable Acquisition
Shares and Future Registrable Acquisition Shares detailed in Section 5(b) have
certain registration rights as defined in this Section 5(c). The ViStra
Registrable Shares will be registered simultaneous with the Common Stock issued
to the Buyer upon conversion of the debenture as provided for in this agreement.
The Registrable Acquisition Shares and the Future Registrable Acquisition Shares
shall be provided with _piggyback_ registration rights to include their shares
in a registration statement filed by the Company with the Securities and
Exchange Commission pursuant to a secondary offering of the Company_s Common
Shares. Such registration rights will be subject to whatever restrictions may be
imposed upon the sale of such shares by the underwriters of the secondary
offering, if any, provided however that the shares will be subject to a minimum
twelve month lock-up from the effective date of a registration statement for the
shares to be sold pursuant to the secondary offering.
(d) Except as otherwise provided for in this Section 5,
neither the Company nor any of its subsidiaries has, as of the date hereof, nor
shall the Company nor any of its subsidiaries, on or after the date of this
Agreement, enter into any agreement with respect to its securities that is
inconsistent with the rights granted to the Investors in this Agreement or
otherwise conflicts with the provisions hereof. Neither the Company nor any of
its subsidiaries has previously entered into any agreement granting any
registration rights with respect to any of its securities to any Person. Without
limiting the generality of the foregoing, without the written consent of the
Investors holding a majority of the Registrable Securities, the Company shall
not grant to any person the right to request
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<PAGE> 10
the Company to register any securities of the Company under the Securities Act
unless the rights so granted are subject in all respects to the prior rights in
full of the Investors set forth herein, and are not otherwise in conflict or
inconsistent with the provisions of this Agreement and the other Transaction
Agreements.
6. INDEMNIFICATION. In the event any Registrable Securities
are included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Investor who holds such Registrable Securities, the
directors, if any, of such Investor, the officers, if any, of such Investor,
each person, if any, who controls any Investor within the meaning of the
Securities Act or the Exchange Act (each, an "Indemnified Person" or
_Indemnified Party_), against any losses, claims, damages, liabilities or
expenses (joint or several) incurred (collectively, "Claims") to which any of
them may become subject under the Securities Act, the Exchange Act or otherwise,
insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations in the Registration Statement, or
any post-effective amendment thereof, or any prospectus included therein: (i)
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement or any post-effective amendment thereof or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, (ii)
any untrue statement or alleged untrue statement of a material fact contained in
the final prospectus (as amended or supplemented, if the Company files any
amendment thereof or supplement thereto with the SEC) or the omission or alleged
omission to state therein any material fact necessary to make the statements
made therein, in light of the circumstances under which the statements therein
were made, not misleading or (iii) any violation or alleged violation by the
Company of the Securities Act, the Exchange Act, any state securities law or any
rule or regulation under the Securities Act, the Exchange Act or any state
securities law (the matters in the foregoing clauses (i) through (iii) being,
collectively, "Violations"). Subject to clause (b) of this Section 6, the
Company shall reimburse the Investors, promptly as such expenses are incurred
and are due and payable, for any legal fees or other reasonable expenses
incurred by them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a) shall not (I) apply to a Claim arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company by or on behalf of any
Indemnified Person expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof or supplement thereto, if
such prospectus was timely made available by the Company pursuant to Section
3(c) hereof; (II) be available to the extent such Claim is based on a failure of
the Investor to deliver or cause to be delivered the prospectus made available
by the Company; or (III) apply to amounts paid in settlement of any Claim if
such settlement is effected without the prior written consent of the Company,
which consent shall not be unreasonably withheld. Each Investor will indemnify
the Company and its officers, directors and agents (each, an "Indemnified
Person" or _Indemnified Party_) against any claims arising out of or based upon
a Violation which occurs in reliance upon and in conformity with information
furnished in writing
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<PAGE> 11
to the Company, by or on behalf of such Investor, expressly for use in
connection with the preparation of the Registration Statement, subject to such
limitations and conditions as are applicable to the Indemnification provided by
the Company to this Section 6. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the Indemnified
Person and shall survive the transfer of the Registrable Securities by the
Investors pursuant to Section 9.
(b) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be. In case any such action is brought against any Indemnified Person
or Indemnified Party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party similarly
notified, assume the defense thereof, subject to the provisions herein stated
and after notice from the indemnifying party to such Indemnified Person or
Indemnified Party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such Indemnified Person or Indemnified
Party under this Section 6 for any legal or other reasonable out-of-pocket
expenses subsequently incurred by such Indemnified Person or Indemnified Party
in connection with the defense thereof other than reasonable costs of
investigation, unless the indemnifying party shall not pursue the action of its
final conclusion. The Indemnified Person or Indemnified Party shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and reasonable out-of-pocket expenses of such
counsel shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with counsel reasonably
satisfactory to the Indemnified Person or Indemnified Party. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Section 6,
except to the extent that the indemnifying party is prejudiced in its ability to
defend such action. The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
7. CONTRIBUTION. To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the indemnifying party
agrees to make the maximum contribution with respect to any amounts for which it
would otherwise be liable under Section 6 to the fullest extent permitted by
law; PROVIDED, HOWEVER, that (a) no contribution shall be made under
circumstances where the maker would not have been liable for indemnification
under the fault standards set forth in Section 6; (b) no seller of Registrable
Securities guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any seller
of Registrable Securities who was not guilty of such fraudulent
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<PAGE> 12
misrepresentation; and (c) contribution by any seller of Registrable Securities
shall be limited in amount to the net amount of proceeds received by such seller
from the sale of such Registrable Securities.
8. REPORTS UNDER EXCHANGE ACT. With a view to making available
to the Investors the benefits of Rule 144 promulgated under the Securities Act
or any other similar rule or regulation of the SEC that may at any time permit
the Investors to sell securities of the Company to the public without
registration ("Rule 144"), the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(c) furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
Securities Act and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have
the Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee of the Registrable
Securities (or all or any portion of any unconverted Debenture or unexercised
Warrant) only if: (a) the Investor agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to the
Company within a reasonable time after such assignment, (b) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (i) the name and address of such transferee or assignee and
(ii) the securities with respect to which such registration rights are being
transferred or assigned, (c) immediately following such transfer or assignment
the further disposition of such securities by the transferee or assignee is
restricted under the Securities Act and applicable state securities laws, and
(d) at or before the time the Company received the written notice contemplated
by clause (b) of this sentence the transferee or assignee agrees in writing with
the Company to be bound by all of the provisions contained herein. In the event
of any delay in filing or effectiveness of the Registration Statement as a
result of such assignment, the Company shall not be liable for any damages
arising from such delay, or the payments set forth in Section 2(c) hereof
arising from such delay.
10. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this
Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and Investors who
hold an eighty (80%) percent interest of the Registrable Securities. Any
amendment
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or waiver effected in accordance with this Section 10 shall be binding upon each
Investor and the Company.
11. MISCELLANEOUS.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) Notices required or permitted to be given hereunder shall
be given in the manner contemplated by the Agreement, (i) if to the Company or
to the Initial Investor, to their respective address contemplated by the
Agreement, and (iii) if to any other Investor, at such address as such Investor
shall have provided in writing to the Company, or at such other address as each
such party furnishes by notice given in accordance with this Section 11(b).
(c) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
(d) This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York for contracts to be wholly
performed in such state and without giving effect to the principles thereof
regarding the conflict of laws. Each of the parties consents to the jurisdiction
of the federal courts whose districts encompass any part of the City of New York
or the state courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Agreement and hereby waives, to
the maximum extent permitted by law, any objection, including any objection
based on FORUM NON COVENIENS, to the bringing of any such proceeding in such
jurisdictions. To the extent determined by such court, the Company shall
reimburse the Buyer for any reasonable legal fees and disbursements incurred by
the Buyer in enforcement of or protection of any of its rights under this
Agreement.
(e) If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
(f) Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
(g) All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.
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(h) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning thereof.
(i) This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Agreement, once executed by a party,
may be delivered to the other party hereto by telephone line facsimile
transmission of a copy of this Agreement bearing the signature of the party so
delivering this Agreement.
(j) The Company acknowledges that any failure by the Company
to perform its obligations under Section 3(a) hereof, or any delay in such
performance could result in loss to the Investors, and the Company agrees that,
in addition to any other liability the Company may have by reason of such
failure or delay, the Company shall be liable for all direct damages caused by
any such failure or delay, unless the same is the result of force majeure.
Neither party shall be liable for consequential damages.
(k) This Agreement constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof. This Agreement may be amended only by an instrument in writing signed by
the party to be charged with enforcement thereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-14-
<PAGE> 15
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed by their respective officers thereunto duly authorized as of
the day and year first above written.
COMPANY:
AMERICA'S SENIOR FIANCIAL SERVICES, INC.
By:
-----------------------------------
Name:
Title:
INITIAL INVESTOR:
By:
-----------------------------------
Name:
Title:
-15-
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Registration Statement of America's Senior
Financial Services, Inc. on Form SB-2/Amendment 1 of our reports, as listed
below, appearing in the Prospectus, which is part of this Registration
Statement:
1. Our Independent Auditor's Report dated February 26, 1999 (except for note
10, for which the date is March 26, 1999) on the 1998 and 1997
consolidated financial statements of America's Senior Financial Services,
Inc. and subsidiary;
2. Our Independent Auditor's Report dated February 26, 1999 on the 1998 and
1997 financial statements of Dow Guarantee Corp.; and
3. Our Independent Auditor's Report dated April 9, 1999 on the 1998
financial statements of Capital Funding of South Florida, Inc.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Ahearn, Jasco + Company, P.A.
AHEARN, JASCO + COMPANY, P.A.
Certified Public Accountants
Pompano Beach, Florida
September 20, 1999
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Registration Statement of America's Senior
Financial Services, Inc. on Form SB-2/Amendment 1, of our report as listed
below, appearing in the Prospectus, which is part of this Registration
Statement:
Our Independent Auditor's Report dated March 12, 1999 on the 1998 and
1997 financial statements of Jupiter Mortgage Corporation.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ WISNESKI, BLAKISTON & LESLIE, P.A.
- --------------------------------------------
Wisneski, Blakiston & Leslie, P.A.
Certified Public Accountants
Jupiter, Florida
September 20, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> JUN-30-1998 JUN-30-1999
<CASH> 18,781 1,936,194
<SECURITIES> 0 0
<RECEIVABLES> 52,325 106,962
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 81,106 2,387,196
<PP&E> 91,788 407,553
<DEPRECIATION> 54,048 114,145
<TOTAL-ASSETS> 218,146 6,173,385
<CURRENT-LIABILITIES> 41,461 401,620
<BONDS> 0 2,500,000
0 0
0 0
<COMMON> 4,390 6,909
<OTHER-SE> 152,150 3,084,339
<TOTAL-LIABILITY-AND-EQUITY> 218,146 6,173,385
<SALES> 0 0
<TOTAL-REVENUES> 365,010 1,970,688
<CGS> 0 0
<TOTAL-COSTS> 469,463 6,355,460
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,008 460,482
<INCOME-PRETAX> (105,461) (4,845,254)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (105,461) (4,845,254)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (105,461) (4,845,254)
<EPS-BASIC> (.024) (.740)
<EPS-DILUTED> (.024) (.740)
</TABLE>
