<PAGE> 1
U.S. Securities and Exchange
Commission Washington, D.C. 20549
Form 10-SB
(Amendment No. 1)
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
----------------------------------------------
(Name of Small Business Issuer in its charter)
FLORIDA 65-0181535
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15544 N.W. 77th Court
Miami Lakes, FL 33016
----------------------------------------
(Address of principal executive offices)
Issuer's telephone number: (305) 828-2599
--------------
Securities to be registered under Section 12(b) of the Act:
NONE
Securities to be registered under Section 12(g) of the Act:
COMMON STOCK
<PAGE> 2
PART I
Item 1. DESCRIPTION OF BUSINESS.
AMERICA'S SENIOR FINANCIAL SERVICES, INC. (the "Company", "AMSE" or
"America's Senior") is filing this Form 10-SB to register its common stock and
thus become a reporting company pursuant to Section 12(g) of the Securities
Exchange Act of 1934.
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 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 that was incorporated in February of 1990,
under the name of Phoenix Management Associates, Inc. Initially, we operated our
mortgage lending business under the trade name "Value Financial". From 1990 to
1994, the Company operated as a mortgage brokerage business, originating
traditional forward mortgage products, which it submitted to third party
institutions and sold at the closing table. The Company did not use its own
money to fund any of the mortgages that it originated, but rather used third
party funds (commonly referred to as 'table funding') to close the transactions.
In 1994 the Company was licensed as a correspondent lender and added Reverse
Mortgages to its product assortment. As a correspondent lender we are allowed to
close loans in our own name, rather than function solely as a mortgage broker.
As a correspondent lender, we also gained the right to charge additional fees,
and perform short term servicing if necessary. Due to internal growth, the
Company has relocated several times. Its original office was located at 340
Minorca Avenue; Coral Gables FL 33134. In January 1995 it relocated to a larger
office facility at 3191 Coral Way; Miami FL 33145. In July 1997 it moved its
corporate office to 15544 NW 77th Court; Miami Lakes FL 33016. In November 1997
the Company changed its name to America's Senior Financial Services, Inc. - to
better reflect its business plan and strategy of marketing to the emerging
senior demographic, and in anticipation of being listed for public trading of
its equities on the OTC-BB.
The original founder of the Company was Nelson A. Locke, who continues
to the present as the Company's President and CEO. Mr. Locke, in joint tenancy
with his spouse, owned 100% of the common stock of the Company. When the
Company was organized, it had a simple one-person structure, with Mr. Locke
filling the three corporate roles of President, Secretary, and Treasurer. The
original registered agent was Thomas Sherman, Esq.; 218 Almeria Street; Coral
Gables FL 33134. Mr. Sherman subsequently became a Director of the Company, and
continues in his role as registered agent. At this writing Mr. Locke and his
spouse own approximately 38% of the Company. For a list of the other
controlling shareholders, see Item 4 - page 12 of the Company's Form 10-SB.
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. Accordingly, the discussion of our business herein includes
the business of our wholly-owned subsidiaries Dow and Capital Funding. Such
acquisitions were accounted for as purchases.
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
1998 1997
----------- ----------
Loans originated by America's Senior(l)
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
2
<PAGE> 3
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
(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. While retaining its
traditional forward mortgage business 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.
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
3
<PAGE> 4
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 10 retail loan offices. As of February 26, 1999 the following are
the locations of the loan origination offices maintained by America's Senior,
Dow and Capital Funding.
AMERICA'S SENIOR:
-----------------
Addresses: 15544 NW 77th Court; Miami Lakes FL 33016
911 East 86th Street, #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
CAPITAL FUNDING:
----------------
Addresses: 729 South Federal Highway, Stuart FL 34994
2014 SE Port St. Lucie Blvd., Port St. Lucie FL 34952
1380 E. Vine St., Kissimmee, FL 34744
1874 SE Port St. Lucie Blvd., Port St. Lucie, FL 34952
22 W. Monument Ave., Kissimmee, FL 34741
The Company's loan officers at its 10 retail loan offices assist the
applicant by 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 charged.
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.
4
<PAGE> 5
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.
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, FHLMQ 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
5
<PAGE> 6
consider the acquisition of ancillary organizations such as title companies,
health care providers, and other financial service organizations focused on the
senior citizen market.
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 significant terms of the merger which are not yet resolved,
and therefor the acquisition may not take place.
LIQUIDITY AND CAPITAL RESOURCES
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. 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 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.
RISKS OF DEBT FINANCING
To the extent that we obtain additional capital in the form of loans this could
have important consequences to the Company:
1. A portion of our cash flow from operations must be dedicated to the payment
of the principal and interest on such indebtedness.
2. Our ability to obtain additional financing in the future may be impaired.
3. If we are unable to generate sufficient cash to meet our obligations, we may
have to attempt to renegotiate the payment terms or refinance our borrowings or
sell assets and if we cannot successfully renegotiate the terms of our
financing or refinance our debt or sell sufficient assets we would fall into
default.
4. If interest rates were to increase we would be more vulnerable since our
mortgage brokerage business would likely be reduced as a result of increased
interest rates.
COMPETITION
The Mortgage Bankers Association of America estimates that the
mortgage industry originated approximately $1.5 trillion in mortgages in 1998
compared to $834 billion in 1997. Accordingly, our market share is very small.
We face 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 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.
We believe our competitive strengths include emphasizing customer
education to attract borrowers for reverse mortgages, and our ongoing high
level of customer service which causes us to retain a very high percentage of
our clients.
REGULATION
AMSE's business is subject to extensive regulation, supervision and
licensing by federal, state and local governmental agencies and is subject to
various laws and judicial and administrative decisions imposing requirements and
restrictions on part or all of its operations. AMSE'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), ECOA, the Fair
Credit Reporting Act of 1994, as amended, RESPA, and Regulation X the Home
Mortgage Disclosure Act and the Federal Debt Collection Practices Act, as well
as other federal and state statutes and regulations. AMSE is also subject to the
rules and regulations of and examinations by HUD and state regulatory
authorities with respect to originating, processing, underwriting and selling
loans.
The Company is also subject to the rules and regulations of, and
examinations by, state and federal 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
6
<PAGE> 7
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.
These rules and regulations, among other things, impose licensing
obligations on AMSE in all the states it wants to conduct business. Since AMSE
is incorporated under the laws of Florida, it first needs a Certificate of
Authority in each state it wants to establish itself. That procedure is followed
by the application for a Mortgage Lending license in that state and finally by
applying for HUD approval for Title II branch in the nearest U.S. Department of
HUD jurisdiction.
Currently AMSE is fully licensed in the following states:
Florida
Missouri
Indiana
S. Carolina
N. Carolina
Ohio
Massachusetts
Illinois
Kansas
AMSE has been fully approved by U.S. Department of HUD in the following
districts:
New Hampshire (2 districts)
Kentucky (1 district)
Tennessee (1 district)
Virginia (1 district)
We have applied for approval to do business in the following states:
Texas
Minnesota
Kentucky
Arizona
California
Washington
EMPLOYEES
At March 3, 1999, the Company employed approximately 150 persons. The
Company has satisfactory relations with its employees.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN 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 10-SB 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.
RESULTS OF OPERATIONS:
These results for 1998 are pro-forma, and include the following:
1998 - AMSE, Dow and Capital Funding pro-forma combined twelve
month performance.
1997 - AMSE stand alone.
1998 1997 Change
---- ---- ------
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%
Earnings (loss) before
non-recurring items: (121,600) (67,250)
7
<PAGE> 8
Non-recurring
expense items: 183,900 4,906
Net income (loss): (305,500) (72,200)
% of Gross Fee Income 6% 13%
FISCAL 1998 COMPARED TO FISCAL 1997:
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, AMSE'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. See, Item 1, Business, for loan
production and fee income of America's Senior, Dow and Capital Funding for
Fiscal 1998 and 1997 on an individual basis.
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 $305,500. 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. $103,600 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
8
<PAGE> 9
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 $343,300
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 implement certain efficiencies derived from this consolidation, these
expense dollars may be offset by increased sales at higher margins, and should
result in a planned return to profitability.
FIRST QUARTER 1999 COMPARED TO FIRST QUARTER 1998:
RESULTS OF OPERATIONS:
These results are proforma, and include the following:
1st Quarter 1999 -- AMSE, Dow, and Capital Funding combined three month
performance.
1st Quarter 1998 -- AMSE "stand alone" (prior to the acquisition of Dow and
Capital Funding).
<TABLE>
<CAPTION>
3 months
ended March 31st
-------------------------------
1999 1998 Change
------- ------- ------
<S> <C> <C> <C>
Gross Loans Originated (thousands) 39,599 6,654 496%
Total Dollars Funded (thousands) 32,180 5,323 505%
Gross Fee Income (thousands) 1,022 158 +549
Earnings (Loss) before (165,936) (65,850) n/a
Goodwill Charges:
Goodwill Expense: 25,030 561 n/a
Net Income (Loss): (190,966) (66,411) n/a
% of Gross Fee Income: 17.3% 41.6% n/a
</TABLE>
The Company's first quarter 1999 results show dramatic growth in total
sales,and demonstrate the contribution that our increased volume is making to
improving the Company's bottom line profitability.
During the 1st Quarter 1999, the Company's overall loan originations grew
by almost 500%. On an existing unit basis, loan originations increased by 25%.
The balance of the increase came from the contribution made to the consolidated
total by the two wholly owned subsidiaries, Dow Guarantee Mortgage Corp. and
Capital Funding of South Florida.
On a Gross Fee Income (sales) basis, the Miami Lakes production (1998's
sole existing unit) grew by 58%, while sales at the two subsidiaries were flat.
The growth at Miami Lakes is fully attributable to increases in our Reverse
Mortgage lead generation activity, the 1st quarter 1998, Miami Lakes originated
an estimated 500 reverse mortgage leads. Since then our techniques have been
refined and our database has been expanded dramatically. In 1998, we confined
our reverse mortgage marketing to Florida. In the 1st quarter 1999, we expanded
it to cover 19 states and began our first ever nationwide outreach. This effort
produced over 2,500 reverse mortgage leads in the 1st quarter, versus an
estimated 500 leads in the same period 1998. It should be noted that while Dow
and Capital contributed 73% of the Company's total 1st quarter revenues, their
results do not yet demonstrate the business they will begin to realize from the
addition of reverse mortgage marketing to their product mix.
An analysis of the consolidated Income Statement shows the following:
1. Gross Fee Income increased by over 500%. The contributing factors
were discussed in the paragraph above.
2. While the Company's consolidated dollar loss is greater than 1998,
on a percent to Gross Fee Income, the loss represents significant
improvements in our "flow through" to the bottom line. In 1998, our
1st quarter loss was about 41% to revenues. In 1999, the loss
decreased to less than 18% to sales.
3. Personnel costs account for over 60% of our current expenses. We
expect this number to decrease, as we build volume and create
consistencies within the company compensation plan for loan
originators. As a first step in better management of our personnel,
we outsourced our payroll function to a national firm that
specializes in this function.
4. In 1998, we spent 27% of sales on marketing and advertising. In
1999, we reduced that number to about 6%. Clearly, we are becoming
more efficient in our lead generation strategy.
5. Professional fees continue to increase, but this is a direct result
of our public market strategy and should be viewed as a positive
element since the use of professionals in "due diligence" and
acquisition execution mitigates risk for everyone involved.
LIQUIDITY AT YEAR END:
The Company ended 1998 with $219,272 in cash and cash equivalents,
compared to $86,376 in 1997. The Company has generated cash (to cover its
acquisition expenses and operating losses) through the sale of its common stock
and through warrant exercises that were directly related to the Company's
Regulation D offering completed in 1997.
In 1999, the registrant intends to seek additional capital through the
following three avenues.
1. The Company plans to sell certain amounts of restricted common
stock (subject to all Rule 144 requirements) to qualified
investors. The Company expected that in the first half of 1999,
it would raise an estimated $150,000 by using this method. The
Company actually raised $157,900 and this is detailed in Item 4 -
page 20 of the Form 10-SB.
2. The Company has sold a Convertible Subordinated Debenture to an
institutional investor, to be secured by underlying restricted
common stock subject to the Company filing an SB-2 registration
statement. The Company plans to use the proceeds for expansion
and working capital.
3. The Company plans to seek out an institution to underwrite a
secondary offering of the Company's common and preferred stock,
with the proceeds to be used for expansion, nationwide marketing,
and working capital.
CURRENT LIABILITIES AT YEAR END:
The Company has minimal debt. At year end 1998 we had total liabilities
of $382,992 of which $199,813 was routine accounts payable and $66,927 was
routine compensation payable. In 1998, the Company hired a corporate controller,
whose responsibilities include strengthening and improving the Company's
internal control systems to insure that the Company is accurately recording the
monies it owes to creditors.
"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.
AVAILABILITY OF MORTGAGE FINANCING.
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.
INDUSTRY OBSTACLES ENCOUNTERED IN 1998:
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
9
<PAGE> 10
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.
Management of AMSE believes that the Companys 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 RMs. Specific percentages have been developed that allow AMSE to
invest heavily in its RM marketing and development, while allowing 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 (NAMB 1998) there were about 200,000 brokers operating in the
United States. Yet it is the Company's belief that less than 2,000 brokers 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, management of AMSE believes that it is opening a huge channel
of potential RM distribution.
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. In 1998, the key growth engine was acquisition activity. In July 1998
the Company acquired Dow Guarantee Mortgage, adding approximately
$84,000,000 in loan production. In 1998, the Company executed a letter
of intent to acquire Capital Funding of South Florida, adding another
$62,500,000 in loan production. The Capital Funding acquisition closed
in January 1999.
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.
Item 3. DESCRIPTION OF PROPERTY.
All of the operations of the Company are conducted from premises
leased from independent landlords.
10
<PAGE> 11
The following table sets forth information concerning the Company's
leased facilities as of July 15, 1999:
<TABLE>
<CAPTION>
America's Senior Financial Services
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 1,100 sf April 2000 $1,100
Indianapolis, IN 46240
5250 77 Center Dr., Suite 350 400 sf Month to Month $625
Charlotte, NC 28217
Dow Guarantee Mortgage
Location Tenant Approx. Size Lease Expiration Monthly Rent
--------------- ------------ ---------------- ------------
9501 NE 2nd Ave.
Miami Shores, FL 33138 5,500 sf Dec. 2001 $6,000
One SW 129th Ave., Suite 207 1,420 sf Dec. 1999 $2,012
Pembroke Pines, Florida
Capital Funding of South Florida
Location Tenant Approx. Size Lease Expiration Monthly Rent
--------------- ------------ ---------------- ------------
1380 E. Vine St.
Kissimmee, FL 34744 580 sf April 2000 $800
1874 S.E. Port St. Lucie Blvd.
Port St. Lucie, FL 34952 1,800 sf Feb. 2003 $1,886
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
</TABLE>
Leases may provide for rent escalations tied to increases in operating
expenses or fluctuations in the consumer price index.
11
<PAGE> 12
Item 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of July 9th, 1999, the beneficial
ownership of the company's 6,909,431 outstanding shares of common Stock by (1)
the only persons who own of record or are known to own, beneficially, more than
5% of the Company's Common Stock; (2) each director and executive officer of
the Company; and (3) all directors and officers as a group.
Number of
Name Shares(l) Percent(l)
---- ---------- ----------
Nelson A. Locke(2) 2,650,000 38%
Cheryl D. Locke(2) 2,650,000 38%
Brickell Equity Group, Inc.(3) 340,000 4.9%
Charles M. Kluck(4) 550,000 8%
Elly Shea 31,000 0.5%
Thomas G. Sherman, Esq. 107,500 1.6%
Michael J. Shelley 107,500 1.6%
Lou Weltman (5) 487,267 7.1%
All officers and directors
as a group (6 persons) 3,446,000 49.9%
- -------------------------
(1) Based upon 6,619,331 shares outstanding as of March 5th, 1999.
(2) Nelson A. Locke and Cheryl D. Locke own such shares as Joint
tenants.
(3) Brickell Equity Group, Inc. is an investment holding company with
no relationship to the board or management.
(4) Includes 200,000 owned by his sister, Linda Kluck.
(5) Represents shares owned by Vistra Growth Partners, Inc. and Vista
Quickseed Fund, LLC. 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.
Item 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CORPORATE PERSONS.
The directors and executive officers of the Company are:
Name Age Position
--------------- --- --------
Nelson A. Locke 48 Chairman of the Board,
President and Treasurer.
Cheryl D. Locke 43 Executive Vice President
Personnel, Director.
Audit Committee.
12
<PAGE> 13
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.
Nelson A. Locke founded the Company in 1990 and has served as its
President and Chairman of the Board of Directors 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
13
<PAGE> 14
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, and continues to serve in that capacity. Dow was acquired
by the Company on July 31, 1998. He became a director of the Company 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.
Item 6. 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.
Other Annual
Principal Position Year Salary Bonus Compensation
------------------ ---- ------ ----- ------------
Nelson A. Locke 1998 $70,000 -0- 5,000
President 1997 $50,000 -0- -0-
1996 $30,000 -0- -0-
DIRECTOR COMPENSATION
No fees are paid for director services.
EXECUTIVE EMPLOYMENT AGREEMENTS
In January 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.
14
<PAGE> 15
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 Guarantee 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.
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.
15
<PAGE> 16
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 (which
currently equals 2,000,000 shares), 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 nonemployee 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 Section 422(b) of the Internal Revenue Code of 1986 and
non-qualified stock options not intended to qualify under such section. The
price at which the Company's common stock may be purchased upon exercise of
Incentive Stock Options granted under the Plan will be required to be at least
equal to the fair market value of the common stock on the date of grant.
Non-qualified stock options may be at any price designated by the Committee on
the date of grant. Options granted under the Plan may have maximum terms of not
more than ten (10) years and are not transferable except by will or the laws of
descent and distribution. No Incentive Stock Options under the Plan may be
granted to an individual owning more than ten percent (10%) of the total
combined voting power of all classes of stock issued by the Company unless the
purchase price of the common stock under such option is at least one hundred
ten percent (110%) of the Fair Market Value of the shares issuable on exercise
of the option at the date of grant and such option is not exercisable more than
five (5) years from the date of grant.
Generally, options granted under the Plan terminate upon the grantee's
employment or affiliation with the Company, but the Committee may authorize an
expiration date of up to ninety (90) days following such termination. If
termination was due to death or disability, the options expire one (1) year
after such termination or the termination date set forth in the option,
whichever is earlier. If termination is due to retirement the option expires
ninety (90) days after termination or the termination date set forth in the
option, whichever is earlier.
If the Change of Control takes place, the Board may vote to
immediately terminate all outstanding options or may vote to accelerate the
expiration of options to the tenth day after the effective date of the Change
of Control. If the Board votes to immediately terminate the options, it shall
make a cash payment to the grantees equal to the difference between the
exercise price and the Fair Market Value of the shares that would have been
subject to the terminated option on the date of the Change of Control. A Change
of Control of the Company is generally deemed to occur when any person becomes
the beneficial owner of or acquires voting control with respect forty percent
(40%) or more of the total voting shares of the Company, the Company is merged
into any other company, or substantially all of its assets are acquired by
another company, or three or more
16
<PAGE> 17
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.
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.
17
<PAGE> 18
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. The shares vest to the employees over a
three year period following the date of issuance.
Item 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
A shareholder, Louis Weltman of ViStra Growth Partners, Inc. (ViStra),
provides investment banking and advisory services to AMSE. The agreement expires
on April 30, 2001 at the end of its three (3) years term. The Advisor uses its
best efforts to 1) assist AMSE to obtain equity and debt financing by
identifying potential investors; 2) to identify and evaluate merger or
acquisition candidates and to coordinate the needed professionals to complete
such transactions; and 3) to develop strategic relationships related to the
development of its mortgage origination business.
AMSE compensates ViStra on a retainer basis and according to different
formulas depending on the successful completion of acquisitions or as AMSE
raises capital. For the twenty-four (24) months beginning April, 1999, ViStra is
paid a monthly retainer by AMSE for its general consulting services in the
minimum monthly amount of $2,000 per month, subject to AMSE's cash flow
requirements.
In addition to the consulting fees, Transaction Fees are paid by AMSE
to ViStra for the successful completion of mergers or acquisitions (the
"Transaction Fees"). The Transaction Fees are payable at the closing of each
transaction based on the following formula applied to the aggregate transaction
value: five percent (5%) of the first two million dollars; four percent (4%) of
the next two million dollars; three percent (3%) of the next two million
dollars; two percent (2%) of the next two million dollars and one percent (1%)
of the balance of the value of the transaction. The minimum transaction fee to
be paid is $25,000, unless such small transactions are mutually exempted by
ViStra and AMSE. Under circumstances where AMSE identifies the acquisition
candidates, the Transaction Fee is reduced to seventy-five (75%) percent of Fee
Formula.
ViStra receives a cash "Success Fee" and other non-cash consideration
when AMSE raises capital. The cash Success Fee is based on the gross capital
raised and is calculated as follows: 7.5% of the first $500,000; 5% of the next
two million dollars of transaction value; 4% of the next two million dollars of
transaction value; 3% of the next two million dollars of transaction value; 2%
of the next two million dollars of transaction value; and 1% of the transaction
value in excess of $8.5 million. This Success Fee is reduced by fifty (50%)
percent if AMSE identifies the funding source or in the event of a secondary
public offering.
ViStra also receives non-cash consideration when AMSE completes a
financing transaction. Non-cash consideration consists of stock and options.
Stock is granted to the Advisor in an amount equal to .5% of the equity of AMSE
for each $500,000 of capital raised up to a maximum amount of 5% of AMSE's
equity based on the shares issued and outstanding immediately after each
capital raise, subject to certain other limitations. The Advisor shall receive
options to purchase 0.75% of AMSE's common stock for each $500,000 of cash
consideration received by AMSE. The options shall expire three (3) years from
the date of each Financing and shall have an exercise price equal to 100% of the
per share price paid by the investor(s). All equity earned by the Advisor shall
be subject to dilution. AMSE agrees to provide reasonable piggyback, cashless
exercise and non-dilutive provisions with regard to such options. The Advisor
has agreed to provide Nelson A. Locke with an irrevocable seven (7) year proxy
with respect to the voting rights associated with any shares owned by the
Advisor.
Finally, AMSE reimburses the Advisor for all reasonable travel, legal
and all other out-of-pocket expenses incurred in performing its services subject
to certain limitations.
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, ViStra was paid 16,000 shares of the Company's
common stock for services in connection with the acquisition of Capital Funding.
ViStra was paid 170,600 shares of common stock and warrants to purchase an
additional 228,888 shares of the Company's common stock for services rendered in
connection with the Company selling $2,500,000 of a Convertible Subordinated
Debenture.
The Company's President borrowed $22,500 from the Company in December
1998, which was repaid in January 1999 with interest at 5%.
Item 8. DESCRIPTION OF SECURITIES,
COMMON STOCK
In November, 1997 our Articles of Incorporation were amended to
authorize the issuance of up to 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.
18
<PAGE> 19
PREFERRED STOCK
In March 1999 at the Company's Annual Shareholder Meeting, the
shareholders voted to amend the Articles of Incorporation to authorize the
issuance of up to 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.
PART II
Item 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
The Company's Common Stock has been trading on the over-the-counter
market since February 20, 1998. The following sets forth the range of high and
low bid quotations for the periods indicated as reported by National Quotation
Bureau, Inc. Such quotations reflect prices between dealers, without retail
mark-up, markdown or commission and may not represent actual transactions.
High bid Low bid
-------- -------
February 20, 1998 through March 31, 1998 $5.75 $5.75
April 1, 1998 through June 30, 1998 6.625 5.75
July 1, 1998 through September 30, 1998 7.375 5.50
October 1, 1998 through December 31, 1998 7.50 6.375
January 1, 1999 through March 1, 1999 5.75 7.00
April 1, 1999 through June 30, 1999 7.625 6.6875
There are no restrictions on the payment of dividends. In 1997, the
Company paid S Corporation distributions of $46,567. It was an S corporation for
tax purposes at that time. The S corporation status was terminated on November
2, 1997.
As of July 15, 1999 there were approximately 515 holders of record of
the Company's common stock.
Item 2. LEGAL PROCEEDINGS.
In December of 1998 the Company advanced $250,000 to Home Care of
America, Inc. (HCAI), an acquisition target, pursuant to a promissory note. The
purpose of the note was for HCAI to use as working capital. There is no
affiliation between the company and HCAI.
In April 1999 the Company sued HCAI and Robert G. Williams in the
Circuit Court of the 11th Judicial Circuit, Miami-Dade County, Florida for
repayment of the $250,000 loan.
Item 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
On July 23, 1998, the Company changed its independent auditor. This
change was by mutual consent due to the need for the Company's auditor to be
familiar with the requirements of financial statements for corporations
becoming reporting companies under the Securities Exchange Act of 1934. The
change was approved by the Board of Directors. The former accountant's report
on the Company's financial statements did not contain an adverse opinion on
disclaimer of opinion and was not modified as to uncertainty, audit scope, or
accounting principles. There were no disagreements with the former accountant
on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure.
On July 23, 1998, the Company engaged Ahearn, Jasco + Company, P.A.,
as its independent auditor.
19
<PAGE> 20
Item 4. 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.
In November and 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 independent 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.
The Company issued 74,400 shares to employees as restricted stock
awards in 1998. 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.
Date Consideration Shares Purchaser
---- ------------- ------ ---------
9/11/98 $ 1,000 500 Carpenter, Michael
9/11/98 1,000 (a) 500 Shea, Elly
9/11/98 20,000 10,000 Weinstein, Mitchell D.
9/11/98 20,000 10,000 Snyder, Scott A.
9/14/98 20,000 10,000 Hoffberger, Robert
9/11/98 20,000 10,000 Aurelia Holdings Ltd.
9/11/98 15,000 7,500 Donahue, Edwin
9/16/98 10,000 5,000 Antosek, Richard B.
9/16/98 15,000 7,500 Gittelman, Marc C.
9/18/98 5,000 2,500 Stott, Robert S.
9/23/98 10,000 5,000 Bailey, Darryl L.
10/12/98 10,000 10,000 Snyder, Scott A.
10/12/98 7,500 17,500 Gittleman, Marc C.
10/12/98 10,000 10,000 Aurelia Holdings Ltd.
20
<PAGE> 21
10/12/98 5,000 2,500 Antosek, Richard
10/12/98 10,000 10,000 Weinstein, Mitchell D.
10/12/98 10,000 10,000 Hoffberger, Robert
10/28/98 10,000 5,000 Shelley, Michael J.
10/26/98 1,000 (a) 500 Shea, Elly
12/11/98 3,000 1,500 Perez, Jorge
12/11/98 15,000 7,500 Gibson, Paul D.
12/11/98 5,000 2,500 Prado, Gary
12/11/98 4,000 2,000 Allen, Robert W.
12/11/98 1,576 1,300 Prado, Gary
12/11/98 1,212 1,000 Prado, Gary
12/11/98 1,212 1,000 Prado, Gary
-------- -------
$231,500 140,800
======== =======
- --------------------
(a) These shares were purchased for cash by Elly Shea an officer of the
corporation.
In 1999 the Company issued shares to investors pursuant to an
exemption from registration under Section 4(2) of the Securities Act of 1933.
Date Consideration Shares Purchaser
---- ------------- ------ ---------
1/4/99 $ 4,000 2,000 Deery, Scott
2/17/99 100 100 Charlesworth, Steven
2/17/99 100 100 Charlesworth, Joan
2/17/99 100 100 Charlesworth, Carrie
2/17/99 1,000 1,000 Charlesworth, David E.
2/17/99 1,000 1,000 Hersha, Julia Jean
2/17/99 1,000 1,000 Langston, Timothy
2/17/99 1,000 1,000 Edgar, Derek
2/17/99 4,000 4,000 Fleming, Carol
2/17/99 4,000 4,000 Locke, Victor M.
2/26/99 15,000 15,000 Snyder, Scott A.
2/26/99 15,000 15,000 Aurelia Holdings Ltd.
2/23/99 10,000 10,000 Biondo, Jane M.
3/1/99 1,500 1,500 Locke, Edwin
2/25/99 40,000 40,000 Brickell Equity Group, Ltd.
2/25/99 60,000 60,000 Palmun Associates
-------- -------
$157,900 155,800
======== =======
In 1999 the Company issued the following shares to investors pursuant
to 504 of Regulation D.
Date Consideration Shares Purchaser
---- ------------- ------ ---------
1/26/99 $100,000 100,000 Fidra Holdings, Ltd.
1/26/99 34,000 34,000 Fidra Holdings, Ltd.
1/26/99 50,000 50,000 Fidra Holdings, Ltd.
1/26/00 50,000 50,000 Fidra Holdings, Ltd.
21
<PAGE> 22
2/25/99 16,666 16,666 Weltman, Louis
2/25/99 16,667 16,667 Brickell Equity Group, Inc.
2/25/99 16,667 16,667 Palmun Associates
-------- -------
$284,000 284,000
======== =======
In 1999, the Company issued 221,664 shares of its common stock to the
three former shareholders of Capital Funding and 16,000 shares to its investment
banker in connection with the acquisition. Such shares were issued without
registration pursuant to Section 4(2) of the Securities Act of 1933.
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.
Item 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
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(l)(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).
PART F/S
The following financial statements are included herein:
America's Senior Financial Services, Inc. and Subsidiary
Independent Auditors' Report
Consolidated Balance Sheets as of
December 31, 1998 and 1997
22
<PAGE> 23
Consolidated Statements of Operations,
years ended December 31, 1998 and 1997
Consolidated Statement of Changes in Stockholders'
Equity, years ended December 31, 1998 and 1997
Consolidated Statements of Cash Flows, years ended
December 31, 1998 and 1997
Notes to Financial Statements.
Dow Guarantee Corp.
Independent Auditors' Report
Balance Sheets as of
December 31, 1998 and 1997
Statements of Operations, years ended
December 31, 1998 and 1997
Statement of Changes in Stockholders'
Equity, years ended December 31, 1998 and 1997
Statements of Cash Flows, years ended
December 31, 1998 and 1997
Notes to Financial Statements.
Capital Funding of South Florida, Inc.
Independent Auditors' Report
Balance Sheet as of
December 31, 1998
Statement of Operations, year ended
December 31, 1998
Statement of Changes in Stockholders'
Equity, year ended December 31, 1998
Statement of Cash Flows, year ended
December 31, 1998
23
<PAGE> 24
Notes to Financial Statements.
Unaudited Financial Statements for the
Quarter ended March 31, 1999
Pro-Forma Financial Statements
PART III
Item 1. EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Page Number Description
---------- ---------- -----------
<S> <C> <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) Consulting Agreement as of August 25, 1998
between Registrant and Vistra Growth
Partners, Inc.
6(f) Agreement for purchase of Dow Guarantee Corp.
</TABLE>
24
<PAGE> 25
<TABLE>
<CAPTION>
<S> <C> <C>
6(g) Agreement for purchase of Capital Funding
of South Florida, Inc.
16* Letter to the SEC from Smith, Ortitz, Gomez & Buzzi
21 Subsidiaries
27 Financial Data Schedule
</TABLE>
- -----------------------
* Filed herewith
SIGNATURES
In accordance with Section 12 of the Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized this 15th day of April, 1999.
AMERICA'S SENIOR FINANCIAL
SERVICES, INC.
By: /s/ Nelson A. Locke
------------------------------------
Nelson A. Locke
President
25
<PAGE> 26
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND
INDEPENDENT AUDITORS' REPORT
<PAGE> 27
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
<PAGE> 28
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
1
<PAGE> 29
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 1,059,413 --
OTHER ASSETS 319,940 27,770
---------- --------
TOTAL $2,019,562 $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 2,247,432 169,647
Retained earnings (deficit) (408,745) (58,177)
Unearned compensation - restricted stock (67,067) --
---------- --------
TOTAL STOCKHOLDERS' EQUITY 1,777,519 115,837
---------- --------
TOTAL $2,019,562 $181,059
========== ========
</TABLE>
See notes to financial statements.
2
<PAGE> 30
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 22,541 --
---------- ----------
TOTAL EXPENSES 2,131,190 608,796
---------- ----------
LOSS FROM OPERATIONS (333,558) (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 (350,568) (72,156)
PROVISION FOR INCOME TAXES -- --
---------- ----------
NET LOSS $ (350,568) $ (72,156)
========== ==========
EARNINGS (LOSS) PER SHARE:
Basic $ (0.072) $ (0.025)
========== ==========
Diluted $ (0.072) $ (0.025)
========== ==========
Weighted average common shares outstanding 4,849,247 2,854,400
========== ==========
</TABLE>
See notes to financial statements.
3
<PAGE> 31
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 1,099,383 -- -- 1,100,000
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 -- -- -- -- (350,568) (350,568)
--------- ------ ---------- --------- --------- ----------
STOCKHOLDERS' EQUITY, December 31, 1998 5,898,867 $5,899 $2,247,432 $ (67,067) $(408,745) $1,777,519
========= ====== ========== ========= ========= ==========
</TABLE>
See notes to financial statements.
4
<PAGE> 32
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 $(350,568) $(72,156)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 57,497 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.
5
<PAGE> 33
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 $1,081,954
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.
6
<PAGE> 34
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 $22,541 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.
7
<PAGE> 35
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.
8
<PAGE> 36
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.
9
<PAGE> 37
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.
10
<PAGE> 38
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.
11
<PAGE> 39
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.
12
<PAGE> 40
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
$1,445,257, with 550,000 shares of common stock of the Company being
issued to the sellers (valued at $1,100,000), 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
$1,081,954, 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 $1,245,000, with 221,664 shares of common stock
of the Company being issued to the sellers (valued at $610,000), cash to
the sellers of $300,000, costs of $180,000, 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 100,000
Goodwill 990,000
----------
Total $1,245,000
==========
13
<PAGE> 41
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 3,533,000 4,849,200
----------- ----------
Loss from operations (245,100) (128,700)
Non-operating expenses 113,700 167,900
----------- ----------
Net loss $ (358,800) $ (296,600)
=========== ==========
</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."
14
<PAGE> 42
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)
========
15
<PAGE> 43
DOW GUARANTEE CORP.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND
INDEPENDENT AUDITORS' REPORT
<PAGE> 44
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
<PAGE> 45
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
1
<PAGE> 46
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 1,059,413 --
DUE FROM PARENT 24,080 --
OTHER ASSETS 10,784 9,965
---------- --------
TOTAL $1,408,662 $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 1,255,649 --
Retained earnings (deficit) (84,432) 76,934
---------- --------
TOTAL STOCKHOLDERS' EQUITY 1,261,679 167,396
---------- --------
TOTAL $1,408,662 $324,333
========== ========
</TABLE>
See notes to financial statements.
2
<PAGE> 47
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 22,541 --
---------- ----------
TOTAL EXPENSES 2,516,734 2,597,663
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (62,672) 1,911
PROVISION FOR INCOME TAXES -- 820
---------- ----------
NET INCOME (LOSS) $ (62,672) $ 1,091
========== ==========
</TABLE>
[AS EDITED FOR SEC COMMENTS LETTER DATED JUNE 21, 1999]
See notes to financial statements.
3
<PAGE> 48
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)
-- -- 1,180,649 (98,694) 1,081,955
Capital contributed by parent
-- -- 75,000 -- 75,000
Net loss for the year ended
December 31, 1998
-- -- -- (62,672) (62,672)
--------- -------- ---------- -------- ----------
STOCKHOLDERS' EQUITY,
December 31, 1998 1,000,000 $ 90,462 $1,255,649 $(84,432) $1,261,679
========= ======== ========== ======== ==========
</TABLE>
See notes to financial statements.
4
<PAGE> 49
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) $ (62,672) $ 1,091
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 48,950 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.
5
<PAGE> 50
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 $1,100,000 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 $22,541 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.
6
<PAGE> 51
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
========== =========
7
<PAGE> 52
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.
8
<PAGE> 53
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.
9
<PAGE> 54
CAPITAL FUNDING OF SOUTH FLORIDA, INC.
FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
AND
INDEPENDENT AUDITORS' REPORT
<PAGE> 55
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
<PAGE> 56
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
1
<PAGE> 57
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.
2
<PAGE> 58
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.
3
<PAGE> 59
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.
4
<PAGE> 60
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.
5
<PAGE> 61
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.
6
<PAGE> 62
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.
7
2
<PAGE> 63
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.
8
<PAGE> 64
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND 1998
===============================================================================
(UNAUDITED)
<TABLE>
<CAPTION>
31-Mar-99 31-Mar-98
----------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 99,147 $ 3,529
Brokerage fees receivable 90,103 55,225
Employee advances 101,877 --
Due from shareholder 100,000 --
Prepaid expenses 78,356 16,215
----------- ---------
TOTAL CURRENT ASSETS 469,483 74,969
PROPERTY AND EQUIPMENT, net 302,064 79,649
GOODWILL, net 1,962,489 --
OTHER ASSETS 400,076 11,138
----------- ---------
TOTAL $ 3,134,112 $ 165,756
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt 21,868 $ --
Accounts payable 282,332 24,362
Accrued compensation and related taxes 69,177 22,778
----------- ---------
TOTAL CURRENT LIABILITIES 373,377 47,140
----------- ---------
LONG-TERM DEBT, less current portion 73,447 28,297
----------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $0.001 par value; 25,000,000 shares
authorized, shares issued and outstanding, 6,631,431
at March 31, 1998 and 4,374,500 at March 31, 1997 6,631 4,375
Additional paid-in capital 3,342,312 81,988
Retained earnings (deficit) (557,834) 3,956
Unearned compensation - restricted stock (103,821) --
----------- ---------
TOTAL STOCKHOLDERS' EQUITY 2,687,288 90,319
----------- ---------
TOTAL $ 3,134,112 $ 165,756
=========== =========
</TABLE>
<PAGE> 65
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
================================================================================
(UNAUDITED)
<TABLE>
<CAPTION>
31-Mar-99 31-Mar-98
----------- -----------
<S> <C> <C>
REVENUES $ 959,932 $ 159,791
----------- -----------
EXPENSES:
Payroll and related expenses 655,295 106,067
Administrative, processing, and occupancy 410,679 119,574
----------- -----------
TOTAL EXPENSES 1,065,974 225,641
----------- -----------
LOSS FROM OPERATIONS (106,042) (65,850)
----------- -----------
OTHER EXPENSES:
Employee recruitment 8,198 --
Interest expense 13,647 561
Goodwill amortization 21,202 --
----------- -----------
TOTAL OTHER EXPENSES 43,047 561
----------- -----------
LOSS BEFORE INCOME TAXES (149,089) (66,411)
PROVISION FOR INCOME TAXES -- --
----------- -----------
NET LOSS $ (149,089) $ (66,411)
=========== ===========
EARNINGS (LOSS) PER SHARE:
Basic $ (0.024) $ (0.015)
=========== ===========
Diluted $ (0.024) $ (0.015)
=========== ===========
Weighted average common shares outstanding 6,317,434 4,366,417
=========== ===========
</TABLE>
<PAGE> 66
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
================================================================================
(UNAUDITED)
<TABLE>
<CAPTION>
31-Mar-99 31-Mar-98
--------- ---------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(149,089) $ (66,411)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 30,890 5,139
Recognition of restricted stock earned 8,198 --
Changes in certain assets and liabilities, net of amounts
from an acquisition:
Brokerage fee receivable (40,250) (48,443)
Employee advances 31,349 --
Prepaid expenses and other (31,657) 16,215
Accounts payable, accrued compensation and related taxes 79,804 12,374
--------- ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (70,755) (81,126)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (13,139) (23,370)
Acquisition expenditures, net of cash acquired (452,571) (10,538)
Changes in other assets (7,592) 11,555
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (473,302) (22,353)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net 448,900 10,000
Change in long-term debt (1,424) (1,287)
S corporation distributions --
Loan to shareholder 11,919
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 447,476 20,632
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS (96,581) (82,847)
CASH AND CASH EQUIVALENTS, Beginning of quarter 195,728 86,376
--------- ---------
CASH AND CASH EQUIVALENTS, End of quarter $ 99,147 $ 3,529
========= =========
</TABLE>
<PAGE> 67
AMERICA'S SENIOR FINANCIAL SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1999
================================================================================
(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 $ 2,247,432 $ (67,067) $ (408,745) $ 1,777,519
Changes pursuant to the Capital Funding Acquisition:
Stock Issued 237,664 237 558,475 558,712
Capital Contributed 40,000 40,000
Restricted stock issued to employees 48,000 48 47,952 (48,000) --
Recognition of restricted stock earned 11,246 11,246
Issuances of common stock for cash, net of expenses 446,900 447 448,453 448,900
Net loss for the quarter ended March 31, 1999 (149,089) (149,089)
--------- ------- ----------- ---------- ---------- -----------
STOCKHOLDERS' EQUITY, March 31, 1999 6,631,383 $ 6,631 $ 3,342,312 $ (103,821) $ (557,834) $(2,687,288)
========= ======= =========== ========== ========== ===========
</TABLE>
<PAGE> 68
UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma financial statements of America's
Senior and the related notes are presented to give effect to the acquisition of
Dow Guarantee Corp. and Capital Funding of South Florida, Inc., assuming that
such acquisitions occurred as of January 1, 1998.
The unaudited pro forma financial statements are based on the
historical financial statements for America's Senior, Dow and Capital Funding
and the assumptions and adjustments described in the accompanying notes.
The unaudited pro formal financial statements do not purport to
represent what America's Senior results of operations and financial condition
actually would have been if the events described above had occurred as of the
dates indicated or what such results and financial condition will be for any
future periods. The unaudited pro forma financial statements are based upon
assumptions that America's Senior believes are reasonable and should be read in
conjunction with the Financial Statements and accompanying notes thereto
included elsewhere herein.
<PAGE> 69
AMSE/ CFSF 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 CONSOLIDATED
===============================================================================================
<S> <C> <C> <C>
Assets:
Cash and cash equivalents $ 195,728 $ 23,543 $ 219,271
Brokerage fee's receivable 49,853 45,828 95,681
Notes & Other Receivable 22,618 106,000 128,618
Employee advances 70,528 -- 70,528
Prepaid expenses 46,699 -- 46,699
Property and equipment, net 254,783 79,983 334,766
Other Assets 319,940 67,739 387,679
Goodwill, Net 1,059,413 -- 1,059,413
- -----------------------------------------------------------------------------------------------
Total Assets $ 2,019,562 $ 323,093 $ 2,342,655
Liabilities:
Current portion of long-term debt $ 5,798 $ 110,454 $ 116,252
Accounts payable and accrued expenses 173,904 60,909 234,813
Commission payable 49,054 17,873 66,927
Income taxes payable -- -- --
Long-Term debt, less current portion 13,287 -- 13,287
- -----------------------------------------------------------------------------------------------
Total Liabilities 242,043 189,236 431,279
Stockholders' Equity:
Common Stock 5,899 2,000 7,899
Additional paid-in capital 2,247,432 59,369 2,306,801
Retained earnings (58,177) (46,318) (104,495)
Income YTD (350,568) 118,806 (231,762)
Unearned Compensation - restricted stock (67,067) -- (67,067)
- -----------------------------------------------------------------------------------------------
Total stockholders' equity 1,777,519 133,857 1,911,376
- -----------------------------------------------------------------------------------------------
Total liabilities and stockholders'
equity $ 2,019,562 $ 323,093 $ 2,342,655
===============================================================================================
</TABLE>
<PAGE> 70
AMERICA'S SENIOR FINANCIAL SERVICES,INC. AND SUBSIDIARIES
PROFORMA STATEMENTS OF OPERATIONS AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
HISTORIC HISTORIC PROFORMA
AMSE DOW CONSOLIDATED
=================================================================================================
<S> <C> <C> <C>
REVENUES: $ 541,546 $ 2,599,574 $ 3,141,120
----------------------------- -----------
EXPENSES: --
Payroll and related expenses 307,690 1,742,832 2,050,522
Administrative, processing, and occupancy 301,106 854,831 1,155,937
----------------------------- -----------
TOTAL EXPENSES 608,796 2,597,663 3,206,459
----------------------------- -----------
PROFIT (LOSS) FROM OPERATIONS (67,250) 1,911 (65,339)
----------------------------- -----------
OTHER EXPENSES:
Acquisition costs -- --
Employee recruitment -- --
Interest expense 4,906 4,906
Goodwill amortization -- --
----------------------------- -----------
TOTAL OTHER EXPENSES 4,906 -- 4,906
----------------------------- -----------
PROFIT (LOSS) BEFORE INCOME TAXES (72,156) 1,911 (70,245)
PROVISION FOR INCOME TAXES -- 820 820
----------------------------- -----------
NET PROFIT (LOSS) $ (72,156) $ 1,091 $ (71,065)
============================= ===========
</TABLE>
<PAGE> 71
AMERICA'S SENIOR FINANCIAL SERVICES,INC. AND SUBSIDIARIES
PROFORMA STATEMENTS OF OPERATIONS AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
1998 01/01/98 to
HISTORIC 7/31/98 PROFORMA
AMSE DOW ADJUSTMENTS CONSOLIDATED
================================================================================================================
<S> <C> <C> <C>
REVENUES: $ 1,797,632 $1,490,249 $ 3,287,881
---------------------------- ---------- -----------
EXPENSES:
Payroll and related expenses 1,335,488 822,372 2,157,860
Administrative, processing, and occupancy 722,828 630,023 1,352,851
---------------------------- ---------- -----------
TOTAL EXPENSES 2,058,316 1,452,395 3,510,711
---------------------------- ---------- -----------
PROFIT (LOSS) FROM OPERATIONS (260,684) 37,854 (222,830)
---------------------------- ---------- -----------
OTHER EXPENSES:
Acquisition costs 14,969 14,969
Employee recruitment 50,333 50,333
Interest expense 2,041 16,094 18,135
Goodwill amortization 22,541 -- $ 31,557(A) 54,098
---------------------------- ---------- -----------
TOTAL OTHER EXPENSES 89,884 16,094 160,076
---------------------------- ---------- -----------
PROFIT (LOSS) BEFORE INCOME TAXES (350,568) 21,760 (382,906)
PROVISION FOR INCOME TAXES -- -- --
---------------------------- ---------- -----------
NET PROFIT (LOSS) $ (350,568) $ 21,760 $ (31,557) $ (382,906)
============================ ========== ===========
</TABLE>
(A) To annualize goodwill for purposes of this consolidation/comparison as if
DOW had been acquired on or before Jan. 1, 1998.
<PAGE> 72
AMERICA'S SENIOR FINANCIAL SERVICES,INC. AND SUBSIDIARIES
PROFORMA STATEMENTS OF OPERATIONS AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
1998 01/01/98 to 1998
HISTORIC 7/31/98 HISTORIC PROFORMA
AMSE DOW CFSF ADJUSTMENTS CONSOLIDATED
===================================================================================================================================
<S> <C> <C> <C> <C>
Revenues: $ 1,797,632 $ 1,490,249 $ 1,426,919 $ 4,714,800
---------------------------------------------- ----------- -----------
Expenses:
Payroll and related expenses 1,335,488 822,372 826,415 2,984,275
Administrative, processing, and occupancy 722,828 630,023 476,956 1,829,807
---------------------------------------------- ----------- -----------
TOTAL EXPENSES 2,058,316 1,452,395 1,303,371 4,814,082
---------------------------------------------- ----------- -----------
PROFIT (LOSS) FROM OPERATIONS (260,684) 37,854 123,548 (99,282)
---------------------------------------------- ----------- -----------
OTHER EXPENSES:
Acquisition costs 14,969 14,969
Employee recruitment 50,333 50,333
Interest expense 2,041 16,094 4,742 22,877
Goodwill amortization 22,541 -- $ 81,057(A) 103,598
---------------------------------------------- ----------- -----------
---------------------------------------------- ----------- -----------
PROFIT (LOSS) BEFORE INCOME TAXES (350,568) 21,760 118,806 (291,059)
PROVISION FOR INCOME TAXES -- -- -- --
---------------------------------------------- ----------- -----------
NET PROFIT (LOSS) $ (350,568) $ 21,760 $ 118,806 $ (81,057) $ (291,059)
============================================== =========== ===========
</TABLE>
(A) To annualize goodwill expense for purposes of this comparative/consolidated
statement as if DOW and Capital Funding had been acquired on or before
Jan. 1, 1998.
<PAGE> 1
EXHIBIT 16
SMITH, ORTIZ, GOMEZ AND BUZZI, P.A.
CERTIFIED PUBLIC ACCOUNTANTS
132 MINORCA AVENUE
CORAL GABLES, FLORIDA 33134
--------------
TEL. (305) 441-1012 E-MAIL: [email protected]
FAX (305) 442-1138
JULIO M. BUZZI, CPA MEMBERS:
ANTONIO E. GOMEZ, CPA
FERNANDO L. ORTIZ, CPA AMERICAN INSTITUTE OF
SHADI J. SHOMAR, CPA CERTIFIED PUBLIC ACCOUNTANTS
JOSE E. SMITH, CPA
NICANOR SUAREZ, CPA FLORIDA INSTITUTE OF
----------- CERTIFIED PUBLIC ACCOUNTANTS
RODOLFO L. ORTIZ, CONSULTANT
July 15, 1999
United States Securities and
Exchange Commission
Washington, D.C. 20549
To whom it may concern:
We have been requested to provide your office with a statement regarding the
excerpt on the change of accountants that was submitted to you as part of the
Form 10SB from America's Senior Financial Services, Inc. (the "Company"). To
that end we hereby confirm that we stepped down as auditors of the Company due
to our lack of familiarity with the reporting requirements of companies under
the Securities and Exchange Act of 1934. None of our previously issued audits
contained adverse, disclaimer or otherwise qualified opinions. Further, there
were no disagreements between management and our firm regarding accounting
principles, and practices, financial disclosures or scope limitations.
Should we be of further assistance, please feel free to call us at (305)
441-1012.
Sincerely,
/s/ Julio Buzzi
- ----------------------------
Julio Buzzi, for the firm
CC: Joel Bernstein, P.A.
Bernard Klukowski
