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Registration No. 333-31066
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
to
Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
(Name of Small Business Issuer in its charter)
FLORIDA 6162 65-0181535
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(State of Incorporation) (Primary Standard (I.R.S. Employer
Industrial Classification I.D. Number)
Number
9501 NE 2nd Ave., Miami Shores, Florida 33138 (Suite 3 - Bennett Building)
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(Address and telephone number of principal executive offices)
9501 NE 2nd Ave., Miami Shores, Florida 33138 (Suite 3 - Bennett Building)
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(Address of principal place of business)
Nelson Locke, President
America's Senior Financial Services, Inc.
9501 NE 2nd Ave.
Miami Shores, Florida 33138
(Suite 3 - Bennett Building)
(305) 751-3232 x 266
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(Name, address and telephone number of agent for service)
Copies to:
Akerman, Senterfitt & Eidson, PA
One Southeast Third Avenue
Suntrust International Center
28th Floor
Miami, FL 33131-1704
(305) 374-5600
Fax:(305) 374-5095
Approximate date of proposed commencement of sale to the public: From time to
time after the Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed
Amount of Proposed Maximum
Shares Maximum Aggregate Amount of
Title of Each Class of To be Offering Price Offering Registration
Securities to be Registered Registered Per Unit(1) Price Fee
--------------------------- ---------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Common Stock 1,226,590 $1.00 $1,226,590 $323.82
</TABLE>
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(1) Calculated in accordance with Rule 457(c).
The Company hereby amends the Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Acts of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8 (a),
may determine.
2
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AMERICA'S SENIOR FINANCIAL SERVICES, INC.
PROSPECTUS
OCTOBER 3, 2000
1,226,590 shares of common stock
Our common stock is traded on the over-the-counter market and is quoted on the
OTC Electronic Bulletin Board under the symbol AMSE.
The shares for this offering are being sold by the selling security holders
named under Plan of Distribution Selling Security Holders.
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 4.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
3
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PROSPECTUS SUMMARY
THE OFFERING
Common stock offered by selling security holders 1,226,590 shares
Shares of common stock to be outstanding assuming
all shares to which this prospectus relates are sold 9,732,691 shares
OUR COMPANY
America's Senior Financial Services, Inc. ("AMSE", or "America's Senior"), along
with its wholly-owned subsidiaries, Dow Guarantee Corp. ("Dow"), and Jupiter
Mortgage Corporation ("Jupiter"), is a licensed mortgage lender active in
originating, processing and obtaining funding for forward and reverse mortgage
loans secured by single family residences which are funded by financial
institutions or independent investors. AMSE and its subsidiaries are
collectively known as the "Company".
We receive income from two sources in connection with our mortgage lending
activities: we charge certain non-refundable mortgage application fees to
potential borrowers and upon closing a loan, receive additional fees payable by
the borrower or investor which fees are based upon a percentage of the loan
and/or the interest rates charged.
Our executive offices are located at: 9501 NE 2nd Ave., Miami Shores, Florida
33138 and our telephone number is: 305-751-3232. We are a Florida corporation
which was incorporated in 1990.
RISK FACTORS
The matters described below address some of the factors that make an
investment in our common stock risky.
WE HAVE HAD A HISTORY OF OPERATING LOSSES AND THIS MAY CONTINUE TO BE THE CASE
We have incurred losses in each of the last three years. We cannot
assure that we can achieve profitability in the short and/or long terms, if at
all. We may be required to raise additional capital in the future to sustain our
operations. We can give no assurance that we will be successful in procuring
such capital on terms we deem to be favorable. If we are unable to procure such
capital, we may be required to curtail our level of activities.
IF WE LOSE OUR KEY PERSONNEL, OUR BUSINESS AND PROSPECTS MAY BE ADVERSELY
AFFECTED.
We only have a few key officers and directors. If any of them should
leave our company, this could have an adverse effect on our business and
prospects.
AVAILABILITY OF MORTGAGES AT REASONABLE RATES.
The success of our mortgage origination business is dependent upon the
availability of mortgage funding at reasonable rates. Although there has been no
limitation on the availability of mortgage funding in the last few years, there
can be no assurance that mortgages at attractive rates will continue to be
available.
COMPETITION.
There are many sources of mortgages available to potential borrowers
today. These sources include consumer finance companies, mortgage banking
companies, savings banks, commercial banks, credit unions, thrift institutions,
credit card issuers and insurance companies. Many of these alternative sources
are substantially larger and have considerably greater financial, technical and
marketing resources than we do. Additionally, many financial services
organizations against whom we compete for business have formed national loan
origination networks or have purchased home equity lenders. We compete for
mortgage loan business in several ways, including convenience in obtaining a
loan, customer service, marketing and distribution channels, amount and term of
the loan, loan origination fees and interest rates. If any of these competitors
significantly expand their activities in our market, our business could be
materially adversely affected. Changes in interest rates and general economic
conditions may also affect our business and our competitors. During periods of
rising interest rates, competitors who have locked into lower rates with
potential borrowers may have a competitive advantage.
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GROWTH BY ACQUISITIONS
We have made three major acquisitions since mid-1998 and until
recently, were in the process of making additional acquisitions. In July 1998,
we acquired Dow Guarantee Corp., a south Florida mortgage lender since 1985. In
January 1999, we acquired Capital Funding of South Florida, Inc., a central and
north Florida mortgage lender since 1994. In August 1999, we acquired Jupiter
Mortgage Corporation, a central Florida mortgage lender since 1984. Additional
acquisitions may result in the issuance of more common stock and the incurrence
of additional debt. Acquisitions may also require additional management and
financial controls and could place a strain on our current resources. Our
ability to successfully integrate both completed and potential acquisitions into
our core business and to achieve synergies with the acquired entity will be
significant in terms of our growth, future prospects and results of operations.
We can give no assurance to our ability to successfully integrate any such
acquisitions. At this date acquisition activity has been halted.
ADDITIONAL SHARES COULD DEPRESS OUR STOCK PRICE
As of June 26, 2000, we have issued a total 1,146,129 warrants
and options which can be exercised for our common stock at various exercise
prices. Many shares of common stock underlying these warrants and options have
been granted the right to have such shares registered for resale under the
Securities Act. In addition, we have entered into letters of intent and/or
written agreements for the acquisition of entities which provide for the payment
of a portion of the total acquisition consideration in shares of our common
stock. This includes the right in some circumstances to have additional shares
of common stock paid over the next five years based upon the financial
performance and results of such acquired entities. All of these actual and
potential share issuances may have a negative effect on the share price of our
common stock in the future.
CONVERSION OF OUR DEBENTURES AND EXERCISE OF WARRANTS WILL RESULT IN ISSUANCE OF
MORE SHARES OF COMMON STOCK
We issued $2,500,000 of convertible debentures in May 1999. Each
debenture is convertible into common stock. The number of shares of common stock
that may be issued upon conversion of the convertible debentures depends upon
the market price of our common stock at the time of the conversion. As of
June 30, 2000, $1,363,995 of this debt has already converted into 524,483
shares for principal and interest. Based upon the recent price of common stock
of $0.50 per share, if the debentures were converted into common stock, we would
issue 2,704,774 shares of common stock. See "Recent Sale of Convertible
Debentures." We may sell up to $7,500,000 of additional convertible debentures.
We also issued warrants to purchase 34,483 shares of our common stock at $8.70
per share, to the purchaser of the debentures and warrants to purchase 246,129
shares of our common stock at $8.70 per share to other placement agents and
consultants, we will issue more warrants in the event of the sale of additional
debentures. See additional comments on page 8 captioned "Liquidity and Capital
Resources".
WE ARE SUBJECT TO EXTENSIVE REGULATION
Our operations are subject to extensive regulation, supervision and
licensing by federal, state and local governmental authorities and are subject
to various laws and judicial and administrative decisions imposing requirements
and restrictions on part or all of our operations. Our consumer lending
activities are subject to the Federal Truth-in-Lending Act and Regulation Z
(including the Home Ownership and Equity Protection Act of 1994), the Federal
Equal Credit Opportunity Act, as amended, and Regulation B, the Fair Credit
Reporting Act of 1970, as amended, the Federal Real Estate Settlement
Procedures Act and Regulation X, the Home Mortgage Disclosure Act, the Federal
Debt Collection Practices Act and the National Housing Act of 1934, as well as
other federal and state statutes and regulations affecting our activities.
We are also subject to the rules and regulations of, and
examinations by, state regulatory authorities with respect to originating and
processing loans. These rules and regulations, among other things, impose
licensing obligations on us, establish eligibility criteria for mortgage loans,
prohibit discrimination, govern inspections and appraisals of properties and
credit reports on loan applicants, collection, foreclosure and claims handling,
investment and interest payments on escrow balances and payment features,
mandate certain disclosures and notices to borrowers and, in some cases, fix
maximum interest rates, fees and mortgage loan amounts. Failure to comply with
these requirements can lead to loss of approved status, certain rights of
rescission for mortgage loans, class action lawsuits and administrative
enforcement action.
USE OF PROCEEDS
All the shares of the common stock being sold in connection with this
registration statement are being sold by selling shareholders. Therefore we will
receive no proceeds from the sale of these shares.
MARKET FOR THE SHARES
Our Common Stock has been trading on the over-the-counter market since
February 20, 1998. The following sets forth the range of high and low bid
quotations for the periods indicated as reported by National Quotation Bureau,
Inc. Such quotations reflect prices between dealers, without retail mark-up,
markdown or commission and may not represent actual transactions.
<TABLE>
<CAPTION>
High bid Low bid
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<S> <C> <C>
February 20, 1998 through March 31, 1998 $ 5.75 $5.75
April 1, 1998 through June 30, 1998 6.625 5.75
July 1, 1998 through September 30, 1998 7.375 5.50
October 1, 1998 through December 31, 1998 7.50 6.375
January 1, 1999 through March 31, 1999 5.75 7.00
</TABLE>
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High Bid Low Bid
April 1, 1999 through June 30, 1999 7.625 6.6875
July 1, 1999 through Sept. 30, 1999 6.96875 5.00
Oct. 1, 1999 through Dec. 31, 1999 8.50 2.25
Jan. 1, 2000 through March 31, 2000 4.75 0.625
April 1, 2000 through June 30, 2000 0.938 0.0938
July 1, 2000 through July 31, 2000 1.3125 0.2812
As of July 31, 2000 there were approximately 900 holders of record
of our common stock.
DIVIDEND POLICY
We have not previously paid any dividends to our shareholders and we do
not anticipate that any dividends will be paid in the foreseeable future. The
Board of Directors intends to follow a policy of using retained earnings, if
any, to finance the growth of the company. The declaration and payment of
dividends in the future will be determined by the Board of Directors in light of
conditions then existing, including the company's earnings, financial condition,
capital requirements and other factors.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the financial statements and notes thereto that appear elsewhere herein.
This Form SB-2 contains forward looking statements including, without
limitation, statements relating to the Company's plans, expectations,
intentions, and adequate resources, and are made pursuant to the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995. The words
"believes" "intends" "expects" "plans" "anticipates" "estimates" or "potential"
and similar expressions identify forward looking statements. The Company does
not undertake to update, revise, or correct any of the forward looking
information. Actual results may differ materially from those expressed in any
forward looking statement made by or on behalf of the Company. Some important
factors that could cause the Company's actual results or expectations to differ
materially from those discussed in the forward looking statements include, but
are not limited to loss of the Company's significant customers, changes in
consumer demand for the Company's core products, interest rates in general,
actions of regulatory or consumer protection agencies that have an effect on the
Company's ability to market its products, Federal and State legislation, capital
expenditures, economic conditions in general and inability to retain qualified
employees.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998:
RESULTS OF OPERATIONS
Revenues for the Year Ended December 31, 1999 increased 163% to
$4,723,697 from $1,797,632 for the Year Ended December 31, 1998. This growth in
revenues was primarily attributable to the contributions of the Capital Funding
of South Florida, Inc. and Jupiter Mortgage Corporation subsidiaries totaling
$2,297,617 in 1999, whose results were not part of AMSE's 1998 results. The Year
Ended December 31, 1998 includes five months of Dow's operations as this
subsidiary was acquired July 31, 1998.
Total Expenses for the Year Ended December 31, 1999 compared to the
Year Ended December 31, 1998 increased 449% to $11,966,506 from $2,179,888. This
increase in expenses was partially attributable to the inclusion of the costs
associated with the Capital Funding and Jupiter subsidiaries totaling $3,696,576
in 1999, which were not a part of AMSE during 1998, and Dow which was a part of
AMSE for a portion of the year ended December 31, 1998.
These expenses also include impairment write-down's of $3,259,311
against the goodwill of Dow Guarantee Corp. and Jupiter. The Jupiter impairment
was specific to the former Capital Funding operations. Capital Funding had
negative operations prior to their merger into Jupiter. The Dow impairment was
taken due to Dow having negative operations in the last five months of 1998 and
during the second quarter of 1999. During the second quarter of 1999 Dow lost
some key sales personnel, these individuals had historically been responsible
for approximately 10% of Dow's revenues. These personnel have been replaced.
The Company has also recognized approximately $1,491,628 of Debenture
Financing Costs. These Debentures are immediately convertible into Common Stock
and therefor the expenses are recognized immediately and not amortized over the
life of the debenture. These expenses include approximately $280,000 of fees
paid out of the debenture financing and the issuance of 185,500 shares of the
Company's Common Stock issued to consultants and placement agents. The Common
Stock issued is valued with a 10% discount due to the restrictions imposed on
the transferability of the shares.
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Total Other Expenses for the Year Ended December 31, 1999 compared to
the Year Ended December 31, 1998 increased to $519,031 from $17,010. This
increase in expenses was primarily due to the beneficial conversion feature of
the convertible debentures of $441,176.
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
RESULTS OF OPERATIONS
Revenues for the three-month period ending March 31, 2000 increased to
$1,498,793 from $959,932 for the three-month period ending March 31, 1999. This
growth in revenues was primarily attributable to the contributions of the
Jupiter Mortgage Corporation ("Jupiter") subsidiary, whose results were not
part of AMSE's 1999 results. See the Pro-forma financial statements including
Jupiter, presented on page F-5 herein for the three months ended March 31,
1999.
Total Expenses for the three-month period ended March 31, 2000
compared to the three-month period ended March 31, 1999 increased to $1,863,079
from $1,123,889. This increase in expenses was partially attributable to the
inclusion of the Jupiter subsidiary, which was not a part of AMSE during the
first quarter of 1999, and Capital Funding which was a part of AMSE for only
two of the three months ended March 31, 1999.
Total Other Expenses for the three-month period ended March 31, 2000
compared to the three-month period ended March 31, 1999 decreased to $12,708
from $13,647, this decrease is due primarily to an increase in interest income.
THREE MONTHS ENDED JUNE 30, 2000
RESULTS OF OPERATIONS
Revenues for the three-month period ending June 30, 2000 increased by 88% to
$1,904,411, up from $1,010,756 for the three-month period ending June 30, 1999.
This growth in revenues is primarily attributable to the contribution of the
Jupiter Mortgage Corporation ("Jupiter") subsidiary, which was acquired by the
Company in August 1999 and whose results were not a part of the Company's 2nd
quarter 1999 results. Revenues for the six-month period ending June 30, 2000
increased by 73% to $3,403,203, up from $1,970,688 for the six-month period
ending June 30, 1999. Jupiter Mortgage Corporation was the primary factor for
this increase. Revenues for Jupiter Mortgage Corporation for the six-month's
ended June 30, 2000 increased by 64% to $2,397,844 up from $1,463,230 for the
six-month period ending June 30, 1999. See the Pro-forma financial statements
including Jupiter, presented on page 7 herein for the six months ended June 30,
1999.
Total Expenses for the three-month period ended June 30, 2000 compared to the
three-month period ended June 30, 1999 increased to $2,634,911 from $1,298,199.
This increase in expenses is partially attributable to the inclusion of the
Jupiter subsidiary, which was not a part of the Company during the second
quarter of 1999. In addition the Company, pursuant to terms of those certain
acquisition agreements with Senior Income Reverse Mortgage Corporation and
Pinnacle Financial Corporation, wrote down the acquisition costs and deposits
related thereto, as these acquisitions were not consummated and the agreements
terminated pursuant to their terms. These costs were approximately $591,000.
Total Expenses for the six-month period ended June 30, 2000 compared to the
six-month period ended June 30, 1999 increased to $4,497,990 from $2,431,103.
Jupiter Mortgage Corporation was the primary factor for this increase, as it was
not a part of the Company's 1999 results.
During the second quarter of 2000, the Company closed selected offices and
eliminated certain positions. With respect to these closures the Company
negotiated several lease settlements and disposed of assets related to these
shuttered locations.
Total Other Expenses for the three-month period ended June 30, 2000, compared to
the three-month period ended June 30, 1999 increased to $25,677 from $5,659.
This increase is due to an increase in interest expense. Total Other Expenses
for the six-month period ended June 30, 2000 compared to the six-month period
ended June 30, 1999 increased to $38,385 from $19,306.
ACQUISITION CANDIDATES - UPDATE ON STATUS
PINNACLE FINANCIAL CORPORATION
On February 3, 2000, America's Senior Financial Services, Inc., a
Florida corporation (the "Registrant"), entered into a Merger Agreement with
Pinnacle Financial Corporation, a Florida corporation ("Pinnacle"). The closing
of the Merger transaction was subject to several conditions to closing of both
the Registrant and Pinnacle, including but not limited to the obtaining of
adequate financing by the Registrant with respect to the cash consideration to
be paid in the transaction. At June 30, 2000, the Merger Agreement has expired
and the Company does not expect to close this acquisition. A charge has been
taken against 2nd Quarter Results to expense the costs of this expired
transaction.
SENIOR INCOME REVERSE MORTGAGE CORPORATION
On October 8, 1999, the Registrant entered into a Stock Purchase
Agreement with Senior Income Reverse Mortgage Corporation ("Senior Income"),
whereby the Registrant agreed to purchase all of the outstanding stock of Senior
Income.
The closing of the stock purchase transaction was subject to several
closing conditions of both the Registrant and the shareholders, including but
not limited to the obtaining of adequate financing by the Registrant with
respect to the cash consideration to be paid in the transaction. At June 30,
2000, the Stock Purchase Agreement has expired and the Company does not expect
to close this acquisition. Should market conditions improve, the Company intends
to initiate new discussions with Senior Income, but no assurances can be given
that the Company will be successful. Therefor, a charge has been taken against
2nd Quarter Results to expense the costs of this expired transaction.
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LIQUIDITY AND CAPITAL RESOURCES
We sold $2,500,000 principal amount of 3% convertible debentures in May
1999 which are due on May 6, 2002. The debentures are convertible into our
common stock at the option of the debenture holder. If converted, the debentures
will be converted into common stock at a price of the lower of (a) $8.70 per
share or (b) 85% of the average closing bid price for the common stock for 5
trading days selected by the debenture holder from the twenty trading days
ending immediately before the conversion of the debenture. However, the Company
may not issue more than 9.9% of its outstanding common stock to this debenture
holder. We also issued warrants to purchase 34,483 shares of our common stock at
$8.70 per share to the purchaser of the debentures and will issue more warrants
in the event of the sale of additional debentures. The material risk associated
with this type of debenture is that with our stock price having been at a
historic low it has a significant dilutive effect.
The debenture holder has converted $1,363,995 of the principal of the
debenture into 524,483 shares of the Company's common stock. Interest expense
associated with the conversion was approximately $20,000 and was paid by the
issuance of shares of common stock.
In October 1999, the Company accrued a $45,000 penalty due to the
debenture holder. Such penalty was the result of the Company not filing an
active registration statement within 120 days of the debenture issue date per
the terms of the Securities Purchase Agreement dated May 6, 1999. This amount
was a current liability at December 31, 1999, and it was paid in January 2000 by
the issuance of 21,019 shares of common stock.
The Company may seek to obtain additional equity and/or debt financing
in the future on terms deemed favorable by the Company. No assurances can be
given as to the Company's ability to procure any such debt and/or equity
financing in the future.
As a result of the sale of the convertible debentures in May 1999, the
Company had sufficient working capital to meet its capital needs for the past
eleven months and had up to $7,500,000 available from such investor for the
purchase of additional convertible debentures. Due to the restrictions on
additional draw downs and their dependency on a stock price of $5.75 or higher
we are currently unable to access these funds. We are also pursuing other
financing arrangements. The Company has declined to convert any additional
shares for the debenture holder, pending a resolution of certain issues that
exist between the Company and the holder.
We currently manage the payment of our current liabilities and
obligations on a monthly basis as cash becomes available. Based on the current
success in raising capital from investors, the costs of operations may increase
as these funds are invested to enhance operations.
The Company, if its business plan is successfully implemented, expects
to achieve profitability from operations in the third quarter of 2000 by
accelerating revenue growth in excess of its expense growth. The operating and
administrative infrastructure to manage the growth of the Company is currently
in place. Management plans to increase marketing of its mortgage products in the
workplace. The marketing efforts of the Company are dependent upon its ability
to fund such efforts; however, there can be no assurance that the Company will
reach profitability without accessing additional capital resources. Management
intends to generate the necessary capital to operate for the next twelve months
by selling our common and preferred shares to qualified investors in private
placements. Unless we are successful in our efforts to sell our stock to fund
the growth of the Company, we believe that we may not be able to continue
operations for the next twelve months. There are no assurances that we will be
able to raise the required capital through the sale of our debt or equity
securities or that we will have access to other sources of capital on terms that
are acceptable to us.
During recent months, the company has initiated several financing
transactions which if consummated would enhance the company's working capital
and might cause the company to have the resources necessary to complete certain
additional growth objectives. At the time of this filing, none of the
financings have been completed. In the event that the company closes on a
financing transaction a press release or 8K will be completed disclosing the
general terms of the transaction.
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INDUSTRY OBSTACLES:
The Reverse Mortgage Industry is fragmented, dominated by small
regional firms, and generally lacks nationwide leadership. We saw this as an
opportunity to aggregate production, and used this weakness as the core of our
growth strategy. In 1998, we were involved in the formation of the National
Reverse Mortgage Lenders Association (NRMLA). NRMLA was created to help this
Industry become mainstream, and we are a driving member of NRMLA.
Management of AMSE believes that the Company's results have started to
reflect its business model which is built on a mix of revenue weighted toward a
higher forward mortgage contribution. However, our overhead allocation is
weighted toward the development of our Reverse Mortgage ("RM") business. In
1999 we continued to increase our forward mortgage business in an attempt to
subsidize the cost of growing our RM business.
In 1999, we continued to spend considerable resources to further
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.
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FUTURE PLANS FOR GROWTH AND PROFITABILITY:
The Company has developed a specific strategy for the future. The
strategy addresses several key needs.
1. At this writing, 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 were used to train our
subsidiaries to produce RMs.
2. In 1998 and 1999, 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 January of 1999, the
Company acquired Capital Funding of South Florida, adding another
$62,500,000 in loan production. In August of 1999, the Company acquired
Jupiter Mortgage Corporation, adding approximately $125,000,000 in loan
production. On September 30, 1999 we merged Capital with and into
Jupiter in an effort to consolidate and or eliminate duplicative back
office functions.
3. We are continuing to develop our "participant network" of mortgage
brokers, financial planners, and other persons dedicated to working
with the senior demographic. The Company has initiated several
discussions with both public and private companies in an effort to
accelerate the development of the network.
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BUSINESS
We are a licensed mortgage lender active in originating, processing and
obtaining funding for forward and reverse mortgage loans secured by single
family residences which are funded by financial institutions or independent
investors. We receive income from two sources in connection with our mortgage
lending activities: we charge certain non-refundable mortgage application fees
to potential borrowers and upon closing a loan, receive an additional fees
payable by the borrower or investor which fees are based upon a percentage of
the loan and/or the interest rates charged.
We are a Florida corporation which was incorporated on February 26,
1990 under the name Phoenix Management Associates, Inc. We changed our name to
America's Senior Financial Services, Inc. on December 11, 1997. We do business
under the trade names America's Senior Financial Services, Dow Guarantee and
Jupiter Mortgage Corporation.
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HOW REVERSE MORTGAGES WORK
A reverse mortgage (RM) is a type of home equity loan that allows
homeowners to convert some of the equity in their homes into cash without an
obligation on their part for monthly repayment. RMs works much like forward
mortgages, only in reverse. Rather than making a payment to the lender each
month, the lender pays the borrower. Unlike conventional home equity loans, RMs
do not require any repayment of principal, interest, or servicing fees for as
long as the borrower lives in their home. Funds obtained from an RM may be used
for any purpose, including meeting housing expenses such as taxes, insurance,
fuel, and maintenance costs, as well as any personal expenses such as health
care expenses. The loan does not come due until the borrower dies, sells, or
moves out of the home permanently.
REQUIREMENTS AND RESPONSIBILITIES OF THE REVERSE MORTGAGE BORROWER
The RM funds may be paid to the borrower in a lump sum, in monthly
advances, through a line-of-credit, or in a combination of the three, depending
on the type of RM and the lender. The amount the homeowner is eligible to borrow
is based on age, the equity in the home, and the interest rate the lender is
charging. The calculation is done utilizing special software developed by the
secondary market investors.
Because the borrower retains title to the home with an RM, the borrower
also remains responsible for taxes, repairs, and maintenance. Depending on the
plan selected, the RM becomes due with interest either when the borrower
permanently moves, sells the home or dies. The lender does not take title to the
home when the borrower dies, but the heirs must pay off the loan. The debt is
usually repaid by refinancing the loan into a forward mortgage (if the heirs are
eligible) or by using the proceeds from the sale of the home.
The Company has established ongoing correspondent relationships with
selected mortgage funding organizations such as Federal National Mortgage
Association (Fannie Mae), Federal Housing Administration and several
non-governmental lenders which have established reverse mortgage funding
programs. These organizations buy reverse mortgages which meet their individual
and agency or government underwriting requirements. The Company receives a fee
upon funding which is generally 2% of the appraised value of the subject
property.
LOAN OFFICE NETWORK. The Company originates mortgage loans through its
network of 8 retail loan offices. As of June 26, 2000 the following are the
locations of the loan origination offices maintained by America's Senior, Dow,
and Jupiter.
America's Senior:
-----------------
Addresses: 9501 NE 2nd Ave., Suite 3; Miami Shores, FL 33138
911 East 86th Street, Suite #30, Indianapolis IN 46240
DOW:
----
Addresses: 9501 NE 2nd Ave; Miami Shores FL 33138
Jupiter:
--------
Addresses: 1868 S.E. Port St. Lucie Blvd.; Port St. Lucie, FL 34952
11398 Okeechobee Blvd., Royal Palm Beach, FL 33411
1000 South Federal Highway; Stuart, FL 34994
1070 E. Indiantown Road, Suite 410; Jupiter, FL 33477
1100 W. Littleton Boulevard, Suite 350,
Littleton, CO 80120
12
<PAGE> 13
The Company's loan officers at its 8 retail loan offices assist the
applicant in explaining the various mortgage loan programs available, completing
the loan application, arranging for appraisals, credit reports,
pre-underwriting, quality control, fraud prevention, state and federal
compliance issues, and various other tasks in connection with the proper
preparation of a loan package. The loan package is then forwarded to the
Company's funding sources for compliance review and loan approval. If the loan
package is approved, the loan can be closed and funded and the Company receives
its fees, which are based upon a percentage on the amount of the loan and/or
interest rates.
Generally, the Company acts only to originate mortgage loans which are
funded by third party financing sources. While the Company has credit
arrangements to fund loans with its own funds, these are used in a very limited
manner, and loans funded with these facilities are generally not held longer
than 90 days. Accordingly, the risks of collection, delinquencies and
foreclosures are very limited.
MARKETING AND ADVERTISING
As an independent mortgage originator, the Company seeks to identify
persons who are seeking mortgage loan funding. Currently, the Company advertises
in local and regional newspapers, yellow page telephone directories, internet
websites, direct mail and cable television. The Company markets through national
Trade Association participation, senior oriented direct mail, participation in
senior events, free video tapes given to potential clients, state level trade
shows, and HUD/Fannie Mae focus group activities.
For the fiscal year ended December 31, 1999 and 1998, the Company
expended approximately $393,000 and $155,000, respectively for sales and
marketing activities. In 1999 the Company expanded its marketing activities to
consistently include nationwide advertising of its Reverse Mortgage effort. For
the year to date 2000, marketing and advertising expenses have been
significantly reduced as the Company increases its efficiency and continues to
develop its business in its core states of Florida and Indiana.
FUNDING SOURCES
The Company has established ongoing correspondent relationships with
selected mortgage funding organizations that have seller-servicer status with
major secondary market entities 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.
13
<PAGE> 14
The funding organizations have no contractual obligation to fund any
mortgage loans originated by the Company. Each loan is considered for funding
based upon the underwriting standards established by the individual funding
organization, in compliance with the government (FHA, VA) or quasi-governmental
agency (FNMA, FHLMC) which will ultimately acquire the loan as part of a
mortgage backed security (MBS).
The funding organizations are all major wholesale funding sources, and
the Company represents that it only sells loans to those organizations which are
properly licensed to conduct business in the states that the Company operates
in, and that the funding organizations are generally HUD, VA, FNMA, or FHLMC
approved conduits.
EXPANSION STRATEGY
In July 1998, January 1999 and August 1999, the Company acquired Dow,
Capital Funding and Jupiter respectively. See "Future Plans For Growth And
Profitability". The Company is seeking to acquire additional mortgage
originators and may also consider the acquisition of ancillary organizations
such as title companies, health care providers, and other financial service
organizations focused on the senior citizen market. During May of 1999 the
Company raised $2.5M for operating and acquisition capital and has an additional
$7.5M available if certain criteria, which are not currently met can be met per
the convertible debentures previously discussed.
COMPETITION
The Company faces intense competition in the business of originating
mortgage loans. The Company's competitors in the industry include consumer
finance companies, mortgage banking companies, savings banks, commercial banks,
credit unions, thrift institutions, credit card issuers and insurance companies.
Many of these competitors are substantially larger and have considerably greater
financial, technical and marketing resources than the Company. In addition, many
financial services organizations that are much larger than the Company have
formed national loan origination networks or purchased home equity lenders.
Competition among industry participants can take many forms, including
convenience in obtaining a loan, customer service, marketing and distribution
channels, amount and term of the loan, loan origination fees and interest rates.
To the extent any of these competitors significantly expand their activities in
the Company's market, the business of the Company could be materially adversely
affected. Fluctuations in interest rates and general economic conditions may
also affect the Company and its competition. During periods of rising rates,
competitors that have locked in lower rates to potential borrowers may have a
competitive advantage.
The Company believes its competitive strengths include emphasizing
customer education to attract borrowers for reverse mortgages, and its ongoing
high level of customer service which causes it to retain a very high percentage
of its clients.
REGULATION
The Company's operations are subject to extensive regulation,
supervision and licensing by federal, state and local governmental authorities
and are subject to various laws and judicial and administrative decisions
imposing requirements and restrictions on part or all of its operations. The
Company's consumer lending activities are subject to the Federal
Truth-in-Lending Act and Regulation Z (including the Home Ownership and Equity
Protection Act of 1994), the Federal Equal Credit Opportunity Act, as amended,
and Regulation B, the Fair Credit Reporting Act of 1970, as amended, the Federal
Real Estate Settlement Procedures Act and Regulation X, the Home Mortgage
Disclosure Act, the Federal Debt Collection Practices
14
<PAGE> 15
Act and the National Housing Act of 1934, as well as other federal and state
statutes and regulations affecting the Company's activities.
The Company is also subject to the rules and regulations of, and
examinations by, state regulatory authorities with respect to originating and
processing loans. These rules and regulations, among other things, impose
licensing obligations on the Company, establish eligibility criteria for
mortgage loans, prohibit discrimination, govern inspections and appraisals of
properties and credit reports on loan applicants, regulate assessment,
collection, foreclosure and claims handling, investment and interest payments on
escrow balances and payment features, mandate certain disclosures and notices to
borrowers and, in some cases, fix maximum interest rates, fees and mortgage loan
amounts. Failure to comply with these requirements can lead to loss of approved
status, certain rights of rescission for mortgage loans, class action lawsuits
and administrative enforcement action.
EMPLOYEES
As of June 26, 2000, the Company employs approximately 120 persons.
The Company has satisfactory relations with its employees.
FACILITIES
All of the operations of the Company are conducted from premises leased
from independent landlords.
The following table sets forth information concerning these facilities:
America's Senior Financial Services
<TABLE>
<CAPTION>
Location Tenant Approx. Size Lease Expiration Monthly Rent
--------------- ------------ ---------------- ------------
<S> <C> <C> <C>
9501 NE 2nd Ave., Suite 3
Miami Shores, FL 33138 750 sf Month to Month $ 900
911 East 86th Street, #30 500 sf May 2001 $ 500
Indianapolis, IN 46240
</TABLE>
Dow Guarantee Mortgage
<TABLE>
<CAPTION>
Location Tenant Approx. Size Lease Expiration Monthly Rent
--------------- ------------ ---------------- ------------
<S> <C> <C> <C>
9501 NE 2nd Ave.
Miami Shores, FL 33138 5,500 sf Dec. 2001 $6,000
</TABLE>
15
<PAGE> 16
JUPITER MORTGAGE CORPORATION
<TABLE>
<CAPTION>
Location Tenant Approx. Size Monthly Rent
--------------- ------------ ------------
<S> <C> <C>
1868 S.E. Port St. Lucie Blvd. 1,800 sf $2,488.27
Port St. Lucie, FL 34952
11398 Okeechobee Blvd. 1,500 sf $1,995.18
Royal Palm Beach, FL 33411
1000 S. Federal Highway 500 sf $1,000.00
Stuart, FL 34994
1070 E. Indiantown Road, Suite 410 3,733 sf $7,124.04
Jupiter, FL 33477
1100 W. Littleton Boulevard, 480 $ 500.00
Suite 350
Littleton, CO 80120
</TABLE>
Leases may provide for rent escalations tied to increases in operating
expenses or fluctuations in the consumer price index.
MANAGEMENT
The directors and executive officers of the Company are:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Nelson A. Locke 49 Chairman of the Board,
President and Treasurer.
Cheryl D. Locke 43 Executive Vice President-
Personnel, Director.
Michael Buono 36 Director-CEO of Jupiter
Thomas G. Sherman, Esq. 49 Outside Director.
Compensation and Audit Committee.
Michael J. Shelley 38 Outside Director.
Charles M. Kluck 55 Director-President of Dow.
Nelson A. Locke and Cheryl D. Locke are married.
</TABLE>
16
<PAGE> 17
Nelson A. Locke founded the Company in 1990 and has served as its
President and Director since that time. He is the architect of the Company's
business model. He is the past President of the Florida Association of Mortgage
Brokers - Miami Chapter and has earned the NAMB's certified residential mortgage
lender designation. In 1997 he was named FAMB's 'Broker of the Year', and in
1998 was awarded the prestigious FAMB 'President's Award' for his public
relations efforts on behalf of the Florida Mortgage Brokerage Industry. In 1999,
he was elected by his 2,500 FAMB peers to serve on the association's Executive
Committee. 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 is directly responsible for the human
resources 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.
Michael Buono was elected to the Board of Directors to fill an existing
vacancy. He is currently the Chief Executive Officer of Jupiter Mortgage
Corporation, which was acquired by the Company on August 31, 1999. He serves on
the Company's audit committee as well.
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 graduate of the University of Illinois with a B.A.
in Economics and also has a Master of Science degree from the University of
Illinois in Finance. He became a director in January 1998.
Charles M. Kluck has been the President of Dow Guarantee Corp. since
its founding in 1985. Dow was acquired by the Company on July 31, 1998. He
continues to serve in that capacity. He became an director in July 1998. In May
2000, he was appointed to the Company's compensation committee.
BOARD COMMITTEES
The Board of Directors has established an Audit Committee and a
Compensation Committee. The Audit Committee, consisting of Thomas J. Sherman and
Michael Buono, reviews the adequacy of internal controls and results and scope
of the audit and other services provided by the Company's independent auditors.
The Compensation Committee, consisting of Thomas Sherman and Charles Kluck,
establishes and recommends salaries, incentives and other forms of compensation
for officers and other key employees.
17
<PAGE> 18
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the total compensation paid to the
Company's chief executive officer for the last three completed fiscal years. No
executive officer of the Company received compensation of $100,000 or more
during any such year.
<TABLE>
<CAPTION>
Other Annual
Principal Position Year Salary Bonus Compensation
------------------ ---- ------ ----- ------------
<S> <C> <C> <C> <C>
Nelson A. Locke 1999 $62,750 -0- $ 0
President 1998 $70,000 -0- 5,000
1997 $50,000 -0- -0-
</TABLE>
DIRECTOR COMPENSATION No fees are paid for director services.
EXECUTIVE EMPLOYMENT AGREEMENTS
In July 1998 the Company entered into a five (5) year employment
agreement with Nelson A. Locke. Mr. Locke is employed as President and Chairman
at an annual salary of $70,000 and such additional compensation as he
determines. The agreement provides certain health, life and disability
insurance, and autos to Mr. Locke. The Agreement provides for the establishment
of an "Executive Performance Bonus Pool" described below. The agreement provides
that in any calendar year when the Company's stock price increases by at least
20%, that he shall be eligible for stock options equal to 5% of his total common
stock holdings at the end of the calendar year which may be exercised at $1.00
per share and may be paid for by interest-free promissory note. Mr. Locke waived
these options for 1998 as this event would have been harmful to future business
and investor prospects.
In October 1999 the Board of Directors approved a change in Mr.
Locke's annual base salary to $200,000. His health, life, option plan,
disability insurance and auto allowances remain the same. However, Mr. Locke
voluntarily deferred the increase of the base salary until further notice, in
the interest of protecting the company's cash flows.
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.
18
<PAGE> 19
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 of 1999 the Company's subsidiary, Jupiter Mortgage Corp.,
entered into an employment agreement with Michael J. Buono for a term of 5
years, under which Mr. Buono will be paid an annual salary of $150,000.
In August of 1999 the Company's subsidiary, Jupiter Mortgage Corp.,
entered into an employment agreement with Deanne J. Anderson for a term of 1
year, under which Ms. Anderson will be paid an annual salary of $120,000.
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 1999 and/or 1998.
STOCK OPTION PLANS.
INCENTIVE STOCK OPTION PLAN
The Company's Board of Directors and Shareholders have adopted two
stock option plans. Pursuant to the Incentive Stock Option Plan (the "ISO
Plan"), options to acquire a maximum of 2,000,000 shares, but not more than
eight percent (8%) of the total authorized shares of the Company, may be granted
to directors, officers, employees, consultants and other independent contractors
and persons who performed services relating to the Company, including wholly or
partially owned subsidiaries.
The Plan is administered by the Compensation Committee consisting of
two non-employee directors or in the absence of such a committee, the Board of
Directors.
Pursuant to the ISO Plan, the Company may grant Incentive Stock Options
as defined in ss. 422(b) of the Internal Revenue Code of 1986 and non-qualified
stock options not intended to qualify under such section. The price at which the
Company's common stock may be purchased upon exercise of Incentive Stock Options
granted under the Plan will be required to be at least equal to the fair market
value of the common stock on the date of grant. Non-qualified stock options may
be at any price designated by the Committee on the date of grant. Options
granted under the Plan may have maximum terms of not more than
19
<PAGE> 20
ten (10) years and are not transferable except by will or the laws of descent
and distribution. No Incentive Stock Options under the Plan may be granted to an
individual owning more than ten percent (10%) of the total combined voting power
of all classes of stock issued by the Company unless the purchase price of the
common stock under such option is at least one hundred ten percent (110%) of the
Fair Market Value of the shares issuable on exercise of the option at the date
of grant and such option is not exercisable more than five (5) years from the
date of grant.
Generally, options granted under the Plan terminate upon the grantee's
employment or affiliation with the Company, but the Committee may authorize an
expiration date of up to ninety (90) days following such termination. If
termination was due to death or disability, the options expire one (1) year
after such termination or the termination date set forth in the option,
whichever is earlier. If termination is due to retirement the option expires
ninety (90) days after termination or the termination date set forth in the
option, whichever is earlier.
If the Change of Control takes place, the Board may vote to immediately
terminate all outstanding options or may vote to accelerate the expiration of
options to the tenth day after the effective date of the Change of Control. If
the Board votes to immediately terminate the options, it shall make a cash
payment to the grantees equal to the difference between the exercise price and
the Fair Market Value of the shares that would have been subject to the
terminated option on the date of the Change of Control. A Change of Control of
the Company is generally deemed to occur when any person becomes the beneficial
owner of or acquires voting control with respect forty percent (40%) or more of
the total voting shares of the Company, the Company is merged into any other
company, or substantially all of its assets are acquired by another company, or
three or more directors nominated by the Board to serve as a director, each
having agreed to serve in such capacity, failed to be elected in a contested
election of directors.
Incentive Stock Options granted under the Plan are subject to the
restriction of the aggregate Fair Market Value as of the date of grant of
options which first become exercisable in any calendar year cannot exceed
$100,000.
The Plan provides for appropriate adjustments in the number and type of
shares covered by the Plan and options granted thereunder in the event of any
reorganization, merger, recapitalization or certain other transactions involving
the Company.
Until the closing of an underwritten public offering by the Company,
pursuant to a registration statement filed and declared effective under the
Securities Act of 1933 covering offer and sale of the Company's common stock for
the account of the Company, the Company has the right of first refusal to
acquire any shares which were acquired pursuant to the exercise of options under
the Plan at the Fair Market Value on the date of the shareholder's notice to the
Company and the Company shall have the right to repurchase any option shares
following holder's termination of service or affiliation with the Company for
any reason at the original exercise price of the option.
NON-QUALIFIED STOCK OPTION PLAN.
Pursuant to the Non-Qualified Stock Option Plan (the "Non-ISO Plan"),
options to acquire a maximum of two percent (2%) of the total authorized shares
of the Company may be granted to any person who performed services for the
Company and its subsidiaries.
20
<PAGE> 21
Non-qualified stock options may be at any price designated by the
Committee on the date of grant. Options granted under the Plan may have maximum
terms of not more than ten (10) years and are not transferable except by will or
the laws of descent in distribution.
Generally, options granted under the Plan terminate thirty (30) days
after termination of the grantee's employment or affiliation with the Company.
If termination was due to death or disability, the options expire one (1) year
after such termination or the termination date set forth in the option,
whichever is earlier.
Any conditions or restrictions on exercise lapse on a Change of Control
unless otherwise set forth in the Option Agreement.
The Plan is administered by a Stock Option Committee consisting of two
or more non-employee directors or in the absence of such a committee, the Board
of Directors.
The Plan provides for appropriate adjustments in the number and type of
shares covered by the Plan and options granted thereunder in the event of any
reorganization, merger, recapitalization or certain other transactions involving
the Company.
Until the closing of an underwritten public offering by the Company,
pursuant to a registration, filed and declared effective under the Securities
Act of 1933 covering offer and sale of the Company's common stock for the
account of the Company, the Company has the right of first refusal to acquire
any shares which were acquired pursuant to the exercise of options under the
Plan. At the Fair Market Value on the date of the shareholder's notice to the
Company and the Company shall have the right to repurchase any option shares
following holder's termination of service or affiliation with the Company for
any reason at the original exercise price of the option.
NON-PLAN STOCK INCENTIVES.
In 1998, the Company issued 74,400 shares of its Common Stock to
employees as incentive compensation. These shares vest at three years. There is
no prorated vesting schedule. During 1999 we issued an additional 128,300
shares to employees as incentive compensation.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
A shareholder, Louis Weltman of Vistra Growth Partners, Inc. provided
investment banking services to the Company. In 1998 such shareholder was paid
fees consisting of cash of $60,000 and 66,667 shares of the Company's common
stock for services in connection with the Company's acquisition of Dow. In 1999
he was paid approximately $417,000 in cash and issued 186,600 shares of common
stock and a warrant to purchase 228,888 shares of common stock in connection
with the sale of our 3% Convertible Debentures and the two acquisitions executed
during 1999. The warrant was forfeited as part of the termination agreement
entered into with the Company.
A shareholder, Brickell Equity Group received fees for services during
1999 consisting of 5,200 shares of the Company's common stock valued at $17,550
for investment services.
The Company's president, Nelson Locke owed the Company $20,700
(including accrued interest) under a note bearing 5% interest. Also, Mr. Locke
bought a vehicle from the Company for $5,000, which was approximately the net
book value at the time of the sale. Mr. Locke has since repaid the note.
Two shareholders of the Company (the former owners of Capital Funding)
each owe the Company $50,000 under promissory notes dated December 31, 1997.
These notes bear interest at 6% per annum and the interest is payable annually
on December 31st. These notes are due on January 1, 2004. The interest due at
December 31, 1998 and 1999 has not been paid. The total of principal and
interest is $112,000 at December 31, 1999 and $106,000 at December 31, 1998.
The fair value of these notes is not subject to reasonable estimation due to
their related party nature.
21
<PAGE> 22
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of June 16, 2000, the beneficial
ownership of the Company's 9,110,208 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.
<TABLE>
<CAPTION>
Number of
Name Shares Percent (1)
---- --------- -----------
<S> <C> <C>
Nelson A. Locke(2) 2,650,000 28%
Cheryl D. Locke(2) 2,650,000 28%
Charles M. Kluck(3) 550,000 6%
Michael Buono 200,618 2%
Dee Anderson 187,304 2%
Thomas G. Sherman, Esq. 107,500 1%
Michael J. Shelley 117,500 1%
All officers and directors as a group 3,812,922 41%
(7 persons)
</TABLE>
----------
(1) Based upon 9,617,305 shares outstanding as of July 31, 2000.
(2) Nelson A. Locke and Cheryl D. Locke own such shares as joint tenants.
(3) Includes 200,000 owned by his sister, Linda Kluck.
DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized to issue 25,000,000 shares of Common Stock,
$.001 par value. The holders of Common Stock are entitled to one vote for each
share held of record on all matters to be voted on by stockholders. There is no
cumulative voting with respect to the election of directors, with the result
that the holders of more than 50% of the shares voting for the election of
directors can elect all of the directors then up for election. The holders of
Common Stock are entitled to receive dividends when, as and if declared by the
Board of Directors out of funds legally available therefor. In the event of
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining which are available
for distribution to them after payment of liabilities and after provision has
been made for each class of stock, if any, having preference over the Common
Stock. Holders of shares of Common Stock, as such, have no conversion,
preemptive or other subscription rights, and there are no redemption provisions
applicable to the Common Stock. All of the outstanding shares of Common Stock
are fully paid and nonassessable.
22
<PAGE> 23
PREFERRED STOCK
The Company is authorized to issue 10,000,000 shares of Preferred Stock
with rights, preferences and limitations to be determined by the Board of
Directors. As of the date hereof, no shares of Preferred Stock have been issued.
INDEMNIFICATION
The Florida Business Corporation Act provides that a person who is
successful on the merits or otherwise in defense of an action because of service
as an officer or director or a corporation, such person is entitled to
indemnification of expenses actually and reasonably incurred in such defense.
F.S. 607.0850(3).
Such Act also provides that the corporation may indemnify an officer or
director, advance expenses, if such person acted in good faith and in a manner
the person reasonably believed to be in, or not opposed to, the best interests
of the corporation and, with respect to a criminal action, had no reasonable
cause to believe his conduct was unlawful. F.S. 607.0850(1)(2).
A court may order indemnification of an officer or director if it
determines that such person is fairly and reasonably entitled to such
indemnification in view of all the relevant circumstances. F.S. 607.0850(9).
INDEMNIFICATION AGAINST PUBLIC POLICY
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or person controlling the
company, the company has been informed that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is therefore unenforceable.
PLAN OF DISTRIBUTION/SELLING SECURITY HOLDERS
Plan of distribution
The shares offered hereby may be sold from time to time directly by the
selling security holders. Alternatively, these selling security holders may from
time to time offer the shares through underwriters, dealers or agents. The
distribution of the shares by the selling security holders may be effected in
one or more transactions that may take place on the over-the-counter market,
including:
o ordinary broker's transactions,
o privately-negotiated transactions or
o through sales to one or more broker-dealers for resale, at market
prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
Customary or specifically negotiated brokerage fees or commissions may
be paid by the selling security holders in connection with such sales of shares.
The shares offered by the selling security holders may be sold by one or more of
the following methods, without limitations:
23
<PAGE> 24
o a block trade in which a broker or dealer so engaged will attempt to
sell the shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
o purchases by a broker or dealer as principal and resale by such broker
or dealer for its account pursuant to this Prospectus;
o ordinary brokerage transactions and transactions in which the broker
solicits purchasers, and
o face-to-face transactions between sellers and purchasers without a
broker-dealer.
In effecting sales, brokers or dealers engaged by the selling security
holders may arrange for other brokers or dealers to participate. The selling
security holders and intermediaries through whom such shares are sold may be
deemed "underwriters" within the meaning of the Securities Act of 1933 with
respect to the shares offered, and any profits realized or commissions received
may be deemed underwriting compensation.
At the time a particular offer of shares is made by or on behalf of a
selling security holder, to the extent required, a prospectus will be
distributed which will set forth the number of shares being offered and the
terms of the offering, including the name or names of any underwriters, dealers
or agents, if any, the purchase price paid by any underwriter for shares
purchased from the selling security holder and any discounts, commissions or
concessions allowed or reallowed or paid to dealers and the proposed selling
price to the public.
The following security holder may offer shares of common stock issuable
upon conversion of debentures and exercise of warrants.
Except as indicated below, none of the selling security holders having
any affiliation with the Company other than as security holders:
24
<PAGE> 25
<TABLE>
<CAPTION>
Number of Shares Number of Shares
Beneficially Owned Prior Being Offered for Selling
Selling Shareholder to the Offering(1) Shareholders' Account
------------------- ------------------------ -------------------------
<S> <C> <C>
Richard H. Walker 28,339 28,339 (2)
Robert Sullivan, III 19,390 19,390 (2)
Eric Horton 14,915 14,915 (2)
Stuart T. Smith 11,933 11,933 (2)
Travis Christ 4,548 4,548 (2)
Telluride Holdings, L.C.(3) 75,000 75,000 (3)
Brickell Equity Group, Inc. 377,700 300,000 (5)
Gary Barcus, Esq.(6) 120,000 120,000
Wall Street Financial(7) 387,097 387,097
Palmun Associates 150,000 265,368
--------- ---------
1,226,590
</TABLE>
--------------------
(1) As used herein, beneficial ownership means the sole power to vote, or direct
the voting of, a security, or the sole or shared power to dispose, or direct
the disposition of, a security. Except as otherwise indicated, each selling
shareholder has beneficial ownership with respect to his/her shares of
common stock.
(2) These shares were issued pursuant to an Agreement, dated January 6, 2000,
between the Company and The Charterbridge Financial Group, Inc., by which
the Company issued shares of common stock with registration rights in return
for certain financial advisory and investor relations services. These shares
were issued to employees and shareholders of The Charterbridge Financial
Group, Inc.
(3) These shares were issued pursuant to a Financial Advisory Agreement, dated
February 2, 2000 by and between the Company and Capitalink, L.C., by which
the Company issued shares of common stock to Telluride Holdings, L.C., (a
wholly owned subsidiary of Capitalink, L.C.) with registration rights in
return for certain financial advisory services.
(5) These shares were issued pursuant to a Consulting Agreement, dated as of
January 1, 2000, by and between the Company and Brickell Equity Group, Inc.,
by which the Company issued shares of common stock with registration
rights in return for certain financial advisory services.
(6) These shares were issued pursuant to a contract to provide legal services,
dated 6/27/00, between the Company and Attorney Barcus, whereby the Company
issued the shares subject to R144 and is providing them to counsel as
certain projects are completed.
(7) These shares were issued pursuant to a marketing contract dated 7/10/00
between the Company and Wall Street Financial, whereby the shares, issued
subject to R144, will be paid to Wall Street on a monthly basis upon proof
of execution of direct marketing letter.
(8) These shares were issued pursuant to a private subscription to raise working
capital, dated as of 8/2/00, between the Company and Palmun Associates,
Inc., wherein the Company agreed to register all Palmun's shares on this
registration statement.
25
<PAGE> 26
REGULATION M
We have informed the selling security holders that Regulation M
promulgated under the Securities Exchange Act may be applicable to them with
respect to any purchase or sale of our common stock. In general, Rule 102 under
Regulation M prohibits any person connected with a distribution of our common
stock from directly or indirectly bidding for, or purchasing for any account in
which it has a beneficial interest, any of our common stock or any right to
purchase our common stock for a period of one business day before and after
completion of its participation in the distribution.
During any distribution period, Regulation M prohibits the selling
security holders and any other persons engaged in the distribution from engaging
in any stabilizing bid or purchasing our common stock except for the purpose of
preventing or retarding a decline in the open market price of our common stock.
No person may effect any stabilizing transaction to facilitate any offering at
the market.
The selling security holders may be entitled, under agreements entered
in to with us, to indemnification against liabilities under the Securities Act,
the Securities Exchange Act and otherwise.
LEGAL MATTERS
The validity of the shares offered hereby is being passed upon for the
Company by Akerman, Senterfitt & Eidson, PA, Miami, Florida.
EXPERTS
The consolidated financial statements of America's Senior Financial
Services, Inc. and subsidiaries as of and for the years ended December 31, 1999
and 1998, the financial statements of Dow Guarantee Corp. as of and for the
years ended December 31, 1998 and 1997, and the financial statements of Capital
Funding of South Florida, Inc. as of and for the year ended December 31, 1998,
which are included in this prospectus and incorporated by reference in the
Registration Statement, have been audited by Ahearn, Jasco + Company, P.A.,
independent auditors, as stated in their reports appearing herein and
incorporated by reference in the Registration Statement, and are included and
incorporated by reference in reliance upon the reports of such firm given upon
their authority as experts in accounting and auditing.
The consolidated financial statements of Jupiter Mortgage Corporation
as of and for the years ended December 31, 1998 and 1997,which are included in
this prospectus and incorporated by reference in the Registration Statement,
have been audited by Wisneski, Blakiston & Leslie, P.A., independent auditors,
as stated in their reports appearing herein and incorporated by reference in the
Registration Statement, and are included and incorporated by reference in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
registration statement on Form SB-2 under the Securities Act with respect to the
securities being offered. This prospectus, filed as a part of the registration
statement, does not contain certain information contained in or annexed as
exhibits to the registration statements. Reference is made to exhibits to the
registration statement for the complete text. For further information with
respect to the Company and the securities hereby offered, reference is made to
the registration statement and to the exhibits filed as part of it, which may be
inspected and copied at the public reference facilities of the commission in
Washington D.C., and at the Commission's regional offices at
o 500 West Madison Street, Chicago, IL 60604;
o 7 World Trade Center, New York, NY 10048;
o and 5757 Wilshire Boulevard, Los Angeles, CA 90034;
o and copies of such material can be obtained from the Public Reference
Section of the Commission, 450 5th Street, N.W., Washington, D.C. 20549,
at prescribed rates and are available on the World Wide Web
at: http://www.sec.gov.
26
<PAGE> 27
<TABLE>
<S> <C>
Index to Financial Statements
America's Senior Financial Services, Inc.
1999 and 1998 Audited Financial Statements ................................ F-2
2000 2nd Quarter 10-Q ..................................................... F-21
Dow Guarantee Corporation
1998 and 1997 Audited Financial Statements ................................ F-28
Capital Funding of South Florida
1998 Audited Financial Statements ......................................... F-39
Jupiter Mortgage Corporation
1998 and 1997 Audited Financial Statements ................................ F-49
Pro forma Financial Information
Statements of Operations at December 31, 1999 ............................. P-1
Balance Sheets at December 31, 1998 ....................................... P-2
Statements of Operations at December 31, 1998 ............................. P 3
</TABLE>
<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 subsidiaries (collectively, the "Company") as of
December 31, 1999 and 1998, and the related consolidated statements of
operations, changes in stockholders' equity, and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
consolidated financial statements based on our audit.
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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
America's Senior Financial Services, Inc. and subsidiaries as of December 31,
1999 and 1998, and the results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company's accumulated deficit and its
loss from operations raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 1. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ Ahearn, Jasco + Company, P.A.
---------------------------------
AHEARN, JASCO + COMPANY, P.A.
Certified Public Accountants
Pompano Beach, Florida
March 31, 2000
F-2
<PAGE> 29
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 402,373 $ 195,728
Brokerage fees receivable 214,604 49,853
Employee advances 175,714 70,528
Mortgage loans held for sale 2,389,162 --
Due from shareholder 20,734 22,618
Prepaid expenses 56,851 46,699
Other current assets 72,302 --
------------ ------------
TOTAL CURRENT ASSETS 3,331,740 385,426
------------ ------------
PROPERTY AND EQUIPMENT, net 442,897 254,783
------------ ------------
OTHER ASSETS
Goodwill, net 5,096,841 3,348,215
Due from related parties 112,000 --
Notes receivable 250,000 250,000
Other assets 561,536 69,940
------------ ------------
TOTAL OTHER ASSETS 6,020,377 3,668,155
------------ ------------
TOTAL $ 9,795,014 $ 4,308,364
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and capital lease obligations $ 24,934 $ 5,798
Lines of credit 366,298 --
Warehouse lines of credit 2,639,192 --
Accounts payable 394,752 173,904
Accrued liabilities 418,634 49,054
Other current liabilities 29,291 --
------------ ------------
TOTAL CURRENT LIABILITIES 3,873,101 228,756
------------ ------------
CAPITAL LEASE OBLIGATIONS, less current portion 56,834 --
------------ ------------
LONG-TERM DEBT, convertible debentures 1,750,000 --
------------ ------------
LONG-TERM DEBT, less current portion -- 13,287
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $0.001 par value; 10,000,000 shares
authorized, zero shares issued and outstanding -- --
Common stock, $0.001 par value; 25,000,000 shares
authorized, shares issued and outstanding, 7,690,262
in 1999 and 5,898,867 in 1998 7,690 5,899
Additional paid-in capital 12,498,553 4,584,932
Retained earnings (deficit) (8,219,283) (457,443)
Unearned compensation - restricted stock (171,881) (67,067)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 4,115,079 4,066,321
------------ ------------
TOTAL $ 9,795,014 $ 4,308,364
============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 30
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
REVENUES $ 4,723,697 $ 1,797,632
============ ============
EXPENSES:
Payroll and related expenses 4,024,889 1,335,488
Administrative, processing, and occupancy 2,996,515 773,161
Debenture financing costs 1,491,628 --
Goodwill amortization 194,163 71,239
Impairment charges 3,259,311 --
------------ ------------
TOTAL EXPENSES 11,966,506 2,179,888
------------ ------------
LOSS FROM OPERATIONS (7,242,809) (382,256)
------------ ------------
OTHER
Acquisition costs -- 14,969
Interest income (34,873) --
Interest expense 553,904 2,041
------------ ------------
TOTAL OTHER, NET 519,031 17,010
------------ ------------
LOSS BEFORE INCOME TAXES (7,761,840) (399,266)
------------ ------------
PROVISION FOR INCOME TAXES -- --
NET LOSS $ (7,761,840) $ (399,266)
============ ============
LOSS PER SHARE:
Basic $ (1.123) $ (0.082)
============ ============
Diluted $ (1.123) $ (0.082)
============ ============
Weighted average common shares outstanding 6,909,245 4,849,247
============ ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 31
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
COMMON COMMON ADDITIONAL
STOCK, STOCK, AT PAID-IN RESTRICTED
# OF SHARES PAR VALUE CAPITAL STOCK
-------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
STOCKHOLDERS' EQUITY, December 31, 1997 4,367,000 $ 4,367 $ 169,647 $ --
Stock issued pursuant to the Dow acquisition 616,667 617 3,436,883 --
Restricted stock issued to employees 74,400 74 74,326 (74,400)
Recognition of restricted stock earned -- -- -- 7,333
Issuances of common stock for cash, net of expenses 840,800 841 904,076 --
Net loss for the year ended December 31, 1998 -- -- -- --
----------- ----------- ----------- -----------
STOCKHOLDERS' EQUITY, January 1, 1999 5,898,867 $ 5,899 $ 4,584,932 $ (67,067)
Stock issued pursuant to the Capital Funding acquisition 221,664 222 1,551,426 --
Stock issued pursuant to the Jupiter acquisition 360,750 361 2,499,639 --
Stock issued for debenture financing costs 185,500 186 1,211,442 --
Beneficial conversion feature of convertible debentures -- -- 441,176 --
Restricted stock issued to employees, net of stock earned 151,300 151 151,149 (104,814)
Issuances of common stock for cash, net of expenses 698,721 699 1,194,968 --
Stock issued pursuant to debenture conversions 152,260 152 751,184 --
Common stock issued for services 21,200 20 57,530 --
Other capital contributions -- -- 55,107 --
Net loss for the year ended December 31, 1999 -- -- -- --
----------- ----------- ----------- -----------
STOCKHOLDERS' EQUITY, December 31, 1999 7,690,262 $ 7,690 $12,498,553 $ (171,881)
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
TOTAL
STOCKHOLDERS'
DEFICIT EQUITY
------------- -----------------
<S> <C> <C>
STOCKHOLDERS' EQUITY, December 31, 1997 $ (58,177) $ 115,837
Stock issued pursuant to the Dow acquisition -- 3,437,500
Restricted stock issued to employees -- --
Recognition of restricted stock earned -- 7,333
Issuances of common stock for cash, net of expenses -- 904,917
Net loss for the year ended December 31, 1998 (399,266) (399,266)
----------- -----------
STOCKHOLDERS' EQUITY, December 31, 1998 $ (457,443) $ 4,066,321
Stock issued pursuant to the Capital Funding acquisition -- 1,551,648
Stock issued pursuant to the Jupiter acquisition -- 2,500,000
Stock issued for debenture financing costs -- 1,211,628
Beneficial conversion feature of convertible debentures -- 441,176
Restricted stock issued to employees, net of stock earned -- 46,486
Issuances of common stock for cash, net of expenses -- 1,195,667
Stock issued pursuant to debenture conversions -- 751,336
Common stock issued for services -- 57,550
Other capital contributions -- 55,107
Net loss for the year ended December 31, 1999 (7,761,840) (7,761,840)
----------- -----------
STOCKHOLDERS' EQUITY, December 31, 1999 $(8,219,283) $ 4,115,079
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 32
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(7,761,840) $ (399,266)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 304,385 106,195
Impairment charges 3,259,311
Loss on abandoned assets 66,514
Other 41,822 7,333
Common stock issued for services 17,550
Common stock issued for debenture financing costs 1,211,628
Beneficial conversion feature of convertible debentures 441,176
Changes in certain assets and liabilities, net of amounts
from acquisitions:
Brokerage fee receivable (104,223) 6,429
Employee advances (96,470) 28,544
Prepaid expenses (10,152) (46,464)
Other current assets and liabilities, net (27,127) 14,046
Accounts payable 126,039 --
Accrued liabilities 205,501 --
---------- ----------
NET CASH USED IN OPERATING ACTIVITIES (2,325,886) (283,183)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (114,417) (205,302)
Acquisition expenditures, net of cash acquired (782,970) (294,395)
Increase in mortgage loans (2,389,162) --
Changes in other assets (477,889) 21,304
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (3,764,438) (478,393)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net 1,195,667 904,917
Proceeds from issuance of convertible debentures 2,231,220 --
Other capital contributions 55,107 --
Net borrowings under lines of credit 2,844,188 --
Payments on capital lease obligations (31,097) --
Change in due from shareholder 1,884 (22,618)
Change in long-term debt (11,371)
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,296,969 870,928
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 206,645 109,352
CASH AND CASH EQUIVALENTS, Beginning of year 195,728 86,376
---------- ----------
CASH AND CASH EQUIVALENTS, End of year $ 402,373 $ 195,728
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 33
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(continued)
<TABLE>
<CAPTION>
1999 1998
----------- --------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid in cash during the period $79,887 $18,135
========== ===========
Income taxes paid in cash during the period $ 2,940 $ --
========== ===========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
On July 31, 1998, the Company recorded net tangible assets of $189,157
and goodwill of $3,419,454 in connection with the Dow acquisition (see Note 8).
During 1998, the Company issued restricted stock to employees valued at $74,400.
On January 29, 1999, the Company recorded net tangible assets of
approximately $93,500 and goodwill of $1,922,000 in connection with the Capital
Funding acquisition (see Note 8). In connection with the acquisition of Capital
Funding, the Company issued 16,000 shares of common stock to a shareholder that
provided investment services (see Note 7 and 8).
On August 18, 1999, the Company recorded net tangible liabilities of
approximately $129,410 and goodwill of $3,280,710 in connection with the Jupiter
acquisition (see Note 8).
On September 30, 1999, the Company transferred its ownership interest
in Capital Funding to Jupiter and Jupiter became the sole surviving entity.
Since no change in ownership of the entities occurred, the transfer was recorded
at historical cost in a manner similar to pooling of interests (see Note 8).
During October 1999, the holder of the convertible debenture bond
converted $750,000 of the principal and accrued interest into 152,260 shares of
common stock (see Note 5).
During 1999, the Company issued restricted stock to employees valued at
$151,300.
See notes to consolidated financial statements.
F-7
<PAGE> 34
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
================================================================================
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. On July 31, 1998, AMSE acquired Dow Guarantee Corp. ("Dow"),
on January 29, 1999, AMSE acquired Capital Funding of South Florida, Inc
("Capital Funding") and on August 18, 1999, AMSE acquired Jupiter Mortgage Corp.
("Jupiter"). On September 30, 1999, Capital Funding and Jupiter were merged and
Jupiter was the surviving corporation. AMSE and its subsidiaries are
collectively referred to as "the Company". All significant intercompany balances
and transactions are eliminated in consolidation.
The Company is engaged in originating, processing, and concurrently
funding mortgage loans. In addition to providing traditional (or forward)
mortgage loan services, the Company also arranges reverse mortgages specifically
developed to serve the special needs of the senior citizen community, and has
generated a substantial portion of the reverse mortgages originated in Florida.
The Company sells its closed loans to investors for resale into the secondary
market.
GOING CONCERN
The Company's consolidated financial statements have been prepared on a
going concern basis that contemplates the realization of assets and the
settlement of liabilities and commitments in the normal course of business. The
Company has incurred losses of $7,761,840 and $399,266 in 1999 and 1998,
respectively, and has an accumulated deficit of $8,219,283 at December 31, 1999.
In management's opinion, the operating deficit (which is largely confined to
AMSE corporate activities) is largely the result of the monies the Company has
expended in the execution of its aggressive acquisition strategy.
In 1999, the Company completed two acquisitions causing gross loan
originations to increase from under $150 million dollars to almost $300 million
dollars. In the process the Company grew from three physical locations to
twelve. In addition, the Company invested the capital necessary to complete due
diligence and prepare the appropriate documents to complete three more strategic
acquisitions that will again increase the Company's proforma gross loan
origination to a level approaching $1.5 billion dollars. Management is presently
waiting for final commitments on the funding necessary to close the three
additional acquisitions. Should such a closing occur, management believes that
the Company should operate profitably and the Company's balance sheet would be
favorably affected.
Historically, the Company has been funding its deficit primarily
through investor capital and has yet to generate profits from its primary
operating activities. Management recognizes that the Company must generate
additional resources and attain profitable operations to enable it to continue
in business. Management's growth plan estimated that given certain events the
Company could achieve critical mass in the year 2000. Since January 2000,
management has taken certain steps to reduce central office overhead and to
increase loan origination revenue system wide.
Since January 2000, the Company has financed its operating deficit
through private equity subscriptions and loans from management. The Company is
planning to obtain additional equity capital through the conversion of debt, and
is in the final stages of its execution of such a plan. In July 1999 the Company
signed a "best efforts" contract with a Wall Street placement agent to raise
between $17 and $25 million through the sale of equity. In October 1999, the
agreement was revised and the target amount increased to $50 million dollars
which was to be raised in several components consisting of debt and equity (see
Note 10 for additional details). In January 2000, the first component, a debt
offering, was set at $20 million. In March 2000, the offering memorandum was
printed and circulated to over 100 potential investors. Although the offering is
on a "best efforts" basis, management believes that the offering should be
successful and that sufficient capital could be raised allowing the completion
of some or all of the additional acquisitions discussed above. In addition, the
offering should provide some or all of the additional working capital needed to
correct the Company's current operating deficit.
F-8
<PAGE> 35
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
GOING CONCERN (continued)
In March 2000, the Company initiated merger talks with a real estate
and mortgage entity located in northeast Florida that if concluded could add
over $2 million of net assets to the Company's balance sheet. The transaction is
currently in due diligence. Management believes that these real estate assets
are unencumbered and would have a positive material effect on the Company's
balance sheet. In addition, these assets could provide the collateral necessary
for traditional short-term working capital borrowings, as required.
In summary, the realization of assets and satisfaction of liabilities
in the normal course of business is dependent upon the Company's raising
additional equity capital and ultimately reaching profitable operations.
However, no assurances can be given that the Company will be successful in these
activities. Should any of the events discussed above not occur, the accompanying
consolidated financial statements could be materially affected.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION AND CREDIT RISKS
The Company, as a licensed mortgage company, derives its revenues
primarily from mortgage application fees paid by potential borrowers and from
brokerage, processing fees, and service release premiums payable by the borrower
and others at the time of closing. The brokerage and processing fees are
recognized as revenue at the time the loans are closed.
The Company operates in the mortgage banking industry, therefore, it is
highly dependent on the status of the economy and interest rates.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets, typically
seven years. Expenditures for routine maintenance and repairs are charged to
expense as incurred.
INTANGIBLE ASSETS
The excess of investment cost over the fair value of net assets
acquired (goodwill) is being amortized using the straight-line method over a
period of 20 years. The goodwill arose from the acquisitions of Dow, Capital
Funding, and Jupiter. Amortization of goodwill for the years ended December 31,
1999 and 1998 were approximately $194,200 and $71,239, respectively.
As a consequence of downturns in the mortgage industry in 1999 and the
interest rate increases that occurred during 1999, Dow and Capital Funding
operated at cumulative losses since their dates of acquisition. An impairment
review of these subsidiaries was initiated, pursuant to SFAS 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of". This review determined that the subsidiaries' estimated future
non-discounted cash flows were below its carrying value as a long-lived asset.
Accordingly, the Company has recorded impairment charges to adjust the carrying
value of the goodwill. The adjustments reduced the recorded value of the
goodwill by approximately $3,259,300. Management believes that the fair value of
the remaining assets approximates the amounts to which it was written down.
F-9
<PAGE> 36
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
ADVERTISING
The costs of advertising, promotion, and marketing programs are
generally charged to operations in the year incurred. Significant funds were
spent in 1999 to launch a nationwide direct mail campaign to market reverse
mortgages, and the Company invested advertising money to attract loan
correspondents. Total advertising expense was approximately $392,500 and
$155,132 for the years ended December 31, 1999 and 1998, respectively.
INCOME TAXES
The Company accounts for income taxes in accordance with the Statement
of Financial Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income
Taxes." Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences, operating loss
carryforwards, and tax credit carryforwards, and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment. State minimum taxes are expensed as paid.
NET LOSS PER COMMON SHARE
The Company has adopted SFAS No. 128, "Earnings Per Share." SFAS 128
requires companies with complex capital structures or common stock equivalents
to present both basic and diluted earnings per share ("EPS") on the face of the
income statement. Basic EPS is calculated as the income or loss available to
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.
STOCK BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board (FASB) issued
SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123
encourages, but does not require, companies to record compensation plans at fair
value. The Company has chosen, in accordance with the provision of SFAS No. 123,
to apply Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued Employees" (APB 25) for its stock plans. Under APB 25, if the exercise
price of the Company's stock options is less than the market price of the
underlying stock on the date of grant, the Company must recognize compensation
expense. SFAS No. 123 will be adopted for disclosure 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
performed in exchange for stock, the transactions were recorded on the basis of
the fair value of the services received or the fair value of the issued equity
instrument, whichever was more readily measurable.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments
purchased with an original maturity of three months or less. The Company
occasionally maintains cash balances in financial institutions in excess of the
federally insured limits.
As of December 31, 1999, the Company has restricted $115,000 of cash in
connection with a letter of credit for Dow.
RECLASSIFICATIONS
Certain amounts from the 1998 financial statements have been
reclassified to conform to the 1999 presentation.
F-10
<PAGE> 37
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, receivables, mortgage loans held for sale, accounts payable and
accrued expenses are reflected in the financial statements at fair value due to
the short-term nature of these instruments. The fair value of the Company's
obligations under credit agreements, as disclosed in Note 3, are the same as the
recorded amounts because the rates and terms approximate current market
conditions.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". Among other provisions, it requires that
entities recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
Gains and losses resulting from changes in the fair values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. The effective date of this standard was delayed
via the issuance of SFAS No. 137. The effective date for SFAS No. 133 is now for
fiscal years beginning after June 15, 2000, though earlier adoption is
encouraged and retroactive application is prohibited. The Company must adopt
this standard no later than January 1, 2001. The Company does not expect the
adoption of this standard to have a material impact on results of operations,
financial position or cash flows.
STATEMENT OF COMPREHENSIVE INCOME
A statement of comprehensive income has not been included, per SFAS No.
130, "Reporting Comprehensive Income," as the Company has no items of other
comprehensive income.
SEGMENT INFORMATION
The Company adopted SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information," effective January 31, 1999. SFAS No. 131
establishes standards for the way that public companies report selected
information about operating segments in annual and interim financial reports to
shareholders. It also establishes standards for related disclosures about an
enterprise's business segments, products, services, geographic areas and major
customers. The Company operates its business as a single segment. As a result,
no additional disclosure was required.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
1999 1998
--------- ---------
Office equipment $ 345,802 $ 31,080
Furniture and fixtures 249,186 176,674
Leasehold improvements 92,226 87,022
Vehicles 104,562 42,586
--------- ---------
Total cost 791,776 337,362
Less: Accumulated depreciation (348,879) (82,579)
--------- ---------
Property and equipment, net $ 442,897 $ 254,783
========= =========
Depreciation expense for the years ended December 31, 1999 and 1998 was
approximately $110,200 and $34,956, respectively.
NOTE 3 -CREDIT AGREEMENTS
LINES OF CREDIT
The Company maintains several lines of credit with different financial
institutions. Interest rates vary, and include prime, prime plus 3%, and a flat
11% per annum. As of December 31, 1999 and 1998, the total amounts outstanding
under these lines of credit was approximately $366,000 and $50,000,
respectively.
F-11
<PAGE> 38
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 3 -CREDIT AGREEMENTS (continued)
MORTGAGE WAREHOUSE AGREEMENTS
The Company maintains two mortgage warehouse facilities with separate
financial institutions to assist the Company in originating and closing
mortgages. The Company is liable under these agreements only if defaults occur
during a mortgage closing process. As of December 31, 1999, there was
approximately $2,639,000 outstanding under one facility and the second facility
was unused. There were no amounts owed under this agreement as of December 31,
1998. Interest paid during 1999 and 1998 for borrowings under these two
facilities totaled approximately $121,900 and $16,094, respectively.
NOTE 4 - CAPITAL LEASE OBLIGATIONS AND LONG-TERM DEBT
In 1999, the Company acquired certain office equipment under the
provisions of various long-term leases and has capitalized the minimum lease
payments. The leases have terms from three to four years and are due to expire
at various times through 2002 and 2003. As of December 31, 1999, the leased
property has a recorded cost of $112,556 and is being depreciated along with
other property and equipment (see Note 2).
Future minimum lease payments under the capital lease and the net
present value of these future minimum lease payments subsequent to December 31,
1999 are as follows:
Future minimum lease payments $ 127,046
Less: Amount representing interest (45,278)
---------
Present value of minimum lease payments 81,768
Less: Current portion (24,934)
---------
Long-term capital lease obligation $ 56,834
=========
Future minimum lease payments subsequent to December 31, 1999 are as
follows: $24,934 in 2000, $24,176 in 2001, $15,158 in 2002, and $17,500 in 2003.
As of December 31, 1998 long-term debt consisted of installment notes
for the Company's vehicles. The current portion of this long-term debt was 5,798
and the balance was $13,287.
NOTE 5 - LONG-TERM DEBT, CONVERTIBLE DEBENTURES
On May 6, 1999, the Company entered into a Securities Purchase
Agreement, pursuant to which the Company issued $2,500,000 of 3% convertible
debentures, which are due May 6, 2002, and common stock purchase warrants for
34,383 shares at $8.70 per share, which expire May 31, 2004. The Securities
Purchase Agreement, among other terms, allows the Company to require the buyer
to purchase additional convertible debentures up to $7,500,000, as long as
AMSE's stock price remains above $5.75 per share. The holder of the convertible
debentures may take the interest in either cash or common stock of the Company.
The debentures are convertible into common stock at the option of the holder.
The conversion price is the lower of (a) $8.70 per share, or (b) 85% of the
average closing bid price for the Company's common stock for any five of the
past 20 trading days ending immediately before the conversion. At the time the
Company entered into this agreement, the debentures were available for
conversion at $6.16 per share. Under the accounting rule known as Emerging
Issues Task Force (EITF) Topic D-60, this beneficial conversion feature
increases the effective interest rate of the debenture, and as a result,
$441,176 has been charged to interest expense. In connection with the placement
of this convertible debenture, the Company issued 185,548 shares of common stock
and paid approximately $268,800 in fees to consultants and placement agents,
which resulted in additional costs recognized of approximately $1,491,600.
F-12
<PAGE> 39
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 5 - CONVERTIBLE DEBENTURES (continued)
In October 1999, the debenture holder converted $750,000 of the
principal of the debenture into 152,260 shares of the Company's common stock.
Interest expense associated with the conversion was approximately $1,300 and was
paid by the issuance of shares of common stock.
In October 1999, the Company accrued a $45,000 penalty due to the
debenture holder. Such penalty was the result of the Company not filing an
active registration statement within 120 days of the debenture issue date per
the terms of the Securities Purchase Agreement dated May 6, 1999. This amount is
included in accounts payable at December 31, 1999, and it was paid in January
2000 by the issuance of 21,019 shares of common stock.
Subsequent to December 31, 1999 an additional $613,995 of the principal
of the debenture was converted by the debenture holder into 372,223 shares of
Company common stock.
NOTE 6 - INCOME TAXES
A summary of income taxes for the years ended December 31, are as
follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Currently payable:
Federal $ -- $ --
State -- --
Deferred tax benefit 1,220,180 112,220
----------- -----------
Income tax benefit 1,220,180 112,220
Valuation allowance (1,220,180) (112,220)
----------- -----------
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, 1999 and 1998 relate to the following:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Net operating loss carryforward $ 1,030,740 $ 111,040
Restricted stock awards 19,900 3,620
Financing costs 284,200 --
Valuation allowance (1,334,840) (114,660)
----------- -----------
Net deferred income tax asset $ -- $ --
=========== ===========
</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 (primarily
resulting from the goodwill amortization and impairment charges) and the effect
of state income taxes.
The Company has recorded a valuation allowance in accordance with the
provisions of SFAS No. 109 to reflect the estimated amount of deferred tax
assets that may not be realized. In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation future
taxable income during the periods in which temporary differences and/or
carryforward losses become deductible.
F-13
<PAGE> 40
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 6 - INCOME TAXES (continued)
The Company has available tax net operating loss carryovers ("NOLs") as
of December 31, 1999 of approximately $2,940,000. The NOLs will begin to expire
in the year 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 significantly limited.
NOTE 7 - RELATED PARTY TRANSACTIONS
NOTES RECEIVABLE
Two shareholders of the Company (the former owners of Capital Funding)
each owe the Company $50,000 under promissory notes dated December 31, 1997.
These notes bear interest at 6% per annum and the interest is payable annually
on December 31st. These notes are due on January 1, 2004. The interest due at
December 31, 1998 and 1999 has not been paid. The total of principal and
interest is $112,000 at December 31, 1999 and $106,000 at December 31, 1998. The
fair value of these notes is not subject to reasonable estimation due to their
related party nature.
FEES FOR SERVICE
A shareholder of AMSE formerly acted as financial advisor to the
Company. In connection with his services, the shareholder received fees
consisting of $250,000 in cash and 170,600 shares of common stock which were
issued pursuant to the placement of the convertible debentures (see Note 5). The
shareholder also received fees consisting of $74,000 in cash and 16,000 shares
of common stock were issued pursuant to the acquisition of Capital Funding, and
$93,000 in cash pursuant to the acquisition of Jupiter. As of December 31, 1999,
an additional $25,000 has been accrued to this shareholder pursuant to the
Jupiter acquisition. During 1998 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 8)].
OTHER
During 1999, the Company's president purchased a vehicle for $5,000,
which was approximately net book value at the time of sale. At December 31,
1999, the Company's president owed the Company approximately $20,700 (including
accrued interest) under notes bearing interest at 5%. At December 31, 1998, the
Company's President owed the Company $22,500 under notes bearing interest at 5%.
The note outstanding at December 31, 1998 was repaid on January 28, 1999.
A shareholder received fees for services during 1999 consisting of
5,200 shares valued at $17,550 for investment services.
NOTE 8 - ACQUISITION ACTIVITIES
DOW GUARANTEE
The acquisition of Dow was completed on July 31, 1998 and was accounted
for as a purchase. Identified tangible assets and liabilities were recorded at
their estimated fair market values and the excess of the total cost over the net
fair values of identified assets and liabilities was recorded as goodwill. The
purchase price for these assets totaled $3,782,757, with 550,000 shares of
common stock of the Company being issued to the sellers (valued at $3,437,500),
costs of $171,111 (including 66,667 shares issued to the Company's investment
banker), and assumed liabilities of $174,146. The cost of the acquisition was
allocated to tangible assets and goodwill totaling $363,303 and $3,419,454,
respectively. As a result, Dow became a wholly owned subsidiary of AMSE on this
date. The financial statements of the Company include the operating results of
the acquired entity since the date of acquisition. The acquisition agreement
with Dow also contains an agreement value guarantee; see Note 9.
CAPITAL FUNDING
On January 29, 1999, AMSE completed the acquisition of Capital Funding
in a tax-free stock exchange. Management of AMSE placed a value of $1,551,648 on
the 221,664 shares of common stock issued to the shareholders of Capital
Funding, a valuation that was based on the common stock's trading level during
the time the acquisition was completed. In addition to the shares of stock
issued AMSE also paid $300,000 in cash to the sellers, incurred costs of
approximately $163,800 (including 16,000 shares issued to AMSE's investment
F-14
<PAGE> 41
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 8 - ACQUISITION ACTIVITIES (continued)
banker) and assumed liabilities of approximately $120,000. The cost of the
acquisition was allocated to the assets using the purchase accounting method
approximately as follows:
Depreciable tangible property and equipment $ 78,000
Receivables and other current assets, net 108,500
Other assets 67,000
Total liabilities (160,000)
Goodwill 1,922,000
-----------
Total $ 2,015,500
===========
As a result, Capital Funding became a wholly owned subsidiary of AMSE
on this date. The financial statements of the Company include the operating
results of the acquired entity since the date of acquisition. The acquisition
agreement with Capital Funding also contains an aggregate value guarantee; see
Note 9.
JUPITER
On August 18, 1999, AMSE completed the acquisition of Jupiter in a
tax-free stock exchange. Management of AMSE placed a value of $2,500,000 on the
360,750 shares of common stock issued to the shareholders of Jupiter, a
valuation that was based on the common stock's trading level during the time the
acquisition was completed. In addition to the shares of stock issued AMSE also
paid $500,000 in cash to the sellers, incurred costs of approximately $151,300
and assumed liabilities of approximately $349,300. The cost of the acquisition
was allocated to the assets using the purchase accounting method approximately
as follows:
Depreciable tangible property and equipment $ 125,100
Receivables and other current assets, net 82,790
Other assets 12,000
Total liabilities (349,300)
Goodwill 3,280,710
-----------
Total $ 3,151,300
===========
As a result, Jupiter became a wholly owned subsidiary of AMSE on this
date. The financial statements of the Company include the operating results of
the acquired entity since the date of acquisition. The acquisition agreement
with Jupiter also contains an aggregate value guarantee; see Note 9.
MERGER OF CAPITAL FUNDING INTO JUPITER
On September 30, 1999, AMSE, pursuant to a merger agreement,
transferred its ownership interest in Capital Funding to Jupiter and Jupiter
became the sole surviving entity. Since no change in the ultimate ownership of
the merged entities occurred, this transfer was recorded at historical cost in a
manner similar to a pooling of interests.
OTHER ACTIVITIES
On October 8, 1999, the Company entered into a stock purchase agreement
with Senior Income Reverse Mortgage Corporation ("Senior Income") under which
AMSE will purchase all of the issued and outstanding shares of capital stock of
Senior Income. As of March 31, 2000, the closing of this transaction is pending.
F-15
<PAGE> 42
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 8 - ACQUISITION ACTIVITIES (continued)
OTHER ACTIVITIES (continued)
On February 3, 2000, the Company entered into a stock purchase
agreement with Pinnacle Financial Corporation ("Pinnacle") under which AMSE will
purchase all of the issued and outstanding shares of capital stock of Pinnacle.
As of March 31, 2000, the closing of this transaction is pending and this
agreement has expired on March 31, 2000. An extension to June 30, 2000 has been
proposed.
PRO FORMA FINANCIAL INFORMATION
The following pro forma summary presents the results of operations as
if the Capital Funding and Jupiter acquisitions had occurred at January 1, 1999,
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>
1999 Consolidated 1998 Consolidated
Pro forma (12 months) Pro forma (12 months)
AMSE, Capital Funding, and Jupiter AMSE, Dow, Capital Funding and Jupiter
---------------------------------- --------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues $ 6,554,000 $ 7,460,904
Goodwill and impairment charges (3,626,000) (431,098)
Other expenses (10,535,000) (7,508,040)
----------- -----------
Loss from operations (7,607,000) (478,234)
Interest expense, net (519,000) (22,877)
----------- -----------
Net loss $(8,126,000) $ (501,111)
=========== ===========
</TABLE>
NOTE 9 - STOCKHOLDERS' EQUITY
COMMON STOCK
The Company has authorized 25,000,000 shares of $0.001 par value Common
Stock (the "Common Stock"). The holders of the Common Stock are entitled to one
vote per share and have non-cumulative voting rights. The holders are also
entitled to receive dividends when, as, and if declared by the Board of
Directors. Additionally, the holders of the Common Stock do not have any
preemptive right to subscribe for, or purchase, any shares of any class of
stock.
PREFERRED STOCK
On March 23, 1999, the Company amended its Articles of Incorporation to
authorize up to 10,000,000 shares of $0.001 par value Preferred Stock (the
"Preferred Stock"). The shares of Preferred Stock may be issued from time to
time in one or more series. The Board of Directors is authorized to fix the
number of shares in each series, the designation thereof and the related rights,
preferences and limitations of each series. Specifically the Board of Directors
is authorized to fix with respect to each series (a) the dividend rate; (b)
redeemable features, if any; (c) rights upon liquidation; (d) whether or not the
shares of such series shall be subject to a purchase, retirement or sinking fund
provision; (e) whether or not the shares of such series shall be convertible
into or exchangeable for shares of any other class and, if so, the rate of
conversion or exchange; (f) 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. As of March 31, 2000, no preferred stock has been
issued.
F-16
<PAGE> 43
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 9 - STOCKHOLDERS' EQUITY (continued)
RECONCILIATION OF SHARES ISSUED
During 1998, the Company issued 1,531,867 shares of its common stock.
During 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. There were 700,000 common stock purchase warrants issued
pursuant to the Company's private placement in 1997 and each of these were
exchanged during 1998. The warrants were exchanged in 1998 with proceeds to the
Company, before expenses, of $700,000. Also during 1998 a total 74,400
restricted shares of the Company's common stock were granted to certain
employees. The market value of shares issued was $74,400. This amount was
recorded as unearned compensation - restricted stock and is shown as a separate
component of stockholders equity.
During 1999, the Company issued 1,791,395 shares of common stock. The
issuance and the effect on certain capital accounts are as follows:
<TABLE>
<CAPTION>
Additional
Number $0.001 Paid-in
of Shares Price Par Value Capital Total
----------- ----- ------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balances as of December 31, 1998 5,898,867 $ 5,899 $ 4,584,932 $ 4,590,831
----------- ------- ----------- -----------
Unrestricted stock:
Issued for services 16,000 2.50 16 39,984 40,000
Issued for cash 234,000 1.00 234 233,766 234,000
Issued for cash 50,000 1.00 50 49,950 50,000
----------- ------- ----------- -----------
Total unrestricted stock 300,000 300 323,700 324,000
----------- ------- ----------- -----------
Restricted stock:
Acquisition of Capital Funding 221,664 7.00 222 1,551,426 1,551,648
Conversion of debentures 52,940 4.611 53 244,052 244,105
Conversion of debentures 52,966 4.610 53 244,120 244,173
Conversion of debentures 46,354 5.675 46 263,012 263,058
Awards to employees 151,300 1.00 151 151,149 151,300
Debenture fees 185,500 6.53 185 1,211,443 1,211,628
Acquisition of Jupiter 360,750 6.93 361 2,499,639 2,500,000
Issued for cash 160,900 1.00 161 160,739 160,900
Issued for cash 77,000 2.00 77 153,923 154,000
Issued for cash 176,821 3.375 177 596,590 596,767
Issued for services 5,200 3.375 5 17,545 17,550
----------- ------- ----------- -----------
Total restricted stock 1,491,395 1,491 7,093,638 7,095,129
----------- ------- ----------- -----------
Total shares issued in 1999 1,791,395 1,791 7,417,338 7,419,129
----------- ------- ----------- -----------
Other increases to additional
paid-in capital -- 496,283 496,283
------- ----------- -----------
Balances as of December 31, 1999 7,690,262 $ 7,690 $ 12,498,553 $ 12,506,243
=========== ========= ============ ============
</TABLE>
CONTINGENT STOCK ISSUES
DOW GUARANTEE
In conjunction with the acquisition of Dow in July 1998, 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 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 March 31, 2000, no shares are due to the former shareholders of Dow, as the
event to trigger the initial measurement date has not occurred.
F-17
<PAGE> 44
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 9 - STOCKHOLDERS' EQUITY (continued)
CAPITAL FUNDING
In conjunction with the acquisition of Capital Funding on January 29,
1999, the Company agreed to an aggregate value guarantee for the 221,664 shares
of the Company's common stock issued in that transaction. If the value of the
shares issued in the acquisition are not at least $6.42 per share on January 29,
2000, the Company must issue additional shares so that the total shares received
multiplied by the then market value (as defined) equals this guaranteed amount.
As of January 29, 2000, the first year anniversary of this transaction the value
of the shares issued in the acquisition were less than $6.42 per share. The
maximum shares issuable pursuant to this provision, as of the January 29, 2000
measurement date, is 489,878 shares. The Company is currently in negotiations
with the former Capital Funding shareholders regarding this matter and others,
and as of March 31, 2000, a final resolution has not been made.
JUPITER MORTGAGE
In conjunction with the acquisition of Jupiter on August 18, 1999, the
Company agreed to an aggregate value guarantee for the 360,750 shares of the
Company's common stock issued in that transaction. If the value of the shares
issued in the acquisition are not at least $7.00 per share at the first
anniversary of the transaction, i.e. August 2000, the Company must issue
additional shares so that the total shares received multiplied by the then
market value (as defined) equals this guaranteed amount. As of March 31, 2000,
no shares are due to the former shareholders of Jupiter, as the anniversary date
has not occurred.
VISTRA GROWTH PARTNERS, INC.
In February 2000, AMSE entered into a termination agreement with its
former financial advisor, Vistra Growth Partners, Inc; and Louis Weltman. The
number of shares potentially to be issued was determined based on Vistra's
efforts and services prior to the termination and were to be earned upon the
closing of certain open matters. Management believes that it is probable that
some or all of these shares may not be issued. If all the events as defined in
the termination agreement were to be concluded as contemplated and the former
financial advisor were to comply with other material aspects of the agreement
the Company could issue up to 1,092,857 shares. All such shares would be
restricted and subject to conditions regarding voting rights and re-sale. Since
February 2000 certain of the trigger events have undergone changes in both
structure and certainty. Therefore, management now believes that the number of
shares ultimately issued could be substantially less than named in the document.
STOCK PURCHASE AGREEMENT, DEBENTURES, AND WARRANTS
As described in Note 5, the Company entered into a Securities Purchase
Agreement, pursuant to which the Company issued $2,500,000 of 3% convertible
debentures, which are due on May 6, 2002, and common stock purchase warrants for
34,383 shares at $8.70 per share, which expire on May 31, 2004. Warrants were
also issued to placement agents involved in this transaction in the aggregate of
17,241 warrants with an exercise price of $8.70 and an expiration date of May
31, 2004. The Securities Purchase Agreement, among other terms, allows the
Company to require the buyer to purchase additional convertible debentures up to
$7,500,000, as long as AMSE's stock price remains above $ 5.75 per share. The
holder of the debentures may take the interest in either cash or Company common
stock. The debentures are convertible into common stock at the option of the
holder. The conversion price is the lower of (a) $8.70 per share, or (b) 85% of
the average closing bid price for the common stock for five of the past 20
trading days ending immediately before the conversion. In connection with the
placement of this convertible debenture, the Company issued 185,548 shares of
common stock and paid $268,800 in fees to consultants and placement agents,
which resulted in additional costs recognized of approximately $1,491,600.
F-18
<PAGE> 45
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 9 - STOCKHOLDERS' EQUITY (continued)
In October 1999, the debenture holder converted $750,000 of the
principal of the debenture into 152,260 shares of the Company's common stock.
Interest expense associated with the conversion was approximately $1,300 and was
paid by the issuance of shares of common stock.
Subsequent to December 31, 1999, an additional $613,995 of the
principal of the debenture was converted by the debenture holder into 372,223
shares of the Company common stock.
RESTRICTED STOCK AWARDS
During 1999, a total of 151,300 restricted shares of the Company's
common stock were granted to certain employees with a market value of $151,300.
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 $46,486 in 1999.
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. As of March
31, 2000, no options have been granted.
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.
When options are granted under this plan, the Company will account for
such options under SFAS No. 123 which requires entities that account for awards
of stock-based compensation to employees in accordance with APB 25 to present
pro forma disclosures of results of operations and earnings per share. This pro
forma disclosure presents the results of operations as if compensation cost was
measured at the date of grant based on the fair value of the award. The fair
value for options will be estimated, at the date of grant, using a Black-Scholes
option pricing model. The Black-Scholes option pricing model uses the following
weighted-average assumptions, (a) a risk-free interest rate, (b) a dividend
yield, (c) a volatility factor of the expected market price of the Company's
common stock and (d) the weighted-average expected life of the options. The
Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases office space in various locations as well as certain
office equipment and a vehicle. Future minimum lease payments subsequent to
December 31, 1999 under these operating leases are as follows: $329,632 in 2000,
$286,991 in 2001, $179,112 in 2002, $138,026 in 2003 and $92,004 in 2004. Rent
expense for the years ended December 31, 1999 and 1998 $415,224 and $60,841,
respectively.
F-19
<PAGE> 46
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 10 - COMMITMENTS AND CONTINGENCIES (continued)
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, 1999, management believes that any such outstanding
issues will be resolved without significantly impairing the financial condition
of the Company.
In December 1998, the Company advanced $250,000 to a then 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 $361,000 at December 31, 1999. The note is
non-interest bearing and presently has no due date. The Company has commenced
litigation to collect the note. This note is recorded as other assets on the
accompanying balance sheet at December 31, 1999 and 1998.
PRIVATE PLACEMENT OFFERING
On October 8, 1999, the Company engaged a placement agent in connection
with a private placement offering of up to $50 million of debt and equity
securities (the "Offering"). For the year ended December 31, 1999 the Company
has expended approximately $40,000 in connection with the Offering. The terms of
Offering are as follows: (a) a placement fee equal to 10% of the gross capital
raised, (b) warrants to purchase up to 10% of the number of shares or securities
sold with an exercise price equal to 120% of the price paid by investors, (c)
payment of miscellaneous expenses equal to 2% of the Offering amount and (d) a
termination fee equal to $100,000 if the Company terminates the agreement within
six months from the above date. If the Offering is not completed within the
first six month period the agreement will automatically renew for a successive
period of six months unless either party terminates the agreement.
NOTE 11 - NET LOSS PER COMMON SHARE
For the years ended December 31, 1999 and 1998, 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. However, the common stock equivalents, if converted, would
have increased common shares outstanding at December 31, 1999 by 869,123
shares. There were no common stock equivalents at December 31, 1998.
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>
1999 1998
---------- ----------
<S> <C> <C>
Common shares outstanding at December 31, 1999 and 1998 7,690,262 5,898,867
Effect of weighting (781,017) (1,049,620)
---------- ----------
Weighted average common shares outstanding 6,909,245 4,849,247
========== ==========
</TABLE>
F-20
<PAGE> 47
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
30-JUN-00 31-DEC-99
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 64,333 $ 402,373
Brokerage fees receivable 217,625 214,604
Employee advances 182,146 175,714
Mortgage loans held for sale 3,618,019 2,389,162
Due from shareholder -- 20,734
Prepaid expenses 157,713 56,851
Other current assets -- 72,302
------------ ------------
TOTAL CURRENT ASSETS 4,239,836 3,331,740
------------ ------------
PROPERTY AND EQUIPMENT, net 403,798 442,897
------------ ------------
OTHER ASSETS
Goodwill, net 4,967,897 5,096,841
Due from related parties 112,000 112,000
Notes receivable 250,000 250,000
Other assets 87,900 561,536
------------ ------------
TOTAL OTHER ASSETS 5,417,797 6,020,377
------------ ------------
TOTAL $ 10,061,431 $ 9,795,014
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and capital lease
obligation $ 20,457 $ 24,934
Lines of credit 413,245 366,298
Warehouse lines of credit 3,582,281 2,639,192
Accounts payable 623,566 394,752
Accrued liabilities 262,327 418,634
Other current liabilities -- 29,291
------------ ------------
TOTAL CURRENT LIABILITIES 4,901,876 3,873,101
CAPITAL LEASE OBLIGATIONS, less current portion 10,585 56,834
------------ ------------
LONG-TERM DEBT, convertible debentures 1,198,895 1,750,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $0.001 par value; 10,000,000 shares
authorized, zero shares issued and outstanding -- --
Common stock, $0.001 par value; 25,000,000 shares
authorized, shares issued and outstanding, 9,110,208
at June 30, 2000 and 7,690,262 at December 31, 1999 9,116 7,690
Additional paid-in capital 13,114,910 12,498,553
Retained earnings (deficit) (9,028,028) (8,219,283)
Unearned compensation - restricted stock (145,923) (171,881)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 3,950,075 4,115,079
------------ ------------
TOTAL $ 10,061,431 $ 9,795,014
============ ============
</TABLE>
See notes to financial statements.
F-21
<PAGE> 48
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------------- -----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES $ 1,904,410 $ 1,010,756 $ 3,403,203 $ 1,970,688
----------- ----------- ----------- -----------
EXPENSES:
Payroll and related expenses 1,259,341 656,894 2,518,347 1,312,189
Administrative, processing, and occupancy 1,311,098 574,985 1,850,699 993,862
Goodwill amortization 64,472 66,320 128,944 125,052
----------- ----------- ----------- -----------
TOTAL EXPENSES 2,634,911 1,298,199 4,497,990 2,431,103
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (730,501) (287,443) (1,094,787) (460,415)
----------- ----------- ----------- -----------
OTHER
Interest income -- -- (3,600) --
Interest expense 25,677 5,659 41,985 19,306
----------- ----------- ----------- -----------
TOTAL OTHER, NET 25,677 5,659 38,385 19,306
----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES (756,178) (293,102) (1,133,172) (479,721)
PROVISION FOR INCOME TAXES -- -- -- --
----------- ----------- ----------- -----------
NET LOSS $ (756,178) $ (293,102) $ (1,133,172) $ (479,721)
=========== =========== =========== ===========
LOSS PER SHARE:
Basic $ (0.084) $ (0.043) $ (0.131) $ (0.073)
=========== =========== =========== ===========
Diluted $ (0.084) $ (0.043) $ (0.131) $ (0.073)
=========== =========== =========== ===========
Weighted average common shares outstanding 8,958,942 6,773,361 8,659,083 6,546,657
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
F-22
<PAGE> 49
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
-----------------------------
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,133,172) $ (479,721)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 172,546 164,175
Common stock issued for services 161,486 19,229
Common stock issued for deposits 25,000
Changes in certain assets and liabilities:
Brokerage fee receivable (3,499) (57,109)
Employee advances (6,432) (52,509)
Prepaid expenses (75,863) (70,804)
Other current assets and liabilities, net 60,719 --
Accounts payable 277,334 161,533
Accrued liabilities (173,694) --
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (695,575) (315,206)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase/Sale of property and equipment (4,503) (119,775)
Acquisition expenditures, net of cash acquired 460,219 (452,571)
Increase in mortgage loans (1,228,857) --
Changes in other assets -- (626,873)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (773,141) (1,199,219)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net 112,292 598,948
Other capital contributions 6,035 --
Net Borrowings under lines of credit 990,036 --
Borrowing on capital lease obligations --
Due from shareholder 20,734 (22,618)
Change in long-term debt 1,579 2,678,561
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,130,676 3,254,891
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS (338,040) 1,740,466
CASH AND CASH EQUIVALENTS, beginning of period 402,373 195,728
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 64,333 $ 1,936,194
=========== ===========
</TABLE>
See notes to financial statements.
F-23
<PAGE> 50
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS
(continued) ENDED JUNE 30,
-------------------
2000 1999
------- ------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid in cash during the period $ 7,194 $3,623
======= ======
Income taxes paid in cash during the period $ -- $ --
======= ======
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During January and February 2000, the holder of the convertible debenture
bond converted $676,001 of the principal, penalty and accrued interest
into 398,497 shares of common stock (see Note 4).
During the first Quarter 2000, the Company recognized $20,466 of expense
related to the vesting of restriced stock issued to employees.
During the first Quarter 2000, the Company issued 541,950 shares valued at
$135,488 for services.
The Company issued 100,000 shares valued at $25,000, as a deposit on an
acquisition candidate.
During the second Quarter 2000, the Company issued 157,266 shares valued
at $28,845 for services.
F-24
<PAGE> 51
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARIES
PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS INCLUDING JUPITER
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
1/01/99 TO 1/01/99 TO
HISTORIC 1/31/99 6/30/99 PROFORMA
AMSE CFSF (1) JUPITER ADJUSTMENTS CONSOLIDATED
---- -------- ------- ----------- ------------
<S> <C> <C> <C> <C> <C>
REVENUES 1,970,688 58,469 1,463,230 3,492,387
EXPENSES:
Payroll and related expenses 1,312,189 58,089 886,818 2,257,096
Administrative, processing, and occupancy 993,862 37,191 562,446 1,593,499
Goodwill amortization 125,052 90,174 (a) 215,226
TOTAL EXPENSES 2,431,103 95,280 1,449,264 90,174 4,065,821
LOSS FROM OPERATIONS (460,415) (36,811) 13,966 (90,174) (573,434)
Interest expense net 38,385 5,298 43,683
PROFIT (LOSS) BEFORE INCOME TAXES (498,800) (36,811) 8,668 (90,174) (617,117)
PROVISION FOR INCOME TAXES
NET PROFIT (LOSS) (498,800) (36,811) 8,668 (90,174) (617,117)
</TABLE>
(a) To annualize goodwill as if this acquisition took place on January 1, 1999.
(1) Capital Funding of South Florida, Inc. (CFSF)
F-25
<PAGE> 52
RESULTS OF OPERATIONS
Revenues for the three-month period ending June 30, 2000 increased by 88% to
$1,904,411, up from $1,010,756 for the three-month period ending June 30, 1999.
This growth in revenues is primarily attributable to the contribution of the
Jupiter Mortgage Corporation ("Jupiter") subsidiary, which was acquired by the
Company in August 1999 and whose results were not a part of the Company's 2nd
quarter 1999 results. Revenues for the six-month period ending June 30, 2000
increased by 73% to $3,403,203, up from $1,970,688 for the six-month period
ending June 30, 1999. Jupiter Mortgage Corporation was the primary factor for
this increase. Revenues for Jupiter Mortgage Corporation for the six-month's
ended June 30, 2000 increased by 64% to $2,397,844 up from $1,463,230 for the
six-month period ending June 30, 1999. See the Pro-forma financial statements
including Jupiter, presented on page 7 herein for the six months ended June 30,
1999.
Total Expenses for the three-month period ended June 30, 2000 compared to the
three-month period ended June 30, 1999 increased to $2,634,911 from $1,298,199.
This increase in expenses is partially attributable to the inclusion of the
Jupiter subsidiary, which was not a part of the Company during the second
quarter of 1999. In addition the Company, pursuant to terms of those certain
acquisition agreements with Senior Income Reverse Mortgage Corporation and
Pinnacle Financial Corporation, wrote down the acquisition costs and deposits
related thereto, as these acquisitions were not consummated and the agreements
terminated pursuant to their terms. These costs were approximately $591,000.
Total Expenses for the six-month period ended June 30, 2000 compared to the
six-month period ended June 30, 1999 increased to $4,497,990 from $2,431,103.
Jupiter Mortgage Corporation was the primary factor for this increase, as it was
not a part of the Company's 1999 results.
During the second quarter of 2000, the Company closed selected offices and
eliminated certain
F-26
<PAGE> 53
positions. With respect to these closures the Company negotiated several lease
settlements and disposed of assets related to these shuttered locations.
Total Other Expenses for the three-month period ended June 30, 2000, compared to
the three-month period ended June 30, 1999 increased to $25,677 from $5,659.
This increase is due to an increase in interest expense. Total Other Expenses
for the six-month period ended June 30, 2000 compared to the six-month period
ended June 30, 1999 increased to $38,385 from $19,306.
F-27
<PAGE> 54
DOW GUARANTEE CORP.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND
INDEPENDENT AUDITORS' REPORT
F-28
<PAGE> 55
DOW GUARANTEE CORP.
TABLE OF CONTENTS
PAGE
----
INDEPENDENT AUDITORS' REPORT F-30
FINANCIAL STATEMENTS
Balance Sheets F-31
Statements of Operations F-32
Statement of Changes in Stockholders' Equity F-33
Statements of Cash Flows F-34
NOTES TO FINANCIAL STATEMENTS F-35 - F-38
F-29
<PAGE> 56
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Dow Guarantee Corp.
We have audited the accompanying balance sheets of Dow Guarantee Corp. (the
"Company"), as of December 31, 1998 and 1997, and the related statements of
operations, changes in stockholders' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Dow Guarantee Corp. as of
December 31, 1998 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
As discussed in Note 1, on July 31, 1998, all of the outstanding shares of the
Company were acquired by America's Senior Financial Services, Inc.
/s/ Ahearn, Jasco + Company, P.A.
------------------------------------------
AHEARN, JASCO + COMPANY, P.A.
Certified Public Accountants
Pompano Beach, Florida
February 26, 1999
F-30
<PAGE> 57
DOW GUARANTEE CORP.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 90,808 $185,767
Brokerage fees receivable 27,929 54,478
Employee advances 60,778 33,120
Prepaid expenses and taxes 18,268 1,890
---------- --------
TOTAL CURRENT ASSETS 197,783 275,255
PROPERTY AND EQUIPMENT, net 116,602 39,113
GOODWILL, net 3,348,215 --
DUE FROM PARENT 24,080 --
OTHER ASSETS 10,784 9,965
---------- --------
TOTAL $3,697,464 $324,333
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 106,259 $ 126,974
Accrued compensation and related taxes 40,724 29,963
---------- --------
TOTAL CURRENT LIABILITIES 146,983 156,937
---------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par value; 1,000,000 shares
authorized, 1,000,000 shares issued and outstanding 90,462 90,462
Additional paid-in capital 3,593,149 --
Retained earnings (deficit) (133,130) 76,934
---------- --------
TOTAL STOCKHOLDERS' EQUITY 3,550,481 167,396
---------- --------
TOTAL $3,697,464 $324,333
========== ========
</TABLE>
See notes to financial statements.
F-31
<PAGE> 58
DOW GUARANTEE CORP.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
REVENUES $2,454,062 $2,599,574
---------- ----------
EXPENSES:
Payroll and related expenses 1,560,504 1,742,832
Administrative, processing, and occupancy 933,689 854,831
Goodwill amortization 71,239 --
---------- ----------
TOTAL EXPENSES 2,565,432 2,597,663
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (111,370) 1,911
PROVISION FOR INCOME TAXES -- 820
---------- ----------
NET INCOME (LOSS) $ (111,370) $ 1,091
========== ==========
</TABLE>
See notes to financial statements.
F-32
<PAGE> 59
DOW GUARANTEE CORP.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Common Additional Retained Total
Stock Common Paid-in Earnings Stockholders'
# of Shares Stock Capital (Deficit) Equity
-------------- ------------- -------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
STOCKHOLDERS' EQUITY,
January 1, 1997 1,000,000 $ 90,462 $ -- $ 75,843 $ 166,305
Net income for the year ended
December 31, 1997 -- -- -- 1,091 1,091
--------- -------- ---------- --------- ----------
STOCKHOLDERS' EQUITY,
December 31, 1997 1,000,000 90,462 -- 76,934 167,396
Recapitalization based on a
July 31, 1998 acquisition of the
shares of the Company (Note 1)
-- -- 3,518,149 (98,694) 3,419,455
Capital contributed by parent
-- -- 75,000 -- 75,000
Net loss for the year ended
December 31, 1998
-- -- -- (111,370) (111,370)
--------- -------- ---------- --------- ----------
STOCKHOLDERS' EQUITY,
December 31, 1998 1,000,000 $ 90,462 $3,593,149 $(133,130) $3,550,481
========= ======== ========== ========= ==========
</TABLE>
See notes to financial statements.
F-33
<PAGE> 60
DOW GUARANTEE CORP.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (111,370) $ 1,091
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 97,648 25,483
Changes in certain assets and liabilities:
Brokerage fees receivable 26,549 (4,225)
Employee advances (27,658) 67,747
Prepaid expenses and taxes (16,378) (1,407)
Accounts payable, accrued compensation and other (9,954) 19,270
---------- ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (41,163) 107,959
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in other assets and due from parent (24,899) --
Acquisition of property and equipment (103,897) (9,294)
---------- ---------
NET CASH USED IN INVESTING ACTIVITIES (128,796) (9,294)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITY - Capital
contribution by parent 75,000 --
---------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (94,959) 98,665
CASH AND CASH EQUIVALENTS, Beginning of year 185,767 87,102
---------- ---------
CASH AND CASH EQUIVALENTS, End of year $ 90,808 $ 185,767
========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid in cash during the period $ 16,094 $ --
========== =========
Income taxes paid in cash during the period $ 10,000 $ 3,294
========== =========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
On July 31, 1998, the Company recorded goodwill and additional
paid-in capital and adjusted its assets and liabilities to fair value in
connection with a purchase of the Company's stock.
See notes to financial statements.
F-34
<PAGE> 61
DOW GUARANTEE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
Dow Guarantee Corp. (the "Company") was incorporated on March 20,
1985. The Company is a licensed mortgage lender in the State of Florida
and is engaged in originating, processing, and funding mortgage loan
applications.
On July 31, 1998, the shareholders of the Company exchanged all
of the issued and outstanding common stock of the Company to America's
Senior Financial Services, Inc. ("AMSE") for 550,000 shares of AMSE
common stock in a tax-free transaction. As a result, the Company became a
wholly-owned subsidiary of AMSE on that date. In accordance with
applicable accounting principles, this transaction has been recorded as a
purchase of the Company by AMSE for financial reporting purposes.
Management of AMSE has placed a value of $3,437,500 on the common stock
of AMSE issued to the shareholders of the Company. This value was
determined at a discount from the common stock's trading level during the
time the transaction was completed, as the shares are restricted as to
transfer. According to "push down" accounting rules, this transaction,
including costs incurred, is recorded on the books of the Company. As a
result, the recorded values of the assets and liabilities of the Company
were adjusted to their fair values at that date and goodwill was recorded
for the excess of the purchase price over the net fair value.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
REVENUE RECOGNITION AND CREDIT RISKS
The Company derives its revenues primarily from mortgage
application fees paid by potential borrowers and from brokerage and
processing fees payable by the borrower and others at the time of
closing. The brokerage and processing fees are recognized as revenue at
the time the loans are closed.
The Company operates in the mortgage banking industry,
therefore, it is highly dependent on the status of the economy and
interest rates.
INTANGIBLE ASSETS
The excess of investment cost over the fair value of net assets
acquired (goodwill) is being amortized over a period of 20 years.
Amortization of goodwill in the amount of $71,239 was charged to
operations in 1998.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at acquisition cost and
depreciated using the straight-line method over the estimated useful
lives of the assets. Useful lives range from five to seven years.
Expenditures for routine maintenance and repairs are charged to expense
as incurred.
ADVERTISING
The costs of advertising, promotion, and marketing programs are
charged to operations in the year incurred. Advertising expense was
$30,717 and $31,002 for the years ended December 31, 1998 and 1997,
respectively.
F-35
<PAGE> 62
DOW GUARANTEE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
INCOME TAXES
The Company accounts for its income taxes in accordance with
Financial Accounting Standards Board Statement No. 109, "Accounting for
Income Taxes." Deferred tax liabilities and assets are recognized for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted
tax rates in effect for the year in which the differences are expected to
reverse. The Company anticipates filing a consolidated return with AMSE.
The tax provision shown on the accompanying statement of operations was
calculated as if the Company filed a separate income tax return.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments
purchased with an original maturity of three months or less. The Company
occasionally maintains cash balances in financial institutions in excess
of the federally insured limits.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, receivables, and accounts payable and accrued expenses are
reflected in the financial statements at fair value because of the
short-term maturity of those instruments.
STATEMENT OF COMPREHENSIVE INCOME
A statement of comprehensive income has not been included, per
SFAS 130, "Reporting Comprehensive Income," as the Company has no items
of other comprehensive income.
RECLASSIFICATIONS
Certain amounts in the 1997 financial statements have been
reclassified to conform to the 1998 presentation.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31,
1998 and 1997:
1998 1997
---------- ---------
Office equipment $ 77,906 $ 122,116
Furniture and fixtures 15,445 57,271
Leasehold improvements 31,080 5,991
---------- ---------
Total cost 124,431 185,378
Less: Accumulated depreciation (7,829) (146,265)
---------- ---------
Property and equipment, net $ 116,602 $ 39,113
========== =========
F-36
<PAGE> 63
DOW GUARANTEE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 2 - PROPERTY AND EQUIPMENT (continued)
Depreciation expense for the years ended December 31, 1998 and
1997 was $26,409 and $25,483, respectively. At July 31, 1998, the
historical cost of all property and equipment was adjusted to fair value
in connection with an acquisition (see Note 1).
NOTE 3 - CREDIT AGREEMENTS
LINES OF CREDIT
In October 1996, the Company established two credit lines with a
financial institution. The credit lines are guaranteed by an officer and
former shareholder. The total amount available under the agreements is
$50,000. As of December 31, 1998 and 1997, no amounts were used from the
credit facilities.
MORTGAGE WAREHOUSING AGREEMENT
In May 1997, the Company entered into an agreement with a
financial institution to provide a $1,000,000 mortgage warehousing
facility that assists the Company in originating and closing mortgages.
The Company is liable under the agreement only if there is a default
during a mortgage closing process. There were no amounts owed under this
agreement as of December 31, 1998 or 1997. Interest paid during 1998 for
borrowings under this agreement totaled $16,094.
NOTE 4 - INCOME TAXES
A summary of income taxes for the years ended December 31, 1998
and 1997 is as follows:
1998 1997
-------- --------
Currently payable:
Federal $ -- $ 800
State -- 20
Deferred benefit from net operating loss (14,050) --
Valuation allowance 14,050 --
-------- -----
Total income tax provision $ -- $ 820
======== =====
The tax provision differs from the Federal statutory rate of 34%
because of non-deductible expenses (including the goodwill amortization),
the surtax exemptions and rate brackets, and the effect of state income
taxes. There are no significant deferred tax assets or liabilities other
than from the net operating loss.
The Company has recorded a valuation allowance in accordance
with the provisions of SFAS No. 109 to reflect the estimated amount of
deferred tax assets that may not be realized. In assessing the
realizability of deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred tax assets
will not be realized.
The Company has available tax net operating loss carryovers as
of December 31, 1998 of approximately $84,400.
F-37
<PAGE> 64
DOW GUARANTEE CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 5 - COMMITMENTS AND CONTINGENCIES
OFFICE LEASE
The Company leases office space in various locations, as well as
certain office equipment. Future minimum lease payments subsequent to
December 31, 1998 under these operating leases are as follows: $94,956 in
years 1999 and 2000, $93,293 in 2001, and $12,956 in years 2002 and 2003.
Rent expense for the years ended December 31, 1998 and 1997 totaled
$86,725, and $92,633, respectively.
LITIGATION
From time to time, the Company is exposed to claims, regulatory,
and legal actions in the normal course of business, some of which may be
initiated by the Company. At December 31, 1998, management believes that
any such outstanding issues will be resolved without significantly
impairing the financial condition of the Company.
F-38
<PAGE> 65
CAPITAL FUNDING OF SOUTH FLORIDA, INC.
FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
AND
INDEPENDENT AUDITORS' REPORT
F-39
<PAGE> 66
CAPITAL FUNDING OF SOUTH FLORIDA, INC.
TABLE OF CONTENTS
PAGE
----
INDEPENDENT AUDITORS' REPORT F-41
FINANCIAL STATEMENTS
Balance Sheet F-42
Statement of Operations F-43
Statement of Changes in Stockholders' Equity F-44
Statement of Cash Flows F-45
NOTES TO FINANCIAL STATEMENTS F-46 - F-48
F-40
<PAGE> 67
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Capital Funding of South Florida, Inc.
We have audited the accompanying balance sheet of Capital Funding of South
Florida, Inc. (the "Company"), as of December 31, 1998, and the related
statement of operations, changes in stockholders' equity, and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Capital Funding of South
Florida, Inc. as of December 31, 1998, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
As discussed in Note 1, on January 29, 1999, all of the outstanding shares of
the Company were acquired by America's Senior Financial Services, Inc.
/s/ Ahearn, Jasco + Company, P.A.
------------------------------------------
AHEARN, JASCO + COMPANY, P.A.
Certified Public Accountants
Pompano Beach, Florida
April 9, 1999
F-41
<PAGE> 68
CAPITAL FUNDING OF SOUTH FLORIDA, INC.
BALANCE SHEET
DECEMBER 31, 1998
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 23,543
Brokerage fees receivable 45,828
Interest receivable from shareholders 6,000
---------
TOTAL CURRENT ASSETS 75,371
PROPERTY AND EQUIPMENT, net 79,983
NOTES RECEIVABLE FROM SHAREHOLDERS 100,000
OTHER ASSETS 67,739
---------
TOTAL $ 323,093
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable - lines of credit $ 110,455
Accounts payable 25,909
Accrued compensation 17,873
Other accrued liabilities 35,000
---------
TOTAL CURRENT LIABILITIES 189,237
---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1 par value; 10,000 shares
authorized, 2,000 shares issued and outstanding 2,000
Additional paid-in capital 59,369
Retained earnings 72,487
---------
TOTAL STOCKHOLDERS' EQUITY 133,856
---------
TOTAL $ 323,093
=========
See notes to financial statements.
F-42
<PAGE> 69
CAPITAL FUNDING OF SOUTH FLORIDA, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
REVENUES $1,419,184
----------
EXPENSES:
Compensation 826,415
Administrative, processing, and occupancy 476,956
----------
TOTAL EXPENSES 1,303,371
----------
INCOME FROM OPERATIONS 115,813
INTEREST INCOME 7,735
INTEREST EXPENSE (4,742)
----------
NET INCOME $ 118,806
==========
See notes to financial statements.
F-43
<PAGE> 70
CAPITAL FUNDING OF SOUTH FLORIDA, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMMON Additional Total
STOCK Common Paid-in Retained Stockholders'
# OF SHARES Stock Capital Earnings Equity
-------------- ------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
STOCKHOLDERS' EQUITY,
January 1, 1998 2,000 $2,000 $59,369 $ 228,984 $ 290,353
S corporation distributions -- -- -- (275,303) (275,303)
Net income for the year ended
December 31, 1998 -- -- -- 118,806 118,806
----- ------ ------- --------- ---------
STOCKHOLDERS' EQUITY,
December 31, 1998 2,000 $2,000 $59,369 $ 72,487 $ 133,856
===== ====== ======= ========= =========
</TABLE>
See notes to financial statements.
F-44
<PAGE> 71
CAPITAL FUNDING OF SOUTH FLORIDA, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 118,806
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and valuation allowance 59,518
Changes in certain assets and liabilities:
Brokerage fees receivable (38,406)
Interest receivable from shareholders (6,000)
Accounts payable and accrued liabilities 34,003
---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 167,921
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in other assets 87
Purchases of property and equipment (34,524)
---------
NET CASH USED IN INVESTING ACTIVITIES (34,437)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
S corporation distributions (275,303)
Repayment of shareholder advances (150,000)
Proceeds from lines of credit, net 70,580
---------
NET CASH USED IN FINANCING ACTIVITIES (354,723)
---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (221,239)
CASH AND CASH EQUIVALENTS, Beginning of year 244,782
---------
CASH AND CASH EQUIVALENTS, End of year $ 23,543
=========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid in cash during the period $ 4,742
=========
Income taxes paid in cash during the period $ --
=========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
Property and equipment with a net book value of $66,514 was
transferred from depreciable assets to other assets when the property was
removed from current use in the business.
See notes to financial statements.
F-45
<PAGE> 72
CAPITAL FUNDING OF SOUTH FLORIDA, INCORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
Capital Funding of South Florida, Inc. (the "Company") was
incorporated on August 29, 1994. The Company is a licensed mortgage
lender in the State of Florida and is engaged in originating, processing,
and funding mortgage loan applications.
On January 29, 1999, the shareholders of the Company exchanged
all of the issued and outstanding common stock of the Company to
America's Senior Financial Services, Inc. ("AMSE") for 221,664 shares of
AMSE common stock in a tax-free transaction. As a result, the Company
became a wholly-owned subsidiary of AMSE on that date.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
REVENUE RECOGNITION AND CREDIT RISKS
The Company derives its revenues primarily from mortgage
application fees paid by potential borrowers and from brokerage and
processing fees payable by the borrower and others at the time of
closing. The brokerage and processing fees are recognized as revenue at
the time the loans are closed.
The Company operates in the mortgage banking industry,
therefore, it is highly dependent on the status of the economy and
interest rates.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at acquisition cost and
depreciated using the straight-line method over the estimated useful
lives of the assets. Useful lives range from five to seven years.
Expenditures for routine maintenance and repairs are charged to expense
as incurred.
ADVERTISING
The costs of advertising, promotion, and marketing programs are
charged to operations in the year incurred. Advertising expense was
$15,955 for the year ended December 31, 1998.
INCOME TAXES
The Company, with the consent of its shareholders, has elected
under the Internal Revenue Code to be an S corporation. In lieu of
corporation income taxes, shareholders of an S corporation are taxed on
their proportionate share of the Company's taxable income. Therefore, no
provision or liability for income taxes has been included in the
accompanying financial statements.
On January 29, 1999, as a result of the acquisition by AMSE of
the Company's common stock, the Company ceased to be an S corporation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments
purchased with an original maturity of three months or less. The Company
occasionally maintains cash balances in financial institutions in excess
of the federally insured limits.
F-46
<PAGE> 73
CAPITAL FUNDING OF SOUTH FLORIDA, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, receivables, accounts payable and accrued expenses, and
notes payable are reflected in the financial statements at fair value
because of the short-term maturity of those instruments.
STATEMENT OF COMPREHENSIVE INCOME
A statement of comprehensive income has not been included, per
SFAS 130, "Reporting Comprehensive Income," as the Company has no items
of other comprehensive income.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31,
1998:
Office and other equipment $ 78,100
Furniture and fixtures 13,125
Leasehold improvements 40,377
----------
Total cost 131,602
Less: Accumulated depreciation (51,619)
----------
Property and equipment, net $ 79,983
==========
Depreciation expense for the year ended December 31, 1998 was
$25,732. The balance sheet caption, "other assets," includes property not
currently in use in the operation of the Company; a valuation allowance
of $33,786 was charged to earnings in 1998 to reduce this property to its
estimated net realizable value of $66,514.
NOTE 3 - NOTES PAYABLE
The Company has two credit lines with financial institutions.
The balances due at December 31, 1998 were $61,455, with interest at
10.25%, and $49,000, with interest at 8.5%. The notes are due on demand,
are unsecured, and are guaranteed by a shareholder.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
OFFICE LEASE
The Company leases office space in various locations, as well as
certain office equipment. Future minimum lease payments subsequent to
December 31, 1998 under these operating leases are as follows: $43,900 in
1999, $24,000 in 2000, and $12,000 in 2001. Rent expense for the year
ended December 31, 1998 totaled $70,359.
LITIGATION
From time to time, the Company is exposed to claims, regulatory,
and legal actions in the normal course of business, some of which may be
initiated by the Company. At December 31, 1998, management believes that
any such outstanding issues will be resolved without significantly
impairing the financial condition of the Company.
F-47
<PAGE> 74
CAPITAL FUNDING OF SOUTH FLORIDA, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
NOTE 5 - RELATED PARTY TRANSACTIONS
NOTES RECEIVABLE
Two shareholders each owe the Company $50,000 under promissory
notes dated December 31, 1997. Both notes bear interest at 6% per annum
and the interest is payable annually on December 31st. The notes are due
on January 1, 2004. The interest due December 31, 1998 was not paid and
is therefore recorded as a receivable from shareholders.
The fair value of these notes is not subject to reasonable
estimation because of their related party nature.
DISTRIBUTIONS TO SHAREHOLDERS
The shareholders of the Company received S corporation
distributions totaling $275,303 in 1998.
SHAREHOLDER ADVANCES
At December 31, 1997, the Company owed its shareholders $150,000
pursuant to non-interest bearing advances received in December 1997.
These amounts were repaid in January 1998.
F-48
<PAGE> 75
JUPITER MORTGAGE CORPORATION
FINANCIAL STATEMENTS
December 31, 1998 and 1997
with
REPORT OF CERTIFIED PUBLIC ACCOUNTANTS
F-49
<PAGE> 76
INDEPENDENT AUDITOR'S REPORT
To the Stockholders
Jupiter Mortgage Corporation
We have audited the accompanying balance sheets of Jupiter Mortgage Corporation
(an S Corporation) as of December 31, 1998 and 1997, and the related statements
of income, changes in stockholders' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Jupiter Mortgage Corporation as
of December 31, 1998 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
WISNESKI, BLAKISTON & LESLIE, P.A.
Jupiter, Florida
March 12, 1999
F-50
<PAGE> 77
JUPITER MORTGAGE CORPORATION
BALANCE SHEETS
December 31, 1998 and 1997
1998 1997
-------- --------
ASSETS
CURRENT ASSETS
Cash $214,835 $ 60,282
Brokerage fees receivable 67,714 16,078
Loan to employees 7,628 3,776
Prepaid expenses 889 5,514
-------- --------
TOTAL CURRENT ASSETS 291,066 85,650
PROPERTY AND EQUIPMENT, net 66,865 49,832
DEPOSITS 11,334 4,302
-------- --------
$369,265 $139,784
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Escrow deposits $ 4,452 $ 9,690
Accounts payable -- 5,338
Line of credit 93,609 36,000
-------- --------
TOTAL CURRENT LIABILITIES 98,061 51,028
STOCKHOLDERS= EQUITY
Common stock, $1 par value; 1,000 shares
authorized, issued and outstanding 1,000 1,000
Paid-in capital 124,106 24,106
Retained earnings 146,098 63,650
-------- --------
TOTAL STOCKHOLDERS= EQUITY 271,204 88,756
-------- --------
$369,265 $139,784
======== ========
See accompanying notes.
F-51
<PAGE> 78
JUPITER MORTGAGE CORPORATION
STATEMENTS OF INCOME
For the Years Ended December 31, 1998 and 1997
1998 1997
---------- ----------
REVENUES $2,746,104 $1,725,225
EXPENSES
Payroll and related expenses 1,632,728 1,044,275
Administrative, processing, and occupancy 995,928 633,424
---------- ----------
TOTAL EXPENSES 2,628,656 1,677,699
---------- ----------
NET INCOME $ 117,448 $ 47,526
========== ==========
See accompanying notes.
F-52
<PAGE> 79
JUPITER MORTGAGE CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Common Additional Total
Stock Common Paid-in Retained Stockholders'
# of Shares Stock Capital Earnings Equity
----------- ------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
STOCKHOLDERS' EQUITY,
January 1, 1997 1,000 $1,000 $ 24,106 $ 27,185 $ 52,291
Net income for the year ended
December 31, 1997 -- -- -- 47,526 47,526
Distributions to stockholders' -- -- -- (11,061) (11,061)
----- ------ -------- --------- ---------
STOCKHOLDERS' EQUITY,
December 31, 1997 1,000 1,000 24,106 63,650 88,756
Capital contributed by stockholders' -- -- 100,000 -- 100,000
Net income for the year ended
December 31, 1998 -- -- -- 117,448 117,448
Distributions to stockholders' -- -- -- (35,000) (35,000)
----- ------ -------- --------- ---------
STOCKHOLDERS' EQUITY,
December 31, 1998 1,000 $1,000 $124,106 $146,098 $271,204
===== ====== ========= ========= =========
</TABLE>
See accompanying notes.
F-53
<PAGE> 80
JUPITER MORTGAGE CORPORATION
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 117,448 $ 47,526
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 16,797 22,084
Increase in current liabilities 47,033 43,930
Increase in current assets (50,863) (19,260)
Increase in deposits (7,032) (4,042)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 123,383 90,238
CASH FLOWS FROM INVESTING ACTIVITIES
Cash used to purchase equipment (33,830) (62,467)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (33,830) (62,467)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term debt -- (1,927)
Capital contributed 100,000 --
Distributions to stockholders (35,000) (11,061)
--------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 65,000 (12,988)
--------- ---------
NET INCREASE IN CASH 154,553 14,783
CASH, Beginning of year 60,282 45,499
--------- ---------
CASH, End of year $ 214,835 $ 60,282
========= =========
SUPPLEMENTAL DISCLOSURES
Interest paid in cash during the period $ 4,578 $ 624
========= =========
</TABLE>
See accompanying notes.
F-54
<PAGE> 81
JUPITER MORTGAGE CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
Jupiter Mortgage Corporation, Inc. (the Company), is a Florida Corporation
incorporated on June 29, 1984. The Company is a licensed correspondent mortgage
lender in the Palm Beach County Florida area.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments purchased with
an original maturity of three months or less. The company occasionally maintains
cash balances in financial institutions in excess of the federally insured
limits.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation.
Improvements are capitalized if they have a useful life of more than one year.
Maintenance and repairs are charged to expense as incurred. Depreciation is
computed using various methods over the estimated useful lives of the assets.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
directly affect the reported amounts of assets and liabilities and disclosure of
continent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
REVENUE RECOGNITION AND CREDIT RISKS
The company derives its revenues primarily from mortgage application fees paid
by potential borrowers and from brokerage and processing fees payable by the
borrower and others at the time of closing. The brokerage and processing fees
are recognized as revenue at the time the loans are closed.
The Company operates in the mortgage banking industry, therefore, it is highly
dependent on the status of the economy and interest rates.
ADVERTISING
The costs of advertising, promotion, and marketing programs are charged to
operations in the year incurred. Advertising expense was $44,128 and $44,621 for
the years ended December 31, 1998 and 1997, respectively.
F-55
<PAGE> 82
JUPITER MORTGAGE CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
INCOME TAXES
The Company has elected under the Internal Revenue Code to be an S Corporation.
In lieu of corporation income taxes, the stockholders are taxed on their
proportionate share of the Company's taxable income. Therefore, no provision or
liability for income taxes is included in the financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, receivables, and accounts payable and accrued expenses are reflected in
the financial statements at fair value because of the short-term maturity of
those instruments.
STATEMENT OF COMPREHENSIVE INCOME
A statement of comprehensive income has not been included, per SFAS 130,
"Reporting Comprehensive Income", as the Company has no items of other
comprehensive income.
RECLASSIFICATIONS
Certain amounts in the 1997 financial statements have been reclassified to
conform to the 1998 presentation.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
1998 1997
--------- --------
Computer and other office equipment $ 54,655 $ 27,277
Furniture and fixtures 56,540 49,822
Vehicles 47,098 47,098 47,098
Leasehold improvements 9,158 14,942
--------- --------
167,451 139,139
Less allowance for depreciation (100,586) (89,307)
--------- --------
$ 66,865 $ 49,832
========= ========
Depreciation expense for the years ended December 31, 1998 and 1997 was $29,940
and $22,084, respectively.
F-56
<PAGE> 83
JUPITER MORTGAGE CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
3. CREDIT ARRANGEMENTS
LINES OF CREDIT
The Company has two lines of credit. One is a $50,000 line which expires
September 30, 1999, with interest at 11% paid monthly. The second line, entered
into in 1998, is for $50,000 with interest at 11% paid monthly. At December 31,
1998 and 1997, approximately $94,000 and $36,000, respectively, was outstanding
on the lines. The lines are personally guaranteed by the Company's shareholders.
MORTGAGE WAREHOUSING AGREEMENT
During 1998, the Company entered into an agreement with a financial institution
to provide a $2,000,000 mortgage warehousing facility that assists the Company
in originating and closing mortgages. The Company becomes liable under the
agreement if the loans are not resold and all amounts in process at December 31,
1998 were subsequently sold. Interest paid during 1998 was less than $5,000. The
line is personally guaranteed by the Company's shareholders.
4. COMMITMENTS AND CONTINGENCIES
OFFICE LEASES
The Company operated six offices during 1998 (4 in 1997) with aggregate monthly
rents approximating $7,000 and $5,000 during most of the years ended December
31, 1998 and 1997, respectively. One of the offices is leased on a
month-to-month basis. The other leases expire at various times through November
2003. The leases are personally guaranteed by the Company's shareholders.
Minimum future commitments under existing leases are as follows:
1998 1997
--------- ---------
1999 $ 107,700 $ 37,800
2000 $ 107,400 $ 23,000
2001 $ 83,800 $ 19,200
2002 $ 79,700 $ --
2003 $ 69,100 $ --
LITIGATION
From time to time, the Company is exposed to claims, regulatory, and legal
actions in the normal course of business, some of which may be initiated by the
Company. At December 31, 1998 and 1997, management believes that any such
outstanding issues will be resolved without significantly impairing the
financial condition of the Company.
F-57
<PAGE> 84
AMERICA'S SENIOR FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED UNAUDITED PROFORMA STATEMENTS OF OPERATIONS INCLUDING JUPITER
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
1/01/99 to 1/01/99 to
Historic 1/31/99 8/18/99 Proforma
AMSE CFSF Jupiter Adjustments Consolidated
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues: $ 4,723,697 $ 58,469 $ 1,771,773 $ 6,553,939
Expenses:
Payroll and related expenses 4,024,889 58,089 1,103,902 5,186,880
Administrative, processing,
and occupancy 2,996,515 37,191 822,308 3,856,014
Debenture Financing Costs 1,491,628 -- -- 1,491,628
Impairment charges 3,259,311 -- 3,259,311
Goodwill amortization 194,163 -- -- 172,047 (a) 366,210
------------ ------------ ------------ ------------ ------------
TOTAL EXPENSES 11,966,506 95,280 1,926,210 172,047 14,160,043
------------ ------------ ------------ ------------ ------------
PROFIT (LOSS) FROM OPERATIONS (7,242,809) (36,811) (154,437) (172,047) (7,606,104)
------------ ------------ ------------ ------------ ------------
Interest Expense (Net) 519,031 -- -- 519,013
------------
PROFIT (LOSS) BEFORE INCOME TAXES (7,761,840) (36,811) (154,437) (172,047) (8,125,135)
PROVISION FOR INCOME TAXES -- -- -- --
------------ ------------ ------------ ------------ ------------
NET PROFIT (LOSS) $ (7,761,840) (36,811) $ (154,437) (172,047) $ (8,125,135)
============ ============ ============ ============ ============
</TABLE>
(a) To annualize goodwill as if this acquisition took place on January 1, 1999.
P-1
<PAGE> 85
AMERICA'S SENIOR FINANCIAL SERVICES,INC. AND SUBSIDIARIES
CONSOLIDATED UNAUDITED PROFORMA BALANCE SHEET AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
Proforma
AMSE CFSF Jupiter Adjustments Consolidated
----------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 195,728 $ 23,543 $ 214,835 $ 434,106
Brokerage fee's receivable 49,853 45,828 67,714 163,395
Notes & Other Receivable 22,618 106,000 128,618
Employee advances 70,528 -- 7,628 78,156
Prepaid expenses 46,699 -- 889 47,588
Property and equipment, net 254,783 79,983 66,865 401,631
Other Assets 319,940 67,739 11,334 (319,940)a 79,073
Goodwill, Net 3,348,215 -- 4,763,398 a 8,111,613
----------- --------- --------- ----------- -----------
Total Assets $ 4,308,364 $ 323,093 $ 369,265 $ 9,444,180
Liabilities:
Current portion of long-term debt $ 5,798 $ 110,454 $ 93,609 $ 209,861
Accounts payable and accrued expenses 173,904 60,909 4,452 143,871 383,136
Commission payable 49,054 17,873 -- 66,927
Income taxes payable -- -- -- --
Long-Term debt, less current portion 13,287 -- -- 13,287
----------- --------- --------- ----------- -----------
Total Liabilities 242,043 189,236 98,061 673,211
Stockholders' Equity:
Common Stock 5,899 2,000 1,000 599 a 9,498
Additional paid-in capital 4,584,932 59,369 124,106 4,517,574 a 9,285,981
Retained earnings (58,177) (46,318) 28,650 17,668 a (58,177)
Income YTD (399,266) 118,806 117,448 (236,254)a (399,266)
Unearned Compensation - restricted stock (67,067) -- -- (67,067)
----------- --------- --------- ----------- -----------
Total stockholders' equity 4,066,321 133,857 271,204 8,770,969
----------- --------- --------- ----------- -----------
Total liabilities and stockholders'
equity $ 4,308,364 $ 323,093 $ 369,265 $ 9,444,180
=========== ========= ========= =========== ===========
</TABLE>
a- To record estimated purchase accounting entry as if the Capital & Jupiter
acquisition took place on December 31, 1998.
P-2
<PAGE> 86
AMERICA'S SENIOR FINANCIAL SERVICES,INC. AND SUBSIDIARIES
PROFORMA CONSOLIDATED UNAUDITED STATEMENTS OF OPERATIONS AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
1998 01/01/98 to 1998 1998
Historic 7/31/98 Historic Historic Proforma
AMSE DOW CFSF Jupiter Adjustments Consolidated
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues: $ 1,797,632 $ 1,490,249 $ 1,426,919 $ 2,746,104 $ 7,460,904
----------- ----------- ----------- ----------- ----------- -----------
Expenses:
Payroll and related expenses 1,335,488 822,372 826,415 1,632,728 4,617,003
Administrative, processing,
and occupancy 722,828 630,023 476,956 995,928 2,825,735
Acquisition costs 14,969 -- -- -- 14,969
Employee recruitment 50,333 -- -- -- 50,333
Goodwill amortization 71,239 -- -- -- 359,859 (a) 431,098
----------- ----------- ----------- ----------- ----------- -----------
TOTAL EXPENSES 2,194,857 1,452,395 1,303,371 2,628,656 359,859 7,939,138
----------- ----------- ----------- ----------- ----------- -----------
PROFIT (LOSS) FROM OPERATIONS (397,225) 37,854 123,548 117,448 (359,859) (478,234)
----------- ----------- ----------- ----------- ----------- -----------
INTEREST EXPENSE (NET) 2,041 16,094 4,742 -- 22,877
----------- ----------- ----------- ----------- ----------- -----------
PROFIT (LOSS) BEFORE INCOME TAXES (399,266) 21,760 118,806 117,448 (359,859) (501,111)
PROVISION FOR INCOME TAXES -- -- -- -- 0
----------- ----------- ----------- ----------- ----------- -----------
NET PROFIT (LOSS) $ (399,266) $ 21,760 $ 118,806 $ 117,448 $ (359,859) $ (501,111)
=========== =========== =========== =========== =========== ===========
</TABLE>
(a) To annualize goodwill as if these acquisition's took place on
January 1, 1998.
P-3
<PAGE> 87
<TABLE>
<CAPTION>
<S> <C>
No dealer, salesman or other person is authorized
to give any information or make any information or make
any representations not contained in this Prospectus with
respect to the offering made hereby. This Prospectus does 418,125 Shares of Common Stock
not constitute an offer to sell any of the securities offered
hereby in any jurisdiction where, or to any person to
whom it is unlawful to make such an offer. Neither the AMERICA'S SENIOR
delivery of this Prospectus nor any sale made hereunder FINANCIAL SERVICES, INC.
shall, under any circumstances, create an implication that
there has been no change in the information set forth
herein or in the business of the Company since the date
hereof.
TABLE OF CONTENTS
PROSPECTUS
Prospectus Summary................................................. 4
Risk Factors....................................................... 5
Use of Proceeds.................................................... 5 October 3, 2000
Market for the Shares.............................................. 5
Dividend Policy.................................................... 6
Management's Discussion and Analysis
of Financial Condition and Results of
Operations........................................................ 6
Recent Sale of Convertible Debentures.............................. ?
Business........................................................... 11
Management......................................................... 6
Executive Compensation............................................. 18
Security Ownership of Certain Beneficial
Owners and Management............................................ 22
Indemnification.................................................... 23
Certain Relationships and Related
Transactions...................................................... 21
Plan of Distribution/Selling Security Holders...................... 23
Description of Securities.......................................... 22
Legal Matters...................................................... 26
Experts............................................................ 26
Additional Information............................................. 26
Financial Statements...............................................F-1
</TABLE>
<PAGE> 88
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Reference is hereby made to the provisions of Section F.S. 607.0850 of
the Florida Business Corporation Act which provides for indemnification of
directors and officers under certain circumstances.
Reference is hereby made to Article IX of Registrant's By-laws which is
filed as Exhibit 2(c)and Article VI of the Articles of Incorporation which is
filed as Exhibit 2(a).
Item 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses in connection with the
issuance and distribution of the securities offered hereby.
Registration Fee $ --
Printing Expenses* 2,500
Legal Fees and Expenses* 7,500
Accounting Fees and Expenses* 3,000
Blue Sky Fees and Expenses* 3,000
Transfer Agent Fees and Expenses* 1,000
Misc.* 200
-------
Total $17,200
--------------------
*Estimated
Item 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following provides information concerning all sales of securities
within the last three years which were not registered under the Securities Act
of 1933.
On December 1997, the Company issued 1,117,000 shares of common stock
to its founders, directors, certain employees and advisors. Such shares were
issued for $2,767, which was received in cash or services. Such shares were
issued without registration pursuant to an exemption from registration under
Section 4(2) of the Securities Act of 1933.
In December 1997, the Company sold 600,000 shares of common stock and
700,000 Common Stock Purchase Warrants to 41 investors for $100,000. Such
offering was made pursuant to Rule 504 of Regulation D. Each Common Stock
Purchase Warrant entitled to the holder to purchase one share of common stock
for $1.00 per share. During 1998, 700,000 of the Warrants were exercised and the
Company issued 700,000 shares of common stock pursuant to Rule 504 of Regulation
D.
In July 1998, the Company issued a total of 550,000 shares of common
stock to Charles and Linda Kluck in connection with the acquisition of Dow and
66,667 to Vista Growth Partners, Inc. for services in connection with such
acquisition. Such shares were issued without registration pursuant to an
exemption from registration under Section 4(2) of the Securities Act of 1933.
II-1
<PAGE> 89
The Company issued 74,400 shares to employees as restricted stock
awards in 1998 and 128,300 shares during 1999. Such shares were issued without
registration pursuant to an exemption from registration under Section 4(2) of
the Securities Act of 1933.
In 1998, the Company issued shares to investors pursuant to an
exemption from registration under Section 4(2) of the Securities Act of 1933.
<TABLE>
<CAPTION>
Date Consideration Shares Purchaser Accredited/Sophisticated
---- ------------- ------ --------- ------------------------
<S> <C> <C> <C> <C>
9/11/98 $ 1,000 500 Carpenter, Michael Sophisticated
9/11/98 1,000 (a) 500 Shea, Elly Sophisticated
9/11/98 20,000 10,000 Weinstein, Mitchell D. Sophisticated
9/11/98 20,000 10,000 Snyder, Scott A. Sophisticated
9/14/98 20,000 10,000 Hoffberger, Robert Sophisticated
9/11/98 20,000 10,000 Aurelia Holdings Ltd. Sophisticated
9/11/98 15,000 7,500 Donahue, Edwin Sophisticated
9/16/98 10,000 5,000 Antosek, Richard B. Sophisticated
9/16/98 15,000 7,500 Gittelman, Marc C. Sophisticated
9/18/98 5,000 2,500 Stott, Robert S. Sophisticated
9/23/98 10,000 5,000 Bailey, Darryl L. Sophisticated
10/12/98 10,000 10,000 Snyder, Scott A. Sophisticated
10/12/98 7,500 17,500 Gittleman, Marc C. Sophisticated
10/12/98 10,000 10,000 Aurelia Holdings Ltd. Sophisticated
10/12/98 5,000 2,500 Antosek, Richard Sophisticated
10/12/98 10,000 10,000 Weinstein, Mitchell D. Sophisticated
10/12/98 10,000 10,000 Hoffberger, Robert Sophisticated
10/28/98 10,000 5,000 Shelley, Michael J. Sophisticated
10/26/98 1,000 (a) 500 Shea, Elly Sophisticated
12/11/98 3,000 1,500 Perez, Jorge Sophisticated
12/11/98 15,000 7,500 Gibson, Paul D. Sophisticated
12/11/98 5,000 2,500 Prado, Gary Sophisticated
12/11/98 4,000 2,000 Allen, Robert W. Sophisticated
12/11/98 1,576 1,300 Prado, Gary Sophisticated
12/11/98 1,212 1,000 Prado, Gary Sophisticated
12/11/98 1,212 1,000 Prado, Gary Sophisticated
-------- -------
$231,500 140,800
======== =======
</TABLE>
--------------------
(a) These shares were purchased for cash by Elly Shea an officer of the
corporation.
II-2
<PAGE> 90
In 1999 the Company issued shares to investors pursuant to an
exemption from registration under Section 4(2) of the Securities Act of 1933.
<TABLE>
<CAPTION>
Date Consideration Shares Purchaser Accredited/Sophisticated
---- ------------- ------ --------- ------------------------
<S> <C> <C> <C> <C>
1/4/99 $ 4,000 2,000 Deery, Scott Sophisticated
2/17/99 100 100 Charlesworth, Steven Sophisticated
2/17/99 100 100 Charlesworth, Joan Sophisticated
2/17/99 100 100 Charlesworth, Carrie Sophisticated
2/17/99 1,000 1,000 Charlesworth, David E. Sophisticated
2/17/99 1,000 1,000 Hersha, Julia Jean Sophisticated
2/17/99 1,000 1,000 Langston, Timothy Sophisticated
2/17/99 1,000 1,000 Edgar, Derek Sophisticated
2/17/99 4,000 4,000 Fleming, Carol Sophisticated
2/17/99 4,000 4,000 Locke, Victor M. Sophisticated
2/26/99 15,000 15,000 Snyder, Scott A. Sophisticated
2/26/99 15,000 15,000 Aurelia Holdings Ltd. Sophisticated
2/23/99 10,000 10,000 Biondo, Jane M. Sophisticated
3/1/99 1,500 1,500 Locke, Edwin Sophisticated
2/25/99 40,000 40,000 Brickell Equity Group, Ltd. Sophisticated
2/25/99 60,000 60,000 Palmun Associates Sophisticated
3/15/99 7,000 7,000 Donahue, Edwin Sophisticated
3/15/99 100 100 Frantz, Arlee Sophisticated
5/5/99 75,000 37,500 Palmun Associates Sophisticated
6/9/99 25,000 12,500 Rosen, Kenneth Sophisticated
6/9/99 50,000 25,000 Kahn, Marc A & Laurie D Kahn JT Ten Sophisticated
10/4/99 100,048 29,644 Buono, Michael J Sophisticated
10/15/99 5,002 1,482 Buono, Michael J Sophisticated
10/12/99 25,012 7,411 Pargulski, John M Sophisticated
10/12/99 25,002 7,408 Girard, Dean J Sophisticated
10/4/99 100,001 29,630 Buono, Ronald J Sophisticated
10/4/99 33,800 10,015 Glass, Michael Sophisticated
10/4/99 60,000 17,778 Anderson, Deanne J Sophisticated
10/4/99 25,012 7,411 Bashwiner, Robert T Sophisticated
10/4/99 27,040 8,012 Douglas, James R Sophisticated
10/4/99 67,600 20,030 Kauff, Richard L Sophisticated
11/24/99 50,625 15,000 Palmun Associates A Partnership Sophisticated
12/1/99 50,625 15,000 Kahn, Albert L and Ellen B Kahn JT Ten Sophisticated
12/16/99 27,000 8,000 Kahn, Marc Sophisticated
1/25/00 7,500 5,000 Bailey, Darryl L Sophisticated
-------- ---------
$919,167 419,721
======== =========
</TABLE>
In 1999 the Company issued the following shares to investors pursuant
to 504 of Regulation D.
<TABLE>
<CAPTION>
Date Consideration Shares Purchaser Accredited/Sophisticated
---- ------------- ------ --------- ------------------------
<S> <C> <C> <C> <C>
1/26/99 $100,000 100,000 Fidra Holdings, Ltd. Accredited
1/26/99 34,000 34,000 Fidra Holdings, Ltd. Accredited
1/26/99 50,000 50,000 Fidra Holdings, Ltd. Accredited
1/26/99 50,000 50,000 Fidra Holdings, Ltd. Accredited
2/25/99 16,666 16,666 Weltman, Louis Sophisticated
2/25/99 16,667 16,667 Brickell Equity Group, Inc. Sophisticated
2/25/99 16,667 16,667 Palmun Associates Sophisticated
-------- -------
$284,000 284,000
======== =======
</TABLE>
On January 29, 1999 we issued 221,664 shares of our common stock as
follows to the former shareholders and the investment banker of Capital Funding
of South Florida, Inc. Such shares were issued without registration pursuant to
section 4(2) of the Securities Act of 1933.
George & Tracy Pollis 105,228
Paula Police 105,228
First Fidelity Capital Markets, Inc. 11,088
We also issued 16,000 shares to our investment banker Vistra Growth
Partners, Inc. in connection with the acquisition.
During May of 1999 we issued 185,500 shares to placement agents and
advisors in connection with the $2,500,000 convertible debenture sold on May 5,
1999. On August 12, 1999 we issued 23,000 shares of our Common Stock in
connection with two new employees and in exchange for various assets of theirs
in order to open our offices in New York and New Jersey. In November of 1999 we
issued 125,000 shares of common stock to the shareholders of a potential
acquisition candidate. These shares were returned and voided during February of
2000. We also issued 5,200 shares of our common stock to Brickell Equity Group,
Inc. for consulting services on December 20, 1999.
Through January 31, 2000 we issued a total of 296,207 shares to
Fennell Avenue Associates LLP in connection with the conversion of, and
applicable interest on $1,000,000 principal of the convertible debenture issued
in May of 1999.
On August 18, 1999 we issued 360,750 shares of our common stock as
follows to the former shareholders and the investment banker of Jupiter Mortgage
Corporation. Such shares were issued without registration pursuant to
Section 4(2) of the Securities Act of 1933.
Deanne J. Anderson 169,553
Michael J. Buono 169,553
First Fidelity Capital Markets, Inc. 21,644
All of the securities listed in the charts above were issued pursuant
to individual subscription agreements provided by each purchaser. Each purchaser
is a sophisticated investor, as documented in their subscription agreement.
All of the individuals listed were given access to all documents, financial
statements, stockholder records, minute books and all other records of the
company in which they desired. These individuals also had the opportunity to
meet with and ask questions of the officers of the Company.
None of the securities discussed above were registered under the
Securities Act of 1933, exemption being claimed in each case pursuant to
Regulation D or Section 4(2) thereof. All shares which were not issued under
Rule 504 exemption were issued with restrictive legend and stop transfer orders.
No general advertising or solicitation was utilized in connection with any such
sales. All investors were offered access to the Company's books and records and
the opportunity to meet with officers of the Company.
II-3
<PAGE> 91
Item 27. EXHIBITS
The following Exhibits are incorporated by reference to the Exhibits of the same
number filed with the Company's Registration Statement on Form 10-SB filed
April 16, 1999:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
2(a) Articles of Incorporation of the Registrant*
2(b) Articles of Amendment to Articles of Incorporation*
2(c) By-Laws of the Registrant*
2(d) Incentive Stock Option Plan*
2(e) Non-Qualified Stock Option Plan*
6(a) Employment Agreement as of January 2, 1998 between Registrant and
Nelson A. Locke*
6(b) Employment Agreement as of January 2, 1998 between Registrant and
Cheryl D. Locke*
6(c) Employment Agreement as of July 31, 1998 between Registrant and Dow
Guarantee Corp. and Charles M. Kluck*
6(d) Employment Agreement as of July 31, 1998 between Registrant and Dow
Guarantee Corp. and Linda C. Kluck*
6(e) Employment Agreement as of August 10, 1998 between Registrant and
Vistra Growth Partners, Inc.*
6(f) Agreement for purchase of Dow Guarantee Corp.*
6(g) Agreement for purchase of Capital Funding of South Florida, Inc.*
6(h) Consulting Agreement with Vistra Growth Partners, Inc.*
22 Subsidiaries*
</TABLE>
II-4
<PAGE> 92
The following Exhibits are filed herewith:
<TABLE>
<CAPTION>
<S> <C>
5.1 Opinion of Counsel**
10.1 Financial Advisory Agreement dated February 2, 2000 with Capitalink, L.C.*
10.3 Consulting Agreement dated January 1, 2000 with Brickell Equity Group, Inc.*
10.5 Investor Relation Services Agreement dated January 7, 2000 with Charterbridge Financial Group, Inc.*
10.6 Marketing Contract dated 7/10/00 with Wall Street Financial*
10.7 Legal Services Contract dated 6/27/00 with Gary Barcus, Esq.*
23 Consent of counsel is contained in Exhibit 5.1**
23.1 Independent Auditors Consent*
23.2 Independent Auditors Consent*
27 Financial Data Schedule*
</TABLE>
* previously filed
** 5.1 and 23 to be filed by amendment.
Item 28. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel, the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the questions whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes:
4. To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
5. That for the purpose of determining any liability under the
Securities Act of 1935, each such post-effective amendment shall be deemed to be
a new registration statement relating
II-5
<PAGE> 93
to the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
6. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB- 2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Miami
Lakes and State of Florida on October 2, 2000.
AMERICA'S SENIOR FINANCIAL SERVICES, INC.
By: /s/ Nelson A. Locke
-------------------------------
Nelson A. Locke
President/principal executive officer/principal accounting officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Nelson A. Locke President and Director, Principal Executive October 2, 2000
Officer/Principal Accounting Officer
Cheryl D. Locke Director October 2, 2000
Thomas G. Sherman Director October 2, 2000
Michael J. Shelley Director October 2, 2000
Charles M. Kluck Director October 2, 2000
</TABLE>
II-6
