<PAGE> 1
SECURITIES & EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OF THE SECURITIES ACT OF
1934
For the fiscal year ended May 31, 1996.
Commission File No. 0-5141
PRINCETON AMERICAN CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 22-1848644
(State or other jurisdiction of (IRS Employer Iden-
incorporation or organization) tification Number)
2222 East Camelback Road, Suite 200, Phoenix, AZ 85016
(Address of principal executive offices)
(602) 954-2600
(Registrant's telephone number including area code)
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, No Par Value NASDAQ Market System
Indicate by check mark whether the Registrant (l) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes(X) No( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
At May 31, 1996, the aggregate market value of common stock held by
non-affiliates of the Registrant was $4,722,474.
Indicate the number of shares outstanding of each of the Regis- trant's classes
of common stock as of the latest practicable date.
9,228,027 shares of common stock outstanding on May 31, 1996.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I 3
ITEM 1 BUSINESS 3
ITEM 2 PROPERTIES 9
ITEM 3 LEGAL PROCEEDINGS 10
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 11
PART II 11
ITEM 5 MARKET FOR THE COMPANY'S COMMON EQUITY
SECURITIES AND RELATED SHAREHOLDER MATTERS 11
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12
ITEM 7 FINANCIAL DATA 14
ITEM 8 AUDITORS 15
PART III 15
ITEM 9 DIRECTORS AND EXECUTIVE OFFICERS OF THE
COMPANY 15
ITEM 10 EXECUTIVE COMPENSATION 17
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 21
ITEM 12 CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS 21
PART IV 22
ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K 22
</TABLE>
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PART I
ITEM 1. BUSINESS
General.
Princeton is composed of two divisions. The Personal Care Division is engaged in
the manufacture and distribution of personal care products to the professional
beauty and barber industry. This division is composed of three subsidiary
corporations.
The Real Estate Division is engaged in the acquisition and management of office
buildings and undeveloped land.
PERSONAL CARE DIVISION
GSK PRODUCTS, INC. On July 19, 1994 Princeton acquired a controlling interest in
GSK Products, Inc. ("GSK") by acquiring 50% of the GSK outstanding common stock
from each of GSK's two principal shareholders. Princeton was also named as
trustee of two voting trust agreements for 10% of GSK's outstanding shares by
each of GSK's two principal shareholders. GSK is located in Phoenix, Arizona.
GSK had previously acquired the rights to a hair care product which GSK had
tested for several months.
GSK has executed an exclusive distribution agreement with HarGen Distributing,
Inc. ("HarGen") which grants to HarGen the exclusive worldwide distribution and
marketing rights to all of GSK's products. GSK is required to maintain a
products liability insurance policy on its products.
GSK Products, Inc. manufactures and distributes a product known as Nature's
Hair+(TM). This product is designed to stop excessive hair loss and to
regenerate otherwise healthy hair follicles in order to encourage continuing
hair growth. This product has patent pending status.
Marketing and Sales
Throughout the balance of the fiscal year marketing has been managed through
HarGen Distributing Co., the exclusive distributor. Sales of the product have
been less than anticipated because of the difficulty of establishing regional
distributors. New channels of distribution are being explored in order to expand
the product sales. Although management remains optimistic regarding the future
potential sales for this product no assurance can be made that successful
marketing will occur.
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Backlog of Orders
There was no backlog of orders on May 31, 1996.
Markets
The product is sold primarily to distributors in the professional beauty and
barber industry at the present time. The product has also been sold to a
multilevel marketing company to market under its private label.
There are many available retail marketing outlets which have not been solicited.
The Company has targeted several new markets for development of product sales.
Manufacturing
The Company has the products mixed and filled by a specialty packaging company.
The product contains readily available ingredients. No single source for
ingredients is necessary for production of the product.
Competition
At the present time there are several products being marketed by competing
companies, which purport to reduce or eliminate excessive hair loss and
regenerate hair growth. Rogaine is a topical application of 2% minoxidil sold to
the public by Upjohn Company.
Also being sold to the general public is a hair product known as Nioxin,
manufactured by Nioxin Research Labs. The product has gained sufficient
distribution to provide competition with the Company's product within the beauty
and barber industry.
Patents and Trademarks
GSK Products, Inc. has filed a patent application for Nature's
Hair+(TM) and the name was trademarked. The patent application is
still pending and if granted will be sufficiently broad to protect
the product from infringement by competitors.
BIOSOME PRODUCTS, INC. On February 28, 1995 Princeton organized
a subsidiary corporation in Nevada, Biosome Products, Inc.
("Biosome") to acquire the name and product marketing rights to
Gary Gerard Biosome Series from Gary Gerard, Inc. As a part of the
acquisition Gary Gerard, Inc. acquired 20% ownership of Biosome and
Princeton American Corporation, Inc. acquired 80% ownership.
Marketing and Sales
The product line consists of shampoos, gels, conditioners, hair treatments and
sprays for sale through professional salons.
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The product line has been sold under the Gary Gerard trademark since 1990. It is
the intention of the Company to continue to expand the market for this product
by marketing it to regional distributors in the hair care field.
Since acquiring this product line the Company has completely repackaged the
products, modernized the line and added three new products.
Sales of the product have been moderate since the acquisition, relying primarily
on sales to the accounts previously established. New distribution networks are
being established.
Backlog of Orders
No backlog of orders was unfilled at May 31, 1996.
Markets
The product line is marketed through regional distributors to the beauty and
barber industry as well as to large specialty chains under private label
packaging. It is believed that the products have distinctive properties of
formulation and efficacy which will increase both retail and private label sales
of the products. A wide and deep market for these products exists.
Competition
The market for hair care products is highly competitive. There are many major
competitors selling similar products both to the general public and to the
beauty and barber industry.
Companies with products that directly compete with Biosome products are Paul
Mitchell, Joico, Nexus, Matrix and Image. These companies are firmly established
in the market and are better financed than Biosome. Although management believes
that its experience and expertise is sufficient to establish a market for
Biosome products, no assurance can be made that the Company will be successful
in these efforts.
Patents and Trademarks
The Company holds the trademark registration on the name Gary Gerard Biosome
Series.
Employees
The subsidiary employs four persons including its President,
Gregory Eastman. Mr. Eastman is the former president and CEO of
Jhirmack, Inc. and during his tenure Jhirmack increased sales from
$9,000,000 to $184,000,000 over a seven year period. Mr. Eastman
has over 25 years experience in the industry.
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Pending Acquisition
Organifyl Labs, Inc. On July 12, 1995 the Company announced an agreement in
principal to acquire Organifyl Labs, Inc., a 25 year old manufacturer of hair
and skin care products. The company is presently located in Saddlebrook, New
Jersey. This purchase was closed and control was acquired May 1,1996. The terms
of the purchase require that Organifyl Labs, Inc., a Nevada corporation wholly
owned by Princeton, acquire all of the assets of Organifyl Labs, Inc., a New
Jersey corporation, without responsibility for payment of any liabilities then
existing in exchange for the sum of $375,000 payable over time. At the time of
the filing of this report $80,000 has been paid for this purchase.
Marketing and Sales
This company has been marketing a line of ampoules which are container delivery
systems for the application of highly concentrated hair conditioners.
The company has a complete line of hair care products consisting of shampoos,
conditioners, hair treatments and solutions. The company is fully capable of
manufacturing and packaging all of the products it now sells. It can manufacture
and package most of the products now being sold by GSK Products, Inc. and
Biosome Products, the company's other hair care products divisions.
Backlog of Orders
There was no backlog of orders as of May 31, 1996.
Markets
The products are sold to professionals in the beauty and barber industry as well
as the general public through retail hair care stores such as Sally Beauty
Supply.
There are many outlets available to the company which are not presently carrying
all of the products available for sale.
Additionally, the ability to design and manufacture private label products
expands the potential marketing scope.
Manufacturing
The company fills, mixes and packages all of its products. No single sources are
necessary since all components are readily available. Ampoules are purchased in
quantity from sources in France and Mexico.
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Competition
All of the products of the company are highly competitive. The ampoule products
have only one domestic competitor, Fermodyl, which is owned by Helene Curtis.
This company is not presently competing in the private label market. Its
products are comparable in price and quality to those of the company.
Patents and Trademarks
No patents or trademarks other than the name Organifyl Labs has been purchased
by the company.
REAL ESTATE DIVISION
The Company presently owns two office buildings in Phoenix, Arizona comprising
approximately 50,000 square feet of rental commercial office space. These office
buildings are held in separate wholly owned subsidiary companies.
Buildings. On March 12, 1992 Princeton acquired a two story building located at
2222 East Camelback Road in Phoenix, Arizona which contains approximately 30,000
square feet of rentable office space, including bank drive-through window and
lanes and a bank vault. Princeton paid approximately $296,000 cash for this
building.
The Company arranged financing of $200,000 as a part of the acquisition price.
Prior to the end of this year the first mortgage of $200,000 was paid off by the
Company and new financing of $230,000 was placed on the property to pay off a
second mortgage of $187,500 owed to an affiliated party. This mortgage carries
an interest rate of 13% which represents a reduction of interest expense for
this property.
Princeton occupies approximately 3,494 square feet (11%) of the total leasable
space in this building. As of May 31, 1996, 100% of the unaffiliated leasable
space was occupied by tenants, producing approximately $407,920 of annual
income.
On December 1, 1994, Princeton acquired a two story office building located at
4808 North 22nd Street in Phoenix, Arizona, containing approximately 20,000
square feet of rental office space. Princeton paid $1,000,000 for this building,
of which $900,000 was borrowed at a rate of 8% annual interest. As of the filing
of this report this building is 100% leased and will produce gross revenues of
approximately $350,000 during the coming fiscal year.
Prinwest Corporation presently owns a 10,000 square foot industrial building
located in the Encanto Industrial Park in Phoenix, Arizona. In June of 1995 the
company completed the purchase of this optioned warehouse property. The company
purchased the
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property for $260,000. The company obtained a mortgage for $160,000 and paid the
balance in cash. The warehouse is occupied by Biosome Products, Inc., a division
of the company.
Other Properties.
In June, 1994 the Company acquired approximately five acres of undeveloped
property on Scottsdale Road approximately three miles south of Carefree,
Arizona, at a purchase price of $175,000. The Company paid $25,000 at closing
and executed a promissory note for $150,000 which bears annual interest at the
rate of 8.5% and provides for quarterly interest payments of $3187.50 until the
note is paid in full. The note matures upon the earlier of: (1) June 1, 1998;
(2) construction on the property is commenced; or (3) upon the sale, further
encumbrance or transfer of the property. This property is subject to a deed of
trust in the amount of $90,000, for which the seller is responsible. The Company
intends to apply for commercial use zoning on this property; however, there is
no assurance that such zoning will ever be granted. The Company intends to sell
the property after the change in zoning is granted.
In February, 1994 the Company acquired approximately 20 acres of undeveloped
property in Chino Valley, Yavapai County, Arizona, in exchange for 50,000 shares
of restricted Company common stock valued at $50,000 by the Company. Subsequent
to the end of the fiscal year for which this report is filed the company sold 15
of the 20 acres for the total sum of $63,000, represented by $15,000 cash down
payment and deeds of trust totaling $48,000. The deeds of trust bear interest at
9.5% and are all due and payable in full within six years with monthly principal
and interest payments of $500.00.
In March, 1994 the Company acquired a long term real estate brokerage commission
equal to 5% of the total lease payments on a 55 year ground lease of a 55 acre
mobile home park in Mesa, Arizona in exchange for $60,000 cash and 174,400
shares of restricted Company common stock. This ground lease was executed in
1980 and runs through 2031. This revenue stream was issued to the real estate
brokers as their commission on the lease transaction. The long term brokerage
fee agreement was established through a real estate title company and presently
provides for quarterly payments of $3,187.50 and those quarterly payments
escalate to $7,437.00 in year 2030. Through May 31, 1996 approximately $318,130
of brokerage commission had been paid to the brokers and approximately $769,000
of additional commission will be paid to the Company through year 2031 pursuant
to the original agreement. Approximately $80,000 would be received by the
Company by the year 2000. There can be no assurance that the Company will
receive any or all of these assigned brokerage fees in the future. As of the
date of this report all payments have been received on time.
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Subsequent to the year end 1996 and prior to the filing of this report the
company through its wholly owned subsidiary Saturn Resources, Inc. acquired 74
lots in Peoria, Arizona. These lots are zoned for and are a part of a
manufactured housing community. Simultaneous with the purchase of these lots the
company extended a rolling option to purchase these lots with Miller Mobile
Homes, a well-established manufactured housing provider.
Terms of the purchase were $460,000 cash. A mortgage for $270,000 was obtained
and the balance was provided by the company. As of the date of the filing of
this report Miller Mobile Homes has exercised its option on 16 lots at $9,200
per lot. Present plans project further releases of lots at the rate of four (4)
per month until they are sold.
Subsidiaries.
88 Redevelopment Co. This subsidiary was organized in 1988 in Arizona to acquire
and hold interests in real estate related assets. Princeton's office building
located at 2222 East Camelback Road in Phoenix, Arizona is owned by this
subsidiary. (See "Buildings" above).
4808 Corporation. This subsidiary was organized in 1994 in Nevada to acquire a
20,000 square foot commercial office building located at 4808 North 22nd Street
in Phoenix, Arizona. (See "Buildings" above).
Biosome Products, Inc. This subsidiary owns the Gary Gerard Biosome Series Hair
Care Products which it distributes and sells to professional hair care salons.
Prinwest Corporation. This subsidiary owns the warehouse which is leased to
Biosome Products, Inc. The warehouse contains 10,000 sq. ft. of space including
approximately 1,000 sq. ft. of offices.
Saturn Resources Incorporated. This subsidiary presently owns the 74 lots which
were purchased in June of 1996. These lots are fully developed and at the time
of this filing Miller Mobile Homes had exercised its option on 16 lots.
Organifyl Labs, Inc. This subsidiary was organized in 1996 for the purpose of
acquiring all of the assets of Organifyl Labs of New Jersey, which manufactures
and sells a line of hair care products.
In addition the Company presently has two inactive subsidiaries: Silco Mining
Company E.B.P., Inc., and Minco Capital Fund, Inc.
ITEM 2. PROPERTIES
On March 12, 1992 Princeton acquired a two story building located at 2222 East
Camelback Road in Phoenix, Arizona which contains
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approximately 30,000 square feet of rentable office space, including bank
drive-through window and lanes and a bank vault. Princeton paid approximately
$296,000 cash for this building.
Princeton occupies approximately 3,494 square feet (11%) of the total leasable
space in this building. The building is 100% occupied. See Real Estate Division
above for more detailed description of this property.
In December, 1994 the Company acquired, through its wholly owned subsidiary 4808
Corporation, a 20,000 sq. ft. commercial office building located at 4808 North
22nd Street in Phoenix, Arizona. The building has been leased to various tenants
since acquisition, and at the time of the filing of this report is 100% leased
with a lease pending on the balance of the available space. The building will
add approximately $350,000 to the gross revenues of the Real Estate Division.
Biosome Products, Inc. presently occupies a 10,000 square foot industrial
building located in the Encanto Industrial Park in Phoenix, Arizona.
ITEM 3. LEGAL PROCEEDINGS
Princeton is involved in litigation of a routine nature which is handled in the
ordinary course of business. The matters discussed below may have a material
impact on Princeton's financial position.
Center Suit. On August 4, 1994 Hyman R. Center, former Director and former
President of the Company, filed suit against the Company alleging that the
Company owed him $215,000 in unpaid compensation plus damages, interest and
costs of suit. Princeton has responded to the suit with affirmative defenses and
counterclaimed for breach of fiduciary duty asking for not less than $300,000
plus damages, attorneys' fees and costs of suit. The Company believes that it
has meritorious defenses and a reasonable expectation of success in defense of
this action and prevailing on its counterclaim.
Taylor Suit. On October 13, 1995, William C. Taylor, a former officer and
Director of Princeton, filed suit against the company alleging among other
things that the company owed him $298,000 under a personal services consulting
contract. The company has responded with affirmative defenses and counterclaimed
for offsets for notes due the company and certain breaches of fiduciary
responsibility exceeding the claimed payment for services under the contract.
The company believes it has meritorious defenses and a reasonable expectation of
success in defense of this action and prevailing on its counterclaim.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted during the fourth quarter of the fiscal year covered
by this Report. On September 14, 1995 the Company held an annual meeting of
shareholders for fiscal year 1994 at its corporate offices in Phoenix, Arizona.
Shareholder proxies were solicited to elect directors and to vote on two
proposals. The proposals are (i) to change the name of the Company to Princeton
American Corporation and (ii) to change the domicile of the Company to Nevada.
At the meeting all proposed Directors were elected and the two proposals were
passed.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY SECURITIES AND
RELATED SHAREHOLDER MATTERS
Princeton's Common Stock is traded in the NASDAQ Small Cap market. The range of
its high and low bid quotations, as furnished by the National Association of
Securities Dealers for each quarterly period during the past two (2) years, is
as follows:
<TABLE>
<CAPTION>
High Low
1995-1996 Bid Bid
<S> <C> <C>
Quarter Ending May 31, 1996 $1.63 $0.53
Quarter Ending February 28, 1996 $3.13* $1.00
Quarter Ending November 30, 1995 $0.53 $0.22
Quarter Ending August 31, 1995 $0.50 $0.22
*Reflects a 1 for 10 reverse stock split
on December 4, 1995.
1994-1995
Quarter Ending May 31, 1995 $0.41 $0.22
Quarter Ending February 28, 1995 $0.59 $0.28
Quarter Ending November 30, 1994 $0.53 $0.22
Quarter Ending August 31, 1994 $0.94 $0.66
</TABLE>
The low bid price for the Company's common stock was $.56 on May 31, 1996.
Princeton's Preferred Stock is convertible into Common Stock on a share for
share basis. It has not been quoted. Princeton has approximately 1,000 holders
of record of its Common and 170 holders of record of its Preferred Stock at May
31, 1996. Princeton has not paid any cash dividends. The Company intends to
retain earnings for use in its business.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDI-
TION AND RESULTS OF OPERATIONS
Background.
Princeton American Corporation, formerly known as Princeton Electronic Products,
Inc. is a company which was in decline from 1982 through 1990. As a result of
continuing losses the Company sought to merge or acquire new assets and
management to continue the development and marketing of a highly sophisticated
state of the art line rate converter. Previous management had highly technical
and scientific expertise and they developed these products without concurrent
marketing efforts.
On July 31, 1991 new management assumed operational control of the Company
through a reverse merger with Minco American Corporation.
Since that time management has acquired assets in the form of real estate
holdings and shares of other public corporations in order to build a stable net
worth for the Company.
Having substantially accomplished that goal by the end of fiscal year 1994, the
Company began a plan of asset liquidation sufficient to acquire operating
subsidiaries in order to produce revenues and income.
During fiscal 1996 the Company acquired one new operating company in the
personal care industry and will be continuing to build and should expand the
sales during the next fiscal year.
The Real Estate Division has acquired one additional property and is continuing
to seek buying opportunities to increase its revenue.
FISCAL YEAR 1996
Operating Results
During 1996, the Company had two primary sources of revenue: Its Personal Care
Division, and its Real Estate Division.
The Company's revenues from its Personal Care Division during the fiscal year
were $122,181 as compared to $149,746 during fiscal 1995. Total cost of sales
for the division was $200,565 compared with $122,294 in fiscal 1995. General and
administrative expense for the period were $143,099 compared with $98,918 in
fiscal 1995. The Company's revenue from its Real Estate Division increased 66.6%
from $355,745 in fiscal 1995 to $592,808 in fiscal year 1996, primarily as the
result of increasing rental activity in the Company's properties and the
addition of a 20,000 square foot
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commercial office building to the available inventory of rentable space. The
rental income costs increased by 20.3% from $360,239 in fiscal year 1995 to
$433,360 in fiscal year 1996 primarily due to the expenses associated with
repair and renovation of the new office building and the expenses associated
with acquisition of new tenants. Since the end of fiscal 1995 the Company has
completed leasing of its headquarters building. These leases have increased the
rental income by $86,600 per year bringing the gross rental income for that
building to $491,694 per year. Subsequent to the end of the current fiscal year
the Company completed leasing of its 20,000 sq.ft. second commercial office
building, increasing revenues for this division by $350,000.
During the fiscal year the Company's selling, general and administrative
expenses increased 511% to $3,945,605 as compared to $645,328 in fiscal year
1995. These changes are due primarily to increases in advertising and promotion
and public relations expenses which increased by $2,455,506. These expenses were
mostly paid for with shares of company stock and did not impair the working
capital. The company engaged in a massive promotional effort in order to improve
the price of the shares of the company. After completion of the promotion it was
decided not to continue the program and to engage in more conventional and
direct promotional programs in the future. The General and Administrative
expense of the company has been highly distorted as the result of these expenses
and it is management's opinion that the 1995 General and Administrative expenses
are more typical for normal operation of the company.
The Company's $1,743,955 of long-term debt is comprised primarily of the
Company's $1,573,598 debt on its land and buildings.
Management agreed with the accountants for the Company that it was appropriate
to write off the losses on available for sale securities in the current fiscal
year even though the securities have not yet been sold and the loss realized.
This write off accounts for $0.49 of the loss per share reported for this fiscal
year.
Liquidity and Capital Resources
The Company's current ratio increased to 1.07 to 1 from a negative .70 to 1 in
fiscal year 1995. The company has been continuously raising capital and has
raised $2,348,931 from private placement of its shares and anticipates
continuing to raise capital in this manner. However, placement of these shares
will be dependent upon the market value of the company's common stock and no
assurance can be given that the value will be sufficient to enable such
financings.
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The Company may refinance the debt on one or more of its office buildings in
order to obtain additional capital. The cash flow from the buildings is
sufficient to support a substantial financing effort.
Investments
The market values of the stocks owned by the Company will fluctuate on a day to
day basis over time. The Company will report market fluctuation gains or losses
each quarter, based upon the trading price on the last day of each quarter, as
unrealized gain or loss on available-for-sale securities on the Company's
balance sheet. The following table sets forth the number of shares of each major
block of stock and other tradeable securities held by the Company which can be
sold in the coming year, its cost to the Company, its market value as of May 31,
1996.
<TABLE>
<CAPTION>
Market Value
Company Shares Cost May 31, 1996
- ------- ------ ---- ------------
<S> <C> <C> <C>
Exten Industries 420,000 835,000 35,216
Trans Pacific Group 460,000 229,000 174,800
Other Securities 819,027 29,507
------------ ---------
$2,017,054 $239,523
</TABLE>
The cost of these investments was written down by
$1,414,198 in year ended May 31, 1996 and by
$363,333 in previous periods, thereby reducing
the basis to market value by charges to Loss on Investments.
<TABLE>
<CAPTION>
<S> <C>
Write down ($1,777,531)
- ----------
Adjusted basis $ 239,523
==========
</TABLE>
The company has acquired 74 manufactured home lots in a subdivi sion near Sun
City, Arizona. Coincident with this acquisition the company entered into a
rolling option to purchase these lots with Miller Mobile Homes, a manufactured
home dealer primarily engaged in the sales of Cavco Manufactured Homes. Since
this acquisition Miller Mobile Homes has exercised its option to purchase 16
lots at a price of $9,200 per lot. As the result of this investment the company
anticipates profits of approximately $230,000 over the next 24 months.
ITEM 7. FINANCIAL DATA
The Independent Auditors' Report of Semple & Cooper, P.L.C. and the Consolidated
Financial Statements of the Company as of May 31, 1996 and 1995, and for each of
the years in the two year period ended May 31, 1996, follow.
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ITEM 8. AUDITORS
The Company's Board of Directors selected the firm of Semple & Cooper, P.L.C.,
to serve as independent auditors for the 1995 and 1996 fiscal years.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The principal officers and directors of Princeton are:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Dale E. Eyman 55 Chairman, CEO,
President, Director
David S. Smith 60 Sec/Treas.
Director
Michael B. Mooney 51 Director
</TABLE>
Dale E. Eyman has been, since 1987, president and a director of Minco American
Corporation, a Nevada corporation, engaged in the financial services industry,
the assets of which were acquired by Princeton American Corporation in its
reorganization. Mr. Eyman has served as Chairman of the Board of Directors and
Chief Executive Officer of Princeton American Corporation since July, 1991. He
received his Bachelor of Arts degree, Cum Laude, in Business Management from San
Diego State University in 1962.
David S. Smith has been a director and secretary/treasurer of Princeton American
Corporation since July, 1991. He has held those same positions with Minco
American Corporation since 1987. Mr. Smith has been engaged in various aspects
of the financial services industry since 1960, and he serves as the director of
administra tive and financial services for the Company. He holds a Bachelor of
Science in Business Administration from the University of Arizona in 1957.
Michael B. Mooney graduated from Notre Dame University in 1966 with a Bachelor's
Degree in Finance. Mr. Mooney has served as a commodity trader with Heritage
West Financial, a San Diego based commodities broker, since 1992. From 1984 to
1992, Mr. Mooney was the owner of Commodity Trading Advisory Service in San
Diego, California.
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All directors serve one year terms and all executive officers serve at the
pleasure of the Board of Directors. As of the date of this Report, no audit or
any other committee has been appointed by the Board of Directors.
Involvement of Certain Officers and Directors in Legal Proceedings:
Center Suit. On August 4, 1994 Hyman R. Center, Director and former President of
the Company, filed suit against the Company alleging that the Company owed him
$215,000 in unpaid compensation plus damages, interest and costs of suit.
Princeton has responded to the suit with affirmative defenses and counterclaimed
for breach of fiduciary duty asking for not less than $300,000 plus damages,
attorneys' fees and costs of suit. As of the time of filing of this report the
suit has reached the discovery stage. The Company believes that it has
meritorious defenses and a reasonable expectation of success in defense of this
action and prevailing in its counterclaim.
Taylor Suit. The Company is in a dispute with William Taylor, a former officer,
for alleged compensation due him. Taylor alleges that the Company failed to pay
him certain contractual compensa tion. The Company believes that it has
counterclaims and offsets which are sufficient in substance and amount to negate
this dispute. The Company is vigorously defending this position.
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<PAGE> 17
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth all compensation paid or accrued to the Company's
individual executive officers who earned $100,000 or more for services in all
capacities to Princeton for the fiscal year ended May 31, 1996, 1995 and 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
Securities
Name and Other Annual Restricted Underlying LTIP All Other
Principal Position Year Salary Bonus Compensation Stock Awards Options/SARS Payouts Compensation
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dale E. Eyman 1996 $180,000 $0 $107,574(1) 0 $0 $0 $0
Chairman (CEO) 1995 $304,210 $0 $21,403(1) 0 $0 $0 $0
1994 $94,915 $0 $20,848(1) 0 $0 $0 $503,675(1)
David S. Smith 1996 $158,086 $0 0 $0 $0 $0
Director, Secretary, Treasurer 1995 $84,550 $0 $128,300(2) 0 $0 $0 $0
1994 $104,190 $0 $11,573(2) 0 $0 $0 $0
</TABLE>
(1) Mr. Eyman's annual salary in fiscal year 1996 was $180,000, in 1995 was
$60,500, and $115,762 in fiscal year 1994. On May 31, 1996 Mr. Eyman had
$180,000 in accrued salary. After purchase of stock and cash salary his accrual
account at May 31, 1996 was ($107,574). (See discussion below regarding Mr.
Eyman's contract with the Company).
(2) Mr. Smith's annual salary in fiscal year 1996 was $180,000, in 1995 was
$60,500 and in fiscal year 1994 was $115,762. On May 31, 1996 Mr. Smith had
$180,000 in accrued salary. After purchase of stock and cash salary his accrual
account at May 31, 1996 was $21,914. (See discussion below regarding Mr. Smith's
contract with the Company).
17
<PAGE> 18
Dale E. Eyman, the Chairman of Princeton and David S. Smith, Secretary/Treasurer
have personal service contracts with Princeton which were assumed from Minco.
These contracts currently provide for the payment or accrual to each of them of
an annual salary of $180,000 for the 1996 fiscal year. Both Mr. Eyman and Mr.
Smith agreed with the Company to waive payment for a net accrual of $60,500 of
this contract for fiscal year 1995. In the event that an accrual is created,
then each person may at his option may convert the accrual balance to restricted
Princeton common stock at a price equal to seventy percent (70%) less than the
market bid price on the date of conversion.
Loans, advances and guarantees are netted against each persons accrual balance
at the end of each fiscal year period. If the resulting balance is negative, no
restricted Princeton common stock may be acquired by that person pursuant to
their personal service contract. Accrual balances including amounts for
preferred stock issued as of May 31, 1996 were: Eyman ($107,574); Smith $21,914.
Therefore, the amount of accrued compensation which is available for the
acquisition of Company stock on May 31, 1996 is $0 for Eyman and $21,914 for
Smith. Based upon a bid price of $0.56 per share for Princeton common stock on
May 31, 1996, Messrs. Eyman and Smith would have been entitled to receive 0
shares and 130,440 shares restricted Company common stock, respectively, if they
had converted their respective accrued compensation on that date.
The personal service contracts of Princeton's two officers have five year terms
and each commenced on May 15, 1991. The contracts provide that on May 15th of
each year the contracts are automati cally extended for another year. These
contracts provide that if Princeton terminates the contract with the officer or
the officer dies, Princeton shall pay the officer or his estate the annual
compensation described above for the remaining five year term of the contract.
The compensation level shall also be increased each year of the contract by an
amount equal to the greater of: 5% or the consumer price index for the prior
year.
18
<PAGE> 19
The following table sets forth information regarding the number of shares in
options granted by the Company to officers and Directors during the fiscal year
ended May 31, 1996:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Number of % of Total
Securities Options/SARS Exercise
Underlying Granted to or Base
Options/SARS Employees in Price Market Expiration
Name Granted Fiscal Year Share Price Date
<S> <C> <C> <C> <C> <C>
Dale E. Eyman (1) 0 0% $.0 $.0 None
David S. Smith(2) 0 0% $.0 $.0 None
</TABLE>
(1) At May 31, 1996 Mr. Eyman's accrued salary available for share conversion
was $0. On the basis of a market price of $0.56 per share on May 31, 1996,
Mr. Eyman was entitled to purchase 0 restricted common stock shares on May
31, 1996. (See the discussion above of Mr. Eyman's contract with the
Company).
(2) At May 31, 1996, Mr. Smith's accrued salary available for share conversion
was $21,914. On the basis of a market price of $0.56 per share on May 31,
1996, Mr. Smith was entitled to purchase 130,440 restricted common stock
shares on May 31, 1996. (See the discussion above of Mr. Smith's contract
with the Company).
The following table sets forth the number and value of stock options exercised
during the May 31, 1996 fiscal year by the Company's officers and Directors and
the number and value of unexercised options owned by each officer and Director
at May 31, 1996.
OPTION EXERCISES AND YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of Value of
Shares Shares in Unexercised
Acquired Value Unexercised Options at
Name On Exercise Realized Options May 31, 1995
<S> <C> <C> <C> <C>
Dale E. Eyman 0(1) 0(1) 0(1) $0(1)
David S. Smith 0(2) 0(2) 0(2) $0(2)
</TABLE>
(1) At May 31, 1996 Mr. Eyman had accrued salary of $0 available for share
conversion, and based upon a market price of $0.56 per share, was entitled
to purchase 0 shares on that date. (See the discussion above of Mr. Eyman's
contract with the Company).
19
<PAGE> 20
(2) At May 31, 1996 Mr. Smith had accrued salary of $21,914 available for share
conversion, and based upon a market price of $0.56 per share, was entitled
to purchase 130,440 shares on that date. (See the discussion above of Mr.
Smith's contract with the Company).
On January 7, 1988, Princeton's shareholders approved an Incentive Stock Option
Plan (adopted by the Board of Directors on October 15, 1987, for key employees,
including directors who are also employ ees, and designated 500,000 shares of
Common Stock issuable upon exercise of options that may be granted thereunder.
Such options are intended to constitute "incentive stock options" as defined in
Section 422(a) of the Internal Revenue Code of 1986.
The option price must equal at least the fair market value of the shares subject
thereto on the date the option is granted or 110% of that value if granted to a
person who owns more than 10% of the voting stock of Princeton.
The options are non-transferable. The duration of the plan is ten years. The
number of shares issuable upon the exercise of options will be adjusted upon
stock dividends, splits, reorganizations, merger and similar changes.
No stock or any option has been issued thereunder.
On January 7, 1988 the shareholders approved an Incentive Stock Plan previously
approved by the Board of Directors. The purpose of this Plan is to provide for
the issuance of shares of Princeton, subject to conditions and restrictions,
when advisable, to compensate and provide an incentive to directors, officers,
key employees, and others associated with Princeton, and to attract persons into
the employ or association with Princeton.
Princeton designated 500,000 shares of Common Stock for issuance under the Plan
subject to adjustment for stock dividends, splits, recapitalization and merger
of the Corporation or similar changes. Any shares issued under the Plan and
returned to Princeton may be reissued under the Plan.
The Plan will be administered by the Board of Directors. Shares may be issued to
such persons, in such numbers, for such consider ation (which may be less than
fair market value), subject to such restrictions and conditions, if any, as the
Board may deem advisable. Unless the Board deems it appropriate, no further
approval of the shareholders will be required in connection with the issuance,
or the restrictions, of the shares.
The Plan will continue until November 1, 1997, but may be terminat ed or
discontinued by the Board at any time. The Board may amend the Plan without
shareholder approval if, in the Board's opinion, the amendment will not
materially increase the cost of the Plan to
20
<PAGE> 21
Princeton. To date 40,000 shares have been issued pursuant to this Plan. During
the fiscal year ending May 31, 1996 no options were issued under this Plan.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
At May 31, 1996 there were 9,228,027 Princeton common stock shares outstanding.
The following table sets forth information as of May 31, 1996 concerning
Princeton common and preferred stock beneficially owned by each Princeton
continuing Director, director nominee and officer; by all officers, continuing
directors, and nominees of Princeton as a group; and by each Princeton
shareholder known to be the beneficial owner of more than 5% of the common
stock. The table excludes shares subject to awards granted under any stock plan
or employment contract which presently exists.
<TABLE>
<CAPTION>
Voting Shares Beneficially Owned
Common Preferred Percent
<S> <C> <C> <C>
Dale E. Eyman 609,735 0 6.6%
5319 No. 26th Street
Phoenix, AZ 85016
David S. Smith 222,782 0 2.4%
P. O. Box 68
Scottsdale, AZ 852551
Michael B. Mooney 0 0 0.0%
2222 East Camelback Road, Ste 200
Phoenix, AZ 85016
Officers and Directors, as a Group 832,517 0 9.0%
-------
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Corporation carries as an asset certain loans to officers which have been
made to offset the sums due them from the personal services consulting
contracts. Each officer claims amounts necessary to offset a substantial portion
of these loans and pays their own taxes on amounts received.
Based solely upon a review of Forms 3 and 4 furnished to the Company, the
Company is not aware that any officers or Directors of the Company failed to
file on a timely basis reports required by Section 16(a) of the Securities
Exchange Act of 1934, during the most recent fiscal year or prior fiscal years.
21
<PAGE> 22
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
The following documents are filed as part of this Report.
(a) 1. Financial Statements required by Item 8 of this
form are filed as an exhibit as follows:
a. Consolidated Balance Sheets as of May 31,
1995 and 1994;
b. Consolidated Statements of Operations;
c. Consolidated Statements of Changes in
Stockholders Equity;
d. Consolidated Statements of Cash Flow for
each;
e. Notes to Consolidated Financial State
ments;
f. Independent Auditors' Reports.
2. All required information is presented in the
Consolidated Financial Statements or related
Notes.
3. Exhibits.
The following Exhibits are filed with this
Form:
None.
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange
Act of 1934, the Registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
PRINCETON AMERICAN CORPORATION
(Registrant)
October 3, 1996 By: /s/ DALE E. EYMAN
(Date) (Signature)
DALE E. EYMAN
Its Chairman & CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C>
/s/ DALE E. EYMAN October 3, 1996
(Signature) (Date)
President, Director
Chief Executive Officer
/s/ DAVID S. SMITH October 3, 1996
(Signature) (Date)
Secretary, Treasurer,
Director, CFO
/s/ MICHAEL B. MOONEY October 3, 1996
(Signature) (Date)
Director
</TABLE>
23
<PAGE> 24
PRINCETON AMERICAN CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND INDEX TO EXHIBITS
<TABLE>
<CAPTION>
CONSOLIDATED FINANCIAL STATEMENTS PAGE
<S> <C>
Accountants' Reports as at May 31, 1996 and 1995 ................................ 1
Financial Statements:
Consolidated Balance Sheets as of May 31, 1996
and May 31, 1995 ................................................................ 2
Consolidated Statements of Operations for the Years
Ended May 31, 1996 and 1995 ..................................................... 4
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended May 31, 1996 and 1995 ....................................... 5
Consolidated Statements of Cash Flows for the Years
Ended May 31, 1996 and 1995 ..................................................... 7
Notes to Consolidated Financial Statements ...................................... 10
EXHIBITS
EXHIBIT NO. FROM
EXHIBIT TABLE EXHIBIT DESCRIPTION PAGE
None.
</TABLE>
24
<PAGE> 25
PRINCETON AMERICAN CORPORATION
AND SUBSIDIARIES
FINANCIAL STATEMENTS
For The Years Ended
May 31, 1996 and 1995
<PAGE> 26
INDEPENDENT AUDITORS' REPORT
To The Board of Directors
Princeton American Corporation and Subsidiaries
We have audited the consolidated balance sheets of Princeton American
Corporation (formerly Princeton Electronic Products, Inc.) (A Nevada
Corporation) and Subsidiaries as of May 31, 1996 and 1995, and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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
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 consolidated financial position of Princeton American
Corporation and Subsidiaries as of May 31, 1996 and 1995, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
Certified Public Accountants
Phoenix, Arizona
September 11, 1996
<PAGE> 27
PRINCETON AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
May 31, 1996 and 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995*
---- ----
Current Assets:
<S> <C> <C>
Cash and cash equivalents (Notes 1 and 14) $ 316,365 $ 49,057
Available for sale securities
(Notes 1 and 2) 239,523 245,079
Accounts receivable - trade 94,467 118,719
Officers compensation advances (Note 3) 107,574 192,140
Notes receivable - officers (Note 3) - 45,000
Inventory (Note 1) 267,082 97,082
Prepaid expenses 95,812 69,444
Investment in commission contract
- current portion (Note 6) 12,750 11,380
---------- ----------
Total Current Assets 1,133,573 827,901
---------- ----------
Notes Receivable:
- affiliate (Note 3) 286,765
286,765
- officers (Note 3) 323,990 144,000
- other 156,504 125,000
Advances - officers, stockholders and
related parties (Note 3) 166,978 206,766
Property and equipment, net (Notes 1, 4 and 7) 1,962,617 1,495,703
Goodwill, net of accumulated amortization
of $29,000 (Note 1) 116,000 130,500
Investments in restricted securities
(Notes 1 and 2) 250,000 250,000
Investments in real estate (Notes 1, 5 and 7) 225,000 225,000
Investment in commission contract
- long-term portion (Note 6) 174,650 112,436
Deposits 22,955 37,449
---------- ----------
3,685,459 3,013,619
---------- ----------
$4,819,032 $3,841,520
========== ==========
</TABLE>
*As restated, for comparative purposes only.
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
2
<PAGE> 28
PRINCETON AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
May 31, 1996 and 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1996 1995
---- ----
Current Liabilities:
<S> <C> <C>
Notes payable - current portion (Note 7) $ 265,624 $ 519,893
Notes payable to related parties (Note 3) 19,008 -
Accrued expenses 304,608 210,219
Accrued compensation - officer (Note 3) 155,000 155,000
Accrued interest and real estate taxes 18,624 22,339
Accrued officer compensation (Notes 3 and 12) 259,364 212,901
Payroll and sales taxes payable 1,982 1,555
Deferred revenue 33,623 68,750
----------- -----------
Total Current Liabilities 1,057,833 1,190,657
----------- -----------
Long-Term Liabilities:
Notes payable - long-term portion (Note 7) 1,743,955 1,041,747
----------- -----------
Commitments, Contingencies and Subsequent
Events: (Notes 3, 9, 10, 11 and 16) - -
Minority Interest: (Note 13) - -
Stockholders' Equity:
(Notes 2, 3, 5, 10 and 15)
Convertible preferred stock 2,258,024 2,316,119
Common stock 15,031,398 9,346,049
Additional paid-in capital 5,282,205 5,282,205
Accumulated deficit (19,046,451) (13,501,607)
----------- -----------
3,525,176 3,442,766
Net unrealized loss on available
for sale securities (Note 2) - (1,488,917)
Treasury stock (Notes 3 and 15) (866,265) (344,733)
Stock subscription receivable (Note 3) (641,667) -
----------- -----------
Total Stockholders' Equity 2,017,244 1,609,116
----------- -----------
Total Liabilities and
Stockholders' Equity $ 4,819,032 $ 3,841,520
=========== ===========
</TABLE>
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
3
<PAGE> 29
PRINCETON AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Years Ended May 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
Revenues:
<S> <C> <C>
Sales $ 122,181 $ 149,471
Rental income 592,808 355,745
----------- -----------
714,989 505,216
----------- -----------
Costs and Expenses:
Cost of sales 354,118 443,623
Building rental expenses 433,360 360,239
Selling, general and administrative 3,945,605 645,328
----------- -----------
Total Costs and Expenses 4,733,083 1,449,190
----------- -----------
Loss from Operations (4,018,094) (943,974)
----------- -----------
Other Income (Expense):
Interest and dividends 106,093 31,471
Interest expense (223,491) (141,126)
Recognized loss on available for
sale securities (1,414,198) (276,575)
Writedown on inventory - (132,167)
Other income 4,846 -
----------- -----------
(1,526,750) (518,397)
----------- -----------
Minority Interest (Note 12) - 7,000
----------- -----------
Net Loss before Income Taxes (5,544,844) (1,455,371)
Income Taxes (Notes 1 and 8) - -
----------- -----------
Net Loss $(5,544,844) $(1,455,371)
=========== ===========
Loss per Common Share (Note 1) $ (1.92) $ (.92)
=========== ===========
Weighted Average Number of Shares
Outstanding (Note 1) 2,888,334 1,579,946
=========== ===========
</TABLE>
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
4
<PAGE> 30
PRINCETON AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For The Year Ended May 31, 1996
<TABLE>
<CAPTION>
Preferred Stock Common Stock
-------------------------- -------------------------- Additional
Number Number Paid-in
of Shares Amount of Shares Amount Capital
--------- ------ --------- ------ -------
<S> <C> <C> <C> <C> <C>
Balance at May 31, 1995 189,332 $ 2,316,119 1,579,219 $ 9,346,049 $ 5,282,205
Sale of stock under Regulation-S
to foreign stockholders -- -- 3,659,244 2,348,931 --
Preferred stock converted into
common stock (111,497) (58,095) 111,497 58,095 --
Stock issued for salary -- -- 100,000 88,000 --
Stock issued for investments -- -- 536,662 -- --
Stock issued for services -- -- 2,528,019 2,425,823 --
Stock issued for future services -- -- 598,000 539,500 --
Stock issued to officers and
consultants -- -- 115,386 225,000 --
Amortization of services -- -- -- -- --
Realized loss on available
for sale securities -- -- -- -- --
Purchase of treasury stock -- -- -- -- --
Net loss for the year ended
May 31, 1996 -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance at May 31, 1996 77,835 $ 2,258,024 9,228,027 $ 15,031,398 $ 5,282,205
============ ============ ============ ============ ============
Unrealized
Gain (Loss)
Accumulated Treasury on Subscriptions
Deficit Stock Securities Receivable
------- ----- ---------- ----------
<S> <C> <C> <C> <C>
Balance at May 31, 1995 $(13,501,607) $ (344,733) $ (1,488,917) $ --
Sale of stock under Regulation-S
to foreign stockholders -- -- -- --
Preferred stock converted into
common stock -- -- -- --
Stock issued for salary -- -- -- --
Stock issued for investments -- -- -- --
Stock issued for services -- -- -- --
Stock issued for future services -- -- -- (539,500)
Stock issued to officers and
consultants -- -- -- (225,000)
Amortization of services -- -- -- 122,833
Realized loss on available
for sale securities -- -- 1,488,917 --
Purchase of treasury stock -- (521,532) -- --
Net loss for the year ended
May 31, 1996 (5,544,844) -- -- --
------------ ------------ ------------ ------------
Balance at May 31, 1996 $(19,046,451) $ (866,265) $ -- $ (641,667)
============ ============ ============ ============
</TABLE>
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
5
<PAGE> 31
PRINCETON AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Continued)
For The Year Ended May 31, 1995
<TABLE>
<CAPTION>
Preferred Stock Common Stock
-------------------------- -------------------------- Additional
Number Number Paid-in
of Shares Amount of Shares Amount Capital
--------- ------ --------- ------ -------
<S> <C> <C> <C> <C> <C>
Balance at May 31, 1994 27,976 $ 64,214 1,454,828 $ 12,735,815 $ 2,558,205
Sale of stock under Regulation S
to foreign stockholders -- -- 324,952 1,028,350 --
Preferred stock converted into
common stock (140) (322) 140 322 --
Common stock converted into
preferred stock 144,831 2,085,574 (144,831) (2,085,574) --
Stock issued for services -- -- 55,962 188,432 --
Stock issued in lieu of compensation
to officers and consultants 16,665 166,653 19,000 52,704 --
Stock to be issued for investment -- -- 50,000 150,000 --
Cancellation of stock -- -- (180,832) (2,724,000) 2,724,000
Unrealized loss on available for
sale securities -- -- -- -- --
Purchase of treasury stock -- -- -- -- --
Net loss for the year ended
May 31, 1995 -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance at May 31, 1995 189,332 $ 2,316,119 1,579,219 $ 9,346,049 $ 5,282,205
============ ============ ============ ============ ============
Unrealized
Gain (Loss)
Accumulated Treasury on Subscriptions
Deficit Stock Securities Receivable
------- ----- ---------- ----------
Balance at May 31, 1994 $(12,046,236) $ (299,765) $ 48,310 $ --
Sale of stock under Regulation S
to foreign stockholders -- -- -- --
Preferred stock converted into
common stock -- -- -- --
Common stock converted into
preferred stock -- -- -- --
Stock issued for services -- -- -- --
Stock issued in lieu of compensation
to officers and consultants -- -- -- --
Stock to be issued for investment -- -- -- --
Cancellation of stock -- -- -- --
Unrealized loss on available for
sale securities -- -- (1,537,227) --
Purchase of treasury stock -- (44,968) -- --
Net loss for the year ended
May 31, 1995 (1,455,371) -- -- --
------------ ------------ ------------ -------
Balance at May 31, 1995 $(13,501,607) $ (344,733) $ (1,488,917) $ --
============ ============ ============ =======
</TABLE>
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
6
<PAGE> 32
PRINCETON AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended May 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(5,544,844) $(1,455,371)
Adjustments to reconcile net loss to net cash:
Depreciation and amortization 267,812 107,261
Inventory writedowns - 132,167
Recognized loss on securities 1,414,198 276,575
Inventory acquired through financing 103,102 -
Stock issued for services 2,513,823 407,789
Interest adjustment to commission contract (63,583) -
Changes in Assets and Liabilities:
Accounts receivable - trade 24,252 (118,719)
Officers' compensation advances 84,566 -
Inventory (170,000) (97,082)
Prepaid expenses (26,368) (50,285)
Advances to officers, stockholders and
related parties 39,788 -
Deposits 14,494 (32,449)
Accrued expenses 94,389 (229,776)
Accrued broker/dealer liabilities - (180,446)
Accrued officer compensation 46,463 -
Accrued interest and real estate taxes (3,715) (78,847)
Payroll and sales taxes payable 427 (108,422)
Deposits - (11,723)
Deferred revenue (35,127) 68,750
----------- -----------
Net cash used for operating activities (1,240,323) (1,370,578)
----------- -----------
Cash flows from investing activities:
Stock held by minority interests - 7,000
Acquisitions of property and equipment (211,078) (234,861)
Loans to related parties (227,663) -
Proceeds from sales of securities 80,275 1,368,456
Cash received from commission contract - 1,184
Net proceeds on sale of investment property - 115,000
----------- -----------
Net cash provided (used) by investing
activities (358,466) 1,256,779
----------- -----------
</TABLE>
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
7
<PAGE> 33
PRINCETON AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
For The Years Ended May 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from financing activities:
Proceeds from debt $ 1,191,470 $ 256,000
Repayment of debt (1,145,006) (314,092)
Sale of stock 2,290,837 1,028,350
Purchase of treasury stock (521,532) (44,968)
Proceeds from debt to related parties 50,328 (824,640)
----------- -----------
Net cash provided by financing
activities 1,866,097 100,650
----------- -----------
Net increase (decrease) in cash 267,308 (13,149)
Cash and cash equivalents at beginning of year 49,057 62,206
----------- -----------
Cash and cash equivalents at end of year $ 316,365 $ 49,057
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for interest $ 209,879 $ 141,126
=========== ===========
</TABLE>
Supplemental Schedule of Material Non-Cash Investing and Financing Activities:
During 1995, the Company reported a net unrealized loss in its available for
sale securities of $1,488,917.
During 1996 and 1995, 111,497 and 140 shares (after reverse stock split) of
preferred stock in the amounts of $58,095 and $322, respectively, were converted
into common stock. During 1995, 144,831 shares (after reverse split) of common
stock were converted into preferred stock, in the amount of $2,085,574.
During 1995, the Company financed the purchase of land and a building in the
amount of $1,125,000, of which $175,000 is classified as a non-operating
investment property.
During 1995, the Company sold a building and paid off a note in the amount of
$200,000.
In 1995, the Company agreed to issue 50,000 shares (after reverse split) of
common stock valued at $150,000 to acquire interest in a subsidiary.
During 1996 and 1995, the Company issued common stock for services in the
amounts of $3,053,323 and $241,136, respectively. Preferred stock in the amount
of $166,653 was issued for services in 1995.
8
<PAGE> 34
PRINCETON AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
For The Years Ended May 31, 1996 and 1995
Supplemental Schedule of Material Non-Cash Investing and Financing
Activities: (Continued)
During 1995, the Company had 180,832 shares (after reverse split) returned for
cancellation. $2,724,000 was transferred from common stock to additional paid-in
capital.
During 1996, the Company issued 598,000 common stock shares, with a value of
$539,500, for a two year consulting agreement.
During 1996, the Company issued 115,386 common stock shares, with a value of
$225,000 to officers and consultants for notes receivable.
9
<PAGE> 35
PRINCETON AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
Nature of Corporation:
Princeton American Corporation is a Corporation organized under the laws
of the State of Nevada. The principal business purpose of the
Corporation is to act as the holding company of its Subsidiaries.
Name Change:
Pursuant to a vote of the Board of Directors on August 15, 1994, the
Company amended the Corporation's Certificate of Incorporation to change
the Corporation's name to Princeton American Corporation. In addition,
on this same date, the Board of Directors resolved to change the
Corporation's state of incorporation to Nevada.
Pervasiveness 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.
Principles of Consolidation:
The consolidated financial statements include the accounts and activity
of the Company and its wholly owned or majority owned subsidiaries. All
material intercompany accounts and transactions have been eliminated.
Cash Equivalents:
Cash equivalents include highly liquid debt instruments and other
short-term investments with an original maturity of three (3) months or
less.
Available for Sale Securities:
Available for sale securities consist of equity securities purchased and
held for the purpose of selling over an undetermined period. They are
reported at fair value, with unrealized gains and losses reported as a
separate component of stockholders' equity.
Realized gains and losses on available for sale securities are computed
based upon the average cost of the investment.
10
<PAGE> 36
PRINCETON AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Summary of Significant Accounting Policies: (Continued)
Investments in Restricted Securities:
The Company periodically acquires restricted securities in other
companies in exchange for its own restricted common stock. The Company
values those securities at the price of its own free-trading stock (as
reported by the National Association of Securities Dealers Automatic
Quotation System - NASDAQ) on the date of acquisition, less a discount
for the restricted nature of the stock. Restricted securities are
reclassified as available for sale securities if they can reasonably be
expected to qualify for sale within one (1) year of the balance sheet
date.
Investments in Real Estate:
Investments in real estate are valued at the lower of cost or market.
Inventory:
Inventory quantities and valuations are determined on an annual basis by
a physical count and costing of same. Inventory is stated at the lower
of cost, first-in, first-out method, or market. Inventory quantities are
reviewed periodically for obsolescence.
Property and Equipment:
Property and equipment are recorded at cost. Depreciation is provided
for on the straight-line method over the estimated useful lives of the
assets, ranging from five (5) to forty (40) years. Maintenance and
repairs that neither materially add to the value of the property nor
appreciably prolong its life are charged to expense as incurred.
Betterments or renewals are capitalized when incurred. Depreciation
expense for the years ended May 31, 1996 and 1995 was $253,312 and
$92,761, respectively.
Goodwill:
Goodwill represents the excess of the cost of acquiring GSK, Inc. and
Biosome, Inc. over the fair value of their net assets at the date of
acquisition, and is being amortized on the straight-line method over ten
(10) years. Amortization expense charged to operations for the years
ended May 31, 1996 and 1995 was $14,500, respectively. The carrying
value of goodwill is periodically reviewed by the Company and
impairments, if any, will be recognized when expected future operating
cash flows derived from goodwill are less than their carrying value.
11
<PAGE> 37
PRINCETON AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Summary of Significant Accounting Policies: (Continued)
Income Taxes:
The Company provides for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 ("SFAS No. 109"), "Accounting for
Income Taxes". Under SFAS No. 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax basis, and the
utilization of the net operating loss carryforward. Deferred tax assets
and liabilities are measured using enacted income tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
Loss Per Common Share:
Loss per common share is calculated based on the weighted average number
of common shares outstanding during the period. Weighted average shares
outstanding give retroactive effect to the one for 10 (1-10) reverse
stock split in December, 1995. The weighted average shares outstanding
were 2,888,334 and 1,579,946 (after reverse split) as of May 31, 1996
and 1995, respectively. A fully diluted loss per share amount is not
presented for 1996 or 1995, as it is anti-dilutive.
2. Investments in Securities:
As of May 31, 1996 and 1995, the Company's investments in available for
sale and restricted securities, consist of the following:
<TABLE>
<CAPTION>
May 31, 1996 May 31, 1995
---------------------------- ---------------------------
Available Available
for Sale Restricted for Sale Restricted
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Exten Industries $ 35,216 $ - $ 74,834 $ -
Trans Pacific Group 174,800 - 82,800 -
Sgarlato Laboratories - 250,000 - 250,000
Pan Am Energy - - 82,145 -
Other Securities 29,507 - 5,300 -
---------- ---------- ---------- ----------
$ 239,523 $ 250,000 $ 245,079 $ 250,000
========== ========== ========== ==========
</TABLE>
The Company recorded a loss on investments for the year ended May 31,
1996 in the amount of $1,414,198. This amount represents the recognition
of permanent declines in the value of stocks the Company holds in its
portfolio, netted against gains recognized in the sale of equity
securities. The Company has reduced the unrealized loss on available for
sale securities from $1,488,917 at May 31, 1995 to $0 at May 31, 1996.
12
<PAGE> 38
PRINCETON AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Investments in Securities: (Continued)
In May, 1992, the Company acquired 420,000 shares (approximately 11%) of
Exten Industries, Inc. common stock in exchange for 694,957 shares
(before reverse stock split) of restricted Company common stock. All of
these shares became free trading prior to May 31, 1994, therefore, these
securities are classified as available for sale.
In November, 1992, the Company acquired 1,150,000 shares (approximately
10%) of Pan Am Energy Corporation in exchange for 440,000 shares (before
reverse stock split) of restricted Company common stock valued at
approximately $208,000. All of these shares became free trading prior to
May 31, 1995, subject to the volume restrictions of Rule 144, therefore,
these securities are classified as available for sale. As of May 31,
1996, the Company had sold all their stock in Pan Am Energy Corporation.
In July, 1992, the Company acquired 460,000 restricted shares (8%) of
Trans Pacific Group, Inc. common stock in exchange for 133,333 shares
(before reverse stock split) of restricted Company common stock valued
at approximately $229,000. The stock became free trading prior to July
31, 1994, therefore, these securities are classified as available for
sale.
In November, 1993, the Company acquired 250,000 shares of Sgarlato
Laboratories, Inc. common stock in exchange for 250,000 shares (before
reverse stock split) of restricted Company common stock valued at
$250,000. Sgarlato Laboratories, Inc. is a privately owned company. The
Company valued this transaction at $1 per share. Prior to completing
this transaction with the Company, Sgarlato Laboratories, Inc. had
completed several private placement offerings at $2 to $3 per share.
Princeton American Corporation acquired approximately 6% of Sgarlato
Laboratories, Inc. and has the option to acquire a total investment of
21%.
3. Related Party Transactions:
Personal Service Contracts:
Three (3) principals of the Company have consulting contracts which
provided for compensation of approximately $180,000 and $121,000 each in
1996 and 1995, respectively. These contracts, which were renewed May 15,
1996 for another five (5) year option, also provide that the officers
may acquire stock in the Company at a seventy percent (70%) reduction
from current market value, in exchange for payments due under their
consulting agreements. In accordance with the terms of the consulting
agreements, if death occurs within any five (5) year term of the
agreement, compensation shall continue up to the completion of the five
(5) year term. During the fiscal year ended May 31, 1995, the principals
of the Company surrendered their rights to salaries for the third and
fourth quarters of the year ended May 31, 1995. In addition, one (1) of
the principals left the Company in 1995.
13
<PAGE> 39
PRINCETON AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Related Party Transactions: (Continued)
Personal Service Contracts: (Continued)
The Company has not accrued any post-retirement expense due to the death
provision in the consulting agreements because management cannot reasonably
determine the amount of the provision. The Company is in the process of
obtaining life insurance policies to fund the benefits. However, as of the date
of these financial statements, the life insurance has not been obtained.
The Company advances and borrows funds from officers, stockholders and related
parties against amounts due to them under the consulting agreements. The
advances and borrowings are primarily unsecured and non-interest bearing. At May
31, 1996 and 1995, the Company had $107,574 and $192,140, respectively,
outstanding from these advances. Borrowings outstanding at May 31, 1996 and 1995
were $259,364 and $212,901, respectively.
Notes Receivable - Officers:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
3% promissory note from Dale Eyman, due
on January 1, 1998; secured by
personal service contract. $ 72,000 $ 72,000
3% promissory note from David Smith, due
on January 1, 1998; secured by
personal service contract. 72,000 72,000
3% promissory note from William Taylor,
due on January 1, 1998; secured by
personal service contract. 45,000 45,000
16.75% promissory note from Dale Eyman,
principal and interest due December, 1998,
with monthly payments of $1,990; secured
by deed of trust on residential real estate. 134,990 -
---------- ----------
323,990 189,000
Less: current portion - (45,000)
---------- ----------
$ 323,990 $ 144,000
========== ==========
</TABLE>
Note Receivable - Affiliate:
Note receivable, affiliate, in the amount of $286,765 as of May 31, 1996 and
1995, represents a five percent (5%) promissory note from QIC, a company
controlled by the Treasurer of Princeton Electronic Products, Inc. The note is
primarily unsecured and is payable in annual installments of interest only, with
the principal due on November 1, 1999.
14
<PAGE> 40
PRINCETON AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Related Party Transactions: (Continued)
Advances - Officers, Stockholders and Related Parties:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
4% promissory note from David Bays, principal
and interest due February, 1998; secured by
200,000 shares of the Company's stock, net
of allowance of $35,395 in 1996 $ 130,790 $ 166,185
Promissory note from Hyman Center, due
on demand; unsecured. 27,100 27,100
Accrued interest 9,088 13,481
---------- ----------
$ 166,978 $ 206,766
========== ==========
Notes Payable to Related Parties:
At May 31, 1996, the Company's notes payable to related parties consist of
the following:
</TABLE>
<TABLE>
<S> <C>
Note payable to an employee, due on demand,
with interest at approximately 18%; unsecured. $ 11,483
Note payable to Hyman Center, no stated interest,
due on demand; unsecured. This note is in default,
however, the Company does not intend to pay this
note until the dispute between Mr. Center and
the Company is settled. 7,525
----------
$ 19,008
==========
</TABLE>
Stock Subscription Receivable:
During the year ended May 31, 1996, the Company issued 115,386 shares valued
at $225,000 to David Smith, Bill Taylor and Dale Eyman in return for
promissory notes from them. The notes are reported as stock subscriptions
receivable as of May 31, 1996.
In addition, the Company entered into a deferred compensation arrangement for
public relations services by issuing 589,000 shares of the Company's common
stock, with a value of $539,500, to a consulting firm in exchange for a two
(2) year consulting agreement. The deferred compensation will be amortized on
the straight-line method over a two (2) year period. Consulting expense of
$122,833 was amortized for the year ended May 31, 1996, and is included in
general and administrative expenses. The unamortized balance of $416,667 as
of May 31, 1996, has been recorded as a stock subscription receivable.
15
<PAGE> 41
PRINCETON AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Related Party Transactions: (Continued)
Other Stock Transactions:
During the year ended May 31, 1996, the Company completed the following
stock transactions with employees and related parties.
The Company advanced Dale Eyman and related entities $521,532 for the
stated purpose of purchasing stock on the open market. The agreement
stipulates that Dale Eyman will repay the advances, along with any
profit recognized in the sale, when he sells the stock. The Company has
increased treasury stock by $521,532 to record this transaction. The
advance is unsecured and bears interest at the rate of 8.25% per annum.
As of May 31, 1996, 331,800 shares of common stock had been purchased
for approximately $364,000 under this program. Such shares are subject
to Rule 144 restrictions and, as such, are no longer free-trading stock.
The Company issued Dale Eyman 215,125 shares of stock with a value of
$66,689, for public relations work performed by Dale Eyman.
The Company issued 100,000 shares of stock, with a value of $88,000, to
various employees and consultants for salaries.
In 1996, the Company was able to complete the disbursement of shares to
the Minco American Corporation stockholders. By virtue of this
transaction, all obligations connected with the 1991 merger have been
satisfied.
The Company converted 111,497 shares of preferred stock to common stock.
These shares represent preferred stock that had previously been issued
to officers for compensation.
During the year ended May 31, 1995, the Company issued 16,665 shares
(after reverse stock split) of preferred stock to certain officers for
compensation. In addition, certain officers converted 144,831 shares
(after reverse stock split) of common stock to an equal number of shares
of preferred stock.
Litigation:
The Company's former president and member of the Board of Directors,
Hyman Center is seeking a judgement for past due compensation of
$215,000. The Company has asserted various defenses against Mr. Center's
claim, including Mr. Center's previous agreement to accept stock in lieu
of compensation. The Company has also filed a counterclaim against Mr.
Center for breach of fiduciary responsibility and other actions
detrimental to the Company. Legal counsel believes that the Company has
a maximum exposure of $215,000 at May 31, 1996. Mr. Center's
compensation has been accrued through May 31, 1994, and is reflected as
a liability of $155,000 at May 31, 1996 and 1995. A trial date has been
set for February 10, 1997. The Company expects a settlement to be
reached before that date.
16
<PAGE> 42
PRINCETON AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Related Party Transactions: (Continued)
Litigation: (Continued)
The Company is in a dispute with William Taylor, a former officer, for
alleged compensation due him. Outside counsel for the Company has
advised that at this time, he cannot offer an opinion as to the probable
outcome. The Company's maximum loss exposure is approximately $282,000,
plus legal fees. The Company believes the officer's claims are without
merit, and is vigorously defending its position. As of May 31, 1996, the
Company accrued $216,550 in salaries to the former officer.
Subsequent Event:
Through September 11, 1996, the Company has advanced the officers of the
Company an additional $353,200 in loans and compensation.
Other Matters:
The Company disagrees with Mr. Gary Gerard regarding the contract amount
the Company owes him for inventory purchased by the Company. The dispute
involves alleged discrepancies for the cost and item counts in the
inventory. The Company reduced the contract payable to Mr. Gerard by
approximately $130,000 due to these allegations. The Company believes
this matter will be resolved without litigation. However, as of the date
of these financial statements, no resolution has occurred.
4. Property and Equipment:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land $ 55,000 $ -
Building 1,503,119 1,296,786
Office furniture and equipment 341,500 85,100
Leasehold improvements 314,270 241,917
---------- ----------
2,213,889 1,623,803
Less: accumulated depreciation
and amortization (251,272) (128,100)
---------- ----------
$1,962,617 $1,495,703
========== ==========
</TABLE>
17
<PAGE> 43
PRINCETON AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Investments in Real Estate:
Chino Valley, Arizona:
In February, 1994, the Company acquired land in Chino Valley, Arizona,
in exchange for 50,000 shares (before reverse stock split) of restricted
Company common stock. The value assigned to this transaction was
$50,000.
Scottsdale, Arizona:
In April, 1994, the Company signed a Purchase Agreement to acquire land
in Scottsdale, Arizona for $175,000. The terms of the agreement required
the Company to pay $5,000 upon signing the agreement, $20,000 upon
closing and the balance of $150,000 to be paid over four (4) years under
a note secured by a deed of trust. The terms of the note require
quarterly payments of $3,188, which represents interest at eight and
one-half percent (8.5%), with a final balloon payment due in June, 1998.
The note contains an acceleration clause which requires the note to be
paid in full prior to June, 1998 if any structure is constructed on the
property, upon the sale, or additional encumbrance or transfer of any
beneficial interest in the property. The property has an existing deed
of trust of approximately $90,000, which is to be paid by the seller.
6. Investment in Commission Contract:
In March, 1994, the Company acquired the rights to the commission and a
ground lease on a mobile home park in Mesa, Arizona. The commission is
based upon a fifty-five (55) year ground lease. Annual payments range
from $11,750 in 1994 to $27,000 in 2031. For the years ended May 31,
1996 and 1995, the commission contract was valued at $187,400 and
$123,816, respectively. The valuation is determined by calculating the
net present value of the quarterly payments at an imputed interest rate
of twelve percent (12%). The Company recognizes any fluctuation in the
market value as interest income or expense in the year of the
fluctuation.
7. Notes Payable:
As of May 31, 1996 and 1995, notes payable consist of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
15% mortgage note payable, with interest payable monthly, principal due
December 19, 1998; secured by deed of trust on
building and assignment of rents. $ 150,563 $ -
13% note payable, due in monthly
installments of $1,024 per month;
secured by property and assignment of
rents. 159,709 -
13% mortgage note payable, due in monthly
installments of $2,530 per month; secured
by deed of trust on real estate. 230,423 -
</TABLE>
18
<PAGE> 44
PRINCETON AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Notes Payable: (Continued)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
15% subordinated mortgage note payable to stockholder, interest payable
monthly, principal due June 30, 1995; secured by deed of trust and
assignment of rents on
office building. - 178,750
15% notes payable to stockholder, in
default; unsecured. 52,443 70,000
15% notes payable, due in monthly
installments of $1,032 to $1,353 per
month; secured by assignment of rents on
certain leases. 1,987 13,325
15% note payable, due on demand; unsecured. 10,000 10,000
8.57% mortgage note payable, with interest payable quarterly, principal
due June 1, 1998; secured by deed of trust on real
estate held for investment. 148,769 150,000
8% mortgage note payable, with interest payable monthly, principal due
December 1, 2019; secured by deed of trust on
building. 884,134 897,154
6%, 90 day note payable; secured by
inventory. 75,796 203,406
10% note payable, due on demand; unsecured. - 2,000
16% capital lease, due in monthly installments
of $374 per month; secured by equipment. 5,603 8,125
16% capital lease, due in monthly installments
of $93 per month; secured by equipment. - 355
18.4% capital lease, due in monthly
installments of $1,311 per month; secured
by equipment. 36,812 -
Note payable (less unamortized discount of $16,898, effective rate of
12.8%), due in monthly installments of $5,000; secured by
equipment. 103,102 -
Note payable (less unamortized discount of $25,512, effective rate of
12.8%), due in quarterly installments of $25,000; secured
by equipment. 149,488 -
</TABLE>
19
<PAGE> 45
PRINCETON AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Notes Payable: (Continued)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Various notes, non-interest bearing, due
on demand. 750 28,525
---------- ----------
2,009,579 1,561,640
Less: current portion (265,624) (519,893)
---------- ----------
$1,743,955 $1,041,747
========== ==========
</TABLE>
Maturities of long-term notes payable are as follows:
<TABLE>
<CAPTION>
Year Ended May 31, Amount
------------------ ------
<S> <C>
1997 $ 265,624
1998 179,247
1999 720,605
2000 17,820
2001 17,900
Subsequent 808,383
----------
$2,009,579
==========
</TABLE>
8. Income Taxes:
At May 31, 1996, the Company had net operating loss carryforwards of
approximately $15,000,000, which expire through 2011. Some of these
losses are only available by various subsidiaries of the Company.
Additionally, limitations of both amounts available for use and the
percentage available by year will be imposed by tax regulations due to
the change in ownership of the Company. The Company has not filed
certain prior year income tax returns due to the unavailability of
records. The Company expects to bring all filings current by May 31,
1997. The deferred tax benefit from the net operating losses would
approximate $5,000,000, however, due to the uncertain nature of its
possible utilization, a 100% reserve allowance has been established.
20
<PAGE> 46
PRINCETON AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Lease Commitments:
Operating Lease Expense:
The Company leases the land for their two (2) office buildings in
Phoenix, Arizona, as well as a storage facility under non-cancellable
operating leases. The leases expire at various times through 2076.
Future minimum lease payments under the operating lease agreements at
May 31, 1996, are as follows:
<TABLE>
<CAPTION>
Year Ended May 31, Amount
------------------ ------
<S> <C>
1997 $ 128,347
1998 127,162
1999 125,578
2000 125,050
2001 125,050
Subsequent 8,060,697
----------
$8,691,884
==========
</TABLE>
Operating Lease Income:
The Company currently leases office space within their buildings under
non-cancellable operating lease agreements. Security deposits have been
obtained on certain leases. Future minimum rents receivable under the
lease agreements, are as follows:
<TABLE>
<CAPTION>
Year Ended May 31, Amount
------------------ ------
<S> <C>
1997 $ 351,140
1998 288,104
1999 201,060
2000 150,531
2001 32,675
----------
$1,023,510
==========
</TABLE>
For the years ended May 31, 1996 and 1995, rental income was $592,808
and $355,745, respectively. For the years ended May 31, 1996 and 1995,
the Company's rental expense on non-cancellable operating leases was
$157,956 and $128,186, respectively.
10. Incentive Stock Plans:
The Company adopted an incentive stock plan to provide for the issuance
of shares to compensate its personnel for their contributions to the
growth and profits of the Company. An aggregate of 500,000 shares of
common stock were reserved and may be granted prior to November 1, 1997.
The number of shares issued is to be adjusted by stock dividends,
splits, recapitalization, mergers or similar changes. Shares may be
issued to such persons for such consideration as the Board may deem
advisable.
21
<PAGE> 47
PRINCETON AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Incentive Stock Plans: (Continued)
On January 7, 1988, the Company adopted an incentive stock option plan
for key employees under which options to purchase an aggregate of
500,000 shares of common stock may be granted prior to October 15, 1997,
at an option price equal at least to the fair market value at the date
of grant or one hundred ten percent (110%) of that value if granted to
an employee who owns more than ten percent (10%) of the voting stock of
the Corporation. As of May 31, 1996, no options have been granted under
these plans.
11. Litigation:
Other than the litigation noted in Note 3, the Company is also involved
in certain other litigation. Management and legal counsel do not expect
the outcome to have an adverse impact on the Company's financial
position or operations.
12. Investment in Subsidiaries:
GSK Products, Inc.
In July, 1994, the Company acquired a fifty percent (50%) interest in
GSK Products, Inc., a developer of hair care products. The Company is to
issue a total of 500,000 shares of restricted common stock to the
sellers upon repayment of the loan described below, but no sooner than
July, 1997. The agreement contains the following provisions:
The Company will loan GSK Products, Inc. up to $250,000 for
working capital.
The sellers have entered into a voting trust agreement which
gives the Company the right to vote an additional twenty
percent (20%) of GSK Products, Inc.'s common stock for ten
(10) years.
The Company has loaned the sellers a total of $125,000, which
requires payments of interest only at eight and one-quarter
percent (8.25%) through June, 1999, at which time the
remaining principal balance is due.
The sellers have a two (2) year consulting agreement with the
Company which provides for total payments of $100,000 per
year, payable fifty percent (50%) in cash, and fifty percent
(50%) in restricted Company common stock. In addition, the
sellers are to receive a bonus based upon the excess of actual
sales over projected sales. These obligations were waived
during the year ended May 31, 1996.
22
<PAGE> 48
PRINCETON AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Investment in Subsidiaries: (Continued)
Biosome Products, Inc.
In February, 1995, the Company acquired an eighty percent (80%) interest
in Biosome Products, Inc., a developer of hair care products. The
Company issued 100,000 shares of restricted common stock to the minority
owner for the exclusive and absolute licensing rights of all Gary Gerard
products and publications. The agreement contains the following
provisions:
The Company will purchase from Gary Gerard all of his existing
inventory and execute a promissory note, with an interest rate
of 6.1% per annum. All inventory shall be fully purchased and
paid for by December 31, 1995.
Gary Gerard has the option to purchase four hundred thousand
(400,000) shares of Princeton Electronic Products, Inc.'s
restricted common stock, at an exercise price of ten percent
(10%) less than the market price of such shares on the date of
exercise. The options are exercisable in increments of 100,000
shares per year for four (4) years. If the options are not
exercised in any year, that year's option shall lapse. During
the year ended May 31, 1996, Gary Gerard allowed the first
option of 100,000 shares to lapse.
4808 Corporation:
In November, 1994, the Company incorporated a wholly owned subsidiary,
4808 Corporation. The Company purchased and manages a 20,000 square foot
office building in Phoenix, Arizona.
Organifyl Labs, Inc.:
In May, 1996, the Company incorporated a wholly-owned subsidiary,
Organifyl Labs, Inc. to purchase inventory and equipment in Organifyl
Labs, Inc. The purchase was recorded as an asset purchase. The Company
paid a total of $375,000, $50,000 in cash and the remaining $325,000 in
notes payable.
Prinwest Corporation:
In March, 1995, the Company incorporated Prinwest Corporation. The
Company purchased and manages a warehouse in Phoenix, Arizona.
23
<PAGE> 49
PRINCETON AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Segment Information:
The Company currently operates primarily in the real estate and hair
care products industries. The hair care division is primarily involved
in the manufacture and sale of hair care products. The real estate
division leases office space in Phoenix, Arizona. Key information
related to the Company's segments follows. Corporate activity is not
disclosed.
<TABLE>
<CAPTION>
1996 1995
---------------------------------- ---------------------------------
Hair Care Hair Care
Real Estate Products Real Estate Products
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
Revenues $ 592,808 $ 122,181 $ 355,745 $ 149,471
Operating loss 147,463 221,463 (62,457) (61,624)
Depreciation and
amortization 96,744 5,426 72,117 15,890
Capital
expenditures 261,400 375,000 1,191,497 18,232
</TABLE>
14. Concentration of Credit Risk:
The Company maintains cash balances at various financial institutions.
Deposits not to exceed $100,000 at the financial institutions are
insured by the Federal Deposit Insurance Corporation. At May 31, 1996,
the Company had uninsured cash of approximately $212,000.
15. Stockholders' Equity:
Common Stock:
Common stock consists of no par value stock, 50,000,000 shares
authorized, 9,228,027 shares issued, and 8,865,170 shares outstanding at
May 31, 1996; and 1,579,219 shares issued and 1,548,162 shares
outstanding at May 31, 1995. On August 15, 1994, the Company's Board of
Directors voted to increase the number of common stock shares authorized
to 50,000,000 shares.
Preferred Stock:
Preferred stock consisted of no par value stock, convertible to one
share of common stock, 77,835 and 189,332 shares issued and outstanding
at May 31, 1996 and 1995, respectively. On August 15, 1994, the
Company's Board of Directors voted to increase the number of preferred
stock shares authorized to 10,000,000.
Treasury Stock:
Treasury stock is shown at cost, and at May 31, 1996 and 1995 consists
of 362,857 shares and 31,057 shares (after reverse stock split) of
common stock.
24
<PAGE> 50
PRINCETON AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. Stockholders' Equity: (Continued)
Reverse Stock Split:
On December 4, 1995, the Company had a one for ten (1-10) reverse split
of the Company's common and preferred stock. The accompanying financial
statements give retroactive effect to the stock split.
16. Subsequent Events:
Subsequent to the year ended May 31, 1996, and prior to the filing of
this report, the Company through its wholly-owned subsidiary, Saturn
Resources, Inc. acquired 74 lots in Peoria, Arizona. These lots are
zoned for, and are a part of a manufactured housing community.
Simultaneous with the purchase of these lots, the Company extended a
rolling option to purchase these lots with Miller Mobile Homes, a
well-established manufactured housing provider.
The terms of the purchase were $460,000 cash. A mortgage for $270,000
was obtained, and the balance was provided by the Company. As of the
date of the filing of this report, Miller Mobile Homes has exercised its
option on 16 lots at $9,200 per lot. Present plans project further
releases of lots at the rate of four per month until they are sold.
25
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> MAY-31-1996
<CASH> 316,365
<SECURITIES> 239,523
<RECEIVABLES> 94,467
<ALLOWANCES> 0
<INVENTORY> 267,082
<CURRENT-ASSETS> 1,133,573
<PP&E> 2,213,889
<DEPRECIATION> 251,272
<TOTAL-ASSETS> 4,819,032
<CURRENT-LIABILITIES> 1,057,833
<BONDS> 1,743,955
0
2,258,024
<COMMON> 15,031,398
<OTHER-SE> 5,282,205
<TOTAL-LIABILITY-AND-EQUITY> 4,819,032
<SALES> 122,181
<TOTAL-REVENUES> 714,989
<CGS> 354,118
<TOTAL-COSTS> 4,733,083
<OTHER-EXPENSES> 1,526,750
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 223,491
<INCOME-PRETAX> (5,544,844)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,544,844)
<EPS-PRIMARY> (1.92)
<EPS-DILUTED> 0
</TABLE>
