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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
[x] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934.
For the fiscal year ended June 30, 2000.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ___________ to _____________
Progressive Asset Management, Inc.
(Name of small business issuer in its charter)
California 90-804853
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1814 Franklin Street, Suite 710, Oakland, CA 94612
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (510) 834-3722
Securities registered under Section 12(b) of the Exchange Act:
NONE
Securities registered under Section 12(g) of the Exchange Act:
1,631,626 shares of Common Stock
Common Stock
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. [x] Yes [ ] No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of
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this Form 10-KSB or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year $594,197.
The aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked price of such common equity, as of September
27, 2000 is $585,916.
The number of shares outstanding of each of the issuer's classes of common
equity, as of June 30, 2000, is 1,583,557.
DOCUMENTS INCORPORATED BY REFERENCE
None of the following documents are incorporated by reference: (1) any annual
report to security holders; (2) any proxy or information statement; and (3) any
prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933.
Transitional Small Business Disclosure Format (Check one): Yes [X]; No [ ]
INFORMATION REQUIRED IN ANNUAL REPORTS OF
TRANSITIONAL SMALL BUSINESS ISSUERS
The Issuer has elected to furnish the information required by Items 6-11 of
Model B of Form 1-A, as well as the information required by Parts II and III of
Form 10-SB.
ITEM 6. DESCRIPTION OF BUSINESS
(a) Narrative Description of Business.
(1) Business of Progressive Asset Management, Inc. ("PAM").
(i) PAM Provides Securities Brokerage and Advisory Services.
(A) Introduction. PAM was incorporated in California July 14, 1987. It is
registered as a broker-dealer with the NASD and as an investment adviser with
the State of California. PAM is a member of SIPC and the MSRB. PAM significantly
restructured the manner in which it provides services to the public in 1999.
This restructuring is described in section (B) below.
(B) PAM Provides Its Services Principally Through Financial West Group, Inc.,
("FWG"). Prior to 1999, PAM had its corporate office in Oakland, California, an
office in New York, NY, and offered its services through several other
independent offices operated by persons who were registered representatives of
PAM. In March 1999, PAM entered into an agreement with FWG
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and Paradox Holdings, Inc. ("Paradox"). FWG is a wholly-owned subsidiary of
Paradox. FWG is a broker-dealer, registered with the NASD, with 60 offices and
approximately 300 registered representatives. FWG is an NASD, SIPC, and MSRB
member. FWG is also registered as a investment adviser with the State of
California. FWG has applied for registration as an investment adviser with the
Securities and Exchange Commission. Financial transactions are processed through
Correspondent Services Corporation ("CSC"), a wholly owned, fully guaranteed
subsidiary of PaineWebber, Inc.
Under the agreement among the parties, PAM transferred all of its customer
accounts and its registered representatives to FWG. Four persons remain
registered representatives with PAM as well as becoming registered
representatives of FWG. (For purposes of convenience, persons registered through
FWG are referred to as "employees" although many are classified as "independent
contractors" under federal or state law.)
For purposes of marketing and convenience, the employees of FWG who concentrate
on socially responsible investing and use the services of PAM, are referred to
as the "PAM Network" so that it is clear to the investor that the services of
PAM are utilized to achieve the goals of the client to have a portfolio that
meets the client's social responsibility goals. Because of the requirements of
the NASD and the California Department of Corporations, all signage,
correspondence and agreements state that all transactions are conducted through
FWG. Consequently, the PAM Network serves as the socially responsible investment
arm of FWG, with PAM providing participants in the PAM Network with state of the
art socially responsible investment services social screening, shareholder
advocacy, and information on community investing.
As part of the ongoing relationship, PAM receives a portion of the gross
commission income generated by the FWG registered representatives who are
designated as members of the PAM Network, but no portion of the gross commission
generated by FWG registered representatives who are not members of the PAM
Network.
The gross commission generated by FWG registered representatives who are members
of the PAM Network is shared between the registered representatives who earn the
commissions, FWG, and PAM. According to the agreement among the parties, FWG
receives 5% of the commission. PAM receives what remains after the portions of
the commission due to the registered representative and the portion due to FWG
have been subtracted. Therefore, the exact amount PAM will receive on any one
transaction depends on the amount of compensation the individual registered
representative is entitled to receive. The amount a registered representative is
entitled to receive is negotiated between FWG and the registered representative
and is not made public. However, for purposes of illustration, a registered
representative commonly receives approximately 85% of the gross commissions, FWG
receives 5%, and this results in PAM receiving 10% of the gross commission.
The size of the PAM Network is not static because it is not limited to the
registered representatives whose registrations were transferred from PAM to FWG.
Members of the PAM
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Network can include persons who were employees of FWG before PAM and FWG entered
into the agreement as well as new employees. PAM assists FWG in recruiting
employees who are interested in promoting socially-responsible investing. Since
the transfer of the registrations of the registered representatives from PAM to
FWG in 1999, all but two of them have remained part of the PAM Network. Nine new
registered representatives have joined FWG and the PAM Network, resulting in a
net increase of seven.
The following is a summary of the number of registered representatives of FWG
who are members of the PAM Network and the income to PAM generated by these
representatives over the last fiscal year. The number of registered
representatives is as of the end of the quarter.
<TABLE>
<CAPTION>
Period Number of Gross Revenues Generated Portion of Gross
Representatives by Representatives Revenues Paid Pam by
Received by FWG FWG
<S> <C> <C> <C>
July-Sept. 1999 23 797,601 102,745
Oct.-Dec. 1999 24 915,698 121,240
Jan.-Mar. 2000 27 1,199,906 154,451
Mar.-June 2000 30 1,155,165 169,181
Totals $ 4,068,370 $ 547,617
</TABLE>
The increased number of registered representatives have helped generate new
clients and thus new sources of income both from the transaction-based fees they
generate as well as potential advisory fee income. On the other hand, the
increased number of registered representatives has not required an increase in
the overhead of PAM since FWG absorbs the costs of the additional employees.
As part of the agreement among the parties, Paradox has purchased a minority
equity stake in PAM equal to 40% of the voting power of all the outstanding
stock of PAM. Paradox cannot purchase any additional shares of PAM until January
2, 2002. The NASD approved the March 1999 agreement among the parties in late
June 1999, and the purchase of PAM shares by Paradox was completed in early July
1999. The March 1999 agreement among the parties is attached as Exhibit 12(a).
As a further incentive for entering into the relationship with FWG, PAM receives
an additional 2.75% of the gross commissions generated by FWG registered
representatives who are members of the PAM Network over and above the basic
amount. This additional payment will cease once FWG has paid PAM a total of
$875,000 from the gross commissions generated by FWG registered representatives
who are members of the PAM Network. Income of PAM from any other source is not
included in determining when the additional $875,000 is fulfilled. For purposes
of illustration, again, a registered representative commonly receives
approximately 85% of the gross commissions, FWG receives 2.25% (5% minus 2.75%),
and this results in PAM
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receiving 12.75% of the gross commission.
<TABLE>
<CAPTION>
Current Commission Commission Structure after
Structure (%) PAM receives $875,000 (%)
<S> <C> <C>
Registered
Representative 85 85
FWG 2.25 4.75
PAM 12.75 10.25
</TABLE>
FWG is a registered investment adviser and its employees, where required, are
registered investment adviser representatives. FWG utilizes its own proprietary
system to select stock of companies that meet its financial criteria for
inclusion in the accounts it manages or has discretionary authority. FWG submits
these selections to PAM for screening to identify those companies that meet the
social and environmental criteria set by PAM and FWG. PAM receives 5% of the
gross amount of the asset-based fee that FWG as a registered investment advisor
periodically receives from clients of FWG for this service. However, if the FWG
employee responsible for the managed account is a member of the PAM Network,
then PAM does not receive this management fee.
The resulting "Socially Screened Portfolio" is a product marketed directly by
FWG registered representatives in presentations to current and prospective
clients. The registered representatives use promotional material prepared by and
paid by FWG. The incremental cost to PAM for providing the social screening to
FWG is negligible since PAM is continually screening companies as part of the
services it provides directly to clients.
PAM does not receive a portion of all of FWG's income from its securities
brokerage and advisory business. Therefore, FWG's revenues in the past give no
guidance to the amount of revenues that will be generated under the agreement
between PAM and FWG.
Association with FWG provides PAM with a much stronger technology platform,
enhanced back office capacity, and significantly expanded registered
representative recruitment opportunities. FWG handles licensing and transactions
for the registered representatives affiliated with the PAM Network. Linking with
PAM gives FWG access to the field of socially-responsible investing. Through
FWG, the PAM Network offers a complete range of investment services for any
portfolio, large or small including:
* Access to all major markets and types of investments.
* Socially responsible mutual funds and retirement plans.
* Identification of socially responsible investment managers.
* Social screening, shareholder advocacy, and community investments.
* Offices in California, Iowa, Maryland, Massachusetts, Michigan, New Hampshire,
New York, and Oregon.
* No-load socially responsible mutual funds through Charles Schwab & Co., Inc.,
on an advisory-fee basis.
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(C) PAM's Services to the Public Emphasize Socially-Responsible Investing.
(I) Socially-Responsible Investing. PAM was created to provide securities
brokerage and advisory services to persons who seek to engage in
"socially-responsible investing." This term means that a person's investments
reflect that person's social concerns. PAM starts from the premise that
corporations that combine positive financial and social performance make the
best long-term investments. Businesses that do not follow what PAM believes are
socially and environmentally responsible practices tend to have greater
liabilities and charges. Examples of such businesses are heavy industries and
utilities that pollute air and ground water and tobacco manufacturers, because
they are subject to charges against earnings from the burdens of regulatory
compliance, litigation, fines, strikes, and boycotts.
Socially-responsible investing can be achieved in three ways:
*Social Screening.
*Shareholder Activism.
*Community Investing.
PAM conducts its own proprietary research which it provides to PAM Network
registered representatives and to other registered investment advisers to use in
creating model portfolios based on social and environmental concerns of most
persons concerned with socially-responsible investing. Social screens frequently
requested include structuring a portfolio that meets the goals of a client in
these areas:
* Environment.
* Employee relations.
* Quality of products and services.
* Nuclear weapons or nuclear power.
* Tobacco, alcohol, or gambling.
* Relations with repressive regimes.
Customized screens are also developed according to registered representatives'
and registered investment advisers' specifications based on clients' specific
needs.
(II) Shareholder Advocacy and Community Investments. PAM provides support to PAM
Network registered representatives to assist their clients realizing their
social objectives through the strategies of shareholder advocacy and community
investing. Through shareholder advocacy, clients use their ownership of the
stock of a company to pursue change in the company's social or environmental
performance. PAM works with the Interfaith Center for Corporate Responsibility
and other advocates of corporate responsibility to:
* Engage in dialogue with company officials.
* Introduce or co-sponsor social shareholder resolutions.
* Build shareholder advocacy networks and wage shareholder campaigns.
PAM also works to provide community investing to enable the clients of PAM
Network
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registered representatives to invest in companies that have a high community
impact. PAM has served as the placement agent for investments that promote:
* Economic development in inner city and rural poverty areas in the United
States.
* Sustainable development in the developing world.
* Low income housing.
* Energy self-reliance and alternative energy production.
PAM has joined with the Calvert Social Investment Foundation to create PAM
Community Investments. PAM Community Investments are offered by Information
Guide through FWG. By using this national program, investors can direct capital
to community development loan funds that help low-income families and
neighborhoods work their way out of poverty.
In the past fiscal year, PAM and PAM staff continued to play leadership roles in
a variety of special projects with significance for the field of socially
responsible investment and, during this fiscal year PAM initiated two new
projects.
*Contra Costa County Employees Retirement Association: In 1999, Peter Camejo was
appointed by the Contra Costa County (California) Board of Supervisors to serve
on the nine member Board of the $3 billion Contra Costa County Employees
Retirement Association.
In December 1999, Mr. Camejo coordinated a daylong conference -- An Educational
Day on Socially Responsible Investing -- sponsored by the Retirement Association
Board as the first comprehensive assessment of socially responsible investing
undertaken by California pension fund board members
Seventy-five attendees, including members of eight California retirement boards,
heard presentations from many leaders in socially responsible investing. The day
focused on the positive financial returns obtained through socially screened
investment portfolios, the positive social returns accomplished through
shareholder activism, and the relationship between socially responsible
investing and fiduciary responsibility.
Following the conference, in February 2000, the Retirement Association board
unanimously approved a policy to vote in favor of shareholder resolutions
dealing with the social justice and environmental protection issues. To our
knowledge, this is the first time a pension fund has established the policy of
voting in favor of social shareholder resolutions.
In March 2000, the Retirement Association board unanimously voted to begin
divesting from tobacco companies. The Retirement Association held $5.27 million
in tobacco-related stocks. The resolution described investment in tobacco
companies as "fiscally imprudent" and stated that divestment from tobacco
companies "can be achieved without monetary loss by reason of the numerous
alternative investments at comparable rates and returns."
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*EMPRESA. Three years ago PAM was instrumental in launching EMPRESA, an
initiative to stimulate interest in socially responsible business in the Western
Hemisphere. The level of interest and support that has been discovered continues
to be impressive. This was reconfirmed at the third annual conference of
EMPRESA, which took place in Mexico City, May 15-17. More than 500 business
leaders from 15 countries heard Mexico President Ernesto Zedillo welcome
delegates in opening ceremonies.
Eric Leenson, one of the founders of EMPRESA, was responsible for coordinating
the aspect of the conference dealing with socially responsible investing --
including a keynote address by Amy Domini and a breakout session with
representatives of the Calvert Group, MMA Praxis, and a new Mexican
organization, Eco Banca.
EMPRESA has active affiliated organizations in Brazil, Chile, El Salvador,
Mexico, Panama, Peru, and the United States.
*Bottom Line 2001: In the past fiscal year, PAM agreed to join with the
E-Education Advisors to co-convene of a new national conference -- Bottom Line
2001: The Future of Fiduciary Responsibility. The conference will take place at
The Mark Hopkins Hotel in San Francisco, California, April 18th - April 20th
2001.
Bottom Line 2001 will be an inaugural, educational conference for fiduciaries
designed to explore and debate the growing inclusion of social and environmental
factors within the context of public and private fiduciary responsibility.
Bottom Line 2001 will address a broad range of issues, including:
*Corporate governance.
*Legal responsibilities of fiduciaries.
*The financial performance of socially screened investments.
*Tobacco divestment.
*Community investing and alternative investments.
*Shareholder advocacy.
*Investment approaches that close the gap between the bottom lines of
financial return and quality of life.
Bottom Line 2001 will invite elected officials (public fiduciaries), trustees,
and staff from pension funds, foundations, religious organizations, labor
unions, family trust offices, colleges and universities to examine these issues
in an educational environment.
(III) Investment Services Provided Through the PAM Network. Registered
representatives in the PAM Network, serving as the socially-responsible division
of FWG, offers a wide variety of services and investments for any size
portfolio, including:
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* Mutual funds--full range of socially responsible mutual funds.
* Stocks--access to all major markets and exchanges.
* Bonds--municipal, government agency, corporate, and convertible bonds.
* Insurance.
* Financial and estate planning.
* Retirement planning for individuals and businesses.
Through FWG, PAM Network Registered Representatives provide additional financial
consulting services to institutions and individuals with larger investment
portfolios. These services include assistance in and investment plan design and
implementation, such as:
* Defining financial objectives and social goals.
* Asset allocation.
* Assessment of portfolio performance.
* Investment manager evaluation, search, and selection advice.
* Ongoing social screening.
* Regular performance monitoring.
* Shareholder advocacy.
* Custodial services.
These services are supported by PAM through the PAM Network. In addition to
providing these services through the PAM Network, PAM directly provides clients
ongoing social screening and shareholder advocacy services. PAM does not receive
compensation for shareholder advocacy. Its compensation for ongoing social
screening is negotiated between PAM and the client.
(IV) The Client Base Includes Large and Small Investors. Since any investor,
large or small, can have a portfolio structured to be socially-responsible,
persons who use the services of the PAM Network can have an account as small as
$1,000. The average size of an account is approximately $100,000, with 80% of
the accounts under $500,000. Clients include individuals, unions, religious
organizations, and non-profit organizations. The largest client utilizing the
services of FWG registered representatives in the PAM Network is a religious
organization, but which has been responsible for less than 7% of PAM's gross
revenue in fiscal years 1999 and 2000.
Through its relationship with FWG, PAM receives compensation on certain
transactions on a per-trade basis as a broker-dealer, and receives compensation
for advisory services, as an investment adviser. PAM also generates fees
separately from its relationship with FWG principally from "social screening."
The income from brokerage transactions through FWG equal approximately 69% of
PAM's gross revenues, and the income from investment advisory fees through FWG
equal approximately 30% of PAM's gross revenues. The investment advisory fees
generated separate from FWG equal approximately 1% of PAM's gross revenues.
Because PAM's business was
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significantly restructured in the first half of 1999, this break-down of the
sources of PAM's income is based on the period July 1999 through March 2000. PAM
no longer acts as an underwriter for any offerings.
(ii) Status of New Products or Services.
* Trainer Wortham & Company, Inc., Relationship. PAM established in the last
quarter of 1999 a relationship to assist Trainer Wortham & Company, Inc.
("Trainer Wortham") to offer socially-screened management of short-term funds
of cities and other institutional investors. Trainer Wortham is registered with
the SEC as an investment adviser and has over $4.4 billion in management. It is
the investment management subsidiary of First Republic Bankcorp, a regional bank
with its headquarters in San Francisco, CA. Under the arrangement with Trainer
Wortham, PAM will be responsible for socially-screening investments and
marketing this service while Trainer Wortham manages the investments, making the
investment decisions. For its services, PAM receives a portion of the advisory
fees charged by Trainer Wortham. The amount of the advisory fees that PAM
receives is 10% of the total management fee with respect to all funds invested
by Trainer Wortham on behalf of clients using PAM's screening services.
Separately, for each investor referred to Trainer Wortham by PAM, PAM will
receive a percentage of the total management fee Trainer Wortham receives from
that client. During the first 12 months, the amount will be 25%; for the second
12 months, 20%; for the third 12 months,15%; for the fourth 12 months, 10%; and
for the fifth 12 months and each month thereafter, 5%.
*ProgressiveTrade. In June 2000, PAM formed a strategic alliance with
Sustainable Systems, Inc., to explore the creation of ProgressiveTrade, as a new
company to offer socially responsible investing to on-line investors. The idea
behind ProgressiveTrade is to design and build an on-line social screening
system that offers investors a way to create and apply their own social and
environmental screens to evaluate investments and then execute trades in those
investments through one or more affiliated on-line brokerages. Under the
agreement between PAM and SSI, the parties will conduct feasability studies and
form a new corporation in which PAM will own 70% of the initial stock in
ProgressiveTrade and SSI will own 30%. PAM's maximum financial commitment is
$100,000. Based on initial studies and planning, the parties in September agreed
to incorporate ProgressiveTrade, raise initial capital and complete a
feasibility study. The agreement between the parties is identified as Exhibit
6(c) to this filing.
Since PAM has played a pioneering role in the definition of the field of
socially responsible investing, the company has a powerful location from which
to launch ProgressiveTrade, which will incorporate PAM's proprietary social
research and social screening systems.
PAM formed the alliance with Sustainable Systems to provide business incubation
and accelerator services for ProgressiveTrade, so that the ProgressiveTrade will
have access to excellent Web and business development resources. Sustainable
Systems co-developed and operates the Communication Technology Cluster, a highly
successful business incubator serving 25 communications start-up companies in
Oakland, California.
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Any statements contained in this filing that relate to future plans, events, or
performance are forward-looking statements that involve risks and uncertainties,
including, but not limited to, changes in general economic conditions, intense
competition for customers and pressure on brokerage and other fees charged, the
mood of the investing public, changes in political attitude towards
socially-responsible investments. PAM cautions that the foregoing list of
important factors is not exclusive. Developments in any of these areas could
cause PAM's results to differ materially from results that have been or may be
projected by or on behalf of PAM. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as the date of
this statement. PAM does not undertake to update any forward-looking statement
that may be made from time-to-time by or on behalf of PAM.
(iii) Estimated Amount Spent on Research. Less than $20,000 has been spent on
company-sponsored research to develop new products or services during the last
two years and no money has been spent on customer-sponsored research to develop
new products or services.
(iv) Number of Employees. PAM has two full-time employees and five part-time
employees for a total of seven employees, including four who are registered
representatives with FWG. Peter Camejo, Eric Leenson, Cathy Cartier, remain as
registered principals of PAM. Staff in the offices of the 10 affiliates of the
PAM Network are employees of the independent contractor offices which make up
the PAM Network.
(v) Environmental Expenditures. PAM discharges no material into the environment
and requires no environmental control facilities. Therefore there have been no
expenditures and no effects or expected effects from compliance with federal,
state, and local provisions regulating discharge of materials into the
environment or from environmental control facilities.
(2) Future Financial Performance.
(i) Distinctive or special characteristics of the financial services industry,
which may have a material impact upon Progressive Asset Management's financial
performance, include:
* Changes in technology. The advent of internet trading, direct consumer access
to ever-increasing quantities of research information and lower commission
rates are having a significant impact on the securities industry. Such
changes have pushed down the profit-margins on transaction-based fees,
especially those charged on the internet. Furthermore, the increased usage of
the internet for trading requires all securities brokerage firms to consider
offering such a service. The availability of free or low-cost advice through
print, television and the internet have increased the pressure on
profit-margins for offering advice.
* Shifts in financial services compensation from transaction-based commissions,
to asset-based fee structures. This may result in short-term decline in
revenue from certain accounts through fiscal year 2002 as the basis of
compensation is gradually converted. All registered representatives may not
be able to make the transition to earning sufficient income under this basis
of compensation and thus may leave the industry.
* Rapid growth of socially responsible investment up 82% to $2.16 trillion with
screened
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portfolios up 183% to $1.49 trillion, according to the 1999 SRI Trends Report of
the Social Investment Forum, the professional association of socially
responsible investment professionals. One of the reasons for the rapid growth of
socially responsible investing is the positive financial performance of socially
responsible investment. For example, through May 2000 both the Domini Social
Index and the Citizens Index have outperformed the S&P 500 in 1999 and since
inception, which was in May of 1990 for the Domini Social Index and March of
1995 for the Citizens Index. The rapid growth of socially responsible investment
is both positive, in that the market for the services of PAM and the PAM Network
is expanding, and also negative in that competition within that market is also
increasing. The number of individual socially responsible investment
practitioners is growing and some of the major brokerage houses are adding
socially responsible investment divisions. Larger firms may have an advantage in
recruiting registered representatives, including the possibility of recruiting
from FWG and the PAM Network because they offer significant bonuses.
* The trading of PAM's common stock will remain on the NASD Bulletin Board.
Because trading on the Bulletin Board is extremely light in comparison with
trading on the NASDAQ or trading on an exchange, trading of PAM's stock will
remain illiquid, thus limiting the ability to trade its stock.
(ii) Impact of the Earth Trade settlement. The settlement of the claims with the
Earth Trade noteholders has removed a cloud on the future operations of PAM, and
terminated what could have resulted in a series of arbitrations and court cases
that PAM's legal counsel estimated would have cost PAM in excess of $100,000 in
attorneys' fees. Furthermore, under the terms of the settlement, PAM will be
able to extend the payments over approximately 10 years without the payment of
any interest.
On the other hand, the Earth Trade settlement did require the initial payments
of $119,000 over 2-1/2 years, and will require annual payments equal to 1% of
PAM's gross revenues. These funds would have been available to meet the
obligations of PAM or expand PAM's operations. However, because of the amount of
legal fees facing PAM in relation to Earth Trade, the settlement overall has
improved the liquidity of PAM.
(b) Segment Data. Progressive Asset Management, Inc. does not segment data in
its financial statement.
ITEM 7. DESCRIPTION OF PROPERTY
PAM's corporate office is located at 1814 Franklin Street, Suite 710, Oakland,
CA 94612. The premises occupy approximately 1974 square feet, at a rental of
$3,277.38 per month. The lease terminates January 11, 2001, and there are no
escalation provisions to increase the rent before that date. PAM is currently in
negotiations with the landlord to continue renting the current office space or
comparable space in the same building. However, the office space requirements
for PAM's corporate office are so modest, its precise location in the San
Francisco Bay area is not a material consideration.
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Progressive Asset Management Housing, Inc., a California corporation, is a
wholly-owned subsidiary of PAM. It is a general partner along with Rental
Housing, Inc., the managing general partner, of Magnolia Apartment Associates
Limited Partnership, an Idaho limited partnership. The limited partnership owns
two apartment complexes in the Boise, Idaho area. The units in these two
apartment complexes are leased to low-income families. The limited partnership
will dissolve December 31, 2021, unless earlier terminated under limited
circumstances as provided in the limited partnership agreement. While
Progressive Asset Management Housing, Inc., was instrumental in the organization
of the limited partnership and acquisition of the apartment complexes in 1991
and retains a .50% partnership interest, it has never been involved in the
operation of the limited partnership or the apartment complexes. Other than its
position as a general partner of Magnolia Apartment Associates Limited
Partnership, Progressive Asset Management Housing, Inc., is not a general
partner nor a manager of any other real estate investments. These real estate
investments generate less than $7000 per year income to PAM.
ITEM 8. DIRECTORS, EXECUTIVE OFFICERS, AND SIGNIFICANT EMPLOYEES
The members of the board of directors of PAM are elected at the annual meeting
of shareholders and serve until the next annual meeting of shareholders or until
their successors are elected. The most recent annual meeting was held January
28, 2000.
(a) Names, Ages, and Experience of Directors and Executive Officers.
Peter Camejo, Chair of the Board and Chief Executive Officer of PAM. Peter
Camejo has served as CEO and Board member since PAM's inception in 1987. Before
co-founding PAM, he was an investment broker at Merrill Lynch and Prudential
Bache. Mr. Camejo has, in addition to his Series 7 General Securities license, a
Series 24 General Principal license, a Series 4 Options license, and a Series 3
Commodities license.
Active in the environmental movement, Mr. Camejo has served as a member of the
Board of Directors of EarthShare and the Chair of the Council for Responsible
Public Investment. He is also a member of the Board of the Contra Costa County
Employee Retirement Association. Mr. Camejo, originally from Venezuela, is a
naturalized U.S. citizen. He is 60 years old, married and has two children.
Catherine Cartier, Secretary, Chief Administrative Officer and Director. Ms.
Cartier joined PAM at its inception in 1987 and has served as a Board member and
Corporate Secretary since 1994.
Prior to joining PAM she worked for Lehman Brothers and Prudential Bache. Ms.
Cartier earned a BA from St. Mary's College and holds her Series 7 General
Securities license, Series 24 General Principal license, Series 53 Municipal
Principal license. Ms. Cartier is 50 years old.
Eric Leenson, President, Chief Financial Officer and Director. Eric Leenson has
been a member of the Board since 1989. He has been CFO since 1990 and President
since 1992. In his positions,
13
<PAGE> 14
he is responsible for the day-to-day oversight of the firm's operations. He is
also responsible for its financial accounting and reporting. He holds a Series 7
General Securities license, a Series 24 General Principal license, and a Series
4 Options license.
Mr. Leenson left his position as a financial consultant at Merrill Lynch to join
PAM in October 1987. Prior to joining Merrill Lynch, he was co-founder and long
time Managing Director of La Pena Cultural center in Berkeley, CA. Mr. Leenson
is 51 years old.
Peggy Saika, Director. Ms. Saika has been a member of the Board since 1995. Ms.
Saika is the Executive Director of the Asian Pacific Environmental Network in
Oakland, CA. From 1983 to 1991 she was the Executive Director of the Asian Law
Caucus. Prior to that, she helped create and direct non-profit organizations in
Sacramento, CA and New York City.
Ms. Saika was appointed to the National Environmental Justice Advisory Council
of the US Environmental Protection Agency. She was also appointed by Secretary
Donna Shelala to the Advisory Council of the National Institute of Environmental
Health Sciences, and elected to the Board of Directors of the Wellness
Foundation. Ms. Saika is 52 years old.
Kalman Stein, Director. Mr. Stein has been a director since 1997. Mr. Stein has
been the President of EarthShare since its inception in 1989. EarthShare now
represents more than 40 leading national environmental and conservation
organizations, and has raised more than $60 million for its member agencies
during its first eight years of operation. In addition Mr. Stein is a founder of
the Council of Foundations and has served as Chair of that organization.
Mr. Stein's business experience includes management consulting with the United
Research Company, founding Kalman Stein Associates, a management consulting firm
in Berkeley, CA and establishing and managing the Strong Foundation for
Environmental Values. He was also the Executive Director of the Environmental
Federation of California for many years. Mr. Stein is 47 years old.
Michael S. Wyman, Director. Mr. Wyman is a Board member of PAM, serving in his
second term. Mr. Wyman is a graduate of Pomona College, class of 1972 and
Hastings College of Law, class of 1981. He is member in good standing of the
California State Bar.
Mr. Wyman has worked as a lettuce picker, dishwasher, writer, editor, corporate
director, and CEO of It's Electric!, an electric car dealership. Before his
involvement with It's Electric, he was a private investor in the field of
socially responsible investing. Earlier he held the positions of editor,
associate director, and director for the Center for Democracy in the Americas in
Washington, D.C. Prior to his tenure at the Center, Mr. Wyman was an attorney in
private practice. Mr. Wyman is 49 years old.
Nina Lau-Branson, Director. Nina Lau-Branson is serving her first term on the
Board. After receiving her MBA in Finance from the University of Wisconsin, Ms.
Lau-Branson was
14
<PAGE> 15
employed by PricewaterhouseCoopers. As the first Corporate Controller for Wind
River Systems in Alameda, CA, Ms. Lau-Branson was an integral part of the team
that brought PAM public. During her tenure with Wind River Systems they grew to
a company with over $50 million in revenues and operations in over ten
countries. Ms. Lau-Branson lives in Oakland, California and is 44 years old.
Gene Valentine, Director. Gene Valentine is serving his first full one-year term
on the Board. He joined the Board in June 1998. Mr. Valentine is Chairman of the
Board and Chief Executive Officer of FWG. Mr. Valentine has a BS degree from
Bethany College and also attended the University of Vienna. Mr. Valentine is
also the President and Founder of Second Byte Foundation which provides
computers to at-risk children. Mr. Valentine is 50 years old.
Edward L. Price, Director. Mr. Price is serving his first term. Mr. Price is
Director and Chief Administrative Officer of FWG. Mr. Price has a BA from the
U.S. Naval Academy and a MBA from the University of California, Berkeley.
Previously a CPA with Touche Ross, Mr. Price joined FWG in 1998. Mr. Price is 49
years old.
Mr. Joseph Sturdivant resigned as director of PAM effective March 22, 2000.
James Nixon, Senior Vice President for Social Research and Sustainable
Development. Mr. Nixon joined PAM in 1988 and coordinates social screening,
shareholder advocacy, community investments, and media relations. Mr. Nixon is
also Chair of the Board of Directors of Sustainable Systems, Inc., a
specializing in business incubators and regional development strategies. Mr.
Nixon is 59 years old.
(b) Family Relationships. No director, person nominated to be a director,
executive officer, or significant employee have family relationships with any
other director, executive officer, or significant employee.
(c) Business Experience. The business experience of each director, executive
officer, and significant employee is described under (a) above.
(d) Involvement in Certain Legal Proceedings. No director, person nominated to
be a director or executive officer of PAM has been in the last five years
involved in any action under the Bankruptcy Act, any state insolvency law, or
convicted in a criminal proceeding (excluding traffic violations and other minor
offenses).
ITEM 9. REMUNERATION OF DIRECTORS AND OFFICERS
(a) Aggregate Annual Remuneration.
<TABLE>
<CAPTION>
<S> <C> <C>
Name Capacities in which Aggregate
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
Remuneration Was Received Remuneration
<S> <C> <C>
Peter Camejo Chair, CEO, Broker $99,559
Eric Leenson President, CFO, Broker $98,211
Catherine Corporate Secretary,
Cartier Operations Manager $43,032
</TABLE>
This information was prepared on a cash basis.
(b) Future Remuneration. Peter Camejo will receive $15,000 per year in salary.
Eric Leenson will receive $30,000 per year in salary. Catherine Cartier will
receive $15,000 per year in salary. Subsequent to the strategic alliance with
FWG each of these corporate officers is a registered representative with FWG and
receives commission income through Financial West Group, but that income is not
generated through Progressive Asset Management, Inc.
ITEM 10. SECURITY OWNERSHIP
(a) Principal Holders of Voting Securities.
<TABLE>
<CAPTION>
Title Name Amount of Percent of
of Class and Address Shares Class
<S> <C> <C> <C>
Common Shares Peter Camejo
1470 Maria Lane #101
Walnut Creek, CA 94596 344,718 21.7
Common Shares Eric Leenson
1814 Franklin Street
Oakland, Ca 94612 74,858 4.7
Common Shares Catherine Cartier
1470 Maria Lane #101
Walnut Creek, CA 94596 20,000 1.3
Common Shares All Officers
and Directors 561,342 35.4
Series B Paradox Holdings, Inc.
Preferred 2663 Townsgate Rd.
Shares Westlake Village, CA 91361 25,000 100
</TABLE>
The Series B Preferred Shares, held by Paradox Holdings, Inc., when combined
with the common stock, has voting power equal to 40% of the total shares that
can be cast. Consequently, the following is the voting power of the following
persons when factoring in the voting power of the
16
<PAGE> 17
Series B Preferred Shares: Peter Camejo 15.5%; Eric Leenson 3.4%, Catherine
Cartier .09%; and all Officers and Directors, 25.3%. Under the Standstill
Agreement between PAM and Paradox, until January 1, 2002, neither party can take
steps to change the relative voting power of Paradox. This agreement is
identified as Exhibit 6(b) to this filing.
(b) Other Holders of 10% Voting Securities. None.
(c) Certain holders of Non-Voting Securities.
<TABLE>
<CAPTION>
Title of Class Name and Address Amount of Percent of
Shares Shares
<S> <C> <C> <C>
Class Preferred A Lakshmima Inc. 17,272 18.2%
36 Rosebery Ave.
Ottawa, ON K1S 1W2
</TABLE>
(d) Options, warrants, and rights. None of the persons listed in item (a) above,
hold any options, warrants, or rights reportable under this section.
ITEM 11. INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
Peter Camejo, Chair of the Board of Directors and Chief Executive Officer has
entered into an agreement whereby certain holders of notes of Earth Trade, Inc.,
in which PAM held an interest, may exchange such notes for shares of PAM held by
Mr. Camejo. The notes are payable by PAM. This transaction is explained in more
detail under "PART II, Item 5. Recent Sales of Unregistered Securities (b)
Securities Being Offered, Shares issued in settlement with creditors of Earth
Trade, Inc."
PART II
Item 1. Market Price of Dividends on the Registrant's Common Equity and Other
Shareholder Matters.
(a) Market Information.
PAM's common stock has been reported on the OTCBB under the symbol PAMI since
1997 and the following are the highs and lows reported on the OTCBB for the
periods listed.
<TABLE>
<CAPTION>
Quarter High Low
<S> <C> <C>
July-September 1997 NA NA
October-December 1997 1.125 .50
January-March 1998 .5625 .25
April-June 1998 .5625 .34375
</TABLE>
17
<PAGE> 18
<TABLE>
<S> <C> <C>
July-September 1998 .7500 .21875
October-December 1998 .3750 .12500
January-March 1999 .50 .15625
April-June 1999 .43750 .24
July-September 1999 .68750 .375
October-December 1999 .50 .40925
January-March 2000 .4375 .40625
April-June 2000 .4375 .01
</TABLE>
The quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions. Market makers who posted
bids or offers during the period listed above are Herzog, Heine, Geduld, Inc.,
Wien Securities Corp., Hill, Thompson, Magid & Co., Sherwood, Sharpe Capital,
Inc., Citadel Securities Corp., and Paragon Capital Corporation.
(b) Holders of Common Stock. The number of holders of common stock are 143.
(c) Dividends. Declaration of dividends on common stock is subject to the
discretion of the Board and will depend upon a number of factors, including the
future earnings, capital requirements and financial condition of PAM. In
December 1995, PAM declared a common stock dividend of one share for each 20
shares of common stock held as of March 1, 1995. PAM has not declared any cash
dividends on its Common Stock in the past and does not anticipate declaring
dividends in any form in the near future.
Item 2. Legal Proceedings.
There are no legal proceedings pending or threatened against PAM, except the
following. Rita Maran v. PAM and Peter Camejo, NASD Arbitration, Case No.
99-00017. Claimant has alleged breach of fiduciary duty, negligence and breach
of contract relating to investments made in claimant's securities account.
Claimant is seeking approximately $45,000 in actual losses and lost interest of
approximately $35,000. PAM has denied the allegations and no date has been set
for hearing of this matter.
Item 3. Changes in and Disagreements with Accountants.
There have been no changes in or disagreements with accountants.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the fourth quarter of the fiscal year covered by
this report to a vote of security holders.
Item 5. Compliance with Section 16(a) of the Exchange Act.
18
<PAGE> 19
Persons required to make filings under Section 16(a) as disclosed under Items 8
and 9 are filing Forms 5 in lieu of Forms 3.
Item 6. Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of the period covered
by this report.
PART F/S
PART III
<TABLE>
<S> <C>
Exhibit 2 (a) Restated Articles of Incorporation(1)
(b) Bylaws(1)
Exhibit 6 (a) Stock Option Plan(1)
(b) Standstill Agreement between PAM and Paradox Holdings(1)
(c) Agreement between PAM and Sustainable Systems, Inc.
Exhibit 12 (a) Purchase Agreement Among Paradox Holdings, PAM and FWG(1)
Exhibit 27 Financial Data Schedule
</TABLE>
Footnote:
(1) Incorporated by reference to the Company's Registration Statement on Form
10SB, Amendment 2, filed August 9, 2000.
19
<PAGE> 20
Report of Independent Auditors
Board of Directors
Progressive Asset Management, Inc.
We have audited the accompanying consolidated statement of financial condition
of Progressive Asset Management, Inc. as of June 30, 2000 and 1999, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the management of Progressive Asset Management, Inc. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Progressive Asset
Management, Inc. as of June 30, 2000 and 1999, and the results of its operations
and cash flows for the years then ended, in conformity with generally accepted
accounting principles.
Markle Stuckey Hardesty & Bott
Larkspur, California
July 24, 2000
F-1
<PAGE> 21
PROGRESSIVE ASSET MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
June 30, 2000 and 1999
Assets
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Current assets
Cash and cash equivalents $506,125 $422,354
Short-term investment, at fair value 13,124 12,489
Commissions and other receivables 87,991 89,824
Employee advances 6,896 25,229
Prepaid expenses 20,328 15,462
-------- --------
Total current assets 634,464 565,358
Property and equipment, at cost 30,114 21,073
Accumulated depreciation (14,455) (10,732)
-------- --------
Property and equipment, net 15,659 10,341
Other assets
Deposits 9,532 13,048
Other investments, at cost 16,000 16,592
Organization costs, net of accumulated amortization 0 4,740
-------- --------
Total other assets 25,532 34,380
-------- --------
Total assets $675,655 $610,079
======== ========
</TABLE>
See accompanying notes.
F-2
<PAGE> 22
PROGRESSIVE ASSET MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
June 20, 2000 and 1999
<TABLE>
<CAPTION>
Liabilities
2000 1999
----------- ------------
<S> <C> <C>
Current liabilities
Accounts payable $ 14,560 $ 22,400
Salaries and commissions payable 10,073 11,103
Accrued liabilities 26,883 0
----------- ------------
Total current liabilities 51,516 33,503
Other liabilities
Earth Trade settlement -- Subordinated 119,000 194,000
----------- ------------
Total liabilities 170,516 227,503
Other commitments and contingencies
Preferred stock, Series A, $7 stated value;
200,000 shares authorized, 84,513 shares issued
and outstanding (1999 -- 92,156) 59,160 64,510
Stockholders' Equity
Stockholders' equity
Preferred stock, Series B, $1 stated value;
25,000 shares authorized, 25,000 shares issued
and outstanding (1999 -- zero) 25,000 0
Common stock no par value; 5,000,000 shares
authorized, 1,583,557 shares issued and
outstanding (1999 -- 1,631,626) 1,468,657 1,490,180
Retained earnings (accumulated deficit) (1,047,678) (1,172,114)
----------- ------------
Total stockholders' equity 445,979 318,066
----------- ------------
Total liabilities and stockholders' equity $ 675,655 $ 610,079
=========== ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 23
PROGRESSIVE ASSET MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Years ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Revenues
Commissions -- FWG $ 553,167 $ 41,154
Commissions -- Other 16,808 2,812,553
Interest and dividend income 19,212 21,468
Other revenue 5,010 30,731
---------- ----------
Total revenues 594,197 2,905,906
Costs and expenses
Employee compensation and benefits 195,127 383,947
Commissions 9,852 1,966,764
Security clearing charges 0 137,203
Administrative and other 36,760 99,828
Broker recruitment 3,841 2,000
Charitable contributions 0 3,650
Communications 4,087 92,849
Dues and subscriptions 42,013 68,974
Insurance 19,875 64,887
Occupancy 25,693 102,124
Office expenses 4,604 33,793
Professional fees 40,012 121,752
Promotion and advertising 32,322 10,253
Regulatory 6,881 47,524
Taxes and licenses 7,483 5,629
Travel and entertainment 5,354 6,538
Depreciation and amortization 8,463 61,279
Loss on disposal of assets 0 60,657
Earth Trade settlement 0 240,621
---------- ----------
Total costs and expenses 442,367 3,510,272
---------- ----------
Income before income taxes 151,830 (604,366)
Taxes on income 1,600 1,600
---------- ----------
Net income (loss) $ 150,230 $ (605,966)
========== ==========
Net income (loss) per share
Basic $ 0.09 $ (0.35)
========== ==========
Fully diluted $ 0.05 $ (0.35)
========== ==========
Shares used to compute per share amounts
Basic 1,600,620 1,711,476
========== ==========
Fully diluted 2,774,939 1,711,476
========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE> 24
PROGRESSIVE ASSET MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
PREFERRED STOCK, SERIES B COMMON STOCK
------------------------- -------------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT EARNINGS (DEFICIT) EQUITY TOTALS
------ ------ --------- ---------- ------------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balances, June 30, 1998 0 $ 0 1,614,059 $1,484,146 $(549,133) $ 935,013
Amount of preferred stock, Series A
redemption paid at stated value
over value at issuance 0 0 0 0 (17,155) (17,155)
Issuance of stock in the Earth Trade
settlement 0 0 12,067 6,034 140 6,174
Issuance of common stock 0 0 5,500 0 0 0
Net income (loss) 0 0 0 0 (605,966) (605,966)
------ ------- --------- ---------- ----------- ---------
Balances, June 30, 1999 0 $ 0 1,631,626 $1,490,180 (1,172,114) 318,066
Issuance of preferred stock, Series B 25,000 25,000 0 0 0 25,000
Amount of preferred stock, Series A
redemption paid at stated value
over value at issuance 0 0 0 0 (28,030) (28,030)
Amount of preferred stock, Series A
canceled by the shareholder 0 0 0 0 2,236 2,236
Repurchases of common stock 0 0 (48,069) (21,523) 0 (21,523)
Net income (loss) 0 0 0 0 150,230 150,230
------ ------- --------- ---------- ----------- ---------
Balances, June 30, 2000 25,000 $25,000 1,583,557 $1,468,657 $(1,047,678 $ 445,979
====== ======= ========= ========== =========== =========
</TABLE>
See accompanying notes.
F-5
<PAGE> 25
PROGRESSIVE ASSET MANAGEMENT, INC.
STATEMENT OF CASH FLOWS
Years ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
-------- ---------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $150,230 $(605,966)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities
Unrealized loss (gain) on investments 43 0
Depreciation and amortization 8,463 61,279
Loss on disposal of assets 0 60,657
Earth Trade settlement (payment) net of issuance
of preferred stock, Series A at stated value (75,000) 152,200
Changes in current assets and liabilities
Deposits with clearing broker 0 227,409
Commissions and other receivables 1,833 (63)
Employee advances 18,333 (5,262)
Prepaid expenses (4,866) 78,269
Accounts payable (7,840) (11,557)
Salaries and commissions payable (1,030) (111,659)
Accrued liabilities 26,883 (16,513)
Payable to clearing broker 0 (2,787)
-------- ---------
Net cash provided (used) by operating activities 116,963 (173,993)
Cash flows from investing activities
Purchase of short-term investment 0 (12,489)
Purchase of furniture and equipment (9,041) 0
Proceeds from sale of furniture and equipment 0 3,089
Change in deposits 3,516 (13,048)
Proceeds from sale of other investments 0 50,000
-------- ---------
Net cash provided (used) by investing activities (5,525) 27,552
Cash flows from financing activities
Issuance of preferred stock, Series B 25,000 8,744
Redemption of preferred stock, Series A (31,144) (19,061)
Issuance of common stock 0 6,034
Repurchase of common stock (21,523) 0
-------- ---------
Net cash provided (used) by financing activities (27,667) (4,283)
-------- ---------
Net change in cash and cash equivalents 83,771 (150,724)
Cash and cash equivalents,
Beginning of year 422,354 573,078
-------- ---------
End of year $606,125 $ 422,354
======== =========
Supplemental disclosures of cash flow information
Cash paid during the year for income taxes 3,200 $ 0
======== =========
</TABLE>
See accompanying notes.
F-6
<PAGE> 26
PROGRESSIVE ASSET MANAGEMENT, INC.
Notes to Consolidated Financial Statements
June 30, 2000
Note 1 - Summary of significant accounting policies
Basis of presentation
Progressive Asset Management, Inc., (the Company) incorporated in
California in 1987 and registered as a broker-dealer under the
Securities and Exchange Act of 1934. Through May 1999, the Company was a
full-service investment firm specializing in socially responsible
investing. As more fully discussed in Note 7, the Company transferred
all customer accounts and relationships with client representatives to
another broker-dealer. The Company remains registered as a broker-dealer
and continues to provide research and referrals in consideration for
commission-based fees.
In its policies, practices and programs, the Company is committed to
providing its clients with the highest quality financial products and
investment services and to operating as a strong, positive force for
social justice and environmental protection. The headquarters of the
Company is in Oakland, California.
The accompanying consolidated financial statements include the accounts
of the Company and its subsidiary, Progressive Asset Management Housing,
Inc., which had no significant activity during the years ended June 30,
2000 and 1999. Progressive Asset Management Housing, Inc. assisted in
the sale and structuring of housing limited partnerships. It still holds
limited partnership interests in some of its former clients. The Company
eliminated all intercompany balances and transactions in the
accompanying consolidated financial statement presentation.
The Company clears all of its limited trading activities with a clearing
broker on a fully disclosed basis. Accordingly, the Company claims
exemption from Securities Exchange Commission Rule 15c3-3 because it
does not carry customer funds or handle customer securities.
Cash and cash equivalents
Cash and cash equivalents consist of demand deposits and a certificate
of deposit with an original maturity of three months held by commercial
banks and money market funds held by registered investment companies.
All cash and cash equivalents are available to the Company within 90
days or less of demand. The carrying amount of cash and cash equivalents
approximates fair value due to their short-term nature.
F-7
<PAGE> 27
PROGRESSIVE ASSET MANAGEMENT, INC.
Notes to Consolidated Financial Statements
June 30, 2000
Note 1 - Summary of significant accounting policies (continued)
Short-term investment and other investments
The Company classifies investments in marketable securities as
short-term investments and records them at their fair market value. The
Company classifies investments without a ready market as other
investments and records them at the lower of cost or estimated net
realizable value.
Property and equipment
Property and equipment consists of office and computer equipment and
furniture. The Company computes depreciation of property and equipment
using the straight-line method over the estimated useful lives of the
respective property and equipment, ranging from three to seven years.
Organization costs
During the year ended June 30, 2000, the Company fully amortized the
remaining balance of the organization costs of its subsidiary.
Previously, the Company amortized the organization costs using the
straight-line method over five years.
Security transactions and commissions
The Company records net commission revenue from FWG (Note 7) and on its
limited security transactions on a settlement-date basis. Net commission
revenue on unsettled transactions at year-end is not material.
Advertising costs
The Company expenses costs for producing and communicating advertising
when incurred.
Income taxes
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" which requires recognition of deferred tax
assets and liabilities for the expected future tax consequences of
events that are included in financial statements and tax returns in
different periods. Under this method, the Company determines deferred
tax assets and liabilities based on the difference between financial
statement and tax bases of assets and liabilities using enacted tax
rates in effect for the years when the Company estimates the differences
to reverse. As of June 30, 2000 and 1999, there were no significant
deferred tax assets or liabilities.
F-8
<PAGE> 28
PROGRESSIVE ASSET MANAGEMENT, INC.
Notes to Consolidated Financial Statements
June 30, 2000
Note 1 - Summary of significant accounting policies (continued)
Earnings per share
The Company calculates basic earnings per share based on the weighted
average number of common shares outstanding during the year. The Company
calculates fully diluted earnings per share based on the weighted
average number of common shares and common stock equivalents, including
options and convertible preferred stock, outstanding during the year.
Due to an operating loss during the year ended June 30, 1999, the
Company did not include any common stock equivalents in the fully
diluted earnings per share calculation for that year since all such
common stock equivalents were antidilutive.
Estimated fair value of financial instruments
Statement of Financial Accounting Standards No. 107, "Disclosure about
Fair Value of Financial Instruments," requires the disclosure of the
fair value of financial instruments, including assets and liabilities
recognized on the statement of financial condition. Management estimates
that the aggregate net fair value of financial instruments recognized on
the consolidated statement of financial condition (including
receivables, payables and accrued expenses) approximates their carrying
value, as such financial instruments are short-term in nature, bear
interest at current market rates or are stated at their fair value.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principle requires management to make estimates and
assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Although management of the
Company bases the estimates on its knowledge of current events and
actions it may undertake in the future, actual results may differ.
Note 2 - Earth Trade settlement
Earth Trade, Inc. (Earth Trade) organized in 1992 to promote sustainable
development by marketing both organic and conventional food products
from farm cooperatives in the developing world. In previous years, the
Company acted as a sales agent in connection with the placement of
certain Earth Trade debt and equity securities.
F-9
<PAGE> 29
PROGRESSIVE ASSET MANAGEMENT, INC.
Notes to Consolidated Financial Statements
June 30, 2000
Note 2 - Earth Trade settlement (continued)
Principally due to continuing losses, the shareholders of Earth Trade
voted in May 1997 to voluntarily dissolve and liquidate its net assets.
In April 1997, the Company Board of Directors, with consideration of its
mission and standards of social responsibility, its thirty percent
ownership of Earth Trade and its role as placement agent for debt and
equity securities issued by Earth Trade, offered a settlement agreement
to the Earth Trade note holders. Under the agreement, in exchange for
their residual Earth Trade debt and a general release of liability, the
note holders could receive either Company Series A preferred stock with
a stated value of $7.00 or Company common stock with a stated value of
$5.00. Substantially all the Earth Trade note holders accepted the
settlement agreement in January 1998.
During the year ended June 30, 1998, the Company completed the first
closing under the settlement agreement pursuant to which the Company
issued 70% of the estimated common and Series A preferred stock expected
to be issued.
Based on the bid price for the Company common stock on the date nearest
the settlement agreement acceptance date of $0.50 per share ($0.70 per
share of Series A preferred stock, based on the stated value of the
common and Series A preferred stock of $5.00 and $7.00 per share,
respectively), the Company calculated the Earth Trade settlement expense
($139,363) and liability ($41,800) at June 30, 1998, as follows:
<TABLE>
<CAPTION>
Series A Preferred
Common -------------------------
Shares Amount Shares Amount Total
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Total agreed 113,949 $ 56,975 117,697 $ 82,388 $ 139,363
Issued 70% (79,785) (39,891) (82,388) (57,672) (97,563)
Rounding 4 (100) -- -- --
--------- --------- --------- --------- ---------
Remaining 34,168 $ 17,084 35,309 $ 24,716 $ 41,800
========= ========= ========= ========= =========
</TABLE>
The closing of the remaining 30% took place following the additional
settlement agreement (see below) and final liquidation of Earth Trade.
The Company modified payment of the remaining 30% as 64.67% cash and
35.33% stock to make the total payment equal to 80.6% stock and 19.4%
cash. The cash percentage equals the percentage the additional
settlement note holders will receive of the Earth Trade debt they held.
Closing of the remaining 30% during the year ended June 30, 1999
reconciles as follows:
F-10
<PAGE> 30
PROGRESSIVE ASSET MANAGEMENT, INC.
Notes to Consolidated Financial Statements
June 30, 2000
Note 2 - Earth Trade settlement (continued)
<TABLE>
<CAPTION>
Series A Preferred
Common -----------------------
Shares Amount Shares Amount Total
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Remaining 34,168 $ 17,084 35,309 $ 24,716 $ 41,800
Issued 35.33% (12,067) (6,034) (12,491) (8,744) (14,778)
Cash 64.67% -- -- -- -- (27,022)
-------- -------- -------- -------- --------
Remaining -- $ -- -- $ -- $ --
======== ======== ======== ======== ========
</TABLE>
In February 1999, the shareholders approved an additional settlement
with certain remaining Earth Trade note holders. Under the agreement, in
exchange for their residual Earth Trade debt, a general release of
liability and a subordination agreement acceptable to the NASD, the note
holders will receive a total of $380,000. Reconciliations of the
additional settlement subordinated liability, expense and current and
future payments follow. Future payments depend upon the gross revenue of
the Company limited by the ability of the Company to meet the NASD net
capital requirements. The remaining note holders may elect to exchange
their debt for Company common shares held by its chairman. Outstanding
amounts, if any, owed to the chairman of the Company due to any exchange
of debt for common shares are further subordinated to debt owed the
remaining note holders.
Earth Trade settlement subordinated liability, expense and current and
future payments at and for the years ended June 30, 2000 and 1999
reconcile as follows:
<TABLE>
<CAPTION>
<S> <C>
Additional settlement $380,000
Payments and adjustments during June 1999
Paid from final liquidation proceeds of Earth Trade 83,684
Earth Trade debt due to the Company 28,673
Cash share paid to the first settlement note holders 27,022
--------
Total payments and adjustments 139,379
Earth Trade settlement expense for the year ended June 30, 1999 $240,621
========
</TABLE>
F-11
<PAGE> 31
PROGRESSIVE ASSET MANAGEMENT, INC.
Notes to Consolidated Financial Statements
June 30, 2000
Note 2 - Earth Trade settlement (continued)
<TABLE>
<CAPTION>
<S> <C>
Additional settlement $380,000
Payments during June 1999
Paid from final liquidation proceeds of Earth Trade 83,684
Paid by the Company 102,316
--------
Total payments 186,000
--------
Earth Trade settlement subordinated liability at June 30, 1999 194,000
Payment on September 30, 1999 75,000
--------
Earth Trade settlement subordinated liability at June 30, 2000 $119,000
========
</TABLE>
Remaining minimum and maximum amounts payable by the Company during the
years ended June 30, subject to the ability of the Company to meet the
NASD net capital requirements, total as follows:
<TABLE>
<CAPTION>
Minimum Maximum
------- -------
<S> <C> <C>
2001 $30,000 $50,000
2002 30,000 50,000
2003 19,000 50,000
2004 -- 29,000
</TABLE>
Before the settlement agreements, the Company had no debt or other
obligations to Earth Trade or its share or note holders and,
accordingly, the settlement agreement is not an extinguishment of debt.
However, due to the mandatory redemption feature of the Series A
preferred stock (Note 4) issued as part of the first Earth Trade
settlement agreement, management has not classified the Series A
preferred stock as part of stockholders' equity.
Note 3 - Employee advances
Employee advances due to the Company at June 30, 2000 and 1999 include
amounts totaling $5,515 and $25,229 due from the chairman of the
Company.
F-12
<PAGE> 32
PROGRESSIVE ASSET MANAGEMENT, INC.
Notes to Consolidated Financial Statements
June 30, 2000
Note 4 - Series A preferred stock
The Series A preferred stock issued during the years ended June 30, 1999
and 1998, in connection with the Earth Trade settlement (Note 2), does
not pay dividends, is non-voting, has a $7.00 per share liquidation
preference over the common and Series B preferred stock and is
convertible 1:1 into shares of common stock at the option of the holder
or automatically upon the occurrence of certain events. The Series A
preferred stock is subject to mandatory redemption annually each
November 1 at $7.00 per share. The Company will redeem a portion of the
Series A preferred stock based on 1% of its gross revenues, as adjusted
and limited by the ability of the Company to meet the NASD net capital
requirements. The liquidation preference and remaining redemption
requirement of the Series A preferred stock at June 30, 2000 and 1999
total $591,591 and $645,092, respectively. The Company includes the
Series A preferred stock on the consolidated statement of financial
condition at its value when issued (Note 2) and excludes it from
stockholders' equity.
Note 5 - Series B preferred stock
The Company, as part of a May 1999 agreement with Paradox Holdings,
Inc., parent of FWG (Note 7), agreed to sell a 40% ownership interest in
the Company; represented by Series B preferred stock, for $25,000.
Following approval by the NASD in June 1999, the Company received
payment and issued 25,000 shares of Series B preferred stock in July
1999.
The Series B preferred stock is entitled to 40% of the total dividends
declared on common stock, is entitled to vote as if converted to a 40%
share of the common stock, has a $1.00 per share liquidation preference
(plus declared but unpaid dividends) over the common stock and is
convertible into shares of common stock equal to 40% of the common stock
after conversion at the option of the holder or automatically after the
sooner of the Company receiving $875,000 under the agreement (Note 7) or
June 30, 2002.
F-13
<PAGE> 33
PROGRESSIVE ASSET MANAGEMENT, INC.
Notes to Consolidated Financial Statements
June 30, 2000
Note 6 - Common stock options
In December 1995, the Company adopted a stock option and incentive plan
that allows for the issuance of up to 200,000 shares of common stock.
The plan provides for the award of stock options, employee stock
purchases and restricted stock grants. Of the options awarded, all vest
immediately and must be held for up to two years before exercise.
Options awarded before December 1995 had holding requirements of up to
seven years.
The Company Board of Directors determines awards of additional stock
options, vesting, exercise prices and other option terms. The exercise
prices for all options awarded have not been less than the fair market
value of the stock as determined by the Board of Directors at the date
of grant. Certain options require a 10% premium on the option price
under certain circumstances. Outstanding options at June 30, 2000 expire
from December 31, 2000 through 2005 and reconcile as follows:
<TABLE>
<CAPTION>
Price Shares Expiration
----- ------ ----------
<S> <C> <C> <C>
Remaining from grants during the calendar
years ended December 31
1991-4 $1.00 13,657 2000
1991-4 1.00 6,000 2001
1995 2.00 3,227 2001
1995 2.00 2,000 2002
1996 1.00 2,324 1999
1996 1.00 32,000 2002
1996 2.00 2,500 2002
1997 1.00 31,628 2002
1997 1.00 14,500 2003
1998 0.24 1,500 2003
1998 0.24 1,000 2004
-------
Outstanding June 30, 1999 110,336
Granted December 31, 1999 0.49 1,500 2005
Expired December 31, 1999 1.00 (2,324) 1999
-------
Outstanding June 30, 2000 109,512
=======
</TABLE>
F-14
<PAGE> 34
PROGRESSIVE ASSET MANAGEMENT, INC.
Notes to Consolidated Financial Statements
June 30, 2000
Note 6 - Common stock options (continued)
The Company records its stock-based awards using the intrinsic value
method of accounting in accordance with Accounting Principles Board No.
25, "Accounting for Stock Issued to Employees" and its related
interpretations. Accordingly, the Company recognized no compensation
expense in the accompanying financial statements. Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation
(SFAS 123)," requires the disclosure of pro forma net income had the
Company adopted the fair value method of accounting. Under SFAS 123, the
fair value of stock-based awards to employees is calculated through the
use of option pricing models, even though such models were developed to
estimate the fair value of freely tradable, fully transferable options
without vesting restrictions, which significantly differs from the stock
option awards of the Company. These models also require subjective
assumptions, including future stock price volatility and expected time
to exercise, which significantly affect the calculated values. The
Company has not completed the pro forma calculations to determine the
fair value of its option awards.
Note 7 - Paradox Holding, Inc. and FWG agreement
In May 1999 the Company entered into agreement with Paradox Holdings,
Inc., parent of Financial West Investment Group, Inc. (FWG), in which
the Company transferred all of its customer accounts and relationships
with client representatives to FWG. FWG retains 4.75% of all gross
commissions generated by the transferred representatives (and any other
representatives recruited by the Company in the future), pays
commissions and reimburses certain expenses to the transferred
representatives and remits the net commissions to the Company. FWG
retains only 2.25% of all gross commissions until the difference (2.50%
of all gross commissions) paid to the Company totals $875,000.
The Company records payments from FWG in connection with the transfer as
commission revenue. Of the total FWG commissions the Company recorded as
revenue during the years ended June 30, 2000 and 1999, $101,709 and
$7,328, respectively, represent payments against the $875,000 with
$765,963 and $867,672, respectively, still due at June 30, 2000 and
1999. Paradox Holdings, Inc. has guaranteed payments to the Company by
FWG, Inc.
F-15
<PAGE> 35
PROGRESSIVE ASSET MANAGEMENT, INC.
Notes to Consolidated Financial Statements
June 30, 2000
Note 8 - Taxes on income
The income tax provision for the years ended June 30, 2000 and 1999
consists of minimum state franchise taxes.
At June 30, 2000 and 1999, the Company had net operating loss
carryforwards available to reduce future federal and California income
taxes estimated as follows:
<TABLE>
<CAPTION>
Expiring June 30 Federal California
-------- ----------
<S> <C> <C>
2000 $ 11,000 $ --
2001 2,000 --
2002 3,000 11,000
2003 3,000 150,000
2004 3,000 229,000
2012 46,000 --
2013 358,000 --
2019 559,000 --
-------- --------
Totals available at June 30, 1999 985,000 390,000
Used at June 30, 2000 from amounts
expiring June 30
2000 11,000 --
2001 2,000 --
2002 1,000 11,000
2003 -- 139,000
2012 46,000 --
2013 95,000 --
-------- --------
Totals used at June 30, 2000 155,000 150,000
Expiring June 30
2002 2,000 --
2003 3,000 11,000
2004 3,000 229,000
2013 263,000 --
2019 559,000 --
-------- -------
Totals available at June 30, 2000 $830,000 $240,000
======== ========
</TABLE>
F-16
<PAGE> 36
PROGRESSIVE ASSET MANAGEMENT, INC.
Notes to Consolidated Financial Statements
June 30, 2000
Note 8 - Taxes on income (continued)
At June 30, 2000 and 1999, the Company had carryforwards of unused tax
credits related to low-income housing of approximately $58,000 and
$49,000, respectively, from several partnerships in which the Company
has invested or received participating interests.
Under certain 1986 Tax Reform Act provisions, the availability of the
net operating loss carryforwards is subject to limitation upon a change
in ownership of more than 50% of the stock of the Company.
Note 9 - Employee benefit plans
At June 30, 1999 and through December 31, 1999, the Company maintained a
401(k) profit sharing plan for the benefit of its employees. The plan
allowed for both Company and employee elective contributions. The Board
of Directors of the Company determined contributions to the plan
annually subject to certain maximum amounts allowable under the Internal
Revenue Code. The Company made no elective contributions to the plan
during the years ended June 30, 2000 and 1999. Effective December 31,
1999, the Company terminated the 401(k) profit sharing plan.
Effective July 1, 2000, the Company began offering a SIMPLE profit
sharing plan for the benefit of its employees. Like the predecessor
401(k) profit sharing plan, the SIMPLE profit sharing plan allows for
both Company and employee elective contributions. Additionally, the
Company is required to match employee elective contributions up to the
lesser of an individual employee's actual elective contributions or 3%
of an employee's salary. Company matching contributions accrued on
salary earned in June 2000, paid in July 2000 and eligible for Company
matching contributions totaled $176. Additionally, the Company accrued
expenses to terminate the 401(k) profit sharing plan and establish the
SIMPLE profit sharing plan totaling $2,000.
F-17
<PAGE> 37
PROGRESSIVE ASSET MANAGEMENT, INC.
Notes to Consolidated Financial Statements
June 30, 2000
Note 10 - Credit risk and concentrations
At and during the years ended June 30, 2000 and 1999, the Company
maintained deposit balances at a commercial bank in excess of federal
deposit insurance amounts. Federal deposit insurance does not cover
money market amounts held by registered investment companies.
Amounts held by, due from and earned from FWG (Note 7) represent
concentrations in the following percentages at or during the years ended
June 30, 2000 and 1999, as follows:
<TABLE>
<CAPTION>
2000% 1999%
----- -----
<S> <C> <C>
Cash and cash equivalents 28% 39%
Short-term investment, at fair value 100% 100%
Commissions and other receivables 80% 24%
Commission revenues 97% 1%
</TABLE>
Additionally, the balance of commission revenues clears through FWG.
Note 11 - Commitments and contingencies
The company leases its office facility under an operating lease expiring
January 12, 2001. At June 30, 2000, remaining future minimum lease
payments for the year ended June 30, 2001 totaled $21,636. During the
years ended June 30, 2000 and 1999, rent expense, net of sublease
payments, totaled $25,693 and $102,124, respectively.
During the years ended June 30, 2000 and 1999, sublease payments paid to
the Company totaled $17,412 and $11,108, respectively, of which an
entity controlled by an officer and director of the Company paid $7,728
and $5,508, respectively.
The Company, in the ordinary course of its business, is named in matters
arising from its activities as a broker-dealer. In the opinion of
management, based upon discussions with legal counsel, the resolution of
these matters will not have a material adverse effect on the financial
condition of the Company.
F-18
<PAGE> 38
PROGRESSIVE ASSET MANAGEMENT, INC.
Notes to Consolidated Financial Statements
June 30, 2000
Note 12 - Net capital requirement
Pursuant to the net capital provisions of Rule 15c3-1 of the Securities
and Exchange Act of 1934, the Company is required to maintain both
minimum net capital, as defined under such provisions, and a ratio of
aggregate indebtedness to net capital not to exceed 15 to 1. At June 30,
2000 and 1999, the Company has net capital of $418,155 and $392,486,
respectively, which is $$413,155 and $292,486, respectively, in excess
of its required net capital of $5,000 and $100,000, respectively. At
June 30, 2000 and 1999, the ratio of aggregate indebtedness to net
capital was 0.1232 and 0.0853 to 1, respectively.
Note 13 - Quarterly financial results (unaudited)
The unaudited revenues and income (loss) of the Company for the four
quarters ending June 30, 2000 and 1999 total as follows:
<TABLE>
<CAPTION>
Revenues Income (loss)
-------- -------------
<S> <C> <C>
September 30, 1999 $121,508 $11,996
December 31, 1999 129,488 33,589
March 31, 2000 162,139 46,357
June 30, 2000 181,062 58,288
September 30, 1998 804,285 (45,691)
December 31, 1998 732,643 (187,622)
March 31, 1999 849,107 (94,894)
June 30, 1999 519,871 (37,138)
</TABLE>
F-19
<PAGE> 39
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Progressive Asset Management, Inc.
/s/ Eric Leenson Date: September 28, 2000
by Eric Leenson, President
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
/s/ Peter Camejo Date: September 28, 2000
Peter Camejo, Chairman of the Board
and Chief Executive Officer
/s/ Eric Leenson Date: September 28, 2000
Eric Leenson, Chief Financial Officer
and Member of the Board of Directors
/s/ Catherine Cartier Date: September 28, 2000
Catherine Cartier, Secretary
and Member of the Board of Directors
/s/ Peggy Saika Date: September 28, 2000
Peggy Saika, Member of the Board of Directors
/s/ Michael S. Wyman Date: September 28, 2000
Michael S. Wyman, Member of the Board of Directors
/s/ Nina Lau-Branson Date: September 28, 2000
Nina Lau-Branson, Member of the Board of Directors
/s/ Gene Valentine Date: September 28, 2000
Gene Valentine, Member of the Board of Directors
/s/ Edward L. Price Date: September 28, 2000
Edward L. Price, Member of the Board of Directors
20
<PAGE> 40
EXHIBIT INDEX
<TABLE>
<S> <C>
Exhibit 2 (a) Restated Articles of Incorporation(1)
(b) Bylaws(1)
Exhibit 6 (a) Stock Option Plan(1)
(b) Standstill Agreement between PAM and Paradox Holdings(1)
(c) Agreement between PAM and Sustainable Systems, Inc.
Exhibit 12 (a) Purchase Agreement Among Paradox Holdings, PAM and FWG(1)
Exhibit 27 Financial Data Schedule
</TABLE>
Footnote:
(1) Incorporated by reference to the Company's Registration Statement on Form
10SB, Amendment 2, filed August 9, 2000.
