UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C., 20549
FORM 10-KSB
ANNUAL REPORT FILED PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the fiscal year ended May 31, 2002
Commission File No. 0-5141
PRINCETON AMERICAN CORPORATION
(Name of small business issuer in its charter)
Nevada 22-1848644
(state or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
2222 East Camelback Road, Suite 105 Phoenix, AZ 85016
(Address of principal office) (Zip code)
Issuer's telephone number, including area code: (602) 522-2444
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001
par value
Indicate by check mark whether the registrant (1) 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 periods 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-B is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year were $1,017,304
The aggregate market value of voting stock held by non-affiliates of the
registrant is not determinable as of August 28, 2002 as the trading of the
Company's shares was halted on October 9, 2000 at the request of the registrant.
The number of shares outstanding of the issuer's common stock, as of the latest
practicable date of August 28, 2002 was 10,923,918.
Princeton American Corporation
FORM 10-KSB
FOR THE FISCAL YEAR ENDED MAY 31, 2002
TABLE OF CONTENTS
PART I............................................................................. 3
Item 1 - Description of Business............................................. 3
Item 2 - Description of Property............................................. 3
Item 3 - Legal Proceedings................................................... 6
Item 4 - Submission of Matters to a Vote of Security Holders................. 7
PART II............................................................................ 8
Item 5 - Market for Common Equity and Related Shareholder Matters............ 8
Item 6 - Management's Discussion and Analysis or Plan of Operation........... 8
Item 7 - Financial Statements and Supplementary Data......................... 9
Item 8 - Changes in and Disagreements with Accountants on Accounting
Financial Disclosure............................................ 9
PART III........................................................................... 10
Item 9 - Directors and Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a) of the Exchange Act 10
Item 10 - Executive Compensation............................................. 11
Item 11 - Security Ownership of Certain Beneficial Owners and Management..... 11
Item 12 - Certain Relationships and Related Transactions..................... 12
Item 13 - Exhibits and Reports on Form 8-K................................... 12
SIGNATURES......................................................................... 12
FINANCIAL STATEMENTS............................................................... F-1
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this report discuss future expectations,
contain projections of results of operations or financial condition or state
other "forward-looking" information. Those statements are subject to known and
unknown risks, uncertainties and other factors that could cause the actual
results to differ materially from those contemplated by the statements. The
forward-looking information is based on various factors and was derived using
numerous assumptions. Important factors that may cause actual results to differ
from forward-looking statements and projections include, for example:
- a downturn in the Phoenix, Arizona real estate market, particularly one
which would adversely affect commercial lease rates;
- an adverse result in litigation referred to in this report;
- any change in tax laws which would change the Company's ability to utilize
its tax loss carry-forward or the inability under existing tax laws for the
full utilization of such tax loss carry-forward;
- an inability of the Company to regain listed or trading status on the
Over-the-Counter Bulletin Board, NASDAQ, the American Stock Exchange, or
some other recognized market or exchange;
- certain operations of the Company, including the formation of alliances
with other entities, will indefinitely remain under the jurisdiction of and
be subject to the confirmation and approval of the U.S. Bankruptcy Court.
Disagreements between the Bankruptcy Court and the Company regarding
business decisions could adversely affect the Company;
- the inability of the Company to secure renewals of existing leases at
commercially reasonable rates or to promptly replace tenants following the
expiration of existing leases;
- the effect of changing economic conditions; and
- other risks which may be described in our future filings with the
Securities and Exchange Commission. The Company does not promise to update
forward-looking information to reflect actual results or changes in
assumptions or other factors that could affect those statements.
2
PART I
ITEM 1. DESCRIPTION OF BUSINESS
CURRENT COMPANY BUSINESS.
As of May 31, 2002, Princeton's primary business activity is the management of
its assets including two office buildings totaling 50,000 square feet in
Phoenix, Arizona. The Company has 2 employees. None of the Company's employees
is represented by a labor union and we believe that employee relations are good.
BANKRUPTCY FILING; APPOINTMENT OF A TRUSTEE.
On December 11, 1996 the Company filed for protection under Chapter 11 of the
U.S. Bankruptcy code. (Case number 96-13675 PHX JMM) On January 21, 1977, the
then existing management of Princeton submitted a Plan of Reorganization. The
Plan was challenged by William C. Taylor, a former principal and creditor of the
Company, who petitioned the Court for the appointment of a trustee.
The case was tried and on February 4, 1997, the Court issued its order
appointing Roger W. Brown as Trustee. Shortly thereafter, the Trustee terminated
the then existing management of Princeton and assumed day-to-day management of
the Company.
CONFIRMATION OF JOINT PLAN OF REORGANIZATION.
After Roger W. Brown was appointed Trustee in February 1997, William C. Taylor
submitted his proposed Plan of Reorganization of Princeton on May 30, 1997.
During the course of extensive litigation among competing plan proponents, other
concerned parties and creditors, on August 28, 1997, Trustee Brown and Mr.
Taylor filed a joint Plan of Reorganization. Their Joint Plan was confirmed by
the Court on November 19, 1997 and was published in its entirety in a current
Report on Form 8K which was filed with the Securities and Exchange Commission
(the "Commission") on December 20, 1997, the Effective Date of the Plan.
ITEM 2. DESCRIPTION OF PROPERTY
2222 EAST CAMELBACK ROAD, PHOENIX, ARIZONA.
On March 12, 1992 Princeton acquired this two story building which contains
approximately 30,778 rentable square feet of office space. The property includes
a banking facility with a drive-in teller's window and a vault on the ground
floor. The Company paid approximately $296,000 cash for the building including
closing costs and commissions.
Princeton occupies 1497 square feet (4.86%) of the total leasable space in this
building. As of May 31, 2002, the balance of the remaining leasable space was
occupied by unaffiliated tenants, producing approximately $700,000 of income
annually. The Realty Taxes for 2222 are approximately $65,400. Additional
information about this property is included in the Property Information and
Operating Data Table at the end of this Item 2.
4808 NORTH 22ND STREET, PHOENIX, ARIZONA.
On December 1, 1994, Princeton acquired this 19,226 rentable sq. ft. two story
office building. The Company paid $1,000,000 for the building, of which $900,000
was borrowed from the seller at 8% annual interest. As of May 31, 2002 the
building is 100% leased and produces approximately $407,000 of income annually.
The Realty Taxes are approximately $40,057. Additional information about this
property is included in the Property Information and Operating Data Table at the
end of this Item 2.
MESA TRAILER PARK COMMISSION RECEIVABLE.
In March, 1994 Princeton acquired a real estate brokerage commission that
provides for payments equal to 5% of the total lease payments generated from a
55 year ground lease of a 55-acre mobile home park in Mesa, Arizona. The Company
purchased the commission for $60,000 cash and 174,400 shares of restricted
Princeton common stock. The lease runs from 1980 to 2031. The commission
3
agreement presently provides quarterly payments of $3,937.50 which are made
through an escrow at Security Title Company. The quarterly payments escalate
annually to $7,437 per quarter at year 2030. Through May 31, 2002 approximately
$332,500 had been paid and $783,218.45 of additional commission will be paid to
Princeton through year 2031 pursuant to the agreement. While there can be no
assurance that Princeton 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.
PROPERTY INFORMATION AND OPERATING DATA
2222 East Camelback Road
Phoenix, Arizona
1. Character and Location. Two story office building; 30,778 rentable square
feet; includes a banking facility with a drive-in teller window and a bank
vault.
2. Title to Property. Building is subject to a First Deed of Trust:
Principal: $2,819,976
Interest rate: 8.25%
Payment: $22,503.68
Maturity: April 2007
(On April 15, 2002, Southwest Bank of Phoenix, one of the prime tenants in the
building, made two loans to the Company aggregating $4,500,000. The loans are
secured by first deeds of trust on both of the Company's office buildings, in
the amount of $2,825,000 for the 2222 East Camelback Road building and
$1,675,000 for the 4808 North 22nd Street facility.)
3. Lease Terms. The Building is subject to two 99 year net ground leases that
expire in 2073 and 2076. Rent adjusts each 10 years based upon 8% of the
fair market value of the ground, excluding improvements. The first lease
has a monthly base payment of $4,933, and will next adjust in 2009. The
second lease has a monthly payment of $3,100 and will next adjust during
the 2003 fiscal year.
4. Renovation or Improvement Plans. In March, 2001, the Company commenced
remodeling of the common areas of the building including a renovated lobby,
hallways and four bathrooms. These improvements were paid for from the
proceeds of a loan obtained from Southwest Bank which was paid in full from
the refinance proceeds of the first deed of trust mentioned above.
5. Competitive Conditions. This property is located in an area known as the
"Camelback Corridor" which is comprised predominately of Class A office
buildings. This area is considered one of the most prestigious in the
metropolitan Phoenix. This building competes with both higher and lower
priced office space in the immediate vicinity. The current market is
strong, with high renewals.
6. Insurance. Management believes that the property is adequately covered by
insurance.
7. General Information.
(i) Occupancy Rate - 100% - as of May 31, 2002.
(ii) Tenants - Rent Roll As of May 31, 2002.
4
EFFECTIVE CURRENT
RENTABLE TENANT MONTHS TO RATE/YR/ BASE
TENANT SQUARE FEET SHARE EXPIRATION SQUARE FEET PER MONTH
------------------- --------------------------------------------------------
Princeton American 1,497 4.86% N/A N/A N/A
Corp.
Eubanks Consulting 325 1.06% N/A $24.00 $ 650
Southwest Bank 8,057 26.17% 40 $22.95 $ 15,410(1)
GBLS Commercial
Real Estate
Services 3,301 10.73% 6 (2) $24.00 $ 6,602
United Title Agency 9,541 31.00% 44 $22.92 $ 18,220
Nationwide Vision 5,084 16.52% 46 $22.50 $ 9,533
International
Circuit Sales 2,973 9.66% 1 $21.00 $ 5,203
(1) Lessee has two (2) five-year options to renew
(2) Lessee has extended lease to December 1, 2002 with right to terminate
after May 1, 2002.
(iii) Tenants principal business, occupations and professions -
Princeton American Corporation - owner and manager of building.
Southwest Bank - banking. GBLS Commercial Real Estate Services - real
estate brokers. United Title Agency/ First Financial Title Agency -
title insurance and escrow services. Nationwide Vision Centers -
outpatient laser eye surgery. International Circuit Sales - computer
component sales- .Eubanks Consulting, Land Planners, Construction and
Development Managers
(iv) Average rental per square foot for the year ending 5/31/02, $21.81
(not including parking and miscellaneous income)
(v) Lease Expirations: All leases will expire no later than five
years from the date of this filing unless renewed or extended by
the lessee.
(vi) Depreciation Components: The Company depreciates the buildings
primarily over lives of 39 years, using the Modified Accelerated Cost
Recovery Method for federal income tax purposes.
PROPERTY INFORMATION AND OPERATING DATA
4808 North 22nd Street
Phoenix, Arizona
1. Character and Location. Two story office building; 19,226 square feet;
located at 4808 North 22nd Street, Phoenix, Arizona.
2. Title to Property. Building is subject to a first deed of trust:
Principal: $1,671,991
Interest rate: 8.0%
Payment: $13,058.97
Maturity: April 2004
3. Lease Terms. Subject to a ground lease which expires July 31, 2031. The
current rent rate is $2,461.93 per month, subject to annual adjustment
based on the Consumer Price Index.
4. Renovation or Improvement Plans. On December 5, 2000, the Company leased
the second floor (comprised of 10,075 square feet) to Alliance Investors,
LLC. for a period of five years. As a condition of this lease, the Tenant
5
completely renovated this space at a cost in excess of $200,000 of which
approximately $100,000 was contributed by the Company. During the months of
January and February, 2002, the Company leased Suite 150 previously
occupied by Shaeffer-Smith-Ankeney Insurance Agency to WRG Design, LLC. for
a new three year term. The cost of tenant improvements to the new WRG
spaces of approximately $26,500 was paid by the Company. Alliance
Investors, LLC (the tenant in Suite 200) expanded its occupancy of the
entire second floor of this building to include the former WRG spaces and
has made extensive improvements to that suite at its own expense. This
office building is now fully leased.
5. Competitive Conditions.
This property is located in an area known as the "Camelback Corridor," which
is comprised predominantly of office buildings. This building competes with
both higher and lower priced office space in the immediate vicinity. Current
market conditions are strong, with high renewals.
6. Insurance. Management believes that the property is adequately covered by
insurance.
7. General Information.
(i) Occupancy Rate: 100% - effective as of May 31, 2002.
(ii) Tenants - Rent Roll as of May 31, 2002.
EFFECTIVE
RATE/YR/
RENTABLE TENANT MONTHS TO SQUARE CURRENT
TENANT SQUARE FEET SHARE EXPIRATION FEET BASE
---------------------- ------------------------------------------ --------
Alliance Investors, LLC 10,075 52,40% 43 $20.25 $17,002
Alliance Investors, LLC 3,302 17.17 20 $20.25 $ 5,572
WRG Design 5,849 30.43% 33 $21.75 $10,601
(iii) Principal business, occupations and professions -
Alliance Investors, LLC - residential real estate. WRG Design - Civil
Engineers, Landscape Architecture
(iv) Average effective rental per square foot for year ending 5/31/02 -
$20.71 (not including parking and miscellaneous income)
(v) Lease Expirations: All leases will expire no later than five years
from the date of this filing unless renewed or extended by lessee.
(vi) Depreciation Components: The Company depreciates the buildings
primarily over lives of 39 years, using the Modified Accelerated Cost
Recovery Method for federal income tax purposes.
ITEM 3. LEGAL PROCEEDINGS
CHAPTER 11 BANKRUPTCY LITIGATION.
ADMINISTRATIVE CLAIMS.
Administrative claims for professional and other services have been paid by the
Company.
UNSECURED CREDITOR CLAIMS.
During the initial stage of the bankruptcy proceedings, creditors filed 65
proofs of claim aggregating $5,001,503. These proofs of claim had been litigated
or settled, reducing the number of claims to 50 and the amount to $1,468,564,
including principal and interest, at the end of fiscal year 2001. As of May 31,
2002, only 34 General Creditor's claims remain unpaid and are the subject of
pending litigation or other disposition by the Bankruptcy Court.
6
SHAREHOLDER CLAIMS.
As reported in the May 31, 2000 10KSB, equity shareholders filed approximately
900 proof of interest claims, allegedly representing 14,840,000 shares. These
claims were reviewed by management and litigated or settled by agreements which
were confirmed by Court orders reducing such outstanding shares to approximately
8,488,828 shares. During the current reporting year, the outstanding shares were
further reduced to 6,554,351 by taking into consideration the 10 to 1 reverse
split which occurred in December 1995 and which had not been calculated with
respect to some of the shareholder's interests.
Unresolved Claims. All proof of interest claims have been resolved by the Court
with the exception of the following matters:
Onset Investment Limited. Onset filed a claim for damages in the amount of
$200,713 based on an alleged breach of a stock purchase agreement by
Princeton. The Company has objected to this claim and the matter is awaiting
determination by the Court. Settlement negotiations are pending, and
Princeton anticipates its maximum exposure to be approximately $25,000 cash
and 70,000 shares of common stock. If the Onset claim is allowed in whole or
in part, the Company intends to seek a ruling by the Bankruptcy Court
subordinating the Onset claim from that of a creditor to that of an equity
holder.
There are 26 claims which remain on the company's books that management believes
are invalid. These claims will remain on the books until a formal
determination has been made as to their invalidity. The aggregate value of
these disputed claims is $133,433 including interest and principal.
RESOLVED CLAIMS.
A proof of claim had been filed with the bankruptcy court by Harry and Irene
Weiss in the amount of $812,707 which was objected to by the company and
resulted in several lawsuits. (See note 8 to the financial statements) This
issue was settled on February 9, 2001. The company agreed to pay the Weiss's
$560,000 in cash plus 10% interest until paid. During the year ended 5-31-02 the
settlement amount of $560,000 plus accrued interest in the amount of $76,823 was
paid in full settlement of this claim.
CURRENT LITIGATION:
Testasecca, et al v. Princeton American Corporation and William C. Taylor.
On May 22, 2001 Lawrence Testasecca and others filed a complaint in an
adversary pleading in the Bankruptcy Court. Among other things, the
Plaintiffs alleged that they should be recognized as owners of an
unspecified number of shares that they purchased after the Bankruptcy Court
proceedings began without establishing that these shares were the subject of
allowed interests under the Plan of Reorganization. The Plaintiffs
petitioned the Court to vacate its September 15, 2001 order which canceled
all outstanding Princeton American share certificates and authorized the
issuance of new certificates reflecting the allowed interests of
shareholders under the Plan of Reorganization. At least three of the
Plaintiffs (Larry Testasecca, Charles Crehore and Eugene Targosz) received
actual notice of the bankruptcy, had filed Proofs of Interest pursuant to
the July 1997 order of the Court establishing a deadline for filing Proofs
of Interest and had voted in favor of the Plan. The remaining Plaintiffs are
relatives of Mr. Targosz and Mr. Testasseca.
On November 8, 2001, the Court issued a Memorandum Decision and Order
denying Plaintiffs petition. Plaintiffs appealed this decision to the U.S.
District Court for the District of Arizona. On July 8, 2002, the District
Court dismissed the appeal because of the failure of the plaintiffs to
pursue it. The remaining segment of the lawsuit is the subject of a Motion
for Summary Judgment filed by the Company and William C. Taylor seeking its
dismissal.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters have been submitted to a vote of security holders since the
annual meeting on September 14, 1995, when shareholders voted to (i) change
the name of the Company from Princeton Electronic Products, Inc. to
Princeton American Corporation, and (ii) to change the domicile of the
Company from New Jersey to the State of Nevada.
Management expects to call for a shareholder's meeting at 10:00 AM on
October 30, 2002 at a location to be announced.
7
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
Princeton's Common Stock had traded on the over-the-counter market "pink sheets"
since the Company was delisted from the NASDAQ (Small Capital) Market in
November 1996, until the following events took place:
On September 15, 2000, the Bankruptcy Court ordered Princeton American and its
transfer agent to cancel all outstanding share certificates and issue new
certificates reflecting the allowed interests under the Plan of Reorganization
and the Court's prior orders. The Court further ordered that Princeton and its
transfer agent are not subject to any claim based upon the cancellation of
outstanding share certificates and the issuance of new certificates in
accordance with the Court's orders.
Effective as of October 9, 2000 the trading symbol "PELT" was cancelled by the
NASD at the Company's request and no further trades will be made under that
symbol. The Company is currently processing exchanges of cancelled share
certificates for new certificates.
The Company has applied to the NASD through the sponsoring brokerage firm of
Peacock, Hislop, Staley and Given, Inc. to be listed on the Over the Counter
Bulletin Board (OTCBB) with a view toward establishing a broader market for
Princeton Shares.
Princeton has never paid any cash dividends on any equity securities, and no
change of this policy is under consideration by the Board of Directors.
Recent Sales of Unregistered Securities. None.
CONFIRMATION OF SECURITIES HOLDINGS
The final shareholder equity base established by Order of the Bankruptcy Court
is set forth below:
Shares recognized as of May 31, 2001. (2) 6,554,351
Shares recognized for issuance to William C. Taylor.(1) 4,369,567
TOTAL SHARES (2) 10,923,918
(1) Represents forty percent (40%) of the total of all of Princeton's common
stock which was outstanding as of the Final Order Allowing Shares. In the
event that the Onset claim is subordinated to Class 12 Claims pursuant to
Section 510(b) of the Bankruptcy Code, Taylor's shares will be increased in
order to maintain his 40% ownership of the stock of Princeton American
Corporation. This could result in a dilution in the value of shares held by
other shareholders.
(2) Represents a downward adjustment in total shares from 14,148,047 as set
forth in the May 31, 2000 and 2001 10KSBs This adjustment conforms with the
Final Order Allowing Shares, after taking into consideration certain shares
for which the 10:1 reverse split calculation had not been made.
(3) As of 5-31-02 10,928,418 shares of common stock have been approved by the
Bankruptcy Court of which 7,460,893 have been issued to 347 holders of
record. 3,462,525 shares have been non- responsive and represent 2,240
holders.
ITEM 6 MANAGEMENT DISCUSSION AND ANALYSIS BACKGROUND:
During the past year Princeton American management has focused on:
1. Upgrading the Company's two office buildings and solving the problems
resulting from the "deferred maintenance" policies of prior management;
2. Completing the task of establishing a final shareholder base and
revitalizing the market for Princeton's shares;
3. Returning the Company to financial stability including refinancing of both
office buildings; and
4. Payment of substantially all of the creditors claims, thereby moving
Princeton closer to emergence from the bankruptcy proceedings. The proceeds
resulting from the Southwest Bank loans were used to clear all of the
company's prior debt including principal and interest to bankruptcy
claimants. The balance is on deposit with the company's bank and will be
used for working capital. 31 claims are still on the company's books which
management considers invalid. At such time as the validity of these claims
is determined an additional adjustment will be made.
The shareholder base has been carefully analyzed and significantly modified by
Court Orders. All old share certificates have been cancelled and new share
certificates issued to shareholders who have tendered their old shares.
8
The Company also focused its attention on the rehabilitation and marketing of
its two office buildings, which have benefited from the increase in demand for
office space in the Phoenix market over the past five years. Several tenant
leases have matured and have either been rolled over at higher prices, or the
tenants have moved elsewhere allowing the Company to replace them with higher
rent paying tenants. The office building at 2222 East Camelback Road is fully
occupied with annual gross revenues exceeding $700,000. It is now known as the
"Southwest Bank Building" in acknowledgement of that financial institution's
lease of the west half of the ground floor including the banking facilities
formerly occupied by Wells Fargo Bank. The lease runs for five years with two
five-year renewal options. Southwest Bank has completely refurbished this 8,057
square foot space. As of 5-31-02 the 2222 East Camelback Road building is 100%
occupied.
The office building at 4808 North 22nd Street was leased to Alliance Investors,
LLC. for a five year term commencing in February, 2001 and WRG Design for a
three year term commencing in February, 2002. Now fully occupied, this building
is currently producing approximately $407,900 in annual revenues.
Management does not anticipate needing additional capital during the next twelve
months and believes that it has sufficient captial to fund any capital
expenditures.
Management believes that the completion of these "clean up" activities this year
will put Princeton a major step closer to attracting potential investors and
merger prospects (in particular those that can take advantage of the Company's
$14,000,000 tax loss carry forward). Armed with a fundamentally sound financial
statement, management intends to pursue all available opportunities for
strategic alliances and potential acquisitions, with a view toward enhancing
shareholder value. While there can be no assurance that the Company will be
successful in doing so, Princeton has applied to the NASD to have its securities
qualify for trading on the OTC Bulletin Board.
ITEM 7. FINANCIAL STATEMENTS
The full text of the Company's audited, consolidated financial statements for
the fiscal years ended May 31, 2002 and 2001 begins on page F-1 of this Report
and is incorporated herein by reference.
ITEM 8. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
9
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
The Directors and Executive Officers of the Company as of May 31, 2002 were:
NAME AGE POSITION DATE ELECTED (*)
---- ----- -------- ----------------
William C. Taylor 70 Chairman, CEO & December 20, 1997
Director
Roderick W. McKinnon III 55 Secretary, Treasurer December 20, 1997
& Director
Scott E. Bird 78 Director December 20, 1997
(*) Pursuant to Article III Section 3.9 of the Plan of Reorganization, the
Directors took office on the "Effective Date" of the Plan.
On May 1, 2001 Mr. Bird resigned as Treasurer and CFO of the Company. Mr.
McKinnon assumed that office on the same date.
RESUMES
Scott E. Bird is the Managing Consultant of SASolutions, LLC, an integrated
business and information technology consulting group and President of Pacific
Aviation Services, an international aviation procurement and support company.
Mr. Bird served as Director and Chief Financial Officer of the Company until his
resignation as CFO in May, 2001. His term as a director will expire on the date
of the next Annual Shareholder's Meeting.
William C. Taylor served the Company as Executive Vice-President from July 1991
to April 1995 and as a Director from August 1994 to April 1995. Mr. Taylor is a
member (inactive) of the State Bar of Arizona and is a licensed realtor. He is a
managing partner in several real estate development companies. Mr. Taylor has
served as Chairman and Chief Executive Officer of the Company since its
reorganization. His term of office will expire on the date of the next Annual
Shareholders Meeting.
Roderick W. McKinnon III has been a Director and Secretary of the Company since
1997. He assumed the additional office of Treasurer on May 1, 2001. Since 1974,
Mr. McKinnon has been President of R.W. McKinnon & Co., Inc., an investment
banking and development service company. He graduated from Northern Arizona
University with a degree in Political Science and serves on several boards of
directors. His term of office will expire on the date of the next Annual
Shareholders Meeting.
10
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation received
for the fiscal year ended May 31, 2002 for services rendered to the Company in
all capacities by the Company's Chief Executive Officer and other executive
officers.
SUMMARY COMPENSATION TABLE
NAME AND PRINCIPAL ANNUAL CASH SECURITIES ALL OTHER
POSITION COMPENSATION OTHER (1) OPTIONS COMPENSATION
-------- ------------ --------- ------- ------------
William C. Taylor $96,000 $ 1,200 -0- -0-
Chairman CEO and
Director
Roderick W McKinnon -0- $ 1,200 -0- -0-
Secretary Treasurer
Director
Scott E Bird (2)
Director -0- $ 1,200 -0- -0-
(1) Directors are compensated at the rate of $200 for each formal meeting of
the Board of Directors. There were six meetings in fiscal year 2002. These
fees are unpaid as of May 31, 2002.
(2) Mr. Bird is a shareholder of SASolutions, L.L.C. a financial consulting
firm which received approximately $3,150.00 through May 31, 2002 for
consulting services to the company.
(3) Mr. McKinnon is associated with a real estate brokerage company that
assisted Princeton with the leasing of several of its Suites. In connection
with these services this firm will be paid $67,793.26 in real estate
leasing commissions. As of May 31, 2002 $45,000 of this amount had been
paid.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as to shares of common stock
owned by (i) each person known to beneficially own more than 5% of the
outstanding common stock , (ii) each director and named executive officer of the
Company, and (iii) all executive officers and directors of the Company as a
group.
NAME TITLE COMMON SHARES PERCENT OF CLASS
William C. Taylor Chairman & CEO 4,502,529 (1) 41.22%
2222 East Camelback Road
Suite 105
Phoenix, Arizona 85016
(1) Includes 132,962 shares which Mr. Taylor owned prior to the Effective Date
of the Plan of Reorganization.
The above percentages of ownership are based on 10,923,918 shares of the
Company's common stock outstanding based upon the Bankruptcy Court Order dated
February 3, 2000. Beneficial ownership has been determined in accordance with
rule 13d-3 of the Securities and Exchange Act of 1934. Pursuant to the rules of
the Securities and Exchange Commission, shares of common stock that each named
person and group has the right to acquire within 60 days pursuant to options,
warrants, conversion privileges or other rights are deemed outstanding for
purposes of computing shares beneficially owned by and the percentage of
ownership of each such person and group. However, such shares are not deemed
outstanding for purposes of computing the shares beneficially owned by, or
percentage of ownership of, any other person or group.
11
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding Princeton's transactions with related parties since
November 1996 is included above in: Item 1 "Description of Business - Sales and
Transfers Prior to Bankruptcy, and Sales and Transfers of Assets"; Item 3 -
"Legal Proceedings"; and Item 5 - "Market for the Registrant's Common Stock and
Related Shareholders Matters - Adjustments of Outstanding Shares and
Shareholders."
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
8K Dated June 27, 2001 Regarding the Testasecca, Etal vs Princeton American
and William C. Taylor litigation
8K dated June 18, 2002 regarding Princeton American's motion to the
Bankruptcy Court regarding non responsive claimants and shareholders. The
motion asked for the court's permission to cancel shares and claims of non
responsive shareholder's after the company made certain efforts to locate
each of these people. This motion was granted by the Court on July 31,
2002.
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.
PRINCETON AMERICAN CORPORATION
By: /s/ William C. Taylor
------------------------------------
William C. Taylor
Chairman, CEO and Director
Date: 8/28/02
-------------------------------
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.
SIGNATURE TITLE DATE
--------- ----- ----
By: /s/ William C. Taylor Chairman, CEO and 8/28/02
------------------------- Director -------
William C. Taylor
By: /s/ Scott E. Bird Treasurer, CFO and 8/28/02
------------------------- Director -------
Scott E. Bird
By: /s/ Roderick W. McKinnon III Secretary and Director 8/28/02
------------------------------ -------
Roderick W. McKinnon III
12
PRINCETON AMERICAN CORPORATION
FINANCIAL STATEMENTS
For the Years Ended
May 31, 2002 and 2001
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Princeton American Corporation
We have audited the accompanying balance sheets of Princeton American
Corporation as of May 31, 2002 and 2001, and the related statements of
operations and comprehensive loss, changes in stockholders' deficit, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Princeton American Corporation
as of May 31, 2002 and 2001 and the results of its operations and its cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 1 to the
financial statements, the Company has been involved in litigation and been under
supervision of the Bankruptcy Court since 1997. Because of this and other
factors, the Company has not been able to generate net income from operations
since its reorganization and the Company has a stockholders' deficit of
$2,848,199 at May 31, 2002. In April 2002, the Company refinanced its office
buildings, which allowed the Company to settle certain litigation and
substantially pay its bankruptcy claims. Management's current plans to operate
the Company are described in Note 1; however, management has not had adequate
time to demonstrate if its plans will be successful. As such, there still exists
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
Evers & Company, Ltd.
Phoenix, Arizona
August 6, 2002
F-2
PRINCETON AMERICAN CORPORATION
BALANCE SHEETS
MAY 31, 2002 AND 2001
ASSETS
2002 2001
---- ----
Current assets:
Cash and cash equivalents $ 49,155 2,541
Loan retention account 224,605 -
Accounts receivable, less allowance for doubtful accounts
of $30,293 at May 31, 2002 38,477 6,068
Investments in marketable securities 45,762 61,678
Prepaid expenses 59,377 33,442
Other assets 26,365 11,009
------------ ------------
Total current assets 443,741 114,738
------------ ------------
PREPAID EXPENSES 55,976 59,798
INVESTMENT IN COMMISSION CONTRACT 209,361 206,161
PROPERTY AND EQUIPMENT, NET 1,394,239 1,379,143
LOAN COSTS, net of accumulated amortization of $3,143
at May 31, 2002 59,018 -
------------ ------------
Total assets $ 2,162,335 1,759,840
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Mortgage notes payable - current portion $ 53,990 30,558
Note payable - other - 133,931
Notes payable, officers 89,000 130,000
Accounts payable 21,762 184,678
Bankruptcy claims 169,773 679,289
Liabilities in dispute - 619,603
Accrued interest 89,380 189,924
Accrued real estate taxes 43,941 310,221
Payroll and sales taxes payable 13,076 15,487
Advance rental income and tenant security deposits 35,473 126,317
------------ ------------
Total current liabilities 516,395 2,420,008
TENANT SECURITY DEPOSITS - LONG TERM 56,163 48,016
MORTGAGE NOTES PAYABLE, NET OF CURRENT PORTION 4,437,976 1,743,869
------------ ------------
5,010,534 4,211,893
------------ ------------
STOCKHOLDERS' DEFICIT:
Common stock, par value $.001, 110,000,000 shares authorized
see note 7 regarding shares issued and outstanding 15,000 15,000
Additional paid-in-capital 2,460,350 2,460,350
Accumulated deficit (5,329,074) (4,506,852)
------------ ------------
(2,853,724) (2,031,502)
Net unrealized gain (loss) on marketable securities 5,525 (420,551)
------------ ------------
Total stockholders' deficit (2,848,199) (2,452,053)
------------ ------------
Total liabilities and stockholders' deficit $ 2,162,335 1,759,840
============ ============
See accompanying notes to financial statements
F-3
PRINCETON AMERICAN CORPORATION
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For the Years Ended May 31, 2002 and 2001
2002 2001
---- ----
REVENUES
Rental income $ 983,716 837,326
Parking and other 33,588 90,119
----------- -----------
1,017,304 927,445
----------- -----------
COSTS AND EXPENSES
Building operating costs 337,082 334,956
Professional fees 209,222 166,993
Payroll and payroll taxes 131,053 140,986
Ground lease 125,809 124,972
Depreciation and amortization 109,363 93,472
Consulting 29,256 49,650
Other 64,189 50,912
----------- -----------
Total costs and expenses 1,005,974 961,941
----------- -----------
INCOME (LOSS) FROM OPERATIONS 11,330 (34,496)
----------- -----------
OTHER INCOME (EXPENSE)
Interest and dividend income 18,904 19,766
Interest expense (356,849) (235,928)
Loss on settlement of claims (44,562) --
Impairment of marketable securities (441,800) --
Other (9,195) (12,424)
----------- -----------
(833,502) (228,586)
----------- -----------
NET LOSS BEFORE INCOME TAXES (822,172) (263,082)
INCOME TAXES 50 50
----------- -----------
NET LOSS $ (822,222) (263,132)
=========== ===========
NET LOSS PER COMMON SHARE, BASIC AND DILUTED $ (0.07) (0.02)
=========== ===========
NET LOSS $ (822,222) (263,132)
NET UNREALIZED LOSS ON MARKETABLE SECURITIES (15,724) (45,360)
----------- -----------
COMPREHENSIVE LOSS $ (837,946) (308,492)
=========== ===========
See accompanying notes to financial statements
F-4
PRINCETON AMERICAN CORPORATION
Statement of Changes in Stockholders' Deficit
For the Years Ended May 31, 2002 and 2001
Unrealized
Additional Gain (Loss)
Common Paid-in Accumulated on
Stock Capital Deficit Securities
-------------- ---------- ------------- --------------
Balance at May 31, 2000 $ 15,000 2,460,350 (4,243,720) (375,191)
Net loss for the year
ended May 31, 2001 -- -- (263,132) --
Unrealized loss on
marketable securities -- -- -- (45,360)
---------- ---------- ---------- ----------
Balance at May 31, 2001 15,000 2,460,350 (4,506,852) (420,551)
Net loss for the year
ended May 31, 2002 -- -- (822,222) --
Impairment of
marketable securities -- -- -- 441,800
Unrealized loss on
marketable securities -- -- -- (15,724)
---------- ---------- ---------- ----------
Balance at May 31, 2002 $ 15,000 2,460,350 (5,329,074) 5,525
========== ========== ========== ==========
See accompanying notes to financial statements
F-5
PRINCETON AMERICAN CORPORATION
STATEMENTS OF CASH FLOWS
For the Years Ended May 31, 2002 and 2001
2002 2001
---- ----
Cash flows from operating activities:
Net loss $ (822,222) (263,132)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 109,363 93,472
Interest income on investment contract (18,450) (18,155)
Rent income allowance in exchange for tenant payment of costs (121,424) (33,634)
Impairment on marketable securities 441,800 -
Loss on settlement of claims 44,562 -
Loss on disposition of assets - 1,248
Increase (decrease) in cash due to change in:
Accounts receivable (32,409) (6,068)
Prepaid expenses (9,618) (73,073)
Other assets (27,851) (11,009)
Accounts payable and accrued expenses (431,608) 113,372
Bankruptcy claims (1,045,869) -
Accrued interest (100,544) 67,761
Rent deposits 8,434 43,353
------------------ ----------------
Net cash used in operating activities (2,005,836) (85,865)
------------------ ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments on notes receivable - 18,149
Purchase of property and equipment (91,023) (82,903)
Payments on investment contract 15,442 14,977
------------------ ----------------
Net cash used in investing activities (75,581) (49,777)
------------------ ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable (265,329) -
Conversion of account payable to note payable - 19,821
Proceeds from (payment on) loan from officers (41,000) 30,000
Payments on mortgage notes payable (1,910,272) (27,398)
Payment of loan costs on mortgage notes payable (62,161) -
Proceeds from mortgage notes payable, net of retention 4,275,395 -
Proceeds from bank loans 131,398 114,110
------------------ ----------------
Net cash provided by financing activities 2,128,031 136,533
------------------ ----------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 46,614 891
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,541 1,650
------------------ ----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 49,155 2,541
================== ================
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION
CASH PAID DURING THE PERIOD FOR INTEREST $ 538,478 153,443
================== ================
CASH PAID DURING THE PERIOD FOR INCOME TAXES $ 50 50
================== ================
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of rent credits for tenant improvements paid by tenant $ 30,293 107,225
================== ================
See accompanying notes to financial statements
F-6
PRINCETON AMERICAN CORPORATION
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2002 AND 2001
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PRESENTATION
The following is a summary of the significant accounting policies
followed by Princeton American Corporation (the Company). The
policies conform with accounting principles generally accepted
in the United States of America and require management to make
estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses as well as
disclosures of contingent assets and liabilities in the
financial statements. Actual results could differ from those
estimates.
During the years ended May 31, 1998 and 1997, the Company did not
have access to adequate records to file audited financial
statements, as required by the Securities and Exchange
Commission. The Company requested a waiver of its filing
requirements for the years ended May 31, 1997 and 1998 and its
quarterly filings through February 28, 2000. The Company can
not obtain a waiver; however, the Securities and Exchange
Commission has indicated that action is unlikely for failure
to file missing reports prior to May 31, 2000. The Company
included in their February 28, 2001 10Q, reissued May 31, 2000
financial statements, which included an audited balance sheet
as of May 31, 1998.
The financial statements of the Company are presented on a
historical cost basis. The estimated fair market value of the
Company's assets at the time of reorganization exceeded the
Company's post-petition liabilities and allowed claims.
Consequently, assets and liabilities were not restated to fair
market value as provided by SOP 90-7.
As of May 31, 2002 the Company had a stockholders' deficit of
$2,848,199. Additionally, the Company has not been able to
generate net income from operations since its reorganization.
The Company is currently under the jurisdiction of the
Bankruptcy Court and is still involved in certain litigation,
as described in Notes 7 and 8 to these financial statements.
To address these uncertainties, management has taken the
following actions.
o Obtained financing for both of its commercial office buildings
o Implemented changes, which it believes will reduce the cost of operating
the buildings.
o Settled a substantial portion of litigation, which management expects will
reduce legal and professional fees during the year ending May 31, 2003.
F-7
PRINCETON AMERICAN CORPORATION
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2002 AND 2001
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
a. BASIS OF PRESENTATION, CONTINUED
o Expects to be released from the supervision of the Bankruptcy
Court, with settlement of the Weiss litigation,
o Intends to pursue listing of the Company's stock on NASDAQ
o Intends to explore the possibility of future mergers and/or
acquisitions
b. ORGANIZATION AND OPERATIONS
Princeton American Corporation is organized under the laws of the
State of Nevada and currently owns two office buildings in
Phoenix, Arizona. The Company was previously engaged in both
the real estate and hair care products industries. The Company
filed for bankruptcy in December 1996 and subsequently
disposed of substantially all its assets during the years
ended May 31, 1997 and 1998, except for the two commercial
buildings and certain investments. The trustee combined
substantially all the Company's operating subsidiaries into
Princeton American Corporation. The Court approved the Plan of
Reorganization for the Company in November 1997.
c. CASH EQUIVALENTS
Cash equivalents include highly liquid debt instruments and other
short-term investments with an original maturity of three months or less.
d. ACCOUNTS RECEIVABLE
Accounts receivable represents rent and other amounts due. An
allowance is provided on a specific identification basis for
all balances which management estimates may not be fully
collectible
e. MARKETABLE SECURITIES, AVAILABLE FOR SALE
Marketable securities available for sale are recorded at their
quoted market prices. Unrealized gains and losses on these
securities are included as a separate component of
comprehensive income and shareholders' equity until realized.
Realized gains and losses on securities available for sale are
computed based upon the average cost of the investment.
F-8
PRINCETON AMERICAN CORPORATION
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2002 AND 2001
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
f. PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are being
depreciated principally on the straight-line method over the
estimated useful lives of the assets, which range from three
to forty years.
g. STOCK OPTIONS
The Company has elected to follow Accounting Principles Board
Opinion No. 25 "Accounting for Stock Issued to Employees"
(APB25) and related interpretations in accounting for its
employee stock options and awards. Under APB 25, no
compensation expense is recognized when the exercise price of
the options equals the fair value (market price) of the
underlying stock on the date of grant. The Company has adopted
the disclosure provisions of Statement of Financial Accounting
Standards No. 123 Accounting for Stock-Based Compensation.
h. INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the
future tax consequence attributable to differences between the
financial statement carrying amount of existing assets and
liabilities; and their respective tax bases, including
operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. The effect in deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period
that includes the enactment date. Valuation allowances are
established when necessary to reduce deferred tax assets to
the amount expected to be realized.
i. EARNINGS PER SHARE
The Company has adopted Statement of Financial Accounting
Standards No. 128 "Earnings Per Share". The standard
simplifies the standards of computing earnings per share and
requires presentation of two new amounts, basic and diluted
earnings per share. Net loss per share is computed by dividing
the loss attributable to common shareholders by the weighted
average number of shares outstanding during the period, which
was approximately 11,000,000 for the years ended May 31, 2002
and 2001. There is uncertainty regarding the number of shares
outstanding. Please read note 7.
F-9
PRINCETON AMERICAN CORPORATION
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2002 AND 2001
2. INVESTMENTS IN MARKETABLE SECURITIES AVAILABLE FOR SALE
Marketable securities consist of the following investments in common stock
at May 31, 2002 and 2001:
2002 2001
---- ----
Exten Industries $ 37,857 55,465
Stratford American 3,000 4,000
Other securities 4,905 2,213
------- ---------
$ 45,762 61,678
========== =========
The total net unrealized gain at May 31, 2002 was $5,525 and the total
net unrealized loss at May 31, 2001 was $420,551. The net unrealized
loss increased by $15,724 and $45,360 during the years ended May 31,
2002 and 2001, respectively.
The Company retains investments in Trans Pacific Group and Sgarlato
Laboratories; however, management considers these investments to be
permanently impaired. The Company recognized a loss of $441,800 on
these investments during 2002.
3. INVESTMENT IN COMMISSION CONTRACT
In March 1994, the Company acquired the rights to the commission on a
ground lease for a mobile home park in Mesa, Arizona. The commission
is based upon a fifty-five (55) year ground lease. Annual payments
ranged from $11,750 in 1994 to $27,000 in 2031. For the years ended
May 31, 2002 and 2001, the commission contract was valued at
$209,361 and $206,161, 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 investment as interest income or
expense in the year of fluctuation.
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at May 31, 2002 and 2001:
2002 2001
---- ----
Office buildings $ 1,296,786 1,296,786
Leasehold improvements 697,167 577,950
Office furniture and equipment 6,240 4,140
----------- -----------
2,000,193 1,878,876
Less: Accumulated depreciation (605,954) (499,733)
----------- -----------
$ 1,394,239 1,379,143
F-10
PRINCETON AMERICAN CORPORATION
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2002 AND 2001
5. NOTES PAYABLE
During the year ended May 31, 2002 the Company refinanced the 2222 E.
Camelback Road office building for $2,825,000 and the 4808 N. 22nd
Street office building for $1,675,000. The proceeds from the
refinancing were used to payoff the existing mortgage notes, pending
legal claims and bankruptcy claims. An escrow account for property
taxes was set up using funds from the notes and monthly payments of
one-twelfth of the annual property taxes are to be made to this
account. A portion of the proceeds to be used for settlement of the
various claims has been set aside in a loan retention account. The
funds are advanced to the Company as needed to payoff existing
liabilities. The mortgage notes are secured by a first deed of trust
and an assignment of the rents and related receivables of the
respective office buildings.
The terms of the Vanderford note that was paid off have been under
dispute since the bankruptcy court modified the terms. The Company
reached a settlement with Vanderford of $1,100,000 to cover
outstanding principal and interest. This amount was $127,812 in
excess of what had been recorded by the Company as a liability, and
has been recorded as a loss on settlement.
Mortgage notes payable consist of the following at May 31, 2002 and 2001:
2002 2001
---- ----
Mortgage note payable, secured by a first deed of trust on the
building at 2222 E. Camelback Road, payable in monthly installments
of $22,504 including interest at 8.25%, through April 2007 $ 2,819,976 -
Mortgage note payable, secured by a first deed of trust on the
building at 4808 N. 22nd St., payable in monthly installments of
$13,059 including interest at 8%, through April 2004 1,671,990 -
Mortgage note payable, secured by a first deed of trust on the
building at 4808 N. 22nd St., payable in monthly installments of
$6,946 including interest at 8%, repaid in 2002 - 806,826
F-11
PRINCETON AMERICAN CORPORATION
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2002 AND 2001
5. NOTES PAYABLE, CONTINUED
Mortgage note payable, Vanderford, secured by a first deed of trust
on the building at 2222 E. Camelback and a second deed of trust on
the building at 4808 N. 22nd St., payable in monthly installments
of $7,338 including interest at 8%, repaid in 2002 - 967,601
------------- ----------
4,491,966 1,774,427
Less current portion (53,990) (30,558)
------------- ----------
Long-term debt, net of current portion $ 4,437,976 1,743,869
========== ==========
Notes payable - other consist of the following at May 31, 2002 and 2001:
2002 2001
---- ----
Line of credit of $200,000, interest accrued at prime plus 2%,
repaid in 2002 $ - 114,110
Note due in monthly installments of $3,500 with a balloon payment of
$12,821 due in August 2001, interest at 12%, secured by
investment in Exten stock, repaid in 2002 - 19,821
------------ -----------
$ - $ 133,931
============ ===========
Maturities of long-term debt at May 31, 2002 are as follows:
YEAR ENDED MAY 31, AMOUNT
2003 $ 53,990
2004 1,689,048
2005 41,626
2006 45,245
2007 2,662,057
---------
$4,491,966
F-12
PRINCETON AMERICAN CORPORATION
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2002 AND 2001
6. NOTES PAYABLE, OFFICERS AND RELATED PARTY TRANSACTIONS
At May 31, 2002, the Company owed an officer $89,000 in principal and
$9,774 in accrued interest under the terms of three 12% promissory
notes that required payments of $5,000 per month beginning January
2000. The Company has not complied with the repayment terms of these
agreements. During the year ended May 31, 2002 the Company made
principal payments of $16,000 and interest payments of $20,200 in
partial payment of the notes. The Company also paid $25,000 in
principal and $5,750 in interest to pay in full a note to a former
officer. Interest expense on the officers' notes totaled $14,870 in
2002 and $14,700 in 2001.
During the years ended May 31, 2002 and 2001 the Company paid a director
consulting fees of $3,150 and $49,650, respectively.
Commission fees equal to 4% of the gross lease amount on several leases in
the office buildings are being paid to a Real Estate firm with which
one of the directors of the company is affiliated. During the year
ended May 31, 2002 payments of $45,000 were made to this firm.
The Company pays each of its three directors $200 for each board meeting
attended. During the year ended May 31, 2002 there were six
meetings. Accrued directors' fees of $12,700 are due for meetings in
the current and prior years.
7. BANKRUPTCY CLAIMS
The Company filed for bankruptcy on December 11, 1996 and is currently
operating as a reorganized debtor under a Joint Plan of
Reorganization confirmed by the United States Bankruptcy Court for
the District of Arizona on November 19, 1997.
Subsequent to the Company's filing in December 1996 and prior to the
reorganization in December 1997, the Company was operated by a
court-appointed trustee. During that time, the trustee liquidated
various assets of the Company other than certain real estate
holdings in Phoenix, Arizona and certain investments in marketable
securities. William Taylor and the Trustee filed a Joint Plan of
Reorganization in November 1997, which was approved in December
1997. Some of the key provisions of the Plan are:
o The Plan classifies various secured, unsecured and non-priority
unsecured claims. The Plan also classifies post petition
administrative claims. As confirmed, the Plan called for the
reorganized debtor to make distributions to unsecured creditors
within one year of the Plan's effective date, December 20, 1998.
Once distributions were made to unsecured creditors, the Plan
would be substantially consummated within the meaning of the
Bankruptcy Code.
o Preferred shareholders received common stock of the Company.
F-13
PRINCETON AMERICAN CORPORATION
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2002 AND 2001
7. BANKRUPTCY CLAIMS, CONTINUED
o Approved common shareholders will retain their interest in the
Company. The interest of shareholders with 10,000 shares or less
(as listed on the records of American Stock Transfer only) shall
be allowed, unless an objection was filed and upheld.
o William Taylor is to receive 40% of the Company's outstanding
stock, upon payment of all unsecured claims. Prior to payment,
Taylor's stock is to be held in escrow. Taylor's interest is
based upon his claim of $990,134 for consulting fees and other
costs.
o The Company's wholly owned subsidiaries, 88 Redevelopment and
4808 Corporation, were merged into Princeton American
Corporation.
The Plan was subsequently modified in January 1999 to extend certain
deadlines of the Plan, including the deadline for making
distributions to unsecured creditors. These deadlines were extended
to 180 days following the entry of a final, non-appealable order
resolving the claim of Harry and Irene Weiss (Note 8).
The deadline for filing proof of ownership interest was also extended
several times in an effort to give stockholders ample opportunity to
file their proofs of interest. The Company and the Court compiled a
final listing of valid proofs of interest. Management currently
believes that the number of shares to be issued may be reduced to
approximately 11,000,000 shares. The Court initially disallowed
approximately 12,000,000 shares in this process primarily because
the stockholders, including many brokers, failed to file proofs of
interest. Upon completion of this process, stockholders' equity was
restated effective to the year ended May 31, 1997 to reflect total
capitalization of $2,475,350. Capitalization was computed based upon
Taylor's ownership interest of 40% of all common stock in settlement
of his claim for $990,134.
On September 15, 2000, the Bankruptcy Court ordered Princeton American
and its transfer agent, American Stock Transfer & Trust ("AST") to
cancel all outstanding Princeton American share certificates and
issue new share certificates reflecting the allowed interest of
shareholders under the Plan of Reorganization for Princeton American
and the Court's prior orders. The Court further ordered that
Princeton American and AST are not subject to any claim based upon
the cancellation of outstanding share certificates and the issuance
of new certificates in accordance with the Court's orders. The final
order became final and non-appealable on September 29, 2000.
Princeton American is in the process of implementing the Court's order,
and new share certificates will be issued for the allowed interests
as soon as reasonably practicable. As of May 31, 2002, 7,460,893
shares had been issued.
F-14
PRINCETON AMERICAN CORPORATION
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2002 AND 2001
7. BANKRUPTCY CLAIMS, CONTINUED
In connection with the issuance of new certificates, Princeton American
has also initiated a process to change its trading symbol. Effective
as of October 9, 2000, the trading symbol, PELT, has been officially
cancelled, and no further trades will be made under that symbol.
After new certificates have been issued to a majority of those
shareholders possessing an allowed interest, a new trading symbol
will be issued to Princeton American. The company has applied to the
NASD to be listed on the Over the Counter Bulletin Board (OTCBB).
In April of 2002 the Company refinanced its office buildings and used a
portion of the proceeds to begin settlement of the bankruptcy
claims. Payments of $1,033,104 in principal and $253,289 in accrued
interest were paid during the year toward the bankruptcy claims and
the settlement of litigation (see note 8). Management determined
that $9,229 of claims (including principal and accrued interest) was
invalid and a gain of $23,646 has been recognized in connection with
the cancellations and settlements. At May 31, 2002 the unpaid
bankruptcy claims were $169,773 and accrued interest at 8% was
$60,269.
8. LITIGATION AND LIABILITIES IN DISPUTE
The Company is involved in litigation arising from actions of the Company
prior to the bankruptcy filing.
In September 1993, the Company acquired residential real estate from
Harry and Irene Weiss in exchange for 600,000 shares of the
Company's restricted common stock, with an agreed upon value of
$1.00 per share. As part of the agreement, the Company agreed that
it would not sell or offer its stock for two years at a price less
than $1.00 per share. However, the Company subsequently violated
that agreement.
Weiss filed a proof of claim with the Bankruptcy Court for an unsecured,
pre-petition claim of $812,707. The Company objected to both the
priority and amount of the claim. The Bankruptcy Court initially
upheld the Company's objection and found that the Weiss claim was
subordinated to the level of a shareholder claim, rather than an
unsecured claim. The Court determined the amount of the claim to be
$619,603. The District Court subsequently reversed the Bankruptcy
Court and found that the Weiss's were entitled to assert an
unsecured non-priority claim in the same amount. The Company
appealed this decision.
The Weiss's also applied for an award of attorney's fees, which was
denied. They also sought to convert the bankruptcy proceedings to
Chapter 7, which would require liquidation of the Company's assets.
The Bankruptcy Court denied their motion.
F-15
PRINCETON AMERICAN CORPORATION
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2002 AND 2001
8. LITIGATION AND LIABILITIES IN DISPUTE, CONTINUED
As the result of mediation proceedings, on February 9, 2001 the Company
and Weiss agreed to settle their dispute for $560,000 in cash, plus
interest at 10%, payable on the earlier of February 9, 2002 or the
sale or refinancing of the 4808 Building. A gain of $59,603 was
recognized in connection with the settlement. The claim of $560,000
along with accrued interest of $76,823 was paid during the year
ended May 31, 2002.
Onset Investments has filed two proofs of claim, totaling $200,713 for
damages resulting from securities transactions prior to the
bankruptcy filing. The Company has objected to the validity,
priority and amount of these claims and intends to defend these
claims vigorously. To date, the Company and Onset have been unable
to settle the dispute and therefore the claim is currently
unresolved and scheduled for a hearing. Legal counsel is unable to
determine the outcome and amount of potential loss from this claim,
if any.
In May 2001 a group of individuals filed a motion to set aside the
Court Order, which canceled all outstanding share certificates and
ordered the issuance of new shares. The group of individuals
obtained stock in the Company after confirmation of the Plan in
November 1997 and asserted that the Company and its president failed
to adequately notify them that the stock obtained might not be valid
under the plan. On November 8, 2001 the Bankruptcy Court entered an
order denying the motion. The ruling was appealed and the District
Court issued an order to show cause as to why the appeal should not
be dismissed. The group of individuals also filed a separate
Complaint asserting claims for equitable relief, securities fraud,
breach of fiduciary duty and negligence. The appeal was dismissed on
July 8, 2002.
9. LEASE COMMITMENTS
The Company leases office space in its commercial buildings located at
2222 E Camelback and 4808 North 22nd Street in Phoenix, Arizona.
Future minimum lease payments required under these leases are as
follows:
YEAR ENDED MAY 31, AMOUNT
----------------- ------
2003 $ 975,197
2004 927,337
2005 865,162
2006 440,496
------------
$ 3,208,192
============
Effective April 30, 2000, the Company and a former tenant entered into a
Lease Termination and Release Agreement, whereby the Company was
required to pay the tenant $50,000. In connection with a new
five-year lease, the new tenant paid a $75,000 fee to obtain the
right to lease the space.
F-16
PRINCETON AMERICAN CORPORATION
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2002 AND 2001
9. LEASE COMMITMENTS, CONTINUED
The office building located at 2222 E. Camelback Road is subject to
two ground leases. The first lease was entered into on November
1, 1974. The second lease was entered into on August 1, 1977.
Both leases are net leases, with terms of 99 years. On the 15th
anniversary and for each succeeding ten-year term, the rent is to
be adjusted to an annual rate equal to 8% of the fair market
value of the leased premises, excluding improvements. The rate on
the first lease was adjusted on November 1, 1999 to a monthly
rate of $4,933. The second lease was adjusted to a monthly rate
of $3,100 on the 15th anniversary of the lease and will be
adjusted in 2002. Rent expense on these two leases for the years
ended May 31, 2002 and 2001 was $96,400 for each year.
The office building located at 4808 N. 22nd Street is subject to a
ground lease, the term of which extends through July 31, 2031. The
lease is a net lease. The rental rate as of May 31, 2002 was $2,462
and is subject to an annual adjustment based on the Consumer Price
Index. Rent expense on this lease for the years ended May 31, 2002
and 2001 was $29,409 and $28,572, respectively.
The Company has a limited number of tenants in both buildings. As such,
the loss of certain tenants could adversely impact the Company.
Additionally, accounts receivable are from a limited number of
tenants.
The Company's future minimum lease obligations on the ground leases for
the next five years are approximately $126,000 per year, based upon
the current valuation.
10. DEFERRED RENTAL INCOME
During the year ended May 31, 2001, the Company negotiated two leases that
provided for a tenant improvement allowance and lease commission to
be paid by the tenants and then deducted from the rent due during
the 3rd through 12th months of the leases. The total amounts of the
tenant improvements of $107,225 and the leasing commission of
$17,540 were capitalized and are being amortized over the life of
the lease. The deferred rental income is being amortized on a
straight-line basis over ten months. Deferred rental income of
$33,634 was recognized during the year ended May 31, 2001 leaving a
balance of $91,131 at May 31, 2001. The remaining balance was
recognized during the year ended May 31, 2002.
F-17
PRINCETON AMERICAN CORPORATION
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2002 AND 2001
11. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments", requires that the Company
disclose estimated fair values for its financial instruments. The
following summary presents a description of the methodologies and
assumptions used to determine such amounts.
Fair value estimates are made at a specific point in time and are based
on relevant market information and information about the financial
instrument; they are subjective in nature and involve uncertainties,
matters of judgment and, therefore, cannot be determined with
precision. These estimates do not reflect any premium or discount
that could result from offering for sale at one time the Company's
entire holdings of a particular instrument. Changes in assumptions
could significantly affect the estimates.
Since the fair value is estimated as of May 31, 2002, the amounts that
will actually be realized or paid at settlement of the instruments
could be significantly different.
The carrying amount of cash and cash equivalents is assumed to be the
fair value because of the liquidity of these instruments. The
recorded amount of the investment in marketable securities
approximates market based upon quoted market values. The investment
in the commission contract has been discounted to its estimated
present value using market rates of interest. Accounts payable and
accrued expenses approximate fair value because of the short
maturity of these instruments. The recorded balance of notes payable
and bankruptcy claims are assumed to be the fair value, since the
rates specified approximate current market rates.
12. INCOME TAXES
The components of net deferred tax assets at May 31, 2002 and 2001,
assuming a federal tax rate of 34% and a 7% state rate, are as follows:
2002 2001
---- ----
Net operating and capital loss carryforwards $ 5,230,000 5,100,000
Depreciation of marketable securities - 170,000
Difference in basis of property & equipment 100,000 110,000
Accrued real estate taxes 20,000 120,000
Less valuation allowance (5,350,000) (5,500,000)
--------- ---------
Net deferred tax assets $ - -
=========== ==========
The expected tax benefit from the net loss before income taxes was
offset by a valuation allowance, since the Company has not yet
developed a history of profitable operations. During the years ended
May 31, 2002 and 2001 the valuation allowance increased (decreased)
by approximately ($150,000) and $40,000, respectively.
F-18
PRINCETON AMERICAN CORPORATION
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2002 AND 2001
12. INCOME TAXES, CONTINUED
At May 31, 2002, the Company has approximately $15,000,000 in unused
federal net operating loss carryforwards, which expire from 2003
through 2022. The state net operating loss carryforwards, which
approximate $3,000,000, expire from 2003 through 2007.
Due to significant changes in ownership in prior years and changes in
the Company's operations, the amount of operating losses available
to offset future income taxes may be significantly limited. The
Company has not yet completed an evaluation of the amount of losses
that are available for utilization by the Company or a prospective
merger candidate.
F-19