1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT FILED PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________.
Commission file No. 0-5141
Princeton American Corporation
(Exact name of small business issuer as specified in its Charter)
Nevada 22-1848644
(state or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2222 East Camelback Road, Suite 105, Phoenix, AZ 85016
(Address of Principal Executive Offices, including Zip Code)
Issuer's telephone number, including area code: (602) 522-2444
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 [ ]
14,148,047 shares of Common Stock, par value $.001 per share, were
outstanding at February 28, 2001
Transitional Small Business Disclosure Format (Check One):
Yes [ ] No [X]
2
PRINCETON AMERICAN CORPORATION
FORM 10-QSB
INDEX
Part I Financial Information Page
Item 1 - Financial statements (unaudited)
Unaudited Condensed Balance Sheet - February 28, 2001
Unaudited Condensed Statements of Operations and
Comprehensive Income (Loss) - Nine Months and three Months
ended February 28, 2001 and February 29, 2000
Unaudited Condensed Statements of Cash Flows - Nine Months
ended February 28, 2001 and February 29,2000
Unaudited Notes to Financial Statements
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations.
PART II Other Information
Item 5 Other information
Filing of Audited Balance Sheet for the year ended
May 31, 1998
Item 6 Exhibits and Reports on Form 8-K.
Signatures
3
PRINCETON AMERICAN CORPORATION
Unaudited Condensed Balance Sheet
February 28, 2001
ASSETS
Current assets:
Cash and cash equivalents $ 6,205
Accounts receivable 21,833
Investments in marketable securities 68,401
Prepaid expenses 82,199
-----------
Total current assets 178,638
-----------
Investment in commission contract 205,313
Property and equipment, net 1,259,712
-----------
$ 1,643,663
===========
4
PRINCETON AMERICAN CORPORATION
Unaudited Condensed Balance Sheet
February 28, 2001
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable - current portion $ 29,955
Notes payable, officers 130,000
Accounts payable 231,986
Bankruptcy claims 679,289
Liabilities in dispute 619,603
Accrued interest 166,647
Accrued real estate taxes 279,644
Payroll and sales taxes payable 14,463
Deferred rental income 63,473
Advance rental income and tenant security deposits 45,209
----------
Total current liabilities 2,260,269
Tenant security deposits - long term 48,016
Mortgage notes payable 1,751,739
----------
4,060,024
----------
Stockholders' deficit:
Common stock
approximately 15,000,000 shares issued and outstanding 15,000
Additional paid-in-capital 2,460,350
Accumulated deficit (4,477,656)
-----------
(2,002,306)
Net unrealized loss on marketable securities (414,055)
-----------
Total stockholders' deficit (2,416,361)
----------
Total liabilities and stockholders' deficit 1,643,663
==========
See accompanying notes to financial statements
5
PRINCETON AMERICAN CORPORATION
Unaudited Condensed Statements of Operations and Comprehensive Income (Loss)
For the Three Months and Nine Months Ended February 28, 2001 and
February 29, 2000
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
February 28, 2001 February 29, 2000 February 28, 2001 February 29, 2000
----------------- ----------------- ----------------- -----------------
Revenues
Rental income $ 198,091 213,091 $ 605,545 626,532
Parking and other 3,545 2,660 83,555 4,253
---------- ------- --------- -------
201,636 215,751 689,100 630,785
---------- ------- --------- -------
Costs and expenses
Building operating costs 76,045 86,740 251,583 268,372
Professional fees 24,982 65,979 140,857 129,991
Payroll and payroll taxes 36,051 35,261 105,808 102,514
Ground lease 31,201 29,621 93,688 88,768
Depreciation 34,939 21,050 100,115 85,996
Consulting 17,900 21,950 41,100 63,100
Other 11,029 7,953 34,359 29,865
---------- ------- --------- -------
Total costs and expenses 232,147 268,554 767,510 768,606
---------- ------- --------- -------
Loss from operations (30,511) (52,803) (78,410) (137,821)
---------- ------- --------- ---------
Other income (expense)
Interest and dividend income 5,101 5,420 14,899 17,040
Interest expense (52,076) (56,392) (163,051) (165,785)
Other - (920) (7,374) 129,570
---------- -------- -------- --------
(46,975) (51,892) - (155,526) (19,175)
---------- -------- -------- ---------
Net loss before income tax (77,486) (104,695) (233,936) (156,996)
Income taxes - - - 50
---------- -------- -------- ---------
Net loss $ (77,486) (104,695) (233,936) (157,046)
========== ========= ======== =========
Net loss per common share, basic and
diluted $ (0.01) (0.01) (0.02) (0.01)
========== ========= ======== =========
Net loss $ (77,486) (104,695) (233,936) (157,046)
Net unrealized gain (loss) on marketable
securities (5,286) 266,482 (38,864) 261,251
---------- --------- -------- --------
Comprehensive income (loss) $ (82,772) 161,787 (272,800) 104,205
========== ========= ======== ========
See accompanying notes to financial statements
6
PRINCETON AMERICAN CORPORATION
Unaudited Condensed Statements of Cash Flows
For the Nine Months Ended February 28, 2001 and February 29, 2000
2001 2000
---- ----
Cash flows from operating activities:
Net loss $ (233,936) (157,046)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation 100,115 85,996
Interest income on investment contract (13,620) (13,384)
Rent abatement (7,052)
Gain on sale of real estate - (8,481)
Decrease (increase) in receivables (21,833) 448
Decrease (increase) in prepaid expenses (62,032) 16,005
Increase in accounts payable and accrued expenses 173,563 177,788
Increase (decrease) in rent deposits 35,836 (55,076)
----------- --------
Net cash provided by (used in) operating activities (28,959) 46,250
----------- --------
Cash flows from investing activities:
Payments on notes receivable 18,149 25,081
Purchase of property and equipment (5,567) (27,020)
Payments on investment contract 11,063 10,688
----------- --------
Net cash provided by investing activities 23,645 8,749
----------- --------
Cash flows from financing activities:
Refund of deposit - 9,930
Proceeds from sale of real estate - 20,981
Proceeds from (payments on) loan from officers 30,000 (20,000)
Payments on mortgage notes payable (20,131) (19,392)
----------- --------
Net cash provided by (used in) financing activities 9,869 (8,481)
----------- --------
Net increase in cash and cash equivalents 4,555 46,518
Cash and cash equivalents, beginning of year 1,650 5,820
----------- --------
Cash and cash equivalents, end of period $ 6,205 52,338
=========== ========
Supplementary Disclosure of Cash Flow Information
Cash paid during the period for interest $ 105,426 104,133
=========== ========
Cash paid during the period for income taxes $ - 50
=========== ========
Noncash Investment Activities
Assets acquired in return for rent abatement $ 70,525 -
=========== ========
See accompanying notes to financial statements
7
PRINCETON AMERICAN CORPORATION
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FEBRUARY 28, 2001 AND FEBRUARY 29, 2000
1. BASIS OF PRESENTATION
The accompanying financial statements have been prepared by the Company,
without audit, and reflect all adjustments that are, in the opinion
of management, necessary for a fair statement of the results for the
interim periods. The statements have been prepared in accordance with
generally accepted accounting principles for interim financial
reporting and Securities and Exchange Commission regulations. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, the financial statements
reflect all adjustments (of a normal and recurring nature) which are
necessary for a fair presentation of the financial position, results
of operations and cash flows for the interim periods. The results of
operations for the three months and nine months ended February 28,
2001 are not necessarily indicative of the results to be expected for
the entire fiscal year.
These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's
annual report on Form 10K-SB for the fiscal year ended May 31, 2000.
2. CANCELLATION OF OUTSTANDING SHARES AND ISSUANCE OF NEW SHARES
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. 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.
3. CHANGES IN LITIGATION AND LIABILITIES IN DISPUTE
As the result of mediation proceedings on February 9, 2001 the Company and
Weiss agreed to settle their dispute for $560,000. The claim must be
paid on February 9, 2002 or when the Company sells or refinances the
4808 N. 22nd Street office building. The Weisses' claim will be
secured by a third-position deed of trust against the 4808 Property.
Interest will accrue at a rate of 10% from February 9, 2001 until
payment of the claim. The Company is currently negotiating settlement
documents, after which the documents will be submitted to the
3. CHANGES IN LITIGATION AND LIABILITIES IN DISPUTE, CONTINUED
8
Bankruptcy Court for approval. As part of the settlement with the
Weisses, the Company will ask the Court to enter an order
establishing the amount and priority of the Weisses' claim according
to the settlement. The Company will have six months from the date of
the order to settle all bankruptcy claims.
As part of the settlement, the Weisses will renounce and release their
shareholder interests in the Company.
4. SIGNIFICANT CHANGES IN TENANT LEASES
The Company signed a five-year agreement to lease approximately 10,000
square feet at average annual rates of approximately $20.40 per
square foot in the building located at 4808 N. 22nd Street. The
Company is required under the terms of the lease to provide
approximately $70,000 of tenant improvements in the form of reduced
rent over a period of ten months. This tenant formerly occupied
approximately 8,600 square feet in the building at 2222 E. Camelback
Road.
The Company also signed two five-year lease agreements of approximately
5,000 square feet each at average annual rates of approximately
$23.00 per square foot. The Company is required under the terms of
the leases to provide approximately $12,000 and $37,000 in tenant
improvements in the form of reduced rents during a portion of the
first year of the leases.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 the Weiss or other litigation referred to in this
report;
- any change in tax laws which would change the Company's ability to
utilize its tax loss carryforward or the inability under existing tax
laws for the full utilization of such tax loss carryforward;
- 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 remain under the jurisdiction of and be
subject to the confirmation and approval of the U.S. Bankruptcy Court.
The decisions of the Bankruptcy Court, with respect to Company
operations retained under its jurisdiction, could affect the business
of 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
10
- other risks which may be described in our future filings with
Securities and Exchange Commission. We do not promise to update
forward-looking information to reflect actual results or changes in
assumptions or other factors that could affect those statements.
RESULTS OF OPERATIONS:
Since the filing of the 10QSB for the second quarter ended November 30, 2000,
Management has focused on:
+ Continuing settlement negotiations with Harry and Irene Weiss with
respect to their claim. On February 9, 2001, the Weisses and the
Company concluded a two day settlement conference before the Hon.
Charles G. Case of the United States Bankruptcy Court. The conference
culminated in an agreement between the parties to settle the various
disputes among them, including the Company's objection to the priority
and amount of the Weisses' claim. The parties are presently drafting
settlement documents and expect to complete this task within the next
several weeks. Assuming that these negotiations are successful, the
parties will ask the Bankruptcy Court to approve the terms of the
settlement and enter an order establishing the amount and priority of
the Weisses' claim. This settlement is contingent on Bankruptcy Court
Approval.
Under the agreement, Princeton will recognize that the Weisses have an
allowed claim of $560,000 as of February 9, 2001. Interest will accrue
on the claim at the rate of 10% per annum from February 9, 2001 until
paid. The Company must pay the claim on the earlier of the following
events: (1) February 9, 2002; or (2) when the Company sells or
refinances its office building at 4808 N. 22nd Street, Phoenix, Arizona
(the "4808 Property"). The Weisses' claim will be secured by a
third-position deed of trust against the 4808 Property.
The Weisses will renounce and release their shareholder interest in
Princeton American Corp. The parties will provide mutual releases of
all claims relating to the Company's bankruptcy case and will dismiss
all pending appeals relating to the Weisses' claim and their motion to
convert the case from a Chapter 11 to a Chapter 7 proceeding.
As part of the settlement with the Weisses, the Company will petition
the Court for an order establishing the amount and priority of the
Weisses' claim according to the settlement. Upon entry of this order
and, assuming it is not stayed or appealed, the Company will have six
months from entry of the order to pay unsecured creditors pursuant to
the Plan as modified.
+ Leasing of suite 200 at 4808 North 22nd Street, Phoenix, Arizona. A
lease of the second floor (10,000 square feet) of this office building
was entered into with Alliance Investors, LLC, a residential
development company on December 5, 2000. Alliance has 420 employees
(with 44 in the Phoenix office) and over a billion dollars of real
estate under management. The lease is for five years at an average
annual rate of $20.44 per square foot for a total of $1,046,960 in
revenues to Princeton over the term of the lease. The Company is
obligated to
11
provide approximately $70,000 of tenant improvements in the form of
reduced rent over a period of ten months commencing May 1, 2001. This
office building is now fully occupied.
+ Leasing of vacant spaces at 2222 East Camelback Road, Phoenix, Arizona.
The Company has executed a lease of suites 200 and 210 to United Title
Company. United Title moved into these spaces on February 1, 2001. The
lease is for five years at an average annual rate of $23.00 per square
foot for a total of $ 607,430 in revenues to the Company over the term
of the lease. Princeton is required under the terms of the lease to
provide approximately $12,000 in tenant improvements in the form of
reduced rent during a portion of the first year of the lease.
Suite 250 was originally configured to provide 6911 square feet of
rentable space. On February 26, 2001, the Company entered into a lease
with Nationwide Vision Center for 5084 square feet of this space
(including a portion of Company occupied storage space adjoining the
suite) for a period of five years commencing on March 15, 2001. With an
average annual rate of $23.00 per square foot, the Company will receive
$584,660 in revenues over the term of this lease. Princeton American
Corp. is required under the terms of the lease to provide $36,700 of
tenant improvements in the form of reduced rent over a period of ten
months commencing with the third month of the lease.
The remaining portion of this space (redesignated Suite 260) and Suite
112 (recently vacated by Southwest Bank's move into its new spaces in
the building) are currently being marketed.
With the 4808 building fully occupied and occupancy at the 2222
building at just under 90%, combined scheduled annual revenues from
these buildings are approximately $960,000.
+ In anticipation of a settlement of the Weiss claim, the Company has
made preliminary inquiries with several financial institutions
regarding the refinancing of its two office buildings in order to pay
off the Vanderford mortgage loan and to generate sufficient funds to
satisfy creditors claims aggregating $679,289 (but not including the
Weiss claim), and to establish an operating capital fund. There is no
assurance that the Company will be able to raise the necessary funds to
accomplish these objectives.
+ Implementing the adjustments of outstanding shares and shareholders. On
September 15, 2000, The Bankruptcy Court entered its Order: (1)
Approving Cancellation Of Outstanding Share Certificates and Issuance
Of New Certificates, and (2) Barring Claims. A copy of the Order is
contained in the Form 8-K set forth in Item 6 of the November 30, 2000
Form 10QSB.
Pursuant to the Order, American Stock Transfer & Trust was directed to
cancel all outstanding shares of the Company. As of October 9, 2000,
Princeton's trading symbol "PELT" was officially cancelled by NASD. No
further trades will be made under that symbol and no shares of stock
can be issued until trading is allowed to resume pursuant to the Order.
On October 10, 2000, notice was mailed to those shareholders possessing
an allowed interest, requesting that the cancelled share certificates
be returned to the Company to be replaced by new certificates as
authorized by the Order. Once this process is completed, Princeton will
12
have approximately 15,000,000 shares issued and outstanding. The
Company has applied to the NASD for registration of the Company's
shares for trading on the Over the Counter Bulletin Board Market
(OTCBB). It is anticipated that a new trading symbol will be issued by
the NASD if Princeton's application is approved.
THREE MONTHS ENDED FEBRUARY 28, 2001 COMPARED TO THREE MONTHS ENDED
FEBRUARY 29, 2000
We believe that our cash position of $6,205 as of February 28, 2001,
coupled with the increased revenues resulting from the lease-up of 4808
North 22nd Street, and the leasing to United Title and Nationwide
Vision Centers of the spaces at 2222 East Camelback Road will be
sufficient to continue operations for the next twelve months (if
necessary) under bankruptcy court supervision.
The Company is required to pay all unsecured and administrative claims
(aggregating $679,289, but not including the Weiss claim) in order to
emerge from bankruptcy proceedings. In order to raise the capital
necessary to accomplish this, we plan to either: (1) sell 4808 North
22nd Street or (2) refinance both office buildings. Either of these
alternatives (or a combination thereof) should produce sufficient funds
to discharge these obligations. Efforts are ongoing to sell the 4808
building. We have had a tentative commitment from a lender to refinance
both buildings, pending resolution of outstanding bankruptcy issues.
PART II - OTHER INFORMATION
Item 5 Other information
Filing of Audited Balance Sheet for the year ended
May 31, 1998
Subsequent to the filing of the Company's Annual Report on
Form 10KSB for the years ended May 31, 1999 and 2000 the Commission
requested that the Company file its audited balance sheet for the year
ended May 31, 1998. Audited Financial Statements for the years ended
May 31, 2000, 1999 and as of May 31, 1998 which included that balance
sheet are filed herewith as a part of this Report on Form 10QSB.
Item 6 Exhibits and Reports on Form 8-K
NONE
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Date: April 16, 2001
PRINCETON AMERICAN CORPORATION
/s/ William C. Taylor
-----------------------------------
William C. Taylor
President
/s/ Roderick W. McKinnon III
-----------------------------------
Roderick W. McKinnon III
Corporate Secretary
14
PRINCETON AMERICAN CORPORATION
FINANCIAL STATEMENTS
For the Years Ended
May 31, 2000 and 1999
And as of May 31, 1998
15
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, 2000, 1999 and 1998, and the related statements of
operations and comprehensive loss, changes in stockholders' deficit, and cash
flows for the years ended May 31, 2000 and 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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, 2000, 1999 and 1998, and the results of its operations and its
cash flows for the years ended May 31, 2000 and 1999 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Notes 1, 9 and 10 to
the financial statements, the Company is involved in litigation and is also
operating under a Joint Plan of Reorganization following a bankruptcy filing in
December 1996, which raise substantial doubt about its ability to continue as a
going concern. Management's plans with regard to these matters are also
discussed in Note 9. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
The Plan of Reorganization will not be substantially consummated until payment
of unsecured creditors. Prior to that time, the Company is under the supervision
of the Bankruptcy Court. The Company is involved in litigation, which is being
overseen by the Bankruptcy Court. The Bankruptcy Court may exert significant
influence over the operations of the Company, which may result in changes to the
estimates described in the accompanying financial statements. Please read note
9; it describes certain aspects and uncertainties of the bankruptcy filing.
Evers & Company Ltd.
Phoenix, Arizona
February 28, 2001
16
PRINCETON AMERICAN CORPORATION
Balance Sheets
May 31, 2000, 1999 and 1998
ASSETS
2000 1999 1998
---- ---- ----
Current assets:
Cash and cash equivalents $ 1,650 5,820 16,870
Notes receivable, current portion 947 1,970 1,792
Accounts receivable - trade - 448 2,108
Investments in marketable securities 107,265 27,298 45,015
Prepaid expenses 20,167 41,240 70,056
------------ ---------- ----------
Total current assets 130,029 76,776 135,841
------------ ---------- ----------
Notes receivable, net of current portion 17,202 41,483 43,453
Investment in commission contract 202,756 199,162 195,395
Property and equipment, net 1,283,735 1,344,408 1,482,967
Investment in real estate - 12,500 12,500
Deposits - 9,930 9,930
------------ ---------- ----------
$ 1,633,722 1,684,259 1,880,086
============ ========== ==========
See accompanying notes to financial statements
17
PRINCETON AMERICAN CORPORATION
Balance Sheets
May 31, 2000, 1999 and 1998
LIABILITIES AND STOCKHOLDERS' DEFICIT
2000 1999 1998
---- ---- ----
Current liabilities:
Notes payable - current portion $ 28,284 26,117 24,114
Notes payable, officers 100,000 70,000 -
Accounts payable 161,152 39,286 26,518
Bankruptcy claims 679,289 741,813 800,235
Liabilities in dispute 619,603 619,603 619,603
Accrued interest 122,163 71,251 21,631
Accrued real estate taxes 222,690 157,956 58,788
Payroll and sales taxes payable 13,172 14,330 48,352
Advance rental income and tenant security deposits 30,773 88,933 27,221
--------- --------- ---------
Total current liabilities 1,977,126 1,829,289 1,626,462
Tenant security deposits - long term 26,616 26,908 83,427
Mortgage notes payable 1,773,541 1,801,825 1,827,942
--------- --------- ---------
3,777,283 3,658,022 3,537,831
--------- --------- ---------
Commitments, contingencies and subsequent events (see notes)
Stockholders' deficit:
Common stock, par value $.001, 100,000,000 shares authorized
approximately 15,000,000 shares issued and outstanding 15,000 15,000 15,000
Additional paid-in-capital 2,460,350 2,460,350 2,460,350
Accumulated deficit (4,243,720) (3,996,395) (3,688,996)
--------- --------- ---------
(1,768,370) (1,521,045) (1,213,646)
Net unrealized loss on marketable securities (375,191) (452,718) (444,099)
--------- --------- ---------
Total stockholders' deficit (2,143,561) (1,973,763) (1,657,745)
--------- --------- ---------
Total liabilities and stockholders' deficit $ 1,633,722 1,684,259 1,880,086
========= ========= =========
See accompanying notes to financial statements
18
PRINCETON AMERICAN CORPORATION
Statements of Cash Flows
For the Years Ended May 31, 2000 and 1999
2000 1999
---- ----
Cash flows from operating activities:
Net loss $ (247,325) (307,399)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 107,046 140,184
Interest income on investment contract (17,844) (17,517)
Loss (gain) on investment (2,440) 9,098
Gain on sale of real estate (8,481) -
Non-cash gain on settlement of claim (62,524) -
Decrease in receivables 448 1,660
Decrease in prepaid expenses 21,073 28,816
Increase in accounts payable and accrued expenses 185,442 17,796
Increase in accrued interest 50,912 51,316
Increase (decrease) in rent deposits (58,452) 5,193
---------- --------
Net cash used in operating activities (32,145) (70,853)
---------- --------
Cash flows from investing activities:
Payments on notes receivable 25,304 1,792
Purchase of property and equipment (46,373) (1,625)
Payments on investment contract 14,250 13,750
---------- --------
Net cash provided by (used in) investing activities (6,819) 13,917
---------- --------
Cash flows from financing activities:
Refund of deposit 9,930 -
Proceeds from sale of real estate 20,981 -
Repayment of notes payable to officers (20,000) (20,000)
Proceeds from loan from officers 50,000 90,000
Payments on mortgage notes payable (26,117) (24,114)
---------- --------
Net cash provided by financing activities 34,794 45,886
---------- --------
Net decrease in cash and cash equivalents (4,170) (11,050)
Cash and cash equivalents, beginning of year 5,820 16,870
---------- --------
Cash and cash equivalents, end of year $ 1,650 5,820
========== ========
Supplementary Disclosure of Cash Flow Information
Cash paid during the year for interest $ 176,884 158,922
========== ========
Cash paid during the year for income taxes $ 100 217
========== ========
See accompanying notes to financial statements
19
PRINCETON AMERICAN CORPORATION
Statements of Operations and Comprehensive Loss
For the Years Ended May 31, 2000 and 1999
2000 1999
---- ----
Revenues
Rental income $ 842,565 913,083
Parking and other 6,710 9,622
----------- -----------
849,275 922,705
----------- -----------
Costs and expenses
Building operating costs 354,723 375,122
Professional fees 176,794 147,843
Payroll and payroll taxes 135,425 134,006
Ground lease 123,088 117,838
Depreciation 107,046 140,184
Consulting 83,115 72,750
Other 99,108 51,180
----------- -----------
Total costs and expenses 1,079,299 1,038,923
----------- -----------
Loss from operations (230,024) (116,218)
----------- -----------
Other income (expense)
Interest and dividend income 21,836 23,336
Interest expense (227,796) (208,542)
Gain on settlement of lawsuits 183,225 --
Other 5,534 (5,758)
----------- -----------
(17,201) (190,964)
----------- -----------
Net loss before income tax (247,225) (307,182)
Income taxes 100 217
----------- -----------
Net loss $ (247,325) (307,399)
=========== ===========
Net loss per common share, basic and diluted $ (0.02) (0.02)
=========== ===========
Net loss $ (247,325) (307,399)
Net unrealized gain (loss) on marketable securities 77,527 (8,619)
----------- -----------
Comprehensive loss $ (169,798) (316,018)
=========== ===========
See accompanying notes to financial statements
20
PRINCETON AMERICAN CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
For the Years Ended May 31, 2000 and 1999
Unrealized
Additional Gain (Loss)
Common Paid-in Accumulated on
Stock Capital Deficit Securities
----- ------- ------- ----------
Balance at May 31, 1998 $ 15,000 $ 2,460,350 $(3,688,996) $ (444,099)
Net loss for the year
ended May 31, 1999 -- -- (307,399) --
Unrealized loss on
marketable securities -- -- -- (8,619)
----------- ----------- ----------- -----------
Balance at May 31, 1999 15,000 2,460,350 (3,996,395) (452,718)
Net loss for the year
ended May 31, 2000 -- -- (247,325) --
Unrealized gain on
marketable securities -- -- -- 77,527
----------- ----------- ----------- -----------
Balance at May 31, 2000 15,000 2,460,350 (4,243,720) (375,191)
=========== =========== =========== ===========
See accompanying notes to financial statements
21
PRINCETON AMERICAN CORPORATION
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2000, 1999 AND 1998
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 generally accepted accounting principles 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. However, they have requested that the Company file 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.
At May 31, 2000, the Company had a stockholders' deficit of $2,143,561
and a working capital deficit of $1,847,097. Additionally, the
Company has been unable to generate net income from operations
since its reorganization. The Company is currently under the
jurisdiction of the Bankruptcy Court and is involved in
litigation, as described in Notes 9 and 10 to these financial
statements. Management's plans with regard to these matters are
also discussed in Note 9. These financial statements have been
prepared assuming the Company will be able to continue operations
and do not include any adjustments that might result from the
outcome of these uncertainties.
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. At the date of its last filing with the Securities and
Exchange Commission for the year ended May 31, 1996, the Company
was engaged in both the real estate and hair care products
industries.
22
PRINCETON AMERICAN CORPORATION
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2000, 1999 AND 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
b. ORGANIZATION AND OPERATIONS
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. 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.
e. INVESTMENTS IN REAL ESTATE
Investments in real estate were valued at the lower of cost or market.
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.
23
PRINCETON AMERICAN CORPORATION
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2000, 1999 AND 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
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 new 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 assumed to be
approximately 15,000,000 for the years ended May 31, 2000 and
1999.
2. NOTES RECEIVABLE
Notes receivable consist of the following at May 31, 2000, 1999 and
1998. No allowance for doubtful accounts is considered necessary.
2000 1999 1998
---- ---- ----
Note receivable, secured by a first deed
of trust on real property, payable
in monthly installments of $282
including interest at 9.5%, paid
during the year ended May 31, 2000
$ - 24,442 25,450
24
PRINCETON AMERICAN CORPORATION
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2000, 1999 AND 1998
2. NOTES RECEIVABLE
2000 1999 1998
---- ---- ----
Note receivable, secured
by a first deed of trust
on real property,
payable in monthly
installments of $219
including interest at
9.5%, remaining
principal and interest
due August 2001 18,149 19,011 19,795
--------- ------ ------
$ 18,149 43,453 45,245
Less current portion (947) (1,970) (1,792)
--------- ------ ------
Notes receivable, net of current portion $ 17,202 41,483 43,453
========= ====== ======
3. INVESTMENTS IN MARKETABLE SECURITIES AVAILABLE FOR SALE
Marketable securities consist of the following investments in common stock
at May 31, 2000, 1999 and 1998:
2000 1999 1998
---- ---- ----
Exten Industries $ 90,241 13,756 33,016
Stratford American 14,584 13,542 9,895
Other securities 2,440 -- 2,104
-------- ------ ------
$107,265 27,298 45,015
======== ====== ======
Total net unrealized losses at May 31, 2000, 1999 and 1998 were
$375,191, $452,718 and $444,099 respectively. The net unrealized
loss decreased by $77,527 during the year ended May 31, 2000 and
increased by $8,619 during the year ended May 31, 1999.
The Company also has an investment in Sgarlato Laboratories, a
privately held company, which management estimates has minimal
value. As such, the investment has been written down to zero at
May 31, 2000, 1999 and 1998.
25
PRINCETON AMERICAN CORPORATION
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2000, 1999 AND 1998
4. 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 range
from $11,750 in 1994 to $27,000 in 2031. For the years ended May 31,
2000, 1999 and 1998, the commission contract was valued at $202,756,
$199,162, and $195,395, respectively. The valuation is determined by
calculating the net present value of the quarterly payments at an
imputed interest rate of twelve percent (12%). The Company recognizes
any fluctuation in the market value as interest income or expense in
the year of fluctuation.
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at May 31, 2000, 1999 and
1998:
2000 1999 1998
---- ---- ----
Office buildings $1,296,786 1,296,786 1,296,786
Leasehold improvements 515,686 615,132 615,132
Office furniture and equipment 4,139 4,139 2,514
--------- --------- ---------
1,816,611 1,916,057 1,914,432
Less: Accumulated depreciation (532,876) (571,649) (431,465)
--------- --------- ---------
$1,283,735 1,344,408 1,482,967
========== ========= =========
6. INVESTMENT IN REAL ESTATE
At May 31, 1999 and 1998 the Company owned a parcel of undeveloped land
with a cost of $12,500. The property was sold during the year ended May
31, 2000 for $20,981 resulting in a gain of $8,481 after selling
expenses.
7. MORTGAGE NOTES PAYABLE
Mortgage notes payable consist of the following at December 31, 2000, 1999
and 1998:
2000 1999 1998
---- ---- ----
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% through
January 2020 $824,846 841,485 856,848
26
PRINCETON AMERICAN CORPORATION
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2000, 1999 AND 1998
7. MORTGAGE NOTES PAYABLE
2000 1999 1998
---- ---- ----
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%, remaining principal and
interest due December 2004 976,979 986,457 995,208
---------- --------- ---------
1,801,825 1,827,942 1,852,056
Less current portion (28,284) (26,117) (24,114)
---------- --------- ---------
Long-term debt, net of current portion $1,773,541 1,801,825 1,827,942
========== ========= =========
The terms of the Vanderford mortgage note payable are being disputed. The
original loan, which was made shortly before the bankruptcy filing,
called for an interest rate of 15%, with a maturity date of December
1999. The terms of the note were revised by the court to the current
terms. The Company and the lender have reached a verbal agreement to
modify the terms. The agreement is subject to the approval of the
Bankruptcy Court.
Maturities of long-term debt at May 31, 2000 are as follows:
Year ended May 31, Amount
------------------ ------
2001 $ 28,284
2002 30,632
2003 33,174
2004 35,928
2005 955,310
Thereafter 718,497
----------
$1,801,825
==========
27
PRINCETON AMERICAN CORPORATION
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2000, 1999 AND 1998
8. NOTES PAYABLE, OFFICERS AND RELATED PARTY TRANSACTIONS
On May 31, 2000, notes payable, officers included two $25,000 notes, with
an interest rate of 12% that are due and payable on or before May 1,
2001. One of the Company's officers also paid a $50,000 administrative
claim directly for the Company. The Company is obligated to repay the
officer under the terms of a 12% promissory note that required payments
of $5,000 per month beginning January 2000. The Company has not
complied with the repayment terms of this agreement. At May 31, 1999,
the outstanding balance was $70,000, plus accrued interest of $1,696 at
a rate of 18%. Advances totaled $50,000 and $90,000 during the years
ended May 31, 2000 and 1999, respectively. Repayments were $20,000 in
both years. Interest on the notes totaled $9,876 in 2000 and $1,253 in
1999.
During the years ended May 31, 2000 and 1999 the Company paid a director
consulting fees of $82,115 and $72,750, respectively.
9. 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:
- 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.
- Preferred shareholders received common stock of the Company.
- 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. Claims for greater
than 10,000 shares required the shareholder to file a proof of
interest or their interest would be reduced to 10,000 shares.
- 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.
9. BANKRUPTCY CLAIMS, CONTINUED
28
PRINCETON AMERICAN CORPORATION
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2000, 1999 AND 1998
- 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 10).
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. Currently there are approximately
15,000,000 shares of common stock (including Taylor's 40% interest),
which were established by this process. The Court disallowed
approximately 12,000,000 shares in this process primarily because the
stockholders, including many of those held by 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.
During the year ended May 31, 2000 a settlement was reached with Hyman
Center, the Company's former president, for a claim related to
compensation due for services rendered prior to the bankruptcy. The
settlement called for a cash payment of $4,300 and an unsecured claim
of $100,000. The claim is to bear interest from January 1, 2000 until
paid in full. A gain of $58,225 has been recorded from this settlement.
The Company has accrued interest at 8% on all unpaid bankruptcy claims
since December 1997, with the exception of the Center claim.
Upon resolution of the Weiss claim, management intends to explore the
possibility of refinancing the buildings or the viability of merger
candidates.
See Note 15 for updated information related to the cancellation and
reissuance of stock certificates by the bankruptcy court.
10. 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
& 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.
10. LITIGATION AND LIABILITIES IN DISPUTE, CONTINUED
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
29
PRINCETON AMERICAN CORPORATION
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2000, 1999 AND 1998
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. The Weiss's appealed both decisions.
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 was unable to determine the outcome and amount of potential
loss from these claims. However, the Company has recorded a liability
for the amount of the Weiss claim approved by the Court. See Note 15
for updated information related to the Weiss claim.
During the year ended May 31, 2000, the Company reached a settlement with a
former officer and director, which required him to pay the Company
$125,000 in exchange for certain promissory notes, assets received upon
his termination from the Company and other claims filed by the Company.
The terms of the mortgage note described in Note 7 are also being
contested.
11. ACCRUED REAL ESTATE TAXES
The Company was delinquent on its real estate tax obligations during the
years ended May 31, 2000 and 1999, which resulted in tax liens being
placed on both its commercial properties. Interest incurred on real
estate tax obligations was approximately $30,000 in 2000 and $7,000 in
1999.
12. 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:
30
PRINCETON AMERICAN CORPORATION
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2000, 1999 AND 1998
12. LEASE COMMITMENTS, CONTINUED
Year ended May 31, Amount
----------------- ------
2001 $ 476,617
2002 219,680
2003 78,315
2004 11,798
--------
$ 786,410
=========
Effective April 30, 2000, the Company and a former tenant entered into a
Lease Termination and Release Agreement, whereby the Company is
required to pay the tenant $50,000 in five equal monthly payments
beginning July 1, 2000. In connection with the new five-year lease, the
tenant paid a $75,000 fee to obtain the right to lease the space. The
Company signed a five-year lease agreement for the space in June 2000,
which requires annual payments that range from approximately $184,000
to $210,000 over the term of the lease. This lease is not included in
the above schedule.
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, 2000 and 1999 was $95,444 and $90,744,
respectively.
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, 2000 was $2,311 and is subject
to an annual adjustment based on the Consumer Price Index. Rent expense
on this lease for the years ended May 31, 2000 and 1999 was $27,644 and
$27,094, respectively.
The Company has a limited number of tenants in both buildings. As such, the
loss of certain tenants could adversely impact the Company.
The Company's future minimum lease obligations on the ground leases for the
next five years are approximately $124,000 per year, based upon the
current valuation.
See Note 15 for updated leasing activity.
31
PRINCETON AMERICAN CORPORATION
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2000, 1999 AND 1998
13. 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, 2000, 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 rate specified in the mortgage
note receivable approximates current market rates. 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.
14. INCOME TAXES
The components of net deferred tax assets at May 31, 2000, 1999 and 1998,
assuming an effective tax rate of 40%, are as follows:
2000 1999 1998
---- ---- ----
Net operating loss carryforward $ 5,730,000 5,780,000 5,730,000
Appreciation of marketable securities 150,000 180,000 170,000
Difference in basis of property & equipment (170,000) (160,000) (120,000)
Accrued real estate taxes 90,000 60,000 20,000
Less valuation allowance (5,800,000) (5,860,000) (5,800,000)
----------- ----------- -----------
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 year ended May 31, 2000,
the valuation allowance decreased by approximately $60,000. For 1999,
it increased by approximately $60,000.
14. INCOME TAXES, CONTINUED
32
PRINCETON AMERICAN CORPORATION
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2000, 1999 AND 1998
At May 31, 2000, the Company has approximately $14,000,000 in unused
federal net operating loss carryforwards, which expire from 2001
through 2020. The state net operating loss carryforwards, which
approximate $8,000,000 expire from 2001 through 2005
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.
15. SUBSEQUENT EVENTS
Cancellation of outstanding shares and issuance of new shares
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 its
agents 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 Company is in the process of implementing the Court's order, and new
share certificates will be issued for the allowed interests. 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, management expects that a new trading
symbol will be issued to Princeton American and that the Company will
be able to trade on the OTC Bulletin Board.
Significant changes in tenant leases
The Company signed a five-year agreement to lease approximately 10,000
square feet at average annual rates of approximately $20.40 per square
foot in the building located at 4808 N. 22nd Street. The Company is
required under the terms of the lease to provide approximately $70,000
of tenant improvements in the form of reduced rent over a period of ten
months. This tenant formerly occupied approximately 8,600 square feet
in the building at 2222 E. Camelback Road.
The Company also signed two five-year lease agreements of approximately
5,000 square feet each at average annual rates of approximately $23.00
per square foot. The Company is required under the terms of the leases
to provide approximately $12,000 and $37,000 in tenant improvements in
the form of reduced rents during a portion of the first year of the
leases.
15. SUBSEQUENT EVENTS, CONTINUED
Changes in litigation and liabilities in dispute
As the result of mediation proceedings on February 9, 2001 the Company and
Weiss agreed to settle their dispute for $560,000. The claim must be
paid on February 9, 2002 or when the Company
33
PRINCETON AMERICAN CORPORATION
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2000, 1999 AND 1998
sells or refinances the 4808 N. 22nd Street office building. The
Weisses' claim will be secured by a third-position deed of trust
against the 4808 Property. Interest will accrue at a rate of 10% from
February 9, 2001 until payment of the claim.
The Company is currently negotiating settlement documents, after which the
documents will be submitted to the Bankruptcy Court for approval. As
part of the settlement with the Weisses, the Company will ask the Court
to enter an order establishing the amount and priority of the Weisses'
claim according to the settlement. The Company will have six months
from the date of the order to settle all bankruptcy claims. The Weisses
will also renounce and release their shareholder interest in the
Company.