<PAGE>   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]
<PAGE>   2
                         PRINCETON AMERICAN CORPORATION

                                   FORM 10-QSB

                                      INDEX
<TABLE>
<CAPTION>


Part I Financial Information                                                                            Page
<S>                                                                                                     <C>

       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.
</TABLE>



Signatures
<PAGE>   3
                         PRINCETON AMERICAN CORPORATION
                        Unaudited Condensed Balance Sheet
                               February 28, 2001

                                     ASSETS

<TABLE>
<S>                                                        <C>
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
                                                           ===========
</TABLE>
<PAGE>   4
                         PRINCETON AMERICAN CORPORATION
                        Unaudited Condensed Balance Sheet
                                February 28, 2001



                      LIABILITIES AND STOCKHOLDERS' DEFICIT

<TABLE>
<CAPTION>

<S>                                                                           <C>
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
                                                                              ==========
</TABLE>
                           See accompanying notes to financial statements

<PAGE>   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

<TABLE>
<CAPTION>

                                                    Three Months           Three Months         Nine Months         Nine Months
                                                       Ended                   Ended               Ended                Ended
                                                 February 28, 2001      February 29, 2000    February 28, 2001    February 29, 2000
                                                 -----------------      -----------------    -----------------    -----------------
<S>                                                  <C>                  <C>                  <C>                  <C>
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
                                                     ==========            =========              ========           ========
</TABLE>

                 See accompanying notes to financial statements
<PAGE>   6
                         PRINCETON AMERICAN CORPORATION
                  Unaudited Condensed Statements of Cash Flows
        For the Nine Months Ended February 28, 2001 and February 29, 2000
<TABLE>
<CAPTION>

                                                                                      2001                     2000
                                                                                      ----                     ----
<S>                                                                               <C>                        <C>
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                        -
                                                                                  ===========                 ========
</TABLE>
                       See accompanying notes to financial statements


<PAGE>   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
<PAGE>   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.
<PAGE>   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
<PAGE>   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
<PAGE>   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
<PAGE>   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
<PAGE>   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
<PAGE>   14
                         PRINCETON AMERICAN CORPORATION

                              FINANCIAL STATEMENTS

                               For the Years Ended
                              May 31, 2000 and 1999
                             And as of May 31, 1998
<PAGE>   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
<PAGE>   16
                         PRINCETON AMERICAN CORPORATION
                                 Balance Sheets
                           May 31, 2000, 1999 and 1998

                                     ASSETS
<TABLE>
<CAPTION>

                                                             2000                     1999                     1998
                                                             ----                     ----                     ----
<S>                                                    <C>                       <C>                      <C>
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
                                                        ============              ==========               ==========
</TABLE>


                                  See accompanying notes to financial statements
<PAGE>   17
                         PRINCETON AMERICAN CORPORATION
                                 Balance Sheets
                           May 31, 2000, 1999 and 1998


                      LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>

                                                                               2000            1999            1998
                                                                               ----            ----            ----
<S>                                                                      <C>               <C>             <C>
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
                                                                           =========        =========       =========
</TABLE>

                                  See accompanying notes to financial statements
<PAGE>   18
                         PRINCETON AMERICAN CORPORATION
                            Statements of Cash Flows
                    For the Years Ended May 31, 2000 and 1999
<TABLE>
<CAPTION>

                                                                        2000                    1999
                                                                        ----                    ----

<S>                                                                    <C>                        <C>
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
                                                                       ==========                 ========
</TABLE>

                                  See accompanying notes to financial statements
<PAGE>   19
                         PRINCETON AMERICAN CORPORATION
                 Statements of Operations and Comprehensive Loss
                    For the Years Ended May 31, 2000 and 1999


<TABLE>
<CAPTION>
                                                                   2000                    1999
                                                                   ----                    ----
<S>                                                            <C>                     <C>
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)
                                                               ===========             ===========
</TABLE>
                See accompanying notes to financial statements

<PAGE>   20
                         PRINCETON AMERICAN CORPORATION
                  STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
                    For the Years Ended May 31, 2000 and 1999


<TABLE>
<CAPTION>
                                                                                                             Unrealized
                                                              Additional                                     Gain (Loss)
                                         Common                Paid-in             Accumulated                   on
                                         Stock                 Capital                Deficit                Securities
                                         -----                 -------                -------                ----------
<S>                                   <C>                    <C>                   <C>                      <C>
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)
                                      ===========            ===========            ===========             ===========
</TABLE>
                See accompanying notes to financial statements

<PAGE>   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.
<PAGE>   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.
<PAGE>   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.

<TABLE>
<CAPTION>
                                                                 2000             1999             1998
                                                                 ----             ----             ----
<S>                                                              <C>            <C>               <C>
         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
</TABLE>
<PAGE>   24
                         PRINCETON AMERICAN CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                           MAY 31, 2000, 1999 AND 1998

2.   NOTES RECEIVABLE

<TABLE>
<CAPTION>
                                                               2000              1999            1998
                                                               ----              ----            ----
<S>                                                         <C>                 <C>              <C>
         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
                                                            =========           ======           ======
</TABLE>

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:

<TABLE>
<CAPTION>
                                                               2000             1999             1998
                                                               ----             ----             ----
<S>                                                          <C>                <C>              <C>
                      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
                                                             ========           ======           ======
</TABLE>

         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.
<PAGE>   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:

<TABLE>
<CAPTION>
                                                              2000             1999              1998
                                                              ----             ----              ----
<S>                                                        <C>               <C>               <C>
                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
                                                            ==========       =========         =========
</TABLE>

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:

<TABLE>
<CAPTION>
                                                                 2000             1999             1998
                                                                 ----             ----             ----
<S>                                                            <C>              <C>               <C>
         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
</TABLE>
<PAGE>   26
                         PRINCETON AMERICAN CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                           MAY 31, 2000, 1999 AND 1998


7.   MORTGAGE NOTES PAYABLE

<TABLE>
<CAPTION>
                                                                 2000             1999              1998
                                                                 ----             ----              ----
<S>                                                         <C>               <C>               <C>
         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
                                                            ==========        =========         =========
</TABLE>

      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:

<TABLE>
<CAPTION>
         Year ended May 31,                                             Amount
         ------------------                                             ------
<S>                                                                  <C>
              2001                                                   $    28,284
              2002                                                        30,632
              2003                                                        33,174
              2004                                                        35,928
              2005                                                       955,310
              Thereafter                                                 718,497
                                                                      ----------
                                                                      $1,801,825
                                                                      ==========
</TABLE>
<PAGE>   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
<PAGE>   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
<PAGE>   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:
<PAGE>   30
                         PRINCETON AMERICAN CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                           MAY 31, 2000, 1999 AND 1998


12.  LEASE COMMITMENTS, CONTINUED

<TABLE>
<CAPTION>
     Year ended May 31,                                      Amount
     -----------------                                       ------
<S>                                                        <C>
           2001                                            $ 476,617
           2002                                              219,680
           2003                                               78,315
           2004                                               11,798
                                                            --------
                                                           $ 786,410
                                                           =========
</TABLE>

     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.
<PAGE>   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:

<TABLE>
<CAPTION>
                                                           2000                    1999                    1998
                                                           ----                    ----                    ----
<S>                                                    <C>                     <C>                     <C>
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                                $        --                      --                      --
                                                       ===========             ===========             ===========
</TABLE>

     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
<PAGE>   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
<PAGE>   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.