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===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
-------------
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported) June 16, 1998
Commission File No. 0-22191
CCA COMPANIES INCORPORATED
--------------------------
(Exact Name of Registrant)
Delaware 65-0675901
------------------------------- ---------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
3250 Mary Street
Suite 405
Coconut Grove, FL 33133
----------------------------------------
(Address of Principal Executive Offices)
(305) 444-3888
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
NOT APPLICABLE
----------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if changed Since Last Report)
===============================================================================
Page 1 of 60
<PAGE>
Item 2. Acquisition or Disposition of Assets
In August 1997, the Company entered into an agreement to acquire
certain rights to develop a hotel and casino project in Yuzhno-Sakhalinsk on the
Sakhalin Island of the Russian Federation (the "Sakhalin Project"), located 20
minutes by air from Sapporo, Japan. This agreement dated August 12, 1997, and
amended September 9, 1997 (as amended, the "Sakhalin Agreement") was entered
into with Sakhalin General Trading and Investments Limited ("SGTI") and
Sovereign Gaming and Leisure Limited ("Sovereign"), each a limited liability
company organized under the laws of Cyprus, pursuant to which the Company would
acquire: (i) all of the share capital of SGTI, which included (a) all of SGTI's
rights and interest in a project to develop the Sakhalin Project, and (b) SGTI's
ownership interest in 65% of the shares of Sakhalin City Centre Limited ("SCC"),
a closed joint stock company incorporated under the laws of the Russian
Federation, which, in turn, holds certain rights, including a guarantee by the
city of Yuzhno-Sakhalinsk to issue a gaming license to SCC and (ii) all rights
and interest to or in the Sakhalin Project held by Sovereign, including certain
operating and project management agreements with respect to the Project
(collectively, the "Shares and Rights"). On October 24, 1997, the Company, SGTI
and Messrs. William Stephan Cairns and John Bryne Horgan, as directors of SGTI,
entered into a stock purchase agreement (the "Stock Purchase Agreement") which
represented a more expansive and substantive agreement than the Sakhalin
Agreement.
On December 12, 1997, the Company, in accordance with the Sakhalin
Agreement and Stock Purchase Agreement (i) completed the acquisition of 100% of
the shares of SGTI, and thus acquired an indirect interest in 65% of the capital
stock of SCC, (ii) acquired all rights and interests of Sovereign in certain
operating and project management agreements related to the Sakhalin Project, and
(iii) issued 2,000,000 shares of its Common Stock to the owners of SGTI. In
addition, as required by the Sakhalin Agreement and in consideration of the
Shares and Rights, the Company made advances of $3,000,000 to SGTI. The
Company's Common Stock was valued at $5.20 per share on the date the acquisition
was completed and as such, the value attributed to the 2,000,000 shares of the
Company's Common Stock issued to the owners of SGTI was $10,400,000. Further, in
connection with the development of the Sakhalin Project, the Company as part of
its acquisition of SGTI and SCC recorded construction in progress of $3,444,000
and recorded excess cost over fair value of assets acquired of $10,584,000.
The summary of the terms of the Sakhalin Agreement and Stock Purchase
Agreement contained in this Form 8-K is qualified in its entirety by the more
detailed information contained in the Sakhalin Agreement and Stock Purchase
Agreement filed with the Securities and Exchange Commission as Exhibits to the
Company's June 30, 1997 Form 10-K and September 30, 1997 Form 10-Q,
respectively.
Item 4. Change in Registrant's Certifying Accountant
Registrant's December 18, 1997 Form 8-K reported the resignation of
Richard A. Eisner & Company LLP ("Eisner") as its independent accountant, and
that the Registrant was seeking a replacement with better capabilities to
service Registrant's recently significantly expanded international operations.
On June 12, 1998, the Registrant engaged BDO Seidman, LLP
2
<PAGE>
("Seidman") as its independent accountant. Prior to engagement of Seidman there
were no consultations by Registrant with Seidman relating to disclosable
disagreements with Eisner, how accounting principles would be applied by Seidman
to a specific transaction, or the type of opinion Seidman might render.
Registrant has afforded Seidman an opportunity to furnish a letter to the
Commission with its comments. Eisner has been furnished with a copy of this Form
8-K and was requested to direct a letter to the Commission stating whether it
agrees with the disclosures herein and , if not, stating the respects in which
it disagrees. The letter is not available at the time of filing this Form 8-K.
Eisner furnished a letter to the commission in connection with its resignation,
and has indicated to Registrant that it has no knowledge of matters relating to
consultations with Seidman.
Item 7. Financial Statements and Exhibits:
(a) The following financial statements of Sakhalin General Trading &
Investments Limited ("SGTI") are included herein:
Report of Independent Chartered Certified Accountants (Cyprus) for the year
ended December 31, 1997
Balance Sheet as of December 31, 1997
Statement of Profit and Loss for the Year ended December 31, 1997
Statement of Cash Flows for the Years ended December 31, 1997
Notes to Financial Statements
Report of Independent Chartered Certified Accountants (Cyprus) for the year
ended December 31, 1996
Balance Sheet as of December 31, 1996
Statement of Profit and Loss for the Year ended December 31, 1996
Statement of Cash Flow for the Year ended December 31, 1996
Notes to Financial Statements
Report of Independent Chartered Certified Accountants (Cyprus) for the period
ended December 31, 1995
Balance Sheet as of December 31, 1995
Statement of Profit and Loss for the Period from September 28, 1994 (inception)
to December 31, 1995
Statement of Cash Flow for the Period from September 28, 1994 (inception) to
December 31, 1995
3
<PAGE>
Notes to Financial Statements
Condensed Balance Sheet as of March 31, 1998 (unaudited)
Condensed Statements of Operations for the Three Months ended March 31, 1998 and
March 31, 1997 (unaudited)
Condensed Statements of Cash Flows for the Three Months ended March 31, 1998 and
March 31, 1997 (unaudited)
(b) Pro Forma Financial Information
CCA Companies Incorporated ("CCA") pro forma condensed consolidated statements
of operations for the year ended June 30, 1997 (unaudited)
CCA Companies Incorporated ("CCA") pro forma condensed consolidated statements
of operations for the nine months ended March 31, 1998 (unaudited)
(c) Exhibits
SIGNATURES
4
<PAGE>
(a) FINANCIAL STATEMENTS
The following audited financial statements were prepared by Chartered
Certified Accountants of Cyprus in accordance with International Accounting
Standards and audited in accordance with International Standards on Auditing.
There are no material differences or variations in the international standards
applied compared to those required by U.S. generally accepted accounting
principles.
SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
31 DECEMBER 1997
Company Registration Number 65256
P.G. ECONOMIDES & CO
Chartered Certified Accountants
5
<PAGE>
SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED 31 DECEMBER 1997
CONTENTS PAGES
Officers and professional advisers 7
The directors' report 8
Auditors' report to the shareholders 9
Consolidated balance sheet 10
Consolidated profit and loss account 11
Consolidated cash flow statement 12 to 13
Notes to the consolidated financial statements 14 to 17
6
<PAGE>
SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
OFFICERS AND PROFESSIONAL ADVISERS
THE BOARD OF DIRECTORS Charles Howard Stein
Gregory Kendrich Pilkington
COMPANY SECRETARY Totalserve Management Limited
REGISTERED OFFICE 227 Arch. Makarios III Avenue
Doma building, 5th floor
Limassol
Cyprus
AUDITORS P.G. Economides & Co
Chartered Certified Accountants
BANKERS Hambros Bank (Guernsey) Limited
7
<PAGE>
SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
THE DIRECTORS' REPORT
YEAR ENDED 31 DECEMBER 1997
The directors have pleasure in presenting their report and the financial
statements of the company for the year ended 31 December 1997.
PRINCIPAL ACTIVITIES OF THE COMPANY
The principal activity of the company is investing in a city centre property and
leisure development company in Russia.
RESULTS AND DIVIDENDS
The trading results for the year, and company's financial position at the end of
the year are shown in the attached financial statements.
The directors have not recommended a dividend.
The deficit for the year amounting to USD281.979 will be added to the deficiency
on profit and loss account brought forward from the previous year.
DIRECTORS
The directors who served the company during the year will continue in office in
accordance with the company's articles of association.
FIXED ASSETS
The movements in fixed assets are recorded in the notes to the financial
statements.
AUDITORS
The auditors Messrs P.G.Economides & Co, have expressed their willingness to
continue in office.
Registered office: Signed on behalf of the directors
227 Arch. Makarios III Avenue
Doma building, 5th floor
Limassol
Cyprus
Totalserve Management Limited
Company secretary
Approved by the directors on 12 June 1998
8
<PAGE>
SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
AUDITORS' REPORT TO THE SHAREHOLDERS
YEAR ENDED 31 DECEMBER 1997
We have audited the financial statements on pages 10 to 17 and have obtained all
the information and explanations we considered necessary. 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 audit.
We conducted our audit in accordance with International Standards on Auditing.
Those standards require that we plan and perform the audit 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 statements presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion proper books of account have been kept by the company and the
financial statements, which are in agreement therewith, give a true and fair
view of the state of affairs of the group at 31 December 1997 and of the group's
loss and cash flows for the year then ended in accordance with International
Accounting Standards and comply with the Companies Law, Cap. 113.
P.G. ECONOMIDES & CO
Chartered Certified Accountants
Limassol, 12 June 1998
9
<PAGE>
SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
CONSOLIDATED BALANCE SHEET
31 DECEMBER 1997
<TABLE>
<CAPTION>
1997 1996
Note USD USD
<S> <C> <C> <C>
FIXED ASSETS
Fixed assets 5. 3,984 6,725
Construction in progress 6. 3,613,431 1,654,580
----------- ----------
3,617,415 1,661,305
CURRENT ASSETS
Stock 7. 2,678 2,002
Debtors 8. 45,617 14,600
Cash at bank and in hand 740,360 23,891
----------- ----------
788,655 40,493
CREDITORS: Amounts falling
due within one year 9. (6,895) (399,594)
----------- ----------
NET CURRENT ASSETS (LIABILITIES) 781,760 (359,101)
----------- ----------
TOTAL ASSETS LESS CURRENT LIABILITIES 4,399,175 1,302,204
PROVISIONS FOR LIABILITIES AND CHARGES
Other provisions 10. (3,336,000) (305,541)
----------- ----------
1,063,175 996,663
Minority interests 70,625 29,316
----------- ----------
NET ASSETS 1,133,800 1,025,979
----------- ----------
CAPITAL AND RESERVES
Equity share capital 11. 478,484 398,344
Share premium account 12. 827,446 517,786
Additional share premium account 552,427 552,427
Profit and loss account 13. (724,557) (442,578)
----------- ----------
SHAREHOLDERS' FUNDS 1,133,800 1,025,979
----------- ----------
</TABLE>
These financial statements were approved by the directors on the 12 June 1998
and are signed on their behalf by:
CHARLES HOWARD STEIN
Director
The notes on pages 14 to 17 form part of these financial statements.
10
<PAGE>
SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
CONSOLIDATED PROFIT AND LOSS ACCOUNT
YEAR ENDED 31 DECEMBER 1997
<TABLE>
<CAPTION>
1997 1996
Note USD USD
<S> <C> <C> <C>
REVENUES - -
Distribution costs (56,162) (60,292)
Administrative expenses (274,740) (225,377)
Other operating income 3,880 3,567
----------- -----------
OPERATING LOSS 2. (327,022) (282,102)
Interest receivable and similar income 3. 3,734 884
LOSS ON ORDINARY ----------- -----------
ACTIVITIES BEFORE TAXATION (323,288) (281,218)
Tax on loss on ordinary activities 4. - -
LOSS ON ORDINARY ----------- -----------
ACTIVITIES AFTER TAXATION (323,288) (281,218)
Minority interests 41,309 31,927
----------- -----------
NET LOSS (281,979) (249,291)
----------- -----------
DEFICIENCY FOR THE FINANCIAL YEAR (281,979) (249,291)
----------- -----------
</TABLE>
The notes on pages 14 to 17 form part of these financial statements.
11
<PAGE>
SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
CONSOLIDATED CASH FLOW STATEMENT
YEAR ENDED 31 DECEMBER 1997
<TABLE>
<CAPTION>
1997 1996
USD USD
<S> <C> <C>
Net cash outflow from operating activities (710,105) (148,824)
Returns on Investments and servicing of finance
Interest received 3,734 884
Net cash outflow from returns on ---------- --------
Investments and servicing of finance 3,734 884
Investing activities
Payments to acquire tangible fixed assets - (6,725)
Receipts from sale of fixed assets 2,741 -
Net outflow from construction in progress (1,958,851) (662,400)
---------- --------
Net cash outflow from investing activities (1,956,110) (669,125)
---------- --------
Net cash outflow before financing (2,662,481) (817,065)
Financing
Issue of equity share capital 80,140 375,542
Share premium on issue of share capital 309,660 82,919
Minority interest (41,309) (21,044)
Other provisions 3,030,459 191,457
Additional share premium - 166,256
---------- --------
Net cash inflow from financing 3,378,950 795,130
---------- --------
Increase/(Decrease) in cash and cash equivalents 716,469 (21,935)
---------- --------
Reconciliation of operating loss to
net cash outflow from operating activities
<CAPTION>
1997 1996
USD USD
<S> <C> <C>
Operating loss (327,022) (282,102)
Minority interest 41,309 31,927
Goodwill written off - (12,383)
Increase in stocks (676) (2,002)
Increase in debtors (31,017) (6,607)
(Decrease)/Increase in creditors (392,699) 122,343
---------- --------
Net cash outflow from operating activities (710,105) (148,824)
---------- --------
Analysis of the balances of cash and cash
equivalents as shown in the balance sheet
<CAPTION>
1997 1996 Change
USD USD USD
<S> <C> <C> <C>
Cash at bank and in hand 740,360 23,891 716,469
----------- --------- --------
</TABLE>
The notes on pages 14 to 17 form part of these financial statements.
12
<PAGE>
SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
CONSOLIDATED CASH FLOW STATEMENT (continued)
YEAR ENDED 31 DECEMBER 1997
Analysis of changes in cash and cash
equivalents during the year
USD
Balance brought forward 23,891
Net cash inflow 716,469
-----------
Balance carried forward 740,360
-----------
The notes on pages 14 to 17 form part of these financial statements.
13
<PAGE>
SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED 31 DECEMBER 1997
1. ACCOUNTING POLICIES
Basis of accounting
The financial statements have been prepared under the historical cost
convention and in accordance with international accounting standards.
There are no material differences with generally accepted accounting
principles which are required by the United States of America.
Construction in progress
Property under development is valued at the lower of cost and net
realizable value.
Foreign currencies
Assets and liabilities in foreign currencies are translated into United
States dollars at the rates of exchange ruling at the balance sheet date.
Transactions in foreign currencies are translated into United States
dollars at the rate of exchange ruling at the date of the transaction.
Exchange differences are taken into account in arriving at the operating
profit.
Consolidation
The consolidated financial statements include the results of Sakhalin City
Centre Limited, a Russian Joint Stock Company in which Sakhalin General
Trading and Investments Limited owns 65% interest of its share capital.
2. OPERATING LOSS
Operating loss is stated after charging:
1997 1996
USD USD
Directors' emoluments - -
Auditors' fees 5,527 4,799
Net loss on foreign currency translation 52,089 9,193
-------- --------
3. INTEREST RECEIVABLE AND SIMILAR INCOME
1997 1996
USD USD
Bank interest receivable 3,734 884
-------- --------
4. TAXATION ON LOSS ON ORDINARY ACTIVITIES
1997 1996
USD USD
Corporation tax based on the results for
the year at the rate of 4.25% - -
-------- --------
14
<PAGE>
SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED 31 DECEMBER 1997
5. FIXED ASSETS
<TABLE>
<CAPTION>
Brought Carried
forward forward
1 Jan 97 Disposals 31 Dec 97
USD USD USD
<S> <C> <C> <C>
COST
Plant and machinery 6,725 (2,741) 3,984
-------- -------- --------
<CAPTION>
Brought Carried
forward forward
1 Jan 97 Charge Disposals 31 Dec 97
USD USD USD USD
<S> <C> <C> <C> <C>
DEPRECIATION
Plant and machinery - - - -
-------- -------- -------- --------
<CAPTION>
Brought Carried
forward forward
1 Jan 97 31 Dec 97
USD USD
<S> <C> <C>
NET BOOK VALUE
Plant and machinery 6,725 3,984
-------- --------
</TABLE>
6. CONSTRUCTION IN PROGRESS
Amounts expended for the construction of an entertainment complex on
Sakhalin Island, Known as "The Sakhalin City Centre Complex"
Total
USD
COST
At 1 January 1997 1,654,580
Additions 1,958,851
---------
At 31 December 1997 3,613,431
---------
NET BOOK VALUE
At 31 December 1997 3,613,431
---------
At 31 December 1996 1,654,580
---------
7. STOCK
1997 1996
USD USD
Stock 2,678 2,002
-------- --------
15
<PAGE>
SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED 31 DECEMBER 1997
8. DEBTORS
<TABLE>
<CAPTION>
1997 1996
USD USD
<S> <C> <C>
Other debtors 16,941 8,210
Prepayments and accrued income 28,676 6,390
--------- -------
45,617 14,600
--------- -------
9. CREDITORS: Amounts falling due within one year
<CAPTION>
1997 1996
USD USD
<S> <C> <C>
Other creditors 3,970 395,925
Accruals and deferred income 2,925 3,669
--------- -------
6,895 399,594
--------- -------
10. OTHER PROVISIONS
<CAPTION>
1997 1996
USD USD
<S> <C> <C>
Due to shareholders 3,336,000 305,541
--------- -------
11. SHARE CAPITAL (CAPITAL STOCK)
Authorized share capital:
<CAPTION>
1997 1996
CYP CYP
<S> <C> <C>
Ordinary shares of CYP 1 each 240,675 200,000
--------- -------
Allotted, called up and fully paid:
<CAPTION>
1997 1996
USD USD
<S> <C> <C>
Ordinary share capital brought forward 398,344 22,802
Issue of ordinary shares (38,980 in 1997,
180,575 in 1996) 80,140 375,542
--------- -------
478,484 398,344
--------- -------
</TABLE>
The share capital of the company, 229,665 ordinary shares, is translated to
the reporting currency at the rate of exchange ruling at the
date of subscription.
16
<PAGE>
SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED 31 DECEMBER 1997
12. SHARE PREMIUM ACCOUNT (ADDITIONAL PAID IN CAPITAL)
<TABLE>
<CAPTION>
1997 1996
USD USD
<S> <C> <C>
Balance brought forward 517,786 434,867
Premium on issued shares 309,660 82,919
--------- ---------
Balance carried forward 827,446 517,786
--------- ---------
13. PROFIT AND LOSS ACCOUNT (ACCUMULATED DEFICIT)
<CAPTION>
1997 1996
USD USD
<S> <C> <C>
Balance brought forward (442,578) (180,904)
Retained loss for the financial year (281,979) (249,291)
Goodwill written off - (12,383)
--------- ---------
Balance carried forward (724,557) (442,578)
--------- ---------
</TABLE>
14. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
1997 1996
USD USD
<S> <C> <C>
Loss for the financial year (281,979) (249,291)
New equity share capital subscribed 80,140 375,542
Premium on new share capital subscribed 309,660 82,919
Goodwill written off - (12,383)
--------- ---------
Net addition to funds 107,821 196,787
Additional share premium - 166,256
Opening shareholders' equity funds 1,025,979 662,936
--------- ---------
Closing shareholders' equity funds 1,133,800 1,025,979
--------- ---------
</TABLE>
15. ULTIMATE PARENT COMPANY
The controlling party is CCA Companies Incorporated of U.S.A.
17
<PAGE>
SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
31 DECEMBER 1996
Company Registration Number 65256
P.G. ECONOMIDES & CO
Chartered Certified Accountants
18
<PAGE>
SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED 31 DECEMBER 1996
<TABLE>
<CAPTION>
CONTENTS PAGES
<S> <C>
Officers and professional advisers 20
The directors' report 21
Auditors' report to the shareholders 22
Consolidated balance sheet 23
Consolidated profit and loss account 24
Consolidated cash flow statement 25 to 26
Notes to the consolidated financial statements 27 to 30
</TABLE>
19
<PAGE>
SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
OFFICERS AND PROFESSIONAL ADVISERS
THE BOARD OF DIRECTORS Charles Howard Stein
Gregory Kendrich Pilkington
COMPANY SECRETARY Totalserve Management Limited
REGISTERED OFFICE 227 Arch. Makarios III Avenue
Doma building, 5th floor
Limassol
Cyprus
AUDITORS P.G. Economides & Co
Chartered Certified Accountants
BANKERS Hambros Bank (Guernsey) Limited
20
<PAGE>
SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
THE DIRECTORS' REPORT
YEAR ENDED 31 DECEMBER 1996
The directors have pleasure in presenting their report and the financial
statements of the company for the year ended 31 December 1996.
PRINCIPAL ACTIVITIES OF THE COMPANY
The principal activity of the company is investing in a city centre property and
leisure development company in Russia.
RESULTS AND DIVIDENDS
The trading results for the year, and company's financial position at the end of
the year are shown in the attached financial statements.
The directors have not recommended a dividend.
The deficit for the year amounting to USD249,291 will be added to the deficiency
on profit and loss account brought forward from the previous period.
DIRECTORS
The directors who served the company during the year will continue in office in
accordance with the company's articles of association.
FIXED ASSETS
The movements in fixed assets are recorded in the notes to the financial
statements.
AUDITORS
The auditors Messrs P.G.Economides & Co, have expressed their willingness to
continue in office.
Registered office: Signed on behalf of the directors
227 Arch. Makarios III Avenue
Doma building, 5th floor
Limassol
Cyprus
Totalserve Management Limited
Company secretary
Approved by the directors on 12 June 1998
21
<PAGE>
SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
AUDITORS' REPORT TO THE SHAREHOLDERS
YEAR ENDED 31 DECEMBER 1996
We have audited the financial statements on pages 23 to 30 and have obtained all
the information and explanations we considered necessary. 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 audit.
We conducted our audit in accordance with International Standards on Auditing.
Those standards require that we plan and perform the audit 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 statements presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion proper books of account have been kept by the company and the
financial statements, which are in agreement therewith, give a true and fair
view of the state of affairs of the group at 31 December 1996 and of the group's
loss and cash flows for the year then ended in accordance with International
Accounting Standards and comply with the Companies Law, Cap. 113.
P.G. ECONOMIDES & CO
Chartered Certified Accountants
Limassol, 12 June 1998
22
<PAGE>
SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
CONSOLIDATED BALANCE SHEET
31 DECEMBER 1996
<TABLE>
<CAPTION>
1996 1995
Note USD USD
<S> <C> <C> <C>
FIXED ASSETS
Fixed assets 5. 6,725 -
Construction in progress 6. 1,654,580 992,180
----------- -----------
1,661,305 992,180
CURRENT ASSETS
Stock 7. 2,002 -
Debtors 8. 14,600 7,993
Cash at bank and in hand 23,891 45,826
----------- -----------
40,493 53,819
CREDITORS: Amounts falling
due within one year 9. (399,594) (277,251)
----------- -----------
NET CURRENT ASSETS (LIABILITIES) (359,101) (223,432)
----------- -----------
TOTAL ASSETS LESS CURRENT LIABILITIES 1,302,204 768,748
PROVISIONS FOR LIABILITIES AND CHARGES
Other provisions 10. (305,541) (114,084)
----------- -----------
996,663 654,664
Minority interests 29,316 8,272
----------- -----------
NET ASSETS 1,025,979 662,936
----------- -----------
CAPITAL AND RESERVES
Equity share capital 11. 398,344 22,802
Share premium account 12. 517,786 434,867
Additional share premium account 13. 552,427 386,171
Profit and loss account 14. (442,578) (180,904)
----------- -----------
SHAREHOLDERS' FUNDS 1,025,979 662,936
----------- -----------
</TABLE>
These financial statements were approved by the directors on the 12 June 1998
and are signed on their behalf by:
CHARLES HOWARD STEIN
Director
The notes on pages 27 to 30 form part of these financial statements.
23
<PAGE>
SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
CONSOLIDATED PROFIT AND LOSS ACCOUNT
YEAR ENDED 31 DECEMBER 1996
<TABLE>
<CAPTION>
Period from
Year to 28 Sep 94 to
31 Dec 96 31 Dec 95
Note USD USD
<S> <C> <C> <C>
REVENUES - -
Distribution costs (60,292) (18,657)
Administrative expenses (225,377) (172,582)
Other operating income 3,567 1,358
----------- -----------
OPERATING LOSS 2. (282,102) (189,881)
Interest receivable and similar income 3. 884 314
LOSS ON ORDINARY ----------- -----------
ACTIVITIES BEFORE TAXATION (281,218) (189,567)
Tax on loss on ordinary activities 4. - -
LOSS ON ORDINARY ----------- -----------
ACTIVITIES AFTER TAXATION (281,218) (189,567)
Minority interests 31,927 9,350
----------- -----------
NET LOSS (249,291) (180,217)
----------- -----------
DEFICIENCY FOR THE FINANCIAL YEAR (249,291) (180,217)
----------- -----------
</TABLE>
The notes on pages 27 to 30 form part of these financial statements.
24
<PAGE>
SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
CONSOLIDATED CASH FLOW STATEMENT
YEAR ENDED 31 DECEMBER 1996
<TABLE>
<CAPTION>
Period from
Year to 28 Sep 94 to
31 Dec 96 31 Dec 95
USD USD
<S> <C> <C>
Net cash (outflow)/inflow
from operating activities (148,824) 88,040
Returns on Investments and servicing of finance
Interest received 884 314
Net cash outflow from returns on ----------- -----------
Investments and servicing of finance 884 314
Investing activities
Payments to acquire tangible fixed assets (6,725) -
Net outflow from construction in progress (662,400) (992,180)
----------- -----------
Net cash outflow from investing activities (669,125) (992,180)
----------- -----------
Net cash outflow before financing (817,065) (903,826)
Financing
Issue of equity share capital 375,542 22,802
Share premium on issue of share capital 82,919 434,867
Minority Interest (21,044) (8,272)
Other provisions 191,457 114,084
Additional share premium 166,256 386,171
----------- -----------
Net cash inflow from financing 795,130 949,652
----------- -----------
(Decrease)/Increase in cash and cash equivalents (21,935) 45,826
----------- -----------
Reconciliation of operating loss to
net cash (outflow)/inflow from operating activities
<CAPTION>
Period from
Year to 28 Sep 94 to
31 Dec 96 31 Dec 95
USD USD
<S> <C> <C>
Operating loss (282,102) (189,881)
Minority interest 31,927 9,350
Goodwill written off (12,383) (687)
Increase in stocks (2,002) -
Increase in debtors (6,607) (7,993)
Increase in creditors 122,343 277,251
Net cash (outflow)/inflow ----------- -----------
from operating activities (148,824) 88,040
----------- -----------
</TABLE>
The notes on pages 27 to 30 form part of these financial statements.
25
<PAGE>
SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
CONSOLIDATED CASH FLOW STATEMENT (continued)
YEAR ENDED 31 DECEMBER 1996
Analysis of the balances of cash and cash
equivalents as shown in the balance sheet
<TABLE>
<CAPTION>
1996 1995 Change
USD USD USD
<S> <C> <C> <C>
Cash at bank and in hand 23,891 45,826 (21,935)
--------- --------- ---------
Analysis of changes in cash and cash
equivalents during the year
<CAPTION>
USD
<S> <C>
Balance brought forward 45,826
Net cash outflow 21,935
---------
Balance carried forward 23,891
---------
</TABLE>
The notes on pages 27 to 30 form part of these financial statements.
26
<PAGE>
SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED 31 DECEMBER 1996
1. ACCOUNTING POLICIES
Basis of accounting
The financial statements have been prepared under the historical cost
convention and in accordance with international accounting standards.
There are no material differences with generally accepted accounting
principles which are required by the United States of America.
Construction in progress
Property under development is valued at the lower of cost and net
realizable value.
Foreign currencies
Assets and liabilities in foreign currencies are translated into United
States dollars at the rates of exchange ruling at the balance sheet date.
Transactions in foreign currencies are translated into United States
dollars at the rate of exchange ruling at the date of the transaction.
Exchange differences are taken into account in arriving at the operating
profit.
Consolidation
The consolidated financial statements include the results of Sakhalin City
Centre Limited, a Russian Joint Stock Company in which Sakhalin General
Trading and Investments Limited owns 65% interest of its share capital.
2. OPERATING LOSS
Operating loss is stated after charging:
<TABLE>
<CAPTION>
Period from
Year to 28 Sep 94 to
31 Dec 96 31 Dec 95
USD USD
<S> <C> <C>
Directors' emoluments - -
Auditors' fees 4,799 5,189
Net loss/(profit) on
foreign currency translation 9,193 (2,876)
-------- --------
</TABLE>
3. INTEREST RECEIVABLE AND SIMILAR INCOME
<TABLE>
<CAPTION>
Period from
Year to 28 Sep 94 to
31 Dec 96 31 Dec 95
USD USD
<S> <C> <C>
Bank interest receivable 884 314
-------- --------
</TABLE>
4. TAXATION ON LOSS ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
Period from
Year to 28 Sep 94 to
31 Dec 96 31 Dec 95
USD USD
<S> <C> <C>
Corporation tax based on the results for
the year at the rate of 4.25% - -
-------- --------
</TABLE>
27
<PAGE>
SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED 31 DECEMBER 1996
5. FIXED ASSETS
<TABLE>
<CAPTION>
Net book
Additions value at
at cost 31 Dec 96
USD USD
<S> <C> <C>
Plant and machinery 6,725 6,725
-------- --------
</TABLE>
6. CONSTRUCTION IN PROGRESS
Amounts expended for the construction of an entertainment complex on
Sakhalin Island, Known as "The Sakhalin City Centre Complex"
<TABLE>
<CAPTION>
Total
USD
<S> <C>
COST
At 1 January 1996 992,180
Additions 662,400
-----------
At 31 December 1996 1,654,580
-----------
NET BOOK VALUE
At 31 December 1996 1,654,580
-----------
At 31 December 1995 992,180
-----------
</TABLE>
7. STOCK
<TABLE>
<CAPTION>
1996 1995
USD USD
<S> <C> <C>
Stock 2,002 -
-------- --------
8. DEBTORS
1996 1995
USD USD
Other debtors 8,210 6,593
Prepayments and accrued income 6,390 1,400
--------- --------
14,600 7,993
--------- --------
</TABLE>
28
<PAGE>
SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED 31 DECEMBER 1996
9. CREDITORS: Amounts falling due within one year
<TABLE>
<CAPTION>
1996 1995
USD USD
<S> <C> <C>
Other creditors 395,925 275,819
Accruals and deferred income 3,669 1,432
----------- -----------
399,594 277,251
----------- -----------
10. OTHER PROVISIONS
<CAPTION>
1996 1995
USD USD
<S> <C> <C>
Due to shareholders 305,541 114,084
----------- -----------
11. SHARE CAPITAL (CAPITAL STOCK)
Authorized share capital:
<CAPTION>
1996 1995
CYP CYP
<S> <C> <C>
Ordinary shares of CYP 1 each 200,000 100,000
----------- -----------
Allotted, called up and fully paid:
<CAPTION>
1996 1995
USD USD
<S> <C> <C>
Ordinary share capital brought forward 22,802 -
Issue of ordinary shares (180,575 in 1996,
10,100 in 1995) 375,542 22,802
----------- ---------
398,344 22,802
----------- ---------
</TABLE>
The share capital of the company, 190,675 ordinary shares, is translated
to the reporting currency at the rate of exchange ruling at the date
of subscription.
12. SHARE PREMIUM ACCOUNT (ADDITIONAL PAID IN CAPITAL)
<TABLE>
<CAPTION>
Period from
Year to 28 Sep 94 to
31 Dec 96 31 Dec 95
USD USD
<S> <C> <C>
Balance brought forward 434,867 -
Premium on issued shares 82,919 434,867
----------- -----------
Balance carried forward 517,786 434,867
----------- -----------
</TABLE>
29
<PAGE>
SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED 31 DECEMBER 1996
13. ADDITIONAL SHARE PREMIUM ACCOUNT
<TABLE>
<CAPTION>
Period from
Year to 28 Sep 94 to
31 Dec 96 31 Dec 95
USD USD
<S> <C> <C>
Balance brought forward 386,171 -
Additional premium on issued shares 166,256 386,171
----------- -----------
Balance carried forward 552,427 386,171
----------- -----------
</TABLE>
14. PROFIT AND LOSS ACCOUNT (ACCUMULATED DEFICIT)
<TABLE>
<CAPTION>
Period from
Year to 28 Sep 94 to
31 Dec 96 31 Dec 95
USD USD
<S> <C> <C>
Balance brought forward (180,904) -
Retained loss for the financial year (249,291) (180,217)
Goodwill written off (12,383) (687)
----------- -----------
Balance carried forward (442,578) (180,904)
----------- -----------
</TABLE>
15. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
Period from
Year to 28 Sep 94 to
31 Dec 96 31 Dec 95
USD USD
<S> <C> <C>
Loss for the financial year (249,291) (180,217)
New equity share capital subscribed 375,542 22,802
Premium on new share capital subscribed 82,919 434,867
Goodwill written off (12,383) (687)
----------- -----------
Net addition to funds 196,787 276,765
Additional share premium 166,256 386,171
Opening shareholders' equity funds 662,936 -
----------- -----------
Closing shareholders' equity funds 1,025,979 662,936
----------- -----------
</TABLE>
16. ULTIMATE PARENT COMPANY
The controlling party is CCA Companies Incorporated of U.S.A.
30
<PAGE>
SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
31 DECEMBER 1995
Company Registration Number 65256
P.G. ECONOMIDES & CO
Chartered Certified Accountants
31
<PAGE>
SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM 28 SEPTEMBER 1994 TO 31 DECEMBER 1995
<TABLE>
<CAPTION>
CONTENTS PAGES
<S> <C>
Officers and professional advisers 33
The directors' report 34
Auditors' report to the shareholders 35
Consolidated balance sheet 36
Consolidated profit and loss account 37
Consolidated cash flow statement 38
Notes to the consolidated financial statements 39 to 42
</TABLE>
32
<PAGE>
SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
OFFICERS AND PROFESSIONAL ADVISERS
THE BOARD OF DIRECTORS Charles Howard Stein
Gregory Kendrich Pilkington
COMPANY SECRETARY Totalserve Management Limited
REGISTERED OFFICE 227 Arch. Makarios III Avenue
Doma building, 5th floor
Limassol
Cyprus
AUDITORS P.G. Economides & Co
Chartered Certified Accountants
BANKERS Hambros Bank (Guernsey) Limited
33
<PAGE>
SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
THE DIRECTORS' REPORT
PERIOD FROM 28 SEPTEMBER 1994 TO 31 DECEMBER 1995
The directors have pleasure in presenting their report and the financial
statements of the company for the period from 28 September 1994 to 31 December
1995.
PRINCIPAL ACTIVITIES OF THE COMPANY
The principal activity of the company is investing in a city centre property and
leisure development company in Russia.
RESULTS AND DIVIDENDS
The trading results for the period, and company's financial position at the end
of the period are shown in the attached financial statements.
The directors have not recommended a dividend.
The deficit for the period amounting to USD180,217 will be carried forward to
the following year.
DIRECTORS
The directors who served the company during the period will continue in office
in accordance with the company's articles of association.
AUDITORS
The auditors Messrs P.G.Economides & Co, have expressed their willingness to
continue in office.
Registered office: Signed on behalf of the directors
227 Arch. Makarios III Avenue
Doma building, 5th floor
Limassol
Cyprus
Totalserve Management Limited
Company secretary
Approved by the directors on 12 June 1998
34
<PAGE>
SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
AUDITORS' REPORT TO THE SHAREHOLDERS
PERIOD FROM 28 SEPTEMBER 1994 TO 31 DECEMBER 1995
We have audited the financial statements on pages 36 to 42 and have obtained all
the information and explanations we considered necessary. 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 audit.
We conducted our audit in accordance with International Standards on Auditing.
Those standards require that we plan and perform the audit 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 statements presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion proper books of account have been kept by the company and the
financial statements, which are in agreement therewith, give a true and fair
view of the state of affairs of the group at 31 December 1995 and of the group's
loss and cash flows for the period then ended in accordance with International
Accounting Standards and comply with the Companies Law, Cap. 113.
P.G. ECONOMIDES & CO
Chartered Certified Accountants
Limassol, 12 June 1998
35
<PAGE>
SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
CONSOLIDATED BALANCE SHEET
31 DECEMBER 1995
<TABLE>
<CAPTION>
Note USD
<S> <C> <C> <C>
FIXED ASSETS
Construction in progress 5. 992,180
CURRENT ASSETS
Debtors 6. 7,993
Cash at bank and in hand 45,826
---------
53,819
CREDITORS: Amounts falling
due within one year 7. (277,251)
---------
NET CURRENT ASSETS (LIABILITIES) (223,432)
-----------
TOTAL ASSETS LESS CURRENT LIABILITIES 768,748
PROVISIONS FOR LIABILITIES AND CHARGES
Other provisions 8. (114,084)
-----------
654,664
Minority interests 8,272
-----------
NET ASSETS 662,936
-----------
CAPITAL AND RESERVES
Equity share capital 9. 22,802
Share premium account 10. 434,867
Additional share premium account 11. 386,171
Profit and loss account 12. (180,904)
-----------
SHAREHOLDERS' FUNDS 662,936
-----------
</TABLE>
These financial statements were approved by the directors on the 12 June 1998
and are signed on their behalf by:
CHARLES HOWARD STEIN
Director
The notes on pages 39 to 42 form part of these financial statements.
36
<PAGE>
SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
CONSOLIDATED PROFIT AND LOSS ACCOUNT
PERIOD FROM 28 SEPTEMBER 1994 TO 31 DECEMBER 1995
<TABLE>
<CAPTION>
Note USD
<S> <C> <C>
REVENUES -
Distribution costs (18,657)
Administrative expenses (172,582)
Other operating income 1,358
---------
OPERATING LOSS 2. (189,881)
Interest receivable and similar income 3. 314
LOSS ON ORDINARY ---------
ACTIVITIES BEFORE TAXATION (189,567)
Tax on loss on ordinary activities 4. -
LOSS ON ORDINARY ---------
ACTIVITIES AFTER TAXATION (189,567)
Minority interests 9,350
---------
LOSS FOR THE FINANCIAL PERIOD (180,217)
---------
DEFICIENCY FOR THE FINANCIAL PERIOD (180,217)
---------
</TABLE>
The notes on pages 39 to 42 form part of these financial statements.
37
<PAGE>
SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
CONSOLIDATED CASH FLOW STATEMENT
YEAR ENDED 31 DECEMBER 1995
<TABLE>
<CAPTION>
Period from
28 Sep 94 to
31 Dec 95
USD
<S> <C>
Net cash (outflow)/inflow
from operating activities 88,040
Returns on Investments and servicing of finance
Interest received 314
Net cash outflow from returns on -----------
Investments and servicing of finance 314
Investing activities
Payments to acquire tangible fixed assets -
Net outflow from construction in progress (992,180)
-----------
Net cash outflow from investing activities (992,180)
-----------
Net cash outflow before financing (903,826)
Financing
Issue of equity share capital 22,802
Share premium on issue of share capital 434,867
Minority Interest (8,272)
Other provisions 114,084
Additional share premium 386,171
-----------
Net cash inflow from financing 949,652
-----------
(Decrease)/Increase in cash and cash equivalents 45,826
-----------
Reconciliation of operating loss to
net cash (outflow)/inflow from operating activities
<CAPTION>
Period from
28 Sep 94 to
31 Dec 95
USD
<S> <C>
Operating loss (189,881)
Minority interest 9,350
Goodwill written off (687)
Increase in stocks -
Increase in debtors (7,993)
Increase in creditors 277,251
Net cash (outflow)/inflow -----------
from operating activities 88,040
-----------
</TABLE>
The notes on pages 39 to 42 form part of these financial statements.
38
<PAGE>
SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM 28 SEPTEMBER 1994 TO 31 DECEMBER 1995
1. ACCOUNTING POLICIES
Basis of accounting
The financial statements have been prepared under the historical cost
convention and in accordance with international accounting standards.
There are no material differences with generally accepted accounting
principles which are required by the United States of America.
Construction in progress
Property under development is valued at the lower of cost and net
realizable value.
Foreign currencies
Assets and liabilities in foreign currencies are translated into United
States dollars at the rates of exchange ruling at the balance sheet date.
Transactions in foreign currencies are translated into United States
dollars at the rate of exchange ruling at the date of the transaction.
Exchange differences are taken into account in arriving at the operating
profit.
Consolidation
The consolidated financial statements include the results of Sakhalin City
Centre Limited, a Russian Joint Stock Company in which Sakhalin General
Trading and Investments Limited owns 50% interest of its share capital.
2. OPERATING PROFIT OR LOSS
Operating profit or loss is stated after charging:
USD
Directors' emoluments -
Auditors' fees 5,189
Net profit on foreign currency translation (2,876)
--------
3. INTEREST RECEIVABLE AND SIMILAR INCOME
USD
Bank interest receivable 314
--------
4. TAXATION ON PROFIT OR LOSS ON ORDINARY ACTIVITIES
USD
Corporation tax based on the results for
the period at 4.25% -
--------
5. FIXED ASSETS
Additions Net book
at cost value at
31 Dec 95
USD USD
-------- --------
- -
-------- --------
39
<PAGE>
SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM 28 SEPTEMBER 1994 TO 31 DECEMBER 1995
6. CONSTRUCTION IN PROGRESS
Amounts expended for the construction of an entertainment complex on
Sakhalin Island, Known as "The Sakhalin City Centre Complex"
Total
COST
Additions 992,180
-----------
At 31 December 1995 992,180
-----------
NET BOOK VALUE
At 31 December 1995 992,180
-----------
7. DEBTORS
USD
Other debtors 6,593
Prepayments and accrued income 1,400
--------
7,993
--------
8. CREDITORS: Amounts falling due within one year
USD
Other creditors 275,819
Accruals and deferred income 1,432
-----------
277,251
-----------
9. OTHER PROVISIONS
USD
Due to shareholders 114,084
-----------
40
<PAGE>
SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM 28 SEPTEMBER 1994 TO 31 DECEMBER 1995
10. SHARE CAPITAL (CAPITAL STOCK)
Authorized share capital:
CYP
Ordinary shares of CYP 1 each 100,000
-----------
Allotted, called up and fully paid:
USD
10,100 ordinary shares 22,802
-----------
The share capital, 10,100 ordinary shares, of the
company is translated to the reporting currency at the
rate of exchange ruling at the date of subscription.
11. SHARE PREMIUM ACCOUNT (ADDITIONAL PAID IN CAPITAL)
USD
Premium on issued shares 434,867
-----------
Balance carried forward 434,867
-----------
12. ADDITIONAL SHARE PREMIUM ACCOUNT
USD
Additional premium on shares issued 386,171
-----------
Balance carried forward 386,171
-----------
13. PROFIT AND LOSS ACCOUNT (ACCUMULATED DEFICIT)
USD
Retained loss for the financial period (180,217)
Goodwill written off (687)
-----------
Balance carried forward (180,904)
-----------
41
<PAGE>
SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM 28 SEPTEMBER 1994 TO 31 DECEMBER 1995
14. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
USD
Loss for the financial period (180,217)
New equity share capital subscribed 22,802
Premium on new share capital subscribed 434,867
Goodwill written off (687)
-----------
Net addition to funds 276,765
Additional share premium 386,171
Opening shareholders' equity funds -
-----------
Closing shareholders' equity funds 662,936
-----------
15. ULTIMATE PARENT COMPANY
The controlling party is CCA Companies Incorporated of U.S.A.
42
<PAGE>
SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1998 (UNAUDITED)
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $295,206
Other current assets 57,718
--------
Total current assets 352,924
Property and equipment, net 66,166
Construction in progress 5,005,049
---------
TOTAL $5,424,139
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses 63,553
------
Total current liabilities 63,553
Due to parent company 4,386,000
---------
Total liabilities 4,449,553
---------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Capital stock, 240,675 shares authorized; 229,655
shares issued and outstanding 478,484
Additional paid-in capital 1,288,904
Accumulated deficit (792,802)
---------
Total stockholders' equity 974,586
---------
TOTAL $5,424,139
==========
43
<PAGE>
SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
For the Three For the Three
Months Months
Ended Ended
March 31, March 31,
1998 1997
------------- -------------
<S> <C> <C>
OPERATING EXPENSES:
General and administrative $105,922 $70,495
-------- -------
Total operating expenses 105,922 70,495
-------- -------
(LOSS) FROM OPERATIONS (105,922) (70,495)
OTHER INCOME (EXPENSE):
Interest income 1,305
-------- -------
Total other income (expense) 1,305
-------- -------
NET (LOSS) ($104,617) ($70,495)
======== =======
</TABLE>
44
<PAGE>
SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
For the Three For the Three
Months Months
Ended Ended
March 31, March 31,
1998 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) ($104,617) ($70,495)
Adjustments to reconcile net loss to net
cash used by operating activities:
Changes in current assets and current liabilities:
Other assets (9,423) 1,471
Accounts payable and accrued expenses 58,628 39,925
--------- --------
Total adjustments 49,205 41,396
--------- --------
Net cash (used) by operating activities (55,412) (29,099)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (62,182)
Funds used for construction in progress (1,377,560) (35,570)
--------- -------
Net cash (used) by investing activities (1,439,742) (35,570)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loans from parent company 1,050,000
Proceeds from sale of capital stock 92,288
--------- --------
Net cash provided by financing activities 1,050,000 92,288
--------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (445,154) 27,619
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 740,360 23,891
--------- --------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $295,206 $51,510
========= ========
</TABLE>
45
<PAGE>
SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Basis of Presentation and the Company
The accompanying audited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for fair
presentation have been included. Operating results for the three-month periods
ended March 31, 1998 and 1997 are not necessarily indicative of the results that
may be expected for any interim period or the year ending June 30, 1998. For
further information, refer to the consolidated financial statements and
footnotes of SGTI for the year ended December 31, 1997 contained herein.
46
<PAGE>
(b) PRO FORMA FINANCIAL INFORMATION
The following tables set forth certain unaudited condensed pro forma
combined financial information for the Company after giving effect to the
acquisition of SGTI using the purchase method of accounting as if such
transaction had been consummated on June 30, 1996. The information contained in
the following tables does not purport to be indicative of the results of
operations of the Company which may have been obtained had the acquisition of
SGTI been consummated on the date assumed.
The following tables do not present unaudited pro forma balance sheet
information since both the March 31, 1998 and December 31, 1997 10-Q's filed by
the Company include unaudited condensed consolidated balance sheets which
already reflect the purchase of SGTI and the consolidation of its net assets
with the Company. These balance sheets reflect a preliminary allocation of the
purchase price of SGTI based on management's current estimate and, accordingly,
are subject to change upon a final determination of the required purchase
accounting adjustments.
The pro forma information should be read in conjunction with the
historical financial statements and accompanying notes of the Company contained
in its Form 10-K for the year ended June 30, 1997 and the historical financial
statements and accompanying notes of SGTI for the years ended December 31, 1997,
1996 and 1995.
47
<PAGE>
CCA COMPANIES INCORPORATED AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
CCA SGTI Adjustments Pro Forma
--- ---- ----------- ---------
<S> <C> <C> <C> <C>
REVENUES 186,494 186,494
OPERATING EXPENSES:
Marketing and sales 238,664 238,664
Research and development 53,290 53,290
General and administrative 3,537,847 248,779 264,589 (1) 4,051,215
Compensation charges related to
issuance of options and warrants 976,000 976,000
--------- ------- ---------
Total operating expenses 4,805,801 248,779 5,319,169
--------- ------- ---------
(LOSS) FROM OPERATIONS (4,619,307) (248,779) (5,132,675)
OTHER INCOME (EXPENSE):
Interest income 247,836 3,172 251,008
Interest expense (74,678) (74,678)
--------- -------- ---------
Total other income (expense) 173,158 3,172 176,330
--------- -------- ---------
NET (LOSS) ($4,446,149) ($245,607) ($4,956,345)
========== ======== ==========
NET (LOSS) PER SHARE OF
COMMON STOCK ($0.62) ($0.54)
========== ==========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES AND
COMMON SHARE EQUIVALENTS 7,124,367 2,000,000 (2) 9,124,367
========== ==========
</TABLE>
48
<PAGE>
CCA COMPANIES INCORPORATED AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
CCA SGTI Adjustments Pro Forma
--- ---- ----------- ---------
<S> <C> <C> <C> <C>
OPERATING EXPENSES:
Marketing and sales $115,576 $115,576
Research and development 52,247 52,247
General and administrative 1,687,172 267,944 352,785 (1) 2,307,901
Write-down of inventory 355,800 355,800
Provision for bad debt 1,000,000 1,000,000
Compensation charges related to
issuance of options and warrants 4,995,106 4,995,106
---------- -------- ----------
Total operating expenses 8,205,901 267,944 8,826,630
---------- -------- ----------
(LOSS) FROM OPERATIONS (8,205,901) (267,944) (8,826,630)
OTHER INCOME (EXPENSE):
Interest income 51,180 2,309 53,489
Interest expense (407,346) (407,346)
---------- -------- ----------
Total other income (expense) (356,166) 2,309 (353,857)
---------- -------- -------
NET (LOSS) ($8,562,067) ($265,635) ($9,180,487)
========== ======== ==========
NET (LOSS) PER SHARE OF
COMMON STOCK ($1.58) ($1.24)
========== ==========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES AND
COMMON SHARE EQUIVALENTS 5,409,990 2,000,000 (2) 7,409,990
========== ==========
</TABLE>
49
<PAGE>
CCA COMPANIES INCORPORATED AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
The following pro forma adjustments have been made:
(1) To record amortization of excess cost over fair value or net assets
acquired over a thirty year period
(2) To account for the number of shares of common stock of the Company
issued to the shareholders of SGTI for the purchase of 100% of the
shares of SGTI
50
<PAGE>
(c) Exhibits
10.1 Agreement dated as of August 12, 1997 by and among the Company,
Sakhalin General Trading & Investments Limited ("SGTI") and
Sovereign Gaming and Leisure Limited ("Sovereign") is hereby
incorporated by reference to the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1997, as filed with the
Securities and Exchange Commission on October 17, 1997.
10.2 Agreement dated September 9, 1997 by and among the Company, SGTI
and Sovereign is hereby incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended June 30,
1997, as filed with the Securities and Exchange Commission on
October 17, 1997.
10.3 Stock Purchase Agreement dated as of October 24, 1997 by and among
the Company, SGTI, William Stephen Cairns and John Byrne Horgan,
directors of SGTI, is hereby incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1997, as filed with the Securities and Exchange
Commission on November 14, 1997.
Any Seidman or Eisner letter will be filed as an exhibit to this report
in accordance with the provisions of Item 601 of Regulation S-K.
51
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CCA COMPANIES INCORPORATED
Dated: June 15, 1998 By: /s/ Charles H. Stein
---------------------
Charles H. Stein
Chairman, Chief Executive
Officer and President
By: /s/ Miles R. Greenberg
----------------------
Miles R. Greenberg
Chief Financial Officer
52
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