<PAGE> 1
US SECURITIES & EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(X) Quarterly report under section 13 or 15(d) of the Securities Exchange Act of
1934 for the quarter period ended September 30, 1998.
( ) Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from to .
Commission File Number 0-24185
CENTRAL AMERICAN EQUITIES CORP.
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<S> <C>
Florida 65-0636168
(State or other jurisdiction of (IRS Employer Identification Number)
incorporated or organization)
19200 Van Karmen Ste. 850
Irvine, California 92612
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
(949)757-0222
(Registrant's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Class A Common Stock, $.001 Par Value
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding twelve (12) months
(or for such shorter period that registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past ninety (90)
days. YES ( X ) NO ( ).
Applicable only to Corporate Issuers
State the number of shares outstanding of each of the issuers' classes
of common equity:
12,205,252 Shares of Class A Common Stock, $.001 Par Value
Transitional Small Business Disclosure Format
YES ( ) NO ( X )
<PAGE> 2
CENTRAL AMERICAN EQUITIES CORP.
TABLE OF CONTENTS
Part I
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Page
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Item 1-Financial Information
Central American Equities Corp.'s Balance sheet as of 09/30/98 and
12/31/97. (Nine month period ended 09/30/97 not available). 1
Statement of Operations for the nine month period ended 09/30/98, the
twelve month period ended 12/31/97, and cumulative period from 01/23/96
(date of inception) to 09/30/98. (Nine month period
ended 09/30/97 not available). 2
Statements of Stockholders' Equity 3
Statement of Cash Flows for the nine month period ended 09/30/98, the
twelve month period ended 12/31/97, and cumulative period
from 01/23/96 (date of inception) to 09/30/98. (Nine month period
ended 09/30/97 not available). 4
Notes to Financial Statements. 5-7
Item 2-Management's Discussion and Analysis of Financial Condition and
Results of Operations 7-12
Part II
Item 1-Legal Proceedings 12-13
Item 2-Changes in Securities 13
Item 3-Defaults upon Senior Securities 13
Item 4-Submission of Matter to a Vote of Security Holders 13
Item 5-Other Information 13
Item 6-Exhibits and Reports on Form S-K 13
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Item 1-Financial Statements
The Financial Statements of the Company are set forth below:
CENTRAL AMERICAN EQUITIES CORP.
BALANCE SHEET
ASSETS
(UNAUDITED)
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For the Nine Month
Period Ended For the Year Ended
September 30, 1998 December 31, 1997
------------------ -----------------
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Current Assets
Cash $ 10,945 $ 11,978
Inventory 35,482 16,812
----------- -----------
Total Current Assets $ 46,427 $ 28,790
Property and Equipment
Buildings and other depreciable assets,
at cost, net of depreciation of $361,478 7,899,615 7,821,051
----------- -----------
Other Assets
Organization costs, net of accumulated
amortization of $97,142 1,051,254 1,099,825
----------- -----------
Total Assets $ 8,997,296 $ 8,949,666
=========== ===========
Liability and Stockholders' Equity
Current Liabilities
Accounts Payable $ 76,568 $ 20,500
Line of credit-Banco del Comercio 500,000 250,000
Accrued Expenses 81,443 50,000
Accrued Interest Expense 14,985 11,793
----------- -----------
Total Current Liabilities 672,996 332,293
----------- -----------
Long Term Debt 50,601 61,000
----------- -----------
Due to Stockholders 763,991 344,314
----------- -----------
Stockholders' Equity
Common Stock $ 12,205 $ 12,205
Additional Paid-In Capital 8,772,842 8,772,842
Retained earnings (Deficit) (1,275,339) (572,988)
----------- -----------
Total Stockholders' Equity 7,509,708 8,212,059
----------- -----------
Total Liabilities and Stockholders' Equity $ 8,997,296 $ 8,949,666
=========== ===========
</TABLE>
(See Notes to Financial Statements)
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CENTRAL AMERICAN EQUITIES CORP.
STATEMENT OF OPERATIONS
(UNAUDITED)
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<CAPTION>
Cumulative
Period from
Nine Month Period Twelve Months January 23, 1996
Ended Ended (Date of Inception)
Sept. 30, 1998 Dec. 31, 1997 to September 30, 1998
-------------- ------------- ---------------------
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Revenues $ 778,869 $ 369,281 $ 1,148,150
------------ ------------ ------------
Cost of Sales
Salaries & Wages 459,257 107,413 566,670
Payroll Taxes 59,383 20,000 79,383
Repairs & Maintenance 24,942 -- 24,942
Utilities 117,487 -- 117,487
Insurance 20,523 -- 20,523
Other 305,104 -- 305,104
------------ ------------ ------------
Total Cost of Sales $ 986,696 $ 127,413 $ 1,114,109
------------ ------------ ------------
Gross Profit $ (207,827) $ 241,868 $ 34,041
------------ ------------ ------------
General & Administrative
Salaries & Wages $ 14,550 $ -- $ 14,550
Consulting Fees -- 119,918 119,918
Management Fees -- 100,100 100,100
Legal & Professional Fees 85,984 116,366 202,350
Advertising 27,075 76,508 103,583
Commission Expense -- 7,360 7,360
Postage & Delivery 4,195 11,160 15,355
Travel 76,325 137,491 213,816
Office Expense 1,947 3,870 5,817
Utilities 442 2,612 3,054
Dues & Subscriptions -- 1,840 1,840
Depreciation & Amortization 237,458 221,162 458,620
Other Expenses 11,100 4,561 15,661
------------ ------------ ------------
Total General & Administrative $ 463,271 $ 802,948 $ 1,266,219
------------ ------------ ------------
Operating Loss $ (672,098) $ (561,080) $ (1,232,178)
Interest Expense (30,253) (11,908) (42,161)
------------ ------------ ------------
Loss before provision for
income taxes $ (702,351) $ (572,988) $ (1,275,339)
Provision for income taxes -- -- --
============ ============ ============
Net Loss $ (702,351) $ (572,988) $ (1,275,339)
============ ============ ============
Net Loss per Common Share $ (.06) $ (.05) $ (.11)
============ ============ ============
Weighted Average share of
Common Stock Outstanding 12,205,252 11,891,052 12,048,152
============ ============ ============
</TABLE>
(See Notes to Financial Statements)
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CENTRAL AMERICAN EQUITIES CORP.
STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
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<CAPTION>
Common Paid In Retained
Stock Capital Earnings Total
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance
01/23/96 -- -- -- --
Capital Contribution 11,356 7,248,316 -- 7,259,672
---------- ---------- ---------- ----------
Balance
12/31/96 11,356 7,248,316 -- 7,259,672
Capital Contribution 749 1,424,626 -- 1,425,375
Common Stock Issued for
Consulting Services Rendered 100 99,900 -- 100,000
Net Loss -- -- (572,988) (572,988)
---------- ---------- ---------- ----------
Balance
12/31/97 12,205 8,772,842 (575,988) 8,212,059
Net Loss -- -- (702,351) (702,351)
---------- ---------- ---------- ----------
Balance
09/30/98 12,205 8,772,842 (1,275,339) 7,509,708
========== ========== ========== ==========
</TABLE>
(See Notes to Financial Statements)
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CENTRAL AMERICAN EQUITIES CORP.
STATEMENTS OF CASH FLOW
(UNAUDITED)
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<CAPTION>
Cumulative
Period From
For the Nine Month Jan. 23, 1996
Period Ended Year Ended (Date of Inception)
Sept. 30, 1998 Dec. 31, 1997 Dec. 31, 1997
-------------- ------------- -------------
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Cash Flows from Operating Activities
Net Loss $ (702,351) $ (572,988) $ (1,275,339)
Adjustment to Reconcile Net
Loss to Net Cash Provided by
Operating Activities:
Depreciation and Amortization 237,458 221,162 458,620
Change in Assets and Liabilities:
(Increase) in Inventory (18,670) (16,812) (35,482)
Increase in Accrued Expenses/Other 31,443 50,000 81,443
Increase in Accounts Payable 56,068 -- 56,068
Increase in Accrued Interest
Expense 3,192 11,793 14,985
------------ ------------ ------------
Net Cash Used in Operating Activities: $ (392,860) $ (306,845) $ (699,705)
------------ ------------ ------------
Cash Flows from Investing Activities:
Organization & Start-Up Costs -- (1,148,396) (1,148,396)
Capital Expenditure (267,451) (7,993,642) (8,261,093)
Net Cash Used in Investing Activities: $ (267,451) $ (9,142,038) $ (9,409,489)
------------ ------------ ------------
Cash Flows from Financing Activities:
Proceeds from Loans Payable 659,278 675,814 1,335,092
Proceeds from Issuance of
Common Stock -- 12,501 12,501
Proceeds from Additional
Paid-In Capital -- 8,672,942 8,672,942
Common Stock Issued for
Consulting Services -- 100,000 100,000
------------ ------------ ------------
Net Cash Provided by Financing
Activities: 659,278 9,460,861 10,120,139
------------ ------------ ------------
Net Increase/Decrease in Cash (1,033) 11,978 10,945
Cash - Beginning of Period 11,978 -- --
Cash - End of Period 10,945 11,978 10,945
============ ============ ============
Supplemental Schedule of Cash
Flow Information
Interest Paid 30,252 11,908 42,161
============ ============ ============
Income Taxes Paid -- -- --
============ ============ ============
</TABLE>
(See Notes to Financial Statements)
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<PAGE> 7
CENTRAL AMERICAN EQUITIES CORP.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
Note 1-Summary of Accounting Policies
Nature of Business
Central American Equities Corp. (the "Company" or "CAE") was
incorporated under the laws of the State of Florida on January 23, 1996. The
Company acquired Cal Tico, L.P. ("Cal Tico"). Ecolodge Partners L.P.
("Ecolodge") and Marine Lodge Partners, L.P. ("Marine Lodge" and together with
Cal Tico and Ecolodge, the "Partnerships"). The Company provides an integrated
eco-vacation experience in Costa Rica, and is in the business of owning and
operating hotels and real property in Costa Rica.
Use of Estimates
Management uses estimates and assumptions in preparing the financial
statements in accordance with generally accepted principles. Those estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported revenues and
expenses.
Organization Costs
Organization costs are amortized on a straight-line basis over five (5)
years. Amortization expense for the nine (9) months ended September 30, 1998 was
$48,571.
Equipment
Equipment is recorded at cost less accumulated depreciation.
Depreciation is provided over the estimated useful lives of the assets by using
the straight line method of depreciation.
Repairs and maintenance costs are expensed as incurred while additions
and betterments are capitalized. The costs and related accumulated depreciation
of assets sold or retired are eliminated from the accounts and any gain and
losses are reflected in earnings.
Per Share Data
The primary income (loss) per share was computed on the weighted
numbers of shares of common stock outstanding during the period. Common share
equivalents were not included as their inclusion would have been anti-dilutive.
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Income Taxes
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 109, Accounting for Income Taxes. SFAS No. 109 requires the establishment of
a deferred tax asset for all deductible temporary differences and operating loss
carry forwards.
The Company has a net operating loss carry-over of approximately
$573,000 as of December 31, 1997, expiring through 2012.
Note 2-Long Term Debt
Line of credit with Banco del Comercio advanced on June 30, 1998 with a
one (1) year term. Principal is due and payable on June 30, 1999. Interest only
at the rate of prime plus 2 1/2% is due and payable on the last day of each
month. As of September 30, 1998, a total of $27,061 of interest has been paid
and is reflected as Interest Expense in the Financial Statements. Subject to
review and acceptance by the lending institution, this line of credit can be
renewed for an additional one (1) year period. The funds advanced under this
Line of Credit were utilized to supplement cash flow for operating expenses and
construction costs. As of September 30, 1998, the amount due on this
indebtedness is $500,000.
Note payable with principal and interest due to an individual at the
rate of 8.00% due and payable on February 1, 1999. This note is for the purchase
of the beach land at the Marinelodge Resort. Accordingly, $3,192 is reflected in
the Financial Statements as Interest Expense. The Inception Date of the note is
August 1, 1995. As of September 30, 1998, the amount due on this indebtedness is
$50,601.
TOTAL DEBT $550,601
LESS: CURRENT MATURITIES $500,000
--------
LONG TERM DEBT $ 50,601
---------
The aggregate amount of debt maturing during the next five (5) years is
as follows:
1999 $550,601
========
Note 3-Related Party Transactions
During the period January 23, 1996 (date of inception) to September 30,
1998, two (2) shareholders each advanced to the Company approximately $381,995
for a total of $763,991. There are no stated terms for repayment. The two (2)
stockholders each hold 6.0% of the issued and outstanding Class A Common Stock
and are the Company's two (2) largest shareholders. In addition, these two (2)
shareholders are also members of the Board of Directors of the Company.
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<PAGE> 9
During the twelve (12) month period ended December 31, 1997, the
Company paid $100,100 in management fees to Talley King & Company. Talley King &
Company is jointly owned by Messers Richard William Talley and Paul King, each
of whom are 6.0% shareholders of the Company's Class A Common Stock and are also
directors. The fees paid were for management and supervision of the Company's
operations. The management contract agreement was not renewed for 1998 and
accordingly, no management fees have been paid during 1998.
Note 4-Capital Stock
The following is a summary of the classes of Capital Stock at September
30, 1998:
Common Stock
Class A-Par Value $.001 Per Share:
Authorized 20,000,000 Shares;
12,205,252 issued and outstanding $12,205
The holders of Class A Common Stock possess the voting power of one (1)
vote of each share of stock held. The holder of Class A Common Stock do not
possess cumulative voting rights. Class A Common stockholders having a majority
of the outstanding shares of common stock voting for the election of directors
can elect all members of the directors of the corporation.
The Class A Common Stock has no preemptive rights or subscriptions,
redemption or commission privileges. All of the outstanding shares of common
stock are fully paid and non-assessable.
Item 2. Management's Discussion and Analysis of Financial Condition and
Result of Operations
The following is management's discussion and analysis of significant
factors, which have affected the Company's financial position and operations
during the nine (9) month period that ended September 30, 1998.
OVERVIEW
CAE is a US hospitality company, based in Irvine, California and
incorporated in the State of Florida. The Company specializes in providing
high-quality food and lodging in unique natural settings in Costa Rica.
CAE includes among its assets three (3) hotels: Hotel Alta in Santa Ana
(a suburb of the capital city of San Jose), Ecolodge San Luis and Biological
Station (in the San Luis Valley near the world famous Monteverde Cloud Forest),
and Sunset Reef (on the Pacific Ocean in Mal Pais adjacent to the protected Cabo
Blanco Reserve). CAE also owns and operates La Luz Restaurant (located in Hotel
Alta), Restaurant Playa Carmen (on the beach near Sunset Reef), and Alta Travel
Planners (a full service travel agency and marketing operation with headquarters
in California).
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<PAGE> 10
With the opening of Hotel Alta in December of 1997, 1998 marked the
beginning of the first year of full operation of the Company's hotels. All
Company owned facilities, except for Restaurant Playa Carmen (see below), were
opened and operating in 1998.
OVERALL COMPANY PERFORMANCE
CAE's performance during the first nine (9) months of 1998 were below
expectations, but reasonable for the start-up of a new hotel group. Although
initial occupancy levels were low, management remains steadfast in its belief
that the fundamentals for superior performance continue to be in place. Costa
Rica is a highly desirable tourist destination, which continues to increase in
popularity. Soft adventure and eco-travel remain among the most rapidly growing
segments in the travel market. And, CAE operates three (3) uniquely attractive
properties, which have been repeatedly praised by the writers and tour
wholesalers who have visited them.
With marketing efforts accelerating, management has projected increased
occupancy for 1999: 60% for Hotel Alta, 34% for Ecolodge San Luis, and a modest
23% for Sunset Reef. Using these occupancy projections, management forecasts
that revenues could grow to more than $2.5 million in 1999. From 1999 to 2002
annual CAE revenues are projected to increase at a compound annual rate of about
25%. In 1999 management expects to be in a profitable position.
HOTEL ALTA
Revenues at the three (3) hotels are primarily dependent upon the
occupancy rates and per room charges (although other services are sold). The
occupancy for the first nine months of 1998 was about 33% at Hotel Alta.
Reflecting attractive introductory rates, the average room rate was about $83.
Break-even occupancy at an average room rate of $120 is about 48%; at an average
room rate of $180 (the high-season deluxe-room rack rate), break-even occupancy
is about 33%.
With marketing efforts accelerating, management has projected occupancy
should reach 60% in 1999. Several marketing accomplishments have occurred:
American Airlines Vacations, which provides Costa Rican accommodations
for about 4000 guests annually, has listed Hotel Alta as one of only eight San
Jose area hotels available from its select vacation program.
British Airways has named Hotel Alta as the only San Jose hotel option
in their Costa Rican vacation program. British Airways Worldwide Vacations
anticipates booking accommodations for more than 1000 guests in Costa Rica
during 1999.
Hayes and Jarvis, a large British wholesaler, has included Hotel Alta
among its four San Jose options. Hayes and Jarvis has booked 40 seats per week
on British Airways' direct flight to San Jose from London.
Several large US wholesalers have incorporated Hotel Alta in their
brochures and east coast-based Apple Vacations (125 sales representative) has
guaranteed a six-room allotment at Hotel Alta from January to April 1999.
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<PAGE> 11
Hotel Alta has received significant complimentary press in dozens of
magazines and newspapers in the United States and Costa Rica.
LA LUZ RESTAURANT
La Luz Restaurant, the 75-seat restaurant in Hotel Alta, has been
operating since August of 1997. Even though Hotel Alta was not open during the
first five months of La Luz operation, and the occupancy at Hotel Alta has been
low, the restaurant has begun to establish itself, receiving support from local
businesses and residents. During the first nine (9) months of 1998, La Luz
essentially broke even.
La Luz has received substantial positive press since its opening. For
example, Conde Nast Traveler has named La Luz one of the best restaurants in
Central America and Costa Rica's major newspaper, La Nacion, has rated La Luz
one of the top three (3) restaurants in the country, giving it the newspaper's
coveted Five-Fork Rating.
Because of the attention it has received, management plans in 1999 to
add to La Luz a sophisticated club and bar in space currently available above
the restaurant.
ECOLODGE SAN LUIS
Ecolodge San Luis and Biological Station is an integrated ecotourism,
research, education project directed on-site by two (2) renowned tropical
biologists. The 162-acre Ecolodge San Luis property borders on the famous
Monteverde Cloud Forest Reserve (acclaimed as "one of the most outstanding
wildlife sanctuaries in the New World Tropics and named as one of the top ten
ecotourism destinations in the world).
The occupancy at Ecolodge San Luis for the first nine (9) months of
1998 was about 16%. Indicating significant expenditure tightening (and future
opportunity), the break-even occupancy (at the current mix of average room
rates) at Ecolodge San Luis is about 17%. Management has projected that
occupancy in 1999 should reach about 34%.
Several large US wholesalers have incorporated Ecolodge San Luis in
their brochures. Apple Vacations has guaranteed a four-cabin allotment at 12
cabin Ecolodge San Luis. TUI, a large German wholesaler, has been allotted at
least 60 room nights at Ecolodge San Luis from November to March for their Fly
and Drive program.
The more than forty (40) writers who have visited Ecolodge San Luis
have been effusive in their praise. For example, the Adventure Guide to Costa
Rica has said, "this beautiful designed lodge-research complex is in a gorgeous
location. Whereas there are a number of avowedly ecological lodges in Costa
Rica, there is only one (1) Ecolodge San Luis, a place created with the avowed
intention of bringing together researchers to mingle and share their work with
visitors.
SUNSET REEF AND PLAYA CARMEN
Hotel Sunset Reef is located in the small Pacific beach-front town of
Mal Pais on the southern tip of the Nicoya Peninsula. The hotel lies on the
northern border of the renowned Absolute Natural Reserve of Cabo Blanco - the
jewel of nature at the very tip of the Nicoya Peninsula (The Costa Rica
Handbook).
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<PAGE> 12
Occupancy at Sunset Reef for the first nine (9) months of 1998 was
about 11%. The average room rate was about $56. Break-even occupancy at a $60
average room rate is about 23%. At an $80 average room rate, the hotel breaks
even at about 17% occupancy.
In August of 1998, a new general manager, Alberto Carazzo, was hired to
improve the operations and marketing of Sunset Reef. Mr. Carazzo has, over the
past ten (10) years, acquired extensive management experience at such well known
Costa Rican hotels as Villa Caletas, Hotel Jungle Lodge, and Lapa Rios. With
marketing efforts just beginning, and new management in place, the Company
conservatively projects occupancy could reach about 23% occupancy for Sunset
Reef during 1999.
The Playa Carmen restaurant and bar is located about four (4) miles
away from Sunset Reef on the broad, white, sandy beach of Playa Carmen, known as
one of the best surfing beaches in Costa Rica. Management is preparing to open
the 100-seat restaurant during the 1998-99 high season. Adjacent to the
restaurant, CAE plans to construct a tent camp for surfers and low budget
travelers.
NEW MANAGEMENT AND NEW MARKETING PLAN
Management has resolved several problems, which it believes, prevented
the Company from reaching its goal during the first nine (9) months of 1998.
New Management
Management experienced considerable turmoil during late 1997 and early
1998 with the unanticipated resignation of Warren Francis, the CEO of CAE and
General Manager for Hotel Alta. Mr. Francis resigned because of personal
reasons. Management is currently pursuing legal action against Mr. Francis for
breach of contract and failure to perform (see Item 1-Legal Proceedings).
Mr. Francis' departure and related hotel construction difficulties
delayed the opening of Hotel Alta, originally scheduled for June 1997. Operating
cash was limited as the hotel had hired and trained staff in preparation for a
June opening that was delayed until December. Mr. Francis' departure was also
related to the closure of Ecolodge San Luis and Sunset Reef just prior to the
beginning of the all-important 1997-98 high season.
During the Summer of 1998, the Board of Directors hired Michael N.
Caggiano, Ph.D., as an operational liaison to the board. Caggiano had been
Executive Vice President in Charge of Consulting Operations at a large
independent, US hospitality and real estate consulting firm. Caggiano holds a
Ph.D. from the RAND Corporation and a B.A. from Pomona College.
Caggiano's role has been to increase revenues and profits through
expanded occupancy at each CAE hotel. He is also expected to reduce costs and
guide the company through the completion of several property enhancement
projects. Pending the success of the public offering, the Company is actively
examining several other Costa Rican vacation properties as future investment
opportunities.
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<PAGE> 13
Marketing
Mr. Francis' departure, led to delays in the creation and
implementation of the marketing strategy necessary for the 1997-98 high season
and contributed to the resulting lack of market exposure for the three (3)
hotels. Management has responded to this problem by creating a strong management
team, which has successfully implemented a marketing plan that has already begun
to build a client base among tour wholesalers and tour operators.
There are several other significant marketing decisions that will
positively impact the coming 1998-99 high season. First, marketing functions,
which had previously been directed by an outside consultant, were brought
in-house. Second, the Company's public relations firm was placed under the
direct control of management.
In addition to the successes discussed above, more than forty (40)
travel writers have visited CAE hotels. Scores of magazine articles have been
published or are anticipated over the next few months. Management anticipates
these articles will boost occupancy at each of CAE's hotels. Some results have
already been experienced, all three (3) hotels are nearing 100% occupancy for
Christmas week 1998.
APPOINTMENT OF NEW CEO AND PRESIDENT
In late August of 1998, Michael N. Caggiano, Ph.D. was appointed
consulting CEO and President of CAE.
Caggiano has worked with CAE for the past several years: first as a
financial consultant in the construction stage of the company and more recently
as an operational liaison to the Board of Directors. Currently he is President
of a small, Los Angeles-based financial and management consulting firm that has
provided advice to corporations investing in Costa Rica. He specializes in
analyzing economic performance, corporate strategy, acquisitions, and
organizational change. His clients have included hospitality, real estate,
health care, international exporting, electronics, and manufacturing companies.
In his new post, Caggiano will oversee all US and Costa Rican
operations for the company. Brian Frazee, Managing Director for the AltA Group,
will continue to manage Hotel Alta and will report to Caggiano.
Prior to establishing his own consulting firm, Dr. Caggiano was
Executive Vice President in Charge of Consulting Operations at Robert Charles
Lesser & Co. (RCLCo) a 50-person, 5-office, national hospitality and real estate
consulting firm based in Los Angeles. While at RCLCo, he oversaw the management
of several hundred consulting engagements annually concerning real estate and
hospitality development, economic development, public policy issues,
feasibility, and corporate strategy.
In 1990, Dr. Caggiano was elected to the first City Council of Malibu
and later served as its Mayor Pro Tem. Before serving as an elected official,
Dr. Caggiano was a Fellow and Policy Analyst with The RAND Corporation. While at
RAND, he specialized in solving state and local government finance problems. He
devised methodologies to forecast revenues and costs, designed administrative
and accounting structures necessary to allow a public entities to operate as
private enterprises, and created action plans for the operation and marketing of
governmental services. During his nine years at RAND, Dr. Caggiano authored
nearly 20 publications.
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<PAGE> 14
During the past five years, Dr. Caggiano served as the President of
Heal the Bay, one of Southern California's most successful environmental groups.
This 15,000-member volunteer organization is dedicated to improving ocean water
quality and cleaning up beaches in Southern California.
Dr. Caggiano holds a Ph.D. in Public Policy Analysis from the RAND
Graduate School of The RAND Corporation, an M.P.A. from the University of
Southern California, and a B.A. in Government from Pomona College.
LIMITED LIQUIDITY AND CAPITAL RESOURCES
The Company had relied on sales of shares of common stock to fund
operations and make capital improvements. To date, operations have resulted in
losses and the Company has limited cash liquidity and capital resources. During
the second and third quarters of 1998, capitalization was not sufficient to fund
necessary expenses and management sought and succeeded in acquiring about $1.25
million in bridge loans.
However, the Company has a positive net worth of over $7.5 million and
a current asset ratio of over 11 to 1 through the nine (9) month period ended
September 30, 1998.
RESULTS OF OPERATIONS
The Company's revenues from its date of inception until September 30,
1998 is $1,148,150. The Company's revenues for the nine (9) month period that
ended September 30, 1998 were $778,869.
The Company has incurred a net loss of $1,275,339 since its date of
inception and has also incurred a net loss of $702,351 for the nine (9) month
period that ended September 30, 1998.
Part II
Item 1-Legal Proceedings
CAE has brought claims against its former CEO, Warren Francis, for
breach of contract and breach of the covenant of good faith and fair dealing
under California law. The action is entitled Central American Equities, a
Florida Corporation vs. Warren Francis. These claims are pending in the United
States District Court for the Central District of California, case number
98-0485WJR (Mcx) and have been assigned to the Honorable William J.
Rae for all purposes, including trial.
CAE's claim against Mr. Francis arise in part out of his alleged
failure to perform his contractual duties from approximately April through
August 1997 and his abrupt departure without notice on or about September 2,
1997. It is alleged that Mr. Francis breached his employment contract by, among
other things, allowing a personal relationship to interfere significantly with
his job performance in Cost Rica, failing to market and promote the business of
CAE, failing to create and develop tour operator and travel agent relationships
in order to maximize occupancy levels in the hotels by the 1997-98 high season,
failing responsibly to manage physical improvements and construction of the
Hotel Alta, thus causing delays in its opening to the public, failing
responsibly to hire and train appropriate staff, and failing to direct and
supervise CAE employees and staff in the performance of their duties. It is
alleged that an improper and inappropriate relationship between Mr. Francis and
a member of the staff of the Hotel Alta resulted in a breach of the covenant of
good faith and fair dealing.
-12-
<PAGE> 15
CAE is seeking special and general damages from Mr. Francis in excess
of $400,000. It is alleged, among other things, that Mr. Francis' breach of
contract and breach of the covenant of good faith and fair dealing caused
significant delays in opening Hotel Alta and, once it finally opened, that
occupancy levels were substantially depressed due to his failure to adequately
market and promote the hotels during the Spring and Summer of 1997.
The action will be tried before a jury, with trial presently set to
commence in March 1999.
There are no existing lawsuits against the Company.
Item 2-Changes in Securities
The Company did not sell or issue any securities of any kind during the
period that ended on September 30, 1998.
Item 3-Defaults Upon Senior Securities
For the period that ended on September 30, 1998, there was no defaults
upon senior securities of any kind by the Company.
Item 4-Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders by the
Company for the period ended September 30, 1998.
Item 5-Other Information
There is no other information that the Company believes is necessary to
be included in this report.
Item 6-Exhibits and Reports on Form S-K
(a) Exhibits filed herewith:
None
(b) Current reports on Form 10KSB, dated July 15, 1998, filed with the
Securities and Exchange Commission.
-13-
<PAGE> 16
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
CENTRAL AMERICAN EQUITIES CORP.
By: /s/ MICHAEL N. CAGGIANO
--------------------------------
MICHAEL N. CAGGIANO
President and CEO
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) FORM
10-QSB FOR THE NINE MONTH PERIOD ENDED 9/30/98.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 10,945
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 35,482
<CURRENT-ASSETS> 46,427
<PP&E> 8,261,093
<DEPRECIATION> 361,478
<TOTAL-ASSETS> 8,997,296
<CURRENT-LIABILITIES> 672,996
<BONDS> 0
0
0
<COMMON> 12,205
<OTHER-SE> 7,497,503
<TOTAL-LIABILITY-AND-EQUITY> 8,997,296
<SALES> 0
<TOTAL-REVENUES> 778,869
<CGS> 0
<TOTAL-COSTS> 986,696
<OTHER-EXPENSES> 463,271
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,253
<INCOME-PRETAX> (702,351)
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<INCOME-CONTINUING> (702,351)
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