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US SECURITIES & EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
(X) Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal period ended December 31, 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.
Florida 65-0636168
(State or other jurisdiction of (IRS Employer Identification Number)
incorporated or organization)
19100 Van Karmen Ste. 1020
Irvine, California 92612
(Address of Principal Executive Offices) (Zip Code)
(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 ( ).
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and if no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10KSB
or any amendment to this Form 10-KSB. [ ]
$1,140,726
(Issuer's revenues for its most recent fiscal year).
(Aggregate market value of the voting stock held by non-affiliates of
Registrant)
12,230,252 Shares Class A Common Stock, $.001 par value
(Number of shares outstanding of each of the Registrant's classes of common
stock, as of December 31, 1998)
Transitional Small Business disclosure format (check one)
YES [ X ] NO [ ]
DOCUMENTS INCORPORATED BY REFERENCE INTO PART I
Annual Report on Form 10K of Registrant for the year ended December 31, 1998
PART I
ITEM 1. BUSINESS
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).
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.
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OVERALL COMPANY PERFORMANCE
CAE's performance during the twelve (12) 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.
ITEM 2. PROPERTIES AND EQUIPMENT
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 twelve (12) 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%.
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.
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
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establish itself, receiving support from local businesses and residents. During
the twelve (12) 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 twelve (12) 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%.
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).
Occupancy at Sunset Reef for the twelve (12) months of 1998 was about
12%. 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.
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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.
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.
ITEM 3. 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.
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 is scheduled to be tried before a jury, with trial presently
set to commence in June 1999. However, a settlement conference is scheduled for
the first week of June 1999 and if an appropriate settlement occurs as a result
of this conference all litigation will be cancelled.
There are no other existing lawsuits against the Company.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company submitted no mater to a vote of its security holders during
its fiscal year ended December 31, 1998.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no market for the Company's common stock, $.001 par value, and
there has been none since inception. In the event that a market for the common
stock of the Company should develop, initial trading will be in the
over-the-counter market. In such event, the Company will endeavor to take all
action necessary to have the trading of the stock quoted on the OTC Bulletin
Board of the National association of Securities Dealers Inc.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following is management's discussion and analysis of significant
factors which have affected the Company's financial position and operations
during the fiscal year ended December 31, 1998.
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, third and fourth quarters of 1998, capitalization was not sufficient
to fund necessary expenses and management sought and succeeded in acquiring
about $1.425 million in bridge loans.
However, the Company has a positive net worth of over $7.3 million
through the fiscal year ended December 31, 1998.
RESULTS OF OPERATIONS
The Company's revenues from its date of inception through December 31,
1998 is $1,510,007. The Company's revenues for the twelve (12) month period that
ended December 31, 1998 were $1,140,726.
The Company has incurred a net loss of $1,508,990 since its date of
inception and has also incurred a net loss of $936,002 for the twelve (12) month
period that ended December 31, 1998.
NEW MANAGEMENT AND NEW MARKETING PLAN
Management has resolved several problems, which it believes, prevented
the Company from reaching its goal during the twelve (12) months of 1998.
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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 3-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. In addition, in late
August 1998 the board also appointed Mr. Caggiano as a Consulting CEO/President.
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.
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.
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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.
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.
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ITEM 7. FINANCIAL STATEMENTS
The financial statements of the Company, required to be included in
this Report pursuant to Item 310(a) of Regulation S-B, are set forth below:
Independent Auditor's Report
Board of Directors
Central American Equities Corp.
I have audited the accompanying balance sheet of Central American
Equities Corporation (a development stage company) as of December 31, 1998 and
the related statements of operations, stockholders' equity and cash flow for the
years ended December 31, 1998 and for the cumulative period January 26, 1996
(date of inception) to December 31, 1998. These financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standard require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. 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.
I believe that my audit provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Central American
Equities Corporation at December 31, 1998, and the results of their operations,
and their cash flows for the years ended December 31, 1998 and for the
cumulative period from January 22, 1996 (date of inception) to December 31,
1998, in conformity with generally accepted accounting principles.
Steven J. Gannuscio
Certified Public Accountant
March 31, 1999
Vernon, NJ
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CENTRAL AMERICAN EQUITIES CORP.
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
December 31, 1998 December 31, 1997
------------------ ------------------
<S> <C> <C>
Current Assets
Cash $ 8,450 $ 11,978
Inventory 28,901 16,812
----------- -----------
Total Current Assets $ 37,351 $ 28,790
Property and Equipment
Buildings and other depreciable assets,
at cost, net of depreciation of $424,440 7,836,653 7,821,051
----------- -----------
Other Assets
Organization costs, net of accumulated
amortization of $113,332 1,035,064 1,099,825
----------- -----------
Total Assets $ 8,909,068 $ 8,949,666
=========== ===========
Liability and Stockholders' Equity
Current Liabilities
Accounts Payable $ 59,034 $ 20,500
Line of credit-Banco del Comercio 500,000 250,000
Notes payable - Other 50,601 --
Accrued Expenses 66,894 50,000
Accrued Interest Expense 7,491 11,793
----------- -----------
Total Current Liabilities 684,020 332,293
----------- -----------
Long Term Debt -- 61,000
----------- -----------
Due to Stockholders 923,991 344,314
----------- -----------
Stockholders' Equity
Common Stock $ 12,230 $ 12,205
Additional Paid-In Capital 8,797,817 8,772,842
Retained earnings (Deficit) (1,508,990) (572,988)
----------- -----------
Total Stockholders' Equity 7,301,057 8,212,059
----------- -----------
Total Liabilities and Stockholders' Equity $ 8,909,068 $ 8,949,666
=========== ===========
</TABLE>
(See Notes to Financial Statements)
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CENTRAL AMERICAN EQUITIES CORP.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Cumulative Period from
January 23, 1996
Year Ended December 31, (Date of Inception)
1998 1997 to December 31, 1998
---- ---- --------------------
<S> <C> <C> <C>
Revenues $ 1,140,726 $ 369,281 $ 1,510,007
------------ ------------ ------------
Cost of Sales
Salaries & Wages 588,783 107,413 696,196
Payroll Taxes 95,367 20,000 115,367
Repairs & Maintenance 32,943 -- 32,943
Utilities 146,015 -- 146,015
Insurance 31,983 -- 31,983
Other 494,948 -- 494,948
------------ ------------ ------------
Total Cost of Sales $ 1,390,039 $ 127,413 $ 1,517,452
------------ ------------ ------------
Gross Profit $ (249,313) $ 241,868 $ (7,445)
------------ ------------ ------------
General & Administrative
Salaries & Wages $ 27,630 $ -- $ 27,360
Consulting Fees 40,060 119,918 159,978
Management Fees -- 100,100 100,100
Legal & Professional Fees 97,706 116,366 214,072
Advertising 28,875 76,508 105,383
Commission Expense 6,835 7,360 14,195
Postage & Delivery 4,505 11,160 15,665
Travel 97,471 137,491 234,962
Office Expense 2,842 3,870 6,712
Utilities 3,358 2,612 5,970
Dues & Subscriptions 527 1,840 2,367
Depreciation & Amortization 316,610 221,162 537,772
Other Expenses 16,901 4,561 21,462
------------ ------------ ------------
Total General & Administrative $ 643,320 $ 802,948 $ 1,446,268
------------ ------------ ------------
Operating Loss $ (892,633) $ (561,080) $ (1,453,713)
Interest Expense (43,369) (11,908) (55,277)
------------ ------------ ------------
Loss before provision for
income taxes $ (936,002) $ (572,988) $ (1,508,990)
Provision for income taxes -- -- --
============ ============ ============
Net Loss $ (936,002) $ (572,988) $ (1,508,990)
============ ============ ============
Net Loss per Common Share $ (.08) $ (.05) $ (.13)
============ ============ ============
Weighted Average share of
Common Stock Outstanding 12,230,252 11,891,052 12,060,652
============ ============ ============
</TABLE>
(See Notes to Financial Statements)
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CENTRAL AMERICAN EQUITIES CORP.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<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 (572,988) 8,212,059
Net Loss -- -- (936,002) (936,002)
---------- ---------- ---------- ----------
Common Stock Issued for
Consulting Services Rendered 25 24,975 -- --
---------- ---------- ---------- ----------
Balance
12/31/98 12,230 8,797,817 (1,508,990) 7,301,057
========== ========== ========== ==========
</TABLE>
(See Notes to Financial Statements)
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CENTRAL AMERICAN EQUITIES CORP.
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Cumulative
Period From
For the For the Jan. 23, 1996
Year Ended Year Ended (Date of Inception)
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net Loss $ (936,002) $ (572,988) $ (1,508,990)
Adjustment to Reconcile Net
Loss to Net Cash Provided by
Operating Activities:
Depreciation and Amortization 316,610 221,162 537,772
Change in Assets and Liabilities:
(Increase) in Inventory (12,089) (16,812) (28,901)
Increase in Accrued Expenses/Other 16,894 50,000 66,894
Increase in Accounts Payable 38,534 -- 38,534
(Decrease) Increase in Accrued Interest
Expense (4,302) 11,793 7,491
------------ ------------ ------------
Net Cash Used in Operating Activities: $ (580,355) $ (306,845) $ (887,200)
------------ ------------ ------------
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 819,278 675,814 1,495,092
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 25,000 100,000 125,000
------------ ------------ ------------
Net Cash Provided by Financing
Activities: 844,278 9,460,861 10,305,189
------------ ------------ ------------
Net Increase/Decrease in Cash (3,528) 11,978 8,450
Cash - Beginning of Period 11,978 -- --
Cash - End of Period 8,450 11,978 8,450
============ ============ ============
Supplemental Schedule of Cash
Flow Information
Interest Paid 43,369 11,908 55,277
============ ============ ============
Income Taxes Paid -- -- --
============ ============ ============
</TABLE>
(See Notes to Financial Statements)
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CENTRAL AMERICAN EQUITIES CORP.
NOTES TO FINANCIAL STATEMENTS
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 twelve (12) months ended December 31, 1998
was $64,761.
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. Depreciation expense for the twelve
(12) months ended December 31, 1998 was $251,849.
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
$1,509,000 as of December 31, 1998, expiring through 2013.
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 December 31, 1998, a total of $39,113 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 December 31, 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, $4,256 is reflected in
the Financial Statements as Interest Expense. The Inception Date of the note is
August 1, 1995. As of December 31, 1998, the amount due on this indebtedness is
$50,601.
<TABLE>
<S> <C>
TOTAL DEBT $550,601
LESS: CURRENT MATURITIES $550,601
--------
LONG TERM DEBT $ 0
--------
</TABLE>
The aggregate amount of debt maturing during the next five (5) years is
as follows:
<TABLE>
<S> <C>
1999 $550,601
========
</TABLE>
Note 3-Related Party Transactions
During the period January 23, 1996 (date of inception) to December 31,
1998, two (2) shareholders each advanced to the Company approximately $461,996
for a total of $923,991. 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.
15
<PAGE> 16
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 Messrs 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 December
31, 1998:
<TABLE>
<S> <C>
Common Stock
Class A-Par Value $.001 Per Share:
Authorized 20,000,000 Shares;
12,230,252 issued and outstanding $12,230
</TABLE>
During the third quarter of 1998 the Company issued 25,000 shares of
its Class A Common Stock to Michael N. Caggiano, the Company's Consultant
CEO/President. The shares were issued in lieu of payment for services rendered
prior to him being appointed in his current position.
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.
16
<PAGE> 17
ITEM 8. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
Directors, Executive Officers, and Significant Employees.
Identification of Directors and Executive Officers
The following table sets forth the names of all current directors and
executive officers of the Company. These persons were re-elected on 01/20/98.
They will serve until the next annual meeting of the stockholders or until their
successors are elected or appointed and qualified, or their prior resignation or
termination.
<TABLE>
<CAPTION>
Positions Date of
Name Held Election
- ---- ---- --------
<S> <C> <C>
Michael N. Caggiano Consulting CEO/
President 08/98
Brian Frazee Managing Director/ 08/98
AltA Group
W.F.O. Rosenmiller Secretary/ 01/98
Director
Richard Wm. Talley Director 01/98
Paul King Director 01/98
</TABLE>
BUSINESS EXPERIENCE
BRIAN FRAZEE, Managing Director/AltA Group. Mr. Frazee joined CAE in
May of 1997 as assistant General Manager. He was trained at Hotel Alta by Warren
Francis, who received his classical training in hotel management from Cornell's
School of Hotel Administration (Master's Degree 1985). Mr. Francis returned to
the United States in September of 1997, at which time Mr. Frazee was promoted to
General Manager. Mr. Frazee received his degree in Hotel Administration from
Washington State University in
17
<PAGE> 18
Pullman, Washington. He has worked extensively for the Westin Hotel Group and
Gleneagles Hotel in Scotland.
W.F.O. ROSENMILLER, Secretary and Director of Central American Equities
Corp. A graduate of Penn State University (BS) and Drexel University (MBA). Mr.
Rosenmiller spent four years in the US Navy and was honorably discharged as a
full lieutenant with expertise in open sea navigation as well as general
nautical knowledge. Mr. Rosenmiller brings to the Partnership a wealth of
management and development experience. As a director/owner of the Snow Time
Inc., a ski resort complex consisting of facilities in New York State and
Lancaster, Pennsylvania with revenues in excess of 20 million, Mr. Rosenmiller
who founded Ski Windham, Ski Round Top and Ski Liberty has had over thirty years
experience in the hotel, restaurant, and bar business. as a director of Hamilton
Bank, (subsidiary of Corestate Bank) he has had extensive experience on both the
audit and credit sides of partnership lending as well as project projections.
Most recently he has been involved in all aspects of a 200 acre subdivision of
high end homes in York, PA. This project has received numerous national design
awards.
Active in civic activities for over thirty years in New York, he was
the recipient of the Jay Cee's Distinguished Service Award. As a veteran diver
and powerboat owner/operator, his knowledge of protocol and certification will
be a help in creating the underwater and marine experiences in Costa Rica.
RICHARD Wm. TALLEY, Director of Central American Equities Corp. Mr.
Talley holds a BA degree in European History from the University of California,
Santa Barbara and an MBA in Finance from Cornell University, Ithaca, New York,
Mr. Talley began his finance career with Smith Barney in New York. A resident of
Santa Barbara starting in 1975, he opened and managed the Shearson Office there
until its sale to American Express in 1983, at which time he founded Talley
McNeil and Tormey, a regionally focused investment bank and brokerage firm. The
firm was merged into a larger, Southern California investment banking and
brokerage firm in 1989. In 1993, Mr. Talley and Mr. King founded Talley King and
Company, Inc. ("Talley King") with offices in Irvine and Santa Barbara. Talley
King & Company, Inc. is an investment bank which focuses on private placement
financing. Mr. Talley has been actively involved in Costa Rica for the last six
years.
PAUL KING, Director of Central American Equities Corp. Mr. King is a
principal in Talley King & Company, Inc. and a partner with Mr. Talley since
1989. during the last six years, Mr. King has been intimately involved in the
development of the Costa Rican properties. He has overseen the land acquisition
permit, bidding, and construction process. He is currently responsible for all
activities including the interface between Costa Rican corporations and Us
entities.
In the medical area, Talley King and Company, Inc. and their partners
Medical Imaging Consultants and currently operating a state of the art MRI
machine in Costa Rica. This project opened in November 1995. they have entered
into an agreement to build a second facility which will house six linear
accelerators for the treatment of cancer.
18
<PAGE> 19
The diagnostic center coupled with the radiation therapy will result in one of
the finest cancer treatment centers in all of Central America. Mr. King attended
Westmont College.
Significant Employees
Drs. Milton and Diana Lieberman, Manners of Ecolodge San Luis and
Biological Station. Drs. Milton Lieberman and Diana Lieberman, are responsible
for the supervision of the Ecolodge. Importantly, they are also part owners.
Both are internationally recognized experts in the field of tropical ecology,
and, have worked as a husband-wife research team for 25 years. The Liebermans,
who are natives of California, have spent the past 14 years studying the rain
forests of Costa Rim
Dr. Milton Lieberman is Research Professor of Biology at the University
of North Dakota and a Research Associate of the Missouri Botanical Garden. He
received his bachelor's', degree in Zoology from the University of California,
Berkeley and his Ph.D. in Biological Sciences from the University of California,
Irvine. Before joining the faculty at North Dakota, he held professorships at
the University of Hawaii, the University of Ghana, and the University of
Virginia. He also served as a Ford Foundation Postdoctoral Fellow at Stanford
University and a National Research Council Senior Research Associate at NASA's
Earth Resources Laboratory.
Dr. Diana Lieberman is Professor of Biology at the University of North
Dakota. After undergraduate studies at the Berkeley and Irvine campuses of the
University of California, she graduated with honors in Botany and Zoology from
the University of Ghana, and received her Ph.D. in Botany from the same
institution. She taught at the University of Virginia before moving to the
University of North Dakota. She is North American editor of the Journal of
Tropical Ecology, an international research journal published by Cambridge
University Press.
William Granados Rodriguez, Manager of Sunset Reef. William Granados
comes to CAE with extensive experience in ecotourism in Costa Rica. For the past
four years he has worked in several positions of increasing responsibility with
Costa Rica Expeditions. Mr. Granados has managed transportation and procurement
for the Costa Rica Expeditions' three Lodges, the white water rafting
operations, and the Corcovado Lodge.
Prior to joining Costa Rica Expeditions Mr. Granados created tours and
worked as a trail guide in a private reserve. Mr. Granados has taken basic
courses in agricultural engineering at the Costa Rican Technology Institute. He
has also received special training in food and beverage management (through
CINDE in San Jose), birds of Costa Rica (Lankester Gardens), and in hotel
management, accounting and finances (Educatur, ICT). He is a Costa Rican citizen
and speaks fluent Spanish and English.
19
<PAGE> 20
Special Advisors
Steven J. Aronson, Special Advisor to the Board. Cafe Britt was founded
in the early 1980s by Steven Aronson, an American permanently residing in Costa
Rica with many years of coffee procurement and international trading experience
earned working in both environments as an officer in multinational companies and
as an entrepreneur. He has founded coffee and cocoa processing companies in
several countries in Latin America. He, also has a worldwide network of coffee
market contacts as well as intimate knowledge of coffee farm practices in Costa
Rica.
Mr. Aronson is a well-respected authority on coffee in Costa Rica as
well as being recognized in world coffee circles. He has been continuously
involved in the coffee industry for over 20 years, having previously worked in
futures trading, coffee purchasing, sales, and quality control prior to founding
coffee processing and trading companies in Costa Rica. Mr. Aronson, a Ph.D.
candidate at Stanford University, is a frequent speaker and moderator at
domestic and International coffee industry forums. He has also counseled the
Costa Rican government at international coffee meetings. He earned his BA in
economics from the University of Michigan at Ann I Arbor and has complete verbal
fluency in four languages and reading ability in six.
Jose M. Gutierrez, Special Advisor to the Board. Since July 1995, Mr.
Gutierrez has been the Ambassador and Deputy Permanent Representative of Costa
Rica to the United Nations. Mr. Gutierrez received his law degree from the
University of Costa Rica. He has done post-graduate studies on Jurisprudence and
Sociology of Law at the University of Saar in (at the time) West Germany and he
has earned a Master of Public Administration degree from the Kennedy School of
Government at Harvard University where he was a Mason Fellow.
Since 1991 he has been a partner and practicing lawyer of the San Jose.
firm of Gutierrez. Hernandez & Pauly. Between 1981 and 1985 he also lectured in
law at the University of Costa Rica., Between 1985 and 1995 he was a member of
the board of directors of numerous banking, industrial, and agroindustrial
corporations in Costa: Rim From 1992 to 1994 he was the publisher of La
Republica, at the time, the second largest daily newspaper in Costa Rica. Born
in Costa Rica in 1953, Mr. Gutierrez is a Costa Rican currently residing in New
York.
Family Relationships
There are no family relationships between the directors or executive
officers of the Company, either by blood or by marriage.
20
<PAGE> 21
ITEM 10. EXECUTIVE COMPENSATION
CURRENT REMUNERATION
The Company has no stock option or stock appreciation rights, long term
or other incentive compensation plans, deferred compensation plans, stock bonus
plans, pension plans, or any other type of compensation plan in place for its
executive officers, directors, or other employees; none of its executive
officers or directors have received any compensation of any such types from the
Company pursuant to plans or otherwise.
The following table sets forth information concerning the annual
compensation received or accrued for services, provided in all capacities, to
the Company for the year ended December 31, 1998 by all individuals who served
as the Company's chief executive officer during the fiscal year ended December
31, 1998. No officer of the Company earned more than $100,000 during such fiscal
year.
SUMMARY COMPENSATION TABLE
Remuneration of Directors and Officers
The following table sets forth the total compensation of all officers
and directors, both individually and as a group, during the past fiscal year:
<TABLE>
<CAPTION>
Name Title Compensation
- ---- ----- ------------
<S> <C> <C>
Michael N. Caggiano Consulting CEO & President $40,000
Brian Frazee Managing Director-AltA Group 0
W.F.O. Rosenmiller Secretary, Treasurer, Director 0
Richard Wm. Talley Director (1) 0
Paul King Director (1) 0
All Officers/
Directors as a group (5 Persons)
-------
Total $40,000
=======
</TABLE>
(1) Does not include $100,100 in management fees received by Talley,
King & Company, Inc. In 1997. Messrs. Talley and King are owners of Talley, King
& Company, Inc.
The Company has not entered into any employment contracts with its
officers or directors but intends to enter into same in the future. The Company
has no bonus plan at the present time but intends to implement same in the
future. The terms and conditions of any such plan or employment contract are
subject to the approval of the Company's board of directors in their sole
discretion.
21
<PAGE> 22
The Company does not compensate its directors except for the
reimbursement of expenses incurred in relation to attendance at board of
directors meetings.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.
The following table sets forth information as of December 31, 1998,
with respect to the persons known to the Company to be the beneficial owners of
more than 5% of the Class A Common Stock, $.001 par value of the Company. The
Company has no shares of any other class issued or outstanding.
<TABLE>
<CAPTION>
Name and Address Number of Shares Percentage Class
Beneficially Owned
<S> <C> <C> <C>
Richard Wm. Talley
19100 Von Karman
Irvine, CA 92612 805,114 6.6% Common Stock
Paul King
19100 Von Karman
Irvine, CA 92612 805,116 (1) 6.6% Common Stock
Totals 1,610,230 13.2%
</TABLE>
(1) Includes 250,000 shares of common stock registered in the name of
"King Family Trust", 50,000 shares registered in the name of Caroline King, Mr.
King's spouse and 10,000 shares registered in the name of Christopher King, Mr.
King's son. Due to Mr. King's "control" relationship to the King "Family Trust"
his spouse and son, Mr. King may be deemed to be the beneficial owners of the
shares of the company and such shares have been included in Mr. King's
stockholdings in this table.
Security Ownership of Management.
The following sets forth the shareholdings of the Company's directors
and executive officers as of December 31, 1998:
<TABLE>
<CAPTION>
Name Number of Shares Percentage Class
Beneficially Owned
<S> <C> <C> <C>
Michael N. Caggiano 31,202 0.1% Common Stock
Brian Frazee (3) 0 0%
W.F.O. Rosenmiller (1) 388,887 3.2% Common Stock
Richard Wm. Talley 805,114 6.6% Common Stock
Paul King (2) 805,116 6.6% Common Stock
Totals
</TABLE>
22
<PAGE> 23
(1) The shares are registered as follows: CR DE ESCAZU EMPRESA
COSTARICENSE-340,000 shares of common stock and CR INVERSION ESCAZU LIMITADA-
48,887 shares of common stock
(2) Includes 250,000 shares of common stock registered in the name of
"King Family Trust", 50,000 shares registered in the name of Caroline King, Mr.
King's spouse and 10,000 shares registered in the name of Christopher King, Mr.
King's son. Due to Mr. King's "control" relationship to the King "Family Trust"
his spouse and son, Mr. King may be deemed to be the beneficial owners of the
shares of the company and such shares have been included in Mr. King's
stockholdings in this table.
(3) Does not include options to purchase 10,000 shares of Company
common stock for $1.00 per share. The options were issued on April 9, 1998 and
vest at 2,000 shares per year for five years commencing in 1998.
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
Richard Wm. Talley and Paul King were general partners of the
Partnerships. As such, Mr. Talley and Mr. King received an aggregate of
1,610,230 shares of common stock pursuant to the exchange agreement.
In addition, Dale B. Finfrock, Jr., received 500,000 shares as
compensation for the exchange with the partnerships. Mr. Finfrock holds 183,466
shares obtained pursuant to Rule 504, which shares are without restrictive
legend. However, Mr. Finfrock has agreed in writing to refrain from selling any
of said shares until August, 1999.
Messrs. Talley and King own 100% of Talley, King and Co., Inc. Talley,
King and Co., Inc. received management fees of $100,100 in 1997 from the
Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS AND BUSINESS RELATIONSHIPS WITH MANAGEMENT
There are currently no transactions, nor have there been any
transactions within the last two (2) years, which involve the Company and any
member of management or major shareholder, or any member of the immediate family
of such persons.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS
The financial statements filed as a part of this report are as follows:
Consolidated Balance Sheet - December 31, 1998 and December 31, 1997
23
<PAGE> 24
Consolidated Statements of Operations for the years ended December 31,
1998, and 1997, and cumulative for the period from inception (January 23, 1996)
to December 31, 1998.
Consolidated Statements or Owners' Equity for the period of inception
(January 23, 1996) through December 31, 1998.
Consolidated Statements of Cash Flows for the years ended December 31,
1998 and 1997 and cumulative for the period from inception (January 23, 1996) to
December 31, 1998.
FINANCIAL STATEMENT SCHEDULES
Financial statements schedules have been omitted for the reason that
they are not required or are not applicable, or the required information is
shown in the financial statements or notes thereto.
REPORTS ON FORM 8-K
No reports on Form 8-K have been filed by registrant during the last
quarter of the period covered by this report.
SIGNATURES
In accordance with the Securities Exchange Act of 1934, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
CENTRAL AMERICAN EQUITIES CORP.
BY /s/ Michael N. Caggiano
-------------------------------------------------
Michael N. Caggiano, Consulting CEO/President
Date: April 9, 1999
-------------------
24
<PAGE> 25
Pursuant to the requirements of the securities Exchange act of 1934, as
amended, this report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICER:
/s/ Michael N. Caggiano
- ----------------------------
Michael N. Caggiano Consulting CEA/ April 9, 1999
President
PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER
/s/ Michael N. Caggiano
- ----------------------------
Michael N. Caggiano Treasurer April 9, 1999
A MAJORITY OF THE BOARD
OF DIRECTORS:
/s/ Richard Wm. Talley
- ----------------------------
Richard Wm. Talley Director April 9, 1999
/s/ Paul King
- ----------------------------
Paul King Director April 9, 1999
</TABLE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE EXCHANGE ACT BY NON-REPORTING ISSUERS
No annual report or proxy materials have been sent to security-holders
during the fiscal year ended December 31, 1998 or the subsequent interim period
and, as at the date hereof, no plans exist for the furnishing of such report or
materials subsequent to the filing of this Report.
25
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-KSB
CENTRAL AMERICAN EQUITIES CORPRATION
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 8,450
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 28,901
<CURRENT-ASSETS> 37,351
<PP&E> 8,261,093
<DEPRECIATION> 424,440
<TOTAL-ASSETS> 7,836,653
<CURRENT-LIABILITIES> 684,020
<BONDS> 0
0
0
<COMMON> 12,230
<OTHER-SE> 7,288,827
<TOTAL-LIABILITY-AND-EQUITY> 8,909,068
<SALES> 0
<TOTAL-REVENUES> 1,140,726
<CGS> 0
<TOTAL-COSTS> 1,390,039
<OTHER-EXPENSES> 643,320
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,369
<INCOME-PRETAX> (936,002)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (936,002)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
