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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, 1999.
( ) 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 Von Karman Ste.
Irvine, California 92612
(Address of Principal Executive Offices) (Zip Code)
(310) 397-1757
(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 ( ).
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. [ ]
$1,338,882
(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, 1999)
Transitional Small Business disclosure format (check one)
YES [ X ] NO [ ]
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report on Form 10K of Registrant for the year ended December 31, 1998
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INFORMATION REQUIRED IN REGISTRATION STATEMENT
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ITEM 1. DESCRIPTION OF THE BUSINESS.................................................................. 3
Formation of the Company.......................................................................... 3
ITEM 2. DESCRIPTION OF THE PROPERTIES................................................................ 4
Hotel Alta........................................................................................ 4
Ecolodge San Luis and Biological Station.......................................................... 6
Sunset Reef Marine Hotel and Playa Carmen Restaurant.............................................. 7
Alta Travel Planners.............................................................................. 8
ITEM 3. LEGAL PROCEEDINGS........................................................................... 8
CAE V. Francis.................................................................................... 8
Lindemann v. CAE.................................................................................. 9
Costa Rican Labor Court........................................................................... 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......................................... 9
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.................................... 9
Market Information................................................................................ 9
Holders........................................................................................... 9
Dividends......................................................................................... 9
ITEM 6. MANAGEMENT DISCUSSION AND ANALYSIS........................................................... 9
Overview.......................................................................................... 9
Results of Operations --- Years Ending December 31, 1998 and 1999................................. 10
Liquidity and Capital Resources................................................................... 11
Year 2000 Compliance.............................................................................. 11
Currency Devaluation.............................................................................. 12
Inflation......................................................................................... 12
ITEM 7. FINANCIAL STATEMENTS......................................................................... 12
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS................................................ 26
Changes in Registrant's Certifying Accountant..................................................... 26
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, AND CONTROL PERSONS........................................... 26
Identification of Directors and Executive Officers................................................ 26
Business Experience............................................................................... 27
Family Relationships.............................................................................. 29
Involvement in Certain Legal Proceedings.......................................................... 29
ITEM 10. EXECUTIVE COMPENSATION..................................................................... 29
ITEM 11. SECURITY OWNERSHIP OF MANAGEMENT & CERTAIN BENEFICIAL OWNERS................................ 30
Security Ownership of Certain Beneficial Owners................................................... 30
Security Ownership of Management.................................................................. 31
ITEM 12. INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS.................................. 32
ITEM 12A. RECENT SALES OF UNREGISTERED SECURITIES................................................... 32
ITEM 12B. DESCRIPTION OF SECURITIES................................................................. 33
Description of Securities......................................................................... 33
Transfer Agent.................................................................................... 34
ITEM 12C. INDEMNIFICATION OF DIRECTORS AND OFFICERS.................................................. 34
ITEM 13. INDEX TO EXHIBITS........................................................................... 36
VERIFICATION SIGNATURES.............................................................................. 37
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ITEM 1. DESCRIPTION OF THE BUSINESS
Central American Equities Corp. (the "Company" or "CAE") is a US hospitality
company, based in Irvine, California and incorporated in the State of Florida on
January 23, 1996. The Company specializes in providing high-quality food and
lodging in unique natural settings in Costa Rica. The company is in the business
of owning and operating hotels and restaurants and real property in Costa Rica.
Together, the properties provide an integrated eco-vacation experience in Costa
Rica.
CAE includes among its assets in Costa Rica 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 reservation, travel planning and
marketing operation that moved its headquarters from California to Costa Rica in
July 1999).
The first year of full operation of the Company's hotels was 1998. All Company
owned facilities, except for Restaurant Playa Carmen, were opened and operating
by the beginning of 1998. The company has approximately 75 full and part-time
employees.
FORMATION OF THE COMPANY
CAE was formed by the acquisition of four limited partnerships. The Company
acquired Cal Tico, L.P. ("Cal Tico"), Ecolodge Partners L.P. ("Ecolodge"),
MarineLodge Partners, L.P. ("MarineLodge") and, L.A. Cal L.P. (Together these
companies are referred to as the "Partnerships"). The following steps describe
the creation of CAE:
1. In July 1992, Cal Tico L.P., a California limited partnership was
formed to raise $3.7 million to purchase the land and construct Hotel
Alta in Santa Ana, Costa Rica. The land and buildings were owned by
Hotelera Cal Tico, S.A., a Costa Rican corporation. Cal Tico, L.P.
owned 100% of the stock in Hotelera Cal Tico, S.A. The general partners
of Cal Tico, L.P. were George Solano and Craig MacClean.
2. In July 1993, Ecolodge Partners L.P., a California limited partnership
was formed to raise a total of $1.3 million to purchase the land and
construct Ecolodge San Luis and Biological Station. The buildings of
Ecolodge San Luis were owned by a Ecoproyecto San Luis, S.A., a Costa
Rican corporation. The land is owned by Confluencia San Luis, S.A. which
is 100% owned by Ecoproyecto San Luis, S.A. In turn, Ecolodge Partners,
L.P. owned 100% of the stock in Ecoproyecto San Luis, S.A. The general
partners of Ecolodge, L.P. were Cal TKCo, S.A. (a Costa Rican
corporation represented by Richard Wm. Talley and Paul King), Tico Star,
Inc. (a California Corporation owned by Joanell Lyon) and Bosque II,
S.A. (a Costa Rican Corporation owned by Milton and Diana Lieberman).
3. In January 1994, L.A. Cal L.P., a California limited partnership was
formed to raise $385,000 to furnish, equip, and build out the upscale
restaurant La Luz (the leasee) in Hotel Alta (the lessor) in Santa Ana,
Costa Rica. The general partner of L.A. Cal L.P. was Cal TKCO, S.A.
4. In March 1995, MarineLodge Partners, L.P., a California limited
partnership was formed to raise a total of $2.2 million for the
purchase and renovation of Sunset Reef Marine Hotel. The land and
buildings were owned by a Sociedad Protectora de la Fauna y Flora de
Mal Pais, S.A. a Costa Rican company. MarineLodge Partners, L.P. owned
100% of the stock in Sociedad Protectora de la Fauna y Flora de Mal
Pais, S.A. Sociedad Protectora de la Fauna y Flora de Mal Pais, S.A.
also owns 100% of the stock in Corporacion Muxia, S.A. Corporacion
Muxia, S.A. owns the land and restaurant known as Playa Carmen. The
general partners of MarineLodge Partners, L.P. were Cal TKCo, S.A. and
C.R. Escazu Impresa Costaricense LTDA (W.F.O. Rosenmiller).
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5. In December 1996, Central American Equities combined the assets of the
four limited partnerships in a form of entity restructuring referred to
as a "roll up." Under the terms of the roll-up of the dollar value of
each partners' capital account was exchanged for one share of common
stock in Central American Equities (a Florida corporation incorporated
on January 23, 1996) for each dollar of capital. In exchange for the
ownership of the four partnerships, CAE issued 10,881,277 shares of
common stock on December 10, 1996. At this point the partnerships
dissolved.
CAE owns 100% of the stock of the following Costa Rican Corporations: Hotelera
Caltico, S.A.; Ecoproyecto San Luis, S.A (which owns 100% of Confluencia San
Luis, S.A.); and Sociedad Protectora de la Fauna y Flora de Mal Pais, S.A.
(which owns 100% of Corporacion Muxia, S.A.).
The history of the formation of the Company is displayed in the following
exhibit.
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Central American Equities
Assumed All LP
Assets December 1996
Cal Tico, LP Ecolodge Partners LP Marine Lodge Partners LP L.A. Cal LP
Formed July 1992 Formed July 1993 Formed March 1995 Formed January 1994
Built and Equipped La Luz
Hotelera Caltico, SA Ecoproyecto San Luis, SA Soc. Pro. Flora y Fauna, SA
Owns Hotel Alta & La Luz Owns Ecolodge Buildings Owns Sunset Reef
Owns Confluencia San Luis SA Owns Corp. Muxia, SA
Confluencia San Luis SA Corporacion Muxia, SA
Owns Ecolodge Land Owns Playa Carmen
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ITEM 2. DESCRIPTION OF THE PROPERTIES
HOTEL ALTA
Hotel Alta is a, 23-unit, luxury hotel located on approximately one acre of land
in Santa Ana, 8 miles from downtown San Jose. Nearby Santa Ana (approximate
population 27,000) and Escazu (approximate population 45,000) are considered
among the most affluent districts of Costa Rica and are currently experiencing a
significant real estate boom. Nearby facilities include two golf courses, tennis
courts, and an equestrian center.
A 65-seat fine dining restaurant located within the hotel and is owned and
operated by CAE. The restaurant is positioned to receive guests from nearby
hotels and upscale locals who seek gourmet meals.
The hotel and restaurant have a number of positive characteristics that may lead
to their financial success. The quality of the hotel and its amenities are high
(Costa Rica has very few, world class hotels or restaurants), the site is in a
prime location, and the hotel has beautiful architecture. This hotel's location
provides an alternative to the assaulting environment often experienced by
travelers who stay in the downtown areas of San Jose.
Hotel Alta is located on a hill overlooking the City of Santa Ana and the Santa
Ana Valley. On a clear day one can see from the residential floors of the hotel
the Pacific Ocean, more than 35 miles away. Although the Juan Santamaria
International Airport is nearby, one cannot see it or hear airport noise because
it is hidden behind a hill.
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The parcel is zoned for middle density residential which includes hotels not
more than three stories. To enhance views and not exceed the zoning plan, the
hotel cascades down the hill. The parcel is in a residential neighborhood.
Water in the Santa Ana area is known for its high quality. Sewage is completely
treated on-site within a nonmechanical, gravity-flow system. A new, expanded
leachfield system was installed in 1999.
The rooms have updated communication services, including telephone lines that
can accommodate computer modems. An 800 line was installed in 1999 to receive
toll-free calls from the United States.
The site provides a very safe and unique environment for its clientele. In
contrast to downtown San Jose, where many business hotels are located, Santa Ana
and the area immediately surrounding the Hotel Alta has a low crime rate.
Two of the best hospitals in the country are located within a short drive from
the site: San Juan de Dios and Mexico Hospital. A new private hospital has
opened within 5 minutes of the hotel. A Red Cross ambulance is stationed within
one mile of the site in each direction. The Fire Department is located about 10
minutes from the hotel. On site, the hotel has fire stations on every floor and
within the restaurant kitchen areas.
A number of factors suggest demand for Hotel Alta will be very high within a few
years. First, many business travelers find downtown to be an assaulting
environment. San Jose's air is polluted with fumes from cars and buses, the
streets are crowded and noisy, and street crime is a potential threat at night.
Travelers seek a boutique hotel on the outskirts of San Jose where they will
find a pleasant, unhurried environment, and still have ready access to downtown.
Second, the suburbs of San Jose are growing in the direction of the Santa Ana
area. Many business travelers are drawn to the area because it is near where
they will do business, the American ambassador's residence is within a mile.
There are many business in the area (anecdotal evidence indicates more than 200
companies) and the hotel is close to the tax free zones and industrial zones
(but not in them).
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ECOLODGE SAN LUIS AND BIOLOGICAL STATION
Ecolodge San Luis and Biological Station is an integrated ecotourism/research/
education project directed on-site by two renowned tropical biologists. The
162-acre Ecolodge San Luis property is located at the head of the San Luis
Valley, in northwestern Costa Rica, approximately 3.5 hours from San Jose's
International Airport. The property borders on the world 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) and the Children's International Rain Forest.
CAE has designed Ecolodge San Luis to combine ecotourism, agro-tourism,
education, and tropical forestry research in a showcase project that
demonstrates that private enterprise must play a role in preserving tropical
rain forests and that tourism itself is a critical driving force in their
preservation. The Ecolodge has four complementary facets on one property: (1) a
Biological Station with 40 bunk beds for students, researchers, and other
visitors in rustic accommodations and shared baths; (2) a rain forest lodge with
12 cabinas; (3) four bungalows, each with bunkbeds and private bath; and (4) a
working tropical farm. Priced at varying levels of affordability, Ecolodge San
Luis offers the opportunity for all to experience the rain forest but pay only
for the level of comfort they can afford and desire.
Drs. Milton Lieberman and Diana Lieberman, internationally recognized experts in
the field of tropical ecology, are responsible for the supervision of the
Ecolodge. The Liebermans and their team of professional biologist-guides provide
a full schedule of field activities and informational programs for each guest.
Ecolodge San Luis' isolation is unique in the crowded Monteverde area. With
fewer crowds, guests are much more likely to see animal life. Guests are still
able to visit the nearby relative "bustle" of Monteverde and, return to stay in
the more isolated wonders of the San Luis Valley.
Students from the Organization of Tropical Studies and university educational
and alumni programs offer a large source of potential guests. This should
contribute to a "smoothing" of the cyclical nature of revenue flows. (In Costa
Rica, tourism is seasonal, increasing during the "dry" season of December to
April and slowing during the "green season" from May to October. Also, tourism
usually increases during July and August when North Americans take their summer
vacations.)
Ecolodge San Luis has what is called a "tropical pre-montane" climate. It is
pleasant and generally cool year round. Because of its elevation, the site does
not have the potential discomfort of hot, steamy, insect-ridden, lowland
habitats. Visitors can expect to enjoy comfortable, healthful conditions.
Rainfall averages about 2.6 meters (about 100 inches) per year and falls
primarily from May to October.
From San Jose, the capital of Costa Rica, visitors have easy access to the site
by means of bus, taxi, or private car. Several buses a day leave the capital
city of San Jose for the nearby town of Santa Elena. There is no airport in the
Monteverde region although helicopters have landed on private property in the
San Luis Valley. The Tomas Guardia International Airport in Liberia is about 3.5
hours away by car. This new airport allows international visitors to arrive in
the northwest corner of the country and travel from there to nearby Pacific
locations.
Water for Ecolodge San Luis comes from natural artesian springs located in the
cloud forest high above the ranch. The water consistently tests pure. No
livestock graze in any terrain above the springs. Pipes that bring, the water to
the site have the necessary easements and storage tanks hold up to 10,000
gallons of water in the unlikely event that the water pipes are disrupted.
No sewer or gas lines cross the San Luis Valley. At Ecolodge San Luis,
wastewater is treated and disposed of in 9 independent septic tanks on the
property. Propane gas, brought in by the bottle, heats the hot water and kitchen
stoves.
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Only a few years ago, the upper end of the San Luis Valley was not on the
national power grid. Now, Ecolodge San Luis has its own substation and is served
by a 7,250 volt line providing more than enough electricity to power the
Ecolodge through its final stages of expansion. If the power is interrupted, two
standby generators provide sufficient electricity to meet the emergency.
Although electricity is plentiful, to inhibit noise pollution, management has
decided not to furnish rooms with television sets.
Phone facilities are still relatively sparse. Before the Ecolodge there were no
telephones in the San Luis Valley. Ecolodge San Luis currently has only one
cellular phone.
An extensive and well-designed trail system covers the 162 acres of Ecolodge
property. The trails provide access to all the habitats present: cloud forest;
mountain streams tumbling through rocky gorges; farmland with plantings of
coffee, bananas, vegetables, and fruit trees; pastures with moss-laden shade
trees, secondary forest in stages of recovery, and gardens with a diversity of
ornamental plants. All of these habitats support distinctive floras and faunas,
and all offer opportunities for enjoying and learning about the ecology of the
tropics.
The Ecolodge provides a world-class ecotourism experience, bringing visitors
together with professional research scientists who can give them an up-to-date
and insightful introduction to the complex ecosystems that surround them.
Activities include general orientation talks, guided walks led by tropical
forest experts, night hikes to view nocturnal history, seminars by active
research scientists, and informal discussions of the day's observations. Guides
show the guests tropical forests, animals, and birds. The 230 species of birds
on the property makes it one of the best birding experiences anywhere in the
world.
Family-style meal service offered in the biological station's dining facility
foster the interaction among visitors, researchers, students, and nature guides.
Questions are readily answered by resident biologists, facilitating broader
discussions of each the days experiences and observations. Visitors to the
Ecolodge experience what management believes is a unique, hands-on tropical
experience and introduction to rural Costa Rican culture.
SUNSET REEF MARINE HOTEL AND PLAYA CARMEN RESTAURANT
After leaving Ecolodge San Luis, CAE will transport vacationers south to the
port city of Puntarenas, crossing the Gulf of Nicoya by ferry and then driving
west to Sunset Reef. Sunset Reef Marine Hotel and 100 seat restaurant at Playa
Carmen is located in the small Pacific beach-front town of Mal Pais on the
southern tip of the Nicoya Peninsula. Mal Pais lies on the northern border of
the renowned Absolute Natural Reserve of Sunset Reef --described by one guide
book as the "jewel of nature at the very tip of the Nicoya Peninsula."
Sunset Reef contains about 3 acres of beachfront land with 1500 feet of ocean
frontage. It is surrounded by miles of unspoiled shoreline, spectacular beaches,
and lush forests. Currently on site there is a fully operating 14-room hotel
complete with pool, restaurant and bar. As occupancy increases, CAE plans to
expand the hotel to 26 rooms.
The separate restaurant with bar is located about four miles away on the broad,
white, sandy beach at Playa Carmen, known as one of the best surfing beaches in
Costa Rica. The rectangular parcel has 168 feet of beach frontage and an area of
3.2 acres. Adjacent to the restaurant, CAE plans to construct a lower cost hotel
facility. CAE is also considering subdividing the land and selling or leasing
parts for use in other commercial activities.
Mal Pais and the Absolute Natural Reserve of Sunset Reef are beautiful areas.
The location was considered optimal because of its sunny weather, sunset views
and a nearby waterfall, absence of biting insects, and most of all, the range,
quality, and diversity of contrasting shore environments. A corral reef is
adjacent to Sunset Reef within the reserve protectorate. There is no other
quality hotel in the Mal Pais area. The Hotel is isolated and quiet in an
unexploited region of Costa Rica. Even though it is isolated, it offers a high
quality of service and food.
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Mal Pais has a warm tropical climate, with ocean breezes moderating temperatures
on the beach. Rainfall is heaviest between July and October, but only rarely
does it rain all day. Occupancy at Sunset Reef is expected to have dry-season
peaks. Visibility is very clear. Scuba diving and snorkeling are excellent
during the dry seasons or January to June. Surfing is excellent all year round
Mal Pais is approximately five hours via car and ferry from San Jose and two
hours via small plane from San Jose to Tambor and taxi from Tambor to the Lodge.
Two local airlines fly from San Jose to Tambor on the Nicoya Peninsula.
Water for the hotel comes from natural springs located in the Absolute Natural
Reserve of Cabo Blanco. Storage tanks on the grounds of the Hotel hold an
adequate supply of about 6000 gallons. Mal Pais does not have a public sewer or
treatment plant. The hotel and adjoining restaurant are serviced by 3 large
septic tanks. The leechfields were rebuilt in 1999. Playa Carmen is also
serviced by septic tanks on site.
Electricity came to Mal Pais only a few years ago, and with it came an increase
in development and real estate values. Electricity is expensive and occasionally
unreliable: about twice a month it goes out for short periods of time, often
because of lightning strikes. Management is considering the installation of
solar energy generators. Propane gas is shipped in by cylinder.
There is little crime in the area. A medically equipped helicopter can reach the
isolated resort in less than 25 minutes through radio dispatch from Tambor.
ALTA TRAVEL PLANNERS
Alta Travel Planners (ATP) is a travel planner providing hotel reservations and
travel planning services primarily to persons wishing to visit CAE's three
properties and other tourist attractions in Costa Rica. Since opening in 1997,
ATP had rented offices in San Luis Obispo, California. On July 14, 1999
management moved ATP's reservations office to Hotel Alta in Santa Ana, Costa
Rica. An original staff of 4 was reduced to one with substantial savings.
Employees provide reservations, travel planning and concierge service in Hotel
Alta through ATP.
ITEM 3. LEGAL PROCEEDINGS
CAE V. FRANCIS
CAE had brought claims against its former CEO, Warren Francis, for beach of
contract and breach of the covenant of good faith and fair dealing under
California law. The action was entitled Central American Equities, a Florida
Corporation vs. Warren Francis. In May of 1999, these claims were pending in the
United States District Court for the Central District of California, case number
98-0485WJR (Mcx).
CAE's claims 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.
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At a mandatory settlement conference in May of 1999, the matter was settled.
Defendant Warren Francis agreed to pay CAE the sum of $8000 in full settlement
of all claims. Warren Francis also agreed to dismiss the counter claim he had
filed against CAE as well as various third party claims.
LINDEMANN v. CAE
This was a civil action filed on or about April 5, 1999 in the Superior Court of
the State of California, County of Orange by CAE's former director of marketing.
Lindemann, an independent contractor, claims monetary damages allegedly for
breach of contract and fraud. Defendants Richard Wm. Talley, Paul D. King, and
Talley King & Company, Inc. were served and filed answers. Prior to filing the
suit, the parties had discussed settlement of Lindemann's claims. Lindemann
demanded approximately $16,000. In late October of 1999, Lindemann offered to
settle the claim for approximately $8,600. The parties engaged in settlement
discussions and settled the case at approximately Lindemann's offer.
COSTA RICAN LABOR COURT
At this time there are actions against Central American Equities in the Costa
Rican Labor Court that have been brought by former employees who had been
dismissed by the Company due to poor performance or insubordination. These
employees dispute the reason for their dismissal and, as such, claim they are
entitled to additional monetary compensation. The Company considers these
actions to be routine litigation that is incidental to the business (as defined
under Reg. Section228.103). It is anticipated that any contingent liability
stemming from these claims would be immaterial to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company submitted no matter to a vote of its security holders during its
fiscal year ended December 31, 1999.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
As of December 31, 1999, there was no established public trading market for the
Company's issued and outstanding common stock. In the near future, the Company
intends to seek sponsorship of one or more NASD member registered securities
dealers and a quotation on the National Association of Securities NASDAQ
Quotation System on either the OTC Bulletin Board, Small Cap or National.
HOLDERS
The number of record holders of shares of the Company's common stock as of the
date of this filing is approximately 435. The aggregate number of shares of the
Company's common stock issued and outstanding as of December 31, 1999 was
12,230,252.
DIVIDENDS
The Company has not paid nor declared any dividends upon its shares of common
stock since its inception and, does not contemplate or anticipate paying any
dividends upon its shares of common stock in the near future.
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ITEM 6. MANAGEMENT DISCUSSION AND ANALYSIS
OVERVIEW
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, 1999. With the opening of Hotel Alta in December
1997, 1998 marked the first year of full operation of the Company's hotels. All
Company owned facilities, except for Restaurant Playa Carmen, were open and
operating during 1998 and 1999. Restaurant Playa Carmen was rented out to a
restaurant operator during 1999.
Revenues at the three (3) hotels are primarily dependent upon the occupancy
rates and per room charges (although other services are sold). During 1999 major
improvements in occupancy and sales occurred at Hotel Alta and Sunset Reef
hotels.
At Hotel Alta, the occupancy for the 12 months ended December 31, 1999 increased
approximately 20% over the occupancy for the 12 month period ended December 31,
1998. In 1999 occupancy was approximately 39% at Hotel Alta.
At Sunset Reef, the occupancy for the 12 months ended December 31, 1999
increased approximately 41% over the occupancy for the 12 month period ended
December 31, 1998. In 1999 occupancy was approximately 17% at Sunset Reef.
La Luz Restaurant, the 60-seat restaurant in Hotel Alta, has been operating
since August of 1997. 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,
rated La Luz as the top restaurant in the country in 1999. Because of the
attention it has received, management plans to create a sophisticated club and
bar in space currently available above the restaurant during 2000.
During 1999, management rented the 100-seat restaurant at Playa Carmen. In
addition to a monthly rental fee, management received significant physical
upgrades to the restaurant for this arrangement. Adjacent to the restaurant, CAE
plans to construct a tent camp for surfers and low budget travelers in the
future.
Alta Travel Planners (ATP) primarily provides hotel reservations and travel
planning services to guests visiting CAE's three properties. ATP is currently
located in Hotel Alta in Costa Rica and is considered an integral part of
providing room reservations for the three hotels. As such, ATP's financial
information is not reported separately from CAE's hotel operations. The
differences are not material.
During July of 1999, the Company consolidated all of its hotel reservations and
related concierge activities (referred to as Alta Travel Planners or ATP) in
offices within Hotel Alta, in Costa Rica. As a result of this consolidation, the
Company achieved savings in costs for personnel (reservations staff), rental
space, equipment, utilities, and overhead. Certain one-time expenses were
incurred that included moving activities, severance packages, training of new
personnel, installation of utilities (a new 800 line in Costa Rica) and the
purchase of new equipment and stationery. During the transition, reservation
activities and related revenues declined for approximately four months and then
began to rebound.
Prior to the move, substantial ATP gross revenues were the result of general
travel agent services. Although these services provided significant gross
revenues to the company, the payment of commissions to travel wholesalers within
Costa Rica and other Central American countries reduced gross revenues
significantly. Although total gross revenues for ATP operations have been
reduced by the move to Costa Rica, management believes that the change will
ultimately contribute significantly to the profitability of the company. ATP now
contracts directly with Costa Rican ground service providers and hotels (at
higher commission rates to the Company) to facilitate tour operations for CAE
guests.
-10-
<PAGE> 11
RESULTS OF OPERATIONS --- YEARS ENDING DECEMBER 31, 1998 AND 1999
The following is management's discussion and analysis of significant differences
in the Company's financial position and operations between the fiscal year ended
December 31, 1998 and the fiscal year ended December 31, 1999 (See Item 7 -
Financial Statements).
Assets
Between December 31, 1998 and December 31, 1999 total assets decreased from
$8,342,522 to $8,047,905 reflecting primarily depreciation. Management considers
1998 as the end of the initial building stage of the hotels. No major assets
were purchased in 1999.
Liabilities
Between December 31, 1998 and December 31, 1999 total liabilities increased from
$1,854,653 to $2,072,187. Long term debt grew from $582,398 to approximately
$710,000. Stockholders continued to provide additional financing to the Company.
Between December 31, 1998 and December 31, 1999 total loans from investors
increased from $1,054,348 to $1,362,187.
Revenues
Between December 31, 1998 and December 31, 1999 total sales revenue increased by
about 18.4% from $1,131,158 to $1,338,882. As revenue grew and increases in
fixed costs slowed, gross margins increased from 15% in 1998 to 26% 1999.
Expenses
Between 1998 and 1999, General and Administrative Expenses declined about 10%
from $768,015 to $690,200. This reflected across-the-board cuts in personnel and
the transfer of ATP to Costa Rica (even though simultaneously, certain marginal
costs increased as more guests were served in 1999).
Net Income
As sales revenues grew and expense growth decelerated, Company losses declined.
For the fiscal year ending December 31, 1999, annual net losses declined from
$972,813 to $698,793 (of which approximately $241,000 was depreciation). Between
December 31, 1998 and December 31, 1999 cumulative losses (retained deficit)
grew from $2,450,796 to $3,149,589.
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 this period,
capitalization was not sufficient to fund necessary expenses and management
sought and succeeded in acquiring about $435,000 in loans for working capital
from stockholders.
The Company has limited, albeit improving, cash liquidity and capital resources.
To the extent that the funds generated by revenues are insufficient to fund
CAE's activities, it will be necessary to raise additional funds. In the
short-term the Company will continue to seek loans from investors and other
sources. The Company is negotiating the refinancing of its current bank loan
including increasing the principle and the repayment period. Long-term plans
include raising additional funds through the sale of equity. At this time there
are no commitments for major capital expenditures.
YEAR 2000 COMPLIANCE
During 1999, the Company completed a comprehensive review of its computer
systems to identify which of its systems would have to be modified, upgraded or
converted to recognize and process
-11-
<PAGE> 12
dates after December 31, 1999 (the Year 2000 Issue). The Company identified one
computerized system that required reconfiguration to adjust adequately to the
Year 2000 issue.
CAE's centralized reservations and financial control system, known as RDP
(Resort Data Processing) had been determined to be potentially Y2K
non-compliant. CAE elected to replace the system entirely with a new, Y2K
compliant system manufactured and installed by Hovysis Corporation. In September
1999, telephone accounting systems, front desk operations, and restaurant
operations were operating with the new Hovysis system. All reservations and
financial accounting systems were operational by December 1999. As of March
2000, all systems had proved to be Year 2000 compliant.
Purchase and installation of Hovysis cost approximately $7000. The Company
incurred additional minor internal staff costs, as well as other expenses,
related to updating its systems to prepare for the Year 2000.
CURRENCY DEVALUATION
Historically, changes in the rate of exchange between dollars and colones (the
Costa Rican currency) has had an insignificant effect on liquidity because the
rate of exchange is relatively predictable. The Central Bank eases devaluation
pressure on the colon through a system called "mini-devaluation" whereby it
decreases the colon's value daily by centimos, establishing a rate that is
generally followed by most banks and exchange houses in the country. Since
January 1996, the speed of devaluation of the colon against the dollar has
markedly slowed.
Currency devaluations may actually have a positive effect on the Company's net
operating revenues. Although the hotels are in Costa Rica, all hotel rates are
quoted in US dollars (the majority of hotel guests are from the US and other
parts of North America) and, as such, hotel revenues are generally unaffected by
devaluation of the colon relative to the US dollar. The majority of hotel
expenses in Costa Rica (including most salaries) are in colones.
INFLATION
Inflation in Costa Rica has remained relatively low during the past five years
and has had a relatively low impact on the operating performance of the Company.
As previously stated in the above discussion of the effects of currency
devaluation, hotel rates are in dollars, while most expenses in Costa Rica are
in colones.
ITEM 7. FINANCIAL STATEMENTS
-12-
<PAGE> 13
Report of Independent Auditors
Board of Directors
Central American Equities Corp. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Central American
Equities Corp. and Subsidiaries as of December 31, 1999, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the years ended, December 31, 1999 and 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Central American
Equities Corp. and Subsidiaries at December 31, 1999 and 1998 and the results of
their operations, and their cash flows for the years ended December 31, 1999 and
1998 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. In 1998, the Company completed its
inaugural year of full operations and experienced net losses and had limited
liquidity and capital resources. The Company's uncertainty as to its sales
growth and its ability to raise sufficient capital, raise doubt about the
entity's ability to continue as a going concern. Management's plans in regard to
these matters are also described in Note 2. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
As discussed in Note 1 to the financial statements, the Company changed its
method of reporting on organization and start-up costs in 1998.
As discussed in Note 10 to the financial statements, the Company changed from an
unacceptable method of accounting to an acceptable method. The change in
accounting principles has been accounted for as a correction of an error and
prior years' financial statements have been restated.
By: /s/ Pinkham & Pinkham, P.C.
Pinkham & Pinkham, P.C.
Certified Public Accountants
June 25, 2000
Cranford, New Jersey
<PAGE> 14
CENTRAL AMERICAN EQUITIES CORP. AND SUBSIDIARIES
Consolidated Balance Sheet
December 31,
Assets
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Current assets
Cash and cash equivalents $24,869 $19,078
Account receivable 4,220 46,608
Inventory 10,040 27,521
Prepaid expenses 2,805 14,575
----------- -----------
41,935 107,782
----------- -----------
Buildings and equipment,
Net of depreciation 8,047,905 8,229,939
----------- -----------
Other assets
Security deposits 4,801 4,801
----------- -----------
Total assets $8,094,640 $8,342,522
=========== ===========
Liability and Stockholders' Equity
Current liabilities
Accounts payable $44,770 $58,011
Accrued expenses 176,873 159,896
----------- -----------
221,643 217,907
----------- -----------
Other liabilities
Long term debt 710,000 582,398
Due to officers 1,362,187 1,054,348
----------- -----------
2,072,187 1,636,746
Stockholders' equity
Common stock - $.001 par value; 20,000,000
Authorized, 12,230,252 issued and outstanding 12,230 12,230
Preferred stock - $.001 par value; 1,000,000
shares authorized, 0 issued and outstanding -- --
Additional paid-in capital 8,897,817 8,897,817
Unrealized gain on foreign exchange 40,352 28,618
Retained deficit (3,149,589) (2,450,796
----------- -----------
5,800,810 6,487,869
Total liabilities and stockholders' equity $8,094,640 $8,342,522
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
-14-
<PAGE> 15
CENTRAL AMERICAN EQUITIES CORP. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Years Ended December 31,
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Revenues $1,338,882 $1,131,158
Cost of services 990,773 962,144
------------ ------------
Gross profit 348,109 169,014
------------ ------------
Operations
General and administrative 690,200 768,015
Depreciation 241,289 258,722
------------ ------------
931,489 1,026,737
------------ ------------
(583,380) (857,723)
Other (income) expense
Interest expense 115,413 139,523
Loss (gain) on foreign exchange -- 36,567
------------ ------------
115,413 176,090
------------ ------------
Loss before extraordinary item
and provision for taxes (698,793) (1,033,813)
Extraordinary item -forgiveness of debt -- 61,000
Provision for income taxes -- --
------------ ------------
Net loss $(698,793) (972,813)
============ ============
Net loss per common share $(.06) $(.08)
============ ============
Weighted average share of
common stock outstanding 12,230,252 12,230,252
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
-15-
<PAGE> 16
CENTRAL AMERICAN EQUITIES CORP. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Unrealized
Common Paid in Retained Foreign
Stock Capital Deficit Exchange Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance 12/31/97 $12,205 $8,872,842 $(1,477,983) $ -- $7,407,064
Issuance of common stock 25 24,975 -- -- 25,000
Unrealized gain on
foreign exchange 28,618 28,618
Net loss - Restated -- -- (972,813) -- (972,813)
----------- ----------- ----------- ----------- -----------
Balance 12/31/98 12,230 8,897,817 (2,450,796) 28,618 6,487,869
Unrealized gain on
foreign exchange -- -- -- 11,734 11,734
Net loss -- -- (698,793) -- (698,793)
----------- ----------- ----------- ----------- -----------
Balance 12/31/99 $12,230 $8,897,817 $(3,149,589) $40,352 $5,800,810
=========== =========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
-16-
<PAGE> 17
CENTRAL AMERICAN EQUITIES CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Restated Restated
For the Year Ended For the year Ended
December 31, 1999 December 31, 1998
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (698,793) $ (972,813)
Adjustments to reconcile net loss to
net cash provided by
operating activities:
Depreciation and amortization 241,289 258,722
Unrealized gain on foreign exchange 11,734 28,618
Write-off of organization costs - 235,605
Forgiveness of debt - (61,000)
Stock issued in exchange for services - -
Change in assets and liabilities:
Decrease (increase) in:
Accounts receivable 42,388 (46,608)
Inventory 17,481 (10,709)
Prepaid expense 11,770 (14,575)
Increase (decrease) in:
Accounts payable (13,241) 37,511
Accrued expenses 16,977 86,667
------------ -------------
Net cash used in operating activities (370,395) (458,582)
------------- --------------
Cash flow from investing activities:
Security deposits - (4,801)
Organization and start-up costs - -
Capital expenditures (59,255) (496,167)
------------- -------------
Net cash used in investing activities (59,255) (500,968)
------------- -------------
Cash flows from financing activities:
Proceeds from loans 127,602 505,716
Proceeds from loans from officers 307,839 685,934
Payment of loans - (250,000)
Proceeds from issuance of common stock - 25
Proceeds from additional paid-in capital - 24,975
------------- ------------
Net cash provided by financing activities: 435,441 966,650
------------- ------------
Net increase in cash 5,791 7,100
Cash - beginning of year 19,078 11,978
------------- ------------
Cash - end of year $ 24,869 $ 19,078
============= ==============
</TABLE>
See Notes to Consolidated Financial Statements
-17-
<PAGE> 18
CENTRAL AMERICAN EQUITIES CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<S> <C> <C>
Supplemental Disclosure of Cash Flow Information:
Interest paid $ 81,721 $ 42,308
========== ===========
Income taxes paid $ - $ -
</TABLE>
========== -==========
See Notes to Consolidated Financial Statements
-18-
<PAGE> 19
CENTRAL AMERICAN EQUITIES CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Summary of Accounting Policies
Nature of Business
Central American Equities Corp. and Subsidiaries (the "Company")
was incorporated under the laws of the State of Florida on January
23, 1996. 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.
In December of 1996, the Company entered into an agreement for the
exchange of common stock ("Exchange Agreement") with Cal Tico,
L.P., Ecolodge Partners, L.P. and Marine Lodge Partners, L.P.
(Partnership). Pursuant to the exchange agreement, the company
issued 7,756,885 and 3,099,392 shares of common stock to limited
partners and the general partners, respectively, of the
partnerships. In exchange for the shares, the partnership
transferred all of their interests (i.e. 100% of the outstanding
common stock) in the following Costa Rican corporations: Hoteleria
Cal Tico, S.A.; Bandirma, S.A.; Sociedad Protectora De La Fuana y
Flora Marintima De Mal Pais, S.F.; Ecoprojecto San Luis, S.A. and
Confluencia, S.A.
Cal Tico, L.P. was a California limited partnership that was
formed in July 1992 to raise $2 million to purchase the land and
construct Hotel Alta. Cal Tico, L.P. owns 100% of the stock in
Hoteleria Cal Tico, S.A., a Costa Rican corporation. Hoteleria Cal
Tico, S.A, owns the land and buildings at Hotel Alta.
Ecolodge Partners, L.P. was formed in July 1993 to raise a total
of $1.3 million in a private placement offering to purchase the
land and construct the Ecolodge San Luis and Biological Station.
Ecolodge Partners was a California limited partnership that own
all of the stock in Ecoproyecto San Luis, S.A. and Confluencia San
Luis, S.A., the two Costa Rican companies that own the Ecolodge
land and buildings.
MarineLodge Partners L.P. was formed in March 1995 to raise $1
million for the purchase and renovation of the Sunset Reef.
MarineLodge Partners was a California limited partnership.
MarineLodge Partners owned 100% of the stock in Bandirma, S.A.
Bandirma owns: a)90% of the Sociedad Protectora De La Fauna y
Flora Maritima de Mal Pais S.A., a Costa Rican corporation which
owns the land and buildings at Sunset Reef, and b)100% of Muxia,
S.A. which owns 100% of the land and buildings at Playa Carmen.
In 1997 the Company issued 748,975 shares of common stock for an
aggregate purchase price of $1,425,375 pursuant to Rule 506. The
proceeds were used to make capital improvements to the various
hotels acquired pursuant to the Exchange Agreement. The shares
were sold to 36 investors.
-19-
<PAGE> 20
CENTRAL AMERICAN EQUITIES CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Summary of Accounting Policies (continued)
In a separate transaction, the Company issued 100,000 shares of
common stock to Steven Aronson on August of 1997. The shares were
issued as compensation for Mr. Aronson's services in conducting
due diligence on the Costa Rican hotels and consulting services.
Basis of Consolidation
The consolidated financial statements include the consolidated
accounts of Central American Equities Corp. and its subsidiaries.
Hoteleria Cal Tico, S.A., Bandirma, S.A., Sociedad Protectora De
La Fuana y Flora Marintima De Mal Pais, S.F., Ecoprojecto San
Luis, S.A. and Confluencia, S.A. are held 100% by the Company. All
intercompany transactions and accounts have been eliminated in
consolidation.
Cash and Cash Equivalents
For purposes of the statement of cash flows all certificates of
deposits with maturities of 90 days or less, were deemed to be
cash equivalents.
Property and Equipment
Property and equipment are recorded at cost less accumulated
depreciation. Depreciation is computed provided using the
straight-line method over the estimated useful lives of five for
equipment, seven years for furniture and fixtures and forty years
for buildings and improvements.
Repairs and maintenance costs are expensed as incurred while
additions and betterments are capitalized. The cost and related
accumulated depreciation of assets sold or retired are eliminated
from the accounts and any gain or losses are reflected in
earnings.
Estimates
Preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Adoption of Statement of Accounting Standard No. 123
In 1997, the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"). SFAS 123 encourages, but does not require companies
to record at fair value compensation cost for stock-based
compensation plans. The Company has chosen to account for
stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and related
interpretations. Accordingly, compensation cost for stock
-20-
<PAGE> 21
CENTRAL AMERICAN EQUITIES CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Summary of Accounting Policies (continued)
options is measured as the excess, if any, of the quoted market
price of the Company's stock at the date of the grant over the
amount an employee must pay to acquire the stock. The difference
between the fair value method of SFAS-123 and APB 25 is
immaterial.
Adoption of Statement of Position 98-5
In April 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-5, Reporting the Costs
of Start-Up Activities, which requires that costs related to
start-up activities be expensed as incurred. Prior to 1998, the
Company capitalized its organization costs. The Company adopted
the provisions of the SOP in its financial statements for the year
ended December 31, 1998. The effect of adoption of SOP 98-5 was to
record a charge for the cumulative effect of an accounting change
of $235,605 ($.02 per share), to expense costs that had been
previously capitalized prior to 1998.
Adoption of Statement of Accounting Standard No. 128
In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 128,
"Earnings per Share" (SFAS 128). SFAS 128 changes the standards
for computing and presenting earnings per share (EPS) and
supersedes Accounting Principles Board Opinion No. 15, "Earnings
per Share." SFAS 128 replaces the presentation of primary EPS with
a presentation of basic EPS. It also requires dual presentation of
basic and diluted EPS on the face of the income statement for all
entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS
computation. SFAS 128 is effective for financial statements issued
for periods ending after December 15, 1997, including interim
periods. This Statement requires restatement of all prior-period
EPS data presented.
As it relates to the Company, the principal differences between
the provisions of SFAS 128 and previous authoritative
pronouncements are the exclusion of common stock equivalents in
the determination of Basic Earnings Per Share and the market price
at which common stock equivalents are calculated in the
determination of Diluted Earnings Per Share.
Basic earnings per common share is computed using the weighted
average number of shares of common stock outstanding for the
period. Diluted earnings per common share is computed using the
weighted average number of shares of common stock and dilutive
common equivalent shares related to stock options and warrants
outstanding during the period.
-21-
<PAGE> 22
CENTRAL AMERICAN EQUITIES CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Summary of Accounting Policies (continued)
The adoption of SFAS 128 had no effect on previously reported loss
per share amounts for the year ended December 31, 1997. For the
years ended December 31, 1999 and 1998, primary loss per share was
the same as basic loss per share and fully diluted loss per share
was the same as diluted loss per share. A net loss was reported in
1998 and 1997, and accordingly, in those years the denominator was
equal to the weighted average outstanding shares with no
consideration for outstanding options and warrants to purchase
shares of the Company's common stock, because to do so would have
been anti-dilutive. Stock options for the purchase of 47,500
shares at December 31, 1998 were not included in loss per share
calculations, because to do so would have been anti-dilutive.
Revenue Recognition
The Company records revenue at the point of service and maintains
its corporate records for both financial statement and tax return
purposes on the accrual method of accounting.
Foreign Exchange
Assets and liabilities of the Company, which are denominated in
foreign currencies, are translated at exchange rates prevailing at
the balance sheet date. Revenues and expenses are translated at
average rates throughout the year.
Fair Value of Financial Instruments
The carrying amount of the Company's financial instruments, which
principally include cash, note receivable, accounts payable and
accrued expenses, approximates fair value due to the relatively
short maturity of such instruments.
The fair value of the Company's debt instruments are based on the
amount of future cash flows associated with each instrument
discounted using the Company's borrowing rate. At December 31,
1999 and 1998, respectively, the carrying value of all financial
instruments was not materially different from fair value.
Income Taxes
The Company has net operating loss carryovers of approximately $3
million as of December 31, 1999, expiring in the years 2012
through 2013. However, based upon present Internal Revenue
regulations governing the utilization of net operating loss
carryovers where the corporation has issued substantial additional
stock, most of this loss carryover may not be available to the
Company.
The Company adopted Statement of Financial Accounting Standards
(SFAS) No. 109, Accounting for Income Taxes, effective July 1993.
SFAS No.109 requires the establishment of a deferred tax
-22-
<PAGE> 23
CENTRAL AMERICAN EQUITIES CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Summary of Accounting Policies (continued)
asset for all deductible temporary differences and operating loss
carryforwards. Because of the uncertainties discussed in Note 2,
however, any deferred tax asset established for utilization of the
Company's tax loss carryforwards would correspondingly require a
valuation allowance of the same amount pursuant to SFAS No. 109.
Accordingly, no deferred tax asset is reflected in these financial
statements.
Note 2 - Going Concern
As shown in the accompanying financial statements, the Company
incurred a net loss of approximately $699,000 during the year
ended December 31, 1999.
The Company is currently in the process of formulating a plan to
effect an additional public offering, the proceeds of which would
be used for working capital and capital expansion. The ability of
the Company to continue as a going concern is dependent on the
success of the plan. The financial statements do not include any
adjustments that might be necessary if the Company is unable to
continue as a going concern.
Note 3 - Property and Equipment
As of December 31, 1999 plant and equipment consisted of the
following:
<TABLE>
<S> <C>
Land $ 1,445,344
Buildings 6,670,904
Machinery and equipment 129,963
Furniture and fixtures 382,180
Computer equipment 92,116
-----------
8,720,507
Less accumulated depreciation 672,602
-----------
$ 8,047,905
===========
</TABLE>
-23-
<PAGE> 24
CENTRAL AMERICAN EQUITIES CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 4 - Notes Payable
The Company has $500,000 outstanding against a $500,000 line of
credit with Commerce Overseas Bank, which bears interest at the
prime rate plus 3%. Interest only is payable on the last day of
each month. Principal payments were to begin on January 10, 2000
in monthly installments of $38,462, however, payments are being
renegotiated. The funds advanced under this line of credit were
utilized to supplement cash flow for operating expenses and
construction costs. The note is collateralized by property of the
Company. The prime rate of interest at December 31, 1999 was 8%.
The Company has a note payable in the amount of $210,000 payable
to a shareholder, which is due when the Company goes public or on
November 1, 2000. The note bears simple interest at 13% per annum
and is secured by property owned by the Company.
Note 5 - Related Party Transactions
At December 31, 1999 and 1998, the Company had notes payable from
various officers in the amount of $1,362,187 and $1,054,000,
respectively, which bear interest at an annual rate of 7%.
Note 6 - Commitments
The Company leases land under an agreement for a term from June
15, 1998 to June 14, 2001. The Company has an option to buy this
property for $257,400 if purchased on June 15, 2000 or $283,040 if
purchased on June 15, 2001.
Minimum rentals in each of the next two years is as follows:
<TABLE>
<CAPTION>
December 31, Amount
<S> <C> <C>
2000 $ 15,500
2001 7,500
--------
$ 23,000
========
</TABLE>
Note 7 - Business Combination
On December 6, 1996 the Company entered into an agreement for the
exchange of common stock ("Exchange Agreement") with Cal Tico,
L.P., Ecolodge Partners, L.P. and Marine Lodge Partners, L.P.
("Partnership"). Pursuant to the exchange agreement, the Company
issued 7,756,885 and 3,099,392 shares of common stock to the
limited partners and the general partners, respectively, of the
partnerships. In exchange for the shares, the partnership
transferred all of their interests (i.e. 100% of the outstanding
common stock) in the following Costa Rican corporations: Hotelera
Cal Tico, S.A.; Bandirma, S.A.; Sociedad Protectora De La Fuana y
Flora Marintima De Mal Pais, S.F.; Ecoprojecto San Luis, S.A. and
Confluencia, S.A. The acquisition has been accounted for as a
purchase transaction and, accordingly, the fair value of the
Company's stock that was issued was allocated to assets and
liabilities based on the estimated fair value as of the
acquisition date.
-24-
<PAGE> 25
CENTRAL AMERICAN EQUITIES CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 8 - Forgiveness of Debt
During the year ended December 31, 1998, a director of the Company
forgave a debt in the amount of $61,000. This amount was included
in long-term debt at December 31, 1997. This amount has been
reflected as an extraordinary item in the statement of operations.
Note 9 - Restated Financial Statements
The financial statements released by management and dated March
31, 1999 contained various errors which included omission of
accounts receivable, prepaid expenses, property and equipment
accrued expenses, notes payable and unrealized gains on foreign
exchange. These errors were corrected by restating the 1998
financial statements. The effects of the errors were to overstate
the 1998 loss by $198,794 ($.02 share).
-25-
<PAGE> 26
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
The Company's accountants are Pinkham and Pinkham, P.C., C.P.A. The Company does
not presently intend to change accountants. At no time have there been any
disagreements with such accountants regarding any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure.
CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT.
At a board of directors meeting held on July 7, 1999 of which a quorum was
present, the Board of Directors of Central American Equities Corp. accepted the
resignation of Steven J. Gannuscio as its accountant for the fiscal years ended
December 31, 1997 and December 31, 1998. Mr. Gannuscio resigned because he did
not hold the proper credentials to file audited reports with the Securities and
Exchange Commission nor was he at the time licensed as a CPA.
Mr. Gannuscio had been the principal accountant for Central American Equities
Corp. At no time did Mr. Gannuscio's financial statements contain an adverse
opinion or disclaimer of opinion or was modified as to uncertainty, audit scope,
or accounting principles. Nor were there any disagreements with Mr. Gannuscio on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
On July 7, 1999, Central American Equities Corp. engaged Pinkham and Pinkham,
P.C. Certified Public Accountants as the principal accountant for the company.
Central American Equities Corp. has authorized Mr. Gannuscio to respond fully to
the inquiries of the successor accountant. On October 15, 1999, Pinkham and
Pinkham, P.C. issued an independent audit of Central American Equities Corp.
This new audit was first filed on October 19, 1999 with the SEC as Item 7 of
Form 10-KSB/A.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, AND CONTROL PERSONS
IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names of all current directors and executive
officers of the Company. Mr. Talley, Mr. Rosenmiller, and Mr. King were elected
on 01/20/97. They will serve until the next meeting of the stockholders or until
their successors are elected or appointed and qualified, or their prior
resignation or termination. Per the original 10-SB filing, Brian Frazee was
CEO/President/Director from October 1997 to August 1998. In September 1998, Mr.
Caggiano replaced Mr. Frazee as the CEO and President of CAE and as a board
member of CAE. In September 1998, Mr. Frazee became the General Manager of CAE's
hotels in Costa Rica (a non-director position).
<PAGE> 27
<TABLE>
<CAPTION>
Name Position Held Dates Age
-------------------------- ------------------------------- ----------------- -----
<S> <C> <C> <C>
W.F.O. Rosenmiller Secretary/Treasurer/Director 1/1997 to current 67
Richard Talley Director 1/1997 to current 57
Paul King Director 1/1997 to current 35
Michael Caggiano President/CEO/Director 9/1998 to current 46
</TABLE>
BUSINESS EXPERIENCE
W.F.O. ROSENMILLER, Secretary, Treasurer and Director of Central American
Equities Corp (age 67, time spent on Company business: one percent). During the
past five years, Mr. Rosenmiller has been self-employed as a real estate broker,
land developer, entrepreneurial investor and venture capitalist in the United
States. He has also been an individual and partnership investor in Costa Rica.
Since 1998, Mr. Rosenmiller has been a board member of Centracan, Inc., a
US-based medical corporation that owns and operates medical diagnostic and
treatment facilities in Costa Rica.
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 (age 57, time
spent on company business: 1 (one) percent). Mr. Talley was (with Mr. King) a
representative of Cal TKCo, S.A., the general partner in several of the
California Limited Partnerships that raised the seed money for the Costa Rican
corporations that built the hotels (see Item 1 - Description of Business,
Formation). As of August 1999, Mr. Talley has been the CEO of Talley and Co. an
investment banking company located in Irvine, California.
Mr. Talley began his finance career with Smith Barney in New York. He opened and
managed the Shearson office in Santa Barbara 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 Paul D. King founded Talley, King and Co., Inc. ("Talley King") with offices
in Irvine, California. Talley, King & Co., Inc. is an investment bank which
focuses on private placement financing.
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<PAGE> 28
Mr. Talley has been actively involved in Costa Rica for the last seven years. In
addition to his role in Talley King, Mr. Talley is also Chairman of the Board of
Centracan, Inc. a US-based medical corporation that owns and operates diagnostic
and treatment facilities in Costa Rica. Mr. Talley holds a bachelor of arts
degree in European History from the University of California, Santa Barbara and
an MBA in Finance from Cornell University, Ithaca, New York.
PAUL KING, Director of Central American Equities Corp (age 35, time spent on
company business: 1 (one) percent). Since August 1999 Mr, King has been the
owner/principal of King Management Company, in Irvine California. Mr. King was a
principal in Talley King & Company, Inc. and a partner with Mr. Talley since
1989. During the last seven 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 was responsible for all activities
including the interface between Costa Rican corporations and US entities.
In the medical area, Talley King and Company, Inc. has funded and built
diagnostic and treatment medical facilities in San Jose, Costa Rica (Centracan,
Inc.). Mr. King attended Westmont College.
MICHAEL N. CAGGIANO, Ph.D. President, Chief Executive Officer, and Director of
Central American Equities (age: 46, time spent on company business: ninety (90)
percent). Dr. Caggiano is also a Director of Cafe Britt, a roaster and
distributor of premium Costa Rican coffee and a consultant to Centracan, a
provider of high technology medical services in San Jose, Costa Rica.
Prior to joining CAE, as a private consultant, Dr. Caggiano has specialized in
furnishing advice to management regarding economic performance, corporate
strategy, obtaining financing (business plans, prospectuses, SEC and NASD
filings), mergers and acquisitions, and organizational change. His clients have
included health care, real estate, hospitality, international exporting,
electronics, and manufacturing companies. Dr. Caggiano has also provided public
policy and litigation analysis for local governments and private entities.
Prior to establishing his own company, Dr. Caggiano was Executive Vice President
in Charge of Consulting Operations at Robert Charles Lesser & Co. (RCLCo) a
50-person, 5-office, national consulting firm based in Los Angeles. While at
RCLCo, he oversaw the management of more than 300 consulting engagements
annually.
In 1990, Dr. Caggiano was elected to the first City Council of Malibu and later
served as its Mayor Pro Tem. He helped create the city from conception. Before
serving as an elected official, he was a Fellow and Policy Analyst with The RAND
Corporation. While at RAND, he specialized in solving state and local government
financial and criminal justice problems. During his nine years at RAND, he
authored 18 publications on finance and other government policy-related issues.
For five years, Dr. Caggiano served as the President of Heal the Bay, one of
Southern California's most successful environmental groups. Currently he is a
board director.
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.
-28-
<PAGE> 29
FAMILY RELATIONSHIPS
There are no family relationships between the directors or executive officers of
the Company, either by blood or by marriage.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
During the past five years, no present or former director, executive officer or
person nominated to become a director or an executive officer of the Company
was:
1. A general partner or executive officer of any business against which
any bankruptcy petition was filed, either at the time of the bankruptcy
or two years prior to that time;
2. Convicted in a criminal proceeding or named subject to a pending
criminal proceeding (excluding traffic violations and other minor
offenses);
3. Subject to any order, judgment or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently
or temporarily enjoining, barring, suspending or otherwise limiting his
involvement in any type of business, securities or banking activities; or
4. Found by a court of competent jurisdiction (in a civil action), the
Securities and Exchange Commission or the Commodity futures trading
Commission to have violated a commodities law, and the judgment has not
been reversed, suspended or vacated.
ITEM 10. EXECUTIVE COMPENSATION
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, or directors; 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 the total compensation of current officers and
directors during the fiscal years ended December 31, 1997, 1998 and 1999. No
officer of the Company earned more than $100,000 during such fiscal years.
-29-
<PAGE> 30
<TABLE>
<CAPTION>
Name Title Compensation
-------------------------- ------------------------------------------ --------------
<S> <C> <C>
Michael N. Caggiano (1) NA 1997 NA
CEO/President/Director 1998 $20,000
CEO/President/Director 1999 $45,000 (2)
W.F.O. Rosenmiller Secretary/Treasurer/Director 1997 0
Secretary/Treasurer/Director 1998 0
Secretary/Treasurer/Director 1999 0
Richard Wm. Talley (3) Director 1997 0
Director 1998 0
Director 1999 0
Paul King (3) Director 1997 0
Director 1998 0
Director 1999 0
</TABLE>
(1) During the third quarter of 1998 the Company issued 19,200 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
as CEO and President.
(2) Mr. Caggiano's annual salary in 1999 was $65,000. As of December 31,
1999, Mr. Caggiano was owed $22,500 in past salary which is included in
accounts payable.
(3) 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.
The Company does not compensate its board directors except for their
reimbursement of expenses incurred in relation to attendance at board of
directors meetings.
ITEM 11. SECURITY OWNERSHIP OF MANAGEMENT & CERTAIN BENEFICIAL OWNERS.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth the shareholdings of those persons who own more
than five percent of the Company's total common stock as of December 31, 1999:
-30-
<PAGE> 31
<TABLE>
<CAPTION>
Name and Address Number of Shares Percent of Total Class
Beneficially Owned
----------------------- ------------------- ---------------- ---------------
<S> <C> <C> <C>
Richard Wm. Talley 757,514 6.2% Common Stock
19200 Von Karman
Irvine, CA 92612
Paul King 767,516 (1) 6.3% Common Stock
19100 Von Karman
Irvine, CA 92612
Totals 1,525,030 12.5%
</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, 1999:
<TABLE>
<CAPTION>
Name and Address Number of Shares Percent of Total Class
Beneficially Owned
----------------------- ------------------ ----------------- -------------
<S> <C> <C> <C>
Richard Wm. Talley 757,514 6.2% Common Stock
Paul King (1) 767,516 (1) 6.3% Common Stock
W.F. Rosenmiller (2) 413,828 3.4% Common Stock
Michael Caggiano 31,202 0.3% Common Stock
Totals 1,970,060 16.1%
</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
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<PAGE> 32
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.
(2) The shares are registered as follows: CR DE ESCAZU EMPRESA
COSTARICENSE-364,941 shares of common stock and CR INVERSION ESCAZU
LIMITADA- 48,887 shares of common stock.
ITEM 12. INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
Richard Wm. Talley and Paul King, in association with CAL TKCO S.A., were
general partners of several of the Partnerships described in Item 1. As such,
Mr. Talley and Mr. King received an aggregate of 1,610,230 shares of common
stock pursuant to the exchange agreement. 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. The management agreement expired in 1997.
There was no management agreement in 1998 or 1999.
In June 1996, under Rule 504 Reg D, 500,000 share were issued in exchange for
$5,000. Mr. Dale Finfrock, founder of CAE, holds 183,466 of these shares
obtained pursuant to Rule 504. These shares are without restrictive legend.
However, Mr. Finfrock has agreed to refrain from selling any of said shares
until ninety days after public listing of CAE stock.
ITEM 12A. RECENT SALES OF UNREGISTERED SECURITIES.
In June of 1996, the Company filed a Form D relating to the offer and sale of
500,000 shares of common stock pursuant to Rule 504. The Company sold said
shares for an aggregate consideration of $15,000 to ten (10) investors. No
Commissions were paid on sales of these Common Shares.
In December of 1996, the Company entered into an agreement for the exchange of
common stock ("Exchange Agreement") with Cal Tico, L.P., Ecolodge Partners,
L.P., and L.A. Cal, L.P., and Marine Lodge Partners, L.P. ("Partnership").
Pursuant to the exchange agreement, the company issued 7,756,885 and 3,099,392
shares of common stock to the limited partners (approximately 450) and the
general partners, respectively, of the partnerships. The general partners who
received shares included: George Solano (121,821 shares received), Craig
MacClean (40,593 shares), Joanell Lyon (182,000), Milton and Diana Lieberman
(520,000), and currrent CAE board directors: Richard Wm. Talley, Paul King, and
W.F.O. Rosenmiller (see Item 11 - Security Ownership of Management). In exchange
for the shares, the partnership transferred all of their interests (i.e. 100% of
the outstanding common stock) in the following Costa Rican corporation: Hotelera
Caltico, S.A.; Ecoproyecto San Luis, S.A (which owns 100% of Confluencia San
Luis, S.A.); and Sociedad Protectora de la Fauna y Flora de Mal Pais, S.A.
(which owns 100% of Corporacion Muxia, S.A.) (See Item 1 - Business of the
Company). The receipt of shares by Mr. Solano are contingent upon him reaching
certain sales goals (See Exhibit 10). No Commissions were paid on sales of these
Common Shares.
In 1997 the Company issued 748,975 shares of common stock for an aggregate
purchase price of $1,425,375.45 pursuant to Rule 506. These investors are exempt
because they are accredited investors. The proceeds were used to make capital
improvements to the various
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<PAGE> 33
hotels acquired pursuant to the Exchange Agreement. The shares were sold to 64
accredited investors. A 10 percent commission, or approximately $142,500 was
paid to Talley King & Co., Inc. on sales of these Common Shares.
In a separate transaction, the Company issued 100,000 shares of common stock to
Steven Aronson on August of 1997. The shares were issued as compensation for Mr.
Aronson's services in conducting due diligence on the Costa Rican hotels and
consulting services.
In April 1998, the Company issued options to purchase shares of common stock in
equal yearly amounts over the next five years. The shares may be purchased
pursuant to the options at a price of $1.00 per share. The details for said
options are as follows:
<TABLE>
<CAPTION>
Option Holder Amount of Shares Consideration
---------------------- ----------------- -------------
<S> <C> <C>
Elsa Monge 10,000 none
Brian Frazee 10,000 none
Sherman Johnson (1) 15,000 none
Mario Araya 5,000 none
O. Ramirez 5,000 none
S. Rodriguez 500 none
D. Munoz 500 none
C. Elizondo 500 none
M. Salazar 500 none
J. Cruz 500 none
Total 47,500 none
</TABLE>
(1) See exhibits from the 1998 10KSB for the text of the option and an
explanation of how they vest.
For each of the above transactions, the Company relied upon the exemption from
registration under the Securities Act of 1933, as amended, as provided by
Section 4(2) of the Act.
ITEM 12B. DESCRIPTION OF SECURITIES
The Company's authorized capital stock consists of 20,000,000 shares of common
stock, par value $.001 per share, and 1,000,000 shares of preferred stock, par
value $.001 per share. As of December 31, 1999, 12,230,252 shares of common
stock were issued and outstanding; no (0) shares of preferred stock were issued
and outstanding
DESCRIPTION OF SECURITIES
Each share of common stock entitles the holder to one vote on all matters
submitted to a vote of the stockholders. The common stock does not have
cumulative voting rights, which means that the holders of a majority of the
outstanding shares of common stock voting for the election of directors can
elect all members of the board of directors. A majority vote is also sufficient
for other actions that require the vote or concurrence of the stockholders
(except in cases in which more than a simple majority is required by law).
Holders of common stock are entitled to receive dividends, when, as and if
declared by the
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<PAGE> 34
board of directors, in its discretion, from funds legally available therefore.
Subject to the dividend rights of the holders of preferred stock, holders of
shares of common stock are declared by the board of directors out of funds
legally available therefore. Upon liquidation, dissolution or winding up of the
Company, after payment to creditors and holders of preferred stock that may be
outstanding, the holders of common stock are entitled to share ratably in the
assets of the Company, if any. The Bylaws of the Company require that only a
majority of the issued and outstanding shares of common stock of the Company
need be represented to constitute a quorum and to transact business at a
stockholders' meeting.
The common stock has no preemptive rights or subscription, redemption or
conversion privileges. All of the outstanding shares of common stock are fully
paid and nonassessable.
The Company's board of directors has total discretion as to the issuance and the
determination of the rights and privileges of any shares of preferred stock
which may be issued in the future. Such rights and privileges may be detrimental
to the rights and privileges of the holders of common stock.
TRANSFER AGENT
The transfer agent for the Company's common stock is Olde Monmouth Stock
Transfer Company, Atlantic Highlands, NJ.
ITEM 12C. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Florida law, a director is not personally liable for monetary damages to
the corporation or any other persons for any statement, vote, decision, or
failure to act unless (I) the director breached or failed to perform his duties
as a director, and (ii) a director's breach of, or failure to perform, those
duties constitutes (1) a violation of the criminal law unless the director had
reasonable cause to believe his conduct was lawful (2) a transaction from which
the director derived an improper personal benefit, either directly or
indirectly; (3) a circumstance under which an unlawful distribution is made; (4)
in a proceeding by or in the right of the corporation or in a proceeding in
which the corporation procures a judgment in its favor or by or in the right of
a shareholder, conscious disregard for the best interest of the corporation or
willful misconduct; or (5) in a proceeding by or in the right of someone other
than the corporation or a shareholder, recklessness or an act or omission which
was committed in bad faith or with malicious purpose or in a manner exhibiting
wanton and willful disregard to human rights, safety, or property. A corporation
may purchase and maintain insurance on behalf of any director or officer against
any liability asserted against him and incurred by him in his capacity or
arising out of his status as such, whether or not the corporation would have the
power to indemnify under Florida law.
The Company's Bylaws limit, to the maximum extent permitted by Florida law the
personal liability of directors and officers for monetary damages for breach of
their fiduciary duties as directors and officers. The Bylaws provide further
that the Company shall indemnify to the fullest extent permitted by Florida law
any person made a party to any action or proceeding by reason of the fact that
such person was a director, officer, employee or agent of the Company. The
Bylaws also provide that directors and officers who are entitled to
indemnification shall be paid their expenses incurred in connection with any
action, suit or proceeding in which such director or officer is made a party by
virtue of his being an officer or director of the Company to the maximum extent
permitted by Florida Law.
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<PAGE> 35
ITEM 13. INDEX TO EXHIBITS
No exhibits are filed with this Form 10-KSB. Additional exhibits may be found in
the Annual Report on Form 10K of Registrant for the year ended December 31, 1998
-35-
<PAGE> 36
VERIFICATION SIGNATURES
In accordance with Section 12 of the Securities and Exchange Act of 1934, the
registrant caused this registration to be signed on its behalf by the
undersigned, thereunto duly authorized.
CENTRAL AMERICAN EQUITIES CORP.
BY: Michael N. Caggiano, President/CEO/Board Director
MICHAEL N. CAGGIANO, President/CEO/Board Director
Principal Financial and Accounting Officer
BY: Richard Wm. Talley, Board Director
RICHARD WM. TALLEY, Board Director
BY: W.F. Rosenmiller, Board Director
W.F. ROSENMILLER, Board Director
BY: Paul King, Board Director
PAUL KING, Board Director
-36-
