<PAGE> 1
US SECURITIES & EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(X) Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the quarterly period ended September 30, 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. 1020
Irvine, California 92612
(Address of Principal Executive Offices)
(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 ( ).
<PAGE> 2
The number of shares outstanding of each of the issuer's classes
of common equity:
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.)
Transitional Small Business disclosure format (check one)
YES [ X ] NO [ ]
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report on Form 10K-SB/a of Registrant for the year ended
December 31, 1998
Form 8-k/a Changes in CAE's Certifying Accountant, December 1999.
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INFORMATION REQUIRED IN REGISTRATION STATEMENT
<TABLE>
<S> <C>
PART I: FINANCIAL INFORMATION .......................................... 4
ITEM 1. FINANCIAL INFORMATION ....................................... 4
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS .......................... 14
Overview ......................................................... 14
Results of Operations --- Period Ended September 30, 1999 ........ 15
Liquidity and Capital Resources .................................. 16
Year 2000 Compliance ............................................. 16
PART II: OTHER INFORMATION ............................................. 17
ITEM 1. LEGAL PROCEEDINGS .......................................... 17
CAE V. Francis ................................................... 17
Lindemann v. CAE ................................................. 17
Costa Rican Labor Court .......................................... 18
ITEM 2. CHANGES IN SECURITIES ...................................... 18
ITEM 3. DEFAULTS UPON SENIOR SECURITIES ............................ 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ........ 18
ITEM 5. OTHER INFORMATION .......................................... 18
ITEM 6. EXHIBITS AND REPORTS ....................................... 18
VERIFICATION SIGNATURES ............................................. 19
</TABLE>
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<PAGE> 4
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL INFORMATION
Central American Equities Corp. (the "Company" or "CAE") is a US hospitality
company, based in Irvine, California and incorporated in the State of Florida.
The Company owns and operates hotels, restaurants, and real property in Costa
Rica. All CAE activities are related to the Company's hotels in Costa Rica, and,
as such, are reported as one operating segment (per FASB Statement No. 131).
Financial statements follow.
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<PAGE> 5
CENTRAL AMERICAN EQUITIES CORP. AND SUBSIDIARIES
Consolidated Balance Sheet
September 30,
Unaudited
<TABLE>
<CAPTION>
ASSETS
1999
-----------
<S> <C>
Current Assets
Cash and cash equivalents $ 41,139
Accounts receivable 19,016
Inventories 20,311
Prepaid expenses 6,571
-----------
Total current assets 87,037
Buildings, property and equipment 8,116,555
Other assets
Security deposits 4,801
-----------
Total assets $ 8,208,393
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 57,456
Accrued expenses 235,980
-----------
293,436
Long-term liabilities
Long term debt 582,398
Due to officers 1,211,788
-----------
1,794,186
-----------
Shareholders' equity
Common stock - $.001 par value; 20,000,000
Authorized , 12,230,252 issued and outstanding 12,230
Preferred stock - $.001 par value; 1,000,000 shares
Authorized, 0 issued and outstanding --
Additional paid-in capital 8,897,817
Unrealized gain on foreign exchange 28,618
Accumulated deficit (2,817,894)
-----------
6,120,771
-----------
$ 8,208,393
===========
</TABLE>
See Notes to Consolidated Financial Statements
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<PAGE> 6
CENTRAL AMERICAN EQUITIES CORP. AND SUBSIDIARIES
Consolidated Statements of Operations
Unaudited
<TABLE>
<CAPTION>
For the Three
For the Nine Months Ended Months Ended
September 30, September 30,
1999 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Revenues $ 969,661 $ 778,869 $ 243,623
Cost of services 719,042 986,696 179,794
------------ ------------ ------------
Gross profit 250,619 (207,827) 63,829
------------ ------------ ------------
Operations
General and administrative 353,190 226,813 29,914
Depreciation 197,325 237,458 61,021
------------ ------------ ------------
550,515 464,271 90,935
------------ ------------ ------------
(299,896) (672,098) (27,106)
------------ ------------ ------------
Other expense
Interest expense 47,900 30,253 24,386
Loss on foreign exchange 19,301 -- 19,301
67,201 30,253 43,687
------------ ------------ ------------
Net loss $ (367,097) $ (702,351) $ (70,793)
============ ============ ============
Net loss per common share $ (.03) $ (.06) $ (.01)
============ ============ ============
Weighted average share of
common stock outstanding 12,230,252 12,205,252 12,230,252
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements
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<PAGE> 7
CENTRAL AMERICAN EQUITIES CORP. AND SUBSIDIARIES
Statements of Cash Flow
For the Nine Months Ended September 30,
Unaudited
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(367,098) $(702,351)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 197,325 237,458
Increase (decrease) in:
Accounts receivable 27,592 --
Inventory 7,210 (18,670)
Prepaid expense 8,004 --
(Increase) decrease in:
Accounts payable (555) 56,068
Accrued expenses 76,084 34,635
--------- ---------
Net cash used in operating activities: (51,438) (392,860)
--------- ---------
Cash flows from investing activities:
Capital expenditures (83,941) (267,451)
--------- ---------
Net cash used in investing activities (83,941) (267,451)
--------- ---------
Cash flows from financing activities:
Proceeds from loans -- 659,278
Proceeds from loans from officers 157,440 --
--------- ---------
Net cash provided by financing activities: 157,440 659,278
--------- ---------
Net increase (decrease) in cash 22,061 (1,033)
Cash - beginning of year 19,078 11,978
--------- ---------
Cash - end of year $ 41,139 $ 10,945
========= =========
Supplemental Disclosure of Cash Flow Information:
Interest paid $ 43,796 $ 30,252
========= =========
Income taxes paid $ -- $ --
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
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<PAGE> 8
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 owned 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.
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.
-8-
<PAGE> 9
CENTRAL AMERICAN EQUITIES CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Summary of Accounting Policies (continued)
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 using the straight-line method
over the estimated useful lives of five years 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 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
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<PAGE> 10
CENTRAL AMERICAN EQUITIES CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Summary of Accounting Policies (continued)
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.
For the period ended September 30, 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 1999 and 1998, and accordingly, in those periods 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 September 30, 1999
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.
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<PAGE> 11
CENTRAL AMERICAN EQUITIES CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Summary of Accounting Policies (continued)
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 September 30, 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 $2
million as of September 30, 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 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 $367,000 during the nine month period ended
September 30, 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.
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<PAGE> 12
CENTRAL AMERICAN EQUITIES CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 3 - Property and Equipment
As of September 30, 1999, plant and equipment consisted of the
following:
<TABLE>
<S> <C>
Land $1,445,344
Buildings 6,695,590
Machinery and equipment 129,963
Furniture and fixtures 382,180
Computer equipment 92,116
----------
8,745,193
Less accumulated depreciation 628,638
----------
$8,116,555
==========
</TABLE>
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 2.5%. Interest only is payable on the last day of each month. The
principal is payable beginning January 10, 2000 in monthly installments
of $38,462 with a final payment of $76,923 at December 11, 2000. 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 September 30, 1999 was 8%. At September 30, 1999 the Company had
$500,000 outstanding against a $500,000 line of credit. On September
30, 1999 the Company was in the process of renegotiating the terms of
this note.
The Company has a note payable in the amount of $71,443 payable to a
shareholder, which is due when the Company goes public. The note bears
simple interest at 8% per annum, which is added to the basis of the
note and is secured by property owned by the Company.
Note 5 - Related Party Transactions
At September 30, 1999, the Company had notes payable from various
officers in the amount of $1,211,788, 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>
1999 $ 9,500
2000 15,500
2001 7,500
----------
$ 32,500
==========
</TABLE>
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<PAGE> 13
CENTRAL AMERICAN EQUITIES CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
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<PAGE> 14
ITEM 2. MANAGEMENT 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
period ended September 30, 1999.
OVERVIEW
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.
All CAE activities are related to the Company's hotels in Costa Rica, and, as
such, are reported as one operating segment (per FASB Statement No. 131).
CAE includes among its assets in Costa Rica three 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 reservation, travel planning and marketing operation that moved its
headquarters from California to Costa Rica in July 1999).
Revenues at the three hotels are primarily dependent upon the occupancy and per
room charges (although other services are sold). Major improvements in
performance occurred at Hotel Alta and Sunset Reef hotels.
At Hotel Alta, the occupancy for the first nine months of 1999 increased
approximately 17% over the same period in 1998. The average room rate increased
by 23%.
Occupancy at Sunset Reef for the first nine months of 1999 increased
approximately 41% over the same period in 1998. The average room rate increased
by 33%.
La Luz, the 60 seat restaurant in Hotel Alta 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. During the three month period ending
September 1999, Costa Rica's major newspaper, La Nacion, again honored La Luz by
naming it the best restaurant in Costa Rica. 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. This expansion is
primarily dependent upon the success of the Company's capital raising plan.
In September 1999, management decided to rent out the 100-seat restaurant at
Playa Carmen during the 1999-2000 high season. Management is preparing to
internalize operations of the restaurant prior to the 2000-2001 high season.
Adjacent to the restaurant, CAE plans to construct a tent camp for surfers and
low-budget travelers in the future. This expansion is partially dependent upon
the success of the Company's capital raising plans.
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
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<PAGE> 15
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 three months and then began to rebound.
Changes in CAE's Certifying Accountant.
On July 7, 1999 the Company accepted the resignation of Steven J. Gannuscio as
its Certified 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 certified public accountant.
The Company has filed the appropriate 8K statement with the SEC detailing the
change in accountant. This statement noted that: "During the past two years, Mr.
Gannuscio was 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, the Company engaged Pinkham and Pinkham, P.C. Certified Public
Accountants as the principal accountant for the Company. On October 15, 1999,
Pinkham and Pinkham, P.C. issued an independent audit of the Company. This new
audit was filed on October 19, 1999 with the SEC as Item 7 of Form 10-KSB/a.
After review by the SEC, Form 10-KSB/a was amended in December 1999. The
financial statements in this 10Q for the period ending September 30, 1999 have
been adjusted to conform with the financial statements in Form 10-KSB/a (as
amended in December 1999).
RESULTS OF OPERATIONS --- PERIOD ENDED SEPTEMBER 30, 1999
The following is management's discussion and analysis of significant differences
in the Company's financial position and operations between the nine months ended
September 30, 1998 and the nine months ended September 30, 1999 (See Item 1 -
Financial Statements).
Assets
Total assets remained at about $8.2 million. Management considers 1999 as the
first year following the completion of the building stage of the hotels. Most of
the major expenses on originally planned assets were completed by 1998 However,
significant improvements in Hotel Alta's wastewater system were completed in
early 1999. In September 1999, management also started a significant upgrade to
the wastewater systems at Sunset Reef. This upgrade was completed in November
1999.
Liabilities
Long term debt remained at approximately $580,000. Stockholders continued to
provide additional financing to the Company. During the nine month period
between January 1, 1999 and September 30, 1999, total debt to investors
increased from $1,054,348 to $1,211,788 (an increase of approximately $157,000).
For a detailed description of this debt see Note 4 to the Consolidated Financial
Statements.
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<PAGE> 16
Revenues, Expenses and Net Income
During the nine month period between January 1, 1999 and September 30, 1999
total sales revenue increased to approximately $970,000. This is an increase of
approximately 25% from the same period in 1998.
During the nine month period between January 1, 1999 and September 30, 1999
total operational expenses (cost of services and operational costs) were
$1,269,557. This represents a decline of approximately 13% ($181,000) from the
same period in 1998. The decline can be attributed primarily to decreases in
labor costs, although there have been cost savings across many expense
categories.
As sales revenue grew and expenses declined, the Company losses decelerated.
During the nine month period between January 1, 1999 and September 30, 1999 net
losses declined from $702,351 (the comparable nine-month period in 1998) to
$367,097 (or approximately $41,000 per month). During the most recent
three-month period, losses totaled $70,793, or approximately $23,600 per month
compared to an average monthly loss of approximately $49,400 for the first six
months of the period. On September 30, 1999 cumulative losses (retained deficit)
were $2,817,894.
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 $157,000 in loans for working capital
from stockholders. However, on September 30, 1999, the Company had a positive
net worth of about $6,120,771.
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 in the process of refinancing 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
As of September 1999, the Company was completing a comprehensive review of its
computer systems to identify which of its systems will have to be modified,
upgraded or converted to recognize and process dates after December 31, 1999
(the Year 2000 Issue). As of that date, the Company had 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. CAE is in
the process of installing the Hovysis system. As of September 1999, telephone
accounting systems, front desk operations, and restaurant operations were
operating with the new Hovysis system. It was anticipated that all reservations
and financial accounting systems would be fully operational by November 15,
1999.
-16-
<PAGE> 17
Most PC-based software used by staff throughout the company are Year 2000
compliant. The Company believed that, with the successful completion of Hovysis
installation, the Year 2000 Issue would not pose significant operational
problems for the Company's systems as so modified or upgraded. As of February 1,
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.
PART II: OTHER INFORMATION
ITEM 1. 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, 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.
The above action was set for trial on July 16, 1999. 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 is 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
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<PAGE> 18
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. Section 228.103). It is anticipated that any contingent liability
stemming from these claims would be immaterial to the Company.
ITEM 2. CHANGES IN SECURITIES
The Company did not sell or issue any securities of any kind during the three
month period that ended on September 30, 1999.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
For the period ended on September 30, 1999, there were no defaults upon senior
securities of any kind by 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 the
period ended September 30, 1999.
ITEM 5. OTHER INFORMATION
There is no other information that the Company believes is necessary to include
in this report.
ITEM 6. EXHIBITS AND REPORTS
Exhibits and reports filed herewith: none.
-18-
<PAGE> 19
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
MICHAEL N. CAGGIANO, President/CEO
CENTRAL AMERICAN EQUITIES CORP.
BY: Richard Wm. Talley, Director
RICHARD WM, TALLEY, DIRECTOR
CENTRAL AMERICAN EQUITIES CORP.
BY: Paul King, Director
PAUL KING, DIRECTOR
CENTRAL AMERICAN EQUITIES CORP.
BY: F.O. Rosenmiller, Director
F.O. ROSENMILLER, DIRECTOR
-19-
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