SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE
ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: March 31, 1996
Commission File Number: 0-16734
C.E.C. INDUSTRIES CORP.
(Exact name of registrant as specified in its charter)
Nevada 87-0217252
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
23 Cactus Garden Drive, F-60
Green Valley, Nevada 89014
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (702) 893-4747
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.05 par value
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.05 par value
Indicate by check mark whether the registrant (a) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value (the average bid and asked
prices) of the voting stock held by non-affiliates of the registrant
on June 21, 1996, was approximately $1,840,138. The number of
shares of Common Stock, $0.05 par value, outstanding on June 21,
1996, was 16,431,795 shares, held by
approximately 1,728 shareholders.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's definitive Proxy Statement for the annual
meeting of shareholders to be held on August 21, 1996, is
incorporated by reference in Part III of this Form 10-K to the
extent indicated.
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PART I
ITEM 1. BUSINESS
(a) General
C.E.C. Industries Corp. is a Nevada corporation with principal
and executive offices located at 23 Cactus Garden Drive, F-60, Henderson,
Nevada 89014, telephone (702) 893-4747. C.E.C. Industries Corp. and it's
consolidated subsidiaries are referred to as either C.E.C. or the "Company."
C.E.C. is engaged in several unrelated businesses through its primary
subsidiaries, Moonridge Development Corp., (hereinafter referred to
as "Moonridge"), (real estate development and construction), Custom
Environmental International, (hereinafter referred to as "CEI"), (carbon
reactivation technology; ), Sterling Travel, (hereinafter referred to as
"Sterling"), (travel businesses), Atlas Methane Development Corporation,
(hereinafter referred to as "Atlas Methane"), (methane gas and u
nencumbered leasehold ownership in 13,500 acres), Mid-Nevada Art, Inc.
(hereinafter referred to as "Mid-Nevada Art"), (art collection), Basia
Holding, Inc. (hereinafter referred to as "Basia"), (9,000 acres in fee
land in Tennessee with coal reserves), and Auto Express, Inc., (hereinafter
referred to as "Auto Express"), (vehicle transport business). The Company's
current organization was accomplished through a merger and acquisition
program during the last two fiscal years ended March 31, 1996, and
continuing through the present.
C.E.C. was incorporated as Justheim Petroleum Company in Nevada in
1952. C.E.C. Management Corp. was merged into Justheim Petroleum Company
effective December 31, 1986, and was renamed C.E.C. Industries Corp. Prior
to the merger, Justheim had historically engaged in the business of
acquiring, holding and selling oil and gas leaseholds and retaining
overriding royalty rights. C.E.C. Management Corp. primarily was in the
business of engineering consulting and designing and marketing customized
minerals processing systems and equipment. While the Company continued to
receive oil and gas production overriding royalty income until recently,
until the Company acquired the Atlas Methane and Basia Holding interest in
methane, coal, and timber rights, the Company had primarily ceased its
mineral holdings interests.
C.E.C.'s primary business had been the manufacture and sale of minerals
processing equipment through its wholly-owned subsidiary, Custom Equipment
Corporation. Custom was a pioneer in the development of custom gold
processing equipment in the early to mid-1980's, thus, business was
very profitable. However, as gold prices declined after the early 1980's,
fewer gold plants were built, more competitors entered the market, and
Custom's business was negatively impacted. The Company attempted to
use its expertise and know-how to develop the carbon reactivation
furnace technology in the water treatment industry, but the continued
losses in the metallurgical business caused a capital drain necessitating
other measures. Custom Environmental International became the renamed
subsidiary to carry on the efforts, building a new prototype carbon furnace
now being developed. The metallurgical equipment business was sold in
fiscal year 1991, and on October 4, 1995, the Company announced the spin
off of CEI, wherein, pursuant to the terms of the spin off, C.E.C. would
retain 13% of CEI.
In September 1993, the Board of Directors of C.E.C considered
expanding the Company's business into business opportunities outside of
the carbon reactivation furnace technology business, and thus caused several
new directors with real estate expertise to join the C.E.C. board. The
intent being to develop land owned by the Company in St. George, Utah as
well as other properties to be acquired. A property in Las Vegas was
immediately acquired for cash and convertible preferred stock on February 4,
1994. Private financing was arranged to provide the cash necessary for the
purchase. The transaction also provided working capital for development of
the property as well as for further development and marketing of the carbon
technology. The Las Vegas property was partially being developed for a
mini- storage facility with a three million dollar line of credit from the
Bank of America. Pursuant to the terms of the agreement wherein CEC was
acquiring the land situated in Las Vegas, CEC issued 600,000 shares of
preferred stock which was convertible to Common Shares at a guaranteed "bid"
price of not less than $4.00 per share. The agreement further specified
that in the event the "bid" price was less than the stated $4.00 per share at
the time in which the shares are offered for conversion prior to February 4,
1996, then in that event the Company was obligated to issue additional common
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stock to satisfy any shortfall. On November 2nd, 1995, the Company, in
anticipation of a substantial dilution, (as the result of the Company's
delisting from NASDAQ in August of 1995) negotiated for a modification of
the preferred stock agreement wherein the Preferred Stock was exchanged for
non-convertible voting preferred stock, in addition to the delivery of fee
title to the St. George property. Further, pursuant to the modification
agreement, the Company received a promissory note for $1,200,000 which note
is collateralized by certain shares of the non-convertible voting preferred
stock issued under the agreement.
On March 28, 1996, the Company entered into an agreement whereby the Company
issued 8,660,000 shares of common restricted voting stock and 8,663,041
shares of preferred voting stock of the company in exchange for 100% of the
issued and outstanding common shares of Basia Holding, Inc., a Tennessee
Corporation holding 9,000 acres of fee land with approximately 52,000,000
tons of low sulfur coal, 100% of the issued and outstanding shares of
Mid-Nevada Art, Inc., and 100% of Atlas Methane fully paid leasehold
interests which leasehold interests include approximately 13,500 acres
located in the Black Warrior Basin area of Alabama containing approximately
31 billion cubic feet of methane reserves. The March 28th agreement
further required the resignation of three of the Company's directors.
During fiscal 1996, the Company made an election, pursuant to the terms of
the agreement with Sterling Travel on January 18, 1995, to not issue the
400,000 shares of preferred non-voting stock in exchange for 100% of Sterling
Travel. The election to terminate the Sterling Travel transaction was based
upon income and expense reports demonstrating revenues substantially below
the earn out criteria set forth in the agreement, and expenses which
increased after the acquisition. The 400,000 shares of preferred stock would
have converted at $5 per share with adjustments in the price as the result
of a lower price of the stock on conversion. The Company deemed it in the
best interest of the Company to opt out of the agreement.
On June 15, 1996, the Company entered into an agreement with Auto Express,
Inc., (hereinafter referred to as "Auto Express") wherein the Company
purchased 100% of the issued and outstanding shares of Auto Express.
Auto Express is involved in the business of transporting vehicles across the
United States for major businesses as well as consumers.
Information on Company's Delisting
Initially, NASDAQ indicated that it was delisting the Company for
failure to comply with the following sections of NASDAQ's regulations:
1) Compliance with Sections 1( c)(2) of Part II of Schedule D of the
NASD By-Laws;
2) Compliance with Section 1( c)(3) of Part II of Schedule D of the
NASD By-Laws; and,
3) Compliance with Section 1( c)(14) of Part II of Schedule D. Of the
NASD By-Laws.
Compliance with Sections 1( c)(2):
"For initial inclusion, the issuer shall have a total assets of at
lease $4 million. For continued inclusion, the issuer shall have total
assets of at lease $2 million. An issuer's total assets will be
determined on the basis of a balance sheet prepared in accordance with
generally accepted accounting principles. Assets that are temporary or
restricted in their use will be excluded form the determination
of total assets."
Pursuant to the Company's 10K for fiscal year ended March 31, 1995,
audited by Deloitte & Touche LLP the total assets of the Company were
$6,274,983. Pursuant to generally accepted accounting rules, the
Company's real estate assets, as well as other assets, are carried on the
Company's books at cost. However, in reality, utilizing the fair market
value of such assets, the Company's real estate asset value should be
$9,114,416 rather than the book value of $4,735,242, an increase of
assets of $4,379,174, thus providing actual assets in excess of
$10,645,157. In utilizing the generally accepted accounting principles
asset evaluation as provided by the Company's auditors, Deloitte &
Touche LLP, and asset valuation of $6,274,983 was utilized, which
exceeds the minimal compliance as set forth in 1(C)(2) by $4,274,683 for
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for continued inclusion and $2,274,683 for initial inclusion. Further,
on June 30, 1995 the Company acquired a 24.5% interest in Victory
Village III, Ltd. At a valuation of $700,000, which acquisition occurred
through the issuance of 1,200,000 shares of 144 restricted stock, thus, as
of the end of the first fiscal quarter of 1996, the Company increased it's
assets to $6,974,683, which exceeded the minimal compliance standards of
1(c)(2), as of the date of the NASDAQ Listing Qualifications Committee
hearing of August 16, 1995, by $4,974,683.
Compliance with Section 1( c)(3)
"For initial inclusion, the issuer shall have capital and surplus of
at least $2 million. For continued inclusion, the issuer shall have
capital and surplus of at least $1 million. Only issues of common and
preferred stock will be included in capital and surplus. Debentures and
redeemable securities with the redemption provision with the sole control
of the holder will be excluded form the determination of capital and
surplus."
Pursuant to the Company's 10K for fiscal year ended March 31, 1995,
the Company had capital and surplus of $2,972,973, which amount exceeded
the minimal compliance as set forth in 1(c)(3) by $1,972,973, and if the
asset valuation of the real estate were utilized, then in that event,
the capital and surplus would exceed the minimal compliance by $6,352,147.
Further, pursuant to the above discussion of the first fiscal quarter of
1996 and additional $700,000 of capital and surplus was added to the
Company's financial statements, which if added to the audited statement of
March 31, 1995, would provide capital and surplus of $3,672,973, exceeding
the minimum standards of 1( c)(3), as of the date of the NASDAQ Listing
Qualification Committee hearing of August 16, 1995, by $2,672,973.
Compliance with Section 1( c)(4)
"For initial inclusion common or preferred stock shall have a
minimum bid price of $3 per share. For continued inclusion the minimum
bid price per share shall be $1, provided however that an issuer shall
not be required to maintain the $1 per share minimum bid price if it
maintains market value of public float of $1 million and $2 million in
capital and surplus."
Pursuant to 1( c)(4) the Company was in compliance with the
alternative minimum bid price by maintaining a market value of it's
public float in excess of $1 million and maintaining a capital and
surplus of in excess of $2 million.
Public Float Calculation in Excess of $1 Million. The Company
provided NASDAQ with a calculation demonstrating that the Company had
sufficient stock in its public float to qualify.
Capital and Surplus in Excess of $2 Million. Pursuant to the
Company's 10K for fiscal year ended March 31, 1995, the Company has
capital and surplus of $2,972,973, which amount exceeds the minimal $2
Million. Further, pursuant to the acquisition in June of 1995, the
Company acquired additional assets of $7000,000, which increased the
capital and surplus by $700,000, which provided for a total of $3,672,973,
which exceeded the minimal capital and surplus requirement as described
in 1(c)(4) of $2 million by $1,367,972, as of the date of the NASDAQ
Listing Qualification Committee hearing of August 16, 1995.
Further, pursuant to 1( c)(8)(b) the Company was not properly
notified of any failure to meet the minimum bid criteria 1(c)(8) reads
as follows:
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"A failure to meet the continued inclusion requirements for minimum
bid price and market value of public float shall be determined to exist
only if the deficiency for the applicable criterion continues for
a period of 10 consecutive business days. Upon such failure, the issuer
shall (emphasis added) be notified promptly and shall (emphasis added)
have a period of 90 calendar days from such notification to achieve
compliance with the applicable continued inclusion standard"
On May 16, 1995, the Company received a letter from NASDAQ which
indicated that "C.E.C. Industries Corporation, Inc. has been found to
be in compliance with all requirements necessary for continued listing
on The NASDAQ SmallCap Market, based on a review of all available
information." Subsequent to this correspondence, the Company was of the
opinion that it never fell below the minimum bid standards, and in the
event such non-compliance existed, then in that event, the Company
pursuant to 1( c)(8)(b), should have been "notified promptly" and should
have been provided "a period of 90 calendar days from such notification
to achieve compliance with the applicable continued inclusion
standard." The Company believes that the reason no such notice was
forthcoming was the fact that the Company continued to be in compliance
with 1( c)(4).
Compliance withe Section 1( c)(14)
The issuer shall file with the Association three (3) copies of all
reports and other documents filed or required to be filed with the
Securities and Exchange Commission. An issuer that is not required to
file reports with the Securities and Exchange Commission shall file
with the Association three (3) copies of report required to be filed
with the appropriate regulatory authority. All required reports shall be
filed with the Association on or before the date they are required to be
filed with the Securities and Exchange Commission or appropriate
regulatory authority. Annual reports filed with the Association
shall contain audited financial statements."
10K Filing Compliance. The Company filed its 10K Prior to the
NASDAQ hearing, thus rendering moot the issue over the late filing of
the 10K.
10Q Filing Compliance. Pursuant to Rule 12b-25, under the
Exchange Act, a report will be deemed to have been timely filed if the
required notification on Form 12b-25 is filed no later then one
business day after the due date for the report and the report is filed
no later than the fifth calendar day following the described due date.
A copy of the 12b-25 extension was filed with the Securities and
Exchange Commission on the 14th day of August, 1995, with copies sent
to NASDAQ on the same date. Pursuant to Rule 12b-25, the Company filed
the 10Q on August 17th, 1005 prior to the expiration of the
five day period, and concurrent with the date of delisiting by NASDAQ.
Ironically enough, the Securities and Exchange Commission even
commended the Company on filing it's first "EDGAR" filing within the
prescribed time period.
Pursuant to 1( c)(14), the 10Q is required to be filed with NASDAQ
"on or before the date they are required to be filed with the Securities
and Exchange Commission." Pursuant to Rule 12b-25, a report is deemed
to have been filed timely if the required notification on Form 12b-25 if
filed no later than one business day after the due date for the report
and the report is filed no later than the fifth calendar days following
the described due date. Consequently, the Company believes its
compliance with 12b-25 places the Company in compliance with 1( c)(14).
Certainly any ambiguity in 1( c)(14) should be interpreted in favor of
the Company and not the drafter of the ambiguity, ie NASDAQ.
Further, NASDAQ was additionally informed that the 10Q would be
filed no later than August 18th, 1995, within the prescribed time
period of five calendar days, when in fact the Company filed the
10Q a day earlier than expected. It was initially assumed that the
delay would be the result to the Company's initial "EDGAR" filing.
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In addition to the above discussion, the Company is of the opinion
that the Company should have been notified that the issue of the 10Q
filing was a discretionaly issued to be discussed by the NASDAQ
Listing Qualifications Committee.
The Company believed that it's filing of the 10K report of March
31, 1995, rendered moot any outstanding discretionaly issued that were
before the Committee. However, assuming arguendo that such was no the
case, The Company was still in compliance the 1(c)(14) in that the
company filed, within the prescribed time from Form 12b-25, and
subsequently filed it's 10Q within the five day prescribed period of
Rule 12b-25. Pursuant to Rule 12b-25 of the Exchange Act, the
subsequent filing within the prescribed 5 day period rendered the filing
of the 10Q filed timely and thus pursuant to 1( c)(14) should
also be considered filed on "on the date they are required to be filed".
In reference to the compliance with 1(c)(14), the Company was, on the
date of the hearing of August 16th, 1995, in compliance with the
minimum bid price alternative criteria, ie maintained a market value of
it's public float of in excess of $1 Million and maintained a capital
and surplus in excess of $2 million.
The Company requested a formal hearing before NASDAQ, and after
considerable delay, received its hearing on February 16, 1996, and
subsequent to the hearing, the Company received correspondence dated
February 16, 1996, wherein Mr. Donohoe, general counsel to NASDAQ, notified
the Company that after a prior "oral hearing" held in Denver, Colorado,
where the Company formally met with the NASDAQ Hearing Review Committee (the
"Committee") in accordance with the Committee's "Order of Remand Dated
December 4, 1995. Pursuant to Mr. Donohoe's correspondence of February 16,
1996, the Committee was of the opinion that the Company was in compliance
with the alternative minimum bid price requirement on the date of its original
delisting. However, in order of the Company to be re-listed, the Committee
set forth certain conditions which were to occur prior to such re-listing.
The Company has met all conditions, which included the resignation of
certain Board member of the Company, however concurrent with the
resignations, the Company in an effort to continue its compliance with
NASDAQ changed its management, concurrent with the infusion of additional
assets into the Company. NASDAQ has now taken the position that the Company
has so significantly changed that the Company must now re-apply for NASDAQ.
The Company has requested an additional hearing on the matter.
(b) Information About Industry Segments.
The Company is currently engaged in four main businesses; real estate
development and construction ("Moonridge"); transportation of automobiles
("Auto Express"); mineral rights development ("Atlas Methane" and "Basia
Holding") and investments in art ("Mid-Nevada Art"). Information regarding
the Company's reportable business segments is set forth in Item 1 and Note 9
to the Financial Statements. The Company is not involved in mining
operations, and, accordingly, no revenues are generated therefrom.
( c) Narrative Description of Business.
C.E.C. Industries Corp.
Operations. The Company's real estate development operations consist of
sales of developed and undeveloped real estate.
80.5 Acre Development - St. George, Utah. The Company owned and
undivided 65% interest in 80.5 acres of undeveloped property in St. George,
Utah. The Estate of Clarence I. Justheim and Wyoming Petroleum
Company owned the remaining interest. The Company, pursuant to an agreement
reached in November of 1995, agreed to convey the property to DSM Golf
Enterprises, Inc., in exchange for a promissory note in the sum of $1,200,000
and other considerations as set forth in the agreement.
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Moonridge Development Corp.
Operations. The Company's real estate operations are conducted
through the Company's wholly owned subsidiary, Moonridge Development
Corp. ("Moonridge"), a licensed General Contractor in the State
of Nevada. Moonridge is responsible for the development and/or construction
of the following projects:
Mini-Storage Facility - Henderson, Nevada. The Company owns
approximately 7.28 acres of property generally described as the Mission
Valley Mini Storage ("Mini-Storage Project") in addition to a contiguous
1.39 acre parcel located on Russell Road, contiguous with U.S. Highway 95,
outside the city limits of Las Vegas, Nevada. On March 31, 1995, the Company
entered into a loan agreement with Bank of America for $3,000,000 to
build the project. Permits were subsequently obtained from the County of
Clark, Nevada, to commence clearing the project in preparation for
construction. In an agreement which was reached with second deed of trust
holder on the Mini-Storage Project, during May of 1996, the Company agreed
to transfer the project in exchange for the reduction of Company debt of
approximately $1,525,000.
17.44 Acre Planned Development - Henderson, Nevada. The Company owns
approximately 17.44 acres of property contiguous with the Mini-Storage
Project, located on Russell Road, contiguous with U.S. Highway 95,
outside the city limits of Las Vegas, Nevada. In November of 1995, the
Company entered into an agreement with Landmark International, Inc.
("Landmark") for the sale of the property at a price of $5,200,000 in
Landmark stock and debt assumption. After repeated demands and Landmark
having agreed to issue the agreed upon stock, the Company is still not in
receipt of the stock and on that basis the Company is pursuing
appropriate legal remedies. It is the intent of the Company to either sell
the property or development it.
320 Unit Multi-Family Project to be built - Henderson, Nevada. In
June, 1995, the Company acquired a 24.5% interest in a 320 unit apartment
project generally known as Victory Village, in exchange for 1,200,000
shares of Rule 144 stock, with a simultaneous two-year restriction.
The project is located in Henderson, Nevada near the intersection of Lake
Mead Blvd. and Boulder Highway. The City of Henderson issued bonds to
facilitate the financing on the project, with HUD, (Department of Housing
and Urban Development) insuring the construction and permanent loan in the
sum of $16,442,400, at 6.38% interest, and due in 40 years, which
loan was recorded in June of 1995 against the approximate 17.72 acres.
Permits for the project have been obtained from the City of Henderson,
and construction on the project is approximately 40% completed. It is
anticipated that the project will be complete by calendar year end, 1996.
Strategy. The Company's near term strategy for Moonridge Development
Corp. is to concentrate it's efforts on the development of the 320 unit
Victory Village project. The Company is currently negotiating for the
"spin off" of Moonridge.
Atlas Methane Gas Interests
The Company owns 100% of 13,500 acres of leasehold interest located
in the Black Warrior Lagoon area of Alabama, containing approximately 31
billion cubic feet of methane reserves.
Introduction. Coal deposits in the United States are widespread,
underlying 360,000 square miles in 37 states. Methane is present in nearly
all coal from the shallow subsurface to depths over 10,000 feet. Coalbed
basins are generally divided into eastern and western types. This
segregationis on the basis of both geography and geology. The eastern
coals are primarily Pennsylvanian Age and western coals are Cretaceous Age.
Much of the drilling for coalbed gas has been concentrated in the Black
Warrior Basin of North Central Alabama. This is due to several factors:
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The basin's proximity to gas pipelines that deliver to stable
gas markets.
The high BTU values of the gas, from 950-1050.
Drilling depths are shallow from 1,000 to 5,000 feet.
The coals are well understood in terms of their thickness, rank,
and content.
Long term production has been established.
Black Warrior Basin. Coal has been produced continuously for over 100
years in the Black Warrior Basin. Although the presence of gas in coalbeds
has been recognized from the beginning, it had been considered only as a
hazard to coal mining. Gas from the field was originally vented, but as
the natural gas prices increased, the gas was collected and sold.
Market Analysis. The pipeline systems situated in the Black Warrior
Basin, are Alabama Gas Company (ALAGASCO), Basin Pipeline Corporation, and
Southern Natural Pipeline Company (SONAT), and Associated natural Gas Inc.
(ANGI). The Company does not contemplate any marketing problems related
to coalbed methane production in the Warrior Basin.
Competition. There are a large number of companies and individuals
engaged in exploration and development of oil and gas properties.
Accordingly, the Company will encounter strong competition from
independent operators and major oil companies in acquiring any additional
leases suitable for development. Many of the companies so engaged have
financial resources and staffs considerably larger than those available to
the Company. There are likewise numerous companies and individuals engaged in
the organization and conduct of royalty, production, and marketing of gas,
thus providing a high degree of competition among companies and individuals
in the development and marketing of gas leasehold interests.
The ability of the Company to market oil and gas found and produced, if
any, will depend on numerous factors beyond the control of the Company, the
effect of which factors cannot be accurately predicted or anticipated. Some
of these factors include the availability of other domestic and foreign
production, the marketing of competitive fuels, the proximity and capacity
of pipelines, fluctuations in supply and demand, the availability of a
ready market, the effect of the federal and state regulation ofproduction,
refining, transportation and sales, and general national and worldwide
economic conditions.
Basia Holding, Inc.
Basia Holdings owns approximately 9,000 unencumbered acres of land and
approximately 52,000,000 tons of coal reserves in Grundy County, Tennessee
known as O & F Tennessee land; and is in part of what is locally referred to
as the Southern Field of the Tennessee coalfield.
The Company currently does not have the means, nor the intention in
the near future to attempt to develop and or mine the coal property and/or
timber on its own. The Company is seeking a buyer for the coal
reserves and the timber rights. The ability of the Company to market either
the coal or timber rights will depend on numerous factors beyond the control
of the Company, the effect of which factors cannot be accurately
predicted or anticipated. Some of these factors include the accessibility of
the material, the availability of other domestic and foreign production,
environmental issues in both the region where the materials are located and
other regions where competitive materials are located, fluctuations in supply
and demand, the availability of a ready market, the effect of the federal and
state regulation of production, transportation and sales, and general
national and worldwide economic conditions.
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Mid-Nevada Art, Inc.
Mid Nevada Art, Inc. is a wholly owned subsidiary of CEC with assets
of $1.7 million, which assets are made up of $1.7 million in appraised
artworks by Sky M. Jones, a noted American artist. Sky Jones is a painter
from the American West, born October 3, 1947 in Salt Lake City, Utah. He
graduated with a bachelor degree in Art from the University of Utah in 1971.
He has written books on Art and Life. Jones deals in Multiple Imagery, that
is, layers upon layers of 3D forms overlaid and interwoven. Sky Jones
originals have been in the private collections of Queen Elizabeth, Governor
Michael Dukakis, the late Lucille Ball, and Mohammed Ali to name a few. He
has created various movie posters including Star Trek, the Never Ending
Story, Final Countdown, etc. Limited edition prints and paintings by Sky
Jones have been collected by or displayed in museums, corporations and
galleries world wide.
On June 27, 1996, Mid-Nevada Art, Inc. Entered into two exchange
agreements with One World Card. Mid-Nevada Art exchanged at total of 31
original art works for a total of 323, $10,000 prepaid long distance
calling cards at a rate of $.45 per minute with an expiration dat of 5 years
and 3 $100,000 pre paid long distance calling cards at a rate of $.45 per
minute with no expiration date. The Company felt that the calling cards were
a more marketable assets to a broader buying audience than the original
artworks. The Company intends to either sell the calling cards or exchange
them for other assets.
Auto Express, Inc.
Auto Express is involved in the business of transporting vehicles across
the country for major businesses as well as consumers. Auto Express has been
employed by companies such as Ford, GM, Chrysler, Mayflower, United Van
Lines, as well as a number of professional sports organizations in the United
States, including the Chicago Bulls and Colorado Avalanche.
Auto Express was founded in December of 1993 and commenced it's current
operations in January of 1994. The intent of Leon Harte, Auto Express'
President, was to build a full service, vehicle hauling transportation
company. Originally the company only utilized owner-operators until the
company purchased it's own trucks and equipment.
Auto Express revenues have grown from sales of $680,000 in 1994, to
$1,800,000 in 1995. The projections for 1996 are in excess of the $3 million
range and could be adjusted upward if Auto Express, with the help of C.E.C.,
can acquire additional vehicle hauling trucks and equipment.
The growth of the vehicle transportation business is booming. The
company is currently turning away almost as much in sales as the $3 million
dollar projected revenues for 1996. Yet Auto Express does no advertising and
has no marketing people.
The thrust of Auto Express' intentions in 1996 is to add at least two
more company owned trucks, each additional 10-12 car carrier adds a minimum
of $250,000 in annual revenues.
Oil and Gas Royalties
C.E.C. has overriding royalty interests in oil and gas properties held
by various other parties. All revenues from C.E.C.'s interests in the
properties have been received in cash. The Wyoming lands held by
Mobil Oil Company provided the largest part of the Company's oil and gas
royalty income, approximately $67,000 (47%) in fiscal year 1994.
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C.E.C. does not presently deal in oil and gas leases, nor does it
have facilities or means to perform the exploration, development and
operation of oil and gas wells on properties in which it has interests.
Management has no present intention of directly engaging in either activity
in the future. Other than its 18% working interest in two oil and gas
wells in Colorado, the Company owns no producing wells ("working interest"
means an interest owner who participates in the costs as well as the revenues
of the property; overriding royalty interest owners participate in gross
production revenues only). Exploration and development of the mineral and
oil and gas deposits located in or on the properties is undertaken by third
parties. If and when production is realized on any properties in which C.E.C.
has an interest, it receives a share of gross production revenues based upon
the percentage overriding royalty interest it has retained.
Most of the royalty interests were disposed of during fiscal 1994, for a
realized gain of $604,905. The balance of royalty interests were disposed
of during fiscal 1996, for a realized gain of $56,206.
Other Investments
Custom Environmental International. Custom Environmental International,
("CEI") is engaged in the business of development and implementation of a
patented carbon reactivation furnace. In October of 1995, the Company Board
of Directors elected to Spin-Off CEI in an effort to avoid continued losses
resulting from the expense of developing the prototype carbon reactivation
unit. However as of March, 1996, the spin-off was not completed.
Sterling Travel. The Company terminated its interest in acquiring
Sterling travel during fiscal 1996, as the result of insufficient revenues
to comply with the earn out provisions of the original Acquisition Agreement
with Sterling.
Logos International Inc. The Company has written down the value of its
430,320 shares of Logos International, Inc. which had been acquired in 1991
when the office building and the majority interest in GLI Industries, Inc.
were sold. Because the quoted per share price of the stock decreased from
over $5.00 bid at the end of the 1993 fiscal year to $.125 bid at March 31,
1994, the value was written down to $53,790, realizing a loss of
$625,960 in fiscal 1994. Approximately half of the Logos stock was sold
during 1995 resulting in a further loss and write-down of $46,305. The
remaining value on the books is $2,605. During the fiscal year 1996, all
the remaining shares were sold for $34,996.
Federal and State Regulation. General. The activities of the Company
with respect to methane gas and coal, are subject to federal and state
environmental laws and regulations which impose limitations on the discharge
of pollutants into the air and water and which also establish standards for
the treatment, storage and disposal of solid and hazardous waste. Management
believes that the Company is substantially in compliance with such laws and
regulations, and there are no pending proceedings which question compliance
with all applicable environmental, health and safety.
Although the Company does not consider current laws and regulations
relating to such matters to be materially burdensome, especially in light of
the reserve status of the Company's involvement as opposed to operations,
there can be no assurance that future legislative or governmental actions or
judicial decisions will not adversely affect the Company or its ability to
retain the mineral rights set forth herein. The Company is not aware of any
proposed or pending legislative, governmental or judicial action that would
materially adversely affect the Company's properties.
Methane Extraction. The chief potential for environmental harm in the
extraction of coalbed methane, the gas trapped in underground coal streams,
is the discharge of salt water into streams. Weekly and monthly water-quality
samples are required to monitor the water quality during extraction.
Currently the Company is not involved in the extraction of its methane
reserves, and thus faces no immediate environmental challenges.
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Executive Offices
C.E.C.'s executive offices are located at 23 Cactus Garden Drive, F-60,
Green Valley, Nevada 89014.
PATENTS
C.E.C. had obtained certain patents for its low temperature furnaces
developed by CEI and used in regenerating carbon; however, pursuant to the
terms of the "Spin-off" agreement pertaining to CEI, the patents remained
with CEI.
EMPLOYEES
The Company and its subsidiaries currently employ approximately 135 full
and part time employees.
Profit Sharing and 401 (k) Plan. The Company's Profit Sharing and
401(k) Plan provides a means by which eligible participating employees of
the Company may set aside and invest a portion of their earnings.
Employees meeting the eligibility requirements were able to participate by
contributing up to 15% of their regular compensation on a pre-tax basis to
be invested in the employee's choice of several mutual funds, with investment
objectives ranging from money market to equity portfolio investments. In
February, 1996, the Company terminated its 401(k) plan.
ITEM 2. PROPERTIES
Principal and Executive Offices. C.E.C. leases 2,622 square feet of
office space for its executive offices at 23 Cactus Garden Drive, F-60,
Green Valley, Nevada 89014. Auto Express, Inc. leases 15,000 square feet of
office space and warehouse storage space at 1717 E. 39th Avenue, Denver,
Colorado.
Oil and Gas Interests. The Company has sold its remaining overriding
royalty interests in oil and gas wells producing in the Natural Buttes field
in Uintah County, Utah, and has sold its holdings in the Big Piney, Ruben,
Chimney Butte, Deer Hill Field, Long Island and Tip Top fields in Sublette
County, Wyoming.
St. George Properties. A general discussion of the St. George, Utah
development project is included under Item 1(c), "Narrative Description
of Business", "Operations". C.E.C. transferred its interests in the St.
George property pursuant to the terms and conditions of an agreement entered
into during November, 1996.
Mission Valley Mini-Storage Facility. A general discussion of the
mini-storage project is included under Item 1(c), "Narrative Description of
Business", "Operations". The Company acquired 7.28 acres of property
located in Las Vegas, Nevada as part of a larger parcel of property, on
February 9, 1994, utilizing preferred stock of the Company. The Company
executed an agreement to transfer the mini-storage project to the second
deed of trust holder for approximately $1,525,000.
Other Las Vegas Properties. A general discussion of the other parcels of
property acquired on February 9, 1994, are included under Item 1(c),
"Narrative Description of Business", "Operations". The Company is currently
planning to sell or develop the property.
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320 Unit - Victory Village Apartments. A general discussion of the 320
unit Victory Village project is included under Item 1(c), "Narrative
Description of Business", "Operations". During June 1995, the Company
acquired a 24.5% interest in the Victory Village III, Ltd. partnership
utilizing Rule 144 restricted common stock of the Company valued at $700,000.
A $16,442,400 loan was recorded against the approximate 17.72 acres
providing the construction financing for the project. Moonridge Development
Corp. is acting as the General Contractor for the project and construction
is approximately 40% complete, with final completion anticipated for late
1996. (See Note 13 of the Financial Statement)
Basia Holding, Inc. A general discussion of the Basia Holding are
included under Item 1(c),"Narrative Description of Business", "Operations".
Basia Holding owns approximately 9,000 unencumbered acres of land
and coal reserves in Grundy County, Tennessee known as O & F Tennessee
land; and is in part of what is locally referred to as the Southern Field of
the Tennessee coalfield.
There are approximately 500 acres of Sewanee coal with an average
thickness of about 42 inches; there are approximately 5,000 acres of
Richland coal with an average thickness of about 36 inches; both the
Sewanee and Richland seams are minable by surface methods and 3,200 acres
minable by underground methods; the Angel seam has an average thickness of
about 32 inches. Below the Angel coal and minable by underground methods
only is found the wilder seam which encompasses approximately 5,400 acres
with an average thickness of about 30 inches. In addition to the above, an
assumption of an 85 per cent recovery factor was used in calculating reserves
to be extracted by surface mining methods, and a 50 per cent recovery
factor was used in calculating reserves to be extracted by underground
methods. Consideration of the above information and applying that information
to the basic formula that the recoverable tonnage of coal equals 150 tons
per inch of coal per acre, there is in summary the following:
Sewanee Coal 3,468,000 tons
Richland Coal 20,400,000 tons
Angel Coal 15,840,000 tons
Wilder Coal 12,150,000 tons
Total 51,858,000 tons
Atlas Methane Gas Interests. A general discussion of the Atlas Methane
holdings are included under Item 1(c), "Narrative Description of Business",
"Operations". The Company owns 100% of 13,500 acres of leasehold interest
located in the Black Warrior Lagoon area of Alabama, containing
approximately 31 billion cubic feet of methane reserves.
The Black Warrior basin encompasses an area of about 35,000 square miles
in northeastern Mississippi and Northwestern Alabama. The basin is named for
the Black Warrior River, a prominent navigable river over most of its length
through the area. Physiographically the Black Warrior basin straddles
the Cumberland Plateau, Appalachian Valley and Ridge province, and East
Gulf Coastal Plain. Although the basin's exact limits are not firmly
established in the literature, it is structurally bounded on the north by the
Nashville-Cincinnati arch and on the southeast by the Appalachian fold and
thrust belt. The basin is largely covered by Cretaceous and younger sediments
of the Gulf Coastal Plain and Mississippi Embayment.
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ITEM 3. LEGAL PROCEEDINGS
Fernando Aldecoa, et. al. v. Softpoint, Inc., United States District
Court, Southern District of California, Case Number 951654H(LSP) was
instuted in October, 1995. The Principal parties included Softpoint, Inc.,
Robert Cosby, C.E.C. Industries, Inc., George Matthews, Ron Robinson, Ron
Stoecklein, and Don Stocklein. The action pertains the allegations made by
certain Softpoint shareholders and the other defendants materially
misrepresented, or allowed certain misrepresentations to occur, which were
relied upon by the defendants in purchasing their stock in Softpoint. The
only relationship between the plaintiffs and the Company is that the Company
was attempting a merger with Softpoint, which merger was not completed.
Further, one of the past directors of the Company was a past president of
Softpoint, Inc. The plaintiffs are seeking an unknown damage, which must be
established upon determining liability, if any. Because the Company and its
outside counsel, is of the opinion that the Company has no exposure in the
litigation, the Company is not aware of any governmental authority which has
interest in the matter from the standpoint of the Company.
The Walter Company v. McHaffie, et. al., Superior Court of the State of
California for the County of Los Angeles, Case Number BC135322 was
instituted on. The case involved an action by property owners of real
property, wherein CEC was a limited partner. The Company determined that
there was no basis for CEC to be in the litigation, and the Case was recently
settled with no liability to CEC.
As of the date hereof, the Company is not aware of any other material
legal proceedings, pending or contemplated, to which the Company is, or
would be, a party of or which any of its property is, or would be the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the
Company's fiscal year ended March 31, 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is traded in the over-the-counter securities
market through the National Association of Securities Dealers Automated
Quotation Bulletin Board System, under the NASDAQ symbol CECN. The following
table sets forth the quarterly high and low bid prices for the Company's
Common Stock during the last two fiscal years of the Company, as reported
by the National Quotations Bureau. The quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission, and may not
necessarily represent actual transactions.
1996 1995
High Low High Low
1st Quarter $1.00 $ .5625 $3.75 $2.00
2nd Quarter .71875 .125 2.25 1.38
3rd Quarter .3125 .1875 1.63 0.91
4th Quarter .3125 .15625 1.13 0.75
No dividend was declared or paid by the Company during fiscal year
1996 or 1995. A decision to pay dividends in the future will depend upon
the Company's profitability, need for liquidity and other
financial considerations. There are approximately 1,728 shareholders
of the 16,431,795 outstanding shares, as of June 21, 1996.
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<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Revenue from continuing
operations $ 2,463,276 $ 87,501 $ 142,238 $ 137,316 $ 126,877
Revenue from discontinued
operations 0 0 0 0 10,757
Net income (loss) from
continuing operations $(1,283,313) $(1,826,551) $ (296,992) $ 1,838 $ 12,464
Net loss from discontinued
operations 0 0 0 0 (881)
Loss per common share:
Continuing operations (0.06) (1.22) (0.19) 0.00 0.00
Discontinued operations (0.00) 0.00 0.00 0.00 0.00
Total Assets $11,115,648 $ 6,274,983 $6,094,026 $2,116,918 $1,934,271
Long term obligations 0 0 0 0 0
Cash dividends per
common share 0 0 0 0 0
</TABLE>
During 1992, the Company sold GLI Industries, Inc. which manufactured
and marketed various handyman products. During 1991, the Company sold
Custom Equipment Corp. which designed and manufactured specialized mineral
processing equipment and its metallurgical consulting services. The
revenue, net loss from discontinued operations and loss per common share
in the five-year summary above reflects these discontinued operations.
During 1996, the Company terminated its ownership of Sterling Travel
pursuant to an agreement where Sterling Travel was to reach certain revenue
milestones prior to the issuance by the Company of Preferred Stock to
Sterling. Since a condition subsequent occurred, in the failure to reach the
revenue goals as set forth in the agreement, the Company determined it in the
best interest of the Company to terminate the agreement. The revenue, net
loss from discontinued operations and loss per common share in the five-year
summary above reflects these discontinued operations.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and the notes thereto.
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Overview
The Company's combined historical financial statements consist
primarily of the operations and assets of Moonridge Development Corp., and
to a limited extent, CEI. The Company has continued to go through major
transitions pertaining to direction, management, and continued operations.
During fiscal 1996, the Company pursued both development and construction
activity under its wholly owned subsidiary, Moonridge Development, Corp.,
earning revenues in its construction division of $1,187,208 while at the
same time setting the stage for new management which occurred in the
fourth quarter of fiscal 1996, with the acquisition of 100% of the stock
of Basia Holdings, Inc., Atlas Methane, and 100% of the stock in
Mid-Nevada Art, Inc. Subsequent to year end, the Company continued with
its expansion through the acquisition of Auto-Express, Inc.
Moonridge Development Corp. In the third quarter of fiscal 1994, the
management of the Company formed a wholly owned subsidiary, Moonridge
Development Corp. ("Moonridge") for the purpose of facilitating the
development and construction of the Company's properties located in St.
George, Utah, Las Vegas, Nevada, and Henderson, Nevada. Moonridge obtained
its general contracting license, and in the first quarter of fiscal
1996, executed a contract for the acquisition of a 24.5% interest in
Victory Village III, Ltd., a Nevada limited partnership, facilitated the
placement of a $16,500,000 HUD loan for the project (the "Victory Village
Project"), and executed a contract for the construction of the 320 Unit
Victory Village Project for Victory Village III, Ltd. In addition,
Moonridge set up the development, construction and financing of the
Company owned Mini-warehouse project located on 7.28 acres in Las Vegas,
Nevada, in addition to a 1.39 acre, contiguous parcel. However, after
obtaining a three million dollar construction loan from Bank of America
for the construction of the mini-storage project in Las Vegas, Nevada, and
actually commencing construction, then problems arose in the construction
permitting and the cross collateralization of this property and the 15.24
acres contiguous, the company then decided to sell its interest in the Mini
Warehouse project. In consideration of the debt relief of approximately
$1,525,000 and the pay off by the purchaser of the outstanding loan of
approximately $575,000 for the project, Moonridge entered into an agreement
for the sale of the project, which sale occurred subsequent to year end,
during the first quarter, fiscal 1997. As the result of the sale of the
mini-storage property, the Company reduced its debt position by in excess of
$1.5 million. However, as discussed below, results of the Company's
construction and development programs created additional expenses
to the Company, without offsetting revenues. Revenues from the construction
and development programs are anticipated to level in fiscal 1997 due to the
proposed spin-off of Moonridge and the proposed liquidation of other
undeveloped land owned by the Company in Las Vegas, Nevada.
During the second quarter of fiscal 1996, Moonridge commenced
construction on the 320 unit Victory Village project and as of June 1, 1996,
was 40% completed with the construction.
The Company currently owns an additional 17.44 acres of undeveloped
land located in Las Vegas, Nevada, which the Company intends to sell or
develop in the near future. During the third quarter of fiscal 1996, the
Company entered into an agreement for the sale of the undeveloped acreage for
$5.2 million; however, as of the end of June, 1996, the transaction has not
been completed, and the Company, based upon the opinion of counsel, does not
believe the transaction will be completed. Current outstanding obligation on
the property is $1.6 Million.
Sterling Travel In the fourth quarter of 1995, the Company acquired
Sterling Travel, and the revenues and expenses thereof from February 28,
1995 to March 31, 1995, were included in the revenues and expenses for fiscal
1995. Pursuant to the terms and conditions of the agreement with the 100%
owner of Sterling Travel, the Company was purchasing the travel company for
400,000 shares of preferred stock of the Company, at a valued price of $5 per
share, convertible to common stock, with a total value of $2 million. In
the event that in two years, the price of the stock of the Company was not
valued at $5 per share, then in that event the Company was required to off
set the difference with the issuance of additional shares of common
stock. According to the agreement, the preferred stock was to be issued
according to an earn out schedule based upon revenues earned by Sterling
Travel. However, Sterling Travel did not receive the revenue projections
as initially projected, and the preferred stock was not issued, and the
transaction was canceled.
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CEI. The Company, through its subsidiary, CEI, continued to incur
expenses related to the carbon reactivation furnace which was being tested a
Thiokol Corporation in Utah. In the third quarter fiscal 1996, based upon
discussions with the management of the Company and the Board of Directors of
the Company, and in consultation with certain other persons not affiliated
with the Company, the Board concluded that the investment in the carbon
reactivation technology was not an appropriate means of diversifying the
Company's operations and required more cash to finance its operations than
appeared prudent to the Board. George Matthews, a member of the Company's
Board who was primarily responsible for overseeing the Company's investment
in CEI, and was acting president of CEI, agreed, with the rest of the CEC
Board of Directors to spin-off CEI. As of 3/31/96 and 6/28/96 the spin off
was not completed. Accordingly, the subsidiary's assets and operations were
included in the 3/31/96 consolidated financial statements.
Agreement to Terminate Conversion. In the third quarter of fiscal 1996,
the Company entered into an agreement with DSM which terminated the preferred
stock conversion rights which were issued pursuant to the terms of the
agreement wherein CEC was acquiring the land situated in Las Vegas. CEC issued
600,000 shares of preferred stock which was convertible to Common Shares at
a guaranteed "bid" price of not less than $4.00 per share. The
original agreement further specified that in the event the "bid" price was
less than the stated $4.00 per share at the time in which the shares are
offered for conversion prior to February 4, 1996, then in that event the
Company was obligated to issue additional common stock to satisfy any
shortfall. On November 2nd, 1995, the Company, in anticipation of a
substantial dilution based upon the then low value of the common stock of
the Company, (partially as the result of the Company's delisting from NASDAQ
in August of 1995) negotiated for a modification of the preferred stock
agreement wherein the Preferred Stock was exchanged for non-convertible
voting preferred stock, in addition to the delivery of fee title to the St.
George property. Further, pursuant to the modification agreement, the
Company received a promissory note for $1,200,000 which note is
collateralized by certain shares of the non-convertible voting preferred
stock issued under the agreement.
Acquisions in Fiscal 1996. In the fourth quarter of fiscal 1996,
concurrent with the election of three new Board of Director members, the
Company entered into an agreement with O.T.S. Holdings, Inc. to issue
8,660,000 shares of common restricted voting stock and 8,663,041 shares of
preferred voting stock of the Company in exchange for; 100% of the issued and
outstanding common shares of Basia Holdings, Inc., a Tennessee corporation
holding 9,000 acres of unencumbered land with approximately 52,000,000 tons
of low sulfur coal, 100% of the issued and outstanding shares of Mid-Nevada
Art; and 100% of the Atlas Methane Development Corporation Gas and Mineral
Leases, which unencumbered leasehold interest includes approximately 13,500
acres located in the Black Warrior Lagoon area of Alabama containing
approximately 31 billion cubic feet of methane reserves.
Liquidity and Capital Resources
Cash requirements of C.E.C. have been met by funds provided from (a)
royalty income; (b) construction fee revenues; (c) sale of property
interests; and (d) borrowing. The ratio of current assets to current
liabilities at March 31, 1996 was .27 to 1.0 compared to .40 to 1.0 at March
31, 1995.
The working capital (deficiency) of the Company as of March 31, 1996,
was $(3,384,457). The working capital (deficiency) at March 31, 1995, was
$(1,969,895).
In 1996, liquidity was enhanced by the cash sale of oil and gas royalty
interests and borrowing against the Las Vegas property. Cash was $3,276 at
fiscal 1996 year-end versus $27,454 at fiscal 1995 year-end.
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Analysis of Operating, Investing and Financing Activities During 1996.
During 1996, the Company reduced its restricted cash by $500,000 and
paid down its line of credit by the same amount. Accounts receivable
increased by $538,405 as a result of construction activity by its subsidiary,
Moonridge Development Corp. The decrease in other assets was the result of
sales of undeveloped land. Accounts payable and payroll taxes increased,
$259,024 and $119,422 respectively, as a result of construction
activity by its subsidiary, Moonridge Development Corp.
During 1996, the Company increased its investment in undeveloped land by
$577,714. The Company wrote off its investment in two subsidiaries, Islet
Transplant Technology and Microsphere Technology in the
amount of $268,948. Notes receivable - related parties increased $226,554.
During 1996, the Company paid an additional $135,000 on its debt in
additional to the $500,000 paid on its line of credit for at total reduction
of $635,000. Additionally, the Company borrowed $1,543,691 during 1996
to purchase land, provide for Company overhead and pay debt service
Significant Customers
The Company had a principal customer which accounted for approximately
47% of its total revenue in land sales. During the coming year real estate
sales will generally be to multiple customers. Additionally, the Company
has a construction contract with one principal customer that also accounted
for 47% of its total revenue. The construction contract is a percentage of
completion contract and will continue and be completed during the year 1997.
Working capital has decreased in the last three years principally
because of short-term borrowing utilized to finance real estate acquisition
and development activities. The Company anticipated raising funds to retire
the present short-term debt of $2,900,000, through either (I) the sale of the
mini-storage facility in Las Vegas, Nevada ("mini-storage project") on
completion of construction, (ii) converting the short-term debt to long-term
debt, utilizing cash flow from the mini-storage project to service the
debt; (iii) reducing the debt from fees received by the Company as a
licensed contractor on the mini-storage project and the Victory Village
320 unit project; (iv) selling all or a portion of the 65% undivided
interest in the St. George, Utah property or the 20.30 acres located in
Las Vegas, Nevada; and reducing the debt through other fee income
earned as the result of additional contracting work to be performed by the
Company. The initial permits to commence grading on the mini-storage
project, were obtained during the first week in August of 1995;
however due to continued delays with the county building department, the
Company was unable to obtain the building permits pursuant to the terms of
the construction loan agreement, and thus was forced into a position
of refinancing the project, or selling off the Company's interest. Shortly
after the end of the fourth quarter of fiscal 1996, the Company reached an
agreement with the second deed of trust holder to acquire the property in
exchange for the reduction of debt the Company owed on land it owned in
Las Vegas, Nevada including the mini-storage project. Pursuant to the terms
of the agreement, the Company would no longer be responsible
for the $3 million Bank of America loan.
Further, the agreement with the second deed of trust lender
allowed for a moratorium on payments under the $1.6 million loan on
additional property in Las Vegas, Nevada, which moratorium was tied to the
sale by the Company of certain grading material in demand in the Las Vegas
area. The sale of the raw material is intended to supply the Company with
sufficient capital to cover certain overhead in the Company, in
addition to paying for the debt service on the property.
Acquisitions of new ventures will possibly affect liquidity in 1997, but
are expected to be financed with stock. The Company has no long-term debt,
but anticipates converting the current short-term debt to long-term or
eliminating it completely by selling additional equity and or portions of the
real estate.
C.E.C.'s plans for capital expenditures are centered around real estate
development and the expansion of its newly acquired Auto Express, Inc.
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Borrowing Activities
During the past two years, the Company's operations and investing
activities have been financed extensively from borrowings. Borrowings have
been approximately $3,800,000, $1,100,000, and $1,800,000 in fiscal years
1996, 1995, and 1994, respectively. Prior to the movement of the Company
in the direction of real estate construction and development in November of
1993, the Company's need for cash was the result of the Company's
development of it's CEI technology in carbon reactivation. However, as
the result of the Company's activities in the acquisition and development
of various parcels of real estate, the Company was required to
increase its borrowing capabilities. The Company has borrowed
significant sums from banks and private individuals as necessary to provide
for the expansion of the Company's real estate development. However, as the
result of the Company's sale of the mini-storage project and liquidation of
its interest in St. George in exchange for a $1,200,000 note, the Company has
eliminated a need for the substantial borrowed funds previously required.
Currently the only significant loan to the Company is the $2 million loan
collateralized by approximately 15.24 acres and $175,000 loan collaterized by
2.2 acres of real property located in Las Vegas. The Lender has provided a
short moratorium on the payments to allow the Company to sell certain raw
fill dirt materials for sufficient cash sums to service the debt and provide
the Company with some overhead cash requirements.
Fiscal 1996. During fiscal 1996, the Company repaid 50% the $1,000,000
line of credit from Pioneer Citizens Bank, and as of the date of this report,
approximately $10,000 in accrued interest is owed on the loan as of March 31,
1996. Also during fiscal 1996, the Company borrowed private money in the
approximate amount of $199,900 for the purpose of funding the Company's
construction activities through Moonridge Development Corporation.
Subsequent to year end, the Company eliminated debt of approximately
$3,935,000 of debt in the sale of its 7.28 acre mini-warehouse project. Of
the $3 million dollar loan to Bank of America, included in the $3,935,000
amount, only approximately $600,000 had been drawn down by the
Company's construction division for purposes of constructing the
mini-warehouse project.
Fiscal 1995. During fiscal 1995, the Company drew down on a $1,000,000
line of credit from Pioneer Citizens Bank. Also during 1995, the Company
entered into a construction loan agreement in the sum of
$3,000,000 with Bank of America, for the construction of its mini-storage
facility in Las Vegas, Nevada. The collateral for the Bank of America loan
is a 7.28 acre parcel of property upon which the Company is building
its mini-storage facility.
Fiscal 1994. During fiscal 1994, the Company borrowed the sum of
$1,800,000 from a private party. The private party loan was to be utilized
for operations and the development of recently acquired property in
Las Vegas, Nevada. The collateral for the private party loan in the sum of
$1,800,000 is approximately 16.63 acres of property owned by the Company in
Las Vegas. The collateral for the private party loan is approximately
23.91 acres, of which 7.28 acres are subordinate to the Bank of America loan
agreement executed in fiscal 1995. In addition, in 1994, the Company
acquired a 2.20 acre parcel of land contiguous to its other Las Vegas
property, wherein the seller of the property carried back a trust deed in the
sum of $100,000 as part of the purchase price. The collateral for the
$100,000 loan is the 2.20 acres, which property is located in Las Vegas,
Nevada.
Results of Operations
Fiscal Year 1996 Compared to Fiscal Year 1995
Revenues. The Company's revenues increased 2806% from $87,201 in 1995 to
$2,534,252 in 1996. Revenue increases were attributable primarily to
increases attributable to sales of development property in
the amount of $2,387,608 in 1996 as compared to $0 in 1995, and an increase
in royalty income from $19,278 to $146,644. Additionally, commission and
affiliation income decreased to $0 from $68,223 in the prior.
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Selling, General and Administrative Expenses. The Company's selling,
general and administrative expenses decreased 15% from $1,445,308 in 1995 to
$1,253,743 in 1996, a decrease of $191,565. Selling, General and
Administrative Expense (S,G&A) net decreases were primarily attributable to
managements decisions to reduce personnel and salaries and wages from
$784,909 in 1995 to $242,345 in 1996, a decrease of $532,546, directors fees
and expenses form $54,009 in 1995 to $1,075 in 1996, a decrease of $52,934,
bad debt expense from $39,153 in 1995 to $0 in 1996, a decrease of $39,153.
However, research and development expenses increased from $3,358 in 1995 to
$64,690 in 1996, a increase of $61,332, consulting expenses increased
from $329,561 in 1995 to $459,038, a increase of $129,477, and other selling,
general administrative expenses increased from $234,318 to $486,595, a
increase of $252,277.
Other Income and Expense. Interest and dividend income for the Company
increased 104% from $45,212 in 1995 to $100,581, a increase of $55,369. The
substantial increase was in interest income and was due to a increase in
notes receivable during the year 1996.
Interest Expense. Interest expense for the Company increased 104% from
$255,739 in 1995 to $529,551 in 1996, a increase of $264,812. The
substantial increase in interest expense was the result of borrowings by the
Company to facilitate expansion, primarily in the area of real estate
development.
Other Income and Expense. Other income and expense for the Company
increased from an expense of $209,450 in 1995 to an income of $8,918 in 1996.
The expense for 1995 was the result of loan extension fees and related
expenses. The income for 1996 was from miscellaneous sources.
Gain or Loss on Sale of Assets. Gain or loss on sale of assets for the
Company increased from an expense of $46,198 in 1995 to and income of
$23,815. The expense was the result of the further write down of
the investment in Logos International, Inc. in 1995. The income for 1996 was
the result of a gain on the sale of oil and gas interests.
Loss from Discontinued Operations. The Company discontinued the
operations of two subsidiaries during the year 1996, Islet Transplant
Technology and Microsphere Technology. The loss was the result of the
subsidiaries being unable to develop the acquired technology as a result of
the recision of a contract with Bio-Sphere Technology (an unaffiliated
entity) that was entered into for the development of the technology. The
Company concluded that the continued investment in the technology was not an
appropriate means of diversifying the Company's operations and required more
cash to finance its operations than appeared prudent. Accordingly, the
Company ceased the pursuit of its medical technology investments. This
resulted in charges to operations of $186,043 for Islet Transplant Technology
and $82,905 for Microsphere Technology.
Fiscal Year 1995 Compared to Fiscal Year 1994
For the year ended March 31, 1995, the Company had a net loss of
$1,826,551 as compared to a loss of $296,992 for fiscal year ended 1994.
Revenues. The Company's revenues decreased 39% from $142,238 to
$87,501. Revenue decreases were attributable to decreases in oil and gas
royalties due to the sale of the majority of the royalty interests, offset
by commission and affiliation fee income of $65,223, attributable to
Sterling Travel. In 1994, the major part of the oil and gas royalties were
sold for cash, generating a profit in excess of $600,000. Oil and gas
royalties were $19,278 in 1995. In addition, revenue decreases were the
result of management's focus on new real estate and development activities,
which by their nature is capital intensive initially, with revenues being
deferred until either construction commences or the project is completed and
rental revenues are received.
Page 19
<PAGE>
Selling, General and Administrative Expenses. The Company's selling,
general and administrative expenses increased 242% from $452,268 in 1994 to
$1,445,308 in 1995. Selling, General and Administrative Expense (S,G&A)
increases were attributable to management decisions to proceed with the
development of the Company's existing real estate projects, which is
generally capital and management intensive at the outset. S,G&A were also
extraordinarily high in the last few years because of high legal fees,
accounting fees and other expenses related to the merger attempts and
acquisition costs.
Interest. Interest expense for the Company increased 500% from $42,632
in 1994 to $255,739 in 1995. The substantial increase in interest expense
was the result of borrowings by the Company to facilitate expansion,
primarily in the area of real estate development.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Financial Statements and Financial Statement Schedules appearing on
F-1 to F-14 of this Form 10-K Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On June 15, 1996, Deloitte & Touche LLP was terminated as the
independent auditor of the company. On June 15, 1996, the Company reached an
agreement with William L. Clancy, CPA, whereby William L. Clancy was engaged
to act as the Company's auditor, commencing with the Company's audit for the
fiscal year ending March 31, 1996. The principal accountant's report on the
Company's financial statements for either the past two (2) year has not
contained either an adverse opinion or a disclaimer of opinion, nor was
qualified or modified as to an uncertainty, audit scope or accounting
principles. The change in accountants was approved by the Board of Directors
of the Company. During the registrant's two most recent fiscal years and
subsequent interim period up to the date of the change of accountants, there
were no disagreements with the former accountant on any matters of accounting
principles or practices, financial statement disclosure, or auditions scope
or procedures.
Page 20
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Directors and Officers of the Company are as follows:
Name and Address Age Position Held
Gerald H. Levine 64 Chairman of the Board, Director
23 Cactus Garden Drive, F23 Chief Executive Officer, President
Henderson, Nevada 89014
Marie A. Levine 50 Principal Financial Officer,
23 Cactus Garden Drive, F23 Director, Principal Accounting
Henderson, Nevada 89014 Officer, Secretary/Treasurer
Alvin B. Green 67 Director
16601 Ventura Blvd.
Encino, California 91436
Janice E. Smith, Esq. 49 Director
23 Cactus Garden Drive, F23
Henderson, Nevada 89014
Ralph Mann 59 Director
Los Angeles, California
Gerald H. Levine is Chairman of the Board, Chief Executive Officer and
President of C.E.C. Industries Corp. Mr. Levine graduated from John Carroll
University, Cleveland, Ohio, with a degree in Business Administration. Mr.
Levine was Executive Vice President of Lincoln Automotive and Lincoln Bearing
from 1955 to 1970. From 1970 to 1979 he was President and Chief Operations
Officer of Cle-Ware Industries which purchased Rayco Industries building
sales to over 90 Million and employing 3,000 workers. From 1979 to 1988,
Mr. Levine operated Centrum Consulting Corp. Working with companies seeking
merger partners. In 1988, Mr. Levine became President of On Target Sports
Selections, a computerized Line Service. In November of 1990,
On Target Sports completed a reverse merger with American Jet Holdings, Inc.,
later changing the name of the corporation to O.T.S. Holdings, Inc.
Marie A. Levine is Chief Financial Officer and Secretary/Treasure of
C.E.C. Industries Corp. Mrs. Levine worked for the University of Nevada at
Las Vegas Computing Center form 1972 to 1977. From 1977 to
1988, Mrs. Levine operated privately held companies including property
management and bookkeeping services. In 1988, she became involved with the
automation of the On Target Sports Selections computerized system, and
became Secretary/Treasure of O.T.S. Holdings, Inc.
Alvin B. Green is a Director of C.E.C. Industries Corp. Mr. Green has
practiced international business law for over 30 years. His offices are
located in Encino, California. Mr. green is also the corporate attorney of
C.E.C. Industries Corp.
Janice E. Smith is a Director of C.E.C. Industries Corp. Ms. Smith is
practicing Bankruptcy and Trust Planning law in the Las Vegas area.
Ralph Mann is a Director of C.E.C. Industries Corp. Mr. Mann is a Real
Estate Developer in the Los Angeles area.
Page 21
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The Compensation which the Company paid to the President for services in
all capacities and for the fiscal years indicated, was as follows:
Name and Principal Position Year Salary Other
Gerald H. Levine, President 1996 $0
George Matthews, President 1996 $0
Richard Cope, President 1996 $0
Ronald J. Robinson, President 1995 $100,000
Donald J. Stoecklein, Secretary 1995 $100,000
Ronald G. Stoecklein, Treasurer 1995 $100,000
George A. Matthews, President 1994 $81,250 $4,800*
George A. Matthews, President 1993 $55,000
Company's contribution to the Savings and Protection Plan.
Insider Participation in Compensation Decisions
The Company has no separate Compensation Committee; the entire Board
of Directors makes decisions regarding executive compensation. Two of the
five directors are officers of the Company. Gerald H. Levine is
the President and a director and Marie A. Levine is the Secretary/Treasurer
and a Director. Both of them participated in deliberations of the Company's
Board of Directors concerning executive officer compensation.
Board of Directors Report on Executive Compensation
The Board of Directors has no existing policy with respect to the
specific relationship of corporate performance to executive compensation.
Since the Company's sale, effective December 31, 1990, of all of the
Company's assets relating to its then primary active business of engineering
consulting and customized minerals processing, the Board has set executive
compensation at what the Board considered to be the minimal levels
necessary to retain and compensate the officers of the company for their
activities on the Company's behalf.
Gerald H. Levine
Marie A. Levine
Alvin B. Green
Janice E. Smith
Ralph Mann
EMPLOYEE BENEFIT PLAN
Effective February, 1996, the Savings and Protection Plan (the "Savings
Plan") was terminated by C.E.C. Management Corp.
Page 22
<PAGE>
1987 NONQUALIFIED STOCK OPTION PLAN
The Company has a 1987 Nonqualified Stock Option Plan (the "NSOP").
The NSOP is administered by a committee of three persons appointed by the
Board of Directors. Eligible participants include the Company's employees
and directors who are not members of the committee (and have not been for
a least one year). The numbers and terms of the options granted to each
participant are determined by the committee. There are an aggregate of
100,000 shares of the Company's Common Stock available for the
granting of options under the NSOP. The option price per share may not be
less than the Common Stock's par value of $0.05. No portion of an option
my be exercised until two years from the date of its grant.
Page 23
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
BENEFICIAL STOCK OWNERSHIP
The following table sets forth, as of June 21, 1996, Common Stock
ownership of (1) the directors of the Company, (2) the only persons known to
management to be the beneficial owners of more than five percent of
the Common Stock of the Company, and (3) the Company's directors and officers
as a group:
Amount and Options
Nature of or Other
Title of Name and Address Beneficial Percent Beneficial
Class of Beneficial Owner(1) Ownership of Class Owners(2)(3)
Common Gerald H. Levine 0 0%
Common Marie A. Levine 0 0%
Common Alvin B. Green 30,000 .0018%
Common Janice E. Smith 0 0%
Common Ralph Mann 20,000 .0012%
Common O.T.S. Holdings, Inc. 7,794,000 47%
4535 W. Sahara
Sutie 105-13B
Las Vegas, Nevada 89102
Common DSM Golf Enterprises, Inc. 1,200,000 7% 720,000(proxy)
1350 E. Flamingo Rd. #246
Las Vegas, NV 89119
Common Wire To Wire, Inc. 1,414,667 9%
4535 W. Sahara
Suite 105-13B
Las Vegas, Nevada 89102
Common Directors and Officers 50,000 .003%
as a group (5 persons)
(1) Addresses are furnished only for those beneficial owners of 5% or more
of the Company's Common Stock.
(2) All beneficial owners have sole voting and investment power over all of
the shares they own, except as indicated in column five and these
footnotes.
(3) The amounts in column three include the amounts in column five.
Page 24
<PAGE>
Agreements Changing Control of the Company
On March 28, 1996, the Company entered into an Agreement to issue to
O.T.S. Holding, Inc. 8,660,000 shares of common restricted voting stock and
8,663,041 preferred voting stock of CEC in exchange for: 100% of the issued
and outstanding common shares of Basia Holding, Inc., a Tennessee Corporation
holding 9,000 acres of fee land with approximately 52,000,000 tons of low
sulfur coal, 100% of the issued and outstanding shares of Mid-Nevada Art;
and 100% of the Atlas Methane Development Corporation Gas and Mineral
Lease, which leasehold interest includes approximately 13,500 acres located
in the Black Warrior Lagoon area of Alabama containing 31 billion cubic
feet of methane. Concurrent with the execution of this agreement,
three (3) directors of CEC resigned changing control of the Company to the
new Board Members.
O. T. S. Holdings, Inc, will control 47% of the issued and outstanding
shares of common stock and 66.3% of the issued preferred stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Transactions with Management and Others.
Asset Transactions - Re-Issuance of Preferred Shares
During fiscal 1996, the Company's Board of Directors adopted a
resolution pursuant to which the Company avoided the conversion of 600,000
shares of Convertible Preferred non-voting stock, which stock
would have converted on February 4, 1996 to common shares having a value of
$2,400,000. Due to the then price of the Company's shares, approximately
$0.20, the Board determined it in the best interest of the Company
to avoid the conversion. The Company agreed with DSM Golf Enterprises,
Inc., principally controlled by Dwight Jory, ex-director of the Company,
Vegas Ventures, Inc., Theodora de Hondol, the wife of Dwight Jory,
a director of the Company, and Jeanette Browning to: (I) issue to de Hondol
and Browning $80,000 in Limited Liability Company shares; (ii) re-issue to
Vegas Ventures, Inc. 395,000 shares voting non-converting preferred stock,
par value $0.50 per share; (iii) re-issue to DSM Golf Enterprises, Inc.
3,905,000 shares of voting non-converting preferred stock, par value $0.50
per share; re-issue 100,000 shares of voting non-converting preferred
stock, par value $0.50 per share; transfer a deed to the Company's interest
in the St. George parcel to DSM Golf Enterprises, Inc., concurrent with the
receipt by the Company of a $1,200,000 note for the balance of the exchange
value, which note is secured by 2,100,000 shares of voting non-convertible
preferred stock, set forth above; additionally, 1,400,000 shares of the
voting non-convertible preferred stock is pledged back to the Company as
collateral for the Company's 24,5% interest in the 320 Unit Victory Village
apartment project, to insure the Company does not loose any investment
capital in the project.
Loans Made to the Company by, or Guaranteed by Affiliates
In the third and fourth fiscal quarter 1996, Charles McHaffie, either
personally or through related entities advanced funds to the Company in the
sum of $79,200. Mr. McHaffie is an affiliate of DSM Golf Enterprises, Inc.
Stock Options Exercised by Board Members
In February of 1996, two directors executed options to acquire 300,000
shares of common stock, each, in the Company in exchange for consideration
paid pursuant to the terms and conditions of promissory notes
executed concurrent with the exercise.
Page 25
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report
1. Financial Statements:
Independent Auditors' Report F-1
Independent Auditors' Report F-2
Independent Auditors' Report F-3
Consolidated Balance Sheets at March 31, 1996 & 1995 F-4 & F-5
Consolidated Statements of Operations for the years ended
March 31, 1996, 1995 & 1994 F-6
Consolidated Statements of Stockholders' Equity for the
years ended March 31, 1996, 1995, and 1994 F-7
Consolidated Statements of Cash Flows for the years ended
March 31, 1996, 1995 & 1994 F-8 to F-10
Notes to Consolidated Financial Statements F-11 to F-24
2. Exhibits required to be filed are listed below.
Exhibit Number Description
(2) Plan of acquisition, reorganization arrangement, liquidation
or succession
(a) Agreement of Merger of C.E.C. Management Corp. into
Justheim Petroleum Company, dated August 15, 1986
(incorporated by reference to Exhibit 2 of the
Company's Registration Statement on Form S-4, file No.
33-8753, as amended) (b) Agreement of Merger of C.E.C.
Management Corp. into Justheim Petroleum Company, dated
August 15, 1986, and Board approval certificated and
Certificates of Shareholder Vote on Merger, dated December 31,
1986, all as filed with the Nevada Secretary of State on
December 31, 1986.
(3) Articles of Incorporation and by-laws
(a) Articles of Incorporation, as amended (incorporated by
reference to Exhibit 3.1 of the Company's Annual Report on
Form 10K for the fiscal year ended March 31, 1986).
(b) Bylaws, as amended (incorporated by reference to Exhibit
3.2 of the Company's Annual Report on Form 10K for the fiscal
year ended March 31, 1986).
(4) Instruments defining the rights of security holders:
(a) Loan Agreement dated March 31, 1995, between the Company
and Bank of America.
(b) Loan Agreement dated February 4, 1994, between the
Company and Cartwright
( c) As amended by first amendment to Loan Agreement between
the Company and Cartwright, dated February 4, 1995.
(d) An agreement between the Company and Cartwright whereby
the Company would deed the 7.28 acre mini-storage project and
an additional 1.39 acres to Cartwright, subject to the $3
million Bank of America loan (approximately $600,000 drawn
down) in exchange for debt relief of the $600,000 of the Bank
of America loan and $935,000 owed to Cartwright.
(10) Material Contracts
(10.1) Agreement dated June 7, 1995 between CEC and Victory
Village III, Ltd., a Nevada limited partnership (filed as
Exhibit to 8-K filed November 29, 1996.)
(10.2) Agreement dated October 4, 1995 between CEC and CEI to
spin-off CEI (8-K filed October 4, 1995)
(10.3) Agreement dated November 2, 1995 between CEC and DSM Golf
Enterprises, Inc., et al. (filed with 8-K November 2, 1995)
(10.4) Agreement dated March 28, 1996 between CEC and O.T.S.
Holdings, Inc. (filed with 8-K November 14, 1996)
(10.5) Agreement dated June 15,1996 between CEC and Auto
Express, Inc. (8-K filed on June 27, 1996)
(10.6) Change in Accountants, Dated June 15, 1996 (8-K filed on
June 21, 1996 and refiled on November 14, 1996).
(10.7) Agreement dated June 27, 1996 between Mid-Nevada Art,
Inc., and One World Cards (8-K filed on June 28, 1996)
(10.8) Agreement dated November 1, 1995 between CEC and Landmark
International, Inc. (8-K filed on November 29, 1996)
(16) Letter re change in certifying accountant
The Company changed auditors from Deloitte Touche to William
Clancy.
(21) Subsidiaries of the Registrant
(a) Moonridge Development Corp., a Nevada corporation
(b) Basia Holdings, Inc., a Tennessee corporation
(c) Mid-Nevada Art, Inc., a Nevada corporation
(d) Auto Express, Inc.
(b) During the fiscal year 1996, the Company filed the following 8-Ks.
(1) June 7, 1995, Item No. 2 - CEC/Victory Village Agreement, Item No.
5 - Contractors Agreement with R.V. Jones Construction
(2) August 16, 1995, Item No. 5 - NASDAQ delisting
(3) September 15, 1995, Item No. 1 - Election of Officers and
Directors, Litigation disclosure, Item No. 2 - Spin-Off of CEI and
Joint Venture Agreement
(4) October 4, 1995, Change in Control of Registrant, Robinson
resignation, Cope elected as new President, Decision to Spin-Off
CEI
(5) November 2, 1995, Item No. 2 - Anti-Conversion Agreement of
Preferred Stock, Item No. 5 - NASDAQ listing information.
Subsequent to the end of the fiscal year, the Company filed the following
reports on Form 8-K
(1) March 28, 1996, Item No. 2 - CEC/O.T.S. Agreement, Item No. 6 -
Resignation of 3 Directors.
(2) June 15, 1996, Item No. 2 - CEC/Auto Express, Inc., Agreement.
(3) June 15, 1996, Item No. 4 - Change in Accountant
(4) June 27, 1996, Item No. 2 - Mid-Nevada Art, Inc.,/One World Cards,
Agreement
(c ) Required exhibits are attached hereto and are listed in Item 14(a)(3) of
this Report.
Page 27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
C.E.C. INDUSTRIES CORP.
By:/s/Gerald H. Levine
Gerald H. Levine
President and Principal
Executive Officer
By:/s/Marie A. Levine
Marie A. Levine
Principal Financial Officer
Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/Gerald H. Levine President, Chief Executive June 28, 1996
Gerald H. Levine Officer & Director
/s/Marie A. Levine Principal Financial Officer, June 28, 1996
Marie A. Levine Principal Accounting Officer
& Director
/s/Alvin B. Green Director June 28, 1996
Alvin B. Green, Esq.
/s/Janice E. Smith Director June 28, 1996
Janice E. Smith, Esq.
Director June 28, 1996
Ralph Mann
Page 28
<PAGE>
OFFICERS AUDITORS
Gerald H. Levine William Clancy
President, Chief Executive Officer Phoenix, Arizona
Marie A. Levine
Principal Financial Officer, Principal
Accounting Officer and Secretary/Treasurer
DIRECTORS
Gerald H. Levine
Las Vegas, NV
Marie A. Levine
Las Vegas, NV
Alvin B. Green, Esq.
Los Angeles, California
Janice E. Smith, Esq.
Las Vegas, NV
REGISTRAR & TRANSFER AGENT
Ralph Mann Atlas Stock Transfer Corporation
Las Vegas, NV 5899 South State Street
Salt Lake City, UT 84107
NASDAQ SYMBOL
CECN
ANNUAL MEETING
August 21, 1996 -- 9:00 a.m.
At
23 Cactus Garden Drive, Suite F-60
Henderson, Nevada 89014
(702) 893-4747
Page 29
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
1. Independent Auditors Report.................................F-1
2. Independent Auditors Report.................................F-2
3. Independent Auditors Report.................................F-3
4. Financial Statements:
Consolidated Balance Sheet at March 31, 1995 and 1994..........F-4 & F-5
Consolidated Statements of Operations for the Years ended
March 31, 1996, 1995 and 1994 .................................F-6
Consolidated Statement of Stockholders Equity for the Years
ended March 31, 1996, 1995 and 1994 ...........................F-7
Consolidated Statement of Cash Flows for the Years ended
March 31, 1996, 1995 and 1994 .................................F-8 to F-10
Notes to Consolidated Financial Statements ....................F-11 to F-24
All schedules are omitted because they are not applicable or the required
information is shown in the consolidated financial statements or notes
thereto.
<PAGE>
William L Clancy
CERTIFIED PUBLIC ACCOUNTANTS
Central Plaza
Suite 890
4041 North Central Avenue
P. O. Box 16627 (8501-6627)
Phoenix, Arizona 85012
(602)266-2646
Fax (602) 266-2402
INDEPENDENT AUDITOR'S REPORT
Board of Directors
C.E.C. Industries Corp.
Las Vegas, Nevada
I have audited the accompanying consolidated balance sheet of C.E.C.
Industries Corp. and Subsidiaries (the Company), as of March 31, 1996 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the year then ended. These consolidated financial statements are
the responsibility of the Company's management. My responsibility is to
express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I 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 consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. I believe that my
audit of the financial statements provides a reasonable basis for my opinion.
In my opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of the Company at March 31, 1996,
and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/William L. Clancy
William L. Clancy, CPA
Phoenix, Arizona
June 26, 1996
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
C.E.C. Industries Corp.
Las Vegas, Nevada
We have audited the accompanying consolidated balance sheet of C.E.C.
Industries Corp. and subsidiaries (the "Company"), as of March 31, 1995 and
the related consolidated statements of operations, stockholders' equity and
cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with 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 consolidated 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
audit of the financial statements provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at March 31, 1995,
and the results of its operations and its cash flows for the
year\then ended in conformity with generally accepted accounting principles.
/s/Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
August 4, 1995
F-2
<PAGE>
DUANE V. MIDGLEY
CERTIFIED PUBLIC ACCOUNTANT
4351 Lynne Lane
Salt Lake City, Utah 84124
- ----------------
(801) 277-3608
INDEPENDENT AUDITOR'S REPORT
Stockholders and Board of Directors
C.E.C. Industries Corp. and Subsidiaries
We have audited the consolidated balance sheets of C.E.C. Industries
Corp. and Subsidiaries, as of March 31, 1994, and the related consolidated
statements of operations, stockholders' equity, and cash
flows for the years ended March 31, 1994 and March 31, 1993. These financial
statements and financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statements schedules based on our audits.
We conducted our audit 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 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 financial statements referred to in the first
paragraph above present fairly, in all material respects, the consolidated
financial position of C.E.C. Industries Corp. and Subsidiaries as of
March 31, 1994, and the consolidated results of their operations and cash
flows for the years ended March 31, 1994 and March 31, 1993, in conformity
with generally accepted accounting principles.
/s/Duane V. Midgley
Duane V. Midgley
Certified Public Accountant
June 10, 1994
**(Company Notice) As of September 14, 1995, Duane B. Midgley, CPA is not
authorized to practice before the Securities and Exchange Commission. This
is a copy of the report on the financial statements of C.E.C. Industries
Corp. as of March 31, 1994 and for the year then ended which was originally
issued by Duane V. Midgley, CPA on June 10, 1994.
F-3
<PAGE>
C.E.C. INDUSTRIES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31, 1996 and 1995
ASSETS
1996 1995
Current Assets
Cash and Cash Equivalents (Note 1) $ 3,276 $ 27,454
Restricted Cash (Note 11) 500,000 1,000,000
Accounts Receivable 543,566 5,161
Notes Receivable - Related Party (Note 5) 14,547
Inventory (Notes 1 & 2) 181,199 181,477
Other 64,115 103,476
----------- ----------
Total Current Assets 1,292,156 1,332,115
Property and Equipment, at Cost (Note 1)
Furniture and Equipment 148,478 158,508
Less Accumulated Depreciation (89,213) (72,324)
Net Book Value 59,265 86,184
Other Assets
Investment in Undeveloped Land (Note 11) 4,157,528 4,735,242
Notes Receivable - Related Parties (Note 5) 1,380,000
Accrued Interest Receivable - Related
Parties (Note 5) 46,554
Patents, at Cost (Net of Accumulated
Amortization of $9,500 in 1996 and $3,190
in 1995) (Note 1) 101,696 107,648
Investment - Limited Partnership (Note 12) 300,000
Artworks (Note 11 & 12) 1,747,199
Coal Reserves (Note 11 & 13) 800,000
Oil and Gas Interests (Note 11 & 12) 1,231,250 13,794
----------- ----------
Total Other Assets 9,764,227 4,856,684
----------- ----------
Total Assets $11,115,648 $6,274,983
=========== ==========
The accompanying notes are an integral part of the
consolidated financial statements.
F-4
<PAGE>
C.E.C. INDUSTRIES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31, 1996 and 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
1996 1995
Current Liabilities
Accounts Payable $ 293,112 $ 34,088
Bank Overdraft 29,411
Payroll Taxes Payable 119,422
Notes Payable (Note 11) 2,723,319 2,076,351
Line of Credit (Note 11) 500,000 825,000
Notes Payable - Related Parties (Note 5) 582,210
Accrued Liability-Related Parties (Note 5) 125,788 259,336
Accrued Liabilities - Other 303,351 107,235
----------- -----------
Total Current Liabilities 4,676,613 3,302,010
Commitments & Contingencies (Note 8)
Stockholders' Equity (Notes 6,7,10, & 13)
Convertible Preferred Stock, Par Value
$.001 Per Share, Authorized 100,000,000
Shares, Issued and Outstanding 13,063,041
Shares in 1996 in 725,000
Shares in 1995 13,063 725
Common Stock, Par Value $.05 Per Share,
Authorized 50,000,000 shares;
Issued and Outstanding, 15,671,795
Shares in 1996 and 1,867,459 Shares
in 1995 783,590 93,373
Paid In Capital 9,315,554 5,287,443
Retained Earnings - A Deficit (3,673,173) (2,385,041)
Treasury Stock, At Cost (0 Shares in
1996 and 5,986 Shares in 1995) ( 0) ( 23,527)
----------- -----------
Total Stockholders' Equity 6,439,035 2,972,973
----------- -----------
Total Liabilities and Stockholders' Equity $11,115,648 $ 6,274,983
=========== ===========
The accompanying notes are an integral part of the
consolidated financial statements.
F-5
<PAGE>
C.E.C. INDUSTRIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
For The Years Ended March 31, 1996, 1995 and 1994
1996 1995 1994
Income
Sales (Note 1) $ 2,387,608 $ 68,223 $ 600
Royalty Income (Note 1) 75,668 19,278 141,638
----------- ----------- ---------
Total Income 2,463,276 87,501 142,238
Cost of Sales 2,241,074 2,569 2,503
----------- ----------- ---------
Gross Profit 222,202 84,932 139,735
Selling, General and Administrative
Expenses 1,099,876 1,445,308 452,268
Other Income (Expense)
Interest and Dividends 100,551 45,212 1,958
Other (Notes 11 and 12) 22,347 (209,450) 14,010
Interest Expense (620,349) (255,739) (42,632)
Gain (Loss) on Sale of Assets
(Note 3) 91,812 (46,198) 42,205
----------- ----------- ---------
Income (Loss) Before Income Taxes (1,283,313) (1,826,551) (296,992)
Provision for Income Taxes
(Note 4) 0 0 0
----------- ----------- ---------
Net (Loss) $(1,283,313) $(1,826,551) $(296,992)
=========== =========== =========
Loss Per Common and Common Share
Equivalent (Note 1)
Continuing Operations $ (.08) $ (1.22) $ (.19)
=========== =========== =========
The accompanying notes are an integral part of the
consolidated financial statements.
F-6
<PAGE>
C.E.C. INDUSTRIES CORP. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR YEARS ENDED MARCH 31, 1996, 1995, AND 1994
Preferred Stock Common Stock Paid-In Accumulated Treasury Stock
Shares Amount Shares Amount Capital Deficit Shares Amount Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31,
1993 1,202,260 $60,113 $2,283,771 $(261,498) (54,527) $(214,456) $ 1,867,930
Issued Preferred Stock
(Note 13) 600,000 $600 2,399,400 2,400,000
Treasury Stock Issued
(Note 7) (8,041) 3,392 13,341 5,300
Purchased Treasury Stock (40) (50) (50)
Sold to 401(k) (Note 7) 80,000 4,000 46,000 50,000
Directors' Fees (Note 5) 100,000 5,000 132,500 137,500
Services Performed 35,196 1,760 70,832 72,592
Net Loss 0 (296,992) (296,992)
Balance at March 31, --------- ------- ---------- -------- ---------- ----------- ------- -------- -----------
1994 600,000 600 1,417,456 70,873 4,924,462 (558,490) (51,175) (201,165) 4,236,280
Bio-Sphere Asset Purchase
(Note 13) 125,000 125 62,375 62,500
Directors' Fees & Services
(Note 5) 450,003 22,500 466,947 489,447
Treasury Stock Issued
(Note 7) (166,341) 5,189 177,638 11,297
Net Loss 0 (1,826,551) (1,826,551)
Balance at March 31, ---------- ------- ---------- -------- ---------- ----------- ------- -------- -----------
1995 725,000 725 1,867,459 93,373 5,287,443 (2,385,041) (5,986) (23,527) 2,972,973
Bio-Sphere Shares
Canceled in Connection
with Asset Purchase
Cancellation (125,000) (125) (125)
Canceled Sterling Travel
Purchase (30,788) (4,819) (35,607)
24.5% Interest Victory
Village Limited
Partnership 1,200,000 60,000 240,000 300,000
Exchanged Preferred $.001
Shares For Preferred
$.50 Redeemable Shares (600,000) (600) (600)
Issue Preferred $.50
Redeemable Shares 4,200,000 4,200 (3,476) 726
S-8 Shares Issued 200,000 200 3,372,830 168,642 933,920 1,102,762
Rosenbaum Shares Canceled (30,000) (1,500) (21,000) (22,500)
Issued to 401-K 1,506 75 (19,856) 5,986 23,527 3,745
Stock Options Exercised 600,000 30,000 150,000 180,000
Exchanged for 100%
Interest in:
Mid-Nevada Art, Inc. 4,016,734 4,017 2,886,667 144,333 1,213,124 1,361,474
Basia Holding, Inc. 1,797,385 1,797 2,309,333 115,467 682,736 800,000
Oil and Gas Interest 2,848,922 2,849 3,464,000 173,200 1,055,201 1,231,250
Expenses of Exchange
Agreement (171,750) (171,750)
Net Loss 0 (1,283,313) (1,283,313)
Balance at March 31, ---------- ------- ---------- -------- ---------- ----------- ------- -------- -----------
1996 13,063,041 $13,063 15,671,795 $783,590 $9,315,554 $(3,673,173) 0 $0 $6,439,035
========== ======= ========== ======== ========== =========== ======== ======== ===========
</TABLE>
The saccompanying notes are an integral part of the
consolidated financial statements.
F-7
<PAGE>
C.E.C. INDUSTRIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For The Years Ended March 31, 1996, 1995, and 1994
1996 1995 1994
Cash Flows From Operating
Activities
Net (Loss) $(1,283,313) $(1,826,551) $(296,992)
Adjustments to Reconcile
Net (Loss) to Net Cash
Used in Operating
Activities
Depreciation 22,530 13,805 7,240
Amortization 9,500 1,276 957
Depletion 1,050 3,940
(Gain) Loss on Sale of
Marketable Securities 34,996 46,503 (63,260)
Gain (Loss) on Investments 56,206 (21,055)
Treasury Stock Issued for
401(k) contribution 23,527 11,298 5,300
Loss on Write Off of Assets 62,500
Common Stock Issued for
Professional Fees &
Directors Fees 1,102,762 489,447 210,092
Bad Debt Expense 39,153
Changes in Assets and
Liabilities
(Increase) in Restricted
Cash 500,000 (1,000,000)
(Increase) in Accounts
Receivable (538,405) (15,860) (43,001)
(Increase)Decrease in
Inventory 278 (80,069) 83,617
(Increase)Decrease in
Current Assets 39,361 (93,062) 47,961
Decrease in Other Assets 44,027
Increase(Decrease) in
Accounts Payable 259,024 7,892 (103,173)
Bank Overdraft 29,411
Increase in Payroll Taxes 119,422
Increase in Accrued
Liabilities 62,568 335,021 25,182
----------- ----------- ---------
Total Adjustments 1,721,180 (181,046) 197,827
----------- ----------- ---------
Net Cash Provided by
Operating Activities 437,167 (2,007,597) (99,165)
----------- ----------- ---------
Cash Flows From Investing
Activities
Purchase of Investment Land (514,266) (316,104) (929,058)
Cost of Land Sold 1,091,980
Proceeds from Sale of Assets 70,000 650,000
Capital Expenditures (4,389) (65,641) (12,671)
Payments Received on Notes
Receivable 14,547 9,211
Proceeds from Sales of
Marketable Securities 34,996 4,884
The accompanying notes are an integral part of the
consolidated financial statements.
F-8
<PAGE>
C.E.C. INDUSTRIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont'd)
FOR THE YEARS ENDED MARCH 31, 1996, 1995, AND 1994
1996 1995 1994
Investment - LTD Partnership (300,000)
Patent Expenditures (3,548) (9,328) (12,947)
Note Receivable - Related
Party (1,426,554) 0 0
Net Cash Used in Investing ----------- ----------- ----------
Activities (1,037,234) (386,189) (295,465)
Cash Flows From Financing
Activities
Proceeds from Sale of Common
Stock (Net) 49,906
Principal Payments on Debt (635,000) (113,251)
Proceeds From Notes Payable 1,160,283 1,101,351 1,800,000
----------- ----------- ----------
Net Cash Provided By Financing
Activities 575,189 1,101,351 1,686,749
----------- ----------- ----------
Net Increase (Decrease) in Cash
and Cash Equivalents (24,178) (1,292,435) 1,292,119
Cash and Cash Equivalents at
Beginning of Year 27,454 1,319,889 27,770
----------- ----------- ----------
Cash and Cash Equivalents at
End of Year $ 3,276 $ 27,454 $1,319,889
=========== =========== ==========
Supplemental Disclosures of Cash
Flow Information
Cash Paid During the Year For
Interest $ 467,358 $ 255,739 $ 18,856
=========== =========== ==========
Income Taxes $ 200 $ 200 $ 200
=========== =========== ==========
Supplemental Schedule of Non-Cash Investing and Financing Activities
The Company had four options to exchange 85,989 shares per option of Utah
Resources International, Inc. (URI) stock for 8.9 acres of land per option.
The Company exercised the first option in 1990 and the second in 1991. The
land received was recorded at $157,016 for each option. The third option was
exercised in 1992 and the land received was recorded at $222,441. One-half
of the fourth option was exercised in 1993 and the land received was recorded
at $111,220. The last half of the fourth option was exercised in 1994 and
the land received was recorded at $111,220. All land received was recorded
at cost.
During 1996, 1995 and 1994, the Company issued 5,985, 45,189 and 3,392
shares of treasury stock valued at $23,527, $11,298 and $5,300, respectively,
as a contribution to the retirement plan. No shares were contributed
to the retirement plan in 1993. (See Note 7)
The accompanying notes are an integral part of the
consolidated financial statements.
F-9
<PAGE>
C.E.C. INDUSTRIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH H FLOWS (CONT'D)
FOR THE YEARS ENDED MARCH 31, 1996, 1995, AND 1994
Supplemental Schedule of Non-Cash Investing and financing Activities
During 1994, the Company issued 600,000 shares of preferred stock at $4.00
er share ($2,400,000) as additional value for the unimproved land purchased
in Las Vegas, Nevada. During 1996, the Company converted the 600,000 shares
of $4.00 preferred stock into 4,200,000 shares of new series "B"
non-converting preferred stock with a par value of $.001 per share with a
redemption value of $.50 per share, that has attached to the issue one
vote of common per share, equal in value to one vote of common stock and each
share shall pay a cumulative preferred dividend of 10% per year. All of the
4,200,000 shares of new Series B preferred stock shall be
redeemed by the corporation issuing same four years from October 12, 1995.
In fiscal 1996, the remaining investment Logos International, Inc. was
sold for $34,996. In fiscal 1994, the investment in Logos International, Inc.
was written down to its market value resulting in a loss of $625,960. (See
Note 3)
During 1995, the Company purchased 100% of Sterling Travel with net
assets valued at $30,788 through incurring accrued expenses of $30,788.
During 1996, the Company rescinded the purchase agreement with Sterling
Travel for nonperformance on the agreement. (See Note 12)
During 1995, the Company issued 125,000 shares of preferred stock to
Bio-Sphere Technology valued at $62,500 for medical technology. (See Notes 8
and 12). During 1996, the Company agreed to cancel the agreement with
Biosphere Technology, and accordingly, cancel the preferred shares issued.
In fiscal 1996, the Company issued 3,972,830 shares of common stock on
Form S-8 for directors' fees and professional services. In fiscal 1995, the
Company issued 449,974 shares of common stock on Form S-8 for
directors' fees and professional services. In 1994, 135,196 shares were
issued for these services. The shares were valued at $1,102,762, $489,447
and $210,092 respectively.
On March 28, 1996, the Company issued 8,660,000 shares of common stock and
8,663,041 shares of preferred stock in exchange for 100% of the common stock
of Mid-Nevada Art, Inc., 100% of the common stock of Basia Holding, Inc. and
100% interest in oil and gas leases. The shares were valued at $1,361,474,
$800,000 and $1,231,250 respectively.
The accompanying notes are an integral part of the
consolidated financial statements.
F-10
<PAGE>
C.E.C. INDUSTRIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995, AND 1994
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Business and Principals of Consolidation
The consolidated financial statements include the accounts of C.E.C.
Industries Corp. (the Company) and its subsidiaries, Custom Environmental
International, Inc. ("CEI") (80% owned - the reduction in ownership of CEI
from 90% was due to the issuance of additional shares of common stock to
employees in lieu of salaries), Plata Oro (57% owned), Moonridge
Development Corp.(100% owned), Sterling Travel (100% owned), Microsphere
Technology (100% owned), Islet Transplant Technology (100% owned),
Mid-Nevada Art, Inc. and Basia Holding, Inc. During the fiscal year 1996,
Sterling Travel (100%) purchase was canceled do to non performance by
Sterling Travel. No operating results of Sterling Travel are presented for
the fiscal year 1996. During the fiscal year 1996, Microshpere Technology
(100%) and Islet Transplant Technology (100 %) operations were
discontinued. All material intercompany transactions have been eliminated.
C.E.C. Industries Corp. Develops undeveloped real estate for resale.
Custom Environmental International, Inc. is developing and marketing a
carbon regeneration furnace. Plata Oro is involved in minerals exploration
but has been inactive for several years. Moonridge Development Corp.
develops unimproved land in Las Vegas, Nevada. Sterling Travel Is a travel
agency in Boca Raton, Florida. Microsphere Technology and Islet Transplant
Technology are engaged in research and development of medical technology.
Mid-Nevada Art, Inc. purchases artworks for lease and rental. Basia
Holding, Inc. owns approximately 9,000 unencumbered acres
of land and approximately 52,000,000 tons of coal reserves. (See Note 12)
Revenue Recognition
The Company's undeveloped land is carried at cost. Prior to 1996, if the
land was sold, the Company recognized gain or loss on the difference
between the carrying value and the sales price, using the full accrual
method of accounting. There were no land sales in years ended 1995 or 1994.
During the year 1996, the Company determined that it would develop its
undeveloped land, and accordingly, would recognize revenue on sales of land
as the partials are further developed and sold. Land sales are recognized
as revenue at the time that title or all rights of ownership passes to the
buyer. Land sales amounted to $1,200,000 for the year ended 1996.
Royalty revenues are recorded as received from oil and gas leasehold
interests and retaining overriding royalty rights. During the year ended
1996 all oil and gas rights were sold. The Company is not involved in
mining or extraction of coal, oil or gas, and accordingly, no revenues
are generated therefrom.
P-11
<PAGE>
C.E.C. INDUSTRIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995, AND 1994
Revenues from travel consultants are recognized as commissions earned from
bookings of travel reservations net of ticketing costs and from affiliation
fees. Revenue form travel consultants occurred only during the year 1995.
Lease and rental income from artworks are recorded as received. During the
year 1996 there was no lease and rental income received. Sales of artworks
is be recorded net of it recorded cost as gain or sale on investments.
There were no sales during the year ended 1996.
Revenue from fixed-price contracts are recognized on the percentage of
completion method, measured by the percentage of cost incurred to date to
estimated costs for each contract, by management monthly and approved by
the engineer, architect and owner. An asset, "Costs and estimated earnings
in excess of billings on uncompleted contracts" represents revenues
recognized in excess of amounts billed and are recognized on the balance
sheet. Costs and estimated earnings in excess of billings on uncompleted
contracts in the amount of $44,200 are included in balance sheet under
accounts receivable.
Property and Equipment
Expenditures that increase asset lives are capitalized at cost. Normal
maintenance and repairs are expended as incurred. The cost and accumulated
depreciation of assets retired or disposed are removed from the accounts
and any resulting gain or loss is included in the consolidated
statements of operations. Depreciation is reported on a straight-line
basis over the estimated useful lives on the assets which range from 3 to 7
years.
Office Equipment 5 to 7 Years
Automobiles 3 Years
Inventory
Inventory is valued at the lower of cost (determined on a first-in
first-out basis) or market.
Patents
Costs incurred in connection with obtaining patents are capitalized and
amortized on a straight-line basis over 17 years from the date of issuance
of such patent.
Long-Lived Assets
The Company's long-lived assets consist of patents, that are being
amortized over the estimated useful lives of the patents, but not longer
than 17 years. The current value of patents, net of amortization, is equal
to its current book value. Artworks are recorded at cost. The artworks are
appraised annually and the current appraisal is equal to ro exceeds costs.
P-12
<PAGE>
C.E.C. INDUSTRIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995, AND 1994
Undeveloped Land
Undeveloped land is recorded at its cost of acquisition. The portion that
was purchased in exchange for preferred stock was recorded at the appraisal
price of the real estate.
Earnings (Loss) Per Common Share
Earnings (Loss) per common share is computed based on the weighted average
number of common shares and common share equivalents outstanding. Stock
options are included as common share equivalents using the treasury stock
method except for 1995 and 1994 when they were antidilutive.
The number of shares used in computing earnings (loss) per common share was
17,530,795 in 1996, 1,502,648 in 1995, and 1,543,684 in 1994.
Cash Equivalents
For purposes of the consolidated statement of cash flows, the Company
considers all highly liquid debt instrument purchased with an original
maturity of three months or less to be cash equivalents.
Presentation
Certain accounts from prior years have been reclassified to conform with
the current year's presentation.
Pending Accounting Pronouncements
It is anticipated that current pending accounting pronouncements will not
have an adverse impact on the financial statements of the Company.
NOTE 2 - INVENTORY
Inventory consists of manufactured finished goods held for sale.
NOTE 3 - INVESTMENTS - MARKETABLE SECURITIES
Investment in Equity Securities - Logos International, Inc.
In fiscal year 1992 the Company acquired 776,857 shares of common stock of
Associated Trades, Inc. (ATI) valued at $.875 per share (the market value
of the Company's stock), or $679,750. The shares were acquired in exchange
for a building, Company stock, and majority interest in GLI Industries,
Inc. Effective April 1, 1992, ATI was merged into Logos International,
Inc. (Logos), and after two reverse stock splits and additional shares
being issued, the Company's shares were reduced to 430,320 shares.
F-13
<PAGE>
C.E.C. INDUSTRIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995, AND 1994
On October 28, 1991, C.E.C. entered into an Agreement to Purchase with
Oxford House, Inc., a Utah corporation and a wholly-owned subsidiary of
Associated Trades, Inc., by which C.E.C. sold all of it's right, title, and
interest in the real property and building in which C.E.C.'s offices
were located, for a total purchase price of $786,478. The purchase price
by Oxford House, Inc. included it's assumption of the outstanding mortgage
of the property in the amount of $719,229 and 76,857 shares of the common
sock of ATI, valued by C.E.C. at $67,250. The ATI stock was subsequently
exchanged for Logos stock.
In connection with the Agreement, C.E.C. and ATI entered into an Exchange
Agreement by which the companies exchanged 500,000 shares of one another's
common stock. C.E.C. has valued the shares of common stock received in the
transaction at $.875 per share (the bid price of C.E.C.'s common stock on
the date of the exchange), for a total value of $437,500. The ATI
stock as subsequently exchanged for Logos stock.
Pursuant to a Reorganization Agreement dated as of December 1, 1991, C.E.C.
sold 18,000,000 shares of its subsidiary's common stock, GLI Industries,
Inc., to ATI. This represented 90% of the total outstanding common stock
of GLI. In return C.E.C. received 200,000 shares of the common stock of
ATI, and was entitled to a royalty on gross sales of GLI products of two and
one-half percent (2.5%). The ATI stock was subsequently exchanged for
Logos stock.
Logos was incorporated November 6, 1981, under the laws of the State of
Nevada and acquired several companies in printing and publishing, arts and
framing, automotive and towing services, aerospace, and real estate. The
market price of Logos stock dropped from a bid of $10.00 per share at
September 18, 1992 and $5.00 bid per share at June 1, 1993, to $.125 per
share at March 31, 1994 and $.25 at March 31, 1995.
Management believes the drop in value is permanent and is due to the
inability of Logos' management to supply adequate funding or provide
management of it's newly acquired companies. Management has thereby
elected to write off its investment in Logos to its current market value.
The transaction resulted in a loss of $625,960 in 1994, and a further loss
of $46,305 in 1995. The remainder of 10,420 shares is $2,605. During the
fiscal year 1996 all the remaining shares were sold for $34,996.
NOTE 4 - INCOME TAXES
The provision or benefit for income taxes is based on pretax loss reported in
the consolidated financial statements. The tax effect of temporary
differences generating Federal income tax is summarized as follows:
F-14
<PAGE>
C.E.C. INDUSTRIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995, AND 1994
1996 1995 1994
Tax Benefit at Statutory Rate $ 1,250,413 $ 639,293 $ 103,891
Surtax Amount (35,636) (18,266) (2,968)
Valuation Allowance for Benefit of Net
Operating Loss Carry forward Not
Recognized And Other Items. (1,214,777) (621,027) (100,923)
----------- --------- ---------
Total $ -0- $ -0- $ -0-
=========== ========= =========
A reconciliation of the Federal statutory income tax rate to the effective
income tax rate based on income tax follows:
1996 1995 1994
Statutory Rate 35% 35% 35%
Surtax Amount (1) (1) (1)
Decrease in Tax Rate Resulting From:
Net Operating Loss Limitation and Other (34) (34) (34)
--- --- ---
0% 0% 0%
=== === ===
The tax net operating loss carry forward at March 31, 1994, 1995, and 1996
was approximately $272,425, $1,990,171 and $3,273,484 respectively,
expiring through 2011. The valuation allowance has increased to $621,027
from March 31, 1994 to March 31, 1995, and has increased to $1,214,777 from
March 31, 1995 to March 31, 1996.
The temporary differences and tax carry forwards which created deferred tax
assets and liabilities at March 31, 1996 are detailed below:
Deferred Tax Assets:
Write down of Assets $ 249,820
Net Operating Loss 1,959,719
Total Deferred Tax Assets 2,209,791
Valuation Allowance (2,209,791)
------------
Net Deferred Tax Asset $ -0-
============
NOTE 5 - RELATED PARTIES
During the year 1996, George Matthews, the former President of the Company
and current President of CEI received 131,000 shares of common stock,
pursuant to and employment contract, in lieu of paid salary in the amount
of $65,500. During fiscal 1995, George Matthews, the former President of
the Company and current President of CEI borrowed $50,000 from the Company,
whose loan was paid off during the same fiscal year. George Matthews
received in fiscal 1996, pursuant to an employment contract a stock bonus
of 262,000 shares of Rule 144 stock valued at $91,000 and accrued at March
31, 1995. In fiscal 1995, Mr. Matthews also received a $50,000 cash bonus.
F-15
<PAGE>
C.E.C. INDUSTRIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995, AND 1994
Directors of the Company received S-8 stock issued as director
compensation, 2,500 shares per quarter, per director.
The President, Secretary, and Treasurer of the Company receive a monthly
salary of $8,333 per month, which, in the event of a lack of cash available
for the payment of such sums, accrues, and or is paid pursuant to the
issuance of S-8 stock. As of March 31,1996 and 1995, $125,788 and $151,670
is accrued for such salaries.
Prior to the company's acquisition of Sterling Travel, Laurie Doll, the
President, and at the time, sole shareholder of Sterling Travel, borrowed
at different times, money from Sterling Travel, which sums totaled $14,547
as of March 31, 1995. During the fiscal year 1996, the purchase agreement
with Sterling Travel was canceled due to non performance by Sterling Travel.
On November 14, 1995, the Company sold 80.5 acres of land in St. George,
Utah to DSM Golf Enterprises, Inc. and its agent Charles McHaffie in
exchange for a not in the amount of $1,200,000 that is due November 14,
1999, with interest payable at 10% per annum. The not is collateralized by
2,100,000 preferred shares of the Company's preferred $.001 par value stock,
redeemable at $.50 per share.
During 1996, the Company exchanged option on 600,000 shares of its common
stock at $.30 or $180,000, for notes in the amounts of $90,000 each to
Donald Stoecklein and Ronald Stoecklein. The notes are due in one year
with interest payable at 6% per annum.
Accrued interest - related parties represents accrued interest on notes
receivable at March 31, 1996 in the amount of $46,554.
Notes payable - related parties represents loans from DSM Golf Enterprises,
Inc. in the amount of $52,000, Charles McHaffie in the amount of $27,100,
and Victory Village Ltd. III in the mount of $120,700 for general overhead.
All of the notes are no interest demand notes. The note in the amount of
$382,310 is payable to O.T.S. Holdings, Inc. and is a demand note with
interest payable at 8% per annum. The not was assumed in connection with
the acquisition on March 31, 1996 of Mid-Nevada Art, Inc., Basia Holding,
Inc. and 100% interest in oil and gas leases.
NOTE 6 - STOCK OPTIONS
The Company has issued stock options to various directors, officers and
employees. The option prices are based on the fair market value of the
stock at the date of grant. The Company makes no charge to operations in
relation to option grants.
The Company's stock option transactions for the years ended March 31, 1996,
1995, and 1994 are summarized as follows:
F-16
<PAGE>
C.E.C. INDUSTRIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995, AND 1994
Number of Option
Shares Price
Options Outstanding and Exercisable
at March 31, 1993 35,000 $1.25-12.50
Options Canceled in 1994 (5,000) 5.00
Options Granted in 1994 1,200,000 1.375
Options Outstanding and Exercisable ----------
at March 31, 1994 1,230,000 1.25-12.50
Options Canceled in 1995 (5,000) 12.50
Options Outstanding and Exercisable ----------
at March 31, 1995 1,225,000 1.25-12.50
Options granted in 1996 4,900,000 .20-.50
Options exercised in 1996 (600,000) 5.00
Options Outstanding and Exercisable ----------
at March 31, 1996 $5,525,000 .50-5.00
NOTE 7 - RETIREMENT PLAN
The Company has established a qualified plan under Section 401(k) of the
Internal Revenue Code as a retirement plan for all employees who elect to
participate. The Plan allows the Company to contribute up to 100% of the
employees' contributions (limited to 10% of the employees' annual salary)
to the retirement plan. The Plan's fiscal year is July 1 to June 30.
During 1995 and 1994, the Company issued 22,595 and 3,392 shares of
treasury stock valued $5,649 and $5,300, respectively, as a matching
contribution to the retirement plan. No contributions were made in 1993.
The Company's expense relating to this plan for the years ended March 31,
1995 and 1994 was $5,649 and $5,300, respectively. All contributions and
expenses relating to the plan were paid in treasury stock. Also in 1995 t
he Company issued 22,595 shares of treasury stock valued at $5,649 as
employee compensation. During the year 1996, the 401-K plan was canceled
and 100% distribution was made to all employees.
NOTE 8 - COMMITMENTS & CONTINGENCIES
The Company's subsidiary, Custom Environmental International ("CEI"), filed
suit in the United States District Court for the Central Division of Utah,
Custom Environmental International, a Utah corporation, Plaintiff vs.
Lockheed-Haggerty Engineering & Manufacturing Co., Ltd., a Canadian
corporation, Defendant, Case No. 2:95CV0153B, in which CEI is claiming an
infringement of CEI's patent. The Defendant has responded to the complaint
by (I) requesting and extension of time to file a responsive pleading and
(ii) making an offer of settlement which has been rejected.
The Company executed a contract for the acquisition of certain medical
technology from Bio-Sphere Technology in April of 1994, and subsequently
entered into a distribution agreement
F-17
<PAGE>
C.E.C. INDUSTRIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995, AND 1994
with an unrelated company. Bio-Sphere, in January of 1995, attempted to
rescind the agreement of April 1994. The Company, during the year 1996
agreed to rescind the contract and cancel the preferred shares issued in
connection therewith.
Fernando Aldecoa, et. al. v. Softpoint, Inc., United States District Court,
Southern District of California, Case Number 951654H(LSP). An action
brought by shareholders of another public company wherein C.E.C. Industries
Corp. is alleged to be an alter ego of the other public company.
Independent counsel for the Company, selected by the Company's insurance
company, is handling the litigation, which is not anticipated to result in
a judgment against the Company.
The Walter Company v. McHaffie, et. al., Superior Court of the State of
California for the County of Los Angeles, Case Number BC 135322. An action
brought by the owners of real property alleging improper title, wherein
C.E.C. Industries Corp. is a limited partner. The real property relates to
the underlying land for the development and construction of the 320 unit
apartment project which was financed by HUD, whose title report provided
proper title to the limited partnership who owns the real property.
Counsel for the Company is of the opinion that the Company's status as a
limited partner should be up-held and thus the Company should avoid
any liability under the lawsuit.
As of the date hereof, the Company is not aware of any other material legal
proceedings, pending or contemplated, to which the Company is, or would be,
a party of which any of its property is, or would be the subject.
The Company leases office space, certain office equipment and storage
space. C.E.C. rents 1,869 sq. ft. of office space and 1,310 sq. ft. of
warehouse space for CEI at 350 West 300 South, Salt Lake City, Utah 84101,
these leases expired May 31, 1996 and are continuing to be leased on a
month to month basis. 2,622 sq.ft. of office space for its executive
offices at 23 Cactus Garden Drive, F-60, Green Valley, Nevada, this is a
three year lease which expires June 30, 1997; and 2,999 sq. ft. of office
space for Sterling Travel at 2200 N.W., Suite 220, Boca Raton, Florida,
this is a three year lease which expires July 31, 1997. Lease expense for
the years ended March 31, 1996, March 31, 1995, and March 31, 1994 was
$65,523, $42,030, and $8,615 respectively. Future minimum lease
obligations are as follows:
Fiscal Year Ended March 31, 1997 $ 55,080
Fiscal Year Ended March 31, 1998 34,608
Fiscal Year Ended March 31, 1999 3,410
F-18
<PAGE>
C.E.C. INDUSTRIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995, AND 1994
NOTE 9 - SEGMENT INFORMATION AND MAJOR CUSTOMERS
<TABLE>
<CAPTION>
Segment Information for Fiscal 1996
CEC Moonridge CEI
Real estate Apartment Oil
Development Construction Royalties Other Total
<S> <C> <C> <C> <C> <C>
Revenues $ 1,263,854 $1,187,207 $ 13,191 $ 0 $ 2,534,252
Income/Loss (788,374) (312,509) (335,507) 0 (1,621,359)
Identifiable Assets 7,157,395 1,115,223 295,613 2,545,520 11,115,648
Depreciation 9,049 6,214 7,267 0 22,530
<CAPTION>
Segment Information for Fiscal 1995
<S> <C> <C> <C> <C> <C>
Revenues $ 19,105 $ 0 $ 3,173 $ 65,223 $ 87,501
Income/Loss (1,717,924) (17,170) (96,276) 4,819 (1,826,551)
Identifiable Assets 2,197,457 3,772,280 305,957 49,289 6,274,983
Depreciation 4,261 2,036 8,450 58 13,805
</TABLE>
Major Customers Year Ended Year Ended Year Ended
March 31, March 31, March 31,
1996 1995 1994
Customer A 47% None 38%
Customer B 47% None 47%
Customer D None None None
Revenue from Customer A represents a single land sale. It is anticipated
that revenues earned in the coming year will be to several customers. If
no sales are generated during the coming year the only expense to the
Company would be property taxes and interest expense of approximately
$300,000 on the note that financed the acquisition and development of the
land. Revenues from Customer B represents a single construction contract.
However, the contract is a percentage-of-completion contract and will
continue to be completed during the year 1997.
NOTE 10 - REVERSE STOCK SPLIT
On September 30, 1992, the Company consummated a 1:10 reverse stock split.
The reverse stock split also reduced the outstanding stock options on the
same basis of 1:10.
F-19
<PAGE>
C.E.C. INDUSTRIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995, AND 1994
NOTE 11 - NOTES PAYABLE & LINES OF CREDIT
On February 4, 1994, the Company purchased approximately 23.91 acres of
undeveloped land in Las Vegas, Nevada, for $3,327,158 which included three
separate parcels; 15.24 acres, 1.39 acres, and 7.28 acres. At the same
time, the Company borrowed $1,800,000 utilizing the approximate 23.91 acres
as collateral for the loan, to meet the down payment, closing costs of
$904,692, and providing a balance for development proceeds. As additional
consideration, the Company issued 600,000 shares of preferred stock (Note
12). The note for $1,800,000 was initially due on February 4, 1995,
however, it was subsequently extended to February 4, 1996 after payment of
extension fees and late fees of $50,000 in fiscal 1995, with an additional
$100,000 being added to principal in fiscal 1996. Further, pursuant to the
terms of the note, the Company is obligated to pay principal payments of
$150,000 per month until a total of $800,000 is paid as principal reduction
on the total loan amount. The note further provides that in the event
that payments are not paid when due, the Company incurs a late charge of
10%. An additional extension fee was added to the principal during 1996
as part of the agreement to renew the note. The Company continues to be
delinquent in its agree payment schedule as March, 1996. The annual
interest is 12.5% and is payable monthly.
On March 31, 1995, the Company executed a construction loan agreement for
$3,000,000 with Bank of America, which loan is collateralized by 7.28
acres of property owned by the Company. The proceeds of the loan are being
utilized for the construction of a mini-storage project. At year end there
was a balance due of $41,351 due to bank fees. The principal balance of the
mini-storage loan bears interest at the per annum rate of interest publicly
announced from time to time by Bank of America National Trust and Savings
Association in San Francisco, California, plus one and one-half percentage
(1.5%) points. The mini-storage loan converts from a construction loan to
a permanent loan upon completion of construction and upon reaching certain
debt coverage ratio requirements. In the event the company does not meet
the debt coverage ratio, the Bank of America may elect, in its sole
discretion, to either refuse to convert the loan indebtedness to permanent
loan indebtedness, or to permit the conversion of such lesser amount
of the loan as will cause the debt coverage ratio to comply with the
minimum debt coverage ratio. As of March 31, 1996, the loan is in default.
The Compay is in the process of negotiating a solution with the bank.
On April 20, 1994, The Company purchased approximately 2.20 acres of
undeveloped land in Las Vegas, Nevada for $200,000. The Company paid
$100,000 cash and the seller carried a note for $100,000 with interest in
the amount of 8%, collateralized by the 2.20 acres, principal and interest
all being due by April 20, 1995. On June 28, 1995, the Company paid the
$100,000 note in full and borrowed $150,000 with interest in the amount of
14%, collateralized by the 2.20 acres, principal and interest all being due
June 28, 1996. The note was renewed during June, 1996.
F-20
<PAGE>
C.E.C. INDUSTRIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995, AND 1994
The Company, during fiscal year 1995, executed an agreement with Pioneer
Citizens Bank for an initial line of credit for $500,000 with a
compensating balance in the form of a certificate of deposit. As of March
31, 1995, the Pioneer Citizens Bank line of credit was increased to
$1,000,000 with a compensating balance in the form of certificates of
deposit in the sum of $1,000,000. Interest on the line of credit is 4.5%
per annum. The Company has drawn $825,000 down on the line of credit as of
March 31, 1995. During the fiscal year 1996 the Company drew down the
balance of the $1,000,000 line of credit. During February, 1996, the
Company paid down the line of credit $500,000. The balance of the line of
credit was paid off in May, 1996.
During the fourth quarter of fiscal 1995, the Company, through its wholly
owned subsidiary, borrowed $35,000 from IGLLC, an affiliate party, which
loan was utilized for the financing of the acquisition of a new GMC
Suburban vehicle utilized by the President of Moonridge. This note is
evidenced by a demand note bearing interest at the rate of 10%. During the
fiscal year, 1996, the note was assumed by DSM Golf Enterprises, Inc. under
the same terms and conditions.
As part of the acquisition on March 28, 1996, of Mid-Nevada Art, Inc.,
Basia Holding, Inc. and 100% interest in oil and gas leases, the Company
assumed a note payable to O.T.S. Holdings, Inc. in the amount of $382,311.
The note is payable on demand and includes interest payable at the rate of
8% per annum.
NOTE 12 - ACCRUED LIABILITIES - OTHER
The following is a summary of accrued liabilities - other at March 31, 1996
and 1995:
1996 1995
Accrued Interest $249,816 $ 30,325
Unearned Rentals 23,535 46,910
-------- ---------
Other Accrued Expenses $303,351 $107,235
NOTE 13- PREFERRED STOCK
During 1994, the Company amended its Articles of Incorporation authorizing
100,000,000 shares of preferred stock at a par value of $.001 per share.
On February 4, 1994, the Company issued 600,000 shares at $4.00 per share,
or $2,400,000 as additional consideration to purchase the unimproved land
in Las Vegas, Nevada (Note 11). The issued shares are designated as series
"A" preferred stock convertible, after two years (24 months), to common
stock at a guaranteed "bid" price of not less than $4.00 per share. In the
event said "bid" price is less than the stated $4.00 at the time in which
the shares are offered for conversion, additional common stock shares
will be issued to satisfy any shortfall. The preferred shares are
non-voting. In addition, C.E.C. Industries Corp. will have an option to
purchase 50% of said shares at a price of $8.00 per share.
F-21
<PAGE>
C.E.C. INDUSTRIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995, AND 1994
The option exercising period will be for 30 days following the two year
(24 month) period, but closing of the option will occur within 60 days from
the end of the two year period (24 months). On October 12, 1995, the
Company entered into a conversion agreement that canceled the 600,000
shares of preferred stock at a par value of $.001 and issued 4,200,000 of
new series "B" preferred stock at a par value of $.001, with a redemption
value of $.50 per share, at the option of the Company, which has attached
to the issue one vote per share, equal in value to one vote of common
stock and shall pay a cumulative dividend of 10% per year. Each preferred
share of Series "B" preferred stock shall have attached a warrant for 1/6
of a share of common stock which shall be exercisable prior to the four (4)
year redemption period for a redemption price of $0.20 per share of common
stock. If exercised by Holder these warrants will result in the issuance
of 700,000 shares of common stock for a price of $.20 per share or a total
price of $140,000.
On April 22, 1994, the Company entered into an agreement with Bio-Sphere
Technology wherein the Company issued 125,000 shares of preferred stock
for certain medical technology. The agreement called for the Company to
form two wholly owned subsidiaries, Microsphere Technology and Islet
Transplant Technology, for purposes of pursuing the development of the
technology. Subsequent to the issuance of the preferred shares to
Bio-Sphere, the Company was notified of an attempted unilateral recision by
Bio-Sphere of the agreement with C.E.C. (See Note 8). As a result, the
Company wrote down its investment in the medical technology which
amounted to $62,500. During 1996, the Company agreed to cancel the
agreement with Biosphere Technology, and accordingly, cancel the preferred
shares issued.
On January 18, 1995, the Company entered into an agreement with Lauri Doll
Gladstone wherein the company, in exchange for 100% of the outstanding
common stock of Sterling Travel, agreed to issue 400,000 shares of
preferred non-voting stock, convertible to common stock at a price of $5
per share. The shares are to issued pursuant to an earn-out provision. At
this time the preferred shares have not been issued to Lauri Doll
Gladstone. Results of operations from Sterling Travel have been accounted
for the period starting with March 1, 1995 and ending with fiscal year end
1995. The acquisition was accounted for utilizing the purchase method of
accounting. During 1996, the Company rescinded the purchase agreement with
Sterling Travel for nonperformance on the agreement. (See Note 12)
On June 7, 1995, the Company acquired a 24.5% limited partnership interest
in Victory Villages Ltd. III that is constructing a 320 unit apartment
project generlly known as Victory Village, in exchange for 1,200,000 shares
of rule 144 stock in the Company valued at $300,000. The shares are
restricted for resale for a period of two years, and 720,000 of the shares
are subject to a voting agreement wherein the COmpany directors vote the
shares. On June 10, 1995, an Amended and Restated Limited Partnership
Agreement of Victory Village Ltd. III Limited Paretnership was executed
with Moonridge Development Corp., a wholly owned subsidiary of the Company,
in which Moonridge Development Corp. became the 24.5% Limited Partner. (See
Note 14.)
F-22
<PAGE>
C.E.C. INDUSTRIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995, AND 1994
On November 14, 1995, the Company sold 80.5 acres of land in St. George,
Utah in exchange for a not in the amount of $1,200,000 that is due November
14, 1999, with interest payable at 10% per annum. The not is
collateralized by 2,100,000 preferred shares of the Company's preferred
$.001 par value stock, redemalble at $.50 per share.
During 1995, the Company issued 449,974 shares of S-8 stock for director,
employee, and consulting fees. During 1996, the Company issued 3,372,830
shares of S-8 stock for director, employee, and consulting fees as follows:
1,234,966 shares were issued as consulting fees; 500,000 S-8 shares were
options received by certain consultants; 300,000 shares of S-8 stock
were R.V. Jones' options and were exercised by the Company and given to
him as his construction fee for the Mission Valley Mini Storage project;
and the remainder of the S-8 stock was issued to directors, consultants,
and employees pursuant to the C.E.C. Industries Corp. 1995 Stock Award
Plan. George Matthews received 262,000 shares (See Note 5). Value of the
shares issued per the S-8 Registration was the bid price at the time of the
issue, ranging from $.56 to $.94 per share.
On March 28, 1996, the Company issued 8,663,041 shares of voting preferred
stock Series "A" par value $.001 and 8,660,000 shares of common stock par
value $.05 in exchange for 100% of the common stock of Mid-Nevada Art,
Inc., 100% of the common stock of Basia Holding, Inc., and 100% interest in
oil and gas leases. The shares were value at $1,361,474, $800,000 and
$1,231,250, respectively.
The transactions with Mid-Nevada Art, Inc., Basia Holding, Inc. and the
interest in oil and gas leases were accounted for as a reverse acquisition.
The fair value of the identifiable assets and liabilities were the same as
their book value. The assets and liabilities of Mid-Nevada Art, Inc.,
Basia Holding, Inc. and the interest in oil and gas leases were included
in the consolidated financial statements as of the close of their fiscal
year ended December 31, 1995, and accordingly, did not affect the operating
results of the Company for the year 1996. Additionally, there were no
operating results during the period January through March, 1996. There
were no contingent payments, option, or commitments specified in the
acquisition agreement.
F-23
<PAGE>
C.E.C. INDUSTRIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995, AND 1994
NOTE 14 - SUBSEQUENT EVENTS
On May 29, 1996, the Company entered into and completed a mutual release
and hold harmless agreement with the management of Moonridge Development
Corp. And DSM Golf Enterprises, Inc., including Charles McHaffie, its
agent, wherein a 100% of the outstanding stock of Moonridge Development
Corp. Was issued in exchange for a full release of any and all
liabilities and the transfer of the 24.5% limited partnership interest in
Victory Village Associates, LTD. III to the Company.
On June 15, 1996, the Company entered into a purchase agreement with Auto
Express, Inc. wherein the Company purchased 100% of the issued and
outstanding shares of Auto Express, Inc. The agreement was completed on
June 28, 1996. Auto Express, Inc. is involved in the business of
transporting vehicles acres the United States for major businesses as well as
consumers. The transaction will be accounted for as a purchase.
On June 27, 1996, the Company entered into an Exchange Agreement with One
World Cards, Inc. & Bruce Perlowin, its President for 278 - $10,000 prepaid
long distance calling cards at a rate of approximately $0.45 per minute or
better and an expiration date of five (5) years from the date for closing
in exchange for 18 original art works by Sky M. Jones with appraisal books and
appraisals totaling $2,779,700 owned by the Company's wholly owned
subsidiary Mid-Nevada Art, Inc.
On June 27, 1996, the Company entered into an Exchange Agreement with One
World Cards, Inc. & Bruce Perlowin, its President for 3 - $100,000 pre paid
long distance calling cards at a rate of $0.45 per minute or better with
no expiration date and 45 - $10,000 prepaid long distance calling cards at
a rate of approximately $0.45 per minute or better and an expiration date
of five (5) years from the date for closing in exchange for 12 original art
works by Sky M. Jones with appraisal books and appraisals totaling $750,000
owned by the Company's wholly owned subsidiary Mid-Nevada Art, Inc.
F-24
C.E.C. INDUSTRIES CORP.
23 Cactus Garden Drive, F-60
Henderson, NV 89014
Telephone (702) 893-4747
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
August 21, 1996
TO THE SHAREHOLDERS OF C.E.C. INDUSTRIES CORP.
The annual meeting of the shareholders of C.E.C. Industries Corp.
will be held at the Company's executive offices, 23 Cactus Garden Drive,
Suite F-60, Henderson, Nevada, on August 21, 1996, at 9:00 a.m. Pacific
Daylight Time, for the following purposes.
1. To elect five directors to serve until the next annual meeting
and until their successors are elected and qualified; and,
2. To transact any other business that may properly come
before the meeting or any adjournment of the meeting.
Shareholders of record at the close of business on June 21, 1996,
are entitled to notice of and to vote at the meeting. The Company's proxy
statement and its 1996 annual report to shareholders
accompany this notice.
All shareholders are invited to attend the meeting in person.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON,
PLEASE SIGN THE ENCLOSED PROXY CARD AND RETURN IT AS SOON AS POSSIBLE.
By Order of the Board of Directors,
/s/Gerald H. Levine
Gerald H. Levine
Chief Executive Officer and President
June 26, 1996
P-1
<PAGE>
C.E.C. INDUSTRIES CORP.
23 Cactus Garden Drive, F-60
Henderson, NV 89014
Telephone (702) 893-4747
PROXY STATEMENT
For the Annual Meeting of Shareholders
to be held August 21, 1996
MATTERS TO BE CONSIDERED
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of C.E.C. Industries Corp. (the
"Company") of proxies for use at the annual meeting of the shareholders of
the Company, or any adjournments thereof. The meeting will be held at the
Company's executive offices, 23 Cactus Garden Drive, Suite F-60, Henderson,
Nevada, on August 21, 1996, at 9:00 a.m. Pacific Daylight Time, to elect
five directors to serve until the next annual meeting and until their
successors are elected and qualified.
Management knows of no other business that may properly come before
the meeting. The above matter requires for its approval the affirmative
vote of a majority of the shares represented at a meeting at which a quorum
is present.
SOLICITATION OF PROXIES
Enclosed is a proxy card for use in voting shares of Common Stock
in the Company by proxy at the annual meeting of shareholders.
Unless otherwise indicated on the proxy, shares represented at the meeting
by a properly executed proxy, received by the Company in advance of the
meeting, will be voted for each of the nominees for Director shown on the
proxy card. Where a shareholder specifies on a proxy how the shares
represented by the proxy are to be voted, the shares will be voted in
accordance with the specifications made. Any proxy given by a shareholder
may be revoked by the shareholder at any time prior to its use by filing a
written revocation with the Secretary of the Company,
by filing a proxy, duly executed, with the Secretary of the Company bearing
a later date, or by attending the meeting and voting in person.
Attendance at the meeting, in and of itself, will not constitute
revocation of a previously submitted proxy.
VOTING SECURITIES
The securities entitled to vote at the meeting consist of shares of
Common Stock of the Company, par value $0.05. Each share of Common Stock is
entitled to one vote. Only shareholders of record at the close of business
on June 21, 1996, are entitled to notice of and to vote at the meeting
and any adjournment thereof. The number of outstanding shares at the close
of business on June 21, 1996, was 16,431,795 held by approximately 1,728
shareholders.
This Proxy Statement is being mailed to shareholders beginning July
8, 1996.
P-2
<PAGE>
BENEFICIAL STOCK OWNERSHIP
The following table sets forth, as of June 21, 1996, Common Stock
ownership of (1) the directors of the Company, (2) the only persons known to
management to be the beneficial owners of more than five percent of the
Common Stock of the Company, and (3) the Company's directors and officers as
a group:
Amount and Options
Nature of or Other
Title of Name and Address Beneficial Percent Beneficial
Class of Beneficial Owner(1) Ownership of Class Owners(2)(3)
Common Gerald H. Levine 0 0%
Common Marie A. Levine 0 0%
Common Alvin B. Green 30,000 .0018%
Common Janice E. Smith 0 0%
Common Ralph Mann 20,000 .0012%
Common O.T.S. Holdings, Inc. 7,794,000 47%
4535 W. Sahara
Suite 105 13B
Las Vegas, Nevada 89102
Common DSM Golf Enterprises, Inc. 1,200,000 7% 720,000(proxy)
1350 E. Flamingo Rd. #246
Las Vegas, NV 89119
Common Wire To Wire, Inc. 1,414,667 9%
4535 W. Sahara
Suite 105 13B
Las Vegas, Nevada 89102
Common Directors and Officers 50,000 .003%
as a group (5 persons)
(1) Addresses are furnished only for those beneficial owners of 5% or
more of the Company's Common Stock.
(2) All beneficial owners have sole voting and investment power over all
of the shares they own, except as indicated in column five and these footnotes.
(3) The amounts in column three include the amounts in column five.
P-3
<PAGE>
ELECTION OF DIRECTORS
Five directors are to be elected to the Board of Directors for one
year to serve until the 1997 annual meeting of shareholders and until their
successors are elected and qualified.
If one or more of the nominees should at the time of the meeting
be unable or unwilling to serve, the shareholders may vote for other nominees
and for any substitute nominee or nominees designated by the Board of
Directors. None of the Directors knows of any reason why the five
nominees named would be unavailable to serve. The following table sets forth
information regarding each nominee.
All Positions Years Served
and Offices as Director
Name With C.E.C. Age Of the Company
Gerald H. Levine President, Chief Executive
Officer & Director 63 0*
& Director
Marie A. Levine Principal Financial Officer, 49 0*
Prinicipal Accounting Officer
& Director
Alvin B. Green Director 65 0*
Janice E. Smith Director 47 0*
Ralph Mann Director 0*
* All Officers and Directors took Office on March 28, 1996.
BOARD OF DIRECTORS MEETINGS AND COMPENSATION
Board Meetings
The Board of Directors met 12 times during the fiscal year ended
March 31, 1996. The Board does not have an audit, a compensation nor a
nominating committee.
Director Compensation
For serving on the Board of Directors, each director of the Company
is paid an amount of money per meeting established from time to time by
resolution of the Board of Directors, or the equivalent in common stock in
the Company.
IDENTIFICATION OF EXECUTIVE OFFICERS
The Company's executive officers are elected annually at the first
meeting of the Board of Directors following each annual shareholders
meeting. The Company's executive officers as of June 26, 1996, were as
follows:
Name Age Position
Gerald H. Levine 63 President & Chief Executive Officer
Marie A. Levine 49 Principal Financial Officer, Principal
Accounting Officer & Secretary/Treasurer
P-4
<PAGE>
Summary Compensation
The compensation which the Company paid to the President for services
in all capacities and for the fiscal years indicated, was as follows:
Name and Principal Position Year Salary Other
Gerald H. Levine, President 1996 $0
George Matthews, President 1996 $0
Richard Cope, President 1996 $0
Ronald J. Robinson, President 1995 $100,000
Donald J. Stoecklein, Secretary 1995 $100,000
Ronald G. Stoecklein, Treasurer 1995 $100,000
George A. Matthews, President 1994 $81,250 $4,800**
George A. Matthews, President 1993 $55,000
**Company's contribution to the Savings and Protection Plan.
Insider Participation in Compensation Decisions
The Company has no separate Compensation Committee; the entire Board
of Directors makes decisions regarding executive compensation. Two of the
five directors are officers of the Company. Gerald H. Levine is the
President and a director and Marie A. Levine is the Secretary/Treasurer and a
Director. Both of them participated in deliberations of the Company's Board
of Directors concerning executive officer compensation.
Board of Directors Report on Executive Compensation
The Board of Directors has no existing policy with respect to the
specific relationship of corporate performance to executive compensation.
Since the Company's sale, effective December 31, 1990, of all of the
Company's assets relating to its then primary active business of engineering
consulting and customized minerals processing, the Board has set executive
compensation at what the Board considered to be the minimal levels necessary
to retain and compensate the officers of the company for their activities
on the Company's behalf.
Gerald H. Levine
Marie A. Levine
Alvin B. Green
Janice E. Smith
Ralph Mann
P-5
<PAGE>
EMPLOYEE BENEFIT PLAN
Effective February, 1996, the Savings and Protection Plan (the
"Savings Plan") was terminated by C.E.C. Management Corp.
1987 NONQUALIFIED STOCK OPTION PLAN
The Company has a 1987 Nonqualified Stock Option Plan (the
"NSOP"). The NSOP is administered by a committee of three persons
appointed by the Board of Directors. Eligible participants include
the Company's employees and directors who are not members of the committee
(and have not been for a least one year). The numbers and terms of the
options granted to each participant are determined by the committee.
There are an aggregate of 100,000 shares of the Company's Common
Stock available for the granting of options under the NSOP. The option price
per share may not be less than the Common Stock's par value of $0.05. No
portion of an option my be exercised until two years from the date of its grant.
SELECTION OF AUDITORS
The Board of Directors selected William Clancy, Certified Public
Accountant, as the independent auditor to examine the Company's financial
statements for the fiscal year ended March 31, 1996. The Company
anticipates that Mr. Clancey is expected to be present at the
shareholders meeting to answer any questions.
PROPOSALS OF SHAREHOLDERS FOR 1997 ANNUAL MEETING
Proposals of shareholders intended to be presented at the 1997
annual shareholders' meeting must be received by the Corporate
Secretary, C.E.C. Industries Corp., 23 Cactus Garden Drive, F-60,
Henderson, Nevada, prior to April 1, 1997.
OTHER MATTERS
Management knows of no other matters that are likely to be
brought before the meeting.
EXPENSES OF PROXY SOLICITATION
The principal solicitation of proxies will be made by mail.
However, certain officers of the Company, none of whom will be compensated
therefor, may solicit proxies by letter, telephone or personal solicitation.
Expenses of distributing this Proxy Statement to shareholders, which may
include reimbursements to banks, brokers and other custodians for their
expenses in forwarding this Proxy Statement, will be borne exclusively by the
Company.
PLEASE SIGN, DATE AND RETURN THE ACCOMPANYING PROXY AT YOUR
EARLIEST CONVENIENCE, WHETHER OR NOT YOU CURRENTLY PLAN TO ATTEND
THE MEETING.
/s/Marie A. Levine
Marie A. Levine
Secretary
P-6
<PAGE>
C.E.C. INDUSTRIES CORP.
PROXY
Annual Meeting of Shareholders
August 21, 1996
The undersigned appoints The Board of Directors of C.E.C.
Industries Corp. with full power of substitution, the attorney and proxy of
the undersigned, to attend the annual meeting of shareholders of C.E.C.
Industries Corp., to be held August 21, 1996, beginning at 9:00 a.m.,
Pacific Daylight Time, at the Company's executive offices located at 23
Cactus Garden Drive, F-60, Henderson, Nevada and at any adjournment thereof,
and to vote the stock the undersigned would be entitled to vote if personally
present, on all matters set forth in the Proxy Statement to Shareholders
dated June 26, 1996, a copy of which has been received by the
undersigned, as follows:
1. Vote [ ] Withhold Vote [ ]
for the election of the following five nominees as directors of the
Company, to serve until the next annual meeting and until their
successors are elected and qualify: Gerald H. Levine, Marie A.
Levine, Alvin B. Green, Janice E. Smith, and Ralph Mann. Please
indicate the names of those for whom you are withholding your vote:
2. In his discretion, upon any other matter that may properly come
before the meeting or any adjournment hereof.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFIC
INDICATIONS ABOVE. IN THE ABSENCE OF SUCH INDICATIONS, THIS PROXY, IF
OTHERWISE DULY EXECUTED, WILL BE VOTED FOR EACH OF THE MATTERS SET
FORTH ABOVE.
Date ___________________________, 1996 Number of Shares________________
Please sign exactly as
your name appears on
your stock certificate(s)
If your stock is issued in Signature
the names of two or moe Print Name Here:
persons, all of them must
sign this proxy. If signing
in representative capacity,
please indicate your title.
Signature
Print Name Here:
PLEASE SIGN AND RETURN THIS PROXY PRIOR TO AUGUST 12, 1996.
P-7
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 3276
<SECURITIES> 0
<RECEIVABLES> 543566
<ALLOWANCES> 0
<INVENTORY> 181199
<CURRENT-ASSETS> 1292156
<PP&E> 148478
<DEPRECIATION> (89213)
<TOTAL-ASSETS> 11115648
<CURRENT-LIABILITIES> 4676613
<BONDS> 0
<COMMON> 15671795
0
13063041
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 11115648
<SALES> 2387608
<TOTAL-REVENUES> 2534252
<CGS> 2245683
<TOTAL-COSTS> 1253743
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 520551
<INCOME-PRETAX> (387237)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1352411)
<DISCONTINUED> (238948)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1621359
<EPS-PRIMARY> (10)
<EPS-DILUTED> (.08)
</TABLE>
