<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996 COMMISSION FILE NO. 2-91651-D
PEACOCK FINANCIAL
CORPORATION
COLORADO 87-0410039
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
1600 EAST FLORIDA AVENUE
SUITE 306
HEMET, CA 92544
(ADDRESS AND ZIP CODE OF PRINCIPAL EXECUTIVE OFFICES)
(909) 925-6469
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) 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.
[X] YES [ ] NO
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
COMMON STOCK 9,942,700 SHARES OUTSTANDING
$0.001 PAR VALUE AS OF JUNE 30, 1996
<PAGE>
PEACOCK FINANCIAL CORPORATION
REPORT ON FORM 10-Q
QUARTER ENDED JUNE 30, 1996
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
- CONDENSED CONSOLIDATED BALANCE SHEETS AS OF
MARCH 31, 1996, AND JUNE 30, 1996
- CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996, AND 1995
- CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY AS OF JUNE 30, 1996
- CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS AS OF MARCH 31, 1996, AND JUNE 30, 1996
- NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
ITEM 2. NOTES TO THE FINANCIAL STATEMENTS
ITEM 3. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
PART II. OTHER INFORMATION AND SIGNATURES
2
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PEACOCK FINANCIAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
QUARTER ENDED JUNE 30, 1996
ASSETS
JUNE 30, 1996 MARCH 31, 1996
(unaudited) (unaudited)
------------------------------
Current assets:
Cash and cash equivalents (Note 2) $24,311 $68,894
Restricted cash (Note 2) 0 0
Accounts receivable - related parties (Note 7) 42,435 27,871
Accounts receivable (Note 12) 415,000 0
Notes receivable net of allowance
for bad debt (Note 2) 940 940
------------------------------
Total Current Assets 482,686 97,705
------------------------------
Fixed assets:
Rental property, at cost, net of accumulated
depreciation of $721,243 and $635,468
respectively 8,302,269 8,366,916
Homebuilding and Development (Note 3) 697,531 198,655
Furniture and fixtures at cost, net of
accumulated depreciation of $145,453
and $144,261 respectively 29,675 31,658
------------------------------
Net Fixed Assets 9,029,475 8,597,229
------------------------------
Other assets:
Notes receivable - related parties (Note 7) 121,530 72,226
Notes receivable - shareholders 60,000 110,000
Intangible development costs (Note 10) 1,221,499 1,221,499
Investments in limited partnerships (Note 4) 0 0
Deferred charges (note 2) 54,910 47,456
Prepaid salary (Note 9) 211,358 208,358
Other assets 72,233 38,179
------------------------------
Total Other Assets 1,741,530 1,697,718
------------------------------
Total Assets $11,253,691 $10,392,652
------------------------------
------------------------------
The accompanying notes are an integral part of these financial statements.
3
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PEACOCK FINANCIAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
QUARTER ENDED JUNE 30, 1996
LIABILITIES AND EQUITY
June 30, 1996 March 31, 1996
(unaudited) (unaudited)
----------------------------
Current liabilities:
Accounts Payable - Administrative $144,748 $115,518
Other Current Liabilities - Administrative 76,775 51,313
Lines of credit (Note 5) 69,178 71,545
Note payable to Stockholder (Note 7) 16,857 16,857
----------------------------
Current Liabilities - Administrative 307,558 255,233
----------------------------
Accounts Payable - Rental Properties 347,005 $314,066
Accounts Payable - Homebuilding 51,238 $550
Other Current Liabilities - Rental Properties 221,669 8,884
Homebuilding Loans Payable 599,264 215,026
Notes payable - current portion (Note 6) 2,191,311 1,923,685
----------------------------
Current Liabilities - Rental and Homebuilding 3,410,487 2,462,211
----------------------------
Total Current Liabilities 3,718,045 2,717,444
----------------------------
Long-term liabilities
Notes Payable - Administration (Note 6) 406,794 289,917
Notes Payable - Rental Properties (Note 6) 8,051,291 8,209,446
Less Current Portion of Long-Term Liabilities (2,191,311) (1,923,685)
----------------------------
Total Long-term Debt 6,266,774 6,575,678
----------------------------
Total Liabilities 9,984,819 9,293,122
----------------------------
COMMITMENTS AND CONTINGENCIES (NOTE 10) 0 0
----------------------------
STOCKHOLDERS' EQUITY
Common stock, 250,000,000 and Class A Preferred
10,000,000 authorized, par value $.001
and $.01; 9,942,700 Common and 672,300
Class A Preferred issued (Note 13) 10,615 10,615
Additional paid-in capital 2,421,496 2,421,496
Accumulated deficit (1,163,239) (1,332,581)
----------------------------
Total Stockholders' Equity 1,268,872 1,099,530
----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $11,253,691 $10,392,652
----------------------------
----------------------------
The accompanying notes are an integral part of these financial statements.
4
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PEACOCK FINANCIAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
QUARTER ENDED JUNE 30, 1996
Three Months ended June 30.
1996 1995
---------- ----------
(unaudited) (unaudited)
Revenues:
Rental income 352,604 296,873
Property management income 8,130 89,662
Homebuilding administration income 54,360
Homebuilding income 422,127 0
Administrative income 750
Commissions income 618 29,065
Other income 422,268 (1,374)
---------- ----------
Total Revenues 1,260,857 414,226
---------- ----------
Expenses
Depreciation and amortization 104,838 79,242
General and administrative 179,852 156,669
Homebuilding Costs 422,127 0
Property operation and administration 177,758 171,892
---------- ----------
Total Expenses 884,575 407,803
---------- ----------
Income (loss) from operations 376,282 6,423
---------- ----------
Other income (expense)
Interest income 563 597
Interest expense (206,703) (82,080)
---------- ----------
Total Other Income (Expense) (206,140) (81,483)
---------- ----------
Income (loss) before taxes 170,142 (75,060)
Income Taxes (800) (800)
---------- ----------
Net income (loss) $169,342 ($75,860)
---------- ----------
---------- ----------
Net income (loss) per share $0.02 ($0.02)
---------- ----------
---------- ----------
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
PEACOCK FINANCIAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
QUARTER ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
Common Stock Additional
------------------------- Paid-in Accumulated
Shares Amount Capital Deficit
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, March 31, 1994 2,136,304 $2,136 $1,910,998 ($345,718)
Stock issued for services 848,696 849 7,638 -
Accrued dividends - - (10,200) -
Class B stock issued for debt 184,900 185 369,800 -
Class B stock issued for cash 16,250 16 32,299 -
Stock offering costs charged to
paid-in capital - - (69,080) -
Net income (loss) for the year
ended March 31, 1995 (321,864)
---------- ---------- ---------- ----------
Balance, March 31, 1995 3,186,150 $3,186 $2,241,455 ($667,582)
Class A stock issued for services 20,000 20 19,980 -
Class B stock issued for cash 50,000 50 99,950 -
Accrued dividends - - (34,486) -
Net income (loss) for the period from
April 1, 1995 through December 31, 1995 - - - (547,285)
---------- ---------- ---------- ----------
Balance, December 31, 1995 3,256,150 $3,256 $2,326,899 ($1,214,867)
Class A stock turned in at time of merger (2,920,000) (2,920) 2,920
Common Stock issued at merger (restricted) 8,867,700 8,888 93,088
Common Stock issued at merger (unrestricted) 1,075,000 1,075 (1,075)
Class B stock turned in at time of merger (336,150) (336) 336
Class A Preferred Stock issued at merger
(restricted) 672,300 672 (672)
Net income (loss) for the period from
January 1, 1996 through March 31, 1996 (117,714)
---------- ---------- ---------- ----------
Balance at March 31, 1996 10,615,000 $10,615 $2,421,496 ($1,332,581)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net Income (loss) for the period from
April 1, 1996 through June 30, 1996 169,342
---------- ---------- ---------- ----------
Balance at June 30, 1996 10,615,000 10,615 2,421,496 (1,163,239)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
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PEACOCK FINANCIAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
QUARTER ENDED JUNE 30, 1996
June 30, March 31,
1996 1996
-----------------------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) 169,342 ($117,714)
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities
Depreciation and amortization 104,838 86,967
Stock issued for Services - -
Changes in operating assets and liabilities - -
(Increase) decrease in restricted cash 0 144,049
Decrease (increase) in accounts and notes
receivable (428,868) (95,762)
Decrease (increase) in accounts
receivable - related parties (15,857)
Decrease (increase) in other assets (496,881) (198,654)
Increase (decrease) in accounts payable 112,857 18,255
Increase (decrease) in other liabilities 29,013 31,960
Increase (decrease) in Homebuilding Loans 599,264
---------- ----------
Net cash provided (used) by
Operating activities 89,565 (146,756)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (84,711) (206,347)
---------- ----------
Net cash provided (used) by
investing activities 4,854 (206,347)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of notes payable (43,645) (18,027)
Proceeds from long-term borrowings 0 215,026
Proceeds from stock offerings (5,792) 101,957
---------- ----------
Net cash provided (used) by
financing activities (49,437) $298,956
---------- ----------
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
PEACOCK FINANCIAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
QUARTER ENDED JUNE 30, 1996
June 30, March 31,
1996 1996
-------------------------
(unaudited) (unaudited)
NET INCREASE IN CASH (44,583) ($54,147)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 68,894 123,544
---------- ----------
CASH AND CASH EQUIVALENTS AT END
OF YEAR $24,311 $68,894
---------- ----------
---------- ----------
SUPPLEMENTAL DISCLOSURE OF
NON-CASH ACTIVITIES
Common Stock issued for Notes Receivable 0 $110,000
Common Stock issued for debt - -
Common Stock used for services - -
Property acquired for debt - -
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Interest paid, net of amount capitalized $188,338 $135,124
Income taxes paid - -
The accompanying notes are an intergral part of these financial statements
8
<PAGE>
PEACOCK FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
QUARTER ENDED JUNE 30, 1996
NOTE 1: BASIS OF PRESENTATION
GENERAL
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-Q. Therefore, they do not include
all information and footnotes necessary for a complete presentation of financial
position, results of operations, cash flows, and stockholders' equity in
conformity with generally accepted accounting principles. The Company (formerly
known as Connectivity and Technologies, Inc.), was formed on February 16, 1984.
Except as disclosed herein, there has been no material change in the information
disclosed in the notes to the financial statements included in the Company's
Form 8-K filed on February 8, 1996. In the opinion of Management, all
adjustments considered necessary for a fair presentation of the results of
operations and financial position have been included and all such adjustments
are of a normal recurring nature. Operating results for the quarter ended June
30, 1996, are not necessarily indicative of the results that can be expected for
the year ended December 31, 1996.
NOTE 2: STOCK SPLIT
At the Company's stockholder's meeting held on February 27, 1996, the
stockholders approved a two hundred (200) share for one (1) share reverse split
of the outstanding common shares from 215,000,000 to 1,075,000.
NOTE 3: SUBSEQUENT EVENTS
On March 27, 1996, an Acquisition Agreement and Plan of Reorganization,
dated February 27, 1996, was signed by and between the Company and Peacock
Financial Corporation ("Peacock") pursuant to which the Company acquired 100% of
the assets of Peacock, subject to liabilities, in exchange for 7,767,702 shares
of the Company's $.001 par value common stock, constituting 78% of the 8,842,702
common shares of the Company outstanding after the transaction; and 672,300 par
value $.01 preferred shares of the Company. A true and correct copy of the
Acquisition Agreement and Plan of Reorganization is included in the Company's
Form 8-K filed on February 8, 1996.
9
<PAGE>
PEACOCK FINANCIAL CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
QUARTER ENDED JUNE 30, 1996
ITEM 2
NOTE 1: COMPANY BACKGROUND
Peacock Financial Corporation (the Company), formerly known as Connectivity
and Technologies, Inc., is a Colorado corporation formed on February 16, 1984.
The Company's operations consist of three internal divisions focused on the
assemblage and entitlement processing of land for master-planned communities,
affordable home building and the acquisition and turnaround of distressed income
properties.
NOTE 2: SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
A. PARTNERSHIP INVESTMENTS
The Company's general and limited partnership interests are accounted
for using the equity method, which reflects historical costs adjusted for
the proportionate share of the partnership earnings or losses. The Company
has not recorded its share of losses in excess of its investment in each
partnership.
B. PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. The cost of property and
equipment is depreciated over the estimated useful lives of 30 years for
buildings and improvements and 5 to 6 years for furniture and equipment.
Expenditures for major renewals and betterments that extend the useful
lives of property and equipment are capitalized. Expenditures for
maintenance and repairs are charged to expense incurred.
During the period between January 1, 1996, and March 31, 1996, the
Company incurred interest of $36,104 on a construction loan. The interest
has been capitalized as part of the building improvements, but beginning
April 1, 1996, through June 30, 1996, interest has been expensed since
certificates of occupancy were issued.
C. INCOME TAXES
The Company provides for income taxes using the liability method under
Statement of Financial Account Standards No. 109. Deferred income taxes
arise principally from temporary differences for financial and tax
reporting purposes in depreciation methods.
The Company has not recorded income taxes in 1995 due to operating
losses and loss carryovers. The Company has net operating loss carryovers
of approximately $1,128,000 at December 31, 1995, which expire in the years
2007 and 2010.
D. CASH AND CASH EQUIVALENTS
Cash equivalents include short-term, highly liquid investments with
maturities of three months or less at the time of acquisition.
10
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E. PROFIT PER SHARE
The computations of profit or loss per share of common stock are based
on the weighted average number of shares outstanding at the date of the
financial statements.
F. NOTES RECEIVABLE
The notes receivable are interest bearing, unsecured loans to
individuals. An allowance for bad debt of $19,239 has been provided at
March 31 and June 30, 1996.
G. DEFERRED CHARGES
The Company has recorded the costs incurred in connection with its
stock offerings as a deferred charge. The costs will be charged against
paid-in capital upon completion of the stock offering.
NOTE 3: HOME BUILDING DEVELOPMENT
Land improvements and related property development costs have been
capitalized and will be amortized to the costs of the houses sold based upon the
total number of homes to be constructed in each project. The land and land
improvements are recorded at the lower of cost or net realizable value.
NOTE 4: INVESTMENTS IN LIMITED PARTNERSHIPS
In November 1990, the Company formed a limited partnership to acquire,
manage and develop certain real property referred to as the Carreon Professional
Building. The partnership acquired the property for $2,031,300 on November 30,
1990, for $581,300 in cash and a promissory note of $1,450,000 that bears
interest of 12, 12.5 and 13 percent per year for the first, second and third
years respectively. During the partnership year ended December 31, 1992, the
Company sold its remaining limited interest in the partnership. The Company
remains the general partner with a 1% interest in the partnership. The Company
received a property management fee through May 1995 when the property management
was turned over to a property management company. The Company accounts for its
remaining general interest using the equity method.
On June 29, 1992, the Company formed a limited partnership agreement to
acquire two apartment buildings to be repaired, developed and managed which are
referred to as the Riverside Park Apartments. The partnership acquired the
property for $3,350,000 on July 10, 1992, for $670,000 in cash and a promissory
note of $2,680,000. In July 1992, the partnership entered into an agreement
whereby the City of Riverside loaned the partnership $650,000 at 10.5 percent
interest. The loan will be forgiven by August 1, 2007. The debt and accrued
interest are forgiven at one-fifteenth of the original balance per year. The
agreement required the partnership to meet certain restrictive covenants. The
Company remains the general partner with a 1% interest and retains a property
management company to manage the property.
In December 1995, the Company formed a limited liability company to acquire
a 63-lot residential subdivision in the San Jacinto Valley. In February 1996,
this same entity purchased another 110-lot residential subdivision in the San
Jacinto Valley. The Company retains a 50% ownership in the limited liability
company and also receives an overhead fee for the construction and marketing of
the homes.
NOTE 5: LINES OF CREDIT
The Company had two separate lines of credit with banks at December 31,
1995, in the aggregate maximum amount of $250,000. Borrowings outstanding under
these lines of credit at December 31, 1995, were $43,320 and $29,975,
respectively. The credit lines bear interest at the bank's index rate plus 2
percent or 12 percent currently and expire on September 3, 1995, and July 1,
1999, respectively.
11
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NOTE 6: LONG-TERM DEBT
Long-term debt consists of the following: June 30, 1996 March 31, 1996
- --------------------------------------------------------------------------------
Note payable at 8% collateralized by deed
of trust on property, payable on monthly
principal and interest installments of
$16,390 with outstanding balance due
July 1998. $2,038,713 $2,046,873
Note payable at 12% collateralized by deed
of trust on buildings, payable in monthly
principal and interest installments of
$28,289 through December 1998. $2,722,606 $2,777,185
Note payable at 9.5% collateralized by
equipment, payable in monthly principal and
interest installments of $126 through
September 30, 1995. $9,778 $9,778
Note payable at a variable rate (11% at
December 31, 1995) collateralized by deed
of trust on real property. Lump sum payment
is due on October 21, 1998. $332,252 $332,252
Note payable at 10% unsecured. Due with
accrued interest on or before February 1,
1997. $3,747 $4,956
Note payable at 15% unsecured. Principal
due on or before November 30, 1996 with
interest due monthly. $241,520 $241,520
Note payable at 10% unsecured by deed of
trust, due March 31, 1996. $65,000 $65,000
Note payable at 10% unsecured with
outstanding balance and interest due June
30, 1996. $20,930 $20,930
Note payable at 7.5% collateralized by deed
of trust on real property, payable in
monthly installments of $2,100 including
interest due on June 30, 1997. $291,860 $292,678
Note payable at 12% unsecured, payable in
monthly installments of $354 including
interest, due January 1, 1997. $2,378 $3,347
Note payable at 3% collateralized by deed
of trust on real property due January 31,
2005 (Note 12) $975,000 $975,000
Note payable at 3% collateralized by deed
of trust on real property, payable in
monthly installments of $17,500 (interest
only), due November 1, 1996. 1,500,000 1,500,000
Others $254,301 $17,257
------------------------------
Total Long-Term Debt $8,458,085 $8,286,777
Less Current Portion $(2,191,311) (1,891,649)
------------------------------
Net Long-Term Debt $6,266,774 $6,395,127
------------------------------
------------------------------
12
<PAGE>
The aggregate principal maturities of notes payable are as follows:
YEARS ENDING DECEMBER 31
------------------------
1996 $1,891,648
1997 350,696
1998 5,069,531
1999 -
2000 975,000
----------
TOTAL $8,286,777
NOTE 7: RELATED PARTY TRANSACTIONS
The Company is a partner in several limited partnerships (Note 4). The
Company occasionally pays for operating expenses of the partnerships and is
reimbursed as funds become available to the partnerships. These advances are
non-interest bearing and are reimbursed on a regular basis.
In 1994, the Company paid a legal settlement on behalf of one of the
partnerships of which it is a partner. The payment has been recorded as a note
receivable from the partnership. The note is non-interest bearing and is due on
demand.
A stockholder has made a loan to the Company. The loan bears interest at 10
percent per annum and matures in March 1996. The balance outstanding at March
31, 1996, and June 30, 1996, is $16,857.
NOTE 8: PROFIT SHARING PLAN
In 1989, the Company adopted a profit sharing plan covering all eligible
employees. Contributions are made at the discretion of the Board of Directors.
There were no contributions to the plan for the period January 1, 1996, through
March 31, 1996, and the period from March 31, 1996, through June 30, 1996.
NOTE 9: PREPAID SALARY
The Company provided to an officer and stockholder a line of credit. Under
the terms of the line of credit the officer was advanced funds which accrue
interest at 6 percent per annum. The balance at December 31, 1995, has been
reclassified as prepaid salary and will be expensed at the rate of $50,000 per
year.
NOTE 10: COMMITMENTS AND CONTINGENCIES
A. GENERAL PARTNER OBLIGATIONS
The Company serves as general partner in several real estate
development partnerships. The Company may be held liable for certain
liabilities of these partnerships in its capacity as general partner. At
June 30, 1996, the partnerships had no liabilities with recourse against
the Company.
B. RENTS AND LEASES
The Company is renting office space on a month-to-month basis for
$1,775 per month. The Company is also leasing land in connection with its
222-space recreational vehicle park in Anaheim, California. The lease is
for 99 years from November 20, 1962. The payment is $7,067 per month.
13
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C. EMPLOYMENT CONTRACTS
Effective April 1, 1996, the Company has entered into one-year
employment contracts with its officers. The salary payable under the terms
of the contracts is $18,050 per month.
D. INTANGIBLE DEVELOPMENT COSTS - VISTA RAMONA
The Company has incurred costs associated with the development of a
residential housing project. The costs incurred have been for engineering
and planning for the project. The project encompasses 489 acres of land
containing approximately 1,800 residential lots. The Company controls 277
acres of the project through a joint venture. The remaining 212 acres are
controlled by a separate limited partnership which had filed Chapter 11
bankruptcy. The Company has reached an agreement with the lienholder of the
land to acquire the lienholder's interest in a note and deed of trust which
encumber the 212 acres for $1,500,000 cash. The Company has successfully
negotiated extension dates with the lienholder and the bankruptcy has been
dismissed by the court. If the 212 acres are not brought under the control
of the Company, there is some uncertainty as to the recoverability of all
development costs. The Company believes that, regardless of the outcome of
the attempt to gain control of the 212 acres, that more likely than not the
entire amount of the development costs will be recovered from the 277 acres
controlled through the joint venture.
NOTE 11: COMMON STOCK, PREFERRED STOCK AND WARRANTS
The Company has issued two classes of stock consisting of Common Stock and
Class A Preferred Stock. The Class A Preferred Stock comes with a warrant to
acquire additional shares of Common Stock. The Class A Preferred Stock has the
right to quarterly dividends to be paid at the annual rate of 3%. The quarterly
dividend is to be paid to all shareholders of record, as of the last day of each
quarter until such time as the Company causes such shares to be converted to
common shares and "registered" (free trading) with the SEC and the appropriate
State regulatory agency.
Each Class A Preferred Stock shall be converted into one share of the
common stock of the Company, such conversion to occur automatically and
registered concurrently with any public offering of common shares of the
Company.
Each share of Class A Preferred Stock comes with a warrant. Each Warrant
entitles the holder to purchase one share of the Common Stock at a price of
$2.20 per share, from the date of purchase until 180 days following the
completion of the Company's initial public offering of common stock, or
commencement of public trading therein. During the exercise period of the
Warrants, the Company, at its option, may call the Warrants for redemption on a
30-day prior written notice to Warrantholders of record at a redemption price of
$.05 per Warrant.
NOTE 12: APARTMENT COMPLEX ACQUISITION
In April 1995, the Company acquired a 120-unit apartment complex using a
$975,000 grant from the City of Riverside, California. If the Company meets
certain requirements pertaining to the complex, which have been stipulated by
the City, the grant will be forgiven in its entirety per the following schedule:
May 2002 10%
May 2003 20%
May 2004 30%
May 2005 40%
If the Company fails to meet the requirements, the entire unpaid principal
balance, together with accrued interest, will become immediately due and
payable.
14
<PAGE>
On May 1, 1996, the project was awarded Sate and Federal tax credits which
will allow for the Company to sell the project to a tax credit syndication and
retain 1% interest in the project as the managing partner of the tax credit
syndication partnership. Management has estimated the value of the tax credit
award to be $415,000. The tax credit partnership agreement should be finalized
during the third quarter of 1996.
NOTE 13: MERGER
On March 27, 1996, the Company acquired all the assets of Peacock Financial
Corporation, subject to its liabilities. Subsequently, the 8-K informational
filing was made to the Securities and Exchange Commission outlining the
acquisition and announcing the change of the name of the Company to Peacock
Financial Corporation.
15
<PAGE>
ITEM 3: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Peacock Financial Corporation, a developer in Southern California,
assembles and processes entitlement of land for master-planned communities,
builds entry-level homes and acquires distressed properties for rehabilitation.
The Company's most recent developments are near the Eastside Reservoir, a $3
billion project under construction in central Riverside County which will be the
largest lake in Southern California. Metropolitan Water District, the developer
of the project, estimates the reservoir-recreation complex will be completed in
2.5 years and will attract 1.8 million visitors annually.
RESULTS OF OPERATION
MATERIAL CHANGES IN FINANCIAL CONDITION
June 30, 1996, compared to March 31, 1996:
In May 1996, the Company was awarded a tax credit by the State of
California in relation to its Canyon Shadows apartments. In June 1996 the
Company entered into an agreement to sell 99% of its interest in Canyon Shadows
apartments and its tax credit to a group of investors. This agreement is
expected to be completed by the end of the third quarter.
MATERIAL CHANGES IN RESULTS OF OPERATION
Three months ended June 30, 1996, and 1995:
Revenue of the Company for the three months ended June 30, 1996, increased
$846,631 or 204% over the same period in 1995. This increase primarily is
attributable to two factors: home building construction which the Company
manages as a general partner for various entities, and income earned from the
State of California tax credit award in relation to the Canyon Shadows
apartments.
Income from operations for the three months ended June 30, 1996, increased
$369,356 over the same period in 1995 due to the State of California tax credit
award in relation to the Canyon Shadows apartments.
Administrative expenses for the three months ended June 30, 1996, increased
$23,686 or 15% over the same period in 1995. This increase is primarily
attributable to the home building construction management and supervision.
Depreciation and amortization expense for the three months ended June 30,
1996, increased $25,596 or 32% over the same period in 1995 due to the increase
in the number of rental properties.
16
<PAGE>
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
The Company is not involved in any litigation that would have a material
adverse effect on the Company; and the officers and directors are aware of no
threatened or pending litigation which would have a material, adverse effect on
the Company.
ITEM 2: CHANGES IN SECURITIES
Not applicable.
ITEM 3: DEFAULTS ON SENIOR SECURITIES
None.
ITEM 4: SUBMISSION OF MATTER TO VOTE OF SECURITY HOLDERS
None.
ITEM 5: OTHER INFORMATION
None.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - none.
17
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
PEACOCK FINANCIAL CORPORATION
SIGNED
August 14, 1996
--------------------- ----------------------------------------
Date Steven R. Peacock
President and Chief Executive Officer
SIGNED
August 14, 1996
--------------------- ----------------------------------------
Date Jo-Ann King
Secretary/Treasurer
18
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 24,311
<SECURITIES> 0
<RECEIVABLES> 458,375
<ALLOWANCES> 0
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<CURRENT-ASSETS> 482,686
<PP&E> 9,981,669
<DEPRECIATION> 952,194
<TOTAL-ASSETS> 11,253,691
<CURRENT-LIABILITIES> 3,718,045
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<COMMON> 9,943
<OTHER-SE> 1,268,257
<TOTAL-LIABILITY-AND-EQUITY> 1,268,872
<SALES> 1,260,857
<TOTAL-REVENUES> 1,260,857
<CGS> 422,127
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<OTHER-EXPENSES> 462,448
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<INCOME-PRETAX> 170,142
<INCOME-TAX> 800
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