<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(MARK ONE)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 2-91651-D
PEACOCK FINANCIAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
COLORADO 87-0410039
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
248 E. MAIN STREET
SAN JACINTO, CALIFORNIA 92583
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (909) 487-8911
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
CLASS A COMMON STOCK, PAR VALUE $0.001 PER SHARE
(TITLE OF CLASS)
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. 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 OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT AS OF DECEMBER 31, 1997 WAS $1,650,000.
THE NUMBER OF SHARES OF CLASS A COMMON STOCK OUTSTANDING AS OF DECEMBER 31,
1996.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 1. BUSINESS
Peacock Financial Corporation is a real estate master developer in Southern
California and its primary mission is to take advantage of the changes happening
in the San Jacinto Valley as the result of a $3 billion construction of the
Eastside Lake reservoir by the Metropolitan Water District of Southern
California.
Peacock Financial Corporation was pleased to announce two consecutive profitable
years as a public company with a $222,009 net income and revenues of $2,075,386
for the year ending December 31, 1997 versus a net income of $140,803 and
$3,369,000 revenue for the year ending December 31, 1996. During 1997 Peacock
Financial Corporation went to escrow with Hawthorn Group, Ltd., an international
investment fund manager, to provide Peacock with working capital as well as real
estate development financing.
The Company currently employs 6 people. The company uses independent
consultants for a variety of tasks, including engineering and architectural,
shareholder relations and financial management. Its principal executive offices
are located at 248 E. Main Street, San Jacinto, California 92583.
ITEM 2 - PROPERTIES
Apart from the Discontinued Operations, the Company's properties comprised of
$374,397 Home Building Construction in Process, $1,216,036 land development cost
and $1,224,292 investment in limited partnerships.
INVESTMENTS IN LIMITED PARTNERSHIPS
1. Carreon Professional Building - The Company formed a limited partnership in
November 1990 and acquired the property for $2,031,300. During the year
ending1992 the Company reduced its interest to 1% and has remained a
general partner with a 1% interest, receiving a property management fee
until 1997 when the property was sold.
2. Riverside Park Apartments - The Company formed a limited partnership in
June 1992 and acquired two apartment buildings for $3,350,000 to be
repaired, developed and managed. During the year ending 1992 the Company
reduced its interest to 1% and has remained a general partner with a 1%
interest, receiving a property management fee.
3. Canyon shadows Apartments - The Company acquired a 120-unit apartment
complex in April 1995 for $ $875,000. The Company received a $975,000 loan
that converts to a grant from the City of Riverside for the purpose of
acquisition and rehabilitation and, in 1996, the Company was awarded
<PAGE>
$2,200,000 in Federal Tax Credits for the project. In December 1996, the
project was sold to a tax credit partnership in which the Company retains a
$905,000 capital account, as well as a 1% interest as the general partner
for which it receives a management fee and 80% of the project cash flow.
4. St. Michel, LLC - In 1995, the Company formed a limited liability company
to acquire a 63-lot residential subdivision in the San Jacinto Valley. In
March 1996, the limited liability Company acquired an additional 110-lot
subdivision also in the San Jacinto Valley. The Company retains a 50%
ownership in the limited liability Company and receives an overhead fee for
the construction and marketing of the homes.
ITEM 3 - LEGAL PROCEEDINGS
The Company is not presently involved in any material litigation nor, to its
knowledge, is any material litigation threatened against the Company or its
properties, other than routine litigation arising in the ordinary course of
business which is expected to be covered by the Company's liability insurance.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth quarter
of the fiscal year covered by this report.
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
Common Stock of the Company is traded in the over-the-counter market, and quoted
on the Electronic Bulletin Board. During the fiscal year ending December 31,
1997, the Company's common stock traded between $.25 and $0.05 per share. The
Company has not yet adopted any policy regarding payment of dividends.
<TABLE>
<CAPTION>
Quarter Ended Low High
- ------------- --- ----
<S> <C> <C>
Mar 31, 1997 $0.15 $0.25
June 30, 1997 0.12 0.25
September 30, 1997 0.06 0.15
December 31, 1997 0.05 0.15
</TABLE>
At December 31, 1997, there were approximately 372 holders of record of the
Company's stock.
<PAGE>
ITEM 6 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See index to financial statements included herein.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Fiscal year 1997 was the company's second year as a public company and it turned
out to be another exciting year for the Company. Peacock Financial Corporation
is pleased to announce two consecutive profitable years as a public company.
The Company continued its focus and attention to develop and invest in San
Jacinto Valley, and succeeded in finding a suitable capital partner. The Company
went to escrow with Hawthorn Group, Ltd., an international investment fund
manager, to provide the Company with working capital as well as real estate
development financing.
The Company continued with its prior year's decision to dispose all of its
projects, which were outside of the Valley. These projects are identified as
discontinued operations in the financial statements. The Company believes it
will substantially benefit from the development of the Eastside Recreational
Lake Reservoir and the future of San Jacinto Valley, has been positioning itself
and has plans in place, to be the most successful developer in the Valley.
RESULTS OF OPERATIONS:
Revenues totaled $2,075,386 for the fiscal year ending December 31, 1997. For
the year ending December 31, 1996 revenues were $3,369,000. The decrease in
Revenue was due to the reduction and repositioning of the home-building
operation.
General and Administration expenses for the year ended December 31, 1997 were
$770,094 as compared to $638,745 for the year ended December 31, 1996. The
increase in General and Administration expenses was related to increase in
consulting services.
Depreciation and amortization was $14,385 for the year ended December 31, 1997
as compared to $8,190 for the year ended December 31, 1996. The increase was
due to increase in loan fee amortization.
Interest income was $1 and interest expense was $173,431 for the year ended
December 31, 1997 as compared to $1,802 interest income and $170,388 interest
expense for the year ended December 31, 1996. The decrease in
<PAGE>
interest income and increase in interest expense was due to increase in net cash
used by operating activities.
Gain from operations of discounted segment was $90,955 for the year ended
December 31, 1997 versus loss of $405,349 for the year ending December 31, 1996.
Gain on disposal of discontinued segment was $1,003,534 versus $983,507 for the
year ending December 31,1996. The gain and loss from operations and gain on
disposal of discontinued segment was as the result of sale of the company's
rental operations, i.e. the Corona Industrial Complex, the Anaheim Vacation R.V.
Park and the Canyon Shadows Apartments.
ITEM 8 - CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINACAIL
DISCLOSURE
None
ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTION AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
<TABLE>
<CAPTION>
NAME AGE POSITION PERIOD OF SERVICE
<S> <C> <C> <C>
Steve R. Peacock 52 President, Chief Since 1986
Executive Officer,
and Director
Bruce Merati 40 Secretary/CFO Since 1996
Jim Upton 49 Vice President Since 1997
of Development
</TABLE>
All directors hold office until the next annual shareholders meeting or until
their death, resignation, and retirement or until their successors have been
elected and qualified.
Mr. Steve R. Peacock, 52, is President, Chief Executive Officer, and a Director
of Peacock Financial Corporation. He has broad experience in real estate
development, property management and construction experience.
Mr. Bruce Merati, 40, is Chief Financial Officer and Secretary of Peacock
Financial Corporation. He has over 18 years of accounting, business
administration and investment banking experience.
<PAGE>
Securities Exchange Act of 1934 requires all executive officers and directors to
report any changes in ownership of common stock of the Company to the Securities
and Exchange Commission and the Company. The management review and
representations indicates no reports were required to be filed in 1996.
ITEM 10 - EXECUTIVE COMPENSATION
The following table shows the amount of compensation earned for services in all
capacities to the company for the last two fiscal years for the executive
officers at December 31, 1997.
<TABLE>
<CAPTION>
NAME AND POSITION YEAR SALARY OTHER TOTAL
<S> <C> <C> <C> <C>
Steve R. Peacock, President and
Chief Executive Officer, and Director 1997 $96,000 None $96,000
Bruce Merati, Chief Financial Officer
And Secretary 1997 None $29,097 $29,097
Jim Upton, Vice President of
Development 1997 $48,000 None $48,000
</TABLE>
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICAIL OWNERS AND MANAGMENT
At the close of business on December 31, 1997, the Company had 11,763,797 shares
outstanding. The beneficial owner of more than five percent of any class of the
company's voting securities are as follows:
<TABLE>
<CAPTION>
NAME AND
ADDRESS OF
BENEFICIAL NUMBER OF
TITLE OF CLASS OWNER SHARES PERCENT OF CLASS
<S> <C> <C> <C>
Common Stock Steve R. Peacock 2,927,324 24.9%
Common Stock Byron Radaker 2,010,048 17.1%
Common Stock David Cottington 747,614 6.4%
</TABLE>
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
<PAGE>
Patricia Peacock, mother of Steve R. Peacock, President, has advanced the
Company working capital. The balance outstanding as of December 31, 1997 was
$500,000.
ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K
Audited Financial Statements and Notes thereto are filed as part of this report.
On February 8, 1996, the Company filed Form 8-K containing its merger.
SIGNATURES
Pursuant to the requirements of section 13 or 15 (d) of the Securities Exchange
Act of 1834, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PEACOCK FINANCIAL COPORATION
By: /s/ Steven R. Peacock
----------------------------------------
Steven R. Peacock
President and Chief Executive Officer
Dated: April 13, 1998
In accordance with the Exchange Act, 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/ Steven R. Peacock
- -------------------------
Steven R. Peacock President, Chief Executive April 13, 1998
/s/ Bruce Merati Secretary April 13, 1998
- -------------------------
<PAGE>
PEACOCK FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
<PAGE>
<TABLE>
<CAPTION>
C O N T E N T S
<S> <C>
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . .3
Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . .4
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . .6
Consolidated Statements of Stockholders' Equity . . . . . . . . . . . . . .8
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . .9
Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . 11
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Peacock Financial Corporation and Subsidiaries
Board of Directors
San Jacinto, California
We have audited the accompanying consolidated balance sheet of Peacock Financial
Corporation and Subsidiaries as of December 31, 1997 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years ended December 31, 1997 and 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated 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 consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Peacock Financial
Corporation and Subsidiaries as of December 31, 1997 and the results of their
operations and their cash flows for the years ended December 31, 1997 and 1996
in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 12 to
the consolidated financial statements, the Company has suffered losses from
operations for the years ended December 31, 1997 and 1996, which raises
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 12.
The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Jones, Jensen & Company
April 6, 1998
<PAGE>
PEACOCK FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
<TABLE>
<CAPTION>
ASSETS
December 31,
1997
------------
CURRENT ASSETS
<S> <C>
Cash and cash equivalents $ 14,777
------------
Total Current Assets 14,777
------------
FIXED ASSETS, at cost, net of accumulated depreciation of
$66,980 and $151,186, respectively 359,215
------------
OTHER ASSETS
Construction-in-process 374,397
Notes receivable - related parties (Note 7) 230,067
Developer fees receivable 226,000
Development costs (Note 3) 1,216,036
Investments in limited partnerships (Note 4) 1,224,292
Other assets 11,926
------------
Total Other Assets 3,282,718
------------
TOTAL ASSETS $ 3,656,710
------------
------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
PEACOCK FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
December 31,
1997
------------
CURRENT LIABILITIES
<S> <C>
Accounts payable $ 219,934
Other current liabilities 189,423
Lines of credit (Note 5) 50,585
Notes payable - current portion (Note 6) 1,147,871
Note payable to stockholder (Note 7) 23,869
------------
Total Current Liabilities 1,631,682
------------
LONG-TERM DEBT
Notes payable - long term (Note 6) 523,217
------------
Total Liabilities 2,154,899
------------
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY
Preferred stock: 10,000,000 shares authorized at $0.01 par value;
672,300 shares issued and outstanding 6,723
Common stock: 250,000,000 shares authorized at $0.001 par value;
11,763,797 shares issued and outstanding 11,764
Additional paid-in capital 2,335,379
Accumulated deficit (852,055)
------------
Total Stockholders' Equity 1,501,811
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,656,710
------------
------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
PEACOCK FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the Year Ended
December 31,
-----------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
REVENUES
Home building and development sales $ 1,992,736 $ 3,005,211
Property management and administration income 1,375 208,023
Commissions income 6,977 101,363
Other income 74,298 54,403
--------------- ---------------
Total Revenues 2,075,386 3,369,000
--------------- ---------------
EXPENSES
Home building and development costs 1,989,958 2,990,836
General and administrative 770,094 638,745
Depreciation and amortization 14,385 8,190
--------------- ---------------
Total Expenses 2,774,437 3,637,771
--------------- ---------------
LOSS FROM CONTINUING OPERATIONS (699,051 ) (268,771 )
--------------- ---------------
OTHER INCOME (EXPENSE)
Interest income 1 1,802
Interest expense (173,431 ) (170,386 )
--------------- ---------------
Total Other Income (Expense) (173,430 ) (168,584 )
--------------- ---------------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (872,481 ) (437,355 )
INCOME TAXES (Note 2) - -
--------------- ---------------
LOSS FROM CONTINUING OPERATIONS (872,481 ) (437,355 )
DISCONTINUED OPERATIONS (Note 11)
Gain (loss) from operations of discontinued segment 90,956 (405,349 )
Gain on disposal of discontinued segment 1,003,534 983,507
--------------- ---------------
Total Discontinued Operations 1,094,490 578,158
--------------- ---------------
NET INCOME $ 222,009 $ 140,803
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
PEACOCK FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations (Continued)
<TABLE>
<CAPTION>
For the Year Ended
December 31,
-----------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
EARNINGS (LOSS) PER SHARE
Continued operations $ (0.08 ) $ (0.06 )
Discontinued operations 0.10 0.08
--------------- ---------------
EARNINGS (LOSS) PER SHARE $ 0.02 $ 0.02
--------------- ---------------
--------------- ---------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 11,253,615 7,844,581
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
PEACOCK FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
----------------------- ---------------------- Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit
----------- ---------- --------- --------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1995 - $ - 3,256,150 $ 3,256 $ 2,326,899 $ (1,214,867 )
Common stock issued
to acquire Connectivity
and Technology, Inc. - - 5,183,850 5,184 (5,184 ) -
Conversion of Class B
common stock to
preferred stock 672,300 6,723 (672,300 ) (672 ) (6,051 ) -
Common stock
issued for cash - - 2,700,095 2,700 154,269 -
Common stock issued
for services - - 227,500 227 36,773 -
Deferred stock costs
charged to paid-in
capital - - - - (265,810 ) -
Accrued dividends - - - - (25,422 ) -
Net income for the
year ended
December 31, 1996 - - - - - 140,803
--------- -------- ------------- --------- ------------- -------------
Balance,
December 31, 1996 672,300 6,723 10,695,295 10,695 2,215,474 (1,074,064 )
Common stock issued
for cash - - 422,002 422 59,618 -
Common stock issued
for services - - 646,500 647 83,459 -
Accrued dividends - - - - (23,172 ) -
Net income for the
year ended
December 31, 1997 - - - - - 222,009
--------- -------- ------------- --------- ------------- -------------
Balance,
December 31, 1997 672,300 $ 6,723 11,763,797 $ 11,764 $ 2,335,379 $ (852,055 )
--------- -------- ------------- --------- ------------- -------------
--------- -------- ------------- --------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
8
<PAGE>
PEACOCK FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Year Ended
December 31,
----------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 222,009 $ 140,803
Adjustments to reconcile net income to
net cash used by operating activities:
Depreciation and amortization 14,385 390,387
Stock issued for services 84,106 37,000
Discontinued operations (244,982 ) (542,664 )
Changes in operating assets and liabilities:
(Increase) decrease in accounts and notes
receivable 68,000 (293,060 )
(Increase) decrease in accounts
receivable - related parties (78,152 ) (44,324 )
(Increase) decrease in other assets (6,725 ) (97,380 )
Increase (decrease) in accounts payable (75,947 ) 160,406
Increase (decrease) in other liabilities (146,591 ) 72,850
-------------- --------------
Net Cash Used by Operating Activities (163,897 ) (175,982 )
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction in progress (104,863 ) (484,424 )
Sale of property and equipment 214,890 -
Purchase of property and equipment (1,951 ) (345,250 )
-------------- --------------
Net Cash Provided (Used) by Investing Activities 108,076 (829,674 )
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Due to shareholders (20,902 ) 11,057
Repayment of notes payable (833,312 ) (93,600 )
Proceeds from long-term borrowings 823,785 754,624
Proceeds from stock offerings 60,040 156,969
-------------- --------------
Net Cash Provided (Used) by Financing Activities $ (20,389 ) $ 829,050
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
9
<PAGE>
PEACOCK FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
For the Year Ended
December 31,
-----------------------------
1997 1996
------------- -------------
<S> <C> <C>
NET INCREASE IN CASH $ (76,210 ) $ (176,606 )
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 90,987 267,593
------------- -------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 14,777 $ 90,987
------------- -------------
------------- -------------
SUPPLEMENTAL DISCLOSURE OF
NON-CASH ACTIVITIES
Common stock issued for services $ 84,106 $ 37,000
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Interest paid, net of amount capitalized $ 272,867 $ 669,259
Income taxes paid $ - $ -
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
10
<PAGE>
PEACOCK FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1997
NOTE 1 - COMPANY BACKGROUND
The consolidated financial statements include those of Peacock
Financial Corporation (Colorado) (Peacock) and its wholly-owned
subsidiaries, Peacock Financial Corporation (California) (PFC) and
Peacock International Corporation (Bahamas) (PIC). Collectively, they
are referred to herein as "the Company".
Peacock was incorporated under the laws of the State of Colorado on
February 16, 1984 under the name of Oravest International, Inc. It
later changed its name to Camdon Holdings, Inc. and then to American
Temperature Control, Inc., Connectivity and Technology, Inc., and
finally to Peacock Financial Corporation on February 27, 1996.
Peacock was incorporated for the purpose of creating a vehicle to
obtain capital to seek out, investigate and acquire interests in
products and businesses which may have a potential for profit.
PFC, a wholly-owned subsidiary, was formed on May 22, 1986. Its
operations consist of the acquisition and enhancement of
income-producing properties and the development of multi-use property
including home building. Certain properties are owned by limited
partnerships managed by the Company.
PIC, a wholly-owned subsidiary, was formed on December 8, 1997. It
has had no operations to date, but was formed to invest and trade in
securities on an international basis.
On February 27, 1996, the Company completed an Agreement and Plan of
Reorganization whereby Peacock issued 7,767,702 shares of its common
stock and 672,300 shares of its preferred stock in exchange for all of
the outstanding common stock of PFC. Pursuant to the reorganization,
the name of the Company was changed to Peacock Financial Corporation.
The reorganization was accounted for as a recapitalization of PFC
because the shareholders of PFC control the Company after the
acquisition. Therefore, PFC is treated as the acquiring entity.
Accordingly, there was no adjustment to the carrying value of the
assets or liabilities of Peacock. Peacock is the acquiring entity
for legal purposes and PFC is the surviving entity for accounting
purposes.
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied
in the preparation of the accompanying consolidated financial
statements follows:
a. ACCOUNTING METHOD
The Company's consolidated financial statements are prepared using the
accrued method of accounting. The Company has elected a December 31
year end.
b. PARTNERSHIP INVESTMENTS
The Company's general and limited partnership interests are accounted
for using the equity method, which reflects historical cost adjusted
for the proportionate share of partnership earnings or losses. The
Company has not recorded its share of losses in excess of its
investment in each partnership.
11
<PAGE>
PEACOCK FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (Continued)
December 31, 1997
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
c. FIXED ASSETS
Fixed assets are carried at cost. The cost 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 as incurred.
d. INCOME TAXES
The Company provides for income taxes using the liability method under
Statement of Financial Accounting 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 1997 or 1996 due to
operating losses and loss carryovers. The Company has net operating
loss carryovers of approximately $850,000 at December 31,1997 which
expire in the years 2007 to 2012.
e. CASH AND CASH EQUIVALENTS
Cash equivalents include short-term, highly liquid investments with
maturities of three months or less at the time of acquisition.
f. EARNINGS (LOSS) PER SHARE
The computations of loss per share of common stock are based on the
weighted average number of shares outstanding at the date of the
consolidated financial statements.
g. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include those of Peacock
Financial Corporation (Colorado) and its wholly-owned subsidiaries,
Peacock Financial Corporation (California) and Peacock International
Corporation (Bahamas). All significant intercompany accounts and
transactions have been eliminated.
h. ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
12
<PAGE>
PEACOCK FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (Continued)
December 31, 1997
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
i. CONCENTRATIONS OF RISK
ACCOUNTS RECEIVABLE
Credit losses, if any, have been provided for in the consolidated
financial statements and are based on management's expectations. The
Company's accounts receivable are subject to potential concentrations
of credit risk. The Company does not believe that it is subject to
any unusual, or significant risks in the normal course of its
business.
j. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
December 31, 1997 presentations.
NOTE 3 - DEVELOPMENT COSTS
Land improvements and related property development costs have been
capitalized and will be amortized to the cost of the houses sold based
upon the total number of homes to be constructed in each project. The
land and land improvements of $1,216,036 at December 31, 1997 are
recorded at the lower of cost or estimated net realizable value (see
Note 9).
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. The Company receives a
property management fee. The Company accounts for its remaining
general partner 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 requires the partnership to meet certain
restrictive covenants. The Company remains the general partner with a
1% interest and receives a property management fee.
In December 1995, the Company formed a limited liability company to
acquire a 63-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.
13
<PAGE>
PEACOCK FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (Continued)
December 31, 1997
NOTE 4 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
During 1995, the Company received a $975,000 loan that converted to a
grant from the City of Riverside to acquire and rehabilitate a
120-unit apartment complex (see Note 11). During April 1996, the
Company was awarded $2,400,000 in Federal tax credits. During
December 1996, the Company sold the completed project to a tax credit
partnership named Canyon Shadows, L.P. retaining a 1% interest as
general partner and receiving a $905,000 capital account in the
partnership. Additional expenses of $319,292 were incurred by the
Company on behalf of the partnership resulting in a total investment
in Canyon Shadows, L.P. of $1,224,292 at December 31, 1997.
NOTE 5 - LINES OF CREDIT
The Company has two separate lines of credit with banks at December
31, 1997 in the aggregate maximum amount of $250,000. Borrowings
outstanding under these lines of credit at December 31, 1997 were
$34,754 and $15,831. The credit lines bear interest at the bank's
index rate plus 2 percent or 12 percent currently and expire during
June, 1998 and July, 1999, respectively.
NOTE 6 - NOTES PAYABLE
<TABLE>
<CAPTION>
Notes payable consist of the following:
December 31,
1997
------------
<S> <C>
Note payable at 5%, secured by an assignment of
partnership cash, interest payable quarterly, principal
due January 1, 2007, convertible to common stock $ 500,000
Note payable at variable rate (10.25% at
December 31, 1997) collateralized by deed
of trust on real property. Lump sum payment
is due October 21, 1998. 194,222
Note payable at 10%, unsecured, due with
accrued interest on or before February
1, 1997, currently in default. 371
Note payable at 10%, secured by deed of trust,
due March 31, 1996, currently in default. 65,000
Note payable at 8%, unsecured, payable in
monthly installments of $1,221 including interest,
due January 4, 1999. 15,158
Note payable at 3%, collateralized by deed of trust
on real property, due June 24, 2024 (Note 11). 70,000
------------
Balance Forward $ 844,751
------------
</TABLE>
14
<PAGE>
PEACOCK FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (Continued)
December 31, 1997
NOTE 6 - NOTES PAYABLE (Continued)
<TABLE>
<CAPTION>
Notes payable consist of the following (continued):
December 31,
1997
------------
<S> <C>
Balance Forward, $ 844,751
Note payable at 7%, secured by deed of trust
on real property, payable in monthly installments
of $1,621 including interest, due March 1, 2000. 40,081
Loan payable at 9%, collateralized by deed of
trust on property, accrued interest and principal
due February 15, 1997 (see Note 9(b)). 172,204
Note payable to individual at 10%, collateralized
by deed of trust, payable in monthly interest only
payments, principal due January 19, 1997
(see Note 9(b)). 125,000
Note payable, non-interest bearing, unsecured,
payable in monthly installments of $1,000. 14,500
Construction note payable at 10.50% with a
maximum balance of $750,000, principal and
interest due July 1997, currently in default. 249,866
Debentures at 10%, unsecured, due
December 31, 1997. 216,500
Other equipment loans 8,186
------------
Total Notes Payable 1,671,088
Less: Current Portion (1,147,871 )
------------
Long-Term Notes Payable $ 523,217
------------
------------
</TABLE>
The aggregate principal maturities of notes payable are as follows:
<TABLE>
<CAPTION>
Years Ending December 31,
-------------------------
<S> <C>
1998 $ 1,147,871
1999 18,411
2000 4,806
2001 -
2002 -
Thereafter 500,000
------------
Total $ 1,671,088
------------
------------
</TABLE>
15
<PAGE>
PEACOCK FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (Continued)
December 31, 1997
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.
Two stockholders have made loans to the Company. The loans bear
interest at 10 percent per annum and matured in March 1996. The
balance outstanding at December 31, 1997 is $23,869.
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
years ended December 31, 1997 or 1996.
NOTE 9 - 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 December 31, 1997, the partnerships had no liabilities with
recourse against the Company.
b. RENTS AND LEASES
During 1996, the Company acquired an historic 15-room hotel in
downtown San Jacinto and converted it into an executive suites office
building. The Company currently occupies approximately half of the
offices and rents the remaining space to others. Financing, which
consisted of a seller carry-back loan of $125,000 for the acquisition
and a City of San Jacinto Redevelopment loan of $172,204 for the
rehabilitation, is currently being restructured into long-term
financing.
c. WRAP AROUND MORTGAGE
The Company has sold a property subject to a mortgage. The mortgage
has not been fully assumed by the buyer. If the buyer defaults on the
mortgage, the Company may be liable for the balance owing.
16
<PAGE>
PEACOCK FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (Continued)
December 31, 1997
NOTE 9 - COMMITMENTS AND CONTINGENCIES (Continued)
d. VISTA RAMONA DEVELOPMENT COSTS
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 building
lots. The Company controls 277 acres of the project through a joint
venture. The remaining 212 acres are controlled by a separate joint
venture which has filed for chapter 11 bankruptcy. The Company has
reached an agreement with the lienholder of the land to acquire the
lienholder's interest in the note and trust deed which encumber the
212 acres for $1,500,000 cash. The Company must make payment in full
on or before April 4, 1996 to complete the agreement. 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 remaining joint
venture.
e. HOUSING GRANT
In April 1995, the Company acquired a 120 unit apartment complex using
a $975,000 loan that converts to a grant from the City of Riverside,
California. The loan is non-recourse and is secured by a second trust
deed on the property. If the Company meets certain requirements
pertaining to the complex, which have been stipulated by the city, the
loan will be forgiven in its entirety. Management has complied with
all of the requirements and believes that the repayment of $905,000
(the grant portion) of the $975,000 is highly remote. Accordingly,
$905,000 of the amount has been recorded as income to the Company for
the year ended December 31, 1997.
If the Company fails to meet the requirements, however, the entire
unpaid principle balance, together with accrued interest, will become
due at the discretion of the City of Riverside and foreclosure
proceedings may be initiated on the property.
NOTE 10 - PREFERRED STOCK
The Company's preferred stock has the right to quarterly dividends to
be paid at the annual rate of 6%. 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 S.E.C. and the
appropriate State regulatory agency.
Each preferred share is convertible into one share of the common stock
of the Company, such conversion to occur automatically and registered
concurrently with any public offering of the common shares of the
Company.
Each share of 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 warrant holders of record at a redemption price of $.05 per
warrant.
17
<PAGE>
PEACOCK FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (Continued)
December 31, 1997
NOTE 11 - DISCONTINUED OPERATIONS
The Company decided to either sell or dispose of a portion of its
operations during 1997. As a result, the assets and liabilities of
those operations are being netted together as discontinued operations
resulting in a balance of net assets at December 31, 1997 and 1996 of
$0 and $683,190, respectively. The breakout of the amount at
December 31, 1997 and 1996 is summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------------------
1997 1996
---------- -----------
<S> <C> <C>
Assets of Discontinued Operations $ - $ 3,598,533
Liabilities of Discontinued Operations - (2,915,343 )
Net Assets of Discontinued Operations $ - $ 683,190
</TABLE>
In addition, the operations of these projects are being netted
together as loss on discontinued operations. The resulting gain
(loss) for the years ended December 31, 1997 and 1996 was $90,956 and
($405,349), respectively. In addition, the Company recognized a gain
on the disposition of the discontinued operations of $1,003,534 and
$983,507 for the years ended December 31, 1997 and 1996, respectively.
NOTE 12 - GOING CONCERN
The Company's consolidated financial statements are prepared using
generally accepted accounting principles applicable to a going concern
which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. The Company has
incurred significant losses and does not currently have the means to
pay the current maturities of its long term debt as they become due.
These factors create an uncertainty about the Company's ability to
continue as a going concern. The Company is currently, however,
trying to obtain a $10,000,000 financing package. The Company expects
to receive a portion of those funds shortly and the remaining balance
before the end of 1998. As part of the arrangement, the Company will
ultimately sell approximately 50% of the Company through a 504 stock
issuance. Receiving the $10,000,000 could ultimately effect the
realization of assets and liquidation of liabilities in the normal
course of business. The consolidated financial statements do not
include any adjustments that might be necessary if the Company is
unable to continue as a going concern.
If the $10,000,000 is obtained, the Company's management believes that
the Company will soon be able to generate revenues sufficient to cover
its operating costs. Management also has plans to raise capital
through the issuance of stock. The Company has not received any of
the funds as of the date of this audit report
18
<PAGE>
GUY E. DEVORRIS, J.D./C.P.M.-Registered Trademark-
1423 Second St., Suite C
Santa Monica, CA 90401
(310)/587-9100; fax (310)587-0009
April 1, 1998
Peacock Financial Corporation
248 E. Main Street
San Jacinto, CA 92583
RE: Canyon Shadows
To Whom this May Concern:
I am a knowledgeable, experienced professional in the area of low income rental
housing with an expertise in low income housing tax credits and government
assisted rental projects. My resume is attached.
I served as a financial consultant to Peacock Financial Corporation regarding
the acquisition and rehabilitation of Canyon Shadows.
I am familiar with the legal opinion from Riordan and McKenzie. I concur with
Attorney Cowan's opinion, that the likelihood that the funding from the City of
Riverside under the HOME program would change character from a grant to a loan
is highly remote. This is because the only way in which this could happen is if
the property fails to rent to qualifying tenants (e.i., tenants whose income is
below a certain percentage of the median as adjusted for family household size)
at regulated rents (those published by the State and based upon the annual
median income amounts published by HUD). The property is encumbered with
recorded Regulatory Agreements from both the City and the State which require
that units be leased only to qualifying tenants at the regulated rents and
covenants are in place with the limited investor partner requiring the same. For
all these reasons, the likelihood that the property would be operated in a
fashion to give rise to a default under the HOME funding agreement is highly
remote.
Thank you for your attention.
Sincerely,
Guy E. Devorris
Enclosures
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 14,777
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 3,282,718
<CURRENT-ASSETS> 3,297,495
<PP&E> 426,195
<DEPRECIATION> (66,980)
<TOTAL-ASSETS> 3,656,710
<CURRENT-LIABILITIES> 1,631,682
<BONDS> 523,217
0
6,723
<COMMON> 11,764
<OTHER-SE> 1,483,324
<TOTAL-LIABILITY-AND-EQUITY> 3,656,710
<SALES> 2,075,386
<TOTAL-REVENUES> 2,075,386
<CGS> 1,989,958
<TOTAL-COSTS> 1,989,958
<OTHER-EXPENSES> 784,479
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 173,430
<INCOME-PRETAX> (872,481)
<INCOME-TAX> 0
<INCOME-CONTINUING> (872,481)
<DISCONTINUED> 1,094,490
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 222,009
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
