<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------------------------------------------
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NO. 2-91651-D
PEACOCK FINANCIAL CORPORATION
COLORADO 87-0410039
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
248 E. MAIN STREET SAN JACINTO, CA 92583
(ADDRESS AND ZIP CODE OF PRINCIPAL EXECUTIVE OFFICES)
(909) 487-8911
(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. YES X NO .
--- ---
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OR 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, 1998, WAS $1,176,012.
THE NUMBER OF SHARES OF CLASS A COMMON STOCK OUTSTANDING AS OF DECEMBER 31,
1998, WAS 20,750,370.
DOCUMENTS INCORPORATED BY REFERENCE: NONE.
<PAGE>
ITEM 1 - BUSINESS
On September 15, 1998, Peacock Financial Corporation filed with the Securities
and Exchange Commission to become a Business Development Corporation as defined
under the Investment Act of 1940. Simultaneously, the Company registered an
offering circular with the SEC for 13,000,000 shares under Regulation E of the
Investment Act to raise capital and to make investments in real estate and in
"eligible portfolio companies" as defined under the Investment Act of 1940.
Prior to filing to become a Business Development Corporation, Peacock Financial
Corporation was primarily involved in real estate development in Southern
California and had anticipated an equity fund of $10,000,000 through the
Hawthorne Group, Ltd. On August 11, 1998, the Company announced that the
Hawthorne Group, Ltd. transaction had been cancelled and that it was seeking
other opportunities.
Peacock Financial Corporation reported a net loss of $1,533,436 and revenues of
$609,811 for the year ending December 31, 1998 versus net income of $222,009 and
revenues of $2,075,386 for the year ending December 31, 1997. The net loss and
reduction of revenues was due primarily to the repositioning of the real estate
operation to receive the anticipated $10,000,000 capital infusion from the
Hawthorne Group, Ltd. which did not materialize.
The Company currently employs 4 people. The Company uses independent
consultants for a variety of tasks, including engineering and architecture for
real estate development, shareholder relations and financial management. Its
principal executive offices are located at 248 East Main Street, San Jacinto,
California 92583.
ITEM 2 - INVESTMENTS
Apart from the Discontinued Operations, the Company's properties are comprised
of $1,216,036 in land development costs, a $1,224,292 investment in limited
partnerships, $200,000 in other investments and $366,310 in the corporate
headquarters.
INVESTMENTS IN LIMITED PARTNERSHIPS
1. 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.
2. 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
2
<PAGE>
and rehabilitation and, in 1996, the Company was awarded $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.
3. 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
has recently signed a joint venture agreement to build homes on these
existing lots.
4. PR Equities, Ltd. - In 1987, the Company formed a limited partnership
to acquire and develop approximately 500 acres in San Jacinto,
California. The partnership currently owns approximately 285
residential lots, 30 acres of commercially zoned property and 11 acres
zoned for high density senior apartments all within the master planned
community of Rancho San Jacinto. The Company retains a 15% ownership
position and has recently entered into certain joint venture
agreements to build out these properties.
OTHER INVESTMENTS
As a Business Development Corporation, the Company made certain non-real estate
investments in the fourth quarter of 1998.
1. San Diego Soccer Development Corporation (SDSDC) - The Company
acquired an approximate 5% ownership position (200,000 shares) for
stock in Peacock Financial Corporation as part of an agreed plan to
take SDSDC public in 1999 through a process known as "spin off". The
transaction included an option for the Company to acquire an
additional 5% of SDSDC and to receive an investment banking fee for
the "spin off" process.
2. Linzy Capital - The Company acquired a non-exclusive right to the use
of a proprietary option trading program from Linzy Capital for stock
in Peacock Financial Corporation. This program utilizes real-time
tracking data which is fed into an "on-screen" spreadsheet that
monitors all aspects of targeted options and equities. The Company
has contracted with a professional trading company to manage an
investment acount on behalf of Peacock Financial Corporation using the
option trading program and other investment strategies to create
substantial monthly yields on invested capital.
3. IPO/Emerging Growth, LLC - The Company acquired an investment position
in IPO/Emerging Growth, LLC valued at $100,000 for stock in Peacock
Financial
3
<PAGE>
Corporation. This investment was part of a strategy to become affiliated
with Capital Asset Management of Temecula, California, the managing partner
of the LLC, to raise capital to acquire positions in emerging growth
companies and to take them public through the process known as "spin-off".
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,
1998, the Company's common stock traded between $1.44 and $.02 per share. The
Company has not yet adopted any policy regarding payment of dividends.
<TABLE>
<CAPTION>
Quarter Ended Low High
- ------------- --- ----
<S> <C> <C>
March 31, 1998 $0.25 $1.44
June 30, 1998 0.19 0.36
September 30, 1998 0.07 0.19
December 31, 1998 0.02 0.07
</TABLE>
At December 31, 1998, there were approximately 378 holders of record of the
Company's stock.
ITEM 6 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See index to financial statements included herein.
4
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Fiscal year 1998 was the Company's third year as a public company. It was a
year of substantial change in the structure of the Company due to the failure of
the Hawthorne Group, Ltd. to fund its $10,000,000 commitment as anticipated. In
September 1998, the Company filed with the Securities and Exchange Commission to
become a Business Development Corporation under the Investment Act of 1940 as
part of management's strategy to seek diversification in its operations and to
become less dependent on its real estate operations for revenues.
The Company continues to believe that it will benefit substantially from its
position in the San Jacinto Valley where a $3 billion recreational lake is
currently under construction and is expected to be completed in 1999. All
economic indicators show a marked increase in home sales and land values in the
area and the Company expects to place several of its real estate projects into
development through joint ventures with builders and investors in the coming
year.
Through utilization of the option trading program and investments in emerging
growth companies, management believes that it has positioned itself to increase
shareholder value through diversification as well as to take advantage of the
economic boom that will come to the San Jacinto Valley over the next 10 years as
a result of completion of the Eastside Reservoir in 1999.
RESULTS OF OPERATIONS
Revenues totaled $609,811 for the fiscal year ending December 31, 1998. For the
year ending December 31, 1997, revenues were $2,075,386. The decrease was due
to the reduction and repositioning of the home-building operation.
General and administrative expenses for the year ended December 31, 1998 were
$1,089,130, as compared to $770,094 for the year ended December 31, 1997. The
increase was related to an increase in consulting services.
Depreciation and amortization expenses was $43,319 for the year ended
December 31, 1998 as compared to $14,385 for the year ended December 31, 1997.
The increase was due to corporate headquarters increased depreciation.
Interest expense was $132,912 for the year ended December 31, 1998 as compared
to $173,431 for the year ended December 31, 1997. The decrease was primarily
due to the paydown of existing loans.
5
<PAGE>
ITEM 8 - CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL 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>
Steven R. Peacock 53 President, Chief Since 1986
Executive Officer,
and Director
Bruce Merati 41 Secretary/CFO Since 1996
James S. Upton 50 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. Steven R. Peacock, 53, 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, 41, is Chief Financial Officer and Secretary of Peacock
Financial Corporation. He has over 18 years of accounting, business
administration and investment banking experience.
Mr. James S. Upton, 50, is Executive Vice President of Development of Peacock
Financial Corporation. He has over 25 years of real estate development and
construction experience.
The 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.
ITEM 10 - EXECUTIVE COMPENSATION
The following table shows the amount of compensation earned for services in all
capacities to the Company for the last fiscal year for the executive officers at
December 31, 1998.
6
<PAGE>
<TABLE>
<CAPTION>
NAMES AND POSITION YEAR SALARY OTHER TOTAL
<S> <C> <C> <C> <C>
Steven R. Peacock, President and
Chief Executive Officer and Director 1998 $96,000 None $96,000
Bruce Merati, Chief Financial Officer
and Secretary 1998 None $20,000 $20,000
James S. Upton, Vice President of
Development 1998 $68,800 None $48,000
</TABLE>
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
At the close of business on December 31, 1998, the Company had 20,750,370 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 Steven R. Peacock 2,630,174 12.7%
248 East Main St.
San Jacinto, Ca. 92583
Common Stock Byron Radaker 2,010,048 9.7%
248 East Main St.
San Jacinto, Ca. 92583
</TABLE>
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Patricia Peacock, Mother of Steven R. Peacock, President, has advanced the
Company working capital. The balance outstanding as of December 31, 1998 was
$860,000.
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.
7
<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.
PEACOCK FINANCIAL CORPORATION
By: /s/ Steven R. Peacock
---------------------------------------------
Steven R. Peacock
President and Chief Executive Officer
Date: April 15, 1999
-------------------------
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
- ------------------------- April 15, 1999
Steven R. Peacock President, Chief Executive --------------
/s/ Bruce Merati Secretary April 15, 1999
- ------------------------- --------------
8
<PAGE>
PEACOCK FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
ASSETS
<TABLE>
<CAPTION>
December 31,
1998
------------
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ -
Due from related party (Note 11) 2,396
Notes receivable (Note 7) 19,300
------------
Total Current Assets 21,696
------------
FIXED ASSETS, NET (Notes 2 and 5) 366,780
------------
OTHER ASSETS
Notes receivable - related parties (Note 11) 114,000
Developer fees receivable 154,077
Development costs (Note 3) 1,216,036
Investments in limited partnerships (Note 4) 1,224,292
Other investments (Note 6) 200,000
Licensing rights, net (Note 8) 30,000
Other assets 29,201
------------
Total Other Assets 2,967,606
------------
TOTAL ASSETS $ 3,356,082
------------
------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
9
<PAGE>
PEACOCK FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31,
1998
------------
<S> <C>
CURRENT LIABILITIES
Accounts payable$ 227,743
Bank overdraft 4,509
Other current liabilities 280,982
Lines of credit (Note 9) 6,365
Notes payable - current portion (Note 10) 753,060
Note payable to stockholder (Note 11) 57,058
------------
Total Current Liabilities 1,329,717
------------
LONG-TERM DEBT
Notes payable - long term (Note 10) 864,501
------------
Total Liabilities 2,194,218
------------
COMMITMENTS AND CONTINGENCIES (Note 13)
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;
20,750,370 shares issued and outstanding 20,750
Additional paid-in capital 3,519,882
Accumulated deficit (2,385,491)
------------
Total Stockholders' Equity 1,161,864
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,356,082
------------
------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
10
<PAGE>
PEACOCK FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the Year Ended
December 31,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
REVENUES
Home building and development sales $ 591,006 $ 1,992,736
Property management and administration income 4,270 1,375
Commissions income - 6,977
Other income 14,535 74,298
----------- -----------
Total Revenues 609,811 2,075,386
----------- -----------
EXPENSES
Home building and development costs 585,490 1,989,958
General and administrative 1,089,130 770,094
Depreciation and amortization 43,319 14,385
----------- -----------
Total Expenses 1,717,939 2,774,437
----------- -----------
LOSS FROM CONTINUING OPERATIONS (1,108,128) (699,051)
----------- -----------
OTHER INCOME (EXPENSE)
Interest income 5 1
Interest expense (132,912) (173,431)
Bad debt expense (164,057) -
Loss on investments (11,225) -
Loss on disposition of assets (117,119) -
----------- -----------
Total Other Income (Expense) (425,308) (173,430)
----------- -----------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (1,533,436) (872,481)
Income taxes (Note 2) - -
----------- -----------
LOSS FROM CONTINUING OPERATIONS (1,533,436) (872,481)
DISCONTINUED OPERATIONS (Note 15)
Gain (loss) from operations of discontinued segment - 90,956
Gain on disposal of discontinued segment - 1,003,534
----------- -----------
Total Discontinued Operations - 1,094,490
----------- -----------
NET INCOME (LOSS) (1,533,436) 222,009
OTHER COMPREHENSIVE INCOME - -
----------- -----------
NET COMPREHENSIVE INCOME (LOSS) $(1,533,436) $ 222,009
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
11
<PAGE>
PEACOCK FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations (Continued)
<TABLE>
<CAPTION>
For the Year Ended
December 31,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
BASIC EARNINGS (LOSS) PER SHARE
Continued operations $ (0.10) $ (0.08)
Discontinued operations - 0.10
----------- -----------
BASIC EARNINGS (LOSS) PER SHARE $ (0.10) $ 0.02
----------- -----------
----------- -----------
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 15,053,919 11,253,615
----------- -----------
----------- -----------
FULLY DILUTED EARNINGS (LOSS) PER SHARE $ (0.08) $ 0.02
----------- -----------
----------- -----------
FULLY DILUTED WEIGHTED AVERAGE
NUMBER OF SHARES OUTSTANDING 19,950,219 14,090,915
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
12
<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, 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)
Common stock issued
for cash - - 1,609,413 1,609 217,456 -
Common stock issued
for services - - 3,108,040 3,108 599,967 -
Common stock issued on
conversion of debentures - - 1,559,834 1,560 104,033 -
Common stock issued
for investments and
licensing rights - - 2,420,000 2,420 257,580 -
Common stock issued
under failed financing
package - - 289,286 289 28,639 -
Accrued dividends - - - - (23,172) -
Net (loss) for the
year ended
December 31, 1998 - - - - - (1,533,436)
----------- ----------- ----------- ----------- ----------- -----------
Balance,
December 31, 1998 672,300 $ 6,723 20,750,370 $ 20,750 $ 3,519,882 $(2,385,491)
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
13
<PAGE>
PEACOCK FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Year Ended
December 31,
-------------------------------
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(1,533,436) $222,009
Adjustments to reconcile net income (loss) to
net cash (used) by operating activities:
Depreciation and amortization 43,319 14,385
Bad debts 164,057 -
Loss on disposition of assets 117,119 -
Loss on investments 11,225 -
Stock issued for services 632,003 84,106
Discontinued operations - (244,982)
Changes in operating assets and liabilities:
(Increase) decrease in accounts and notes receivable 4,633 68,000
(Increase) decrease in accounts
receivable - related parties (2,396) (78,152)
(Increase) decrease in other assets (17,275) (6,725)
Increase (decrease) in accounts payable 7,809 (75,947)
Increase (decrease) in bank overdraft 4,509 -
Increase (decrease) in other liabilities 68,387 (146,591)
----------- -----------
Net Cash (Used) by Operating Activities (500,046) (163,897)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments (27,000) -
Sale of investments 15,775 -
Construction in progress - (104,863)
Sale of property and equipment - 214,890
Purchase of property and equipment (20,884) (1,951)
----------- -----------
Net Cash Provided (Used) by Investing Activities (32,109) 108,076
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Due to shareholders 33,189 (20,902)
Repayment of notes payable (88,029) (883,312)
Proceeds from long-term borrowings 353,153 823,785
Stock issued for cash 219,065 60,040
----------- -----------
Net Cash Provided (Used) by Financing Activities $ 517,378 $ (20,389)
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
14
<PAGE>
PEACOCK FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
For the Year Ended
December 31,
-------------------------------
1998 1997
----------- -----------
<S> <C> <C>
NET INCREASE (DECREASE) IN CASH $ (14,777) $ (76,210)
----------- -----------
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 14,777 90,987
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ - $ 14,777
----------- -----------
----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Interest paid $ 41,230 $ 272,867
Income taxes paid $ - $ -
SUPPLEMENTAL DISCLOSURE OF
NON-CASH ACTIVITIES
Common stock issued for services $ 632,003 $ 84,106
Common stock issued on conversion of debentures $ 105,593 $ -
Common stock issued for investments $ 200,000 $ -
Common stock issued for licensing rights $ 60,000 $ -
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
15
<PAGE>
PEACOCK FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998
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.
On September 15, 1998, the Company filed with the Securities and
Exchange Commission to become a Business Development Corporation
as defined under the Investment Act of 1940. Simultaneously, the
Company registered an offering circular with the SEC for
13,000,000 shares of common stock under Regulation E of the
Investment Act to raise capital and to make investments in real
estate and in eligible portfolio companies.
NOTE 2 - SUMMARY OF SIGNIFICANT 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 accrual method of accounting. The Company has elected a
December 31 year end.
16
<PAGE>
PEACOCK FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
b. Cash and Cash Equivalents
Cash equivalents include short-term, highly liquid investments with
maturities of three months or less at the time of acquisition.
c. 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.
d. Fixed Assets
Fixed assets are recorded at cost. Major additions and improvement
are capitalized. The cost and related accumulated depreciation of
equipment retired or sold are removed from the accounts and any
differences between the undepreciated amount and the proceeds from
the sale are recorded as gain or loss on sale of assets.
Depreciation is computed using the straight-line method over the
estimated useful life of the assets as follows:
Description Estimated Useful Life
----------- ---------------------
Furniture and fixtures 5 to 7 years
Computers and software 5 years
Buildings 40 years
e. Basic and Fully Diluted Loss Per Share
The computations of basic loss per share of common stock are based
on the weighted average number of common shares outstanding during
the period of the consolidated financial statements. Common stock
equivalents, consisting of convertible debt and preferred shares,
have not been included in the calculation as their effect is
antidilutive for the periods presented. Convertible debt and preferred
shares have been included in the fully diluted loss per share.
f. Change in Accounting Principle
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 128, "Earnings Per Share" during the year ended December 31, 1998.
In accordance with SFAS No. 128, diluted earnings per share must be
calculated when an entity has convertible securities, warrants,
options, and other securities that represent potential common shares.
The purpose of calculating diluted earnings (loss) per share is to show
(on a pro forma basis) per share earnings or losses assuming the
exercise or conversion of all securities that are exercisable or
convertible into common stock and that would either dilute or not
affect basis EPS. As permitted by SFAS No. 128, the Company has
retroactively applied the provisions of this new standard by showing
the fully diluted loss per common share for all years presented.
17
<PAGE>
PEACOCK FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
f. Change in Accounting Principle (Continued)
The Company also adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income" during
the year ended December 31, 1998. SFAS No. 130 established
standards for reporting and display of comprehensive income (loss)
and its components (revenues, expenses, gains and losses) in a
full set of general purpose financial statements. This statement
requires that an enterprise classify items of other comprehensive
income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity
section of a balance sheet. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997. The Company has
retroactively applied the provisions of this new standard by
showing the other comprehensive income (loss) for all years
presented.
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.
i. Concentrations of Risk
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. Provision for Taxes
At December 31, 1998, the Company has net operating loss
carryforwards of approximately $2,380,000 that may be offset
against future taxable income through 2013. No tax benefit has
been reported in the consolidated financial statements because
the Company believes there is a 50% or greater chance the net
operating loss carrryforwards will not be used. Accordingly, the
potential tax benefits of the net operating loss carryforwards
are offset by a valuation allowance of the same amount.
18
<PAGE>
PEACOCK FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
k. Advertising
The Company follows the policy of charging the costs of advertising to
expense as incurred.
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, 1998 are recorded at the lower of cost or estimated net
realizable value (see Note 13).
NOTE 4 - INVESTMENTS IN LIMITED PARTNERSHIPS
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. 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 also receives an overhead fee for the construction and
marketing of the homes.
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 13). 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, 1998.
19
<PAGE>
PEACOCK FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998
NOTE 5 - FIXED ASSETS
Fixed assets consist of the following at December 31, 1998:
<TABLE>
<S> <C>
Building $ 381,874
Furniture and fixtures 18,985
Computers and software 46,220
-------------
447,079
Accumulated depreciation (80,299)
-------------
Net fixed assets $ 366,780
-------------
-------------
</TABLE>
NOTE 6 - OTHER INVESTMENTS
During the year ended December 31, 1998, the Company became a
Business Development Corporation whereby the Company can raise
capital under a simplified and cost effective informational filing
with the Securities and Exchange Commission for the purpose of
investing in small businesses and government securities. The
Company intends to provide capital for these companies and to
later take these companies public through a spin-off process.
On October 19, 1998, the Company issued 1,000,000 shares of its
outstanding common stock valued at $100,000 to acquire an
approximate 33% interest in IPO/Emerging Growth Company, LLC.
(IPO). IPO was inactive through December 31, 1998. The investment
has been recorded under the equity method.
On October 23, 1998, the Company issued 820,000 shares of its
outstanding common stock valued at $100,000 to acquire an
approximate 5% interest in San Diego Soccer Development Corp.
(SDSDC), owner of the San Diego FLASH pro soccer team. As part of
the agreement, the Company has the option to purchase an
additional 5% interest. The investment has been recorded under the
cost method and the Company does not exercise any influence or
control over management of SDSDC.
Following is a summary of the investments held as of December 31, 1998:
<TABLE>
<S> <C>
33% interest in IPO/Emerging Growth Co. $ 100,000
5% interest in SDSDC 100,000
-------------
Total $ 200,000
-------------
-------------
</TABLE>
20
<PAGE>
PEACOCK FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998
NOTE 7 - NOTES RECEIVABLE
Notes receivable consist of the following at December 31, 1998:
<TABLE>
<S> <C>
Note receivable at 10%, unsecured,
principal and interest due March 17, 1999 $ 10,000
Note receivable at 6%, unsecured,
principal and interest due August 17, 1999 9,300
------------
Total Notes Receivable 19,300
Less: Current Portion (19,300)
------------
Long-Term Notes Receivable $ -
------------
------------
</TABLE>
NOTE 8 - LICENSING RIGHTS
Licensing rights consist of the following at December 31, 1998:
<TABLE>
<S> <C>
Licensing rights $ 60,000
Accumulated amortization (30,000)
------------
Net licensing rights $ 30,000
------------
------------
</TABLE>
During the year ended December 31, 1998, the Company issued
600,000 shares of its outstanding common stock valued at $60,000
pursuant to a license agreement with Linzy Capital, Inc. (Linzy).
Linzy is a private business development company which has invented
and developed an "Option Day Trading System." Pursuant to the
license agreement, the Company was granted a non-exclusive license
to use the option program, and the Company will pay Linzy a
management fee of 10% on the profits generated by the day trading
system. The license agreement became effective on October 2, 1998
and terminates on October 2, 2008.
The licensing rights have been recorded at cost and are amortized
using the straight-line method over a two year life. Amortization
expense for the year ended December 31, 1998 was $30,000.
NOTE 9 - LINE OF CREDIT
The Company has a line of credit with a bank at December 31, 1998.
Borrowings outstanding under this line of credit at December 31, 1998
was $6,365. The credit line bears interest at the bank's index rate
plus 2 percent or 12 percent currently and expires during July, 1999.
21
<PAGE>
PEACOCK FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998
NOTE 10 - NOTES PAYABLE
Notes payable consist of the following at December 31, 1998:
<TABLE>
<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 (18.0% at
December 31, 1998) collateralized by deed
of trust on real property. Lump sum payment
is due May 21, 1999. 205,540
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 3%, collateralized by deed of trust
on real property, due June 24, 2024. 70,000
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. 22,912
Loan payable at 9%, collateralized by deed of
trust on property, accrued interest and principal
due February 15, 1997 (see Note 13(b)). 193,088
Note payable to individual at 10%, collateralized by deed of
trust, payable in monthly interest only payments, principal due
January 19, 1997 (see Note 13(b)). 125,000
Note payable, non-interest bearing, unsecured,
payable in monthly installments of $1,000. 13,250
Debentures at 10%, unsecured, convertible into common shares at
rates of $0.05 to $0.10 per share at the option of the holder,
due December 31, 1998 through December 31, 2000. 422,400
------------
Total Notes Payable 1,617,561
Less: Current Portion (753,060)
------------
Long-Term Notes Payable $ 864,501
------------
------------
</TABLE>
22
<PAGE>
PEACOCK FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998
NOTE 10 - NOTES PAYABLE (Continued)
The aggregate principal maturities of notes payable are as follows:
<TABLE>
<CAPTION>
Years Ending December 31, Amount
------------------------- ------
<S> <C>
1999 $ 753,060
2000 364,501
2001 -
2002 -
2003 -
2004 and thereafter 500,000
------------
Total $ 1,617,561
------------
------------
</TABLE>
NOTE 11 - 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. The amount
outstanding as of December 31, 1998 was $114,000.
Certain stockholders have made loans to the Company. The loans
bear interest at rates from 8 percent to 10 percent per annum.
The balance outstanding at December 31, 1998 is $57,058.
The Company also holds a receivable from an officer of the
Company in the amount of $2,396. The amount is non-interest
bearing and due on demand.
NOTE 12 - 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, 1998 or 1997.
NOTE 13 - 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, 1998, the partnerships had certain liabilities with
recourse against the Company although management does not feel that
the potential liabilities will have a material impact on the Company.
23
<PAGE>
PEACOCK FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998
NOTE 13 - COMMITMENTS AND CONTINGENCIES (Continued)
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 $193,088 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.
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. 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. The Company entered into a joint venture agreement
subsequent to December 31, 1998 that is intended to develop the
Vista Ramona project. Pursuant to the joint venture agreement
and conditional upon the Company being able to meet certain
requirements and conditions, the joint venture partner will
invest up to $5,000,000 to develop the project.
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 principal 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.
24
<PAGE>
PEACOCK FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998
NOTE 13 - COMMITMENTS AND CONTINGENCIES (Continued)
f. BUILDING PURCHASE
During 1998, the Company entered into an agreement to purchase a
building adjacent to their corporate headquarters. The purchase
price will be $200,000 and closing is set to occur once the
Company has paid an initial down payment of $60,000 at which
time financing for the remaining $140,000 will occur. As of
December 31, 1998, the Company has paid $24,000 towards the down
payment which is included in other assets in the accompanying
financial statements. The Company has agreed to pay rent on the
building of $750 per month until the closing date. The Company
had not closed on the property as of the date of this audit
report.
NOTE 14 - 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.
NOTE 15 - DISCONTINUED OPERATIONS
The Company decided to either sell or dispose of a portion of its
operations during 1997. The operations of these projects are being
netted together as loss on discontinued operations. The resulting
gain for the year ended December 31, 1997 was $90,956. In addition,
the Company recognized a gain on the disposition of the discontinued
operations of $1,003,534 for the year ended December 31, 1997.
25
<PAGE>
PEACOCK FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998
NOTE 16 - 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 consolidated
financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.
The Company has, however, entered into three separate joint
venture agreements subsequent to December 31, 1998 which
management believes will enable them to develop certain properties
that the Company owns or properties owned by certain investment
partnerships that the Company has an interest in. Management
believes that the real estate market in California has improved
substantially which increases the potential of the Company to
generate revenues sufficient to cover its costs.
The Company has also been able to raise an additional $390,000 in
capital during January and February 1999. One of the Company's
investments, San Diego Soccer Development Corp. is in the process
of going public through a SB-1 filing and if successful, will allow
the Company to be a selling shareholder in the offering which is
expected to raise $450,000 of new capital for the Company.
NOTE 17 - SUBSEQUENT EVENTS
Subsequent to December 31, 1998, the following transactions occurred:
1) On January 28, 1999, the Company issued 750,000 shares of its
outstanding common stock to acquire a 20% interest in Solutions
Media, Inc. (SMI). SMI provides a variety of professional services
including web site design and implementation, database and graphic
design and web based marketing and advertising. SMI's product
development strategy centers on developing and licensing
interactive television interfaces.
2) The Company converted outstanding debentures of $50,000 plus
accrued interest of $1,565 into 1,031,300 shares of common
stock at $0.05 per share.
3) The Company entered into three separate joint venture
agreements that will be utilized to develop certain
properties (See Note 16).
26
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 21,696
<SECURITIES> 0
<RECEIVABLES> 2,967,606
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,989,302
<PP&E> 447,079
<DEPRECIATION> (80,299)
<TOTAL-ASSETS> 3,356,082
<CURRENT-LIABILITIES> 1,329,717
<BONDS> 864,501
0
6,723
<COMMON> 20,750
<OTHER-SE> 1,134,391
<TOTAL-LIABILITY-AND-EQUITY> 3,356,082
<SALES> 0
<TOTAL-REVENUES> 609,811
<CGS> 585,490
<TOTAL-COSTS> 1,089,130
<OTHER-EXPENSES> 43,314
<LOSS-PROVISION> 164,057
<INTEREST-EXPENSE> 132,912
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (128,344)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,533,436)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.08)
</TABLE>
