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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: March 31, 1996
Commission File Number: 0-16734
C.E.C. INDUSTRIES CORP.
(Exact name of registrant as specified in its charter)
Nevada 87-0217252
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
No.)
23 Cactus Garden Drive, F-60
Green Valley, Nevada 89014
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (702) 893-4747
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.05 par value
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.05 par value
Indicate by check mark whether the registrant (a) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value (the average bid and asked prices) of
the voting stock held by non-affiliates of the registrant on June 21,
1996, was approximately $1,840,138. The number of shares of Common Stock,
$0.05 par value, outstanding on June 21, 1996, was 16,431,795 shares, held by
approximately 1,728 shareholders.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's definitive Proxy Statement for the annual meeting of
shareholders to be held on August 21, 1996, is incorporated by reference
in Part III of this Form 10-K to the extent indicated.
PART I
ITEM 1. BUSINESS
(a) General
C.E.C. Industries Corp. is a Nevada corporation with principal
and executive offices located at 23 Cactus Garden Drive, F-60,
Henderson, Nevada 89014, telephone (702) 893-4747. C.E.C. Industries Corp.
and it's consolidated subsidiaries are referred to as either C.E.C. or the
"Company." C.E.C. is engaged in several unrelated businesses through its
primary subsidiaries, Moonridge Development Corp., (hereinafter referred
to as "Moonridge"), (real estate development and construction), Custom
Environmental International, (hereinafter referred to as "CEI"), (carbon
reactivation technology; ), Sterling Travel, (hereinafter referred to as
"Sterling"), (travel businesses), Atlas Methane Development Corporation,
(hereinafter referred to as "Atlas Methane"), (methane gas and
unencumbered leasehold ownership in 13,500 acres), Mid-Nevada Art, Inc.
(hereinafter referred to as "Mid-Nevada Art"), (art collection), Basia
Holding, Inc. (hereinafter referred to as "Basia"), (9,000 acres in fee
land in Tennessee with coal reserves), and Auto Express, Inc., (hereinafter
referred to as "Auto Express"), (vehicle transport business). The Company's
current organization was accomplished through a merger and acquisition
program during the last two fiscal years ended March 31, 1996, and
continuing through the present.
C.E.C. was incorporated as Justheim Petroleum Company in Nevada in
1952. C.E.C. Management Corp. was merged into Justheim Petroleum Company
effective December 31, 1986, and was renamed C.E.C. Industries Corp.
Prior to the merger, Justheim had historically engaged in the business of
acquiring, holding and selling oil and gas leaseholds and retaining
overriding royalty rights. C.E.C. Management Corp. primarily was in the
business of engineering consulting and designing and marketing customized
minerals processing systems and equipment. While the Company continued to
receive oil and gas production overriding royalty income until recently,
until the Company acquired the Atlas Methane and Basia Holding interest
in methane, coal, and timber rights, the Company had primarily ceased its
mineral holdings interests.
C.E.C.'s primary business had been the manufacture and sale of
minerals processing equipment through its wholly-owned subsidiary,
Custom Equipment Corporation. Custom was a pioneer in the development of
custom gold processing equipment in the early to mid-1980's, thus,
business was very profitable. However, as gold prices declined after the
early 1980's, fewer gold plants were built, more competitors entered the
market, and Custom's business was negatively impacted. The Company
attempted to use its expertise and know-how to develop the
carbon reactivation furnace technology in the water treatment industry, but
the continued losses in the metallurgical business caused a capital drain
necessitating other measures. Custom Environmental International became
the renamed subsidiary to carry on the efforts, building a new
prototype carbon furnace now being developed. The metallurgical
equipment business was sold in fiscal year 1991, and on October 4, 1995,
the Company announced the spin off of CEI, wherein, pursuant to the terms
of the spin off, C.E.C. would retain 13% of CEI.
In September 1993, the Board of Directors of C.E.C considered
expanding the Company's business into business opportunities outside
of the carbon reactivation furnace technology business, and thus caused
several new directors with real estate expertise to join the C.E.C. board.
The intent being to develop land owned by the Company in St. George, Utah as
well as other properties to be acquired. A property in Las Vegas was
immediately acquired for cash and convertible preferred stock on February 4,
1994. Private financing was arranged to provide the cash necessary for the
purchase. The transaction also provided working capital for development of
the property as well as for further development and marketing of the carbon
technology. The Las Vegas property was partially being developed for a
mini- storage facility with a three million dollar line of credit from the
Bank of America. Pursuant to the terms of the agreement wherein CEC was
acquiring the land situated in Las Vegas, CEC issued 600,000 shares of
preferred stock which was convertible to Common Shares at a guaranteed "bid"
price of not less than $4.00 per share. The agreement further specified
that in the event the "bid" price was less than the stated $4.00 per share at
the time in which the shares are offered for conversion prior to February 4,
1996, then in that event the Company was obligated to issue additional
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common stock to satisfy any shortfall. On November 2nd, 1995, the
Company, in anticipation of a substantial dilution, (as the result of
the Company's delisting from Nasdaq in August of 1995) negotiated for a
modification of the preferred stock agreement wherein the Preferred Stock
was exchanged for non-convertible voting preferred stock, in addition to
the delivery of fee title to the St. George property. Further, pursuant to
the modification agreement, the Company received a promissory note for
$1,200,000 which note is collateralized by certain shares of the
non-convertible voting preferred stock issued under the agreement.
On March 28, 1996, the Company entered into an agreement whereby the
Company issued 8,660,000 shares of common restricted voting stock and
8,663,041 shares of preferred voting stock of the compnay in exchange for
100% of the issued and outstanding common shares of Basia Holding, Inc.,
a Tennessee Corporation holding 9,000 acres of fee land with
approximately 52,000,000 tons of low sulfur coal, 100% of the issued
and outstanding shares of Mid-Nevada Art, Inc., and 100% of Atlas Methane
fully paid leasehold interests which leasehold interests include
approximately 13,500 acres located in the Black Warrior Basin area of
Alabama containing approximately 31 billion cubic feet of methane
reserves. The March 28th agreement further required the resignation of
three of the Company's directors.
During fiscal 1996, the Company made an election, pursuant to the terms of
the agreement with Sterling Travel on January 18, 1995, to not issue the
400,000 shares of preferred non-voting stock in exchange for 100% of
Sterling Travel. The election to terminate the Sterling Travel transaction
was based upon income and expense reports demonstrating revenues
substantially below the earn out criteria set forth in the agreement, and
expenses which increased after the acquisition. The 400,000 shares of
preferred stock would have converted at $5 per share with adjustments
in the price as the result of a lower price of the stock on conversion.
The Company deemed it in the best interest of the Company to opt out of the
agreement.
On June 15, 1996, the Company entered into an agreement with Auto Express,
Inc., (hereinafter referred to as "Auto Express") wherein the Company
purchased 100% of the issued and outstanding shares of Auto Express. Auto
Express is involved in the business of transporting vehicles across the
United States for major businesses as well as consumers.
(b) Information About Industry Segments.
The Company is currently engaged in four main businesses; real
estate development and construction ("Moonridge"); transportation of
automobiles ("Auto Express"); mineral rights development ("Atlas Methane"
and "Basia Holding") and investments in art ("Mid-Nevada Art"). Information
regarding the Company's reportable business segments is set forth in Item
1(c) and Note 9 to the Financial Statements.
(c) Narrative Description of Business.
Moonridge Development Corp.
Operations. The Company's real estate operations are conducted
through the Company's wholly owned subsidiary, Moonridge Development
Corp. ("Moonridge"), a licensed General Contractor in the State of Nevada.
Moonridge is responsible for the development and/or construction of the
following projects:
80.5 Acre Development - St. George, Utah. The Company owned an undivided
65% interest in 80.5 acres of undeveloped property in St. George, Utah.
The Estate of Clarence I. Justheim and Wyoming Petroleum Company owned
the remaining interest. The Company, pursuant to an agreement reached in
November of 1995, agreed to convey the property to DSM Golf Enterprises,
Inc., in exchange for a promissory note in the sum of $1,200,000 and other
consideration as set forth in the agreement.
Page 3
Mini-Storage Facility - Henderson, Nevada. The Company owns
approximately 7.28 acres of property generally described as the Mission
Valley Mini Storage ("Mini-Storage Project") in addition to a contiguous
1.39 acre parcel located on Russell Road, contiguous with U.S. Highway
95, outside the city limits of Las Vegas, Nevada. On March 31, 1995, the
Company entered into a loan agreement with Bank of America for $3,000,000
to build the project. Permits were subsequently obtained from the County
of Clark, Nevada, to commence clearing the project in preparation for
construction. In an agreement which was reached with second deed of trust
holder on the Mini-Storage Project, during May of 1996, the Company agreed
to transfer the project in exchange for the reduction of Company debt of
approximately $1,525,000.
17.44 Acre Planned Development - Henderson, Nevada. The Company
owns approximately 17.44 acres of property contiguous with the Mini-Storage
Project, located on Russell Road, contiguous with U.S.Highway 95,
outside the city limits of Las Vegas, Nevada. In November of 1995, the
Company entered into an agreement with Landmark International, Inc.
("Landmark") for the sale of the property at a price of $5,200,000 in
Landmark stock and debt assumption. After repeated demands and Landmark
having agreed to issue the agreed upon stock, the Company is still not in
receipt of the stock and on that basis the Company is pursuing appropriate
legal remedies. It is the intent of the Company to either sell the property
or development it.
320 Unit Multi-Family Project to be built - Henderson, Nevada. In
June, 1995, the Company acquired a 24.5% interest in a 320 unit apartment
project generally known as Victory Village, in exchange for 1,200,000
shares of Rule 144 stock, with a simultaneous two-year restriction.
The project is located in Henderson, Nevada near the intersection of
Lake Mead Blvd. and Boulder Highway. The City of Henderson issued bonds to
facilitate the financing on the project, with HUD, (Department of Housing
and Urban Development) insuring the construction and permanent loan in the
sum of $16,442,400, at 6.38% interest, and due in 40 years, which loan
was recorded in June of 1995 against the approximate 17.72 acres.
Permits for the project have been obtained from the City of Henderson,
and construction on the project is approximately 40% completed. It is
anticipated that the project will be complete by calendar year end, 1996.
Strategy. The Company's near term strategy for Moonridge Development
Corp. is to concentrate it's efforts on the development of the 320 unit
Victory Village project. The Company is currently negotiating for the "spin
off" of Moonridge.
Atlas Methane Gas Interests
The Company owns 100% of 13,500 acres of leasehold interest located in
the Black Warrior Lagoon area of Alabama, containing approximately 31 billion
cubic feet of methane reserves.
Introduction. Coal deposits in the United States are widespread, underlying
360,000 square miles in 37 states. Methane is present in nearly all coal
from the shallow subsurface to depths over 10,000 feet. Coalbed basins
are generally divided into eastern and western types. This segregation
is on the basis of both geography and geology. The eastern coals
are primarily Pennsylvanian Age and western coals are Cretaceous Age. Much
of the drilling for coalbed gas has been concentrated in the Black Warrior
Basin of North Central Alabama. This is due to several factors:
The basin's proximity to gas pipelines that deliver to stable gas
markets.
The high BTU values of the gas, from 950-1050.
Drilling depths are shallow from 1,000 to 5,000 feet.
The coals are well understood in terms of their thickness, rank, and
content.
Long term production has been established.
Page 4
Black Warrior Basin. Coal has been produced continuously for over 100 years
in the Black Warrior Basin. Although the presence of gas in coalbeds has
been recognized from the beginning, it had been considered only as a hazard
to coal mining. Gas from the field was originally vented, but as the
natural gas prices increased, the gas was collected and sold.
Market Analysis. The pipeline systems situated in the Black Warrior
Basin, are Alabama Gas Company (ALAGASCO), Basin Pipeline Corporation, and
Southern Natural Pipeline Company (SONAT), and Associated natural Gas
Inc. (ANGI). The Company does not contemplate any marketing problems
related to coalbed methane production in the Warrior Basin.
Competition. There are a large number of companies and individuals
engaged in exploration and development of oil and gas properties.
Accordingly, the Company will encounter strong competition from
independent operators and major oil companies in acquiring any additional
leases suitable for development. Many of the companies so engaged have
financial resources and staffs considerably larger than those available to
the Company. There are likewise numerous companies and individuals engaged
in the organization and conduct of royalty, production, and marketing of
gas, thus providing a high degree of competition among companies and
individuals in the development and marketing of gas leasehold interests.
The ability of the Company to market oil and gas found and produced,
if any, will depend on numerous factors beyond the control of the
Company, the effect of which factors cannot be accurately predicted or
anticipated. Some of these factors include the availability of
other domestic and foreign production, the marketing of competitive
fuels, the proximity and capacity of pipelines, fluctuations in supply and
demand, the availability of a ready market, the effect of the federal
and state regulation of production, refining, transportation and sales,
and general national and worldwide economic conditions.
Basia Holding, Inc.
Basia Holdings owns approximately 9,000 unencumbered acres of land and
approximately 52,000,000 tons of coal reserves in Grundy County, Tennessee
known as O & F Tennessee land; and is in part of what is locally referred
to as the Southern Field of the Tennessee coalfield.
The Company currently does not have the means, nor the intention in the
near future to attempt to develop and or mine the coal property and/or
timber on its own. The Company is seeking a buyer for the coal reserves and
the timber rights. The ability of the Company to market either the coal or
timber rights will depend on numerous factors beyond the control of the
Company, the effect of which factors cannot be accurately predicted or
anticipated. Some of these factors include the accessibility of the
material, the availability of other domestic and foreign
production, environmental issues in both the region where the materials are
located and other regions where competitive materials are located,
fluctuations in supply and demand, the availability of a ready market, the
effect of the federal and state regulation of production, transportation
and sales, and general national and worldwide economic conditions.
Mid-Nevada Art, Inc.
Mid Nevada Art, Inc. is a wholly owned subsidiary of CEC with assets of
$1.7 million, which assets are made up of $1.7 million in appraised artworks
by Sky M. Jones, a noted American artist. Sky Jones is a painter from the
American West, born October 3, 1947 in Salt Lake City, Utah. He graduated
with a Bachelor degree in Art from the University of Utah in 1971. He has
written books on Art and Life. Jones deals in Multiple Imagery, that is,
layers upon layers of 3D forms overlaid and interwoven. Sky Jones
originals have been in the private collections of Queen Elizabeth,
Governor Michael Dukakis, the late Lucille Ball, and Mohammed Ali to name a
few. He has created various movie posters including Star Trek, the Never
Ending Story, Final Countdown, etc. Limited edition prints and paintings
by Sky Jones have been collected by or displayed in museums, corporations
and galleries world wide.
Page 5
On June 27, 1996, Mid-Nevada Art, Inc. entered into an agreement (the
"Exchange Agreement") whereby Mid-Nevada Art, Inc. exchanged eighteen (18) of
the original art works owned by Mid-Nevada Art, Inc. for two hundred and
seventy-eight (278), $10,000 pre-paid long distance calling cards at a rate
of approximately $0.45 per minute or better with an expiration date of five
(5) years (June 27, 2001), at an exchanged value of $2,779,700. Concurrent
with, and as part of the Exchange Agreement, Mid-Nevada Art, Inc. also
exchanged three (3) $100,000 pre-paid long distance calling cards at a
$0.45 per minute rate, with
no expiration date, and forty-five (45) $10,000 pre-paid long distance
calling cards at a $0.45 per minute rate, with an expiration date of
five (5) years, collectively, for an additional 12 original art works by
Sky M. Jones, with appraisals totalling $750,000.
Auto Express, Inc.
Auto Express is involved in the business of transporting vehicles across
the country for major businesses as well as consumers. Auto Express has been
employed by companies such as Ford, GM, Chrysler, Mayflower, United Van
Lines, as well as a number of professional sports organizations in the United
States, including the Chicago Bulls and Colorado Avalanche.
Auto Express was founded in December of 1993 and commenced it's current
operations in January of 1994. The intent of Leon Harte, Auto Express'
President, was to build a full service, vehicle hauling transportation
company. Originally the company only utilized owner-operators until the
company purchased it's own trucks and equipment.
Auto Express revenues have grown from sales of $680,000 in 1994, to
$1,800,000 in 1995. The projections for 1996 are in excess of the $3 million
range and could be adjusted upward if Auto Express, with the help of C.E.C.,
can acquire additional vehicle hauling trucks and equipment.
The growth of the vehicle transportation business is booming. The
company is currently turning away almost as much in sales as the $3 million
dollar projected revenues for 1996. Yet Auto Express does no advertising and
has no marketing people.
The thrust of Auto Express' intentions in 1996 is to add at least two
more company owned trucks, each additional 10-12 car carrier adds a minimum
of $250,000 in annual revenues.
Oil and Gas Royalties
C.E.C. has overriding royalty interests in oil and gas properties
held by various other parties. All revenues from C.E.C.'s interests in
the properties have been received in cash. The Wyoming lands held by Mobil
Oil Company provided the largest part of the Company's oil and gas royalty
income, approximately $67,000 (47%) in fiscal year 1994.
C.E.C. does not presently deal in oil and gas leases, nor does it
have facilities or means to perform the exploration, development and
operation of oil and gas wells on properties in which it has interests.
Management has no present intention of directly engaging in either activity
in the future. Other than its 18% working interest in two oil and gas
wells in Colorado, the Company owns no producing wells ("working interest"
means an interest owner who participates in the costs as well as the
revenues of the property; overriding royalty interest owners participate
in gross production revenues only). Exploration and development of the
mineral and oil and gas deposits located in or on the properties is
undertaken by third parties. If and when production is realized on any
properties in which C.E.C. has an interest, it receives a share of gross
production revenues based upon the percentage overriding royalty interest it
has retained.
Most of the royalty interests were disposed of during fiscal 1994, for a
realized gain of $604,905. The balance of royalty interests were disposed of
during fiscal 1996, for a realized gain of $56,206.
Page 6
Other Investments
Custom Environmental International. Custom Environmental International,
("CEI") is engaged in the business of development and implementation of a
patented carbon reactivation furnace. In October of 1995, the Company Board
of Directors elected to Spin-Off CEI in an effort to avoid continued losses
resulting from the expense of developing the prototype carbon reactivation
unit. However as of March, 1996, the spin-off was not completed.
Sterling Travel. The Company terminated its interest in acquiring
Sterling travel during fiscal 1996, as the result of insufficient revenues
to comply with the earn out provisions of the original Acquisition Agreement
with Sterling.
Logos International Inc. The Company has written down the value of its
430,320 shares of Logos International, Inc. which had been acquired in 1991
when the office building and the majority interest in GLI Industries,
Inc. were sold. Because the quoted per share price of the stock decreased
from over $5.00 bid at the end of the 1993 fiscal year to $.125 bid at March
31, 1994, the value was written down to $53,790, realizing a loss of
$625,960 in fiscal 1994. Approximately half of the Logos stock was sold
during 1995 resulting in a further loss and write-down of $46,305.
The remaining value on the books is $2,605. During the fiscal year 1996,
all the remaining shares were sold for $34,996.
Federal and State Regulation. General. The activities of the Company
with respect to methane gas and coal, are subject to federal and state
environmental laws and regulations which impose limitations on the discharge
of pollutants into the air and water and which also establish standards for
the treatment, storage and disposal of solid and hazardous waste. Management
believes that the Company is substantially in compliance with such laws
and regulations, and there are no pending proceedings which question
compliance with all applicable environmental, health and safety.
Although the Company does not consider current laws and regulations
relating to such matters to be materially burdensome, especially in light
of the reserve status of the Company's involvement as opposed to
operations, there can be no assurance that future legislative or
governmental actions or judicial decisions will not adversely affect the
Company or its ability to retain the mineral rights set forth herein. The
Company is not aware of any proposed or pending legislative,
governmental or judicial action that would materially adversely
affect the Company's properties.
Methane Extraction. The chief potential for environmental harm in the
extraction of coalbed methane, the gas trapped in underground coal streams,
is the discharge of salt water into streams. Weekly and monthly
water-quality samples are required to monitor the water quality during
extraction. Currently the Company is not involved in the extraction of
its methane reserves, and thus faces no immediate environmental challenges.
Executive Offices
C.E.C.'s executive offices are located at 23 Cactus Garden Drive,
F-60, Green Valley, Nevada 89014.
PATENTS
C.E.C. had obtained certain patents for its low temperature furnaces
developed by CEI and used in regenerating carbon; however, pursuant to the
terms of the "Spin-off" agreement pertaining to CEI, the patents remained
with CEI.
Page 7
EMPLOYEES
The Company and its subsidiaries currently employ
approximately 135 full and part time employees.
Profit Sharing and 401 (k) Plan. The Company's Profit Sharing
and 401 (k) Plan provides a means by which eligible participating
employees of the Company may set aside and invest a portion of their
earnings. Employees meeting the eligibility requirements were able to
participate by contributing up to 15% of their regular compensation on a
pre-tax basis to be invested in the employee's choice of several mutual
funds, with investment objectives ranging from money market to equity
portfolio investments. In February, 1996, the Company terminated its
401(k) plan.
ITEM 2. PROPERTIES
Principal and Executive Offices. C.E.C. leases 2,622 square feet of
office space for its executive offices at 23 Cactus Garden Drive, F-60,
Green Valley, Nevada 89014. Auto Express, Inc. leases 15,000 square feet
of office space and warehouse storage space at 1717 E. 39th Avenue, Denver,
Colorado.
Oil and Gas Interests. The Company has sold its remaining overriding
royalty interests in oil and gas wells producing in the Natural Buttes
field in Uintah County, Utah, and has sold its holdings in the Big Piney,
Ruben, Chimney Butte, Deer Hill Field, Long Island and Tip Top fields in
Sublette County, Wyoming.
St. George Properties. A general discussion of the St. George,
Utah development project is included under Item 1(c), "Narrative
Description of Business", "Operations". C.E.C. transferred its
interests in the St. George property pursuant to the terms and
conditions of an agreement entered into during November, 1996.
Mission Valley Mini-Storage Facility. A general discussion of the
mini-storage project is included under Item 1(c), "Narrative
Description of Business", "Operations". The Company acquired 7.28 acres of
property located in Las Vegas, Nevada as part of a larger parcel of
property, on February 9, 1994, utilizing preferred stock of the Company.
The Company executed an agreement to transfer the mini-storage project to the
second deed of trust holder for approximately $1,525,000.
Other Las Vegas Properties. A general discussion of the other
parcels of property acquired on February 9, 1994, are included under
Item 1(c), "Narrative Description of Business", "Operations". The Company
is currently planning to sell or develop the property.
320 Unit - Victory Village Apartments. A general discussion of the 320
unit Victory Village project is included under Item 1(c), "Narrative
Description of Business", "Operations". During June 1995, the Company
acquired a 24.5% interest in the Victory Village III, Ltd. partnership
utilizing Rule 144 restricted common stock of the Company valued at
$700,000. A $16,442,400 loan was recorded against the approximate
17.72 acres providing the construction financing for the project. Moonridge
Development Corp. is acting as the General Contractor for the project and
construction is approximately 40% complete, with final completion anticipated
for late 1996. (See Note 13 of the Financial Statement)
Basia Holding, Inc. A general discussion of the Basia Holding are
included under Item 1(c),"Narrative Description of Business", "Operations".
Basia Holding owns approximately 9,000 unencumbered acres of land and coal
reserves in Grundy County, Tennessee known as O & F Tennessee land; and is
in part of what is locally referred to as the Southern Field of the
Tennessee coalfield.
There are approximately 500 acres of Sewanee coal with an average
thickness of about 42 inches; there are approximately 5,000 acres of
Richland coal with an average thickness of about 36 inches; both the
Sewanee and Richland seams are minable by surface methods and 3,200 acres
Page 8
minable by underground methods; the Angel seam has an average thickness of
about 32 inches. Below the Angel coal and mineable by underground methods
only is found the wilder seam which encompasses approximately 5,400 acres
with an average thickness of about 30 inches. In addition to the above,
an assumption of an 85 per cent recovery factor was used in calculating
reserves to be extracted by surface mining methods, and a 50 per
cent recovery factor was used in calculating reserves to be
extracted by underground methods. Consideration of the above
information and applying that information to the basic formula that the
recoverable tonnage of coal equals 150 tons per inch of coal per acre,
there is in summary the following:
Sewanee Coal 3,468,000 tons
Richland Coal 20,400,000 tons
Angel Coal 15,840,000 tons
Wilder Coal 12,150,000 tons
Total 51,858,000 tons
Atlas Methane Gas Interests. A general discussion of the Atlas
Methane holdings are included under Item 1(c), "Narrative Description of
Business", "Operations". The Company owns 100% of 13,500 acres of
leasehold interest located in the Black Warrior Lagoon area of Alabama,
containing approximately 31 billion cubic feet of methane reserves.
The Black Warrior basin encompasses an area of about 35,000 square
miles in northeastern Mississippi and Northwestern Alabama. The basin
is named for the Black Warrior River, a prominent navigable river over
most of its length through the area. Physiographically the Black Warrior
basin straddles the Cumberland Plateau, Appalachian Valley and Ridge
province, and East Gulf Coastal Plain. Although the basin's exact limits
are not firmly established in the literature, it is structurally bounded
on the north by the Nashville-Cincinnati arch and on the southeast by the
Appalachian fold and thrust belt. The basin is largely covered by
Cretaceous and younger sediments of the Gulf Coastal Plain and Mississippi
Embayment.
ITEM 3. LEGAL PROCEEDINGS
The Company's subsidiary, Custom Envvironmental International ("CEI"),
filed suit in the United States District Court for the Central Division of
Utah, Custom Envvironmental International, a Utah corporation, Plaintiff vs.
Lochkead-Haggerty Engineering & Manufacturing Co., Ltd., a Canadian
corporation, Defendant, Case No. 2:95CV0153B, in wich CEI is claiming an
infringement of CEI's patent. The Defendant has responded to the complaint
by (i) requesting and extenstion of time to file a responsive pleading and
(ii) making an offer of settlement which has been rejected.
The Company executed a contract for the acquisition of certain
medical technology from Bio-Sphere Technology in April of 1994, and
subsequently entered into a distributuin agreement with an unrelated company.
Bio-Sphere, in January of 1995, attempted to rescind the agreement of April,
1994. The Compay, during the year 1996 agreed to rescint the contract and
cancel the preferred shares issued in connectiuon therewith.
Fernando Aldecoa, et. al. v. Softpoint, Inc., United States District
Court, Southern District of California, Case Number 951654H(LSP). An
action brought by shareholders of another public company wherein CEC
Industries Corp. is alleged to be an alter ego of the other public
company. Independent counsel for the Company, selected by the Company's
insurance company, is handling the litigation, which is not anticipated to
result in a judgment against the Company.
The Walter Company v. McHaffie, et. al., Superior Court of the State
of California for the County of Los Angeles, Case Number BC 135322.
An action brought by the owners of real property wherein CEC Industries
Corp. is a limited partner. The real property relates to the underlying
land for the development and construction of the 320 unit apartment
project which was financed by HUD. A title report was issued at the time
of the acquisition and financing by HUD, which title report provided
Page 9
proper title to the limited partnership which owns the real property.
Counsel for the Company is of the opinion that the Company's status as a
limited partner should be up-held and thus the Company should avoid any
liability under the lawsuit.
As of the date hereof, the Company is not aware of any other material
legal proceedings, pending or contemplated, to which the Company is, or
would be, a party of or which any of its property is, or would be the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders, through
the solicitation of proxies or otherwise, during the fourth quarter of
the Company's fiscal year ended March 31, 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is traded in the over-the-counter securities
market through the National Association of Securities Dealers Automated
Quotation Bulletin Board System, under the NASDAQ symbol CECN. The
following table sets forth the quarterly high and low bid prices for the
Company's Common Stock during the last two fiscal years of the Company, as
reported by the National Quotations Bureau. The quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and
may not necessarily represent actual transactions.
1996 1995
High Low High Low
1st Quarter $1.00 $ .5625 $3.75 $2.00
2nd Quarter .71875 .125 2.25 1.38
3rd Quarter .3125 .1875 1.63 0.91
4th Quarter .3125 .15625 1.13 0.75
No dividend was declared or paid by the Company during fiscal
year 1996 or 1995. A decision to pay dividends in the future will depend
upon the Company's profitability, need for liquidity and other financial
considerations. There are approximately 1,728 shareholders of the
16,431,795 outstanding shares, as of June 21, 1996.
Page 10
ITEM 6 SELECTED FINANCIAL DATA
1996 1995 1994 1993 1992
Revenue from continuing
operations $ 2,463,276 $ 87,501 $ 142,238 $ 137,316 $ 126,877
Revenue from discontinued
operations 0 0 0 0 10,757
Net income (loss) from
continuing operations $(1,283,313) $(1,826,551) $ (296,992) $ 1,838 $ 12,464
Net loss from discontinued
operations 0 0 0 0 (881)
Loss per common share:
Continuing operations (0.06) (1.22) (0.19) 0.00 0.00
Discontinued operations (0.00) 0.00 0.00 0.00 0.00
Total Assets $11,115,648 $ 6,274,983 $6,094,026 $2,116,918 $1,934,271
Long term obligations 0 0 0 0 0
Cash dividends per
common share: 0 0 0 0 0
During 1992, the Company sold GLI Industries, Inc. which
manufactured and marketed various handyman products. During 1991, the
Company sold Custom Equipment Corp. which designed and manufactured
specialized mineral processing equipment and its metallurgical consulting
services. The revenue, net loss from discontinued operations and loss per
common share in the five-year summary above reflects these discontinued
operations.
During 1996, the Company terminated its ownership of Sterling
Travel pursuant to an agreement where Sterling Travel was to reach certain
revenue milestones prior to the issuance by the Company of Preferred Stock
to Sterling. Since a condition subsequent occurred, in the failure to reach
the revenue goals as set forth in the agreement, the Company determined it in
the best interest of the Company to terminate the agreement. The revenue,
net loss from discontinued operations and loss per common share in the
five-year summary above reflects these discontinued operations.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and the notes thereto.
Overview
The Company's combined historical financial statements consist
primarily of the operations and assets of Moonridge Development Corp.,
and to a limited extent, CEI. The Company has continued to go through major
transitions pertaining to direction, management, and continued operations.
During fiscal 1996, the Company pursued both development and construction
activity under its wholly owned subsidiary, Moonridge Development, Corp.,
earning revenues in its construction division of $1,187,208 while at the
Page 11
same time setting the stage for new management which occurred in the fourth
quarter of fiscal 1996, with the acquisition of 100% of the stock of
Basia Holdings, Inc., Atlas Methane, and 100% of the stock in Mid-Nevada
Art, Inc. Subsequent to year end, the Company continued with its
expansion through the acquisition of Auto-Express, Inc.
Moonridge Development Corp. In the third quarter of fiscal 1994, the
management of the Company formed a wholly owned subsidiary, Moonridge
Development Corp. ("Moonridge") for the purpose of facilitating the
development and construction of the Company's properties located in
St. George, Utah, Las Vegas, Nevada, and Henderson, Nevada. Moonridge
obtained its general contracting license, and in the first quarter of
fiscal 1996, executed a contract for the acquisition of a 24.5%
interest in Victory Village III, Ltd., a Nevada limited partnership,
facilitated the placement of a $16,500,000 HUD loan for the project
(the "Victory Village Project"), and executed a contract for the
construction of the 320 Unit Victory Village Project for Victory Village
III, Ltd. In addition, Moonridge set up the development, construction and
financing of the Company owned Mini-warehouse project located on 7.28 acres
in Las Vegas, Nevada, in addition to a 1.39 acre, contiguous parcel.
However, after obtaining a three million dollar construction loan
from Bank of America for the construction of the mini-storage
project in Las Vegas, Nevada, and actually commencing construction, then
problems arose in the construction permitting and the cross collateralization
of this property and the 15.24 acres contiguous, the company then decided to
sell its interest in the Mini Warehouse project. In consideration of the
debt relief of approximately $1,525,000 and the pay off by the purchaser
of the outstanding loan of approximately $575,000 for the project,
Moonridge entered into an agreement for the sale of the project,
which sale occurred subsequent to year end, during the first quarter,
fiscal 1997. As the result of the sale of the mini-storage property, the
Company reduced its debt position by in excess of $1.5 million. However, as
discussed below, results of the Company's construction and development
programs created additional expenses to the Company, without offsetting
revenues. Revenues from the construction and development programs are
anticipated to level in fiscal 1997 due to the proposed spin-off of
Moonridge and the proposed liquidation of other undeveloped land owned
by the Company in Las Vegas, Nevada.
During the second quarter of fiscal 1996, Moonridge commenced
construction on the 320 unit Victory Village project and as of June 1,
1996, was 40% completed with the construction.
The Company currently owns an additional 17.44 acres of undeveloped
land located in Las Vegas, Nevada, which the Company intends to sell or
develop in the near future. During the third quarter of fiscal 1996, the
Company entered into an agreement for the sale of the undeveloped acreage for
$5.2 million; however, as of the end of June, 1996, the transaction has
not been completed, and the Company, based upon the opinion of counsel,
does not believe the transaction will be completed. Current outstanding
obligation on the property is $1.6 Million.
Sterling Travel. In the fourth quarter of 1995, the Company acquired
Sterling Travel, and the revenues and expenses thereof from February 28,
1995 to March 31, 1995, were included in the revenues and expenses for
fiscal 1995. Pursuant to the terms and conditions of the agreement with
the 100% owner of Sterling Travel, the Company was purchasing the travel
company for 400,000 shares of preferred stock of the Company, at a valued
price of $5 per share, convertible to common stock, with a total value of
$2 million. In the event that in two years, the price of the stock of the
Company was not valued at $5 per share, then in that event the Company was
required to off set the difference with the issuance of additional shares
of common stock. According to the agreement, the preferred stock was to be
issued according to an earn out schedule based upon revenues earned by
Sterling Travel. However, Sterling Travel did not receive the revenue
projections as initially projected, and the preferred stock was not issued,
and the transaction was canceled.
CEI. The Company, through its subsidiary, CEI, continued to incur expenses
related to the carbon reactivation furnace which was being tested a
Thiokol Corporation in Utah. In the third quarter fiscal 1996, based upon
discussions with the management of the Company and the Board of
Directors of the Company, and in consultation with certain other persons
not affiliated with the Company, the Board concluded that the investment
in the carbon reactivation technology was not an appropriate means
of diversifying the Company's operations and required more cash to finance
Page 12
its operations than appeared prudent to the Board. George Matthews, a
member of the Company's Board who was primarily responsible for
overseeing the Company's investment in CEI, and was acting president of
CEI, agreed, with the rest of the CEC Board of Directors to spin-off CEI.
As of 3/31/96 and 6/28/96 the spin off was not completed. Accordingly, the
subsidiary's assets and operations were included in the 3/31/96 consolidated
financial statements.
Agreement to Terminate Conversion. In the third quarter of fiscal 1996, the
Company entered into an agreement with DSM which terminated the
preferred stock conversion rights which were issued pursuant to the terms
of the agreement wherein CEC was acquiring the land situated in Las
Vegas. CEC issued 600,000 shares of preferred stock which was convertible
to Common Shares at a guaranteed "bid" price of not less than $4.00 per
share. The original agreement further specified that in the event the
"bid" price was less than the stated $4.00 per share at the time in
which the shares are offered for conversion prior to February 4, 1996,
then in that event the Company was obligated to issue additional common
stock to satisfy any shortfall. On November 2nd, 1995, the Company, in
anticipation of a substantial dilution based upon the then low value of
the common stock of the Company, (partially as the result of the
Company's delisting from Nasdaq in August of 1995) negotiated for a
modification of the preferred stock agreement wherein the Preferred Stock
was exchanged for non-convertible voting preferred stock, in addition to
the delivery of fee title to the St. George property. Further, pursuant to
the modification agreement, the Company received a promissory note for
$1,200,000 which note is collateralized by certain shares of the
non-convertible voting preferred stock issued under the agreement.
Acquisions in Fiscal 1996. In the fourth quarter of fiscal 1996,
concurrent with the election of three new Board of Director members,
the Company entered into an agreement with O.T.S. Holdings, Inc. to
issue 8,660,000 shares of common restricted voting stock and 8,663,041 shares
of preferred voting stock of the Company in exchange for; 100% of the
issued and outstanding common shares of Basia Holdings, Inc., a Tennessee
corporation holding 9,000 acres of unencumbered land with approximately
52,000,000 tons of low sulfur coal, 100% of the issued and outstanding
shares of Mid-Nevada Art; and 100% of the Atlas Methane Development
Corporation Gas and Mineral Leases, which unencumbered leasehold interest
includes approximately 13,500 acres located in the Black Warrior Lagoon area
of Alabama containing approximately 31 billion cubic feet of methane
reserves.
Liquidity and Capital Resources
Cash requirements of C.E.C. have been met by funds provided from
(a) royalty income; (b) construction fee revenues; (c) sale of property
interests; and (d) borrowing. The ratio of current assets to current
liabilities at March 31, 1996 was .27 to 1.0 compared to .40 to 1.0 at
March 31, 1995.
The working capital (deficiency) of the Company as of March 31, 1996,
was $(3,384,457). The working capital (deficiency) at March 31, 1995, was
$(1,969,895).
In 1996, liquidity was enhanced by the cash sale of oil and gas royalty
interests and borrowing against the Las Vegas property. Cash was $3,276
at fiscal 1996 year-end versus $27,454 at fiscal 1995 year-end.
Working capital has decreased in the last three years principally
because of short-term borrowing utilized to finance real estate
acquisition and development activities. The Company anticipated raising
Page 13
funds to retire the present short-term debt of $2,900,000, through either
(i) the sale of the mini-storage facility in Las Vegas, Nevada
("mini-storage project") on completion of construction, (ii) converting
the short-term debt to long-term debt, utilizing cash flow from the
mini-storage project to service the debt; (iii) reducing the debt from
fees received by the Company as a licensed contractor on the mini-storage
project and the Victory Village 320 unit project; (iv) selling all or a
portion of the 65% undivided interest in the St. George, Utah property or
the 20.30 acres located in Las Vegas, Nevada; and reducing the debt through
other fee income earned as the result of additional contracting work to be
performed by the Company. The initial permits to commence grading on the
mini-storage project, were obtained during the first week in August of 1995;
however due to continued delays with the county building department, the
Company was unable to obtain the building permits pursuant to the terms of
the construction loan agreement, and thus was forced into a position of
refinancing the project, or selling off the Company's interest. Shortly
after the end of the fourth quarter of fiscal 1996, the Company reached an
agreement with the second deed of trust holder to acquire the property in
exchange for the reduction of debt the Company owed on land it owned in
Las Vegas, Nevada including the mini-storage project. Pursuant to the
terms of the agreement, the Company would no longer be responsible for the
$3 million Bank of America loan.
Further, the agreement with the second deed of trust lender allowed for
a moratorium on payments under the $1.6 million loan on additional property
in Las Vegas, Nevada, which moratorium was tied to the sale by the Company
of certain grading material in demand in the Las Vegas area. The sale of
the raw material is intended to supply the Company with sufficient capital
to cover certain overhead in the Company, in addition to paying for the
debt service on the property.
Acquisitions of new ventures will possibly affect liquidity in 1997,
but are expected to be financed with stock. The Company has no long-term
debt, but anticipates converting the current short-term debt to long-term
or eliminating it completely by selling additional equity and or portions
of the real estate.
C.E.C.'s plans for capital expenditures are centered around real estate
development and the expansion of its newly acquired Auto Express, Inc.
Borrowing Activities
During the past two years, the Company's operations and investing
activities have been financed extensively from borrowings. Borrowings have
been approximately $3,800,000, $1,100,000, and $1,800,000 in fiscal years
1996, 1995, and 1994, respectively. Prior to the movement of the
Company in the direction of real estate construction and development in
November of 1993, the Company's need for cash was the result of the
Company's development of it's CEI technology in carbon reactivation.
However, as the result of the Company's activities in the acquisition and
development of various parcels of real estate, the Company was required
to increase its borrowing capabilities. The Company has borrowed
significant sums from banks and private individuals as necessary to
provide for the expansion of the Company's real estate development.
However, as the result of the Companys sale of the mini-storage project
and liquidation of its interest in St. George in exchange for a
$1,200,000 note, the Company has eliminated a need for the substantial
borrowed funds previously required. Currently the only significant loan
to the Company is the $2 million loan collateralized by approximately 15.24
acres and $175,000 loan collaterized by 2.2 acres of real property located in
Las Vegas. The Lender has provided a short moratorium on the payments to
Page 14
allow the Company to sell certain raw fill dirt materials for sufficient
cash sums to service the debt and provide the Company with some overhead
cash requirements.
Fiscal 1996. During fiscal 1996, the Company repaid 50% the
$1,000,000 line of credit from Pioneer Citizens Bank, and as of the date
of this report, approximately $10,000 in accrued interest is owed on
the loan as of March 31, 1996. Also during fiscal 1996, the Company borrowed
private money in the approximate amount of $199,900 for the purpose of
funding the Company's construction activities through Moonridge Development
Corporation. Subsequent to year end, the Company eliminated debt of
approximately $3,935,000 of debt in the sale of its 7.28 acre
mini-warehouse project. Of the $3 million dollar loan to Bank of
America, included in the $3,935,000 amount, only approximately
$600,000 had been drawn down by the Company's construction division for
purposes of constructing the mini-warehouse project.
Fiscal 1995. During fiscal 1995, the Company drew down on a $1,000,000
line of credit from Pioneer Citizens Bank. Also during 1995, the Company
entered into a construction loan agreement in the sum of $3,000,000 with
Bank of America, for the construction of its mini-storage facility in Las
Vegas, Nevada. The collateral for the Bank of America loan is a 7.28 acre
parcel of property upon which the Company is building its mini-storage
facility.
Fiscal 1994. During fiscal 1994, the Company borrowed the sum of
$1,800,000 from a private party. The private party loan was to be utilized
for operations and the development of recently acquired property in Las
Vegas, Nevada. The collateral for the private party loan in the sum
of $1,800,000 is approximately 16.63 acres of property owned by the
Company in Las Vegas. The collateral for the private party loan is
approximately 23.91 acres, of which 7.28 acres are subordinate to the Bank of
America loan agreement executed in fiscal 1995. In addition, in 1994, the
Company acquired a 2.20 acre parcel of land contiguous to its other
Las Vegas property, wherein the seller of the property carried back a
trust deed in the sum of $100,000 as part of the purchase price. The
collateral for the $100,000 loan is the 2.20 acres, which property is
located in Las Vegas, Nevada.
Results of Operations
Fiscal Year 1996 Compared to Fiscal Year 1995
For the year ended March 31, 1996, the Company had a net loss of
$1,283,313 as compared to a loss of $1,826,551 for fiscal year ended 1995.
Revenues. The Company's revenues increased from $87,501 to $2,463,276.
Revenue increases were attributable primarily to increases attributable
to Moonridge Development Corporation revenues resulting from its
construction activity related to the 320 unit apartment project located
in Henderson, Nevada. The Company also received a minimal amount of
revenues generated from its oil and gas royalties; however in 1994, the
major part of the oil and gas royalties were sold for cash, generating a
profit in excess of $600,000, thus reducing the potential from continued
significant oil and gas revenues. Oil and gas royalties were $75,668 in
1996.
Page 15
Selling, General and Administrative Expenses. The Company's selling,
general and administrative expenses decreased 31.4% from $1,445,308 in
1995 to $1,099,876 in 1996. Selling, General and Administrative Expense
(S,G&A) increases were attributable to management decisions to proceed
with the development of the Company's existing real estate projects,
which is generally capital and management intensive at the outset. S,G&A
were also extraordinarily high in the last few years because of high legal
fees, accounting fees and other expenses related to the merger attempts
and acquisition costs.
Interest. Interest expense for the Company increased 242.6% from
$255,739 in 1995 to $620,349 in 1996. The substantial increase in
interest expense was the result of borrowings by the Company to facilitate
expansion, primarily in the area of real estate development.
Fiscal Year 1995 Compared to Fiscal Year 1994
For the year ended March 31, 1995, the Company had a net loss of
$1,826,551 as compared to a loss of $296,992 for fiscal year ended 1994.
Revenues. The Company's revenues decreased 39% from $142,238 to
$87,501. Revenue decreases were attributable to decreases in oil and gas
royalties due to the sale of the majority of the royalty interests, offset
by commission and affiliation fee income of $65,223, attributable to
Sterling Travel. In 1994, the major part of the oil and gas royalties
were sold for cash, generating a profit in excess of $600,000. Oil and gas
royalties were $19,278 in 1995. In addition, revenue decreases were the
result of management's focus on new real estate and development activities,
which by their nature is capital intensive initially, with revenues being
deferred until either construction commences or the project is completed and
rental revenues are received.
Selling, General and Administrative Expenses. The Company's selling,
general and administrative expenses increased 242% from $452,268 in 1994
to $1,445,308 in 1995. Selling, General and Administrative Expense (S,G&A)
increases were attributable to management decisions to proceed with the
development of the Company's existing real estate projects, which is
generally capital and management intensive at the outset. S,G&A were also
extraordinarily high in the last few years because of high legal fees,
accounting fees and other expenses related to the merger attempts and
acquisition costs.
Interest. Interest expense for the Company increased 500% from
$42,632 in 1994 to $255,739 in 1995. The substantial increase in
interest expense was the result of borrowings by the Company to facilitate
expansion, primarily in the area of real estate development.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Financial Statements and Financial Statement Schedules appearing on
page F-1 to F-14 of this Form 10-K Annual Report.
Page 16
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On June 15, 1996, Deloitte & Touche LLP was terminated as the
independent auditor of the company. On June 15, 1996, the Company reached an
agreement with William L. Clancy, CPA, whereby William L. Clancy was engaged
to act as the Company's auditor, commencing with the Company's audit for the
fiscal year ending March 31, 1996. The principal accountant's report on the
Company's financial statements for either the past two (2) year has not
contained either an aderse opinion or a disclaimer of opinion, nor was
qualified or modified as to an uncertanty, audit scope or accounting
principles. THe change in accountants was approved by the Board of
Directors of the Company. Duirng the registrant's two most recent fiscal
years and subsequent interim period up to the date of the change of
accountnats, there were no disagreements with the former accountnat on any
matters of accounting principles or practices, financial statement
disclosure, or auditions scope or procedures.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 of Form 10-K is
incorporated by reference to the information contained in the sections
captioned "Election of Directors," "Board of Directors Meetings and
Compensation" and "Identification of Executive Officers," in the
registrant's definitive Proxy Statement for the annual meeting of
shareholders to be held August 21, 1996.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 of Form 10-K is
incorporated by reference to the information contained in the section
"Identification of Executive Officers" in the registrant's
definitive Proxy Statement for the annual meeting of shareholders to be held
August 21, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by Item 12 of Form 10-K is
incorporated by reference to the information contained in the section
captioned "Beneficial Stock Ownership" in the registrant's
definitive Proxy Statement for the annual meeting of shareholders to be held
August 21, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Transactions with Management and Others.
Asset Transactions - Re-Issuance of Preferred Shares
During fiscal 1996, the Company's Board of Directors adopted a
resolution pursuant to which the Company avoided the conversion of 600,000
shares of Convertible Preferred non-voting stock, which stock would have
converted on February 4, 1996 to common shares having a value of $2,400,000.
Due to the then price of the Company's shares, approximately $0.20, the Board
Page 17
determined it in the best interest of the Company to avoid the conversion.
The Company agreed with DSM Golf Enterprises, Inc., principally
controlled by Dwight Jory, ex-director of the Company, Vegas Ventures, Inc.,
Theodora de Hondol, the wife of Dwight Jory, a director of the Company, and
Jeanette Browning to: (i) issue to de Hondol and Browning $80,000 in
Limited Liability Company shares; (ii) re-issue to Vegas Ventures, Inc.
395,000 shares voting non-converting preferred stock, par value $0.50 per
share; (iii) re-issue to DSM Golf Enterprises, Inc. 3,905,000 shares of
voting non-converting preferred stock, par value $0.50 per share; re-issue
100,000 shares of voting non-converting preferred stock, par value $0.50 per
share; transfer a deed to the Company's interest in the St. George parcel
to DSM Golf Enterprises, Inc., concurrent with the receipt by the Company of
a $1,200,000 note for the balance of the exchange value, which note is
secured by 2,100,000 shares of voting non-convertible preferred stock, set
forth above; additionally, 1,400,000 shares of the voting non-convertible
preferred stock is pledged back to the Company as collateral for the
Company's 24,5% interest in the 320 Unit Victory Village apartment project,
to insure the Company does not loose any investment capital in the project.
Loans Made to the Company by, or Guaranteed by Affiliates
In the third and fourth fiscal quarter 1996, Charles Mchaffie, either
personally or through related entities advanced funds to the Company in
the sum of $79,200.
Agreements Changing Control of the Company
On March 28, 1996, the Company entered into an Agreement to issue to O.T.S.
Holding, Inc. 8,660,000 shares of common restricted voting stock and
8,663,041 preferred voting stock of CEC in exchange for: 100% of the
issued and outstanding common shares of Basia Holding, Inc., a Tennessee
Corporation holding 9,000 acres of fee land with approximately 52,000,000
tons of low sulfur coal, 100% of the issued and outstanding shares of
Mid-Nevada Art; and 100% of the Atlas Methane Development Corporation
Gas and Mineral Lease, which leasehold interest includes approximately
13,500 acres located in the Black Warrior Lagoon area of Alabama containing
31 billion cubic feet of methane. Concurrent with the execution of this
agreement, three (3) directors of CEC resigned.
Stock Options Exercised by Board Members
In February of 1996, two directors executed options to acquire 300,000
shares of common stock, each, in the Company in exchange for consideration
paid pursuant to the terms and conditions of promissory notes executed
concurrent with the exercise.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) Documents filed as part of this Report
1. Financial Statements:
Independent Auditors' Report F-1
Independent Auditors' Report F-2
Independent Auditors' Report F-3
Page 18
Consolidated Balance Sheets at March 31, 1996 & 1995 F-4 & F-5
Consolidated Statements of Operations for the years ended
March 31, 1996, 1995 & 1994 F-6
Consolidated Statements of Stockholders' Equity for the
years ended March 31, 1996, 1995, and 1994 F-7
Consolidated Statements of Cash Flows for the years ended
March 31, 1996, 1995 & 1994 F-8 to F-10
Notes to Consolidated Financial Statements F-11 to F-22
2. Exhibits required to be filed are listed below.
Exhibit Number Description
(2) Plan of acquisition, reorganization arrangement, liquidation
or succession
(a) Agreement of Merger of C.E.C. Management Corp.
into Justheim Petroleum Company, dated August 15, 1986
(incorporated by reference to Exhibit 2 of the Company's
Registration Statement on Form S-4, file No. 33-8753,
as amended)
(b) Agreement of Merger of C.E.C. Management Corp.
into Justheim Petroleum Company, dated August 15, 1986, and
Board approval certificated and Certificates of Shareholder
Vote on Merger, dated December 31, 1986, all as filed with
the Nevada Secretary of State on December 31, 1986.
(3) Articles of Incorporation and by-laws
(a) Articles of Incorporation, as amended
(incorporated by reference to Exhibit 3.1 of the Company's
Annual Report on Form 10K for the fiscal year ended March
31, 1986).
(b) Bylaws, as amended (incorporated by reference to
Exhibit 3.2 of the Company's Annual Report on Form 10K for
the fiscal year ended March 31, 1986).
(4) Instruments defining the rights of securityholders:
(a) Loan Agreement dated March 31, 1995, between the
Company and Bank of America.
(b) Loan Agreement dated February 4, 1994, between
the Company and Cartwright
(c) As amended by first amendment to Loan Agreement
between the Company and Cartwright, dated February 4, 1995.
(d) An agreement between the Company and Cartwright
whereby the Company would deed the 7.28 acre mini-storage
project and an additional 1.39 acres to Cartwright, subject
to the $3 million Bank of America loan ($approximately
$600,000 drawn down) in exchange for debt relief of the
$600,000 of the Bank of America loan and $935,000 owed to
Cartwright.
Page 19
(10) Material Contracts
(10.1) Agreement dated June 7, 1995 between CEC and Victory
Village III, Ltd., a Nevada limited partnership (filed as
Exhibit to 8-K filed June 7, 1995.
(10.2) Agreement dated October 4, 1995 between CEC and CEI to
spin-off CEI (8-K filed October 4, 1995)
(10.3) Agreement dated November 2, 1995 between CEC and DSM
Golf Enterprises, Inc., et al. (filed with 8-K November
2, 1995)
(10.4) Agreement dated March 28, 1996 between CEC and O.T.S.
Holdings, Inc. (filed with 8-K March 28, 1996)
(10.5) Agreement dated June 15,1996 between CEC and Auto Express,
Inc. (8-K filed on June 24, 1996)
(10.6) Change in Accountants, Dated June 15, 1996.
(10.7) Agreement dated June 27, 1996 between Mid-Nevada Art,
Inc., and One World Cards (8-K filed on June 27, 1996)
(16) Letter re change in certifying accountant
The Company changed auditors from Deloitte Touche
to William Clancy.
(22) Subsidiaries of the Registrant
(a) Moonridge Development Corp., a Nevada corporation
(b) Basia Holdings, Inc., a Tennessee corporation
(c) Mid-Nevada Art, Inc., a Nevada corporation
(d) Auto Express, Inc.
(24) Consents of expert and counsel
(b) During the fiscal year 1996, the Company filed the following 8-Ks.
(1) June 7, 1995, Item No. 2 - CEC/Victory Village Agreement,
Item No. 5 - Contractors Agreement with R.V. Jones
Construction
(2) August 16, 1995, Item No. 5 - Nasdaq delisting
(3) September 15, 1995, Item No. 1 - Election of Officers and
Directors, Litigation disclosure, Item No. 2 - Spin-Off of CEI
and Joint Venture Agreement
(4) October 4, 1995, Change in Control of Registrant, Robinson
resignation, Cope elected as new President, Decision to
Spin-Off CEI
(5) November 2, 1995, Item No. 2 - Anti-Conversion Agreement of
Preferred Stock, Item No. 5 - Nasdaq listing information.
Subsequent to the end of the fiscal year, the Company filed the following
reports on Form 8-K
(1) March 28, 1996, Item No. 2 - CEC/O.T.S. Agreement, Item No. 6 -
Resignation of 3 Directors.
(2) June 15, 1996, Item No. 2 - CEC/Auto Express, Inc., Agreement.
(3) June 15, 1996, Item No. 4 - Change in Accountant
(4) June 27, 1996, Item No. 2 - Mid-Nevada Art, Inc.,/One World
Cards, Agreement
(c ) Required exhibits are attached hereto and are listed in Item 14(a) (3)
of this Report.
Page 20
SIGNATURES
Pursuant to the requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
C.E.C. INDUSTRIES CORP.
By:/s/Gerald H. Levine
Gerald H. Levine
President and Chief
Executive Officer
By:/s/Marie A. Levine
Marie A. Levine
Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/Gerald H. Levine President & Director June 28, 1996
Gerald H. Levine
/s/Marie A. Levine Secretary/Treasurer & Director June 28, 1996
Marie A. Levine
/s/Alvin B. Green Director June 28, 1996
Alvin B. Green, Esq.
/s/Janice E. Smith Director June 28, 1996
Janice E. Smith, Esq.
- --------------------- Director June 28, 1996
Ralph Mann
Page 21
OFFICERS AUDITORS
Gerald H. Levine -- President William Clancy
Marie A. Levine - Secretary/Treasurer Phoenix, Arizona
DIRECTORS
Gerald H. Levine
Las Vegas, NV
Marie A. Levine
Las Vegas, NV
Alvin B. Green, Esq.
Los Angeles, California
Janice E. Smith, Esq.
Las Vegas, NV
REGISTRAR & TRANSFER AGENT
Ralph Mann Atlas Stock Transfer Corporation
Las Vegas, NV 5899 South State Street
Salt Lake City, UT 84107
NASDAQ SYMBOL
CECN
ANNUAL MEETING
August 21, 1996 -- 9:00 a.m.
At
23 Cactus Garden Drive, Suite F-60
Henderson, Nevada 89014
(702) 893-4747
Page 22
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
1. Independent Auditors Report...........................F-1
2. Independent Auditors Report...........................F-2
3. Independent Auditors Report...........................F-3
4. Financial Statements:
Consolidated Balance Sheet at March
31, 1995 and 1994.................................F-4 & F-5
Consolidated Statements of Operations
for the Years ended March 31, 1996,
1995 and 1994 ........................................F-6
Consolidated Statement of Stockholders
Equity for the Years ended March 31,
1996, 1995 and 1994 ...................................F-7
Consolidated Statement of Cash Flows for the Years ended
March 31, 1996, 1995 and 1994 ...................F-8 to F-10
Notes to Consolidated Financial Statements .....F-11 to F-22
All schedules are omitted because they are not applicable or the required
information is shown in the consolidated financial statements or notes
thereto.
William L Clancy
CERTIFIED PUBLIC ACCOUNTANTS
Central Plaza
Suite 890
4041 North Central Avenue
P. O. Box 16627 (8501-6627)
Phoenix, Arizona 85012
(602)266-2646
Fax (602) 266-2402
INDEPENDENT AUDITOR'S REPORT
Board of Directors
C.E.C. Industries Corp.
Las Vegas, Nevada
I have audited the accompanying consolidated balance sheet of C.E.C.
Industries Corp. and Subsidiaries (the Company), as of March 31, 1996 and
the related consolidated statements of operations, stockholders' equity and
cash flows for the year then ended. These consolidated financial statements
are the responsibility of the Company's management. My responsibility is to
express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. I believe that my audit of the
financial statements provides a reasonable basis for my opinion.
In my opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of the Company at March 31, 1996,
and the results of its operations and its cash flows for the year then ended
in conformity with generally accepted accounting principles.
/s/William L. Clancy
William L. Clancy, CPA
Phoenix, Arizona
June 26, 1996
F-1
INDEPENDENT AUDITORS' REPORT
C.E.C. Industries Corp.
Las Vegas, Nevada
We have audited the accompanying consolidated balance sheet of C.E.C.
Industries Corp. and subsidiaries (the "Company"), as of March 31, 1995 and
the related consolidated statements of operations, stockholders' equity and
cash flows for the year then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit of the
financial statements provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at March 31, 1995,
and the results of its operations and its cash flows for the year\then ended
in conformity with generally accepted accounting principles.
/s/Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
August 4, 1995
F-2
INDEPENDENT AUDITOR'S REPORT
Stockholders and Board of Directors
C.E.C. Industries Corp. and Subsidiaries
We have audited the consolidated balance sheets of C.E.C. Industries
Corp. and Subsidiaries, as of March 31, 1994, and the related consolidated
statements of operations, stockholders' equity, and chas flows for the
years ended March 31, 1994 and March 31, 1993. These financial staements
and financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statements schedules based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain resonable assurance about whether the financial statements are free
of material misstatement. An audit also includes assessing the accounting
principles used and sigificant estimates made by management, as well as
evaluating the overall fianancial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to in the first
paragraph above present fairly, in all material respects, tjhe consolidated
financial position of C.E.C. Industries Corp. and Subsidiaries as of March
31, 1994, and the consolidated results of their operations and cash flows
for the years ended March 31, 1994 and March 31, 1993, in conformity with
generally accepted accountingf principles.
/s/Duane V. Midgley
Duane V. Midgley
Certified Public Accountnat
June 10, 1994
F-3
C.E.C. INDUSTRIES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31, 1996 and 1995
ASSETS
1996 1995
Current Assets
Cash and Cash Equivalents (Note 1) $ 3,276 $ 27,454
Restricted Cash (Note 11) 500,000 1,000,000
Accounts Receivable 543,566 5,161
Notes Receivable - Related Party (Note 5) 14,547
Inventory (Notes 1 & 2) 181,199 181,477
Other 64,115 103,476
---------- ----------
Total Current Assets 1,292,156 1,332,115
Property and Equipment, at Cost (Note 1)
Furniture and Equipment 148,478 158,508
Less Accumulated Depreciation (89,213) (72,324)
---------- ----------
Net Book Value 59,265 86,184
Other Assets
Investment in Undeveloped Land (Note 11) 4,157,528 4,735,242
Notes Receivable - Related Parties (Note 5) 1,380,000
Accrued Interest Receivable - Related
Parties (Note 5) 46,554
Patents, at Cost (Net of Accumulated
Amortization of $9,500 in 1996 and $3,190
in 1995) (Note 1) 101,696 107,648
Investment - Limited Partnership (Note 12) 300,000
Artworks (Note 11 & 12) 1,747,199
Coal Reserves (Note 11 & 12) 800,000
Oil and Gas Interests (Note 11 & 12) 1,231,250 13,794
--------- ----------
Total Other Assets 9,764,227 4,856,684
----------- ----------
Total Assets $11,115,648 $6,274,983
============ ==========
The accompanying notes are an integral part of the
consolidated financial statements.
F-4
C.E.C. INDUSTRIES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31, 1996 and 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
1996 1995
Current Liabilities
Accounts Payable $ 293,112 $ 34,088
Bank Overdraft 29,411
Payroll Taxes Payable 119,422
Notes Payable (Note 11) 2,723,319 2,076,351
Line of Credit (Note 11) 500,000 825,000
Notes Payable - Related Parties (Note 5) 582,210
Accrued Liability-Related Parties (Note 5) 125,788 259,336
Accrued Liabilities - Other 303,351 107,235
---------- ----------
Total Current Liabilities 4,676,613 3,302,010
Commitments & Contingencies (Note 8)
Stockholders' Equity (Notes 6,7,10, & 12)
Convertible Preferred Stock, Par Value
$.001 Per Share, Authorized 100,000,000
Shares, Issued and Outstanding 13,063,041
Shares in 1996 nd 725,000
Shares in 1995 13,063 725
Common Stock, Par Value $.05 Per Share,
Authorized 50,000,000 Shares;
Issued and Outstanding, 15,671,795
Shares in 1996 and 1,867,459 Shares
in 1995. 2,200,000 0
Common Stock, Par Value $.05 Per Share,
Authorized 50,000,000 shares;
Issued and Outstanding, 15,671,795
Shares in 1996 and 1,867,459 Shares
in 1995 783,590 93,373
Paid In Capital 9,315,554 5,287,443
Retained Earnings - A Deficit (3,673,173) (2,385,041)
Treasury Stock, At Cost (0 Shares in
1996 and 5,986 Shares in 1995) ( 0) ( 23,527)
----------- ----------
Total Stockholders' Equity 6,439,035 2,972,973
----------- ----------
Total Liabilities and Stockholders' Equity $11,115,648 $6,274,983
=========== ==========
The accompanying notes are an integral part of the
consolidated financial statements.
F-5
C.E.C. INDUSTRIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
For The Years Ended March 31, 1996, 1995 and 1994
1996 1995 1994
Income
Sales (Note 1) $ 2,387,608 $ 68,223 $ 600
Royalty Income (Note 1) 75,668 19,278 141,638
----------- ----------- -------
Total Income 2,463,276 87,501 142,238
Cost of Sales 2,241,074 2,569 2,503
----------- ------------ --------
Gross Profit 222,202 84,932 139,735
Selling, General and Administrative Expenses 1,099,876 1,445,308 452,268
Other Income (Expense)
Interest and Dividends 100,551 45,212 1,958
Other (Notes 11 and 12) 22,347 ( 209,450) 14,010
Interest Expense ( 620,349) ( 255,739) ( 42,632)
Gain (Loss) on Sale of Assets (Note 3) 91,812 ( 46,198) 42,205
----------- ----------- ---------
Income (Loss) Before Income Taxes ( 1,283,313) ( 1,826,551) ( 296,992)
Provision for Income Taxes
(Note 4) 0 0 0
----------- ----------- -----------
Net (Loss) $(1,283,313) $(1,826,551) $( 296,992)
=========== ============ ==========
Loss Per Common and Common Share Equivalent (Note 1)
Continuing Operations $ (.06) $ (1.22) $ (.19)
=========== =========== ==========
The accompanying notes are an integral part of the
consolidated financial statements.
F-6
C.E.C. INDUSTRIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR YEARS ENDED MARCH 31, 1996, 1995, AND 1994
Preferred Stock Common Stock Paid-In Accumulated Treasury Stock
Shares Amount Shares Amount Captial Deficit Shares Amount Total
Balance at March 31, 1993 1,202,260 $ 60,113 2,283,771 $( 261,498) (54,527) $(214,456) $1,867,930
Issued Preferred Stock
Note 12) 600,000 $ 600 2,399,400 2,400,000
Treasury Stock Issued
(Note 7) ( 8,041) 3,392 13,341 5,300
Purchased Treasury Stock ( 40) ( 50) ( 50)
Sold to 401(k) (Note 7) 80,000 4,000 46,000 50,000
Directors' Fees (Note 5) 100,000 5,000 132,500 137,500
Services Performed 35,196 1,760 70,832 72,592
Net Loss 0 ( 296,992) ( 296,992)
--------------------------------------------------------------------------------------------------
Balance at March 31, 1994 600,000 600 1,417,456 70,873 4,924,462 ( 558,490) (51,175) ( 201,165) 4,236,280
Bio-Sphere Asset Purchase
(Note 12) 125,000 125 62,375 62,500
Directors' Fees & Services
(Note 5) 450,003 22,500 466,947 489,447
Treasury Stock Issued (Note 7) ( 166,341) 45,189 177,638 11,297
Net Loss 0 ( 1,826,551) (1,826,551)
--------------------------------------------------------------------------------------------------
Balance at March 31, 1995 725,000 725 1,867,459 93,373 5,287,443 ( 2,385,041) ( 5,986) ( 23,527) 2,972,973
Bio-Sphere Shares
Cancelled in Connection
with Asset Purchase
Cancellation ( 125,000) ( 125) ( 125)
Cancelled Sterling Travel
Purchase ( 30,788) ( 4,819) ( 35,607)
25% Interest Victory Village
Partnership 1,200,000 60,000 240,000 300,000
Exchanged Preferred $.001
Shares For $.50 Shares ( 600,000) ( 600) ( 600)
Issue Preferred $.50
Redeemable Sares 4,200,000 4,200 ( 3,476) 726
S-8 Shares Issued 200,000 200 3,372,830 168,642 933,920 1,102,762
Rosenbaum Shares Cancelled ( 30,000)( 1,500)( 21,000) ( 22,500)
Issued to 401-K 1,506 75 ( 19,856) 5,986 23,527 3,745
Stock Options Exercised 600,000 30,000 150,000 180,000
Exchanged for 100% Interest in
Mid-Nevada Art, Inc. 4,016,734 4,017 2,886,667 144,333 1,213,124 1,361,474
Basia Holding, Inc. 1,797,385 1,797 2,309,333 115,467 682,736 800,000
Oil and Gas Interest 2,848,922 2,849 3,464,000 173,200 1,055,201 1,231,250
Expernses of Exchange Agreement ( 171,750) ( 171,750)
Net Loss 0 ( 1,283,313) (1,283,313)
--------------------------------------------------------------------------------------------------
Balance at March 31, 1996 13,063,041 $13,063 15,671,795 $783,590 $9,315,554 $(3,673,173) $ 0 $ 0 $6,439,035
==================================================================================================
The accompanying notes are an integral part of the
consolidated financial statements.
F-7
C.E.C. INDUSTRIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For The Years Ended March 31, 1996, 1995, and 1994
1996 1995 1994
Cash Flows From Operating
Activities
Net (Loss) $(1,283,313) $(1,826,551) $( 296,992)
Adjustments to Reconcile
Net (Loss) to Net Cash
Used in Operating
Activities
Depreciation 22,530 13,805 7,240
Amortization 9,500 1,276 957
Depletion 1,050 3,940
(Gain) Loss on Sale of
Marketable Securities 34,996 46,503 ( 63,260)
Gain (Loss) on Investments 56,206 ( 21,055)
Treasury Stock Issued for
401(k) contribution 23,527 11,298 5,300
Loss on Write Off of Assets 62,500
Common Stock Issued for
Professional Fees & Directors
Fees 1,102,762 489,447 210,092
Bad Debt Expense 39,153
Changes in Assets and Liabilities
(Increase) in Restricted Cash 500,000 ( 1,000,000)
(Increase) in Accounts
Receivable ( 538,405) ( 15,860) ( 43,001)
(Increase)Decrease in Inventory 278 ( 80,069) 83,617
(Increase)Decrease in
Current Assets 39,361 ( 93,062) 47,961
Decrease in Other Assets 44,027
Increase(Decrease) in Accounts
Payable 259,024 7,892 ( 103,173)
Bank Overdraft 29,411
Increase in Payroll Taxes 119,422
Increase in Accrued Liabilities 62,568 335,021 25,182
------------ ----------- -----------
Total Adjustments 1,721,180 ( 181,046) 197,827
------------ ----------- -----------
Net Cash Provided by Operating
Activities 437,867 ( 2,007,597) ( 99,165)
------------ ----------- -----------
Cash Flows From Investing
Activities
Purchase of Investment Land ( 514,266) ( 316,104) ( 929,058)
Cost of Land Sold 1,091,980
Proceeds from Sale of Assets 70,000 650,000
Capital Expenditures 4,389 ( 65,641) ( 12,671)
Payments Received on Notes
Receivable 14,547 9,211
Proceeds from Sales of
Marketable Securities 34,996 4,884
The accompanying notes are an integral part of the
consolidated financial statemednts.
F-8
C.E.C. INDUSTRIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont'd)
FOR THE YEARS ENDED MARCH 31, 1996, 1995, AND 1994
1996 1995 1994
Purchase of Subsidiaries (2,017,767)
Patent Expenditures ( 3,548) ( 9,328) ( 12,947)
Note Receivable - Related Party ( 226,554) 0 0
Net Cash Used in Investing ---------- ---------- ----------
Activities (1,546,223) ( 386,189) ( 295,465)
Cash Flows From Financing
Activities
Proceeds from Sale of Common
Stock 180,000
Principal Payments on Debt ( 635,000) ( 113,251)
Proceeds From Notes Payable 1,539,178 1,101,351 1,800,000
---------- ---------- ----------
Net Cash Provided By Financing
Activities 1,084,178 1,101,351 1,686,749
---------- ---------- ---------
Net Increase (Decrease) in Cash
and Cash Equivalents (24,178) (1,292,435) 1,292,119
Cash and Cash Equivalents at
Beginning of Year 27,454 1,319,889 27,770
---------- ---------- ----------
Cash and Cash Equivalents at
End of Year $ 3,276 $ 27,454 $1,319,889
========== =========== ==========
Supplemental Disclosures of Cash
Flow Information
Cash Paid During the Year For
Interest $ 467,358 $ 255,739 $ 18,856
=========== =========== ==========
Income Taxes $ 200 $ 200 $ 200
=========== =========== ===========
Supplemental Schedule of Non-Cash Investing and Financing Activities
The Company had four options to exchange 85,989 shares per option of
Utah Resources International, Inc. (URI) stock for 8.9 acres of land per
option. The Company exercised the first option in 1990 and the second in
1991. The land received was recorded at $157,016 for each option. The third
option was exercised in 1992 and the land received was recorded at $222,441.
One-half of the fourth option was exercised in 1993 and the land received
was recorded at $111,220. The last half of the fourth option was exercised
in 1994 and the land received was recorded at $111,220. All land received
was recorded at cost.
During 1996, 1995 and 1994, the Company issued 5,985, 45,189 and 3,392
shares of treasury stock valued at $23,527, $11,298 and $5,300, respectively,
as a contribution to the retirement plan. No shares were contributed to the
retirement plan in 1993. (See Note 7)
The accompanying notes are an integral part of the
consolidated financial statements.
F-9
C.E.C. INDUSTRIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAS H FLOWS (CONT'D)
FOR THE YEARS ENDED MARCH 31, 1996, 1995, AND 1994
Supplemental Schedule of Non-Cash Investing and financing Activities
During 1994, the Company issued 600,000 shares of preferred stock at $4.00
per share ($2,400,000) as additional value for the unimproved land purchased
in Las Vegas, Nevada. During 1996, the Company converted the 600,000 shares
of $4.00 preferred stock into 4,200,000 shares of new series "B"
non-converting preferred stock with a par value of $.001 per share with a
redemption vvalue of $.50 per share, that has attached to the issue one vote
of common per share, equal in value to one vote of common stock and each
share shall pay a cumulative preferred dividend of 10% per year. All of the
4,200,000 shares of new Series B preferred stock shall be redeemed by the
corporation issuing same four years from October 12, 1995.
In fiscal 1996, the remaining investment Logos International, Inc. was
sold for $34,996. In fiscal 1994, the investment in Logos International, Inc.
was written down to its market value resulting in a loss of $625,960. (See
Note 3)
During 1995, the Company purchased 100% of Sterling Travel with net
assets valued at $30,788 through incurring accrued expenses of $30,788.
During 1996, the Company rescinded the purchase agreement with Sterling
Travel for nonperformance on the agreement. (See Note 12)
During 1995, the Company issued 125,000 shares of preferred stock to
Bio-Sphere Technology valued at $62,500 for medical technology. (See Notes 8
and 12). During 1996, the Company agreed to cancel the agreement with
Biosphere Technology, and accordingly, cancel the preferred shares issued.
In fiscal 1996, the Company issued 3,972,830 shares of common stock on
Form S-8 for directors' fees and professional services. In fiscal 1995, the
Company issued 449,974 shares of common stock on Form S-8 for directors' fees
and professional services. In 1994, 135,196 shares were issued for these
services. The shares were valued at $1,102,762, $489,447 and $210,092
respectively.
On March 28, 1996, the Company issued 8,660,000 shares of common stock and
8,663,041 shares of preferred stock in exchange for 100% of the common stock
of Mid-Nevada Art, Inc., 100% of the common stock of Basia Holding, Inc. and
100% interest in oil and gas leases. The shares were valued at $1,361,474,
$800,000 and $1,231,250 respectively.
The accompanying notes are an integral part of the
consolidated financial statements.
F-10
C.E.C. INDUSTRIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995, AND 1994
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Business and Principals of Consolidation
The consolidated financial statements include the accounts of C.E.C.
Industries Corp. (the Parent) and its subsidiaries, Custom Environmental
International, Inc. ("CEI") (80% owned - the reduction in ownership of
CEI from 90% was due to the issuance of additional shares of common stock
to employees in lieu of salaries), Plata Oro (57% owned), Moonridge
Development Corp.(100% owned), Sterling Travel (100% owned), Microsphere
Technology (100% owned), Islet Transplant Technology (100% owned),
Mid-Nevada Art, Inc. and Basia Holding, Inc. During the fiscal year
1996, Sterling Travel (100%) purchase was cancelled do to non
performance by Sterling Travel. During the fiscal year 1996,
Microshpere Technology (100%) and Islet Transplant Technology (100 %)
operations were discontinued. All material intercompany transactions
have been eliminated.
Custom Environmental International, Inc. is developing and marketing a
carbon regeneration furnace. Plata Oro is involved in minerals
exploration but has been inactive for several years. Moonridge
Development Corp. develops unimproved land in Las Vegas, Nevada.
Sterling Travel Is a travel agency in Boca Raton, Florida. Microsphere
Technology and Islet Transplant Technology are engaged in research and
development of medical technology. Mid-Nevada Art, Inc. purchases
artworks for lease and rental. Basia Holding, Inc. owns approximately
9,000 unencumbered acres of land and approximately 52,000,000 tons of
coal reserves. (See Note 12)
Revenue Recognition
The Company's undeveloped land is carried at cost. Prior to 1996, if
the land was sold, the Company recognized gain or loss on the difference
between the carrying value and the sales price, using the full accrual
method of accounting. During the year 1996, the Company determined that
it would develop its undeveloped land, and accordingly, would recognize
revenue on sales of land as the partials are further developed and sold.
Royalty revenues are recorded as received.
Revenues from travel consultants are recognized as commissions earned
from bookings of travel reservations net of ticketing costs and from
affiliation fees.
F-11
C.E.C. INDUSTRIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995, AND 1994
Lease and rental income from artworks are recorded as received.
Revenue from fixed-price contracts are recognized on the percentage of
completion nethod, measured by the percentage of cost incurred to date
to extimted costs for each contract, by management monthly and approved
by the engineer, architect and owner. An asset, "Costs and estimated
earnings in excess of billings on uncompleted contracts" represents
revenues recognized in excess of amounts billed and are recognized on the
balance sheet.
Property and Equipment
Expenditures that increase asset lives are capitalized at cost. Normal
maintenance and repairs are expensed as incurred. The cost and
accumulated depreciation of assets retired or disposed are removed from
the accounts and any resulting gain or loss is included in the
consolidated statements of operations.
Depreciation is reported on a straight-line basis over the estimated
useful lives on the assets which range from 3 to years.
Inventory
Inventory is valued at the lower of cost (determined on a first-in
first-out basis) or market.
Patents
Costs incurred in connection with obtaining patents are capitalized and
amortized on a straight-line basis over 17 years from the date of issuance
of such patent.
Earnings (Loss) Per Common Share
Earnings (Loss) per common share is computed based on the weighted average
number of common shares and common share equivalents outstanding. Stock
options are included as common share equivalents using the treasury stock
method except for 1995 and 1994 when they were antidilutive.
The number of shares used in computing earnings (loss) per common share
was 21,196,795 in 1996, 1,502,648 in 1995, and 1,543,684 in 1994.
F-12
C.E.C. INDUSTRIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995, AND 1994
Cash Equivalents
For purposes of the consolidated statement of cash flows, the Company
considers all highly liquid debt instrument purchased with an original
maturity of three months or less to be cash equivalents.
Presentation
Certain accounts from prior years have been reclassified to conform with
the current year's presentation.
NOTE 2 - INVENTORY
Inventory consists of manufactured finished goods held for sale.
NOTE 3 - INVESTMENTS - MARKETABLE SECURITIES
Investment in Equity Securities - Logos International, Inc.
In fiscal year 1992 the Company acquired 776,857 shares of common stock
of Associated Trades, Inc. (ATI) valued at $.875 per share (the market
value of the Company's stock), or $679,750. The shares were acquired in
exchange for a building, Company stock, and majority interest in GLI
Industries, Inc. Effective April 1, 1992, ATI was merged into Logos
International, Inc. (Logos), and after two reverse stock splits and
additional shares being issued, the Company's shares were reduced to
430,320 shares.
On October 28, 1991, C.E.C. entered into an Agreement to Purchase with
Oxford House, Inc., a Utah corporation and a wholly-owned subsidiary of
Associated Trades, Inc., by which C.E.C. sold all of it's right, title,
and interest in the real property and building in which C.E.C.'s offices
were located, for a total purchase price of $786,478. The purchase
price by Oxford House, Inc. included it's assumption of the outstanding
mortgage of the property in the amount of $719,229 and 76,857 shares of
the common stock of ATI, valued by C.E.C. at $67,250. The ATI stock was
subsequently exchanged for Logos stock.
F-13
C.E.C. INDUSTRIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995, AND 1994
In connection with the Agreement, C.E.C. and ATI entered into an
Exchange Agreement by which the companies exchanged 500,000 shares of
one another's common stock. C.E.C. has valued the shares of common
stock received in the transaction at $.875 per share (the bid price of
C.E.C.'s common stock on the date of the exchange), for a total value of
$437,500. The ATI stock as subsequently exchanged for Logos stock.
Pursuant to a Reorganization Agreement dated as of December 1, 1991,
C.E.C. sold 18,000,000 shares of its subsidiary's common stock, GLI
Industries, Inc., to ATI. This represented 90% of the total outstanding
common stock of GLI. In return C.E.C. received 200,000 shares of the
common stock of ATI, and was entitled to a royalty on gross sales of
GLI products of two and one-half percent (2 1/2%). The ATI stock was
subsequently exchanged for Logos stock.
Logos was incorporated November 6, 1981, under the laws of the State of
Nevada and acquired several companies in printing and publishing, arts
and framing, automotive and towing services, aerospace, and real estate.
The market price of Logos stock dropped from a bid of $10.00 per share at
September 18, 1992 and $5.00 bid per share at June 1, 1993, to $.125 per
share at March 31, 1994 and $.25 at March 31, 1995. Management believes
the drop in value is permanent and is due to the inability of Logos'
management to supply adequate funding or provide management of it's newly
acquired companies. Management has thereby elected to write off its
investment in Logos to its current market value. The transaction resulted
in a loss of $625,960 in 1994, and a further loss of $46,305 in 1995.
The remainder of 10,420 shares is $2,605. During the fiscal year 1996
all the remaining shares were sold for $34,996.
F-14
C.E.C. INDUSTRIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995, AND 1994
NOTE 4 - INCOME TAXES
The provision or benefit for income taxes is based on pretax loss
reported in the consolidated financial statements. The tax effect of
temporary differences generating Federal income tax is summarized as
follows:
1996 1995 1994
Tax Benefit at Statutory Rate $1,250,413 $ 639,293 $ 103,891
Surtax Amount (35,636) (18,266) (2,968)
Valuation Allowance for Benefit
of Net Operating Loss
Carry forward Not Recognized
And Other Items. (1,214,777) (621,027) (100,923)
---------- ---------- ---------
Total $ -0- $ -0- $ -0-
========== ========== ==========
A reconciliation of the Federal statutory income tax rate to the
effective income tax rate based on income tax follows:
1996 1995 1994
Statutory Rate 35% 35% 35%
Surtax Amount (1) (1) (1)
Decrease in Tax Rate Resulting
From:
Net Operating Loss Limitation
and Other (34) (34) (34)
--- --- ---
0% 0% 0%
=== === ===
The tax net operating loss carry forward at March 31, 1994, 1995, and
1996 was approximately $272,425, $1,990,171 and $3,273,484 respectively,
expiring through 2011. The valuation allowance has increased to
$621,027 from March 31, 1994 to March 31, 1995, and has increased to
$1,214,777 from March 31, 1995 to March 31, 1996.
F-15
C.E.C. INDUSTRIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995, AND 1994
The temporary differences and tax carryforwards which created deferred
tax assets and liabilities at March 31, 1996 are detailed below:
Deferred Tax Assets:
Write down of Assets $ 249,820
Net Operating Loss 1,959,719
-----------
Total Deferred Tax Assets 2,209,791
Valuation Allowance (2,209,791)
Net Deferred Tax Asset $ -0-
===========
NOTE 5 - RELATED PARTIES
During the year 1996, Geroge Matthews, the former President of the
Company and current President of CEI received 131,000 shares of common
stock, pursuant to and employment contract, in lieu of paid salary in
the amount of $65,500. During fiscal 1995, George Matthews, the former
President of the Company and current President of CEI borrowed $50,000
from the Company, whose loan was paid off during the same fiscal year.
George Matthews received in fiscal 1996, pursuant to an employment
contract a stock nonus of 262,000 shares of Rule 144 stock valued
at $91,000 and accrued at March 31, 1995. In fiscal 1995, Mr. Matthews
also received a $50,000 cash bonus.
Directors of the Company received S-8 stock issued as director
compensation, 2,500 shares per quarter, per director.
The President, Secretary, and Treasurer of the Company receive a monthly
salary of $8,333 per month, which, in the event of a lack of cash
available for the payment of such sums, accrues, and or is paid pursuant
to the issuance of S-8 stock. As of March 31,1996 and 1995, $125,788 and
$151,670 is accrued for such salaries.
Prior to the company's acquisition of Sterling Travel, Laurie Doll, the
President, and at the time, sole shareholder of Sterling Travel, borrowed
at different times, money from Sterling Travel, which sums totaled
$14,547 as of March 31, 1995. During the fiscal year 1996, the purchase
agreement with Sterling Travel was cancelled due to non performance by
Sterling Travel.
F-16
C.E.C. INDUSTRIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995, AND 1994
NOTE 6 - STOCK OPTIONS
The Company has issued stock options to various directors, officers and
employees. The option prices are based on the fair market value of the
stock at the date of grant. The Company makes no charge to operations
in relation to option grants.
The Company's stock option transactions for the years ended March 31,
1996, 1995, and 1994 are summarized as follows:
Number of Option
Share Price
Options Outstanding and Exercisable
at March 31, 1993 35,000 $1.25-12.50
Options Cancelled in 1994 (5,000) 5.00
Options Granted in 1994 1,200,000 1.375
Options Outstanding and Exercisable ---------
at March 31, 1994 1,230,000 1.25-12.50
Options Cancelled in 1995 (5,000) 12.50
Options Outstanding and Exercisable
at March 31, 1995 1,225,000 1.25-12.50
Options granted in 1996 4,900,000 .20-.50
Options exercised in 1996 (600,000) 5.00
Options Outstanding and Exercisable ----------
at March 31, 1996 $5,525,000 .50-5.00
==========
NOTE 7 - RETIREMENT PLAN
The Company has established a qualified plan under Section 401(k) of the
Internal Revenue Code as a retirement plan for all employees who elect
to participate. The Plan allows the Company to contribute up to 100% of
the employees' contributions (limited to 10% of the employees' annual
salary) to the retirement plan. The Plan's fiscal year is July 1 to
June 30. During 1995 and 1994, the Company issued 22,595 and 3,392
shares of treasury stock valued $5,649 and $5,300, respectively, as a
matching contribution to the retirement plan. No
F-17
C.E.C. INDUSTRIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995, AND 1994
contributions were made in 1993. The Company's expense relating to this
plan for the years ended March 31, 1995 and 1994 was $5,649 and $5,300,
respectively. All contributions and expenses relating to the plan were
paid in treasury stock. Also in 1995 the Company issued 22,595 shares
of treasury stock valued at $5,649 as employee compensation. During the
year 1996, the 401-K plan was cancelled and 100% distribution was made
to all employees.
NOTE 8 - COMMITMENTS & CONTINGENCIES
The Company's subsidiary, Custom Environmental International ("CEI"),
filed suit in the United States District Court for the Central Division
of Utah, Custom Environmental International, a Utah corporation,
Plaintiff vs. Lockhead-Haggerty Engineering & Manufacturing Co., Ltd.,
a Canadian corporation, Defendant, Case No. 2:95CV0153B, in which CEI is
claiming an infringement of CEI's patent. The Defendant has responded to
the complaint by (i) requesting an extension of time to file a responsive
pleading and (ii) making an offer of settlement which has been rejected.
The Company executed a contract for the acquisition of certain medical
technology from Bio-Sphere Technology in April of 1994, and subsequently
entered into a distribution agreement with an unrelated company.
Bio-Sphere, in January of 1995, attempted to rescind the agreement of
April 1994. The Company, during the year 1996 agreed to rescind the
contract and cancel the preferred shares issued in connection therewith.
Fernando Aldecoa, et. al. v. Softpoint, Inc., United States District
Court, Southern District of California, Case Number 951654H(LSP). An
action brought by shareholders of another public company wherein C.E.C.
Industries Corp. is alleged to be an alter ego of the other public
company. Independent counsel for the Company, selected by the Company's
insurance company, is handling the litigation, which is not anticipated
to result in a judgment against the Company.
F-18
C.E.C. INDUSTRIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995, AND 1994
The Walter Company v. McHaffie, et. al., Superior Court of the State of
California for the County of Los Angeles, Case Number BC 135322. An
action brought by the owners of real property wherein C.E.C. Industries
Corp. is a limited partner. The real property relates to the underlying
land for the development and construction of the 320 unit apartment
project which was financed by HUD, whose title report provided proper
title to the limited partnership who owns the real property. Counsel
for the Company is of the opinion that the Company's status as a limited
partner should be up-held and thus the Company should avoid any liability
under the lawsuit.
As of the date hereof, the Company is not aware of any other material
legal proceedings, pending or contemplated, to which the Company is, or
would be, a party of which any of its property is, or would be the
subject.
The Company leases office space, certain office equipment and storage
space. C.E.C. rents 1,869 sq. ft. of office space and 1,310 sq. ft. of
warehouse space for CEI at 350 West 300 South, Salt Lake City, Utah 84101,
these leases expired May 31, 1996 and are continuing to be leased on a
month to month basis. 2,622 sq.ft. of office space for its executive
offices at 23 Cactus Garden Drive, F-60, Green Valley, Nevada, this is a
three year lease which expires June 30, 1997; and 2,999 sq. ft. of office
space for Sterling Travel at 2200 N.W., Suite 220, Boca Raton, Florida,
this is a three year lease which expires July 31, 1997. Lease expense for
the years ended March 31, 1996, March 31, 1995, and March 31, 1994 was
$65,523, $42,030, and $8,615 respectively. Future minimum lease
obligations are as follows:
Fiscal Year Ended March 31, 1997 $ 55,080
Fiscal Year Ended March 31, 1998 34,608
Fiscal Year Ended March 31, 1999 3,410
F-19
C.E.C. INDUSTRIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995, AND 1994
NOTE 9 - SEGMENT INFORMATION AND MAJOR CUSTOMERS
Segment Information for Fiscal 1996
CEC Moonridge CEI Other Total
Revenues $1,263,854 $1,187,207 $ 13,191 $ 0 $2,534,252
Income/Loss ( 788,374) ( 312,509) ( 335,507) 0 (1,621,359)
Identifiable Assets 7,157,395 1,115,223 295,613 2,545,520 11,115,648
Depreciation 9,049 6,214 7,267 0 22,530
Major Customers Year Ended Year Ended Year Ended
March 31, March 31, March 31,
1996 1995 1994
Customer A None None 38%
Customer B 100% None 47%
Customer D None None None
NOTE 10 - REVERSE STOCK SPLIT
On September 30, 1992, the Company consummated a 1:10 reverse stock
split. The reverse stock split also reduced the outstanding stock
options on the same basis of 1:10.
NOTE 11 - NOTES PAYABLE & LINES OF CREDIT
On February 4, 1994, the Company purchased approximately 23.91 acres of
undeveloped land in Las Vegas, Nevada, for $3,327,158 which included
three separate parcels; 15.24 acres, 1.39 acres, and 7.28 acres. At the
same time, the Company borrowed $1,800,000 utilizing the approximate
23.91 acres as collateral for the loan, to meet the down payment,
closing costs of $904,692, and providing a balance for
F-20
C.E.C. INDUSTRIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995, AND 1994
development proceeds. As additional consideration, the Company issued
600,000 shares of preferred stock (Note 12). The note for $1,800,000
was initially due on February 4, 1995, however, it was subsequently
extended to February 4, 1996 after payment of extension fees and late
fees of $50,000 in fiscal 1995, with an additional $100,000 being added
to principal in fiscal 1996. Further, pursuant to the terms of the note,
the Company is obligated to pay principal payments of $150,000 per month
until a total of $800,000 is paid as principal reduction on the total
loan amount. The note further provides that in the event that payments
are not paid when due, the Company incurs a late charge of 10%. An
additional extension fee was added to the principal during 1996 as part
of the agreement to renew the note. The Company continues to be
delinquent in its agree payment schedule as March, 1996.
The annual interest is 12.5% and is payable monthly.
On March 31, 1995, the Company executed a construction loan agreement
for $3,000,000 with Bank of America, which loan is collateralized by
7.28 acres of property owned by the Company. The proceeds of the loan
are being utilized for the construction of a mini-storage project. At
year end there was a balance due of $41,351 due to bank fees. The
principal balance of the mini-storage loan bears interest at the per
annum rate of interest publicly announced from time to time by Bank of
America National Trust and Savings Association in San Francisco,
California, plus one and one-half percentage (1.5%) points. The
mini-storage loan converts from a construction loan to a permanent loan
upon completion of construction and upon reaching certain debt coverage
ratio requirements. In the event the company does not meet the debt
coverage ratio, the Bank of America may elect, in its sole discretion,
to either refuse to convert the loan indebtedness to permanent loan
indebtedness, or to permit the conversion of such lesser amount of the
loan as will cause the debt coverage ratio to comply with the minimum
debt coverage ratio.
On April 20, 1994, The Company purchased approximately 2.20 acres of
undeveloped land in Las Vegas, Nevada for $200,000. The Company paid
$100,000 cash and the seller carried a note for $100,000 with interest
in the amount of 8%,
F-21
C.E.C. INDUSTRIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995, AND 1994
collateralized by the 2.20 acres, principal and interest all being due
by April 20, 1995. On June 28, 1995, the Company paid the $100,000 note
in full and borrowed $150,000 with interest in the amount of 14%,
collateralized by the 2.20 acres, principal and interest all being due
June 28, 1996. The note was renewed during June, 1996.
The Company, during fiscal year 1995, executed an agreement with Pioneer
Citizens Bank for an initial line of credit for $500,000 with a
compensating balance in the form of a certificate of deposit. As of
March 31, 1995, the Pioneer Citizens Bank line of credit was increased
to $1,000,000 with a compensating balance in the form of certificates of
deposit in the sum of $1,000,000. Interest on the line of credit is 4.5%
per annum. The Company has drawn $825,000 down on the line of credit as
of March 31, 1995. During the fiscal year 1996 the Company drew down the
balance of the $1,000,000 lime of credit. During February, 1996, the
Company paid down the line of credit $500,000. The balance of the line
of credit was paid off in May, 1996.
During the fourth quarter of fiscal 1995, the Company, through its
wholly owned subsidiary, borrowed $35,000 from IGLLC, an affiliate
party, which loan was utilized for the financing of the acquisition of a
new GMC Suburban vehicle utilized by the President of Moonridge. This
note is evidenced by a demand note bearing interest at the rate of 10%.
During the fiscal year, 1996, the note was assumed by DSM Golf
Enterprises, Inc. under the same terms and conditions.
As part of the acquisition on March 28, 1996, of Mid-Nevada Art, Inc.,
Basia Holding, Inc. and 100% interest in oil and gas leases, the Company
assumed a note payable to O.T.S. Holdings, Inc. in the amount of
$382,311. The note is payable on demand and includes interest payable
at the rate of 8% per annum.
NOTE 12 - PREFERRED STOCK
During 1994, the Company amended its Articles of Incorporation
authorizing 100,000,000 shares of preferred stock at a par value of
$.001 per share. On February 4, 1994, the Company issued 600,000 shares
at $4.00 per share,
F-22
C.E.C. INDUSTRIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995, AND 1994
or $2,400,000 as additional consideration to purchase the unimproved
land in Las Vegas, Nevada (Note 11). The issued shares are designated
as series "A" preferred stock convertible, after two years (24 months),
to common stock at a guaranteed "bid" price of not less than $4.00 per
share. In the event said "bid" price is less than the stated $4.00 at
the time in which the shares are offered for conversion, additional
common stock shares will be issued to satisfy any shortfall. The
preferred shares are non-voting. In addition, C.E.C. Industries Corp.
will have an option to purchase 50% of said shares at a price of $8.00
per share. The option exercising period will be for 30 days following
the two year (24 month) period, but closing of the option will occur
within 60 days from the end of the two year period (24 months). On
October 12, 1995, the Company entered into a conversion agreement that
cancelled the 600,000 shares of preferred stock at a par value of $.001
and issued 4,200,000 of new series B preferred stock at a par value of
$.50 per share, which has attached to the issue one vote per share,
equal in value to one vote of common stock and shall pay a cumulative
dividend of 10% per year. Each preferred share of Series "B" preferred
stock sahll have attached a warrant for 1/6 of a share of common stock
which shall be exercisable prior to the four (4) year redemption period
for a redemption price fo $0.20 per share of common stock. If exercised
by Holder these warrants will result in the issuance of 700,000 shares
of common stock for a price of $.20 per share or a total price of
$140,000.
On April 22, 1994, the Company entered into an agreement with Bio-Sphere
Technology wherein the Company issued 125,000 shares of preferred stock
fro certain medical technology. The agreement called for the Company to
form two wholly owned subsidiaries, Microsphere Technology and Islet
Transplant Technology, for purposes of pursuing the development of the
technology. Subsequent to the issuance of the preferred shares to
Bio-Sphere, the Company was notified of an attempted unilateral recision
by Bio-Sphere of the agreement with C.E.C. (See Note 8). As a result,
the Company wrote down its investment in the medical technology which
amounted to $62,500. During 1996, the Company agreed to cancel the
agreement with Biosphere Technology, and accordingly, cancel the
preferred shares issued.
On January 18, 1995, the Company entered into an agreement with Lauri
Doll Gladstone wherein the company, in exchange for 100% of the
outstanding common stock of Sterling Travel, agreed to issue 400,000
shares of preferred non-voting stock, convertible to common stock at a
price of $5 per share. The shares are to issued pursuant to an earn-out
provision. At this time the preferred shares have not been
F-23
C.E.C. INDUSTRIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995, AND 1994
issued to Lauri Doll Gladstone. Results of operations from Sterling
Travel have been accounted for the period starting with March 1, 1995
and ending with fiscal year end 1995. The acquisition was accounted for
utilizing the purchase method of accounting. During 1996, the Company
rescinded the purchase agreement with Sterling Travel for nonperformance
on the agreement. (See Note 12)
On June 7, 1995, the Company acquired a 24.5% limited partnership interest
in Victory Villages Ltd. III that is constructing a 320 unit apartment
project generlly known as Victory Village, in exchange for 1,200,000
shares of rule 144 stock in the Company valued at $300,000. The shares
are restricted for resale for a period of two years, and 720,000 of the
shares are subject to a voting agreement wherein the COmpany directors
vote the shares. On June 10, 1995, an Amended and Restated Limited
Partnership Agreement of Victory Village Ltd. III Limited Paretnership
was executed with Moonridge Development Corp., a wholly owned subsidiary
of the Company, in which Moonridge Development Corp. became the 24.5%
Limited Partner.
During 1995, the Company issued 449,974 shares of S-8 stock for
director, employee, and consulting fees. During 1996, the Company
issued 3,372,830 shares of S-8 stock for director, employee, and
consulting fees as follows: 1,234,966 shares were issued as consulting
fees; 500,000 S-8 shares were options received by certain consultants;
300,000 shares of S-8 stock were R.V. Jones' options and were exercised
by the Company and given to him as his construction fee for the Mission
Valley Mini Storage project; and the remainder fo the S-8 stock was
issued to directors, consultants, and employees pursuant to the C.E.C.
Industries Corp. 1995 Stock Award Plan. George Matthews received 262,000
shares (See Note 5). Value of the shares issued per the S-8 Registration
was the bid price at the time of the issue, ranging from $.56 to $.94 per
share.
On March 28, 1996, the Company issued 8,663,041 shares of voting
preferred stock Series "A" par lue $.001 and 8,660,000 shares of
common stock pare vvalue $.05 in exchange for 100% of the common stock
of Mid-Nevada Art, Inc., 100% of the common stock of Basia Holding, Inc.,
and 100% interest in oil and gas leases. The shares were value at
$1,361,474, $800,000 adn $1,231,250, respectively.
NOTE 13 - SUBSEQUENT EVENTS
On June 15, 1996, the Company entered into a purchase agreement with
Auto Express, Inc. wherein the Company purchased 100% of the issued
and outstanding shares of Auto Express, Inc. The agreement was
completed on June 28, 1996. Auto Express, Inc. is involved in the
business of transporting vehicles acress the United States for major
businesses as well as consumers.
On June 27, 1996, the Company entered into an Exchange Agreement
with One World Cards, Inc. & Bruce Perlowin, its President for 278
- $10,000 prepaid long distance calling cards at a rate of
approximately $0.45 per minute or better and an expiration date of
five (5) years from the date for closing in exchange for 18 original
art works by Sky M. Jones with appraisal books and appraisals
totaling $2,779,700 owned by the Company's wholly owned subsidiary
Mid-Nevada Art, Inc.
On June 27, 1996, the Company entered into an Exchange Agreement
with One World Cards, Inc. & Bruce Perlowin, its President for 3
- $100,000 pre paid long distance calling cards at a rate of $0.45
per minute or better with no expiration date and 45 - $10,000
prepaid long distance calling cards at a rate of approximately $0.45
per minute or better and an expiration date of five (5) years from
the date for closing in exchange for 12 original art works by Sky M.
Jones with appraisal books and appraisals totaling $750,000 owned
by the Company's wholly owned subsidiary Mid-Nevada Art, Inc.
F-24
C.E.C. INDUSTRIES CORP.
23 Cactus Garden Drive, F-60
Henderson, NV 89014
Telephone (702) 893-4747
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
August 21, 1996
TO THE SHAREHOLDERS OF C.E.C. INDUSTRIES CORP.
The annual meeting of the shareholders of C.E.C. Industries Corp.
will be held at the Company's executive offices, 23 Cactus Garden Drive,
Suite F-60, Henderson, Nevada, on August 21, 1996, at 9:00 a.m. Pacific
Daylight Time, for the following purposes.
1. To elect five directors to serve until the next annual meeting
and until their successors are elected and qualified; and,
2. To transact any other business that may properly come before
the meeting or any adjournment of the meeting.
Shareholders of record at the close of business on June 21, 1996, are
entitled to notice of and to vote at the meeting. The Company's proxy
statement and its 1996 annual report to shareholders accompany this
notice.
All shareholders are invited to attend the meeting in person.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON,
PLEASE SIGN THE ENCLOSED PROXY CARD AND RETURN IT AS SOON AS POSSIBLE.
By Order of the Board of Directors,
/s/Gerald H. Levine
Gerald H. Levine
Chairman and President
June 26, 1996
C.E.C. INDUSTRIES CORP.
23 Cactus Garden Drive, F-60
Henderson, NV 89014
Telephone (702) 893-4747
PROXY STATEMENT
For the Annual Meeting of Shareholders
to be held August 21, 1996
MATTERS TO BE CONSIDERED
This Proxy Statement is furnished in connection with the
solicitation of proxies by the Board of Directors of C.E.C. Industries Corp.
(the "Company") of proxies for use at the annual meeting of the shareholders
of the Company, or any adjournments thereof. The meeting will be held
at the Company's executive offices, 23 Cactus Garden Drive, Suite F-60,
Henderson, Nevada, on August 21, 1996, at 9:00 a.m. Pacific Daylight Time,
to elect five directors to serve until the next annual meeting and until
their successors are elected and qualified.
Management knows of no other business that may properly come before the
meeting. The above matter requires for its approval the affirmative vote of
a majority of the shares represented at a meeting at which a quorum is
present.
SOLICITATION OF PROXIES
Enclosed is a proxy card for use in voting shares of Common Stock in
the Company by proxy at the annual meeting of shareholders. Unless
otherwise indicated on the proxy, shares represented at the meeting by a
properly executed proxy, received by the Company in advance of the meeting,
will be voted for each of the nominees for Director shown on the proxy card.
Where a shareholder specifies on a proxy how the shares represented by
the proxy are to be voted, the shares will be voted in accordance with the
specifications made. Any proxy given by a shareholder may be revoked by the
shareholder at any time prior to its use by filing a written revocation with
the Secretary of the Company, by filing a proxy, duly executed, with the
Secretary of the Company bearing a later date, or by attending the meeting
and voting in person. Attendance at the meeting, in and of itself, will
not constitute revocation of a previously submitted proxy.
VOTING SECURITIES
The securities entitled to vote at the meeting consist of shares of
Common Stock of the Company, par value $0.05. Each share of Common Stock
is entitled to one vote. Only shareholders of record at the close of
business on June 21, 1996, are entitled to notice of and to vote at the
meeting and any adjournment thereof. The number of outstanding shares
at the close of business on June 21, 1996, was 16,431,795 held by
approximately 1,728 shareholders.
This Proxy Statement is being mailed to shareholders beginning
July 8, 1996.
BENEFICIAL STOCK OWNERSHIP
The following table sets forth, as of June 21, 1996, Common Stock
ownership of (1) the directors of the Company, (2) the only persons known
to management to be the beneficial owners of more than five percent of the
Common Stock of the Company, and (3) the Company's directors and officers as
a group:
Amount and Options
Nature of or Other
Title of Name and Address Beneficial Percent Beneficial
Class of Beneficial Owner(1) Ownership of Class Owners(2)(3)
Common Gerald H. Levine 0 0%
Common Marie A. Levine 0 0%
Common Alvin B. Green 30,000 .0018%
Common Janice E. Smith 0 0%
Common Ralph Mann 20,000 .0012%
Common O.T.S. Holdings, Inc. 7,794,000 47%
4535 W. Sahara, Suite 105 13B
Las Vegas, Nevada 89102
Common DSM Golf Enterprises, Inc. 1,200,000 7% 720,000(proxy)
1350 E. Flamingo Rd. #246
Las Vegas, NV 89119
Common Wire To Wire, Inc. 1,414,667 9%
4535 W. Sahara, Suite 105 13B
Las Vegas, Nevada 89102
Common Directors and Officers 50,000 .003%
as a group (5 persons)
(1) Addresses are furnished only for those beneficial owners of 5% or more
of the Company's Common Stock.
(2) All beneficial owners have sole voting and investment power over all
of the shares they own, except as indicated in column five and these
footnotes.
(3) The amounts in column three include the amounts in column five.
ELECTION OF DIRECTORS
Five directors are to be elected to the Board of Directors for one year
to serve until the 1997 annual meeting of shareholders and until their
successors are elected and qualified.
If one or more of the nominees should at the time of the meeting be
unable or unwilling to serve, the shareholders may vote for other
nominees and for any substitute nominee or nominees designated by the
Board of Directors. None of the Directors knows of any reason why the
five nominees named would be unavailable to serve. The following table sets
forth information regarding each nominee.
All Positions Years Served
and Offices as Director
Name With C.E.C. Age Of the Company
Gerald H. Levine President & Director 63 0
Marie A. Levine Secretary/Treasurer & Director 49 0
Alvin B. Green Director 65 0
Janice E. Smith Director 47 0
Ralph Mann Director 0
BOARD OF DIRECTORS MEETINGS AND COMPENSATION
Board Meetings
The Board of Directors met 12 times during the fiscal year ended
March 31, 1996. The Board does not have an audit, a compensation nor a
nominating committee.
Director Compensation
For serving on the Board of Directors, each director of the Company is
paid an amount of money per meeting established from time to time by
resolution of the Board of Directors, or the equivalent in common stock in
the Company.
IDENTIFICATION OF EXECUTIVE OFFICERS
The Company's executive officers are elected annually at the first
meeting of the Board of Directors following each annual shareholders
meeting. The Company's executive officers as of June 26, 1996, were as
follows:
Name Age Position
Gerald H. Levine 63 President & Chief Executive Officer
Marie A. Levine 49 Secretary/Treasurer
Summary Compensation
The compensation which the Company paid to the President for services in
all capacities and for the fiscal years indicated, was as follows:
Name and Principal Position Year Salary Other
Ronald Robinson 1995 127,914
Shares of
Common Stock
Richard Cope 1996 0
George Matthews 1996 0
Gerald H. Levine 1996 0
Insider Participation in Compensation Decisions
The Company has no separate Compensation Committee; the entire Board of
Directors makes decisions regarding executive compensation. Two of the
five directors are officers of the Company. Gerald H. Levine is the
President and a director and Marie A. Levine is the Secretary/Treasurer and
a Director. Both of them participated in deliberations of the Company's
Board of Directors concerning executive officer compensation.
Board of Directors Report on Executive Compensation
The Board of Directors has no existing policy with respect to the specific
relationship of corporate performance to executive compensation. Since the
Company's sale, effective December 31, 1990, of all of the Company's assets
relating to its then primary active business of engineering consulting and
customized minerals processing, the Board has set executive compensation at
what the Board considered to be the minimal levels necessary to retain and
compensate the officers of the company for their activities on the
Company's behalf.
Gerald H. Levine
Marie A. Levine
Alvin B. Green
Janice E. Smith
Ralph Mann
EMPLOYEE BENEFIT PLAN
Effective February, 1996, the Savings and Protection Plan (the
"Savings Plan") was terminated by C.E.C. Management Corp.
1987 NONQUALIFIED STOCK OPTION PLAN
The Company has a 1987 Nonqualified Stock Option Plan (the "NSOP").
The NSOP is administered by a committee of three persons appointed
by the Board of Directors. Eligible participants include the
Company's employees and directors who are not members of the committee
(and have not been for a least one year). The numbers and terms of the
options granted to each participant are determined by the committee.
There are an aggregate of 100,000 shares of the Company's Common
Stock available for the granting of options under the NSOP. The option
price per share may not be less than the Common Stock's par value of $0.05.
No portion of an option my be exercised until two years from the date of
its grant.
SELECTION OF AUDITORS
The Board of Directors selected William Clancy, Certified Public
Accountant, as the independent auditor to examine the Company's financial
statements for the fiscal year ended March 31, 1996. The Company
anticipates that Mr. Clancey is expected to be present at the shareholders
meeting to answer any questions.
PROPOSALS OF SHAREHOLDERS FOR 1997 ANNUAL MEETING
Proposals of shareholders intended to be presented at the 1997 annual
shareholders' meeting must be received by the Corporate Secretary,
C.E.C. Industries Corp., 23 Cactus Garden Drive, F-60, Henderson, Nevada,
prior to April 1, 1997.
OTHER MATTERS
Management knows of no other matters that are likely to be brought
before the meeting.
EXPENSES OF PROXY SOLICITATION
The principal solicitation of proxies will be made by mail. However,
certain officers of the Company, none of whom will be compensated therefor,
may solicit proxies by letter, telephone or personal solicitation. Expenses
of distributing this Proxy Statement to shareholders, which may include
reimbursements to banks, brokers and other custodians for their expenses in
forwarding this Proxy Statement, will be borne exclusively by the Company.
PLEASE SIGN, DATE AND RETURN THE ACCOMPANYING PROXY AT YOUR
EARLIEST CONVENIENCE, WHETHER OR NOT YOU CURRENTLY PLAN TO ATTEND
THE MEETING.
/s/Marie A. Levine
Marie A. Levine
Secretary
C.E.C. INDUSTRIES CORP.
PROXY
Annual Meeting of Shareholders
August 21, 1996
The undersigned appoints The Board of Directors of C.E.C. Industries
Corp. with full power of substitution, the attorney and proxy of the
undersigned, to attend the annual meeting of shareholders of C.E.C.
Industries Corp., to be held August 21, 1996, beginning at 9:00 a.m.,
Pacific Daylight Time, at the Company's executive offices located at 23
Cactus Garden Drive, F-60, Henderson, Nevada and at any adjournment thereof,
and to vote the stock the undersigned would be entitled to vote if personally
present, on all matters set forth in the Proxy Statement to
Shareholders dated June 26, 1996, a copy of which has been received by
the undersigned, as follows:
1. Vote [ ] Withhold Vote [ ]
for the election of the following five nominees as directors of the
Company, to serve until the next annual meeting and until their
successors are elected and qualify: Gerald H. Levine, Marie A. Levine,
Alvin B. Green, Janice E. Smith, and Ralph Mann. Please indicate the
names of those for whom you are withholding your vote:
2. In his discretion, upon any other matter that may properly come before
the meeting or any adjournment hereof.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFIC
INDICATIONS ABOVE. IN THE ABSENCE OF SUCH INDICATIONS, THIS PROXY, IF
OTHERWISE DULY EXECUTED, WILL BE VOTED FOR EACH OF THE MATTERS SET
FORTH ABOVE.
Date ___________________________, 1996 Number of Shares________________
Please sign exactly as
your name appears on
your stock certificate(s).
If your stock is issued in Signature
the names of two or more Print Name Here:
persons, all of them must
sign this proxy. If signing
in representative capacity,
please indicate your title.
Signature
Print Name Here:
PLEASE SIGN AND RETURN THIS PROXY PRIOR TO AUGUST 12, 1996.