U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_________ to___________
Commission file number 0-023075
PELICAN PROPERTIES, INTERNATIONAL CORP.
(Name of Small Business Issuer in its Charter)
Florida 65-0616879
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2 Fenwick Road, Fort Monroe, VA 23651
(Address of Principal Executive Offices)(Zip Code)
(305) 251-4060
(Issuer's Telephone Number)
Securities registered under Section 12(g) of the Act:
Common Stock, par value .001 par share
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ ] No [ X ]
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in the definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. | |
State issuer's revenues for its most recent fiscal year: $914,675.00
The aggregate market value of the Registrant's voting Common Stock held
by non-affiliates of the registrant was approximately $2,106,545 (computed using
the closing bid price per share of Common Stock on April 1, 1999, based on the
assumption that directors and officers and more than 5% stockholders are
affiliates).
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
There were 5,094,185 shares of the registrant's Common Stock, par value
$.001 per share outstanding on April 1, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Forward-Looking Statements
- --------------------------
Certain matters discussed in this Annual Report on Form 10-KSB are
"forward-looking statements" intended to qualify for the safe harbors from
liability established by the Private Securities Litigation Reform Act of 1995.
These forward-looking statements can generally be identified as such because the
context of the statement will include words such as the Company "believes",
"anticipates", "expects" or words of similar import. Similarly, statements that
describe the Company's future plans, objectives or goals are also
forward-looking statements. Such forward-looking statements are subject to
certain risks and uncertainties which are described in close proximity to such
statements and which could cause actual results to differ materially from those
currently anticipated. Shareholders, potential investors and other readers are
urged to consider these factors in evaluating the forward-looking statements and
are cautioned not to place undue reliance on such forward-looking statements.
The forward-looking statements included herein are made as of the date of this
report, and the Company undertakes no obligation to publicly update such
forward-looking statements to reflect subsequent events or circumstances.
Generally
- ---------
Pelican Properties, International Corp. (the "Company") was
incorporated under the laws of the State of Florida on June 1, 1990 under the
name Optimum Computing Inc. Its subsidiaries, Ohio Key I, Inc. and Ohio Key II,
Inc., were incorporated under the laws of the State of Florida on December 19,
1996.
On August 31, 1995, the Company entered into a Share Exchange Agreement
with the limited partners of the Sunshine Key Associates limited partnership, a
Florida Limited Partnership (the "Partnership") whereby a 99% interest in the
Partnership was transferred to the Company in exchange for 3,010,000 shares, or
83.6%, of the Company's common stock. On December 31, 1996, the Partnership
entered into agreements with Ohio Key I, Inc. and Ohio Key II, Inc., both
wholly-owned subsidiaries of the Company (the "Subsidiaries") pursuant to which
with the Subsidiaries were assigned the assets and assumed the liabilities of
the Partnership including the Sunshine Key RV Resort and Marina, a resort
property located in Ohio Key, Florida ("Property").
Until June 4, 1998, the Company, through the Subsidiaries, engaged in
the ownership and management of the Property. On June 4, 1998, the Company's
Subsidiaries sold (the "Sale") the Property for a sale price of $15,750,000
cash. A portion of the proceeds from the Sale, or $5,589,908, was used to pay
all of the Company's long-term debt (including all debt associated with the
Property). Proceeds were also used to redeem all of the Company's outstanding,
Series A preferred stock and satisfy all other loans associated with the
Property and Partnership. After provisions for closing costs and the resolution
of certain issues with respect to the Property, the Company placed the remaining
proceeds of the Sale, $8,149,727.15 (the "Remaining Proceeds"), in an IRS Rule
1031 Exchange Account with the intention of taking advantage of tax deferral
strategies if reinvested in real estate properties within specified time frames
and if certain criteria.
On October 15, 1998, the Company, through its Subsidiaries, purchased
the McLure House Hotel and Conference Center located in Wheeling, West Virginia
for $3,200,000 paid in cash. The cash was drawn from the proceeds
held in the Company's Rule 1031 Exchange Account.
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On November 25, 1998, the Company through its Subsidiaries purchased
the Palmer Inn Hotel located in Princeton, New Jersey for $7,500,000. $2,500,000
was paid in cash and the remaining balance was financed. The cash was drawn from
the proceeds held in the Company's Rule 1031 Exchange Account.
On November 30, 1998, the Company, through its Subsidiaries, purchased
the Chamberlain Hotel located in Hampton Roads, Virginia for $5,350,000.
$2,350,000 was paid in cash and the remaining balance was financed. The cash was
drawn from the proceeds held in the Company's Rule 1031 Exchange Account. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Description of Property" for further discussion of these
acquisitions.
Shortly after its Annual Report on Form 10-KSB for fiscal 1998 filing,
the Company intends to transfer all assets and liabilities of the McLure House
Hotel and Conference Center, Chamberlain Hotel and the Palmer Inn from Ohio Key
I, Inc. and Ohio Key II, Inc. to McLure House Hotel & Conference Center, LLC,
Old Point Comfort Hotel, LLC and Palmer Inn, Princeton LLC, respectively. These
Florida limited liability companies will be established as single member LLC's,
with the single member being the Company.
Business Strategy
- -----------------
The Company intends to increase the growth of its existing hotels
through concentrated management efforts. The Company believes that it can
increase profitability through the centralization of the hotel management. This
will allow the Company to take advantage of increased efficiency through the
pooling of resources between its three hotels. The Company intends to implement
and utilize specific operating, marketing and financial system resources to
enhance operating performance by maximizing revenues and reducing operating
expenses. The Company is developing a consistent standard at each hotel in
relation to the customer service, while allowing each hotel to maintain its
unique character.
Management believes a substantially increased marketing program will
create both short-term and long-term benefits at each hotel. A primary customer
base of the hotels is the business traveler. Consequently, the Company's sales
force intends to intensify its marketing efforts to the corporate environment.
In addition, the Company's sales force will actively market meeting and banquet
services to groups and individuals for seminars, business meetings, holiday
parties and weddings. Management has also targeted several capital improvement
projects throughout each hotel that once completed are expected to increase the
appeal and marketability of the hotels. The Company anticipates a significant
amount of exposure during the Operation Sail 2000 event in June 2000. Operation
Sail 2000, a nationally sponsored event planned by the United States, will be
the largest gathering of sail training and naval vessels in history. It is in
celebration of the millennium and will begin in May 2000 in Puerto Rico and end
in New London, Maine in July 2000, with a stop in the Hampton Roads area in June
2000. The Company anticipates being the media host hotel in Hampton Roads for
this event.
The Company also intends to continue to expand through the acquisition
of additional hotel properties. Management will concentrate on evaluating
full-service, high quality, independently franchised hotels throughout the
United States. It intends to focus on acquisitions within larger cities or
within their immediate surroundings. The Company believes there are
full-service, high quality, independent franchised hotel properties on the hotel
market that can benefit from the efficiencies of experienced central management
and the availability of financial resources to achieve full potential.
Management is focused on those properties that will provide internal growth and
increased profitability. Management believes that market conditions remain
favorable for the acquisition of full-service, high quality, independent
franchised hotels and expects to continue analyzing potential acquisition
properties. The Company intends to fund the acquisition of hotel properties
through the public or private sale of its securities or by obtaining financing
from institutional or other financing firms.
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Competition
- -----------
The hotel industry is highly competitive and the Company's hotels are
subject to competition from other hotels. Many of the Company's competitors may
have substantially greater marketing and financial resources than the Company's.
Each of the Company's hotels compete for guests primarily with other similar
hotels in its immediate vicinity and secondarily with other similar hotels in
its geographic market. Management believes that brand recognition, location, the
quality of the hotel and services provided, and price are the principal
competitive factors affecting the Company's hotels.
Seasonality
- -----------
The hotel industry is seasonal in nature. Generally, the Company's
hotel revenue will be greater in the second and third quarters of a calendar
year. The McLure House Hotel and Conference Center also generates greater
revenues in the fourth quarter of the calendar year due to an annual local area
festival. This seasonality can be expected to cause quarterly fluctuations in
revenues and profitability of the Company. Quarterly earnings also may be
adversely affected by events beyond the Company's control, such as extreme
weather conditions, economic factors and other considerations affecting travel.
Employees
- ---------
The Company currently has two employees in its corporate management
consisting of its Chief Financial Officer and Vice President of Hotel
Operations. The Company presently employs approximately 190 persons through its
subsidiaries. All three hotels are full service, but only one operates its own
food service. The number of employees at each hotel is subject to change based
on seasonal considerations. Management believes that its present employees are
adequate to support its current operations although the Company intends to hire
additional employees upon the acquisition of other properties. Management
believes its relations with employees are satisfactory.
ITEM 2. DESCRIPTION OF PROPERTY
The Company currently operates three full-service hotels with food
service and banquet facilities, one of which is under a franchise agreement with
Best Western. All hotels are concentrated in the Mid-Atlantic Region of the
United States. In March 1999, the Company changed its principal place of
business from Miami, Florida to the Chamberlain Hotel in Hampton, Virginia.
The McLure House Hotel and Conference Center built in 1853, is located
in downtown Wheeling, West Virginia. In August 1998, AAA rated the hotel a Three
Diamond Hotel. It has 173 guestrooms inclusive of 1 and 2 bedroom suites, a VIP
executive floor, 27 apartments, and a full service parking garage. The hotel has
approximately 7,500 square feet of banquet/conference space. The ground floor
has several storefront tenants who offer both street and lobby access to their
facilities. The original Hallmark gift shop is among these tenants. As of
December 31, 1998, the hotel assumed the restaurant and lounge functions
previously leased to a third party. The Company has not re-opened the restaurant
and is currently negotiating third party leasing arrangements.
The Best Western Palmer Inn is located in Princeton, New Jersey. The
hotel is currently a AAA rated Three Diamond Hotel. There are 106 guestrooms
inclusive of deluxe rooms, suites and efficiencies that are equipped for
extended stays. The hotel has five meeting/banquet rooms, a business center with
computer stations, fax and copier equipment, a pool, and an exercise room
complete with a sauna. There is a Charlie Brown franchised restaurant in the
hotel with lobby access for which there is a long-term lease arrangement between
the hotel and the restaurant.
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The Chamberlain Hotel is located on the Chesapeake Bay in Hampton,
Virginia. The hotel is listed on the National Register of Historic Places. It
has 283 rooms, a banquet room and large meeting areas, indoor and outdoor pools,
and a business center with computer stations, fax and copier equipment. AAA does
not currently rate the hotel.
ITEM 3. LEGAL PROCEEDINGS
In November 1998, the Company received a written claim from a third
party alleging that the Subsidiaries misrepresented the condition of the
Sunshine Key RV Resort and Marina. The amount of the claim was stated at
approximately $750,000, but no formal complaint has yet to be filed in any state
or federal court naming the Company or the Subsidiaries as a party. Therefore,
it is impossible at this time to determine the amount of controversy relating to
such claim. Should a complaint be filed, the Company intends to vigorously
defend this claim and believes that the claim is without merit. During fiscal
1998 and 1997, the Company spent approximately $173,500 and $114,000,
respectively, on legal fees relating to this and other matters.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
In 1998, a majority of shareholders by written consent authorized the
sale of all of the assets held in the subsidiaries of Ohio Key I, Inc. and Ohio
Key II, Inc. No matters were submitted to a vote of the Company's shareholders
during the three months ended December 31, 1998.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
As of April 1, 1999, there were approximately 269 stockholders of
record of the Company's Common Stock. The Company's Common Stock is currently
listed for trading on the over-the-counter bulletin board under the symbol
"PELP". The following table sets forth, for the period since January 1, 1997,
the high and low closing sales prices for the Common Stock as reported by the
OTC Bulletin Board.
Common Stock
------------
High Low
---- ---
1997
First Quarter 1.88 0.12
Second Quarter 2.88 1.00
Third Quarter 2.00 0.50
Fourth Quarter 1.31 0.41
1998
First Quarter 1.50 0.50
Second Quarter 1.50 0.63
Third Quarter 1.44 1.00
Fourth Quarter 1.25 0.50
The prices listed above for the Company's common stock reflect
inter-dealer quotations, without retail mark-ups, markdowns or commissions, and
do not necessarily represent actual transactions.
The transfer agent for the Company's Common Stock is Florida Atlantic
Stock Transfer, Inc., 7130 Nob Hill Road, Tamarac, Florida 33321.
The Company has never paid cash dividends on its Common Stock. The
Company presently intends to retain future earnings, if any, to finance the
expansion of its business and does not anticipate that any cash dividends will
be paid in the foreseeable future. The future dividend policy will depend on the
Company's earnings, capital requirements, expansion plans, financial condition
and other relevant factors.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto appearing elsewhere in this
report
The Company's primary objective is the management of held assets and
the acquisition and management of additional hotel properties. Until June 4,
1998, the Company through the Subsidiaries engaged in the ownership and
management of the Property. On June 4, 1998, the Company's Subsidiaries, sold
the Property for a sale price of $15,750,000 cash. A portion of the proceeds
from the Sale, or $5,589,908, was used to pay all of the Company's long term
debt (including all debt associated with the Property). Proceeds were also used
to redeem all of the Company's outstanding Series A preferred stock and satisfy
all other loans associated with the Property and prior Partnership. After
provisions for closing costs and the resolution of certain issues with respect
to the Property, the Company placed the remaining proceeds of the Sale,
$8,149,727.15 (the "Remaining Proceeds"), in an IRS Rule 1031 Exchange Account
with the intention of taking advantage of tax deferral strategies if reinvested
in real estate properties within specified time frames and if certain criteria
are met.
On October 15, 1998, the Company, through the Subsidiaries, purchased
the McLure House Hotel and Conference Center located in Wheeling, West Virginia
for $3,200,000 paid in cash. The purchase funds were drawn from the proceeds
held in the Company's Rule 1031 Exchange Account. On October 16, 1999 the
Company secured a note and mortgage on the property for $2,400,000.
On November 25, 1998, the Company through the Subsidiaries purchased
the Palmer Inn Hotel located in Princeton, New Jersey for $7,500,000. $2,500,000
was paid in cash and the remaining balance was financed. The cash was drawn from
the proceeds held in the Company's Rule 1031 Exchange Account.
On November 30, 1998, the Company, through the Subsidiaries, purchased
the Chamberlain Hotel located in Hampton Roads, Virginia for $5,350,000.
$2,350,000 was paid in cash and the remaining balance was financed. The cash was
drawn from the proceeds held in the Company's Rule 1031 Exchange Account.
As of November 30, 1998 all requirements of the 1031 exchange account
had been satisfied and the Company does not anticipate any material tax
consequences due to the sale of the Property.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1998
- ---------------------------------------------------------------------
For the year ended December 31, 1998, revenues of continuing operations
were $914,675 as compared to $0.00 in 1997. Costs of Revenues was $132,668 in
1998 as compared to $0.00 in 1997. The Gross Profit was $782,007 in 1998 as
compared to $0.00 in 1997. All changes in revenues, cost of revenues and gross
profit were attributable to the disposition of Sunshine Key resort in June 1998
and the acquisition of three hotels in the fourth quarter of 1998. Since the
Sunshine Key resort was the Company's only source of operations for the year
ended December 31, 1997, the Company has treated the sale as discontinued
operations for all periods presented.
Total Operating and General Administrative expenses increased $781,548
from $197,948 in 1997 to $979,496 in 1998. The decrease was attributable to the
disposition of Sunshine Key resort in June 1998 and the acquisition of three
hotels in the fourth quarter of 1998. Interest expense was $146,428 in 1998 as
compared to $0 in 1997. This represents the disposition of Sunshine Key resort
in June 1998 and the acquisition of three hotels in the fourth quarter of 1998.
Since the Sunshine Key resort was the Company's only source of operations for
the year ended December 31, 1997, the Company has treated the sale as
discontinued operations for all periods presented.
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Income from continuing operations increased $219,557 from a loss of
$382,173 in 1997 to a loss of $162,616 in 1998. Net income increased $6,195,697
from a loss of $482,336 in 1997 to $5,932,918 in 1998. The increases were
attributable to the disposition of Sunshine Key resort in June 1998 and the
acquisition of three hotels in the fourth quarter of 1998. Since the Sunshine
Key resort was the Company's only source of operations for the year ended
December 31, 1997, the Company has treated the sale as discontinued operations
for all periods presented.
Liquidity and Capital Resources
The Company's working capital increased from a deficit of $2,235,899 at
December 31, 1997 to $55,498 at December 31, 1998. This increase was due to the
disposition of Sunshine Key resort and the acquisition of three hotels. All
current liabilities associated with the Sunshine Key Resort at December 31, 1997
were satisfied at closing.
At December 31, 1997 the Company had accounts receivable of $54,535 as
compared to $290,798 at December 31, 1998. This increase is primarily comprised
of ongoing business and the collection of funds and is not considered to be a
concern. At December 31, 1997 the Company had accounts payable and accrued
expenses of $252,824 as compared to $473,128 at December 31, 1998.
Cash outlays for capital expenditures of property and equipment totaled
$326,808 for the 1997 fiscal year compared to approximately $30,000 for the 1998
fiscal year. The 1998 expenditures relate only to the acquired hotels.
All long-term debt associated with the Sunshine Key Resort has been
satisfied. The Company currently has a total of $9.9 million of debt associated
with its three hotels.
There is a $2.4 first mortgage held on the McLure House Hotel. See
exhibit 10.12.
The Palmer Inn has a $1 million first mortgage and a $4 million second
mortgage. The first mortgage on the Palmer is due on June 29, 1999. Although the
mortgage is current, management has been actively negotiating the refinance of
the first and second mortgages and expects to secure financing before June 29,
1999.
The Chamberlain Hotel presently has a $2.27 million first mortgage,
negotiated down from a $3 million mortgage as of December 31, 1998 which was
refinanced in February 1999. This refinance resulted in a forgiveness of debt
and resulting savings of approximately $500,000.
On June 4, 1998, the Company redeemed the outstanding certificates of
the holders of the Series A Preferred Stock. Two holders of the Series A
Preferred Stock, one being the chairman of the Company received 117.6% of the
multiple of the face value of the shares and the number of shares held resulting
in an aggregate payout of $345,630. No accrued dividends were granted.
ADDITIONAL FACTS TO CONSIDER
Year 2000
The Commission has issued Staff Legal bulletin No. 5 (CF/IM) stating
that public operating companies should consider whether there will be any
anticipated costs, problems and uncertainties associated with the year 2000
issue, which affects many existing computer programs that use only two digits to
identify a year in the date field. The Company anticipates that its business
operations will electronically interact with third parties minimally and the
issues raised by Staff Legal Bulletin No. 5 are not applicable in any material
way to the Company's business or operations. The Company presently utilizes a
hotel reservation software system that is not year 2000 compliant. Management
has already scheduled the upgrade of this system in mid year 1999, was necessary
for other operational enhancement as well as incorporating year 2000
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compliance. The cost of this upgrade is immaterial and is not expected to impact
the Company's overall expenses. Additionally, the Company intends to purchase or
lease future computer systems that will have already addressed the "Year 2000"
issue.
Outlook
Management anticipates an increase in revenues through the end of 1999.
Revenue increases are mostly anticipated at the McLure House Hotel and the
Palmer Inn. The Palmer Inn implemented a rate increase in early 1999 that allow
it to remain within the average rate of comparable hotels in its market.
Expenses are anticipated to only increase slightly. Management believes that the
implementation of its central management operation will produce decreases in
management expenses incurred at the Palmer Inn in fiscal 1998. This coupled with
the anticipated minor increases in expenses at the other two hotels relates to
an overall expected increase in the net income for all three hotels
collectively. Management does anticipate an increase in the corporate overhead
expense with the implementation of a centralized management function for the
hotels. The Company believes that this self-management approach will create a
savings in the overall management costs as opposed to the use of management
companies.
The McLure House Hotel will be in the final year of a four-year capital
improvement plan in fiscal 1999. The remaining improvements include the last of
guestroom and corridor upgrades as well as upgrades to the lounge. Management
plans on funding these projects through operations. The Company is presently
analyzing the feasibility of adding an additional 20 to 30 suites at the Palmer
Inn. This would close in the back end of its "u" shaped construction and would
create a courtyard in the center of the building. Initial feasibility estimates
look favorable and the previous owner had secured the local approval necessary
for such an expansion. If the Company decides to move forward, it will look to
secure debt financing for this project. Management is currently developing a
capital improvement plan for the Chamberlain Hotel. It will initially focus on
improvements to guestrooms and public areas. Management plans on funding these
projects through operations.
ITEM 7. FINANCIAL STATEMENTS
The Company's financial statements are included in this report, at
pages F-1 to F-23.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following table sets forth the names, positions with the Company
and ages of the executive officers and directors of the Company. Directors will
be elected at the Company's annual meeting of stockholders and serve for one
year or until their successors are elected and qualify. The Board of Directors
elects officers and their terms of office are, except to the extent governed by
employment contract, at the discretion of the Board.
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Name Age Position
---- --- --------
C. John Knorr, Jr. 53 Chairman of the Board
Timothy M. Benjamin 33 Chief Financial Officer
and Treasurer
Jane Bergman 46 Director
Donald E. Schupp 52 Director
Unless otherwise noted, the address of each of the directors and
officers of the Company is 12520 SW 195 Terrace, Miami, Florida 33177.
Carl John Knorr, Jr. Since June 1, 1996 Mr. Knorr has served as the
Company's Chairman of the Board and from August 31, 1995 through May 31, 1996 as
the Company's President. Mr. Knorr is also President and sole shareholder of
Infinity Investment Group, Inc., the general partner and management Company for
the Partnership since 1991.
Timothy M. Benjamin. Since October 30, 1995, Mr. Benjamin has served as
the Company's Chief Financial Officer and since June 1, 1996 has served as the
Company's Chief Financial Officer and Treasurer. From 1989 to October 1995 Mr.
Benjamin was employed with the Federal Reserve Bank of Atlanta, and Miami,
Florida, as Senior Business Development Coordinator.
Jane E. Bergman. From June 1, 1996 to May 31, 1998, Ms. Bergman served
as President of the Company and since February 20, 1997, as a Director of the
Company. From 1992 to 1996 Ms. Bergman has been self employed concentrating on
the management of her rental properties as well as managing and operating an
animal care business. In 1992, she retired from Bell Atlantic where she was
Director of Operations in various departments since 1983.
Donald E. Schupp. Since February 20, 1997 Mr. Schupp has served as a
director of the Company. Mr. Schupp has served as President and Chief Operating
Officer for American Refining Group, which is in the oil refining business,
headquartered in Pittsburgh, Pennsylvania since 1983 and is a member of the
Board of Directors at the Company.
As additional properties are acquired, the Company anticipates
attracting additional, equally successful and qualified, directors, officers,
and facility managers.
The Company currently does not have any board-approved committees.
COMPLIANCE WITH SECTION 16 (A) OF THE SECURITIES EXCHANGE ACT OF 1934
- ---------------------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of the outstanding common stock, to file with the Securities and
Exchange Commission (the"SEC") initial reports of ownership on Form 3 and
reports of changes in ownership of Common Stock on Forms 4 or 5. Such persons
are required by SEC regulation to furnish the Company with copies of all such
reports they file.
Based solely on its review of the copies of such reports furnished to
the Company or written representations that no other reports were required. The
Company believes that all Section 16(a) filing requirements applicable to its
officers, directors and greater than ten percent beneficial owners were complied
with during the year ended December 31, 1998, except that the Chief Financial
Officer, Timothy Benjamin inadvertently filed a late Form 4 for reporting
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options exercised. Jane Bergman, former President, inadvertently filed a late
Form 4 for reporting quarterly stock compensation received as an officer.
ITEM 10. EXECUTIVE COMPENSATION
No executive officer of the Company has had annual compensation in
excess of $100,000. The following table shows for the years ended December 31,
1997 and 1998 the cash and other compensation paid by the Company to its
President and Chairman.
<TABLE>
<CAPTION>
Summary Compensation Table
Name and Other Annual All Other
Principle Position Year Salary Bonus Compensation Compensation
- ------------------ ---- ------ ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Jane Bergman, 1997 $-0- $-0- $-0- $8,750(1)
President(2) 1998 $-0- $16,500 $-0- $28,700(3)
C. John Knorr,
Chairman of the Board 1997 $62,400 $-0- $-0- $-0-
1998 $62,400 $8,750 $-0- $-0-
</TABLE>
- ----------------------
(1) Represents the value determined by management of 140,000 shares of
Common Stock earned in 1997 pursuant to the employment agreement
between the Company and Ms. Bergman.
(2) Ms. Bergman served as President of the Company from June 1, 1996 to
May 31, 1998.
(3) Represents the value determined by management of 40,000 shares of
Common Stock earned in 1998 pursuant to the employment agreement
between the Company and Ms. Bergman which contract expired on May 31,
1998 and was not renewed.
Option Grants in Last Fiscal Year
- ---------------------------------
During fiscal 1998, the Company granted to the Chief Financial Officer
("CFO") the option to purchase up to 50,000 shares of common stock at an
exercise price of $.01 per share, which was vested and exercisable on March 1,
1998. On March 6, 1998, the CFO exercised the option and was issued 50,000
shares of common stock of the Company as restricted shares under Rule 144 of the
Securities Act of 1933. The Company granted no other options to purchase shares
of common stock during the fiscal year ended December 31, 1998. Neither Ms.
Bergman nor Mr. Knorr exercised options in the fiscal year ended December 31,
1998.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
Company's Common Stock beneficially owned on April 1, 1999 for (i) each
stockholder known by the Company to be the beneficial owner of five (5%) percent
or more of the Company's outstanding Common Stock, (ii) each of the Company's
executive officers and directors, and (iii) all executive officers and directors
as a group. In general, a person is deemed to be a "beneficial owner" of a
security if that person has or shares the power to vote or direct the voting of
such security, or the power to dispose or to direct the disposition of such
security. A person is also deemed to be a beneficial owner of any securities of
which the person has the right to acquire beneficial ownership within sixty (60)
days. At
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April 1, 1998, there were 5,094,185 shares of Common Stock outstanding. The
address for each of the person's set forth below is 2 Fenwick Road, Fort Monroe,
VA 23651, except as otherwise noted.
<TABLE>
<CAPTION>
No. of Shares
of Common Stock Percent
Name and Address Beneficially Owned of Class
- ---------------- ------------------ --------
<S> <C> <C> <C>
C. John Knorr, Jr.(1) 1,685,483 29.3%
Jane Bergman (2) 280,000 5.5%
Donald E. Schupp 400 0.0%
Timothy M. Benjamin(3) 50,000 1.0%
Thomas L. Callahan(4) 688,145 13.5%
Linda Brauer(5) 350,698 6.8%
All executive officers and directors
as a group (four persons) 2,015,883 35.0%
- ------------------------------
</TABLE>
(1) Mr. Knorr's address is 104 Woodhall Drive, Richmond, VA 23229. Includes
107,256 shares of Common Stock held by Infinity Investment Group, Inc.,
the general partner of the Partnership, in which Mr. Knorr is the sole
shareholder. Includes (i) 333,333 shares of Common Stock issuable upon
the exercise of options at a price of $.01 per share at any time after
January 1, 1998 until January 1, 2002 and (ii) 333,333 shares of Common
Stock issuable upon the exercise of options at a price of $.01 per
share at any time after January 1, 1999 until January 1, 2003.
(2) Ms. Bergman's address is 22 Larison Road, Chester, NJ 07930.
(3) Mr. Benjamin's address is 12520 SW 195 Terrace, Miami, FL 33177. Does
not include up to 40,000 shares issuable upon the exercise of options
that vest upon certain conditions set forth in Mr. Benjamin's 1997-98
employment agreement.
(4) Mr. Callahan's address is 1001 Oystercove Drive, Grasonville, MD
21638.
(5) Ms. Braurer's address is 11308 Bedfordshire Avenue, Potomac, MD 20854.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of the date hereof, there are stock options to purchase an aggregate
of 666,666 shares of Common Stock outstanding at a price of $.01 per share,
which were granted to Mr. Knorr on October 9, 1996 in consideration for Mr.
Knorr guaranteeing the payment of $1,000,000 pursuant to the Guarantee Agreement
between Mr. Knorr and WAMCO XXII, Ltd., dated August 6, 1996.
Also, Infinity Investments Group, Inc., a Florida corporation which is
owned and controlled by Mr. Knorr, Chairman of the Board, privately owned
three park model units located at the Sunshine Key Resort. Those rental units
were managed through Ohio Key I Inc.'s rental management program and expenses
were paid on behalf of the units and the units through May 1998 earned income.
On June 4, 1998 Infinity Investment Group sold its interests in the three park
model units and all balances owed by the Company were settled.
12
<PAGE>
The Company owed Mr. Knorr directly and indirectly a sum of $5,638 as
of December 31, 1997 which was referred to as "Due to Affiliates" in the
financial statements. These sums are related to the above mentioned rental unit
incomes. As of this filing, there are no balances owed to or from Mr. Knorr
directly or indirectly other than compensation for services as chairman in the
sum of $62,400 annually.
On June 4, 1998 the Company redeemed an aggregate of 46,666 shares of
its Series A Preferred Stock for a redemption price of 117.6% of the stated face
value of $1.50 per share. As a result of the redemption, Mr. Knorr who owned
46,666 shares of the Series A preferred Stock, received $82,320.
13
<PAGE>
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
3.1 Articles of Incorporation dated 5/30/90 (Incorporated by reference to
the exhibit of the same number filed with the Company's registration
statement on Form SB-2 as filed with the Securities and Exchange
Commission on September 12, 1997, File No. 000-23075)
3.2 Articles of Incorporation Amendment to the Articles of Incorporation
dated 6/29/95 (Incorporated by reference to the exhibit of the same
number filed with the Company's registration statement on Form SB-2 as
filed with the Securities and Exchange Commission on September 12,
1997, File No. 000-23075)
3.3 Articles of Incorporation Amendment to the Articles of Incorporation
dated 6/20/90 (Incorporated by reference to the exhibit of the same
number filed with the Company's registration statement on Form SB-2 as
filed with the Securities and Exchange Commission on September 12,
1997, File No. 000-23075)
3.4 Articles of Incorporation Amendment to the Articles of Incorporation
dated 8/15/95 (Incorporated by reference to the exhibit of the same
number filed with the Company's registration statement on Form SB-2 as
filed with the Securities and Exchange Commission on September 12,
1997, File No. 000-23075)
3.5 Ohio Key I Articles of Incorporation dated 12/16/96 (Incorporated by
reference to the exhibit of the same number filed with the Company's
registration statement on Form SB-2 as filed with the Securities and
Exchange Commission on September 12, 1997, File No. 000-23075)
3.6 Ohio Key II Articles of Incorporation dated 12/16/96 (Incorporated by
reference to the exhibit of the same number filed with the Company's
registration statement on Form SB-2 as filed with the Securities and
Exchange Commission on September 12, 1997, File No. 000-23075)
3.7 Bylaws (Incorporated by reference to the exhibit of the same number
filed with the Company's registration statement on Form SB-2 as filed
with the Securities and Exchange Commission on September 12, 1997, File
No. 000-23075)
3.8 Ohio Key I Bylaws (Incorporated by reference to the exhibit of the same
number filed with the Company's registration statement on Form SB-2 as
filed with the Securities and Exchange Commission on September 12,
1997, File No. 000-23075)
3.9 Ohio Key II Bylaws (Incorporated by reference to the exhibit of the
same number filed with the Company's registration statement on Form
SB-2 as filed with the Securities and Exchange Commission on September
12, 1997, File No. 000-23075)
3.10 Articles of Incorporation Amendment to the Articles of Incorporation
dated June 29, 1997. (Incorporated by reference to the Exhibit of the
same number filed with the Securities and Exchange Commission on
November 14, 1998, File No. 000-23075
4.1 Specimen Common Stock Certificate (Incorporated by reference to the
exhibit of the same number filed with the Company's registration
statement on Form SB-2 as filed with the Securities and Exchange
Commission on September 12, 1997, File No. 000-23075)
4.2 Specimen Class A Common Stock Purchase Warrant (Incorporated by
reference to the exhibit of the same number filed with the Company's
registration statement on Form SB-2 as filed with the Securities and
Exchange Commission on September 12, 1997, File No. 000-23075)
4.3 Specimen Class B Common Stock Purchase Warrant (Incorporated by
reference to the exhibit of the same number filed with the Company's
registration statement on Form SB-2 as filed with the Securities and
Exchange Commission on September 12, 1997, File No. 000-23075)
10.1 Share Exchange Agreement between the Company and all of the limited
partners of Sunshine Key Associates Limited Partnership effective
August 30, 1995 (Incorporated by reference to the exhibit of the same
number filed with the Company's registration statement on Form SB-2 as
filed with the Securities and Exchange Commission on September 12,
1997, File No. 000-23075)
10.2 Loan Restructuring Agreement between Ohio Key I, Inc.; WAMCO XXII Ltd.
and Sunshine Key Associates Limited Partnership dated 1/31/96
(Incorporated by reference to the exhibit of the same number filed with
the Company's registration statement on Form SB-2 as filed with the
Securities and Exchange Commission on September 12, 1997, File No.
000-23075)
14
<PAGE>
10.3 Promissory Note between WAMCO XXII, Ltd., Ohio Key I, Inc. and Ohio Key
II, Inc. dated 12/31/96 (Incorporated by reference to the exhibit of
the same number filed with the Company's registration statement on Form
SB-2 as filed with the Securities and Exchange Commission on September
12, 1997, File No. 000-23075)
10.4 Restated Mortgage and Assumption Agreement (Incorporated by reference
to the exhibit of the same number filed with the Company's registration
statement on Form SB-2 as filed with the Securities and Exchange
Commission on September 12, 1997, File No. 000-23075)
10.5 Assignment for Assumption of Leases between Ohio Key I, Inc and
Sunshine Key Associates Limited Partnership dated 1/24/97 (Incorporated
by reference to the exhibit of the same number filed with the Company's
registration statement on Form SB-2 as filed with the Securities and
Exchange Commission on September 12, 1997, File No. 000-23075)
10.6 Agreement for Assumption of Liabilities between Ohio Key I, Inc. and
Sunshine Key Associates Limited Partnership dated 1/24/97 (Incorporated
by reference to the exhibit of the same number filed with the Company's
registration statement on Form SB-2 as filed with the Securities and
Exchange Commission on September 12, 1997, File No. 000-23075)
10.7 Assignment and Assumption of Contracts between Ohio Key I, Inc. and
Sunshine Key Associates Limited Partnership dated 1/24/97 (Incorporated
by reference to the exhibit of the same number filed with the Company's
registration statement on Form SB-2 as filed with the Securities and
Exchange Commission on September 12, 1997, File No. 000-23075)
10.8 Assignment between Ohio Key I, Inc. and Sunshine Key Associates Limited
Partnership dated 1/24/97 (Incorporated by reference to the exhibit of
the same number filed with the Company's registration statement on Form
SB-2 as filed with the Securities and Exchange Commission on September
12, 1997, File No. 000-23075)
10.9 Purchase agreement between Ohio Key I, Inc., Ohio Key II, Inc. and
WesBanco for the purchase of the McLure House Hotel dated September 23,
1998 (Incorporated by reference to the Company's 8-K as filed with the
Securities and Exchange Commission on October 22, 1998)
10.10 Agreement of Sale between Ohio Key I, Inc., Ohio Key II, Inc. and
Keydocrom, Inc. for the purchase of the Palmer Inn dated November 11,
1998 (Incorporated by reference to the Company's 8-K/A as filed with
Securities and Exchange Commission on December 14, 1998)
10.11 Sale and Purchase of Assets Agreement between Ohio Key I, Inc., Ohio
Key II, Inc. and Chamberlain Hotel LLC dated November 30, 1998
(Incorporated by reference to the Company's 8-K/A as filed with the
Securities and Exchange Commission on December 14, 1998)
10.12 McLure House Hotel $2,400,000 Term Note. (1)
10.13 Palmer Inn $4,000,000 Mortgage Note. (1)
10.14 Palmer Inn Note and Mortgage Modification and Assumption Agreement for
10.14 $1,000,000 First Mortgage. (1)
21.1 Subsidiaries.
23.1 Independent Auditor's Consent
27.1 Financial Data Schedule. (1)
(1) Filed herewith
b) Reports on Form 8-K
The Company filed a report on Form 8-K, date of report October 22,
1998, which reported the Company's acquisition of the McLure House
Hotel.
The Company filed a report on Form 8-K, date of report December
7, 1998, which reported the Company's acquisition of the Palmer Inn and
the Chamberlain Hotel.
The Company filed a report on Form 8-K/A, date of report December 14,
1998, which reported the purchase contracts on the Company's
acquisitions of the Palmer Inn and the Chamberlain Hotel.
The Company filed a report on Form 8-K/A, date of report December 28,
1998, which reported the required prior year's financials for the
McLure House Hotel.
15
<PAGE>
SIGNATURES
In accordance with Section 13 or 15 (d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Pelican Properties International, Inc.
(Registrant)
By: /s/ C. John Knorr
------------------------------
C. John Knorr
Chairman
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
C. John Knorr
- ------------------------- Chairman of the Board April 14, 1999
C. John Knorr (Principal Executive Officer)
Timothy M. Benjamin
- ------------------------- Chief Financial Officer and
Timothy M. Benjamin Treasurer (Principal Financial
Officer) April 14, 1999
Jane Bergman
- ------------------------- Director
Jane Bergman April 14, 1999
Donald E. Schupp
- ------------------------- Director
Donald E. Schupp April 14, 1999
</TABLE>
16
<PAGE>
Pelican Properties, International
Corp. and Subsidiaries
Consolidated Financial Statement
<PAGE>
<TABLE>
<CAPTION>
PELICAN PROPERTIES, INTERNATIONAL CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
<S> <C>
INDEPENDENT AUDITOR'S REPORT............................................................................................1
CONSOLIDATED BALANCE SHEET..............................................................................................2
CONSOLIDATED STATEMENTS OF OPERATIONS...................................................................................3
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY (DEFICIT).........................................................................................4
CONSOLIDATED STATEMENTS OF CASH FLOWS...............................................................................5 - 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.........................................................................7 - 23
</TABLE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
----------------------------
Board of Directors and Stockholders
Pelican Properties, International Corp. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Pelican
Properties, International Corp. and Subsidiaries (the "Company") as of December
31, 1998, and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for the two years then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Pelican Properties,
International Corp. and Subsidiaries at December 31, 1998, and the results of
their operations and their cash flows for the two years then ended in conformity
with generally accepted accounting principles.
Morrison, Brown, Argiz & Company
Certified Public Accountants
Miami, Florida
April 2, 1999
-1-
<PAGE>
<TABLE>
<CAPTION>
PELICAN PROPERTIES, INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
<S> <C>
ASSETS
CURRENT ASSETS
Cash $ 121,623
Investments 1,082,488
Accounts receivable 290,798
Other receivable 224,047
Inventories 72,551
Other current assets 35,690
---------------
TOTAL CURRENT ASSETS 1,827,197
PROPERTY AND EQUIPMENT, net 16,059,223
NOTE RECEIVABLE 500,000
OTHER ASSETS, net 80,651
---------------
TOTAL ASSETS $ 18,467,071
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 473,128
Other current liabilities 101,464
Current maturities of long-term debt 1,035,423
Income taxes payable 161,684
---------------
TOTAL CURRENT LIABILITIES 1,771,699
---------------
LONG TERM LIABILITIES
Deferred income taxes 2,692,732
Long-term debt, less current maturities 9,336,205
---------------
TOTAL LONG TERM LIABILITIES 12,028,937
---------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred Stock, par value $.001; 1,000,000 shares authorized of Series A
convertible cumulative 6%, none issued or outstanding -
Common stock, par value $.001; 100,000,000 shares
authorized; 5,094,185 shares issued and outstanding 5,094
Additional paid in capital 3,278,588
Accumulated earnings 1,382,753
---------------
TOTAL STOCKHOLDERS' EQUITY 4,666,435
---------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 18,467,071
===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-2-
<PAGE>
<TABLE>
<CAPTION>
PELICAN PROPERTIES, INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
1998 1997
--------------- ---------------
<S> <C> <C>
REVENUES $ 914,675 $ -
COST OF REVENUES 132,668 -
--------------- ---------------
GROSS PROFIT 782,007 -
--------------- ---------------
EXPENSES
Operating 263,813 -
General and administrative 715,683 197,948
Interest 146,428 -
Depreciation and amortization 81,361 -
--------------- ---------------
TOTAL EXPENSES 1,207,285 197,948
--------------- ---------------
OPERATING LOSS (425,278) (197,948)
--------------- ---------------
OTHER INCOME (EXPENSE)
Interest 163,431 -
Other 1,661 (184,225)
--------------- ---------------
165,092 (184,225)
--------------- ---------------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (260,186) (382,173)
BENEFIT FOR INCOME TAXES 97,570 -
--------------- ---------------
LOSS FROM CONTINUING OPERATIONS (162,616) (382,173)
DISCONTINUED OPERATIONS
Income (loss) from discontinued operations,
net of $15,967 and $0 taxes, for
December 31, 1998 and 1997, respectively 39,686 (100,163)
Gain on sale, net of $3,311,834 taxes 5,475,305 -
--------------- ---------------
INCOME BEFORE EXTRAORDINARY ITEM 5,352,375 (482,336)
EXTRAORDINARY ITEM, net of $0 taxes,
for December 31, 1998 and 1997 580,543 -
--------------- ---------------
NET INCOME (LOSS) $ 5,932,918 $ (482,336)
=============== ===============
BASIC AND DILUTED EARNINGS (LOSS)
PER COMMON SHARE:
Continuing operations $ (.03) $ (.08)
-------------- ---------------
Discontinued operations $ 1.09 $ (.02)
--------------- ---------------
Extraordinary items $ .11 $ -
--------------- ---------------
Net income (loss) $ 1.17 $ (.10)
=============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-3-
<PAGE>
<TABLE>
<CAPTION>
PELICAN PROPERTIES, INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
Common Stock Preferred Stock Additional Accumulated
------------------------ ----------------------- Paid-in Equity
Shares Amount Shares Amount Capital (Deficit) Total
----------- ---------- --------- --------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances - January 1, 1997 4,573,456 $ 4,573 - $ - $ 3,169,609 $ (4,067,829) $ (893,647)
----------- ---------- --------- ---------- ------------ ------------- -----------
Issue of stock compensation 50,000 50 - - 3,075 - 3,125
Issue of stock compensation 50,000 50 - - 3,075 - 3,125
Issue of common stock for consulting
services 200,000 200 - - 24,800 - 25,000
Issue of preferred stock - - 195,907 196 293,666 - 293,862
Issue of common stock to repay loan 20,156 20 - - 30,230 - 30,250
Issue of common stock to shareholder 13,906 14 - - (14) - 0
Issue of common stock to repay loan 6,667 7 - - 9,993 - 10,000
Issue of stock compensation 20,000 20 - - 1,230 - 1,250
Issue of stock compensation 20,000 20 - - 1,230 - 1,250
Net loss - - - - - (482,336) (482,336)
----------- ---------- --------- ---------- ------------ ------------- -----------
Balances - December 31, 1997 4,954,185 4,954 195,907 196 3,536,894 (4,550,165) (1,008,121)
----------- ---------- --------- ---------- ------------ ------------- -----------
Issue of stock compensation 50,000 50 - - 6,200 - 6,250
Issue of stock compensation 20,000 20 - - 2,480 - 2,500
Issue of stock compensation 20,000 20 - - 26,230 - 26,250
Repurchase of preferred stock - - (195,907) (196) (293,666) - (293,862)
Issue of common stock 50,000 50 - - 450 - 500
Net income - - - - - 5,932,918 5,932,918
----------- ---------- --------- ---------- ------------ ------------- -----------
Balances - December 31, 1998 5,094,185 $ 5,094 - $ - $ 3,278,588 $ 1,382,753 $ 4,666,435
=========== ========== ========= ========== ============ ============= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-4-
<PAGE>
<TABLE>
<CAPTION>
PELICAN PROPERTIES, INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
1998 1997
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 5,932,918 $ (482,336)
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 81,361 337,875
Extraordinary gain - forgiveness of debt (580,543) -
Non-cash compensation 35,000 33,750
Gain on sale of discontinued operations (8,787,139) -
Loss on disposal of fixed assets from discontinued operations 28,593 -
Impaired assets written-off and disposed of - 49,880
Change in operating assets and liabilities:
Accounts receivable (236,263) 32,481
Inventories (19,559) 3,333
Other current assets (8,387) 252,397
Other assets 43,219 8,384
Accounts payable and accrued expenses 204,269 3,598
Deferred revenues (222,764) 6,419
Other current liabilities (518,581) 163,717
Due to affiliate - (102,272)
Income taxes payable 2,854,416 -
--------------- ---------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES OF:
Continuing operations (1,277,706) (382,173)
Discontinued operations 84,246 689,399
--------------- ---------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (1,193,460) 307,226
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (16,169,838) (326,808)
Proceeds from the sale of fixed assets 14,958,903 -
Other receivable (224,047) -
Purchases of investments (1,082,488) -
Note receivable (500,000) -
--------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (3,017,470) (326,808)
--------------- ---------------
The accompanying notes are an integral part of these consolidated financial
statements.
-5-
<PAGE>
PELICAN PROPERTIES, INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
1998 1997
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt (4,459,496) (358,962)
Changes in pre-petition debt (136,771) 59,309
Proceeds from other borrowings 9,400,000 277,228
Repayments of stockholders loans (241,153) -
Repurchase of preferred stock (293,862) -
Proceeds from issuance of common stock 500 -
--------------- ---------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 4,269,218 (22,425)
--------------- ---------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 58,288 (42,007)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 63,335 105,342
--------------- ---------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 121,623 $ 63,335
=============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-6-
<PAGE>
PELICAN PROPERTIES, INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - BUSINESS AND ORGANIZATION
Pelican Properties, International Corp. ("Pelican") through its
subsidiary, Ohio Key I, Inc. and Ohio Key II, Inc.
("Subsidiaries") (collectively the "Company"), owned and
operated a recreational vehicle and camping resort in the
Florida Keys as its primary business. The Subsidiaries also
owned and operated a convenience store, gas station, bait and
tackle shop and marina on its premises.
In June, 1998, the Company exchanged its interest in the
recreational vehicle and camping resort for three hotels under
code section 1031 "like-kind exchange in property". Under the
code section, the Internal Revenue Service allows the
transaction to be a tax-free exchange. The Company is now
primarily engaged in the ownership and management of three
hotels, located in Princeton, New Jersey, Wheeling, West
Virginia and Hampton, Virginia. The hotel in Princeton, New
Jersey (The Palmer Inn) operates with an affiliation to the Best
Western brand.
The Company is economically dependent upon the travel,
recreational, tourism trade and changes in weather conditions in
the cities where the hotels are located. The operations are
seasonal, with peaks during the second and third quarters of the
year.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The accompanying consolidated financial statements include
the financial statements of Pelican and its wholly owned
subsidiaries, Ohio Key I, Inc. and Ohio Key II, Inc. All
significant intercompany transactions and accounts have
been eliminated.
The consolidated financial statements of the Company as of
December 31, 1998, reflect its operations from October 15,
1998 through December 31, 1998. The Company had no
operations from June 1998 through October 1998, since it
was finalizing the 1031 exchange. The period prior to June
1998 is reflected as discontinued operations in the
accompanying consolidated financial statements. Therefore,
the results of operations presented in the Company's
consolidated statements of operations are not, in the
opinion of management, indicative of the future results of
operations of the Company.
(B) USE OF ESTIMATES
The preparation of consolidated financial statements in
conformity with generally accepted accounting principles
requires that management make estimates and assumptions
that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and the
reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those
estimates.
-7-
<PAGE>
PELICAN PROPERTIES, INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(C) CASH AND CASH EQUIVALENTS
Cash and cash equivalents are defined as financial
instruments with maturities of three months or less. As a
result, the recorded amounts approximate their fair value.
The Company maintains its cash and cash equivalents with
high quality financial institutions. At times, such
balances may be in excess of the federally insured limit
of $100,000.
(D) INVESTMENTS
Investments are comprised of short-term money market
funds. The recorded amounts approximate their fair value.
(E) ACCOUNTS RECEIVABLE
At December 31, 1998, accounts receivable mainly consists
of hotel guests receivables and banquet receivables
relating to conventions and parties.
An allowance for doubtful accounts has been established
amounting to approximately $35,000 as of December 31,
1998.
(F) INVENTORIES
Inventories consist primarily of food and beverage
products as well as consumable supplies and other supplies
and is carried at the lower of cost or market. Cost is
determined on the first-in, first-out basis.
(G) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation
is computed using the straight-line method over the
estimated useful lives of the respective assets.
Expenditures for major improvements and additions are
capitalized and depreciated while replacements,
maintenance, and repairs, which do not significantly
improve or extend the lives of the respective assets, are
expensed as incurred.
-8-
<PAGE>
PELICAN PROPERTIES, INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(H) INCOME TAXES
The Company accounts for income taxes under the Statement
of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS 109"). SFAS 109 requires the
recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been
included in the financial statements or tax returns. Under
this method, deferred tax liabilities and assets are
determined based on the difference between the financial
statement and tax basis of assets and liabilities using
currently enacted tax rates in effect for the years in
which the differences are expected to reverse.
(I) EARNINGS PER SHARE
Earnings per share is determined in accordance with
Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings Per Share". This statement establishes
standards for computing and presenting earnings per share
("EPS"). It replaces the presentation of primary EPS with
a presentation of basic EPS. This statement requires
restatement of all prior-period EPS data presented.
The net income (loss) per share is computed by dividing
the net income or loss for the period by the weighted
average number of shares outstanding (as adjusted
retroactively for the dilutive effect of prior year common
stock options) for the period plus the dilutive effect of
outstanding common stock options and warrants considered
to be common stock equivalents. Stock options and other
common stock equivalents are excluded from the 1998 and
1997 net income (loss) per share calculation as their
effect would be anti-dilutive.
Basic and diluted earnings per share amounts are equal
because the Company has a loss from continuing operations
and consideration of the redeemable preferred stock,
outstanding options, warrants and their equivalents would
result in anti-dilutive effects to earnings per share.
The weighted average number of shares used to compute
EPS were 5,074,980 and 4,743,819 for 1998 and 1997,
respectively.
-9-
<PAGE>
PELICAN PROPERTIES, INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(J) COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income"
effective for the period ending December 31, 1998.
Comprehensive income is defined as "the change in equity
of a business enterprise during a period resulting from
transactions and other events and circumstances from
non-owner sources. It includes all changes in equity
during a period except those resulting from investments by
owners and distributions to owners". Comprehensive income
includes net income as well as other comprehensive income.
Other comprehensive income refers to revenues, expenses,
gains and losses that under generally accepted accounting
principles are included in comprehensive income but
excluded from net income. For the years ending December
31, 1998 and 1997, respectively, the Company has no items
of other comprehensive income.
(K) FRANCHISE AGREEMENT
The Company has been granted a limited license to use the
Best Western trade name and all other Best Western
identification symbols for its Palmer Inn located in
Princeton, New Jersey.
The franchise agreement requires the Company to pay a
monthly royalty fee based on room nights booked, net of
cancellations. Annual dues are assessed each year, payable
once a year at the time the Best Western affiliation is
renewed. The Company is also required to pay various
domestic and international reservation fees based on
client room nights sold.
(L) DISCONTINUED OPERATIONS
On June 4, 1998, the Subsidiaries sold a resort known as
Sunshine Key RV Resort and Marina for $15,750,000. The net
proceeds were placed in escrow and later used for
acquisitions of certain hotels all under the umbrella of a
tax-free exchange under the Internal Revenue Code Section
1031 "Like-kind exchange of real property".
Sunshine Key RV Resort and Marina was the Company's only
source of operations for the year ended December 31, 1997.
The Company has therefore treated the sale as discontinued
operations for all periods presented (NOTE 14).
-10-
<PAGE>
PELICAN PROPERTIES, INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(M) ACQUISITIONS
On October 15, 1998, the Subsidiaries acquired the McLure
House Hotel located in Wheeling, West Virginia, along with
the underlying land, equipment, furniture and fixtures for
$3,200,000. The acquisition was accounted for as a
purchase and, accordingly, the purchase price was
allocated to the acquired assets based on their respective
fair values. The Subsidiaries obtained a term note in
conjunction with the purchase, in the amount of
$2,400,000. This purchase was included in the transaction
under Internal Revenue Code Section 1031 "Like-kind
exchange of real property".
On November 30, 1998, the Subsidiaries acquired the
Chamberlin Hotel located in Hampton, Virginia, along with
the underlying equipment, furniture and fixtures for
$5,350,000. The Subsidiaries assumed the 40 year land
lease which the hotel is located on, however, the landlord
has not approved the assumption of the lease. The
acquisition was accounted for as a purchase and,
accordingly, the purchase price was allocated to the
acquired assets based on their respective fair values. The
Subsidiaries assumed two deed of trust notes in
conjunction with the purchase amounting to $2,000,000 and
$1,000,000, respectively. This purchase was included in
the transaction under Internal Revenue Code Section 1031
"Like-kind exchange of real property".
On November 30, 1998, the Subsidiaries purchased the
Palmer House Hotel located in the Township of West
Windsor, New Jersey, along with the underlying land,
equipment, furniture and fixtures for $7,500,000. The
acquisition was accounted for as a purchase and,
accordingly, the purchase price was allocated to the
acquired assets based on their respective fair values. The
Subsidiaries assumed a first mortgage in the amount of
$1,000,000 and a purchase money second mortgage amounting
to $4,000,000. This purchase was included in the
transaction under Internal Revenue Code Section 1031
"Like-kind exchange of real property".
(N) YEAR 2000 SYSTEMS COSTS
The Company utilizes software and related technologies
throughout its businesses that will be affected by the
date change in the year 2000. The Company is in the
process of evaluating the full scope and related costs to
insure that the Company's systems continue to meet its
internal needs and those of its customers. Anticipated
costs for system modifications will be expensed as
incurred and are not expected to have a material impact on
the Company's results of operations. However, the Company
cannot measure the impact that the Year 2000 issue will
have on its vendors, suppliers, customers and other
parties with whom it conducts business.
-11-
<PAGE>
PELICAN PROPERTIES, INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(O) ENVIRONMENTAL LIABILITIES
Accruals for environmental matters, if any, are recorded
in operating expenses when it is probable that a liability
has been incurred and the amount of the liability can be
reasonably estimated. Accrued liabilities are exclusive of
claims against third parties and are not discounted.
In general, costs related to environmental remediation are
charged to expense. Environmental costs are capitalized if
the costs increase the value of property and/or mitigate
or prevent contamination from future operations.
(P) RECLASSIFICATIONS
Certain amounts in the 1997 consolidated financial
statements have been reclassified to conform to the 1998
presentation.
NOTE 3 - NOTE RECEIVABLE
The note receivable earns interest at an annual rate of 7.5% for
the first six consecutive months ending June, 1999 and 8%
thereafter through May 25, 2000. Payment is due in six
consecutive monthly installments of interest only of $3,125
commencing January 1, 1999 and ending June, 1999. Thereafter,
payment is due in monthly installments of interest only of
$3,333 commencing in July, 1999 and ending May 25, 2000. The
outstanding principal balance under this note is due no later
than the first to occur: (1) May 25, 2000 or (2) the date the
mortgage note, dated November 25, 1998, in the original
principal amount of $4,000,000, is paid in full (NOTE 8).
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1998 consisted of the
following:
<TABLE>
<CAPTION>
Estimated Useful
Life
----
<S> <C> <C>
Land - $ 1,084,587
Buildings and improvements 15-31 years 13,380,409
Machinery and equipment 5-7 years 246,945
Furniture and fixtures 7 years 1,423,051
Computer equipment 5 years 3,871
---------------
16,138,863
Less accumulated depreciation 79,640
---------------
$ 16,059,223
===============
</TABLE>
-12-
<PAGE>
PELICAN PROPERTIES, INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 4 - PROPERTY AND EQUIPMENT (CONTINUED)
Depreciation was $79,640 and $222,428 for the years ended
December 31, 1998 and 1997, respectively. Property and equipment
as of December 31, 1998 are located in Princeton, New Jersey,
Hampton, Virginia, and Wheeling, West Virginia.
NOTE 5 - OTHER ASSETS
<TABLE>
<CAPTION>
Other assets as of December 31, 1998 consisted of the following:
<S> <C>
Security deposits $ 17,280
Loan origination costs (net of amortization of $1,721) 29,255
Furniture and fixtures held for re-sale 34,116
---------------
$ 80,651
===============
</TABLE>
Loan origination costs associated with the Palmer Inn purchase
in November, 1998, are being amortized over 18 months.
Amortization expense was $1,721 for the year ended December 31,
1998.
NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
Accounts payable and accrued expenses at December 31, 1998
consisted of the following:
<S> <C>
Accounts payable $ 201,414
Other payables 32,316
Sales taxes 44,822
Payroll and payroll taxes 56,306
Personal property taxes 3,734
Real estates taxes 13,436
Pre-petition debt 16,035
Accrued other 105,065
---------------
$ 473,128
===============
NOTE 7 - OTHER CURRENT LIABILITIES
Other current liabilities at December 31, 1998 consisted of the
following:
Reservation deposits $ 48,547
Accrued and deferred interest 52,917
---------------
$ 101,464
===============
</TABLE>
-13-
<PAGE>
<TABLE>
<CAPTION>
PELICAN PROPERTIES, INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
<S> <C>
NOTE 8 - LONG-TERM DEBT
Mortgage note payable:
Note payable at 7.5% per annum. Payable in 24 consecutive
monthly installments of interest only commencing November,
1998 and ending October, 2000, at which time the outstanding
principal balance will be amortized based on a 25-year
amortization schedule with the remaining principal balance and
any accrued interest due on October 16, 2003. The note is
secured by substantially all property and equipment at the
McClure House Hotel. $ 2,400,000
Mortgage note payable:
Note payable at prime per annum, with equal monthly
installments of principal in the amounts of $13,576 together
with interest on the unpaid principal balance with the
remaining principal balance and any accrued interest due on
June 29, 1999. The note is secured by substantially all
property and equipment, at the Palmer Inn, and is guaranteed
by a stockholder. 971,628
Second mortgage note payable:
Note payable at 7.5% per annum for the first six consecutive
months ending May, 1999. Payable in monthly installments of
interest only commencing November, 1998 at 7.5% and June, 1999
at 8% and ending May, 1999 and June, 2000, respectively. The
outstanding principal balance and any accrued interest will
become due June, 2000. The note is secured by substantially
all property and equipment at the Palmer Inn. 4,000,000
Mortgage note payable:
Note payable at prime plus 1% per annum. Payable in monthly
installments of interest only ending on January 22, 1999 at
which time the outstanding principal balance will be amortized
based on a 20-year amortization schedule with the remaining
principal balance and any accrued interest due on December 31,
2013. The note is secured by substantially all
property and equipment at the Chamberlin Hotel. 1,000,000
-14-
<PAGE>
PELICAN PROPERTIES, INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 8 - LONG-TERM DEBT (CONTINUED)
Mortgage note payable:
Note payable at prime plus 1% per annum. Payable in monthly
installments of interest only ending on January 22, 1999 at
which time the outstanding principal balance will be amortized
based on a 20-year amortization schedule with the remaining
principal balance and any accrued interest due on December 31,
2013. The note is secured by substantially all
property and equipment at the Chamberlin Hotel. 2,000,000
---------------
10,371,628
Less current maturities 1,035,423
---------------
Long-term debt $ 9,336,205
===============
The fair value of the Company's long-term debt is estimated to
approximate carrying value.
The aggregate maturities of long-term debt subsequent to
December 31, 1998 are as follows:
December 31,
1999 $ 1,035,423
2000 4,062,800
2001 97,407
2002 106,331
2003 2,399,149
Thereafter 2,670,518
---------------
$ 10,371,628
===============
Interest expense on all indebtedness was $146,428 and $439,505
for the years ended December 31, 1998 and 1997, respectively.
</TABLE>
-15-
<PAGE>
PELICAN PROPERTIES, INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 9 - INCOME TAXES
<TABLE>
<CAPTION>
The components for income taxes for the years ended December 31,
1998 and 1997 are as follows:
1998 1997
--------------- ---------------
<S> <C> <C>
Current
Federal $ (138,052) $ -
State (23,632) -
--------------- ---------------
(161,684) -
--------------- ---------------
Deferred
Federal (2,620,048) -
State (448,499) -
--------------- ---------------
(3,068,547) -
--------------- ---------------
Total provision for income taxes $ (3,230,231) $ -
=============== ===============
The provision for income taxes of $3,230,231 is reflected in the
Consolidated Statement of Operations as net components, included
in discontinued operations and benefit for income taxes.
Net deferred tax assets and liabilities at December 31, 1998 are
as follows:
The Company has deferred tax liabilities amounting to
$2,692,732, as a result of the deferred gain from the tax-free
exchange.
The net operating loss carryforward of $257,602 from 1997 was
reduced to $0 due to the forgiveness of indebtedness under the
bankruptcy provisions of IRC Sec. 108(b).
The reconciliation of statutory to the effective tax rate for
1998 is as follows:
Statutory Tax Rate 34.0%
Tax Exempt Portion of Gain (2.2)
State Tax Effect 3.5
-----------
Effective Tax Rate 35.3%
===========
The combined federal and state effective tax rate for 1997 was
37.65%.
</TABLE>
-16-
<PAGE>
PELICAN PROPERTIES, INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 10 - COMMITMENTS AND CONTINGENCIES
LITIGATION
During November, 1998, the Subsidiaries received a claim from a
third party alleging that the Subsidiaries misrepresented the
condition of Sunshine Key RV Resort and Marina (property
disposed of under Internal Revenue Code Section 1031 Like-kind
exchange of real property). The amount of the claim is
approximately $750,000. No litigation has been initiated as of
the date of these financial statements. The Company intends to
vigorously defend this claim and believes that the claim is
without merit. The outcome of this claim is uncertain and no
adjustments have been made in the accompanying consolidated
financial statements relating to this matter.
Legal fees incurred were approximately $173,500 and $114,000 for
the years ended December 31, 1998 and 1997, respectively.
OPERATING LEASE
The Company leases equipment and has a land lease for the
Hampton, Virginia hotel. Future minimum lease payments under
non-cancelable operating leases with initial or remaining terms
of one year or more consisted of the following at December 31,
1998:
<TABLE>
<CAPTION>
<S> <C> <C>
December 31,
1999 $ 8,259
2000 6,334
2001 6,000
2002 6,000
2003 6,000
Thereafter 204,000
---------------
$ 236,593
===============
</TABLE>
Rent expense amounted to approximately $10,700 and $20,000 for
all operating leases for the years ended December 31, 1998 and
1997, respectively.
OPERATING LEASES AS LESSOR
The Company leases certain hotel space to third parties. Future
minimum rentals to be received under non-cancelable operating
leases that have initial or remaining lease terms in excess of
one year are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
December 31,
1999 $ 190,100
2000 95,500
2001 80,000
2002 80,000
2003 80,000
Thereafter 400,000
---------------
$ 925,600
===============
</TABLE>
-17-
<PAGE>
PELICAN PROPERTIES, INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 10 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
EMPLOYMENT AGREEMENT
The Company has an employment agreement with one of its
officers, through October 31, 1999. The agreement provides for
payment of a base salary, benefits and stock options.
CONSULTING AGREEMENT
The Company has an agreement for consulting services through
March 31, 1999 relating to the identification and evaluation of
real estate for acquisition. As compensation, the Company plans
on issuing 215,000 shares of common stock during 1999. During
1998, total fees paid relating to these services amounted to
$18,000. The Company intends to renegotiate the agreement once
it expires.
GOVERNMENTAL AND ENVIRONMENTAL MATTERS
The Company, like others in similar businesses, is subject to
extensive federal, state and local laws and regulations.
Although Company policies and practices are designed to ensure
compliance with these laws and regulations, increasingly
stringent regulation could require unforeseen expenditures.
NOTE 11 - STOCKHOLDERS' EQUITY
EARNINGS PER SHARE
<TABLE>
<CAPTION>
For the Year ended December 31, 1998 For the Year ended December 31, 1997
------------------------------------ ------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
<S> <C> <C>
Loss before discontinued
operations and
extraordinary item $(162,616) $ (382,173)
Less: Preferred stock
dividends - -
----------- ------------
Basic EPS
Loss allocable to
common stockholders $(162,616) 5,074,980 $ (.03) $ (382,173) 4,743,819 $ (.08)
============ =========== ======= ============ ========== =======
</TABLE>
-18-
<PAGE>
PELICAN PROPERTIES, INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 11 - STOCKHOLDERS' EQUITY (CONTINUED)
Securities which could potentially dilute basic EPS in the
future were not included in the computation of diluted EPS as
they are anti-dilutive for all periods presented. The securities
consist of the following:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
----------------- -----------------
Price Per-Share Shares Price Per-Share Shares
--------------- ------ --------------- ------
<S> <C> <C> <C> <C>
Potentially issuable common
shares from the exercise of:
Warrants and options $5.00 400,000 $5.00 400,000
Employee stock options $.01-$1.00 706,666 $.01-$2.50 746,666
</TABLE>
STOCK OPTIONS AND PURCHASE WARRANTS
The Company has various stock options outstanding to certain
officers. During 1998, 40,000 employee stock options expired
without being exercised.
Class A Common Stock Purchase Warrants:
The Company has 200,000 Class A Common Stock Purchase Warrants
("Class A Warrants") outstanding. The holders of each Class A
Warrant are entitled to purchase one share of Common Stock of
the Company at an exercise price of $5.00 per share. The Class A
Warrants are exercisable any time after issuance until March 19,
2000 and are subject to redemption by the Company, on not less
than thirty days written notice, at a price of $.005 per Class A
Warrant.
Class B Common Stock Purchase Warrants:
The Company has 200,000 Class B Common Stock Purchase Warrants
("Class B Warrants") outstanding. The holders of each Class B
Warrant are entitled to purchase one share of Common Stock of
the Company at an exercise price of $5.00 per share. The Class B
Warrants are exercisable any time after issuance until March 19,
2001 and are subject to redemption by the Company, on not less
than thirty days written notice, at a price of $1.00 per Class B
Warrant.
Holders of both Class A and B Warrants will automatically
forfeit their rights to purchase the shares of Common Stock of
the Company unless the Class A and B Warrants are exercised
before they are redeemed. The Class A and B Warrants contain
provisions that protect the holders against dilution by
adjustment of the exercise price in certain events, including
stock dividends, stock splits, mergers and for other unusual
events.
-19-
<PAGE>
PELICAN PROPERTIES, INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 11 - STOCKHOLDERS' EQUITY (CONTINUED)
CONVERTIBLE PREFERRED STOCK
During 1997, the Company amended its articles of incorporation
to authorize 1,000,000 shares of Preferred Stock of which
195,907 shares were designated "Series A Convertible Cumulative
Preferred Stock", with a par value of $.001 per share. The
holders are entitled to receive a cumulative annual dividend of
6% of the stated value ($1.50 per share) on January 1 of each
year commencing January 1, 1998, payable in cash or common stock
of the Company.
Holders of the Series A preferred stock have the right to
convert each share of preferred stock into the Company's common
stock at any time, at a conversion ratio of one share of Series
A preferred stock for one share of common stock. In the event
the Series A preferred stock is not converted by December 31,
1999, the Company shall have the right to convert the then
outstanding shares of Series A preferred stock to common stock
of the Company. In the event the Series A preferred stock is not
converted by either of the holders thereof or by the Company,
the Series A preferred stock will continue to subsist as
established. The conversion price is subject to adjustments
under certain events. The Company has the right to redeem the
Series A preferred stock at any time, at a pre-determined price.
During 1997, the Company issued 195,907 shares of Series A
preferred stock in satisfaction of certain loans and debt
amounting to $293,862. The preferred shares issued included
46,666 shares to the Chairman of the Board of the Company, who
cancelled a loan in the amount of $70,000.
During 1998, the Company redeemed 195,907 shares of the Series A
preferred stock at a cost of $293,862.
NOTE 12 - REVENUES
Revenues for the year ended December 31, 1998 consisted of the
following:
<TABLE>
<CAPTION>
<S> <C>
Room revenue $ 467,633
Dining and beverage 245,662
Tour and ticket sales 163,042
Telephone 16,389
Other revenues 21,949
---------------
$ 914,675
===============
</TABLE>
-20-
<PAGE>
PELICAN PROPERTIES, INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 13 - EXTRAORDINARY GAIN - FORGIVENESS OF INDEBTEDNESS
EARLY PAY-OFF OF MORTGAGE INDEBTEDNESS
On June 4, 1998, the Company sold through subsidiaries, Ohio Key
I, Inc. and Ohio Key II, Inc., its recreational vehicle and
camping resort and satisfied certain related debt
outstanding to a third party. As a result of the debt
satisfaction, the Company recognized a gain of $580,543.
NOTE 14 - DISCONTINUED OPERATIONS
On June 4, 1998, the Company, through its wholly owned
subsidiaries Ohio Key I, Inc. and Ohio Key II, Inc., sold its
only source of operations known as Sunshine Key RV Resort and
Marina, which resulted in a gain of $5,475,305, which is net of
$3,311,834 in taxes. The proceeds were used to pay outstanding
indebtedness of $5,589,908 existing at the date of sale. The
sale is intended to qualify as a like-kind exchange as
promulgated by the Internal Revenue Code Section 1031. In order
to ensure this type of income tax treatment, certain qualifying
criteria must be met, including, but without limitation, the
proceeds are to be held by a third party and such proceeds must
be used to acquire like-kind property or properties. It was the
intent of management to continue the Company's primary business
and to reinvest such proceeds in resort type real estate as
evidenced by the purchase of the three hotels (NOTE 2(M)).
For all years presented, the Company has shown the results of
the Sunshine Key RV Resort and Marina separately as discontinued
operations in the consolidated financial statements. Summarized
results of the operations for the five months and twelve months
ended December 31, 1998 and 1997, respectively were as follows:
<TABLE>
<CAPTION>
1998 1997
(five months) (twelve months)
------------- ---------------
<S> <C> <C>
Revenues $ 1,861,676 $ 3,648,678
Expenses 1,821,990 3,748,841
--------------- ---------------
Net income (loss) $ 39,686 $ (100,163)
=============== ===============
NOTE 15 - SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosure of cash flow information:
1998 1997
--------------- ---------------
Interest paid $ 307,454 $ 218,411
Taxes paid 228,000 -
</TABLE>
-21-
<PAGE>
PELICAN PROPERTIES, INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 15 - SUPPLEMENTAL CASH FLOW INFORMATION (CONTINUED)
Supplemental schedule of non-cash financing activities:
During 1998, the Company issued 50,000 shares of common stock as
payment in connection with legal services provided. The shares
were valued at an aggregate amount of $6,250.
During 1998, the Company issued 20,000 shares of common stock as
compensation to a key executive. The shares were valued at an
aggregate amount of $2,500.
During 1998, the Company granted to the Chief Financial Officer
("CFO") the option to purchase up to 50,000 shares of common
stock at an exercise price of $.01 per share that is vested and
exercisable on March 1, 1998. On March 6, 1998, the CFO
exercised the option and was issued 50,000 shares of common
stock of the Company as restricted shares under Rule 144 of the
Securities Act of 1933.
During 1998, the Company issued 20,000 shares of common stock as
compensation to a key executive. The shares were valued at an
aggregate amount of $26,250.
During 1997, the Company issued 195,907 shares of preferred
stock in satisfaction of loans and debt totaling $293,862 (NOTE
11).
During 1997, the Company issued 26,823 shares of common stock in
satisfaction of loans totaling $40,250.
During 1997, the Company issued 200,000 shares of common stock
to consultants in exchange for certain consulting services
rendered in connection with assisting the Company with (1) the
merger of the Company and Sunshine Key Associates Limited
Partnership, (2) filing Standard & Poor's application and Form
211 application for listing of the Company's common stock on the
OTC, and (3) maintaining current public information and
shareholder relations. The shares were valued at an aggregate
amount of $25,000.
During 1997, the Company issued 140,000 shares of common stock,
to a key executive as compensation.
During December, 1996, the Company issued 333,333 shares of
common stock to the Chairman of the Board as consideration for
personally guaranteeing a loan. Additionally, 666,667 options to
purchase common stock were granted at an exercise price of $.01.
50% of the total options were exercisable on January 1, 1998,
and the remaining 50% are exercisable on January 1, 1999. As of
December 31, 1998, none of the options to purchase common stock
have been exercised.
-22-
<PAGE>
PELICAN PROPERTIES, INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 16 - SUBSEQUENT EVENTS
REFINANCE OF MORTGAGE - forgiveness of indebtedness
During January, 1999, the Company was offered a $500,000
discount by a creditor for the early payoff of certain mortgage
indebtedness owed by the Company. As a result, the Company
refinanced the loan with a third party, satisfied the mortgage
with the creditor and recorded a gain of $500,000.
THIRD PARTY COMMITMENT TO REFINANCE DEBT
During February, 1999, the Company obtained a third party
commitment to refinance $4,700,000 of certain Company debt
amounting to approximately $4,972,000 as of December 31, 1998.
$971,628 of the related Company debt is scheduled to mature on
June 29, 1999.
NOTE 17 - FAIR VALUE
The Company has estimated the fair value of its financial
instruments at December 31, 1998, as required by Statement of
Financial Accounting Standards No. 107, "Disclosure about Fair
Value of Financial Instruments." The carrying values of cash and
cash equivalents, investments, accounts receivable, note
receivable, accounts payable and accrued expenses and debt are
reasonable estimates of the fair values.
-23-
TERM NOTE
$2,400,000.00 Wheeling, WV
October 16, 1998
FOR VALUE RECEIVED, the undersigned, OHIO KEY I, INC. and OHIO KEY II,
INC., Florida corporations (hereinafter collectively called "Borrower"),
promises to pay to the order of WESBANCO BANK WHEELING, a West Virginia banking
corporation (hereinafter called "Bank"), at the principal office of the Bank in
Wheeling, West Virginia, or such other place as the holder hereof may designate
in writing, the principal sum of TWO MILLION FOUR HUNDRED THOUSAND DOLLARS
($2,400,000.00), together with interest on the unpaid balance hereof at the rate
of Seven and One-half Percent (7-1/2%) per annum.
The interest on said Term Note and the principal thereof shall be
repaid in the following manner:
(a) Interest only payments for the period of two (2) years
from and after the date hereof, with interest payments beginning on
the 16th day of November, 1998, and continuing for a period of
twenty-four (24) months thereafter. The Bank shall submit to the
Borrower monthly invoices for the amount of interest due on this Term
Note .which shall be promptly paid by the Borrower within ten (10)
days of receipt thereof.
(b) Beginning on the 16th day of October, 2000, Borrower
shall institute monthly payments of both principal and interest in the
amount of Seventeen Thousand Seven Hundred Thirty-six Dollars
($17,736.00). Borrower shall make such monthly payments of principal
and interest on the same day of each month thereafter until the fifth
anniversary of the date of execution hereof.
1
<PAGE>
(c) Any unpaid principal balance and all unpaid and accrued
interest, if not sooner paid, shall be paid in full on the fifth
anniversary from and after the date of execution hereof, namely the
16th day of October, 2003.
Borrower may prepay the principal amount outstanding in whole or in
part. Any partial prepayment shall be applied against the principal amount and
shall not postpone the due date of any subsequent monthly installment or change
the amount of such installments.
Presentment, notice of dishonor and protest are hereby waived by all
makers, sureties, guarantors and endorsers hereof. This Term Note shall be the
joint and several obligation of all makers, sureties, guarantors and endorsers
and shall be binding upon them and their successors and assigns.
The indebtedness evidenced by this Term Note is secured by a Deed of
Trust of even date herewith and a Loan and Security Agreement and references are
hereby made to said instruments for rights as to acceleration of the
indebtedness evidenced by this Term Note.
OHIO KEY I, INC.
By /s/ C. John Knorr, Jr.
-----------------------
Its President
OHIO KEY II, INC.
By /s/ C. John Knorr, Jr.
-----------------------
Its President
2
MORTGAGE NOTE
This Mortgage Note is made on November2, 1998.
BETWEEN the Borrower(s) OHIO KEY I, INC. and OHIO KEY II, INC., both
Florida corporations whose addresses are 100 NORTH ALEXANDER STREET, MT.
DORA. FLORIDA 32757
referred to as "I", AND the Lender, KEYDOCROM, INC., a New Jersey
corporation whose addresses 205 MAIN STREET, P.O. BOX 268, CHATHAM, NEW
JERSEY 07928 referred to as the Lender".
If more than one Borrower signs this Note, the word 1" shall mean each Borrower
named above. The word "Lender" means the original Lender and anyone else who
takes this Note by transfer.
Borrower's Promise to Pay Principal and Interest. In return for a loan
that I received, 1 promise to pay $ 4,000,000 (called the "principal"), plus
interest to the Lender. Interest, at a yearly race of eight (8) % will be
charged on that part of the principal which has not been paid from the date of
this Note until all principal has been paid, except that interest during the
first six (6) months of the loan shall be at 7 1/2 % per annum.
Payments. I will pay interest only with monthly payments of $ 25,000.00
on the first day of each month beginning on January 1,1999. I will pay all
amounts owed under this Note no later than May 25, 2000. All payments will be
made to the Lender at the address shown above or at a different place if
required by the Lender. The monthly payment amount will increase to $26,666.67
staring with the payment due July 1, 1999.
Early Payments. I have the right to make payments at any time before they
are due. These early payments will mean that this Note will be paid in less
time. However, unless I pay this Note in full, my monthly payments will remain
the same.
Late Charge for Overdue Payments. If the Lender has not received any
monthly payment within ten (10) days after the due date, I will pay the Lender a
late charge of five (5%) % of the monthly payment. This payment will be made
along with the late monthly payment.
Mortgage to Secure Payment. The Lender has been given a second mortgage
dated 1998 to protect the Lender if the promises made in this Note are not kept.
I agree to keep all promises made in the Mortgage covering property I own
located at 3499 BRUNSWICK PINE (US Route 1, South) in the TOWNSHIP of WEST
WINDSOR in the County of MERGER and State of New Jersey. All of the terms of the
Mortgage are made a part of this Note.
Default. If I fail to make any payment required by this Note within 30
days after the due date, the Lender may declare that lam in default on the
Mortgage and this Note. Upon default, I must immediately pay the full amount of
all unpaid principal, interest, other amounts due on the Mortgage and this Note,
the Lender's costs of collection and reasonable attorney fees. The Lender does
not give up its right to declare a default due to any previous delay or failure
to declare a default.
Waivers. I give up my right to require that the Lender do the following:
(a) to demand payment (called "presentment"); (h) to notify me of nonpayment
(called "notice of dishonor"); and,(c) to obtain an official certified statement
showing nonpayment (called a "protest").
Each Person Liable. The Lender may enforce any of the provisions of this
Note against any one or more of the Borrowers who sign this Note.
No Oral Changes. This Note can only be changed by an agreement in writing
signed by both the Borrower(s) and the Lender.
1
<PAGE>
Signatures. I agree to the terms of this Note. If the Borrower is a
corporation, its proper corporate officers sign and its corporate seal is
affixed.
Witnessed or Attested by:
OHIO KEY I, INC.
By /s/ C. John Knorr, Jr.
-------------------------
C. John Knorr, Jr.
Its President
OHIO KEY II, INC.
By /s/ C. John Knorr, Jr.
-------------------------
C. John Knorr, Jr.
Its President
2
NOTE AND MORTGAGE MODIFICATION AND ASSUMPTION AGREEMENT
This Note and Mortgage Modification and Assumption Agreement
(hereinafter this "Agreement") made as of the 30th day of November, 1998, by and
among:
KEYDOCROM, INC., a corporation duly organized, validly
existing and in good standing under the laws of the State of New
Jersey, having offices at 205 Main Street, P.O. Box 268, Chatham, New
Jersey 07928 ("Keydocrom") and OHIO KEY I, LNC. and OHIO KEY II, INC.,
both corporations duly organized, validly existing and in good
standing under the laws of the State of Florida, both having a mailing
address of 100 North Alexander Street, Mt. Dora, Florida 32757
(collectively, Ohio Key I, Inc. and Ohio Key III, Inc. hereinafter
will be referred to as "Ohio Key" and hereinafter Keydocrom and Ohio
Key shall be collectively referred to as the "Borrowers") and ROBERT
CRONHEIM. an individual having an address at 163 Sunlit Road,
Watchung, New Jersey 07060 (the "Original Guarantor") and CARL JOHN
KNORRI JR., an individual having an address at 104 Woodhall Drive,
Richmond, Virgina 23229 (the "New Guarantor")(collectively, the
Original Guarantor and the New Guarantor shall be collectively
referred to as the "Guarantors");
and
PNC BANK, NATIONAL ASSOCIATION. having an office at Two Tower
Center, East Brunswick, New Jersey 08816 ("Lender").
WITNESSETH
WHEREAS, the Lender is the present owner and holder of a certain
Promissory Note (the "Note") executed by Keydocrom, as maker and payable to
Midlantic National Bank (the predecessor to the Lender), which Note is dated
October 20, 1986. evidencing a loan :he "Loan") in the. original principal
amount of S3,500,000: and
WHEREAS, the Note is secured by, among other things, that:
certain Purchase Money Mortgage and Security Agreement (the "First
Mortgage") dated October 2(i. 1986. which First Mortgage relates to
the lands and premises situate. king and being in the Township of West
Windsor, County of Mercer, and State of New Jersey as particularly
described in the First Mortgage (hereinafter referred to as the
"Premises') recorded on October 21. 1986 in Book 2089 of Mortgages,
page 672 et sea. in the Mercer County Clerk's Office. which First
Mortgage was modified by a certain (a) Modification of Note and
Mortgage and Building Loan Agreement (the "First Modification
Agreement") dated as of August 1987, and recorded on August 2, 1987 in
Book 174 at page 6l et seq. in the Mercer County Clerk's Office. tb)
Modification of Note and Mortgage (the "Second Modification
Agreement") dated as of January 3, 1991. and recorded on February
7,1991 in Book 193 at Page 990 et in the Mercer County Clerk's Office.
(c) Note and Mortgage Modification and Extension Agreement (the "Third
Modification Agreement") dated as of June 29, 1993, and recorded on
July 27, 1993 in Book 220 at Page 149 et sec. in the Mercer County
Clerk's Office, and (d) Fourth Note and Mortgage Modification and
Extension Agreement (the "Fourth Modification Agreement") dated as of
June 29, 1998 and about to be recorded in the Mercer County Clerk's
Office (the First Mortgage, as modified by the First Modification
Agreement, the Second Modification Agreement, the Third Modification
Agreement, and the Fourth Modification Agreement, is hereinafter
referred to as the "Mortgage"); and
1
<PAGE>
WHEREAS, the Note is further secured by a certain Assignment
of Leases and Rents dated as of October 20, 1986 and recorded on
October 21, 1986 in Deed Book 2089, page 687, in the Mercer Country
Clerk's Office, which Assignment of Leases and Rents was restated and
amended from time to time ("Assignment of Leases"); and
WHEREAS, at the time of the execution of the First
Modification Agreement, the Loan was increased from $3,500,000 to a
principal amount of $6,000,000; and
WHEREAS, pursuant to that certain Guaranty of Note and
Mortgage dated August, 1997 (the "Original Guaranty") the Original
Guarantor (as well as two other individuals who have since been
released as guarantors of the Loan) guaranteed all obligations and
liabilities owing to the Lender in connection with the Loan; and
WHEREAS, in addition to the foregoing, the Loan is further
secured by various other collateral, all as more particularly
described in the loan documentation and the various modification
agreements; and
WHEREAS, for purposes hereof, the Note, Mortgage, Assignment
of Leases, the Original Guaranty and all other documents. instruments
and agreements executed in connection with the Loan, as modified from
time to time shall be collectively referred to as the Loan Documents";
and
WHEREAS, the Keydocrom is the current owner of the fee simple
title to the Premises; and
WHEREAS, Keydocrom has requested that Lender, inter alia. (i)
waive the due-on-sale provision in the existing Loan Documents; (ii)
permit the assumption of all obligations under the Loan by Ohio Key so
as to allow Ohio Key sufficient time to secure permanent financing
with another lender; (iii) waive the prohibition against secondary
financing from the date hereof until the Maturity Date, so as to allow
Ohio Key to pledge to Keydocrom a second mortgage lien on the Premises
as security for purchase money financing in the amount of S4.K"JO,000;
and (iv) approve Carl John Knorr. Jr. as new Guarantor of the Loan, in
addition to the Original Guarantor, for the remaining term of the
Loan, all upon the terms and conditions as are more fully set forth
herein.
NOW, THEREFORE. in consideration of the mutual promises
contained herein and other good and valuable consideration, the
receipt and sufficiency of which is hereby' acknowledged, the parties
hereto agree as follows:
1. PRESENT PRINCIPAL BAlANCE - The Borrowers and Guarantors agree that as
of November 30th 1998, the outstanding principal balance of the Loan
is S 1,000,000, reduced from S3, 190,412 by payment of even date
herewith in the amount of S2,190,412 by Ohio Key to Lender. It is
expressly understood and agreed that in the event that, for whatever
reason, the Lender shall not receive such $2,190,412 in good and
available funds on or before the end of the business day on November
30, 1998, the terms and provisions of this Agreement shall not be
effective.
2
<PAGE>
2. ASSUMPTION OF LOAN OBLIGATIONS - Ohio Key hereby assumes all
obligations and liabilities owing to the Lender in connection with the
Loan as such obligations and liabilities are set forth in the Loan
Documents. Ohio Key hereby agrees that it is fully obligated to the
Lender under the terms and provisions of the Loan Documents as if such
Loan Documents had originally been executed by Ohio Key. Not by way of
limitation, Ohio Key specifically assumes the obligation to make
payments of principal and interest in the amounts, at the times, and
at the rate as set forth in the Note. Ohio Key hereby restates and
remakes on behalf of the Lender each and every representation,
covenant, warranty and all other provisions contained in the Loan
Documents. It is expressly understood and agreed that each of the
Guarantors, the individual entities which comprise Ohio Key and
Keydocrom shall be jointly and severally liable for all obligations
and liabilities owing to the Lender in connection with the Loan.
3. MATURITY DATE - The Maturity Daze of the Loan is June 29, 1999.
Nothing contained herein shall be construed as to extend the Maturity
Date of the Loan beyond such date. The Borrowers and the Guarantors
understand and agree that each is jointly and severally liable for the
payment in full of all outstanding principal, interest, fees and
expenses owing to the Lender on June 29, 1999.
4. NEW GUARANTOR AND REPRESENTATIONS OF NEW GUARANTOR -
(a) Pursuant to that certain Guaranty and Suretyship Agreements of
even date herewith executed and delivered by the New Guarantor
in favor of Lender (referred to herein collectively as the
"New Guaranty"), the New Guarantor has guaranteed all
obligations and liabilities owed to the Lender by the
Borrowers, including, without limitation, all obligations and
liabilities owing the Lender in connection with the Loan. It
is understood and agreed that the execution and delivery of
such New Guaranty has materially induced the Lender to permit
the modification and assumption the Loan by Ohio Key and that
the Lender would not have entered into this Agreement but for
the execution and delivery c~f such New Guaranty.
(b) The New Guarantor is a shareholder of Ohio Key. As such. the
New Guarantor has derivatively benefitted from the
modification and assumption of the Loan by Ohio Key. and the
New Guarantor would have been materially and adversely
affected in the event that the Lender elected not to allow for
the modification and assumption of the Loan by Ohio Key. The
New Guarantor therefore represents that it has materially
benefitted from the modification and assumption of the Loan by
Ohio Key and that it has received substantial, adequate and
material consideration for the execution and delivery of the
New Guaranty.
5. REAFFIRMATION OF OBLIGATIONS OF KEYDOCROM AND ORIGINAL GUARANTOR -
(a) Nothing contained herein shall be construed so as to
release either Keydocrom or the Original Guarantor from their
respective obligations and liabilities to the Lender under or
in connection with the Loan. It is expressly understood and
agreed that the Lender has not released either Keydocrom or
the Original Guarantor from such obligations and liabilities.
(b) Keydocrom and the Original Guarantor hereby consent to
all of the terms, provisions and conditions of this
Agreement, and each agrees that nothing in this Agreement in
any way impairs or lessens the respective liability
of Keydocrom or the Original Guarantor under the Original
Guaranty or any of the other Loan Documents, as applicable.
3
<PAGE>
All provisions of the Original Guaranty heretofore executed
by the Original Guarantor are hereby reaffirmed and confirmed
and given again in this instrument as if each such provision
were herein set forth at length.
6. LENDER'S CONSENT - Subject to the terms and conditions set forth
herein, Lender hereby consents to (i) waive the due-on-sale provision
in the existing Loan Documents so as to permit the sale of the Premises
to Ohio Key, (ii) permit the assumption of the Loan by Ohio Key as set
forth herein, (iii) waive the prohibition against secondary financing
so as to permit Ohio Key to pledge to Keydocrom a second mortgage lien
on the Premises as security for purchase money financing in the amount
of $4,000,000; and (iv) Carl John Knorr, Jr. becoming new guarantor of
the Loan, in addition to the Original Guarantor.
7. NON-WAIVER BY LENDER - The Borrowers and Guarantors confirm and
acknowledge that the agreement of Lender hereunder shall not constitute
a waiver of any rights of Lender under the Loan Documents, and shall
not constitute a waiver of its rights of approval or objection, in the
manner provided in the Loan Documents, to any other similar future
transaction. Further, nothing contained herein shall be construed so as
to obligate the Lender to consent to any further transfers of the
Premises, any further Loan assumptions, any further secondary liens on
the Premises, or any other matters contemplated herein.
8. COVENANTS AND REPRESENTATIONS OF OHIO KEY -
(a) Each of the entities which comprise Ohio Key is duly
organized, validly existing and in 200d standing under the
laws of the State of Florida. Each of such entities has duly
authorized the execution and delivery of this Agreement and
all documents in connection herewith. and has obtained any
and all necessary consents in order to purchase the Premises
and assume the Loan obligations. Further, Ohio Key has
obtained all permits, licenses and approvals from all
applicable governmental entities in order to lawfully
purchase the Premises and operate the same as a hotel other
than approval from the New Jersey Department of Community
Affairs, which approval has been applied for and will be
forthcoming in due course. Finally, Ohio Key will obtain,
within 45 days from the date hereof, any and all consents or
approvals from Best Western International, Inc. in order to
continue to operate the Premises as a Best Western.
(b) Within forty-five (45) days of the date hereof, Ohio Key
shall provide the Lender with copies of Certificates allowing
Ohio Key to transact business in New Jersey.
(c) It was originally contemplated that James C. Barggren would
become a shareholder and officer of Ohio Key and that he
would guarantee the Loan prior to the closing of this
Agreement. The Lender, however, has been advised immediately
prior to the date hereof that James C. Barggren will not
become a shareholder and officer of Ohio Key and will not
guarantee the Loan, prior to the closing of this Agreement.
In the event that James C. Barggren becomes a shareholder and
officer of Ohio Key, the Borrowers and Guarantors hereby
agree that James C. Barggren, upon the request of the Bank,
shall become an additional guarantor of the Loan.
9. ACCOUNTS FROM PREMISES - As further security for the Loan, the
Borrowers hereby pledge to the Lender all of their right, title and
interest in and to all accounts arising from the operation of the
4
<PAGE>
Premises, including without limitation, all accounts arising from the
renting of rooms, the food and beverage operations at the Premises, and
any other accounts now and hereafter arising from the operation of the
Premises as a hotel/motel.
10. SECOND LIEN: CROSS DEFAULT -
(a) The Lender hereby consents to Ohio Key's pledging to Keydocrom
a second mortgage lien on the Premises as security for
purchase money financing in the amount of $4,000,000 (the
"Second Lien"); provided, however, it is agreed that the
Second Lien is subject and subordinate to the Mortgage.
(b) The Borrowers and Guarantors and the Lender hereby agree that
the occurrence of an event of default (subsequent to the
giving of any required notice and/or the expiration of any
applicable cure period) under the Second Lien shall
automatically and immediately constitute an event of default
(without the requirement of giving any further notice or the
expiration of any cure period) under the Mortgage and all
other Loan Documents.
11. AUTHORITY AND ENFORCEABILITY - The Borrowers and Guarantors represent
and warrant to Lender that the execution of this Agreement. the
delivery by the Borrowers and Guarantors to Lender o fall monies,
items and documents provided for herein, the Borrowers' and
Guarantors' performance hereof and the transactions contemplated
hereby have been duly authorized by all requisite action on the part
of the Borrowers and Guarantors. This Agreement constitutes the valid
and binding obligation of the Borrowers and Guarantors and is
enforceable against the Borrowers and Guarantors in accordance with
its terms.
12. NO DEFENSE(S). SET-OFF(S) OR COUNTERCLAIM(S) - The Borrowers and the
Guarantors represent and warrant to Lender that they have no
defenses), set-off(s) or counterclaim(s) of any kind or nature
whatsoever against Lender with respect to the Loan Documents or any
obligations thereunder, or any action previously taken or not taken by
Lender with respect thereto or with respect to any computation of any
adjustable interest rate or with respect to any security interest,
encumbrance, lien or collateral in connection therewith to secure the
outstanding indebtedness under the Loan Documents.
13. AMENDMENT - This Agreement shall not be amended or modified in any way
except by an instrument in writing executed by each of the parties
hereto.
14. CHOICE OF LAW - This Agreement shall be governed and construed by the
laws of the State of New Jersey.
15. ENTIRE AGREEMENT - This Agreement constitutes the entire agreement
between the parties and there are no agreements, understandings,
warranties or representations with respect to the matters set forth
herein, except as specifically delineated herein. Any exhibits attached
hereto are hereby incorporated herein by reference. This instrument is
not intended to have any legal effect, or to be a legally binding
agreement or any evidence thereof, until it has been signed by each of
the parties hereto and all conditions to effectiveness hereunder have
been satisfied.
16. THIRD PARTY BENEFICIARIES - This Agreement is entered into for the
exclusive benefit of the parties hereto and no other party shall derive
any rights or benefits here from.
17. BINDING EFFECT - This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, legal
representatives, successors and assigns.
5
<PAGE>
18. MULTIPLE COUNTERPARTS - This Agreement may be executed in several
counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
19. FURTHER ASSURANCE - The Borrowers and the Guarantors hereby agree that,
upon the request of the Lender, it will execute and deliver to Lender
such other additional instruments and documents, or perform or cause to
be performed such other and further acts and things, as may be
necessary to fully consummate the transaction contemplated by this
Agreement.
20. LOAN DOCUMENTS CONTINUE IN EFFECT - Except as expressly provided in
this Agreement, all of the terms, covenants, conditions and provisions
of the Loan Documents shall be and remain in full force and effect as
written, unmodified hereby. The B9rrowers and Guarantors hereby
further ratify and acknowledge the continuing validity and
enforceability of the Loan Documents and the obligations evidenced
thereby. In the event of any conflict between the terms of this
Agreement and any of the Loan Documents, this Agreement shall control
without any effect on the remaining portion of the Loan Documents.
This Agreement shall not waive, suspend, diminish or impair the Loan
Documents or the obligations, liabilities, liens and security
interests represented thereby.
21. INCORPORATION OF RECITALS - Recitals preceding this Agreement are
incorporated into this Agreement by this reference.
22. ACKNOWLEDGMENT OF RELIANCE - KEYDOCROM, OHIO KEY, THE ORIGINAL
GUARANTOR ANT) THE NEW GUARANTOR ACKNOWLEDGE AND AGREE THAT LENDER IS
SPECIFICALLY RELYING UPON THE REPRESENTATIONS, WARRANTIES AND
AGREEMENTS CONTAINED HEREIN.
23. WAIVER AND RELEASE - KEYDOCROM, OHIO KEY, THE ORIGINAL GUARANTOR AND
THE NEW GUARANTOR HEREBY WAIVE, RELEASE AND FOREVER DISCHARGE LENDER,
ITS AGENTS, OFFICERS, DIRECTORS AND
6
<PAGE>
EMPLOYEES FROM AND AGAINST ANY AND ALL RIGHTS, CLAIMS OR CAUSES OF
ACTION AGAINST LENDER, ITS AGENTS, OFFICERS, D[RECTORS AND EMPLOYEES
ARISING OUT OF LENDERS' ACTIONS OR INACTIONS IN CONNECTION WITH THE
LOAN OR ANY SECURITY INTEREST, LIEN OR COLLATERAL HELD IN CONNECTION
THEREWITH AS WELL AS ANY AND ALL RIGHTS OF DEFENSE(S), SET-OFF(S),
CLAIM(S), CAUSE(S) OF ACTIONS OR ANY OTHER BAR TO THE ENFORCEMENT OF
THE LOAN DOCUMENTS.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed the day and year first above written.
<TABLE>
<CAPTION>
<S> <C>
Attest: Keydocrom, Inc.:
/s/ Paula A. D'Mato /s/ Robert Cronheim
- ---------------------------------- ---------------------------
Paula A. D'Mato, Secretary By: Robert Cronheim
Attest: Ohio Key I, Inc.
/s/Carl John Knorr, Jr. /s/Carl John Knorr, Jr.
- ---------------------------------- ---------------------------
Carl John Knorr, Jr., Secretary Carl John Knorr, Jr., President
Attest: Ohio Key II, Inc.
/s/Carl John Knorr, Jr. /s/Carl John Knorr, Jr.
- ---------------------------------- ---------------------------
Carl John Knorr, Jr., Secretary Carl John Knorr, Jr., President
Witness: Original Guarantor:
/s/ Paula A. D'Mato /s/ Robert Cronheim
- ---------------------------------- ---------------------------
Paula A. D'Mato Robert Cronheim
Witness: New Guarantor:
/s/Carl John Knorr, Jr. /s/Carl John Knorr, Jr.
- ---------------------------------- ---------------------------
Carl John Knorr, Jr. Carl John Knorr, Jr.
/s/Darryl E. Gugig
- ----------------------------------
Darryl E. Gugig
Witness: PNC Bank, National Association
--------------------------- ---------------------------
Abbe M. Szanger
</TABLE>
7
Ohio Key I, Inc.
Incorporated in Florida
Ohio Key II, Inc.
Incorporated in Florida
INDEPENDENT AUDITOR'S CONSENT
-----------------------------
We consent to the incorporation by reference in the Annual Report on Form-10KSB
under the Securities and Exchange Act of 1934 of Pelican Properties,
International Corp. for the year ended December 31, 1998 of our report dated
April 2, 1999 insofar as such report relates to the financial statements and
schedules of Pelican Properties, International Corp. for the two years ended
December 31, 1998.
Morrison, Brown, Argiz & Company
Miami, Florida
April 14, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 121,623
<SECURITIES> 1,082,488
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 72,551
<CURRENT-ASSETS> 1,827,197
<PP&E> 16,059,223
<DEPRECIATION> 81,361
<TOTAL-ASSETS> 18,467,071
<CURRENT-LIABILITIES> 1,771,699
<BONDS> 0
0
0
<COMMON> 5,094
<OTHER-SE> 3,278,588
<TOTAL-LIABILITY-AND-EQUITY> 18,467,071
<SALES> 0
<TOTAL-REVENUES> 14,675
<CGS> 132,668
<TOTAL-COSTS> 1,207,285
<OTHER-EXPENSES> 165,092
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 146,428
<INCOME-PRETAX> (260,186)
<INCOME-TAX> 0
<INCOME-CONTINUING> (162,616)
<DISCONTINUED> 0
<EXTRAORDINARY> 580,543
<CHANGES> 0
<NET-INCOME> 5,932,918
<EPS-PRIMARY> 1.17
<EPS-DILUTED> 1.17
</TABLE>
