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, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from________________to_______________
Commission file no.: 333-13571
CHARTHOUSE SUITES VACATION OWNERSHIP INC.
(Name of small business issuer in its charter)
Florida 59-3388947
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
250 Patrick Blvd., Suite 140
Brookfield, Wisconsin 53045-5864
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 414-792-9200
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
None
(Title of Class)
Check whether the registrant (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 X . No .
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B is not contained in this form, and
no disclosure will be contained to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.[ X ]
State issuer's revenues for its most recent fiscal year. $0
The aggregate market value of the Vacation Interests
("Interests") is indeterminable because there is no established
or organized market for the Interests.
ANNUAL REPORT ON FORM 10-KSB
INDEX
YEAR ENDED DECEMBER 31, 1997
CHARTHOUSE SUITES VACATION OWNERSHIP INC.
BROOKFIELD, WISCONSIN
Part I Item Page
Description of Business 1 3
Description of Property 2 6
Legal Proceedings 3 11
Submission of Matters to a Vote of Security Holders 4 11
Part II
Market for Limited Partnership
Interests and Related Partner Matters 5 11
Management's Discussion and Analysis or Plan
of Operations 6 12
Financial Statements 7 19
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 8 19
Part III
Directors, Executive Officers, Promoters and 9 19
Control Persons; Compliance with Section 16(a)
of the Exchange Act
Executive Compensation 10 20
Security Ownership and Certain Beneficial Owners and
Management 11 21
Certain Relationships and Related Transactions 12 22
Exhibits and Reports on Form 8-K 13 22
Signatures 25
Audited Financial Statements 26
PART I
Item 1. Description of Business
(a) Business Development
Charthouse Suites Vacation Ownership Inc. (the "Company") is a
Corporation formed in 1996 in the State of Florida. The Company
was organized to facilitate the sale and distribution of 150
Vacation Interests (the "Vacation Interests"), and to ultimately
own the Chart House Suites hotel located in Clearwater Beach,
Florida. The Company is in its offering stage and has not yet
purchased the hotel and has not had any operations to date.
However, the hotel is owned and operated by an affiliate of the
Company, and information on the operations of the hotel are
included in this report.
The Company intends to sell 150 A, B, C, D, E, and F class
Vacation Interests. Purchasers of the Vacation Interests will
have the right to use for two specific consecutive weeks ("Unit
Weeks") of every spring, summer, fall and winter season until
December 31, 2040, a hotel suite of a certain category in the
Hotel. Owners of the Vacation Interests do not acquire an
ownership or equity interest in the Company, but pursuant to the
Charthouse Suites Vacation License Plan ("License Plan"), will
acquire a license right to utilize a suite in the Hotel.
The Company is offering for sale the following Vacation
Interests:
Class of Number of Price Per
Vacation Interests Vacation Interests Vacation Interest
A Interest 36 $18,500
B Interest 24 $21,500
C Interest 36 $25,500
D Interest 36 $36,500
E Interest 12 $39,500
F Interest 6 $60,000
The 150 Vacation Interests are vacation licenses issued pursuant
to the License Plan. Each class of Interests entitles a Holder
to rental proceeds from the Rental Pool or, upon request, use of
a corresponding Class of Unit Weeks in the Chart House Suites
hotel. In addition to the purchase price of the Vacation
Interests, Holders are required to pay annual dues and, if any,
special assessments associated with the hotel operations.
Holders of Vacation Interests may enroll in the RCI Exchange
Program, upon payment of membership fees to Resort Condominiums
International ("RCI"). Upon purchase of a Vacation Interest, the
Company will pay the costs of a Holder's one year membership in
RCI and any initiation fees. The RCI Exchange Program allows
members to deposit one or more Unit Weeks and request an exchange
for a comparable week or weeks at another participating resort
located around the world. Under the RCI Exchange Program, a
Holder deposits a Unit Week up to 24 months in advance and
requests an exchange to an RCI-affiliated resort. Under this
program a Holder may exchange Unit Weeks, whether or not the
deposited Unit Week is used by another RCI member.
The RCI Exchange Program is not affiliated with the Company or
any affiliate of the Company (other than through a contractual
agreement, which expires on August 15, 2002). The Company
assumes no liability or responsibility to RCI's Exchange Program
or performance. RCI has informed the Company that all of the
Unit Weeks will be considered "red" weeks under the terms of its
RCI Exchange Program, the seasonal designation indicating
greatest member demand, although it reserves the right to change
the designation or adopt a new or different system of
designation.
In October 1996 the Company filed its Form S-11 Registration
Statement for the sale of Vacation Interests.
On October 17, 1997 the Registration Statement was declared
effective by the Securities and Exchange Commission.
(b) Business of Issuer
The Company intends to be engaged solely in the business of
owning a hotel located in Clearwater, Florida and managing the
Vacation License Plan for holders of the Vacation Interests. The
Vacation Interests are registered for sale to the public.
Each Vacation Interest has the right to eight Unit Weeks per
year. Each Unit Week will automatically be placed in the Rental
Pool, but upon 30 days written notice to the Company, a Holder
may withdraw any or all of the Holder's allotted Unit Weeks from
the Rental Pool. Unless otherwise permitted by the Company, a
Holder may only withdraw entire Unit Weeks from the Rental Pool.
Under the Rental Pool, the Company will attempt to rent the
suite to others on a daily or other basis, and the Holder will
share pro rata (utilizing various rental pool allocations from
each Class of Vacation Interests) in the rentals of all Unit
Weeks that are placed in the Rental Pool. A Unit Week left in
the Rental Pool will not be available for personal use, even if
the Rental Pool earns little or no proceeds.
Under the License Plan, Holders of Vacation Interests who
participate in the Rental Pool will receive income based upon
ratios developed by the Company. The ratios are based upon the
Company's assumed off-season nightly walk-in rate for each Class
of suites and upon the actual number of Unit Weeks of each Class
that are participating in the Rental Pool. The assumed walk-in
nightly rental rates represent the Company's estimate of
approximate suite rental value rates for each Class of Interests
and are fixed for all Rental Pool allocations until December 31,
2040. These rates, however, have been determined arbitrarily.
Because Holders may personally use the Vacation Interests or
exchange them in RCI's Exchange Program rather than leaving them
in the Rental Pool, actual participation rental percentages will
vary each Unit Week.
The hotel business is highly competitive. The hotel is in
competition for guests with numerous other alternative sources of
housing, including, but not limited to, a hotel owned by an
affiliate of the Company. Many of these competitors may have
greater resources than those of the Company or may be associated
with individuals with broader experience than that of the
Company. Additional hotel units may be built which may compete
directly with, or offer greater amenities than, the Chart House
Suites hotel.
The hotel is not dependent upon any single user or small groups
of users for its operating success. The loss of any one of or a
small group of users would not have a material adverse effect.
The Company does not foresee any events or market trends which
would have a materially adverse effect upon the hotel's revenues,
but notes that revenue fluctuates with the seasons and the
weather.
During 1997, the Company did not directly employ any individuals.
In order to effectively manage the personnel function of
operating the hotel and to control the costs of compensation
(including wages, worker's compensation, unemployment, payroll
taxes, health care, and 401(k) profit sharing plans), the
employees who work for the hotel are employed by Decade
Properties, Inc. The costs of these employee services are
reimbursed by the hotel based upon the records of such employees
in performing such services multiplied by a rate established to
cover overhead and expenses incurred to perform such duties. The
hotel is managed by Decade Properties, Inc., an affiliate of the
Company. Approximately 10 full and part-time employees work at
the hotel. Employees of Decade Properties, Inc. and affiliates
perform the on-site management services required to operate and
maintain the hotel and render management services to the Company
including maintaining investor communications, compliance with
tax laws and other governmental regulations, anc cash management.
At the close of business on December 31, 1997, no Interests were
issued or outstanding.
Item 2. Description of Property
(a) Location
The Chart House Suites hotel is located at 250 Bayway Boulevard
on Clearwater Bay in the in Clearwater Beach area of Clearwater,
Florida. The Company has the escrowed contractual right to
purchase the hotel.
The property is currently operated as a hotel.
(b) Investment policies
(1) Investments in real estate or interests in real estate.
The investment policy of the Company is to invest in the Chart
House Suites hotel located in the Clearwater, Florida. Although
there is no restriction on the type of real estate in which the
Company may invest, the Company intends to limit its real estate
holdings to one hotel located in Clearwater, Florida.
The proposed method of financing the purchase of Charthouse is to
borrow the funds needed to acquire the property from the seller
and use the proceeds from the sale of Vacation Interests to repay
such amount.
The Company is not prohibited from using either unsecured or
secured financing. The Company has complete discretion to
finance or refinance its property, on a secured, or unsecured
basis, at any time it determines that such financing or
refinancing is advantageous to it.
There is no limitation on the number of mortgages which may be
placed on the property, although any mortgage will have to be
subject to the existing License Plan.
There is no limitation on the percentage of assets which may be
invested in any one investment, or type of investment. The
selection of investment properties is solely the reasonable
discretion of the Company; a vote of the Interest Holders is not
required. Under appropriate circumstances the Company would
consider the exchange and/or purchase of additional properties.
It is the Company's policy to acquire assets primarily for
capital appreciation through increases in the value of the
Company's real property assets.
(2) Investments in real estate mortgages
The Company does not intend to invest in real estate mortgages.
(3) Securities of or interests in persons primarily engaged in
real estate activities.
The Company does not intend to invest in any securities such as
common stocks, interests in real estate investment trusts, or
partnership interests.
(c) Description of Real Estate and Operating Data
The Company did not own any property as of December 31, 1997 or
during the year then ended, but had the right to acquire the
Chart House Suites hotel.
(1) The general character and location of the property to be
acquired by the Company is described below. The Chart House
Suites hotel is a four-story hotel overlooking Clearwater Bay
located in Gulf Beaches area of Clearwater, Florida and has been
owned by Decade Properties, Inc., an affiliate of the Company,
since 1992. Attached to the Chart House Suites hotel grounds is
a marina that is also owned by Decade Properties, Inc. The Chart
House Suites hotel contains on its grounds a heated in-ground 20
by 25 foot pool and laundry room facilities. As described below,
the hotel's location provides access to white sand public
beaches, recreational facilities, restaurants, entertainment and
shopping in Clearwater Beach. The Tampa Bay, Florida airport is
approximately 20 miles away, and St. Petersburg's airport is
approximately 12 miles away.
The Chart House Suites hotel is comprised of 25 rental units
located in one four-story building containing approximately
20,000 enclosed square feet. The attached marina, which is not
part of the License Plan, has 27 boat slips. The building and
most of its improvements were built in 1971 as a common area for
a nearby condominium and then converted to a restaurant. In
1993, the building was converted to a hotel and was completely
updated and remodeled. The property is rectangular in shape,
contains approximately .66 acres and is located on the north side
of Bayway Boulevard, Clearwater, Florida. Each suite contains
sleeping accommodations, private bathroom facilities and limited
cooking facilities (varying from room). The hotel has a parking
lot with 46 spaces, which Holders may use at no additional
charge. Each suite comes equipped with locked doors, a bed or
beds, hotel-like furniture, one or more bathrooms and one or more
televisions, including access to cable television.
(2) The Company does not yet hold title to the hotel and marina.
There are no mortgages, lines, or encumbrances against the
property.
(3) The Company does not lease any properties from others except
has the right to the hotel through the escrow arrangement
described below.
There is a contract to purchase the Chart House Suites hotel and
marina. As of June 30, 1997, the Company orally entered into an
agreement with Decade Properties, Inc. to acquire the Chart House
Suites hotel, which was confirmed in writing on September 29,
1997. Under the irrevocable terms of the written agreement,
Charthouse will pay approximately $1,796,000 for the hotel,
personal property and marina. As provided in the License Plan,
if the Company does not sell 76 Interests by October 31, 1998, it
reserves the right to cancel the Interests and return the paid-in
amount (less amounts for certain benefits received or used). The
Company and Decade Properties, Inc. have agreed to escrow the
title until the sale of 76 Interest or October 31, 1998 unless
the Offering is canceled. Accordingly, the Company has
contractual rights to acquire the Chart House Suites hotel, but
will not complete the sale until 76 Interests have been sold or
until this requirement has been waived. If the Agreement is
breached, the Florida Time Share Bureau will have the power to
enforce the terms of the Agreement.
The hotel units are generally rented on a day-to-day basis. The
rent for each hotel unit varies according to its size, amenities,
and time of year.
(4) There is no proposed program for significant renovation,
improvement or development of the Chart House Suites hotel during
1997. All renovations are scheduled to be paid for by operating
cash flow.
(5) The Charthouse hotel is in competition for guests from
similar properties in the vicinity. The general competitive
conditions to which the property is or may be subject are set
forth below.
The Clearwater Beach area of Clearwater, Florida contains
numerous hotels and motels, with various size facilities and with
a total of approximately 4,000 rooms and suites. The Company
believes that room charges for the hotels in Clearwater Beach
generally range from between $40 and $350 a night, although rates
will vary depending upon season and demand. National hotel
chains, such as Sheraton and Marriott, compete with the Chart
House Suites hotel in Clearwater Beach. The Company believes
that the proximity of the marina offers competitive advantages,
as boaters often stay at the Chart House Suites hotel. Lengths
of stay affect the results, and the Company strives to rent the
penthouse (Class F Vacation Interests) for a minimum of two
nights. The Company believes the Chart House Suites hotel
competes with other rental accommodations on the bases of
location, view and room quality, as well as rental rates.
(6) In the opinion of management, the property is adequately
covered by insurance.
(7) With respect to the hotel the following additional
information is provided:
(i) Occupancy rate 1997 1996
Class A Studio 71% 79%
Class B Studio 63% 69%
Class C Studio 63% 69%
Class D Suite 38% 46%
Class E Suite 58% 61%
Class F Suite 80% 91%
(ii) Tenant information
No user occupies ten percent or more of the rentable square
footage of the property. Each tenant occupies the property as
temporary transient housing. The principal provisions of each
use is essentially the same except for the negotiated amount of
daily rent. All rentals require the timely payment of rent by
cash or credit card.
(iii) Principal business use
The property is used as a commercial hotel. Other occupations or
professions are not carried on in or from the building.
(iv) Annual rental information
The average effective annual rental income per studio/suite is as
follows:
1997 1996
All Studios/Suites 18,300 18,610
(v) Lease expirations
All leases are scheduled to expire on a daily basis.
(vi) Depreciation information
(A) Federal tax basis
The federal tax basis for the property is set forth below:
Accumulated Tax
Cost Depreciation Basis
(in thousands)
Land 425 0 425
Land Improvements 56 14 42
Building 1,218 128 1,090
Boat Dock 175 31 143
Furniture & Equipment-hotel 194 124 70
Signs & Equipment-marina 1 0 1
Total $ 2,069 $ 298 $ 1,771
(B) Rate
The applicable rate used for computing depreciation for financial
statement purposes is 3.33% per year for buildings and
improvements, and 20% per year for personal property.
(C) Method
The applicable depreciation method used for computing
depreciation for financial statement purposes is the straight
line method.
(D) Life claimed
The life used to depreciate assets for financial statement
purposes is 30 years for buildings and improvements and 5 years
for personal property.
(vii) Realty taxes
Realty Tax Rate: $22.8256 per $100
Annual Realty Taxes: $29,151 (1) (2)
(1) A discount of up to 4% (1% per month) is available for early
payment of the tax due on March 31.
(2) Approximately 90.7% of the tax is allocable to the hotel,
with 9.3% allocable to the marina.
Item 3. Legal Proceedings
The Company is not subject to any material pending legal
proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No items were submitted to a vote of the security holders during
the fourth quarter.
PART II
Item 5. Market for Limited Partnership Interests and Related
Partner Matters
a) Market Information
There has not been an organized public trading market and it is
not anticipated that a public market for Vacation Interests will
develop.
b) Security Holders
As of February 28, 1998, there were no Vacation Interest holders
of record.
c) Dividends or Similar Distributions
During the last two years, there have not been any cash dividends
declared.
It is intended to make quarterly cash distributions to all
holders of Vacation Interests who elect to leave their Unit Weeks
in the Charthouse Rental Pool (see Item 1. Description of
Business).
Item 6. Management's Discussion and Analysis or Plan of
Operation.
The financial statements included in Item 7 present the balance
sheet as of December 31, 1997 and present the results of hotel
operations for the two years ended December 31, 1997 and 1996.
Results of Operations
The average Unit Week operating revenue decreased $5 from $370 in
1996 to $365 in 1997. The decrease was attributable to several
factors including lower occupancy experienced from August through
December 1997 resulting primarily from Unit Weeks that were
exchanged to RCI, to unseasonably colder weather in Florida
compared to the prior year which has been attributed to the
global disruption of weather caused by El Nino, to unseasonably
warmer in the Midwest area of the United States and in Canada
which are major vacation feeder markets, and to a decrease in
Canadian tourists caused by the weakness of the Canadian dollar
compared to the United States dollar.
The average daily rental unit revenue for occupied Studios/Suites
increased $7 from $77 in 1996 to $84 in 1997.
The average Unit Week expenses increased $9 from $224 in 1996 to
$233 in 1997. Approximately $7 of this increase was due to the
average salary expenses per Unit Week, which increased from $95
in 1996 to $102 in 1997. The housekeeping staff, certain front
desk expenses and management fees are variable expenses. The
profile of the hotel guest also directly impacts expenses and the
level of services required to be provided. Some of the 1997
increase salary costs are attributable to higher costs incurred
recruiting and retaining qualified line level employees due to
lower unemployment levels in the area.
Average Unit Week direct expenses per Unit Week decreased $2 from
$120 in 1996 to $118 in 1997.
Repair and maintenance expenses increased $4 per Unit Week from
$10 in 1996 to $14 in 1997. The increase is primarily
attributable to new furniture and equipment.
As a result of the foregoing, the average Unit Week operating
revenues exceeded operating expenses by $132 in 1997 compared to
$146 in 1996.
The daily revenue for hotel studios and suites by class for the
comparative periods was:
Type of 1997 1996
Unit Low Average High Low Average High
Class A 45 68 119 44 63 100
Class B 45 70 119 45 68 100
Class C 50 73 119 45 64 115
Class D 57 104 165 50 96 155
Class E 59 114 165 55 117 155
Class F* 73 127 250 68 88 200
All Classes 84 77
(Average)
* Primarily rented on a monthly basis.
The average daily occupancy for hotel studios and suites by class
for the comparative periods was:
Type of Unit 1997 1996
Class A 71% 77%
Class B 63% 69%
Class C 63% 69%
Class D 38% 45%
Class E 58% 61%
Class F 80% 91%
The average daily revenue collected for occupied studios and
suites fluctuates throughout the year. The range of the average
daily revenue by class of rental unit by week fluctuated as
follows:
Type of Unit 1997 1996
Class A 57-92 51-79
Class B 61-89 55-96
Class C 63-89 56-75
Class D 76-126 73-113
Class E 81-134 105-128
Class F 73-176 68-143
All Classes (Average) 69-105 67-95
The average monthly occupancy range for each class of hotel
rental unit was:
Type of Unit 1997 1996
Class A 63-93% 66-92%
Class B 41-92% 49-94%
Class C 49-92% 51-95%
Class D 13-75% 14-91%
Class E 23-84% 30-95%
Class F 27-100% 58-100%
The difference in occupancy levels is primarily related to
seasonal fluctuations. In addition a total of six weeks (42
rental days) were provided during 1997 to RCI as a condition of
the Resort Affiliation Agreement. The loss of rental revenue
attributable to providing these rental days directly affects the
hotel revenue collected and the occupancy of the hotel for 1997.
Historical average monthly occupancy levels at the Chart House
Suites hotel were as follows:
Month 1997 1996
January 63% 53%
February 88% 90%
March 85% 90%
April 65% 74%
May 61% 66%
June 58% 72%
July 68% 66%
August 57% 61%
September 55% 63%
October 45% 54%
November 37% 54%
December 40% 52%
There are certain events that could cause the reported financial
information to not be indicative of future operating results or
future financial condition, as follows:
Liquidity
At December 31, 1997 there was $923 of cash and $5,680 of escrow
deposits resulting in $6,603 of cash. The Company does not have
a credit line established to provide additional liquidity. As
described below, the Company believes it will meet its
obligations in a timely manner.
On April 16, 1996, the Company's sole shareholder entered into a
subscription agreement to purchase 100 shares of the Company's
common stock for $1,000 per share or an aggregate subscription
price of $100,000. As of December 31, 1997, the sole shareholder
has paid $10,000 of the subscribed amount.
Cash flow of $171,000 was generated by operating activities
during 1997 to provide liquidity.
On a short-term basis, rental operations are expected to provide
a stream of cash flow to fund quarterly cash distributions to the
Interest Holders who participate in the rental pool. Payment of
day-to-day operating expenses is provided by cash flow from
operations and does not require the use of cash reserves.
The Chart House Suites hotel was not subject to any mortgage debt
during both periods presented, although once the Company buys the
hotel, it will owe approximately $1.8 million. The debt service
payments will be covered by payments for the Interests. Day-to-
day operating expenses were paid from operating revenue
collected. Future operating expenses of the hotel are
anticipated to be met by the annual dues paid by the Holders of
the Interests.
Other than the payments described above, there are no long-term
material capital expenditures, obligations, or other demands or
commitments that might impair the liquidity of the hotel.
Capital Resources
At December 31, 1997 no material commitments existed to make
major capital expenditures, other than the purchase of the hotel.
Pursuant to the terms of the License Plan, Holders will be
subject to special assessment for any capital expenditures, but
will not be responsible for amounts arising from the purchase of
the Chart House Suites hotel.
The Company is offering for sale 150 A, B, C, D, E, and F class
Vacation Interests. Purchasers of the Vacation Interests will
have the right to use for two specific consecutive weeks of every
spring, summer, fall and winter season until December 31, 2040, a
hotel suite of a certain category in the Hotel. Owners of the
Vacation Interests do not acquire an ownership or equity interest
in the Company, but pursuant to the License Plan will acquire a
license right to utilize a suite in the Hotel.
The 150 Vacation Interests are vacation licenses issued pursuant
to the License Plan. Each class of Vacation Interests entitles a
Holder to rental proceeds from the Rental Pool or, upon request,
use of a corresponding Class of Unit Weeks in the Chart House
Suites hotel. In addition to the purchase price of the Vacation
Interests, Holders will be required to pay annual dues and, if
any, special assessments associated with the hotel operations.
Prospective Forward-Looking Information
Information contained in this Annual Report on Form 10-KSB
contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995, which can be
identified by the use of forward-looking terminology such as
"may," "will," "expect, "anticipate," "estimate" or "continue" or
the negative thereof or other variations thereon or comparable
terminology. There are number of important factors with respect
to such forward looking statements, including certain risks and
uncertainties, that could cause actual results to differ
materially from those contemplated in such forward-looking
statements. Such factors, which could adversely effect the
Partnership's ability to obtain these results, include, among
other things, (i) the volume of transactions and prices for real
estate in the real estate markets generally, (ii) a general or
regional economic downturn which could create a recession in the
real estate markets, (iii) the Partnership's debt level and its
ability to make interest and principal payments, (iv) an increase
in expenses related to new initiatives, investments in people and
technology, and service improvements, (v) the success of the new
initiatives and investments and (vi) other factors described
elsewhere in this Annual Report.
It is reasonably likely that historical financial information
will bot necessarily be indicative of future operating results.
To the extent that Unit Weeks are removed from the Rental Pool
and used by Holders, there likely will be an increased future
revenue per Unit Week available for rental because fewer rooms
will be available for rental.
In addition, it is anticipated that the average daily collected
revenue per Unit Week in the Rental Pool will increase over the
historically reported collected revenue to the extent that owners
of Interests removed their Units Weeks from the Rental Pool (this
assumes that the public demand to rent hotel units remains
constant). With fewer hotel units available for rent each day,
it would be more likely that a higher room rent could be charged
for the inventory of hotel studios and suites available each day.
A lower supply of hotel studios and suites creates less pressure
to discount room in order to obtain occupancy.
The historically reported financial information indicates that a
trend towards higher collected revenue for hotel studios and
suites and a trend towards higher occupancy. Management believes
that these trends will continue from repeat customers and word-
of-mouth advertising.
Environmental Matters
The Company and the hotel results are subject to various laws and
governmental regulations concerning environmental matters and
employee safety and health in the United States. U.S. federal
environmental legislation having particular impact on the hotel
includes the Toxic Substances Control Act; the Resources
Conservation and Recovery Act; the Clean Air Act; the Clean Water
Act; the Safe Drinking Water Act; and the Comprehensive
Environmental Response, Compensation and Liability Act (also
known as Superfund). The Company and the Chart House Suites
hotel are also subject to the Occupational Safety and Health
Administration (OSHA) concerning employee safety and health
matters. The United States Environmental Protection Agency
(EPA), OSHA, and other federal agencies have the authority to
promulgate regulations that have an impact on the hotel's
operations.
In addition to these federal activities, various states have been
delegated certain authority under the aforementioned federal
statutes. Many state and local governments have adopted
environmental and employee safety and health laws and
regulations, some of which are similar to federal requirements.
State and federal authorities may seek fines and penalties for
violation of these laws and regulations.
Management of the hotel is committed to a long-term environmental
protection program that reduces emissions of hazardous materials
into the environment, as well as to the remediation of identified
existing environmental concerns.
The hotel did not have any expenditures in 1997 for environmental
capital projects or for operation and maintenance of
environmental protection facilities. The Company estimates that
during 1998 and 1999 no material amount will be spent on capital
projects for environmental protection.
Management is not aware of any hidden or unapparent conditions of
the property, subsoil or structural conditions which would render
the Chart House Suites hotel more or less valuable. Management
is not aware of the existence of potentially hazardous materials
used in the construction or maintenance of the buildings, such as
the presence of urea-formaldehyde foam insulation, and/or the
existence of toxic waste, which may or may not be present at the
hotel. Management is not aware of any groundwater contamination,
underground methane gas or radon gas. Management believes that
the hotel does not produce air emissions or waste water of
environmental concern. Management is not aware of any
underground storage tanks. Management is not aware of any
incidents of spills, dumping or discharges at the property/or the
presence of hazardous substances.
Impact of Year 2000
Some of the older computer programs used by the Company and
affiliates were written using two digits rather than four to
define the applicable year. As a result, those computer programs
have time-sensitive software that recognize a date using "00" as
the year 1900 rather than the year 2000. This could cause a
system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar
normal business activities. This is commonly known as the "Year
2000 Problem."
The Company and affiliates are taking steps that they believe are
reasonably designed to address the Year 2000 problem with respect
to computer systems that they use. The Company will have to
modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year
2000 and thereafter. The total Year 2000 project cost is
estimated to be immaterial including the purchase of new software
that will be either capitalized or expensed as incurred. To
date, the Company has not incurred and expensed any amounts for
assessment of the Year 2000 issue and the development of a
modification plan and purchase of new software.
The project is estimated to be completed not later than June 30,
1999, which is prior to any anticipated impact on its operating
systems. The Company believes that with modifications to
existing software and conversions to new software, the Year 2000
Problem will not pose significant operational problems for its
computer systems.
The costs of the project and the date on which the Company
believes it will complete the Year 2000 modifications are based
on management's best estimates, which were derived utilizing
numerous assumptions of future events, including the continued
availability of certain resources and other factors. However,
there can be no guarantee that these estimates will be achieved
and actual results could differ materially from those
anticipated. Specific factors that might cause such material
differences include, but are not limited tom the availability and
cost of personnel trained in this area, the ability to locate and
correct all relevant computer codes, and similar uncertainties.
Impact of Inflation
Although inflation has slowed in recent years, it is still a
factor in the economy and the Company continues to seek ways to
mitigate its impact. To the extent permitted by competition, in
general, the hotel passes increased costs on by increasing asking
hotel rates over time.
Management believes that the ability to increase rental rates on
hotel units should offset any adverse effects from inflation on
the hotel's cost of operation.
Operating revenue reported on the hotel's financial statements
were relatively even in the last two years from $465,000 in 1996
to $457,000 in 1997.
Inflation had no material effect on the results of operations in
1997 and 1996.
Item 7. Financial Statements
The report of independent auditors and balance sheet as of
December 31, 1997 of Charthouse Suites Vacation Ownership, Inc.
are submitted in a separate section of this report.
The report of independent auditors and statement of operating
revenues and certain expenses for the years ended December 31,
1997 and 1996 of the Chart House Suites hotel are submitted in a
separate section of this report.
Item 8. Changes in and Disagreements on Accounting and Financial
Disclosure
There have been no disagreements with Virchow Krause & Company
LLP, the Company's independent auditors, on any matter of
accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
Part III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act
(a) Directors and Executive Officers.
The names, ages and business experience of the officers of the
Company are as follows:
Mr. Jeffrey Keierleber (age 44), is the President and sole
Director of the Company. Mr. Keierleber is a shareholder,
officer, and director of a number of affiliated corporations
since 1980.
Mr. Michael G. Sweet (age 48), is a Certified Public Accountant
and is Secretary of the Company. He has served as the Controller
of Decade Companies and Partnership Manager of the
Decade-sponsored partnerships since 1982, and as an officer
and/or director of various affiliated entities since 1988.
(b) Significant employees.
The names, ages and business experience of significant employees
of the General Partner and its affiliates are as follows:
Mr. Steven Cooper (age 53), is a Certified Property Manager and
has served as Vice-President of Decade Properties, Inc. since
1989.
Mr. Joseph Lawlor (age 33), has served as the General Manager of
Chart House Suites and marina in Clearwater, Florida and at the
Holiday Inn Harbourside (also owned by an affiliate of Jeffrey
Keierleber) in Indian Rocks Beach, Florida since 1995.
R. Wayne Shaw (age 50), has served as Regional Manager of Florida
properties for Decade Properties, Inc. since 1988.
(c) Family relationships.
There is no family relationship between any of the foregoing
individuals.
(d) Involvement in certain legal proceedings. None.
(e) Compliance with Section 16(a) of the Exchange Act
The Vacation Interests are not subject to Section 16.
Item 10. Executive Compensation
(a) Cash compensation.
None of the Company's officers or directors receive any
compensation from the Company. They are compensated by Decade
Properties, Inc. and affiliates. They will devote such time to
Company matters as necessary (estimated at not more than 10% of
their time), but will also be engaged in a variety of other real
estate projects and businesses.
(b) Summary Compensation Table: N/A.
No cash or non-cash compensation has been paid or distributed
during the last fiscal year.
(c) Option/SAR Grants Table: No options or stock appreciation
rights have been granted.
(d) Aggregated Option/SAR Exercises and Fiscal Year-End
Option/SAR Value Table: No options or stock appreciation rights
have been granted.
(e) Long-Term Incentive Plan Awards Table: None.
(f) Compensation of Directors: None.
(g) Employment contracts and termination of employment and
change-in-control arrangements: None.
(h) Report on repricing of options/SAR's: None.
Item 11. Security Ownership and Certain Beneficial Owners and
Management
(a) Security ownership of certain beneficial owners.
Persons who are the beneficial owners of more than five percent
of the voting securities as of March 20, 1998 are:
(1) (2) (3) (4)
Title of Class Name and Amount and Percent of Class
Address of Nature of
Beneficial Beneficial
Owner Owner
Common Stock Jeffrey Keierleber 100 100%
240 Bayside Drive
Clearwater, FL 34630
(b) Security ownership of management: See response to item (a).
(c) Changes in control. None.
Item 12. Certain Relationships and Related Transactions
Affiliates of the Company will provide management and consulting
services to the Company including the rental services pursuant to
agreements with the Company.
Decade Properties, Inc. will sell the hotel to the Company and be
employed by the Company to provide property management services
to the hotel. Effective upon the purchase of the hotel, Decade
Properties will manage the hotel until December 31, 2040, for a
fee of $2,500 per month (such fee to increase by the CPI index
increase on the first of each year beginning January 1, 1998)
plus reimbursement of defined expenses. The property management
agreement provides for a payment to Decade Properties equal to
the present value (using an 8% discount rate) of the remaining
future payments to be received in the event Decade Properties is
removed, in part or whole, as the property manager.
Holders of the Interests may utilize the Company's rental
services if they do not want to or cannot use one or more of
their allotted weeks of each year. Decade Properties will
provide rental services for a fee equal to 5% of the rental
revenue. Interest holders may also seek to have Decade
Properties enter into individual property management agreements.
DPI Construction & Engineering Corp. ("DPIC&E"), an affiliate of
the Company, is engaged in the general contracting business. The
Company may enter into agreements with DPIC&E whereby DPIC&E will
provide services in connection with renovation and remodeling
work on the hotel.
Decade Properties and affiliates will be reimbursed for the
actual cost of goods and materials used by or for the Company,
including the following general functions of the Company: Company
operations, Company accounting, investor communications, investor
documentation, legal services, tax services, computer services,
risk management, Company organizational and offering expenses,
and any other related operational and administrative expenses
necessary for the organization and operation of the Company.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits and Index of Exhibits and
(b) Description of Exhibits
Description
Exhibit 3 Articles of Incorporation and By-laws.
3.1 Specimen of Certificates for Interests (not applicable).
3.2 Charthouse Suites Vacation Ownership, Inc. Articles of
Incorporation previously filed with Registration Statement on
October 7, 1996.
3.3 Charthouse Suites Vacation Ownership, Inc. By-laws previously
filed with Registration Statement on October 7, 1996.
Exhibit 10 Forms of Material Contracts
10.1 Property Management Agreement previously filed with
Amendment No. 2 to Registration Statement on August 1, 1997.
10.2 Form of Non-Disturbance and Notice to Creditors previously
filed with Amendment No. 3 to Registration Statement on September
12, 1997.
10.3 Form of Guaranteed Rental Arrangement Agreement previously
filed with Amendment No. 2 to Registration Statement on August
1, 1997.
10.4 RCI Agreement previously filed with Amendment No. 2 to
Registration Statement on August 1, 1997.
10.5 Schedule of Weeks (attached as an Annex) previously filed
with Registration Statement on October 7, 1996.
10.6 Escrow Agreement between William Atkinson and Charthouse
Suites Vacation Ownership, Inc. previously filed with Amendment
No. 2 to Registration Statement on August 1, 1997.
10.7 Form of Non-Exclusive Easement previously filed with
Registration Statement on October 7, 1996.
10.8 Form of Private Letter Ruling Request previously filed with
Amendment No. 1 to Registration Statement on January 31, 1997.
10.9 Form of Revised IRS Private Letter Ruling Request, dated
July 16, 1997 previously filed with Amendment No. 2 to
Registration Statement on August 1, 1997.
10.10 Real Estate Sales and Purchase Agreement previously filed
with Amendment No. 4 to Registration Statement on September 30,
1997.
10.11 Personal Property Purchase and Subscription Agreement
previously filed with Amendment No. 4 to Registration Statement
on September 30, 1997.
10.12 Escrow Agreement previously filed with Amendment No. 4 to
Registration Statement on September 30, 1997.
10.13 Quit Claim Deed previously filed with Amendment No. 4 to
Registration Statement on September 30, 1997.
10.14 Form of Letter Withdrawing IRS Private Letter Ruling
Request, dated September 9, 1997 previously filed with Amendment
No. 3 to Registration Statement on September 12, 1997.
10.15 Ernst & Young LLP letter dated October 3, 1997 previously
filed with Amendment No. 5 to Registration Statement on October
16, 1997.
10.16 Artistic Renderings (attached as an Annex) previously filed
with Amendment No. 5 to Registration Statement on October 16,
1997.
Exhibit 27 Financial Data Schedule (filed herewith) *
* copy available to Interest Holders upon request.
(c) Financial Data Schedule.
A Financial Data Schedule was submitted in the electronic format
prescribed by the EDGAR Filer Manual setting forth the financial
information specified in the applicable table in the Appendixes
to this item.
(d) Reports on Form 8-K filed in the fourth quarter of 1997.
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Charthouse Suites Vacation Ownership, Inc.
(Registrant)
March 30, 1998 By/s/ Jeffrey L. Keierleber
Dated Jeffrey L. Keierleber, President, Sole Director,
Principal Officer, and Principal Financial and
Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant in the capacities and on the dates
indicated.
March 30,1998 By/s/ Jeffrey L. Keierleber
Dated Jeffrey L. Keierleber, President, Sole Director,
Principal Officer, and Principal Financial and
Accounting Officer
ANNUAL REPORT ON FORM 10-KSB
ITEM 7
FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
CHARTHOUSE SUITES VACATION OWNERSHIP INC.
BROOKFIELD, WISCONSIN
AND
CHART HOUSE SUITES
CLEARWATER, FLORIDA
<PAGE>
Charthouse Suites
Vacation Ownership, Inc.
Clearwater, Florida
Balance Sheet
Including Independent Auditors' Report
December 31, 1997
Charthouse Suites Vacation Ownership, Inc.
Table of Contents
December 31, 1997
Independent Auditors'Report.................................. 1
Balance Sheet................................................ 2
Notes to Financial Statement..............................3 - 8
Independent Auditors' Report
The Board of Directors
Charthouse Suites Vacation Ownership, Inc.
We have audited the accompanying balance sheet of Charthouse
Suites Vacation Ownership, Inc. (the Company) as of December 31,
1997. This balance sheet is the responsibility of the Company's
management. Our responsibility is to express an opinion on this
balance sheet based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the balance sheet is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe that our audit of the
balance sheet provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents
fairly, in all material respects, the financial position of the
Company at December 31, 1997, in conformity with generally
accepted accounting principles.
VIRCHOW, KRAUSE & COMPANY, LLP
Waukesha, Wisconsin
February 17, 1998
Charthouse Suites Vacation Ownership, Inc.
Balance Sheet
December 31, 1997
Assets
Cash 923
Prepaid expenses 11,847
Escrow deposits 5,680
Total assets 18,450
Liabilities and Shareholder's Equity
Liabilities
Deferred revenue-unit maintenance 2,770
Deferred revenue-unit sales 5,680
Total Liabilities 8,450
Shareholder's equity
Common stock, par value $.01 per share, authorized
10,000 shares, issued 100 shares 1
Paid-in-capital 99,999
100,000
Less: Stock subscription receivable 90,000
Total shareholder's equity 10,000
Total Liabilities and Shareholder's Equity 18,450
See accompanying notes to financial statement.
Charthouse Suites Vacation Ownership, Inc.
Notes to Financial Statement
December 31, 1997
Note 1 - Nature of Business and Offering
Nature of Business
Charthouse Suites Vacation Ownership, Inc., a Florida Corporation
(the Company) was formed on April 16, 1996, to facilitate the
sale of interests (through an offering) to rent or use the Chart
House Suites Hotel (the Hotel) located in Clearwater, Florida.
The Company intends to sell, A, B, C, D, E and F class interests
(the Interests). Purchasers of the Interests will have the right
to use for two specific consecutive weeks of every spring,
summer, fall and winter season until December 31, 2040, a hotel
suite of a certain category in the Hotel. Owners of the
Interests do not acquire an ownership or equity interest in the
Company, but pursuant to the Charthouse Suites Vacation License
Plan, will acquire a license right to utilize a suite in the
Hotel.
Offering
The Company is offering for sale the following Interests:
Number of Price Per
Class of Interests Interests Interest
A Interest 36 18,500
B Interest 24 21,500
C Interest 36 25,500
D Interest 36 36,500
E Interest 12 39,500
F Interest 6 60,000
Amounts received by the Company in connection with the sale of
the license Interests will be recorded as income over the
contractual life of the license agreement, using the straight-
line method. Assuming the maximum number of Interests are sold,
the gross proceeds from the sale will be approximately $4,248,000
exclusive of offering expenses. If fewer than 76 Interests are
sold by October 31, 1998, the Company has an option to cancel the
licenses and return the entire subscription amount, reduced by
certain payments or benefits received, to investors.
Holders of Interests will be required to share in the annual
maintenance and other related costs, expenses and reserves of
providing the Hotel services and property and equipment for their
respective unit weeks in the Hotel. Holders will be assigned a
proportionate share of such expenses based upon a defined formula
pursuant to a Charthouse Suites Vacation License Plan with Decade
Properties, Inc. (Decade, an affiliate of the Company) allocating
fixed and variable costs to their respective class of Interests.
An investor may finance the purchase of an Interest through the
Company by paying at least 30% of the subscription price and
entering into a subscription agreement for the remainder of the
subscription price to be payable over a maximum of 360 monthly
installments with increased licensing payments up to a maximum of
9% per year which have the effect of an interest charge on the
amounts outstanding.
Under the Guaranteed Rental Agreement, developed as an incentive
to early purchasers of Interests, the Company has guaranteed that
investors purchasing Interests within one year of the effective
date of the planned offering, will receive guaranteed rental
payments, as defined, at varying rates, in exchange for the use
of unit weeks of Hotel suites. All rights exchanged for the use
of the Hotel suites must be exercised no later than five years
after the effective date of the offering. Alternatively,
investors purchasing Interests within one year of the effective
date of the offering may elect to receive a cash discount ranging
from 1.5% to 5% applicable to the subscription price (depending
on the date an Interest is purchased) in lieu of the Guaranteed
Rental Agreement.
Note 2 - Shareholder's Equity
On April 16, 1996, the Company's sole shareholder entered into a
subscription agreement to purchase 100 shares of the Company's
common stock for $1,000 per share or an aggregate subscription
price of $100,000. As of December 31, 1997, the sole shareholder
had paid $10,000 of the subscribed amount.
Note 3 - Transactions with Related Parties
Affiliates of the Company will provide management and consulting
services to the Company including the rental services pursuant to
agreements with the Hotel.
Decade will sell the Hotel to the Company (see Note 7) and be
employed by the Company to provide property management services
to the Hotel. The Company has entered into a property management
agreement with Decade whereby Decade will manage the Hotel until
December 31, 2040, for a fee of $2,500 a month (such fee to
increase by the CPI index increase on the first of each year
beginning January 1, 1998) plus reimbursement of defined
expenses. The Property Management Agreement provides for a
payment to Decade equal to the present value (using an 8%
discount rate) of the remaining future payments to be received in
the event Decade is removed, in part or whole, as the property
manager.
Holders of the Interests may utilize the Company's rental
services if they do not want to or cannot use one or more of
their allotted weeks of each year. Decade will provide rental
services for a fee equal to 5% of the rental revenue. Interest
holders may also seek to have Decade enter into individual
property management agreements.
DPI Construction & Engineering Corp. ("DPIC&E"), an affiliate of
the Company, is engaged in the general contracting business. The
Company may enter into agreements with DPIC&E whereby DPIC&E will
provide services in connection with renovation and remodeling
work on the Hotel.
Decade and affiliates will be reimbursed for the actual cost of
goods and materials used by or for the Company, including the
following general functions of the Company: Company operations,
Company accounting, investor communications, investor
documentation, legal services, tax services, computer services,
risk management, Company organizational and offering expenses,
and any other related operational and administrative expenses
necessary for the organization and operation of the Company.
Note 4 - Offering Costs
As of December 31, 1997, $250,575 of legal and accounting fees
had been incurred by Decade related to the offering discussed in
Note 1. The Company has agreed to indemnify and reimburse Decade
for such costs only if sufficient funds become available. At
that time, the Company will record such amounts in its financial
statements.
Note 5 - Income Taxes
The Company is taxed on its income for federal and state income
taxes under the laws of subsection "C" of the Internal Revenue
Code. No provision for income taxes was recorded as of December
31, 1997, and the Company has not commenced operations.
Note 6 - Use of Estimates
The preparation of the financial statement in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Note 7 - Pro Forma Acquisition (Unaudited)
On June 30, 1997, the Company entered into an agreement to
acquire the Hotel from Decade for approximately $1.8 million.
The purchase is contingent upon the offering achieving the sale
of the 76 interests. Decade will provide financing for the whole
purchase price of approximately $1.8 million through an unsecured
demand note payable with interest only payable monthly at 8%.
The following unaudited pro forma balance sheet as of December
31, 1997, reflects the acquisition of the Hotel from Decade that
will occur subsequent to December 31, 1997, as if such
transactions had occurred as of December 31, 1997. The pro forma
presentation shows the possible scope of the change in the
historical financial position caused by the transaction.
The following pro forma statements of operations for the years
ended December 31, 1997 and 1996, give effect to the Hotel
acquisition as if it were consummated as of the first day of the
respective periods. The pro forma presentation shows the
possible scope of the change in the historical results of
operations by presenting the income from continuing operations
with the Hotel. The pro forma statements of operations reflect
that historical rental income is received by the Company on
behalf of the rental pool and, therefore, is subject to a fee for
rental services equal to 5% of the rental revenues. The pro
forma statements of operations include the historical property
management agreement described in Note 3, a fee of $2,500 per
month is due, and such amount is not materially different from
the actual proeprty management fee incurred during the pro forma
periods shown. Therefore, no adjustment to the historical
results was made.
<PAGE>
<TABLE>
<CAPTION>
Balance Sheet
December 31, 1997
(unaudited)
Historical Pro-Forma
Charthouse Charthouse
Suites Vacation Suites Vacation
Ownership, Inc. Acquisition Ownership, Inc.
<S> <C> <C> <C>
Assets
Cash 923 0 923
Prepaid expenses 11,847 0 11,847
Investment in real estate 0 1,811,900(A) 1,811,900
Escrow deposits 5,680 0 5,680
Total assets 18,450 1,811,900 1,830,350
Liabilities and Shareholder's equity
Note payable to affiliate 0 1,811,900(A) 1,811,900
Deferred revenue-unit maintenance 2,770 0 2,770
Deferred revenue-unit sales 5,680 0 5,680
Total Liabilities 8,450 1,811,900 1,820,350
Common stock, par value $.01 per
share, authorized 10,000 shares,
issued 100 shares 1 0 1
Paid-in-capital 99,999 0 99,999
100,000 0 100,000
Less: Stock subscription receivable 90,000 0 90,000
Total shareholder's equity 10,000 0 10,000
Total liabilities and shareholder's equity 18,450 1,811,900 1,830,350
</TABLE>
(A) To reflect the acquisition of the Chart House Hotel
and the financing provided from Decade Properties, Inc.
<TABLE>
<CAPTION>
Condensed Statement of Operations
For the year ended December 31, 1997
(Unaudited)
Pro Forma Adjustments
Due to Acquisition
Historical Historical Pro Forma
Charthouse Suites Charthouse Charthouse
Vacation Suites Hotel Other Suites Vacation
Ownership, Inc. Operations Adjustments Ownership, Inc.
<S> <C> <C> <C> <C>
Operating Revenues
Total rental income 0 457,495 (22,875)(D) 434,620
Other income 0 16,935 0 16,935
Total Operating Revenues 0 474,430 (22,875) 451,555
Expenses
Salaries 0 132,335 0 132,335
Direct Expenses 0 153,119 0 153,119
Repair and Maintenance 0 17,748 0 17,748
Total 0 303,202 0 303,202
Excess of Operating Revenues
Over Expenses 0 171,228 (22,875) 148,353
Interest Expense 0 0 (144,000)(B) (144,000)
Depreciation 0 0 (44,000)(C) (44,000)
Net Income (loss) 0 171,228 (210,875) (39,647)
</TABLE>
(B) To reflect interest expense of the acquisition at an
interest rate of 8% per annum.
(C) To reflect depreciation expense of the acquisition
using straight line depreciation over 40 years for
the building and 7 years for furniture and equipment.
(D) To reflect fee for rental services equal to 5% of
the rental revenues.
<TABLE>
<CAPTION>
Condensed Statement of Operations
For the year ended December 31, 1997
(Unaudited)
Pro Forma Adjustments
Due To Acquisition
Historical Historical Pro Forma
Charthouse Suites Charthouse Charthouse
Vacation Suites Hotel Other Suites Vacation
Ownership, Inc. Operations Adjustments Ownership, Inc.
<S> <C> <C> <C> <C>
Operating Revenues
Total rental income 0 465,244 (23,262)(D) 441,982
Other income 0 16,179 0 16,179
Total Operating Revenues 0 481,423 (23,262) 458,161
Expenses
Salaries 0 123,091 0 123,091
Direct Expenses 0 155,546 0 155,546
Repair and Maintenance 0 12,585 0 12,585
Total 0 291,222 0 291,222
Excess of Operating Revenues
Over Expenses 0 190,201 (23,262) 166,939
Interest Expense 0 0 (144,000)(B) (144,000)
Depreciation 0 0 (44,000)(C) (44,000)
Net Income (loss) 0 190,201 (211,262) (21,061)
</TABLE>
<PAGE>
(B) To reflect interest expense of the acquisition at an interest
rate of 8% per annum.
(C) To reflect depreciation expense of the acquisition using
straight line depreciation over 40 years for the building and 7
years for furniture and equipment.
(D) To reflect fee for rental services equal to 5% of the rental
revenues.
CHART HOUSE SUITES
Clearwater, Florida
STATEMENT OF OPERATING REVENUES
AND CERTAIN EXPENSES
Including Independent Auditors' Report
December 31, 1997 and 1996
CHART HOUSE SUITES
TABLE OF CONTENTS
December 31, 1997 and 1996
________________________________________________________________
Independent Auditors' Report 1
Statements of Operating Revenues and Certain Expenses 2
Note to Financial Statements 3
<PAGE>
Independent Auditors Report
To the Board of Directors
Decade Properties, Inc.
Brookfield, Wisconsin
We have audited the accompanying statements of operating revenues
and certain expenses of Chart House Suites for the years ended
December 31, 1997 and 1996. The financial statements are the
responsibility of the Partnership's management. Our
responsibility is to express an opinion on the accompanying
statements of revenues and certain expenses based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatements. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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 accompanying statements of operating revenues
and certain expenses, presents fairly, in all material respects,
the operating revenues and certain expenses, exclusive of those
described in Note 1, of Chart House Suites for the years ended
December 31, 1997 and 1996, in conformity with the basis of
accounting described in Note 1 to the financial statements.
This report is intended solely for purposes of compliance with
Form S-11, Registration Statement under the Securities Act of
1933, and Form 10-KSB Annual Report under the Securities Exchange
Act of 1934, and should not be used for any other purposes.
VIRCHOW, KRAUSE & COMPANY, LLP
Waukesha, Wisconsin
February 17, 1998
CHART HOUSE SUITES
STATEMENTS OF OPERATING REVENUES
AND CERTAIN EXPENSES
For the Years Ended
December 31, 1997 and 1996
1997 1996
OPERATING REVENUES
Total rental income 457,495 465,244
Other income
Telephone 7,628 10,135
Miscellaneous/other 3,561 3,369
Sales tax income 645 660
Interest income 5,101 2,015
Total Other Income 16,935 16,179
Total Operating Revenues 474,430 481,423
CERTAIN EXPENSES
Salaries
Salaries-administration 5,840 6,279
Salaries-housekeeping 26,715 26,951
Manager on-site 24,992 22,934
Operations-front desk 30,547 28,030
Maintenance and grounds 20,775 14,927
Payroll taxes (included above) 0 0
Management fee 23,466 23,970
Total Salaries 132,335 123,091
Direct Expenses
Insurance 10,863 12,492
Maintenance services and supplies 10,271 11,149
Electric-units 15,772 15,719
Propane gas 4,386 4,210
Water and sewer 13,401 9,806
Trash removal 2,850 2,096
Cable television 2,965 3,450
Grounds 2,486 2,613
Sales and marketing 23,012 27,812
Telephone 8,273 10,069
Laundry and cleaning supplies 7,413 9,022
Real estate tax 27,449 25,208
Miscellaneous administrative 23,978 21,900
Total Direct Expenses 153,119 155,546
1997 1996
Repair and Maintenance Expenses
Roof 892 0
Painting 953 1,490
Furniture and equipment-interior 12,100 6,940
Pool maintenance 1,185 676
Pavement 1,916 0
Other maintenance 702 3,479
Total Repair and Maintenance Expenses 17,748 12,585
Total Expenses 303,202 291,222
EXCESS OF OPERATING REVENUES
OVER CERTAIN EXPENSES 171,228 190,201
CHART HOUSE SUITES
NOTE TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
_________________________________________________________________
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
_________________________________________________________________
Nature of Business
Chart House Suites is a 25 unit hotel complex located in
Clearwater, Florida. The hotel opened for business on April 21,
1994.
Basis of Accounting
The accompanying statements of operating revenues and certain
expenses reflect income and expenses that are directly
attributable to the operations of the hotel complex, and that are
not dependent upon a particular owner of the property. The
operating revenues and expenses of the related marina are not
included in the accompanying statements of operating revenues and
certain expenses. As a result, certain expenses which are
included in the accounting records of the property are not
included in the accompanying financial statements. These expenses
are depreciation, amortization, mortgage interest, and certain
office and administrative expenses.
Repairs and Maintenance
Ordinary maintenance and repairs are charged to operations when
incurred, while expenditures which significantly increase asset
lives or values are capitalized.
Use of Estimates
The preparation of the financial statement in conformity with
general accepted accounting principles requires management to
make estimates and assumptions that affect the amount reported in
the financial statement and accompanying notes. Actual results
could differ from those estimates.
Advertising Costs
The Company expenses costs of advertising at the time incurred.
Advertising expenses were $17,216 and $21,691 for the years ended
December 31, 1997 and 1996, respectively.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 6,603
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 18,450
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 8,450
<BONDS> 0
<COMMON> 10,000
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 18,450
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
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<LOSS-PROVISION> 0
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<INCOME-PRETAX> 0
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