U. S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X]QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 1999.
[ ]TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
Commission file number 333-13571.
CHARTHOUSE SUITES VACATION OWNERSHIP, INC.
(Exact name of small business issuer as specified in its charter)
State of Florida 59-3388947 (State or
other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
250 Patrick Blvd., Suite 140 Brookfield, Wisconsin 53045-5864
(Address of principal executive offices)
(414) 792-9200
(Issuer's telephone number)
Former name, former address and former fiscal year, if changed since last
report)
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 X
No .
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. Yes No .
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 100 .
Transitional Small Business Disclosure Format (check one): Yes No X .
CHARTHOUSE SUITES VACATION OWNERSHIP, INC.
Form 10-QSB
INDEX
March 31, 1999
PART I. FINANCIAL INFORMATION Page
Item 1.Financial Statements (unaudited)
Balance Sheet at March 31, 1999. 3
Notes to Financial Statements. 4
Supplemental Schedule of Operating Revenues
and Certain Expenses of Chart House Suites Hotel
for the three month periods ended
March 31, 1999 and 1998. 5
Item 2. Management's Discussion and Analysis or Plan
of Operation 6
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K. 14
SIGNATURES 15<PAGE>
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CHARTHOUSE SUITES VACATION OWNERSHIP, INC.
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BALANCE SHEET
March 31, 1999
(unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 320
Escrow deposits 16,994
Prepaid expenses 12,450
Total Assets $ 29,764
LIABILITIES AND SHAREHOLDER'S EQUITY
LIABILITIES:
Deferred revenue - unit maintenance $ 4,167
Deferred revenue - unit sales 15,597
Total Liabilities 19,764
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 $ 29,764
See Notes to Financial Statements
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CHARTHOUSE SUITES VACATION OWNERSHIP, INC.
Form 10-QSB
March 31, 1999
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Note A--Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Charthouse Suites Vacation Ownership, Inc.
(the "Company") is in its offering stage and has not had any operations to
date. Accordingly, statements of operations and statements of cash flows have
been omitted from the financial statements. Operating results of the hotel,
which the Company intends to purchase, for the three month period ended March
31, 1999 are presented as supplemental financial information, but are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999 because of the seasonal nature of the hotel operations. For
further information, refer to the financial statements and footnotes thereto
included in the Company's annual report on Form 10-KSB for the year ended
December 31, 1998.
<PAGE>SUPPLEMENTAL SCHEDULE OF OPERATING REVENUES AND CERTAIN EXPENSES
of Chart House Suites Hotel
OPERATING REVENUES 1999 1998
Total rental income $135,934 $152,578
Total other income 2,741 2,523
Total Operating Revenues 138,675 155,101
CERTAIN EXPENSES
Salaries
Salaries 25,273 24,528
Payroll taxes-included above -0- -0-
Management fee 7,500 7,500
Total Salaries 32,773 32,028
Direct Expenses
Sales and marketing 4,664 5,338
Utilities 7,852 8,159
Real estate tax 7,500 7,500
Other direct expenses 23,184 21,159
Total Direct Expenses 43,200 42,156
Repair and Maintenance Expenses
Total Repair and
Maintenance Expenses 12,894 1,575
Total Certain Expenses 88,867 75,759
EXCESS OF OPERATING REVENUES
OVER CERTAIN EXPENSES $ 49,808 $ 79,342
<PAGE>Item 2. Management's Discussion and Analysis or Plan of Operation
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 financial information on the operations of the hotel are
included in this report as a supplementary schedule.
The financial statements included herein present the balance sheet of
Charthouse Suites Vacation Ownership, Inc. as of March 31, 1999 and a separate
schedule presents the results of hotel operations for the comparative quarterly
periods ended March 31, 1999 and 1998.
Forward-Looking Information
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Reform Act"). Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: general economic and business conditions, which will, among other
things, affect demand for hotel space and market rents, availability of
prospective customers, the terms and availability of financing; adverse
changes in the real estate markets including, among other things, competition
with other companies and technology; risks of real estate development and
acquisition; governmental actions and initiatives; and environmental/safety
requirements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The
Company undertakes no obligation to publicly release any revisions to these
forward-looking statements, which may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
Results of Operations
Operating revenue for the hotel was $139,000 in the quarter ended March 31,
1999, compared to $155,000 for the same period of 1998, a decrease of 10%.
This $16,000 decrease is attributed primarily to an unseasonably cold January
1999 which had an adverse affect on revenues and occupancy. In addition,
lower occupancy resulted from depositing Unit Weeks with the RCI Exchange
Program to be used by the Company in connection with its sale of Vacation
Interests.
Historical average monthly occupancy levels at the hotel for all units for
each quarterly period were as follows:
Monthly 1999 1998
January 33% 54%
February 68% 70%
March 75% 72%
Quarter Total59%66%
Total expenses were $89,000 for the quarter ended March 31, 1999, compared to
$76,000 for the same period of 1998, a 17.1% increase. The $13,000 increase
was primarily attributable to higher repair and maintenance expenses including
a new telephone system and hospitality management information system which was
purchased for $12,894. It is the accounting policy of the Company to report
capital items as expenditures for the purpose of accounting for common
expenses under the License Plan. Such assets are then capitalized for
financial reporting and tax purposes.
As a result of the foregoing, the excess of operating revenues over certain
expenses was $50,000 for the quarter ended March 31, 1999, compared to $79,000
in the same period in 1998.
The proposed ownership of a Vacation Interest entitles purchasers to the
right, subject to the terms and conditions of the License Plan, to rent or use
the Chart House Suites hotel for eight weeks of each year until December 31,
2040. Holders are entitled to two consecutive weeks of time for each season
(e.g. Spring, Summer, Fall and Winter). All Unit Weeks (including those owned
by the Company) will automatically be placed in the Rental Pool. The Company
will attempt to rent the Unit Weeks and will remit net rent proceeds, if any,
to the Holder on a quarterly basis. The Company is offering Vacation
Interests that, in the aggregate, will provide the Holders the right to rental
income from the Rental Pool, if any, or the right to use one of the 25 suites
for 8 weeks out of every year.
Under the License Plan, Holders who participate in the Rental Pool will
receive income based upon ratios based upon the Company's arbitrary off-season
nightly walk-in rate for each Class of suite and upon the actual number of
Unit Weeks for each Class that is participating in the Rental Pool. 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. The actual percentage allocation
among Classes of Interests will vary in relation to how many suites are
actually placed into the Rental Pool each Unit Week.
If the Rental Pool had been operating during the quarterly and nine month
periods presented herein, and if it is assumed that all studios and suites
actually rented had been rented on behalf of the Rental Pool, then the net
rental revenue would be derived as follows:
1999 1998
Rental Income(Actual)$135,934 $152,578
Less: Pro Forma
Rental Fee (5%) (6,797) (7,629)
Pro Forma Net Rental Revenue $129,137 $144,949
If it is assumed that all Unit Weeks remained in the Rental Pool during the
quarterly periods presented herein, and no Unit Weeks were used by Holders or
were deposited with the RCI Exchange Program, then the allocation of the
pro-forma net rental revenue among Classes would be derived as follows:
1999 1998
Class A $ 22,741 $ 25,526
Class B 16,244 18,233
Class C 27,614 30,995
Class D 38,985 43,757
Class E 14,078 15,802
Class F 9,475 10,636
Total Proforma
Rental Revenue $129,137 $144,949
Using the derived allocation of pro-forma net rental revenue by Class
presented above, the proforma average of distributions from the Rental Pool
per Unit Week would have been as follows:
1999 1998
Class A $292 $327
Class B $312 $351
Class C $354 $397
Class D $500 $561
Class E $541 $608
Class F $729 $818
All Units Weeks(Average)$397 $446
The annual dues per Unit Week for the Classes of Vacation Interests is set
forth below for each period:
1999 1998
Class A $190 $190
Class B $190 $190
Class C $205 $205
Class D $285 $285
Class E $305 $305
Class F $365 $365
The proforma net revenue per Unit Week after consideration of annual dues is
computed by subtracting the annual dues per Unit Week from the proforma
average distributions from the rental pool to result in the following:
1999 1998
Class A $102 $137
Class B $122 $161
Class C $149 $192
Class D $215 $276
Class E $236 $303
Class F $364 $453
The following information sets forth the results of operations of the hotel by
average Unit Week and by Class as if the Rental Pool were in existence. This
information is presented as a guide for potential Holders of the Unit Weeks
who might elect to not participate in the Rental Pool.
The average daily revenue for hotel studios and suites by Class for the
comparative quarterly periods was:
Type of
Unit 1999 1998
Class A $82 $85
Class B $82 $88
Class C $86 $92
Class D $113 $126
Class E $121 $134
Class F $148 $153
All Classes $96 $103
The average daily occupancy for hotel studios and suites by Class for the
comparative quarterly periods was:
Type of Unit 1999 1998
Class A 60% 75%
Class B 58% 65%
Class C 55% 75%
Class D 60% 51%
Class E 60% 59%
Class F 68% 59%
All Classes 59% 66%
The occupancy levels presented have been adjusted to eliminate the effect of
the hotel studios and suites that were not available for rent because they
were deposited with the RCI Exchange Program.
While there can be no assurances, management believes that the occupancy
levels that will be achieved at the hotel will be significantly higher after
all Vacation Interests are sold because the number of studios and suites
available for rent will decrease as Holders elect to either use their Unit
Weeks or to exchange the Unit Weeks in the RCI Exchange Program. The
following table presents the occupancy of the hotel by Class for the
comparative quarterly period as if 25% of each Class of Vacation Interest were
occupied by Holders, and 75% were participating in the Rental Pool.
Type of Unit 1999 1998
Class A 85% 100%
Class B 83% 95%
Class C 80% 94%
Class D 85% 66%
Class E 85% 75%
Class F 93% 94%
All Classes 84% 87%
As a result of the previously described factors, the average Unit Week
operating revenue decreased $51 for the first quarter from $478 in 1998 to
$427 in 1999.
For the first quarter the average daily rental unit revenue for occupied
Studios/Suites decreased $7 from $103 in 1998 to $96 in 1999.
The average Unit Week expenses increased $40 for the first quarter from $233
in 1998 to $273 in 1999.
Approximately $35 of this per Unit Week increase for the first quarter was due
to a non-recurring increase in repair and maintenance expenses, which reflects
the purchase of a new telephone system during the first quarter of 1999.
Average direct expenses per Unit Week increased $6 for the quarter from $130
in 1998 to $133 in 1999.
Salary expenses per Unit Week increased $2 for the first quarter from $99 in
1998 to $101 in 1999.
As a result of the foregoing, the average Unit Week operating revenue exceeded
operating expenses for the first quarter by $153 in 1999 compared to $244 in
1998, resulting in a $91 average decrease per Unit Week.
Liquidity and Sources of Capital
At March 31, 1999 there was $320 of cash and $16,994 of cash held in escrow
resulting in $17,314 of cash and cash equivalents. 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 March 31, 1999,
the sole shareholder has paid $10,000 of the subscribed amount.
Once operational, the Company expects to meet its short-term liquidity
requirements generally through the cash provided by hotel rental operations.
Payment of day-to-day operating expenses, historically met by operating cash,
was provided by operating revenue collected and did not require the use of
cash reserves. Once Vacation Interests are sold, the future operating
expenses of the hotel are anticipated to be met by the annual dues paid by the
Holders of the Interests. Once the Vacation Interests are sold, the future
cash provided by hotel rental operations will be distributed each quarter to
the Interest Holders who participate in the Rental Pool.
The Company has contractual rights to acquire the Chart House Suites hotel,
personal property, and marina for $1,796,000. The purchase is contingent upon
the offering achieving the sale of 76 Vacation Interests before October 31,
1999. If fewer than 76 Vacation Interests are sold by October 31, 1999, the
Company has the option to cancel the licenses and return to investors the
entire subscription proceeds, reduced by certain payments or benefits
received. Accordingly, the purchase of the property will not be completed
until 76 Vacation Interests have been sold or until this requirement has been
waived.
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 Company expects to meet its long-term debt
service requirements from the payments to be received from 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.
Impact of Year 2000 Compliance
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the computer
programs or hardware used by the General Partner and affiliates that have
date-sensitive software or embedded chips may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in 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.
Based on past assessments, Decade Properties Inc. ("DPI"), an affiliate of the
Company, determined that it will be required to modify or replace significant
portions of computer hardware and software that it uses on behalf of the hotel
so that those systems will properly utilize dates beyond December 31, 1999.
For this purpose, the term "computer hardware and software" includes systems
that are commonly though of as IT systems, including accounting, data
processing, and telephone/PBX systems, and other miscellaneous systems as well
as systems that are not commonly thought of as IT systems, such as alarm
systems, fax machines, or other miscellaneous systems. DPI presently believes
that with modifications and replacement of existing hardware and software, the
Year 2000 Issue can be mitigated. However, if such modifications and
replacements are not made, or are not completed timely, the Year 2000 Issue
could have a material impact on the operations of the hotel.
DPI's plan to resolve the Year 2000 Issue involves the following four phases:
assessment, remediation, testing, and implementation. Both IT and non-IT
systems may contain imbedded technology, which complicates DPI's Year 2000
identification, assessment, remediation, and testing efforts. To date DPI has
fully completed its assessment of all systems that could be significantly
affected by the Year 2000. The completed assessment indicated that most of
DPI's significant information technology systems could be affected,
particularly general ledger, billing, and the room reservation software. DPI
has gathered information about the Year 2000 compliance status of its
significant suppliers and continues to monitor their compliance.
For its information technology exposures, to date DPI is 90% complete on the
remediation phase and expects to complete software reprogramming and
replacement no later than July 1, 1999. Once software is reprogrammed and
replaced for a system, DPI begins testing and implementation. These phases
run concurrently for different systems. To date, DPI has completed 70% of its
testing and has implemented 50% of its remediated systems. Completion of the
testing phase for all significant systems is expected by August 31, 1999, with
all remediated systems fully tested and implemented by September 30, 1999.
The DPI's account payable system does not interface directly with third party
vendors and does not anticipate problems with third party vendors.
DPI has queried its important suppliers that do not share information systems
with DPI (external agents). To date, DPI is not aware of any external agent
Year 2000 issue that would materially impact the hotel's results of
operations, liquidity, or capital resources. However, DPI has no means of
ensuring that external agents will be Year 2000 ready. The inability of
external agents to complete their Year 2000 resolution process in a timely
fashion could materially impact the hotel's operation. The effect of
non-compliance by external agents is not determinable.
DPI will utilize both internal and external resources to reprogram, or
replace, test, and implement the software and operating equipment for Year
2000 modifications. The hotel's share of the total cost of the Year 2000
project is estimated at $28,000 and is being funded through operating cash
flows. To date, the hotel has incurred and expensed approximately $25,000,
related to all phases of the Year 2000 project. The total remaining project
costs of approximately $3,000 relates to repair of hardware and software and
will be expensed as incurred.
The plans to complete the Year 2000 modifications are based on the DPI's
current estimates, which were derived utilizing numerous assumptions of future
events including the continued availability of certain resources, and other
factors. Estimates on the status of completion and the expected completion
dates are based on costs incurred to date compared to total expected costs.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ materially form those plans. Specific factors
that might cause such material differences include, but are not limited to,
the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes, and similar uncertainties.
The information above contains forward-looking statements including, without
limitation, statements relating to the Company's plans, strategies,
objectives, expectations, intentions, and adequate resources that are made
pursuant to the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. Readers are cautioned that forward-looking statements
about the Year 2000 should be read in conjunction with the Company's
disclosures under the heading: Forward-Looking Information.
PART II.
OTHER INFORMATION
Item 1. Legal Proceeding.
There is no material pending litigation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
The following exhibit is included herein:
(27) Financial Data Schedule
The Company did not file any reports on Form 8-K during the three months ended
March 31, 1999.
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CHARTHOUSE SUITES VACATION OWNERSHIP, INC.
Form 10-QSB
March 31, 1999
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CHARTHOUSE SUITES VACATION
OWNERSHIP, INC.
(Issuer)
Date: May 11, 1999 By:/s/ Jeffrey
Keierleber Jeffrey Keierleber
President and Principal
Financial and Accounting Officer
Of Issuer
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