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
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.
<PAGE>ANNUAL REPORT ON FORM 10-KSB
INDEX
YEAR ENDED DECEMBER 31, 1998
CHARTHOUSE SUITES VACATION OWNERSHIP INC.
BROOKFIELD, WISCONSIN
Part I Item Page
Description of Business 1 3
Description of Property 2 6
Legal Proceedings 3 14
Submission of Matters to a Vote of Security Holders 4 14
Part II
Market for Vacation Interests and Related Matters 5 14
Management's Discussion and Analysis or Plan
of Operations 6 14
Financial Statements 7 29
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 8 29
Part III
Directors, Executive Officers, Promoters and 9 29
Control Persons; Compliance with Section 16(a)
of the Exchange Act
Executive Compensation 10 30
Security Ownership and Certain Beneficial Owners and
Management 11 31
Certain Relationships and Related Transactions 12 32
Exhibits and Reports on Form 8-K 13 33
Signatures 37
Audited Financial Statements 38
<PAGE>
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Charthouse Suites Vacation Ownership Inc.
Annual Report on Form 10-KSB
For year ended December 31, 1998
Page 3
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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 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.
Each Vacation Interest has the right to eight Unit Weeks per year. Each Unit
Week will automatically be placed in the Rental Pool, unless upon 30 or more
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. Pursuant to 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 established in the License Plan
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 the base 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
management 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 1998, 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, and cash management.
At the close of business on December 31, 1998, no Interests were issued or
outstanding, but proceeds for one Interest were held in escrow. The principal
offices of the Company are located at 250 Patrick Blvd., Suite 140,
Brookfield, Wisconsin, 53045-5864, telephone (414) 792-9200.
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 of the hotel, an
affiliate, 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 terms of 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, 1998 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. and will continue to be
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 in each unit). 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 (except for the
License Plan).
(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 1, 1999, 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 1, 1999 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.
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)The proposed budget for significant renovation and capital
expenditures at the Chart House Suites hotel during calendar year 1999 is
estimated to not exceed $32,000. The budget includes new carpeting of units
and hallways of $12,000, new furniture of $5,000, pool deck of $5,000, new
window treatments of $5,000 and new bedspreads of $5,000. 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, Hilton, Radisson and Holiday Inn, 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:
<PAGE>(i) Occupancy rate 1998 1997
Class A Studio 67% 71%
Class B Studio 54% 63%
Class C Studio 64% 63%
Class D Suite 41% 38%
Class E Suite 59% 58%
Class F Suite 76% 80%
All Classes 60% 66%
(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:
1998 1997
All Studios/Suites $16,410 $18,300
(v) Lease expirations
All leases are scheduled to expire on a daily basis, except for the Class F
Suite which often has a minimum stay requirement of two days.
(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 17 39
Building 1,218 159 1,059
Boat Dock 176 43 133
Furniture & Equipment-hotel 208 147 61
Signs & Equipment-marina 1 0 1
Total $ 2,084 $ 366 $ 1,718
(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) Real estate taxes
Realty Tax Rate: $22.7830 per $100
Annual Realty Taxes: $28,759 (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 90.6% of the tax is allocable to the hotel, with 9.4%
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 Vacation Interests and Related 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, 1999, 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 of
Charthouse Suites Vacation Ownership Inc. as of December 31, 1998 and present
the statement of operating revenues and certain expenses of the Chart House
Suites hotel for the years ended December 31, 1998 and 1997.
Results of Operations
Operating revenue for the hotel was $420,000 in 1998, compared to $474,000 for
1997, a decrease of 11%. The decrease was attributed to several factors
including lower occupancy primarily from 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 weather in the
midwest area of the United States and in Canada which are major vacation
feeder markets for the hotel, and to a decrease in Canadian tourists caused by
the weakness of the Canadian dollar compared to the United States dollar.
Operating revenue was also affected by the number of hotel studios and suites
that were not available for rent because they were deposited with the RCI
Exchange Program. The decrease in telephone revenue of approximately $5,000
was caused by the old billing software system which did not properly charge
phone calls to the rooms for reimbursement. The room reservation and
accounting system has been replaced and higher telephone revenue is
anticipated as a result of this change.
Total expenses were $295,000 for the 1998, compared to $303,000 for 1997, a 3%
decrease. The $8,000 decrease was primarily attributed to a $16,000 decrease
in variable direct expenses, offset by higher repair and maintenance expenses
including a new computer software reservation and accounting package. In
general, the variable expenses were decreased during the year in response to
the lower occupancy percentage.
As a result of the foregoing, the net excess of operating revenues over
certain expenses was $125,000 for 1998, compared to $171,000 for 1997.
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 two years 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:
1998 1997
Rental Income (Actual) $410,252 $457,495
Less: Pro Forma Rental Fee (5%) (20,513) (22,875)
Pro Forma Net Rental Revenue $389,739 $434,620
If all Unit Weeks remained in the Rental Pool during the years presented
herein, and no Unit Weeks were used by Holders or were deposited with the RCI
Exchange Program, then the allocation of the pro-forma net rental revenue
among Classes would be derived as follows:
1998 1997
Class A$ 68,633 $ 76,537
Class B 49,024 54,669
Class C 83,341 92,938
Class D 117,657 131,206
Class E 42,487 47,380
Class F 28,597 31,890
Total Proforma Rental Revenue $389,739 $434,620
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:
1998 1997
Class A $220 $245
Class B $236 $263
Class C $267 $298
Class D $377 $421
Class E $409 $456
Class F $550 $613
All Units Weeks(Average)$300 $334
The annual dues per Unit Week for the Classes of Vacation Interests is set
forth below for each period:
1998 1997
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:
19981997
Class A $ 30 $ 55
Class B $ 46 $ 73
Class C $ 62 $ 93
Class D $ 92 $136
Class E $104 $151
Class F $185 $248
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 for potential Holders of the Unit Weeks who might
elect to not participate in the Rental Pool and desire such information.
The average daily revenue for hotel studios and suites by Class for the
comparative periods was:
Type of 1998 1997
Unit Average Average
Class A $ 72 $ 68
Class B $ 76 $ 70
Class C $ 76 $ 73
Class D $108 $104
Class E $114 $114
Class F $118 $127
All Classes (Average) $ 87 $ 84
The average daily occupancy for hotel studios and suites by Class for the
comparative periods was:
Type of Unit 1998 1997
Class A 67% 71%
Class B 54% 63%
Class C 64% 63%
Class D 41% 38%
Class E 59% 58%
Class F 76% 80%
The 1998 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 pursuant to the RCI contract.
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 annual periods as if 25% of each Class of Vacation Interest were
occupied by Holders, and 75% were participating in the Rental Pool.
Type of Unit Proforma Occupancy
1998 1997
Class A 92% 96%
Class B 79% 88%
Class C 89% 88%
Class D 66% 73%
Class E 84% 83%
Class F 100% 100%
All Classes 85% 91%
Historical average monthly occupancy levels at the hotel for all units for
each annual period were as follows:
<PAGE>Month 1998 1997
January 54% 63%
February 70% 88%
March 72% 85%
April 67% 65%
May 54% 61%
June 56% 58%
July 66% 68%
August 59% 57%
September 55% 55%
October 44% 45%
November 36% 37%
December 39% 40%
As a result of the previously described factors. The average Unit Week
operating revenue decreased $42 from $365 in 1997 to $323 in 1998.
The average daily rental unit revenue for occupied Studios/Suites increased $3
from $84 in 1997 to $87 in 1998.
The average Unit Week expenses decreased $6 from $233 in 1997 to $227 in
1998. The decrease consisted of a $12 decrease in direct expenses, offset by
a $6 increase in repair and maintenance expenses.
Average salary expenses per Unit Week of $101 was approximately the same as
the preceding year.
Average Unit Week direct expenses per Unit Week decreased $12 from $117 in
1997 to $105 in 1998. The decrease is primarily attributed to a decrease in
sales and marketing expenses in 1998 of $6; a decrease in administrative
expenses of $4, and a decrease in water and sewer expenses of $2.
Repair and maintenance expenses increased $6 per Unit Week from $14 in 1997 to
$20 in 1998. The increase is primarily attributed to the purchase of a new
computer software reservation and accounting package which was purchased
during 1998 for $12,070.
As a result of the foregoing, the average Unit Week operating revenues
exceeded operating expenses by $96 in 1998 compared to $132 in 1997.
Liquidity
At December 31, 1998 there was $320 of cash and $5,680 of escrow deposits
resulting in $6,000 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 September 30,
1998, 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 was provided by operating revenue
collected and has not required 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 1,
1999. If fewer than 76 Vacation Interests are sold by October 1, 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.
Capital Resources
At December 31, 1998 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 - Safe Harbor Statement Under the
Private Securities Litigation Reform Act of 1995
Forward-looking statements in this report, including without limitation,
statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources, are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Investors are cautioned that such forwarded-looking statements involve
risks and uncertainties including without limitation the following: (i) the
Company's plans, strategies, objectives, expectations and intentions are
subject to change at any time at the discretion of the Company; (ii) the
Company's plans and results of operations will be affected by the Company's
ability to manage its growth (iii) other risks and uncertainties indicated
from time to time in the Company's filings with the Securities and Exchange
Commission.
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 Company'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 Company'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 including Year 2000 issues.
It is reasonably likely that historical financial information will not
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 a trend towards
higher collected revenue for hotel studios and suites. Management believes
that this trend will continue from repeat customers and word-of-mouth
advertising.
Environmental Matters
The Company and the hotel is 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 1998 for environmental capital
projects or for operation and maintenance of environmental protection
facilities. The Company estimates that during calendar years 1999 and 2000 no
material amount will be spent on capital projects for environmental
protection.
Management is not currently 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 currently 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 currently aware of any groundwater
contamination, underground methane gas or radon gas. Management currently
believes that the hotel does not produce air emissions or waste water of
environmental concern. Management is not currently aware of any underground
storage tanks. Management is not currently aware of any incidents of spills,
dumping or discharges at the property/or the presence of hazardous substances.
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 management 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 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 $15,000 and is being funded through operating cash
flows. To date, the hotel has incurred and expensed approximately $12,000,
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: Safe Harbor Statement Under the Private
Securities Litigation Reform Act of 1995.
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 decreased last
year from $457,000 in 1997 to $410,000 in 1998. The decrease is attributed a
decline in occupancy rather than a decrease in rental rates.
Inflation had no material effect on the results of operations in 1998 and
1997.
Item 7. Financial Statements
The report of independent auditors and balance sheet as of December 31, 1998
of Charthouse Suites Vacation Ownership, Inc. are submitted in a separate
section of this report, and is incorporated by reference herein.
The report of independent auditors and statement of operating revenues and
certain expenses for the years ended December 31, 1998 and 1997 of the Chart
House Suites hotel are submitted in a separate section of this report, and is
incorporated by reference herein.
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 45), is the President and sole Director of the
Company. Mr. Keierleber is a shareholder, officer, and director of a number
of privately held and affiliated corporations since 1980.
Mr. Michael G. Sweet (age 49), 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 privately held and 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 54), is a Certified Property Manager and has served as
Vice-President of Decade Properties, Inc. since 1989.
Mr. Joseph Lawlor (age 34), 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 51), 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.
Affiliates of the Company may earn fees as described herein in the Description
of Business (Item 1) and Certain Relationships and Related Transactions (Item
12).
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 30, 1999 are:
<PAGE> (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) 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.
3.1Specimen of Certificates for Interests (not applicable).
3.2Charthouse Suites Vacation Ownership, Inc. Articles of
Incorporation (previously filed with Form S-11 Registration Statement on
October 7, 1996).
3.3Charthouse Suites Vacation Ownership, Inc. By-laws
(previously filed with Form S-11 Registration Statement on October 7, 1996).
Exhibit 4Instruments defining the rights of holders, including indentures
4.1Subscription and Purchase Agreement (previously filed with
Post-effective Amendment No. 3 to Form S-11 Registration Statement on December
14, 1998).
4.2Form of License Plan (previously filed with Post-effective
Amendment No. 3 to Form S-11 Registration Statement on December 14, 1998).
4.3Rules and Regulations for Chart House Suites Hotel
(previously filed with Post-Effective Amendment No. 3 to Form S-11
Registration Statement on December 14, 1998).
4.4Time Share Public Offering Statement (previously filed with
Post-Effective Amendment No. 3 to Form S-11 Registration Statement on December
14, 1998).
Exhibit 10 Forms of Material Contracts
10.1Property Management Agreement (previously filed with
Amendment No. 2 to Form S-11 Registration Statement dated August 1, 1997).
10.2Form of Non-Disturbance and Notice to Creditors (previously
filed with Amendment No. 3 to Form S-11 Registration Statement dated September
12, 1997).
10.3Form of Guaranteed Rental Arrangement Agreement (previously
filed with Amendment No. 2 to Form S-11 Registration Statement dated August
1, 1997).
10.4RCI Agreement (previously filed with Amendment No. 2 to
Form S-11 Registration Statement dated August 1, 1997).
10.5Schedule of Weeks (attached as an Annex) (previously filed
with Form S-11 Registration Statement filed dated October 7, 1996.
10.6Escrow Agreement between William Atkinson and Charthouse
Suites Vacation Ownership, Inc. (previously filed with Amendment No. 2 to Form
S-11 Registration Statement dated August 1, 1997).
10.7Form of Non-Exclusive Easement (previously filed with Form
S-11 Registration Statement dated October 7, 1996).
10.8Form of Private Letter Ruling Request (previously filed
with Amendment No. 1 to Form S-11 Registration Statement dated January 31,
1997).
10.9Form of Revised IRS Private Letter Ruling Request, dated
July 16, 1997 (previously filed with Form S-11 Amendment No. 2 to Registration
Statement dated August 1, 1997).
10.10Real Estate Sales and Purchase Agreement (previously filed
with Amendment No. 4 to Form S-11 Registration Statement dated September 30,
1997).
10.11Personal Property Purchase and Subscription Agreement
(previously filed with Amendment No. 4 to Form S-11 Registration Statement
dated September 30, 1997).
10.12Escrow Agreement (previously filed with Amendment No. 4 to
Form S-11 Registration Statement dated September 30, 1997).
10.13Quit Claim Deed (previously filed with Amendment No. 4 to
Form S-11 Registration Statement dated September 30, 1997).
10.14Form of Letter Withdrawing IRS Private Letter Ruling
Request, dated September 9, 1997 (previously filed with Amendment No. 3 to
Form S-11 Registration Statement dated September 12, 1997).
10.15Ernst & Young LLP letter dated October 3, 1997 (previously
filed with Amendment No. 5 to Form S-11 Registration Statement dated October
16, 1997).
10.16Artistic Renderings (attached as an Annex) (previously
filed with Amendment No. 5 to Form S-11 Registration Statement dated October
16, 1997).
Exhibit 27Financial 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 1998. None.
<PAGE>SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Charthouse Suites Vacation Ownership, Inc.
(Registrant)
March 31, 1999 By /s/ Jeffrey L. Keierleber
DatedJeffrey 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 31,1999 By/s/ Jeffrey L. Keierleber
DatedJeffrey L. Keierleber, President, Sole Director, Principal Officer, and
Principal Financial and Accounting Officer <PAGE>
ANNUAL REPORT ON FORM 10-KSB
ITEM 7
FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
CHARTHOUSE SUITES VACATION OWNERSHIP INC.
BROOKFIELD, WISCONSIN
AND
CHART HOUSE SUITES
CLEARWATER, FLORIDA
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 6,000
<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
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
CHARTHOUSE SUITES VACATION OWNERSHIP, INC.
Clearwater, Florida
BALANCE SHEET
Including Independent Auditors' Report
December 31, 1998
CHARTHOUSE SUITES VACATION OWNERSHIP, INC.
TABLE OF CONTENTS
December 31, 1998
Independent Auditors' Report 1
Balance Sheet 2
Notes to Financial Statement 3 - 6
INDEPENDENT AUDITORS' REPORT
To 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, 1998. 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, 1998,
in conformity with generally accepted accounting principles.
VIRCHOW, KRAUSE & COMPANY, LLP
Waukesha, Wisconsin
March 18, 1999
CHARTHOUSE SUITES VACATION OWNERSHIP, INC.
<TABLE>
BALANCE SHEET
<S> <C>
December 31, 1998
ASSETS
ASSETS
Cash 320
Prepaid expenses 12,450
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.
</TABLE>
CHARTHOUSE SUITES VACATION OWNERSHIP, INC.
NOTES TO FINANCIAL STATEMENT
December 31, 1998
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
Plan, will acquire a license right to utilize a suite in the Hotel.
Offering
The Company is offering for sale the following Interests:
Class of Interests Number of Interests Price Per 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 1, 1999, 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 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 by September 30, 1999, 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 October 17, 2002. Alternatively, investors purchasing
interests by September 30, 1999, 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,
1998, 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 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.
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 1998, $271,166 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 from the offering. 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, 1998, 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 amount reported in the financial statement 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, 1998,
reflects the acquisition of the Hotel from Decade that will occur subsequent
to December 31, 1998, as if such transactions had occurred as of December 31,
1998. The pro forma presentation shows the possible scope of the change in
the historical financial position caused by the transaction.
<TABLE>
Balance Sheet
December 31, 1998
(Unaudited)
<S> <C> <C> <C>
Historical ProForma
Charthouse Charthouse
Suites Suites
Vacation Vacation
Ownership Ownership
Inc. Acquisition Inc.
ASSETS
Cash 320 0 320
Prepaid expenses 12,450 0 12,450
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 1,820,350
LIABILITIES AND SHAREHOLDERS' EQUITY
Note payable to affiliate 0 1,811,900 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 Shareholders Equity 10,000 0 10,000
TOTAL LIABILITIES AND
SHAREHOLDERS' 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.
CHART HOUSE SUITES
Clearwater, Florida
STATEMENTS OF OPERATING REVENUES
AND CERTAIN EXPENSES
Including Independent Auditors' Report
December 31, 1998 and 1997
CHART HOUSE SUITES
TABLE OF CONTENTS
December 31, 1998 and 1997
Independent Auditors' Report 1
Statements of Operating Revenues and Certain Expenses 2
Note to Financial Statements 3
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, 1998 and
1997. The financial statements are the responsibility of the Partnership's
management. Our responsibility 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 misstatement. 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, 1998 and 1997, 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
March 18, 1999
CHART HOUSE SUITES
<TABLE>
STATEMENTS OF OPERATING REVENUES AND CERTAIN EXPENSES
<S> <C> <C>
Years Ended December 31, 1998 and 1997
1998 1997
OPERATING REVENUES
Total rental income 410,252 457,495
Other Income
Telephone 2,858 7,628
Miscellaneous/other 2,972 3,561
Sales tax income 672 645
Interest income 2,839 5,101
Total Other Income 9,341 16,935
Total Operating Revenues 419,593 474,430
CERTAIN EXPENSES
Salaries
Administration 6,814 5,840
Housekeeping 26,042 26,715
Manager on-site 26,817 24,992
Operations - front desk 28,013 30,547
Maintenance and grounds 23,382 20,775
Payroll taxes (included above) -0- -0-
Management fee 20,838 23,466
Total Salaries 131,906 132,335
Direct Expenses
Insurance 12,492 10,863
Maintenance services and supplies 7,743 10,271 Electric -
units 15,536 15,772 Propane
gas 3,502 4,386 Water and
sewer 10,624 13,401 Trash
removal 3,130 2,850 Cable
television 3,564 2,965
Grounds 1,333 2,486 Sales and
marketing 15,112 23,012
Telephone 8,070 8,273 Laundry and
cleaning supplies 10,451 7,413 Real estate
tax 26,939 27,449 Miscellaneous
administrative 18,608 23,978 Total Direct
Expenses 137,104 153,119
Repair and Maintenance Expenses
Roof -0- 892
Painting 170 953
Furniture and equipment - interior 21,343 12,100
Pool maintenance 695 1,185
Pavement 1,916 1,916
Other maintenance 1,852 702
Total Repair and Maintenance Expenses 25,976 17,748
Total Certain Expenses 294,986 303,202
EXCESS OF OPERATING REVENUES
OVER CERTAIN EXPENSES 124,607 171,228
See independent auditors' report.
</TABLE>
CHART HOUSE SUITES
NOTE TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
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.
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 $8,469 and $17,216 for the years ended December 31, 1998 and
1997, respectively.
