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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------
FORM 10-K/A
AMENDMENT NO. 1
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 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 NUMBER 1-7726
REUNION RESOURCES COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 76-0404108
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2801 POST OAK BOULEVARD
SUITE 400
HOUSTON, TEXAS 77056
(Address, including zip code, of principal executive offices)
(713) 627-9277
(Telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
Common Stock, $.01 par value The Pacific Stock Exchange Incorporated
NASDAQ Small-Cap. Market
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No .
----- -----
As of March 22, 1995, the registrant had 3,811,815 shares of Common Stock
issued and outstanding. As of March 22, 1995, the aggregate market value of the
voting stock held by non-affiliates of the registrant (computed by reference to
the average of the closing bid and ask prices on the NASDAQ Small-Cap. Market)
was approximately $9,970,000.
DOCUMENTS INCORPORATED BY REFERENCE
Part III, Items 10 through 13 are incorporated from the Company's definitive
Proxy Statement to be filed in connection with its Annual Meeting to be held on
May 24, 1995.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
<PAGE>
Reunion Resources Company (the "Registrant") hereby amends its Annual Report on
Form 10-K for the year ended December 31, 1994 to include as an Exhibit the
financial statements of The Juliana Preserve as of September 30, 1995.
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) Documents included in this report:
The following consolidated financial statements and financial statement
schedules of Reunion Resources Company and its subsidiaries are included in Part
II, Item 8:
1. FINANCIAL STATEMENTS
Report of Independent Public Accountants
Consolidated Balance Sheets - December 31, 1994 and 1993
Consolidated Statements of Operations - Years Ended December 31, 1994, 1993
and 1992
Consolidated Statements of Cash Flows - Years Ended December 31, 1994, 1993
and 1992
Consolidated Statements of Shareholders' Equity - Years Ended December 31,
1994, 1993 and 1992
Notes to Consolidated Financial Statements
Financial Statements of The Juliana Preserve *
- ---------
* The audited financial statements of The Juliana Preserve for the fiscal year
ended September 30, 1995 are included herein as Exhibit 99.1.
2. FINANCIAL STATEMENT SCHEDULES
Financial statement schedules have been omitted because they are either not
required, not applicable, or the information required to be presented is
included in the Company's financial statements and related notes.
3. EXHIBITS
See pages 3 through 6 for a listing of exhibits filed with this report or
incorporated by reference herein.
(B) Current reports on form 8-K
During the last quarter of the year ended December 31, 1994, the Company filed
no Current Reports on Form 8-K.
SIGNATURE
Pursuant to the requirements 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.
Dated: December 21, 1995
REUNION RESOURCES COMPANY
By /s/ Richard L. Evans
----------------------------
Richard L. Evans
Executive Vice President and
Chief Financial Officer
2
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EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS
NO. DESCRIPTION OF EXHIBIT
- -------- ----------------------
<C> <S>
2.1 Definitive Proxy Statement dated June 7, 1993, relating to the
Predecessor's Annual Meeting of Shareholders to be held June 29, 1993.
Incorporated by reference from Exhibit 2.1 to Form 8-B dated June 17,
1993.
3.1 Certificate of Incorporation of Reunion Resources Company.
Incorporated by reference from Exhibit 3.1 to Form 8-B dated June 17,
1993.
3.2 Bylaws. Incorporated by reference from Exhibit 3.2 to Form 8-B dated
June 17, 1993.
10.1 Amended Agreement Re Water Rights dated January 17, 1989, between
Freedom Federal Savings and Loan Association and Pope Vineyards.
Incorporated by reference from Exhibit 4.8 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1988.
10.2 Water System Deed of Trust and Security Agreement between Pope
Vineyards, Freedom Federal Savings and Loan Association and Title
Insurance and Trust Company. Incorporated by reference from Exhibit
4.9 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1988.
10.3 Promissory Note of Buttes Gas & Oil Co. dated February 17, 1989, in the
principal amount of $5,450,000 payable to the order of the agent for
the Class 6 Creditors under the Fourth Amended Plan of Reorganization.
Incorporated by reference from Exhibit 4.12 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1988.
10.4 Deed of Trust dated February 17, 1989, by Buttes Gas & Oil Co., Buttes
Resources Company and Treegrove 1971 Management Corp., as grantors, to
the agent for the Class 6 Creditors under the Fourth Amended Plan of
Reorganization. Incorporated by reference from Exhibit 4.13 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1988.
10.5 Security Agreement-Pledge dated February 17, 1989, by Buttes Gas & Oil
Co. in favor of agent for the Class 6 Creditors under the Fourth
Amended Plan of Reorganization (pledging stock in Treegrove Management
Corp. and Treegrove 1971 Management Corp.). Incorporated by reference
from Exhibit 4.14 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1988.
10.6 Security Agreement - Pledge dated February 17, 1989, by Buttes Gas &
Oil Co. in favor of the agent for the Class 6 Creditors under the
Fourth Amended Plan of Reorganization (pledging stock in Pope
Vineyards). Incorporated by reference from Exhibit 4.15 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1988.
10.7 Security Assignment dated February 17, 1989, by Buttes Gas & Oil Co. in
favor of the agent for the Class 6 Creditors under the Fourth Amended
Plan of Reorganization (pledging partnership interest in 1971 Treecrop
Company and Treecrop Company). Incorporated by reference from Exhibit
4.16 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1988.
10.8 Collateral Assignment dated February 17, 1989, by Buttes Gas & Oil Co.
in favor of the agent for the Class 6 Creditors under the Fourth
Amended Plan of Reorganization (pledging $3,357,520 Promissory Note
dated March 5, 1984, by Treecrop Company payable to the order of
Treegrove Management Corp). Incorporated by reference from Exhibit
4.17 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1988.
10.9 Demand Note dated March 5, 1984, by Treecrop Company in the principal
amount of $3,357,520 payable to Treegrove Management Corp.
Incorporated by reference from Exhibit 4.18 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1988.
10.10 Replacement Promissory Note and Second Modification and Extension
Agreement of Buttes Gas & Oil Co. dated February 17, 1989, in the
principal amount of $4,090,020.14 payable to the order of the agent for
the Class 6 Creditors under the Fourth Amended Plan of Reorganization.
Incorporated by reference from Exhibit number 4.19 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1991.
</TABLE>
3
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS
NO. DESCRIPTION OF EXHIBIT
- -------- ----------------------
<C> <S>
10.11 Form of Operating Agreement dated March 24, 1989, between Buttes
Resources Company, as Operator, and PNB Securities Corporation,
California-Louisiana Production Co., The Bank of California, National
Association and Federal Deposit Insurance Corporation, as Non-
Operators. Incorporated by reference from Exhibit number 10.20 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1988.
10.12 Purchase and Sale Agreement dated June 22, 1992 between Merrico
Resources, Inc. and Buttes Gas & Oil Co. Incorporated by reference from
Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarter ended
June 30, 1992.
10.13 Bareboat Charter Agreement effective January 27, 1993 between Dolphin
Titan International, Inc. and Sundowner Offshore Services, Inc.
relating to Dolphin Titan Rig 105. Incorporated by reference from
Exhibit 2.1 to the Current Report on Form 8-K dated January 27, 1993.
10.14 Bareboat Charter Agreement effective January 27, 1993 between Dolphin
Titan International, Inc. and Sundowner Offshore Services, Inc.
relating to Dolphin Titan Rig 106. Incorporated by reference from
Exhibit 2.2 to the Current Report on Form 8-K dated January 27, 1993.
10.15 Bareboat Charter Agreement effective January 27, 1993 between Dolphin
Titan International, Inc. and Sundowner Offshore Services, Inc.
relating to Dolphin Titan Rig 110. Incorporated by reference from
Exhibit 2.3 to the Current Report on Form 8-K dated January 27, 1993.
10.16 Amendment and Supplement to Purchase and Sale Agreement dated
November 16, 1992, between Merrico Resources, Inc. and Buttes Gas & Oil
Co., amending and supplementing the Purchase and Sale Agreement dated
June 22, 1992. Incorporated by reference from Exhibit 2.5 to the
Current Report on Form 8-K dated January 27, 1993.
10.17 Buttes Gas & Oil Co. 1992 Nonqualified Stock Option Plan.
Incorporated by reference from Exhibit 10.35 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992.
10.18 Form of Stock Option Agreement for options issued pursuant to the
1992 Nonqualified Stock Option Plan. Incorporated by reference from
Exhibit 10.36 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1992.
10.19 Form of Warrants expiring June 30, 1995 to purchase an aggregate of
3,000,000 shares of Common Stock of Buttes Gas & Oil Co. Incorporated
by reference from Exhibit 10.37 to the Company's Annual Report on Form
10-K for the year ended December 31, 1992.
10.20 Agreement in principle dated March 15, 1993, among Buttes Gas & Oil
Co., Northern Enterprises, Ltd., Northern Enterprises (Canada) Ltd.,
Brannigan Resources Canada (1992) Ltd. and Mannville Oil & Gas Ltd.
relating to the proposed sale of the Company's Canadian oil and gas
properties. Incorporated by reference from Exhibit number 28.1 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1992.
10.21 Agreement dated April 6, 1993, among Buttes Gas & Oil Co., Northern
Enterprises, Ltd., Northern Enterprises (Canada) Ltd., Brannigan
Resources Canada (1992) Ltd., and Mannville Oil & Gas Ltd. relating to
the sale of the Company's Canadian oil and gas properties.
Incorporated by reference from Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1993.
10.22 Vineyard Management Agreement between Juliana Vineyards and Freedom
Vineyards, Inc. dated June 4, 1993, as amended. Incorporated by
reference from Exhibit number 4.27 to the Current Report on Form 8-K
dated June 25, 1993.
10.23 Property Transfer Agreement and Escrow Instructions between Juliana
Vineyards and Freedom Vineyards, Inc. dated June 25, 1993.
Incorporated by reference from Exhibit number 4.26 to the Current
Report on Form 8-K dated June 25, 1993.
</TABLE>
4
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS
NO. DESCRIPTION OF EXHIBIT
- -------- ----------------------
<C> <S>
10.24 Agreement in principle dated July 15, 1993, among Dolphin Titan
International, Inc., Humphreys Mineral Company and Offshore Rigs L.L.C.
relating to the proposed sale of Dolphin Titan Rigs 105, 106 and 110.
Incorporated by reference from Exhibit number 2.7 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1993.
10.25 Agreement dated as of July 22, 1993, among Northern Enterprises,
Ltd., Reunion Resources Company and Battle River Energy, Ltd. relating
to the sale of the stock of Northern Enterprises (Canada) Ltd.
Incorporated by reference from Exhibit number 2.6 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1993.
10.26 Agreement for the sale of three workover jackup rigs dated August 25,
1993, between Dolphin Titan International, Inc., Humphreys Mineral
Company and Sundowner Offshore Services, Inc. Incorporated by
reference from Exhibit number 10.40 to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1993.
10.27 Agreement for the Purchase and Sale of Stock of Buttes Energy Company
dated as of December 22, 1993, by and between Reunion Resources Company
and TDP Energy Company. Incorporated by reference from Exhibit number
10.27 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1993.
10.28 Letter of Intent dated December 22, 1993, by and between Freedom
Vineyards, Inc. and Juliana Vineyards regarding proposed formation of a
joint venture to jointly manage, farm, develop and ultimately dispose
of the combined interests of both parties consisting of certain
agricultural acreage in Napa County, California. Incorporated by
reference from Exhibit number 10.28 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993.
10.29 Credit Agreement dated as of March 15, 1994, among Reunion Energy
Company, Reunion Resources Company and Bank One Texas, N.A.
Incorporated by reference from Exhibit number 10.29 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1993.
10.30 Guaranty dated March 15, 1994, by and between Reunion Resources
Company and Bank One Texas, N.A. Incorporated by reference from
Exhibit number 10.30 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1993.
10.31 Promissory Note of Reunion Energy Company dated March 15, 1994, in
the principal amount of $25,000,000 payable to Bank One Texas, N.A.
Incorporated by reference from Exhibit number 10.31 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1993.
10.32 Mortgage, Deed of Trust, Assignment of Production, Security Agreement
and Financing Statement from Reunion Energy Company to Arthur R.
Gralla, Jr., as Trustee for the benefit of Bank One Texas, N.A. dated
March 15, 1994, with respect to oil and gas properties located in the
State of Texas. Incorporated by reference from Exhibit number 10.32 to
the Company's Annual Report on Form 10-K for the year ended December
31, 1993.
10.33 Mortgage, Deed of Trust, Assignment of Production, Security Agreement
and Financing Statement from Reunion Energy Company to Arthur R.
Gralla, Jr., as Trustee for the benefit of Bank One Texas, N.A. dated
March 15, 1994, with respect to oil and gas properties located in the
State of California. Incorporated by reference from Exhibit number
10.33 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1993.
10.34 Reunion Resources Company 1993 Incentive Stock Plan. Incorporated by
reference from Exhibit number 10.34 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993.
10.35 Form of Stock Option Agreement for options issued pursuant to the
1993 Incentive Stock Plan. Incorporated by reference from Exhibit
number 10.35 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1993.
</TABLE>
5
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS
NO. DESCRIPTION OF EXHIBIT
- -------- ----------------------
<C> <S>
10.36 Purchase and Sale Agreement dated May 5, 1994, between Reunion Energy
Company and Santa Fe Minerals, Inc., relating to the purchase of Santa
Fe Minerals, Inc.'s interest in producing gas properties. Incorporated
by reference from Exhibit number 10.36 to the Company's Form 8-K dated
June 14, 1994.
10.37 First Amendment to Credit Agreement dated as of November 9, 1994,
among Reunion Energy Company, Reunion Resources Company and Bank One,
Texas, N.A. Incorporated. Incorporated by reference from Exhibit
number 10.37 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1994.
10.38 Agreement for Purchase and Sale dated as of August 31, 1994, among
Reunion Energy Company, Teck Resources, Inc., and Teck Corporation,
relating to the sale of Reunion Energy Company's interest in a 5,000
acre titanium mineral deposit in Southwestern Colorado. Incorporated
by reference from Exhibit number 10.38 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1994.
10.39 Joint Venture Agreement of The Juliana Preserve, a Joint Venture
dated as of October 1, 1994. Incorporated by reference from Exhibit
number 10.39 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1994.
10.40 Severance Agreement by and between Reunion Resources Company and
Thomas N. Amonett, dated November 16, 1994.*
10.41 Severance Agreement by and between Reunion Resources Company and W.
Kyle Willis, dated November 16, 1994.*
10.42 Development and Marketing Agreement by and between The Juliana
Preserve, A Joint Venture, and Juliana Pacific, Inc. dated January 1,
1995.*
10.43 Arrangement letter between Reunion Resources Company and Petrie
Parkman & Co. dated January 19, 1995.*
11.1 Computation of Earnings Per Share.*
22.1 List of subsidiaries and jurisdictions of organization.*
24.1 Consent of Petroleum Engineers.*
24.2 Consent of Independent Public Accountants.*
24.3 Consent of Independent Public Accountants.
99.1 Financial Statements of The Juliana Preserve for the Fiscal year ended
September 30, 1995.
</TABLE>
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* Previously filed.
6
<PAGE>
EXHIBIT 24.3
------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K/A Amendment No.1 into Reunion Resources
Company's previously filed Registration Statements on Form S-3 (No. 33-77566 and
No. 33-96750) and Form S-8 (No. 33-77232),
ARTHUR ANDERSEN LLP
Houston, Texas
December 21, 1995
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of The Juliana Preserve:
We have audited the accompanying balance sheet of The Juliana Preserve (a
California general partnership), as of September 30, 1995, and the related
statements of operations, partners' capital and cash flows for the period from
inception (October 1, 1994) through September 30, 1995. These financial
statements are the responsibility of the partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Juliana Preserve as of
September 30, 1995 and the results of its operations and its cash flows for the
period from inception (October 1, 1994) through September 30, 1995, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
December 8, 1995
<PAGE>
THE JULIANA PRESERVE
BALANCE SHEET
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Current Assets:
Cash $ 144,968
Accounts Receivable 1,095,307
Deferred Farming Costs 922,860
Inventory 67,761
Other Assets 6,452
----------
TOTAL CURRENT ASSETS 2,237,348
Property and Equipment:
Preserve Development Costs 1,523,896
Vineyard Property and Equipment 441,478
Other 119,419
----------
2,084,793
Less - Accumulated Depreciation and Amortization (58,104)
----------
2,026,689
----------
Organization Costs, Net 53,384
----------
TOTAL ASSETS $4,317,421
==========
LIABILITIES AND PARTNERS' CAPITAL:
- ----------------------------------------------------
Current Liabilities:
Accounts Payable and Accrued Liabilities $ 421,754
Accounts Payable - Affiliate 20,117
Other Current Liabilities 41,876
Advances From Partners 740,705
Note Payable From Related Party 500,000
----------
TOTAL CURRENT LIABILITIES 1,724,452
----------
PARTNERS' CAPITAL
Juliana Vineyards 1,901,566
Freedom Vineyards 691,403
----------
TOTAL PARTNERS' CAPITAL 2,592,969
----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $4,317,421
==========
</TABLE>
See accompanying notes to the financial statements
<PAGE>
THE JULIANA PRESERVE
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM OCTOBER 1, 1994 (INCEPTION)
THROUGH SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
OPERATING REVENUES:
<S> <C>
Grape Sales $1,056,708
Custom Wine 46,052
Other 17,613
----------
TOTAL REVENUE 1,120,373
----------
OPERATING EXPENSES:
Farming Costs 673,340
Cost of Custom Wine 34,889
Property Taxes 60,708
General and Administrative 115,313
Marketing 93,633
Depreciation and Amortization 37,290
----------
TOTAL OPERATING EXPENSES 1,015,173
----------
OPERATING INCOME 105,200
----------
INTEREST EXPENSE 5,239
----------
NET INCOME $ 99,961
==========
</TABLE>
See accompanying notes to the financial statements
<PAGE>
THE JULIANA PRESERVE
STATEMENT OF PARTNERS' CAPITAL
FOR THE PERIOD FROM OCTOBER 1, 1994 (INCEPTION)
THROUGH SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
TOTAL
JULIANA FREEDOM PARTNERS'
VINEYARDS VINEYARDS CAPITAL
------------ ----------- ------------
<S> <C> <C> <C>
October 1, 1994 (Inception) $ --- $ --- $ ---
Transfer of Predecessor Assets 764,584 260,404 1,024,988
Cash Contributions-Initial 717 283 1,000
Cash Contributions-Additional 1,064,593 402,427 1,467,020
Net Income 71,672 28,289 99,961
----------- ---------- -----------
Balance, September 30, 1995 1,901,566 691,403 2,592,969
=========== ========== ===========
</TABLE>
See accompanying notes to the financial statements
<PAGE>
THE JULIANA PRESERVE
STATEMENT OF CASH FLOW
FOR THE PERIOD FROM OCTOBER 1, 1994 (INCEPTION)
THROUGH SEPTEMBER 30, 1995
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 99,961
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and Amortization 37,290
(Increase) decrease in assets
Accounts Receivable (1,095,307)
Deferred Farming Costs (888,700)
Inventory 23,505
Other Assets (6,452)
Increase (decrease) in Liabilities:
Accounts Payable and Accrued Liabilities 421,754
Other Current Liabilities 41,876
Accounts Payable - Affiliate 20,117
-----------
Total Adjustments (1,445,917)
-----------
Net Cash Used in Operating Activities (1,345,956)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Organization Costs (45,079)
Additions to Property and Equipment (1,172,722)
-----------
Net Cash Used in Investing Activities (1,217,801)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions From Partners 1,468,020
Proceeds From Issuance of Note Payable 500,000
Advances From Partners 740,705
-----------
Net Cash Provided by Financing Activities 2,708,725
-----------
Net Increase in Cash 144,968
Cash, Beginning of Period ---
-----------
Cash, End of Period $ 144,968
===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash Paid During the Period for Interest ---
Non-cash Effect of Business Contributed:
Inventory 91,266
Property and Equipment:
Preserve Development Costs 624,738
Vineyard Property and Equipment 287,333
Organization Costs 21,651
</TABLE>
See accompanying notes to the financial statements
<PAGE>
THE JULIANA PRESERVE
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The Juliana Preserve ("The Preserve"), a California general partnership, was
formed on October 1, 1994 between Juliana Vineyards and Crescent Farms Company,
wholly owned subsidiaries of Reunion Resources Company, together referred to
herein as "Juliana", and Freedom Vineyards, Inc., a California corporation
("Freedom Vineyards"). In connection with formation of the joint venture each
party leased (through a 30 year operating lease) their respective interests in
agricultural real estate and wine grape vineyards located in Napa County,
California in exchange for ownership interests in the Preserve of 71.7% to
Juliana and 28.3% to Freedom Vineyards. Ownership interests were determined
based on appraisals of their respective assets leased to the Preserve. The terms
of the leases allow the Preserve rights to use, regulate, lien, develop or
otherwise control the premises as well as all allocated water rights. Actual
title to the committed property remains with the individual partners. There are
no future rental payments due under the lease. Property committed to the
Preserve by the individual partners at October 1, 1994 (inception) had a book
value of approximately $19,300,000.
OPERATIONS
The partnership is engaged in farming and real estate development operations. It
is the intent of the parties to develop a master-planned estate-oriented
residential community which will ultimately encompass the entire property.
VINEYARD PROPERTY AND EQUIPMENT
The property committed to the joint venture by the parties was originally
acquired by Juliana in 1974 and at September 30, 1995 consists of approximately
4,735 acres, of which approximately 2000 acres are suitable for grape production
and of which 417 acres are currently in production. Freedom Vineyards obtained
their share of the vineyard in June 1993, when Juliana conveyed 720 acres to
Freedom Vineyards in satisfaction of approximately $13.2 million of
indebtedness. Cost incurred on new vineyards are capitalized until such time as
commercial viability is determined (typically three years). Upon determination
of commercial viability the costs are depreciated over the useful productive
lives of the vines.
Farm equipment is depreciated straight line over useful lives ranging from 5 to
45 years. Most office equipment, farm vehicles, tractors, implements and tanks
are depreciated over 5 to 12 years and components of the water system are
depreciated over useful lives ranging up to 45 years.
ORGANIZATION COSTS
Organization costs are amortized using the straight line method over 5 years.
Amortization expense totaled approximately $13,500 for the year ended September
30, 1995.
<PAGE>
FARMING ACTIVITIES
The Preserve's farming activities are conducted in its farming division. The
costs to produce a crop are deferred until the annual grape harvest is
substantially complete. When harvest is completed and the wine grapes are
delivered to the winery, crop costs are recognized with the related revenue. At
fiscal year-end the costs incurred from end of harvest to fiscal year-end
pertaining to the succeeding year's crop are deferred. Deferral of crop costs
depends on a continuing evaluation throughout the crop year of the projected
volume of the coming harvest measured against negotiated long-term and short-
term grape sales contracts with the wineries. Deferral of crop costs ceases at
the point that a loss on the crop becomes evident.
PRESERVE DEVELOPMENT COSTS
Preserve development costs are project costs associated with the development of
a master planned estate oriented residential community. These costs are
capitalized, subject to a periodic evaluation of realizability from the
ultimate sale of properties pursuant to the development plan.
INVENTORY
The Preserve maintains relatively low levels of supplies inventory consisting
mostly of repair parts, fertilizer, pesticides and herbicides. In addition,
the Preserve maintains a small supply of custom unblended wines to use as
samples to promote grape sales. The cost of supplies and wine inventory at
September 30, 1995 consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
Supplies 53,368
Wine 14,393
-------
TOTAL $67,761
</TABLE>
INCOME TAXES
The Preserve does not pay Federal income taxes. The taxable income or loss of
the Preserve is included in the Federal and state tax returns of the individual
partners. No provision is made in the accounts of the Preserve for Federal and
state income taxes, as these taxes are liabilities of the individual partners.
<PAGE>
PARTNERSHIP CONTRIBUTIONS AND INCOME ALLOCATION
Contributions and income (loss) of The Preserve are allocated in accordance with
the Partners' respective interests, with the exception that Juliana paid 100% of
certain Preserve development and organizational costs.
2. NOTE PAYABLE AND ADVANCES FROM PARTNERS
NOTE PAYABLE FROM RELATED PARTY.
At September 30, 1995 The Preserve had an outstanding note payable to Washington
Federal Savings (the Parent Company of Freedom Vineyards). The note required
interest at 11.25% per annum and matured on September 30, 1995 and was
collateralized by certain grape sales contracts. The note was paid
in November 1995 with proceeds from the Development Loan described below.
In November 1995, Washington Federal Savings provided the Preserve with a $3
million Land Development Loan for the purpose of developing and constructing
improvements on the property. The Preserve may borrow up to $3 million under the
facility. Interest is due monthly and the facility expires October 27, 1999, at
which time the principal outstanding becomes due and payable. Upon execution of
the facility The Preserve paid a $30,000 loan origination fee to Washington
Federal Savings. The facility is secured by a Deed of Trust covering all the
property. As of November 30, 1995, the Preserve had drawn $993,051 under the
facility.
In addition to the above, indebtedness of Juliana in the amount of $2.5 million
to an insurance company is secured by first liens on certain parcels of the
Preserve. Under the terms of the joint venture agreement, payment of principal
and interest are the obligation of Juliana and not the Preserve. The notes of
Juliana are due in January 1997 ($700,000) and December 1998 ($1,839,000).
ADVANCES FROM PARTNERS
Advances from Partners represent those funds contributed since October 1, 1994
by each Partner which pertain to the cost incurred in connection with the
development of The Preserve under the Development and Marketing Agreement
referred to below. Upon funding of the development loan, noted above, $463,051
of funds advanced by the Partners were repaid.
3. DEVELOPMENT AND MARKETING AGREEMENT
In January 1995, The Preserve entered into a Development and Marketing Agreement
(the "Agreement") with Juliana Pacific, Inc. (the "Developer") to develop a
master-planned estate oriented residential community encompassing the entire
property. The Agreement is for a term of seven years ending in December 2001, or
upon the sale of all the parcels in the project. However, the Preserve may
terminate the Agreement without cause in January 1997.
Development fees of $187,000 paid to the Developer were
capitalized as Preserve development costs in fiscal year 1995. The minimum
future development fees under the Agreement are $250,000 and $63,000 for fiscal
years ending September 30, 1996 and 1997, respectively.
<PAGE>
The Developer is also entitled to receive marketing and sales commissions, as
defined in the Agreement, payable out of the proceeds of any parcel sold.
There were no sales of land parcels in fiscal year 1995.
4. PARTNERS' INVESTMENT
As discussed in Note 1, the Preserve has a 30 year lease with Juliana and
Freedom Vineyards whereby the Preserve leases agricultural real estate and wine
grape vineyards located in Napa County California in exchange for ownership
interests in the Preserve. There are no future rental payments due under the
lease. This lease was structured whereby during the term of the lease the
Preserve has all rights and obligation of ownership of the premises other than
legal title. Including property subject to lease, total partners' investment is
$21,784,095 at September 30, 1995. Had these assets been transferred to the
partnership, results of operations would reflect a net loss of $51,512. The
following table summarizes partners' investment at September 30, 1995.
<TABLE>
<CAPTION>
JULIANA FREEDOM
VINEYARDS VINEYARDS TOTAL
--------- ---------- -----------
<S> <C> <C> <C>
Investment in Preserve $ 1,901,566 $ 691,403 $ 2,592,969
Assets subject to lease 13,760,037 5,431,089 19,191,126
----------- ---------- -----------
$15,661,603 $6,122,492 $21,784,095
=========== ========== ===========
</TABLE>
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate fair value of each
class of financial instrument held by the Preserve:
Current assets and liabilities: The carrying value approximates fair value due
to the short maturity of these items.
Note Payable and Advances from Partners: Since The Preserve's debt obligations
are not quoted, estimates are based on each obligation's characteristics,
including maturities, and interest rate. The carrying amount approximates fair
value.
6. SIGNIFICANT CUSTOMERS AND INDUSTRY CONSIDERATIONS
The Preserve does not hold a significant position in the wine grape market. The
wine grapes are marketed to Napa County wineries under annual and long-term
contracts. For the harvest year ended September 30, 1995, sales to one customer
totaled approximately 14% of the Preserve's total revenues. No other customer
aggregated in excess of 10% of sales.
The Preserve's revenues are derived principally from uncollateralized sales to
customers in the wine industry. This sales concentration has the potential to
impact the Preserve's exposure to credit risk, either positively or negatively,
because the customers may be similarly affected by changes in economic or other
conditions.
Prices received on the sale of wine grapes may fluctuate widely, depending upon
supply, demand and other factors. The Napa Valley wine grape industry is
extremely competitive based on quality, quantity, price and the ability to
supply premium grapes consistently over a period of years. The market for
agricultural lands is competitive and subject to uncontrollable factors such as
fluctuations in the interest rate, availability of credit to potential buyers
and land use restrictions. The Preserve is subject to various regulations
regarding the use and application of insecticides and fungicides, safety and
environmental hazards. The Preserve's vineyard operation is subject to the
regulation of the United States Bureau of Alcohol, Tobacco and Firearms
("BATF"), regarding appellation of origin labeling practices.
Agricultural operations are subject to substantial risks, including seasonal
production, adverse weather conditions, variability of rainfall, insects,
blights and diseases. The vineyard has an extensive water system developed for
irrigation and frost protection consisting of a primary reservoir connected to
satellite reservoirs and frost ponds for storage and distribution of water.
Management believes this system significantly reduces the Preserve's risk from
annual rainfall fluctuations.
The vineyards of Napa and Sonoma Counties, including those of the Preserve, are
currently affected with infestations of phylloxera, an organism which attacks
and ultimately destroys grapevine rootstock. Some experts estimate that as much
as 75% of the vineyards in the two counties will have to be replanted with
rootstock that is believed to be resistant to phylloxera.
<PAGE>
During 1995, of the 417 acres of vineyard remaining in production, 181 acres are
planted with rootstock believed to be resistant to phylloxera. Other than
plantings and interplantings completed in 1995 and prior years, the Preserve has
no plans to replace vines affected by phylloxera.
