<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of The Securities Exchange Act of 1934
YAVAPAI HILLS, INC.
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(Name of Small Business Issuer in its Charter)
Delaware 51-0120836
-------------------------------------- -----------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1800 Northern Boulevard, Suite 309, Roslyn, New York 11576
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (516) 621-8580
--------------
Securities to be registered pursuant to Section 12 (b) of the Act: None
Securities to be registered pursuant to Section 12 (g) of the Act:
Common Stock, par value $1.00 per share
---------------------------------------
(Title of Class)
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
The Company's principal business is the development and sale
of building sites for single family houses ("building sites") at Yavapai Hills,
its master planned community at Prescott, Arizona. Periodically over the years
the Company built for sale single family homes and townhouses, but it has not
done so in recent years.
Since its acquisition of the Yavapai Hills property in 1974
and through June 1, 2000 the Company has sold 891 building sites, 12 family
homes, 21 town houses, and 14 acres of commercial property. Approximately 700
single-family homes have been built at the property and substantially all are
occupied.
The Company still owns approximately 1,100 acres. These
include 22 acres with 45 fully developed building sites, 44 acres with 30
partially completed building sites, 864 acres approved for approximately 1,635
single and multi-family units, an additional 70 acres zoned for 465 multi-family
units or a mobile home park, and 102 acres zoned for commercial/retail
All building sites are served by city water and sewer, natural
gas, electricity and telephone and cable TV.
During the past five fiscal years, the Company has sold
building sites as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED AUGUST 31 NO. SITES SOLD
--------------- --------------
<S> <C>
1995 58
1996 61
1997 24
1998 18
1999 13
six months ended
2/29/00 16
</TABLE>
2
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The prices of building sites currently being offered range from $49,000 to
$80,000. The Company believes that in recent years the purchasers of its
building sites have constructed on them homes costing from $200,000 to $400,000.
Some persons have acquired their sites for future building while others build
promptly after acquiring the site.
Building sites are sold with a minimum down payment of 20%
and are deeded to the buyers at the time of sale. Unless the full purchase is
paid in cash at the time of sale, a buyer gives a five-year first mortgage
for the unpaid balance, which is amortized on a 30 year basis but has a
balloon payment at the end of the fifth year. Most buyers of building sites
give purchase money mortgages.
The terms of sale for property other than building sites are
separately negotiated.
The Company generally develops its acreage in tracts suitable
for between 30 and 60 building sites and generally completes development of a
tract before offering the home sites in the tract for sale. The development work
includes providing paved roads, water, sewer, electrical, telephone and cable TV
stubbed to the property line of the building site lot.
The Company competes with other subdivisions in the Prescott,
Arizona area and, to a lesser extent, with subdivisions elsewhere which offer
building sites for primary and secondary homes.
The Company employs 3 persons.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION.
Year Ended August 31, 1999 Compared to Year Ended August 31, 1998
Results of Operations:
Revenues from the sale of home-sites decreased by $58,690, or
6.2%, to $892,890 in 1999 from $951,580 in 1998. The average price per site
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sold rose by $15,819, or 29.9%, to $68,684 from $52,865 in the prior year,
reflecting higher unit development and capitalized costs associated with the
parcel sections being sold. Thirteen home-sites were sold in 1999, five fewer
than the eighteen sold one year ago, which the Company believes is due to
greater sales resistance by potential customers to the higher selling prices.
Cost of sales for home-site sales increased by $25,501, or
6.6%, to $409,641 in fiscal 1999 from $384,140 in fiscal 1998. Average unit cost
of sales increased sharply by $10,170, or 47.7%, to $31,511 from $21,341 one
year ago, reflecting higher development and capitalized costs associated with
the home-sites being sold. These costs include an allocation of the original
purchase price, related land improvement costs and capitalized interest expense.
Gross profit from home-site sales declined by $84,191, or
14.8%, to $483,249 in 1999 from $567,440 in 1998. As a percentage of home-site
sales, gross profit decreased by 5.5% to 54.1% in 1999 from 59.6% in 1998. Per
unit gross profit dollars increased by $5,649, or 17.9%, to $37,173 in 1999 from
$31,524 in 1998.
In 1998, the Company realized a $681,161 gain on the sale of a
portion of the land held for investment. The cost of the 5.3 acres sold,
purchased in the early 1970's, was $12,644. No such sale was made in 1999. The
Company still owns approximately 102 acres of this land, which is near the land
being developed for home-sites. There is no active marketing program to sell
this land; sales are considered for attractive offers.
Interest income on mortgages decreased by $37,890, or 27.5%,
to $100,109 in fiscal 1999 from $137,999 in fiscal 1998, due to a decrease of
approximately $227,000 in the average outstanding balance of mortgages
receivable and a 1.33% decline in the average effective rate of interest earned
thereon from 9.76% to 8.43%, the latter decrease reflecting a decline in
medium-term interest rates generally during such period. At times, the Company
has offered below-market interest rates (typically 1% below market) to buyers as
an inducement to consummate home-site sales. In all applicable instances, in
accordance with generally accepted accounting principles for financial
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reporting purposes, the contractual sales price is reduced by the difference
between the present value of the receivable at the market rate and the contract
interest rate. Under this method interest is recorded at the market rate by
application of the interest (constant rate) method.
Interest income on temporary investments declined by $25,925,
or 39.6%, to $39,532 in fiscal 1999 from $65,457 in fiscal 1998, due to a
decrease in average temporary investments coupled with a decline in the average
interest rate earned thereon. The Company's excess funds are invested in U.S.
Treasury Bills and money market accounts. Dividend and other income declined by
$4,718 to $14,405 in fiscal 1999 from $19,123 in 1998, reflecting various
decreases in miscellaneous revenue items.
Advertising and selling expenses decreased by $19,470, or
12.0%, to $143,267 in fiscal 1999 from $162,737 in fiscal 1998. As a percentage
of home-site sales, these expenses decreased slightly by 1.1% to 16.0% compared
to 17.1% one year ago. Approximately one-half of the decrease in dollar terms
was attributable to commission expenses, paid at rates ranging from 8.0% to
9.0%, which declined by $9,752 to $77,399 in 1999 from $87,151 in 1998.
Officers' salaries decreased by $40,000, or 6.7%, to $560,000
in 1999 from $600,000, reflecting a decrease in bonus of $20,000 for each
officer. Employment agreements provide for base salaries of $200,000 for each
officer.
General and administrative expenses decreased by $33,145, or
5.4%, to $575,399 in 1999 from $608,544 in 1998. As a percentage of home-site
sales, these expenses were virtually unchanged at approximately 64%. Management
fees paid to Rainbow Canyon Realty & Development, Inc., a company controlled by
the son of one of the Company's officer/principal stockholders, increased by
$10,000 to $62,000 in 1999, pursuant to the related agreement. Variations in
other items in this expense category were either individually immaterial or not
indicative of significant trends.
Interest charged to expense was $75 in 1999 and $2,415 in
1998, representing miscellaneous interest charges not incurred on the Company's
interest-bearing debt. All of such other interest charges, aggregating $81,798
in 1999 and $37,641 in 1998 were capitalized as part of land
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inventory. On November 30, 1999, the Company replaced its existing credit line
with a new development loan agreement for a $1,000,000 line of credit with a new
lender.
The Company provides an allowance for foreclosure losses. Such
losses equal the excess of the unpaid mortgage balance and unpaid but accrued
interest over the cost of the lot, which cost is returned to inventory. The
allowance is provided at two percent of the aggregate contractual mortgage
balances outstanding; the Company's historical loss experience has shown this
percentage to be adequate. The provision for such losses was reduced by $3,302
and $4,719 in 1999 and 1998, respectively.
As a result of all of the foregoing, but primarily due to the
non-recurrence of the gain on the sale of a portion of the land held for
investment, the Company incurred a pre-tax loss of $638,144 in 1999 compared to
a pre-tax gain of $102,203 in 1998.
The Company carried back a portion of the 1999 net loss to
1998, resulting in refundable federal and state income taxes of $14,600 in 1999
compared to a combined current income tax provision of $20,100 in 1998,
reflecting an effective current combined rate of approximately 20% one year ago.
Deferred taxes of $2,800 in 1999 and $1,000 in 1998 were provided for the
appreciation in the Company's trading portfolio of equity securities. The
Company can carry the $548,400 balance of the net operating loss forward to 2019
to offset against future taxable income. Such carry forward results in a
$186,400 deferred tax asset against which the Company has provided a 100%
deferred tax valuation allowance.
Net loss was accordingly $(626,344) in 1999 compared to net
income of $81,103 in 1998. Basic and diluted earnings (loss) per share was
$(0.91) in 1999 and $0.12 in 1998. The Company has no common stock equivalents.
Liquidity and Capital Resources:
At August 31, 1999 the Company's cash and equivalents,
mortgages, accrued interest and other receivables, and equity securities totaled
$2,240,000, almost two times the total of liabilities of $1,135,000. The
Company's cash and cash equivalents totaled $1,063,000.
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Historically the Company's cash requirements not provided internally have been
funded by bank borrowings. Apart from borrowings and related repayments, the
Company's principal source and needs for cash are home-sites sales and related
mortgage collections and developmental expenses including capitalized interest
for land improvements and related costs. In 1999, the Company's operating,
investing and financing activities all required cash, totaling approximately
$458,000. Notable elements were $172,000 and $272,000 for operating and
financing activities, respectively. In 1998, operating activities used
$2,285,000, of which $1,829,000 was for land development expenditures, while
sale proceeds of land held for investment and note payable proceeds, net of
repayments, provided investing and financing inflows of $694,000 and $1,198,000,
respectively.
On November 30, 1999 the Company entered into a new loan
agreement, providing for a $1,000,000 credit line, payable in installments of
$40,000 for each lot sold for cash with the remaining outstanding principal due
on June 1, 2002. Interest on the unpaid balance is payable monthly at prime plus
1%. Approximately $632,000 was drawn against the new credit line on December 7,
1999 to pay off the balance of the existing line.
Inflation:
Inflation has not had a material impact on the Company's
recent operations. However, a significant and sustained increase in interest
rates would likely have a negative effect, as the Company's borrowing and
capitalized costs would increase, resulting in higher selling prices and higher
borrowing costs for buyers.
Six Months Ended February 29, 2000 Compared to Six Months Ended February 28,
1999
Results of Operations:
Revenues from the sale of home-sites increased by $586,622, or
135.5%, to $1,019,606 in 2000 from $432,984 in 1999. The average price per site
sold declined by $8,439, or 11.7%, to $63,725 from $72,164 in the prior year,
reflecting lower unit development and capitalized costs associated with the
parcel sections being sold. Sixteen home-sites were sold in 2000, ten more than
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the six sold in the prior period, which the Company believes is due both to
the lower selling prices and a general improvement in the industry in the
Company's market.
Cost of sales for home-site sales increased by $288,390, or
128.1%, to $513,551 in 2000 from $225,161 in 1999. Average unit cost of sales
decreased by $5,430, or 14.5%, to $32,097 from $37,527 one year ago, reflecting
lower development and capitalized costs associated with the home-sites being
sold. These costs include an allocation of the original purchase price, related
land improvement costs and capitalized interest expense.
Gross profit from home-site sales increased by $298,232, or
143.5%, to $506,055 in 2000 from $207,823 in 1999. As a percentage of home-site
sales, gross profit increased by 1.6% to 49.6% in 2000 from 48.0% in 1999. Per
unit gross profit dollars decreased by $3,009, or 8.7%, to $31,628 in 2000 from
$34,637 in 1999.
Interest income on mortgages decreased by $3,976, or 7.5%, to
$48,841 in 2000 from $52,817 in 1999, due to a decrease of approximately $90,000
in the average outstanding balance of mortgages receivable. The average
effective rate of interest earned thereon in both periods was virtually
unchanged at approximately 8.76%. At times, the Company has offered below-market
interest rates (typically 1% below market) to buyers as an inducement to
consummate home-site sales. In all applicable instances, in accordance with
generally accepted accounting principles for financial reporting purposes, the
contractual sales price is reduced by the difference between the present value
of the receivable at the market rate and the contract interest rate. Under this
method interest is recorded at the market rate by application of the interest
(constant rate) method.
Interest income on temporary investments declined by $8,697,
or 40.1%, to $12,987 in 2000 from $21,684 in 1999, due to a decrease in average
temporary investments coupled with a decline in the average interest rate earned
thereon. The Company's excess funds are invested in U.S. Treasury Bills and
money market accounts. Dividend and other income declined by $12,206 to $1,082
in 2000 from $13,288 in 1999, due principally to the sale of substantially all
of the Company's trading portfolio of equity securities. As a consequence of
such sale, gains previously recognized for appreciation therein did not recur.
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Advertising and selling expenses increased by $66,275, or
108.9%, to $127,117 in 2000 from $60,842 in 1999. As a percentage of home-site
sales, these expenses decreased slightly by 1.6% to 12.5% in 2000 from 14.1% in
1999. Substantially all of the dollar increase is attributable to sales
commissions which increased by $61,730, or 208.9%, to $91,282 in 2000 from
$29,552 in 1999.
Officers' salaries were constant at $100,000 for each officer,
pursuant to their employment agreements.
General and administrative expenses fell slightly in dollar
terms by $4,323, or just 1.5%, to $292,095 in 2000 from $296,418 in 1999.
However as a percentage of home-site sales, these expenses decreased
considerably by 39.9% to 28.6% in 2000 from 68.5% in 1999. Management fees paid
to Rainbow Canyon Realty & Development, Inc., a company controlled by the son of
one of the Company's officer/principal stockholders, were constant at $31,000
pursuant to the related agreement. Variations in other items in this expense
category were individually immaterial.
Interest charged to expense was $606 in 2000 and $75 in 1999,
representing miscellaneous interest charges not incurred on the Company's
interest-bearing debt. All of such other interest charges, aggregating $32,397
in 2000 and $43,139 in 1999 were capitalized as part of land inventory.
The Company provides an allowance for foreclosure losses,
which equal the excess of the unpaid mortgage balance and unpaid but accrued
interest over the cost of the lot, which cost is returned to inventory. One
foreclosure occurred in 2000, resulting in a loss of $16,566 being charged
against the allowance. The allowance is provided at two percent of the aggregate
contractual mortgage balances outstanding; the Company's historical loss
experience has shown this percentage to be adequate. The provision for such
losses was increased by $18,003 in 2000, due principally to the write-off. In
1999 the provision was reduced by $1,409.
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As a result of the above, but mostly due to the increase in
gross profit on home-site sales, pre-tax loss fell by $191,458, or 73.5%, to
$68,856 in 2000 from $260,314 in 1999.
The Company recognized no current income tax benefit from the
loss in 2000 as it had previously carried back losses to the fullest extent
possible. A deferred tax benefit of $13,700 was recorded in 2000 attributable to
the sale of substantially all of the Company's trading portfolio of equity
securities. In 1999, a current $14,600 benefit from net operating loss carryback
was recognized, while appreciation in the Company's trading portfolio of equity
securities resulted in a deferred tax expense of $3,400. The Company has
available approximately $600,000 of net operating losses which may be carried
forward through 2020 to offset against future taxable income. Such carryforward
results in a deferred tax asset of approximately $204,000, against which the
Company has provided a 100% deferred tax valuation allowance.
Net loss was accordingly $55,156 in 2000 and $249,114 in 1999.
Basic and diluted loss per share was $0.08 in 2000 and $0.36 in 1999. The
Company has no common stock equivalents.
Liquidity and Capital Resources:
At February 29, 2000 the Company's cash and equivalents,
mortgages, accrued interest and other receivables, and equity securities totaled
$2,084,000, approximately three and one-half times the total of liabilities of
$582,000. The Company's cash and cash equivalents totaled $894,000.
Historically the Company's cash requirements not provided
internally have been funded by bank borrowings. Apart from borrowings and
related repayments, the Company's principal source and needs for cash are
home-sites sales and related mortgage collections and developmental expenses
including capitalized interest for land improvements and related costs. For the
six months ended February 29, 2000, the Company's operating activities provided
$331,000, investing activities required $2,000 and financing activities required
$498,000 for a net aggregate use of $169,000. The principal operating inflow was
$340,000 from the sale of home-sites, net of a $72,000 increase in
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mortgages and accrued interest receivable. The financing outflow was entirely
attributable to new bank borrowings, net of repayments. For the six months ended
February 28, 1999, operating activities used $220,000, essentially to fund the
net loss, investing activities used $5,000 and financing activities used
$304,000, all for debt repayments.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a safe
harbor for forward-looking statements made by or on behalf of the Company. The
Company and its representatives may from time to time make written or oral
statements that are "forward-looking", including statements contained in this
report and other filings with the Securities and Exchange Commission, any
reports to the Company's shareholders and news releases. All statements that
express expectations, estimates, forecasts and projections are forward-looking
statements within the meaning of the Act. In addition, other written or oral
statements which constitute forward-looking statements may be made by or on
behalf of the Company. Words such as "expects", "anticipates", "intends",
"plans", "believes", "seeks", "estimates", "projects", "forecasts", "may",
"should", variations of such words and similar expressions are intended to
identify such forward-looking statements. These statements are not guarantees of
future performance and involve certain risks, uncertainties and assumptions
which are difficult to predict. Therefore, actual outcomes and results may
differ materially from what is expressed or forecasted in or suggested by such
forward-looking statements. The Company undertakes no obligation to update
publicly any forward-looking statements, whether as a result of new information,
future events or otherwise.
A wide range of factors could materially affect future developments and
performance of the Company, including the following: (i) the level of demand for
building lots in Prescott, Arizona; (ii) possible future litigation and
governmental proceedings; (iii) the availability of financing and financial
resources in the amounts, at the times and on the terms required to support the
Company's future business; and (iv) economic, business conditions and changes
including general economic and business conditions that are less favorable than
expected. This list of factors that may effect future performance and the
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accuracy of forward-looking statements is illustrative, but by no means
exhaustive. Accordingly, all forward-looking statements should be
evaluated with the understanding of their inherent uncertainty.
ITEM 3. DESCRIPTION OF PROPERTY.
The information contained in Item 1 of this report with
respect to properties owned by the Company is hereby incorporated herein by
reference.
The Company leases an office in Roslyn, New York.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Set forth in the table below is information concerning the
ownership as of June 30, 2000 of the Common Stock of the Company by persons who,
to the knowledge of the Board of Directors, own more than 5% of the outstanding
shares of Common Stock of the Company. The table also shows information
concerning beneficial ownership by all other directors, by each of the executive
officers of the Company and by all directors and executive officers as a group.
Unless otherwise indicated, the beneficial owners have sole voting and
investment power with respect to the shares beneficially owned.
<TABLE>
<CAPTION>
Amount
Name and Address Beneficially Percentage
of Beneficial Owner Owned of Class
------------------- ------------- ----------
<S> <C> <C>
Michael J. Klein 98,000(1) 14.3%
1800 Northern Boulevard
Suite 309
Roslyn, New York 11576
Aaron W. Weingarten 141,000(2) 20.5%
1800 Northern Boulevard
Suite 309
Roslyn, New York 11576
Jeffrey M. Weingarten 75,550(3)(4) 11.0%
83-85 Bright Street
Jersey City, New Jersey 07302
Scott L. Weingarten 74,900(4) 10.9%
83-85 Bright Street
Jersey City, New Jersey 07302
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Other Directors and
Executive Officers
------------------
Christopher Klein 26,000 3.8%
Jonathan Klein 26,000 3.8%
Directors and Executive 391,450(1)-(4) 57.0%
Officers as a Group
(consisting of 6
individuals)
</TABLE>
----------------------------
(1) Includes 20,500 shares owned by Mr. Michael Klein's wife as to which he
disclaims beneficial ownership.
(2) Includes 72,000 shares owned by Mr. Aaron Weingarten's wife as to which
he disclaims beneficial ownership.
(3) Includes 5,000 shares owned by Mr. Jeffrey Weingarten's wife as to
which he disclaims beneficial ownership.
(4) Includes 50,000 shares as to which each of Mr. Jeffrey Weingarten and
Mr. Scott Weingarten disclaims beneficial ownership held by two trusts
of which each is one of two trustees.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS.
The following table sets forth certain information furnished
to the Company regarding the persons who are directors of the Company:
<TABLE>
<CAPTION>
YEAR FIRST
PRINCIPAL OCCUPATION ELECTED
NAME OF DIRECTOR FOR PAST FIVE YEARS DIRECTOR AGE
---------------- ------------------- -------- ---
<S> <C> <C> <C>
Christopher Klein Counsel, Biotechnology 1996 36
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Patents of Bristol-Myers Squibb since
December 1999; Attorney in private practice
from prior to 1995 to November 1999.
Jonathan Klein Secretary-Treasurer of Allstate 1996 31
Manufactured Homes (sales of manufactured
homes) since March, 1998; Vice President
of Baseball Trade News; Inc. (sales of
sports memorabilia) from prior to 1995 to
February, 1998
Michael J. Klein President of the Company since prior to 1973 68
1995.
Aaron W. Weingarten Chairman of the Board and Chief Executive 1973 66
Officer of the Company since prior to 1995.
Jeffrey M. Weingarten President of Jasco Management Corp. (a 1996 40
property management company) since prior
to 1995.
Scott L. Weingarten Vice President of Jasco Management Corp. 1996 37
(a property management company) since
prior to 1995.
</TABLE>
-----------------------
Each of the above individuals was elected a director at the
last Annual Meeting of Stockholders to hold office until the next Annual Meeting
and until his successor is elected and qualified and each has served
continuously since the year he was first elected.
Aaron W. Weingarten is the father of Jeffrey M. Weingarten and
Scott L. Weingarten. Michael J. Klein is the father of Christopher Klein and
Jonathan Klein.
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EXECUTIVE OFFICERS OF REGISTRANT
Set forth below is certain information concerning persons who are executive
officers of Registrant.
<TABLE>
<CAPTION>
Name Office Held
---------- ------------------------
<S> <C>
Aaron W. Weingarten Chairman of the Board, CEO,
Vice President and Secretary
Michael J. Klein President and Treasurer
</TABLE>
Each executive officer holds office until the first meeting of directors
following the annual meeting of stockholders, and until his or her successor is
duly chosen and qualified.
ITEM 6. EXECUTIVE COMPENSATION.
The Summary Compensation Table below sets forth compensation
information for each of the Company's last three fiscal years for each officer
of the Company.
SUMMARY COMPENSATION TABLE (1)
<TABLE>
<CAPTION>
Name and Principal Position Year Salary Bonus
----------------------------- ---- ------ -----
<S> <C> <C> <C>
Aaron W. Weingarten (Chairman, CEO, 1999 $200,000 $ 80,000
Vice President and Secretary) 1998 200,000 100,000
1997 200,000 75,000
Michael J. Klein (President and 1999 $200,000 80,000
Treasurer) 1998 200,000 100,000
1997 200,000 75,000
</TABLE>
------------------
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(1) The above table does not include any amounts for personal benefits
because, in any individual case, such amounts do not exceed the lesser
of $50,000 or 10% of such individual's cash compensation.
DIRECTORS COMPENSATION
Each director is paid an annual director's fee of $1500.
EMPLOYMENT CONTRACT
The Company has employment agreements with Aaron W. Weingarten
and Michael J. Klein. The employment term of the agreements ends June 1, 2001.
Each employment agreement provides for an annual salary of not
less than $200,000.
Each of the employment agreements provides for payments in the
event of the death of the employee aggregating $2,200,000 payable over fifteen
years at the rate of $200,000 for the first seven years and $100,000 for the
next eight years.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company pays an annual management fee of $62,000 to
Rainbow Canyon Realty & Development Inc., a company controlled by Michael Klein
Jr., the son of Michael J. Klein, President of the Company. The agreement
expires June 30, 2001 and is automatically renewable for annual periods
thereafter unless sixty days' prior written notice of non-renewal is given by
either party. See Note 9(C) to the Consolidated Financial Statements.
ITEM 8. DESCRIPTION OF SECURITIES.
The authorized capital stock of the Company consists of
850,000 shares of Common Stock, par value $1.00 per share. The following
description of the Common Stock is qualified in all respects by reference to the
Certificate of Incorporation, as amended, and By-Laws of the Company, which are
filed as exhibits hereto.
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The holders of Common Stock elect all directors and are
entitled to one vote per share. All shares of Common Stock will participate
equally in dividends, when and as declared by the Board of Directors and in net
assets on liquidation, and will be duly authorized, validly issued, fully paid
and non-assessable upon issuance. The shares of Common Stock will have no
preference, conversion, exchange, preemptive or cumulative voting rights.
There are no stock purchase warrants or options outstanding.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS.
There is a limited, sporadic market for the shares of Common
Stock of the Company. Since September 1, 1997, the high and low bids, as
provided by the National Quotation Bureau, LLC, have ranged from $10.50 per
share to $2.50 per share. Stock quotations reflect inter-dealer prices without
retail mark up, mark down or commission and may not represent actual
transactions. There have been no dividends paid on the Common Stock of the
Company in the last two years. The approximate member of record holders of the
Company's Common Stock at June 30, 2000 was 122.
ITEM 2. LEGAL PROCEEDINGS.
Not Applicable
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
Not Applicable
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
Not Applicable
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
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The Certificate of Incorporation, as amended of the Company
contains a provision which eliminates the personal liability of directors to the
Company and its stockholders for monetary damages for unintentional breach of a
director's fiduciary duty to the Company. This provision does not permit any
limitation on, or elimination of the liability of a director for disloyalty to
the Company or its stockholders, for failing to act in good faith, for engaging
in intentional misconduct or a knowing violation of law, for obtaining an
improper personal benefit or for paying a dividend or approving a stock
repurchase that was illegal under the Delaware General Corporation Law.
The Certificate of Incorporation, as amended, of the Company
requires the Company to indemnify directors and officers against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with specified actions, suits or proceedings, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation - a "derivative action") if they acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful. A
similar standard of care is applicable in the case of derivative actions, except
that indemnification only extends to expenses (including attorneys' fees)
incurred in connection with defense or settlement of such an action. Moreover,
the Delaware General Corporation Law requires court approval before there can be
any indemnification where the person seeking indemnification has been found
liable to the Company.
18
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Annual Financial Statements:
Independent Auditor's Report F-1
Consolidated Balance Sheet as of August 31, 1999 F-2
Consolidated Statements of Operations and Retained
Earnings for the Years Ended August 31, 1999 and 1998 F-3
Consolidated Statements of Cash Flows for the Years
Ended August 31, 1999 and 1998 F-4
Notes to Consolidated Financial Statements F-5
Interim Financial Statements (Unaudited):
Consolidated Balance Sheet as of February 29, 2000 F-11
Consolidated Statements of Operations for the Six-Month
Periods Ended February 29, 2000 and February 28, 1999 F-12
Consolidated Statements of Cash Flows for the Six-Month
Periods Ended February 29, 2000 and February 28, 1999 F-13
Notes to Consolidated Financial Statements F-14
</TABLE>
19
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To The Board of Directors
Yavapai Hills, Inc.
Roslyn, New York
I have audited the accompanying consolidated balance sheet of Yavapai Hills,
Inc., and Subsidiaries as of August 31, 1999 and the related consolidated
statements of operations and retained earnings, and cash flows for each of the
years in the two-year period then ended. These financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I 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.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Yavapai Hills, Inc.
and Subsidiaries as of August 31, 1999 and the results of their operations and
their cash flows for each of the years in the two-year period then ended, in
conformity with generally accepted accounting principles.
/S/ MARVIN JARET
Certified Public Accountant
Delray Beach, Florida
October 25, 1999, except as to the last paragraph
of Note 6 for which the date is December 8, 1999)
F-1
<PAGE>
YAVAPAI HILLS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AUGUST 31, 1999
<TABLE>
ASSETS
------
<S> <C>
Cash and cash equivalents (Note 1) $1,063,160
Mortgages receivable, net (Notes 1 & 2) 1,079,998
Accrued interest and other receivables 15,632
Investments in equity securities (Notes 1 & 3) 42,903
Income tax refunds receivable 38,264
Land and home inventory (Notes 1 & 4) 3,204,288
Land held for investment (Note 1) 971,514
Property and equipment, net (Notes 1 & 5) 128,921
Refundable utility deposits and other assets 291,220
----------
TOTAL ASSETS $6,835,900
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Notes payable (Note 6) $ 939,178
Accounts payable and accrued expenses 173,509
Deferred income taxes (Notes 1 & 8) 13,750
Escrow deposits payable 8,966
----------
TOTAL LIABILITIES 1,135,403
----------
COMMITMENTS AND CONTINGENCIES (Notes 8, 9 & 10) -
SHAREHOLDERS' EQUITY:
Common stock, $1 par value; 850,000 shares
authorized, 734,128 shares issued 734,128
Additional paid-in capital 5,267,079
Accumulated deficit (158,480)
Treasury stock, at cost: 47,410 shares (142,230)
----------
TOTAL SHAREHOLDERS' EQUITY 5,700,497
----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $6,835,900
==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
YAVAPAI HILLS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
REVENUES:
Sales of home-sites (Note 1) $ 892,890 $ 951,580
Gain on sale of land held for investment - 681,161
Interest income, mortgages (Note 1) 100,109 137,999
Interest income, temporary investments 39,532 65,457
Dividend and other income 14,405 19,123
--------- ---------
TOTAL REVENUES 1,046,936 1,855,320
--------- ---------
COSTS AND EXPENSES:
Cost of sales, home-sites (Note 1) 409,641 384,140
Advertising and selling expenses 143,267 162,737
Officers' salaries (Note 9B) 560,000 600,000
General and administrative expenses 575,399 608,544
Interest expense, net of capitalized
interest of $81,798 in 1999 and
$37,641 in 1998 (Notes 1 & 6) 75 2,415
Reduction in allowance for foreclosure
losses on mortgage defaults (Note 1) (3,302) (4,719)
--------- ---------
TOTAL COSTS AND EXPENSES 1,685,080 1,753,117
--------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (638,144) 102,203
--------- ---------
INCOME TAX PROVISION (BENEFIT)(Notes 1 & 8):
Current (14,600) 20,100
Deferred 2,800 1,000
--------- ---------
TOTAL INCOME TAX PROVISION (BENEFIT) (11,800) 21,100
--------- ---------
NET INCOME (LOSS) (626,344) 81,103
RETAINED EARNINGS - BEGINNING OF YEAR 467,864 386,761
--------- ---------
RETAINED EARNINGS (ACCUMULATED DEFICIT) -
END OF YEAR $(158,480) $ 467,864
========= =========
EARNINGS (LOSS) PER SHARE (Note 1) $ (.91) $ .12
========= =========
Number of weighted average common
shares outstanding during the year 686,718 686,718
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
YAVAPAI HILLS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(626,344) $ 81,103
--------- ---------
Adjustments to reconcile net income (loss)
to net cash used by operating activities:
Gain on sale of land held for investment - (681,161)
Depreciation 7,392 7,344
Deferred income taxes 2,800 1,000
Decrease in mortgages receivable 155,802 212,406
Decrease in accrued receivables 74,006 17,780
Increase in equity securities (7,291) (2,826)
Decrease in income tax refunds receivable 42,039 23,177
Decrease (increase) in land inventory 170,835 (1,829,411)
Decrease (increase) in other assets 253,928 (280,710)
Increase (decrease) in accounts payable
and accrued expenses (240,379) 161,639
Increase (decrease) in income taxes payable (4,809) 4,636
--------- ---------
TOTAL ADJUSTMENTS 454,323 (2,366,126)
--------- ---------
NET CASH USED BY OPERATING ACTIVITIES (172,021) (2,285,023)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale proceeds, land held for investment - 693,805
Increase in property and equipment (1,942) -
Decrease in land held for investment (12,122) -
--------- ---------
NET CASH PROVIDED (USED) BY INVESTING
ACTIVITIES (14,064) 693,805
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of notes payable - 1,200,000
Repayments of notes payable (271,712) (2,178)
--------- ---------
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES (271,712) 1,197,822
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (457,797) (393,396)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,520,957 1,914,353
--------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $1,063,160 $1,520,957
========== ==========
ADDITIONAL CASH FLOW INFORMATION (Note 11):
Non-Cash Investing and Financing Activities
Cost of land transferred to inventory $ - $ 75,862
========== ==========
Cost of land held for investment sold $ - $ 12,644
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
YAVAPAI HILLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Organization and Basis of Presentation:
Yavapai Hills, Inc. was incorporated in Delaware in 1973. The Company develops
and sells building sites for single family homes in Prescott, Arizona. The
consolidated financial statements include the accounts of the Company and its
four subsidiaries, all of which are wholly-owned. All significant intercompany
balances and transactions have been eliminated.
(B) Cash Equivalents:
Cash equivalents, consisting of United States Treasury Bills and money market
funds, are stated at cost (amortized cost for Treasury Bills) which approximates
market value.
(C) Home-Site Sales:
The Company sells home-sites and requires a minimum 20% downpayment. Home-sites
are deeded to customers and the Company receives a first mortgage for the unpaid
balance, which is to be paid over five years, amortized over 30 years with a
balloon payment at the end of the fifth year.
Home-site sales contracts are recorded as sales at the time of closing.
Payments received prior to closing are recorded as deposits. The Company
recognizes income on the full accrual basis. On such basis, the full sales
price of a home-site is included in revenues at the time the sale is recorded.
Related costs, consisting of land and improvement costs, are charged against
income at that time. For sales which are seller financed at below-market
mortgage interest rates, the sales price is reduced for the difference between
the present value of the mortgage at the contract mortgage interest rate and the
market interest rate for similar instruments. Interest on these mortgage notes,
calculated using the interest (constant-rate) method, is reflected in income on
the accrual basis as earned.
It is the general policy to foreclose a home-site mortgage when no payment has
been received on the mortgages for approximately four months. Under extenuating
circumstances, the Company may extend this delinquency period. For all periods
through August 31, 1999, foreclosures and delinquencies have been insignificant.
The Company provides an allowance for foreclosure losses. Such losses equal the
excess of the unpaid mortgage balance and unpaid but accrued interest over the
cost of the lot, which cost is returned to inventory. Interest ceases to accrue
when foreclosure proceedings are initiated. The allowance is provided at two
percent of the aggregate contractual mortgage balances outstanding; the
Company's historical loss experience has shown this percentage to be adequate.
F-5
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
(D) Equity Securities:
The Company's equity securities, all classified as trading, are carried at their
fair value based upon quoted market prices at year-end. Accordingly, unrealized
gains and losses are included in results of operations. Such gains were $7,291
in 1999 and $2,826 in 1998.
(E) Land Inventory:
The Company capitalizes direct costs attributable to land acquisition and
development. Interest, real estate taxes, and certain other indirect costs are
capitalized when property is undergoing improvement for intended sale and in the
case of interest, when interest cost is being incurred. Interest of $81,798 and
$37,641, incurred on the Company's notes payable, was capitalized in 1999 and
1998, respectively. (See Note 6). Land costs are allocated to individual
home-sites based upon the estimated relative sales value of home-sites within
each development subdivision.
(F) Land Held for Investment:
Land held for investment is stated at cost and represents undeveloped land which
the Company is holding for investment purposes and does not intend to sell as
retail land.
(G) Property and Equipment:
Property and equipment is recorded at cost. Depreciation is computed using
principally the straight-line method over the assets estimated useful lives.
Maintenance and repair costs are charged to expense as incurred. Upon sale or
other disposition of the assets, the cost and related accumulated depreciation
are removed from the accounts, and any resulting gain or loss is reflected in
the statement of operations.
(H) Income Taxes:
Income taxes are recognized during the year in which transactions enter into the
determination of financial statement income, with deferred taxes provided for
temporary differences between amounts of assets and liabilities for financial
reporting purposes and such amounts as measured by income tax laws.
(I) Earnings (Loss) Per Share:
Earnings (loss) per share are calculated by dividing net income or loss by the
weighted average number of common shares outstanding. The Company has no other
classes of capital stock and no stock purchase warrants or options
issued or outstanding.
(J) Other Comprehensive Income (Loss):
The Company has no items of other comprehensive income (loss).
F-6
<PAGE>
NOTE 2 - MORTGAGES RECEIVABLE
This account consists of the following at August 31, 1999:
<TABLE>
<S> <C>
Gross mortgages receivable $1,102,545
Less: Allowance for foreclosure losses on
mortgage defaults 22,547
----------
Net mortgages receivable $1,079,998
==========
</TABLE>
Mortgages receivable from home-site sales are evidenced by mortgage notes with
stated annual interest rates ranging from 5% to 10% and are discounted to yield
market rates for accounting and profit recognition purposes. At August 31,
1999, substantially all mortgages receivable are being repaid in accordance with
note terms.
Estimated collections of principal on mortgages receivable without giving effect
to possible defaults or prepayments, are approximately as follows:
<TABLE>
<CAPTION>
Year Ending August 31, Amount
---------------------- ------
<S> <C>
2000 $ 258,700
2001 136,900
2002 350,500
2003 103,200
2004 278,000
----------
Sub-total 1,127,300
Adjustment for reduction to market interest rates (24,755)
----------
$1,102,545
==========
</TABLE>
NOTE 3 - INVESTMENTS IN EQUITY SECURITIES
Cost and fair value of equity securities, included in the Company's trading
portfolio at August 31, 1999 are as follows:
<TABLE>
<S> <C>
Equity Securities:
Cost $ 6,231
Gross unrealized gains 36,672
----------
Fair value $ 42,903
==========
</TABLE>
NOTE 4 - LAND AND HOME INVENTORY
<TABLE>
<S> <C>
Improved land and land under improvement
available for homesite sales $3,002,366
Improved land available for town homes 80,449
Model home under construction 121,473
----------
$3,204,288
==========
</TABLE>
NOTE 5 - PROPERTY AND EQUIPMENT
<TABLE>
<S> <C>
Furniture and equipment $ 36,598
Sales office 141,208
----------
177,806
Less: Accumulated depreciation 48,885
----------
$ 128,921
==========
</TABLE>
F-7
<PAGE>
NOTE 6 - NOTES PAYABLE
<TABLE>
<S> <C>
Purchase money mortgage given in connection with the
purchase of a small tract of land adjacent to Yavapai,
due in annual payments of $2,178, with interest on
the unpaid balance at 7% per annum. $ 8,712
Note payable on a revolving line of credit of
$1,200,000 for land development payable at maturity
on December 31, 1999, with interest on the unpaid
balance payable monthly at prime plus 0.5%. 930,466
----------
$ 939,178
==========
</TABLE>
All of the interest expense incurred on these obligations in 1999 and 1998 was
capitalized. Notes payable of the Company mature in fiscal years as follows:
2000: $932,644; 2001-2003: $2,178 each year.
On November 30, 1999, the Company entered into a development loan agreement for
a $1,000,000 line of credit with a new lender due in payments of $40,000 for
each lot sold for cash and the remaining outstanding principal payable on June
1, 2002 with interest on the unpaid balance due monthly at prime plus 1%.
Approximately $632,000 was drawn against the new credit line on December 7, 1999
to pay off the balance of the existing line.
NOTE 7 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
mortgages receivable, accrued interest and other receivables, investments in
equity securities and notes payable. The fair value of all of these approximate
their carrying amounts due to the following reasons: cash and equivalents - the
nature of the item; equity securities - the reporting is at fair value;
mortgages receivable - the carrying value has been adjusted to fair value for
below-market interest rates; notes payable - approximate fair value as they
bear a market interest rate; other - approximate fair value due to a relatively
short maturity.
NOTE 8 - INCOME TAXES
The income tax provision (benefit) for the years ended August 31, 1999 and 1998
consists of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Currently payable (refundable):
Federal $(13,550) $14,000
States (1,050) 6,100
-------- -------
Total currently payable (refundable) (14,600) 20,100
-------- -------
Deferred:
Federal 2,300 800
States 500 200
-------- -------
Total deferred 2,800 1,000
-------- -------
Total income tax provision (benefit) $(11,800) $21,100
======== =======
</TABLE>
F-8
<PAGE>
NOTE 8 - INCOME TAXES - CONTINUED
The effective income tax rate for these years differs from the statutory federal
income tax rate as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Income (loss) before income tax (benefit) $(638,144) $102,203
========= ========
Federal tax (benefit) at statutory rate $(217,000) $ 34,700
Decrease (increase) in tax (benefit) due to:
Interest income not taxable (6,300) (6,400)
State taxes, net of federal benefit (300) (2,100)
Net operating loss carryover 186,400 -
Statutory and lower bracket rate difference
on operating loss carryback 11,700 -
Other, net 13,700 (5,100)
--------- --------
$ (11,800) $ 21,100
========= ========
</TABLE>
The income tax effect arising primarily from the differences between the bases
of equity securities for financial and tax reporting resulted in increases in
deferred tax expense for the years ended August 31, 1999 and 1998 of $2,800 and
$1,000, respectively. At August 31, 1999, equity securities result in a
deferred tax liability of $13,750.
At August 31, 1999 the balance of the net operating loss from the current year
of approximately $548,400 is available for carryforward to future years. The
loss carryforward expires in 2019. This item results in a gross deferred tax
asset of $186,400, which is fully offset by a deferred tax valuation allowance.
At August 31, 1998, there were no deferred tax assets or related valuation
allowances.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
(A) Minimum Operating Lease Commitments:
Certain of the property used in the Company's business is leased. Rental
expenses charged to operations for the years ended August 31, 1999 and 1998
amounted to $52,434 and $47,753, respectively.
Approximate minimum rental commitments for real and personal property under
non-cancelable leases total $31,129 at August 31, 1999 and are payable in future
fiscal years as follows: 2000: $14,544; 2001: $9,477; 2002: $7,108.
(B) Employment Agreements:
The Company's co-founders and largest stockholders continue to serve as its two
principal officers. Employment agreements between the Company and these two
individuals provide for an annual salary to each of $200,000. The agreements
expire June 1, 2001. Death benefit provisions aggregating $2,200,000 for each
officer are payable over fifteen years at the rate of $200,000 for the first
seven years following death and $100,000 for the succeeding eight years.
F-9
<PAGE>
NOTE 9 - COMMITMENTS AND CONTINGENCIES - CONTINUED
(C) Management Agreement:
The Company's on-site operations are managed by a related party pursuant to a
consulting contract. The agreement presently provides for an annual fee of
$62,000 plus reimbursement of reasonable expenses. The agreement expires June
30, 2000 and is automatically renewable for annual periods thereafter unless
sixty days' prior written notice of non-renewal is given by either party.
In the event of a sale of all or a portion of the property, the balance of the
management fee for the contract year is payable, together with an additional fee
of $100,000 in the event all remaining property is sold, or a proportion thereof
based on the acreage sold if less than all is sold. This latter fee is payable
even if the sale is made subsequent to termination of the consulting contract if
the consultant showed the property to the buyer. (See Note 10).
NOTE 10 - RELATED PARTY TRANSACTIONS
(A) Management Agreement:
The Company's consulting agreement for management services is with a company
controlled by the son of one of the Company's founders/executive officers. The
related fee aggregated $62,000 in 1999 and $52,000 in 1998.
(B) Directors' Fees:
Each of the Company's six directors, including its two executive officers, are
paid annual director's fees of $1,500. Directors' fees aggregated $9,000 in
each of fiscal 1999 and 1998.
NOTE 11 - ADDITIONAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Interest paid during the year $81,873 $38,556
======= =======
Income taxes paid during the year $33,107 $ 5,107
======= =======
</TABLE>
F-10
<PAGE>
YAVAPAI HILLS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
FEBRUARY 29, 2000
(UNAUDITED)
<TABLE>
ASSETS
------
<S> <C>
Cash and cash equivalents $ 894,161
Mortgages receivable, net 1,148,973
Accrued interest and other receivables 18,894
Investments in equity securities 2,937
Income tax refunds receivable 19,207
Land and home inventory 2,792,481
Land held for investment 972,866
Property and equipment, net 125,662
Refundable utility deposits and other assets 252,287
----------
TOTAL ASSETS $6,227,468
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Notes payable $ 441,140
Accounts payable and accrued expenses 131,971
Deferred income taxes 50
Escrow deposits payable 8,966
----------
TOTAL LIABILITIES 582,127
----------
COMMITMENTS AND CONTINGENCIES -
SHAREHOLDERS' EQUITY:
Common stock, $1 par value; 850,000 shares
authorized, 734,128 shares issued 734,128
Additional paid-in capital 5,267,079
Accumulated deficit (213,636)
Treasury stock, at cost: 47,410 shares (142,230)
----------
TOTAL SHAREHOLDERS' EQUITY 5,645,341
----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $6,227,468
==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-11
<PAGE>
YAVAPAI HILLS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
REVENUES:
Sales of home-sites $1,019,606 $ 432,984
Interest income, mortgages 48,841 52,817
Interest income, temporary investments 12,987 21,684
Dividend and other income 1,082 13,288
---------- ---------
TOTAL REVENUES 1,082,516 520,773
---------- ---------
COSTS AND EXPENSES:
Cost of sales, home-sites 513,551 225,161
Advertising and selling expenses 127,117 60,842
Officers' salaries 200,000 200,000
General and administrative expenses 292,095 296,418
Interest expense, net of capitalized interest
of $32,397 in 2000 and $43,139 in 1999 606 75
Provision for (reduction in) allowance for
foreclosure losses on mortgage defaults 18,003 (1,409)
---------- ---------
TOTAL COSTS AND EXPENSES 1,151,372 781,087
---------- ---------
LOSS BEFORE INCOME TAXES (68,856) (260,314)
---------- ---------
INCOME TAX PROVISION (BENEFIT):
Current - (14,600)
Deferred (13,700) 3,400
---------- ---------
TOTAL INCOME TAX PROVISION (BENEFIT) (13,700) (11,200)
---------- ---------
NET LOSS $ (55,156) $(249,114)
========== =========
LOSS PER SHARE $ (.08) $ (.36)
========== =========
Number of weighted average common
shares outstanding during the period 686,718 686,718
========== =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-12
<PAGE>
YAVAPAI HILLS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (55,156) $(249,114)
--------- ---------
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation 3,897 3,672
Deferred income taxes (13,700) 3,400
Decrease (increase) in mortgages receivable (68,975) 62,090
Decrease (increase) in accrued interest and
other receivables (3,262) 8,738
Decrease (increase) in equity securities 39,966 (8,738)
Decrease in income tax refunds receivable 19,057 4,507
Decrease in land inventory 411,807 158,374
Decrease in refundable utility deposits
and other assets 38,933 42,906
Decrease in accounts payable and accrued
expenses (41,538) (246,030)
--------- ---------
TOTAL ADJUSTMENTS 386,185 28,919
--------- ---------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES 331,029 (220,195)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in land held for investment (1,352) (5,268)
Increase in property and equipment (638) -
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (1,990) (5,268)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of notes payable 632,428 -
Repayments of notes payable (1,130,466) (304,048)
--------- ---------
NET CASH USED BY FINANCING ACTIVITIES (498,038) (304,048)
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (168,999) (529,511)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,063,160 1,520,957
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 894,161 $ 991,446
========= =========
ADDITIONAL CASH FLOW INFORMATION:
Interest paid during the period $ 33,003 $ 43,214
========= =========
Income taxes paid during the period $ - $ 1,222
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-13
<PAGE>
YAVAPAI HILLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 2000 AND FEBRUARY 28, 1999 (UNAUDITED)
(1) The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions in Item 310(b) of
Regulation S-B. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) considered necessary for a fair presentation
have been made. Operating results for the six-month period ended February 29,
2000 are not necessarily indicative of the results that may be expected for the
year ending August 31, 2000. For further information, refer to the annual
consolidated financial statements preceding these interim financial statements.
(2) Loss per share is calculated by dividing net loss by the weighted average
number of common shares outstanding. The Company has no other classes of
capital stock and no stock purchase warrants or options issued or outstanding.
(3) The Company has no components of comprehensive income (loss) other than net
income (loss).
(4) On November 30, 1999, the Company entered into a development loan agreement
for a $1,000,000 line of credit with a new lender due in payments of $40,000 for
each lot sold for cash and the remaining outstanding principal payable on June
1, 2002 with interest on the unpaid balance due monthly at prime plus 1%.
Approximately $632,000 was drawn against the new credit line on December 7, 1999
to pay off the balance of the existing line.
(5) In June 2000 the management agreement was renewed through June 30, 2001.
(6) On or before July 13, 2000, the Company intends to file with the U. S.
Securities and Exchange Commission, Form 10-SB, General Form for Registration of
Securities of Small Business Issuers under Section 12(g) of The Securities
Exchange Act of 1934. This filing, which by law becomes effective sixty days
after it is filed, will subject the Company to the periodic reporting required
by that Act. In addition, at such time as the Company clears Commission
comments applicable to such filing, if any, the Company will be eligible to
apply to have market quotations of its common stock to again be listed on the
NASD OTC Bulletin Board. NASD OTC regulations applicable to non-reporting
public companies required the removal of the Company's common stock from the
Bulletin Board listings in June 2000.
F-14
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS.
2. (a) Certificate of Incorporation, dated
September 25, 1973, filed herewith.
(b) Certificate of Amendment of Certificate
of Incorporation before Payment of Capital,
dated November 2, 1973, filed herewith.
(c) Certificate of Correction filed to correct a
Certain Error in the Certificate of
Incorporation before Payment of Capital
filed, dated July 17, 1980, filed herewith.
(d) Certificate of Amendment of the Certificate
of Incorporation, dated July 29,1980, filed
herewith.
(e) Certificate of Amendment of the Certificate
of Incorporation, dated February 4, 1991,
filed herewith.
(f) By-Laws, filed herewith.
3. (a) Development Loan Agreement dated
November 30, 1999 between the Company and
County Bank, filed herewith.
(b) Promissory Note dated November 30, 1999
payable to County Bank by the Company,
filed herewith.
6. (a) Agreement dated as of January 1, 1994
between the Company and Aaron W. Weingarten,
filed herewith.
(b) Agreement dated as of August 1, 1996
between the Company and Aaron W. Weingarten
amending the Agreement dated January 1, 1994
between the Company and Aaron W. Weingarten,
filed herewith.
(c) Agreement dated as of January 1, 1994
between the Company and Michael J. Klein,
filed herewith.
(d) Agreement dated as of August 1, 1996 between
the Company and Michael J. Klein amending
the Agreement dated January 1, 1994 between
the Company and Michael J. Klein, filed
herewith.
27. Financial Data Schedule
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934, the Registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized.
YAVAPAI HILLS, INC.
(Registrant)
Date: July 12, 2000 By: /s/ Aaron W. Weingarten
-------------------------------------
Aaron W. Weingarten
Chairman and Chief
Executive Officer
