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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1934)
HOMEFREE VILLAGE RESORTS, INC.
HOMEFREE INVESTORS L.P.
-----------------------
(Names of the Issuers)
HOMEFREE VILLAGE RESORTS, INC.
HOMEFREE INVESTORS L.P.
-----------------------
(Names of the Persons Filing Statement)
COMMON STOCK, $.001 PAR VALUE
ASSIGNEE LIMITED PARTNERSHIP INTERESTS
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(Titles of Classes of Securities)
437 393 101 (Common Stock)
437 393 200 (Assignee Limited Partnership Interests)
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(CUSIP Numbers of Classes of Securities)
Craig M. Bollman, Jr., c/o Homefree Village Resorts, Inc.
1400 S. Colorado Boulevard, Suite 410, Denver, Colorado 80222; (303) 757-3002
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(Name, Address, and Telephone Number of Person Authorized to Receive Notices
and Communications on Behalf of Persons Filing Statement
This statement is filed in connection with (check appropriate box):
a. [X] The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C, or Rule 13e-3 under the Securities
Exchange Act of 1934.
b. [ ] The filing of a registration statement under the Securities Act of
1933.
c. [ ] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies. [X]
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Calculation of Filing Fee
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Transaction Valuation Amount of Filing Fee
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$208,000* $42
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* Calculated based on the maximum aggregate number of fractional shares of
Common Stock to be repurchased in connection with the proposed Reverse
Stock Split, at a valuation of $0.05 per fractional share, the price to be
paid for such fractional shares as described in the attached filing.
[ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the form
or schedule and the date of its filing.
Amount previously paid:______ Filing parties: Homefree Village Resorts, Inc.;
Homefree Investors L.P.
Form or registration no.:____ Date filed:____________________________
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CROSS-REFERENCES
The information required to be contained in this Schedule 13e-3 is
incorporated herein by reference from the attached Information Statement. The
following cross-references indicate where the information called for by each
Item of this Schedule 13e-3 is contained in the enclosed Information Statement.
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ITEM SECTION TITLE(S) IN INFORMATION STATEMENT PAGE(S)
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Item 1. Issuer and Class of Security Subject to
the Transaction.
(a) Cover page of the Information Statement. 1
(b) The Company--Organization. 13
(c) Fairness of the Reverse Stock Split--Factors Considered 11
in Fairness Determination--Current and Historical
Market Prices for the Common Stock.
(d) Fairness of the Reverse Stock Split--Factors Considered 11
in Fairness Determination--Current and Historical
Market Prices for the Common Stock.
(e) Not applicable.
(f) Not applicable.
Item 2. Identity and Background.
Cover page of the Information Statement. 1
(a)-(f) Not applicable.
Item 3. Past Contacts, Transactions, or Negotiations.
(a) Not applicable.
(b) Not applicable.
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ITEM SECTION TITLE(S) IN INFORMATION STATEMENT PAGE(S)
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Item 4. Terms of the Transaction.
(a) The Reverse Stock Split 5
(b) Not applicable.
Item 5. Plans or Proposals of the Issuer or Affiliate.
(a)-(e) Not applicable.
(f)-(g) Reasons for the Reverse Stock Split 5
Termination of Reporting Company Status 7
Item 6. Source and Amount of Funds or Other
Consideration.
(a) Financing of the Reverse Stock Split. 10
(b) Financing of the Reverse Stock Split. 10
(c) Not applicable.
(d) Not applicable.
Item 7. Purposes, Alternatives, Reasons and Effects.
(a) Reasons for the Reverse Stock Split. 5
(b) Reasons for the Reverse Stock Split--Form 5, 20
of Transaction.
(c) Reasons for the Reverse Stock Split. 5
(d) Reasons for the Reverse Stock Split; Conduct 20
of the Company's Business after the Reverse 21
Stock Split; Exchange of Stock 22
Certificates; Cash Payments in Lieu of
Shares; Certain Federal Income 31
Tax Consequences.
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ITEM SECTION TITLE(S) IN INFORMATION STATEMENT PAGE(S)
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Item 8. Fairness of the Transaction.
(a) Fairness of the Reverse Stock Split. 11, 26
(b) Fairness of the Reverse Stock Split. 11, 26
(c) Further Stockholder Approval Not Required. 23
(d) Fairness of the Reverse Stock Split--Absence 11, 26
6
of Independent Third-Party Valuation or
Arms'-Length Negotiation.
(e) Fairness of the Reverse Stock Split--Potential 11
Conflicts of Interest.
(f) Not applicable.
Item 9. Reports, Opinions, Appraisals and Certain Negotiations.
(a) Fairness of the Reverse Stock Split--Absence 11, 26
of Independent Third-Party Valuation or
Arms'-Length Negotiation.
(b) Not applicable.
(c) Not applicable.
Item 10. Interest in Securities of the Issuer.
(a) Security Ownership of Certain Beneficial Owners 33
and Management.
(b) Not applicable.
Item 11. Contracts, Arrangements or Understandings
with Respect to the Issuer's Securities.
Not applicable.
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ITEM SECTION TITLE(S) IN INFORMATION STATEMENT PAGE(S)
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Item 12. Present Intention and Recommendation of
Certain Persons with Respect to the
Transaction.
(a) Fairness of the Reverse Stock Split--Potential 11
Conflicts of Interest.
(b) Fairness of the Reverse Stock Split. 11, 26
Item 13. Other Provisions of the Transaction.
(a) Lack of Appraisal Rights. 23
(b) Not applicable.
(c) Not applicable.
Item 14. Financial Information.
(a) Independent Auditor's Report, and Combined 34
Financial Statements and Consolidated Financial
Statements of the Company and the Partnership.
(b) Not applicable.
Item 15. Persons and Assets Employed, Retained or Utilized.
(a) Financing of the Reverse Stock Split. 10
(b) Not applicable.
Item 16. Additional Information.
Not applicable.
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ITEM SECTION TITLE(S) IN INFORMATION STATEMENT PAGE(S)
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Item 17. Material to be Filed as Exhibits.
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) Notice of the Information Statement and Letter
of Transmittal to be sent to stockholders of the
Issuer (enclosed herewith).
(e) Not applicable.
(f) Not applicable.
SIGNATURE
After due inquiry and to the best of my knowledge and belief, We certify
that the information set forth in this statement is true, complete and
correct.
Dated _________, 1996
HOMEFREE VILLAGE RESORTS, INC.
By
---------------------------------
Craig M. Bollman, Jr.
Chairman and President
HOMEFREE INVESTORS, L.P.
By: Homefree General Partners, General
Partner
By: Homefree Village Resorts, Inc.
By
---------------------------------
Craig M. Bollman, Jr.
Chairman and President
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HOMEFREE VILLAGE RESORTS, INC.
HOMEFREE INVESTORS, L.P.
1400 S. Colorado Boulevard, Suite 410
Denver, Colorado 80222
NOTICE REGARDING PROPOSED ONE-FOR-100,000
REVERSE STOCK SPLIT AND
RELATED TRANSACTIONS
To all Stockholders:
NOTICE IS HEREBY GIVEN that on March 12, 1996, the Company's Board of
Directors approved a proposal authorizing:
(1) An amendment to the Company's Certificate of Incorporation
effecting a one-for-100,000 reverse stock split of the Company's existing
Common Stock, $0.001 value per share ("Old Common Stock"), reducing the
authorized number of shares of common stock from 15,000,000 shares to
10,000 shares ("New Common Stock"); and
(2) The payment of cash in the amount of $0.05 per share of Old Common
Stock in lieu of the issuance of fractional shares of New Common Stock to
persons who would hold less than one full share of New Common Stock after
consummation of the proposed reverse stock split, and to other stockholders
who desire to liquidate their investment in the Company (together with the
amendment described in the preceding paragraph, the "Reverse Stock Split").
The proposed Reverse Stock Split has been approved by the written consent
of Craig M. Bollman, Jr., the Company's majority stockholder. Such consent is
sufficient to approve the Reverse Stock Split under the Delaware General
Corporation Law, and no other vote or consent of stockholders is required or
will be sought in connection with the proposed Reverse Stock Split.
ACCORDINGLY, THE COMPANY IS NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT
TO SEND THE COMPANY A PROXY.
If the proposed Reverse Stock Split is effected, it is anticipated that the
Company will have fewer than 300 stockholders, and accordingly, will cease to
file certain reports with the Securities and Exchange Commission, as more fully
described in the accompanying Information Statement.
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You are urged to read carefully the accompanying Information Statement and
other disclosure documents in their entirety for important information with
respect to the proposed Reverse Stock Split.
The Company's Board of Directors may postpone or abandon the proposed
Reverse Stock Split at any time prior to its consummation, for any reason,
including without limitation if in the Directors' sole judgment, consummation of
the Reverse Stock Split would unduly deplete the Company's working capital.
HOMEFREE VILLAGE RESORTS, INC.
Dated ____________, 1996 By authority of the Board of Directors
By:
--------------------------------
Craig M. Bollman, Jr.
Chairman and President
HOMEFREE INVESTORS L.P.
Dated ____________, 1996 By Homefree General Partners, its General
Partner
By Homefree Village Resorts, Inc., a
General Partner
By:
--------------------------------
Craig M. Bollman, Jr.
President
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION OR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
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Stockholders Should Carefully Read This Information Statement
and the Accompanying Materials in their Entirety
Before Making any Investment Decision.
INFORMATION STATEMENT
REGARDING THE PROPOSED
ONE-FOR-100,000 REVERSE STOCK SPLIT
AND RELATED TRANSACTIONS
BY
HOMEFREE VILLAGE RESORTS, INC.
AND
HOMEFREE INVESTORS L.P.
This Information Statement and the accompanying materials are being
provided by Homefree Village Resorts, Inc. (the "Company") to its stockholders
in connection with a proposed one-for-100,000 reverse stock split approved by
the Company's Board of Directors on March 12, 1996. This Information Statement
and such accompanying materials were first sent or given to stockholders on or
about ____________, 1996.
The Company will bear all of the costs of the preparation and dissemination
of this Information Statement and the accompanying materials, which are
estimated to be approximately $50,000. No consideration has been or will be
paid to any officer, director, or employee of the Company in connection with the
proposed Reverse Stock Split or the preparation and dissemination of this
Information Statement and the accompanying materials or otherwise in connection
with the proposed Reverse Stock Split.
The Company is not asking shareholders for a proxy and shareholders are not
to send the Company a proxy.
After the Reverse Stock Split, the Company will no longer be subject to
registration under the Securities and Exchange Act of 1934 and therefore will
not be a reporting company with respect to its stockholders.
The Reverse Stock Split will result in shareholders receiving $.05 for each
share of common stock (including the paired limited partnership interest) that
such shareholders own.
Correspondence with respect to the proposed Reverse Stock Split should be
addressed to the Secretary of the Company at the Company's principal
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executive office at 1400 S. Colorado Boulevard, Suite 410, Denver, Colorado
80222.
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TABLE OF CONTENTS
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Page
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SUMMARY OF THE REVERSE STOCK SPLIT.............. 4
SPECIAL FACTORS................................. 13
The Company................................ 13
The Reverse Stock Split.................... 19
Reasons for the Reverse Stock Split........ 19
Conduct of the Company's Business
after the Reverse Stock Split............ 21
Further Stockholder Approval Not Required.. 23
Lack of Appraisal Rights................... 23
Postponement or Abandonment................ 23
Effective Time............................. 24
Exchange of Stock Certificates;
Cash Payments in Lieu of Shares.......... 24
Financing of the Reverse Stock Split....... 25
Fairness of the Reverse Stock Split........ 25
Certain Federal Income Tax Consequences.... 31
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.............. 33
FINANCIAL INFORMATION........................... 34
OTHER INFORMATION;
DOCUMENTS INCORPORATED BY REFERENCE........... 34
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SUMMARY OF THE PROPOSED REVERSE STOCK SPLIT
AND RELATED TRANSACTIONS
The following is a summary of certain information set forth in greater
detail elsewhere in this Information Statement. It does not purport to be
complete, and is qualified in its entirety by the more detailed information set
forth elsewhere in this Information Statement.
The Company
Homefree Village Resorts, Inc. (the "Corporation") is a Delaware
corporation. Homefree Investors L.P. (the "Partnership") is a Delaware limited
partnership formed by the Corporation in 1987 and which has not commenced
operations and has no assets or properties. The shares of common stock, $0.001
par value per share, of the Corporation, and the assignee limited partnership
interests, $0.001 par value per unit, of the Partnership, are "paired" on a one-
for-one basis and may only be transferred in units consisting of one share of
common stock of the Corporation and one unit of assignee limited partnership
interest in the Partnership. Limited Partnership interests may not be traded
separately from the paired common stock. As of May 19, 1996, the Company had
outstanding 10,483,982 shares of common stock and an equal number of "paired"
assignee limited partnership units, which were held of record by approximately
548 holders. Unless expressly otherwise stated, or unless the context requires
otherwise, references in this Information Statement to the Company include the
Corporation and its wholly owned subsidiary, Resortparks of America, Inc., and
the Partnership, and references to shares of the Company's common stock include
the assignee limited partnership interests in the Partnership that are paired
with such shares.
Craig M. Bollman, Jr. is the Chairman of the Board of Directors and
President of the Corporation, and owns in his own name 6,325,288 shares (60.3%)
of the Common Stock of the Company. He has been associated with the Corporation
and a predecessor since 1974. Mr. Bollman, as controlling stockholder of the
Company, will be deemed to be an affiliate of the Company. Mr. Bollman will be
deemed to have adopted the Company's Board of Directors' analysis in this
Statement as if it were also his analysis .
The Company is engaged primarily in the development and operation of
adult recreational communities containing rental sites for manufactured homes
and recreational homes. In recent years, the Company has also focused on the
development of recreational resort communities in Mesa, Arizona that offer
extensive recreational facilities and social activities designed to appeal to
active pre-retirement and retirement age people. During 1995, the Company
operated
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and had interests in one community containing a total of approximately
832 rental sites located in Arizona. The Company also has interests in two
communities containing approximately 2,300 rental sites located in Arizona. The
Company has interests in such communities through Aristek Properties, Ltd., and
Aristek Western Properties Limited Partnership, in which the Corporation is the
General Partner. The Company's objectives are to create and participate,
through such partnerships, in the cash flow from these communities and to share
in appreciation in the value of such properties. The Company also receives
income from development, management, and administrative services.
See "Special Factors -- The Company."
The Reverse Stock Split
On March 12, 1996, the Company's Board of Directors approved a proposal
authorizing:
(1) An amendment to the Company's Certificate of Incorporation
effecting a one-for-100,000 reverse stock split of the Company's existing
Common Stock, $0.001 par value per share ("Old Common Stock"), reducing the
authorized number of shares of common stock from 15,000,000 shares to
10,000 shares ("New Common Stock"); and
(2) The payment of cash in the amount of $0.05 per share of Old Common
Stock in lieu of the issuance of fractional shares of New Common Stock to
persons who would hold less than one full share of New Common Stock after
the proposed reverse stock split, and to other stockholders who are
entitled to at least one full share of new Common Stock, who desire to
liquidate their investment in the Company (together with the amendment
described in the preceding paragraph, the "Reverse Stock Split").
Reasons for the Reverse Stock Split
The Company authorized the proposed Reverse Stock Split in order to "go
private," i.e., to reduce the number of its record stockholders to less than
300, which would permit the Company to discontinue the registration of its
Common Stock under the Securities Exchange Act of 1934 (the "Exchange Act").
The Board of Directors believes that neither the Company nor its stockholders
derive any material benefit from the continued registration of the Company's
Common Stock under the Exchange Act. The Company incurs significant direct and
indirect costs, however, as a result of the requirement that it comply with the
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filing and reporting requirements applicable to public companies. Accordingly,
the Board of Directors believes that the continued expense and burden to the
Company of continued registration, including the requirement to file annual and
quarterly reports, proxy statements, and other documents with the SEC,
significantly outweigh any benefits to the Company or its stockholders as a
result of such registration. Further, since the Common Stock is rarely traded
and the Company has not been profitable, the Company does not believe that it
can raise funds in the public market, make acquisitions with its stock, or
otherwise avail itself of advantages of a public company. The Board of
Directors has determined that the proposed Reverse Stock Split is the most
expeditious and efficient method of changing the Company's status from that of a
publicly held reporting company to that of a privately held non-reporting
company.
In making this determination, the Board of Directors considered other means
of achieving this result, but rejected these alternatives because the Board of
Directors believed that the proposed Reverse Stock Split would be simpler and
less costly. These alternatives included a tender offer at the same price per
share, or a purchase of its shares in the open market at the depressed market
price (which is less than $.05 per share), but such proposals, in the Board's
view, would result in more costs and were not likely to accomplish the objective
of "going private".
The Board initially discussed the Company's going private at a meeting on
May 18, 1993, at which time four of the five Board of Directors were in
attendance, along with counsel to the Company. The Board discussed numerous
factors, reporting on discussions which some members had with investment bankers
and Company counsel. The Board also discussed alternatives to going private. A
result of a full discussion, the Board voted to have the officers of the
Corporation investigate whether a reverse stock split would be the best method
of accomplishing a going private transaction and to determine what would be in
the best interest of the Company and its stockholders. Although the President
had discussions from time to time since the 1993 meeting, both with individual
directors and with Company counsel, no further action was taken by the Board
until toward the end of 1995 when preliminary discussions were had with
individual board members, as well as company counsel, to determine whether it
would be feasible to undertake a going private transaction.
On February 13, 1996, a Board of Directors meeting was held via telephone
conference call with four of the five directors being present, pursuant to a
duly called meeting. Company counsel prepared a memorandum for the Board to
discuss various items relating to a decision whether to undergo a reverse stock
split. The Board discussed these in great detail, including what an appropriate
price should be for the shares of stock and whether a fairness opinion from an
investment banking firm would be appropriate. Subsequent to
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that Board meeting, there was further discussion with Company counsel and
individual members of the Board which were initiated by Craig Bollman. No formal
vote was taken at that Board meeting concerning the going private transaction.
After further discussion with Craig Bollman, certain Board members expressed a
desire to reduce the size of Board and include only family members of Craig
Bollman since the Company would be principally owned by him after going private.
On an amicable basis three board members resigned, leaving Craig Bollman and
Phyllis Bollman as the remaining directors. Thereafter, the Board was reduced to
three members and Taylor Bollman, the son of Craig and Phyllis Bollman, was
added to the Board of Directors. These three board members discussed the factors
similar to those previously discussed by the Board, at a duly held Board
meeting, and voted to have the Company prepare the Information Statement and to
take the necessary corporate action to accomplish the going private transaction.
At this Board meeting, the Board concluded also that $.05 per share was fair
value for the shares based on numerous factors, including the fact that there
had been no recent trading for the stock, that the stock price had been
historically low for a long time, the book value, the fact that the value of the
Company's receivables would be difficult to realize upon, that working capital
was very small, that the Company faced going concern issues being raised by the
auditors, and that the future business prospects of the Company, particularly
while it was still a public company, were bleak. However, in order to have any
chance of success, the Board felt that the number of public shareholders need to
be reduced so as to avoid the requirements of a public company, even though that
meant utilizing available assets or resources to accomplish the Reverse Stock
Split.
The analysis in this Section and in other sections with respect to the
fairness of the transaction to unaffiliated shareholders is shared by the
Company and Craig M. Bollman. Each of them believes that the Reverse Stock
Split is fair for the reasons noted above.
See "Special Factors--Reasons for the Reverse Stock Split."
Termination of Reporting Company Status
If the proposed Reverse Stock Split is effected, it is anticipated that the
Company will cease to be a reporting company under the Exchange Act. The
Reverse Stock Split is expected to be made effective upon the mailing of the
Notice thereof to the stockholders, although the Company may postpone or cancel
the Reverse Stock Split if circumstances warrant, such as due to a lack of
working capital. As a result, the Company would no longer file annual and
quarterly reports, proxy statements, and other documents with the SEC. In
addition, the Company would no longer be required to comply with the proxy rules
of Regulation 14A promulgated under Section 14 of the Exchange Act, and
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its officers, directors, and 10%-or-greater stockholders would no longer be
subject to the reporting requirements and "short-swing" security trading
restrictions under Section 16 of the Exchange Act. Continuing stockholders will
no longer be entitled to receive annual reports and proxy statements and will no
longer have the benefit of a public market for their shares of the Company's
stock.
See "Special Factors--Conduct of the Company's Business after the Reverse
Stock Split."
Further Stockholder Approval Not Required
The proposed Reverse Stock Split has been approved by the written consent
of Craig M. Bollman, Jr., the Company's majority stockholder. Such consent is
sufficient to approve the Reverse Stock Split under the Delaware General
Corporation Law, and no other vote or consent of stockholders is required or
will be sought in connection with the proposed Reverse Stock Split.
ACCORDINGLY, THE COMPANY IS NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT
TO SEND THE COMPANY A PROXY.
Postponement or Abandonment of the Reverse Stock Split
The Company's Board of Directors may postpone or abandon the proposed
Reverse Stock Split at any time prior to its consummation, for any reason,
including without limitation if in the Directors' sole judgment, consummation of
the Reverse Stock Split would unduly deplete the Company's working capital.
Lack of Appraisal Rights
Pursuant to the Delaware General Corporation Law, dissenting stockholders
will not have appraisal rights if the proposed Reverse Stock Split is effected.
Stockholders who believe that they may be aggrieved by the proposed Reverse
Stock Split may have other rights under federal law or common law, such as
rights relating to the fairness of the proposed Reverse Stock Split and the
fiduciary responsibilities of corporate officers, directors, and stockholders.
The nature and extent of such rights, if any, may vary depending upon the facts
and circumstances.
Exchange of Stock Certificates; Cash Payments In Lieu of Shares
If the proposed Reverse Stock Split is effected, the stock certificates
formerly representing shares of Old Common Stock will cease to represent such
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shares and thereafter will represent the shares of New Common Stock into which
they have been converted, or the right to receive a cash payment in lieu of such
shares, as the case may be, all as described below. Enclosed is a Letter of
Transmittal for use in exchanging old stock certificates for a new stock
certificate or cash payment. Note that Letters of Transmittal should not be
sent to the Company, but rather should be sent to American Stock Transfer &
Trust Company, the transfer agent and registrar for Old Common Stock.
Each stockholder who holds of record less than 100,000 shares of Old Common
--------------------------------------
Stock (the equivalent of one whole share of New Common Stock) should use
-----
the enclosed Letter of Transmittal to surrender his old stock
certificate(s) and the shares of Old Common Stock represented thereby for a
cash payment in an amount equivalent to $0.05 per share of Old Common Stock
represented by such certificate(s).
PLEASE NOTE THAT ALL STOCK CERTIFICATES SENT TO THE TRANSFER AGENT SHOULD BE
DULY ENDORSED FOR TRANSFER TO THE COMPANY, WITH A MEDALLION SIGNATURE GUARANTY,
WHICH MAY BE OBTAINED FROM MOST BANKS AND BROKERAGE FIRMS. DO NOT SEND IN YOUR
-------------------
STOCK CERTIFICATES WITHOUT A MEDALLION SIGNATURE GUARANTY, AS IT WILL BE
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RETURNED TO YOU.
- ---------------
Each stockholder who holds of record at least 100,000 shares of Old Common
-------------------------------------
Stock (the equivalent of one whole share of New Common Stock) should use the
- -----
enclosed Letter of Transmittal to elect one of the following options:
(i) To surrender his old stock certificate(s) and the shares of Old
Common Stock represented thereby for a cash payment in an amount equivalent
to $0.05 per share of Old Common Stock represented by such stock
certificate(s); or
(ii) To exchange his old stock certificate(s) for a new certificate
representing the shares of New Common Stock into which the shares of Old
Common Stock formerly represented by the old stock certificate are
converted pursuant to the Reverse Stock Split.
AGAIN, PLEASE NOTE THAT ALL STOCK CERTIFICATES SENT TO THE TRANSFER AGENT SHOULD
BE DULY ENDORSED FOR TRANSFER TO THE COMPANY, WITH A MEDALLION SIGNATURE
GUARANTY, WHICH MAY BE OBTAINED FROM MOST BANKS AND BROKERAGE FIRMS. DO NOT
------
SEND IN YOUR STOCK CERTIFICATES
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WITHOUT A MEDALLION SIGNATURE GUARANTY, AS THEY WILL BE RETURNED TO YOU.
------------------------------------------------------------------------
See "Special Factors--Exchange of Stock Certificates; Cash Payments in Lieu
of Shares."
Financing of the Reverse Stock Split
The Company estimates that the maximum cost that the Company will incur in
connection with the proposed Reverse Stock Split will be approximately $258,000,
consisting of estimated cash payments in lieu of shares of New Common Stock of
approximately $208,000 and estimated transactional expenses of approximately
$50,000. The Company intends to pay for such costs from its working capital or,
if needed, from funds which may become available from repayment by Monte Vista
of a portion of its indebtedness to the Company, from savings in costs of
personnel, or from funds borrowed from available sources, subject to the
Company's right to postpone or abandon the Reverse Stock Split.
See "Special Factors--Financing of the Reverse Stock Split."
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Potential Conflicts of Interest
The directors of the Company are Craig M. Bollman, Jr., the Company's
President, Chairman of the Board of Directors, and majority stockholder, Phyllis
A. Bollman, Mr. Bollman's spouse, and Taylor M. Bollman, Mr. Bollman's son.
The Board of Directors did not retain either an investment bank or other
financial adviser to render a report or opinion with respect to the fairness of
the proposed Reverse Stock Split to the Company or its stockholders or an
unaffiliated representative to represent the unaffiliated stockholders of the
Company in negotiating the terms of the Reverse Stock Split.
See "Special Factors--Fairness of the Reverse Stock Split."
Fairness of the Reverse Stock Split
The Board of Directors has fully reviewed and considered the terms and
conditions of the proposed Reverse Stock Split and has unanimously determined
that the proposed Reverse Stock Split, taken as a whole, is fair to and in the
best interests of the Company and its stockholders.
The Board of Directors believes that the payment of cash in the amount of
$0.05 per share of Old Common Stock in lieu of the issuance of shares of New
Common Stock to persons who would hold less than one full share of New Common
Stock after the Reverse Stock Split, and to other stockholders who would be
entitled to at least one full share of New Common Stock, but who desire to
liquidate their investment in the Company, will enable stockholders to liquidate
their shares easily and at a fair price. The Common Stock of the Company is
rarely traded and is no longer traded in the over-the-counter market of NASDAQ,
which makes it difficult for shareholders to dispose of their shares. In
addition to a fair price, and depending upon a particular stockholder's tax
basis in his shares of Common Stock, this may enable the stockholder to obtain a
tax benefit by recognizing a loss for federal income tax purposes. The Company
does not know the tax basis of shares owned by shareholders, but believes that
many shareholders have a tax basis in excess of $.05 per share since trading
activity, when there was reasonable such activity, was at selling prices in
excess of $.05 per share. See "Special Factors--Certain Federal Income Tax
Consequences." Moreover, by having their shares of the Company's stock
repurchased by the Company, stockholders will be able to liquidate their
investments in the Company without incurring brokerage costs that, especially in
the case of small stockholdings, would otherwise sharply decrease or even
eliminate the actual net proceeds of sale to the stockholder.
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The Board of Directors also believes that the proposed Reverse Stock Split
is fair to the Company and to stockholders who remain as stockholders of the
Company following the consummation of the Reverse Stock Split because, as
described above, the Board of Directors believes that the price to be paid to
stockholders who receive cash in lieu of shares of New Common Stock is fair and
that the Company will realize cost-savings (approximately $50,000 annually) if
as a result of the Reverse Stock Split it ceases to be a reporting company under
the Exchange Act.
Homefree Investors, L.P. concurs with the above analysis.
See "Special Factors--Fairness of the Reverse Stock Split."
Certain Federal Income Tax Consequences
The proposed Reverse Stock Split is not expected to have any material
federal income tax consequence to the Company, or to stockholders who receive
shares of New Common Stock in exchange for their shares of Old Common Stock. In
general, for federal income tax purposes stockholders who receive cash in
exchange for their shares of Old Common Stock will recognize taxable capital
gain or loss as a result of the transaction, provided they hold their Old Common
Stock as a capital asset on the date of exchange. Any such capital gain or loss
will be long-term capital gain or loss if the Old Common Stock had been held for
more than one year, and otherwise will be short-term capital gain or loss. The
Company has not sought, and does not intend to seek, a ruling of the Internal
Revenue Service or an opinion of counsel as to any tax consequences of the
proposed Reverse Stock Split. Each stockholder is advised to consult his own
tax advisor as to the likely tax consequences of the Reverse Stock Split in that
stockholder's particular circumstances.
See "Special Factors--Certain Federal Income Tax Consequences."
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SPECIAL FACTORS
The Company
Organization. Homefree Village Resorts, Inc. (the "Corporation") is a
Delaware corporation. Homefree Investors L.P. (the "Partnership") is a Delaware
limited partnership formed by the Corporation in 1987 and which has not
commenced operations and has no assets or properties. The shares of common
stock, $0.001 par value per share, of the Corporation, and the assignee limited
partnership interests, $0.001 par value per unit, of the Partnership, are
"paired" on a one-for-one basis and may only be transferred in units consisting
of one share of common stock of the Corporation and one unit of assignee limited
partnership interest in the Partnership. As of May 19, 1996, the Company had
outstanding 10,483,982 shares of common stock and an equal number of "paired"
assignee limited partnership units, which were held of record by approximately
548 holders. Unless expressly otherwise stated, or unless the context requires
otherwise, references in this Information Statement to the Company include the
Corporation and its wholly owned subsidiary (Resortparks of America, Inc.) and
the Partnership, and references to shares of the Company's common stock include
the assignee limited partnership interests in the Partnership that are paired
with such shares.
Business. The Company is engaged primarily in the development and
operation of adult recreational communities containing rental sites for
manufactured homes and recreational homes. In recent years, the Company has
also focused on the development of recreational resort communities in Mesa,
Arizona that offer extensive recreational facilities and social activities
designed to appeal to active pre-retirement and retirement age people. During
1995, the Company operated and had interests in one community containing a total
of approximately 832 rental sites located in Arizona. The Company also has
interests in two communities containing approximately 2,300 rental sites located
in Arizona. The Company has interests in such communities through Aristek
Properties, Ltd. and Aristek Western Properties Limited Partnership, in which
the Corporation is the General Partner. The Company's objectives are to create
and participate, through such partnerships, in the cash flow from these
communities and to share in appreciation in the value of such properties. The
Company also receives income from development, management, and administrative
services.
The Corporation. The Corporation is a Delaware corporation which was
organized in February 1972. The Corporation has been engaged in the business of
operating manufactured home communities since its organization. In 1977, the
Corporation, then called Metrix, Inc., acquired all of the capital stock of
Aristek Real Estate Corporation in exchange for 6,230,000 shares of Common
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Stock of the Company which were issued to the stockholders of that corporation,
including 4,449,600 shares to Craig M. Bollman, Jr. and Phyllis A. Bollman. The
name of the Corporation was changed to "Aristek Corporation," and subsequently
changed to "Aristek Communities, Inc." and then to "Homefree Village Resorts,
Inc." Aristek Real Estate Corporation itself was engaged in the development and
operation of manufactured home communities from 1974 to 1977. Since 1977, the
business of the Corporation has continued to consist primarily of the
development and operation of such communities. However, in recent years, the
Corporation has refocused its business on adult recreational communities
containing rental sites for manufactured homes. The Corporation conducts
substantially all of its business through the affiliated limited partnerships
described below.
Resortparks. The Corporation owns 100% of the capital stock of Resortparks
of America, Inc. ("Resortparks"), a Delaware corporation organized in September
1982 to engage in the design, development and management of adult recreational
communities offering extensive recreational facilities and social activities to
pre-retirement and retirement age people. References herein to the Corporation
or the Company include Resortparks.
The Partnership. In July 1987, the Corporation formed the Partnership as a
Delaware limited partnership for the purpose of engaging in certain aspects of
future business opportunities of the type presently conducted by the
Corporation. The general partner of Homefree Investors L.P. is Homefree General
Partners, a Delaware general partnership, comprised of the Corporation and
Bollman Associates, Inc., a Delaware corporation, all of the capital stock of
which is owned by Craig M. Bollman, Jr., President and Chairman of the Board of
the Company. The Corporation owns 90% of Homefree General Partners and Bollman
Associates, Inc. owns 10%.
When it formed the Partnership, the Corporation intended to conduct its
business in conjunction with the Partnership. However, the Partnership never
commenced operations. The Company anticipates that, where possible, in future
real estate acquisitions the Partnership will acquire an ownership interest and
the Corporation will manage operations. The Corporation has no plans to
transfer the Corporation's assets to the Partnership.
The Partnership's Agreement of Limited Partnership (the "Partnership
Agreement") provides that it may engage in virtually any business activity,
although the primary focus of its business is intended to be investment in real
estate related activities, which may include, for example, investing in
securities of other real estate companies and participating in condominium
conversion programs. If the Partnership generates capital to invest, Homefree
General Partners, the general partner of the Partnership, anticipates making
investments in such areas. Although the Partnership has the power under state
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law to make investments in securities of other entities, the Partnership cannot
be engaged primarily in the business of investing, reinvesting or trading in
securities without subjecting itself to regulation under the Investment Company
Act of 1940. In such event, the Partnership would be subject to the limitations
and disclosure requirements of such act. The Partnership has no present
intention to engage in activities which would cause it to become subject to
regulation under the Investment Company Act of 1940 or to engage in non-real
estate related activities.
The Partnership currently has no employees. The Partnership intends to
utilize employees of the Corporation on an as-needed basis, and to contribute to
the compensation of such persons on a pro-rata basis.
Affiliated Partnerships
Aristek Properties, Ltd. The principal affiliated partnership of the
Company is Aristek Properties, Ltd. ("Aristek Properties"). Aristek Properties
was formed as a Colorado limited partnership in June 1976. The Corporation
holds a 1% interest in Aristek Properties as sole General Partner and an
additional 1% interest as a limited partner. Resortparks also owns a 1.3%
interest as a limited partner. The remaining 96.7% of limited partnership
interests is held by individual limited partners. The Corporation also held a
30% residual interest in Aristek Properties, which it relinquished in 1994. See
"Residual Interests in Affiliated Partnerships" below.
Although Aristek Properties has provided significant income tax benefits to
its limited partners, its primary objective is to create significant long-term
capital appreciation that may be realized by the limited partners and the
Corporation, as General Partner, through net proceeds from refinancing of the
properties, and ultimately, net proceeds from the sale of such properties or the
conversion of such properties to other residential or commercial uses and the
distribution of the resulting cash to the partners. The Corporation, as General
Partner of Aristek Properties, is also entitled to receive an annual
administrative fee (currently an amount equal to 2.5% of the capital
contributions of the partners), leasing commissions, management fees and
development fees. However, this fee has not been paid since 1993.
Aristek Properties has a 99% interest in Monte Vista I Joint Venture ("MV-
I"), an Arizona joint venture. The remaining interest in MV-I is owned by the
Corporation. Previously, Aristek Properties owned 60% and Aristek Western
Properties Limited Partnership (see "Aristek Western Properties Limited
Partnership" below) owned 40% of MV-I. Aristek Western transferred to Aristek
Properties and to the Corporation its 40% interest in MV-I, 39% to Aristek
Properties, and 1% to the Corporation.
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The interests in MV-I were modified again in connection with a
restructuring of certain loans owed by Aristek Properties and MV-I to the
Corporation. The obligors on such loans were not able to make principal and
interest payments. With the consent of most of the limited partners of Aristek
Properties, the Corporation agreed to extend these loans until June 30, 1998 in
return for a 7% annual interest rate and a 75% participation in MV-I's operating
cash flow, and in its net sale or refinancing proceeds after all liabilities
(including those payable to the Corporation) are satisfied. At the time of the
restructuring, the net amounts owed to the Corporation by MV-I were
approximately $4,053,341. The Corporation believes that such amount exceeded
the value of the net assets of MV-I, after payment of MV-I's other liabilities.
Aristek Properties has no material assets other than its interest in MV-I.
Since the Corporation is a creditor of both Aristek Properties and MV-I as
described above, the Corporation expects to be entitled to substantially all of
the equity value of MV-I in excess of MV-I's existing first mortgage.
In connection with obtaining such consent of the limited partners of
Aristek Properties, such consenting limited partners granted to the Corporation,
or its designee, an option to purchase their limited partnership interests in
Aristek Properties. This option may be exercised between January 1, 1997 and
November 30, 1998; in any event, the Corporation is required to exercise the
option by November 30, 1998. The purchase price will be equal to the greater of
$20,000 per limited partner Unit (an original $100,000 investment) or the fair
market value (based on appraisal) of such limited partnership unit. Holders of
twenty-six and one-half (26.5) Units granted the above described option, which
would result in a minimum total purchase price for all such Units of $530,000.
Aristek Western Properties Limited Partnership. The Corporation formed
Aristek Western Properties Limited Partnership ("Aristek Western"), a
Massachusetts limited partnership, in October 1984 for the purpose of acquiring,
financing, and developing or redeveloping adult recreational communities with
affordable rental homesites for manufactured homes, located primarily in the
western and southwestern United States. The Corporation has a 1% interest in
Aristek Western as the General Partner and a 1.625% limited partnership interest
and has residual equity interests as the General Partner and as a Special
Limited Partner. See "Residual Interests in Affiliated Partnerships" below.
Aristek Western purchased a 50% interest in a joint venture with an
unaffiliated third party in July 1985. The joint venture purchased two adult
recreational communities in Mesa, Arizona, named Good Life and Towerpoint. See
"Properties" below. In September 1985, Aristek Western acquired from the
Partnership a 30% interest in MV-I. This interest was increased to 40% in July
1986. This 40% interest was transferred to Aristek Properties and the
Corporation. See "Aristek Properties, Ltd." above.
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Residual Interests in Affiliated Partnerships
Aristek Properties, Ltd. Prior to the restructuring described above, as
General Partner of Aristek Properties, the Corporation had a residual interest
in Aristek Properties that entitled it to receive 30% of all excess cash flow
from operations and net proceeds from the refinancing and sale of properties
after distributions have been made to the limited partners in an amount equal to
their initial capital investments. The Corporation relinquished its residual
interest in Aristek Properties as part of the loan restructuring described
above. As a result, the limited partners of Aristek Properties will be entitled
to all distributions, but only after the Corporation receives its loan repayment
and participating interest as described above.
Aristek Western Properties Limited Partnership. The Corporation has a
direct residual interest in Aristek Western that entitles the Corporation to 30%
of the excess cash flow from operations, refinancings, and sales of properties
when Aristek Western has made cash distributions to the limited partners of at
least $65,000 per unit and the sum of the cash distributions per unit plus the
product of the highest marginal federal income tax rate in effect for each year
times the aggregate net tax losses allocated per unit in each year equal the
initial capital investment. Aristek Western has not yet made any cash
distributions to its limited partners. The Corporation cannot presently predict
whether distributions will be made to the limited partners.
Development Activities. The Corporation, through Aristek Properties and in
conjunction with Resortparks, developed a community for recreational homes and
park model travel trailers in Mesa, Arizona, a city 20 miles east of Phoenix.
The community, called Monte Vista, is designed to appeal to active adults in the
pre-retirement and retirement age groups and is recreation-oriented.
The Corporation planned a two-stage development process for Monte Vista.
During the first stage, the Corporation developed 832 recreational home rental
sites and extensive common facilities, including a 35,600 square foot social and
recreation complex. This first stage is on 80 acres owned by MV-I.
Construction began in 1983 and was substantially completed in December 1984.
Monte Vista opened for occupancy in January 1985.
During the second stage, the Corporation plans to develop additional
manufactured home sites on a portion of 80 acres conveyed by Aristek Properties
to MV-I. Assuming that market conditions permit, the Corporation intends to
pursue in the future the funding necessary to develop this second stage. See
"Properties" below.
<PAGE>
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Competition. The Corporation competes generally with all companies engaged
in community development and home construction.
The three properties in Mesa, Arizona compete in what is regarded as a
competitive market for adult recreational manufactured housing communities. The
Corporation continues to compete in this market by offering special amenities
and adult recreational and educational services.
Each of the Corporation's geographic markets includes competitors which are
larger and have greater financial and other resources than the Corporation.
Personnel. During 1995 the Company employed two full-time employees.
Properties. The Corporation, through Aristek Properties and other related
limited partnerships, has ownership interests in the properties described below.
The Corporation operates the Monte Vista property described below.
Monte Vista. Monte Vista is an adult recreational community located in
Mesa, Arizona containing 832 sites for recreational homes. Most sites are
leased on an annual basis to residents who leave their homes at the site year-
round. Remaining sites are reserved for monthly and weekly rentals. Most
residents and guests stay at the community during the months from November
through April. During the peak months of January through March, Monte Vista
reached approximately 90% occupancy for the past five years. The effective
average occupancy based on annual rental income was approximately 95% during
1995. Monte Vista is owned by the Monte Vista I Joint Venture ("MV-I"), which
is owned 99% by Aristek Properties and 1% by the Corporation. At December 31,
1995, the Monte Vista property was subject to a mortgage in the amount of
approximately $5,015,345 held by a commercial lender.
Monte Vista II. In December 1983, the Company sold to Resortparks an 80-
acre parcel on which the development of Monte Vista II is planned. See
"Development Activities" below. This land was transferred to Aristek Properties
in April 1990, and then to Monte Vista in October 1991, and is subject to the
mortgage described under the caption "Monte Vista" above.
Good Life Travel Trailer Resort. Good Life is an adult recreational
community located in Mesa, Arizona containing 1,198 sites for recreational
vehicles. Most sites are rented on an annual basis with the remainder rented on
a monthly or weekly basis. Most residents stay at the community during the
months from November through April. Good Life is owned by H-H Resorts Joint
Venture, which is owned 50% by Aristek Western and 50% by Hankins Enterprises,
an unaffiliated third party. Good Life is managed by Hankins Enterprises and
has historically been 100% occupied from January through
<PAGE>
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April and its effective average occupancy based on annual rental income was 97%
in 1995. At December 31, 1995, Good Life, together with the Towerpoint property
described below, was subject to a mortgage in the amount of approximately
$9,113,071 held by a commercial lender.
Towerpoint Travel Trailer Resort. Towerpoint is an adult recreational
community located in Mesa, Arizona containing 1,115 sites for recreational
vehicles. Most sites are rented on an annual basis with the remainder rented on
a monthly or weekly basis. Most residents stay at the community during the
months from November through April. Towerpoint is owned by H-H Resorts Joint
Venture and is managed by Hankins Enterprises. Towerpoint has historically been
100% occupied from November through April and its effective average occupancy
based on annual rental income was 98% in 1995. At December 31, 1995,
Towerpoint, together with the Good Life property described above, was subject to
a mortgage in the amount of approximately $9,113,071 held by a commercial
lender.
Further Information. For further information with respect to the Company
and its business and operations, see the Company's Annual Report on Form 10-K
for the year ended December 31, 1995 and its Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996.
The Reverse Stock Split
On March 12, 1996, the Company's Board of Directors approved a proposal
authorizing:
(1) An amendment to the Company's Certificate of Incorporation
effecting a one-for-100,000 reverse stock split of the Company's existing
Common Stock, $0.001 par value per share ("Old Common Stock"), reducing the
authorized number of shares of common stock from 15,000,000 shares to
10,000 shares ("New Common Stock"); and
(2) The payment of cash in the amount of $0.05 per share of Old Common
Stock in lieu of the issuance of fractional shares of New Common Stock to
persons who would hold less than one full share of New Common Stock after
the proposed reverse stock split, and to other stockholders who desire to
liquidate their investment in the Company (together with the amendment
described in the preceding paragraph, the "Reverse Stock Split").
<PAGE>
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Reasons for the Reverse Stock Split
Going-Private Transaction. The Board of Directors determined to effect the
proposed Reverse Stock Split in order to "go private," i.e., to reduce the
number of record stockholders of the Company to fewer than 300, which would
permit the Company to discontinue the registration of its Common Stock under the
Securities Exchange Act of 1934 (the "Exchange Act"). The Board of Directors
believes that neither the Company nor its stockholders derive any material
benefit from the continued registration of the Company's Common Stock under the
Exchange Act. The Company does not intend to raise capital in the public
securities markets, to use registered stock to effect acquisitions, or to avail
itself of other advantages of being a public company. Its Common Stock has been
de-listed by NASDAQ, and is thinly traded. The Company incurs significant
direct and indirect costs, however, as a result of the requirement that it
comply with the filing and reporting requirements applicable to public
companies: The Company annually incurs direct costs, including legal and
accounting expenses, of approximately $50,000 in years in which the minimum
filings with the Securities and Exchange Commission (the "SEC") are required.
It also incurs indirect costs as a result of, among other things, the management
time required to prepare and review such filings. Because the Company has only
one executive officer, the indirect costs caused by the diversion of this
officer's time from the Company's business can be substantial.
Accordingly, the Board of Directors believes that the continued expense and
burden to the Company of continued registration, including the requirement to
file annual and quarterly reports, proxy statements, and other documents with
the SEC, significantly outweigh any benefits to the Company or its stockholders
as a result of such registration. The proposed Reverse Stock Split is being
undertaken at this time because the sooner the transaction can be consummated,
the sooner the Company will cease to incur such expenses and burdens and the
sooner stockholders who elect to receive cash in lieu of shares of New Common
Stock will receive and be able to reinvest or otherwise make use of such cash
payments. The Company could have benefited from these cost savings if it had
gone "private" earlier, but the Company wanted to make certain that full
consideration and opportunity was given by management to continuing its status
as a public company, before giving up such a status. Since the time of initial
Board discussions, the Company's operating results have not improved and in
fact, have deteriorated such that it became more important that the Company
attempt to go private and to have a better opportunity to turn around the
operations of the business to a profitable basis.
Form of Transaction. The Board of Directors has determined that the
proposed Reverse Stock Split is the most expeditious and efficient method of
<PAGE>
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changing the Company's status from that of a publicly held reporting company to
that of a privately held non-reporting company. In making this determination,
the Board of Directors, considered other means of achieving this result, such as
making privately or publicly negotiated purchases of outstanding shares of its
Common Stock (including making a public tender offer for such shares) or
effecting a merger in which the Company's public stockholders would receive cash
instead of stock in the surviving corporation. These alternatives were rejected
because the Board of Directors believed that the proposed Reverse Stock Split
would be simpler to effect as well as less costly. In addition, the Board of
Directors considered that in the case of a merger, the Delaware General
Corporation Law would afford dissenting stockholders appraisal rights that they
would not be entitled to in the case of the proposed Reverse Stock Split. The
Board of Directors believes that the availability of appraisal rights could
unduly increase the complexity and potential cost of going private without
materially benefiting the Company's stockholders. Such costs for appraisals,
legal and accounting fees and management time would be too large a burden for
the Company and the Company believed that such procedure would not result in any
increase in value over $.05 per share. As mentioned, appraisal rights were not
a viable option for the Company since the Company could not afford going through
the appraisal process and having uncertainty as to appraisal values and whether
the process could be accomplished within the financial objectives of the
Company. There was no attempt to solicit potential buyers for the Company since
the Company did not desire to sell its business. A tender offer would not be
made for any increased value for the shares over $.05 per share, and it would
not necessarily accomplish the corporate purpose of reducing shareholders to a
minimum level, and therefore, there would be no benefit to the Company.
Although, there would be a choice for stockholders in a tender offer, there
would be no point in the Company making such an offer since there is no
assurance that shareholders, particularly those with very small lots, would
tender the requisite number of shares which would result in the Company being
able to go private.
Rule 13e-3 Transaction Statement. In connection with the proposed Reverse
Stock Split, the Company has filed with the SEC a Rule 13e-3 Transaction
Statement on Schedule 13e-3. See "Other Information; Documents Incorporated by
Reference."
Conduct of the Company's Business after the Reverse Stock Split
No Effect on Continuing Business and Operations. The Company believes that
the proposed Reverse Stock Split will not have any effect on its business and
operations, and expects to continue to conduct such business and operations as
they are currently being conducted. If the Reverse Stock Split is effected,
stockholders who elect to receive cash payments in lieu of shares of
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New Common Stock will not remain as stockholders of the Company and therefore
will not participate in any future earnings or growth of the Company.
Although the Company's auditors raised an issue as to the Company's ability
to continue as a "going concern", the Company believes that "going private" will
enhance its chances in the future to conduct its business in a profitable
manner. The Company will save the costs of being public, management (Mr.
Bollman) will not have to deal with public company matters, and capital or
financing may be more readily available for a company which can operate without
having to deal with public shareholders. If the Company does not "go private",
it is more likely that it will not be able to continue which could cause a
further loss in the investment in the Company of both the public shareholders
and Mr. Bollman and his affiliates.
If feasible, based on economics and market conditions, the Monte Vista
Joint Venture, consisting of Aristek Properties (99%) and Homefree (1%), may
attempt to develop the remaining land at Monte Vista by using funds which may
become available from Monte Vista's operations or from its refinancing, and may
attempt to acquire other properties, including the interest of H & H Resorts
owned by Aristek Western.
Termination of Reporting Company Status. If the proposed Reverse Stock
Split is effected, it is anticipated that the Company will cease to be a
reporting company under the Exchange Act. As a result, the Company would no
longer file annual and quarterly reports, proxy statements, and other documents
with the SEC. In addition, the Company would no longer be required to comply
with the proxy rules of Regulation 14A promulgated under Section 14 of the
Exchange Act, and its officers, directors, and 10%-or-greater stockholders would
no longer be subject to the reporting requirements and "short-swing" security
trading restrictions under Section 16 of the Exchange Act. Continuing
stockholders will no longer be entitled to receive annual reports and proxy
statements and will no longer have the benefit of a public market for their
shares of the Company's stock.
Changes to Authorized Capital Stock; Terms of Stock Unchanged. If the
proposed Reverse Stock Split is effected, the number of authorized shares of the
Company's Common Stock will be reduced from 15,000,000 shares to 10,000 shares.
Apart from such change, the terms of the New Common Stock will remain the same
as those of the Old Common Stock.
Changes in Proportionate Stock Ownership and Share Values. Stockholders
who remain stockholders of the Company after the Reverse Stock Split will
experience an increase in their percentage stock ownership in the Company as a
result of the elimination of the shares held by shareholders owning less than
100,000 shares, resulting in less outstanding
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shares of the Company. The use of Company funds to finance the repurchase of
shares and to pay transactional costs of the Reverse Stock Split will cause a
slight decrease in the Company's assets.
Absence of Planned Extraordinary Transactions. Other than as described in
this Information Statement, the Company has no current plan to effect any
extraordinary corporate transaction, such as a merger, reorganization,
liquidation, sale or transfer of a material amount of assets, change in its
present Board of Director or management, or change in dividend rate or policy,
indebtedness, or capitalization, or otherwise to effect any material change in
its corporate structure or business. The Company also has no current plan to
engage in any public offering of shares of Common Stock or other securities.
There is no assurance, however, that the Company will not form an intention to
engage in any of the foregoing transactions in the future.
Further Stockholder Approval Not Required
The proposed Reverse Stock Split has been approved by the written consent
of Craig M. Bollman, Jr., the Company's majority stockholder. Such consent is
sufficient to approve the Reverse Stock Split under the Delaware General
Corporation Law, and no other vote or consent of stockholders is required or
will be sought in connection with the Reverse Stock Split. ACCORDINGLY, THE
COMPANY IS NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND THE
COMPANY A PROXY.
Lack of Appraisal Rights
Pursuant to the Delaware General Corporation Law, dissenting stockholders
will not have appraisal rights if the proposed Reverse Stock Split is effected.
Stockholders who believe that they may be aggrieved by the Reverse Stock Split
may have other rights under federal law or common law, such as rights relating
to the fairness of the Reverse Stock Split and the fiduciary responsibilities of
corporate officers, directors, and stockholders. The nature and extent of such
rights, if any, may vary depending upon the facts and circumstances.
Postponement or Abandonment
The Company's Board of Directors may postpone or abandon the proposed
Reverse Stock Split at any time prior to its consummation, for any reason,
including without limitation if in the Directors' sole judgment, consummation of
the Reverse Stock Split would unduly deplete the Company's working capital.
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Effective Time
Subject to the rights of the Board of Directors to postpone or abandon the
proposed Reverse Stock Split, the Reverse Stock Split will be effected by filing
an amendment to the Company's Certificate of Incorporation with the Delaware
Secretary of State and will be effective upon such filing. The form of the
proposed amendment to the Company's Certificate of Incorporation is set forth as
Exhibit A to this Information Statement.
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Exchange of Stock Certificates; Cash Payments in Lieu of Shares
Letters of Transmittal. If the proposed Reverse Stock Split is effected,
the stock certificates formerly representing shares of Old Common Stock will
cease to represent such shares and thereafter will represent the shares of New
Common Stock into which they have been converted, or the right to receive a cash
payment in lieu of such shares, as the case may be, all as described below.
Enclosed is a Letter of Transmittal for use in exchanging old stock certificates
for a new stock certificate or cash payment.
Each stockholder who holds of record less than 100,000 shares of Old Common
--------------------------------------
Stock (the equivalent of one whole share of New Common Stock) should use
- -----
the enclosed Letter of Transmittal to surrender his old stock certificate(s) and
the shares of Old Common Stock represented thereby for a cash payment in an
amount equivalent to $0.05 per share of Old Common Stock represented by such
certificate(s);
PLEASE NOTE THAT ALL STOCK CERTIFICATES SENT TO THE COMPANY SHOULD BE DULY
ENDORSED FOR TRANSFER TO THE COMPANY, WITH A MEDALLION SIGNATURE GUARANTY, WHICH
MAY BE OBTAINED FROM MOST BANKS AND BROKERAGE FIRMS. DO NOT SEND IN YOUR STOCK
-------------------------
CERTIFICATES WITHOUT A MEDALLION SIGNATURE GUARANTY, AS THEY WILL BE RETURNED TO
- --------------------------------------------------------------------------------
YOU.
- ---
Each stockholder who holds of record at least 100,000 shares of Old Common
-------------------------------------
Stock (the equivalent of one whole share of New Common Stock) should use the
- -----
enclosed Letter of Transmittal to elect one of the following options:
(i) To surrender his old stock certificate(s) and the shares of Old
Common Stock represented thereby for a cash payment in an amount
<PAGE>
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equivalent to $0.05 per share of Old Common Stock represented by such stock
certificate(s); or
(ii) To exchange his old stock certificate(s) for a new certificate
representing the shares of New Common Stock into which the shares of Old
Common Stock formerly represented by the old stock certificate are
converted pursuant to the Reverse Stock Split.
AGAIN, PLEASE NOTE THAT ALL STOCK CERTIFICATES SENT TO THE COMPANY SHOULD BE
DULY ENDORSED FOR TRANSFER TO THE COMPANY, WITH A MEDALLION SIGNATURE GUARANTY.
DO NOT SEND IN YOUR STOCK CERTIFICATES WITHOUT A MEDALLION SIGNATURE GUARANTY,
- ------------------------------------------------------------------------------
AS THEY WILL BE RETURNED TO YOU.
- -------------------------------
Financing of the Reverse Stock Split
The Company estimates that the maximum cost that the Company will incur in
connection with the proposed Reverse Stock Split will be approximately $258,000
consisting of estimated cash payments in lieu of shares of New Common Stock of
approximately $208,000 and estimated transactional expenses of approximately
$50,000 (consisting primarily of legal and accounting expenses of approximately
$35,000, printing and mailing expenses of approximately $10,000, and
miscellaneous expenses of approximately $5,000 (including SEC filing fees of
approximately $50). The Company intends to finance such costs from its working
capital, or, if needed, from funds which may become available from repayment by
Monte Vista of a portion of its indebtedness to the Company, from savings in the
the cost of personnel, or from borrowed funds. The Company's Board of Directors
may, however, postpone or abandon the Reverse Stock Split at any time prior to
its consummation, for any reason, including without limitation if in the
Directors' sole judgment, consummation of the Reverse Stock Split would unduly
deplete the Company's working capital.
Fairness of the Reverse Stock Split
The Board of Directors has fully reviewed and considered the terms and
conditions of the proposed Reverse Stock Split and has unanimously determined
that the Reverse Stock Split, taken as a whole, is fair to and in the best
interests of the Company and its stockholders.
Fairness of Cash Payments in Lieu of Shares. The Board of Directors
believes that the payment of cash in the amount of $0.05 per share of Old Common
Stock in lieu of the issuance of shares of New Common Stock to persons
<PAGE>
- 26 -
who hold less than one full share of New Common Stock after the Reverse Stock
Split, and to other stockholders who would be entitled to at least one full
share of New Common Stock, but who desire to liquidate their investment in the
Company on the same basis, will enable stockholders to liquidate their shares
easily and at a fair price. In addition to a fair price, depending upon a
particular stockholders' tax basis in his shares of Common Stock, this may
enable the stockholder to obtain a tax benefit by recognizing a loss for federal
income tax purposes. The Company does not know the tax basis of shares owned by
shareholders, but believes that many shareholders may have a tax basis in excess
of $.05 per share since trading activity, when there was reasonable such
activity, was at selling prices in excess of $.05 per share. See "Special
Factors--Certain Federal Income Tax Consequences." Moreover, by having their
shares of the Company's stock repurchased by the Company, stockholders will be
able to liquidate their investments in the Company without incurring brokerage
costs that, especially in the case of small stockholdings, would otherwise
sharply decrease or even eliminate the actual net proceeds of sale to the
stockholder.
Fairness to the Company and Continuing Stockholders. The Board of
Directors also believes that the proposed Reverse Stock Split is fair to the
Company and to stockholders who remain as stockholders of the Company following
the consummation of the Reverse Stock Split because, as described above, the
Board of Directors believes that the price to be paid to stockholders who
receive cash in lieu of shares of New Common Stock is fair and that the Company
will realize cost-savings (approximately $50,000 annually) if as a result of the
Reverse Stock Split it ceases to be a reporting company under the Exchange
Act.
Factors Considered in Fairness Determination. In reaching its
determination that the proposed Reverse Stock Split is fair to the Company and
its stockholders, the Board of Directors considered, among other things, each of
the directors' knowledge of and familiarity with the Company's own business,
financial condition, operating results, cash flows, assets, liabilities, and
prospects, as well as general economic, industry, and market conditions and
prospects. The Board of Directors also considered the absence of a liquid
market for shares of its Common Stock; the fact that Craig M. Bollman, Jr., the
Company's President, Chairman of the Board of Directors, and majority
stockholder, owns or controls approximately 67% of the outstanding shares of
Common Stock; the opportunity that the Reverse Stock Split would afford
stockholders to liquidate their investments in the Company without incurring
brokerage costs; the opportunity that the Reverse Stock Split would afford
stockholders to obtain tax benefits by recognizing losses for federal income tax
purposes (see "Special Factors--Certain Federal Income Tax Consequences"); and
<PAGE>
- 27 -
the future cost-savings that the Company and its continuing stockholders will
enjoy if as a result of the Reverse Stock Split the Company ceases to be a
reporting company under the Exchange Act. Given the wide variety of factors
considered in reaching its conclusion as to fairness (including those described
below), the Board of Directors did not deem it practicable to assign precise
relative weights to the factors considered, and all factors were considered as a
totality.
In addition to the foregoing, other factors considered by the Board of
Directors in making its determination included the following:
Current and Historical Market Prices for the Common Stock. The Company's
Common Stock is not listed on any stock exchange or quoted in the National
Association of Securities Dealers Automated Quotation (NASDAQ) system, and the
Company does not receive reports with respect to trading in Common Stock. The
Company does not know of any market makers with respect to the Common Stock.
The Common Stock is thinly traded: According to the records of the Company's
stock transfer agent, American Stock Transfer & Trust Company, an aggregate of
75,148 shares of Common Stock were transferred during 1995. The Company made
inquiry of the initiating brokers with respect to a number of such trades, but
was not able to obtain any information with respect to the prices at which these
transfers were effected.
In September 1995, the Company received an inquiry from a stockholder who
wished to dispose of 9,900 shares of Common Stock in order to recognize a loss
for federal income tax purposes. The Company put this stockholder in touch with
a Company employee who had previously expressed an interest in acquiring shares
of Common Stock, which resulted in this stockholder selling these shares to this
employee for cash consideration of $0.05 per share.
The Company has not paid any dividends on its Common Stock within the last
two years.
In view of the low volume of trading of the Common Stock and the
unavailability of any reasonably current information with respect to market
prices, the Board of Directors did not assign any material weight to this factor
in determining the fairness of the proposed Reverse Stock Split.
Net Book Value. As of December 31, 1995, the net book per share of Common
Stock was approximately $.10. The Company's primary asset consists of net
receivables from Aristek Properties and MV-I. Because of significant
uncertainties with respect to the collectibility of these receivables, for
financial accounting purposes, as of December 31, 1994 the Company suspended
recording interest income on receivables from Aristek Properties,
<PAGE>
- 28 -
interest expense on amounts payable by the Company to Aristek Properties (which
may be set off against amounts owing to the Company by Aristek Properties), and
management fees payable by Aristek Properties to the Company, the net amount of
which, as of December 31, 1995, was approximately $1,500,000. The face amount of
these net receivables (including accrued interest) as of December 31, 1995, was
$4,000,000. Because of the uncertainties as to their collectability, however,
they are reflected in the Company's financial statements at $1,500,000.
The audit report of the Company's independent public accountants, Hein +
Associates, LLP, with respect to the Company's financial statements for the year
ended December 31, 1995, included a "going-concern" explanatory paragraph. The
Company's financial statements are prepared on the assumption that the Company
will continue as a going concern, i.e., that it will realize its assets and
liquidate its liabilities in the normal course of business. Given that the
Company has suffered losses of over $743,000 since the end of 1990, and that it
is anticipated that it will need additional investment of cash to fund its
operations, the Company's independent public accountants have stated that there
is substantial doubt as to the ability of the Company to continue as a going
concern.
Although the audit report on the Company's financial statements of the
Company raises an issue as to the Company's ability to continue as a "going
concern", the Company believes that "going private" will enhance its chances to
conduct its business in a profitable manner. The Company will save the costs of
being public, management (Mr. Bollman) will not have to deal with public company
matters, and capital or financing may be more readily available for a company
which can operate without having to deal with public shareholders. If the
Company does not "go private", it is more likely that it will not be able to
continue which could cause a further loss in the investment in the Company of
both the public shareholders and Mr. Bollman and his affiliates.
The Board of Directors believes that book value, which is computed on the
assumption that the Company will continue as a going concern, is only one factor
in determining the fair value of the Common Stock. Accordingly, the Board of
Directors did give some weight to this factor in determining the fairness of the
proposed Reverse Stock Split.
Going-Concern Value. As noted under the caption "Book Value" above, the
auditors believe there is substantial doubt as to the ability of the Company to
continue as a going concern. However, management does believe that the Company
can continue as a going business (See above discussion), although there is no
--------------------
certainty that it can be accomplished. Accordingly, the
<PAGE>
- 29 -
Board of Directors did not assign any weight to this factor in determining the
fairness of the proposed Reverse Stock Split.
Liquidation Value. The Company has no current plan to effect any
liquidation of the Company. See "Special Factors--Conduct of the Company's
Business after the Reverse Stock Split--Absence of Planned Extraordinary
Transactions." As described above under the caption "Book Value," the Company's
primary asset consists of net receivables from Aristek Properties and MV-I. The
Board of Directors believes that the Company would not be able to realize the
full value of these receivables through liquidation, because it is unlikely that
any buyer would purchase these receivables except at a steep discount from their
face value, and that to realize the full value of the Aristek Properties and MV-
I net receivables, it is necessary that MV-I successfully complete the second
stage of the development process with respect to the Monte Vista. Further, the
loan documents relating to the financing of Monte Vista require that Craig
Bollman, Jr. remain as the controlling shareholder of the Company and that the
Company remain as General Partner of Aristek Properties and Monte Vista. A
liquidation of Homefree, or a disposition of Monte Vista, would likely result in
the acceleration of the due date of mortgage financing for Monte Vista, thereby
making it even more difficult to realize value for the Company with respect to
such receivables.
Accordingly, the Company did not seek appraisals or make an analysis to
determine the value of the Company upon a liquidation. Mr. Bollman, as
principal stockholder, does not desire to liquidate the Company since he
believes that the Company can continue to operate more effectively after "going
private". See "Special Factors--The Company--Development Activities" above.
<PAGE>
- 30 -
Absence of Independent Third-Party Valuation or Arms'-Length Negotiation.
The Company has not received any report, opinion, or appraisal from any outside
party that is materially related to the proposed Reverse Stock Split. In light
of the circumstances, including the directors' knowledge of and familiarity with
the Company's own business, financial condition, operating results, cash flows,
assets, liabilities, and prospects, as well as with general economic, industry,
and market conditions and prospects, the wide variety of factors considered in
connection with its evaluation of the fairness of the proposed Reverse Stock
Split, the Board of Directors did not consider it necessary to retain either an
investment bank or other financial adviser to render a report or opinion with
respect to the fairness of the proposed Reverse Stock Split to the Company or
its stockholders or an unaffiliated representative to represent the unaffiliated
stockholders of the Company in negotiating the terms of the Reverse Stock Split.
The primary factor considered by the Board of Directors in determining not to
retain the services of such a financial adviser or unaffiliated representative
was its belief that the cost of such services would be excessive relative to the
size of the transaction and the potential benefits to the Company and its
stockholders.
Absence of Firm Offers for Alternative Transactions. The Company is not
aware of any firm offers made by any unaffiliated persons during the preceding
eighteen months for the merger or consolidation of the Company with or into such
person or of such person with the Company, for the sale or other transfer of all
or any substantial portion of the Company's assets, or for securities of the
Company that would enable the holder thereof to exercise control of the Company.
The Company did not seek or solicit any proposals for any such merger,
consolidation or sale.
Potential Conflicts of Interest. The directors of the Company are Craig
M. Bollman, Jr., the Company's President, Chairman of the Board of Directors,
and majority stockholder, Phyllis A. Bollman, Mr. Bollman's spouse, and Taylor
M. Bollman, Mr. Bollman's son.
As noted above, the Board of Directors did not retain either an investment
bank or other financial adviser to render a report or opinion with respect to
the fairness of the proposed Reverse Stock Split to the Company or its
stockholders or an unaffiliated representative to represent the unaffiliated
stockholders of the Company in negotiating the terms of the Reverse Stock Split.
<PAGE>
- 31 -
Certain Federal Income Tax Consequences
THE COMPANY HAS NOT SOUGHT, AND DOES NOT INTEND TO SEEK A RULING FROM THE
INTERNAL REVENUE SERVICE OR AN OPINION OF COUNSEL AS TO ANY TAX CONSEQUENCES OF
THE PROPOSED REVERSE STOCK SPLIT. THE FOLLOWING DISCUSSION SUMMARIZES CERTAIN
FEDERAL INCOME TAX CONSEQUENCES THAT THE COMPANY BELIEVES WOULD RESULT TO
STOCKHOLDERS WHO ARE RESIDENTS OF THE UNITED STATES AS A CONSEQUENCE OF THE
REVERSE STOCK SPLIT. THIS DISCUSSION IS BASED ON CURRENT LAW AS OF THE DATE OF
THIS PROXY STATEMENT AND DOES NOT TAKE INTO ACCOUNT ANY SPECIAL RULES THAT MAY
AFFECT THE TREATMENT OF PARTICULAR STOCKHOLDERS, SUCH AS DEALERS IN SECURITIES,
TAX-EXEMPT ENTITIES, NON-RESIDENT ALIENS, OR FOREIGN CORPORATIONS. THIS
DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY, WITHOUT REFERENCE TO THE
PARTICULAR FACTS AND CIRCUMSTANCES OF ANY SPECIFIC STOCKHOLDER. EACH
STOCKHOLDER SHOULD CONSULT HIS OWN TAX ADVISOR WITH RESPECT TO THE FEDERAL
INCOME TAX CONSEQUENCES IN HIS OWN CIRCUMSTANCES, AND WITH RESPECT TO THE
EFFECTS OF APPLICABLE STATE, LOCAL, AND FOREIGN TAX LAWS AS TO WHICH NO
INFORMATION IS PROVIDED HERE.
Tax Consequences to the Company. The proposed Reverse Stock Split is
intended to qualify for federal income tax purposes as a tax-free reorganization
of the Company pursuant to Section 368(a) of the Internal Revenue Code of 1986,
as amended (the "Code"). Accordingly, the Company does not expect that it will
experience any tax consequences as a result of the Reverse Stock Split.
Tax Consequences to Stockholders. The following discussion assumes each
stockholder holds his shares of Old Common Stock as a capital asset.
Exchange of Old Common Stock Solely for New Common Stock. A stockholder
who exchanges all of his Old Common Stock solely for New Common Stock will not
recognize any gain or loss on the exchange. The aggregate tax basis of the New
Common Stock received will be equal to the aggregate tax basis of the Old Common
Stock exchanged, and the holding period of the New Common Stock received will
include the holding period of the Old Common Stock exchanged.
Exchange of Old Common Stock Solely for Cash. A stockholder who exchanges
all of his Old Common Stock (or full or fractional shares of New
<PAGE>
- 32 -
Common Stock received in respect of Old Common Stock as a result of the Reverse
Stock Split) received in the transaction for cash will, assuming he is not
treated as owning any other New Common Stock immediately after the Reverse Stock
Split, recognize capital gain or loss equal to the difference between the basis
of the Old Common Stock surrendered and the cash received. Such capital gain or
loss will be long-term capital gain or loss, if the stockholder's holding period
for his Old Common Stock exceeds one year, and otherwise will be short-term
capital gain or loss.
For this purpose, stock "owned" immediately after the Reverse Stock Split
will include stock actually owned as well as stock constructively owned pursuant
to the rules of Section 318 of the Code (which in general attributes to a
taxpayer stock owned by certain related individuals and entities and stock that
the taxpayer has the right to acquire upon the exercise of options). In the
event such a stockholder actually or constructively owns shares of New Common
Stock immediately after the Reverse Stock Split, it is unclear whether the
holder will automatically recognize capital gain or loss or instead be required
to treat the entire amount of the cash received as a dividend. Such a holder
may be required to treat the entire amount of the cash received as a dividend
unless the redemption of the stockholder's shares is a substantially
disproportionate redemption of stock with respect to such stockholder or is not
essentially equivalent to a dividend, in each case under rules similar to the
rules of Sections 356(a)(2) and 302 of the Code.
Backup Withholding. Each stockholder who receives cash in lieu of shares
of New Common Stock will be required to provide the Company with a correct
Taxpayer Identification Number on the Form W-9 or substitute Form W-9 included
with the Letters of Transmittal and to certify that he is not subject to backup
withholding. Failure to provide the information and certification on the Form
W-9 (or substitute Form W-9) may subject the stockholder to 31% federal income
tax backup withholding with respect to any cash payment for the stockholder's
shares of New Common Stock.
<PAGE>
- 33 -
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information with respect to
beneficial ownership of shares of Old Common Stock as of May 19, 1996 by (i)
each person or group who is known by the Company to own beneficially more than
5% of the issued and outstanding shares of Common Stock as of that date, (ii)
each director and each executive officer of the Company, and (iii) all directors
and executive officers of the Company, as a group. Except as otherwise
indicated below, to the best of the Company's knowledge each person listed below
has sole voting and investment power with respect to his shares of Common Stock,
except to the extent that such power may be with his or her spouse under
applicable law.
<TABLE>
<CAPTION>
Shares Beneficially Owned
-----------------------------
Name Number Percent of Class
- ---- ------ ----------------
<S> <C> <C>
Craig M. Bollman, Jr. 7,036,940* 67.1*
c/o Homefree Village
Resorts, Inc.
1400 S. Colorado Boulevard, Suite 410
Denver, Colorado 80222
All directors and executive 7,036,940* 67.1*
officers, as a group
</TABLE>
* Includes 6,325,288 shares held by Craig M. Bollman, Jr. Also includes
711,652 shares held by the Aristek Foundation, with respect to which Mr. Bollman
has sole voting and investment power, but in which he has no beneficial
interest. Mr. Bollman disclaims beneficial ownership of the shares held by the
Aristek Foundation.
Based on records with the Company's Transfer Agent as of May 19, 1996,
there were seven stockholders (including Craig M. Bollman, Jr. and The Aristek
Foundation) of record with more than 100,000 shares registered in each such
shareholder's name. Since some of these shareholders may be acting in a nominee
capacity, the Company cannot determine whether the beneficial ownership may be
more or less than 100,000 shares for a given shareholder.
<PAGE>
- 34 -
Financial Information.
See attached Financial Statements of the Company.
Other Information; Documents Incorporated by Reference
Pursuant to the Exchange Act, the Company files with the SEC periodic
reports and other documents relating to its business, financial condition, and
other matters. In connection with the Reverse Stock Split, the Company has
filed with the SEC a Rule 13e-3 Transaction Statement on Schedule 13e-3. The
Schedule 13e-3, including exhibits, and other filings made by the Company as
described above, may be inspected without charge, and copies may be obtained at
prescribed rates, at the public reference facilities maintained by the SEC at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
The Schedule 13e-3 is also available for inspection and copying during normal
business hours at the principal executive offices of the Company at 1400 S.
Colorado Boulevard, Suite 410, Denver, Colorado 80222.
<PAGE>
EXHIBIT A
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF HOMEFREE VILLAGE RESORTS, INC.
Incorporated under the name "Metrix, Inc."
pursuant to a Certificate of Incorporation
filed with the Secretary of State of the State of Delaware
on February , 1972
---------------------
Homefree Village Resorts, Inc. (the "Company"), a Delaware corporation,
hereby certifies as follows:
FIRST. The total number of shares of Common Stock, $0.001 par value per
share, that the Company is authorized to issue is hereby reduced from 15,000,000
shares to 10,000 shares.
SECOND. Upon filing of this Certificate of Amendment, each share of the
Company's Common Stock, $.001 par value per share, issued and outstanding or
held in treasury immediately prior to such filing ("Old Common Stock") shall be
combined into and reclassified as, and shall become, one hundred thousandth
(1/100,000) of one fully paid and non-assessable share of the Company's Common
Stock, $0.001 par value per share ("New Common Stock"). Until surrendered, the
certificates formerly representing the shares of Old Common Stock, that have
been combined and reclassified in accordance with the foregoing shall thereafter
represent the shares of New Common Stock that they have been combined into and
reclassified as in accordance with the foregoing.
THIRD. The Company in its discretion may, but shall not be required to,
issue fractional shares of New Common Stock (whether as a result of the
combination and reclassification of shares hereby effected or otherwise). If
the Company determines not to issue fractional shares to any person or entity
who would otherwise be entitled thereto, it may in lieu thereof pay in cash the
fair value of such fractional shares, as determined by the Company's Board of
Directors, whose determination shall be conclusive and binding on all persons
and entities. Without limiting the generality of the foregoing, the Company in
its discretion may, but shall not be required to, issue fractional shares to any
person or entity holding at least one whole share of New Common Stock after such
reverse stock split and may pay cash in lieu of fractional shares to any person
or entity holding less than one whole share of New Common Stock.
<PAGE>
- 2 -
The foregoing amendments were duly adopted in accordance with Sections 228
and 242 of the Delaware General Corporation Law, and written notice thereof has
been given as provided in Section 228(d) thereof.
Executed on ____________, 19___.
HOMEFREE VILLAGE RESORTS, INC.
By ---------------------------
Authorized Officer
<PAGE>
LETTER OF TRANSMITTAL
To Accompany Certificates Representing Shares
of the Old Common Stock of Homefree Village Resorts, Inc.
to be Exchanged for Certificates representing Shares
of New Common Stock or Cash Payments in Lieu of Shares
STOCKHOLDERS: PLEASE READ CAREFULLY THE IMPORTANT INSTRUCTIONS ON THE LAST PAGE
OF THIS LETTER OF TRANSMITTAL.
List of Certificates Enclosed
and Number of Shares of Old
Name and Address Common Stock Represented
of Registered Owner by Each Certificate
- ------------------- -------------------
Cert. No. No. Shares
-------- ----------
To: American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Attention: Tammy Davis
Pursuant to the Information Statement dated ____________, 1996, of Homefree
Village Resorts, Inc. (the "Company") with respect to the one-for-100,000
Reverse Stock Split described therein, enclosed are the above-listed stock
<PAGE>
- 2 -
certificates, to be exchanged for stock certificates representing shares of New
Common Stock or cash payments in lieu of such shares, in accordance with the
following.
PART I STOCKHOLDERS OF RECORD OF LESS THAN 100,000 SHARES OF OLD COMMON STOCK,
------------------------
PLEASE COMPLETE THE FOLLOWING, AND DO NOT COMPLETE PART II BELOW:
---
[ ] I, the undersigned stockholder of the Company, holding of record less
than 100,000 shares of the Old Common Stock of the Company, hereby
surrender my old stock certificate(s) and the shares of Old Common
Stock represented thereby for a cash payment in an amount equivalent
to $0.05 per share of Old Common Stock represented by such
certificates. (Note: To avoid back-up withholding for federal income
tax purposes, you must also enclose a Form W-9 or substitute Form W-
9.)
PART II STOCKHOLDERS OF RECORD OF AT LEAST 100,000 SHARES OF OLD COMMON STOCK,
-----------------------
PLEASE COMPLETE THE FOLLOWING, AND DO NOT COMPLETE PART I ABOVE:
---
I, the undersigned stockholder of the Company, holding of record at least
100,000 shares of the Old Common Stock of the Company, hereby irrevocably elect
as follows (check one box only):
[ ] To surrender my old stock certificate(s) and the shares of Old Common
Stock represented thereby for a cash payment in an amount equivalent to
$0.05 per share of Old Common Stock represented by such certificate(s).
(Note: To avoid back-up withholding for federal income tax purposes, you
must also enclose a Form W-9 or substitute Form W-9.)
[ ] To exchange my old stock certificate(s) for a new certificate
representing the shares of New Common Stock into which the shares of Old
Common Stock represented by my old stock certificate(s) are converted
pursuant to the Reverse Stock Split.
Please sign below exactly as your name appears on your stock
certificate(s). If acting as attorney, executor, trustee, or in other
representative capacity, please give full title as such. If stock is held
jointly, both owners should sign.
<PAGE>
- 3 -
Dated: , 1996
------------------- ---------------------------------------
(Signature)
Print name:
Dated: , 1996
------------------- ---------------------------------------
(Signature of joint owner, if any)
Print name:
<PAGE>
- 4 -
STOCKHOLDER: PLEASE NOTE THE FOLLOWING IMPORTANT INSTRUCTIONS:
. ALL STOCK CERTIFICATES SUBMITTED SHOULD BE DULY ENDORSED FOR TRANSFER TO
THE COMPANY, WITH A MEDALLION SIGNATURE GUARANTY, WHICH MAY BE OBTAINED
FROM MOST BANKS AND BROKERAGE FIRMS. DO NOT SEND IN YOUR STOCK CERTIFICATES
WITHOUT A MEDALLION SIGNATURE GUARANTY, AS THEY WILL BE RETURNED TO YOU.
. THE COMPANY'S BOARD OF DIRECTORS MAY POSTPONE OR ABANDON THE PROPOSED
REVERSE STOCK SPLIT AT ANY TIME PRIOR TO ITS CONSUMMATION, FOR ANY REASON,
INCLUDING WITHOUT LIMITATION IF IN THE DIRECTORS' SOLE JUDGMENT,
CONSUMMATION OF THE REVERSE STOCK SPLIT WOULD UNDULY DEPLETE THE COMPANY'S
WORKING CAPITAL. IN SUCH EVENT, YOUR ENCLOSED STOCK CERTIFICATE(S) WILL BE
RETURNED TO YOU.
. TO AVOID BACK-UP WITHHOLDING WITH RESPECT TO ANY CASH PAYMENT IN LIEU OF
SHARES OF NEW COMMON STOCK, PLEASE COMPLETE, DATE, SIGN, AND RETURN THE
ENCLOSED FORM W-9 OR SUBSTITUTE FORM W-9.
<PAGE>
Aristek Properties, Ltd.
(A Limited Partnership)
Consolidated Financial Statements
For the Years Ended
December 31, 1995, 1994, and 1993
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Homefree Village Resorts, Inc. And Homefree Investors L.P.
- ----------------------------------------------------------
Independent Auditor's Report .............................................. S-1
Combined Balance Sheets - December 31, 1995 and 1994 ...................... S-2
Combined Statements of Operations - For the Years Ended
December 31, 1995, 1994, and 1993 ........................................ S-3
Combined Statements of Stockholders' Equity and Partners' Deficit - For
the Years Ended December 31, 1995, 1994, and 1993 ........................ S-4
Combined Statements of Cash Flows - For the Years Ended
December 31, 1995, 1994, and 1993 ........................................ S-5
Homefree Village Resorts, Inc.
- ------------------------------
Independent Auditor's Report .............................................. S-6
Consolidated Balance Sheets - December 31, 1995 and 1994 .................. S-7
Consolidated Statements of Operations - For the Years Ended
December 31, 1995, 1994, and 1993 ........................................ S-8
Consolidated Statements of Stockholders' Equity - For the Years Ended
December 31, 1995, 1994, and 1993 ........................................ S-9
Consolidated Statements of Cash Flows - For the Years Ended
December 31, 1995, 1994, and 1993 ........................................ S-10
Homefree Investors L.P.
- -----------------------
Independent Auditor's Report .............................................. S-11
Balance Sheets - December 31, 1995 and 1994 ............................... S-12
Statements of Operations - For the Years Ended
December 31, 1995, 1994 and 1993 ......................................... S-13
Statements of Partners' Capital - For the Years Ended
December 31, 1995, 1994, and 1993 ........................................ S-14
Statements of Cash Flows - For the Years Ended
December 31, 1995, 1994, and 1993 ........................................ S-15
Notes to Financial Statements ............................................. S-16
Aristek Properties, Ltd.
- ------------------------
Independent Auditor's Report .............................................. S-27
Consolidated Balance Sheets - December 31, 1995 and 1994 .................. S-28
Consolidated Statements of Operations - For the Years Ended
December 31, 1995, 1994, and 1993 ........................................ S-29
Consolidated Statements of Changes in Partners' Deficit - For
the Years Ended December 31, 1995, 1994, and 1993 ........................ S-30
Consolidated Statements of Cash Flows - For the Years Ended
December 31, 1995, 1994, and 1993 ........................................ S-31
Notes to Consolidated Financial Statements ................................ S-33
</TABLE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Homefree Village Resorts, Inc.
Denver, Colorado
To the Partners
Homefree Investors L.P.
Denver, Colorado
We have audited the accompanying combined balance sheets of Homefree Village
Resorts, Inc. (a Delaware Corporation) and subsidiaries and Homefree Investors
L.P. (a Massachusetts limited partnership) as of December 31, 1995 and 1994, and
the related combined statements of operations, stockholders' equity and
partners' deficit, and cash flows for the years ended December 31, 1995, 1994,
and 1993. These financial statements are the responsibility of the Company's
and Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Homefree Village
Resorts, Inc. and subsidiaries and Homefree Investors L.P. as of December 31,
1995 and 1994, and the results of their operations and their cash flows for the
years ended December 31, 1995, 1994, and 1993 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company and the Partnership will continue as a going concerns, which contemplate
the realization of assets and liquidation of liabilities in the normal course of
business. As discussed in Note 1 to the financial statements, the Company and
the Partnership have suffered substantial operating losses, and anticipate the
need for additional cash to fund operations. These conditions raise substantial
doubt about the ability of the Company and the Partnership to continue as a
going concern. Management's plans in regard to these matters are also discussed
in Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Hein + Associates LLP
Denver, Colorado
June 12, 1996
S-1
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
AND HOMEFREE INVESTORS L.P.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31,
-----------------------------
- --------------------------------------------------------------------------------
1995 1994
------------- --------------
<S> <C> <C>
- --------------------------------------------------------------------------------
ASSETS
------
- --------------------------------------------------------------------------------
CURRENT ASSETS:
- --------------------------------------------------------------------------------
Cash and equivalents $ 38,700 $ 10,600
- --------------------------------------------------------------------------------
Other current assets 4,000 9,600
------------ ------------
- --------------------------------------------------------------------------------
Total current assets 42,700 20,200
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RECEIVABLES FROM UNCONSOLIDATED ENTITIES, NET 8,620,200 8,915,600
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTMENTS IN UNCONSOLIDATED ENTITIES 82,400 94,400
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, at cost:
- --------------------------------------------------------------------------------
Office furniture and equipment 102,900 95,100
- --------------------------------------------------------------------------------
Vehicles 25,000 25,000
------------ ------------
- --------------------------------------------------------------------------------
127,900 120,100
- --------------------------------------------------------------------------------
Accumulated depreciation (110,000) (103,600)
------------ ------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net property and equipment 17,900 16,500
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LAND OPTION COSTS 195,600 195,600
------------ ------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL ASSETS $ 8,958,800 $ 9,242,300
============ ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LIABILITIES, STOCKHOLDERS' EQUITY AND PARTNERS' DEFICIT
-------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CURRENT LIABILITIES:
- --------------------------------------------------------------------------------
Accounts payable and accrued expenses $ 94,600 $ 93,600
- --------------------------------------------------------------------------------
Payable to AWP 150,500 -
- --------------------------------------------------------------------------------
Current maturities of long-term debt 44,400 -
------------ ------------
- --------------------------------------------------------------------------------
Total current liabilities 289,500 93,600
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LONG-TERM DEBT, less current maturities:
- --------------------------------------------------------------------------------
Unconsolidated entity 7,154,500 7,154,500
- --------------------------------------------------------------------------------
Other - 44,400
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DEFERRED INCOME TAXES - 200,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DEFERRED PROFIT 488,500 488,500
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OTHER LIABILITIES, payable to unconsolidated
entities - 3,400
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 1, 3 and 8)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY AND PARTNERS' DEFICIT:
- --------------------------------------------------------------------------------
Preferred stock, $1.00 par value; 3,000,000
shares authorized; none issued and outstanding - -
- --------------------------------------------------------------------------------
Common stock, $.001 par value; 15,000,000 shares
authorized; 10,484,000 shares issued and
outstanding 10,500 10,500
- --------------------------------------------------------------------------------
Additional paid-in capital 3,537,000 3,537,000
- --------------------------------------------------------------------------------
Accumulated deficit (2,293,100) (2,061,800)
- --------------------------------------------------------------------------------
Partners' deficit - limited partners (228,100) (227,800)
------------ --------------
- --------------------------------------------------------------------------------
Total stockholders' equity and
partners' deficit 1,026,300 1,257,900
------------ ------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL LIABILITIES, STOCKHOLDERS' EQUITY AND
PARTNERS' DEFICIT $ 8,958,800 $ 9,242,300
============ ============
- --------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
S-2
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
AND HOMEFREE INVESTORS L.P.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
For the Years Ended December 31,
--------------------------------------------
- -----------------------------------------------------------------------------------
1995 1994 1993
------------- ------------- --------------
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
Revenues:
- -----------------------------------------------------------------------------------
Management and administrative fees
from unconsolidated entities $ 245,400 $ 244,600 $ 253,400
- -----------------------------------------------------------------------------------
Equity in earnings of AWP 11,000 10,800 16,900
- -----------------------------------------------------------------------------------
Interest 12,100 15,300 14,800
----------- ----------- -------------
- -----------------------------------------------------------------------------------
268,500 270,700 285,100
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------------
General and administrative 450,900 429,400 394,600
- -----------------------------------------------------------------------------------
Interest 3,900 9,600 5,000
- -----------------------------------------------------------------------------------
Equity in losses of APL 23,000 26,000 13,000
- -----------------------------------------------------------------------------------
Loss on related party 222,300 128,700 75,600
receivables/administrative fee ----------- ----------- -------------
- -----------------------------------------------------------------------------------
700,100 593,700 488,200
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
Loss Before Income Taxes (431,600) (323,000) (203,100)
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
Deferred Income Tax Benefit 200,000 87,000 43,000
----------- ----------- -------------
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
Net Loss $ (231,600) $ (236,000) $ (160,100)
=========== =========== =============
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
Net Loss Per Paired Share $(.02) $(.02) $(.02)
=========== =========== =============
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
Weighted Average Paired Shares 10,484,000 10,484,000 10,484,000
Outstanding =========== =========== =============
- -----------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
S-3
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
AND HOMEFREE INVESTORS L.P.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY AND PARTNERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Additional
Paired Common Stock Paid-in Accumulated Partners'
- -------------------------------------------------------------------------------------------------------------------------
Shares Amount Capital Deficit Deficit Total
---------- ------------ ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Balances, January 1, 1993 10,484,000 $10,500 $3,537,000 $(1,677,400) $(216,100) $1,654,000
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Net loss - - - (148,700) (11,400) (160,100)
---------- ------- ---------- ----------- --------- ----------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1993 10,484,000 10,500 3,537,000 (1,826,100) (227,500) 1,493,900
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Net loss - - - (235,700) (300) (236,000)
---------- ------- ---------- ----------- --------- ----------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1994 10,484,000 10,500 3,537,000 (2,061,800) (227,800) 1,257,900
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Net loss - - - (231,300) (300) (231,600)
---------- ------- ---------- ----------- --------- ----------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1995 10,484,000 $10,500 $3,537,000 $(2,293,100) $(228,100) $1,026,300
========== ======= ========== =========== ========= ==========
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
S-4
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
AND HOMEFREE INVESTORS L.P.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------------------
- --------------------------------------------------------------------------------
1995 1994 1993
------------ ------------ -------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
- --------------------------------------------------------------------------------
Net loss $(231,600) $(236,000) $(160,100)
- --------------------------------------------------------------------------------
Adjustments to reconcile net loss to
net cash used in operating
activities:
- --------------------------------------------------------------------------------
Depreciation 6,400 6,300 8,700
- --------------------------------------------------------------------------------
Amortization - - 11,100
- --------------------------------------------------------------------------------
Equity in losses (earnings) of
unconsolidated entities, net 12,000 15,200 (3,900)
- --------------------------------------------------------------------------------
Cash advances to officer and
director (210,200) (113,400) (62,500)
- --------------------------------------------------------------------------------
Provision for loss on related
party receivables 222,300 128,700 75,600
- --------------------------------------------------------------------------------
Deferred income taxes (200,000) (87,000) (43,000)
- --------------------------------------------------------------------------------
Changes in operating assets and
liabilities:
- --------------------------------------------------------------------------------
Decrease (increase) in:
- --------------------------------------------------------------------------------
Accrued interest receivable -
officer and director (12,100) (15,300) (13,100)
- --------------------------------------------------------------------------------
Other assets 5,600 (23,200) 19,000
- --------------------------------------------------------------------------------
Receivables from unconsolidated
entities (3,600) 49,600 15,800
- --------------------------------------------------------------------------------
Increase (decrease) in:
- --------------------------------------------------------------------------------
Accounts payable and accrued
expenses 1,000 37,300 (27,600)
- --------------------------------------------------------------------------------
Other (3,400) - 3,100
--------- --------- ---------
- --------------------------------------------------------------------------------
Net cash used in operating
activities (413,600) (237,800) (176,900)
--------- --------- ---------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
- --------------------------------------------------------------------------------
Cash advances to unconsolidated
entities - (700) (4,500)
- --------------------------------------------------------------------------------
Collection of advances from
unconsolidated entities 299,000 374,900 10,000
- --------------------------------------------------------------------------------
Cash advance for land option - - (35,000)
- --------------------------------------------------------------------------------
Investment in unconsolidated entities - (50,000) -
- --------------------------------------------------------------------------------
Purchase of equipment (7,800) (11,300) (10,600)
--------- --------- ---------
- --------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities 291,200 312,900 (40,100)
--------- --------- ---------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
- --------------------------------------------------------------------------------
Advance from related party 150,500 - -
- --------------------------------------------------------------------------------
Payments under land option contract - (88,400) (27,700)
- --------------------------------------------------------------------------------
Principal payments on long-term debt - (10,600) (4,800)
--------- --------- ---------
- --------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 150,500 (99,000) (32,500)
--------- --------- ---------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND
EQUIVALENTS 28,100 (23,900) (249,500)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CASH AND EQUIVALENTS, beginning of
year 10,600 34,500 284,000
--------- --------- ---------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CASH AND EQUIVALENTS, end of year $ 38,700 $ 10,600 $ 34,500
========= ========= =========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION -
- --------------------------------------------------------------------------------
Cash paid for:
- --------------------------------------------------------------------------------
Interest $ 3,900 $ 11,000 $ 3,600
========= ========= =========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Income taxes $ - $ - $ -
========= ========= =========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES -
- --------------------------------------------------------------------------------
Obligation under land option
contract $ - $ 160,600 $ -
========= ========= =========
- --------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
S-5
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Homefree Village Resorts, Inc.
Denver, Colorado
We have audited the accompanying consolidated balance sheets of Homefree Village
Resorts, Inc. (a Delaware Corporation) and subsidiaries as of December 31, 1995
and 1994, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the years ended December 31, 1995, 1994, and 1993.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Homefree Village
Resorts, Inc. and subsidiaries as of December 31, 1995 and 1994, and the results
of their operations and their cash flows for the years ended December 31, 1995,
1994, and 1993 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern, which contemplates the realization of
assets and liquidation of liabilities in the normal course of business. As
discussed in Note 1 to the financial statements, the Company has suffered
substantial operating losses and anticipates the need for additional cash to
fund operations. These conditions raise substantial doubt about the ability of
the Company to continue as a going concern. Management's plans in regard to
these matters are also discussed in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Hein + Associates LLP
Denver, Colorado
June 12, 1996
S-6
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------------------
- ------------------------------------------------------------------------------
1995 1994
------------- ------------
<S> <C> <C>
- ------------------------------------------------------------------------------
ASSETS
------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Current Assets:
- ------------------------------------------------------------------------------
Cash and equivalents $ 38,700 $ 10,600
- ------------------------------------------------------------------------------
Other current assets 4,000 9,600
----------- -----------
- ------------------------------------------------------------------------------
Total current assets 42,700 20,200
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Receivables from Unconsolidated Entities, net 8,620,200 8,915,600
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Investments in Unconsolidated Entities 82,400 94,400
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Property and Equipment, at cost:
- ------------------------------------------------------------------------------
Office furniture and equipment 102,900 95,100
- ------------------------------------------------------------------------------
Vehicles 25,000 25,000
----------- -----------
- ------------------------------------------------------------------------------
127,900 120,100
- ------------------------------------------------------------------------------
Accumulated depreciation (110,000) (103,600)
----------- -----------
- ------------------------------------------------------------------------------
Net property and equipment 17,900 16,500
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Land Option Costs 195,600 195,600
----------- -----------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Total Assets $ 8,958,800 $ 9,242,300
=========== ===========
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Current Liabilities:
- ------------------------------------------------------------------------------
Accounts payable and accrued expenses $ 94,600 $ 93,600
- ------------------------------------------------------------------------------
Payable to AWP 150,500 -
- ------------------------------------------------------------------------------
Current maturities of long-term debt 44,400 -
----------- -----------
- ------------------------------------------------------------------------------
Total current liabilities 289,500 93,600
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Long-Term Debt, less current maturities:
- ------------------------------------------------------------------------------
Unconsolidated entity 7,154,500 7,154,500
- ------------------------------------------------------------------------------
Other - 44,400
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Deferred Income Taxes - 200,000
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Deferred Profit 488,500 488,500
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Other Liabilities, payable to unconsolidated
entities - 3,400
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Commitments and Contingencies (Notes 1, 3 and 8)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Stockholders' Equity:
- ------------------------------------------------------------------------------
Preferred stock, $1.00 par value; 3,000,000
shares authorized; none issued and outstanding - -
- ------------------------------------------------------------------------------
Common stock, $.001 par value; 15,000,000 shares
authorized; 10,484,000 shares issued and
outstanding 10,500 10,500
- ------------------------------------------------------------------------------
Additional paid-in capital 3,537,000 3,537,000
- ------------------------------------------------------------------------------
Accumulated deficit (2,521,200) (2,289,600)
----------- -----------
- ------------------------------------------------------------------------------
Total stockholders' equity 1,026,300 1,257,900
----------- -----------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 8,958,800 $ 9,242,300
=========== ===========
- ------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
S-7
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
For the Years Ended December 31,
------------------------------------------
- ---------------------------------------------------------------------------------
1995 1994 1993
------------- ------------- ------------
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Revenues:
- ---------------------------------------------------------------------------------
Management and administrative fees
from unconsolidated entities $ 245,400 $ 244,600 $ 253,400
- ---------------------------------------------------------------------------------
Equity in earnings of AWP 11,000 10,800 16,900
- ---------------------------------------------------------------------------------
Interest 12,100 15,300 14,800
----------- ----------- -----------
- ---------------------------------------------------------------------------------
268,500 270,700 285,100
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Expenses:
- ---------------------------------------------------------------------------------
General and administrative 450,600 429,100 383,200
- ---------------------------------------------------------------------------------
Interest 3,900 9,600 5,000
- ---------------------------------------------------------------------------------
Equity in losses of APL 23,000 26,000 13,000
- ---------------------------------------------------------------------------------
Impairment of investment in HILP 300 300 300
- ---------------------------------------------------------------------------------
Loss on related party
receivables/administrative fee 222,300 128,700 75,600
----------- ----------- -----------
- ---------------------------------------------------------------------------------
700,100 593,700 477,100
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Loss Before Income Taxes (431,600) (323,000) (192,000)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Deferred Income Tax Benefit 200,000 87,000 43,000
----------- ----------- -----------
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Net Loss $ (231,600) $ (236,000) $ (149,000)
=========== =========== ===========
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Net Loss Per Common Share $(.02) $(.02) $(.01)
=========== =========== ===========
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Weighted Average Number of Common
Shares Outstanding 10,484,000 10,484,000 10,484,000
=========== =========== ===========
- ---------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
S-8
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
Common Stock Additional
-------------------- Paid-in Accumulated
- ---------------------------------------------------------------------------------------------
Shares Amount Capital Deficit Total
---------- -------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Balances, January 1, 1993 10,484,000 $10,500 $3,537,000 $(1,904,600) $1,642,900
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Net loss - - - (149,000) (149,000)
---------- ------- ---------- ----------- ----------
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Balances, December 31, 1993 10,484,000 10,500 3,537,000 (2,053,600) 1,493,900
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Net loss - - - (236,000) (236,000)
---------- ------- ---------- ----------- ----------
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Balances, December 31, 1994 10,484,000 10,500 3,537,000 (2,289,600) 1,257,900
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Net loss - - - (231,600) (231,600)
---------- ------- ---------- ----------- ----------
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Balances, December 31, 1995 10,484,000 $10,500 $3,537,000 $(2,521,200) $1,026,300
========== ======= ========== =========== ==========
- ---------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
S-9
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
For the Years Ended
December 31,
---------------------------------------
- ------------------------------------------------------------------------------
1995 1994 1993
------------ ------------ -----------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Cash Flows from Operating Activities:
- ------------------------------------------------------------------------------
Net loss $(231,600) $(236,000) $(149,000)
- ------------------------------------------------------------------------------
Adjustments to reconcile net loss to
net cash used in operating
activities:
- ------------------------------------------------------------------------------
Depreciation 6,400 6,300 8,700
- ------------------------------------------------------------------------------
Equity in losses (earnings) of
unconsolidated entities, net 12,000 15,200 (3,900)
- ------------------------------------------------------------------------------
Impairment of investment in HILP 300 300 300
- ------------------------------------------------------------------------------
Cash advances to officer and
director (210,200) (113,400) (62,500)
- ------------------------------------------------------------------------------
Provision for loss on related
party receivables 222,300 128,700 75,600
- ------------------------------------------------------------------------------
Deferred income tax benefit (200,000) (87,000) (43,000)
- ------------------------------------------------------------------------------
Changes in operating assets and
liabilities:
- ------------------------------------------------------------------------------
Decrease (increase) in:
- ------------------------------------------------------------------------------
Accrued interest receivable -
officer and director (12,100) (15,300) (13,100)
- ------------------------------------------------------------------------------
Other assets 5,600 (23,200) 19,400
- ------------------------------------------------------------------------------
Receivables from
unconsolidated entities (3,600) 49,600 15,500
- ------------------------------------------------------------------------------
Increase (decrease) in:
- ------------------------------------------------------------------------------
Accounts payable and accrued
expenses 1,000 37,300 (27,600)
- ------------------------------------------------------------------------------
Other (3,400) - 3,100
--------- --------- ---------
- ------------------------------------------------------------------------------
Net cash used in operating
activities (413,300) (237,500) (176,500)
--------- --------- ---------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Cash Flows from Investing Activities:
- ------------------------------------------------------------------------------
Cash advances to unconsolidated
entities - (700) (4,500)
- ------------------------------------------------------------------------------
Collection of advances from
unconsolidated entities 299,000 374,900 10,000
- ------------------------------------------------------------------------------
Cash advance for land option - - (35,000)
- ------------------------------------------------------------------------------
Investment in unconsolidated entities (300) (50,300) (400)
- ------------------------------------------------------------------------------
Purchase of equipment (7,800) (11,300) (10,600)
--------- --------- ---------
- ------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities 290,900 312,600 (40,500)
--------- --------- ---------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Cash Flows from Financing Activities:
- ------------------------------------------------------------------------------
Advance from related party 150,500 - -
- ------------------------------------------------------------------------------
Payments under land option contract - (88,400) (27,700)
- ------------------------------------------------------------------------------
Principal payments on long-term debt - (10,600) (4,800)
--------- --------- ---------
- ------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 150,500 (99,000) (32,500)
--------- --------- ---------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and
Equivalents 28,100 (23,900) (249,500)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Cash and Equivalents, beginning of
year 10,600 34,500 284,000
--------- --------- ---------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Cash and Equivalents, end of year $ 38,700 $ 10,600 $ 34,500
========= ========= =========
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow
Information -
- ------------------------------------------------------------------------------
Cash paid for:
- ------------------------------------------------------------------------------
Interest $ 3,900 $ 11,000 $ 3,600
========= ========= =========
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Income taxes $ - $ - $ -
========= ========= =========
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Supplemental Disclosure of Noncash
Investing and Financing Activities -
- ------------------------------------------------------------------------------
Obligation under land option
contract $ - $ 160,600 $ -
========= ========= =========
- ------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
S-10
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Partners
Homefree Investors L.P.
Denver, Colorado
We have audited the accompanying balance sheets of Homefree Investors L.P. (a
Massachusetts limited partnership) as of December 31, 1995 and 1994, and the
related statements of operations, partners' capital and cash flows for the years
ended December 31, 1995, 1994, and 1993. 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 audits.
We conducted our audits 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 audits provide 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 Homefree Investors L.P. as of
December 31, 1995 and 1994, and the results of its operations and cash flows for
the years ended December 31, 1995, 1994, and 1993 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern, which contemplates the realization
of assets and liquidation of liabilities in the normal course of business. As
discussed in Note 1 to the financial statements, the Partnership has suffered
losses from inception, and anticipates the need for additional cash to fund
operations. These conditions raise substantial doubt about the ability of the
Partnership to continue as a going concern. Management's plans in regard to
these matters are also discussed in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Hein + Associates LLP
Denver, Colorado
June 12, 1996
S-11
<PAGE>
HOMEFREE INVESTORS L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
December 31,
-----------------
- ---------------------------------------------------------------------------------
1995 1994
------- ------
<S> <C> <C>
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
ASSETS
------
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Current Asset, receivable from Homefree Village Resorts, Inc. $150,500 $ -
========== =====
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Current Liability, payable to AWP $150,500 $ -
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Commitment (Note 8)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Partners' Capital - -
---------- -----
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Total Liabilities and Partners' Capital $150,500 $ -
========== =====
- ---------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
S-12
<PAGE>
HOMEFREE INVESTORS L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Years Ended December 31,
---------------------------------------
- ---------------------------------------------------------------------------------
1995 1994 1993
------------ ------------ -----------
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Revenue $ - $ - $ -
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Expenses:
- ---------------------------------------------------------------------------------
Amortization of organization costs - - 11,100
- ---------------------------------------------------------------------------------
General and administrative 300 300 400
----------- ----------- -----------
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Net Loss $ (300) $ (300) $ (11,500)
=========== =========== ===========
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Net Loss Per Limited Partnership
Interest $ - $ - $ -
=========== =========== ===========
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Weighted Average Limited Partnership
Interests Outstanding 10,484,000 10,484,000 10,484,000
=========== =========== ===========
- ---------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
S-13
<PAGE>
HOMEFREE INVESTORS L.P.
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
- --------------------------------------------------------------------
General Limited
Partner* Partners Total
---------- ----------- --------
<S> <C> <C> <C>
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Balances, January 1, 1993 $227,200 $(216,100) $ 11,100
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Partner's capital contributions 400 - 400
- --------------------------------------------------------------------
Net loss (100) (11,400) (11,500)
-------- --------- --------
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Balances, December 31, 1993 227,500 (227,500) -
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Partner's capital contributions 300 - 300
- --------------------------------------------------------------------
Net loss - (300) (300)
-------- --------- --------
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Balances, December 31, 1994 227,800 (227,800) -
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Partner's capital contributions 300 - 300
- --------------------------------------------------------------------
Net loss - (300) (300)
-------- --------- --------
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Balances, December 31, 1995 $228,100 $(228,100) $ -
======== ========= ========
- --------------------------------------------------------------------
</TABLE>
________________________
* The General Partner's capital account is eliminated for purposes of the
combined financial statements.
See accompanying notes to financial statements.
S-14
<PAGE>
HOMEFREE INVESTORS L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
For the Years Ended
December 31,
--------------------------------
- -------------------------------------------------------------------------------
1995 1994 1993
---------- -------- ----------
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Cash Flows from Operating Activities:
- -------------------------------------------------------------------------------
Net loss $ (300) $(300) $(11,500)
- -------------------------------------------------------------------------------
Adjustments to reconcile net loss to net
cash from operating activities:
- -------------------------------------------------------------------------------
Amortization - - 11,100
- -------------------------------------------------------------------------------
Increase in:
- -------------------------------------------------------------------------------
Receivable from Homefree Village Resorts, (150,500) - -
Inc.
- -------------------------------------------------------------------------------
Payable to related party 150,500 - -
--------- ------- ----------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Net cash provided by operating activities (300) (300) (400)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Cash Flows from Investing Activities - - -
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Cash Flows from Financing Activities -
- -------------------------------------------------------------------------------
Capital contributions by general partner 300 300 400
--------- ------- ----------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Net Change in Cash - - -
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Cash, beginning of year - - -
--------- ------- ----------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Cash, end of year $ - $ - $ -
========= ======= ==========
- -------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
S-15
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND
SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
1. Organization and Nature of Operations:
-------------------------------------
Nature of Operations - The Company is engaged primarily in the development and
- --------------------
operation of adult recreational communities containing rental sites for
manufactured homes and recreational homes. The Company has interests in such
communities through Aristek Properties, Ltd., and Aristek Western Properties
Limited Partnership, in which the Company is the general partner. The Company's
objectives are to create and participate, through such partnerships, in the cash
flow from these communities and share in appreciation in the value of such
properties. The Company also receives income from development, management, and
administrative services.
Paired Shares - Effective May 2, 1988, Homefree Village Resorts, Inc. and
- -------------
subsidiaries (the Company) and Homefree Investors L.P. (the Partnership),
entered into a Pairing Agreement (the Agreement) which provided for the pairing
of assignee limited partnership interests of the Partnership with shares of
common stock of the Company. Subsequently, the Company funded a distribution of
one assignee limited partnership interest of the Partnership for each share of
common stock of the Company.
The shares of the Company's common stock, par value of $.001 per share, and the
assignee limited partnership interests, par value of $.001 per unit, are
"paired" on a one-for-one basis and may only be transferred in units (Paired
Shares) consisting of one share of common stock and one limited partnership
interest.
Continuing Operations - The accompanying financial statements have been prepared
- ---------------------
on a going concern basis which contemplates the realization of assets and
liquidation of liabilities in the ordinary course of business. The Company has
experienced a significant decrease in revenues over the last several years due
to cash flow difficulties experienced by Aristek Properties Limited (APL), an
investment of the Company of which it is also general partner (see Note 3). APL
has been unable to pay its management fee to the Company; as a result, the
Company ceased accruing management fee revenues due from APL. The Company also
has extended loans to help finance APL's operations, which has severely impacted
the Company's liquidity. During 1994, the Company restructured debt
arrangements with APL which provides that all of APL's available cash flow will
be utilized to repay advances to the Company (see Note 8). As of December 31,
1995, the Company has a significant net receivable due from APL and is obligated
to purchase the limited partners' interests in APL at a future date for a
minimum of $530,000. Recovery of the Company's net receivable from and
investment in APL is dependent upon further development of APL's underlying
properties and for APL to ultimately achieve profitable operations or the sale
of APL at a price in excess of its liabilities and partners investments.
These conditions raise substantial doubt about the ability of the Company to
continue as a going concern. The accompanying financial statements do not
include any adjustments which might result from the outcome of this uncertainty.
Management has also taken action in recent years to reduce costs, including
staff reductions, relocation of the corporate offices, and contracting out its
accounting and administrative support functions. In addition, the principal
operating property of APL, Monte Vista I Joint Venture (Monte Vista), recently
obtained an
S-16
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND
SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
additional $525,000 in bank financing, and deferred the due date on its total
bank debt of $5,015,000 until December 1998. Management believes that these
actions will enable the Company to continue as a going concern.
Combined and Consolidated Financial Statements - The accompanying
----------------------------------------------
consolidated financial statements include the Company and its majority-owned
subsidiaries. The combined financial statements include the accounts of the
Partnership and the Company. All material intercompany balances and
transactions have been eliminated. The Company's majority-owned subsidiaries
are Resortparks of America, Inc. (RPA), which is 100% owned, and Homefree
General Partners (HGP), which is 90% owned. The minority interest in HGP is
not material.
2. Summary of Significant Accounting Policies:
------------------------------------------
Property and Equipment - Property and equipment is recorded at cost.
----------------------
Depreciation is provided utilizing accelerated methods over the estimated
useful lives of the related assets.
Investments in Unconsolidated Entities - Investments in unconsolidated
--------------------------------------
entities, which are all less than 20% owned, are accounted for by the equity
method because of the significance of the Company's influence as general
partner over operating and financial policies of its investees.
Income Taxes - The Company accounts for income taxes under the liability
------------
method of SFAS No. 109, whereby current and deferred tax assets and
liabilities are determined based on tax rates and laws enacted as of the
balance sheet date. The deferred tax benefit represents the net change in the
deferred tax asset and liability accounts.
No provision for Federal and state income taxes or related benefits has been
made for the Partnership since the Partnership's taxable income or loss is
required to be reported in the income tax returns of the partners. The
provision for income taxes will not bear a normal relationship to pre-tax
operating results on a combined basis, since no provision for income taxes
has been made for the Partnership.
Loss Per Share - The computation of net loss per share is based on the
--------------
weighted average number of shares of common stock and equivalent paired
shares outstanding during the respective years. The effect of outstanding
stock options on the computation of net loss per share is antidilutive for
all periods presented.
Cash and Equivalents - For purposes of the Statements of Cash Flows, the
--------------------
Company and the Partnership consider cash and equivalents to include all
highly liquid debt instruments purchased with an original maturity of three
months or less.
Accounting Estimates - The preparation of financial statements in conformity
--------------------
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and the accompanying notes. The actual results could differ from
those estimates.
S-17
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND
SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
The Company's financial statements are based on a number of significant
estimates including the realizability of the Company's investments and
receivables due from unconsolidated entities, and the realizability of land
option costs.
Reclassifications - Certain reclassifications have been made to the 1994 and
-----------------
1993 financial statements to conform to the presentation in 1995. The
reclassifications had no effect on the net loss for 1994 and 1993.
3. Investments in Unconsolidated Entities:
--------------------------------------
APL was formed in 1976 and the Company is the sole general partner with a 1%
general partner interest and a 2.3% limited partner interest. As general
partner of APL, the Company has a 30% residual interest which entitles it to
receive 30% of all excess cash flow from operations and net proceeds from the
refinancing or sale of properties. APL's principal asset was a 60% joint
venture interest in the Monte Vista I Joint Venture ("MVIJV"). Aristek
Western Properties Limited Partnership ("AWP") owned the remaining 40% joint
venture interest until December 1993 when APL increased its ownership to 99%
and the Company acquired the remaining 1% interest. MVIJV owns an adult
recreational community containing 832 sites for recreational homes. Due to
APL's controlling interest, the accounts of MVIJV are consolidated in APL's
financial statements.
As summarized in Notes 5 and 8, the Company has entered into significant
transactions with APL, resulting in $8.6 million of net receivables and $7.2
million of long-term debt at December 31, 1995. Due to significant
uncertainties about the collectibility of the net receivables from APL, the
Company suspended recording interest income, interest expense, and management
fees effective January 1, 1992. As of December 31, 1995, APL owed the Company
an additional $1.5 million, which represents the net amount of such items
which are not recorded in the accompanying financial statements.
Effective June 30, 1994, the partners of APL consented to a restructuring of
the intercompany loans whereby all of APL's excess cash flow will be utilized
to repay outstanding advances. The interest rate was reduced from 8.1% to 7%,
and the maturity date was extended to June 30, 1998. The parties to the
intercompany loans agreed to provide set-off rights in the event of a default
with respect to either the restructured notes or the underlying debt of
MVIJV. APL also agreed to pay additional interest equal to 75% of the net
proceeds from a refinancing or sale of the Monte Vista property, after
repayment of all liabilities. In connection with the restructuring, the
holders of 26.5 limited partner units of APL agreed to provide the Company
with an option to purchase their units for a minimum purchase price of
$20,000 per unit or a total of approximately $530,000. Based on an appraisal
of the Monte Vista property which is required to be prepared at the date the
Company exercises its option, the Company may be required to pay a higher
price per unit. The Company is required to exercise its option between
January 1, 1997 and November 30, 1998. No gain or loss was recognized on this
restructuring transaction.
Condensed balance sheets and operating statements of APL are presented below
(in thousands).
S-18
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND
SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
Condensed balance sheets and operating statements of APL are presented below
(in thousands).
<TABLE>
<CAPTION>
================================================================================
Balance Sheets
- --------------------------------------------------------------------------------
December 31,
- --------------------------------------------------------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
Assets:
- --------------------------------------------------------------------------------
Properties, net of depreciation $ 6,355 $ 6,596 $ 6,817
- --------------------------------------------------------------------------------
Receivables from the Company:
- --------------------------------------------------------------------------------
Notes 7,154 7,154 7,154
- --------------------------------------------------------------------------------
Accrued interest 764 256 1,325
- --------------------------------------------------------------------------------
Cash and temporary cash investments 665 833 490
- --------------------------------------------------------------------------------
Other assets 304 320 833
------- ------- -------
- --------------------------------------------------------------------------------
$15,242 $15,159 $16,619
======= ======= =======
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Liabilities and Partners' Deficit:
- --------------------------------------------------------------------------------
Mortgage payable $ 5,015 $ 4,493 $ 4,050
- --------------------------------------------------------------------------------
Payable to the Company:
- --------------------------------------------------------------------------------
Notes 11,208 11,208 10,144
- --------------------------------------------------------------------------------
Accrued interest 694 198 2,297
- --------------------------------------------------------------------------------
Management and administrative fees 361 226 100
- --------------------------------------------------------------------------------
Other liabilities 1,542 1,490 1,290
- --------------------------------------------------------------------------------
Partners' deficit (3,578) (2,456) (1,262)
------- ------- -------
- --------------------------------------------------------------------------------
$15,242 $15,159 $16,619
======= ======= =======
- --------------------------------------------------------------------------------
<CAPTION>
Statements of Operations
- --------------------------------------------------------------------------------
Revenues:
- --------------------------------------------------------------------------------
Rentals and other operating income $ 2,045 $ 1,905 $ 1,836
- --------------------------------------------------------------------------------
Interest and other income 533 575 723
------- ------- -------
- --------------------------------------------------------------------------------
Total 2,578 2,480 2,559
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Expenses:
- --------------------------------------------------------------------------------
Operating (1,973) (1,954) (1,847)
- --------------------------------------------------------------------------------
Interest (1,325) (1,310) (1,422)
- --------------------------------------------------------------------------------
Depreciation and amortization (402) (410) (406)
- --------------------------------------------------------------------------------
Minority interest - - 352
------- ------- -------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net Loss $(1,122) $(1,194) $ (764)
======= ======= =======
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
S-19
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND
SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
Presented below is a reconciliation of APL's net loss to the Company's
equity in the losses of APL:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Years Ended December 31,
------------------------
- --------------------------------------------------------------------------------
1995 1994 1993
------- ------- ------
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Loss of APL $(1,122) $(1,194) $ (764)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Adjustments to remove net expenses of APL
which are not recorded as income by
the Company:
- --------------------------------------------------------------------------------
Interest expense 795 815 835
- --------------------------------------------------------------------------------
Interest income (508) (547) (588)
- --------------------------------------------------------------------------------
Administrative fees 95 95 95
- --------------------------------------------------------------------------------
Management fees 41 42 28
------- ------- -------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Adjusted Loss $ (699) $ (789) $ (394)
======= ======= =======
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Equity in Loss Based on 3.3% Ownership $ (23) $ (26) $ (13)
Interest ======= ======= =======
- --------------------------------------------------------------------------------
</TABLE>
The Company also owns a 2.6% interest in AWP and is the general partner. AWP is
a limited partnership with investments in real estate. Until 1994, the Company
owned a 2.0% general partner interest in Grandview Club Ltd. (Grandview Club).
The primary property held by Grandview Club was foreclosed on by a bank in 1991
and the partnership's affairs were concluded in 1994 when all remaining assets
were liquidated.
4. Income Taxes:
------------
Deferred income taxes relate exclusively to long-term assets and liabilities and
consist of the following as of December 31, 1995 and 1994:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994
----------- ----------
<S> <C> <C>
- --------------------------------------------------------------------------------
Deferred tax assets (liabilities):
- --------------------------------------------------------------------------------
Notes receivable - installment sales $(509,000) $(509,000)
- --------------------------------------------------------------------------------
Partnership basis differences 38,000 (133,000)
- --------------------------------------------------------------------------------
Receivable reserves 485,000 547,000
- --------------------------------------------------------------------------------
Net operating loss carryforwards 198,000 65,000
- --------------------------------------------------------------------------------
Other 14,000 7,000
--------- ---------
- --------------------------------------------------------------------------------
Net 226,000 (23,000)
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Valuation allowance related to deferred tax assets (226,000) (177,000)
---------- ---------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
$ - $(200,000)
========== ==========
- -----------------------------------------------------------------------------
</TABLE>
S-20
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND
SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
For income tax reporting purposes, the Company and RPA file a consolidated
return. The composition of the income tax benefit for the years ended
December 31, 1995, 1994, and 1993 is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994 1993
------ ------ ------
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current $ - $ - $ -
- --------------------------------------------------------------------------------
Deferred:
- --------------------------------------------------------------------------------
Federal 183,800 80,000 40,000
- --------------------------------------------------------------------------------
State 16,200 7,000 3,000
-------- ------- -------
- --------------------------------------------------------------------------------
Total $200,000 $87,000 $43,000
======== ======= =======
- --------------------------------------------------------------------------------
</TABLE>
Following is a reconciliation of the Company's effective tax rate on the
consolidated loss to the statutory U.S. Federal income tax rate for the years
ended December 31, 1995, 1994, and 1993:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Statutory rate (34)% (34)% (34)%
- --------------------------------------------------------------------------------
State taxes, net of Federal benefit (3) (3) (3)
- --------------------------------------------------------------------------------
Graduated tax rates - - 3
- --------------------------------------------------------------------------------
Change in valuation allowance (12) 10 12
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Effective tax rate (49)% (27)% (22)%
==== ==== ====
- --------------------------------------------------------------------------------
</TABLE>
As of December 31, 1995, the Company and RPA had a tax net operating loss
carryforward of approximately $500,000. This loss carryforward will expire in
2009 and 2010 if not previously utilized to offset taxable income of the Company
and RPA.
During 1993 and 1994, the Company provided a valuation allowance for a portion
of the Company's deferred tax assets since the treatment of certain items
reported on the Company's income tax returns was uncertain. During 1995, the
Internal Revenue Service completed an examination of the Company's Federal
income tax returns for 1992 through 1994 and it became apparent that the items
were properly reported. Accordingly, a portion of the valuation allowance
provided in prior years was reversed in 1995. The valuation allowance also
increased due to 1995 losses.
S-28
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND
SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
5. Long-Term Debt:
---------------
Long-term debt consists of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31,
------------------------------
- --------------------------------------------------------------------------------
1995 1994
------------- ------------
<S> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Restructured note payable - APL, interest at
7%, due June 1998. $7,154,500 $7,154,500
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Contract payable for purchase of land, interest
imputed at 12%, due July 1997. 44,400 44,400
---------- ----------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total 7,198,900 7,198,900
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Less current maturities (44,400) -
---------- ----------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$7,154,500 $7,198,900
========== ==========
- --------------------------------------------------------------------------------
</TABLE>
The scheduled annual principal reductions of long-term debt are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year Ending December 31,
- --------------------------------------------------------------------------------
<S> <C>
1996 $ 44,400
- --------------------------------------------------------------------------------
1998 7,154,500
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total $7,198,900
- --------------------------------------------------------------------------------
</TABLE>
6. Stock Incentive Plans:
---------------------
The Company has a stock option plan which enables officers and employees of
the Company to purchase shares of common stock at its fair market value on
the date of the grant. The Company has reserved a total of 1,250,000 shares
for options which may be granted under the plan. Options may be exercised for
a maximum term of ten years after the date of grant. At December 31, 1995,
all options previously granted under the Plan had expired.
The Company also has a stock appreciation rights plan, whereby up to 250,000
rights may be awarded to certain directors, officers and employees. The plan
entitles the holder of the rights to receive upon redemption, the increase,
if any, of the market value of the Company's common stock at the redemption
date over the market value at date of grant. Each right has a maximum term of
ten years after the date of grant. One right is deemed the equivalent of one
share of common stock. No rights have been granted as of December 31, 1995.
S-22
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND
SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
7. Land Option Costs:
-----------------
In October 1993, the Company entered into an option agreement for the
purchase of a parcel of land which is adjacent to property owned by APL.
Under the option agreement, the Company paid $38,200 for the option and
agreed to loan an additional $125,000 to the seller. The option was
originally exercisable until April 1, 1995 through the payment of an
additional $46,800 and the application of the $125,000 loan to the purchase
price. During 1996, the parties agreed to extend the exercise period through
July 1, 1997.
At December 31, 1995 and 1994, the Company recorded the total payments
required to purchase the land as land option costs in the accompanying
balance sheets. The required payments were discounted at 12% to arrive at a
total cost for the land of $195,600.
8. Related-Party Transactions:
--------------------------
Receivables from unconsolidated entities consist of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31,
- --------------------------------------------------------------------------------
1995 1994
------------- --------------
<S> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Restructured notes receivable from APL, 7%, due
June 1998 $ 9,602,100 $ 9,901,100
- --------------------------------------------------------------------------------
Less allowance for doubtful accounts (1,000,000) (1,000,000)
----------- -----------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net 8,602,100 8,901,100
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Other receivables, unsecured:
- --------------------------------------------------------------------------------
Advances to AWP 6,400 3,600
- --------------------------------------------------------------------------------
Advances to Monte Vista 11,700 10,900
----------- -----------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total $ 8,620,200 $ 8,915,600
=========== ===========
- --------------------------------------------------------------------------------
</TABLE>
In 1990, the Company entered into two separate like-kind exchange
transactions with APL. In one transaction, the Company conveyed land to APL
in return for cash and a note receivable for $3,317,800. The Company has
deferred the gain of $488,500 on this transaction until sufficient cash
payments are received by the Company on the note to qualify the transaction
as a sale. In the second transaction, APL conveyed land to the Company in
return for cash and a note payable of $7,154,500 (see Note 5). Also, in
connection with this second transaction, the Company advanced (by delivering
a certificate of deposit) $5,300,000 in the form of a note receivable to APL
to enable APL to pay off bank debt it had on this property. The Company also
made advances to APL to enable it to finance its operating needs.
The collection of notes receivable and advances from APL is dependent upon
future events, including the ability of Monte Vista to develop certain
additional land in a manner which will provide APL with a return
S-23
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND
SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
of its capital after the repayment of loans made to Monte Vista. At December 31,
1990, management provided an allowance of $1,400,000 and $900,000 against these
notes receivable and advances, respectively, due to the uncertainty of the
successful outcome of this development project. In 1991, because of reservations
regarding the ability of APL to continue operations with its existing debt
level, $1,300,000 of the obligation from APL was forgiven by the Company with a
corresponding reduction in the allowance previously provided.
Receivable from Officer and Administrative Fees - Pursuant to the Homefree
- -----------------------------------------------
Investors Limited Partnership Agreement, the Partnership is liable to pay an
annual administrative fee of $75,000 per year to HGP, which in turn pays this
fee to a general partner of HGP, which is an entity owned 100% by the president
of the Company. Such administrative fee is not payable until the earlier of the
date that, in the opinion of the general partners, the Partnership has
sufficient cash to pay the fee without jeopardizing the Partnership or the
Company, or upon liquidation of the Partnership. Due to the lack of operations
and cash flows of the Partnership, no amounts are accrued in the accompanying
financial statements.
Over the past several years, the Company has made a series of cash advances to,
and on behalf of, the Company's president. These advances are evidenced by
formal notes which bear interest at approximately 3.8% as of December 31, 1995.
The following is a summary of activity during the years ended December 31, 1995,
1994, and 1993:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994 1993
---------- --------- ----------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Balances, beginning of year $ 520,900 $392,200 $316,600
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Cash advances 210,200 113,400 62,500
- --------------------------------------------------------------------------------
Accrued interest 12,100 15,300 13,100
- --------------------------------------------------------------------------------
Deemed repayment (433,200) - -
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Balances, end of year $ 310,000 $520,900 $392,200
========= ======== =========
- --------------------------------------------------------------------------------
</TABLE>
The president has always intended to repay the notes from the annual
administrative fee discussed above. Accordingly, since the Company would be
required to fund the administrative fee in order to collect the receivable, the
Company recorded a provision for loss as cash advances were made to the
president. During 1995, a total of $433,200 was designated for the deemed
payment of administrative fees and related repayment of notes receivable with no
effect on the Company's cash flows. Without regard to this transaction, through
December 31, 1995, the Company has recognized cumulative losses on the notes
receivable of $743,200 compared to cumulative administrative fees of $674,000.
Accordingly, the Company's financial statements include recognition of $69,200
of expenses in excess of the contractual amount of the administrative fee.
S-24
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND
SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
Revenues - The Company and its corporate subsidiaries serve as a real estate
--------
advisor, developer, manager and marketing agent and perform certain
administrative functions for related entities. The Company's principal
sources of revenue are fees, commissions and cash flow participation from
properties under its supervision (see Note 3).
9. Financial Instruments:
---------------------
Statement of Financial Accounting Standards No. 107 requires all entities to
disclose the fair value of certain financial instruments in their financial
statements. Accordingly, at December 31, 1995, management's best estimate is
that the carrying amount of cash and equivalents, contract payable, and
accounts payable and accrued expenses approximates fair value due to the
short maturity of these instruments. Due to uncertainty about the fair value
of the properties owned by APL and AWP, it is not practicable to estimate
the fair value of the Company's investment and receivables due from these
entities. However, management believes that fair value exceeds the carrying
value as of December 31, 1995.
10. Significant Concentrations:
--------------------------
The Company has an investment of $18,100, receivables of $8,613,800, and
long-term debt of $7,154,500 which is payable to APL and its subsidiary. Due
to the Company's current general and limited partner interests in APL and
the commitment described in Note 3 to purchase an additional 26.5 limited
partner units, the Company has a substantial concentration of its net assets
which are dependent upon the future success of APL.
Substantially all of the Company's receivables, investments in partnerships,
and land option costs relate to properties which are located in the Phoenix,
Arizona metropolitan area. This concentration may impact the Company's
ability, either positively or negatively, to realize the carrying value of
these assets.
The Company earns substantially all of its management and administrative
fees from APL and Aristek Western Properties Limited Partnership.
11. Impact of Recently Issued Accounting Standards:
----------------------------------------------
In March 1995, the Financial Accounting Standards Board issued a new
Statement titled "Accounting for Impairment of Long-Lived Assets." This new
standard is effective for years beginning after December 15, 1995 and
establishes standards for determining impairment of long-lived assets, such
as the Company's land option costs. Although the Company has not performed a
detailed analysis of the impact of this new standard on the Company's
financial statements, management estimates that the application of the new
standard would not have a material impact on the Company's 1995 financial
statements. The Company will adopt the new standard in the first quarter of
1996.
S-25
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Partners
Aristek Properties, Ltd.
Denver, Colorado
We have audited the accompanying consolidated balance sheets of Aristek
Properties, Ltd. (a limited partnership) and its subsidiary as of December 31,
1995 and 1994, and the related consolidated statements of operations, changes in
partners' deficit, and cash flows for each of the years in the three-year period
ended December 31, 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 audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Aristek Properties,
Ltd., and its subsidiary as of December 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern, which contemplates the realization
of assets and liquidation of liabilities in the normal course of business. As
discussed in Note 1 to the financial statements, the Partnership has suffered
substantial operating losses, and anticipates the need for additional cash to
fund operations. These conditions raise substantial doubt about the ability of
the Partnership to continue as a going concern. Management's plans in regard to
these matters are also discussed in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Hein + Associates llp
Denver, Colorado
June 12, 1996
S-26
<PAGE>
ARISTEK PROPERTIES, LTD. AND SUBSIDIARY
(A Limited Partnership)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
==============================================================================
December 31,
-----------------------------
- ------------------------------------------------------------------------------
1995 1994
-------------- -------------
- ------------------------------------------------------------------------------
ASSETS
------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
OPERATING PROPERTIES:
- ------------------------------------------------------------------------------
<S> <C> <C>
Land $ 1,239,381 $ 1,239,381
- ------------------------------------------------------------------------------
Land improvements 5,235,140 5,135,346
- ------------------------------------------------------------------------------
Buildings and improvements 2,716,077 2,712,942
- ------------------------------------------------------------------------------
Furniture and equipment 1,300,019 1,242,724
----------- -----------
- ------------------------------------------------------------------------------
Total operating properties 10,490,617 10,330,393
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Less accumulated depreciation and amortization (5,185,898) (4,784,278)
----------- -----------
- ------------------------------------------------------------------------------
Net operating properties 5,304,719 5,546,115
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
OTHER ASSETS:
- ------------------------------------------------------------------------------
Cash and equivalents 664,730 833,236
- ------------------------------------------------------------------------------
Note receivable from General Partner 7,154,529 7,154,529
- ------------------------------------------------------------------------------
Accrued interest receivable - General Partner 764,000 256,000
- ------------------------------------------------------------------------------
Deferred loan costs, net of accumulated
amortization of $73,405 and $18,270 166,382 219,241
- ------------------------------------------------------------------------------
Land held for development 1,050,000 1,050,000
- ------------------------------------------------------------------------------
Rent and other receivables 103,890 59,568
- ------------------------------------------------------------------------------
Other Assets 34,033 40,735
----------- -----------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
TOTAL ASSETS $15,242,283 $15,159,424
=========== ===========
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
LIABILITIES AND PARTNERS' DEFICIT
---------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------------------
Mortgage payable $ 5,015,346 $ 4,492,913
- ------------------------------------------------------------------------------
Notes payable to General Partner 11,207,870 11,207,870
- ------------------------------------------------------------------------------
Accrued interest payable - General Partner 694,000 198,000
- ------------------------------------------------------------------------------
Accrued management and administrative fees -
General Partner 360,679 225,876
- ------------------------------------------------------------------------------
Accounts payable and accrued expenses 125,798 144,376
- ------------------------------------------------------------------------------
Unearned rental income 1,228,124 1,257,384
- ------------------------------------------------------------------------------
Payable to affiliate 188,433 88,933
----------- -----------
- ------------------------------------------------------------------------------
Total liabilities 18,820,250 17,615,352
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
COMMITMENT AND CONTINGENCY (NOTE 1)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
PARTNERS' DEFICIT (3,577,967) (2,455,928)
----------- -----------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
TOTAL LIABILITIES AND PARTNERS' DEFICIT $15,242,283 $15,159,424
=========== ===========
==============================================================================
</TABLE>
See accompanying notes to these consolidated financial statements.
S-27
<PAGE>
ARISTEK PROPERTIES, LTD. AND SUBSIDIARY
(A Limited Partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
==============================================================================
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------------------
- ------------------------------------------------------------------------------
1995 1994 1993
------------- -------------- ------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
OPERATING REVENUE:
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Rental income $ 2,004,648 $ 1,862,058 $ 1,797,419
- ------------------------------------------------------------------------------
Other 40,671 43,149 38,928
----------- ----------- -----------
- ------------------------------------------------------------------------------
Total revenue 2,045,319 1,905,207 1,836,347
----------- ----------- -----------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
OPERATING COSTS AND EXPENSES:
- ------------------------------------------------------------------------------
Salaries, wages and benefits 623,131 667,081 601,675
- ------------------------------------------------------------------------------
Maintenance and repairs 227,252 204,053 235,203
- ------------------------------------------------------------------------------
Utilities 260,827 279,916 247,258
- ------------------------------------------------------------------------------
Property taxes 69,221 72,092 73,681
- ------------------------------------------------------------------------------
Management and administrative
fees - General Partner 191,533 194,853 182,708
- ------------------------------------------------------------------------------
Depreciation 401,621 409,884 406,050
- ------------------------------------------------------------------------------
General and administrative 601,764 536,915 506,517
----------- ----------- -----------
- ------------------------------------------------------------------------------
Total operating costs a
expenses 2,375,349 2,364,794 2,253,092
----------- ----------- ----------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
OPERATING LOSS (330,030) (459,587) (416,745)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
- ------------------------------------------------------------------------------
Interest income:
- ------------------------------------------------------------------------------
General Partner 508,000 547,398 587,566
- ------------------------------------------------------------------------------
Other 24,981 27,704 134,935
- ------------------------------------------------------------------------------
Interest expense:
- ------------------------------------------------------------------------------
General Partner (795,000) (814,806) (835,493)
- ------------------------------------------------------------------------------
Other (529,990) (495,095) (586,686)
----------- ----------- -----------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
LOSS BEFORE MINORITY INTEREST (1,122,039) (1,194,386) (1,116,423)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
MINORITY INTEREST SHARE OF MVIJV - - 352,441
LOSS ----------- ----------- -----------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
NET LOSS $(1,122,039) $(1,194,386) $ (763,982)
=========== =========== ===========
==============================================================================
</TABLE>
S-28
<PAGE>
See accompanying notes to these consolidated financial statements.
S-29
<PAGE>
ARISTEK PROPERTIES, LTD. AND SUBSIDIARY
(A Limited Partnership)
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
==============================================================================
<S> <C>
PARTNERS' DEFICIT, January 1, 1993 $ (538,572)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Advances from AWP contributed to capital in connection with
sale of 40% interest in MVIJV, net of minority interest in
loss of MVIJV 41,012
- ------------------------------------------------------------------------------
Net loss (763,982)
-----------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
PARTNERS' DEFICIT, December 31, 1993 (1,261,542)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Net loss (1,194,386)
-----------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
PARTNERS' DEFICIT, December 31, 1994 (2,455,928)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Net loss (1,122,039)
-----------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
PARTNERS' DEFICIT, December 31, 1995 $(3,577,967)
===========
==============================================================================
</TABLE>
S-30
<PAGE>
See accompanying notes to these consolidated financial statements.
S-31
<PAGE>
ARISTEK PROPERTIES, LTD. AND SUBSIDIARY
(A Limited Partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
========================================================================================
For the Years Ended
December 31,
--------------------------------------------
- ----------------------------------------------------------------------------------------
1995 1994 1993
-------------- -------------- ------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net loss $(1,122,039) $(1,194,386) $ (763,982)
- ----------------------------------------------------------------------------------------
Adjustments to reconcile net
loss to net cash provided by
(used in) operating activities:
- ----------------------------------------------------------------------------------------
Minority interest - - (352,441)
- ----------------------------------------------------------------------------------------
Depreciation 401,621 409,884 406,050
- ----------------------------------------------------------------------------------------
Amortization of deferred loan
costs 55,137 136,376 141,052
- ----------------------------------------------------------------------------------------
Changes in operating assets and
liabilities:
- ----------------------------------------------------------------------------------------
Decrease (increase) in:
- ----------------------------------------------------------------------------------------
Rent and other receivables (44,322) 19,841 37,384
- ----------------------------------------------------------------------------------------
Accrued interest receivable -
General Partner (508,000) (547,398) (587,566)
- ----------------------------------------------------------------------------------------
Other (71,905) 5,954 137,833
- ----------------------------------------------------------------------------------------
Increase (decrease) in:
- ----------------------------------------------------------------------------------------
Accounts payable and accrued
expenses 116,225 62,569 144,217
- ----------------------------------------------------------------------------------------
Accrued interest payable -
General Partner 496,000 675,875 756,077
- ----------------------------------------------------------------------------------------
Unearned rental income 49,346 173,710 96,557
- ----------------------------------------------------------------------------------------
Payable to affiliate 99,500 79,183 -
----------- ----------- ----------
- ----------------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities (528,437) (178,392) 15,181
----------- ----------- ----------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
- ----------------------------------------------------------------------------------------
Proceeds from collection of
note receivable - - 46,398
- ----------------------------------------------------------------------------------------
Land development costs - - (45,650)
- ----------------------------------------------------------------------------------------
Capital expenditures for
operating properties (160,224) (189,156) (40,144)
----------- ----------- ----------
- ----------------------------------------------------------------------------------------
Net cash used in investing
activities (160,224) (189,156) (39,396)
----------- ----------- ----------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
- ----------------------------------------------------------------------------------------
Proceeds from mortgage loans 522,043 269,300 -
- ----------------------------------------------------------------------------------------
Principal payments on mortgage
loans (1,888) (7,087) -
- ----------------------------------------------------------------------------------------
Principal payments on loans
from General Partner - (95,000) (75,129)
- ----------------------------------------------------------------------------------------
Proceeds from release of loan
escrow deposit - 600,000 -
- ----------------------------------------------------------------------------------------
Payment of deferred loan costs - (56,811) -
- ----------------------------------------------------------------------------------------
Advances from AWP to MVIJV - - 393,453
----------- ----------- ----------
- ----------------------------------------------------------------------------------------
Net cash provided by financing
activities 520,155 710,402 318,324
----------- ----------- ----------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash
and Equivalents (168,506) 342,854 294,109
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Cash and Equivalents, at
beginning of year 833,236 490,382 196,273
----------- ----------- ----------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Cash and Equivalents, at end of
year $ 664,730 $ 833,236 $ 490,382
=========== =========== ==========
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>
S-32
<PAGE>
ARISTEK PROPERTIES, LTD. AND SUBSIDIARY
(A Limited Partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------
For the Years Ended
December 31,
--------------------------------------------
- ------------------------------------------------------------------------------
1995 1994 1993
-------------- -------------- ------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
S-33
<PAGE>
ARISTEK PROPERTIES, LTD. AND SUBSIDIARY
(A Limited Partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
For the Years Ended
December 31,
--------------------------------------------
- ------------------------------------------------------------------------------
1995 1994 1993
-------------- -------------- ------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION-
- ------------------------------------------------------------------------------
Cash paid for interest $ 773,853 $ 560,719 $ 445,634
============== ============== =============
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Supplemental Disclosure of
Non-Cash Investing
and Financing Activities:
- ------------------------------------------------------------------------------
Repayment of note payable in
connection with collection of
note receivable $ - $ - $4,250,292
- ------------------------------------------------------------------------------
Payment of deferred loan costs
from mortgage loan proceeds 2,278 180,700 -
- ------------------------------------------------------------------------------
Land conveyed to former partner
in settlement of note payable - - 245,000
- ------------------------------------------------------------------------------
Purchase of AWP interest in
MVIJV - - 9,750
- ------------------------------------------------------------------------------
Net accrued interest converted
to note payable to General
Partner - 2,775,236 -
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
See accompanying notes to these consolidated financial statements.
S-34
<PAGE>
ARISTEK PROPERTIES, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Nature of Operations:
-------------------------------------
Organization - Aristek Properties, Ltd. ("the Partnership") is a Colorado
------------
limited partnership formed on June 29, 1976. At December 31, 1995, the sole
general partner is Homefree Village Resorts, Inc. (the "General Partner").
In accordance with the terms of the Partnership Agreement, the partnership
was extended by the General Partner to December 31, 1998. The Partnership
Agreement provides that partnership profit and loss, after adjustment for
certain gains earned solely by the General Partner, shall be allocated 1% to
the General Partner and 99% to the Limited Partners, in direct proportion to
their respective ownership of limited partnership units. Under the terms of
the agreement, as amended, distributions may be made to the General Partner
based on the adjusted cash flow from operations, sales and refinancing of
the Partnership's properties.
Pursuant to the partnership agreement, the General Partner earns an annual
administrative fee of $94,750. In addition, the Partnership Agreement
provides for additional compensation to the General Partner for certain
services rendered and payment of costs and expenses incurred by the General
Partner on behalf of the Partnership.
Effective June 30, 1994, the partners of the Partnership consented to a
restructuring of the intercompany loans whereby all of the Partnership's
excess cash flow will be utilized to repay outstanding debt to the General
Partner. The interest rate was reduced from 8.1% to 7%, and the maturity
date was extended to June 30, 1998. The parties to the loans agreed to
provide set-off rights in the event of a default with respect to either the
restructured notes or the underlying debt of MVIJV. The Partnership also
agreed to pay additional interest equal to 75% of the net proceeds from a
refinancing or sale of the Monte Vista property, after repayment of all
liabilities. In connection with the restructuring, the holders of 26.5
limited partner units of the Partnership agreed to provide the General
Partner with an option to purchase their units for a minimum purchase price
of $20,000 per unit or a total of approximately $530,000. Based on an
appraisal of the Monte Vista property which is required to be prepared at
the date the Company exercises its option, the General Partner may be
required to pay a higher price per unit. The General Partner is required to
exercise its option between January 1, 1997 and November 30, 1998. No gain
or loss was recognized on this restructuring transaction. When this option
is exercised, there will be a change in control of the Partnership to the
General Partner. However, the General Partner does not presently have
sufficient liquidity to exercise the option.
Nature of Operations - The Partnership is engaged primarily in the
--------------------
development and operation of an adult recreational community containing 832
rental sites for manufactured homes and recreational homes. This community
is located in Mesa, Arizona and offers extensive recreational facilities and
social activities designed to appeal to active pre-retirement and retirement
age people. The rental operations generally include operating leases which
do not extend beyond one year.
Going Concern - The accompanying financial statements have been prepared on
-------------
a going concern basis which contemplates the realization of assets and
liquidation of liabilities in the ordinary course of business. At December
31, 1995, the Partnership has approximately $5 million of debt (net of
receivables) payable to the General Partner and a partners' deficit of
approximately $3.6 million. The Partnership has experienced operating losses
in each of the past three years and the Partnership's operating activities
have not generated net cash flow in either of the past two years. Due to the
Partnership's lack of liquidity, it was
S-35
<PAGE>
ARISTEK PROPERTIES, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
necessary to restructure outstanding debt payable to the General Partner
during 1994 and, as a result, the Partnership is required to pay all excess
cash flow to the General Partner until maturity of the debt in 1998.
However, the General Partner has also experienced financial difficulties
over the past several years and is not presently expected to be capable of
providing capital to support operations.
These conditions raise substantial doubt about the ability of the
Partnership to continue as a going concern. The accompanying financial
statements do not include any adjustments which might result from the
outcome of this uncertainty.
In addition to financial support from the General Partner, in recent years
the Partnership has relied on debt financing from a commercial lender to
support operations and the commercial lender has extended the due date until
December 1998. However, management believes that the ultimate success of the
Partnership is dependent upon the ability to obtain additional funding to
develop its 75-acre parcel of land which is adjacent to the Monte Vista
property. Management believes the Partnership has financing arrangements in
place to allow it to continue in operation through 1997 and efforts are
continuing to obtain additional financing to fully develop the project.
2. Summary of Significant Accounting Policies:
------------------------------------------
Principles of Consolidation - The financial statements include the accounts
---------------------------
of the Partnership and its affiliate, Monte Vista I Joint Venture (MVIJV).
All material intercompany transactions and balances have been eliminated.
Through 1993, AWP owned a 40% minority interest in MVIJV. In December 1993,
the Partnership acquired 97.5% of AWP's interest and the General Partner
acquired the remaining 2.5%. No amounts are reflected in the accompanying
financial statements for the General Partner's minority interest since MVIJV
incurred losses in each of the past two years and HVR is not funding its
share of the losses. The General Partner's share of such losses is
approximately $15,000 through December 31, 1995.
Property and Equipment - Property is recorded at cost, which does not exceed
----------------------
the estimated fair market value. Depreciation is provided using the
straight-line method over estimated useful lives, as follows:
<TABLE>
<CAPTION>
Years
-----
----------------------------------------------------------------------------
----------------------------------------------------------------------------
<S> <C>
Land improvements 20
----------------------------------------------------------------------------
Buildings and improvements 25
----------------------------------------------------------------------------
Furniture and equipment 7
----------------------------------------------------------------------------
----------------------------------------------------------------------------
</TABLE>
The cost of normal maintenance and repairs is charged to operating expenses
as incurred. Material expenditures which increase the life of an asset are
capitalized and depreciated over the estimated remaining useful life of the
asset. The cost of properties sold, or otherwise disposed of, and the
related accumulated depreciation or amortization are removed from the
accounts, and any gains or losses are reflected in current operations.
S-36
<PAGE>
ARISTEK PROPERTIES, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Partnership Accounting - All income or loss is allocated to the partners in
----------------------
accordance with the Partnership Agreement. The accompanying financial
statements do not include any assets, liabilities or operations attributable
to the partners' individual activities and no provision has been made for
income taxes (credits), as they are the responsibility of the partners.
Cash Equivalents - For purposes of the statements of cash flows, the
----------------
Partnership considers cash and equivalents to include cash on hand and all
highly liquid debt instruments purchased with an original maturity of three
months or less.
Deferred Loan Costs - Deferred loan costs were incurred in connection with
-------------------
the origination of the mortgage note discussed in Note 4. These costs are
being amortized using the interest method.
Unearned Rental Income - Rental income is typically received in advance for
----------------------
a one year period. The Partnership recognizes rental income ratably over the
period for which the payment relates.
Accounting Estimates - The preparation of financial statements in conformity
---------------------
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and the accompanying notes. The actual results could differ from
those estimates.
The Partnership's financial statements are based on a number of significant
estimates including the realizability of net operating properties and land
held for development, selection of depreciation methods and estimated useful
lives, and the realization of receivables which affects recognition of
profit on the sale of real estate.
Impact of Recently Issued Accounting Standards - In March 1995, the
----------------------------------------------
Financial Accounting Standards Board issued a new statement titled
"Accounting for Impairment of Long-Lived Assets." This new standard is
effective for years beginning after December 15, 1995 and would change the
Partnership's method of determining impairment of long-lived assets.
Although the Partnership has not performed a detailed analysis of the impact
of this new standard on the Partnership's financial statements, the
Partnership does not believe that adoption of the new standard will have a
material effect on the financial statements.
3. Note Receivable:
---------------
The note receivable of $7,154,529 at December 31, 1995 is due from the
General Partner and bears interest at 7%. Principal and interest are due at
the maturity date in June 1998.
4. Mortgage and Notes Payable:
--------------------------
At December 31, 1995 and 1994, the Partnership has a mortgage note payable
with an outstanding principal balance of $5,015,346 and $4,492,913,
respectively. This note bears interest at 4% above the published LIBOR rate
(total of $9.9% at December 31, 1995) and requires minimum monthly
payments at 10%.
S-37
<PAGE>
ARISTEK PROPERTIES, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Payments that exceed the monthly interest rate are applied to principal. The
borrower also covenants that, so long as any of the indebtedness remains
outstanding, as of May 31 of any given loan year, borrower shall have cash
balances in its bank accounts for the trust property that equal the greater
of $400,000, or an amount sufficient to cover property operations and debt
service during the months of June, July, and August of said loan year. The
note is collateralized by operating properties and land held for
development.
Notes payable to the General Partner amount to $11,207,870 at December 31,
1995 and 1994. These notes bear interest at 7% and no principal or interest
payments are due until the maturity date in June 1998.
Assuming the interest rate in effect under the mortgage note payable does
not change after December 31, 1995, the aggregate maturities of debt are as
follows:
<TABLE>
<CAPTION>
Year Ending December 31, Notes Mortgage
====================================================
<S> <C> <C>
1996 $ - $ 9,600
----------------------------------------------------
1997 - 10,000
----------------------------------------------------
1998 11,207,870 4,995,746
---------------------------===========---===========
====================================================
====================================================
$11,207,870 $5,015,346
====================================================
</TABLE>
5. FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK:
-------------------------------------------------------
At December 31, 1995, the Partnership had cash and money market investments
with a single bank which totaled approximately $560,000. The Company has
mortgage debt with a single lender and substantially all of the Company's
tangible assets are pledged as collateral for this obligation.
At December 31, 1995, the Partnership had a note receivable from the General
Partner for $7,154,529 and notes payable to the General Partner for
$11,207,870. A right of set-off exists between these instruments but none of
the notes are collateralized. Management does not believe it is practicable
to estimate the fair value of the parables and receivables from the General
Partner due to the financial interest of the General Partner. Management
believes that the fair value of the bank debt is equivalent to the carrying
value due to the floating interest rate. Management believes that the fair
value and carrying value are approximately the same for all other financial
instruments due to the relatively short maturities.
S-38
