SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended October 31, 1997.
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________.
Commission File Number 33-01406
BUCK HILL FALLS COMPANY
(Exact name of registrant as specified in its charter)
Pennsylvania 24-0536840
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
Cresco Road
Buck Hill Falls, Pennsylvania 18323
(Address of principal executive offices, zip code)
Registrant's telephone number, including area code: (717) 595-7511.
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months; and (2) has been subject to the filing
requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X]
Aggregate market value of voting stock held by non-affiliates of the
Registrant as of January 26, 1998: $1,908,714.*
Number of Shares of Common Stock and Class A Common Stock, outstanding on
January 26, 1998: 104,211.
DOCUMENTS INCORPORATED BY REFERENCE:
None.
____________________
* Calculated by excluding all shares held by executive officers, directors and
five percent shareholders of the registrant without conceding that all such
persons are "affiliates" of registrant for purposes of the Federal securities
laws. Computation of market value is based on the closing bid quotation of
Common Stock on January 26, 1998.
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PART I
ITEM 1 - BUSINESS
Buck Hill Falls Company (the "Company") is engaged in the provision of a
variety of services, many of which are for the benefit of residents of Buck Hill
Falls, Pennsylvania. In addition, certain of the Company's facilities are made
available to the general public. The Company's services include (a) provision of
recreational facilities, (b) provision of various water and sewage services and
(c) miscellaneous maintenance services.
Recreational Facilities
The Company provides and maintains various recreational facilities for
the use of residents of the Buck Hill Falls community and the general public.
The recreational facilities owned and operated by the Company are as
follows:
Golf. The Company owns and operates a 27 hole golf course facility which
also includes a clubhouse and restaurant. The restaurant has a capacity for 65
persons and can seat an additional 20 persons at an adjoining patio.
Tennis. The Company's tennis facilities consist of 10 clay tennis
courts, a tennis clubhouse and a small dining room that can accommodate 20
persons.
Swimming. The Company owns and operates an olympic-sized outdoor
swimming pool along with a small bath house and dressing rooms.
Bowling Greens. The Company owns and operates two championship lawn
bowling greens.
Miscellaneous. The Company administers deer hunting on its properties
and stocks streams on its properties for trout fishing. The Company also
operates a day camp for children, including children of residents of Buck Hill
Falls, on weekdays during the months of June, July and August.
Of the Company's recreational facilities, its golf facilities are by far
the most significant, generally accounting for more than 50% of the Company's
revenues from its recreational facilities.
Residents of Buck Hill Falls pay annual or daily use fees to the Company
for each of the facilities that they utilize. In recent years, revenues from the
general public and various groups that utilize the Company's golf facilities
have become increasingly important.
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Water and Sewage Operations
Through its wholly owned subsidiary, Buck Hill Water Company ("BHW"),
the Company supplies water to residential customers. As of December 31, 1997,
the Company had 290 residential customers and one commercial customer (the post
office), including all owners of residences in Buck Hill Falls that do not use
well water and some residences outside the community. The operations of BHW are
subject to regulation by the Pennsylvania Department of Environmental Protection
(the "DEP") and the Pennsylvania Public Utility Commission (the "PUC"). See
"Government Regulations."
For the purposes of supplying water to its customers, the Company owns a
reservoir with a 550,000 gallon capacity, a filtration plant, a chlorinator pump
house and distribution system. The reservoir is fed by Buck Hill Creek, a spring
and one or more wells. The Company also operates a sewage treatment facility
that serves most of the residences in Buck Hill Falls and formerly served the
Buck Hill Inn.
Because a substantial majority of the residents of the Buck Hill Falls
community occupy their units on a seasonal basis, the demand for the Company's
water and sewage services is significantly greater in the summer months.
Government Regulation
The Company's water and sewer services are subject to regulation by the
DEP and the Company's water services are regulated by the PUC.
The DEP regulates all sewage treatment plants in Pennsylvania, annually
inspects sewage treatment facilities and issues annual permits for the operation
of such facilities. It has authority to cause changes to be made in the
operation of a facility and to require capital improvements to ensure that the
facility is operating in accordance with its standards. In addition, the DEP
evaluates the water quality provided to residents of Buck Hill Falls by BHW. The
DEP has the authority to mandate changes in the operation of BHW or its
facilities to ensure that the water supply provided to the Buck Hill Falls
community remains within the standards adopted by the DEP. In the event that the
DEP were to mandate any changes in the Company's sewage treatment plant or in
the facilities operated by BHW, the Company would be required to make the
necessary capital expenditures in order to ensure that the sewage and water
facilities meet with applicable regulations.
The PUC regulates the quality of the water service provided by BHW, and
the rates charged for such services. The PUC establishes, upon application, the
rates that BHW may charge for water service. Any requests for an increase in
water rates must be submitted to and approved by the PUC prior to the
effectiveness of such increases.
Pursuant to amendments to the Pennsylvania Safe Drinking Water Act
enacted in 1989 (the "Water Act Amendments"), public water systems using
unfiltered surface water sources
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were required to install filtration-disinfection systems for unfiltered surface
water supplies not later than December 31, 1995. In 1993, the Company was
informed by the DEP that its water system exceeded the maximum contaminant level
specified for coliform bacteria under regulations enacted pursuant to the Water
Act Amendments, and that the Company would be required to install and begin
operation of continuous filtration and disinfection in accordance with
applicable regulations, or abandon its surface water source no later than May
17, 1993. Pursuant to these requirements, the Company commenced construction of
a water filtration plant for Buck Hill Creek. In addition, pursuant to
applicable regulations, the Company was required to cover its reservoir, which
was accomplished in 1993. While the DEP is responsible for enforcing the
requirements of the Water Act Amendments, the PUC regulates water aesthetics,
and may require BHW to take certain actions or install facilities to maintain
standards of water aesthetics in excess of the requirements of the Water Act
Amendments.
As a result of delays in the review process and delays in construction
and start up of the filtration plant, the filtration plant was first placed into
service in February 1995. The cost of approximately $900,000 was financed
through a term bank loan. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
In the fiscal year ended October 31, 1993, BHW sought and obtained PUC
approval to raise the rates charged for water services by 121%. During the same
period, the Company raised the rates charged for sewer services by 100%. On
January 18, 1995, BHW filed an application with the PUC to increase its rates
for water service effective March 20, 1995, partially to offset the costs
associated with construction of the water filtration facility. The Company
sought approval of rates that would produce $114,828 in additional annual
revenue, but, effective July 20, 1995, was granted rates that are expected to
produce additional annual revenues of $82,000. During 1997, BHW completed the
installation of water meters for all customers pursuant to PUC requirements. A
study of actual consumption based on water meter readings was undertaken for all
of 1997. The data is currently being compiled. BHW intends to use the data to
file for a rate change in 1998 based on actual consumption rather than flat rate
billing.
Other Operations
In addition to the services described above, the Company also provides
road maintenance for approximately 23 miles of paved roads presently in the Buck
Hill Falls community, plowing and cindering, trash pickups, street lighting and
24 hour security patrols. Costs of such services are borne by residents of Buck
Hill Falls. See "Dues and Fees Paid By Property Owners," below.
Dues and Fees Paid by Property Owners
In addition to fees which residents of Buck Hill Falls pay to the
Company for water and sewer services and the use of recreational facilities,
each of the property owners is assessed dues to the Company in connection with
road maintenance, trash collection, security and other general maintenance
services provided by the Company for the Buck Hill Falls community.
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The utilization by the Company of certain of the dues and assessments has been
contested by certain residents and by the Lot and Cottage Owners Association of
Buck Hill Falls, Inc. (the "Association"), a non-profit organization whose
members consist of most owners, other than the Company, of homes or lots in Buck
Hill Falls. The Association has also expressed opposition to increases in such
charges that the Company believed were necessary to provide for operation of
Company facilities in the community and to meet certain other of the Company's
obligations. The Company set dues for the fiscal year ended October 31, 1995 at
$2,400 per resident. In July 1995, the Association and certain individual
property owners brought suit against the Company and certain of its officers and
directors challenging the right of the Company to make assessments and dues
charges and seeking to enjoin certain collection actions instituted by the
Company to collect unpaid dues. On June 8, 1996, an agreement was signed by the
Association and the Company recognizing the obligation of residents to pay dues
to the Company for services rendered for their benefit and giving the
Association a role in setting the amount. Under the Agreement a joint committee
was established, consisting of two members nominated by the Chairman of the
Company, two members nominated by the President of the Association, and a fifth
member chosen by mutual agreement of the Company Chairman and the Association
President. The committee is to make recommendations to the Company's Board of
Directors as to the level of dues to be assessed. As a result of this process,
dues were increased to $2,800 for fiscal 1997 and to $2950 for fiscal 1998. The
Agreement provides that special assessments to repay debt, acquire property for
development purposes, purchase Company Stock and develop land will only be
considered if the Company grants property owners an option to purchase Common
Stock, or a new class of stock, in consideration for payment of the special
assessment. Both sides agreed to dismiss their litigation.
Owners of properties in The Cottages at Buck Hill Falls ("The
Cottages"), a separate residential complex in Buck Hill Falls, have paid an
additional fee of $100 - $125 per month, depending on the type of residence, a
portion of which is placed in a restricted reserve fund for long range capital
improvements for these properties, and the remainder of which is used for
exterior maintenance of such residences. These fees were increased to $126 -
$157 per month in November 1997. Exterior maintenance services are not provided
to other residents of Buck Hill Falls.
Until November 1997, purchasers of lots in The Cottages who have not yet
had the design of their proposed home approved by the Company generally pay an
amount equal to 25% of the total dues charged to owners of residences in the
first year following their purchase of a lot, 50% in the second year and 75% in
the third year. Thereafter, lot owners at The Cottages generally pay
approximately the same dues as owners of residences. However, once the design of
a proposed residence has been approved by the Company, the owner of the lot is
in most cases required to pay the same dues as all owners of residences.
Effective November 1, 1997 dues on vacant lots were eliminated.
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Development of The Cottages
Pursuant to a series of agreements executed in May 1985, the Company
transferred 600 acres of its land to Buck Hill Falls Associates (the
"Partnership"), a Pennsylvania limited partnership in which the Company had a
29% limited partnership interest. Thereafter, the Partnership developed The
Cottages on the transferred property. However, the sales of properties in The
Cottages ran significantly behind expectations, and the Partnership was not able
to pay the principal amount due on certain loan obligations incurred in
connection with the development of The Cottages. As a result, the Partnership
ceased development of The Cottages in 1990, and in early 1991 gave to First
Eastern Bank (now PNC Bank, N.A.) (the "Bank"), its principal lender, a deed on
the remaining property it held, in lieu of foreclosure on the property. The
Partnership dissolved in 1991, and all selling efforts relating to The Cottages
was suspended. In April 1996 the Company was advised that the Bank had agreed to
convey the property to a purchaser for $900,000. The Company believes this
transfer took place.
Marketing and Competition
During 1997 a new "2001 Marketing Committee" was formed to develop an
overall long term marketing plan for the resort community at Buck Hill Falls.
The committee's goal is the enhancement of revenues through increases in the
sales of amenity memberships, rentals and property sales.
Revenues derived from the use of the Company's golf course by members of
the general public have become increasingly important in recent years,
accounting for about 62 percent of total golf revenues in 1997. The Company is
in competition with a number of resorts in the Pocono Mountains area, and many
of its competitors have substantially greater financial and marketing resources.
Employees
As of January 15, 1998, the Company had 17 persons employed on a full
year basis. An additional 62 persons were employed on a seasonal basis during
the summer season in 1997 (demand for the Company's services increases
substantially during the summer months).
ITEM 2 - PROPERTIES
Aside from the various facilities described above, the Company owns
approximately 4,000 acres of undeveloped wooded land contiguous to the Buck Hill
Falls community and The Cottages. Of the 4,000 acres, approximately 2,400 acres
are owned by BHW and serve as a watershed. Company management does not believe
that development of the watershed land is feasible in the foreseeable future.
Over 98 percent of the Company's land was acquired prior to 1947, and no land
has been acquired in the last 30 years. The land is zoned residential. The
Company has mortgaged approximately 2,600 acres of the land together with
certain of its amenities to its principal lending bank as collateral for amounts
borrowed under a line of credit. However, the mortgage is subordinated to the
rights of community
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members of Buck Hill Falls under a non-exclusive easement granted to such
persons for access to and use of certain areas (consisting of various
recreational amenities and various roads, pathways and private rights-of-ways in
Buck Hill Falls).
ITEM 3 - LEGAL PROCEEDINGS
In October, 1996 Charles Czaplinski and Constance Seebach, owners of
cottages at Buck Hill Falls, brought suit against the Company in the Court of
Common Pleas of Monroe County, Pennsylvania alleging that the Company has
fraudulently sought to collect dues and assessments in excess of amounts
necessary to maintain the community, that dues, fees and assessments are not
uniform among property owners, that the Company is using amounts collected from
property owners to meet its general expenses and that the acts of the directors
in the management of the Company have been illegal, oppressive and fraudulent
and have sought to benefit a minority of large shareholders at the expense of
minority shareholders who are owners of property in the Buck Hill community. The
plaintiffs request the Court to dissolve the Company and to appoint a receiver
to carry out the maintenance of the community on a not-for-profit basis. The
plaintiffs also asked the Court to review the action of the Company's nominating
committee in declining to nominate Mr. Czaplinski for election to the Board of
Directors. The Company filed an answer denying all material allegations and
requesting that the suit be dismissed. Pleadings are closed and this matter is
presently in discovery. The Company does not believe the lawsuit to be
meritorious and is vigorously defending the plaintiffs' claims.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SECURITY HOLDER MATTERS
The Company believes that market transactions in its Common Stock occur
very infrequently, rendering it unlikely that there exists an established
trading market for the Common Stock, and that quotations would be markedly
affected by a modest volume of transactions.
Based upon information provided to the Company by the National Quotation
Bureau, LLC, quotations reported by the National Daily Quotation Service and the
National Association of Securities Dealers, Inc. Non-NASDAQ OTC Bulletin Board
indicate a range of bid prices of $31.00 during the period from November 1, 1995
through January 31, 1996; $31.00 during the period from February 1, 1996 through
April 30, 1996; $31.00 to $20.50 during the period from May 1, 1996 through July
31, 1996; $25.00 during the period from August 1, 1996 through October 31, 1996;
$22.00 to $25.00 during the period from November 1, 1996 through January 31,
1997; $22.00 during the period from February 1, 1997 through April 30, 1997;
$20.50 to $22.00 during the period from May 1, 1997 through July 31, 1997; and
$20.50 during the period from August 1, 1997 through October 31, 1997.
These quotations reflect inter-dealer prices, without retail markup,
mark-down or commission and do not reflect actual transactions.
The Company has not declared or paid dividends on its Common Stock in
over thirty years and anticipates that all earnings will be retained for use in
its business. The Company does not anticipate that dividends will be declared or
paid in the foreseeable future.
As of January 21, 1998, the Company had approximately 489 shareholders
of record.
Since the transferability of the Class A Stock is essentially restricted
to Qualified Owners it is unlikely that any trading market will develop for that
class.
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ITEM 6 - SELECTED FINANCIAL DATA
The selected financial data set forth below are derived from financial
statements of the Company and should be read in conjunction with such financial
statements and Management's Discussion and Analysis of Financial Condition and
Results of Operations appearing elsewhere in this report.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues $2,398,408 $2,175,475 $2,218,139 $2,203,529 $2,048,529
Income (loss) from operations 142,702 26,107 37,094 136,294 133,895
Other expense (87,292) (151,236) (125,834) (67,914) (34,412)
Income (loss) before extraordinary
credit 55,410 (125,129) (88,740) 33,080 65,683
Extraordinary credit -- -- -- -- 33,800
Cumulative effect of accounting
change -- -- -- 21,600 --
----------- ----------- ----------- ----------- -----------
Net income (loss) $55,410 $(125,129) $(88,740) $54,680 $99,483
=========== =========== =========== =========== ===========
PER SHARE DATA:
Income (loss) before extraordinary
credit $.55 $(1.68) $(1.21) $.45 $.89
Extraordinary credit -- -- -- -- .46
Cumulative effect of accounting
change -- -- -- .29 --
----------- ----------- ----------- ----------- -----------
Net income (loss) $.55 $(1.68) $(1.21) $.74 $1.35
=========== =========== =========== =========== ===========
FINANCIAL POSITION DATA:
Working capital $(433,288) $(577,628) $(772,267) $(973,993) $(822,191)
Total assets 3,142,809 3,172,579 3,149,870 3,104,106 2,536,541
Total long-term liabilities 981,934 1,148,560 1,170,018 921,804 559,360
Stockholders equity 1,300,101 1,042,994 900,529 989,269 934,589
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The Company's business, insofar as it relates to the provision of
recreational facilities, is largely seasonal in nature. As a result, the
Company's revenues and cost of revenues typically increase significantly in its
third and fourth fiscal quarters.
Results of Operations
Year Ended October 31, 1997 Compared to Year Ended October 31, 1996.
Revenues increased approximately $227,000 in 1997 as compared to 1996,
principally due to an increase in annual dues billed to the 290 residents and 28
unimproved lots of Buck Hill Falls from $2,300 to $2,800, resulting in an
increase of approximately $166,000. Revenues from country club membership dues
and camp fees increased a combined $10,000 due to an increase in annual
membership dues and fees, higher participation rates and good weather
conditions. Management also believes that fair weather and two separate
promotions were the cause of a $41,000 and $25,000 respective increase in greens
fees and cart rentals. Fairway grill revenue increased $20,000 during 1997 due
to good weather conditions and daily fees for tennis and golf increased $15,000
due in part to the favorable weather but largely due to tighter controls and new
point of sale service instituted during 1997. Also, seasonal cart rental was
down $7,000 due to several annual subscribers not participating in 1997.
Lumbering sales decreased $8,000 due to the cessation of lumbering activities
during fiscal 1997. Plowing revenues decreased approximately $14,000 due to
substantially less snowfall during 1997. Sewer billings decreased approximately
$5,000 due to repairs on the sewage lines resulting in less run off seepage into
the lines which causes a reduction in the value of liquid to be purified. In
addition, the Company changed its policy towards finance charges resulting in a
decrease in finance charge revenue of approximately $12,500 in 1997.
Cost of revenues increased approximately $75,000 from $1,805,000 in
1996 to $1,880,000. Lot and cottage expenses increased approximately $47,000 due
to an increased effort aimed at the maintenance of the grounds and a promotional
effort aimed at bringing in more full- and part-time residents which increased
marketing fees approximately $8,000. Lawn bowling expenses increased
approximately $9,500 due to rehabilitation of the lawn bowling courts. Security
expenses increased approximately $7,500 due to an increase in the fees charged
by the outside contractor. Advertising expenses increased approximately $5,000
during 1997 due to several golf promotions. Also due to the increase in golf
rounds played in 1997, there was a $6,000 increase in top dressing expenses
associated with the greens. Tennis expenses increased approximately $10,000 due
in part to an increase in the contract with the tennis pro. The above increases
were offset by a $5,000 decrease in the costs of pesticides due to the
acquisition of more efficient fertilizing equipment. Lab fees also decreased
approximately $4,500 due to a cleaner water flow that requires less testing.
Also, due to a substantial reduction in the amount of snowfall, plowing expenses
decreased approximately $10,000.
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General and administrative costs increased from $340,000 in 1996 to
$372,000 in 1997 or 9.4% due principally to a $44,000 increase in salaries,
payroll taxes and employee benefits. This increase was due in part to the hiring
of a general manager and reallocation of workers' compensation insurance to
payroll benefits. This resulted in a corresponding reduction in insurance
expense of approximately $10,000. There was also an increase in legal and
professional fees of approximately $4,000 due to the utilization of an outside
employment service to assist in the search for a new general manager. Bad debt
expense increased approximately $9,000. Heat and electricity decreased
approximately $13,000 due to the partial conversion from electric to oil
heating. Miscellaneous expense also decreased approximately $10,000 due to a
more accurate classification of expenses encouraged by management. Travel and
entertainment increased nearly $5,000 in 1997 due to the recruitment process
while conducting the search for the new general manager.
Gain on the sale of land increased approximately $54,000 due to the
sale of two lots in 1997.
Interest expense decreased 19% primarily as a result of the reduction
in the average carrying amount of outstanding debt.
Year Ended October 31, 1996 Compared to Year Ended October 31, 1995.
Revenues decreased approximately $43,000 in 1996 as compared to 1995,
principally due to a reduction in annual dues billed to the 290 residents of
Buck Hill Falls from $2,400 to $2,300 resulting in a decrease of approximately
$27,000. Lawn bowling revenues decreased $7,000 during 1996 due to less
favorable weather conditions. Lumbering sales decreased $23,000 due to less
timbering in fiscal 1996. Golf cart rentals decreased $33,000 principally due to
less rounds played during 1996 and, in addition, members took advantage of
discounted seasonal cart rentals. There was also a decrease in interest income
of $5,100 and in bad debt recoveries of $6,600. These decreases were partially
offset by increases in revenues of approximately $32,800 in membership fees due
primarily to an increase in country club membership fees, of $7,600 in water
operations as a result of a rate increase, of $19,000 in snow plowing revenues
as a result of heavy snowfall amounts in 1996, and of $1,300 in pro shop income.
Cost of revenues increased 9% in 1996 as compared to 1995. Depreciation
expense increased approximately $32,000 due to capital improvements to the water
system which was put into operation in February 1995 and salaries and wages
increased approximately $30,000 due to a reallocation of administrative salaries
to the related community service operations to which the employees are currently
performing services. In addition, snow plowing costs increased $15,000 and road
and path maintenance increased $12,250 as a result of severe weather conditions
during 1996. General maintenance and repairs increased approximately $33,000
during 1996 due to less favorable weather conditions and the Company's efforts
to improve the Community including an increase of $6,000 in the contract with
landscapers. Materials and supplies increased approximately $17,900 due to new
sand for the golf course and additional sand for the sewer plant. There was also
an increase in insurance expense of $ 10,000 due to an increase in workers'
compensation insurance and the addition of two new vehicles. There was also an
increase in professional fees of approximately $6,000 related to the continued
testing of the water supply.
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General and administrative costs decreased 36% in 1996 as compared to
1995. Administrative salaries decreased approximately $30,000 as discussed
above. Bad debt expense decreased $84,000 due to uncollectible accounts relating
to the Buck Hill Inn and other accounts receivable being written off in 1995.
During 1995, legal and accounting fees were incurred primarily for an evaluation
of a purchase offer from the Lot and Cottages Owner's Association. Such costs
were not incurred during 1996, resulting in a decrease in legal and accounting
fees of approximately $33,000. During 1995, the Company also incurred legal fees
of $16,500 for general legal consultation related to its utility operations and
assistance with a water rate increase which were not present during 1996. Also
legal and accounting fees were incurred in 1995 related to Securities and
Exchange Commission filings which were not incurred in 1996. These fees amounted
to a decrease in expenses of approximately $15,700 and $2,000, respectively.
During 1995, the Company incurred approximately $5,000 of repairs due to a pipe
breakage. Efforts made by the Company to reduce costs resulted in a decrease in
office supplies of $1,000, travel and entertainment of $1,200, and data
processing of $1,200.
Other income decreased 40% during 1996. During 1996, vending machine
revenues, commissions and miscellaneous income increased approximately $ 6,000.
During 1995, there was a gain on sale of land of approximately $25,400 which was
not present in 1996.
Interest expense increased 8% primarily as a result of interest on
borrowings related to the water system capital improvements loan.
Inflation.
Inflation has not had a significant impact on the Company's comparative
results of operation.
Liquidity and Capital Resources
At October 31, 1997, the Company had a working capital deficiency of
$433,288. Included in current liabilities is the entire $448,714 outstanding on
the Company's $1,000,000 line of credit with a bank (described in the following
paragraph), which is payable on demand. An additional $55,554 in scheduled
principal payments on long-term debt are due within the next twelve months. In
addition, the Company's $140,000 in principal amount of 6-1/4% subordinated
notes are due July 1, 1998.
The Company entered into a loan agreement with a bank relating to a
secured revolving line of credit in the amount of $1,000,000. Amounts borrowed
bear interest at the prime rate (8. 5% at October 31, 1997) plus 1-1/4%.
Pursuant to the loan agreement, approximately 2,600 acres of land and land
improvements located in Barrett Township, Monroe County, Pennsylvania, are
pledged as collateral, along with dues, assessments and fee revenues. The line
of credit is available through May 24, 1998, contingent upon the Company
maintaining a satisfactory financial position and subject to annual review of
the Company's financial statements by the bank. The loan agreement with the bank
provides that if, in the opinion of the authorized lending officers of the bank,
the
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Company's credit worthiness materially declines, the credit line will cease to
be available for future draws, and any existing balance will be required to be
fully amortized over a reasonable term.
The Company has been required to make certain improvements in its water
system. In May 1995, the Company entered into a $900,000 loan agreement with a
bank to refinance existing water system debt and to complete the improvements.
Principal is payable in monthly installments of $8,985 over a 20-year
amortization period. Interest is payable at the bank's base rate (8.5% at
October 31, 1997) plus 1-1/4%. The loan matures in May 2015 and is secured by a
first mortgage on approximately 2,600 acres of land and land improvements
located in Barrett Township, Monroe County, Pennsylvania and a collateral
assignment of all revenue and assessments of the Company's water operations.
Cash decreased $29,730 during fiscal 1997. Cash provided by operating
activities of $249,398, borrowings of $311,625 under the Company's revolving
line of credit, $27,192 in additional long-term debt, $53,880 from the sale of
land and proceeds of $201,697 from issuance of Class A Common Stock were used to
make scheduled principal payments of $702,980 on long-term debt and capital
expenditures of $170,542. Such capital expenditures included purchases of
equipment for the golf club and tennis club of approximately $96,105,
improvements to roads and paving of $58,022, and purchase of an automobile for
$7,500.
At October 31, 1997, the Company had drawn $448,714 on its $1,000,000
line of credit, leaving $551,286 available. The outstanding balance was $324,714
on January 15, 1998.
The Company had a net income of $55,410 for the year ended October 31,
1997 and at October 31, 1997, the Company has a cumulative deficit of $1,219,787
and a working capital deficiency of $433,288. Although the Company's line of
credit is available through May 24, 1998, the ability to borrow under the line
is contingent upon certain factors. As a result, continuation of the Company in
its present form is dependent upon the successful maintenance of its debt terms,
its ability to obtain additional financing if needed and the eventual
achievement of sustained profitable operations.
Management believes that revisions in the Company's operating
requirements, and procedures relating to the collection of receivables and the
fiscal 1998 increase in Lot and Cottage dues from $2,800 to $2,950 per year,
provide the opportunity for the Company to continue as a going concern. However,
there is no assurance that management's actions will be successful or, if they
are not successful, that the Company would be able to continue as a going
concern.
Recent Stock Offering
Beginning in September 1996, the Company made an offering of shares of
its Class A Common Stock limited to those persons who owned Common Stock in the
Company and were an owner or co-owner of a cottage and/or lot in the Buck Hill
Falls community ("Qualified Owners"). Qualified Owners were offered the
opportunity to purchase 200 shares per property for $20 per share or an
aggregate price of $4,000, payable over five years at $800 annually or, if
-13-
<PAGE>
paid in full by October 31, 1996, with a $500 discount. All 200 shares had to be
purchased by a Qualified Owner if any were purchased. All Qualified Owners who
did subscribe were then offered the opportunity to purchase up to 200 additional
shares per property (up to a total purchase of 400 shares of Class A Stock per
property) on the same terms. The shares of Class A Stock are identical to the
shares of the Company's Common Stock except that the Class A Stock may, with
certain exceptions, only be held by or transferred to a Qualified Owner. All
certificates representing Class A Stock contain a legend calling attention to
the restrictions on transferability set forth in the Company's Articles of
Incorporation.
The offering price of the Class A Stock was determined by the Board of
Directors of the Company based upon the historical prices of the Common Stock,
the inactive nature of that market, the restrictions on transferability of the
Class A Stock and the unlikely prospect of any dividend being paid.
Upon completion of the offering of the Class A Stock to Qualified
Owners, the Company offered to all holders of its Common Stock (other than
Qualified Owners) the opportunity to purchase at $20 per share that number of
shares of Common Stock which, in the judgment of the Company, would be
sufficient to enable each such holder of Common Stock to maintain his or her
percentage interest in the Company, based upon (i) the number of Class A shares
sold by the Company (ii) the number of shares of Common Stock held by the
subscribing Common holders and (iii) any maximum specified by a subscribing
Common holder.
Qualified Owners subscribed for a total of 28,600 shares of Class A
Common Stock, and the holders of Common Stock who were not Qualified Owners
purchased a total of 5,636 shares of Common Stock for which they paid an
aggregate price of $112,720. The Company has received proceeds of $430,810 from
the sale of the Class A Stock and expects to receive an additional $84,190 as
installment subscriptions are paid over the next three years. Net proceeds
received to date have been applied to reduction of the outstanding balance on
the Company's line of credit, ameliorating the effect of seasonal variations in
the Company's operating cash flow.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to theTable of Contents on page F-1.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable.
-14-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Term as
Director
Name Age Position Expires
<S> <C> <C> <C>
David B. Ottaway 58 Chairman of the Board 1998
Richard C. Unger, Jr. 45 President, Director 1999
Anthony C. Bowe 40 Vice President, Treasurer 1999
and Chief Financial Officer,
Director
David C. Toomey 59 Secretary, Director 2000
Frank J. Dracos, M.D. 68 Director 1998
George J. Byron 74 Director 1998
Grace M. Godshalk 60 Director 2000
Clifford Press 44 Director 2000
James T. Sygenda 65 Director 1999
Floyd R. Hunter, Jr. 52 General Manager N/A
</TABLE>
Mr. Ottaway was elected Chairman of the Board in July 1995 and also served
as President and Chief Executive Officer until July 1997. Mr. Ottaway has been
employed by the Washington Post for the past 25 years and is currently an
investigative reporter.
Mr. Unger was elected to the Board and as Secretary of the Company in July
1996. In July 1997, he was elected President. He is an attorney practicing in
West Conshohocken, Pennsylvania. Until forming his own firm in 1995, he was for
many years a partner in the Philadelphia based firm of Duane, Morris &
Heckscher.
-15-
<PAGE>
Mr. Bowe was elected to the Board and as Vice President, Treasurer and
Chief Financial Officer in July 1996. He is a Managing Director of Bankers Trust
Company, New York City, and has held a variety of line and management positions
with that firm for more than the past five years.
Mr. Toomey was elected to the Board and as Secretary of the Company in July
1997. He is a partner in the Philadelphia based law firm of Duane, Morris &
Heckscher. He has practiced law with that firm since 1963.
Dr. Dracos has been a director of the Company since 1992. He served as Vice
President Operations and Chief Operating Officer from July 1996 to July 1997.
Dr. Dracos has been a practicing orthopedic surgeon with Pocono Orthopedic for
over five years. He is also a director of Mellon Bank (Northeast).
Mr. Byron has been a director of the Company since 1992. Mr. Byron has been
co-owner of Lord Byron, Inc., a manufacturer of hospital linens and nuclear
energy protective clothing, for over five years.
Mrs. Godshalk has been a director of the Company since March, 1995 and she
was elected President of BHW in July 1996. Mrs. Godshalk has been the Vice
President of Ultra-Mold Corporation in Yardley, Pennsylvania, since 1984. For
the past eighteen years, she has been an elected Supervisor of Lower Makefield
Township, Bucks County, Pennsylvania.
Mr. Press has been a director of the Company since 1994. Since 1986, Mr.
Press has served as President of Hyde Park Holdings, Inc. Mr. Press also has
served as a director of High Voltage Engineering Corporation since 1988.
Mr. Sygenda has been a director of the Company since 1993. Mr. Sygenda was
district sales manager and national account manager for UARCO Business Forms
until he retired in 1993.
Mr. Hunter became general manager of the Company in January 1997. From 1979
until joining the Company, he was the President and owner of Hunter Associates,
a management and marketing consultant to the hospitality, travel and tourism
industries.
ITEM 12. EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation for services rendered by the Company's General Manager during each
of the last three fiscal years. The Company's other executive officers serve on
a voluntary basis and are not compensated.
-16-
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
Other Annual Other
Name and Principal Position Year Salary Compensation Compensation
<S> <C> <C> <C> <C>
Floyd R. Hunter, Jr. (1) 1997 $56,538 $16,500 ------
General Manager
</TABLE>
(1) Mr. Hunter became General Manager in January 1997. The compensation shown
above consists of his salary at the rate of $70,000 per annum through October
31, 1997 and bonus and incentive compensation paid with respect to the fiscal
year ended that date. The Company also reimbursed Mr. Hunter for relocation
costs of $4,500, not included in the above table.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information concerning
ownership of the Common Stock and Class A Common Stock of the Company as of
January 21, 1998 by each shareholder known to the Company to own beneficially
more than 5% of its stock, each director of the Company and all directors and
executive officers of the Company as a group. Except as otherwise noted, each
person listed below has sole voting and dispositive power with respect to the
shares listed next to his or her name. All persons listed below are directors of
the Company. The table treats the Common Stock and the Class A Common Stock as a
single class since each has one vote per share.
-17-
<PAGE>
<TABLE>
<CAPTION>
Shares
Beneficially
Name Owned Percent of Class
<S> <C> <C>
David B. Ottaway................................... 8,513(1) 8.2%
Richard C. Unger, Jr. 300(2)(5) *
Anthony C. Bowe.................................... 300(2)(3) *
David C. Toomey.................................... 500(2)(7)
Frank J. Dracos, M.D............................... 600(4) *
George J. Byron.................................... --(8) *
Grace M. Godshalk................................. 290(6)(5) *
Clifford Press..................................... 500(7) *
James T. Sygenda................................... 100(2) *
All executive officers and
directors as a group............................. 11,103 10.7%
</TABLE>
_________________
* Less than 1%
(1) Includes 3,716 shares held by Mr. Ottaway and 4,397 shares held by a
non-profit charitable Trust of which Mr. Ottaway is a trustee. Mr. Ottaway
disclaims beneficial ownership of the shares held by the Trust. Also
includes 400 shares of Class A Common Stock. Mr. Ottaway's address is 327 A
Street, S.E., Washington, D.C. 20003.
(2) Held jointly with wife.
(3) Includes 200 shares of Class A Stock.
(4) Includes 100 shares held by Dr. Dracos' wife and 100 shares held by an
adult son, as to which shares Dr. Dracos disclaims beneficial ownership.
Also includes 200 shares of Class A Stock.
(5) Includes 200 shares of Class A Stock of which 80 shares have been paid for
and issued.
(6) Includes 50 shares held jointly with Mrs. Godshalk's husband.
(7) Includes 400 shares of Class A Stock.
(8) Mr. Byron sold his property at Buck Hill Falls and his stock in December
1997.
-18-
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) 1. Financial Statements - See the Table of Contents on page F-1
2. Financial Statement Schedules - See the Index to Consolidated
Financial Statement Schedules on page F-1.
3. Exhibits
Exhibit
No.
3.1 Articles of Incorporation, as amended - Incorporated by reference to
Exhibit 3.1 to the Company's Registration Statement on Form S-1,
Commission File No. 333- 10207, filed with the Commission on August 15,
1996.
3.2 By-laws, as amended - Incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-1, Commission File No.
333-10207, filed with the Commission on August 15, 1996. Additional
amendment filed herewith.
10.1.1 Loan Agreement, dated July 24, 1992, between Penn Security Bank and
Trust Company and the Company - Incorporated by reference to Exhibit
10.6.1 to the Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1992, filed with the Commission on February 24, 1993.
10.1.2 Promissory Note, dated July 24, 1992, issued by the Company to Penn
Security Bank and Trust Company - Incorporated by reference to Exhibit
10.6.2 to the Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1992, filed with the Commission on February 24, 1993.
10.1.3 Open-End Mortgage, dated July 24, 1992, issued by the Company to Penn
Security Bank and Trust Company - Incorporated by reference to Exhibit
10.6.3 to
-19-
<PAGE>
the Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1992, filed with the Commission on February 24, 1993.
10.1.4 Collateral Assignment of Dues, Assessments and Fee Income, dated July
24, 1992, issued by the Company to Penn Security Bank and Trust Company
Incorporated by reference to Exhibit 10.6.4 to the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1992, filed
with the Commission on February 24, 1993.
10.2 Loan Agreement, dated August 12, 1993, between the Company and Penn
Security Bank and Trust Company, incorporated by reference to Exhibit
10.8 to the Company's Annual Report on Form 10-K for the fiscal years
ended October 31, 1994 and 1993.
10.3 Loan Agreement, dated May 4, 1995, between the Buck Hill Water Company
and Penn Security Bank and Trust Company, incorporated by reference to
Exhibit 10.9 to the Company's Annual Report on Form 10-K for the fiscal
year ended October 31, 1995.
10.4 Agreement dated June 8, 1996, between the Company and the Lot and
Cottage Owners' Association of Buck Hill Falls, Inc. - Incorporated by
reference to Exhibit 10.4 to the Company's Registration Statement on
Form S-1, Commission File No. 333-10207, filed with the Commission on
August 15, 1996.
21 List of Subsidiaries of the Company - Incorporated by reference to
Exhibit 21 to the Company's Registration Statement on Form S-1,
Commission File No. 333- 10207, filed with the Commission on August 15,
1996.
27 Financial Data Schedule.
___________
(b) No reports on Form 8-K were filed by the Company during the last quarter
of the period covered by this report.
-20-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
BUCK HILL FALLS COMPANY
Date: January 28, 1998 By: /s/ David B. Ottaway
David B. Ottaway
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ David B. Ottaway Chairman of the Board, Jan. 28, 1998
David B. Ottaway Director
/s/ Richard C. Unger, Jr. President, Director Jan. 29, 1998
Richard C. Unger, Jr. (Principal Executive Officer)
/s/ Anthony C. Bowe Vice President, Treasurer and Jan. 29, 1998
Anthony C. Bowe Chief Financial Officer (Principal
Financial and Accounting Officer),
Director
/s/ David C. Toomey Secretary, Director Jan. 29, 1998
David C. Toomey
Director Jan. , 1998
George J. Byron
Director Jan. , 1998
Frank J. Dracos, M.D.
Director Jan. , 1998
Grace M. Godshalk
Director Jan. , 1998
Clifford Press
/s/ James T. Sygenda Director Jan. 27, 1998
James T. Sygenda
</TABLE>
-21-
<PAGE>
TABLE OF CONTENTS
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-2
CONSOLIDATED FINANCIAL STATEMENTS:
Balance Sheet as of October 31, 1997 and 1996 F-3
Statement of Operations for the Years Ended October 31, 1997,
1996 and 1995 F-4
Statement of Changes in Stockholders' Equity for the Years Ended
October 31, 1997, 1996 and 1995 F-5
Statement of Cash Flows for the Years Ended October 31, 1997,
1996 and 1995 F-6
Notes to Consolidated Financial Statements F-7
INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
Schedule II Valuation and Qualifying Accounts for the Years Ended
October 31, 1997, 1996 and 1995 F-15
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
F-1
<PAGE>
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Buck Hill Falls Company:
We have audited the accompanying consolidated balance sheets of Buck
Hill Falls Company and subsidiary as of October 31, 1997 and 1996, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the three years in the period ended October 31, 1997.
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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Buck Hill
Falls Company and subsidiary as of October 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended October 31, 1997 in conformity with generally accepted accounting
principles.
Our audits referred to above also included audits of the financial
statement schedules listed under Item 14(a)(2). In our opinion, those financial
statement schedules present fairly, in all material respects, in relation to the
basic consolidated financial statements taken as a whole, the information
required to be stated therein.
PARENTE, RANDOLPH, ORLANDO,
CAREY & ASSOCIATES
Wilkes-Barre, Pennsylvania
December 10, 1997
F-2
<PAGE>
BUCK HILL FALLS COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
OCTOBER 31, 1997 AND 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $76,973 $106,703
Accounts receivable, net of
allowance for doubtful accounts of
$81,327 and $100,445 in 1997 and
1996, respectively 328,854 253,278
Prepaid expenses 21,659 43,416
----------- -----------
Total current assets 427,486 403,397
RESTRICTED CASH 69,122 68,556
PROPERTY AND EQUIPMENT 2,643,058 2,692,743
DEFERRED COSTS, Net of accumulated
amortization of $20,540 and $15,800
in 1997 and 1996, respectively 3,143 7,883
----------- -----------
TOTAL $3,142,809 $3,172,579
=========== ===========
1997 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Demand note payable, 5%, unsecured $11,300
Current portion of long-term debt $504,268 829,939
6 1/4% subordinated notes 140,000
Accounts payable 124,095 47,942
Accrued expenses 92,411 91,844
Total current liabilities 860,774 981,025
CUSTOMER DEPOSITS 69,122 68,556
LONG-TERM DEBT 912,812 940,004
6 1/4% SUBORDINATED NOTES 140,000
----------- -----------
Total liabilities 1,842,708 2,129,585
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, 79,811 shares issued
in 1997 and 73,537 in 1996 1,376,850 1,251,370
Common stock Class A, 18,620 shares
issued in 1997 and 24,400 in 1996 343,811 267,594
Common stock Class A subscribed, 4,200
shares in 1997 and 9,380 in 1996 84,190 182,700
Common stock Class A subscription
receivable (84,190) (182,700)
Additional paid-in capital 799,227 799,227
Deficit (1,219,787) (1,275,197)
----------- -----------
Total stockholders' equity 1,300,101 1,042,994
----------- -----------
TOTAL $3,142,809 $3,172,579
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE>
BUCK HILL FALLS COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
REVENUES $2,398,408 $2,175,475 $2,218,139
COST OF REVENUES 1,883,754 1,810,206 1,653,362
----------- ----------- -----------
GROSS PROFIT 514,654 365,269 564,777
GENERAL AND ADMINISTRATIVE
EXPENSES 371,952 339,162 527,683
----------- ----------- -----------
INCOME FROM OPERATIONS 142,702 26,107 37,094
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest, net of capitalized interest
of $21,455 in 1995 (166,848) (172,631) (161,515)
Miscellaneous 25,887 21,395 35,681
Gain on sale of land 53,669
Other expense (87,292) (151,236) (125,834)
----------- ----------- -----------
NET INCOME (LOSS) $55,410 $(125,129) $(88,740)
=========== =========== ===========
NET INCOME (LOSS) PER
COMMON SHARE $0.55 $(1.68) $(1.21)
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE>
BUCK HILL FALLS COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK
COMMON STOCK (1) CLASS A (2) CLASS A TOTAL
SHARES SHARES ADDITIONAL SHARES AMOUNT STOCKHOLDERS'
ISSUED AMOUNT ISSUED AMOUNT CAPITAL SUBSCRIBED SUBSCRIBED DEFICIT EQUITY
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
OCTOBER 31, 1994 73,537 $1,251,370 $799,227 $(1,061,328) $989,269
NET LOSS (88,740) (88,740)
------ ---------- ------ -------- -------- ------- ----------- ----------
BALANCE,
OCTOBER 31, 1995 73,537 1,251,370 799,227 (1,150,068) 900,529
COMMON STOCK ISSUED 18,620 $267,594 267,594
COMMON STOCK SUBSCRIBED 9,380 $182,700 182,700
STOCK SUBSCRIPTION
RECEIVABLE (182,700) (182,700)
NET LOSS (125,129) (125,129)
------ ---------- ------ -------- -------- ------- ----------- ----------
BALANCE,
OCTOBER 31, 1996 73,537 1,251,370 18,620 267,594 799,227 (1,275,197) 1,042,994
COMMON STOCK ISSUED 6,274 125,480 5,780 76,217 201,697
COMMON STOCK SUBSCRIBED 4,200 $84,190 84,190
STOCK SUBSCRIPTION
RECEIVABLE (84,190) (84,190)
NET INCOME 55,410 55,410
------ ---------- ------ -------- -------- ------- ----------- ----------
BALANCE,
OCTOBER 31, 1997 79,811 $1,376,850 24,400 $343,811 $799,227 $ $(1,219,787) $1,300,101
====== ========== ====== ======== ======== ======= =========== ==========
</TABLE>
(1) No par value; authorized 105,000 shares.
(2) No par value; authorized 75,000 shares.
See Notes to Consolidated Financial Statements
F-5
<PAGE>
BUCK HILL FALLS COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $55,410 $(125,129) $(88,740)
----------- ----------- -----------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 220,016 225,088 193,234
Amortization 4,740 4,740 4,740
Gain on sale of property and equipment (53,669) (920) (25,389)
Changes in assets and liabilities:
Accounts receivable (75,576) (7,909) (69,611)
Prepaid expenses 21,757 (13,188) (7,230)
Restricted cash (566) 5,243 32,077
Accounts payable 76,153 10,658 (77,087)
Accrued expenses 567 (91,511) (36,332)
Customer deposits 566 (5,244) (32,082)
----------- ----------- -----------
Total adjustments 193,988 126,957 (17,680)
----------- ----------- -----------
Net cash provided by (used in)
operating activities 249,398 1,828 (106,420)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (170,542) (165,352) (188,297)
Proceeds from sale of property and equipment 53,880 4,832 25,888
----------- ----------- -----------
Net cash used in investing activities (116,662) (160,520) (162,409)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt (691,680) (655,544) (1,106,517)
Proceeds from issuance of debt 338,817 621,885 1,386,612
Proceeds from issuance of common stock 201,697 267,594
Repayment of demand note payable (11,300)
----------- ----------- -----------
Net cash (used in) provided by
financing activities (162,466) 233,935 280,095
----------- ----------- -----------
(DECREASE) INCREASE IN CASH (29,730) 75,243 11,266
CASH, BEGINNING OF YEAR 106,703 31,460 20,194
----------- ----------- -----------
CASH, END OF YEAR $76,973 $106,703 $31,460
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for:
Interest $166,849 $170,661 $164,375
=========== =========== ===========
Income taxes $ $12,496 $
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE>
BUCK HILL FALLS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. NATURE OF OPERATIONS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Buck Hill Falls Company and Subsidiary (the "Company") provides
recreational facilities, water and sewage services, and miscellaneous
maintenance services, and grants credit, primarily to residents of Buck
Hill Falls, Monroe County, Pennsylvania.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Buck Hill
Falls Company and its wholly-owned subsidiary, Buck Hill Water Company.
All significant intercompany balances and transactions are eliminated.
The accompanying consolidated financial statements have been prepared
on a going-concern basis which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business.
Although the Company recognized net income of $55,410 for the year
ended October 31, 1997, at October 31, 1997, the Company has a
cumulative deficit of $1,219,788 and a working capital deficiency of
$433,288. As described in Note 4, although the Company's line of credit
is available through May 24, 1998, the ability to borrow under the line
is contingent upon certain factors. As a result, continuation of the
Company in its present form is dependent upon the successful
maintenance of its debt terms, its ability to obtain additional
financing, if needed, and the eventual achievement of sustained
profitable operations.
Management believes that revisions in the Company's operating
requirements, procedures related to the collection of receivables and
the fiscal 1998 increase in Lot and Cottage Association dues from
$2,800 to $2,950 per year, will provide the opportunity for the Company
to continue as a going concern. However, there is no assurance that
management's actions will be successful, or if they are not successful,
that the Company would be able to continue as a going concern.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Accordingly, actual results
could differ from those estimates.
F-7
<PAGE>
BUCK HILL FALLS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
The Company recognizes real and personal property to which it has title
at cost.
Depreciation is computed using both straight-line and accelerated
methods over the estimated useful lives of the assets.
DEFERRED COSTS
Costs incurred for issuance of the 6-1/4% subordinated notes have been
deferred and are amortized using the straight-line method over the term
of the notes.
INCOME (LOSS) PER COMMON SHARE
Income (loss) per common share is based on the weighted average number
of shares outstanding (101,090 in 1997, 74,585 in 1996 and 73,537 in
1995). The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS No. 128, "Earnings Per Share."
SFAS No. 128 simplifies the standards for computing earnings per share
(EPS), requires presentation of two net amounts, basic and diluted
earnings per share, and additional informational disclosures. SFAS No.
128 is required to be adopted for reporting periods ending after
December 15, 1997 and will require restatement of EPS for all prior
periods. The adoption of SFAS No. 128 will not materially affect
previously reported amounts of EPS.
STATEMENT OF CASH FLOWS
For purposes of the statement of cash flows, restricted cash (Note 2)
is not considered to be cash since such funds are restricted in use for
capital improvements and repairs to The Cottages at Buck Hill Falls
("The Cottages").
2. RESTRICTED CASH AND CUSTOMER DEPOSITS
The Company is responsible for repairs and replacements at The Cottages, a
residential development. The Company has a funding program to meet this
obligation, under which purchasers of properties in The Cottages pay a fee
of $100 to $125 per month, depending on the type of residence. These fees
are accounted for as customer deposits. A portion of the fee is placed in
a restricted fund for long-range capital improvements for units in The
Cottages and the balance of the fee is used for exterior maintenance of
such residences. Under terms of restrictive covenants signed by purchasers
of properties in The Cottages, the Company has management responsibility
for these funds. Accumulated funds are held in separate savings accounts
and are generally not available for expenditures for normal operations. If
additional funds are needed for long-range capital improvements, the
Company has the right, under the restrictive covenants, to increase
regular assessments, pass special assessments or delay major repairs and
replacements until funds are available. The Company seeks the advice of a
special committee of property owners regarding the management of these
funds.
F-8
<PAGE>
BUCK HILL FALLS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
3. PROPERTY AND EQUIPMENT
The components of property and equipment at October 31, 1997 and 1996 are
summarized as follows:
1997 1996
Land $445,620 $445,831
Buildings 941,913 941,913
Recreational facilities 1,537,259 1,442,378
Sewer and water facilities 1,367,968 1,344,801
Machinery and equipment 483,037 444,178
Automotive equipment 199,908 191,346
Furniture and fixtures 103,338 96,253
----------- -----------
Total 5,079,043 4,906,700
Less accumulated depreciation (2,435,985) (2,213,957)
----------- -----------
Property and equipment $2,643,058 $2,692,743
=========== ===========
4. LONG-TERM DEBT
Long-term debt at October 31, 1997 and 1996 is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Borrowings under revolving loan agreement (see
below) $ 448,714 $ 791,320
Notepayable - bank, payable in monthly installments of
$8,985 including interest at the bank's base rate
(8.5% at October 31, 1997) plus 1-1/4%, maturing May
4, 2015. The loan is secured by a first mortgage on
approximately 2,600 acres of land and land
improvements located in Barrett Township, Monroe
County, Pennsylvania, along with assessments and fee
revenues 858,025 876,212
F-9
<PAGE>
BUCK HILL FALLS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Notepayable - bank, payable in monthly installments of
$1,250 including interest at the bank's base rate
(8.5% at October 31, 1997) plus 1-1/4%, maturing
November 2002. The note is secured by a second
mortgage on approximately 2,600 acres of land and
land improvements located in Barrett Township,
Monroe County, Pennsylvania. Additionally, a
ten-year lease between the Company and the U.S.
Postal Service is pledged as collateral $ 42,022 $ 49,596
Notepayable - bank, payable in monthly installments of
$654 including interest at the bank's base rate
(8.5% at October 31, 1997), maturing August 2002;
secured by equipment with a depreciated cost of
$27,896 29,628
Notepayable - bank, payable in monthly installments of
$586 including interest at 9.5%, maturing June 2000;
secured by equipment with a depreciated cost of
$8,038 16,057 21,084
Notepayable - bank, payable in monthly installments of
$391 including interest at 8%, maturing January 31,
1999; secured by equipment with a depreciated cost
of $8,552 8,967 12,778
Notepayable - bank, payable in monthly installments of
$351 including interest at 8.75%, maturing September
1, 1999; secured by equipment with a depreciated
cost of $11,253 7,326 10,449
Notepayable - financial institution, payable in monthly
installments of $235 including interest at 11.5%,
maturing July 2000; secured by equipment with a
depreciated cost of $3,231 6,341 8,504
---------- ----------
Total 1,417,080 1,769,943
Less current portion 504,268 829,939
---------- ----------
Long-term debt $ 912,812 $ 940,004
========== ==========
</TABLE>
F-10
<PAGE>
BUCK HILL FALLS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
The Company has a secured revolving line of credit with a bank for
$1,000,000. Borrowings under this agreement bear interest at the bank's
base rate (8.5% at October 31, 1997) plus 1-1/4%. Approximately 2,600
acres of land and land improvements located in Barrett Township, Monroe
County, Pennsylvania are pledged as collateral, along with dues,
assessments and fee revenues.
The line of credit is available through May 24, 1998, although amounts
borrowed are payable on demand. The ability to borrow under the line is
contingent upon the Company maintaining a satisfactory financial position
and subject to annual review, by the bank, of the Company's financial
statements. If, in the opinion of the authorized lending officers of the
bank, the Company's credit worthiness materially declines, the credit line
will cease to be available for future draws and any existing balance will
be required to be fully amortized over a reasonable term.
The aggregate principal payments required on long-term debt at October 31,
1997 are as follows:
YEARS ENDING OCTOBER 31:
1998 $504,268
1999 54,498
2000 46,903
2001 44,369
2002 47,764
Thereafter 719,278
----------
Total $1,417,080
==========
5. ACCRUED EXPENSES AND OTHER
CURRENT LIABILITIES
Accrued expenses and other current liabilities are comprised of the
following at October 31, 1997 and 1996:
1997 1996
Wages and employee withholdings $54,337 $19,683
Unearned revenue 17,642 9,058
Other taxes 11,924 6,026
Interest 4,598 11,643
Vacation pay 3,910 4,802
Professional fees 40,632
------- -------
Total $92,411 $91,844
======= =======
F-11
<PAGE>
BUCK HILL FALLS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
6. SUBORDINATED NOTES
The 6-1/4% subordinated notes are due July 1, 1998. The notes may be
redeemed prior to maturity at the election of the Company upon at least 30
days written notice to the holders thereof, in whole or in multiples of
$1,000. The redemption price is equal to the principal amount plus accrued
interest to the date fixed for redemption. No premium is payable upon
redemption.
7. INCOME TAXES
Significant components of the Company's deferred tax assets as of October
31, 1997 and 1996 are as follows:
1997 1996
Deferred tax assets:
Net operating loss carryforwards $238,000 $255,000
Reorganization costs 42,000 42,000
Allowance for doubtful accounts 28,000 30,500
Depreciation (1,700) 400
Accrued vacation 1,300
Unearned revenue 900
------- -------
307,600 328,800
Valuation allowance (307,600) (328,800)
------- -------
Total $ -- $ --
======= =======
The Company has established a valuation allowance for deferred tax assets.
SFAS 109 requires that such a valuation allowance be recorded when it is
more likely than not that the deferred tax assets will not be realized.
The decrease in the deferred tax asset valuation allowance in 1997 is
primarily due to profitable operations.
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Current
Deferred federal, net of tax benefit of operating loss
carryforward of approximately $51,800 and $34,800 in
1996 and 1995, respectively
---------- ----------- ----------
Total $ -- $ -- $ --
========== =========== ==========
</TABLE>
F-12
<PAGE>
BUCK HILL FALLS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
A reconciliation between the expected statutory income tax rate and the
effective income tax rate on income before income taxes is summarized as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
<S> <C> <C> <C> <C> <C> <C>
Provision (credit) at
expected statutory rate
$12,200 22.0% $(27,500) 22.0% (19,500) 22.0%
State income tax
net of federal income
tax benefit 4,354 8.0 (1,281) 1.0 (8,300) 9.3
Change in valuation
allowance (21,200) (38.0) 27,500 (2.0) 26,100 29.4
Other 4,646 8 1,281 (1.0) 1,700 (1.9)
------- ---- -------- ---- ------- ----
Effective income tax
provision and rate $ % $ % $ %
======= ==== ======== ==== ======= ====
</TABLE>
At October 31, 1997, the Company has approximately $759,886 and $723,358
of net operating losses available to carryforward for federal and state
income tax purposes, respectively. The federal net operating loss
carryforwards will expire between fiscal 2008 and 2011 and the state net
operating loss carryforwards will expire between fiscal 1998 and 2000.
8. COMMITMENTS
At October 31, 1997, the Company was obligated under various noncancelable
operating leases for golf carts and office equipment. The Company
anticipates these leases will be replaced by other leases in the normal
course of business. Minimum future rental obligations under noncancelable
operating leases in effect at October 31, 1997 are as follows:
YEARS ENDING OCTOBER 31:
1997 $12,396
1998 12,396
1999 7,179
-------
Total minimum payments required $31,971
=======
Rentals charged to operations were $105,180, $97,327 and $124,151 in 1997,
1996 and 1995, respectively.
F-13
<PAGE>
BUCK HILL FALLS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
9. SIGNIFICANT CONCENTRATIONS OF CREDIT RISK
All cash and restricted cash is maintained in one bank and insured by the
Federal Deposit Insurance Corporation up to $100,000.
10. FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts receivable, demand note payable and
accounts payable approximate fair value as of October 31, 1997 because of
the short maturity of these investments. The carrying value of restricted
cash, customer deposits, long-term debt and notes are not materially
different from the estimated fair value of these instruments.
11. CONTINGENCY
In October 1996, Charles Czaplinski and Constance Seebach, owners of
cottages at Buck Hill Falls, brought suit against the Company in the Court
of Common Pleas of Monroe County, Pennsylvania, challenging certain past
decisions of the Company's Board of Directors' relative to the
establishment of dues and assessments. The suit also requested that the
Court review the actions of the Company's nominating committee in
declining to nominate Mr. Czaplinski for election to the Board of
Directors. The Company does not believe the lawsuit to be meritorious and
is vigorously contesting the plaintiffs' claims.
F-14
<PAGE>
BUCK HILL FALLS COMPANY AND SUBSIDIARY
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO CHARGED TO OTHER CHANGES-
BEGINNING COSTS AND OTHER ACCOUNT ADD (DEDUCT)- BALANCE AT
OF YEAR EXPENSES DESCRIBE DESCRIBE END OF YEAR
<S> <C> <C> <C> <C> <C>
1997 Allowance for doubtful accoun $ 100,445 $ 30,000 $(49,118) (1) $ 81,327
Accumulated amortization,
deferred costs 15,800 4,470 (2) 20,540
1996 Allowance for doubtful accoun 79,860 21,232 647 (1) 101,739
Accumulated amortization,
deferred costs 11,060 4,740 (2) 15,800
1995 Allowance for doubtful accoun 35,000 150,631 (105,771) (1) 79,860
Accumulated amortization,
deferred costs 6,320 4,740 (2) 11,060
</TABLE>
(1) Accounts written off.
(2) Amounts represent amortization of deferred costs incurred for issuance of
the 6-1/4% subordinated notes.
F-15
<PAGE>
EXHIBIT INDEX
The following exhibits are filed herewith:
3.2 Amendment to By-laws adopted July 26, 1997
27 Financial Data Schedule
EXHIBIT 3.2
At its meeting on July 26, 1997, the Board of Directors, by unanimous vote,
amended ARTICLE 10 of the By-laws so as to read in its entirety as follows:
ARTICLE 10 - VACANCIES ON THE BOARD OF DIRECTORS
SECTION 10.1 Each Director shall hold office until the expiration of
the term for which he was selected and until his successor has been selected and
qualified, or until his earlier death, resignation or removal. Any vacancies on
the Board of Directors, including vacancies resulting from an increase in the
number of Directors, may be filled by a majority vote of the remaining members
of the Board of Directors (though less than a quorum) or by a sole remaining
Director, and each person so selected shall be a Director to serve until the
next annual meeting of shareholders; provided, however, that if the vacancy has
been created subsequent to the date on which the Board of Directors has fixed
the date of the next annual meeting of shareholders and approved a slate of
nominees for the class of directors whose terms expire at that meeting, then the
person(s) so selected shall be a Director to serve until the following annual
meeting of shareholders or for the balance of the unexpired term, whichever is
less.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS ON PAGES F-3
AND F-4 OF THE COMPANY'S 1997 FORM 10-K ANNUAL REPORT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
<CASH> 76,973
<SECURITIES> 0
<RECEIVABLES> 328,854
<ALLOWANCES> (81,327)
<INVENTORY> 0
<CURRENT-ASSETS> 427,486
<PP&E> 5,079,043
<DEPRECIATION> (2,435,985)
<TOTAL-ASSETS> 3,142,809
<CURRENT-LIABILITIES> 860,774
<BONDS> 1,557,080
0
0
<COMMON> 1,776,071
<OTHER-SE> (475,970)
<TOTAL-LIABILITY-AND-EQUITY> 3,142,809
<SALES> 2,398,408
<TOTAL-REVENUES> 2,398,408
<CGS> (1,883,754)
<TOTAL-COSTS> (1,883,754)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (30,000)
<INTEREST-EXPENSE> (166,848)
<INCOME-PRETAX> 55,410
<INCOME-TAX> 0
<INCOME-CONTINUING> 55,410
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55,410
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0.55
</TABLE>
