<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
JOINT ANNUAL REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1996
Commission File Number: 1-8297 Commission File Number: 0-16156
(formerly 0-6627)
HOMEFREE VILLAGE RESORTS, INC. HOMEFREE INVESTORS L.P.
(Exact name of Registrant (Exact name of Registrant
as specified in its charter) as specified in its charter)
DELAWARE DELAWARE
(State or other jurisdiction of (State or other jurisdiction of
incorporation or organization) incorporation or organization)
37-0959405 84-1062287
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
1400 S. Colorado Boulevard 1400 S. Colorado Boulevard
Denver, Colorado 80222 Denver, Colorado 80222
(Address of principal executive (Address of principal executive
offices, including zip code) offices, including zip code)
(303) 757-3002 (303) 757-3002
(Registrant's telephone number, (Registrant's telephone number,
including area code) including area code)
Securities registered pursuant to Securities registered pursuant to
Section 12(b) of the Act: Section 12(b) of the Act:
Title of each class Title of each class
Common Stock, $.001 par value None
Name of exchange on which registered Name of exchange on which
registered
None None
Securities registered pursuant to Securities registered pursuant to
Section 12(g) of the Act: Section 12(g) of the Act:
None Assignee Limited
Partnership Interests
("paired" with Common Stock,
$.001 par value, of Homefree
Village Resorts, Inc.)
<PAGE>
Indicate by checkmark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such 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
State the aggregate market value of the voting stock held by non-affiliates of
the registrants as of a specified date within 60 days prior to the date of
filing. There have been no reported trades within the last twelve months on
which to base a determination of market value. Based on a reverse stock split
which became effective on March 27, 1997, the price to be paid for fractional
shares would be at the rate of $.05 per share. Based on such price per share,
such aggregate market value would be $208,000.
As of March 27, 1997, the Registrants had outstanding 10,483,982 shares of
Common Stock and 10,483,982 Assignee Limited Partnership Interests, held of
record by 555 holders of record, immediately prior to the reverse stock split.
2
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TABLE OF CONTENTS
PART I
PAGE
----
Item 1. BUSINESS 4
Item 2. PROPERTIES 9
Item 3. LEGAL PROCEEDINGS 12
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 13
PART II
Item 5. MARKET FOR THE REGISTRANTS' "PAIRED SHARES" AND RELATED
STOCKHOLDER MATTERS 14
Item 6. SELECTED FINANCIAL DATA 15
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 16
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 19
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE 20
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 21
Item 11. EXECUTIVE COMPENSATION 23
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 25
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 27
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K 28
3
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PART I
ITEM 1. BUSINESS.
The Registrants are comprised of Homefree Village Resorts, Inc. (the
"Company") and Homefree Investors L.P. (the "Partnership"), a limited
partnership formed by the Company in 1987.
The shares of common stock, par value of $.001 per share, of the Company
(the "Common Stock") and the assignee limited partnership interests, par value
of $.001 per unit ("Assignee Limited Partnership Interest"), 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 Assignee Limited Partnership
Interest.
BUSINESS OF THE COMPANY
GENERAL
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 focused on the development
of recreational resort communities in Mesa, Arizona which offer extensive
recreational facilities and social activities designed to appeal to active pre-
retirement and retirement age people. During 1996 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., Aristek Western Properties
Limited Partnership, and other affiliated partnerships 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.
RECENT DEVELOPMENTS
The Company filed a Transaction Statement on Schedule 13E-3 and a related
Information Statement under Regulation 14(c) in connection with a proposed going
private transaction and related one-for-100,000 reverse stock split of the
Company's Paired Shares. The Company's Board of Directors approved the proposed
going private transaction and the stockholders approved the reverse stock split
by the written consent of Craig M. Bollman, Jr., the Company's majority
stockholder. The reverse stock split became effective on March 27, 1997 by the
filing with the Secretary of State of Delaware of a Certificate of Amendment to
the Company's Certificate of Incorporation. An Information Statement describing
the reverse stock split was sent to stockholders on or about April 9, 1997.
As a result of the reverse stock split the Company will cease to be a
reporting company under the Exchange Act, and 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.
4
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ORGANIZATION
The Company is a Delaware corporation which was organized in February 1972.
The Company has been engaged in the business of operating manufactured home
communities since its organization. In 1977, the Company, then called Metrix,
Inc., acquired all of the capital stock of Aristek Real Estate Corporation in
exchange for 6,230,000 shares of Common 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 Company was changed to
"Aristek Corporation" and subsequently changed in 1981 to "Aristek Communities,
Inc." In November 1986 the name was again changed 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 Company has continued to consist primarily of the development
and operation of such communities. However, in recent years, the Company has
refocused its business on adult recreational communities containing rental sites
for manufactured homes. The Company conducts a substantial portion of its
business through the affiliated limited partnerships described below.
The Company 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 Company include
the Company and Resortparks.
In July 1987, the Company formed Homefree Investors L.P., a Delaware
limited partnership. The general partner of Homefree Investors L.P. is Homefree
General Partners, a Delaware general partnership, comprised of the Company 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 shares of Common Stock of the Company and assignee limited
partnership interests in Homefree Investors L.P. have been "paired" to trade
only as a unit. When it formed the Partnership, the Company intended to conduct
its business in conjunction with the Partnership. However, the Partnership never
commenced operations.
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 Company 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 Company also held a 30% residual interest in
Aristek Properties, which it recently relinquished. See BUSINESS -Residual
Interests in Affiliated Partnerships.
Although Aristek Properties has provided significant income tax benefits to
its limited partners, Aristek Properties' primary objective is to create
significant long-term capital appreciation which may be realized by the limited
partners and the Company, 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
Company, 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, an
Arizona joint venture ("MVI"). The remaining interest in MVI is owned by the
Company. Previously, Aristek Properties owned 60% and Aristek Western Properties
Limited Partnership ("Aristek Western") owned 40% of
5
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MVI. Aristek Western transferred to Aristek Properties and to the Company its
40% interest in MVI, 39% to Aristek Properties, and 1% to the Company.
The interests in MVI were modified again in connection with a restructuring
of certain loans owed by Aristek Properties and MVI to the Company. 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 Company
agreed to extend these loans until June 30, 1998 in return for a 7% annual
interest rate and a 75% participation in MVI's operating cash flow, and in its
net sale or refinancing proceeds after all liabilities (including those payable
to the Company) are satisfied. At the time of the restructuring, the net amounts
owed to the Company by MVI were approximately $4,053,341. The Company believes
that such amount exceeded the value of the net assets of MVI, after payment of
MVI's other liabilities. Aristek Properties has no material assets other than
its interest in MVI. Since the Company is a creditor of both Aristek Properties
and MVI as described above, the Company expects to be entitled to substantially
all of the equity value of MVI in excess of MVI's existing first mortgage.
In connection with obtaining such consent of the limited partners of
Aristek Properties, such consenting limited partners granted to the Company, or
its designee, an option to purchase their limited partnership interests in
Aristek Properties. The option may be exercised by the Company between January
1, 1997 and November 30, 1998; in any event, the Company 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 Company 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 Company has a 1% interest in Aristek Western as
the General Partner, a 1.625% limited partnership interest and has residual
equity interests as the General Partner and as a Special Limited Partner.
Aristek Western acquired substantially all the limited partnership interests of
its limited partners in April, 1997. See BUSINESS - Residual Interests in
Affiliated Partnerships.
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
Item 2 - PROPERTIES. In September 1985, Aristek Western acquired from the
Partnership a 30% interest in Monte Vista I Joint Venture. This interest was
increased to 40% in July 1986. This 40% interest was transferred to Aristek
Properties and the Company. See Item 1-BUSINESS OF THE COMPANY -Affiliated
Partnerships; Aristek Properties, Ltd.
RESIDUAL INTERESTS IN AFFILIATED PARTNERSHIPS
Aristek Properties, Ltd. Prior to the restructuring described above, as
General Partner of Aristek Properties, the Company had a residual interest in
Aristek Properties which 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 Company 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 Company receives its loan repayment and
participating interest as described above.
6
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Aristek Western Properties Limited Partnership. The Company has a direct
residual interest in Aristek Western which entitles the Company 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.
In April, 1997 Aristek Western, using principally funds borrowed from Monte
Vista, acquired substantially all its limited partnership Units from its limited
partners, resulting in a distribution to such limited partners of $15,000 per
Unit and an expected additional and final distribution of $15,000 in April,
1998. The Company does not expect that such transaction will have any immediate
material effect on its residual interest in Aristek Western.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
For the last five fiscal years, the revenues, operating profit and
identifiable assets of the Company have been attributable to one industry
segment--real estate investment, management and development--conducted by the
Company for its own account and on behalf of affiliated partnerships, joint
ventures and unaffiliated third parties.
DEVELOPMENT ACTIVITIES
The Company, 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 Company planned a two-stage development process for Monte Vista. During
the first stage, the Company 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 MVI. Construction
began in 1983 and was substantially completed in December 1984. Monte Vista
opened for occupancy in January 1985.
During the second stage, the Company plans to develop additional
manufactured home sites on a portion of 80 acres conveyed by Aristek Properties
to MVI, but such development is subject to the Company's ability to obtain
financing for this development. There can be no assurance that the Company can
obtain such financing. See Item 2 - PROPERTIES.
COMPETITION
The Company 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 recreation manufactured housing communities. The
Company continues to compete in this market by offering special amenities and
adult recreational and educational services.
Each of the Company's geographic markets includes competitors which are
larger and have greater financial and other resources than the Company.
7
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PERSONNEL
During 1996 the Company employed one full-time employee. During 1996, the
Company also employed between 27 and 55 additional full-time persons responsible
for property operations. The compensation of these additional persons is borne
by affiliated partnerships.
BUSINESS OF THE PARTNERSHIP
Homefree Investors L.P. (the "Partnership"), a Delaware limited
partnership, was formed on July 20, 1987 for the purpose of engaging in certain
aspects of future business opportunities of the type presently conducted by the
Company. The general partner of the Partnership is Homefree General Partners, a
Delaware general partnership comprised of Bollman Associates, Inc., a Delaware
corporation organized in June 1987, all of the capital stock of which is owned
by Craig M. Bollman, Jr., President and Chairman of the Board of the Company,
and the Company.
To date, specific business plans for the Partnership have not been
formulated, and the Partnership has generated no revenues. The Company
anticipates that, where possible, in future real estate acquisitions the
Partnership will acquire an ownership interest and the Company will manage
operations. The Company has no plans to transfer the Company's assets to the
Partnership.
The Agreement of Limited Partnership for the 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
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 Company on an as-needed basis, and to contribute to the
compensation of such persons on a pro-rata basis.
8
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ITEM 2. PROPERTIES.
DESCRIPTION OF REAL ESTATE
THE COMPANY
The Company, through Aristek Properties and other related limited
partnerships, has ownership interests in the properties described below. The
Company operates the Monte Vista property described below.
Monte Vista. Monte Vista ("MVI") 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 90% occupancy for the past five years. The effective average occupancy
based on annual rental income was approximately 96% during 1996. Monte Vista is
owned by MVI, which is owned 99% by Aristek Properties and 1% by the Company.
Monte Vista II. In December 1983, the Company sold to Resortparks an 80-
acre parcel on which the development of Monte Vista II ("MVII") is planned.
This land was transferred in April 1990 to Aristek Properties. This land was
transferred to MVI in October, 1991 and is subject to the above described
mortgage. The Company may develop additional manufactured home sites on a
portion of the 80 acre parcel. There will be certain shared facilities in
conjunction with MVI. The Company believes the properties are well suited for
their current and intended future use. At the present time it is not possible
to accurately estimate the cost of the development or the method of financing to
be used. At December 31, 1995 MVI and MVII were subject to a mortgage note
payable with an outstanding principal balance of $5,161,326. This note bears
interest at 4% above the published LIBOR rate (total of 9.53% at December 31,
1996) and requires minimum monthly payments at 10%. 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.
An additional encumbrance against MVI and MVII includes notes payable to
the General Partner of $4,423,439 (net of a note receivable from the General
Partner) at December 31, 1996. These notes bear interest at 7% and no principal
or interest payments are due until the maturity date in June 1998.
MV loaned certain funds to Aristek Western in April, 1997 and is committed
to loan additional funds in April, 1998. See BUSINESS - Residual Interests in
Affiliated Partnerships - Aristek Western Properties Limited Partnership.
The properties operate in a market with a significant amount of
competition. In the opinion of management, the properties are adequately
covered by insurance.
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
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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 April and the effective average
occupancy based on annual rental income was 97% in 1996.
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 the effective average occupancy
based on annual rental income was 98% in 1996.
At December 31, 1996, Towerpoint, together with the Good Life property
described above, was subject to a mortgage in the amount of $18,244,248 held by
a commercial lender. This note bears interest at 9.125% compounded monthly.
Payments are $156,858 per month. The remaining unpaid principal and interest is
payable September 1, 2001.
REAL ESTATE OPERATING DATA
<TABLE>
<CAPTION>
MONTE VISTA 1996 1995 1994 1993 1992
- ----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Occupancy Rate 96% 95% 89% 89% 89%
</TABLE>
(b) Number of Tenants occupying ten percent or more
of the rentable square footage None
(c) Principal business, occupations or professions carried
on in or from the building None
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
(d) Average effective annual rental
per site $2,645 $2,459 $2,289 $2,207 $2,022
</TABLE>
(e) All leases expire in one year or less
(f) Property Components for Federal Tax Depreciation
<TABLE>
<CAPTION>
Tax Basis Method Life
---------- ------ ----
<S> <C> <C> <C>
Land $5,562,000 N/A N/A
Land Improvements $1,967,000 S/L 15 yr & 18 yr
Realty Improvements $1,232,000 S/L 18 yr & 39 yr
Personal Property $ 233,000 DDB 7 yr
</TABLE>
<TABLE>
<CAPTION>
GOOD LIFE 1996 1995 1994 1993 1992
- --------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Occupancy Rate 97% 97% 97% 97% 97%
</TABLE>
(b) Number of Tenants occupying ten percent or more
of the rentable square footage None
(c) Principal business, occupations or professions carried
on in or from the building None
10
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<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
(d) Average effective annual rental
per site $1,928 $1,932 $1,824 $1,769 $1,688
</TABLE>
(e) All leases expire in one year or less
(f) Property Components for Federal Tax Depreciation
<TABLE>
<CAPTION>
Tax Basis Method Life
---------- ------ ----
<S> <C> <C> <C>
Land $2,678,000 N/A N/A
Land Improvements $2,429,000 S/L 15 yr & 18 yr
Realty Improvements $ 764,000 S/L 18 yr & 39 yr
Personal Property $ 111,000 DDB 7 yr
</TABLE>
<TABLE>
<CAPTION>
TOWERPOINT 1996 1995 1994 1993 1992
- ---------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Occupancy Rate 98% 98% 98% 98% 98%
</TABLE>
(b) Number of Tenants occupying ten percent or more
of the rentable square footage None
(c) Principal business, occupations or professions carried
on in or from the building None
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
(d) Average effective annual rental
per site $2,127 $2,085 $2,072 $2,011 $1,974
</TABLE>
(e) All leases expire in one year or less
(f) Property Components for Federal Tax Depreciation
<TABLE>
<CAPTION>
Tax Basis Method Life
---------- ------ ----
<S> <C> <C> <C>
Land $2,718,000 N/A N/A
Land Improvements $ 124,000 S/L 15 yr & 18 yr
Realty Improvements $3,229,000 S/L 18 yr & 39 yr
Personal Property $ 102,000 DDB 2 yr
</TABLE>
THE PARTNERSHIP
The Partnership neither owns nor leases any properties.
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ITEM 3. LEGAL PROCEEDINGS.
Neither the Company nor the Partnership is the subject of any legal
proceedings.
12
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
13
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PART II
ITEM 5. MARKET FOR THE REGISTRANTS' "PAIRED SHARES" AND RELATED STOCKHOLDER
MATTERS.
The Registrants' "Paired Shares"(symbol HMFRZ) are no longer traded in the
over-the-counter market of the National Association of Securities Dealers
Automated Quotation System (NASDAQ). The Registrant no longer receives
information on the trading activity for the "Paired Shares."
There were approximately 555 record holders of the "Paired Shares" on
December 31, 1996, as reported by the Registrants' transfer agent.
During the two years ended December 31, 1996, the Company declared no
dividends.
On March 27, 1997, as a result of a "going private" reverse stock split,
the number of stockholders of the Company was reduced to approximately seven,
which resulted in the Company no longer being a public company. See BUSINESS-
RECENT DEVELOPMENTS.
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ITEM 6. SELECTED FINANCIAL DATA.
The following data has been extracted from the combined annual financial
statements of the Company and the Partnership. Such selected financial data
should be read in conjunction with the registrants' financial statement and
related notes incorporated by reference into "Item 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA." As summarized in note 10 to the financial statements, the
Company restated financial statements issued previously for the years ended
December 31, 1993, 1992 and 1991. The financial data summarized below reflects
the restated amounts.
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED DEC. ENDED DEC. ENDED DEC. ENDED DEC. ENDED DEC.
31, 1996 31, 1995 31, 1994 31, 1993 31, 1992
---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $ 784,900 $ 768,500 $ 810,700 $ 865,100 $ 461,700
Expenses 1,542,500 1,200,100 1,135,700 1,068,200 552,800
---------- ---------- ---------- ----------- -----------
Earnings (losses)
before income taxes <757,600> <431,600> (323,000) (203,100) (91,000)
---------- ---------- ----------- ----------- -----------
Income tax
Benefit (Provision) 200,000 87,000 43,000 (15,000)
---------- ----------- ----------- -----------
Net income (loss) $<757,600> $<231,600> $ (236,000) $ (160,100) $ (106,100)
---------- ---------- =========== =========== ===========
Net earnings (losses)
per share $ <.07> $ (.02) $ (.02) $ (.02) $ (.01)
========== ========== =========== =========== ===========
Weighted average
shares outstanding $10,484,000 10,484,000 10,484,000 10,484,000
========== =========== =========== ===========
<CAPTION>
DECEMBER 31,
------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total assets $8,631,100 $8,958,300 9,242,300 $ 9,822,500 $ 9,922,000
Long-term debt $7,154,500 $7,154,500 $7,198,900 $ 7,204,400 $ 7,165,200
Stockholders' $ 268,700 $1,026,300 $1,257,900 $ 1,493,900 $ 1,654,000
Equity
</TABLE>
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
THE COMPANY
Historically, the Company has not required large amounts of working capital
because the properties in which the Company has interests have been acquired,
financed and improved by related entities.
During the past three years, the Company has used cash of $199,100 to
$789,700 per year in connection with the Company's operating activities. During
this period, the Company has also used cash of $10,000 per year to repay
principal on long-term debt, and a total $88,000 in 1994 under financing
arrangements related to a land option contract. The remaining payment of $44,000
to exercise the option to acquire a parcel of land has been deferred until 1997.
The Company's investing activities have generated cash through the net
collection of receivables from unconsolidated entities in each of the past five
years, including $303,500 in 1996. In 1996, the Company's investing activities
have utilized cash of $52,300 from collections of amounts previously loaned to
the Company President. In 1995 and 1994, cash utilized of $135,200 and $38,400
respectively represented net loans to the Company President. During 1995,
amounts aggregating $433,200 were applied as repayment of these loans. See Note
8 to the Financial Statements for a summary of loan activity and further
discussion. Other uses of cash over the past three years involved $50,000 for a
residual interest in Aristek Properties during 1994, and $21,000 for the
purchase of office equipment. Management does not expect that the Company will
be required to provide capital in 1997 for the Company's investments in Aristek
Properties and Aristek Western.
Cash generated from financing activities totalled $418,000 in 1996 and
represents amounts loaned to the Company from unconsolidated affiliates. It is
anticipated that this obligation will be repaid prior to end of the 1996 second
quarter.
The Company recently completed a reverse stock split which resulted in the
Company "going private". This transaction will result in the Company's saving
approximately $90,000 per year in direct accounting, legal and administrative
costs, along with a saving of considerable management time, thereby improving
the Company's cash flow and efficiency of management. Further, the Company
expects that improved operations at the Monte Vista project will generate
additional cash flow, thereby resulting in additional repayment of the Company's
loans to Aristek Properties and MVI. MVI also recently restructured its first
mortgage debt, and generated additional financing, which will improve the
Company's liquidity. The Company will also continue to reduce personnel and
administrative costs, so as to minimize cash outflow until new sources of
revenues can be obtained. The Company has long term debt owing to its affiliate
Aristek Properties, but has long term receivables in excess of that amount from
Aristek Properties and Monte Vista, with comparable interest rates and maturity
dates, and set-off rights in the event of prepayment obligations. Accordingly,
the Company does not have long term liquidity requirements. Aristek Properties
Ltd. and Aristek Western Properties, in which the Company has an interest, are
separate entities and have long term debt which the Company believes can be
satisfied from the assets of the two entities.
The Company's debt from affiliated entities was restructured in 1994. See
Note 3 to the Financial Statements for a discussion of the provisions of such
restructuring.
16
<PAGE>
The Company believes that it has the ability to generate sufficient cash to
fund its operations for at least twelve months. Management has reduced costs,
relocated its corporate office and contracted out its accounting and
administrative support functions. In addition, Monte Vista is expected to repay
certain amounts of its debt to the Company which will provide adequate cash for
the Company's operating requirements.
THE PARTNERSHIP
At present, the Partnership has no liabilities and conducts no business and
thus has no capital needs. While future business of the Partnership has not
been determined, availability of capital will be considered if and when such
business is determined.
RESULTS OF OPERATIONS
THE COMPANY
The Company and its affiliates serve as a real estate advisor, developer,
manager and marketing agent and perform certain administrative functions for
related entities. Principal sources of revenues are management and
administrative fees, commissions, and cash flow participation from properties
under its direction. See "Consolidated Statement of Operations" included in the
financial statements included with this report.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
The Company incurred a $757,000 loss for the year ended December 31, 1996.
Total revenues for the year ended December 31, 1996 were $784,900 as
compared to $768,500 for the year ended December 31, 1995.
The increase ($16,400) was attributable principally to greater management
and administrative fees and a nominal increase in the equity in earnings of AWP.
Management and administrative fees earned by the Company during 1996 are
summarized below:
<TABLE>
<CAPTION>
1996
------------------------------
H-H Resorts Monte Vista Aristek Western
----------- ----------- ---------------
Properties
---------------
<S> <C> <C> <C>
Management Fees $86,800 $72,700 $ -
Administrative Fees $ - $ - $100,000
------- ------- --------
$86,800 $72,700 $100,000
</TABLE>
Management fees earned by the Company during 1996 in connection with H-H
Resorts' operation were calculated at 1.5% of the property's gross annual
receipts ($5,784,300). Management fees earned by the Company during 1996 in
connection with Monte Vista operations are calculated at 3.0% of the property's
gross annual receipts ($2,424,500). Administrative fees earned during 1996
totalled $100,000 and were related to administrative functions for Aristek
Western.
Total expenses for the year ended December 31, 1996 were $1,542,500 as
compared to $1,200,000 for the previous year. The increase in expenses resulted
principally from increases in
17
<PAGE>
general and administrative expenses partially offset by a restoration of losses
on related party receivables. The restoration of losses was recorded to reflect
the deemed repayment of officer advances that were fully reserved in previous
periods.
No income tax provision or benefit was recorded for 1996. See Note 4 to
the Financial Statements.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1994
The Company incurred a $231,600 loss for 1995.
Total revenues for the year ended December 31, 1995 were $768,500 as
compared to $810,700 for the year ended December 31, 1994. The decrease
($42,200) was attributable principally to a reduction in interest income.
Management and administrative fees earned by the Company during 1995 are
summarized below:
<TABLE>
<CAPTION>
1995
-----------------------------------------
H-H Resorts Monte Vista Aristek Western
----------- ----------- ---------------
Properties
---------------
<S> <C> <C> <C>
Management Fees $83,900 $61,500 $
Administrative Fees $ - $ - $100,000
------- ------- --------
$83,900 $61,500 $100,000
</TABLE>
Management fees earned by the Company during 1995 in connection with H-H
Resorts' operation were calculated at 1.5% of the property's gross annual
receipts ($5,491,900). Management fees earned by the Company during 1995 in
connection with Monte Vista operations are calculated at 3.0% of the property's
gross annual receipts ($2,051,100). Administrative fees earned during 1995
totalled $100,000 and were related to administrative functions for Aristek
Western.
Total expenses for the year ended December 31, 1995 were $1,200,000 as
compared to $1,133,700 for the previous year. The increase in expenses of
$66,300 was attributable principally to recording an additional provision for
losses on related party receivables of $93,600 and increases in general and
administrative expenses of $21,500 offset by a reduction in interest expense of
$45,700 and a reduction in equity in losses of APL of $3,000.
The effective tax rate used to calculate the net income tax benefit for
1995 was 49%. See Note 4 to the Financial Statements for a summary of income
taxes.
18
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial statements and supplementary data are included in Part IV of this
report and are incorporated herein by reference.
19
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The Company's and the Partnership's 1990 financial statements were audited
by Deloitte & Touche, independent certified public accountants. Deloitte and
Touche was not retained and did not do any audits after the 1990 financial
statements. No audits were conducted until 1994, at which time the Company
changed its auditors to HEIN + ASSOCIATES LLP, which then audited the 1991,
1992, 1993, 1994 and 1995 financial statements included in this report.
In December, 1991, the Company decided not to retain Deloitte and Touche to
audit the 1991 financial statements and continued that decision with respect to
the 1992 and 1993 financial statements since the Company desired to reduce its
expenses by not having any outside auditors. There was no other reason for not
continuing to retain Deloitte and Touche. In July, 1994, the Company determined
that it would need audited financial statements and retained Hein & Associates
LLP, which was able to provide such services at less cost than would have been
charged by Deloitte and Touche. The Board and the management of the Company
recommended that Hein & Associates LLP be retained.
There was no disagreement between management and Deloitte and Touche with
respect to the 1990 or any earlier financial statements or with respect to any
matters prior to the time noted above of the Company's decision not to retain
Deloitte and Touche. There were also no adverse opinions, disclaimer of
opinion, qualification or modification as to uncertainty, audit scope or
procedure. There has been no disagreements with Hein & Associates LLP with
respect to the financial statements for the years 1991 through 1995.
20
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
THE COMPANY
(A) IDENTIFICATION OF DIRECTORS
The following table sets forth the names, ages, positions, and periods of
service of the directors of the Company. There are no arrangements or
understandings pursuant to which any of the directors was or is to be selected
as a director.
<TABLE>
<CAPTION>
POSITION PERIOD OF SERVICE
NAME AGE WITH THE COMPANY AS DIRECTOR
- ---- --- ---------------- -----------
<S> <C> <C> <C>
Craig M. Bollman, Jr. 59 Chairman of the Since Feb. 24, 1977
Board, President
Phyllis A. Bollman 56 None Since Feb. 24, 1977
Taylor M. Bollman 19 None Since Feb. 18, 1996
</TABLE>
All directors are elected to serve until the next annual meeting of stockholders
or until their successors are chosen and qualify, or until they resign or are
replaced.
During the year 1995 through February 18, 1996, the Company had a Board of
Directors consisting of Craig M. Bollman, Jr., Phyllis A. Bollman, W. Phillip
Marcum, Michael T. Oliver and Anthony B. Petrelli. Messrs. Marcum, Oliver and
Petrelli resigned from the Board as of February 18, 1996, at which time the
Board was reduced to three members and Taylor M. Bollman was elected as the
third director.
(B) IDENTIFICATION OF EXECUTIVE OFFICER
The name and age of the only executive officer of the Company, the position
and office with the Company held by such person, and the periods served are as
follows:
<TABLE>
<CAPTION>
POSITION PERIOD OF SERVICE
NAME AGE WITH THE COMPANY AS DIRECTOR
- ---- --- ---------------- ------------
<S> <C> <C> <C>
Craig M. Bollman, Jr. 59 Chairman of the Since Feb. 24,
Board, President 1977
</TABLE>
All officers are elected to serve until their successors are duly elected
and qualified or until they resign or are replaced.
(C) FAMILY RELATIONSHIPS
Craig M. Bollman, Jr. and Phyllis A. Bollman are married, Taylor M. Bollman
is Mr. and Mrs. Bollman's son.
(D) BUSINESS EXPERIENCE
21
<PAGE>
The following is a brief account of the business experience of each
executive officer and director for the past five or more years:
CRAIG M. BOLLMAN, JR. Mr. Bollman has been the Chairman of the Board of
Directors of the Company since February 24, 1977. He served as President from
February 24, 1977 to December 1, 1984 and resumed such office as of July 1986.
In September 1974, Mr. Bollman founded Aristek Corporation (then called Aristek
Real Estate Corporation), which specialized in working out distressed loan
situations for major national institutional lenders. On February 24, 1977,
Metrix, Inc., a publicly-held corporation engaged primarily in the business of
operating manufactured home communities, acquired all of the capital stock of
Aristek Corporation in exchange for 6,230,000 shares of its Common Stock. The
name of Metrix, Inc. was changed to Aristek Corporation, then to Aristek
Communities, Inc. and in 1987 to Homefree Village Resorts, Inc.
PHYLLIS A. BOLLMAN. Mrs. Bollman has served as a director of the Company
since February 24, 1977. Mrs. Bollman served as the president and a director of
a departmental advisory board at Denver's University Hospital from 1982 until
1986. Neither of these organizations is a parent, subsidiary or other affiliate
of the Company.
TAYLOR M. BOLLMAN. Mr. Bollman attends Harvard college.
THE PARTNERSHIP
The general partner of the Partnership is Homefree General Partners, a
Delaware general partnership comprised of Bollman Associates, Inc., and the
Company. See DIRECTORS AND EXECUTIVE OFFICERS - THE COMPANY for information with
respect to the directors and executive officers of the Company. Craig M.
Bollman, Jr. is the sole director and executive officer of Bollman Associates,
Inc.
22
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
THE COMPANY
(A) EXECUTIVE COMPENSATION
Set forth below is a summary of the compensation paid to Craig M. Bollman,
the Company's only executive officer, in each of the last three years:
<TABLE>
<CAPTION>
OTHER ANNUAL(1) OPTIONS ALL OTHER (2)
YEAR SALARY BONUS COMPENSATION GRANTED COMPENSATION
- ------ -------- ----- --------------- ------- -------------
<S> <C> <C> <C> <C> <C>
1996 $366,431 -- $22,500 -- --$321,500
1995 $175,000 -- $23,048 -- --$210,200
1994 $175,000 -- $23,500 -- --$113,400
</TABLE>
(1) Cost of health and life insurance.
(2) Represents payments by Bollman Associates, Inc. to Mr. Bollman of accrued
administrative fees payable by the Partnership to Homefree General
Partners.
(B) COMPENSATION OF DIRECTORS
Phyllis A. Bollman and Craig M. Bollman, Jr. each received directors fees
of $2,000 during the twelve months ended December 31, 1996. Taylor M. Bollman
received $3,000 in 1996. One meeting was held in the twelve months ended
December 31, 1995. Three meetings were held in the twelve months ended December
31, 1996.
THE PARTNERSHIP
The Partnership presently has no executive officers. Homefree General
Partners will be responsible for the duties customarily associated with the
duties of executive officers of a corporation. Homefree General Partners is
entitled to receive an annual administrative fee from the Partnership. Bollman
Associates, Inc., all of the capital stock of which is owned by Craig M.
Bollman, Jr., the President and Chairman of the Board and principal stockholder
of the Company, is entitled to receive the annual $75,000 administrative fee
when payable by the Partnership to Homefree General Partners for providing
administrative services to the Partnership. Such fee is not payable until such
time as there is available cash or upon liquidation of the Partnership.
COMPENSATION TO HOMEFREE GENERAL PARTNERS
The Partnership Agreement provides for the payment of an administrative fee
to Homefree General Partners of $75,000 per annum. This fee is subject to
adjustment by the Board of Directors of the Company and may be canceled in any
year by the Board of Directors in its capacity as a general partner of Homefree
General Partners. In return for this fee, Homefree General Partners will attempt
to locate and negotiate investment opportunities for the Partnership, will
attempt to arrange financing for such investments and will administer the
affairs of the Partnership. The agreement of Homefree General Partners provides
that the annual administrative fee will be payable to Bollman Associates, Inc.
for providing services to the Partnership, as compensation for its role as a
general partner of Homefree General Partners and for assuming the risks incident
to such role. Such fees aggregating $321,557 were paid for the twelve months
ended December 31, 1996. The Partnership Agreement also provides for
reimbursement to Homefree General Partners of all expenses incurred by it in
connection
23
<PAGE>
with the Partnership. To the extent that Bollman Associates, Inc. incurs
expenses, it will be reimbursed by Homefree General Partners, which in turn will
be reimbursed by the Partnership. Homefree General Partners has not incurred any
expenses on behalf of the Partnership for which it would be entitled to
reimbursement.
The agreement of Homefree General Partners provides that the Company will
be entitled to 90% and Bollman Associates, Inc. will be entitled to 10% of
Homefree General Partners' 1% interest in the Partnership.
In addition to the annual administrative fee and reimbursement of expenses,
Homefree General Partners may enter into contracts with or perform other
services for the Partnership. The partnership agreement between the partners of
Homefree General Partners provides that no additional compensation will be
payable to Bollman Associates, Inc. and that the Company in its capacity as a
general partner of Homefree General Partners is entitled to all compensation for
such additional services. The only compensation to be received by Bollman
Associates, Inc. in connection with the Partnership Agreement is the
reimbursement of expenses, the annual administrative fee and its share of
profits and losses.
24
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
THE COMPANY
(A) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of March 27, 1997, (immediately prior to the reverse stock split)
persons or groups known to the Company to own beneficially more than five
percent of the issued and outstanding shares of Common Stock, which is the only
class of voting securities of the Company, are set forth in the following table:
SHARES OF COMMON
STOCK BENEFICIALLY
OWNED ON MARCH 27, 1997
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND ADDRESS BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER OWNERSHIP CLASS (1)
- ------------------- --------- ---------
<S> <C> <C>
Craig M. Bollman, Jr. 6,325,288 60.3%
1400 S. Colorado Boulevard
Suite 410
Denver, CO 80222
The Aristek Foundation 711,652 (2) 6.8%
1400 S. Colorado Boulevard
Suite 410
Denver, CO 80222
</TABLE>
(1) The percentages shown are based upon 10,483,982 issued and outstanding
shares of Common Stock as of March 27, 1997. Craig M. Bollman, Jr. is not
a holder of any option to purchase shares of Common Stock of the Company.
(2) With respect to shares held by The Aristek Foundation, Mr. Bollman has sole
voting and investment power, but in which he has no pecuniary interest.
Mr. Bollman disclaims beneficial ownership of the shares held by The
Aristek Foundation.
(B) SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the shares of Common Stock of the Company
beneficially owned by each director and by the directors and officers of the
Company as a group as of March 27, 1997, (immediately prior to the reverse stock
split) and their percentage ownership thereof:
25
<PAGE>
SHARES OF COMMON
STOCK BENEFICIALLY
OWNED ON MARCH 27, 1997
(IMMEDIATELY PRIOR TO THE REVERSE STOCK SPLIT)
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
NAME OF DIRECTOR OWNERSHIP CLASS (1)
- ---------------------------------------- ---------- -----------
<S> <C> <C>
Craig M. Bollman, Jr. 6,325,288 60.3%
The Aristek Foundation 711,652 (2) 6.8%
All directors and officers as a group 7,036,940 67.1%
(1 person and one Foundation)
</TABLE>
(1) The percentages shown for all directors and the directors and officers as a
group are based upon 10,483,982 shares issued and outstanding as of March
27, 1997.
(2) With respect to shares held by The Aristek Foundation, Mr. Bollman has sole
voting and investment power, but in which he has no pecuniary interest.
Mr. Bollman disclaims beneficial ownership of the shares held by The
Aristek Foundation.
THE PARTNERSHIP
The following table sets forth the assignee limited partnership interests
of the Partnership beneficially owned by each director and by the directors and
officers of the Company as a group as of March 27, 1997, and their percentage
ownership thereof:
ASSIGNEE LIMITED PARTNERSHIP
INTEREST BENEFICIALLY
OWNED ON MARCH 27, 1997
(IMMEDIATELY PRIOR TO THE REVERSE STOCK SPLIT)
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
NAME OF DIRECTOR OWNERSHIP CLASS (1)
- ----------------- ---------- -----------
<S> <C> <C>
Craig M. Bollman, Jr. 6,325,288 60.3%
The Aristek Foundation 711,652 (2) 6.8%
All directors and officers as a group 7,036,940 67.1%
(1 person and 1 Foundation)
</TABLE>
(1) The percentages shown for all other directors and the directors and
officers as a group are based upon 10,483,982 assignee limited partnership
interests issued and outstanding as of March 27, 1997.
26
<PAGE>
(2) With respect to shares held by The Aristek Foundation, Mr. Bollman has sole
voting and investment power, but in which he has no pecuniary interest.
Mr. Bollman disclaims beneficial ownership of the shares held by The
Aristek Foundation.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(A) CERTAIN BUSINESS RELATIONSHIPS
Bollman Associates, Inc. and the Company are the general partners of
Homefree General Partners. Homefree General Partners is the general partner of
the Partnership. Bollman Associates, Inc. is entitled to receive a $75,000
annual administrative fee to be paid by the Partnership to Homefree General
Partners for administrative services, when and if such fee is paid by the
Partnership. See Item 11, EXECUTIVE COMPENSATION - THE PARTNERSHIP.
(B) INDEBTEDNESS OF MANAGEMENT
The Company holds an interest-bearing note from Craig M. Bollman, Jr.,
President and Chairman of the Board, in the aggregate amount of $268,925 at
December 31, 1996. This indebtedness was incurred in connection with personal
loans. This note bears interest at the "Applicable Federal Rate" which is the
lowest rate permitted by the Internal Revenue Service without imputing interest
on a transaction. The largest amount outstanding under these notes during fiscal
1996 was $310,000. The Company has reserved the entire amount of this note in
its financial statements as of December 31, 1996.
27
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
28
<PAGE>
B. FINANCIAL STATEMENT SCHEDULES.
None
Schedules have been omitted because they are not required or the
information is included in the financial statements or notes thereto.
C. REPORTS ON FORM 8-K.
None
D. EXHIBITS.
29
<PAGE>
THE COMPANY
3.1 Certificate of Amendment to the Certificate of Incorporation of Homefree
Village Resorts, Inc. dated March 27, 1997. Incorporated by reference to
Annual Report on Form 10K for the year ended December 31, 1996.
3.2 Certificate of Amendment to Restated Certificate of Incorporation of
Homefree Village Resorts, Inc. dated May 2, 1988. Incorporated by reference
to Annual Report on Form lO-K for the year ended March 31, 1988.
3.3 Amendment to Restated Certificate of Incorporation of Homefree Village
Resorts, Inc. Incorporated by reference to Quarterly Report on Form 10-Q
for the quarter ended December 31, 1986.
Restated Certificate of Incorporation of Homefree Village Resorts, Inc.
Incorporated by reference to Annual Report on Form 10-K for the year ended
March 31, 1983.
3.4 Bylaws - Incorporated by reference to Annual Report on Form 10-K for the
year ended March 31, 1981.
4.1 Certificate of Amendment to Restated Certificate of Incorporation of
Homefree Village Resorts, Inc. (see Exhibit 3.1 hereto.) Incorporated by
reference to Annual Report on Form 10-K for the year ended March 31, 1988.
4.2 Amended and Restated Agreement of Limited Partnership of Homefree Investors
L.P. dated as of March 1, 1988. Incorporated by reference to Annual Report
on Form 10-K for the year ended March 31, 1988.
4.3 Paired Share Certificate of Homefree Village Resorts, Inc. and Homefree
Investors L.P. Incorporated by reference to Annual Report on Form 10-K for
the year ended March 31, 1988.
4.4 Pairing Agreement dated March 31, 1988 between Homefree Village Resorts,
Inc. and Homefree Investors L.P. Incorporated by reference to Annual Report
on Form 10-K for the year ended March 31, 1988.
10.1 Partnership Administration Agreement dated May 2, 1988 between Homefree
Investors L.P. and Homefree General Partners. Incorporated by reference to
Annual Report on Form 10-K for the year ended March 31, 1988.
10.2 Letter Agreement for sale of Mesa, Arizona land dated November 11, 1987
between Homefree Village Resorts, Inc. and Aristek Western Properties
Limited Partnership and Aristek Properties Limited. Incorporated by
reference to Annual Report on Form 10-K for the year ended March 31, 1988.
22.1 The Company has a wholly-owned subsidiary, Resortparks of America, Inc.,
which was incorporated under the laws of Delaware in September 1982.
THE PARTNERSHIP
2.0 Proxy Statement of Homefree Village Resorts, Inc. (the "Proxy Statement"),
filed with the Securities and Exchange Commission on March 8, 1988.
Incorporated by reference to the Annual Report on Form 10-K for the year
ended December 31, 1987.
30
<PAGE>
3.1 Certificate of Limited Partnership of Homefree Investors L.P. Incorporated
by reference to Exhibit 3.1 to Report on Form 10 of Homefree Investors L.P.
("Form 10") filed with the Securities and Exchange Commission on August 27,
1987.
3.2 Agreement of Limited Partnership of Homefree Investors L.P. Incorporated by
reference to Exhibit 3.2 to Form 10.
3.3 Amended and Restated Agreement of Limited Partnership of Homefree Investors
L.P. Incorporated by reference to Exhibit 3.3 to Form 10, as amended by
Amendment No. 2 on Form 8 dated February 29, 1988 ("Amended Form 10").
4.0 Paired Share Certificate of Homefree Village Resorts, Inc. and Homefree
Investors L.P. Incorporated by reference to Exhibit 4 to Amended Form 10.
10.0 Pairing Agreement. Incorporated by reference to Exhibit 10.0 to Amended
Form 10.
10.1 Partnership Administration Agreement. Incorporated by reference to Exhibit
10.1 to Amended Form 10.
31
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, each of the Registrants has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
HOMEFREE VILLAGE RESORTS, INC. HOMEFREE INVESTORS L.P.
By: (s) Craig Bollman, Jr. By: Homefree General
Craig M. Bollman, Jr. Partners, its General
Chairman of the Board Partner
(Principal Executive Officer)
By Homefree Village Resorts,
Inc., a General Partner
Date: May 9, 1997
By: (s) Craig M. Bollman, Jr.
Craig M. Bollman, Jr.
President
Date: May 9, 1997
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
Registrants and in the capacities and on the dates indicated:
Craig M. Bollman, Jr. Craig M. Bollman, Jr.
Chairman of the Board Sole Director,
(Principal Executive and
Financial Officer) Bollman Associates, Inc.
a General Partner of
Dated: May 9, 1997 Homefree General Partners,
General Partner of
Homefree Investors L.P.
(Principal Executive and
Financial Officer)
Date: May 9, 1997
MAJORITY OF THE BOARD OF DIRECTORS
Craig M. Bollman, Jr.
Director
Date: May 9, 1997
Phyllis A. Bollman
Director
Date: May 9, 1997
32
<PAGE>
INDEX TO FINANCIAL STATEMENTS
HOMEFREE VILLAGE RESORTS, INC. AND HOMEFREE INVESTORS L.P.
- ----------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
PAGE
----
INDEPENDENT AUDITOR'S REPORT.................................................................... S-1
COMBINED BALANCE SHEETS - December 31, 1996 (unaudited) and 1995................................ S-2
COMBINED STATEMENTS OF OPERATIONS - For the Years Ended December 31, 1996 (unaudited),
1995, and 1994.............................................................................. S-4
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY AND PARTNERS' DEFICIT - For the Years Ended
December 31, 1996 (unaudited), 1995, and 1994............................................... S-5
COMBINED STATEMENTS OF CASH FLOWS - For the Years Ended December 31, 1996 (unaudited),
1995, and 1994.............................................................................. S-6
HOMEFREE VILLAGE RESORTS, INC.
- ------------------------------
INDEPENDENT AUDITOR'S REPORT.................................................................... S-8
CONSOLIDATED BALANCE SHEETS - December 31, 1996 (unaudited), and 1995........................... S-9
CONSOLIDATED STATEMENTS OF OPERATIONS - For the Years Ended December 31, 1996 (unaudited),
1995, and 1994.............................................................................. S-11
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - For the Years Ended December 31,
1996 (unaudited), 1995, and 1994............................................................ S-12
CONSOLIDATED STATEMENTS OF CASH FLOWS - For the Years Ended December 31, 1996 (unaudited),
1995, and 1994.............................................................................. S-13
HOMEFREE INVESTORS L.P.
- -----------------------
INDEPENDENT AUDITOR'S REPORT.................................................................... S-15
BALANCE SHEETS - December 31, 1996 (unaudited), and 1995........................................ S-16
STATEMENTS OF OPERATIONS - For the Years Ended December 31, 1996 (unaudited), 1995, and 1994.... S-17
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT) - For the Years Ended December 31, 1996 (unaudited),
1995, and 1994.............................................................................. S-18
STATEMENTS OF CASH FLOWS - For the Years Ended December 31, 1996 (unaudited), 1995, and 1994.... S-19
NOTES TO FINANCIAL STATEMENTS................................................................... S-20
ARISTEK PROPERTIES, LTD.
- ------------------------
INDEPENDENT AUDITOR'S REPORT.................................................................... S-31
CONSOLIDATED BALANCE SHEETS - December 31, 1996 (unaudited), and 1995........................... S-32
CONSOLIDATED STATEMENTS OF OPERATIONS - For the Years Ended December 31, 1996 (unaudited),
1995, and 1994.............................................................................. S-33
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT - For the Years Ended
December 31, 1996 (unaudited), 1995, and 1994............................................... S-34
CONSOLIDATED STATEMENTS OF CASH FLOWS - For the Years Ended December 31, 1996 (unaudited),
1995, and 1994.............................................................................. S-35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...................................................... S-37
</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 sheet 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 the
related combined statements of operations, stockholders' equity and partners'
deficit, and cash flows for the years ended December 31, 1995 and 1994. 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 the results of their operations and their cash flows for the years
ended December 31, 1995 and 1994 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,
------------------------
1996 1995
----------- -----------
(unaudited)
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 20,000 $ 38,700
Other current assets 14,700 4,000
---------- ----------
Total current assets 34,700 42,700
RECEIVABLES FROM UNCONSOLIDATED ENTITIES, net 8,316,700 8,620,200
INVESTMENTS IN UNCONSOLIDATED ENTITIES 70,600 82,400
PROPERTY AND EQUIPMENT, at cost:
Office furniture and equipment 104,800 102,900
Vehicles 25,000 25,000
---------- ----------
129,800 127,900
Accumulated depreciation (116,300) (110,000)
---------- ----------
Net property and equipment 13,500 17,900
LAND OPTION COSTS 195,600 195,600
---------- ----------
TOTAL ASSETS $8,631,100 $8,958,800
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
S-2
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
AND HOMEFREE INVESTORS L.P.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1995
------------ ------------
(unaudited)
------------
LIABILITIES, STOCKHOLDERS' EQUITY AND PARTNERS' DEFICIT
-------------------------------------------------------
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable and accrued expenses $ 106,500 $ 94,600
Payable to unconsolidated entities 568,500 150,500
Current maturities of long-term debt 44,400 44,400
----------- -----------
Total current liabilities 719,400 289,500
----------- -----------
LONG-TERM DEBT, less current maturities:
Unconsolidated entity 7,154,500 7,154,500
Other - -
DEFERRED INCOME TAXES - -
DEFERRED PROFIT 488,500 488,500
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 (3,049,800) (2,293,100)
Partners' deficit - limited partners (229,000) (228,100)
----------- -----------
Total stockholders' equity and partners' deficit 268,700 1,026,300
----------- -----------
TOTAL LIABILITIES, STOCKHOLDERS' EQUITY AND
PARTNERS' DEFICIT $ 8,631,100 $ 8,958,800
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
S-3
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
AND HOMEFREE INVESTORS L.P.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------
1996 1995 1994
------------ ------------ ------------
(unaudited)
REVENUES:
<S> <C> <C> <C>
Management and administrative fees from
unconsolidated entities $ 259,500 $ 245,400 $ 244,600
Equity in earnings of AWP 10,200 11,000 10,800
Interest 515,200 512,100 555,300
----------- ----------- -----------
784,900 768,500 810,700
EXPENSES:
General and administrative 984,100 450,900 429,400
Interest 502,400 503,900 549,600
Equity in losses of APL 22,000 23,000 26,000
Loss on related party receivables (41,000) 147,300 53,700
Administrative fee 75,000 75,000 75,000
----------- ----------- -----------
1,542,500 1,200,100 1,133,700
LOSS BEFORE INCOME TAXES (757,600) (431,600) (323,000)
DEFERRED INCOME TAX BENEFIT - 200,000 87,000
----------- ----------- -----------
NET LOSS $ (757,600) $ (231,600) $ (236,000)
=========== =========== ===========
NET LOSS PER PAIRED SHARE $(.07) $(.02) $(.02)
=========== =========== ===========
WEIGHTED AVERAGE PAIRED SHARES OUTSTANDING 10,484,000 10,484,000 10,484,000
=========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
S-4
<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, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
Common Additional
Paired Stock Paid-in Accumulated Partners'
Shares Amount Capital Deficit Deficit Total
---------- ------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, January 1, 1994 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
Net loss (unaudited) - - - (756,700) (900) (757,600)
---------- ------- ---------- ----------- --------- ----------
BALANCES, December 31, 1996 (unaudited) 10,484,000 $10,500 $3,537,000 $(3,049,800) $(229,000) $ 268,700
========== ======= ========== =========== ========= ==========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
S-5
<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,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(757,600) $(231,600) $(236,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 6,300 6,400 6,300
Amortization - - -
Equity in losses of unconsolidated entities, net 11,800 12,000 15,200
Provision for loss on related party receivables (41,000) 147,300 53,700
Deferred income taxes - (200,000) (87,000)
Changes in operating assets and liabilities:
Decrease (increase) in:
Accrued interest receivable - officer and director (11,300) (12,100) (15,300)
Other assets (10,700) 5,600 (23,200)
Receivables from unconsolidated entities - (3,600) 49,600
Increase (decrease) in:
Accounts payable and accrued expenses 11,900 1,000 37,300
Other - (3,400) -
--------- --------- ---------
Net cash used in operating activities (790,600) (278,400) (199,400)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash advances/collections to officer and director 52,300 (135,200) (38,400)
Cash advances to unconsolidated entities - - (700)
Collection of advances from unconsolidated entities 303,500 299,000 374,900
Investment in unconsolidated entities - - (50,000)
Purchase of equipment (1,900) (7,800) (11,300)
--------- --------- ---------
Net cash provided by investing activities 353,900 156,000 274,500
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advance from related party 418,000 150,500 -
Payments under land option contract - - (88,400)
Principal payments on long-term debt - - (10,600)
--------- --------- ---------
Net cash provided by (used in) financing activities 418,000 150,500 (99,000)
--------- --------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
S-6
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
AND HOMEFREE INVESTORS L.P.
COMBINED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
---------------------------------
1996 1995 1994
----------- -------- ----------
(unaudited)
<S> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (18,700) 28,100 (23,900)
CASH AND EQUIVALENTS, beginning of year 38,700 10,600 34,500
-------- ------- --------
CASH AND EQUIVALENTS, end of year $ 20,000 $38,700 $ 10,600
======== ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for:
Interest $ - $ 3,900 $ 11,000
========== ======= ========
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-7
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Homefree Village Resorts, Inc.
Denver, Colorado
We have audited the accompanying consolidated balance sheet of Homefree Village
Resorts, Inc. (a Delaware Corporation) and subsidiaries as of December 31, 1995,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for the years ended December 31, 1995 and 1994. 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 the results of their
operations and their cash flows for the years ended December 31, 1995 and 1994
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-8
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1995
------------ ------------
(unaudited)
ASSETS
------
CURRENT ASSETS:
<S> <C> <C>
Cash and equivalents $ 20,000 $ 38,700
Other current assets 14,700 4,000
---------- ----------
Total current assets 34,700 42,700
RECEIVABLES FROM UNCONSOLIDATED ENTITIES, net 8,316,700 8,620,200
INVESTMENTS IN UNCONSOLIDATED ENTITIES 70,600 82,400
PROPERTY AND EQUIPMENT, at cost:
Office furniture and equipment 104,800 102,900
Vehicles 25,000 25,000
---------- ----------
129,800 127,900
Accumulated depreciation (116,300) (110,000)
---------- ----------
Net property and equipment 13,500 17,900
LAND OPTION COSTS 195,600 195,600
---------- ----------
TOTAL ASSETS $8,631,100 $8,958,800
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
S-9
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1995
------------ ------------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 106,500 $ 94,600
Payable to unconsolidated entities 568,500 150,500
Current maturities of long-term debt 44,400 44,400
----------- -----------
Total current liabilities 719,400 289,500
LONG-TERM DEBT, less current maturities:
Unconsolidated entity 7,154,500 7,154,500
DEFERRED PROFIT 488,500 488,500
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 (3,278,800) (2,521,200)
----------- -----------
Total stockholders' equity 268,700 1,026,300
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,631,100 $ 8,958,800
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
S-10
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------
1996 1995 1994
------------ ------------ ------------
(unaudited)
REVENUES:
<S> <C> <C> <C>
Management and administrative fees from
unconsolidated entities $ 259,500 $ 245,400 $ 244,600
Equity in earnings of AWP 10,200 11,000 10,800
Interest 515,200 512,100 555,300
----------- ----------- -----------
784,900 768,500 810,700
EXPENSES:
General and administrative 983,200 450,600 429,100
Interest 502,400 503,900 549,600
Equity in losses of APL 22,000 23,000 26,000
Impairment of investment in HILP 900 300 300
Loss on related party receivables (41,000) 147,300 53,700
Administrative fee 75,000 75,000 75,000
----------- ----------- -----------
1,542,500 1,200,100 1,133,700
LOSS BEFORE INCOME TAXES (757,600) (431,600) (323,000)
DEFERRED INCOME TAX BENEFIT - 200,000 87,000
----------- ----------- -----------
NET LOSS $ (757,600) $ (231,600) $ (236,000)
=========== =========== ===========
NET LOSS PER COMMON SHARE $(.07) $(.02) $(.02)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON 10,484,000 10,484,000 10,484,000
SHARES OUTSTANDING =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
S-11
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
Common Stock Additional
-------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
---------- -------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
BALANCES, January 1, 1994 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
Net loss (unaudited) - - - (757,600) (757,600)
---------- -------- ----------- ----------- ----------
BALANCES, December 31, 1996 (unaudited) 10,484,000 $10,500 $3,537,000 $(3,278,800) $ 268,700
========== ======== =========== =========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
S-12
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss $(757,600) $(231,600) $(236,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 6,300 6,400 6,300
Equity in losses of unconsolidated entities, net 11,800 12,000 15,200
Impairment of investment in HILP 900 300 300
Provision for loss on related party receivables (41,000) 147,300 53,700
Deferred income tax benefit - (200,000) (87,000)
Changes in operating assets and liabilities:
Decrease (increase) in:
Accrued interest receivable - officer and director (11,300) (12,100) (15,300)
Other assets (10,700) 5,600 (23,200)
Receivables from unconsolidated entities - (3,600) 49,600
Increase (decrease) in:
Accounts payable and accrued expenses 11,900 1,000 37,300
Other - (3,400) -
--------- --------- ---------
Net cash used in operating activities (789,700) (278,100) (199,100)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash advances/collections to officer and director 52,300 (135,200) (38,400)
Cash advances to unconsolidated entities - - (700)
Collection of advances from unconsolidated entities 303,500 299,000 374,900
Investment in unconsolidated entities (900) (300) (50,300)
Purchase of equipment (1,900) (7,800) (11,300)
--------- --------- ---------
Net cash provided by investing activities 353,000 155,700 274,200
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advance from related party 418,000 150,500 -
Payments under land option contract - - (88,400)
Principal payments on long-term debt - - (10,600)
--------- --------- ---------
Net cash provided by financing activities 418,000 150,500 (99,000)
--------- --------- ---------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
</TABLE>
S-13
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
--------- --------- ---------
(unaudited)
<S> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (18,700) 28,100 (23,900)
CASH AND EQUIVALENTS, beginning of year 38,700 10,600 34,500
--------- --------- ---------
CASH AND EQUIVALENTS, end of year $ 20,000 $ 38,700 $ 10,600
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION -
Cash paid for:
Interest $ - $ 3,900 $ 11,000
========== ========= =========
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-14
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Partners
Homefree Investors L.P.
Denver, Colorado
We have audited the accompanying balance sheet of Homefree Investors L.P. (a
Massachusetts limited partnership) as of December 31, 1995, and the related
statements of operations, partners' capital (deficit) and cash flows for the
years ended December 31, 1995, and 1994. 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 the results of its operations and cash flows for the years
ended December 31, 1995, and 1994 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-15
<PAGE>
HOMEFREE INVESTORS L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1995
----------- ----------
(unaudited)
ASSET
-----
<S> <C> <C>
CURRENT ASSET, receivable from Homefree Village Resorts, Inc. $ 568,500 $ 150,500
========== =========
LIABILITIES AND PARTNERS' DEFICIT
---------------------------------
CURRENT LIABILITIES:
Payable to HGP $ 749,000 $ 674,000
Payable to unconsolidated affiliates 568,500 150,500
---------- ---------
Total current liabilities 1,317,500 824,500
COMMITMENT (NOTE 8)
PARTNERS' DEFICIT (749,000) (674,000)
---------- ---------
TOTAL LIABILITIES AND PARTNERS' DEFICIT $ 568,500 $ 150,500
========== =========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
S-16
<PAGE>
HOMEFREE INVESTORS L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1996 1995 1994
------------ ------------ ------------
(unaudited)
<S> <C> <C> <C>
REVENUE $ - $ - $ -
EXPENSES:
Administrative fee 75,000 75,000 75,000
General and administrative 900 300 300
----------- ----------- -----------
NET LOSS $ (75,900) $ (75,300) $ (75,300)
=========== =========== ===========
NET LOSS PER LIMITED PARTNERSHIP INTEREST $ (.01) $ (.01) $ (.01)
=========== =========== ===========
WEIGHTED AVERAGE LIMITED PARTNERSHIP 10,484,000 10,484,000 10,484,000
INTERESTS OUTSTANDING =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
S-17
<PAGE>
HOMEFREE INVESTORS L.P.
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
General Limited
Partner* Partners Total
---------- ----------- -----------
<S> <C> <C> <C>
BALANCES, January 1, 1994 $216,900 $(740,900) $(524,000)
Partner's capital contributions 300 - 300
Net loss (1,500) (73,800) (75,300)
-------- --------- ---------
BALANCES, December 31, 1994 215,700 (814,700) (599,000)
Partner's capital contributions 300 - 300
Net loss (1,500) (73,800) (75,300)
-------- --------- ---------
BALANCES, December 31, 1995 214,500 (888,500) (674,000)
Partner's capital contributions (unaudited) 900 - 900
Net loss (unaudited) (1,500) (74,400) (75,900)
-------- --------- ---------
BALANCES, December 31, 1996 (unaudited) $213,900 $(962,900) $(749,000)
======== ========= =========
</TABLE>
- -----------------------------
* The General Partner's capital account is eliminated for purposes of the
combined financial statements.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
S-18
<PAGE>
HOMEFREE INVESTORS L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
December 31,
-----------------------------------
1996 1995 1994
----------- ---------- ----------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss $ (75,900) $ (75,300) $(75,300)
Adjustments to reconcile net loss to net cash used in
operating activities:
Increase in:
Receivable from Homefree Village (418,000) (150,500) -
Resorts, Inc.
Payable to HGP 75,000 75,000 75,000
Payable to unconsolidated affiliates 418,000 150,500 -
--------- --------- --------
Net cash used in operating activities (900) (300) (300)
CASH FLOWS FROM FINANCING ACTIVITIES -
Capital contributions by general partner 900 300 300
--------- --------- --------
NET CHANGE IN CASH - - -
CASH, beginning of year - - -
--------- --------- --------
CASH, end of year $ - $ - $ -
========== ========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
S-19
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND
SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1995, IS UNAUDITED)
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, 1996, 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, in 1995
the principal operating property of APL, Monte Vista I Joint Venture (Monte
Vista), recently obtained an additional $525,000 in bank financing, and
deferred the due date on its total bank
S-20
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND
SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1995, IS UNAUDITED)
debt of $5,161,300 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.
Impairment of Long-Lived Assets - In the event that facts and circumstances
-------------------------------
indicate that the cost of property and equipment or other long-lived assets
may be impaired, an evaluation of recoverability of net carrying costs will
be performed. If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset will be compared to the
asset's carrying amount to determine if a write-down to estimated fair value
is required.
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.
Impairment of Notes Receivable - Effective January 1, 1995, the Company
------------------------------
adopted Statement of Financial Accounting Standards No. 114, as amended (FAS
114). Under FAS 114, the Company evaluated the notes receivable from APL
(see Note 8) for impairment based upon the estimated fair value of the APL's
assets, net of bank debt and other liabilities. No impairment was recognized
since the estimated fair value of APL's net assets is in excess of the
Company's net investment in this loan.
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
S-21
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND
SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1995, IS UNAUDITED)
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.
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 1995 and
-----------------
1994 financial statements to conform to the presentation in 1996. The
reclassifications had no effect on the net loss for 1995 and 1994.
UNAUDITED FINANCIAL STATEMENTS: In the opinion of management, the
------------------------------
accompanying unaudited financial statements contain all adjustments
(consisting only of normal recurring items) necessary to present fairly the
Company's financial position as of December 31, 1996, and the results of
operations and cash flows for the year then ended.
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 $8.3 million of net receivables and $7.2
million of long-term debt at December 31, 1996. Due to significant
uncertainties about the collectibility of the net receivables from APL,
effective January 1, 1992, the Company suspended recording management fees
and interest income which accrues on the principal balance of notes
receivable in excess of the principal balance of the note payable to APL.
Accordingly, all cash receipts from APL are treated as a reduction in the
principal balance due on the
S-22
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND
SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANICAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1995, IS UNAUDITED)
notes receivable. As of December 31, 1996, APL owed the Company an
additional $2.2 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).
BALANCE SHEETS
December 31,
-----------------------------
1996 1995 1994
------- ------- -------
(unaudited)
ASSETS:
Properties, net of depreciation $ 6,191 $ 6,355 $ 6,596
Receivables from the Company:
Notes 7,154 7,154 7,154
Accrued interest 1,272 764 256
Cash and temporary cash investments 286 665 833
Other assets 241 304 320
------- ------- -------
$15,144 $15,242 $15,159
======= ======= =======
LIABILITIES AND PARTNERS' DEFICIT:
Mortgage payable $ 5,161 $ 5,015 $ 4,493
Payable to the Company:
Notes 11,208 11,208 11,208
Accrued interest 1,177 694 198
Management and administrative fees 465 361 226
Other liabilities 1,800 1,542 1,490
Partners' deficit (4,667) (3,578) (2,456)
------- ------- -------
$15,144 $15,242 $15,159
======= ======= =======
S-23
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND
SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1995, IS UNAUDITED)
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
------------------------
Years Ended December 31,
----------------------------------------
1996 1995 1994
-------------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
REVENUES:
Rentals and other operating income $ 2,185 $ 2,045 $ 1,905
Interest and other income 524 533 575
------- ------- -------
Total 2,709 2,578 2,480
Expenses:
Operating (2,050) (1,973) (1,954)
Interest (1,343) (1,325) (1,310)
Depreciation and amortization (405) (402) (410)
Minority interest - - -
------- ------- -------
NET LOSS $(1,089) $(1,122) $(1,194)
======= ======= =======
Presented below is a reconciliation of APL's net loss to the Company's equity in the losses of
APL:
Years Ended December 31,
---------------------------------
1996 1995 1994
------- ------- -------
NET LOSS OF APL $(1,089) $(1,122) $(1,194)
Adjustments to remove net expenses of APL which are
not recorded as income by the Company:
Interest expense 795 795 815
Interest income (508) (508) (547)
Administrative fees 95 95 95
Management fees 48 41 42
------- ------- -------
ADJUSTED LOSS $ (659) $ (699) $ (789)
======= ======= =======
EQUITY IN LOSS BASED ON 3.3% OWNERSHIP INTEREST $ (22) $ (23) $ (26)
======= ======= =======
</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.
S-24
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND
SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1995, IS UNAUDITED)
4. INCOME TAXES:
------------
Deferred income taxes relate exclusively to long-term assets and liabilities
and consist of the following as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
(unaudited)
Deferred tax assets (liabilities):
<S> <C> <C>
Notes receivable - installment sales $(509,000) $(509,000)
Partnership basis differences 22,000 38,000
Receivable reserves 485,000 485,000
Net operating loss carryforwards 667,000 198,000
Other 21,000 14,000
--------- ---------
Net 686,000 226,000
Valuation allowance related to deferred tax assets (686,000) (226,000)
--------- ---------
$ - $ -
========== ==========
</TABLE>
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, 1996, 1995, and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----- --------- --------
<S> <C> <C> <C>
Current $ - $ - $ -
Deferred:
Federal - 183,800 80,000
State - 16,200 7,000
----- -------- -------
Total $ - $200,000 $87,000
===== ======== =======
</TABLE>
S-25
<PAGE>
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, 1996, 1995, and 1994:
1996 1995 1994
------ ------ ------
(unaudited)
Statutory rate (34)% (34)% (34)%
State taxes, net of Federal benefit (3) (3) (3)
Graduated tax rates - - -
Change in valuation allowance 37 (12) 10
------ ------ ------
Effective tax rate 0% (49)% (27)%
====== ====== ======
As of December 31, 1996, the Company and RPA had a tax net operating loss
carryforward of approximately $969,000. This loss carryforward will expire
in 2009, 2010 and 2011 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 and 1996 losses.
5. LONG-TERM DEBT:
--------------
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------------
1996 1995
---------- ----------
(unaudited)
<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) (44,400)
---------- ----------
$7,154,500 $7,154,500
========== ==========
</TABLE>
S-26
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND
SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1995, IS UNAUDITED)
The scheduled annual principal reductions of long-term debt are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
- --------------------------
<S> <C>
1997 $ 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,
1996, 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,
1996.
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.
S-27
<PAGE>
HOMEFREE VILLAGE RESOTS, INC. AND
SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1995, IS UNAUDITED)
8. RELATED-PARTY TRANSACTIONS:
--------------------------
Receivables from unconsolidated entities consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1995
------------ ------------
(unaudited)
<S> <C> <C>
Restructured notes receivable from APL, 7%, due June 1998 $ 9,290,700 $ 9,602,100
Less allowance for doubtful accounts (1,000,000) (1,000,000)
----------- -----------
Net 8,290,700 8,602,100
Other receivables, unsecured:
Advances to AWP 8,200 6,400
Advances to Monte Vista 17,800 11,700
----------- -----------
Total $ 8,316,700 $ 8,620,200
=========== ===========
</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 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. This fee
is included in the Partnership's financial statements and is also reflected
as an expense in the Company's financial statements since the Company is a
general partner of the Partnership and, as such, may ultimately be required
to fund the obligations of the Partnership.
S-28
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND
SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1995, IS UNAUDITED)
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,
1996. The following is a summary of activity during the years ended December
31, 1996, 1995, and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Notes receivable, beginning of year $ 310,000 $ 520,900 $ 392,200
Cash advances - 210,200 113,400
Accrued interest 11,300 12,100 15,300
Deemed repayment ( 52,400) (433,200) -
--------- --------- ---------
Notes receivable, end of year 268,900 310,000 520,900
Less allowance for bad debts (268,900) (310,000) (520,900)
--------- --------- ---------
$ - $ - $ -
========= ========= =========
</TABLE>
The president has always intended to repay the notes from the annual
administrative fee discussed above. Accordingly, since the Company will
ultimately be required to fund the administrative fee in order to collect the
receivables, for financial reporting purposes the initial $75,000 of cash
advances and/or accrued interest in each year has been recorded as the
Company's funding of the administrative fee. For cash advances and accrued
interest in excess of $75,000 per year, the Company recognized a loss due to
substantial uncertainty regarding the collectibility of such amounts.
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. For financial reporting purposes, the deemed
repayment of notes receivable from the president represents a write-off of
receivables which had been fully provided for through a related allowance for
bad debts. Without regard to the deemed repayment, through December 31,
1995, the Company has recognized cumulative losses (including the $75,000
annual provision for the administrative fee) 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 cumulative contractual amount of the
administrative fee. During 1996, a total of $52,400 was designated for the
deemed repayment and payment of administrative fees equalled contractual
amounts.
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, 1996, 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. For the Company's investment and
receivables due from APL and AWP, management believes that fair value is
approximately equal to the carrying value as of December 31, 1996.
S-29
<PAGE>
HOMEFREE VILLAGE RESORTS, INC. AND
SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1995, IS UNAUDITED)
10. SIGNIFICANT CONCENTRATIONS:
--------------------------
The Company has an investment of $12,100, receivables of $8,290,700, 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.
S-30
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Partners
Aristek Properties, Ltd.
Denver, Colorado
We have audited the accompanying consolidated balance sheet of Aristek
Properties, Ltd. (a limited partnership) and its subsidiary as of December 31,
1995, and the related consolidated statements of operations, changes in
partners' deficit, and cash flows for the years ended December 31, 1995 and
1994. 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 the years ended December 31, 1995 and
1994, 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-31
<PAGE>
ARISTEK PROPERTIES, LTD. AND SUBSIDIARY
(A LIMITED PARTNERSHIP)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------------
1996 1995
------------- -------------
(unaudited)
-------------
ASSETS
------
OPERATING PROPERTIES:
<S> <C> <C>
Land $ 1,239,381 $ 1,239,381
Land improvements 5,290,711 5,235,140
Buildings and improvements 2,716,077 2,716,077
Furniture and equipment 1,485,574 1,300,019
----------- -----------
Total operating properties 10,731,743 10,490,617
Less accumulated depreciation and amortization (5,590,558) (5,185,898)
----------- -----------
Net operating properties 5,141,185 5,304,719
OTHER ASSETS:
Cash and equivalents 286,214 664,730
Note receivable from General Partner 7,154,529 7,154,529
Accrued interest receivable - General Partner 1,272,000 764,000
Deferred loan costs, net of accumulated amortization of $128,941
(unaudited) and $73,405 110,846 166,382
Land held for development 1,050,000 1,050,000
Rent and other receivables 49,066 103,890
Other assets 80,463 34,033
----------- -----------
TOTAL ASSETS $15,144,303 $15,242,283
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
---------------------------------
LIABILITIES:
Mortgage payable $ 5,161,326 $ 5,015,346
Notes payable to General Partner 11,207,870 11,207,870
Accrued interest payable - General Partner 1,177,499 694,000
Accrued management and administrative fees - General Partner 464,599 360,679
Accounts payable and accrued expenses 163,932 125,798
Unearned rental income 1,411,185 1,228,124
Payable to affiliate 224,433 188,433
----------- -----------
Total liabilities 19,810,844 18,820,250
COMMITMENT AND CONTINGENCY (NOTE 1)
PARTNERS' DEFICIT (4,666,541) (3,577,967)
----------- -----------
TOTAL LIABILITIES AND PARTNERS' DEFICIT $15,144,303 $15,242,283
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.
S-32
<PAGE>
ARISTEK PROPERTIES, LTD. AND SUBSIDIARY
(A LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------------------
1996 1995 1994
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
OPERATING REVENUE:
Rental income $ 2,141,042 $ 2,004,648 $ 1,862,058
Other 43,529 40,671 43,149
----------- ----------- -----------
Total revenue 2,184,571 2,045,319 1,905,207
----------- ----------- -----------
OPERATING COSTS AND EXPENSES:
Salaries, wages and benefits 716,464 623,131 667,081
Maintenance and repairs 222,875 227,252 204,053
Utilities 265,061 260,827 279,916
Property taxes 69,374 69,221 72,092
Management and administrative fees - 215,975 191,533 194,853
General Partner
Depreciation 404,660 401,621 409,884
General and administrative 560,557 601,764 536,915
----------- ----------- -----------
Total operating costs and expenses 2,454,966 2,375,349 2,364,794
----------- ----------- -----------
OPERATING LOSS (270,395) (330,030) (459,587)
OTHER INCOME (EXPENSE):
Interest income:
General Partner 508,000 508,000 547,398
Other 16,382 24,981 27,704
Interest expense:
General Partner (795,000) (795,000) (814,806)
Other (547,561) (529,990) (495,095)
----------- ----------- -----------
NET LOSS $(1,088,574) $(1,122,039) $(1,194,386)
=========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.
S-33
<PAGE>
ARISTEK PROPERTIES, LTD. AND SUBSIDIARY
(A LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
<S> <C>
PARTNERS' DEFICIT, January 1, 1994 $(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)
Net loss (unaudited) (1,088,574)
-----------
PARTNERS' DEFICIT, December 31, 1996 (unaudited) $(4,666,541)
===========
</TABLE>
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.
S-34
<PAGE>
ARISTEK PROPERTIES, LTD. AND SUBSIDIARY
(A LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------------------
1996 1995 1994
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,088,574) $(1,122,039) $(1,194,386)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 404,660 401,621 409,884
Amortization of deferred loan costs 55,536 55,137 136,376
Changes in operating assets and liabilities:
Decrease (increase) in:
Rent and other receivables0 54,824 (44,322) 19,841
Accrued interest receivable - General (508,000) (508,000) (547,398)
Partner
Other (46,430) (71,905) 5,954
Increase (decrease) in:
Accounts payable and accrued expenses 142,054 116,225 62,569
Accrued interest payable - General Partner 483,499 496,000 675,875
Unearned rental income 183,061 49,346 173,710
Payable to affiliate 36,000 99,500 79,183
----------- ----------- -----------
Net cash used in operating activities (283,370) (528,437) (178,392)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for operating properties (241,126) (160,224) (189,156)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from mortgage loans 170,507 522,043 269,300
Principal payments on mortgage loans (24,527) (1,888) (7,087)
Principal payments on loans from General Partner - - (95,000)
Proceeds from release of loan escrow deposit - - 600,000
Payment of deferred loan costs - - (56,811)
----------- ----------- -----------
Net cash used in financing activities 145,980 520,155 710,402
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (378,516) (168,506) 342,854
CASH AND EQUIVALENTS, AT BEGINNING OF YEAR 664,730 833,236 490,382
----------- ----------- -----------
CASH AND EQUIVALENTS, AT END OF YEAR $ 286,214 $ 664,730 $ 833,236
=========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.
S-35
<PAGE>
ARISTEK PROPERTIES, LTD. AND SUBSIDIARY
(A Limited Partnershp)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION-
Cash paid for interest $ 803,526 $ 773,853 $ 560,719
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Payment of deferred loan costs from mortgage loan proceeds $ - $ 2,278 $ 180,700
Net accrued interest converted to note payable to General Parnter - - $ 2,775,236
</TABLE>
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.
S-36
<PAGE>
ARISTEK PROPERTIES, LTD. AND SUBSIDIARY
(A limited Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENTS TO DECEMBER 31, 1995 IS UNAUDITED)
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, 1996, 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, 1996, the Partnership has approximately $4.4 million of debt (net of
receivables) payable to the General Partner and a partners' deficit of
approximately $4.7 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 any of the past three years.
Due to the Partnership's lack of liquidity, it was 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.
S-37
<PAGE>
ARISTEK PROPERTIES, LTD. AND SUBSIDIARY
(A LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
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 three years and HVR is not funding its
share of the losses. The General Partner's share of such losses is
approximately $24,000 through December 31, 1996.
Property and Equipment - Property is recorded at the lower of cost or net
----------------------
realizable value. Depreciation is provided using the straight-line method
over estimated useful lives, as follows:
Years
-------
Land improvements 20
Buildings and improvements 25
Furniture and equipment 7
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.
Impairment of Long-Lived Accounting Assets - In the event that facts and
------------------------------------------
circumstances indicate that the cost of property and equipment or other
long-lived assets may be impaired, an evaluation of recoverability of net
carrying costs will be performed. If an evaluation is required, the
estimated future undiscounted cash flows associated with the asset will be
compared to the asset's carrying amount to determine if a write-down to
estimated fair value is required.
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.
S-38
<PAGE>
ARISTEK PROPERTIES, LTD. AND SUBSIDIARY
(A Limited Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
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.
UNAUDITED FINANCIAL STATEMENTS: In the opinion of management, the
------------------------------
accompanying unaudited financial statements contain all adjustments
(consisting only of normal recurring items) necessary to present fairly the
Company's financial position as of December 31, 1996, and the results of
operations and cash flows for the year then ended.
3. NOTE RECEIVABLE:
---------------
The note receivable of $7,154,529 at December 31, 1996 and 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, 1996 and 1995, the Partnership has a mortgage note payable
with an outstanding principal balance of $5,161,326 (unaudited) and
$5,015,346, respectively. This note bears interest at 4% above the
published LIBOR rate (total of 9.5% at December 31, 1996) and requires
minimum monthly payments at 10%. Payments that exceed the monthly interest
rate are applied to principal. 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,
1996 and 1995. 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, 1996, the aggregate maturities of debt are as
follows:
<TABLE>
<CAPTION>
Year Ending December 31, Notes Mortgage
- -------------------------- ----------- -----------
<S> <C> <C>
1996 $ - $ 9,600
1997 - 30,000
1998 11,207,870 5,131,326
----------- ----------
$11,207,870 $5,161,326
=========== ==========
</TABLE>
S-39
<PAGE>
ARISTEK PROPERTIES, LTD. AND SUBSIDIARY
(A LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION SUBSIQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
5. FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK:
-------------------------------------------------------
At December 31, 1996, the Partnership had cash and money market investments
with a single bank which totaled approximately $286,000. 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, 1996 and 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 payables 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-40
