<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______.
Commission File Number 1-10084
RESORT INCOME INVESTORS, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-3593298
(State of other jurisdiction of (I.R.S. Employer Iden-
incorporation or organization) tification Number)
150 South Wacker Drive, Suite 2900, Chicago, Illinois 60606
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 683-3323
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Shares of Common Stock American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X . NO .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (subsection 229.405 of this chapter) 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 ]
Shares of common stock outstanding as of April 8, 1996: 4,156,000. Aggregate
market value of the common stock held by non-affiliates of the Registrant
as of April 1, 1996: $4,142,500. This amount is based on the closing price of
the shares of common stock ($1.00) on April 1, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
A portion of the prospectus of the Registrant dated October 24, 1988 (the
"Prospectus") and filed pursuant to Rule 424 under the Securities Act of 1933
is incorporated by reference into Parts II, III and IV of this Annual Report on
Form 10-K.
<PAGE> 2
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS......................................... 2
ITEM 2. PROPERTIES....................................... 6
ITEM 3. LEGAL PROCEEDINGS................................ 6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.......................................... 7
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS....................... 8
ITEM 6. SELECTED FINANCIAL DATA........................... 9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS..... 9
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....... 19
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE............ 19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT........................................ 20
ITEM 11. EXECUTIVE COMPENSATION............................ 21
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT............................. 22
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.... 22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K............................... 24
SIGNATURES................................................. 25
<PAGE> 3
PART I
ITEM 1. BUSINESS
The Registrant, Resort Income Investors, Inc. (the "Company"), is a
Delaware corporation organized pursuant to a Certificate of Incorporation filed
on July 20, 1988. The Company commenced a public offering of up to 3,600,000
shares of common stock (subject to increase to 4,140,000 shares to cover
over-allotments) pursuant to a Registration Statement filed on Form S-11 under
the Securities Act of 1933, as amended, which was declared effective by the
Securities and Exchange Commission on October 24, 1988. Pursuant to the public
offering, the Company received gross proceeds of $51,750,000 from the sale of
4,140,000 shares, plus an additional $200,000 from the sale of 16,000 shares to
RC&H, Inc. ("RC&H") at the public offering price of $12.50 per share.
In late June 1995, Mr. Christopher B. Hemmeter ("CBH"), then the Chairman
of the Board, President and Chief Executive Officer of the Company, informed
the Company that interest and principal would not be paid when due on demand
loans made by the Company to him personally or to entities affiliated with him
(the "Affiliated Borrowers"). Further, he informed the Company that he would
not be able to make timely payments of such interest and principal on behalf of
the Affiliated Borrowers pursuant to guarantees he had made in connection with
the Affiliated Borrowers' loans, thereby creating an event of default for each
of the loans. The affected loans constituted all of the demand loans to
related parties held by the Company, aggregating $36,605,000, of which CBH was
personally the borrower of $15,000,000 and the Affiliated Borrowers were the
borrowers of $21,605,000, as of the date of such announcement.
The Company announced on June 29, 1995, that it would commence an orderly
self-liquidation of its assets over an estimated 24- to 36-month period. The
Company also determined that it would take a charge to income for the second
quarter of 1995 in an amount that, in management's judgement, would be adequate
to absorb estimated losses related to the loan portfolio. The amount of the
charge was based on management's judgments regarding the ability of CBH and the
Affiliated Borrowers to repay such loans and also reflected management's
judgments concerning the extent that the estimated realizable value of the
Company's collateral would not provide for the recovery of the Company's
investment in the loans and accrued interest, in light of CBH's inability to
perform on his guarantees in a timely manner. The Company reflected, for the
second quarter of 1995, an allowance of $10,367,903, consisting of $9,900,000
for the loan to CBH and $467,903 for uncollectibility of interest accrued as of
December 31, 1994 but unpaid as of June 30, 1995. Further, interest of
$2,043,017 accrued during 1995 but unpaid as of June 30, 1995, was reversed by
a charge against interest income. Additionally, $1,250,000 was provided for
amounts that management estimated would be needed to advance to first lien
holders and others to protect the Company's collateral position while the plan
of liquidation is accomplished, which includes negotiations with CBH and the
Affiliated Borrowers.
The Company also announced that Messrs. John R. Young and Daniel D. Lane,
the Company's then independent directors (the "Independent Directors") would
assume responsibility for negotiations with CBH and the Affiliated Borrowers to
maximize the Company's recovery of its investment in loans and accrued
interest. Based on information provided to the Independent Directors by CBH
and the Affiliated Borrowers, the Independent Directors reviewed CBH's
financial condition, the financial condition of the Affiliated Borrowers, the
terms of the Company's loans, the collateral for certain of the loans
2
<PAGE> 4
ITEM 1. BUSINESS (CONTINUED)
(including the existence of senior liens on certain of the collateral),
appraisals of certain of such collateral and other information concerning the
value of the other collateral, and other factors, to determine the amount of
the charge and in reaching a decision to proceed with the liquidation of the
Company's assets.
The Company also decided to cease accruing interest on its current loans
for financial statement purposes only and convert each of its loans to the
Affiliated Borrowers maturing June 30, 1995 to demand loans, and that periodic
liquidating distributions be made to the stockholders of the Company as loans
are repaid, subject to allowances for necessary reserves and working capital,
to allow the Company to protect its remaining collateral position and assets
and, in that regard, that all quarterly distributions be eliminated. Finally,
the Company determined that no new loans would be made by the Company and that
any additional advances to the Affiliated Borrowers will be made in an effort
to protect the collateral position of the Company.
In addition, the Company, on June 29, 1995, also terminated its advisory
agreement with RII Advisors, Inc., the Company's investment manager, which
entity was controlled by affiliates of CBH.
On August 8, 1995, CBH resigned as Chairman of the Board, President and
Chief Executive Officer of the Company and Mr. Mark M. Hemmeter, the son of
CBH, resigned his positions with the Company as Executive Vice President,
Secretary, Treasurer and Director of the Company. On such date, the
resignations of CBH and Mark Hemmeter were accepted by the Independent
Directors. Also, the Company decided that Mr. John R. Young, an Independent
Director of the Company since the Company's inception in 1988, would become the
Chairman of the Board of Directors, President, Chief Executive Officer and
Chief Financial Officer of the Company immediately. Also, Mr. Daniel D. Lane,
an Independent Director of the Company since 1990, would remain an Independent
Director of the Company and also be designated as the Company's Secretary,
Treasurer and Chief Accounting Officer. At this time, the Company also
retained the consulting services of Mr. Neil D. Hansen to work with the
Company's Directors in connection with the Company's orderly self-liquidation
of its assets. From the inception of the Company through 1990, Mr. Hansen was
the Company's Executive Vice President, Secretary and Treasurer. The Company
also decided to relocate its headquarters to Chicago, Illinois and establish
banking relations with LaSalle National Bank of Chicago.
The Company also determined to suspend distribution payments to the
Stockholders in light of the pending litigation filed against the Company and
certain of its current and former officers and directors. See Item 3.
From inception of the Company until May 4, 1991, RC&H acted as the
Company's investment manager. On February 16, 1991, a majority of the then
independent directors of the Company authorized the termination of the
investment management agreement with RCH effective May 4, 1991. On such date,
RII Advisors, Inc. ("RII Advisors") became the Company's Investment Manager.
Both advisors were controlled by affiliates of CBH. As described earlier, on
June 29, 1995, the Company terminated its investment management agreement with
RII Advisors and retained Mr. Hansen, an outside consultant, to assist the
Directors in the orderly self-liquidation of the Company. RC&H and RII
Advisors, when discussed in connection with their capacity as the
3
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ITEM 1. BUSINESS (CONTINUED)
former investment managers to the Company, shall be referred to herein
collectively as the "Investment Manager."
The original business plan of the Company contemplated the Company
principally making mortgage loans primarily to affiliates of CBH ("Mortgage
Loans") which would generally be secured by either luxury destination resorts
or unimproved property anticipated to be developed into luxury destination
resorts. In light of the state of the real estate market in general during the
early 1990's, and the resort development market in particular, the Company
shifted its focus to making Mortgage Loans secured by gaming related
developments or unimproved property anticipated to be developed into gaming
related developments. The Mortgage Loans were to be secured principally by
junior and, to a lesser extent, senior mortgages on real properties or by
interests in other real estate investment trust-qualifying assets. In
addition, Hemmeter Guaranty Corporation (the "Guarantor"), an affiliate of CBH,
agreed to purchase defaulted Mortgage Loans, if any, made to Affiliated
Borrowers, in an aggregate amount of up to 20% of the gross proceeds of the
Company's public offering (the "Mortgage Loan Purchase Guaranty"). Pursuant to
the Mortgage Loan Purchase Guaranty, the Guarantor was to pay the amount of any
accrued but unpaid base interest plus the amount of the outstanding principal
and interest reserve, subject to the Mortgage Loan Purchase Guaranty.
The Company's objectives in making investments in Mortgage Loans were to:
(i) distribute cash on a quarterly basis to stockholders (the "Stockholders");
(ii) preserve and protect the Stockholders' capital; and (iii) realize the
benefit of capital appreciation in the value of the assets securing the
Mortgage Loans through the receipt of bonus interest.
The Company's objective was to structure its Mortgage Loan portfolio to
provide for the receipt of points, base interest and bonus interest at combined
rates sufficient to allow the Company to make distributions to the Stockholders
on a quarterly basis, at a rate equal to a 12% per annum, non-compounded,
cumulative return on the initial public offering price ($12.50 per share), or
$1.50 per share annually. This return was guaranteed (the "Cash Flow
Guaranty") for the period from October 31, 1988 (initial closing date) through
October 31, 1991 (the "Cash Flow Guaranty Period"). Throughout such period,
Affiliated Borrowers were obligated to pay supplemental interest in amounts
necessary to enable the Company to make the specified distributions, which
amounts were provided by the Guarantor to the Affiliated Borrowers pursuant to
the Cash Flow Guaranty. During the Cash Flow Guaranty Period a total of
$385,528 of supplemental interest was required and subsequently paid in order
that the Company meet its cash flow requirements under the Cash Flow Guaranty.
These amounts could be credited dollar-for-dollar against up to 50% of the
amounts later remitted by the Affiliated Borrowers as bonus interest, and all
but $11,752 of the total amount of supplemental interest was recaptured in this
manner.
Effective with the announcement of an intention to liquidate the Company,
the accounting basis used by the Company in preparing its financial statements
changed from historical cost to the liquidation basis of accounting.
On July 25, 1995, the Company was informed that the Enforcement Division
of the Securities and Exchange Commission (the "Commission") was conducting an
informal inquiry of the Company. The Company has and continues to provide
information to the Commission in response to
4
<PAGE> 6
ITEM 1. BUSINESS (CONTINUED)
the Commission's document requests. On October 25, 1995, the Commission
converted the informal inquiry to a formal investigation.
In October 1995, the Company also decided to retain an independent
financial advisor to review the status of the Company's loans, the financial
position of the Affiliated Borrowers and the proposed work out plans to be
presented by the Affiliated Borrowers. It was determined that an independent
third party with extensive experience in real estate finance related matters
would provide the Directors with additional pertinent information so as to
assist the Directors as the Company proceeds with its self-liquidation. The
Company sought bids from various independent financial advisors and retained
the firm of Coopers & Lybrand L.L.P. ("C&L") on November 3, 1995. C&L analyzed
certain assets securing the Company's Waikiki, Outlaws, Canadian Pavilion, Sint
Maarten and CBH Loans. The scope of services varied from analysis of the
current status of the loans, alternative courses of action and C&L's
recommendations to an appraisal estimating the value of one of the assets
securing one of the Company's loans.
The Company also decided that it would seek to locate an additional
Director who would be considered independent under the terms of the Company's
Amended and Restated By-Laws. On January 26, 1996, Messrs. Young and Lane
appointed Mr. Thomas A. Ellsworth as an Independent Director of the Company, as
well as a member of its Audit Committee. See Item 10.
As of September 30, 1995, the Company's investment in loans had a carrying
value of $21,155,000, which was net of a $12,850,000 allowance for impairment
of the loan to CBH and his wife and $2,600,000 for the Company's loan to the
Canadian Pavilion Limited Partnership, an Affiliated Borrower, in the original
principal amount of $2,600,000. As of September 30, 1995, $316,279 has been
charged against the Company's reserve taken at June 30, 1995 of $1,250,000
relating to expenses associated with the protection of the Company's
collateral. See Item 7.
As of December 31, 1995, the Company's investment in loans had a carrying
value of $12,092,875, which is net of an $14,267,000 allowance for impairment
of the loan to CBH and his wife, a $5,000,000 allowance for impairment of the
Company's loan to R.C.H. Investments, L.L.C., an Affiliated Borrower, a
$1,600,000 allowance for impairment of one of the Company's loans to the
Outlaws Borrower, an Affiliated Borrower, a $1,000,000 allowance for impairment
of the Company's loan to Hemmeter Enterprises, Inc., an Affiliated Borrower,
and $2,600,000 for the Company's Canadian Pavilion loan. All accrued interest
relating to December 31, 1994 has been reserved and accrued interest related to
1995 has been reversed. Additionally, at December 31, 1995, the Company had
utilized or reversed a total of $1,027,490 of the $1,250,000 reserved earlier
in the year for the estimated costs of protecting its collateral position in
certain loans.
The Company qualified and will be treated as a real estate investment
trust ("REIT") under Sections 856-860 of the Internal Revenue Code of 1986, as
amended, for the year ended December 31, 1995.
In February 1996, the Company received net proceeds of approximately
$733,000 from the sale of the two homes located in Los Angeles, California
owned by CBH which secured the loan to CBH and his wife. As of September 30,
1995, the loan to CBH had a carrying value of $2,150,000. In addition,
approximately $611,000 of the $1,250,000
5
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ITEM 1. BUSINESS (CONTINUED)
collateral preservation reserve made by the Company at June 30, 1995 was
allocated to the loan to CBH and his wife. After accounting for the unused
portion of the asset preservation reserve allocated to the collateral securing
the loan to CBH, the Company recognized an additional $1,100,000 reserve
against the loan to CBH to reduce its carrying value to zero. CBH and his wife
maintain their personal obligation to the Company for the remaining
approximately $14,300,000 balance of the loan to CBH.
The Company did not directly employ any persons during 1995. The
Independent Directors were compensated for their services as directors and the
Company entered into consulting arrangements with Messrs. Young and Hansen.
See Items 10 and 11 for further details.
ITEM 2. PROPERTIES
The Company was formed to make Mortgage Loans and Temporary Investments
secured or collateralized by interests in non-operating real property or other
real estate investment trust qualifying assets and will not own any properties
unless it is a result of a foreclosure action against the collateral of its
Affiliated Borrowers. See Notes 3 and 4 of the Notes to Financial Statements
for information pertaining to the properties which collateralize the Company's
loans.
ITEM 3. LEGAL PROCEEDINGS
(a & b)
On July 3, 1995, a complaint was filed against the Company, CBH, Mark M.
Hemmeter ("MMH") and Deloitte & Touche LLP, the Company's independent auditors,
in U.S. District Court for the District of Colorado alleging violations of
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and other
provisions of Federal law and the rules promulgated by the Securities and
Exchange Commission, "Sarnoff v. Resort Income Investors, Inc., et al., Doc.
No. 95 B 1665." On August 24, 1995, a second suit alleging similar violations
was filed in the U.S. District Court for the District of Colorado against each
of the defendants in the lawsuit described earlier, as well as Daniel D. Lane
("DDL"), Christopher R. Hemmeter ("CRH"), Gregory Hooper ("GH") and John R.
Young ("JRY"), "Contract v. Resort Income Investors, Inc., et al., Doc. No. 95
B 2184." In November 1995, the two actions were consolidated. On November 27,
1995, the plaintiffs moved to have the consolidated actions certified as a
class action for investors who purchased or acquired stock in the Company
between March 31, 1993 and June 29, 1995. On December 6, 1995, the plaintiffs
filed a consolidated amended complaint seeking to prosecute the suit as a class
action. On January 16, 1996, the defendants moved to dismiss the consolidated
amended complaint. On February 29, 1996, the defendants filed opposition
papers to the plaintiffs' motion for class certification. The consolidated
amended complaint seeks an unspecified amount of actual damages and
reimbursement of costs and expenses.
No assessment of the likelihood of any loss can be made at this time.
However, the Company intends to defend against the charges. Pursuant to the
Company's by-laws and Delaware law, the Company will advance CBH's, MMH's,
CRH's, GH's, DDL's and JRY's costs of defense in this matter. No estimates can
reasonably be made at this time of the costs of defense of the Company, CBH,
MMH, CRH, GH, DDL and JRY.
6
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ITEM 3. LEGAL PROCEEDINGS (CONTINUED)
In June 1995, two derivative actions were filed in the Court of Chancery
of the State of Delaware in and for New Castle County, "Alpert v. Hemmeter et
al., Doc. No. 14389," and "Frank, et al. v. Hemmeter et al.," Doc No. 14413.
The Company is a nominal defendant in each of these cases. The defendants in
both cases are: CBH, MMH, DDL and JRY. The complaints purport to allege that
the officers and directors breached their fiduciary duties to the Company,
wasted Company assets and that CBH stood in a conflict of interest position.
The complaints have now been consolidated. The defendants have moved to
dismiss the consolidated derivative action for failure to comply with the
requirements of Delaware law. Pursuant to the Company's by-laws and Delaware
law, the Company will advance to the individual defendants their defense costs.
No estimate can reasonably be made at this time of the costs of defense. Both
complaints pray for unspecified damages.
The Company is a defendant in litigation pending in the Civil District
Court for the Parish of Orleans, State of Louisiana, The Venture International
Group v. C.C. Partners Corp., Canadian Pavilion Limited Partnership, Resort
Income Investors, Inc., the City of New Orleans and The Ernest N. Morial New
Orleans Exhibition Hall Authority, Case No. 93-870. The plaintiff alleges that
the Company, along with the other defendants, caused the plaintiff to sell its
rights and interests to certain water-front property located in New Orleans,
Louisiana. This property was subject to the loan made by the Company to
Canadian Pavilion Limited Partnership. The Company is alleged to have assisted
its Affiliated Borrower in obtaining the property for less than 50% of its fair
value by providing the financing for the acquisition and failing to timely
record its mortgages on the property. The Company has filed a motion to
dismiss the complaint for failure to state a claim. The Company and the
plaintiff are engaged in active settlement discussions in an attempt to resolve
the claims against RII.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a - d) None
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) The Company's shares of common stock are listed and traded on the
American Stock Exchange (the "AMEX") under the symbol "RII." The high and low
sales prices for the shares by quarter for the two years ended December 31,
1995 were as follows:
<TABLE>
<CAPTION>
Quarter Quarter's Quarter's
Ending High Low
<S> <C> <C>
03/31/94 13-5/8 11-3/4
06/30/94 14 9-3/8
09/30/94 11-1/8 9-1/2
12/31/94 10-1/4 8-3/8
03/31/95 10-3/8 8-1/2
06/30/95 10-1/2 2
09/30/95 4-3/8 1-7/8
12/31/95 2-13/16 1
</TABLE>
(b) As of the date hereof, there are approximately 922 holders of the
Company's shares.
(c) The Company paid distributions to the Stockholders for the year 1994
in the amount of $1,558,500 or $0.375 per share on each of May 13, 1994, August
12, 1994, November 14, 1994 and January 31, 1995. The last distribution paid
by the Company was in the amount of $1,558,500, or $.375 per share, on May 10,
1995. For the years ended December 31, 1994 and 1995 return of capital
constituted $0.54 and $0.375 per share; respectively. These distributions
provided each Stockholder with a return on the original issue price ($12.50 per
share) equal to 12.0% per annum for 1994 and 3.0% for 1995.
The Company intends to make liquidating distributions as cash receipts
from loan recoveries are received, less any amounts reserved to cover Company
operating needs prior to completion of the liquidation. The Company intends to
make distributions to Stockholders in a amount equal to at least 95% of its
taxable income in order to continue to qualify as a REIT in accordance with the
Code. However, the Company determined to suspend distribution payments to the
Stockholders in light of the pending litigation filed against the Company and
certain of its current and former officers and directors and to protect the
Company's collateral position. See Item 3.
On March 25, 1996, the Company announced that it will not appeal the
decision of the AMEX to remove its common stock from the AMEX and, therefore,
has consented to such removal. This action became necessary since the Company
has decided to self-liquidate in an orderly fashion and no longer satisfies all
the financial guidelines of the AMEX for continued listing. The AMEX has
advised the Company that the last day for trading of the Company's common stock
will be Friday, April 26, 1996. Subsequent to the delisting from the AMEX,
management of the Company expects that a market for the Company's common stock
will be established via the electronic bulletin board system of the
over-the-counter market.
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ITEM 6. SELECTED FINANCIAL DATA (1)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
December 31, June 30, Year Ended December 31,
1995 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Total Assets $13,210,937 --- $42,495,546 $45,265,321 $45,378,303 $46,941,591
Total Revenue --- $1,629,618 $5,445,580 $7,173,577 $5,884,818 $6,161,172
Net Income (Loss) --- ($10,849,558) $3,975,315 $6,102,917 $4,850,107 $5,155,032
Net Income (Loss) per Share of
Common Stock (2) --- ($2.61) $0.96 $1.47 $1.17 $1.24
Change in Net Assets in Liquidation ($15,642,215) --- --- --- --- ---
Cash Distributions Declared (3) --- $1,558,500 $6,234,000 $6,234,000 $6,234,000 $6,234,000
Cash Distributions per Share of Common
Stock (4) --- $0.375 $1.50 $1.50 $1.50 $1.50
</TABLE>
(1) The above-selected financial data should be read in conjunction with the
financial statements and the related notes appearing elsewhere in
this Annual Report on Form 10-K.
(2) Net income per share of common stock was computed based on a weighted
average of 4,156,000 shares outstanding for 1991, 1992, 1993, 1994 and
1995.
(3) See Item 5 for additional information concerning distributions.
(4) Cash distributions per share of common stock were computed based on
4,156,000 shares outstanding on the record date of such distributions.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1995, the Company had six temporary investments
outstanding with carrying values totalling $12,092,875. Each of these temporary
mortgage loan investments, the status of which are described below, were
declared in default during 1995. Since June 30, 1995, the Affiliated Borrower
of the Waikiki and Waikiki II loans (collectively, the Mideast & China Trading
Company ("MCTC") Loans), with a combined principal balance of $1,900,000, have
received interest payments, one in December 1995 of $45,125 and monthly payments
since then, each in the amount of $15,042. The Company has applied the $45,125
of interest payments received against the carrying amount of the loan. No
payments have been received on any of the Company's other loans subsequent to
the announcement on June 29, 1995 of the Company's plan to commence an orderly
self-liquidation.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company will not make any new loans, however, the Company has advanced
and may continue to advance funds to the Affiliated Borrowers to the extent
deemed necessary to protect the Company's position in the underlying
collateral. As of December 31, 1995, the Company has advanced approximately
$588,000 to the Affiliated Borrowers in an effort to protect the Company's
collateral positions. The Company will consider making distributions to
Stockholders during the course of the liquidation process, although the amount
and timing of such distributions are not predictable. However, as a result of
the uncertainty caused by the lawsuits described in Item 3, the Company
determined that no periodic liquidating distributions will be made to the
Stockholders of the Company. The Company reevaluates this position on an
ongoing basis. The Company believes that it will not be required to make
distributions in the near term to maintain its status as a REIT. Although
reserves have been established and expenses incurred regarding the protection
of its loan collateral, it is the Company's intent to pursue collection of
these costs as incurred. The statement of net assets reflects the Company's
best estimates of amounts expected to be realized by its efforts to collect its
investment in loans and accrued interest, as well as other estimates about the
recovery of assets and the amounts of liabilities. While the estimates of the
realizable amount of the loans and accrued interest are based on an analysis of
each loan by both the Directors and C&L, as well as valuations by independent
appraisers of certain of the collateral, there are few directly comparable real
estate properties that have been sold that can be considered in preparing such
estimates. The amounts the Company will ultimately realize could differ
materially from the amounts assumed in arriving at the estimates reflected in
the December 31, 1995 statement of net assets.
The Company's near term capital requirements will be for ongoing operating
costs during the period of self-liquidation. The Company believes that its
existing cash, cash equivalents and short-term investment balances should be
adequate to fund near-term capital requirements.
The Company loaned $12,900,000 (the "Sint Maarten Loan") to R.C.H.
Investments, N.V., an affiliate of the Investment Manager (the "Sint Maarten
Borrower"), which was secured by a second mortgage on a 28-acre site on the
island of Sint Maarten in the Netherlands Antilles (the "Sint Maarten
Property"). This loan matured on May 7, 1992. On May 12, 1992, the Company
agreed to make a new loan to the Sint Maarten Borrower in the amount of
$12,900,000 (the "New Sint Maarten Loan") to replace the Sint Maarten Loan. The
New Sint Maarten Loan had an original term of approximately 12 months, and was
scheduled to mature on May 7, 1993. The New Sint Maarten Loan was extended by
the Company for 30 days at which time it was replaced with a temporary
investment in the amount of $12,900,000 which was to mature on the earlier of
demand or June 7, 1994. The New Sint Maarten Loan was further extended on June
7, 1994 to mature on the earlier of demand or December 31, 1994 in consideration
for which the interest rate was increased from 14% to 14.5%, payable quarterly
in arrears. In December 1994, the Sint Maarten Borrower transferred its
interests in the Sint Maarten Property and the attendant obligation related to
the New Sint Maarten Loan to R.C.H. Investments, L.L.C., a Delaware limited
liability company, whose constituent members are the shareholders of the Sint
Maarten Borrower (the "New Sint Maarten Borrower"). On December 29, 1994, the
New Sint Maarten Borrower
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<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
received an extension of the New Sint Maarten Loan to June 30, 1995 and the
demand feature was withdrawn in consideration for which the interest rate could
be increased prior to maturity at the option of the Company. Due to the
inability of the Affiliated Borrower, as well as CBH in his capacity as the
guarantor of the New Sint Maarten Loan, to fulfill their obligations under the
terms of the New Sint Maarten Loan, the Company converted the New Sint Maarten
Loan to a demand loan on June 30, 1995, the date the New Sint Maarten Loan was
scheduled to mature.
The Sint Maarten Property also secures a first mortgage in the original
principal amount of $4,000,000 in favor of a lender unaffiliated with the
Affiliated Borrowers. Interest payments due the senior lender subsequent to
June 30, 1995 and through December 31, 1995, in the amount of approximately
$308,000 were funded by the Company and changed against the $1,250,000 provided
for by the Company to protect the collateral positions on the Company's various
loans. The senior encumbrance matured on December 31, 1995. However, the
Affiliated Borrower has requested an extension of the loan from the senior
lender. The senior lender and the Affiliated Borrower continue discussions
regarding the senior loan and the senior lender has classified the loan,
however, to date, the senior lender has taken no action regarding the maturing
of the loan. Neither the Affiliated Borrower nor the Company has made any
interest or principal payments on the senior loan during 1996.
The New Sint Maarten Borrower is currently negotiating a proposed
transaction with a major hospitality company for a hotel and time share
development on the Sint Maarten Property. The preliminary structure of the
proposed transaction would be for the Company and the New Sint Maarten Borrower
to form a joint venture which would become a partner in a new entity which
would also include the major hospitality company, a construction company and an
equity investor as the other partners. The joint venture with the New Sint
Maarten Borrower would contribute the property free and clear of the Company's
New Sint Maarten Loan and CBH's resort development expertise to the new
partnership. The other three parties would contribute approximately
$15,000,000 in new equity to the transaction. An exclusive 90 day period has
been granted to complete due diligence by all parties. Based upon a market
study prepared by an independent third party, the New Sint Maarten Loan could
be fully repaid over a period in excess of five years if various assumptions
are realized, of which no assurances can be given. The New Sint Maarten Loan
had an outstanding balance $14,835,517, as of December 31, 1995, including
accrued interest of $1,492,604 and the $442,913 of additional advances to
preserve the collateral. Based upon the results of an appraisal prepared by an
independent third party, the current carrying value of the New Sint Maarten
Loan is $7,900,000 after a $5,000,000 reserve for impairment of value was
recorded against the loan during the quarter ended December 31, 1995.
The Company made a loan to Canadian Pavilion Limited Partnership, an
affiliate of the Investment Manager (the "Canadian Pavilion Borrower"), in the
amount of $2,600,000 (the "Canadian Pavilion Loan"), on or about November 19,
1991. The proceeds of the Canadian Pavilion Loan were applied as follows:
$1,000,000 to purchase the $2,900,000 of defaulted mortgages and notes
encumbering the subleasehold interest in the Canadian Pavilion and
approximately
11
<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
$800,000 was advanced to an affiliate of the Canadian Pavilion Borrower for it
to purchase the subleasehold interest from a third party. The remaining
$800,000 was used to provide working capital to the Canadian Pavilion Borrower.
Immediately after the closing of the Canadian Pavilion Loan, the interest of
this third party was transferred to the Canadian Pavilion Borrower. The
Canadian Pavilion is a wharf-front property on the Mississippi River in
downtown New Orleans. It is part of the International Pavilion which was
erected as an exhibition hall for the 1984 World's Fair. The Canadian Pavilion
Loan originally bore interest at 9-1/2% per annum, payable quarterly in arrears
and was to mature on the earlier of demand or November 19, 1992. The Company
extended the maturity of the Canadian Pavilion Loan on a number of occasions.
On May 18, 1994, the loan was again extended to the earlier of demand or
December 31, 1994 and the interest rate was increased from 9.5% to 10.5% per
annum, payable quarterly in arrears. On December 7, 1994, the terms of the
loan were further modified to increase the interest rate to 22% per annum,
11.5% of which accrued and was payable when the Canadian Pavilion Loan was
retired. In addition, this modification provided that the demand feature be
removed from the loan so that the loan could not be called prior to December
31, 1994. On December 16, 1994, the maturity date of the Canadian Pavilion
Loan was further extended by the Company to June 30, 1995. On June 30, 1995,
the Company ceased accruing interest on the Canadian Pavilion Loan and
converted it to a demand loan. In addition, the Company made additional
advances to the Canadian Pavilion Borrower to preserve the underlying
collateral in the amount of approximately $113,000 subsequent to June 30, 1995.
During the third quarter of 1995, negotiations by and between various
governmental agencies, the former owner of the Canadian Pavilion and the
Canadian Pavilion Borrower proved unsuccessful and the Canadian Pavilion
Borrower received a termination letter regarding its lease from the New Orleans
Exhibition Hall Authority ("NOEHA"). After receipt of the NOEHA letter, the
Company had numerous discussions with representatives of the Canadian Pavilion
Borrower and its counsel in New Orleans and real estate professionals located
in New Orleans. The input of these various parties, as well as the lack of
acceptance of riverboat gaming in the downtown New Orleans area and the poor
performance of the temporary land-based casino in New Orleans, significantly
reduced the value of the property securing the loan to the Canadian Pavilion
Borrower. Furthermore, certain ongoing financial obligations of the Canadian
Pavilion Borrower, including insurance, payments to governmental agencies and
maintenance expenses were continuing with no assurance that such amounts, which
had been advanced by the Company, would be repaid to the Company nor was there
any assurance that the Company would receive any of the principal portion of
the Canadian Pavilion Loan since, after extensive marketing of the property
securing the Canadian Pavilion Loan, no significant interest in the acquisition
of the property arose. Based on these factors, the Company took a reserve, as
of September 30, 1995, for the full $2,600,000 of the Canadian Pavilion Loan.
The Company continues to maintain its interest in the collateral.
The Company has also been named as a defendant in a lawsuit brought by the
entity which sold the property to the Canadian Pavilion Borrower under a lender
liability theory. The Company believes that the claim made by the plaintiffs
appears to lack merit and is
12
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
currently in negotiations with the plaintiffs to settle the matter. See Item 3.
On February 11, 1992, the Company made two demand loans to Outlaws Casino,
Ltd., an affiliate of the Investment Manager (the "Outlaws Borrower") in the
amounts of $1,200,000 (the "Crook Loan") and $500,000 (the "Hudspeth Loan")
(collectively, the "Outlaws Loans"). The Outlaws Borrower sought the
loans in order to fund a portion of the acquisition of two adjacent parcels of
land in Black Hawk, Colorado, known as the Crook Parcel (approximately 16,000
square feet) and the Hudspeth Parcel (approximately 5,500 square feet). The
Outlaws Borrower originally planned to combine the Crook Parcel and the Hudspeth
Parcel and construct a casino of approximately 50,000 square feet containing
approximately 800 slot machines thereon. The Outlaws Loans are secured by an
assignment of a partnership interest in the Outlaws Borrower; the Crook Loan is
also secured by a second mortgage on the Crook Parcel which is subordinated to a
seller note with a principal balance at December 31, 1995 of approximately
$2,650,000. The Hudspeth Loan is also secured by a first mortgage on the
Hudspeth parcel. There is no senior encumbrance on the Hudspeth Parcel.
On July 17, 1992, the Outlaws Borrower made draws of $500,000 and $200,000
against the Crook Loan and Hudspeth Loan, respectively. On September 2, 1992,
the Outlaws Borrower paid the Company $95,000 in principal towards the then
outstanding principal balance of the Hudspeth Loan. On October 30, 1992 and
November 6, 1992, the Outlaws Borrower paid the Company $150,000 and $50,000,
respectively, in principal towards the outstanding principal balance of the
Crook Loan. On November 30, 1992, the Company agreed to increase the Crook
Loan by $100,000 to a total of $1,600,000. The additional funds were used to
cover expenses related to the planned expansion and renovation of the Outlaws
Casino, which plans were abandoned by the Outlaws Borrower. Subsequent to
funding the $100,000 increase, the aggregate principal amount of the Outlaws
Loans was increased to $2,205,000, consisting of $1,600,000 for the Crook Loan
and $605,000 for the Hudspeth Loan. The maturity of the Outlaws Loans was
extended by the Company to June 30, 1995. On such date, the Company ceased
accruing interest on the Outlaws Loans and converted them to demand loans.
In October 1995, representatives of the Outlaws Borrower informed the
Company that the Outlaws Casino had very little cash and that its bills were
approximately 45 days in arrears. Such representatives also told the Company
that it was an absolute necessity for the Outlaws Casino to build up its working
capital reserves to approximately $150,000 so as to be able to fund the
operating deficits which usually occur in the winter due to the weather
conditions which hinder ingress and egress to the casinos located in Black Hawk,
Colorado. The Company was also advised that the October mortgage payment on the
senior encumbrance secured by the Crook Parcel was not made and that the Outlaws
Borrower was currently in negotiations with the senior lender to revise the
terms of the loan in a manner so as to allow the Outlaws Borrower to make
interest only payments until spring 1996. In addition, these representatives
informed the Company that they were developing a marketing plan for the Outlaws
Casino which would appeal to local patrons who do not desire to game in a large
casino. In addition, the Company was advised that a potential sale of the
Outlaws Casino was probably not
13
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
possible at such time since the winter months are the least productive for the
Colorado casinos and that any prospective buyer would defer a purchase until
spring of 1996.
Based on this information, the Company decided to modify the terms of the
Outlaws Loans to require the Outlaws Borrower to make monthly payments of "net
revenue" from the casino and real estate which the Outlaws Borrower had
mortgaged to the Company as security for the loans (the "Properties"). Net
revenue is defined as all operating revenues from the Properties less: (a) the
ordinary and reasonable expenses of the operation of the Properties; (b) the
interest and principal payments required by the existing senior lender on the
property which secures the Crook Loan; and (c) the funds necessary to maintain
no less than $150,000 of working capital. The Company also stated that in
exchange for its forbearance from foreclosing on the Outlaws Loans, the Outlaws
Borrower must deliver to the Company, on the first day of each month: (a)
monthly operating reports setting forth the current financial performance of
the Properties; (b) current balance sheets evidencing the financial condition
of the Properties; and (c) rolling three-month projections for the businesses
located on the Properties. In addition, the previous unpaid interest as of
October 31, 1995, in the amount of $105,509, was capitalized and added to the
outstanding balances of the Outlaws Loans.
As of December 31, 1995, the outstanding loan balances, including
interest, were $1,707,447 for the Crook Loan and $645,629 for the Hudspeth
Loan. The C&L report to the Company concluded that the market value of the fee
simple interest in the Outlaws Casino was $2,500,000. As of December 31, 1995,
the senior encumbrance on the Crook Parcel was $2,650,000. Therefore, the
Company set up a reserve for the entire $1,600,000 of the Crook Loan. No
reserve was taken by the Company against the Hudspeth Loan since there was no
senior encumbrance and such loan was secured by the parking facility and not
the Outlaws Casino.
On May 12, 1992, the Company made a demand loan in the amount of $900,000
(the "Waikiki Loan") to Hemmeter Investment Company, now known as Mideast China
Trading Company, a Hawaii general partnership, an affiliate of the Investment
Manager (the "Waikiki Borrower"). The proceeds of the Waikiki Loan were used
to acquire options on various properties in New Orleans, Louisiana, in
connection with gaming-related developments pursued by the Hemmeter
organization. The Waikiki Loan is secured by a sub-leasehold mortgage on the
International Marketplace, a retail center in Honolulu, Hawaii (the "Waikiki
Property"), CBH's personal guaranty of CBH and a collateral assignment of the
Waikiki Borrower's interest as the sub-sublessor of the Waikiki Property. This
loan bore interest at the rate of 9.5% per annum, payable quarterly in arrears,
and was due on the earlier of demand or May 12, 1993. The Company agreed to
extensions of the term of the Waikiki Investment through September 30, 1994.
On September 30, 1994, the Waikiki Investment was further extended to March 31,
1995 in consideration for which the interest rate was increased to 19.5%, 10% of
which accrued and was to be payable at the time the Waikiki Loan matured. On
March 16, 1995, the Company agreed to further extend the maturity of the Waikiki
Investment to June 30, 1995. On June 30, 1995, the Company ceased accruing
interest on the Waikiki Loan and converted it to a demand loan.
14
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
On April 8, 1994, the Company made a demand loan in the amount of
$1,000,000 (the "Waikiki II Loan") to the Waikiki Borrower. The proceeds of
the loan were used to fund working capital requirements of Grand Palais Casino,
Inc. ("GPCI"), an affiliate of the Company. The Waikiki II Loan is also
secured by the Waikiki Property, CBH's personal guaranty and a collateral
assignment of the Waikiki Borrower's interest as the sub-sublessor of the
Waikiki Property. This loan bore interest at the rate of 9.5% per annum payable
quarterly in arrears, and was due on the earlier of demand or October 8, 1994.
On September 30, 1994, the Waikiki II Loan was extended to the earlier of
demand or March 31, 1995 in consideration for which the interest rate was
increased to 19.5%, 10% of which accrued and was to be payable at the time the
Waikiki II Loan matured. On March 16, 1995, the Company agreed to further
extend the maturity of the Waikiki II Loan to June 30, 1995. On June 30, 1995,
the Company ceased accruing interest on the Waikiki II Loan and converted it to
a demand loan for financial statement purposes only.
The Company modified the terms of the two Waikiki Loans on November 1,
1995 so as to require the Waikiki Borrower to make monthly payments of $15,042
with interest accruing at a rate of 11% per annum. As of December 31, 1995,
the combined outstanding loan balances were $1,854,875. C&L appraised the
subleasehold interest at International Marketplace at $2,510,000 at December
31, 1995. In light of this recent valuation, the Company has not set up a
reserve for the Waikiki Loans.
On January 4, 1994, the Company made a loan to CBH in the amount of
$12,900,000 (the "Hemmeter Loan"), the proceeds of which were used for working
capital purposes for CBH's various gaming affiliates and to retire certain
indebtedness secured by three of Mr. Hemmeter's residences, one in Hawaii
and two in California. This loan was originally secured by junior mortgages on
the aforementioned residences, bore interest at 12% per annum, was payable
quarterly in arrears, and was scheduled to mature on January 3, 1995. On
September 14, 1994, the Hemmeter Loan was modified to provide for an additional
$1,100,000 ("Additional Principal") for a total principal balance of the Loan of
$14,000,000. The Additional Principal originally bore interest at the rate of
22%, 12% of which was payable under the same terms as the original loan, and the
remaining 10% was accrued and was to be payable upon the maturity or earlier
prepayment of the Hemmeter Loan. In addition, the interest rate on the original
$12,900,000 in principal was increased to 21.7% effective October 1, 1994, 12%
of which was payable under the same terms as the original loan, and the
remaining 9.7% was accrued and was to be payable upon the maturity or earlier
prepayment of the note. On December 16, 1994, CBH informed the Company that he
was selling his residence in Hawaii in late December 1994 and requested a
release of the Company's lien on the Hawaii residence and an extension of the
maturity date of the Hemmeter Loan, including the Additional Principal. In
response to CBH's request, the Company agreed that: (i) it would release its
lien on the Hawaii residence, effective January 3, 1995; (ii) the maturity date
of the Hemmeter Loan, including the Additional Principal, be extended to June
30, 1995; and (iii) the interest rate on the Hemmeter Loan and the Additional
Principal be increased to 22.7% and 23%, respectively, assuming that the
Company's lien on CBH's Hawaiian residence is released. Thirteen percent of the
interest on both the
15
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Hemmeter Loan and the Additional Principal was to be paid under the same terms
as described above, and the remaining 9.7% of the Hemmeter Loan and the
remaining 10% of the Additional Principal would accrue and be payable upon the
maturity or earlier repayment of the Hemmeter Loan and the Additional
Principal. The lien on the Hawaii residence was released on January 3,
1995 and the new interest rates for the Hemmeter Loan and the Additional
Principal took effect on such date. On May 2, 1995, the Company agreed to a
further modification of the Hemmeter Loan to provide for an additional
$1,000,000 (the "Second Additional Principal") thereby increasing the principal
amount of the Hemmeter Loan to $15,000,000. The Second Additional Principal
bore interest at the rate of 23%, 10% of which was to be payable upon the
maturity or earlier prepayment of the Second Additional Principal.
The carrying value of the Hemmeter Loan, including the Additional Principal and
the Second Additional Principal, has been reduced by the Company three times,
once at June 30 1995 by a $9,900,000 reserve, again at September 30, 1995 by
a $2,950,000 reserve and finally by $975,000 at the time the California
residences that served as collateral for the loan were sold. Also,
approximately $611,000 of the $1,250,000 collateral preservation reserve made
by the Company at June 30, 1995 was allocated to the Hemmeter Loan. After
paying the costs associated with the sale of CBH's California residences, the
Company received net proceeds of approximately $733,000. Mr. Hemmeter and his
wife still have personal liability for the remaining $14,300,000 balance of
the loan. However, the current carrying value of the Hemmeter Loan is zero.
On February 14, 1994, the Company made a loan to Grand Palais Casino, Inc.
("GPCI"), an affiliate of the Investment Manager, in the amount of $4,000,000
(the "GPCI Loan"). The proceeds of the GPCI Loan were used to cover certain
expenses of GPCI incurred in connection with the development of the single
land-based casino in New Orleans, Louisiana, of which GPCI was to be a
one-third owner. The GPCI Loan bore interest at a rate of 14% per annum,
payable quarterly in arrears, was secured by the personal guarantee of CBH and
was due to mature on September 30, 1994. On April 8, 1994, an additional loan
was made to GPCI in the amount of $2,250,000 under the same terms and
conditions as the GPCI Loan. On September 30, 1994, both of the loans to GPCI,
in the aggregate amount of $6,250,000, were extended to the earlier of demand
or March 31, 1995. On November 16, 1994, the Company agreed to subordinate
both GPCI loans to senior indebtedness of GPCI in the amount of $34,000,000 and
to extend the term of the loan to February 25, 1998, in consideration for which
the interest rates were increased to a rate equal to 150 basis points above the
coupon rate of the $34,000,000 senior debt (then 19.75%) beginning January 1,
1995. On April 14, 1995, the Company sold the two loans made to GPCI to an
unaffiliated third party for the sum of $6,250,000 plus all accrued and unpaid
interest through the date of the sale.
On April 25, 1995, the Company made a loan to Hemmeter Enterprises, Inc.,
an affiliate of the Investment Manager ("HEI"), in the amount of $1,000,000,
bearing interest at the rate of 12% per annum, payable quarterly in arrears,
and due on demand (the "HEI Loan"). HEI, either directly or through affiliated
entities, was in the business of developing, owning and operating gaming and
related entertainment facilities. HEI was a one-third partner in the
partnership attempting to develop the sole land-based casino in New
16
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Orleans, Louisiana, and a 50% partner in a joint venture which developed and
operated a riverboat gaming project in New Orleans. In addition, HEI
developed, owned and operated two of the largest casinos in Colorado. The
proceeds of the HEI Loan were utilized by HEI for working capital purposes and
were secured by the guaranty of CBH.
On May 13, 1995, the Company agreed to provide HEI with a senior bank
facility in the amount of $4,000,000 (the "HEI Senior Bank Facility"). The HEI
Senior Bank Facility is secured pari passu by deeds of trust for real properties
known as the Bullwhackers Casinos in Central City and Black Hawk, Colorado, a
collateral second mortgage on the Canadian Pavilion Property and a second
mortgage on the riverboat operated in New Orleans by Grand Palais Riverboat,
Inc. ("GPRI"), an affiliate of the Investment Manager, and a collateral
assignment of GPRI's interests in the riverboat joint venture which was operated
in New Orleans. The HEI Senior Bank Facility was also guaranteed jointly and
severally by various subsidiaries of HEI, certain other affiliated entities and
by CBH. The Company made an initial funding of $2,000,000 of the $4,00,000 HEI
Senior Bank Facility and $1,000,000 of the loan proceeds were utilized to repay
the HEI Loan. The HEI Senior Bank Facility bore interest at the rate of 12% per
annum and was scheduled to mature on September 30, 1995. On June 30, 1995, the
Company determined that it would not advance any additional sums to HEI under
the terms of the HEI Senior Bank Facility. In October 1995, HEI and GPRI both
filed for bankruptcy protection. Since the filing of HEI and GPRI, management of
the Company has been negotiating with representatives of the other secured
lenders to protect its collateral position. The Company's position with the
other secured lenders in each plan of reorganization was recently confirmed by
the Courts in each bankruptcy proceeding. As a result, the Company's collateral
position is being converted to: new secured bonds issued by a reorganized HEI;
stock and warrants issued by Casino America in consideration for its purchase of
the riverboat of GPRI; and minimal equity in the reorganized HEI. Management of
the Company believes these positions to be received have a current value of
$1,000,000. For the quarter ended December 31, 1995, the Company recorded a
$1,000,000 reserve against the carrying value of the HEI Senior Bank Facility.
As of December 31, 1995, the Company had approximately $1,644,269 in cash
and cash equivalents and investments at market value.
Management of the Company continues to analyze the Company's loan
portfolio and is monitoring the activities of its borrowers with a view towards
maximizing the recovery of each of its loans, and in an effort to enhance
Stockholder value.
RESULTS OF OPERATIONS
As a result of the announcement by the Company on June 29, 1995 of its
intent to liquidate, the Company began reporting on the liquidation basis of
accounting. The 1995 results, therefore, are a combination of operations for
the period January 1, 1995 through June 30 1995 on a going concern basis as
reported on the Consolidated Statements of Income and Expenses and operations
for the period July 1, 1995 to December 31, 1995 as stated on the liquidation
basis as reported on the Consolidated Statement of Changes in Net Assets in
17
<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Liquidation. See Note 2, "Basis of Presentation and Summary of Significant
Accounting Policies" of the Notes to Consolidated Financial Statements for
further information.
1995 vs 1994
For the year 1995, the Company generated total revenues of $1,723,711
compared to $5,445,580 for the year 1994. This decrease in revenue was
primarily attributable to the default of all the Affiliated Borrowers and CBH
as of June 30, 1995 on all of the Company's loans.
Operating expenses and other charges increased by $999,863 over 1994 as a
result operating expenses, primarily litigation and loan workout costs,
increasing $1,556,272 over 1994 offset by a reduction of realized losses on
mortgage backed securities in 1995 of $556,409.
During 1995, the Company also recorded reserves of $25,745,356 for
impairment of loan values and reserves for cost of preserving loan collateral.
Through June 30, 1995, the Company recorded reserves totaling $11,617,903 based
upon a review of each loan and the information then available regarding the
collateral for each loan. Subsequent to June 30th, the Company has recorded
additional reserves of $14,127,453 based on events and additional information
available since then, including new appraisals and market studies, independent
third party reviews of collateral positions, legal proceedings, renegotiation
of loan terms with certain Affiliated Borrowers and the sale of certain
collateral by the borrower and the receipt by the Company of certain sale
proceeds.
Net income for the year ended December 31, 1994 was $3,975,315 and on an
equivalent basis the Company would have had a net loss during 1995 of
$26,481,673. This decrease is directly attributable to decreased revenues and
increased expenses of the default status of the Company's entire loan portfolio
as described above.
1994 vs 1993
For the year 1994, the Company generated total revenues of $5,445,580
compared to $7,173,577 for the year 1993. This decrease in revenue was largely
attributable to approximately $1,120,000 of bonus interest and accelerated loan
fees earned in 1993 of which there were none in 1994. In addition, the Company
had no Mortgage Loans outstanding during 1994 but rather had funded a number of
Temporary Investments to Affiliated Borrowers in 1994 as it sought new
opportunities for funds received upon the early retirement of the Company's
Black Hawk and Central City loans in December of 1993. Of total 1994 revenue,
none was related to interest and fees on Mortgage Loans compared to 76% in
1993, due to the fact that all of the Company's loans during 1994 were
Temporary Investments.
Operating expenses and other charges increased by $339,605 over 1993 as a
result of realized losses on mortgage backed securities in 1994 of $697,658
offset by reductions in investment management fees of $199,799 and other
operating expense reductions of $98,254. There were, in fact, no management
fees incurred during 1994 as the Company had no Mortgage Loans outstanding
during 1994 which qualified for such fees. The Company revised its short-term
investment policies to specifically prohibit investment in securities backed by
mortgage pools.
18
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Net income for the year ended December 31, 1994 was $3,975,315, $2,127,602
less than 1993 net income. This decrease is directly attributable to decreased
revenues and increased expenses, as described above. No bonus interest was
earned by the Company in 1994.
Since inception, the Company has qualified as a REIT and has been taxed as
such under the Code. One of the requirements to maintain REIT status under the
Code is to distribute 95% of taxable income on an annual basis. The Company
will attempt to distribute at least the 95% of taxable income and comply with
all other requirements necessary to remain taxable as a REIT during the
liquidation process. The Company's operations have not been significantly
affected by inflation.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements on Page F-1 of this Annual Report on
Form 10-K for the financial statements and financial statements schedules,
where applicable.
Selected quarterly financial information specified by Item 302 of
Regulation S-K is presented in Note 7 of the Financial Statements on Page F-17.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
19
<PAGE> 21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a, b, c, d & e) The directors and executive officers of the Company are:
John R. Young Chairman of the Board of Directors, President, Chief
Executive Officer and Chief Financial Officer
Daniel D. Lane Director, Secretary, Treasurer and Chief Accounting
Officer+
Thomas A. Ellsworth Director+
John R. Young (62) - Chairman of the Board of Directors and President.
From 1988 through August 1995, Mr. Young was an Independent Director of the
Company. On August 8, 1995, Mr. Young was appointed Chairman of the Board,
President, Chief Executive Officer and Chief Financial Officer of the Company
replacing CBH who had resigned his positions with the Company as of such date.
Since May 1988, Mr. Young has been a consultant to the hotel industry and since
1990 he has also been a director and senior vice president-real estate and
development of Horizon Hotels, Ltd. Mr. Young was Senior Vice President and
Treasurer of ITT Sheraton Corporation, and Executive Vice President of ITT
Sheraton Realty Corporation, which positions he had held from 1980 until May
1988. Mr. Young was responsible for directing all domestic and international
treasury and corporate finance activities regarding corporate financing
requirements, cash management, bank relationships and corporate insurance
requirements and risk management. As Executive Vice President of ITT Sheraton
Realty Corporation, Mr. Young participated and consulted in the acquisition,
disposal and development of hotel properties and he has continued to perform
similar services for Horizon Hotels, Ltd. since 1990. Mr. Young had been
employed by ITT Sheraton Corporation and its predecessors since 1967. Mr.
Young is a member of the American Hotel and Motel Association and the Urban
Land Institute, and is a past treasurer and founding member of the Citizens
Housing and Planning Association of Greater Boston. Mr. Young has a Bachelor
of Arts Degree from Middlebury College and received a certificate from the
National Mortgage School of the American Bankers Association at Ohio State
University.
Daniel D. Lane (61) - Director of the Company and member of the Audit
Committee. Mr. Lane has been an Independent Director of the Company since 1990
and, on August 8, 1995, was appointed to be the Company's Secretary, Treasurer
and Chief Accounting Officer, while also retaining his Independent
Directorship. Mr. Lane is one of two founding principals and serves as
Chairman and Chief Executive Officer of Newport Beach-based Lane/Kuhn Pacific,
Inc. The company's business operations have included several originally
formulated master-plan community development and home-building partnerships,
including East Lake Development Company, Lane/Kuhn Pacific Communities and
Lane/Kuhn Pacific Homes. In 1960, Mr. Lane founded Lan Ron Enterprises and its
related entities. These companies engaged in the development of thousands of
single-family homes. Mr. Lane also served as managing partner of Cadillac
Fairview Homes West from 1977 to 1983. Mr. Lane has been a member of the Board
of Directors of Fidelity National Financial, Inc. since 1992 and a member of
the University of Southern California Board of Trustees since 1987. He
received his Bachelors Degree in Real Estate from University of Southern
California.
20
<PAGE> 22
ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)
Thomas A. Ellsworth (57) - Director of the Company and Chairman of the
Audit Committee since January 26, 1996. Mr. Ellsworth is a principal of PKF
Investments, a hotel real estate consulting and brokerage company which is a
subsidiary of PKF Consulting, an international hotel consulting firm. Prior to
joining PKF Investments in 1992, Mr. Ellsworth was a Senior Vice President and
Director of Real Estate of ITT Sheraton Corporation. Mr. Ellsworth had been
employed by ITT Sheraton Corporation and its predecessors since 1965. Mr.
Ellsworth is a board member of the Ipswich Savings Bank, the Trustees of
Reservations, the Massachusetts Farmland Conservation Trust and the Essex
County Greenbelt. Mr. Ellsworth has a Bachelor of Science Degree in Hotel
Administration from Cornell University.
- ----------------------
+ Member of the Audit Committee which is responsible for reviewing the
Company's annual financial statements and other matters relating to
the Company's financial affairs.
ITEM 11.EXECUTIVE COMPENSATION
(a, b) Not applicable.
(c, d, e & f) Not applicable.
(g) The Company pays each Independent Director: (i) a fee of $20,000 per
year (which amount may be increased or decreased at the discretion of the
Directors); and (ii) reimbursements for travel expenses and other out-of-pocket
disbursements incurred in connection with attending any meetings of the Board
of Directors. Mr. Lane received a fee of $20,000 for serving as an Independent
Director for the entire year. Mr. Young received a fee of $10,000 for serving
as an Independent Director for the first six months of 1995. The Company
entered into a consulting arrangement with Mr. Young when he became the
Company's President and Chief Executive Officer, effective July, 1995, pursuant
to which Mr. Young receives a fee of $10,000 per month. During the year ended
December 31, 1995, the Company also paid the Independent Directors
reimbursements aggregating $16,393 and Mr. Young reimbursements subsequent to
the initiation of his consulting arrangement of $11,296.
(h) The Company does not have any employment contracts with any of its
executive officers. In addition, the Company has no compensatory plan or
arrangement with any of its executive officers which would be triggered by the
retirement, resignation or any other termination of such executive officer's
employment with the company or a change in such executive officer's
responsibilities following a change-in-control of the Company.
(i) Not applicable.
(j) Compensation Committee Interlocks and Insider Participation.
(1) The Company does not have a compensation committee or any other
committee performing such function.
(2) Not applicable.
(3) Not applicable.
21
<PAGE> 23
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
(k) Not applicable.
(l) Not applicable.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) None.
(b) The following table sets forth the ownership of shares owned directly
or indirectly by the Directors individually and by the Directors and officers
of the Company as a group as of March 18, 1996.
<TABLE>
<CAPTION>
Title Name and Address of Amount and Nature of Percent
of Class Beneficial Owner Beneficial Ownership of Class
<S> <C> <C> <C>
Common Stock John R. Young 500 shares less than 1%
155 Walpole Street
Dover, Massachusetts
02030
Common Stock Daniel D. Lane 13,000 shares less than 1%
Lane/Kuhn Pacific, Inc.
14 Corporate Plaza
Newport Beach,
California 92660
Common Stock Thomas A. Ellsworth None None
PKF Investments
105 Belcher
Essex, Massachusetts
01920
All Directors and 13,500 shares less than 1%
executive officers of
the Company as a group
</TABLE>
(c) There are no known arrangements which may at a subsequent date result
in a change of control of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a & b) The Company entered into an investment management agreement with
RC&H, on October 28, 1988, pursuant to which RC&H was to act as investment
advisor, manager and administrator of the Company until October 1991. However,
on February 16, 1991, a majority of the then independent directors of the
Company authorized the termination of the investment management agreement with
RC&H. Consequently, all rights and responsibilities of RC&H to the Company as
its investment manager terminated on May 4, 1991. On such date, RII Advisors,
an entity controlled by affiliates of CBH, became the Company's new investment
manager. RII Advisors was subject to the same terms and conditions, as
investment manager to the Company, as RC&H was previously.
The Investment Manager was responsible for recommending investments and
supervising the day-to-day operations of the Company. The investment
management agreement directed the Investment Manager to make investment
recommendations to the Directors, subject to the final approval of the
Directors, and to monitor the Company's assets and operations so that the
Company would continue to comply with the requirements of the Code for the
activities of a REIT. The Investment Manager did not receive any compensation
from the Company during 1995.
22
<PAGE> 24
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (CONTINUED)
The investment management agreement by and between the Company and RII
Advisors was terminated by the Company as of June 30, 1995. In August 1995,
the Company retained Mr. Neil D. Hansen as a consultant to assist the Company
in connection with overseeing its loans and their related collateral, investor
relations, administrative services and accounting and bookkeeping functions.
See Item 1.
Reference is made to Notes 3 and 4 of Notes to Financial Statements for a
description of various loans made to related parties in accordance with the
terms of the Prospectus.
(c) At December 31, 1995, the Company had eight demand loans outstanding,
seven of which were made to affiliates of CBH and one was made directly to CBH.
See Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a detailed description of each of the outstanding
loans.
(d) There have been no other significant transactions with promoters.
23
<PAGE> 25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report:
(1)(2) The financial statements indicated in Part II, Item 8
"Financial Statements and Supplementary Data."
Financial Statement Schedules are omitted as the
required information is included in the financial
statements or the notes thereto or is not applicable.
The following exhibits are incorporated by reference from the Registrant's
Registration Statement on Form S-11 (File No. 33-23521), referencing the
exhibit numbers used in such Registration Statement.
Exhibit Number Description
3(a) Restated Certificate of Incorporation
3(b) Amended and Restated By-laws
10(a) Form of Investment Management Agreement
10(b) Form of Cash Flow Guaranty Agreement
10(c) Form of Mortgage Loan Purchase Guaranty Agreement
(b) None
(c) An Annual Report will be sent to Stockholders subsequent to
this filing and the Company will furnish copies of such report to
the Commission at that time.
(d) Not applicable.
24
<PAGE> 26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
RESORT INCOME INVESTORS, INC.
(Registrant)
By: /s/ John R. Young
John R. Young
Chairman of the Board of Directors,
Chief Executive Officer, President and
Chief Financial Officer
Date: April 15, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By: /s/ John R. Young By: /s/ Daniel D. Lane
John R. Young Daniel D. Lane
Chairman of the Board Director,
of Directors, Chief Secretary,
Executive Officer, Treasurer and Chief
President and Accounting Officer
Chief Financial Officer
Date: April 15, 1996 Date: April 15, 1996
By: /s/ Thomas A. Ellsworth
Thomas A. Ellsworth
Director
Date: April 15, 1996
25
<PAGE> 27
FINANCIAL STATEMENT INDEX
<TABLE>
<S> <C>
Independent Auditors' Report.................................. F-2
Statement of Net Assets in
Liquidation at December 31, 1995............................. F-3
Statement of Changes in Net Assets
in Liquidation, July 1, 1995 to
December 31, 1995............................................ F-4
Balance Sheet at
December 31, 1994............................................ F-5
Statements of Operations (Historical
Cost Basis) for the Period from January 1, 1995
to June 30, 1995 and for the Years Ended
December 31, 1994 and 1993................................... F-6
Statements of Shareholders' Equity
(Historical Cost Basis) for the Period
January 1, 1995 to June 30, 1995 and for
the Years Ended December 31, 1994 and 1993................... F-7
Statements of Cash Flows (Historical
Cost Basis) for the Period January 1, 1995
to June 30, 1995 and for the Years Ended
December 31, 1994 and 1993................................... F-8
Notes to Financial Statements............................ F-9 to F-17
</TABLE>
F-1
<PAGE> 28
INDEPENDENT AUDITORS' REPORT
(to be filed by amendment)
F-2
<PAGE> 29
RESORT INCOME INVESTORS, INC.
STATEMENT OF NET ASSETS IN LIQUIDATION (NOTE 1)
(LIQUIDATION BASIS)
<TABLE>
<CAPTION>
December 31,
1995
<S> <C>
ASSETS
Interest receivable from
related parties, net of
allowance $ ---
Demand loans to related
parties, net of
allowances 12,092,875
Cash and cash equivalents 846,768
Investment securities at
market value 797,501
Prepaid expenses and other 161,586
------------
Total Assets 13,898,730
------------
LIABILITIES
Accounts payable and 687,793
accrued expenses ------------
NET ASSETS IN PROCESS OF $ 13,210,937
LIQUIDATION ============
<FN>
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
F-3
<PAGE> 30
RESORT INCOME INVESTORS, INC.
STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION
(LIQUIDATION BASIS)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
1995
<S> <C>
Net assets in liquidation
at July 1, 1995 $28,853,152
Interest income on cash and
cash equivalents 94,093
Gain on investment securities 110,001
Allowance for impairment of
investment in loans and
accrued interest and
provision for collateral
protection costs (14,127,453)
Operating expenses (1,718,856)
------------
Net assets in liquidation at $ 13,210,937
December 31, 1995 ============
<FN>
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
F-4
<PAGE> 31
RESORT INCOME INVESTORS, INC.
BALANCE SHEET (HISTORICAL COST BASIS)
<TABLE>
<CAPTION>
December 31,
1994
<S> <C>
ASSETS
Interest receivable from
related parties $ 1,233,074
Demand loans to related
parties 39,855,000
Cash and cash equivalents 779,298
Investment securities at
market value 560,000
Prepaid expenses and other 68,174
------------
Total Assets $ 42,495,546
============
LIABILITIES AND SHAREHOLDERS
EQUITY
Liabilities, accounts payable
and accrued expenses $ 54,586
Distributions payable 1,558,500
------------
Total Liabilities 1,613,086
------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $.01 par value;
authorized 11,000,000
shares; issued and
outstanding 4,156,000 shares 41,560
Additional paid-in capital:
Issuance of common stock 46,703,781
Distributions in excess of
income (5,484,131)
Reserve for unrealized loss (378,750)
------------
Total Shareholders' Equity 40,882,460
------------
Total Liabilities and Share- $ 42,495,546
holders' Equity ============
<FN>
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
F-5
<PAGE> 32
RESORT INCOME INVESTORS, INC.
STATEMENTS OF OPERATIONS (HISTORICAL COST BASIS)
<TABLE>
<CAPTION>
Six Months
Ended
June 30, Years Ended
1995 1994 1993
<S> <C> <C> <C>
REVENUE
Interest and net fee
income on mortgage and
demand loans to related
parties $ 1,543,635 $5,155,575 $7,151,833
Interest income from cash
and cash equivalents
and investments 85,983 290,005 21,744
------------ ---------- ----------
Total Revenue 1,629,618 5,445,580 7,173,577
------------ ---------- ----------
EXPENSES
Allowance for impairment
of investment in loans
and accrued interest
and provision for
collateral protection
costs 11,617,903 --- ---
Operating expenses 610,023 772,607 1,070,660
Loss on investment
securities 251,250 697,658 ---
------------ ---------- ----------
Total Expenses 12,479,176 1,470,265 1,070,660
------------ ---------- ----------
NET INCOME (LOSS) $(10,849,558) $3,975,315 $6,102,917
============ ========== ==========
NET INCOME (LOSS) PER
SHARE $ (2.61) $ 0.96 $ 1.47
============ ========== ==========
WEIGHTED AVERAGE OF
COMMON SHARES
OUTSTANDING 4,156,000 4,156,000 4,156,000
============ ========== ==========
<FN>
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
F-6
<PAGE> 33
RESORT INCOME INVESTORS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(HISTORICAL COST BASIS)
FOR THE PERIOD JANUARY 1, 1995 TO JUNE 30, 1995
AND FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
Additional Paid-In Capital
Common Stock Issuance of Distributions in Reserve for
Shares Amount Common Stock Excess of Income Unrealized Losses
<S> <C> <C> <C> <C> <C>
BALANCE, JANURAY 1,
1993 4,156,000 $41,560 $46,703,781 $(3,094,363) $ ---
Net income --- --- --- 6,102,917 ---
Distributions to
shareholders ($1.50
per share) classified
as:
Dividends ($1.47 per
share) --- --- --- (6,102,917) ---
Return of capital --- --- --- (131,083) ---
($.03 per share) --------- -------- ----------- ----------- ---------
BALANCE, DECEMBER 31,
1993 4,156,000 41,560 46,703,781 (3,225,446) ---
Net income --- --- --- 3,975,315 ---
Distributions to
shareholders ($1.50
per share) classified
as:
Dividends ($.96 per
share) --- --- --- (3,975,315) ---
Return of capital
($.54 per share) --- --- --- (2,258,685) ---
Net unrealized losses --- --- --- --- (378,750)
--------- -------- ----------- ----------- ---------
BALANCE, DECEMBER 31,
1994 4,156,000 41,560 46,703,781 (5,484,131) (378,750)
Net loss as of June
30, 1995 --- --- --- (10,849,558) ---
Distributions to
shareholders ($.375
per share) classified --- --- --- (1,558,500) ---
as return of capital --- --- --- --- 378,750
Realized Losses --------- -------- ---------- ------------ ----------
BALANCE, JUNE 30, 4,156,000 $41,560 $46,703,781 $(17,892,189) $ ---
1995 ========= ======== =========== =========== ==========
<FN>
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
F-7
<PAGE> 34
RESORT INCOME INVESTORS, INC.
STATEMENTS OF CASH FLOWS
(HISTORICAL COST BASIS)
<TABLE>
<CAPTION>
Six Months
Ended
June 30, Years Ended
1995 1994 1993
<S> <C> <C> <C>
RECONCILIATION OF NET
(LOSS) INCOME TO NET CASH
FROM OPERATING ACTIVITIES:
Net (loss) income $(10,849,558) $3,975,315 $6,102,917
Allowance for impairment of
investment in loans and
accrued interest and
provision for collateral
protection costs 11,617,903 --- ---
Loss on investment
securities 251,250 697,658
Amortization of loan
origination fees --- --- (654,138)
Amortization of
organization costs --- --- 7,091
Changes in operating
assets and liabilities:
Interest receivable
from related parties 765,171 (900,066) 1,029,623
Prepaid expenses and
other (3,793) 97,235 5,784
Accounts payable and
accrued expenses 48,583 (98,220) 43,073
Due to investment --- (34,120) (24,972)
manager ------------ ------------ ------------
Net cash provided by 1,829,556 3,737,802 6,509,378
operating activities ------------ ------------ ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds of loan sale 6,250,000 --- ---
Demand loans funded (3,000,000) (21,250,000)
Receipt of principal pay-
ments on demand loans --- 580,000 ---
Purchases of investment
securities --- (6,374,695) ---
Sales of investment
securities --- 4,738,287 ---
Receipt of principal pay-
ments on mortgage --- --- 24,727,784
loans ------------ ------------ ------------
Net cash provided by (used 3,250,000 (22,306,408) 24,727,784
in) investing activities ------------ ------------ ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Distributions paid to (3,117,000) (6,234,000) (6,234,000)
stockholders ------------ ------------ ------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 1,962,556 (24,802,606) 25,003,162
CASH AND CASH EQUIVALENTS, 779,298 25,581,904 578,742
BEGINNING OF YEAR ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, $2,741,854 $779,298 $25,581,904
END OF YEAR ============ ============ ============
<FN>
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
F-8
<PAGE> 35
RESORT INCOME INVESTORS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. OPERATIONS OF THE COMPANY
Resort Income Investors, Inc. (the Company) was organized on July 20, 1988
as a twelve year, self-liquidating real estate investment trust (REIT), as
defined under the Internal Revenue Code. The Company was organized for the
purpose of enabling shareholders to participate in mortgage loans primarily to
affiliates of CBH secured by real property or other qualifying assets owned or
to be acquired for the development of luxury destination resorts. During 1991,
the Board of Directors amended the Company's general investment strategy such
that the Company would primarily make loans secured by real and personal
property for the development of gaming related enterprises. As of December 31,
1995, all of the Company's loans had been made to affiliates of the Company or
R.I.I. Advisors, the Company's investment manager, also an affiliate of the
Company.
In late June 1995, Christopher B. Hemmeter (CBH) primarily to affiliates
of CBH, then a director and officer of the Company, informed the Company that
interest and principal would not be paid when due on demand loans made by the
Company to him personally or to entities affiliated with him (the Affiliated
Borrowers) (See Note 5). Further, he informed the Company that he would not be
able to make timely payment of such interest and principal on behalf of the
Affiliated Borrowers pursuant to guarantees he had made in connection with the
Affiliated Borrowers' loans, thereby creating an event of default for each of
the loans. The affected loans constitute all of the demand loans to related
parties held by the Company, aggregating $36,605,000, of which CBH and his
wife, Patricia Hemmeter, are personally the borrowers of $15,000,000, and
Affiliated Borrowers are the borrowers of $21,605,000.
The Company announced on June 29, 1995, that it would commence an orderly
self-liquidation of the Company's assets over an estimated 24- to 36-month
period. The Company also announced a charge to income would be made in the
second quarter of 1995 in an amount that, in management's judgment, would be
adequate to absorb estimated losses related to the loan portfolio. The charge,
which includes allowances for losses on loans, interest receivable and the
reversal of certain accrued interest, was taken in the second quarter of 1995.
The amount of the charge was based on management's judgments regarding the
ability of CBH and the Affiliated Borrowers to repay such loans, and also
reflected management's judgments concerning to the extent that the estimated
realizable value of the Company's collateral would not provide for the recovery
of the Company's investment in the loans and accrued interest, in light of
CBH's inability to perform on his guarantees in a timely manner. In the third
and fourth quarter, the Company continued to evaluate the ability of CBH to
perform on his guarantees and the value of collateral underlying the Company's
loans and recorded additional charges for estimated losses. The Company's
independent directors have assumed responsibility for negotiations with CBH and
the Affiliated Borrowers to maximize the Company's recovery of its investment
in loans and accrued interest. Based on information provided to the
independent directors by CBH and the Affiliated Borrowers, the independent
directors reviewed CBH's financial condition, the financial condition of the
Affiliated Borrowers, the terms of the Company's loans, the collateral for
certain of the loans (including the existence of senior liens on certain of the
collateral), appraisals of certain of such collateral
F-9
<PAGE> 36
RESORT INCOME INVESTORS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
1. OPERATIONS OF THE COMPANY (CONTINUED)
and other information concerning the value of the other collateral, and other
factors, to determine the amount of the charges and in reaching the decision to
proceed with the liquidation of the Company's assets. See Note 3.
On August 8, 1995, CBH and Mark M. Hemmeter (MMH) resigned their positions
as executive officers and directors of the Company (see Note 6). The Company's
directors are currently negotiating with CBH and the Affiliated Borrowers
regarding the plans to recover the Company's investment in loans and accrued
interest. There is no assurance that the outcome of the negotiations will
result in actual liquidation proceeds consistent with the estimated liquidation
value of the Company's assets.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
Effective with the announcement of an intention to liquidate the Company,
the accounting basis used by the Company in preparing its financial statements
changed from historical cost to the liquidation basis of accounting. Therefore,
the December 31, 1995 statement of net assets and the statement of changes in
net assets in liquidation for the period from July 1, 1995 to December 31, 1995
have been presented on the liquidation basis. The December 31, 1995
statement of net assets reflects the Company's estimates of amounts expected to
be realized by its efforts to collect its investment in loans and accrued
interest, as well as other estimates about the recovery of assets and the
amounts of liabilities. While the estimates of the realizable amount of the
loans and accrued interest were based on an analysis of each loan, including
valuations by independent appraisers of certain of the collateral, there are
few directly comparable real estate properties that have been sold that can be
considered in preparing such estimates. The amounts the Company will
ultimately realize from liquidation of its assets could differ materially from
the amounts assumed in arriving at the estimates reflected in the December 31,
1995 statement of net assets.
The amount ultimately available for distribution to stockholders will
depend on a variety of factors in addition to the amounts realized from the
liquidation of assets, including the timing of the liquidation process and the
resolution of contingent liabilities. The amount distributed will likely
differ from the amount of net assets in process of liquidation presented in the
December 31, 1995 statement of net assets, and the difference could be
material.
The financial statements of the Company as of December 31, 1994 and 1993
and for the period ended June 30, 1995 were prepared on the historical cost
(going concern) basis. June 30, 1995 is used as the adoption date for
liquidation-basis accounting due to there being no material activity that
affected either the historical cost or liquidation basis financial statements
from June 29, 1995 to June 30, 1995 -- the impairment and other charges
discussed in Note 3 were recorded pursuant to historical cost accounting.
F-10
<PAGE> 37
RESORT INCOME INVESTORS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
(CONTINUED).
Cash and Cash Equivalents - For purposes of the statement of cash flows,
the Company considers all highly liquid debt instruments with a maturity of
three months or less at the time of purchase to be cash equivalents.
Investments - Effective January 1, 1994, the Company adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," (SFAS No. 115). SFAS No. 115 requires fair value
accounting for certain investments and securities. The Company's portfolio of
debt securities are classified as available for sale. There was no cumulative
effect as a result of implementing SFAS No. 115. The Company determines
realized gains or losses on sales of available-for-sale securities using the
specific identification method.
3. IMPAIRMENT OF LOANS, ACCRUED INTEREST AND REVENUE RECOGNITION
In June 1995, the Company charged operations with an allowance of
$11,617,903, consisting of $9,900,000 for the loan to CBH and $467,903 for
interest accrued as of December 31, 1994 but unpaid as of December 31, 1995
which has been deemed to be uncollectible. In addition, the Company charged
operations with $1,250,000 to establish an estimated liability for collateral
protection costs, including amounts that the Company many need to advance to
first-lien holders and others to protect the Company's collateral position
while the plan of liquidation is accomplished, which includes negotiations with
CBH and the Affiliated Borrowers. For the period July 1, 1995 through December
31, 1995, the statements of operations were charged with an additional
allowance of $14,700,000 consisting of $5,000,000 for the RCH Investments loan
reflecting an apparent reduction in market value of the Sint Maarten parcel
which serves as collateral, $2,600,000 for the loan to Canadian Pavilion
Limited Partnership reflecting uncertainty regarding the enforceability of the
lease serving as collateral for the Canadian Pavilion loan, $4,500,000 for the
loan to CBH reflecting an apparent reduction in market value of the real
property serving as collateral for the loan to CBH, based on recent offers to
buy such collateral for amounts less than were estimated as the net realizable
value at June 30, 1995, $1,600,000 for the loan to Outlaws reflecting market
value of the substituted property serving as collateral and $1,000,000 for the
loan to Hemmeter Enterprises, Inc. reflecting a market value of the substituted
property serving as collateral. Further, interest of $2,043,017 accrued during
1995 but unpaid as of December 31, 1995 was reversed by a charge against
interest income. As of December 31, 1995, $587,943 had been recorded against
this liability relating to expenses associated with the protection of the
Company's collateral. During the quarter ended December 31, 1995, the
$1,250,000 figure was reduced by $439,547 associated with the Company's
interest in the CBH loan as no further costs are required to protect the
Company's collateral position on this loan. The balance of this reserve at
December 31, 1995, $222,510, is included in accounts payable and accrued
expenses in the accompanying statement of net assets in liquidation and
represents management of the Company's estimate of the remaining costs
expected to be incurred in protecting the Company's collateral position.
F-11
<PAGE> 38
RESORT INCOME INVESTORS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
3. IMPAIRMENT OF LOANS, ACCRUED INTEREST AND REVENUE RECOGNITION (CONTINUED)
The accrual of interest on the Company's demand loans was discontinued
effective June 29, 1995 when it announced that it would commence an orderly
self-liquidation as a result of CBH's acknowledgement that interest and
principal would not be paid when due on demand loans made by the Company to him
personally or to the Affiliated Borrowers. See Note 1. Once a demand loan has
been placed in a non-accrual status, income is recorded only as cash payments
will be applied to the carrying amount of the loan. However, the Company
still intends to pursue its collection of all the principal and interest
contractually due from the Affiliated Borrowers.
F-12
<PAGE> 39
RESORT INCOME INVESTORS, INC.
NOTES TO CONDENSED FINANACIAL STATEMENTS (CONTINUED)
4. DEMAND LOANS TO RELATED PARTIES
Demand loans to related parties at December 31, 1995 and 1994 consist of
the following:
<TABLE>
<CAPTION>
Face
Borrower Interest Rate Maturity Carrying Amount 1995 Amount 1995
<S> <C> <C> <C> <C> <C>
(a) CPLP 26.00% Demand $ --- $2,600,000
(b) Outlaws 11.00% Demand or February 605,000 2,205,000
29, 1996
(c) MCTC 11.00% Demand or February 1,854,875 1,854,875
29, 1996
(d) RCH Investments 18.50% Demand 7,900,000 12,900,000
(e) CBH and Patricia 27.00% Demand 733,000 15,000,000
Hemmeter
(f) HEI 16.00% Demand 1,000,000 2,000,000
----------- -----------
$12,092,875 $36,559,875
=========== ===========
Reserve for Loan
Losses --- 24,467,000
----------- -----------
$12,092,875 $12,092,875
=========== ===========
<FN>
(a) On November 18, 1991, the Company made a demand note to Canadian
Pavilion Limited Partnership (CPLP), an affiliate of the Company. The
loan is collateralized by a subleasehold interest in the Canadian
Pavilion, located in New Orleans, Louisiana, and is personally
guaranteed by the former Chairman and Chief Executive Officer of the
Company. The note was modified in 1994 to increase the interest rate
by the "Additional Interest" as discussed below. On May 1, 1995, the
interest rate on the loan was increased to 26%, the default rate, as a
result of a monetary default per the terms of the loan agreement. The
balance of the loan as of December 31, 1995 was fully reserved and is
currently in demand. The loan is on non-accrual status as of December
31, 1995.
<FN>
(b) On February 11, 1992, the Company made two demand loans to borrowers
collectively known as the Outlaws, an affiliate of the Company. The
original amount of the borrowings aggregated $2,300,000. The loans
are collateralized by an assignment of the borrowers' partnership
interest and a mortgage of the underlying collateral subordinated by a
first mortgage in the amount of $2,752,633, and are personally
guaranteed by the former Chairman and Chief Executive Officer of the
Company. The note was modified effective November 1, 1995 increasing
the principal balance of the loan in the amount of $105,598, the
interest rate to 11% and extending the maturity date to February 29,
1996. A loan loss reserve in the amount of $105,598 was simultaneously
recorded by the Company due to uncertainty regarding its
collectibility. In addition, a loan loss reserve in the amount of
$1,600,000
F-13
<PAGE> 40
RESORT INCOME INVESTORS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
4. DEMAND LOANS TO RELATED PARTIES (CONTINUED)
was recorded during the fourth quarter of 1995 against the outstanding
carrying balance. The loan is on non-accrual status as of December
31, 1995.
<FN>
(c) On May 12, 1992, the Company made a demand loan in the amount of
$900,000 to Mideast China Trading Co. (MCTC) (formerly known as
Hemmeter Investment Company), an affiliate of the Company. The loan
is collateralized by a subleasehold mortgage in the International
Marketplace, located in Honolulu, Hawaii, a collateral assignment in
the borrower's interest as sub-sublessor, and is personally guaranteed
by the former Chairman and Chief Executive Officer of the Company. On
April 8, 1994, the Company funded an additional $1,000,000 demand
loan. Both loans were modified in 1994 to increase the interest rate
by the "Additional Interest" as discussed below. The note was modified
on November 1, 1995 by increasing its interest rate to 11%, extending
the maturity date to February 29, 1996 and eliminating the additional
rate on the loan. The borrower is current on all payment obligations
under the terms of the modified loan agreement; however, interest
payments received totaling $45,125 during 1995 by the Company are
being applied against the carrying amount of the loan.
<FN>
(d) The loan is collateralized by a second mortgage on a 28-acre parcel
bordering Simpson Bay Lagoon and the Caribbean Sea on the island of
Sint Maarten, Netherlands Antilles (the Property) and is personally
guaranteed for $5,900,000 by the former Chairman and Chief
Executive Officer of the Company. The borrower is an affiliate of the
Company and intends to develop the Property. Based upon the estimated
value of the underlying collateral, management does not anticipate a
loss on settlement of the loan. As a result of a monetary default
under the terms of the agreement, effective July 1, 1995, the Company
exercised its right to increase the interest rate on the loan and any
subsequent advances, at the default interest rate of 18.5% per annum.
A loss reserve in the amount of $5,000,000 was recorded during the
fourth quarter 1995 against the outstanding carrying balance. The
loan is on non-accrual status as of December 31, 1995.
<FN>
(e) On January 4, 1994, the Company made a demand loan to Christopher B.
Hemmeter (CBH), the Company's former Chairman and Chief Executive
Officer, in the amount of $12,900,000. In September 1994, an
additional $1,100,000 was extended under the loan. The loan was
secured by junior mortgages on certain residential properties in
Hawaii and California. The loan was modified in 1994 to release the
Hawaii residence as collateral effective January 3, 1995 and to
increase the interest rate by the "Additional Interest" as discussed
below. On May 2, 1995, the Company advanced an additional $1,000,000
to CBH. The interest rate on the additional $1,000,000 is 23% per
annum, 10% per annum of which is to be payable upon maturity or
earlier prepayment of the additional $1,000,000 loan. During 1995, a
total allowance of approximately $14,300,000 was recorded against
the carrying value of the loan. The loan is on non-accrual status as
of December 31, 1995. Subsequent to December 31, 1995, the
Company received approximately $733,000 as a partial repayment of the
loan from the sale of the California residences that were collateral
of the loan.
<FN>
(f) During the second quarter of 1995 the Company made a loan to Hemmeter
Enterprises, Inc. ("HEI") in the amount of $2,000,000. The loan to
HEI bears interest at the rate of 12% per annum and is secured by
interest in and liens upon certain real and personal property owned by
HEI and the personal guaranty of CBH. On November 7, 1995, HEI filed
for protection under Chapter 11 of the United States Bankruptcy Code.
The Company believes the loan to HEI will be recoverable in 1996,
however, there is no assurance of such recovery. As a result of a
default under the terms of the loan agreement, effective May 1, 1995,
the Company exercised its right to increase the interest rate on the
loan at the default interest rate of 16% per annum. A loss reserve in
the amount of $1,000,000 was recorded during the fourth quarter 1995
against the outstanding carrying balance. The loan is on non-accrual
status as of December 31, 1995.
</TABLE>
F-14
<PAGE> 41
RESORT INCOME INVESTORS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
4. DEMAND LOANS TO RELATED PARTIES (CONTINUED)
Aggregate loan maturities at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
<S> <C>
1996 (demand) $ 9,633,000
1996 2,459,875
1997 ---
1998 -----------
Total $12,092,875
===========
</TABLE>
5. INCOME TAXES
The Company has qualified in 1995, 1994 and 1993 as a REIT, as defined,
under Sections 856 through 860 of the Internal Revenue Code. In order to
continue to qualify, the Company is required to distribute at least 95% of its
taxable income to shareholders and meet certain other requirements. Under the
Internal Revenue Code, qualifying REITs are relieved of income taxes on
earnings distributed to shareholders. Differences exist between financial and
income tax reporting of mortgage loan origination fees and certain other items.
6. LITIGATION
On July 3, 1995, a complaint was filed against the Company, CBH, MMH and
Deloitte & Touche LLP, the Company's independent auditors, in U.S. District
Court for the District of Colorado alleging violations of Sections 10(b) and
20(a) of the Securities Exchange Act of 1934 and other provisions of Federal
law and the rules promulgated by the Securities and Exchange Commission,
"Sarnoff v. Resort Income Investors, Inc., et al., Doc. No. 95 B 1665." On
August 24, 1995, a second suit alleging similar violations was filed in the
U.S. District Court for the District of Colorado against each of the defendants
in the lawsuit described earlier, as well as Daniel D. Lane, (DDL), Christopher
R. Hemmeter (CRH), Gregory Hooper (GH) and John R. Young (JRY), "Contract v.
Resort Income Investors, Inc., et al., Doc. No. 95 B. 2184." In November,
1995, the two actions were consolidated. On November 27, 1995, plaintiffs
moved to have the consolidated actions certified as a class action for
investors who purchased or acquired stock in the Company between March 31, 1993
and June 29, 1995. On December 6, 1995, the plaintiffs filed a consolidated
amended complaint seeking to prosecute the suit as a class action. On January
16, 1996, the defendants moved to dismiss the consolidated amended complaint.
On February 29, 1996, the defendants filed opposition papers to plaintiffs'
motion for class certification. The consolidated amended complaint seeks an
unspecified amount of actual damages and reimbursement of costs and expenses.
F-15
<PAGE> 42
RESORT INCOME INVESTORS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
6. LITIGATION (CONTINUED)
No assessment of the likelihood of any loss can be made at this time.
However, the Company intends to defend against the charges. Pursuant to the
Company's by-laws and Delaware law, the Company will advance CBH's, MMH's,
CRH's, GH's, DDL's and JRY's costs of defense in this matter. No estimates can
reasonably be made at this time of the costs of defense of the Company, CBH,
MMH, CRH, GH, DDL and JRY.
In June 1995, two derivative actions were filed in the Court of Chancery
of the State of Delaware in and for New Castle County, "Alpert v. Hemmeter et
al., Doc. No. 14389," and "Frank, et al. v.
Hemmeter et al.," Doc No. 14413. The Company is a nominal defendant in each of
these cases. The defendants in both cases are: CBH, MMH, DDL and JRY. The
complaints purport to allege that the officers and directors breached their
fiduciary duties to the Company, wasted Company assets and that CBH stood in a
conflict of interest position. The complaints have now been consolidated. The
defendants have moved to dismiss the consolidated derivative action for failure
to comply with the requirements of Delaware law. Pursuant to the Company's
by-laws and Delaware law, the Company will advance to the individual defendants
their defense costs. No estimate can reasonably be made at this time of the
costs of defense. Both complaints pray for unspecified damages.
On October 25, 1995, the Enforcement Division of the Securities and
Exchange Commission (the "Commission") issued a formal order of investigation
captioned In the Matter of Resort Income Investors, Inc., Case No. HO-5327. In
connection with the investigation, the Company was requested to produce certain
documents and information. The Company has complied with these requests. The
Company has been advised that the investigation should not be construed as an
indication by the Commission or its staff that any violation of law has
occurred, nor as a reflection upon any person, entity, or security. The
Company cannot, at this time, predict the outcome of the investigation or the
financial impact, if any, to the Company.
The Company is a defendant in litigation pending in the Civil District
Court for the Parish of Orleans, State of Louisiana, The Venture International
Group v. C.C. Partners Corp., Canadian Pavilion Limited Partnership, Resort
Income Investors, Inc., the City of New Orleans and The Ernest N. Morial New
Orleans Exhibition Hall Authority, Case No. 93-870. The plaintiff alleges that
the Company, along with the other defendants, caused the plaintiff to sell its
rights and interests to certain water-front property located in New Orleans,
Louisiana. This property was subject to the loan made by the Company to
Canadian Pavilion Limited Partnership. The Company is alleged to have assisted
its Affiliated Borrower in obtaining the property for less than 50% of its fair
value by providing the financing for the acquisition and failing to timely
record its mortgages on the property. The Company has filed a motion to
dismiss the complaint for failure to state a claim. The Company and the
plaintiff are engaged in active settlement discussions in an attempt to resolve
the claims against the Company.
F-16
<PAGE> 43
7. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
First Quarter Second Quarter Third Quarter (1) Fourth Quarter (1)
<S> <C> <C> <C> <C>
1995:
Total Revenues $1,913,146 $(283,528) $ --- $ ---
Operating Expenses 143,036 718,237 --- ---
Allowance for Impairment
of Investment in Loans
and Accrued Interest
and Provision for
Collateral Protection
Costs --- 11,617,903 --- ---
Net Income (Loss) 1,770,110 (12,619,668) --- ---
Net Income Per Share
(Loss) 0.43 (3.04) --- ---
1994:
Total Revenues $1,046,962 $1,286,488 $1,266,465 $1,845,665
Operating Expenses 220,072 215,782 158,469 178,284
Net Income 826,890 397,127 1,107,996 1,643,302
Net Income Per Share 0.20 0.10 0.26 0.40
</TABLE>
(1) Beginning with the third quarter of 1995, the Company adopted the
liquidation basis of accounting and during the third and fourth quarters
of 1995 the Company realized income and investments gains of $31,725 and
$172,369, respectively; recorded impairments of $5,550,000 and $8,577,453,
respectively; and incurred operating expenses of $339,964 and $1,378,892,
respectively.
F-17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
"This schedule contains summary financial information extracted from Resort
Income Investors, Inc.'s 10K for the year ended December 31, 1995 and is
qualified in its entirety by reference to such Form 10K."
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 846,768
<SECURITIES> 797,501
<RECEIVABLES> 36,559,875
<ALLOWANCES> 24,467,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,644,269
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 13,210,937
<CURRENT-LIABILITIES> 687,793
<BONDS> 0
0
0
<COMMON> 13,210,937
<OTHER-SE> 13,210,937
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 1,723,711
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 23,325,485
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 25,745,356
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (26,491,773)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,491,773)
<EPS-PRIMARY> (6.37)
<EPS-DILUTED> (6.37)
</TABLE>
