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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended June 30, 1996.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commissioner file number: 0-19852
GREAT AMERICAN HOTELS & RESORTS, INC.
(Name of small business issuer in its charter)
Georgia 58-1956846
(State or other jurisdiction of (IRS employer identification number)
incorporation or organization)
3300 Holcomb Bridge Road, Suite 290, Norcross, Georgia 30092
(Address of principal executives' offices) (Zip code)
(770) 798-8500
(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Title of Class: Class A Common Stock, no par value.
Check whether the issuer (1) filed all reports to be filed by Section 13 or
15(d) of the Exchange Act during the past 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 No X .
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Check if there is no disclosure of delinquent filers in response to item 405 of
Regulation S-B in this form, and no disclosure will 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-KSB or any other amendment
to this form 10-KSB [ ]
State the issuer's revenues for it's most recent fiscal year: $ 923,797.
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked price of some stock, as of a specified date within the past 60
days: As of August 31, 1997 - $ 2,359,335.
State the number of shares outstanding of each issuer's classes of common
equity, as of the latest practicable date: As of August 31, 1997 - Class A
Common Stock, no par value - 2,906,525 shares; Class C Common Stock, no par
value - 200,000 shares.
Documents incorporated by reference: None.
Traditional Small Business Disclosure Format (check one): Yes X . No
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Exhibit index on consecutive page 13
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ITEM 1. BUSINESS
General Development / Description of Business
Great American Hotels & Resorts, Inc., formerly Great American Resorts,
Inc. (the "Company"), is engaged in the business of purchasing, developing and
managing properties in the overnight resort rental market in areas throughout
the world. Through it's subsidiaries, the Company now owns a majority
percentage in and manages five hotel/resort properties and two undeveloped
tracts of land.
The Company was organized under the laws of the State of Georgia in July
1991. The Company completed an initial public offering in February 1992, selling
133,333 Units for gross proceeds of $400,000 and net proceeds of $374,746. Each
unit consisted of 1 share of Class A Common Stock, 3 Class A Warrants, 3 Class B
Warrants, 3 Class C Warrants, 3 Class D Warrants and 3 Class E Warrants. The
Company called all of the Warrants for exercise and realized gross proceeds of
$2,934,500. In June 1993, the Company effected a 1 for 2 reverse stock split
of its Class A Common Stock. In June 94, the Company effected a 2 for 3 reverse
stock split of all of it's Class A Common Stock. All per share amounts herein
have been restated to reflect the effects of both reverse stock splits.
The Company currently employs approximately 120-150 individuals, depending on
season. Six individuals are employed by the "parent" company and the remainder
by the hotels/resorts in the Company's subsidiaries. The Company expects to use
brokers, contractors, attorneys, accountants, consultants and rental agents as
necessary.
Government approval is not needed for any of the products or services of the
Company. During the last two fiscal years, the Company has not spent
significant amounts on research and development, or to be in compliance with
environmental laws. However, approval to subdivide and develop the raw land
held by the Company is required by the local authorities. The Company is
currently in compliance with all environmental laws.
Financial Information About Industry Segments
Hotel/Resort Business
The Company's business currently consists of five hotel/resort properties
and two undeveloped tracts of land. The first resort, located near Gatlinburg,
Tennessee, consists of seven mountain chalets. Another property is the 108-room
hotel/casino located in Reno, Nevada. Two of the properties are located in Vero
Beach, Florida, a 114 room "Days Inn" and restaurant and a 115 room "Super 8"
inn. The Company also has a property located in Orlando, Florida near Universal
Studios; a 56 room limited service inn. Additionally, the Company owns 105
acres of undeveloped land in Maui, Hawaii and 12.4 acres of undeveloped land
near Killarney, Ireland. See "Description of Properties" for additional detail
on all of the properties.
Broker/Dealer Business
In July 1995, the Company sold all of the common stock of Great American
Financial Network, Inc. ("GAFN") for $150,000. The estimated loss on disposal of
the segment was calculated as of the measurement date and includes estimated
losses from operations through the disposal date of $87,181 and a loss on sale
of the net book value of GAFN of $133,153. As of that date, the Company is no
longer in the securities brokerage business.
"Classic" Merger and Spin-off of Casinos International, Inc.
In June 1995, the Company and Casinos International, Inc. ("Casinos"), a
former owned subsidiary of the Company, entered into an Agreement and Plan of
Share Exchange, as amended in September 1995 with Classic Restaurants
International, Inc. Under the Agreement, Casinos agreed to acquire all of the
issued and outstanding common stock of Classic by issuing 1 shares of its Class
A Common Stock and Class A Preferred Stock of Classic and 1 share of its Class B
Common Stock for each share of Class B Common Stock of Classic. Simultaneously
with the acquisition of Classic, Casinos conveyed all of its interest in Great
American Casinos, Inc., a Nevada corporation (which owns the Reno hotel/casino),
to the Company in return for its common stock interest in Casinos, cancellation
of any intercompany claim and a mutual release of liability. In addition, two
Directors of Casinos, Dr. Edward L. Bates and James Herbic, agreed to return any
shares of stock which they own in Casinos to Casinos for cancellation as a part
of the transaction. As a result of the transaction, the Company no longer has
any interest in Casinos, however it has 100% ownership of the Reno hotel/casino
through its ownership of Great American Casinos, Inc. During the fiscal year
1996, the Company recognized a $273,261 extraordinary gain from extinguishment
of debt from this transaction.
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Sale of Hilton Head Condominiums
During fiscal 1996, the Company sold 22 of its 23 condominiums located in Hilton
Head, South Carolina for net proceeds of $2,244,460. The Company recognized a
$467,147 gain from the sale. Subsequent to June 30, 1996, the Company closed on
the sale of the last condo for $112,925, which resulted in a gain of
approximately $23,000.
ITEM 2. DESCRIPTION OF PROPERTY
Gatlinburg Property
The Gatlinburg resort property consists of seven chalets constructed by the
Company in 1992. The chalets are on 10.85 acres of land located approximately 2
miles from downtown Gatlinburg Tennessee. Each chalet is approximately 1,000
square feet in size and has a whirlpool tub, a hot tub on the exterior deck,
fireplace, cathedral ceiling, king-size bed, full bath and kitchen. Through a
subsidiary, the Company has a 100% interest in the chalets of Gatlinburg. The
chalets are currently encumbered by a $300,000 mortgage.
For the year ended June 30, 1996, the chalets generated gross revenues of
$265,000. Occupancy for the year ran approximately 89%. The rates for the
chalets range from $99-$150 per night depending on the season and number of
bedrooms in the unit. The chalets are managed locally at a cost ranging from 40
to 45% of gross revenues. The Company believes that for the region and level of
service received, this is a competitive management agreement.
The Gatlinburg region continues to grow in popularity with tourists. The Company
will continue to push the daily rates upward and investigate the feasibility of
constructing additional units on the property.
Office Building
In March 97, the Company sold the office building located in Norcross,
Georgia. The Company originally acquired the building in January of 1994.
Residual proceeds from the sale were used to reduce the Company's debt and
provide a portion of the down payment for the acquisition of the Vero Beach
properties.
Killarney, Ireland (undeveloped land)
In October 1994, the Company purchased a tract of land near Killarney,
Ireland. The tract is approximately 12.4 acres in size and was purchased with
the intent of developing and constructing a resort facility. As the land is not
developed, it is currently not insured, also, under Irish law, undeveloped land
is not taxed.
The Company has retained an Irish architect who has developed plans for the
resort. The Company hopes to apply for planning approval in late 1997 or early
1998.
Reno Hotel/Casino
On January 20, 1995, the Company through Casinos acquired the Reno
hotel/casino, which is located in the downtown area of Reno, Nevada. The
structure is a ten-story, 108-room hotel with a casino, cabaret, pool and
restaurant and lounge facility. The aggregate cost of the Reno hotel/casino was
$4,053,345, which included a contract price of $3,750,000 and closing costs of
$303,345. The contract consisted of assumption of a note payable to a bank in
the principal amount of $1,944,804, the execution of a promissory note payable
to BNC for $1,055,196 and cash of $750,000. The acquisition has been accounted
for as a purchase and, accordingly, the acquired assets and liabilities were
recorded at their estimated fair market value at the date of acquisition.
Through a subsidiary, the Company has a 100% interest in the Reno hotel/casino.
A first mortgage of $1,922,265 and a second mortgage of $800,903 encumber the
Reno Hotel.
For the year ended June 1996, the Reno hotel/casino generated gross revenues of
$570,000. Occupancy for the year ran approximately 26%.
The economy in Reno is once again gaining momentum. The Company has recently
signed an agreement to operate the Hotel as a "Howard Johnson's" brand. This
new "flag" and access to a reservations system should result in increased
occupancies and revenues.
Ulupalakua, Maui, Hawaii (undeveloped land)
Effective September 1996, the Company purchased approximately 105 acres of
undeveloped land in Maui, Hawaii for $1,005,000. The land is located
approximately 4 miles from LaPerouse Bay in the "upcountry" area of Maui. Once
the land is subdivided and clear title obtained, the Company plans to sell the
individual lots. A note of $833,000 to the sellers encumbers the land.
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The Company has retained local counsel to assist with the clearing of title and
the subdivision of the land.
Vero Beach, Florida
In May 1997, the Company acquired an interest in two hotels, located near
the intersection of I-95 and State Route 60 in Vero Beach, Florida. The hotels
are situated on an 8.49-acre tract of land. Both structures are two-story
exterior corridor designs. One structure has 114 guestrooms and is currently
being operated as a "Days Inn". The other structure has 115 guestrooms and is
currently operated as a "Super 8". The Company also operates the 160-seat
restaurant on the property. Through a subsidiary, the Company has an 80%
interest in this property. The purchase price was $1,188,590 in cash,
$3,233,091 in mortgages and notes payable and $480,122 in acquisition costs.
The acquisition was recorded using the purchase method of accounting by which
the assets are valued at fair market value at the date of acquisition. As of
August 1997, a first and second mortgage of $1,977,590 and $420,000 encumber
both hotels.
Orlando, Florida
In June 1997, the Company acquired an interest in a limited service hotel
located near the "Universal Studios" main gate in Orlando, Florida. The hotel
is a three-story structure (constructed in 1994 on 1.04 acres) containing 56-
guestrooms, swimming pool, jacuzzi and surface parking. As this is a "limited
service" property, there is no restaurant or lounge on site. Through a
subsidiary, the Company has a 75.25% interest in this property. The purchase
was $451,016 in cash, $350,000 in note payable and $242,789 in acquisition
costs. The acquisition was recorded using the purchase method of accounting by
which the assets are valued at fair market value at the date of acquisition. As
of August 1997, the property is encumbered by a first mortgage of $1,624,920.
Office Space
The Corporate Offices of Great American Hotels & Resorts, Inc. are located in
Norcross, Georgia. The Company currently has 2,000 square feet of leased office
space at a cost of $2,261 per month. The Company entered into the three-year
lease in May 1997.
ITEM 3. LEGAL PROCEEDINGS
The Company received a letter dated March 14, 1994 from Vacations
Invitations, Inc. (VII) threatening immediate legal action against the Company
relating to the Company's alleged use of a customer list which VII believed was
improperly taken from it. The Company responded to the letter denying the
allegations of VII, and specifically pointing out that VII had voluntarily
provided the Company with the names on its customer list. On October 17, 1994,
VII and Kegley Travel Network (KTN), which is affiliated with VII, filed a
lawsuit in the Superior Court of Gwinnett County, State of Georgia, against the
Company, Schneider Securities, Inc., and four employees of the Company, Gayle
Banes, James Wilcox, Dr. Edward Bates and Robert Christian. The complaint
alleges that the defendants conspired to convert and did convert confidential
information from the plaintiffs, misappropriated trade secrets of the plaintiffs
and interfered with the business of the plaintiffs. The complaint seeks damages
in excess of $1,000,000, as well as injunctive relief preventing the defendants
from using the trade secrets of the plaintiffs and from contacting any employee
or distributor of the plaintiffs for any reason. Subsequent to the filing of
this lawsuit, VII and KTN both filed for relief under Chapter 11 of the
Bankruptcy Code, and a trustee has been appointed in each of their cases. The
trustee for VII and KTN has filed an application to abandon the lawsuit to the
principal shareholder of VII and KTN, who has dismissed the lawsuit with
prejudice.
On November 17, 1995, RRR, INC. d/b/a MAXimum Resort Rentals, Inc., filed a
lawsuit in the Beauford County, South Carolina against the Company. The
plaintiff was retained by the Company to manage the Company's cottages (sold
fiscal 1996) located in Hilton Head, South Carolina. The lawsuit alleges that
the Company breached its agreement with the plaintiff when the Company entered
into agreements to sell the cottages. The lawsuit seeks actual damages of
$3,000,000 plus unspecified punitive damages. The Company believes this lawsuit
is without merit and intends to defend it vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the shareholders of the
Company during the quarter ended June 30, 1996.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of the Company has been trading in the over-the-counter
market since April 1992 and the trading prices are listed on the OTC Bulletin
Board. The following table sets forth the range of high and low bid quotations
for each quarter during the three most recently completed fiscal years. These
quotations are inter-dealer prices, without retail markup, markdown or
commissions and do not necessarily represent the actual transactions.
Bid Prices:
Fiscal Quarter Ending High Low
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June 30, 1994 $6.50 $4.25
September 30, 1994 $6.50 $4.50
December 31, 1994 $7.00 $3.75
March 31, 1995 $6.25 $4.00
June 30, 1995 $6.25 $4.00
September 30, 1995 $4.75 $3.75
December 31,1995 $4.00 $3.50
March 31, 1996 $3.75 $3.38
June 30, 1996 $3.68 $3.38
September 30, 1996 $3.63 $3.00
December 31, 1996 $3.12 $1.00
March 31, 1997 $1.75 $1.00
June 30, 1997 $1.81 $1.06
The market makers for the Company are Wm. V. Frankel & Co., First Equities
Corporation and NAIB Trading Corp.
On August 31, 1997, there were 621 record holders of the Company's Class A
Common Stock.
The Company has not paid or declared any cash dividends and does not anticipate
paying dividends in the foreseeable future. It is expected that any future
income will be retained by the Company for the development of its business. The
Company is not contractually precluded or restricted from paying dividends.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
Liquidity and Capital Resources
The Company has suffered recurring losses from operations and negative cash
flow from operating activities that raise substantial doubt about its ability to
continue as a going concern (See "Plan of Operation"). The Company's working
capital at June 30, 1996 was a surplus $284,800, as compared to a deficit of
($7,300) at June 30, 1995. Working capital increased by $292,100 for the year,
as the proceeds from the sale of the cottages were kept liquid in anticipation
of a possible property acquisition while current liabilities increased minimally
for the year. The Company anticipates that it will need substantial capital to
fund its operations and business plan which includes: further renovations to the
Reno hotel/casino, the completion of the purchase of the Vero Beach and Orlando
properties, subdividing the property in Maui, Hawaii, developing the land in
Ireland and the acquisition of three additional hotels. The Company believes
that it will have sufficient cash to fund its operations and business plan from
the improved results of the Gatlinburg chalets, management fees from the Vero
Beach and Orlando properties, distributions from the Vero Beach and Orlando
properties and the proceeds of the sales of securities in private placements.
Results of Operations
For the year ended June 1996, the Company incurred a loss from continuing
operations of ($1,500,188), and an extraordinary gain of $273,261 for a total
net loss of ($1,226,927). Rental revenues totaled $836,527, an increase of
34.4% over the prior year. The increase is a result of increased rates along
with more rooms available as 12 months of the Reno hotel/casino are contained in
this years results as opposed to 6 months for the prior year (Reno was acquired
in January 1995). Direct rental expenses, excluding depreciation, exceeded
rental revenues by $234,581. This was partially due to the renovation of the
Reno property during the year resulting in reduced revenues while basic
operating expenses at the property continued to be incurred. With the majority
of the renovations now complete in Reno, the Company will be focusing on
implementing new management and marketing strategies in an effort to bring the
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hotel/casino to a break-even position. The Company recognized a $467,147 gain
from the sale of 22 of its 23 cottages in Hilton Head, South Carolina. The
cottages were sold to reduce the overall indebtedness of the Company and provide
funds for additional acquisitions. During fiscal 1994, the Travel subsidiary
produced an infomercial to sell the "Travel Card". The infomercial was later
deemed unprofitable by management and discontinued. As a result, all costs
associated with the production, $142,013, were immediately charged to the
Statement of Operations for the year ended June 30, 1995. The Company
experienced a decrease in salaries and wages of $94,155 as activity in the
Travel subsidiary declined and measures were taken to reduce overhead expenses.
Interest expense for the year totaled $646,704, an increase of 98% over the
prior year. The major contributor to the increase is the additional interest on
the Reno property of which six months was reflected in the prior year (acquired
January 1995) and twelve months is reflected in the current year.
For the year ended June 1995, the Company incurred a loss from continuing
operations of ($989,767), and a loss from discontinued operations of ($577,981)
for a total loss of ($1,567,748). The loss from discontinued operations
resulted from the Company's disposition of the Company's financial services
subsidiary, Great American Financial Network, Inc. in July 1995. The Company's
real estate operations generated rental revenues of $622,491, which covered
direct expenses. Revenues from the sales of "Travel Cards" totaled $1,209,713,
which were substantially higher than the prior year due to the Company's Far
East distributorship agreement with Golden Hollywood, Ltd. (GHL). The agreement
with GHL expired September 30, 1995. In addition, the Company recorded a
provision for doubtful accounts of $537,000 for amounts not paid by GHL under
the contract. Interest expense for the year totaled $326,006.
Analysis of Cash Flows
The Company continued to meet its cash obligations despite a total net loss
of ($1,226,927) for fiscal 1996. Proceeds of $2,037,601 from the sale of
cottages in Hilton Head along with net proceeds from the sale of the Company's
securities of $899,250 and proceeds of $1,266,000 from mortgage notes payable
and long-term debt enabled the Company to meet its debt reduction requirements
and operating expenses. The Company also realized proceeds of $150,000 from the
sale of its stock in GAFN. Renovation costs for the Reno property totaled
$451,654 for the year. The Company also incurred costs of $419,923 related to
the possible acquisition of additional properties, which has been recorded as an
asset on the books.
Plan of Operation
The Company has taken a number of steps to improve its operation and cash
flow. First, the Company has made significant changes to the management team by
hiring Mr. David Potts, CHA, to serve as the Chief Operating Officer and Mr. Rob
Turner, CPA, to serve as Chief Financial Officer. These additions to the
Company's management team should enable the Company to better implement its long
term business plan by improving the performance of existing properties,
assisting with new acquisitions and providing the financial information needed
to facilitate the process.
Second, the Company continues to make efforts to improve the performance of the
Reno hotel/casino. In June 1997, the Company signed an agreement to operate the
property as a "Howard Johnson's" brand hotel. The Company believes that the new
"flag" along with access to a centralized reservation system will result in
increased occupancies and rates. Significant management changes are currently
being made at the property level in an effort to improve the level of customer
service and the general operation of the property. The Company has also
initiated discussions with the first mortgage holder to renegotiate the terms of
the mortgage, hence freeing up additional funds for completion of the
renovations and other improvements needed to be in compliance with Howard
Johnson's standards.
Third, the Company will continue its effort to achieve maximum rates and
occupancy levels in the Gatlinburg chalets. The chalets of Gatlinburg continue
to operate successfully, generating positive cash flow of approximately $5,000
per month. The Company plans to investigate the feasibility of adding
additional chalets as cashflow permits.
Fourth, the acquisition of the Vero Beach and Orlando properties, during May and
June 1997, should provide additional cashflow for the Company in the form of
management fees and cash distributions made in accordance with the Company's
ownership percentage. The "season" for the two properties begins in December
and runs through April. Cashflow from the properties will be used for debt
service, operating expenses and additional acquisitions.
The Company, however, continues to be dependant upon the receipt of proceeds
from the sale of its securities to cover its operating expenses, including
general and administrative expenses, and to provide the funds for the further
expansion and development of its resort property business. The Company has an
investment banking agreement with its former Broker/Dealer subsidiary to assist
it in raising the capital to fund its business plan. If the Company were to
experience a decrease in the amount of proceeds from the sales of securities, it
would be forced to reduce operating expenses and its development and acquisition
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activity. The Company has already taken actions to reduce professional fees and
overhead expenses, which should be reflected in the operating results of future
periods. With the exception of ordinary minor capital expenditures at the
property level, the Company currently has no outstanding capital commitments.
The Company will continue to explore additional expansion alternatives while
increasing revenues and reducing expenses at its existing properties and
businesses.
The Company has deferred tax assets with a 100% valuation allowance at June 30,
1996. Management is not able to determine if it is more likely than not that
the deferred tax assets will be realized.
Recent Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") recently issued Statement of
Financial Accounting Standard No. 121, "Accounting for the Impairment of Long-
Lived Assets", Statement of Financial Accounting Standards No. 123, "Accounting
for Stock Based Compensation", Statement of Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128"), and Statement of Financial Accounting
Standards No. 129, "Disclosure of Information About an Entity's Capital
Structure" ("SFAS 129"). SFAS 121 requires that long-lived assets and certain
identifiable intangibles be reported at the lower of carrying amounts or their
estimated recoverable amount. The adoption of this statement by the Company is
not expected to have an impact on the financial statements. SFAS 123 encourages
the accounting for stock based employee compensation programs to be reported
within the financial statements on a fair value based method. If the fair value
based method is not adopted, then the statement requires proforma disclosure of
net income and earnings per share as if the fair value based method has been
adopted. The Company has not yet determined how SFAS 123 will be adopted nor its
impact on the financial statements. SFAS 128 provides a different method of
calculating earnings per share than is currently used in accordance with
Accounting Board Opinion ("APB") No. 15, "Earnings per share". Basic earnings
per share includes no dilution and is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflect the potential dilution of
securities that could share in the earnings of an entity, similar to fully
diluted earnings per share. SFAS 129 establishes standards for disclosing
information about an entity's capital structure. SFAS 121 and SFAS 123 are
effective for fiscal years beginning after December 15, 1995. SFAS No. 128 and
SFAS 129 are effective for financial statements issued for periods ending after
December 15, 1997. Implementation of SFAS 128 and SFAS 129 are not expected to
have a material effect on the consolidated financial statements.
In June 1997, FASB issued Statement of Financial Accounting Standard
No. 130 "Reporting Comprehensive Income" ("SFAS 130") and Statement of Financial
Accounting Standard No. 131 "Disclosures about Segments of an Enterprise and
related Information" ("SFAS 131"). SFAS 130 establishes standards for reporting
and display of comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except those
resulting from investments by owners and distributions to owners. Among other
disclosures, SFAS 130 requires that all items that are required to be recognized
under current accounting standards as components of comprehensive income be
reported in a financial statement that displays with the same prominence as
other financial statements. SFAS 131 supersedes Statement of Financial
Accounting Standard No. 14 "Financial Reporting for Segments of a Business
Enterprise." SFAS 131 establishes standards of the way that public companies
report information about operating segments in annual financial statements and
requires reporting of selected information about operation segments in interim
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. SFAS 131 defines operating segments as components of a company about
which separate financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate resources and in
assessing performance.
SFAS 130 and SFAS 131 are effective for financial statements for periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. Because of the recent issuance of these
standards, management has been unable to fully evaluate the impact, if any, the
standards may have on future financial statement disclosures. Results of
operations and financial position, however, will be unaffected by implementation
of these standards.
ITEM 7. FINANCIAL STATEMENTS
Please refer to pages beginning with F-1.
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ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The names of the Officers and Directors of the Company, and certain
information about them is set forth below:
Beginning of Term of
Name Age Positions Held Service
- ---- --- -------------- --------------------
Dr. Edward L. Bates 41 President, March 1994, Officer
Chairman, Board of Directors March 1994, Director
David C. Potts 43 Chief Operating Officer May 1997, Officer
Rob A. Turner 34 Chief Financial Officer July 1997, Officer
Teresa A. Bates 39 Secretary / Treasurer, July 1991, Officer
Director
William A. Whitehead 70 Director October 1993
James R. Shaw 44 Director March 1997
Dr. Edward L. Bates has been the President and Director of the Company
since March 1994. Dr. Bates has served at various firms in the securities
industry since 1988 including Great American Financial Network, Inc., Schneider
Securities, Inc., Pacific Southern Securities, Inc., Pacific Rim Securities,
Inc., Power Securities, Inc., and Painewebber. Between 1975 and 1988, he served
as a minister in several churches. Dr. Bates received his Doctor of Ministry
degree from the Columbia Theological Seminary in Decatur, Georgia in June 1988.
He received his Master of Divinity degree from the Southern Baptist Theological
Seminary in Louisville, Kentucky in May of 1982. He received his Bachelor of
Arts degree from Georgetown College in Georgetown, Kentucky in May 1978. Dr.
Bates is the husband of Teresa A. Bates and is a licensed securities broker.
Mr. David C. Potts, CHA, accepted the position of Chief Operating Officer
of the Company in May 1997. Mr. Potts has over twenty years of experience in
the hospitality and restaurant industries. He has served in numerous
hospitality organizations including Holiday Inn, Ramada, Days Inn, Best Western
and Super 8. Since 1990, Mr. Potts has served as the General Manager for the
250 room Holiday Inn in Baymeadows, Florida and as Manager of the food and
beverage outlets within the facility. Under his leadership, the property has
shown continual improvements in profitability as well as customer service. Mr.
Potts graduated from Tennessee Technical University in 1977 with a Bachelor of
Science degree. Additionally, he has earned the designation of Certified Hotel
Administrator.
Mr. Rob A. Turner, CPA, joined the Company as Chief Financial Officer in
July 1997. Mr. Turner served at the global headquarters for Holiday Inn
Worldwide for six years. During that time he held a variety of positions
including Manager of the Hotel Accounting Department and Manager of Accounting
and Controls for the Hotel Division. Prior to his tenure at Holiday Inn, he was
an Associate with a Public Accounting firm in Atlanta, Georgia. Mr. Turner
received a B.B.A. in Accounting from Kennesaw State University in 1987.
Additionally, he obtained the designation of Certified Public Accountant in
1990.
Teresa A. Bates has been the Secretary, Treasurer and Director since the
Company's inception. Since July 1992, Mrs. Bates has worked full time for the
Company. From 1991 through 1992, Mrs. Bates worked part-time for the Company
while providing consulting services in the area of nursing to various
universities, schools and organizations. From 1989 through 1991, Mrs. Bates was
the Health Coordinator at Georgia State University in Atlanta, Georgia. From
1981 through 1989, Mrs. Bates served several organizations in the nursing field
in various
8
<PAGE>
capacities. Mrs. Bates received her Bachelor of Science in Nursing degree in
1980 from Spalding College in Louisville, Kentucky and a Master of Science in
Nursing degree in 1988 from the Medical College of Georgia.
Mr. William A. Whitehead has been a Director of the Company since 1993. He
has been in retirement since 1990. From 1950 through 1990, Mr. Whitehead worked
as head of the technical section for Proctor and Gamble in Cincinnati, Ohio.
Mr. Whitehead serves the Company only as a Director.
Mr. James R. Shaw has been a Director of the Company since March 1997. Mr.
Shaw is the President of Classic Restaurants International, Inc. Classic is the
company, which merged with the Company's former subsidiary, Casinos
International. Mr. Shaw has been the President of Classic since its inception
in 1992. Mr. Shaw received a Bachelor of Arts degree from Carson Newman
College. He also received a Master of Music degree from Southern Baptist
Theological Seminary in 1983.
The Company does not have any standing audit, nominating or compensation
committees of the Board of Directors. During the fiscal year ended June 30,
1996, there was one formal meeting of the Board of Directors, which was attended
by four of the five Directors.
The Company currently does not provide the Directors with any regular
compensation for their services as Directors. The Company reimburses the
Directors for any out-of-pocket expenses they incur in the performance of their
duties as Directors. For services rendered for the year ended June 30, 1996,
the Company has agreed to issue Mr. Whitehead 2000 shares of Class A Common
Stock for his services as Director.
None of the Directors were required to file a Form 5 because either the Director
did not engage in any transactions during the fiscal year or all transactions by
the Director were previously reported on a Form 4 during the fiscal year.
However, Mr. Smith and Mr. Whitehead each filed a timely Form 5. Ms. Bates also
filed a Form 4, which disclosed no sales for the fiscal year ended June 30,
1996.
ITEM 10. EXECUTIVE COMPENSATION
Dr. Edward L. Bates has served as President since March 1994. Effective
July 1, 1995, Dr. Bates signed an eleven-year contract providing the following
compensation package: First, a salary of $1 per year, second, an annual bonus of
.25% of the Company's assets which are wholly owned and/or managed by the
Company, third, stock options exercisable into 690,909 Class C Shares
(restricted) per year at $2.01 per share for the duration of the eleven year
contract, fourth, reimbursement for medical and dental bills not covered by
insurance. The bonus is payable 105 days following the close of the fiscal
year. Dr. Bates may take advances on the bonus throughout the year. Neither
the C class of shares nor the C Shares themselves may be publicly registered or
publicly sold until after the end of the employment contract, July 1, 2006, so
as not to adversely affect the trading of the Class A shareholders' stock.
David C. Potts has served as the Company's Chief Operating Officer since
May 1997. The Company is currently finalizing a four-year contract with Mr.
Potts. Proposed terms of the contract will call for compensation as follows:
From May 1997 through December 1997, Mr. Potts will earn an amount equal to 2%
of the Company's revenues. From January 1998 forward, he will earn an amount
equal to 2% of the Company's revenues derived from the operations that he
directly oversees. Of the 2%, one half will be paid in cash and the other half
in Class A Common Stock valued at the bid price as of the end of each quarter.
The cash is paid monthly and the stock quarterly. Mr. Potts has the option to
take the stock or twice the number of stock shares in Class A options
exercisable at the same bid price on the last trading day of the quarter plus
one cent. Mr. Potts will also receive 200,000 options to purchase Class A Common
stock at $1.51 per share. The options will be vested at a rate of 12,500 per
quarter over the four-year contract and a signing bonus of 10,000 shares of
Class A Common Stock.
Rob A. Turner has served as the Chief Financial Officer of the Company
since July 1997. The Company is currently finalizing a three-year contract with
Mr. Turner. Proposed terms of the contract will call for compensation as
follows: An annual salary starting at $63,500, a stock option contract to
purchase 120,000 shares of Class A Common Stock at $1.51 (vesting at 10,000
shares per quarter over the three year contract) and reimbursement for all
expenses incurred to keep an active CPA license in the State of Georgia.
9
<PAGE>
Teresa A. Bates has served as Secretary / Treasurer for the Company since
inception. Ms. Bates received compensation of $3,000 per month for the year
ended June 30, 1996. Ms. Bates has no options to purchase stock from the
Company.
William A. Whitehead has served as Director for the Company since 1993.
Mr. Whitehead received 2000 shares of Class A Common Stock for his service to
the Company for the Year ended June 30, 1996.
James R. Shaw has served as Director for the Company since March 1997. Mr.
Shaw will receive 2000 shares of Class A Common Stock for his service to the
Company for the Year ended June 30, 1997.
The following table sets forth compensation information for the last two fiscal
years. No disclosure need be provided for any executive officer, other than the
chief executive officer, whose total annual salary and bonus for the last
complete fiscal year did not exceed $100,000. Accordingly, no other officers of
the Company are included in the table.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
---------------------- -------------------------------
Name/ Year Salary($) Bonus($) Other Restricted Options/ LTIP All Other
Position Annual Stock SARs Payouts($) Compensation($)
Compensation Awards($) #
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Edward L. Bates 1996 $ 1 $18,750 $ 0 $0 $7,600,000(1) $0 $ 0
President
1995 $ 4,000 $ 0 $16,243 $0 $0 $1,229
1994 $12,000 $ 0 $ 0 $0 $0 $ 0
</TABLE>
(1) See table "Warrants/Option/SAR Grants in Last Fiscal Year"
Warrant/Option/SAR Grants in Last Fiscal Year:
<TABLE>
<CAPTION>
Number of Percentage of Total
Securities Underlying Warrants/Options Exercise
Warrants/Option Granted to Employees or Base Expiration
Name Granted In Fiscal Year Price ($/share) Date
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Edward L. Bates 7,600,000 100% $2.01 June 30, 2016
</TABLE>
Aggregate Option/SAR Exercises in Last Fiscal Year and
FY-End Option/SAR Values:
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at June 30, 1996 Options at June 30, 1996
-------------------------------------------------------
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized Unexercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Edward L. Bates 0 $0 690,909/6,909,091 $0/$0
</TABLE>
The Company has no retirement, pension, profit sharing, bonus, deferred
compensation, insurance or medical reimbursement plans covering its officers or
directors, although the Company has agreed to pay the medical and dental bills
of Edward L. Bates to the extent that they are not covered by his personal
insurance.
10
<PAGE>
The Company obtained shareholder approval of an Employee Stock Incentive Plan at
its annual meeting held March 10, 1994.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Ownership of Officers and Directors
The following table sets forth information as of August 31, 1997, with
respect to the beneficial ownership of the Company's Class A Common Stock and
Class C Common Stock by directors, nominees, officers of the Company and by
officers and directors as a group.
<TABLE>
<CAPTION>
Class A Common Stock Class C Common Stock Effective Voting Power
-------------------- --------------------- -----------------------
Number of Percent of Number of Percent of Number of Percent of
Shareholder Shares Class (1) Shares Shares (1) Votes (3) Votes (3)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Teresa A. Bates 569,068 19.6% 100,000 11% 128,453 14.0%
120 Firestone Pointe
Duluth, GA 30136
Edward L. Bates (2) 0 0% 790,909(4) 89% 790,909 86.0%
120 Firestone Pointe
Duluth, GA 30136
David C. Potts 0 0% 0 0% 0 0%
9150 Baymeadows Rd.
Jacksonville, FL 32256
Rob A. Turner 0 0% 0 0% 0 0%
608 Riverview Dr.
Marietta, GA 30067
William A. Whitehead 3,010 .10% 0 0% 151 0%
1628 Shady Cove Ln.
Florence, KY 41042
All Officers/Directors 572,078 19.70% 890,909 100% 919,513 100%
As a group
</TABLE>
(1) Based on 2,906,525 shares of Class A Common Stock outstanding on August 31,
1997 and 200,000 shares of Class C Common Stock outstanding on August 31,
1997. The percentages do not reflect the possible conversion of 87,575
shares of Preferred Stock, which are outstanding, into 437,875 shares of
Class A Common Stock. Where a person listed on this table has the right to
obtain additional shares within 60 days from August 31, 1997, these
additional shares are deemed to be outstanding for the purpose of computing
the percentage of outstanding securities of the class owned by such person,
but are not deemed to be outstanding for the purpose of computing the
percentage of outstanding securities of the class owned by any other
person.
(2) Edward L. Bates is the husband of Teresa A. Bates, and may be considered to
beneficially own the shares owned by Ms. Bates.
(3) Class A Common Shares have 1/20th vote per share while Class C Common have
one vote per share.
(4) Includes shares of common stock underlying presently exercisable stock
options.
11
<PAGE>
Ownership of Beneficial Owners of More than Five Percent
The following table sets forth information as of August 31, 1997, with respect
to the beneficial ownership of the Company's Class A Common Stock and Class C
Common Stock by each person known by the Company to be the beneficial owner of
more than five percent (5%) of the outstanding Class A Common Stock and the
Class C Common Stock.
<TABLE>
<CAPTION>
Class A Common Stock Class C Common Stock Effective Voting Power
-------------------- -------------------- ----------------------
Number of Percent of Number of Percent of Number of Percent of
Shareholder Shares Class (1) Shares Shares (1) Votes (4) Votes (4)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Teresa A. Bates 569,068 19.6% 100,000 11% 128,453 14.0%
120 Firestone Pointe
Duluth, GA 30136
Edward L. Bates(2) 0 0% 790,909(5) 89% 790,909 86.0%
120 Firestone Pointe
Duluth, GA 30136
Caragh Holdings, Ltd.(3) 160,000 4.1% 0 0% 8,000 0%
13A Flemings Lane
Killarney, County Kerry, Ireland
</TABLE>
(1) Based on 2,906,525 shares of Class A Common Stock outstanding on August 31,
1997 and 200,000 shares of Class C Common Stock outstanding on August 31,
1997. The percentages do not reflect the possible conversion of 87,575
shares of Preferred Stock, which are outstanding, into 437,875 shares of
Class A Common Stock. Where a person listed on this table has the right to
obtain additional shares within 60 days from August 31, 1997, these
additional shares are deemed to be outstanding for the purpose of computing
the percentage of outstanding securities of the class owned by such person,
but are not deemed to be outstanding for the purpose of computing the
percentage of outstanding securities of the class owned by any other
person.
(2) Edward L. Bates is the husband of Teresa A. Bates, and may be considered to
beneficially own the shares owned by Ms. Bates.
(3) Caragh Holdings, Ltd.'s shares are subject to a restrictive legend, which
prevent it from disposing of the shares until it has paid for the shares.
(4) Class A Common Shares have 1/20th vote per share while Class C Common have
one vote per share.
(5) Includes shares of common stock underlying presently exercisable options.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain conflicts of interest exist and will continue to exist between the
Company and its officers and directors. All of the officers and directors have
other business interest to which they devote their attention. They may continue
to do so not withstanding the fact that management time should be devoted to the
business of the Company.
If a specific corporate responsibility demands attention, these persons may face
a conflict in selecting between the Company and their own business interest.
The Company has formulated no policy for the resolution of conflicts in these
circumstances.
There can be no assurance that management will resolve all conflicts of interest
in favor of the Company. Failure by management to conduct the Company's
business in the Company's best interest may result in a liability to the
Company.
Certain Transactions
On August 19, 1994, the Company formed a Georgia Corporation called Casinos
International, Inc. ("Georgia Casinos"). Georgia Casinos' Articles of
Incorporation authorized, among other things, the issuance of Class A and Class
B Common Stock. The Class A and Class B common stock had identical rights to
dividends and distributions from Casinos, but the Class A common stock was
entitled to one vote per share and the Class B common stock was entitled to
forty
12
<PAGE>
votes per share on each matter voted upon which the shareholders of Casinos are
entitled to vote. In addition, the Articles of Incorporation provided that, to
the extent there were any shares of Class B common stock outstanding, the
holders of the Class B common stock would have the right to elect a majority of
the board of directors at all times. The Company subscribed to 500,000 shares
of Class A common stock of Casinos for $500, and Edward L. Bates subscribed to
20,000 shares of Class B common stock for $200. Mr. Bates thereafter conveyed
10,000 of his shares of Class B common stock to the Company. In October 1994,
Georgia Casinos merged into Casinos. Under the merger agreement (after
adjusting for subsequent stock splits), holders of Class A Common Shares of
Georgia Casinos received 15 shares of Class A Common Stock of Casinos (for a
total of 7,500,000 shares). And holders of Class B Shares of Georgia Casinos
received 15 shares of Class B Common Stock of Casinos (for a total of 300,000
shares). In connection with the merger, Casinos' articles of incorporation were
amended to entitle Class B Common Shares to the same disproportionate voting
rights and right to elect a majority of the directors of Casinos which the Class
B Common Shares of casinos had.
None of the officers or directors of the Company have any indebtedness to the
Company.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Regulation Consecutive
S-B Number Exhibit Page Number
2.1 Agreement and Plan of Share N/A
Exchange among Great American
Resorts, Inc., Casinos
International, Inc. and Classic
Restaurants International, Inc.
dated June 30, 1995 (1)
2.2 Amendment to Agreement and N/A
Plan for Share Exchange among
Great American Resorts, Inc.,
Casinos International, Inc.
and Classic Restaurants
International, Inc.dated October 6,
1995.
2.3 Amendment to Agreement and N/A
Plan for Share Exchange among
Great American Resorts, Inc.,
Casinos International, Inc.
and Classic Restaurants
International, Inc. dated
December 22, 1995.
3.1 Articles of Incorporation of N/A
Great American Resorts, Inc. (2)
3.2 Amendments to Articles of N/A
Incorporation of Great
American Resorts, Inc. (3)
3.3 Amendments to Articles of N/A
Incorporation of Great
American Resorts, Inc. (3)
3.4 Bylaws of Great American Resorts,
Inc. (2) N/A
3.5 Amended and Restated Articles N/A
of Incorporation of Casinos
International, Inc. (3)
3.6 Bylaws of Casinos International, N/A
Inc. (3)
3.7 Amendment to Articles of N/A
Incorporation of Casinos
International, Inc.
4.1 Specimen of Class A Common N/A
Stock Certificate (2)
4.2 Form of Series A Convertible N/A
Preferred Stock Certificate (3)
4.3 Form of Class L Warrant Agreement (3) N/A
4.4 Preferred Dividend reserve Agreement (3) N/A
4.5 Indenture of Trust between N/A
Great American Resorts, Inc. and Barbara
13
<PAGE>
A. Brown, Trustee (4)
4.6 Deed to secure Debt between Great American N/A
Resorts, Inc. and Barbara N/A A. Brown,
as Trustee (4)
4.7 Form of Series A Secured Note (4) N/A
4.8 Indenture of Trust between Great American N/A
Resorts of Florida, Inc. and
Edward P. Starks, as Trustee (5)
4.9 Form of 11% Unsecured Note of Great N/A
American Resorts of Florida, Inc. (5)
10.1 General Warranty Deed and Related Documents N/A
for Gatlinburg Property. (6)
10.2 Letter Agreement with Chalets of Gatlinburg N/A
(6)
10.3 Loan Documents for Shipyard Plantation N/A
Cottages (7)
10.4 Purchase Agreement between Great American N/A
Resorts, Inc., Great American Resorts of
Florida, Inc. Landcom, Inc., Landcom-Ocala,
Inc. and Landcom Hospitality Management,
Inc. (1)
10.5 Agreement to Modify a Commercial promissory N/A
Note between American Federal Savings Bank
and Great American Casinos, Inc.
10.6 Deed of Trust and Assignment of Rents between N/A
Baylocq Development Corporation and First
Financial Service Corporation (8)
10.7 Promissory Note payable by Great American N/A
Casinos, Inc. to the order of Baylocq Nevada
Corp. (8)
10.8 Deed of Trust with Assignment of Rents between N/A
Great American Casinos, Inc. and Baylocq
Nevada Corp. (8)
10.9 Lease Agreement between Great American N/A
Casinos, Inc. and Baylocq Nevada Corp. (8)
10.10 Amendment to Real Estate Purchase Agreement N/A
dated September 29, 1995.
10.11 Amended Real Estate Purchase Agreement dated N/A
October 6, 1995.
22.1 List of Subsidiaries N/A
- -------------------------
(1) Incorporated by reference to the Exhibits to the Company's Current Report on
Form 8-K dated June 30, 1995, commission file number 0-19852.
(2) Incorporated by reference to the Exhibits previously filed with the
Company's Registration Statement on Form S-18, Registration No. 33-42876-A.
(3) Incorporated by reference to the Exhibits to the Company's Annual Report on
Form 10-KSB for the fiscal year ended June 30, 1994, Commission file number 0-
19852.
(4) Incorporated by reference to the Exhibits to the Company's Quarterly Report
on Form 10-QSB for the quarter ended December 31, 1994, Commission file number
0-19852.
14
<PAGE>
(5) Incorporated by reference to the Exhibits to the Company's Quarterly Report
on Form 10-QSB for the quarter ended March 31, 1995, Commission file number 0-
19852.
(6) Incorporated by reference to the Exhibits to the Company's Annual Report on
Form 10-KSB for the fiscal year ended June 30, 1992, Commission file number 0-
19852.
(7) Incorporated by reference to the Exhibits to the Company's Current Report on
Form 8-K dated June 8, 1993, Commission file number 0-19852.
(8) Incorporated by reference to the Exhibits to the Company's Current Report on
Form 8-K dated January 20, 1995, Commission file number 0-19852.
(9) Incorporated by reference to the Exhibits to the Company's Current Report on
Form 8-K dated August 21, 1995, Commission file number 0-19852.
(10) Incorporated by reference to the Exhibits to the Company's Current Report
on Form 8-K dated September 18, 1995, Commission file number 0-19852.
(b) The Company filed the following reports on Form 8-K for the quarter
ended June 30, 1995:
Date of Report Items Reported Financial Statements Filed
June 30, 1995 (1) Agreement and Plan of Share No
Exchange among Great American
resorts, Inc., Casinos International,
Inc. and Classic Restaurants International,
Inc.; (2) Acquisition of Partnership
Interest in Landcom-Ocala, Ltd., a
Florida limited Partnership; and
(3) Termination of Contract with Caragh
Holdings, Ltd.
Signatures
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused the report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GREAT AMERICAN HOTELS & RESORTS, INC.
Date: By:
----------------------- -------------------------
Edward L. Bates, President
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Date: By:
----------------------- -----------------------
Edward L. Bates, President
and Director
(Principal Executive Officer)
Date: By:
------------------------ -----------------------
David C. Potts, Chief Operating
Officer
Date: By:
------------------------- ------------------------
Rob A. Turner, Chief Financial
Officer
15
<PAGE>
Date: By:
------------------------- ------------------------
Teresa A. Bates, Treasurer /
Secretary / Director
Date: By:
------------------------- --------------------------
William A. Whitehead, Director
16
<PAGE>
GREAT AMERICAN
HOTELS & RESORTS, INC.
AND SUBSIDIAIRES
CONTENTS
- --------------------------------------------------------------------------------
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheet F-3 to F-4
Consolidated Statements of Operations F-5 to F-6
Consolidated Statements of
Stockholders' Equity F-7 to F-9
Consolidated Statements of Cash Flows F-10 to F-12
Summary of Accounting Policies F-13 to F-18
Notes to Consolidated Financial Statements F-19 to F-35
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Great American Hotels & Resorts, Inc. and Subsidiaries
Duluth, Georgia
We have audited the accompanying consolidated balance sheet of Great
American Hotels & Resorts, Inc. and subsidiaries (the "Company") as of June
30, 1996 and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the years ended June 30, 1996 and
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material aspects, the financial position of the
Company as of June 30, 1996 and the results of their operations and their
cash flows for the years ended June 30, 1996 and 1995, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 1 to the consolidated financial statements, the Company has suffered
recurring losses from operations and has negative cash flow from operating
activities that raise substantial doubt of their ability to continue as a
going concern. Management's plans in regard to these matters are also
discussed in Note 1. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ BDO Seidman, LLP
Denver, Colorado
April 11, 1997
F-2
<PAGE>
GREAT AMERICAN
HOTELS & RESORTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
June 30, 1996
- -------------------------------------------------------------
ASSETS
CURRENT:
Cash and cash equivalents $ 513,199
Restricted cash 38,188
Note receivable (Note 5) 206,859
Stock subscription receivable (Note 7) 229,326
Deposits 236,601
Accounts receivable 43,436
Property and equipment held for sale (Note 5) 89,730
- -------------------------------------------------------------
TOTAL CURRENT ASSETS 1,357,339
- -------------------------------------------------------------
PROPERTY AND EQUIPMENT (Note 6):
Resort rental units 4,440,030
Land 884,981
Furniture and equipment 599,925
Office building and improvements 441,715
- -------------------------------------------------------------
6,366,651
Accumulated depreciation 441,142
- -------------------------------------------------------------
Net property and equipment 5,925,509
- -------------------------------------------------------------
OTHER:
Deferred acquisition costs 513,322
Debt issue costs 139,866
Prepayments and deposits 8,817
- -------------------------------------------------------------
Total other assets 662,005
- -------------------------------------------------------------
$7,944,853
=============================================================
See accompanying report of independent certified public accountants,
summary of accounting policies and notes to consolidated financial statements.
F-3
<PAGE>
GREAT AMERICAN
HOTELS & RESORTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, 1996
- --------------------------------------------------------------------------------------
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 288,714
Accrued expenses 112,593
Current maturities of long-term debt (Note 6) 671,232
- --------------------------------------------------------------------------------------
Total current liabilities 1,072,539
LONG-TERM DEBT, less current maturities (Note 6) 5,356,138
- --------------------------------------------------------------------------------------
Total liabilities 6,428,677
- --------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY (Note 7)
Preferred stock, no par value; 16,000,000
shares authorized; none issued -
Series A preferred stock, no par value;
4,000,000 shares authorized; 87,575
shares issued and outstanding;
liquidation value of $10 per share
(in the aggregate $785,000) 766,680
Common Stock:
Class A, no par value; 20,000,000 shares
authorized; 2,804,655 shares issued,
2,579,651 shares outstanding 5,565,538
Class B, no par value; 10,000,000 shares
authorized; none issued -
Class C, no par value; 2,000,000 shares
authorized; 200,000 shares issued and
outstanding 100
Treasury stock, 25,004 shares, at cost -
Additional paid-in capital 211,875
Accumulated deficit (5,028,017)
- --------------------------------------------------------------------------------------
Total stockholders' equity 1,516,176
- --------------------------------------------------------------------------------------
$ 7,944,853
======================================================================================
</TABLE>
See accompanying report of independent certified public accountants,
summary of accounting policies and notes to consolidated financial statements.
F-4
<PAGE>
GREAT AMERICAN
HOTELS & RESORTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Years Ended June 30, 1996 1995
- ----------------------------------------------------------------------
Revenues:
Rental $ 836,527 $ 622,491
Travel card sales (Note 11) - 1,209,713
Other income 87,270 121,127
- ----------------------------------------------------------------------
Total revenues 923,797 1,953,331
- ----------------------------------------------------------------------
Operating expenses:
Rental 1,071,108 617,705
Travel card - 57,170
Salaries and wages 180,914 275,069
General and administrative 772,666 718,084
Settlement of claims 59,474 65,228
Bad debt expense - 537,000
Impairment of infomercial - 142,013
Depreciation and amortization 249,543 256,715
- ----------------------------------------------------------------------
Total operating expenses 2,333,705 2,668,984
- ----------------------------------------------------------------------
Loss from operations (1,409,908) (715,653)
- ----------------------------------------------------------------------
Other income (expense):
Gain on sale of property (Note 5) 467,147 -
Interest income 7,252 12,661
Interest expense (646,704) (326,006)
- ----------------------------------------------------------------------
Total other (expense) (172,305) (313,345)
- ----------------------------------------------------------------------
Minority interest in loss of
consolidated subsidiary 82,025 39,231
- ----------------------------------------------------------------------
Loss from continuing operations (1,500,188) (989,767)
- ----------------------------------------------------------------------
See accompanying report of independent certified public accountants,
summary of accounting policies and notes to consolidated financial statements.
F-5
<PAGE>
GREAT AMERICAN
HOTELS & RESORTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Years Ended June 30, 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
DISCONTINUED OPERATIONS (NOTE 4):
Loss from operations of discontinued segment - (444,828)
Loss on disposal of discontinued segment - (133,153)
- --------------------------------------------------------------------------------
Total discontinued operations - (577,981)
- --------------------------------------------------------------------------------
EXTRAORDINARY GAIN FROM DEBT EXTINGUISHMENT,
NET OF $0 INCOME TAX EXPENSE (NOTE 3) 273,261 -
- --------------------------------------------------------------------------------
Net loss (1,226,927) (1,567,748)
Dividend requirements on preferred stock 65,706 28,021
- --------------------------------------------------------------------------------
Loss applicable to common stock $(1,292,633) $(1,595,769)
================================================================================
INCOME (LOSS) PER SHARE OF COMMON STOCK:
Continuing operations $ (.65) $ (.63)
Discontinued operations - (.35)
Extraordinary gain .11 -
- --------------------------------------------------------------------------------
Net loss per share $ (.54) $ (.98)
- --------------------------------------------------------------------------------
Weighted-average number of common
shares outstanding 2,409,741 1,616,310
================================================================================
</TABLE>
See accompanying report of independent certified public accountants,
summary of accounting policies and notes to consolidated financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
GREAT AMERICAN
HOTELS & RESORTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended June 30, 1996 and 1995
Series A Common Stock
Preferred Stock Class A Class C Additional
--------------- ------------------- --------------- Paid-In Accumulated
Shares Amount Shares Amount Shares Amount Capital Deficit
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1995 -0- $ -0- 1,513,390 $3,920,134 200,000 $100 $ -0- $(2,139,615)
Issuance of preferred stock for cash,
net of direct costs of $63,056 77,500 689,965
Issuance of common stock subscribed as of
June 30, 1994; net of direct costs of
$55,614 and subscription receivables of
$187,334; 27,200 shares subsequently
cancelled 96,999 269,202
Issuance of common stock for:
Settlement of claims by stockholders 17,582 65,228
Property improvements 15,133 59,009
Services 3,180 19,175
Common stock of Casinos International, Inc. 200 1,000
Deposit on investment in limited partnership 100,000 -
Exercise of warrants 7,950 42,975
Gain on sale of investment
in subsidiary 62,110
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
GREAT AMERICAN
HOTELS & RESORTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended June 30, 1996 and 1995
Series A Common Stock
Preferred Stock Class A Class C Additional
--------------- ------------------- --------------- Paid-In Accumulated
Shares Amount Shares Amount Shares Amount Capital Deficit
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of stock by subsidiary
resulting in increase in relative
book value of subsidiary 343,160
Dividends paid (28,021)
Net loss (1,567,748)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1995 77,500 689,965 1,754,434 4,376,723 200,000 100 405,270 (3,735,384)
Issuance of preferred stock
for cash, net of stock
receivable of $7,000 10,075 76,715
Issuance of common stock for:
Cash and subscription receivable, net of offering
costs of $7,689 377,620 1,026,161
Stock subscriptions 3,000 31,700
Settlement of claims by stockholders 26,166 59,474
Deposit on land 400,000 -
</TABLE>
F-8
<PAGE>
<TABLE>
<CAPTION>
GREAT AMERICAN
HOTELS & RESORTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended June 30, 1996 and 1995
Series A Common Stock
Preferred Stock Class A Class C Additional
--------------- ------------------- --------------- Paid-In Accumulated
Shares Amount Shares Amount Shares Amount Capital Deficit
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Deposit on investment in limited partnership 12,500 -
Satisfaction of liabilities 34,870 71,480
Return and cancellation of
common stock (28,939) -
Decrease in book value of Company
due to sale of subsidiary (193,395)
Dividends paid (65,706)
Net loss (1,226,927)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1996 87,575 $766,680 2,579,651 $5,565,538 200,000 $100 $211,875 $(5,028,017)
===================================================================================================================================
See accompanying report of independent certified public accountants,
summary of accounting policies and notes to consolidated financial statements.
</TABLE>
F-9
<PAGE>
GREAT AMERICAN
HOTELS & RESORTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Years Ended June 30, 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(1,226,927) $(1,567,748)
Adjustments to reconcile net loss to
net cash used in continuing operating
activities:
Discontinued operations - 577,981
Depreciation and amortization 249,543 256,715
Gain on sale of property and equipment held for sale (467,147) -
Extraordinary gain from debt extinguishment (273,261) -
Amortization of debt issuance costs 61,842 -
Stock issued for services and settlement
of claims 59,474 84,403
Write-off of deposit for land purchase 24,100 -
Provision for uncollectible accounts receivable - 537,000
Impairment of infomercial - 142,013
Minority interest in loss of consolidated
subsidiary (82,025) (39,231)
Changes in operating assets and liabilities, net of
acquisitions of businesses:
Accounts receivable, trade 10,121 (510,186)
Prepaid and other current assets - 29,040
Prepayments and deposits 2,388 412
Accounts payable 67,931 71,322
Accrued compensation, directors - 30,680
Accrued expenses (68,619) 124,603
Net cash provided by (used in) discontinued
operations 74,635 (382,662)
- -------------------------------------------------------------------------------------
Net cash used in operating activities (1,567,945) (645,658)
- -------------------------------------------------------------------------------------
</TABLE>
See accompanying report of independent certified public accountants,
summary of accounting policies and notes to consolidated financial statements.
F-10
<PAGE>
GREAT AMERICAN
HOTELS & RESORTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
- --------------------------------------------------------------------------------
Years Ended June 30, 1966 1995
- --------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Proceeds from sale of property and equipment
held for sale 2,037,601 -
Purchase and construction of property and
equipment (451,654) (918,407)
Payment for prepayments and deposit - (29,335)
Payment for advances receivable - (80,000)
Payment of deferred acquisition costs (419,923) -
Payment on deposit from limited
partnership acquisition - (330,000)
Proceeds from sale of investment in subsidiary 150,000 174,303
Activities of discontinued operations, net (50,000) (80,434)
- --------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 1,266,024 (1,263,873)
- --------------------------------------------------------------------------------
See accompanying report of independent certified public accountants,
summary of accounting policies and notes to consolidated financial statements.
F-11
<PAGE>
GREAT AMERICAN
HOTELS & RESORTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended June 30, 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C>
FINANCING ACTIVITIES:
Change in restricted cash 49,312 (80,014)
Proceeds from mortgage notes payable and long-term debt,
net of debt-issue costs 1,266,000 1,937,345
Principal payments on mortgage notes payable and
long-term debt (1,838,723) (46,618)
Proceeds from issuance of Series A preferred stock,
net of stock issuance costs 76,715 689,965
Proceeds from issuance of Class A common stock, net of
stock issuance costs 796,835 42,975
Proceeds from Class A common stock subscribed 13,700 -
Proceeds from subscription receivable 12,000 25,400
Checks written in excess of deposits 12,901 -
Dividend payments on preferred stock (65,706) (28,021)
Payment of debt issuance costs (112,837) -
Other - (42,220)
- -------------------------------------------------------------------------------------
Net cash provided by financing activities 210,197 2,498,812
- -------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (91,724) 589,281
CASH AND CASH EQUIVALENTS, beginning of year 604,923 15,642
- -------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of year $ 513,199 $ 604,923
=====================================================================================
See accompanying report of independent certified public accountants,
summary of accounting policies and notes to consolidated financial statements.
</TABLE>
F-12
<PAGE>
GREAT AMERICAN
HOTELS & RESORTS, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
Organization Great American Hotels & Resorts, Inc.
and (the "Company" or "GARI") formerly
Business Great American Resorts, Inc., was
incorporated under the laws of the
state of Georgia on July 29, 1991.
GARI was formed for the purpose of
engaging in the business of
purchasing, developing and managing
properties in the overnight resort
rental unit market in certain resort
areas throughout the world.
On April 29, 1993, GARI formed a
wholly-owned subsidiary called The
Great American Honeymoon Resorts,
Inc. ("GAHR"), a Tennessee
corporation which was formed to
acquire rental property in Tennessee.
In January 1994, GARI formed a
wholly-owned subsidiary called Great
American Travel Network, Inc.
("GATN"), a Georgia corporation, to
provide travel agency related
services and to sell travel discount
cards to the public.
On May 23, 1994, GARI purchased all
of the issued and outstanding common
stock of Great American Financial
Network, Inc. ("GAFN"), formerly
Marina Securities, Inc. ("MSI"), an
Oklahoma corporation incorporated on
July 29, 1983. GAFN is in the
business of securities brokerage and
related services as set forth by the
Securities and Exchange Commission
and the National Association of
Securities Dealers, Inc. As
discussed in Note 4, GARI sold all of
its stock in GAFN during July 1995.
During April, 1995, GARI formed a
wholly-owned subsidiary called Great
American Resorts of Florida, Inc.
("GAROF"), a Florida corporation
which was formed to acquire rental
property in the state of Florida.
As of June 30, 1995, GARI held
approximately 82% of Casinos
International, Inc. ("CI"), a
publicly-held Colorado corporation.
As discussed in Note 3, during
January 1996, GARI sold its shares in
CI for 100% of the issued and
outstanding common stock of Great
American Casinos, Inc. ("GACI"), a
Nevada corporation incorporated on
January 17, 1995 which was a
wholly-owned subsidiary of CI. GACI
is the owner of a hotel property in
Reno, Nevada (see Note 2).
F-13
<PAGE>
GREAT AMERICAN
HOTELS & RESORTS, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
Principles of The accompanying financial statements
Consolidation include the accounts of GARI and its
wholly-owned and majority-owned
subsidiaries. All significant
intercompany accounts and transactions
have been eliminated.
Concentrations The Company's financial instruments
of Credit Risk that are exposed to concentrations of
credit risk consist primarily of cash
and cash equivalents and accounts
receivable.
The Company's cash equivalents are in
demand deposit accounts placed with
Federally insured financial
institutions. Such deposit accounts
at times may exceed federally insured
limits. The Company has not
experienced any losses on such
accounts.
Concentrations of credit risk with
respect to receivables are limited
due to a few customers dispersed
across geographic areas.
Financial The following methods and assumptions
Instruments were used to estimate the fair value
of each class of financial
instruments for which it is
practicable to estimate that value.
Note Receivable
The note receivable bears interest at
an amount that approximates a fair
market value rate. Accordingly, the
fair value approximates its reported
carrying amount as of June 30, 1996.
Long-term debt
Substantially all of these notes bear
interest at a floating rate of
interest based upon the lending
institutions' prime lending rate.
Accordingly, the fair value
approximates their reported carrying
amount at June 30, 1996.
F-14
<PAGE>
GREAT AMERICAN
HOTELS & RESORTS, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
Use of The preparation of financial
Estimates statements in conformity with
generally accepted accounting
principles requires management to
make estimates and assumptions that
affect the reported amounts of assets
and liabilities, the disclosures of
contingent assets and liabilities at
the date of the financial statements,
and the reported amounts of revenues
and expenses during the reporting
period. Actual results could differ
from those estimates.
Reclassifications Certain reclassifications have been
made to the 1995 financial statements
in order for them to conform to the
1996 presentation. Such
reclassifications have no impact on
the Company's financial position or
results of operations.
Cash and Cash For purposes of the statements of
Equivalents cash flows, the Company considers all
money market accounts and highly
liquid debt instruments purchased
with an original maturity of three
months or less to be cash equivalents.
Restricted As of June 30, 1996, the Company
Cash maintained cash in an escrow account
for the benefit of its preferred
stockholders in order to pay
preferred stock dividends.
Property and Property and equipment are stated at
Equipment cost. Expenditures for repairs and
maintenance are charged to expense as
incurred and additions and
improvements that significantly
extend the lives of assets are
capitalized. Upon sale or other
retirement of depreciable property,
the cost and accumulated depreciation
are removed from the related accounts
and any gain or loss is reflected in
operations.
Depreciation is provided using
straight-line and accelerated methods
based upon the estimated useful lives
of the depreciable assets ranging
from five to thirty-nine years.
Depreciation expense for the years
ended June 30, 1996 and 1995, was
$247,837 and $216,989.
Deferred Deferred acquisition costs include
Acquisition professional fees and other direct
Costs costs related to the evaluation of
prospective property acquisitions.
If the acquisitions are completed,
these costs are included as property
costs. If a prospective property is
not acquired, the costs are expensed.
F-15
<PAGE>
GREAT AMERICAN
HOTELS & RESORTS, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
Debt Issue Debt issue costs represent the direct
Costs costs of issuing debt securities.
The costs are being amortized over
the term of the related debt.
Issuance of Direct sales of unissued shares of
Stock of subsidiaries which exceed the
Subsidiary parent's carrying value are reflected
as capital transactions in the
consolidated financial statements.
Income The Company accounts for income taxes
Taxes under Statement of Financial
Accounting Standards No. 109 ("SFAS
No. 109"). Temporary differences
are differences between the tax
basis of assets and liabilities and
their reported amounts in the
financial statements that will
result in taxable or deductible
amounts in future years.
Net Loss Per Net loss per share is computed by
Share of dividing the net loss after
Common Stock deducting preferred stock dividends
for the period by the
weighted-average number of shares of
common stock outstanding during the
period. Common equivalent shares
from stock warrants were excluded
from the computation because their
effect is antidilutive for the
periods presented.
Recent The Financial Standards Board has
Accounting recently issued Statement of
Pronouncements Financial Accounting Standards
("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets"
and SFAS No. 123, "Accounting for
Stock-Based Compensation" and SFAS
No. 128, "Earnings per Share" and
SFAS No. 129, "Disclosure of
Information About an Entity's
Capital Structure." SFAS No. 121
requires that long-lived assets and
certain identifiable intangibles be
reported at the lower of the
carrying amounts or their estimated
recoverable amount. The adoption of
this statement by the Company is not
expected to have an impact on the
financial statements. SFAS No. 123
encourages the accounting for
stock-based employee compensation
programs to be reported within the
financial statements on a fair-value
based method. If the fair-value
based method is not adopted, then
the statement requires proforma
disclosure of net income and
earnings per share as if the fair
value based method has been adopted.
The Company has not yet determined
how SFAS No. 123 will be adopted nor
its impact on the financial
statements. SFAS No. 128 provides a
different method of calculating
earnings per share than is currently
used in
F-16
<PAGE>
GREAT AMERICAN
HOTELS & RESORTS, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
accordance with Accounting Board Opinion
(APB) No. 15, "Earnings Per Share". SFAS
No. 128 provides for the calculation of
"Basic" and "Diluted" earnings per
share. Basic earnings per share includes
no dilution and is computed by dividing
income available to common shareholders
by the weighted average number of common
shares outstanding for the period.
Diluted earnings per share reflects the
potential dilution of securities that
could share in the earnings of an
entity, similar to fully diluted
earnings per share. SFAS 129 establishes
standards for disclosing information
about an entity's capital structure.
SFAS No. 121 and SFAS No. 123 are
effective for fiscal years beginning
after December 15, 1995. SFAS 128 and
SFAS 129 are effective for financial
statements issued for periods ending
December 15, 1997. Implementation of
SFAS 128 and SFAS 129 are not expected
to have a material effect on the
consolidated financial statements.
In June 1997, FASB issued Statement of
Financial Accounting Standard No. 130
"Reporting Comprehensive Income ("SFAS
130") and Statement of Financial
Accounting Standard No. 131 "Disclosures
about Segments of an Enterprise and
Related Information" ("SFAS 131"). SFAS
130 establishes standards for reporting
and display of comprehensive income, its
components and accumulated balances.
Comprehensive income is defined to
include all changes in equity except
those resulting from investments by
owners and distributions to owners.
Among other disclosures, SFAS 130
requires that all items that are
required to be recognized under current
accounting standards as components of
comprehensive income be reported in a
financial statement that displays with
the same prominence as other financial
statements. SFAS 131 supersedes
Statement of Financial Accounting
Standard No. 14 "Financial Reporting for
Segments of a Business Enterprise". SFAS
131 establishes standards for the way
that public companies report information
about operating segments in annual
financial statements and requires
reporting of selected information about
operating segments in interim financial
statements issued to the public. It also
establishes standards for disclosures
regarding products and services,
geographic areas and major customers.
SFAS 131 defines operating segments as
components of a company about which
separate financial information is
available that is evaluated regularly by
the chief operating decision maker in
deciding how to allocate resources and
in assessing performance.
F-17
<PAGE>
GREAT AMERICAN
HOTELS & RESORTS, INC.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
SFAS 130 and SFAS 131 are effective for
financial statements for periods
beginning after December 15, 1997 and
require comparative information for
earlier years to be restated. Because of
the recent issuance of these standards,
management has been unable to fully
evaluate the impact, if any, the
standards may have on future financial
statement disclosures. Results of
operations and financial position,
however, will be unaffected by
implementation of these standards.
F-18
<PAGE>
GREAT AMERICAN
HOTELS & RESORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. Going Concern The Company has suffered recurring
losses from operations and negative
cash flow from operating activities
that raise substantial doubt about
its ability to continue as a going
concern. As detailed below,
significant efforts have and will
continue to be expended by management
in order to improve operating results
and financial position, which it
believes is sufficient to provide the
Company with the ability to continue
as a going concern.
During the fiscal year ending June
30, 1997, the Company took
substantial steps to improve cash
flow and profitability. On January
16, 1997, the Company, through one of
it's wholly owned subsidiaries,
entered into a Management/Purchase
agreement for the Days Inn, Super 8
and Poor Man's Castle all located in
Vero Beach, Florida (See Note 16).
The Company also intends to seek out
additional acquisitions (See Note 16).
The Company is also seeking
additional financing to meet the
obligations of maturing debt, retire
its higher cost financing
arrangements and provide for near
term working capital. The financing
alternatives available to the Company
include the refinancing of existing
debt, private placements of its
common stock, third party loans,
equity participation or any
combination of these methods.
In addition to the recent expansion,
the Company has greatly strengthened
its management team by adding two
seasoned veterans of the hospitality
industry.
The Company believes that the recent
acquisitions and the recruitment of
seasoned hotel management
professionals will result in the
Company continuing as a going concern.
There are no assurances that the
Company's plan will be successful.
The accompanying financial statements
do not include any adjustments that
might result from the outcome of
these uncertainties.
F-19
<PAGE>
GREAT AMERICAN
HOTELS & RESORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. Business and Cheers Hotel and Casino
Property
Acquisitions On January 20, 1995, CI acquired, through
its wholly-owned subsidiary GACI, the
Cheers Hotel and Casino in Reno, Nevada
(the "Cheers Hotel") from Baylocq Nevada
Corporation ("BNC"), which is not an
affiliate of the Company. The aggregate
cost of the Cheers Hotel was $4,053,345
which included a contract price of
$3,750,000 and closing costs of $303,345.
The contact price consisted of the
assumption of a mortgage note payable to
a bank in the principal amount of
$1,944,804, the execution of a promissory
note payable to BNC for $1,055,196 (See
Note 6) and cash of $750,000. This
acquisition has been accounted for as a
purchase and, accordingly, the acquired
assets and liabilities have been recorded
at their estimated fair values at the
date of acquisition. The operating
results of this acquisition have been
included in the accompanying consolidated
financial statements from the date of
acquisition. See pro forma information in
Note 3.
Land Acquisition
On August 21, 1994, CI entered into an
agreement to purchase two tracts of
unimproved land ("Tract #1" and "Tract
#2") located in Ireland from Caragh
Holdings, Inc. ("Caragh"), an
unaffiliated company, and issued 1.5
million shares of its Class A common
stock to Caragh.
During October 1994, CI completed the
purchase of Tract #1 for a purchase price
of $334,800 including cash of $41,723 and
270,000 shares of the Class A common
stock of CI, valued at $293,077, based
upon the appraised value of the tract.
Thereafter, CI assigned its rights in
Tract #1 to GARI for $384,877, which
consisted of the amount paid by CI plus a
fee paid by GARI as reimbursement for the
expense and management time incurred to
acquire the land. The acquisition fee of
approximately $50,000 eliminates in
consolidation. Pursuant to subsequent
agreements between CI and Caragh, the
purchase of Tract #2 was cancelled and
1,050,000 shares of CI were returned to
CI in November 1995. Caragh has an option
to purchase the remaining 180,000 shares
of CI common stock (also see Note 7).
F-20
<PAGE>
GREAT AMERICAN
HOTELS & RESORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. Debt In June 1995, CI and Classic
Forgiveness Restaurants, Inc. ("Classic"), an
unrelated party, entered into an
Agreement and Plan of Share Exchange,
which was consummated in January
1996, for CI to acquire all of the
outstanding stock of Classic. The
agreement also provides that CI will
sell all of its GACI common stock,
representing 100 percent ownership,
to GARI in exchange for all of GARI's
and certain of GARI's officers'
shares of CI, cancellation of
intercompany indebtedness and the
mutual release of any claims between
CI and GARI. The Company recognized
a $273,261 extraordinary gain from
extinguishment of debt from this
transaction.
Pro Forma Information
The following unaudited pro forma
information presents the results of
operations of the Company as if the
Company acquired Cheers Hotel, the
Company's ownership of CI was
transferred to Classic, and the sale
of GAC to GARI had occurred at the
beginning of fiscal 1996 and 1995.
The unaudited pro forma information
may not be indicative of results that
would have occurred if the transfer
and sale had been consummated as of
those dates or of the results that
may be obtained in the future.
<TABLE>
<CAPTION>
Years Ended June 30, 1996 1995
------------------------------------------------
<S> <C> <C>
Revenues $ 923,797 $ 2,215,122
Operating expenses (2,333,705) (3,070,556)
Other expenses (172,305) (564,682)
------------------------------------------------
Loss from continuing
operations $(1,582,213) $(1,420,116)
================================================
Loss per share of
common stock from
continuing
operations $ (.68) $ (.89)
================================================
</TABLE>
F-21
<PAGE>
GREAT AMERICAN
HOTELS & RESORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. Discontinued On June 30, 1995 (the measurement
Operations date), GARI entered into an agreement
to sell 100 percent of the issued and
outstanding common stock of GAFN on
July 21, 1995 (the disposal date) to
an unrelated party for a $150,000
promissory note which was paid in
full during August 1995. GAFN was an
operating broker/dealer engaged in
the business of securities brokerage.
The estimated loss on disposal of the
segment was calculated as of the
measurement date and includes
estimated losses from operations
through the disposal date of $87,181
and a loss on the sale of the net
book value of GAFN of $133,153. The
following is a summary of the
operations of the discontinued
business segment for the year ended
June 30, 1995.
Year Ended June 30, 1995
---------------------------------------
Revenues $ 595,710
Operating expenses (1,040,538)
---------------------------------------
Net loss $ (444,828)
=======================================
5. Property Held During fiscal 1996, the Company sold
for Sale 22 of its 23 condominiums located in
Hilton Head, South Carolina for net
proceeds of $2,244,460, of which
$206,859 was unpaid as of June 30,
1996. The Company recognized a
$467,147 gain from the sale.
Subsequent to June 30, 1996, the
Company closed on the sale of the
last condo for $112,925 which will
result in a gain of approximately
$23,000.
F-22
<PAGE>
GREAT AMERICAN
HOTELS & RESORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6. Long-Term Long-term debt consisted of the following:
Debt
June 30, 1996
---------------------------------------------------------------
Mortgage note payable of $1,944,804,
collateralized by a first deed of trust
on the Cheers Hotel; payable in initial
monthly installments of principal and
interest of $15,834 beginning in February
1995; stated interest rate of 9 percent
from January 1, 1995 through October 31,
1996; interest rate adjustable annually to
the prime rate as quoted by the Wall Street
Journal plus 1.5 percent with a minimum
interest rate of 9 percent per annum beginning
November 1996 with adjustment of payment
amount as needed; unpaid principal and accrued
interest due December 1, 2008; guaranteed by
certain officers of the Company. $ 1,922,265
Mortgage note payable to BNC of $1,055,196,
collateralized by a second deed of trust on
the Cheers Hotel; interest at 7 percent with
principal and interest payments due monthly
through October 1999; beginning November 1999,
equal monthly installments of principal plus
interest at 2 percent above the most recent rate
according to the Federal Home Loan Bank of San
Francisco Monthly Weighted Average Cost of Funds
Index for Eleventh District Savings Institutions,
with certain minimums and maximums; unpaid
principal and accrued interest due December 1,
2008. 800,903
F-23
<PAGE>
GREAT AMERICAN
HOTELS & RESORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Series A Secured Notes of up to $3,000,000;
interest at 10 to 12 percent per annum; interest
payable monthly; principal and accrued interest
due at maturity dates of December 31, 1996, 1997
or 1998; collateralized by a first priority lien
on the Company's office building; redeemable in
whole or in part at any time without premium or
penalty. 1,483,216
Unsecured Notes of up to $3,000,000; interest at
11 to 14 percent per annum; interest payable
monthly; principal and accrued interest due at
various maturity dates through June 30, 1999;
redeemable in whole or in part at any time
without premium or penalty. 1,445,595
Notes payable; interest at 15% per annum;
interest-only payments through August 1, 1998
at which time all principal plus accrued
interest is due; collateralized by the
Company's Gatlinburg, Tennessee property 300,000
Notes payable to banks 75,391
-----------------------------------------------------------
6,027,370
Less current maturities 671,232
-----------------------------------------------------------
$5,356,138
===========================================================
The Series A Secured Notes and Unsecured Notes were
provided by private offering pursuant to Rule 505 under
Regulation D of the Securities and Exchange Commission.
F-24
<PAGE>
GREAT AMERICAN
HOTELS & RESORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Future maturities of long-term debt as of June 30, 1996 are
as follows:
Years Ending June 30,
-----------------------------------------------------------
1997 $ 671,232
1998 864,378
1999 1,836,688
2000 54,029
2001 37,422
Thereafter 2,563,621
-----------------------------------------------------------
6,027,370
===========================================================
7. Stockholders' Common Stock
Equity
The Company's common stock consists of Class A common
voting stock, Class B common voting stock, and Class C
common voting stock. The shares of each class of common
stock have the same rights, except that the Class A and
Class B shares have 1/20th of one vote for each share and
the Class C shares have one vote for each share in each
matter voted upon by the stockholders. In addition, holders
of Class C common stock are entitled to elect a majority of
the members of the Board of Directors at all times. Such
stock is owned by an officer of the Company.
Private Offerings
During fiscal 1995, the Company cancelled subscription
agreements for 68,336 units and related proceeds of
$410,000 relating to stock sold in a private stock offering
under Regulation D, Rule 505 of the Securities and Exchange
Commission as of June 30, 1994. As of June 30, 1995,
$96,000 remained outstanding on shares issued in connection
with the subscription agreements. During fiscal 1996,
28,939 shares of Class A common stock were returned to the
Company in satisfaction of the $96,000 receivable.
F-25
<PAGE>
GREAT AMERICAN
HOTELS & RESORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Preferred Stock
The Company's Series A preferred stock ("Series A
preferred") consists of 4,000,000 authorized shares
convertible into shares of common stock. The number of
shares of common stock issuable upon conversion of each
share of the Series A preferred will be equal to $10
divided by the conversion price in effect at the time of
conversion. Such conversion price was initially deemed to
be $5 per share and is subject to adjustment from time to
time by the board of directors based upon changes in
outstanding shares of the Company and upon the market value
of the Company's common stock. The Company will reserve
sufficient shares of common stock to meet any conversion of
all of the outstanding preferred stock. In addition to the
conversion feature, each share of Series A preferred will
be entitled to a dividend preference of $.80 per share per
annum, noncumulative, in any dividends declared in any
fiscal year before any dividends are paid to any other
class of stock. Dividends, to the extent declared by the
board of directors will be payable monthly beginning on
November 1, 1994. The Company may redeem the Series A
preferred at any time, in whole or in part, at the option
of the Company for cash at the redemption price of $10 per
share, plus all declared but unpaid dividends to the date
fixed for redemption. The Series A preferred have a
liquidation value of $10 per share. In addition, whenever
dividends on the outstanding Series A preferred have not
been paid for a period of one year, and thereafter until
the Company has paid all dividends on the outstanding
Series A preferred for one consecutive year, the holders of
such stock (voting as a class) shall be entitled to elect
one director at the next annual meeting and at all
subsequent annual meetings of the stockholders of the
Company.
On August 30, 1994, the Company's board of directors
approved to offer and sell 1,000,000 Units in a private
offering of up to $10 million in Series A preferred and
warrants at $10 per Unit pursuant to Regulation D, Rule
506, of the Securities and Exchange Commission. Each Unit
consists of one share of Series A preferred, one Class J
Warrant, one Class K Warrant and one Class L Warrant. The
Class J, Class K, and Class L Warrants were exercisable to
purchase one share of preferred stock for $10 per share
through May 31, 1995, November 30, 1995 and May 31, 1996,
respectively. The Company has provided that sixteen percent
of the gross proceeds will be placed in an escrow account
to pay dividends to the extent declared by the board of
directors.
F-26
<PAGE>
GREAT AMERICAN
HOTELS & RESORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Stock Issued, Caragh
The Company issued 400,000 shares of Class A common stock
to Caragh during August, 1995 as a deposit on the purchase
of a parcel of land. Such purchase was later cancelled by
mutual consent of the parties. Caragh may purchase the
shares by paying $2.00 per share to the Company until
December 31, 1997, at which time any non-purchased shares
will be returned to the Company. In related agreements,
Caragh agreed to purchase an additional 200,000 and 100,000
shares of GARI's Class A common stock for $3.20 and $2.00
per share or $840,000. GARI issued the 300,000 shares of
stock to Caragh in September 1995 and has received $610,674
from Caragh towards the subscription. As of June 30, 1996,
the Company had recorded a $229,326 stock subscription
receivable of which all was paid subsequent to year end.
Employee Stock Incentive Plan
On March 10, 1994, the Company's board of directors adopted
an employee stock incentive plan (the Plan). The Plan is a
noncompensatory plan as defined by APB No. 25 and allows
the issuance of incentive stock options to purchase up to
133,333 shares of Class A common stock to certain officers
and managers of the Company. The purchase price of the
Class A common stock underlying options granted pursuant to
the Plan will not be less than 100 percent of the fair
market value of the Class A common stock at the time the
options are granted. Furthermore, no options may be granted
under the Plan to an employee who, immediately after such
option is granted, owns stock possessing more than five
percent of the total combined voting power or value of all
classes of stock of the Company.
No stock options have been granted under the Plan.
Other Stock Options
On February 2, 1996, the Company granted stock options to
an officer of the Company to purchase 200,000 shares of the
Company's Class A common stock at an exercise price of
$3.50 per share. The stock options expire on January 1,
2003. Twenty-five percent of the stock options vest on
October 1, 1996 and an additional twenty-five percent vest
every year thereafter. Subsequent to June 30, 1996, the
Company terminated its service agreement with the officer
and the officer forfeited all but 50,000 of the stock
options.
F-27
<PAGE>
GREAT AMERICAN
HOTELS & RESORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
On February 15, 1996, the Company granted stock options to
the president of the Company to purchase 7,600,000 shares
of the Company's Class C common stock at an exercise price
of $2.01 per share. The stock options expire on June 30,
2016. Nine percent of the stock options vested on June 30,
1996 and an additional nine percent vest every year
thereafter.
<TABLE>
<CAPTION>
Grant Expiration Exercise Options Options
Date Date Price Granted Vested
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
February 2, 1996 January 1, 2003 $ 3.50 200,000 -
February 15, 1996 June 30, 2016 $ 2.01 7,600,000 690,909
-----------------------------------------------------------------------
Options outstanding, June 30, 1996 7,800,000 690,909
=======================================================================
</TABLE>
8. Income The Company has no tax provision for the years ended June
Taxes 30, 1996 and 1995 as the Company has losses in both of
those years.
The tax effect on components of the net deferred tax asset
is as follows:
<TABLE>
<CAPTION>
June 30, 1996
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net operating loss carryforwards $ 1,660,000
Basis of property and
equipment (66,000)
-----------------------------------------------------------------------
1,594,000
Valuation allowance (1,594,000)
-----------------------------------------------------------------------
Net deferred tax asset $ -0-
=======================================================================
</TABLE>
A 100 percent valuation allowance has been established to
reflect management's evaluation that it is more likely than
not that all of the deferred tax assets will not be
realized. During the year ended June 30, 1996 the Company's
valuation allowance for the net deferred tax asset
increased by $484,000.
At June 30, 1996, the Company had available net operating
loss carryforwards of approximately $4,426,000 for income
tax reporting purposes. The net operating loss
carryforwards expire through 2011. These carryforwards are
subject to various limitations imposed by the rules and
regulations of the Internal Revenue Service.
F-28
<PAGE>
GREAT AMERICAN
HOTELS & RESORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. Related Party Stockholder Benefit
Transactions
The Company provides certain benefits to its stockholders.
The benefits are summarized below:
Every stockholder of 1,000 shares or more of common stock
or preferred stock shall have the right to purchase a
coupon which shall entitle that stockholder up to six
consecutive night's lodging per 1,000 shares owned per
year in any one of the Company's hotel properties for the
cost of cleaning ($49) for as long as that stockholder
holds the shares.
Every stockholder of 2,000 shares or more of common stock
or preferred stock shall have the right to purchase a
coupon which shall entitle that stockholder up to six
consecutive night's lodging per 2,000 shares owned per
year in any of the Company's resort rental properties or
hotel properties for the cost of cleaning ($49) for as
long as that stockholder holds the shares.
The Company rents the properties to stockholders subject
to availability.
10. Commitments Operating Leases
and
Contingencies The Company leases equipment under noncancelable operating
leases which expire through February 2001. Future minimum
lease payments are as follows:
Years Ending June 30,
---------------------------------------------------------
1997 $ 54,600
1998 53,000
1999 48,900
2000 41,300
2001 14,100
---------------------------------------------------------
$211,900
=========================================================
Rent expense during the years ended June 30, 1996 and 1995
on all operating leases was approximately $20,800 and
$15,700.
F-29
<PAGE>
GREAT AMERICAN
HOTELS & RESORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Lease Agreement
On January 20, 1995, the Company entered into an agreement
to lease the casino and cabaret operations located within
the Cheers Hotel to BNC for a period of two years. BNC has
agreed to pay rent of $15,000 per month to the Company and
to be responsible for all revenues and operating costs
associated with the casino and cabaret with the exception
of utilities, real property taxes, real property insurance
premiums and expenses to maintain or repair the leasehold
structure. On July 1, 1995, the Company and BNC agreed to
eliminate the cabaret operations from the lease agreement
and to reduce the monthly payment to $7,500. For the years
ended June 30, 1996 and 1995, the Company recognized
$90,000 and $80,500 in lease income.
License Agreement
The Company entered into a license agreement with Ramada
Franchise Systems, Inc. ("Ramada") in April 1995 whereby
the Company's hotel in Reno, Nevada would be allowed to
operate as a Ramada Inn. This license agreement became
effective on March 5, 1996 and terminates March 4, 2001.
The Company is required to pay Ramada 4% of the monthly
gross room revenue. For the year ended June 30, 1996, the
Company's royalty expense was not significant.
Legal Proceedings
The Company has been named as a defendant in various legal
actions for which the claimants are seeking actual damages
in excess of $3,150,000. The Company believes the
allegations are without merit and intends to defend the
actions vigorously. In view of the state of the
litigations, management and counsel of the Company are
unable to determine the outcome of the actions or estimate
the amount of loss, if any. In addition, management and
counsel of the Company are unable to determine what effect
these legal actions will have on the Company. Accordingly,
no provision for any liability that may result has been
reflected in the accompanying financial statements.
F-30
<PAGE>
GREAT AMERICAN
HOTELS & RESORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
11. Significant In October 1994, the Company entered into an agreement to
Customer sell a total of 240,000 airline cards to Golden Hollywood
Company, Limited ("Golden"), a Hong Kong Corporation,
granting Golden the exclusive right to market the Company's
airline card in Asia and other territories. Golden agreed
to purchase the cards for $5 each and pay the Company
quarterly over a twelve-month period with the first
$300,000 purchase being September 30, 1994. Golden paid
$723,000 of the $1,200,000 due under the agreement and the
Company wrote-off the remaining amount due under the
contract since collection was uncertain. For the year ended
June 30, 1995, the Company recorded travel card sales of
$1,200,000 relating to the contract. There are no
assurances that similar contracts will be entered into by
the Company in the future.
12. Issuance of CI made the following direct issuances of its common
Stock by stock during the year ended June 30, 1995:
Subsidiary
Issuance of 270,000 shares of Class A common stock valued
at $293,077 for an investment in land located in Ireland.
The land was subsequently transferred to GARI at historical
cost plus an acquisition fee of approximately $50,000. See
Note 2.
Issuance of 1,230,000 shares of Class A common stock as a
deposit on an additional tract of land in Ireland. As
discussed in Note 2, 1,050,000 of the shares were returned
and cancelled in November 1995 and the remaining 180,000
shares are subscribed for $2.67 per share.
There were no transaction gains or losses in connection
with the above share issuances.
F-31
<PAGE>
GREAT AMERICAN
HOTELS & RESORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. Supplemental The following is a summary of non-cash investing and
Disclosures financing activities:
for the
Statements of Years Ended June 30, 1996 1995
Cash Flows -----------------------------------------------------------
Sales of property and equipment held
for sale for note receivable $206,859 $ -
Issuance of Class A common stock
for subscription receivable $229,326 $ -
Issuance of common stock in
settlement of liabilities $ 71,480 $ -
Acquisition of property and
equipment through mortgage
notes payable $ - $3,000,000
Acquisition of property
through issuance of Class
A common stock $ - $ 59,009
Subsidiary's stock
issued for land $ - $ 293,007
Gain recognized on sale
of subsidiary's stock $ - $ 62,110
Stock subscription
receivable offset against
Class A common stock $ - $ 91,334
Issuance of Class A
common stock due to be
issued as of June 30, 1994 $ - $ 399,469
===========================================================
For the years ended June 30, 1996 and 1995, the Company
paid interest of $506,319 and $293,919.
F-32
<PAGE>
GREAT AMERICAN
HOTELS & RESORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
14. Segment The reportable industry segments are as follows:
Information
GARI, GAROF and GAHR are in the business of real estate
rental operations and GARI is responsible for the management
of the operations and its subsidiaries.
GATN is in the business of travel card sales and travel
agency. For the year ended June 30, 1996, GATN's business
activities were not significant and therefore is not a
reportable industry segment.
The desegregated information about the Company's industry
segments as of and for the year ended June 30, 1995 is as
follows:
<TABLE>
<CAPTION>
Real Estate Travel Card and Eliminating Consolidated
Rental Travel Agency Entries Totals
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 732,963 $1,220,368 $ - $1,953,331
Operating loss $ (928,427) $ 359,040 $ (146,266) $ (715,653)
Identifiable assets $11,145,153 $ 351,360 $(2,715,388) $8,781,125
Depreciation and amortization $ 216,102 $ 42,616 $ (2,003) $ 256,715
Property and equipment
additions $ 4,457,993 $ - $ (187,500) $4,270,493
=======================================================================================================
</TABLE>
F-33
<PAGE>
GREAT AMERICAN
HOTELS & RESORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
15. Subsequent Land Purchase
Events
During September 1996, the Company formed a wholly-owned
subsidiary, Palisade Pointe Estates, Inc. ("Palisade"), a
Georgia corporation. On October 31, 1996, Palisade purchased
109 acres in Kula, Hawaii for $172,000 in cash and $833,000
mortgage note payable.
Preferred Stock Offering
During September 1996, through GAROF, the Company formed a
wholly-owned subsidiary, Gold Coast Security Trust
Properties, Inc. ("Gold Coast"), a Florida corporation. In a
private placement, Gold Coast offered to sell 1,000 shares
of its Class A 20% cumulative participating preferred shares
for $1,000 per share. Through the date of the auditors'
report, Gold Coast sold 938 shares for gross proceeds of
approximately $934,000.
16. Events On May 1, 1997, Gold Coast acquired 80 percent of the issued
(Unaudited) and outstanding common stock of Jacjon, Inc. ("Jacjon"), a
Subsequent Florida corporation. The remaining 20% of the issued and
to the Date outstanding common stock of Jacjon was acquired by an
of the Report outside investor. The purchase price was $1,188,590 in cash,
of Independent $3,233,091 in mortgage and notes payable and $480,122 in
Certified acquisition costs. Jacjon owns the Vero Beach Days Inn,
Public Super 8 and Poor Man's Castle Restaurant. The acquisition
Accountants was recorded using the purchase method of accounting by
which the assets are valued at fair market value at the date
of acquisition. The purchase price allocation is as follows:
-----------------------------------------------------------
Buildings $3,840,000
Land 680,000
Furniture, fixtures and equipment 280,000
Other assets 101,803
-----------------------------------------------------------
Total purchase price $4,901,803
===========================================================
F-34
<PAGE>
GREAT AMERICAN
HOTELS & RESORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In June 1997, the Company formed a majority owned
subsidiary, Orlando Security Trust, Ltd. ("Orlando"). The
Company owns 74.25% of the limited partners' interest and
100% of the general partner's interest for a total
ownership percentage of 75.25%. On June 27, 1997, Orlando
purchased 100% of ASIG, Inc., the sole corporate owner of
the Ramada Limited, Universal Studios, Orlando, Florida.
The purchase price was $451,016 in cash, $350,000 in note
payable and $242,789 in acquisition costs. This acquisition
was recorded using the purchase method of accounting by
which the assets are valued at fair market value at the
date of acquisition. The purchase price allocation is as
follows:
----------------------------------------------------------
Building $ 2,025,116
Land 354,263
Furniture, fixtures and equipment 264,375
Other assets 29,702
----------------------------------------------------------
2,673,456
Less:
Mortgage note payable 1,629,651
----------------------------------------------------------
Total purchase price $ 1,043,805
==========================================================
The following unaudited pro forma information presents the
consolidated results of operations of the Company as if the
acquisitions had occurred at the beginning of fiscal 1996.
The audited pro forma financial data does not purport to be
indicative of the results which actually would have been
obtained had the purchases been effected on the date
indicated or of the results which may be obtained in the
future.
Year ended June 30, 1996
----------------------------------------------------------
Revenues $ 4,206,153
Operating expenses (4,645,899)
Other expenses (640,717)
Minority interest in income of
consolidated subsidiaries (25,699)
----------------------------------------------------------
Loss from operations $(1,106,162)
==========================================================
Loss per share of common stock
from operations $ (.49)
==========================================================
F-35
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 551,387
<SECURITIES> 0
<RECEIVABLES> 479,621
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,357,339
<PP&E> 6,366,651
<DEPRECIATION> 441,142
<TOTAL-ASSETS> 7,944,853
<CURRENT-LIABILITIES> 1,072,539
<BONDS> 0
0
766,680
<COMMON> 5,565,638
<OTHER-SE> 211,875
<TOTAL-LIABILITY-AND-EQUITY> 7,944,853
<SALES> 0
<TOTAL-REVENUES> 923,797
<CGS> 0
<TOTAL-COSTS> 2,333,705
<OTHER-EXPENSES> 254,330
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 646,704
<INCOME-PRETAX> (1,500,188)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,500,188)
<DISCONTINUED> 0
<EXTRAORDINARY> 273,261
<CHANGES> 0
<NET-INCOME> (1,226,927)
<EPS-PRIMARY> (.54)
<EPS-DILUTED> (.54)
</TABLE>
