ITEM 1. BUSINESS.
The Registrants are comprised of Homefree Village Resorts, Inc. (the "Company") and Homefree Investors L.P. (the "Partnership"), a limited partnership formed by the Company in 1987.
The shares of common stock, par value of $.001 per share, of the Company (the "Common Stock") and the assignee limited partnership interests, par value of $.001 per unit ("Assignee Limited Partnership Interest"), are "paired" on a one-for-one basis and may only be transferred in units ("Paired Shares") consisting of one share of Common Stock and one Assignee Limited Partnership Interest.
BUSINESS OF THE COMPANY
General
The Company is engaged primarily in the development and operation of adult recreational communities containing rental sites for manufactured homes and recreational homes. In recent years, the Company has focused on the development of recreational resort communities in Mesa, Arizona which offer extensive recreational facilities and social activities designed to appeal to active pre- retirement and retirement age people. During 1994 the Company operated and had interests in one community containing a total of approximately 832 rental sites located in Arizona. The Company also has interests in two communities containing approximately 2,300 rental sites located in Arizona. The Company has interests in such communities through Aristek Properties, Ltd., Aristek Western Properties Limited Partnership, and other affiliated partnerships in which the Company is the General Partner. The Company's objectives are to create and participate, through such partnerships, in the cash flow from these communities and share in appreciation in the value of such properties. The Company also receives income from development, management and administrative services.
Organization
The Company is a Delaware corporation which was organized in February 1972. The Company has been engaged in the business of operating manufactured home communities since its organization. In 1977, the Company, then called Metrix, Inc., acquired all of the capital stock of Aristek Real Estate Corporation in exchange for 6,230,000 shares of Common Stock of the Company which were issued to the stockholders of that corporation, including 4,449,600 shares to Craig M. Bollman, Jr. and Phyllis A. Bollman. The name of the Company was changed to "Aristek Corporation" and
subsequently changed in 1981 to "Aristek Communities, Inc." In November 1986 the name was again changed to "Homefree Village Resorts, Inc." Aristek Real Estate Corporation itself was engaged in the development and operation of manufactured home communities from 1974 to 1977. Since 1977, the business of the Company has continued to consist primarily of the development and operation of such communities. However, in recent years, the Company has refocused its business on adult recreational communities containing rental sites for manufactured homes. The Company conducts a substantial portion of its business through the affiliated limited partnerships described below.
The Company owns 100% of the capital stock of Resortparks of America, Inc. ("Resortparks"), a Delaware corporation organized in September 1982 to engage in the design, development and management of adult recreational communities offering extensive recreational facilities and social activities to pre-retirement and retirement age people. References herein to the Company include the Company and Resortparks.
In July 1987, the Company formed Homefree Investors L.P., a Delaware limited partnership. The general partner of Homefree Investors L.P. is Homefree General Partners, a Delaware general partnership, comprised of the Company and Bollman Associates, Inc., a Delaware corporation, all of the capital stock of which is owned by Craig M. Bollman, Jr., President and Chairman of the Board of the Company. The shares of Common Stock of the Company and assignee limited partnership interests in Homefree Investors L.P. have been "paired" to trade only as a unit. When it formed the Partnership, the Company intended to conduct its business in conjunction with the Partnership. However, the Partnership never commenced operations.
Affiliated Partnerships
Aristek Properties, Ltd. The principal affiliated partnership of the Company is Aristek Properties, Ltd. ("Aristek Properties"). Aristek Properties was formed as a Colorado limited partnership in June 1976. The Company holds a 1% interest in Aristek Properties as sole General Partner and an additional 1% interest as a limited partner. Resortparks also owns a 1.3% interest as a limited partner. The remaining 96.7% of limited partnership interests is held by individual limited partners. The Company also held a 30% residual interest in Aristek Properties, which it recently relinquished. See BUSINESS - Residual Interests in Partnerships.
Although Aristek Properties has provided significant income tax benefits to its limited partners, Aristek Properties' primary objective is to create significant long-term capital appreciation which may be realized by the limited partners and the Company, as General Partner, through net proceeds from refinancing of the properties and, ultimately, net proceeds from the sale of such properties or the conversion of such properties to other residential or commercial uses and the distribution of the resulting cash to the partners. The Company, as General Partner of Aristek Properties, is also entitled to receive an
annual administrative fee (currently an amount equal to 2.5% of the capital contributions of the partners), leasing commissions, management fees and development fees.
Aristek Properties has a 99% interest in Monte Vista I Joint Venture, an Arizona joint venture ("MVI"). The remaining interest in MVI is owned by the Company. Previously, Aristek Properties owned 60% and Aristek Western owned 40% of MVI. Aristek Western transferred to Aristek Properties and to the Company its 40% interest in MVI, 39% to Aristek Properties, and 1% to the Company.
The interests in MVI were modified again in connection with a restructuring of certain loans owed by Aristek Properties and MVI to the Company. The obligors on such loans were not able to make principal and interest payments. With the consent of most of the limited partners of Aristek Properties, the Company agreed to extend these loans until June 30, 1998 in return for a 7% annual interest rate and a 75% participation in MVI's operating cash flow, and in its net sale or refinancing proceeds after all liabilities (including those payable to the Company) are satisfied. At the time of the restructuring, the net amounts owed to the Company by MVI were approximately $4,053,341. The Company believes that such amount exceeded the value of the net assets of MVI, after payment of MVI's other liabilities. Aristek Properties has no material assets other than its interest in MVI. Since the Company is a creditor of both Aristek Properties and MVI as described above, the Company expects to be entitled to substantially all of the equity value of MVI in excess of MVI's existing first mortgage.
In connection with obtaining such consent of the limited partners of Aristek Properties, such consenting limited partners granted to the Company, or its designee, an option to purchase their limited partnership interests in Aristek Properties. The option must be exercised by the Company between January 1, 1997 and November 30, 1998. The purchase price will be equal to the greater of $20,000 per limited partner Unit (an original $100,000 investment) or the fair market value (based on appraisal) of such limited partnership unit. Holders of twenty-six and one-half (26.5) Units granted the above described option, which would result in a minimum total purchase price for all such Units of $530,000.
Aristek Western Properties Limited Partnership. The Company formed Aristek Western Properties Limited Partnership ("Aristek Western"), a Massachusetts limited partnership, in October 1984 for the purpose of acquiring, financing and developing or redeveloping adult recreational communities with affordable rental homesites for manufactured homes, located primarily in the Western and Southwestern United States. The Company has a 1% interest in Aristek Western as the General Partner, a 1.625% limited partnership interest and has residual equity interests as the General Partner and as a Special Limited Partner. See BUSINESS - Residual Interests in Partnerships.
Aristek Western purchased a 50% interest in a joint venture with an unaffiliated third party in July 1985. The joint venture purchased two adult recreational communities in Mesa, Arizona, named Good Life and Towerpoint. See Item 2
Item 2 - PROPERTIES. In September 1985, Aristek Western acquired from the Partnership a 30% interest in Monte Vista I Joint Venture. This interest was increased to 40% in July 1986. This 40% interest was transferred to Aristek Properties and the Company. See Item 1 - BUSINESS OF THE COMPANY - Affiliated Partnerships; Aristek Properties, Ltd.
Residual Interests in Partnerships
Aristek Properties, Ltd. Prior to the restructuring described above, as General Partner of Aristek Properties, the Company had a residual interest in Aristek Properties which entitled it to receive 30% of all excess cash flow from operations and net proceeds from the refinancing and sale of properties after distributions have been made to the limited partners in an amount equal to their initial capital investments. The Company relinquished its residual interest in Aristek Properties as part of the loan restructuring described above. As a result, the limited partners of Aristek Properties will be entitled to all distributions, but only after the Company receives its loan repayment and participating interest as described above.
Aristek Western Properties Limited Partnership. The Company has a direct residual interest in Aristek Western which entitles the Company to 30% of the excess cash flow from operations, refinancings and sales of properties when Aristek Western has made cash distributions to the limited partners of at least $65,000 per unit and the sum of the cash distributions per unit plus the product of the highest marginal Federal income tax rate in effect for each year times the aggregate net tax losses allocated per unit in each year equal the initial capital investment. Aristek Western has not yet made any cash distributions to its limited partners. The Company cannot presently predict when distributions will be made to the limited partners.
Financial Information about Industry Segments
For the last five fiscal years, the revenues, operating profit and identifiable assets of the Company have been attributable to one industry segment--real estate investment, management and development--conducted by the Company for its own account and on behalf of affiliated partnerships, joint ventures and unaffiliated third parties.
Development Activities
The Company, through Aristek Properties and in conjunction with Resortparks, developed a community for recreational homes and park model travel trailers in Mesa, Arizona, a city 20 miles east of Phoenix. The community, called Monte Vista, is
designed to appeal to active adults in the pre-retirement and retirement age groups and is recreation-oriented.
The Company planned a two-stage development process for Monte Vista. During the first stage, the Company developed 832 recreational home rental sites and extensive common facilities, including a 35,600 square foot social and recreation complex. This first stage is on 80 acres owned by Monte Vista I Joint Venture. Construction began in 1983 and was substantially completed in December 1984. Monte Vista opened for occupancy in January 1985.
During the second stage, the Company plans to develop additional manufactured home sites on a portion of 80 acres conveyed by Aristek Properties to Monte Vista I Joint Venture. Assuming that market conditions permit, the Company intends to pursue in the future the funding necessary to develop this second stage. See Item 2 - PROPERTIES.
Competition
The Company competes generally with all companies engaged in community development and home construction.
The three properties in Mesa, Arizona compete in what is regarded as a competitive market for adult recreation manufactured housing communities. The Company continues to compete in this market by offering special amenities and adult recreational and educational services.
Each of the Company's geographic markets includes competitors which are larger and have greater financial and other resources than the Company.
Personnel
During 1994 the Company employed two full-time employees. During 1994, the Company also employed between 27 and 55 additional full-time persons responsible for property operations. The compensation of these additional persons is borne by affiliated partnerships.
BUSINESS OF THE PARTNERSHIP
Homefree Investors L.P. (the "Partnership"), a Delaware limited partnership, was formed on July 20, 1987 for the purpose of engaging in certain aspects of future business opportunities of the type presently conducted by the Company. The general partner of the Partnership is Homefree General Partners, a Delaware general partnership comprised of Bollman Associates, Inc., a Delaware corporation organized in June 1987, and the Company.
To date, specific business plans for the Partnership have not been formulated, and the Partnership has generated no revenues. The Company anticipates that, where possible, in future real estate acquisitions the Partnership will acquire an ownership interest and the Company will manage operations. The Company has no plans to transfer the Company's assets to the Partnership.
The Agreement of Limited Partnership for the Partnership (the "Partnership Agreement") provides that it may engage in virtually any business activity, although the primary focus of its business is intended to be investment in real estate related activities, which may include, for example, investing in securities of other real estate companies and participating in condominium conversion programs. If the Partnership generates capital to invest, Homefree General Partners, the general partner of the Partnership, anticipates making investments in such areas. Although the Partnership has the power under state law to make investments in securities of other entities, the Partnership cannot be engaged primarily in the business of investing, reinvesting or trading in securities without subjecting itself to regulation under the Investment Company Act of 1940. In such event, the Partnership would be subject to the limitations and disclosure requirements of such act. The Partnership has no present intention to engage in activities which would cause it to become subject to regulation under the Investment Company Act of 1940 or to engage in non-real estate related activities.
The Partnership currently has no employees. The Partnership intends to utilize employees of the Company on an as-needed basis, and to contribute to the compensation of such persons on a pro-rata basis.
ITEM 2. PROPERTIES.
THE COMPANY
The Company, through Aristek Properties and other related limited partnerships, has ownership interests in the properties described below. The Company operates the Monte Vista property described below.
Monte Vista. Monte Vista is an adult recreational community located in Mesa, Arizona containing 832 sites for recreational homes. Most sites are leased on an annual basis to residents who leave their homes at the site year-round. Remaining sites are reserved for monthly and weekly rentals. Most residents and guests stay at the community during the months from November through April. During the peak months of January through March, Monte Vista reached 90% occupancy for the past five years. The effective average occupancy based on annual rental income is 89%. Monte Vista is owned by the Monte Vista I Joint Venture, which is owned 99% by Aristek Properties and 1% by the Company. At December 31, 1994 the property was subject to a mortgage in the amount of $4,492,900 held by a commercial lender.
Monte Vista II . In December 1983, the Company sold to Resortparks an 80-acre parcel on which the development of Monte Vista II is planned. See Item 1 - BUSINESS - Development Activities. This land was transferred in April 1990 to Aristek Properties, Ltd. This land was transferred to Monte Vista in October, 1991 and is subject to the above described mortgage.
Good Life Travel Trailer Resort . Good Life is an adult recreational community located in Mesa, Arizona containing 1,198 sites for recreational vehicles. Most sites are rented on an annual basis with the remainder rented on a monthly or weekly basis. Most residents stay at the community during the months from November through April. Good Life is owned by H-H Resorts Joint Venture, which is owned 50% by Aristek Western and 50% by Hankins Enterprises, an unaffiliated third party. Good Life is managed by Hankins Enterprises and has historically been 100% occupied from January through April and the effective average occupancy based on annual rental income is 97%. Good Life is subject to a mortgage in the principal amount of $9,225,600 held by a commercial lender.
Towerpoint Travel Trailer Resort. Towerpoint is an adult recreational community located in Mesa, Arizona containing 1,115 sites for recreational vehicles. Most sites are rented on an annual basis with the remainder rented on a monthly or weekly basis. Most residents stay at the community during the months from November through April. Towerpoint is owned by H-H Resorts Joint Venture and is managed by Hankins Enterprises. Towerpoint has historically been 100% occupied from November through April and the effective average occupancy based on annual rental income is 98%.
Towerpoint is subject to a mortgage in the amount of $9,225,600 held by a commercial lender.
THE PARTNERSHIP
The Partnership neither owns nor leases any properties.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
Neither the Company nor the Partnership is the subject of any legal proceedings.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANTS' "PAIRED SHARES" AND RELATED STOCKHOLDER MATTERS.
The Registrants' "Paired Shares"(symbol HMFRZ) are no longer traded in the over-the-counter market of the National Association of Securities Dealers Automated Quotation System (NASDAQ). The Registrant no longer receives information on the trading activity for the "Paired Shares."
There were approximately 549 record holders of the "Paired Shares" on June 8, 1995, as reported by the Registrants' transfer agent.
During the two years ended December 31, 1994, the Company declared no dividends.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
The following data has been extracted from the combined annual financial statements of the Company and the Partnership. Such selected financial data should be read in conjunction with the registrants' financial statement and related notes incorporated by reference into "Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA." As summarized in note 10 to the financial statements, the Company restated financial statements issued previously for the years ended December 31, 1993, 1992 and 1991. The financial data summarized below reflects the restated amounts.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
THE COMPANY
Historically, the Company has not required large amounts of working capital because the properties in which the Company has interests have been acquired, financed and improved by related entities.
During the past four years, the Company has used cash of $24,400 to $124,000 per year in connection with the Company's operating activities. During this period, the Company has also used cash of $4,000 to $10,000 per year to repay principal on long- term debt, and a total $28,000 in 1993 and $88,000 in 1994 under financing arrangements related to a land option contract. The remaining payment of $44,000 to exercise the option to acquire a parcel of land has been deferred until 1996.
The Company's investing activities have generated cash through the net collection of receivables from unconsolidated entities in each of the past four years, including $374,000 in 1994. In each of the last four years, the Company's investing activities have utilized cash of $34,000 to $113,000 in connection with loans to the Company's President. Management anticipates that a portion of these loans will be collected in 1995. Other uses of cash over the past four years have consisted of $35,000 to obtain the land option in 1993, $50,000 for a residual interest in Aristek Properties during 1994, and $23,000 for the purchase of office equipment. Management does not expect that the Company will be required to provide capital in 1995 for the Company's investments in Aristek Properties and Aristek Western, since both entities recently refinanced their debt obligations. Management believes the /company's liquidity needs for fiscal 1995 will be met primarily through the collection of loans receivable from unconsolidated entities. If the Company decides to undertake any significant development projects in 1995, It is expected that the initial financing will be derived from an equity offering, debt financing or a combination thereof. Management emphasizes that there is no assurance that the Company will be successful in obtaining such development financing.
THE PARTNERSHIP
At present, the Partnership has no liabilities and conducts no business and thus has no capital needs. While future business of the Partnership has not been determined, availability of capital will be considered if and when such business is determined.
RESULTS OF OPERATIONS
THE COMPANY
The Company and its affiliates serve as a real estate advisor, developer, manager and marketing agent and perform certain administrative functions for related entities. Principal sources of revenues are management and administrative fees, commissions, and cash flow participation from properties under its direction. See "Consolidated Statement of Operations" included in the financial statements included with this report.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
The Company incurred a $236,000 loss for the year ended December 31, 1994.
Total revenues for the year ended December 31, 1994 were $270,700 as compared to $285,100 for the year ended December 31, 1993. The decrease ($14,400) was attributable principally to a reduction in earnings of unconsolidated entities and management and administrative fees.
Total expenses for the year ended December 31, 1994 were $593,700 as compared to $477,100 for the previous year. The increase in expenses resulted from an additional provision for loss on receivables ($53,100) and an increase in general and administrative expenses of $83,100 partially offset by a decrease in losses from unconsolidated entities. The increase in general and administrative expenses includes an increase in accounting services and external audit fees of $33,000.
The effective tax rate used to calculate the net income tax benefit for 1994 was 27%. See note 4 to the financial statements for a summary of income taxes.
YEAR ENDED DECEMBER 31, 1993 COMPARED TO YEAR ENDED DECEMBER 31, 1992
The Company incurred a $149,000 loss for the year ended December 31, 1993.
Total revenues for the year ended December 31, 1993 were $285,100 as compared to $461,700 for the year ended December 31, 1992. This decrease was attributable principally to a management decision not to accrue management fees owed by APL in connection with management of the Monte Vista property because of the uncertainty of subsequent collection.
Total expenses for the year ended December 31, 1993 were $477,100 as compared to $519,400 for the previous year. The decrease ($42,300) was attributable principally to a reduction in general and administrative expenses of $22,700, and a decrease in interest expense of $28,200 due to the repayment of debt. Decreases in expenses were partially offset by increases in losses of unconsolidated entities and the provision for loss on receivables of $22,900 and $14,100, respectively. Additionally, in the Company's consolidated financial statements, the net investment in HILP was considered to be impaired since the partnership has not commenced its planned operations. See note 10 to the financial statements.
The effective tax rate used to calculate the net income tax benefit for 1993 was 22%. See note 4 to the financial statements for a summary of income taxes.
Effects of Inflation
Inflation has not had a material impact on the operations of the Company and management believes it will not have a material impact on future operations.
THE PARTNERSHIP
The Partnership has not commenced its planned operations.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial statements and supplementary data are included in Part IV of this report and are incorporated herein by reference.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
The Company's and the Partnership's 1990 financial statements were audited by Deloitte & Touche, independent certified public accountants. During 1994, the Company changed its auditors to HEIN + ASSOCIATES LLP, which audited the 1991, 1992, 1993 and 1994 financial statements included in this report.
There were no disagreements between management and the Company's independent auditors.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
THE COMPANY
(a) Identification of Directors
The following table sets forth the names, ages, positions, and periods of service of the directors of the Company. There are no arrangements or understandings pursuant to which any of the directors was or is to be selected as a director.
All directors are elected to serve until the next annual meeting of stockholders or until their successors are chosen and qualify, or until they resign or are replaced.
(b) Identification of Executive Officer
The name and age of the only executive officer of the Company, the position and office with the Company held by such person, and the periods served are as follows:
All officers are elected to serve until their successors are duly elected and qualified or until they resign or are replaced.
(c) Family Relationships
Craig M. Bollman, Jr. and Phyllis A. Bollman are married. No other family relationship exists among the directors or executive officers.
(d) Business Experience
The following is a brief account of the business experience of each executive officer and director for the past five or more years:
Craig M. Bollman, Jr. Mr. Bollman has been the Chairman of the Board of Directors of the Company since February 24, 1977. He served as President from February 24, 1977 to December 1, 1984 and resumed such office as of July 1986. In September 1974, Mr. Bollman founded Aristek Corporation (then called Aristek Real Estate Corporation), which specialized in working out distressed loan situations for major national institutional lenders. On February 24, 1977, Metrix, Inc., a publicly-held corporation engaged primarily in the business of operating manufactured home communities, acquired all of the capital stock of Aristek Corporation in exchange for 6,230,000 shares of its Common Stock. The name of Metrix, Inc. was changed to Aristek Corporation, then to Aristek Communities, Inc. and in 1987 to Homefree Village Resorts, Inc.
Phyllis A. Bollman . Mrs. Bollman has served as a director of the Company since February 24, 1977. Mrs. Bollman served as the president and a director of a departmental advisory board at Denver's University Hospital from 1982 until 1986 and was also on the Board of Directors of Colorado Contemporary Dance from 1983 until 1987. Neither of these organizations is a parent, subsidiary or other affiliate of the Company.
W. Phillip Marcum. Mr. Marcum has served as a director of the Company since December 11, 1979. On February 15, 1991, Mr. Marcum became President of Marcum Natural Gas Services, Inc., a firm providing services to natural gas concerns. Mr. Marcum previously was Senior Vice President of Corporate Finance of Boettcher & Co., Inc., an investment banking firm which he joined in November 1987. Prior to that Mr. Marcum served as Chairman of the Board, a director, President and Chief Executive Officer of MGF Oil Corporation, Midland, Texas ("MGF"), an oil and gas exploration and contract drilling company. Mr. Marcum is also a director of Mallon Resources Corporation, an oil, gas and mining company. None of these corporations is a parent, subsidiary or other affiliate of the Company.
Michael T. Oliver. Mr. Oliver has served as a director of the Company since November 28, 1977. Mr. Oliver joined PRA Securities Advisors, an investment advisory company specializing in publicly- traded real estate securities, as President in March 1988. Prior to that he served as Manager of Pension Realty Advisors, Inc. beginning in April 1987. From 1985 to April 1987 he served as Vice President at Kennedy Associates Real
Estate Counsel, Inc., a real estate advisor to pension plans, beginning February 15, 1985. None of these corporations is a parent, subsidiary or other affiliate of the Company.
Anthony B. Petrelli . Mr. Petrelli has served as a director of the Company since July 8, 1983. Mr. Petrelli is Senior Vice President and Manager of the Investment Banking Department for Neidiger, Tucker, Bruner, Inc., an investment banking firm, which he joined in June 1987. Prior to that he served as Senior Vice President and a director of Wall Street West, Inc., an investment banking firm, which he joined in March 1984 as Vice President, Manager of Broker & Business Development. From 1978 to March 1984, Mr. Petrelli was employed by Hanifen, Imhoff, Inc., an investment banking firm, as Executive Vice President and a director, where he was responsible for corporate finance and corporate underwriting. None of these corporations is a parent, subsidiary or other affiliate of the Company.
THE PARTNERSHIP
The general partner of the Partnership is Homefree General Partners, a Delaware general partnership comprised of Bollman Associates, Inc., and the Company. See DIRECTORS AND EXECUTIVE OFFICERS - THE COMPANY for information with respect to the directors and executive officers of the Company. Craig M. Bollman, Jr. is the sole director and executive officer of Bollman Associates, Inc.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
THE COMPANY
(a) Executive Compensation
Set forth below is a summary of the compensation paid to Craig M. Bollman, the Company's only executive officer, in each of the last three years:
(1)Cost of health and life insurance.
(b) Compensation of Directors
Four directors, Phyllis A. Bollman, Michael T. Oliver, W. Phillip Marcum and Anthony B. Petrelli, each received directors fees of $2,000 during the twelve months ended December 31, 1993, paid $500 per quarter. In addition, all directors receive $200 for each meeting of the Board of Directors they attend and are reimbursed for travel expenses incurred in attending such meetings. One meeting was held in the twelve months ended December 31, 1994. Directors are expected to receive similar compensation in 1995.
THE PARTNERSHIP
The Partnership presently has no executive officers. Homefree General Partners will be responsible for the duties customarily associated with the duties of executive officers of a corporation. Homefree General Partners is entitled to receive an annual administrative fee from the Partnership. Bollman Associates, Inc., all of the capital stock of which is owned by Craig M. Bollman, Jr., the President and Chairman of the Board and principal stockholder of the Company, is entitled to receive the annual $75,000 administrative fee when payable by the Partnership to Homefree General Partners for providing administrative services to the Partnership. Such fee is not payable until such time as there is available cash or upon liquidation of the Partnership.
Compensation to Homefree General Partners
The Partnership Agreement provides for the payment of an administrative fee to Homefree General Partners of $75,000 per annum. This fee is subject to adjustment by the Board of Directors of the Company and may be canceled in any year by the Board of Directors in its capacity as a general partner of Homefree General Partners. In return for this fee, Homefree General Partners will attempt to locate and negotiate investment opportunities for the Partnership, will attempt to arrange financing for such investments and will administer the affairs of the Partnership. The agreement of Homefree General Partners provides that the annual administrative fee will be payable to Bollman Associates, Inc. for providing services to the Partnership, as compensation for its role as a general partner of Homefree General Partners and for assuming the risks incident to such role. No amount of such fee was paid for the twelve months ended December 31, 1994. The Partnership Agreement also provides for reimbursement to Homefree General Partners of all expenses incurred by it in connection with the Partnership. To the extent that Bollman Associates, Inc. incurs expenses, it will be reimbursed by Homefree General Partners, which in turn will be reimbursed by the Partnership.
The agreement of Homefree General Partners provides that the Company will be entitled to 90% and Bollman Associates, Inc. will be entitled to 10% of Homefree General Partners' 1% interest in the Partnership.
In addition to the annual administrative fee and reimbursement of expenses, Homefree General Partners may enter into contracts with or perform other services for the Partnership. The partnership agreement between the partners of Homefree General Partners provides that no additional compensation will be payable to Bollman Associates, Inc. and that the Company in its capacity as a general partner of Homefree General Partners is entitled to all compensation for such additional services. The only compensation to be received by Bollman Associates, Inc. in connection with the Partnership Agreement is the reimbursement of expenses, the annual administrative fee and its share of profits and losses.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
THE COMPANY
(a) Security Ownership of Certain Beneficial Owners
As of May 31,1995, persons or groups known to the Company to own beneficially more than five percent of the issued and outstanding shares of Common Stock, which is the only class of voting securities of the Company, are set forth in the following table:
Shares of Common Stock Beneficially Owned on May 31, 1995
(1) The percentages shown are based upon 10,483,982 issued and outstanding shares of Common Stock. Craig M. Bollman, Jr. is not a holder of any option to purchase shares of Common Stock of the Company.
(b) Security Ownership of Management
The following table sets forth the shares of Common Stock of the Company beneficially owned by each director and by the directors and officers of the Company as a group as of May 31, 1995, and their percentage ownership thereof:
Shares of Common Stock Beneficially Owned on May 31, 1995
__________________________________
(1) The percentages shown for all directors and the directors and officers as a group are based upon 10,483,982 shares issued and outstanding as of May 31, 1995.
(2) The director owns beneficially less than 1% of the Common Stock.
THE PARTNERSHIP
The following table sets forth the assignee limited partnership interests of the Partnership beneficially owned by each director and by the directors and officers of the Company as a group as of May 31, 1995, and their percentage ownership thereof:
Assignee Limited Partnership Interest Beneficially Owned on May 31, 1995
_________________________
(1) The percentages shown for all other directors and the directors and officers as a group are based upon 10,483,982 assignee limited partnership interests issued and outstanding as of May 31, 1995.
(2) The director owns beneficially less than 1% of the assignee limited partnership interests.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(a) Certain Business Relationships
Bollman Associates, Inc. and the Company are the general partners of Homefree General Partners. Homefree General Partners is the general partner of the Partnership. Bollman Associates, Inc. is entitled to receive a $75,000 annual administrative fee to be paid by the Partnership to Homefree General Partners for administrative services, when and if such fee is paid by the Partnership. See Item 11, EXECUTIVE COMPENSATION - THE PARTNERSHIP. The aggregate amount owed by the Partnership to Bollman Associates, Inc. as of December 31, 1994 is $582,800. This amount has not been accrued as of December 31, 1994 inasmuch as there can be no assurance that the Partnership will have sufficient funds to meet the obligation. Craig M. Bollman, Jr., a director, President and Chairman of the Board of the Company, is the sole stockholder of Bollman Associates, Inc.
(b) Indebtedness of Management
The Company holds an interest-bearing notes from Craig M. Bollman, Jr., President and Chairman of the Board, in the aggregate amount of $520,900 at December 31, 1994. This indebtedness was incurred in connection with personal loans. This note bears interest at the "Applicable Federal Rate" which is the lowest rate permitted by the Internal Revenue Service without imputing interest on a transaction. The largest amount outstanding under these notes during fiscal 1994 was $520,900.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
b. Financial Statement Schedules.
None
Schedules have been omitted because they are not required or the information is included in the financial statements or notes thereto.
c. Reports on Form 8-K.
None
d. Exhibits.
THE COMPANY
3.1 Certificate of Amendment to Restated Certificate of Incorporation of Homefree Village Resorts, Inc. dated May 2, 1988. Incorporated by reference to Annual Report on Form lO-K for the year ended March 31, 1988.
3.2 Amendment to Restated Certificate of Incorporation of Homefree Village Resorts, Inc. Incorporated by reference to Quarterly Report on Form 10-Q for the quarter ended December 31, 1986.
Restated Certificate of Incorporation of Homefree Village Resorts, Inc. Incorporated by reference to Annual Report on Form 10-K for the year ended March 31, 1983.
3.3 Bylaws - Incorporated by reference to Annual Report on Form 10-K for the year ended March 31, 1981.
4.1 Certificate of Amendment to Restated Certificate of Incorporation of Homefree Village Resorts, Inc. (see Exhibit 3.1 hereto.) Incorporated by reference to Annual Report on Form 10-K for the year ended March 31, 1988.
4.2 Amended and Restated Agreement of Limited Partnership of Homefree Investors L.P. dated as of March 1, 1988. Incorporated by reference to Annual Report on Form 10-K for the year ended March 31, 1988.
4.3 Paired Share Certificate of Homefree Village Resorts, Inc. and Homefree Investors L.P. Incorporated by reference to Annual Report on Form 10-K for the year ended March 31, 1988.
4.4 Pairing Agreement dated March 31, 1988 between Homefree Village Resorts, Inc. and Homefree Investors L.P. Incorporated by reference to Annual Report on Form 10-K for the year ended March 31, 1988.
10.1 Partnership Administration Agreement dated May 2, 1988 between Homefree Investors L.P. and Homefree General Partners. Incorporated by reference to Annual Report on Form 10-K for the year ended March 31, 1988.
10.2 Letter Agreement for sale of Mesa, Arizona land dated November 11, 1987 between Homefree Village Resorts, Inc. and Aristek Western Properties Limited Partnership and Aristek Properties Limited. Incorporated by reference to Annual Report on Form 10-K for the year ended March 31, 1988.
22.1 The Company has a wholly-owned subsidiary, Resortparks of America, Inc., which was incorporated under the laws of Delaware in September 1982.
THE PARTNERSHIP
2.0 Proxy Statement of Homefree Village Resorts, Inc. (the "Proxy Statement"), filed with the Securities and Exchange Commission on March 8, 1988. Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1987.
3.1 Certificate of Limited Partnership of Homefree Investors L.P. Incorporated by reference to Exhibit 3.1 to Report on Form 10 of Homefree Investors L.P. ("Form 10") filed with the Securities and Exchange Commission on August 27, 1987.
3.2 Agreement of Limited Partnership of Homefree Investors L.P. Incorporated by reference to Exhibit 3.2 to Form 10.
3.3 Amended and Restated Agreement of Limited Partnership of Homefree Investors L.P. Incorporated by reference to Exhibit 3.3 to Form 10, as amended by Amendment No. 2 on Form 8 dated February 29, 1988 ("Amended Form 10").
4.0 Paired Share Certificate of Homefree Village Resorts, Inc. and Homefree Investors L.P. Incorporated by reference to Exhibit 4 to Amended Form 10.
10.0 Pairing Agreement. Incorporated by reference to Exhibit 10.0 to Amended Form 10.
10.1 Partnership Administration Agreement. Incorporated by reference to Exhibit 10.1 to Amended Form 10.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, each of the Registrants has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
HOMEFREE VILLAGE RESORTS, INC. HOMEFREE INVESTORS L.P.
By ----------------------------- By Homefree General Craig M. Bollman, Jr. Partners, its General Chairman of the Board Partner (Principal Executive Officer)
By Homefree Village Resorts, Inc., a General Partner Date: June 8, 1995 By ------------------------- Craig M. Bollman, Jr. President
Date: June 8, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrants and in the capacities and on the dates indicated:
- - ---------------------------------- ------------------------------------ Craig M. Bollman, Jr. Craig M. Bollman, Jr. Chairman of the Board Sole Director, (Principal Executive and Financial Officer) Bollman Associates, Inc. a General Partner of Dated: June 8, 1995 Homefree General Partners, General Partner of Homefree Investors L.P. (Principal Executive and Financial Officer)
Date: June 8, 1995
Majority of the Board of Directors
- - ---------------------------------- Craig M. Bollman, Jr. Director
Date: June 8, 1995
- - ---------------------------------- Phyllis A. Bollman Director
Date: June 8, 1995
- - ---------------------------------- W. Phillip Marcum Director
Date: June 8, 1995
- - ---------------------------------- Michael T. Oliver Director
Date: June 8, 1995
- - ---------------------------------- Anthony B. Petrelli Director
Date: June 8, 1995
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors Homefree Village Resorts, Inc. Denver, Colorado
We have audited the accompanying combined, consolidated and separate balance sheets of Homefree Village Resorts, Inc. (a Delaware Corporation) and subsidiaries and Homefree Investors L.P. (a Massachusetts limited partnership) as of December 31, 1994, 1993, 1992, and 1991, and the related combined, consolidated and separate statements of operations, stockholders' equity and partners' capital (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Company's and Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the combined, consolidated, and separate financial position of Homefree Village Resorts, Inc. and subsidiaries and Homefree Investors L.P. as of December 31, 1994, 1993, 1992, and 1991, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company and the partnership will continue as a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As discussed in Note 1 to the financial statements, the Company and the Partnership have suffered losses from inception, and anticipate the need for additional cash to fund operations. These conditions raise substantial doubt about the ability of the Company and the Partnership to continue as a going concern. Management's plans in regard to these matters are also discussed in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
HEIN + ASSOCIATES LLP
Denver, Colorado June 6, 1995
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HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
COMBINED BALANCE SHEETS
ASSETS
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
COMBINED BALANCE SHEETS
(CONTINUED)
LIABILITIES, STOCKHOLDERS' EQUITY AND PARTNERS' DEFICIT
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
S-3 HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
COMBINED STATEMENTS OF OPERATIONS
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
S-4 HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY AND PARTNERS' DEFICIT FOR THE YEARS ENDED DECEMBER 31, 1994, 1993, 1992, AND 1991
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SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
COMBINED STATEMENTS OF CASH FLOWS
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HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
COMBINED STATEMENTS OF CASH FLOWS (CONTINUED)
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
S-7 HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
S-8
HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
S-9 HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
S-10 HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1994, 1993, 1992, AND 1991
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SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
S-12 HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
S-13 HOMEFREE INVESTORS L.P.
BALANCE SHEETS
ASSETS
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HOMEFREE INVESTORS L.P.
STATEMENTS OF OPERATIONS
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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HOMEFREE INVESTORS L.P.
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993, 1992, AND 1991
________________________ * The General Partner's capital account is eliminated for purposes of the combined financial statements.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
S-16 HOMEFREE INVESTORS L.P.
STATEMENTS OF CASH FLOWS
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
S-17 HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION:
Paired Shares - Effective May 2, 1988, Homefree Village Resorts, Inc. and subsidiaries (the Company) and Homefree Investors L.P. (the Partnership), entered into a Pairing Agreement (the Agreement) which provided for the pairing of assignee limited partnership interests of the Partnership with shares of common stock of the Company. Subsequently, the Company funded a distribution of one assignee limited partnership interest of the Partnership for each share of common stock of the Company.
The shares of the Company's common stock, par value of $.001 per share, and the assignee limited partnership interests, par value of $.001 per unit, are "paired" on a one-for-one basis and may only be transferred in units (Paired Shares) consisting of one share of common stock and one limited partnership interest.
Continuing Operations - The accompanying financial statements have been prepared on a going concern basis which contemplates the realization of assets and liquidation of liabilities in the ordinary course of business. Additionally, the Company has experienced a significant decrease in revenues over the last several years due to cash flow difficulties experienced by Aristek Properties Limited (APL), an investment of the Company of which it is also general partner (see Note 3). APL has been unable to pay its management fee to the Company, as a result, the Company ceased accruing management fee revenues due from APL. The Company also has extended loans to help finance APL's operations, which has severely impacted the Company's liquidity. During 1994, the Company restructured debt arrangements with APL which provides that all of APL's available cash flow will be utilized to repay advances to the Company (see Note 8). As of December 31, 1994, the Company has a significant net receivable due from APL and is obligated to purchase the limited partners' interests in APL at a future date for a minimum of $530,000. Recovery of the Company's net receivable from and investment in APL is dependent upon further development of APL's underlying properties and for APL to ultimate achieve profitable operations on the sale of APL at a price in excess of its liabilities and partners investments.
Management has also taken action in recent years to reduce costs, including staff reductions, relocation of the corporate offices, and contracting out its accounting and administrative support functions. In addition, the principal operating property of APL, Monte Vista I Joint Venture (Monte Vista), recently obtained an additional $450,000 in bank financing, and deferred the due date on its total bank debt of $4,500,000 until December 1998. Management believes that these actions will enable the Company to continue as a going concern.
However, if the Company cannot ultimately achieve profitable operations, there is substantial doubt about the ability of the Company to continue as a going concern. The accompanying financial statements do not include any adjustments which might result from the outcome of this uncertainty.
Combined and Consolidated Financial Statements - The accompanying consolidated financial statements include the Company and its majority-owned subsidiaries. The combined financial statements include the accounts of the Partnership and the Company. All material intercompany balances and transactions have been eliminated. The Company's majority-owned subsidiaries are Resortparks of America, Inc. (RPA),
S-18 HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
which is 100% owned, and Homefree General Partners (HGP), which is 90% owned. The minority interest in HGP is not material.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Property, Furniture, and Equipment - Office furniture and equipment is recorded at cost. Depreciation is provided utilizing accelerated methods over the estimated useful lives of the related assets.
Investments in Unconsolidated Entities - Investments in unconsolidated entities, which are all less than 20% owned, are accounted for by the equity method because of the significance of the Company's influence as general partner over operating and financial policies of its investees. The Company does not recognize losses in excess of its (investment including loans and advances) in unconsolidated entities.
Organization Costs - Organization costs incurred in the formation of the Partnership were amortized using the straight-line method over five years.
Expenses - Costs of office space and certain employee salaries, shared by the corporation and affiliated entities, are borne by the entity utilizing the service.
Income Taxes - The Company accounts for income taxes under the liability method of SFAS No. 109, whereby current and deferred tax assets and liabilities are determined based on tax rates and laws enacted as of the balance sheet date. Deferred tax expense represents the net change in the deferred tax asset and liability accounts.
No provision for federal and state income taxes or related benefits has been made for the Partnership since the partnership's taxable income or loss is required to be reported in the income tax returns of the partners. The provision for income taxes will not bear a normal relationship to pre-tax operating results on a combined basis, since no provision for income taxes has been made for the Partnership.
Income (Loss) Per Share - The computation of net income (loss) per share is based on the weighted average number of shares of common stock and equivalent paired shares outstanding during the respective years. The effect of outstanding stock options on the computation of net income (loss) per share is antidilutive for all periods presented.
Cash and Equivalents - For purposes of the Statements of Cash Flows, the Company and the Partnership consider cash and equivalents to include all highly liquid debt instruments purchased with a maturity of three months or less.
S-19 HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
3. INVESTMENTS IN UNCONSOLIDATED ENTITIES:
APL was formed in 1976 and the Company is the sole general partner with a 1% general partner interest and a 2.3% limited partner interest. As general partner of APL, the Company has a 30% residual interest which entitles it to receive 30% of all excess cash flow from operations and net proceeds from the refinancing or sale of properties. APL's principal asset was a 60% joint venture interest in the Monte Vista I Joint Venture ("MVIJV"). Aristek Western Properties Limited Partnership ("AWP") owned the remaining 40% joint venture interest until December 1993 when APL increased its ownership to 99% and the company acquired the remaining 1% interest. MVIJV owns an adult recreational community containing 832 sites for recreational homes.
As summarized in Notes 5 and 8, the Company has entered into significant transactions with APL, resulting in $8.9 million of net receivables and $7.2 million of long-term debt at December 31, 1994 (see Notes 5 and 8). Due to significant uncertainties about the collectibility of the net receivables from APL, the Company suspended recording interest income, interest expense, and management fees effective January 1, 1992. As of December 31, 1994, APL owed the Company an additional $1.3 million, which represents the net amount of such items which are not recorded in the accompanying financial statements.
Effective June 30, 1994, the partners of APL consented to a restructuring of the intercompany loans whereby all of APL's excess cash flow will be utilized to repay outstanding advances. The interest rate was reduced from 8.1% to 7%, and the maturity date was extended to June 30, 1998. The parties to the intercompany loans agreed to provide set-off rights in the event of a default with respect to either the restructured notes or the underlying debt of MVIJV. APL also agreed to pay additional interest equal to 75% of the net proceeds from a refinancing or sale of the Monte Vista property, after repayment of all liabilities. In connection with the restructuring, the holders of 26.5 limited partner units of APL agreed to provide the Company with an option to purchase their units for a minimum purchase price of $20,000 per unit or a total of approximately $530,000. Based on an appraisal of the Monte Vista property which is required to be prepared at the date the Company exercises its option, the Company may be required to pay a higher price per unit. The Company is required to exercise its option between January 1, 1997 and November 30, 1998.
Unaudited condensed balance sheets and operating statements of APL are presented below (in thousands).
S-20 HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS
The Company also owns a 2.6% interest in AWP and is the general partner. AWP is a limited partnership with investments in real estate. Until 1994, the Company owned a 2.0% general partner interest in Grandview Club Ltd. (Grandview Club). The primary property held by Grandview Club was foreclosed on by a bank in 1991 and the partnership's affairs were concluded in 1994 when all remaining assets were liquidated.
S-21 HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
4. INCOME TAXES:
For income tax reporting purposes, the Company and RPA file a consolidated return.
The Company adopted the liability method of accounting for income taxes as prescribed by Statement of Financial Accounting Standards No. 109 (SFAS 109) effective January 1, 1991. Financial statements of prior years have not been restated to apply the new method retroactively. The cumulative effect of the change in accounting method had no material effect on net loss for the year ended December 31, 1991.
Deferred income taxes relate exclusively to long-term assets and liabilities and consist of the following as of December 31, 1994:
The composition of income tax benefit (expense) for the years ended December 31, is as follows:
S-22 HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
Following is a reconciliation of the Company's effective tax rate on consolidated income (loss) to the statutory U.S. Federal income tax rate for the years ended December 31:
As of December 31, 1994, the Company and RPA had a tax net operating loss carryforward of $_______. This loss carryforward will expire in 2006 through 2009 if not utilized to offset future taxable income of the Company and RPA.
5. LONG-TERM DEBT:
Long-term debt consists of the following:
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HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
The scheduled annual principal reductions of long-term debt are as follows:
6. STOCK INCENTIVE PLANS:
The Company has a stock option plan which enables officers and employees of the Company to purchase shares of common stock at its fair market value on the date of the grant. The Company has reserved a total of 1,250,000 shares for options which may be granted under the plan. Options may be exercised for a maximum term of ten years after the date of grant. At December 31, 1994, all options previously granted under the Plan had expired.
The Company also has a stock appreciation rights plan, whereby up to 250,000 rights may be awarded to certain directors, officers and employees. The plan entitles the holder of the rights to receive upon redemption, the increase, if any, of the market value of the Company's common stock at the redemption date over the market value at date of grant. Each right has a maximum term of ten years after the date of grant. One right is deemed the equivalent of one share of common stock. No rights have been granted as of December 31, 1994.
The Company's Profit Sharing Plan and Trust was discontinued and dissolved during the first quarter of 1991. No contributions were made for the year ended December 31, 1991.
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HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
7. LAND OPTION COSTS:
In October 1993, the Company entered into an option agreement for the purchase of a parcel of land which is adjacent to property owned by APL. Under the option agreement, the Company paid $38,200 for the option and agreed to loan an additional $125,000 to the seller. The option was originally exercisable until April 1, 1995 through the payment of an additional $46,800 and the application of the $125,000 loan to the purchase price. In March 1995, the parties agreed to extend the exercise period through May 1, 1996.
At December 31, 1994 and 1993, the Company recorded the total payments required to purchase the land as land option costs in the accompanying balance sheets. The required payments were discounted at 12% to arrive at a total cost for the land of $195,600.
8. RELATED-PARTY TRANSACTIONS:
Receivables from unconsolidated entities consist of the following:
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HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
In 1990, the Company entered into two separate like-kind exchange transactions with APL. In one transaction, the Company conveyed land to APL in return for cash and a note receivable for $3,317,800. The Company has deferred the gain of $488,500 on this transaction until sufficient cash payments are received by the Company on the note to qualify the transaction as a sale. In the second transaction, APL conveyed land to the Company in return for cash and a note payable of $7,154,500 (see Note 5). Also, in connection with this second transaction, the Company advanced (by delivering a certificate of deposit) $5,300,000 in the form of a note receivable to APL to enable APL to pay off bank debt it had on this property. The Company also made non-interest bearing advances to APL to enable it to finance its operating needs.
The collection of notes receivable and non-interest bearing advances from APL is dependent upon future events, including the ability of Monte Vista to develop certain additional land in a manner which will provide APL with a return of its capital after the repayment of loans made to Monte Vista. At December 31, 1990, management provided an allowance of $1,400,000 and $900,000 against these notes receivable and advances, respectively, due to the uncertainty of the successful outcome of this development project. In 1991, because of reservations regarding the ability of APL to continue operations with its existing debt level, $1,300,000 of the obligation from APL was forgiven by the Company with a corresponding reduction in the allowance previously provided.
Receivable from Officer and Administrative Fees - At December 31, 1994, the Company has a note receivable from the Company's president for $520,900. Due to the uncertainty of collection, the Company recognized a provision for loss equal to the annual cash advances plus accrued interest. The total loss recognized in the Company's statements of operations amounted to $128,700, $75,600, $61,500, and $280,700 for the years ended December 31, 1994, 1993, 1992, and 1991, respectively.
Pursuant to the Homefree Investors Limited Partnership Agreement, the Partnership is liable to pay an annual administrative fee of $75,000 per year to HGP, which in turn pays this fee to a general partner of HGP, which is an entity owned 100% by the president of the Company. Such administrative fee is not payable until the earlier of the date that, in the opinion of the general partners, the Partnership has sufficient cash to pay the fee without jeopardizing the Partnership or the Company, or upon liquidation of the Partnership. Due to the lack of operations and cash flows of the Partnership, no amounts are reflected in the accompanying financial statements. The total amount payable under this arrangement, is $582,800 including interest through December 31, 1994. In the event that the administrative fee is paid in the future, the Company's president has committed to utilize the proceeds to repay the receivables from officer discussed above. Since the
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HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
Company has already provided an allowance for loss on the receivables from the president, the future payment of the administrative fee would only result in a charge to operations to the extent by which such payment exceeds the receivables.
Revenues - The Company and its corporate subsidiaries serve as a real estate advisor, developer, manager and marketing agent and perform certain administrative functions for related entities. The Company's principal sources of revenue are fees, commissions and cash flow participation from properties under its supervision (see Note 3).
9. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS:
In March 1995, the Financial Accounting Standards Board issued a new Statement titled "Accounting for Impairment of Long-Lived Assets." This new standard is effective for years beginning after December 15, 1995 and establishes standards for determining impairment of long- lived assets, such as the Company's land option costs. Although the Company has not performed a detailed analysis of the impact of this new standard on the Company's financial statements, management estimates that the application of the new standard would not have a material impact on the Company's 1994 financial statements. The Company has not yet determined when it will adopt the new standard.
10. PRIOR PERIOD ADJUSTMENTS:
The Company has restated its previously issued financial statements for the years ended December 31, 1993, 1992, and 1991. The Company's combined and consolidated financial statements were restated to reflect adjustments to record a provision for loss on the receivable from an officer and director as discussed in Note 8, to correct the allowance for bad debts for other receivables, and to record the obligation under the land option contract discussed in Note 7. Additionally, the consolidated financial statements were adjusted to recognize impairment of the Company's investment in the Partnership. Presented below is a summary of the impact of these adjustments on the previously reported results of operations:
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HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS