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 1995 the Company operated and had interests in one community containing a total of approximately 832 rental sites located in Arizona. The Company also has interests in two communities containing approximately 2,300 rental sites located in Arizona. The Company has interests in such communities through Aristek Properties, Ltd., Aristek Western Properties Limited Partnership, and other affiliated partnerships in which the Company is the General Partner. The Company's objectives are to create and participate, through such partnerships, in the cash flow from these communities and share in appreciation in the value of such properties. The Company also receives income from development, management and administrative services.
RECENT DEVELOPMENTS
The Company has filed a Transaction Statement on Schedule 13E-3 and a related Information Statement under Regulation 14(c) in connection with a proposed going private transaction and related one-for-100,000 reverse stock split of the Company's Paired Shares. The Company is in the process of responding to written comments received from the Securities and Exchange Commission ("SEC"). The Company's Board of Directors has approved the proposed going private transaction and the stockholders have approved the reverse stock split by the written consent of Craig M. Bollman, Jr., the Company's majority stockholder. The Company's Board of Directors, however, may postpone or abandon the proposed going private transaction and related reverse stock split at any time prior to its consummation, for any reason, including without limitation, if in the Directors' sole judgment, consummation of the reverse stock split would unduly deplete the Company's working capital.
If the proposed reverse stock split is effected, it is anticipated that the Company will cease to be a reporting company under the Exchange Act. As a result, the Company would no longer file annual and quarterly reports, proxy statements, and other documents with the SEC. In addition, the Company would no longer be required to comply with the proxy rules of Regulation 14A promulgated under Section 14 of the Exchange Act, and its officers, directors, and 10%-or-greater stockholders would no longer be subject to the reporting requirements and "short-swing" security trading restrictions under Section 16 of the Exchange Act. Continuing stockholders will no longer be entitled to receive annual reports and proxy statements and will no longer have the benefit of a public market for their shares of the Company's stock.
ORGANIZATION
The Company is a Delaware corporation which was organized in February 1972. The Company has been engaged in the business of operating manufactured home communities since its organization. In 1977, the Company, then called Metrix, Inc., acquired all of the capital stock of Aristek Real Estate Corporation in exchange for 6,230,000 shares of Common Stock of the Company which were issued to the stockholders of that corporation, including 4,449,600 shares to Craig M. Bollman, Jr. and Phyllis A. Bollman. The name of the Company was changed to "Aristek Corporation" and subsequently changed in 1981 to "Aristek Communities, Inc." In November
1986 the name was again changed to "Homefree Village Resorts, Inc." Aristek Real Estate Corporation itself was engaged in the development and operation of manufactured home communities from 1974 to 1977. Since 1977, the business of the Company has continued to consist primarily of the development and operation of such communities. However, in recent years, the Company has refocused its business on adult recreational communities containing rental sites for manufactured homes. The Company conducts a substantial portion of its business through the affiliated limited partnerships described below.
The Company owns 100% of the capital stock of Resortparks of America, Inc. ("Resortparks"), a Delaware corporation organized in September 1982 to engage in the design, development and management of adult recreational communities offering extensive recreational facilities and social activities to pre-retirement and retirement age people. References herein to the Company include the Company and Resortparks.
In July 1987, the Company formed Homefree Investors L.P., a Delaware limited partnership. The general partner of Homefree Investors L.P. is Homefree General Partners, a Delaware general partnership, comprised of the Company and Bollman Associates, Inc., a Delaware corporation, all of the capital stock of which is owned by Craig M. Bollman, Jr., President and Chairman of the Board of the Company. The shares of Common Stock of the Company and assignee limited partnership interests in Homefree Investors L.P. have been "paired" to trade only as a unit. When it formed the Partnership, the Company intended to conduct its business in conjunction with the Partnership. However, the Partnership never commenced operations.
AFFILIATED PARTNERSHIPS
Aristek Properties, Ltd. The principal affiliated partnership of the Company is Aristek Properties, Ltd. ("Aristek Properties"). Aristek Properties was formed as a Colorado limited partnership in June 1976. The Company holds a 1% interest in Aristek Properties as sole General Partner and an additional 1% interest as a limited partner. Resortparks also owns a 1.3% interest as a limited partner. The remaining 96.7% of limited partnership interests is held by individual limited partners. The Company also held a 30% residual interest in Aristek Properties, which it recently relinquished. See BUSINESS -Residual Interests in Affiliated Partnerships.
Although Aristek Properties has provided significant income tax benefits to its limited partners, Aristek Properties' primary objective is to create significant long-term capital appreciation which may be realized by the limited partners and the Company, as General Partner, through net proceeds from refinancing of the properties and, ultimately, net proceeds from the sale of such properties or the conversion of such properties to other residential or commercial uses and the distribution of the resulting cash to the partners. The Company, as General Partner of Aristek Properties, is also entitled to receive an annual administrative fee (currently an amount equal to 2.5% of the capital contributions of the partners), leasing commissions, management fees and development fees. However, this fee has not been paid since 1993.
Aristek Properties has a 99% interest in Monte Vista I Joint Venture, an Arizona joint venture ("MVI"). The remaining interest in MVI is owned by the Company. Previously, Aristek Properties owned 60% and Aristek Western Properties Limited Partnership ("Aristek Western") owned 40% of MVI. Aristek Western transferred to Aristek Properties and to the Company its 40% interest in MVI, 39% to Aristek Properties, and 1% to the Company.
The interests in MVI were modified again in connection with a restructuring of certain loans owed by Aristek Properties and MVI to the Company. The obligors on such loans were not able to make principal and interest payments. With the consent of most of the limited partners of Aristek Properties, the Company agreed to extend these loans until June 30, 1998 in return for a 7% annual interest rate and a 75% participation in MVI's operating cash flow, and in its net sale or refinancing proceeds after all liabilities (including those payable to the Company) are satisfied. At the time of the restructuring, the net amounts owed to the Company by MVI were approximately $4,053,341. The Company believes that such amount exceeded the value of the net assets of MVI, after payment of MVI's other liabilities. Aristek Properties has no material assets other than its interest in MVI. Since the Company is a creditor of both Aristek Properties and MVI as described above, the Company expects to be entitled to substantially all of the equity value of MVI in excess of MVI's existing first mortgage.
In connection with obtaining such consent of the limited partners of Aristek Properties, such consenting limited partners granted to the Company, or its designee, an option to purchase their limited partnership interests
in Aristek Properties. The option may be exercised by the Company between January 1, 1997 and November 30, 1998; in any event, the Company is required to exercise the option by November 30, 1998. The purchase price will be equal to the greater of $20,000 per limited partner Unit (an original $100,000 investment) or the fair market value (based on appraisal) of such limited partnership unit. Holders of twenty-six and one-half (26.5) Units granted the above described option, which would result in a minimum total purchase price for all such Units of $530,000.
Aristek Western Properties Limited Partnership. The Company formed Aristek Western Properties Limited Partnership ("Aristek Western"), a Massachusetts limited partnership, in October 1984 for the purpose of acquiring, financing and developing or redeveloping adult recreational communities with affordable rental homesites for manufactured homes, located primarily in the Western and Southwestern United States. The Company has a 1% interest in Aristek Western as the General Partner, a 1.625% limited partnership interest and has residual equity interests as the General Partner and as a Special Limited Partner. See BUSINESS - Residual Interests in Affiliated Partnerships.
Aristek Western purchased a 50% interest in a joint venture with an unaffiliated third party in July 1985. The joint venture purchased two adult recreational communities in Mesa, Arizona, named Good Life and Towerpoint. See Item 2
Item 2 - PROPERTIES. In September 1985, Aristek Western acquired from the Partnership a 30% interest in Monte Vista I Joint Venture. This interest was increased to 40% in July 1986. This 40% interest was transferred to Aristek Properties and the Company. See Item 1 - BUSINESS OF THE COMPANY -Affiliated Partnerships; Aristek Properties, Ltd.
RESIDUAL INTERESTS IN AFFILIATED PARTNERSHIPS
Aristek Properties, Ltd. Prior to the restructuring described above, as General Partner of Aristek Properties, the Company had a residual interest in Aristek Properties which entitled it to receive 30% of all excess cash flow from operations and net proceeds from the refinancing and sale of properties after distributions have been made to the limited partners in an amount equal to their initial capital investments. The Company relinquished its residual interest in Aristek Properties as part of the loan restructuring described above. As a result, the limited partners of Aristek Properties will be entitled to all distributions, but only after the Company receives its loan repayment and participating interest as described above.
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 MVI. Construction began in 1983 and was substantially completed in December 1984. Monte Vista opened for occupancy in January 1985.
During the second stage, the Company plans to develop additional manufactured home sites on a portion of 80 acres conveyed by Aristek Properties to MVI, but such development is subject to the Company's ability to obtain financing for this development. There can be no assurance that the Company can obtain such financing. See Item 2 - PROPERTIES.
COMPETITION
The Company competes generally with all companies engaged in community development and home construction.
The three properties in Mesa, Arizona compete in what is regarded as a competitive market for adult recreation manufactured housing communities. The Company continues to compete in this market by offering special amenities and adult recreational and educational services.
Each of the Company's geographic markets includes competitors which are larger and have greater financial and other resources than the Company.
PERSONNEL
During 1995 the Company employed two full-time employees. During 1995, the Company also employed between 27 and 55 additional full-time persons responsible for property operations. The compensation of these additional persons is borne by affiliated partnerships.
BUSINESS OF THE PARTNERSHIP
Homefree Investors L.P. (the "Partnership"), a Delaware limited partnership, was formed on July 20, 1987 for the purpose of engaging in certain aspects of future business opportunities of the type presently conducted by the Company. The general partner of the Partnership is Homefree General Partners, a Delaware general partnership comprised of Bollman Associates, Inc., a Delaware corporation organized in June 1987, all of the capital stock of which is owned by Craig M. Bollman, Jr., President and Chairman of the Board of the Company, and the Company.
To date, specific business plans for the Partnership have not been formulated, and the Partnership has generated no revenues. The Company anticipates that, where possible, in future real estate acquisitions the Partnership will acquire an ownership interest and the Company will manage operations. The Company has no plans to transfer the Company's assets to the Partnership.
The Agreement of Limited Partnership for the Partnership (the "Partnership Agreement") provides that it may engage in virtually any business activity, although the primary focus of its business is intended to be investment in real estate related activities, which may include, for example, investing in securities of other real estate companies and participating in condominium conversion programs. If the Partnership generates capital to invest, Homefree General Partners, the general partner of the Partnership, anticipates making investments in such areas. Although the Partnership has the power under state law to make investments in securities of other entities, the Partnership cannot be engaged primarily in the business of investing, reinvesting or trading in securities without subjecting itself to regulation under the Investment Company Act of 1940. In such event, the Partnership would be subject to the limitations and disclosure requirements of such act. The Partnership has no present intention to engage in activities which would cause it to become subject to regulation under the Investment Company Act of 1940 or to engage in non-real estate related activities.
The Partnership currently has no employees. The Partnership intends to utilize employees of the Company on an as-needed basis, and to contribute to the compensation of such persons on a pro-rata basis.
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 was approximately 95% during 1995. Monte Vista is owned by MVI, which is owned 99% by Aristek Properties and 1% by the Company. At December 31, 1995 the property was subject to a mortgage in the amount of $5,015,345 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. This land was transferred to MVI 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 was 97% in 1995. At December 31, 1995, Good Life, together with the Towerpoint property described below, was subject to a mortgage in the principal amount of $9,122,124 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 was 98% in 1995. At December 31, 1995, Towerpoint, together with the Good Life property described above, was subject to a mortgage in the amount of $9,122,124 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 548 record holders of the "Paired Shares" on December 31, 1995, as reported by the Registrants' transfer agent.
During the two years ended December 31, 1995, 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.".
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 three years, the Company has used cash of $176,500 to $413,300 per year in connection with the Company's operating activities. In each of the last three years, cash used for operating activities has included amounts ranging from $62,500 to $210,200 in connection with loans to the Company's President. During 1995, amounts aggregating $433,200 were applied as repayment of these loans. See Note 8 to the Financial Statements for a summary of loan activity and further discussion.
During the three-year period, the Company has also used cash of $4,800 to $10,600 per year to repay principal on long- term debt, and a total $27,700 in 1993 and $88,400 in 1994 under financing arrangements related to a land option contract. The remaining payment of $44,000 to exercise the option to acquire a parcel of land has been deferred until 1997. Cash generated from financing activities totalled $150,500 in 1995. Pursuant to an agreement between Aristek Western and the Company, the partnership borrowed this amount from Aristek Western and loaned the proceeds to the Company. It is anticipated that this obligation will be repaid prior to end of the 1996 second quarter.
The Company's investing activities have generated cash through the net collection of receivables from unconsolidated entities in each of the past three years, including $299,000 in 1995. Other uses of cash over the past three 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 $29,700 for the purchase of office equipment from a third party. Management does not expect that the Company will be required to provide capital in 1996 for the Company's investments in Aristek Properties and Aristek Western, since both entities recently refinanced their debt obligations.
The Company believes that it will be able to continue as a going concern. The Company is presently completing a response to the SEC's comments to its "going private". If completed this transaction will result in the Company's savings of approximately $50,000 per year in direct accounting, legal and administrative costs, along with a savings of considerable management time, thereby improving the Company's cash flow and efficiency of management. Further, the Company expects that improved operations of the Monte Vista project will generate additional cash flow, thereby resulting in additional repayment of the Company's loans to Aristek Properties and MV I. MV I also recently restructured its first mortgage debt, and generated additional financing, which will improve the Company's liquidity. The Company will also continue to reduce personnel and administrative costs, so as to minimize cash outflow until new sources of revenues can be obtained. The Company itself does not have long term debt and therefore, has no long term liquidity requirements. Aristek Properties Ltd. and Aristek Western Properties, in which the Company has an interest, are separate entities and have long term debt which the Company believes can be satisfied from the assets of the two entities.
The Company's debt from affiliated entities was restructured in 1994. See Note 3 to the Financial Statements for a discussion of the provisions of such restructuring.
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, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
The Company incurred a $231,600 loss for the year ended December 31, 1995.
Total revenues for the year ended December 31, 1995 were $268,500 as compared to $270,700 for the year ended December 31, 1994.
The decrease ($2,200) was attributable principally to a reduction in interest income partially offset by nominal increases in management and administrative fees and equity in earnings of unconsolidated entities.
Management and administrative fees earned by the Company during 1995 are summarized below:
Management fees earned by the Company during 1995 in connection with H-H Resorts' operation were calculated at 1.5% of the property's gross annual receipts ($5,491,900). Management fees earned by the Company during 1995 in connection with Monte Vista operations are calculated at 3.0% of the property's gross annual receipts ($2,051,100). Administrative fees earned during 1995 totalled $100,000 and were related to administrative functions for Aristek Western.
Management and administrative fees earned by the Company during 1994 are summarized below:
Management and administrative fees for 1994 were calculated on the same basis as those for 1995. Gross receipts for H-H Resorts and Monte Vista totaled $5,435,800 and $2,081,700 respectively for 1994.
See (Item 2 PROPERTIES) for a discussion concerning occupancy rates for the properties.
Total expenses for the year ended December 31, 1995 were $700,100 as compared to $593,700 for the previous year. The increase in expenses resulted principally from losses of $93,600 recorded in connection with related party receivables and administrative fees. The receivables from officer and administrative fees are more fully described in Note 8 to the Financial Statements.
The effective tax rate used to calculate the net income tax benefit for 1995 was 49%. See Note 4 to the Financial Statements for a summary of income taxes.
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. 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.
Management and administrative fees for 1994 ($244,600) were $8,800 below 1993 levels principally because of a decision not to accrue management fees owed by APL. Gross receipts from operations of the H-H Resorts and Monte Vista properties totalled $5,255,100 and $1,969,300 respectively for 1993.
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 principally from an additional provision for loss on receivables ($53,100) and an increase in general and administrative expenses of $45,900 and an increase in equity in losses of APL ($13,000). 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.
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.
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 1995 financial statement.
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. In 1994, the Company changed its auditors to HEIN + ASSOCIATES LLP, which audited the 1991 and 1992, and the 1993, 1994 and 1995 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.
During the year 1995, the Company had a Board of Directors consisting of Craig M. Bollman, Jr., Phyllis A. Bollman, W. Phillip Marcum, Michael T. Oliver and Anthony B. Petrelli. Messrs. Marcum, Oliver and Petrelli resigned from the Board as of February 18, 1996, at which time the Board was reduced to three members and Taylor M. Bollman was elected as the third director.
(B) IDENTIFICATION OF EXECUTIVE OFFICER
The name and age of the only executive officer of the Company, the position and office with the Company held by such person, and the periods served are as follows:
All officers are elected to serve until their successors are duly elected and qualified or until they resign or are replaced.
(C) FAMILY RELATIONSHIPS
Craig M. Bollman, Jr. and Phyllis A. Bollman are married, Taylor M. Bollman is Mr. and Mrs. Bollman's son. 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. Neither of these organizations is a parent, subsidiary or other affiliate of the Company.
TAYLOR M. BOLLMAN. Mr. Bollman will attend Harvard college in the fall of 1996.
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.
(2) Represents payments by Bollman Associates, Inc. to Mr. Bollman of accrued administrative fees payable by the Partnership to Homefree General Partners.
(B) COMPENSATION OF DIRECTORS
Phyllis A. Bollman, a current director, and Messrs. Marcum, Oliver and Petrelli, former directors, each received directors fees of $2,000 during the twelve months ended December 31, 1995. Taylor M. Bollman was not a director in 1995, and received no fees of any type. One meeting was held in the twelve months ended December 31, 1995. 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, 1995. Directors are expected to receive similar compensation in 1996.
THE PARTNERSHIP
The Partnership presently has no executive officers. Homefree General Partners will be responsible for the duties customarily associated with the duties of executive officers of a corporation. Homefree General Partners is entitled to receive an annual administrative fee from the Partnership. Bollman Associates, Inc., all of the capital stock of which is owned by Craig M. Bollman, Jr., the President and Chairman of the Board and principal stockholder of the Company, is entitled to receive the annual $75,000 administrative fee when payable by the Partnership to Homefree General Partners for providing administrative services to the Partnership. Such fee is not payable until such time as there is available cash or upon liquidation of the Partnership.
COMPENSATION TO HOMEFREE GENERAL PARTNERS
The Partnership Agreement provides for the payment of an administrative fee to Homefree General Partners of $75,000 per annum. This fee is subject to adjustment by the Board of Directors of the Company and may be canceled in any year by the Board of Directors in its capacity as a general partner of Homefree General Partners. In return for this fee, Homefree General Partners will attempt to locate and negotiate investment opportunities for the Partnership, will attempt to arrange financing for such investments and will administer the affairs of the Partnership. The agreement of Homefree General Partners provides that the annual administrative fee will be payable to Bollman Associates, Inc. for providing services to the Partnership, as compensation for its role as a general partner of Homefree General Partners and for assuming the risks incident to such role. Such fees aggregating $210,200 were paid for the twelve months ended December 31, 1995. 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. Homefree General Partners has not incurred any expenses on behalf of the Partnership for which it would be entitled to reimbursement.
The agreement of Homefree General Partners provides that the Company will be entitled to 90% and Bollman Associates, Inc. will be entitled to 10% of Homefree General Partners' 1% interest in the Partnership.
In addition to the annual administrative fee and reimbursement of expenses, Homefree General Partners may enter into contracts with or perform other services for the Partnership. The partnership agreement between the partners of Homefree General Partners provides that no additional compensation will be payable to Bollman Associates, Inc. and that the Company in its capacity as a general partner of Homefree General Partners is entitled to all compensation for such additional services. The only compensation to be received by Bollman Associates, Inc. in connection with the Partnership Agreement is the reimbursement of expenses, the annual administrative fee and its share of profits and losses.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
THE COMPANY
(A) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of May 19, 1996, 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:
(1) The percentages shown are based upon 10,483,982 issued and outstanding shares of Common Stock as of May 19, 1996. Craig M. Bollman, Jr. is not a holder of any option to purchase shares of Common Stock of the Company.
(2) With respect to shares held by The Aristek Foundation, Mr. Bollman has sole voting and investment power, but in which he has no pecuniary interest. Mr. Bollman disclaims beneficial ownership of the shares held by The Aristek Foundation.
(B) SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the shares of Common Stock of the Company beneficially owned by each director and by the directors and officers of the Company as a group as of May 19, 1996, and their percentage ownership thereof:
(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 19, 1996.
(2) With respect to shares held by The Aristek Foundation, Mr. Bollman has sole voting and investment power, but in which he has no pecuniary interest. Mr. Bollman disclaims beneficial ownership of the shares held by The Aristek Foundation.
THE PARTNERSHIP
The following table sets forth the assignee limited partnership interests of the Partnership beneficially owned by each director and by the directors and officers of the Company as a group as of May 19, 1996, and their percentage ownership thereof:
ASSIGNEE LIMITED PARTNERSHIP INTEREST BENEFICIALLY OWNED ON MAY 19, 1996
(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 19, 1996.
(2) With respect to shares held by The Aristek Foundation, Mr. Bollman has sole voting and investment power, but in which he has no pecuniary interest. Mr. Bollman disclaims beneficial ownership of the shares held by The Aristek Foundation.
ITEM 13.
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, 1995 is $240,845. This amount has not been accrued as of December 31, 1995 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 note from Craig M. Bollman, Jr., President and Chairman of the Board, in the aggregate amount of $310,000 at December 31, 1995. 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 1995 was $310,000.
PART IV
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
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.
/s/ CRAIG BOLLMAN, JR. /s/ CRAIG M. BOLLMAN, JR. - ----------------------------------- ------------------------------------- By: (s) Craig Bollman, Jr. By: Homefree General Partners, Craig M. Bollman, Jr. its General Partner Chairman of the Board (Principal Executive Officer) By Homefree Village Resorts, Inc., a General Partner Date: June 14, 1996 By: (s) Craig M. Bollman, Jr. Craig M. Bollman, Jr. President
Date: June 14, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the 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 14, 1996 Homefree General Partners, General Partner of Homefree Investors L.P. (Principal Executive and Financial Officer)
Date: June 14, 1996
MAJORITY OF THE BOARD OF DIRECTORS
Craig M. Bollman, Jr. Director
Date: June 14, 1996
Phyllis A. Bollman Director
Date: June 14, 1996
[ARTICLE] 5 [CIK] 0000065291 [NAME] HOMEFREE VILAGE RESORTS, INC.
[ARTICLE] 5 [CIK] 0000820889 [NAME] HOMEFREE INVESTORS LP
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors Homefree Village Resorts, Inc. Denver, Colorado
To the Partners Homefree Investors L.P. Denver, Colorado
We have audited the accompanying combined balance sheets of Homefree Village Resorts, Inc. (a Delaware Corporation) and subsidiaries and Homefree Investors L.P. (a Massachusetts limited partnership) as of December 31, 1995 and 1994, and the related combined statements of operations, stockholders' equity and partners' deficit, and cash flows for the years ended December 31, 1995, 1994, and 1993. These financial statements are the responsibility of the Company's and Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of Homefree Village Resorts, Inc. and subsidiaries and Homefree Investors L.P. as of December 31, 1995 and 1994, and the results of their operations and their cash flows for the years ended December 31, 1995, 1994, and 1993 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company and the Partnership will continue as a going concerns, which contemplate the realization of assets and liquidation of liabilities in the normal course of business. As discussed in Note 1 to the financial statements, the Company and the Partnership have suffered substantial operating losses, and anticipate the need for additional cash to fund operations. These conditions raise substantial doubt about the ability of the Company and the Partnership to continue as a going concern. Management's plans in regard to these matters are also discussed in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ HEIN + ASSOCIATES LLP
HEIN + ASSOCIATES LLP
Denver, Colorado June 12, 1996
S-1 HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
COMBINED BALANCE SHEETS
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
S-2 HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
COMBINED STATEMENTS OF OPERATIONS
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
S-3 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, 1995, 1994, AND 1993
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
COMBINED STATEMENTS OF CASH FLOWS
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
S-5 INDEPENDENT AUDITOR'S REPORT
To the Board of Directors Homefree Village Resorts, Inc. Denver, Colorado
We have audited the accompanying consolidated balance sheets of Homefree Village Resorts, Inc. (a Delaware Corporation) and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity, and cash flows for the years ended December 31, 1995, 1994, and 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Homefree Village Resorts, Inc. and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for the years ended December 31, 1995, 1994, and 1993 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As discussed in Note 1 to the financial statements, the Company has suffered substantial operating losses and anticipates the need for additional cash to fund operations. These conditions raise substantial doubt about the ability of the Company to continue as a going concern. Management's plans in regard to these matters are also discussed in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ HEIN + ASSOCIATES LLP
HEIN + ASSOCIATES LLP
Denver, Colorado June 12, 1996
S-6 HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
S-7 HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
S-8 HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
S-9 HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
S-10 INDEPENDENT AUDITOR'S REPORT
To the Partners Homefree Investors L.P. Denver, Colorado
We have audited the accompanying balance sheets of Homefree Investors L.P. (a Massachusetts limited partnership) as of December 31, 1995 and 1994, and the related statements of operations, partners' capital and cash flows for the years ended December 31, 1995, 1994, and 1993. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Homefree Investors L.P. as of December 31, 1995 and 1994, and the results of its operations and cash flows for the years ended December 31, 1995, 1994, and 1993 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As discussed in Note 1 to the financial statements, the Partnership has suffered losses from inception, and anticipates the need for additional cash to fund operations. These conditions raise substantial doubt about the ability of the Partnership to continue as a going concern. Management's plans in regard to these matters are also discussed in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ HEIN + ASSOCIATES LLP
HEIN + ASSOCIATES LLP
Denver, Colorado June 12, 1996
S-11 HOMEFREE INVESTORS L.P.
BALANCE SHEETS
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
S-12 HOMEFREE INVESTORS L.P.
STATEMENTS OF OPERATIONS
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
S-13 HOMEFREE INVESTORS L.P.
STATEMENTS OF PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
________________________ * The General Partner's capital account is eliminated for purposes of the combined financial statements.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
S-14 HOMEFREE INVESTORS L.P.
STATEMENTS OF CASH FLOWS
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
S-15 HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF OPERATIONS:
Nature of Operations - The Company is engaged primarily in the development and operation of adult recreational communities containing rental sites for manufactured homes and recreational homes. The Company has interests in such communities through Aristek Properties, Ltd., and Aristek Western Properties Limited Partnership, in which the Company is the general partner. The Company's objectives are to create and participate, through such partnerships, in the cash flow from these communities and share in appreciation in the value of such properties. The Company also receives income from development, management, and administrative services.
Paired Shares - Effective May 2, 1988, Homefree Village Resorts, Inc. and subsidiaries (the Company) and Homefree Investors L.P. (the Partnership), entered into a Pairing Agreement (the Agreement) which provided for the pairing of assignee limited partnership interests of the Partnership with shares of common stock of the Company. Subsequently, the Company funded a distribution of one assignee limited partnership interest of the Partnership for each share of common stock of the Company.
The shares of the Company's common stock, par value of $.001 per share, and the assignee limited partnership interests, par value of $.001 per unit, are "paired" on a one-for-one basis and may only be transferred in units (Paired Shares) consisting of one share of common stock and one limited partnership interest.
Continuing Operations - The accompanying financial statements have been prepared on a going concern basis which contemplates the realization of assets and liquidation of liabilities in the ordinary course of business. The Company has experienced a significant decrease in revenues over the last several years due to cash flow difficulties experienced by Aristek Properties Limited (APL), an investment of the Company of which it is also general partner (see Note 3). APL has been unable to pay its management fee to the Company; as a result, the Company ceased accruing management fee revenues due from APL. The Company also has extended loans to help finance APL's operations, which has severely impacted the Company's liquidity. During 1994, the Company restructured debt arrangements with APL which provides that all of APL's available cash flow will be utilized to repay advances to the Company (see Note 8). As of December 31, 1995, the Company has a significant net receivable due from APL and is obligated to purchase the limited partners' interests in APL at a future date for a minimum of $530,000. Recovery of the Company's net receivable from and investment in APL is dependent upon further development of APL's underlying properties and for APL to ultimately achieve profitable operations or the sale of APL at a price in excess of its liabilities and partners investments.
These conditions raise substantial doubt about the ability of the Company to continue as a going concern. The accompanying financial statements do not include any adjustments which might result from the outcome of this uncertainty.
Management has also taken action in recent years to reduce costs, including staff reductions, relocation of the corporate offices, and contracting out its accounting and administrative support functions. In addition, the principal operating property of APL, Monte Vista I Joint Venture (Monte Vista), recently obtained an additional $525,000 in bank financing, and deferred the due date on its total bank debt of $5,015,000 until December 1998. Management believes that these actions will enable the Company to continue as a going concern.
S-16 HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
Combined and Consolidated Financial Statements - The accompanying consolidated financial statements include the Company and its majority-owned subsidiaries. The combined financial statements include the accounts of the Partnership and the Company. All material intercompany balances and transactions have been eliminated. The Company's majority-owned subsidiaries are Resortparks of America, Inc. (RPA), which is 100% owned, and Homefree General Partners (HGP), which is 90% owned. The minority interest in HGP is not material.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Property and Equipment - Property and equipment is recorded at cost. Depreciation is provided utilizing accelerated methods over the estimated useful lives of the related assets.
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.
Income Taxes - The Company accounts for income taxes under the liability method of SFAS No. 109, whereby current and deferred tax assets and liabilities are determined based on tax rates and laws enacted as of the balance sheet date. The deferred tax benefit represents the net change in the deferred tax asset and liability accounts.
No provision for Federal and state income taxes or related benefits has been made for the Partnership since the Partnership's taxable income or loss is required to be reported in the income tax returns of the partners. The provision for income taxes will not bear a normal relationship to pre-tax operating results on a combined basis, since no provision for income taxes has been made for the Partnership.
Loss Per Share - The computation of net loss per share is based on the weighted average number of shares of common stock and equivalent paired shares outstanding during the respective years. The effect of outstanding stock options on the computation of net loss per share is antidilutive for all periods presented.
Cash and Equivalents - For purposes of the Statements of Cash Flows, the Company and the Partnership consider cash and equivalents to include all highly liquid debt instruments purchased with an original maturity of three months or less.
Accounting Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. The actual results could differ from those estimates.
The Company's financial statements are based on a number of significant estimates including the realizability of the Company's investments and receivables due from unconsolidated entities, and the realizability of land option costs.
S-17 HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
Reclassifications - Certain reclassifications have been made to the 1994 and 1993 financial statements to conform to the presentation in 1995. The reclassifications had no effect on the net loss for 1994 and 1993.
3. INVESTMENTS IN UNCONSOLIDATED ENTITIES:
APL was formed in 1976 and the Company is the sole general partner with a 1% general partner interest and a 2.3% limited partner interest. As general partner of APL, the Company has a 30% residual interest which entitles it to receive 30% of all excess cash flow from operations and net proceeds from the refinancing or sale of properties. APL's principal asset was a 60% joint venture interest in the Monte Vista I Joint Venture ("MVIJV"). Aristek Western Properties Limited Partnership ("AWP") owned the remaining 40% joint venture interest until December 1993 when APL increased its ownership to 99% and the Company acquired the remaining 1% interest. MVIJV owns an adult recreational community containing 832 sites for recreational homes. Due to APL's controlling interest, the accounts of MVIJV are consolidated in APL's financial statements.
As summarized in Notes 5 and 8, the Company has entered into significant transactions with APL, resulting in $8.6 million of net receivables and $7.2 million of long-term debt at December 31, 1995. 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, 1995, APL owed the Company an additional $1.5 million, which represents the net amount of such items which are not recorded in the accompanying financial statements.
Effective June 30, 1994, the partners of APL consented to a restructuring of the intercompany loans whereby all of APL's excess cash flow will be utilized to repay outstanding advances. The interest rate was reduced from 8.1% to 7%, and the maturity date was extended to June 30, 1998. The parties to the intercompany loans agreed to provide set-off rights in the event of a default with respect to either the restructured notes or the underlying debt of MVIJV. APL also agreed to pay additional interest equal to 75% of the net proceeds from a refinancing or sale of the Monte Vista property, after repayment of all liabilities. In connection with the restructuring, the holders of 26.5 limited partner units of APL agreed to provide the Company with an option to purchase their units for a minimum purchase price of $20,000 per unit or a total of approximately $530,000. Based on an appraisal of the Monte Vista property which is required to be prepared at the date the Company exercises its option, the Company may be required to pay a higher price per unit. The Company is required to exercise its option between January 1, 1997 and November 30, 1998. No gain or loss was recognized on this restructuring transaction.
S-18 HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
Condensed balance sheets and operating statements of APL are presented below (in thousands).
BALANCE SHEETS
S-19 HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
Presented below is a reconciliation of APL's net loss to the Company's equity in the losses of APL:
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.
4. INCOME TAXES:
Deferred income taxes relate exclusively to long-term assets and liabilities and consist of the following as of December 31, 1995 and 1994:
S-20 HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
For income tax reporting purposes, the Company and RPA file a consolidated return. The composition of the income tax benefit for the years ended December 31, 1995, 1994, and 1993 is as follows:
Following is a reconciliation of the Company's effective tax rate on the consolidated loss to the statutory U.S. Federal income tax rate for the years ended December 31, 1995, 1994, and 1993:
As of December 31, 1995, the Company and RPA had a tax net operating loss carryforward of approximately $500,000. This loss carryforward will expire in 2009 and 2010 if not previously utilized to offset taxable income of the Company and RPA.
During 1993 and 1994, the Company provided a valuation allowance for a portion of the Company's deferred tax assets since the treatment of certain items reported on the Company's income tax returns was uncertain. During 1995, the Internal Revenue Service completed an examination of the Company's Federal income tax returns for 1992 through 1994 and it became apparent that the items were properly reported. Accordingly, a portion of the valuation allowance provided in prior years was reversed in 1995. The valuation allowance also increased due to 1995 losses.
S-21 HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
5. LONG-TERM DEBT:
Long-term debt consists of the following:
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, 1995, 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, 1995.
S-22 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. During 1996, the parties agreed to extend the exercise period through July 1, 1997.
At December 31, 1995 and 1994, the Company recorded the total payments required to purchase the land as land option costs in the accompanying balance sheets. The required payments were discounted at 12% to arrive at a total cost for the land of $195,600.
8. RELATED-PARTY TRANSACTIONS:
Receivables from unconsolidated entities consist of the following:
In 1990, the Company entered into two separate like-kind exchange transactions with APL. In one transaction, the Company conveyed land to APL in return for cash and a note receivable for $3,317,800. The Company has deferred the gain of $488,500 on this transaction until sufficient cash payments are received by the Company on the note to qualify the transaction as a sale. In the second transaction, APL conveyed land to the Company in return for cash and a note payable of $7,154,500 (see Note 5). Also, in connection with this second transaction, the Company advanced (by delivering a certificate of deposit) $5,300,000 in the form of a note receivable to APL to enable APL to pay off bank debt it had on this property. The Company also made advances to APL to enable it to finance its operating needs.
The collection of notes receivable and advances from APL is dependent upon future events, including the ability of Monte Vista to develop certain additional land in a manner which will provide APL with a return of its capital
S-23 HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
after the repayment of loans made to Monte Vista. At December 31, 1990, management provided an allowance of $1,400,000 and $900,000 against these notes receivable and advances, respectively, due to the uncertainty of the successful outcome of this development project. In 1991, because of reservations regarding the ability of APL to continue operations with its existing debt level, $1,300,000 of the obligation from APL was forgiven by the Company with a corresponding reduction in the allowance previously provided.
Receivable from Officer and Administrative Fees - Pursuant to the Homefree Investors Limited Partnership Agreement, the Partnership is liable to pay an annual administrative fee of $75,000 per year to HGP, which in turn pays this fee to a general partner of HGP, which is an entity owned 100% by the president of the Company. Such administrative fee is not payable until the earlier of the date that, in the opinion of the general partners, the Partnership has sufficient cash to pay the fee without jeopardizing the Partnership or the Company, or upon liquidation of the Partnership. Due to the lack of operations and cash flows of the Partnership, no amounts are accrued in the accompanying financial statements.
Over the past several years, the Company has made a series of cash advances to, and on behalf of, the Company's president. These advances are evidenced by formal notes which bear interest at approximately 3.8% as of December 31, 1995. The following is a summary of activity during the years ended December 31, 1995, 1994, and 1993:
The president has always intended to repay the notes from the annual administrative fee discussed above. Accordingly, since the Company would be required to fund the administrative fee in order to collect the receivable, the Company recorded a provision for loss as cash advances were made to the president. During 1995, a total of $433,200 was designated for the deemed payment of administrative fees and related repayment of notes receivable with no effect on the Company's cash flows. Without regard to this transaction, through December 31, 1995, the Company has recognized cumulative losses on the notes receivable of $743,200 compared to cumulative administrative fees of $674,000. Accordingly, the Company's financial statements include recognition of $69,200 of expenses in excess of the contractual amount of the administrative fee.
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
S-24 HOMEFREE VILLAGE RESORTS, INC. AND SUBSIDIARIES AND HOMEFREE INVESTORS L.P.
NOTES TO FINANCIAL STATEMENTS
sources of revenue are fees, commissions and cash flow participation from properties under its supervision (see Note 3).
9. FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107 requires all entities to disclose the fair value of certain financial instruments in their financial statements. Accordingly, at December 31, 1995, management's best estimate is that the carrying amount of cash and equivalents, contract payable, and accounts payable and accrued expenses approximates fair value due to the short maturity of these instruments. Due to uncertainty about the fair value of the properties owned by APL and AWP, it is not practicable to estimate the fair value of the Company's investment and receivables due from these entities. However, management believes that fair value exceeds the carrying value as of December 31, 1995.
10. SIGNIFICANT CONCENTRATIONS:
The Company has an investment of $18,100, receivables of $8,613,800, and long-term debt of $7,154,500 which is payable to APL and its subsidiary. Due to the Company's current general and limited partner interests in APL and the commitment described in Note 3 to purchase an additional 26.5 limited partner units, the Company has a substantial concentration of its net assets which are dependent upon the future success of APL.
Substantially all of the Company's receivables, investments in partnerships, and land option costs relate to properties which are located in the Phoenix, Arizona metropolitan area. This concentration may impact the Company's ability, either positively or negatively, to realize the carrying value of these assets.
The Company earns substantially all of its management and administrative fees from APL and Aristek Western Properties Limited Partnership.
11. 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 1995 financial statements. The Company will adopt the new standard in the first quarter of 1996.
S-25 INDEPENDENT AUDITOR'S REPORT
To the Partners Aristek Properties, Ltd. Denver, Colorado
We have audited the accompanying consolidated balance sheets of Aristek Properties, Ltd. (a limited partnership) and its subsidiary as of December 31, 1995 and 1994, and the related consolidated statements of operations, changes in partners' deficit, and cash flows for each of the years in the three-year period ended December 31, 1995. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Aristek Properties, Ltd., and its subsidiary as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As discussed in Note 1 to the financial statements, the Partnership has suffered substantial operating losses, and anticipates the need for additional cash to fund operations. These conditions raise substantial doubt about the ability of the Partnership to continue as a going concern. Management's plans in regard to these matters are also discussed in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
HEIN + ASSOCIATES LLP
Denver, Colorado June 12, 1996
S-26 ARISTEK PROPERTIES, LTD. AND SUBSIDIARY (A LIMITED PARTNERSHIP)
CONSOLIDATED BALANCE SHEETS
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.
S-27 ARISTEK PROPERTIES, LTD. AND SUBSIDIARY (A LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF OPERATIONS
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.
S-28 ARISTEK PROPERTIES, LTD. AND SUBSIDIARY (A LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.
S-29 ARISTEK PROPERTIES, LTD. AND SUBSIDIARY (A LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CASH FLOWS
S-30 ARISTEK PROPERTIES, LTD. AND SUBSIDIARY (A LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CASH FLOWS
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.
S-31 ARISTEK PROPERTIES, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF OPERATIONS:
Organization - Aristek Properties, Ltd. ("the Partnership") is a Colorado limited partnership formed on June 29, 1976. At December 31, 1995, the sole general partner is Homefree Village Resorts, Inc. (the "General Partner"). In accordance with the terms of the Partnership Agreement, the partnership was extended by the General Partner to December 31, 1998. The Partnership Agreement provides that partnership profit and loss, after adjustment for certain gains earned solely by the General Partner, shall be allocated 1% to the General Partner and 99% to the Limited Partners, in direct proportion to their respective ownership of limited partnership units. Under the terms of the agreement, as amended, distributions may be made to the General Partner based on the adjusted cash flow from operations, sales and refinancing of the Partnership's properties.
Pursuant to the partnership agreement, the General Partner earns an annual administrative fee of $94,750. In addition, the Partnership Agreement provides for additional compensation to the General Partner for certain services rendered and payment of costs and expenses incurred by the General Partner on behalf of the Partnership.
Effective June 30, 1994, the partners of the Partnership consented to a restructuring of the intercompany loans whereby all of the Partnership's excess cash flow will be utilized to repay outstanding debt to the General Partner. The interest rate was reduced from 8.1% to 7%, and the maturity date was extended to June 30, 1998. The parties to the loans agreed to provide set-off rights in the event of a default with respect to either the restructured notes or the underlying debt of MVIJV. The Partnership also agreed to pay additional interest equal to 75% of the net proceeds from a refinancing or sale of the Monte Vista property, after repayment of all liabilities. In connection with the restructuring, the holders of 26.5 limited partner units of the Partnership agreed to provide the General Partner with an option to purchase their units for a minimum purchase price of $20,000 per unit or a total of approximately $530,000. Based on an appraisal of the Monte Vista property which is required to be prepared at the date the Company exercises its option, the General Partner may be required to pay a higher price per unit. The General Partner is required to exercise its option between January 1, 1997 and November 30, 1998. No gain or loss was recognized on this restructuring transaction. When this option is exercised, there will be a change in control of the Partnership to the General Partner. However, the General Partner does not presently have sufficient liquidity to exercise the option.
Nature of Operations - The Partnership is engaged primarily in the development and operation of an adult recreational community containing 832 rental sites for manufactured homes and recreational homes. This community is located in Mesa, Arizona and offers extensive recreational facilities and social activities designed to appeal to active pre-retirement and retirement age people. The rental operations generally include operating leases which do not extend beyond one year.
Going Concern - The accompanying financial statements have been prepared on a going concern basis which contemplates the realization of assets and liquidation of liabilities in the ordinary course of business. At December 31, 1995, the Partnership has approximately $5 million of debt (net of receivables) payable to the General Partner and a partners' deficit of approximately $3.6 million. The Partnership has experienced operating losses in each of the past three years and the Partnership's operating activities have not generated net cash flow in either of the past two years. Due to the Partnership's lack of liquidity, it was necessary to restructure outstanding debt payable to the General Partner during 1994 and, as a result, the Partnership is required to pay all excess cash flow to the General Partner until maturity of the debt in 1998. However, the
S-32 ARISTEK PROPERTIES, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
General Partner has also experienced financial difficulties over the past several years and is not presently expected to be capable of providing capital to support operations.
These conditions raise substantial doubt about the ability of the Partnership to continue as a going concern. The accompanying financial statements do not include any adjustments which might result from the outcome of this uncertainty.
In addition to financial support from the General Partner, in recent years the Partnership has relied on debt financing from a commercial lender to support operations and the commercial lender has extended the due date until December 1998. However, management believes that the ultimate success of the Partnership is dependent upon the ability to obtain additional funding to develop its 75-acre parcel of land which is adjacent to the Monte Vista property. Management believes the Partnership has financing arrangements in place to allow it to continue in operation through 1997 and efforts are continuing to obtain additional financing to fully develop the project.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation - The financial statements include the accounts of the Partnership and its affiliate, Monte Vista I Joint Venture (MVIJV). All material intercompany transactions and balances have been eliminated. Through 1993, AWP owned a 40% minority interest in MVIJV. In December 1993, the Partnership acquired 97.5% of AWP's interest and the General Partner acquired the remaining 2.5%. No amounts are reflected in the accompanying financial statements for the General Partner's minority interest since MVIJV incurred losses in each of the past two years and HVR is not funding its share of the losses. The General Partner's share of such losses is approximately $15,000 through December 31, 1995.
Property and Equipment - Property is recorded at cost, which does not exceed the estimated fair market value. Depreciation is provided using the straight-line method over estimated useful lives, as follows:
The cost of normal maintenance and repairs is charged to operating expenses as incurred. Material expenditures which increase the life of an asset are capitalized and depreciated over the estimated remaining useful life of the asset. The cost of properties sold, or otherwise disposed of, and the related accumulated depreciation or amortization are removed from the accounts, and any gains or losses are reflected in current operations.
Partnership Accounting - All income or loss is allocated to the partners in accordance with the Partnership Agreement. The accompanying financial statements do not include any assets, liabilities or operations attributable to the partners' individual activities and no provision has been made for income taxes (credits), as they are the responsibility of the partners.
S-33 ARISTEK PROPERTIES, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash Equivalents - For purposes of the statements of cash flows, the Partnership considers cash and equivalents to include cash on hand and all highly liquid debt instruments purchased with an original maturity of three months or less.
Deferred Loan Costs - Deferred loan costs were incurred in connection with the origination of the mortgage note discussed in Note 4. These costs are being amortized using the interest method.
Unearned Rental Income - Rental income is typically received in advance for a one year period. The Partnership recognizes rental income ratably over the period for which the payment relates.
Accounting Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. The actual results could differ from those estimates.
The Partnership's financial statements are based on a number of significant estimates including the realizability of net operating properties and land held for development, selection of depreciation methods and estimated useful lives, and the realization of receivables which affects recognition of profit on the sale of real estate.
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 would change the Partnership's method of determining impairment of long- lived assets. Although the Partnership has not performed a detailed analysis of the impact of this new standard on the Partnership's financial statements, the Partnership does not believe that adoption of the new standard will have a material effect on the financial statements.
3. NOTE RECEIVABLE:
The note receivable of $7,154,529 at December 31, 1995 is due from the General Partner and bears interest at 7%. Principal and interest are due at the maturity date in June 1998.
4. MORTGAGE AND NOTES PAYABLE:
At December 31, 1995 and 1994, the Partnership has a mortgage note payable with an outstanding principal balance of $5,015,346 and $4,492,913, respectively. This note bears interest at 4% above the published LIBOR rate (total of $9.9% at December 31, 1995) and requires minimum monthly payments at 10%. Payments that exceed the monthly interest rate are applied to principal. The borrower also covenants that, so long as any of the indebtedness remains outstanding, as of May 31 of any given loan year, borrower shall have cash balances in its bank accounts for the trust property that equal the greater of $400,000, or an amount sufficient to cover property operations and debt service during the months of June, July, and August of said loan year. The note is collateralized by operating properties and land held for development.
Notes payable to the General Partner amount to $11,207,870 at December 31, 1995 and 1994. These notes bear interest at 7% and no principal or interest payments are due until the maturity date in June 1998.
S-34 ARISTEK PROPERTIES, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Assuming the interest rate in effect under the mortgage note payable does not change after December 31, 1995, the aggregate maturities of debt are as follows:
5. FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK:
At December 31, 1995, the Partnership had cash and money market investments with a single bank which totaled approximately $560,000. The Company has mortgage debt with a single lender and substantially all of the Company's tangible assets are pledged as collateral for this obligation.
At December 31, 1995, the Partnership had a note receivable from the General Partner for $7,154,529 and notes payable to the General Partner for $11,207,870. A right of set-off exists between these instruments but none of the notes are collateralized. Management does not believe it is practicable to estimate the fair value of the parables and receivables from the General Partner due to the financial interest of the General Partner. Management believes that the fair value of the bank debt is equivalent to the carrying value due to the floating interest rate. Management believes that the fair value and carrying value are approximately the same for all other financial instruments due to the relatively short maturities.
S-35 EXHIBIT INDEX