-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A1qGwpGFH5b49MarMNutFsCbWUpEuITFvCMCX/wL1++1n62xUReYjWHPZ27MF9+J YqmL8G0ZbUe6vTHy48/QTg== 0000931763-97-002140.txt : 19971216 0000931763-97-002140.hdr.sgml : 19971216 ACCESSION NUMBER: 0000931763-97-002140 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19971212 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREAT AMERICAN HOTELS & RESORTS INC CENTRAL INDEX KEY: 0000879586 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 581956846 STATE OF INCORPORATION: GA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-19852 FILM NUMBER: 97737162 BUSINESS ADDRESS: STREET 1: 120 FIRESTONE POINTE STE 100 CITY: DULUTH STATE: GA ZIP: 30155 BUSINESS PHONE: 4044763936 MAIL ADDRESS: STREET 1: 3300 HOLCOMB BRIDGE RD STREET 2: STE 290 CITY: NORCROSS STATE: GA ZIP: 30092 FORMER COMPANY: FORMER CONFORMED NAME: GREAT AMERICAN RESORTS INC /GA/ DATE OF NAME CHANGE: 19960428 10KSB 1 FOR PERIOD ENDING JUNE 30, 1996 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 [FEE REQUIRED] For the Fiscal Year Ended June 30, 1996. [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 [NO FEE REQUIRED] Commissioner file number: 0-19852 GREAT AMERICAN HOTELS & RESORTS, INC. (Name of small business issuer in its charter) Georgia 58-1956846 (State or other jurisdiction of (IRS employer identification number) incorporation or organization) 3300 Holcomb Bridge Road, Suite 290, Norcross, Georgia 30092 (Address of principal executives' offices) (Zip code) (770) 798-8500 (Issuer's telephone number) Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: Title of Class: Class A Common Stock, no par value. Check whether the issuer (1) filed all reports to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No X . ---- ---- Check if there is no disclosure of delinquent filers in response to item 405 of Regulation S-B in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any other amendment to this form 10-KSB [ ] State the issuer's revenues for it's most recent fiscal year: $ 923,797. State the aggregate market value of the voting stock held by non-affiliates computed by reference to the price at which the stock was sold, or the average bid and asked price of some stock, as of a specified date within the past 60 days: As of August 31, 1997 - $ 2,359,335. State the number of shares outstanding of each issuer's classes of common equity, as of the latest practicable date: As of August 31, 1997 - Class A Common Stock, no par value - 2,906,525 shares; Class C Common Stock, no par value - 200,000 shares. Documents incorporated by reference: None. Traditional Small Business Disclosure Format (check one): Yes X . No --- ---- Exhibit index on consecutive page 13 1 ITEM 1. BUSINESS General Development / Description of Business Great American Hotels & Resorts, Inc., formerly Great American Resorts, Inc. (the "Company"), is engaged in the business of purchasing, developing and managing properties in the overnight resort rental market in areas throughout the world. Through it's subsidiaries, the Company now owns a majority percentage in and manages five hotel/resort properties and two undeveloped tracts of land. The Company was organized under the laws of the State of Georgia in July 1991. The Company completed an initial public offering in February 1992, selling 133,333 Units for gross proceeds of $400,000 and net proceeds of $374,746. Each unit consisted of 1 share of Class A Common Stock, 3 Class A Warrants, 3 Class B Warrants, 3 Class C Warrants, 3 Class D Warrants and 3 Class E Warrants. The Company called all of the Warrants for exercise and realized gross proceeds of $2,934,500. In June 1993, the Company effected a 1 for 2 reverse stock split of its Class A Common Stock. In June 94, the Company effected a 2 for 3 reverse stock split of all of it's Class A Common Stock. All per share amounts herein have been restated to reflect the effects of both reverse stock splits. The Company currently employs approximately 120-150 individuals, depending on season. Six individuals are employed by the "parent" company and the remainder by the hotels/resorts in the Company's subsidiaries. The Company expects to use brokers, contractors, attorneys, accountants, consultants and rental agents as necessary. Government approval is not needed for any of the products or services of the Company. During the last two fiscal years, the Company has not spent significant amounts on research and development, or to be in compliance with environmental laws. However, approval to subdivide and develop the raw land held by the Company is required by the local authorities. The Company is currently in compliance with all environmental laws. Financial Information About Industry Segments Hotel/Resort Business The Company's business currently consists of five hotel/resort properties and two undeveloped tracts of land. The first resort, located near Gatlinburg, Tennessee, consists of seven mountain chalets. Another property is the 108-room hotel/casino located in Reno, Nevada. Two of the properties are located in Vero Beach, Florida, a 114 room "Days Inn" and restaurant and a 115 room "Super 8" inn. The Company also has a property located in Orlando, Florida near Universal Studios; a 56 room limited service inn. Additionally, the Company owns 105 acres of undeveloped land in Maui, Hawaii and 12.4 acres of undeveloped land near Killarney, Ireland. See "Description of Properties" for additional detail on all of the properties. Broker/Dealer Business In July 1995, the Company sold all of the common stock of Great American Financial Network, Inc. ("GAFN") for $150,000. The estimated loss on disposal of the segment was calculated as of the measurement date and includes estimated losses from operations through the disposal date of $87,181 and a loss on sale of the net book value of GAFN of $133,153. As of that date, the Company is no longer in the securities brokerage business. "Classic" Merger and Spin-off of Casinos International, Inc. In June 1995, the Company and Casinos International, Inc. ("Casinos"), a former owned subsidiary of the Company, entered into an Agreement and Plan of Share Exchange, as amended in September 1995 with Classic Restaurants International, Inc. Under the Agreement, Casinos agreed to acquire all of the issued and outstanding common stock of Classic by issuing 1 shares of its Class A Common Stock and Class A Preferred Stock of Classic and 1 share of its Class B Common Stock for each share of Class B Common Stock of Classic. Simultaneously with the acquisition of Classic, Casinos conveyed all of its interest in Great American Casinos, Inc., a Nevada corporation (which owns the Reno hotel/casino), to the Company in return for its common stock interest in Casinos, cancellation of any intercompany claim and a mutual release of liability. In addition, two Directors of Casinos, Dr. Edward L. Bates and James Herbic, agreed to return any shares of stock which they own in Casinos to Casinos for cancellation as a part of the transaction. As a result of the transaction, the Company no longer has any interest in Casinos, however it has 100% ownership of the Reno hotel/casino through its ownership of Great American Casinos, Inc. During the fiscal year 1996, the Company recognized a $273,261 extraordinary gain from extinguishment of debt from this transaction. 2 Sale of Hilton Head Condominiums During fiscal 1996, the Company sold 22 of its 23 condominiums located in Hilton Head, South Carolina for net proceeds of $2,244,460. The Company recognized a $467,147 gain from the sale. Subsequent to June 30, 1996, the Company closed on the sale of the last condo for $112,925, which resulted in a gain of approximately $23,000. ITEM 2. DESCRIPTION OF PROPERTY Gatlinburg Property The Gatlinburg resort property consists of seven chalets constructed by the Company in 1992. The chalets are on 10.85 acres of land located approximately 2 miles from downtown Gatlinburg Tennessee. Each chalet is approximately 1,000 square feet in size and has a whirlpool tub, a hot tub on the exterior deck, fireplace, cathedral ceiling, king-size bed, full bath and kitchen. Through a subsidiary, the Company has a 100% interest in the chalets of Gatlinburg. The chalets are currently encumbered by a $300,000 mortgage. For the year ended June 30, 1996, the chalets generated gross revenues of $265,000. Occupancy for the year ran approximately 89%. The rates for the chalets range from $99-$150 per night depending on the season and number of bedrooms in the unit. The chalets are managed locally at a cost ranging from 40 to 45% of gross revenues. The Company believes that for the region and level of service received, this is a competitive management agreement. The Gatlinburg region continues to grow in popularity with tourists. The Company will continue to push the daily rates upward and investigate the feasibility of constructing additional units on the property. Office Building In March 97, the Company sold the office building located in Norcross, Georgia. The Company originally acquired the building in January of 1994. Residual proceeds from the sale were used to reduce the Company's debt and provide a portion of the down payment for the acquisition of the Vero Beach properties. Killarney, Ireland (undeveloped land) In October 1994, the Company purchased a tract of land near Killarney, Ireland. The tract is approximately 12.4 acres in size and was purchased with the intent of developing and constructing a resort facility. As the land is not developed, it is currently not insured, also, under Irish law, undeveloped land is not taxed. The Company has retained an Irish architect who has developed plans for the resort. The Company hopes to apply for planning approval in late 1997 or early 1998. Reno Hotel/Casino On January 20, 1995, the Company through Casinos acquired the Reno hotel/casino, which is located in the downtown area of Reno, Nevada. The structure is a ten-story, 108-room hotel with a casino, cabaret, pool and restaurant and lounge facility. The aggregate cost of the Reno hotel/casino was $4,053,345, which included a contract price of $3,750,000 and closing costs of $303,345. The contract consisted of assumption of a note payable to a bank in the principal amount of $1,944,804, the execution of a promissory note payable to BNC for $1,055,196 and cash of $750,000. The acquisition has been accounted for as a purchase and, accordingly, the acquired assets and liabilities were recorded at their estimated fair market value at the date of acquisition. Through a subsidiary, the Company has a 100% interest in the Reno hotel/casino. A first mortgage of $1,922,265 and a second mortgage of $800,903 encumber the Reno Hotel. For the year ended June 1996, the Reno hotel/casino generated gross revenues of $570,000. Occupancy for the year ran approximately 26%. The economy in Reno is once again gaining momentum. The Company has recently signed an agreement to operate the Hotel as a "Howard Johnson's" brand. This new "flag" and access to a reservations system should result in increased occupancies and revenues. Ulupalakua, Maui, Hawaii (undeveloped land) Effective September 1996, the Company purchased approximately 105 acres of undeveloped land in Maui, Hawaii for $1,005,000. The land is located approximately 4 miles from LaPerouse Bay in the "upcountry" area of Maui. Once the land is subdivided and clear title obtained, the Company plans to sell the individual lots. A note of $833,000 to the sellers encumbers the land. 3 The Company has retained local counsel to assist with the clearing of title and the subdivision of the land. Vero Beach, Florida In May 1997, the Company acquired an interest in two hotels, located near the intersection of I-95 and State Route 60 in Vero Beach, Florida. The hotels are situated on an 8.49-acre tract of land. Both structures are two-story exterior corridor designs. One structure has 114 guestrooms and is currently being operated as a "Days Inn". The other structure has 115 guestrooms and is currently operated as a "Super 8". The Company also operates the 160-seat restaurant on the property. Through a subsidiary, the Company has an 80% interest in this property. The purchase price was $1,188,590 in cash, $3,233,091 in mortgages and notes payable and $480,122 in acquisition costs. The acquisition was recorded using the purchase method of accounting by which the assets are valued at fair market value at the date of acquisition. As of August 1997, a first and second mortgage of $1,977,590 and $420,000 encumber both hotels. Orlando, Florida In June 1997, the Company acquired an interest in a limited service hotel located near the "Universal Studios" main gate in Orlando, Florida. The hotel is a three-story structure (constructed in 1994 on 1.04 acres) containing 56- guestrooms, swimming pool, jacuzzi and surface parking. As this is a "limited service" property, there is no restaurant or lounge on site. Through a subsidiary, the Company has a 75.25% interest in this property. The purchase was $451,016 in cash, $350,000 in note payable and $242,789 in acquisition costs. The acquisition was recorded using the purchase method of accounting by which the assets are valued at fair market value at the date of acquisition. As of August 1997, the property is encumbered by a first mortgage of $1,624,920. Office Space The Corporate Offices of Great American Hotels & Resorts, Inc. are located in Norcross, Georgia. The Company currently has 2,000 square feet of leased office space at a cost of $2,261 per month. The Company entered into the three-year lease in May 1997. ITEM 3. LEGAL PROCEEDINGS The Company received a letter dated March 14, 1994 from Vacations Invitations, Inc. (VII) threatening immediate legal action against the Company relating to the Company's alleged use of a customer list which VII believed was improperly taken from it. The Company responded to the letter denying the allegations of VII, and specifically pointing out that VII had voluntarily provided the Company with the names on its customer list. On October 17, 1994, VII and Kegley Travel Network (KTN), which is affiliated with VII, filed a lawsuit in the Superior Court of Gwinnett County, State of Georgia, against the Company, Schneider Securities, Inc., and four employees of the Company, Gayle Banes, James Wilcox, Dr. Edward Bates and Robert Christian. The complaint alleges that the defendants conspired to convert and did convert confidential information from the plaintiffs, misappropriated trade secrets of the plaintiffs and interfered with the business of the plaintiffs. The complaint seeks damages in excess of $1,000,000, as well as injunctive relief preventing the defendants from using the trade secrets of the plaintiffs and from contacting any employee or distributor of the plaintiffs for any reason. Subsequent to the filing of this lawsuit, VII and KTN both filed for relief under Chapter 11 of the Bankruptcy Code, and a trustee has been appointed in each of their cases. The trustee for VII and KTN has filed an application to abandon the lawsuit to the principal shareholder of VII and KTN, who has dismissed the lawsuit with prejudice. On November 17, 1995, RRR, INC. d/b/a MAXimum Resort Rentals, Inc., filed a lawsuit in the Beauford County, South Carolina against the Company. The plaintiff was retained by the Company to manage the Company's cottages (sold fiscal 1996) located in Hilton Head, South Carolina. The lawsuit alleges that the Company breached its agreement with the plaintiff when the Company entered into agreements to sell the cottages. The lawsuit seeks actual damages of $3,000,000 plus unspecified punitive damages. The Company believes this lawsuit is without merit and intends to defend it vigorously. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of the shareholders of the Company during the quarter ended June 30, 1996. 4 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The common stock of the Company has been trading in the over-the-counter market since April 1992 and the trading prices are listed on the OTC Bulletin Board. The following table sets forth the range of high and low bid quotations for each quarter during the three most recently completed fiscal years. These quotations are inter-dealer prices, without retail markup, markdown or commissions and do not necessarily represent the actual transactions. Bid Prices: Fiscal Quarter Ending High Low --------------------- ---- --- June 30, 1994 $6.50 $4.25 September 30, 1994 $6.50 $4.50 December 31, 1994 $7.00 $3.75 March 31, 1995 $6.25 $4.00 June 30, 1995 $6.25 $4.00 September 30, 1995 $4.75 $3.75 December 31,1995 $4.00 $3.50 March 31, 1996 $3.75 $3.38 June 30, 1996 $3.68 $3.38 September 30, 1996 $3.63 $3.00 December 31, 1996 $3.12 $1.00 March 31, 1997 $1.75 $1.00 June 30, 1997 $1.81 $1.06 The market makers for the Company are Wm. V. Frankel & Co., First Equities Corporation and NAIB Trading Corp. On August 31, 1997, there were 621 record holders of the Company's Class A Common Stock. The Company has not paid or declared any cash dividends and does not anticipate paying dividends in the foreseeable future. It is expected that any future income will be retained by the Company for the development of its business. The Company is not contractually precluded or restricted from paying dividends. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION Liquidity and Capital Resources The Company has suffered recurring losses from operations and negative cash flow from operating activities that raise substantial doubt about its ability to continue as a going concern (See "Plan of Operation"). The Company's working capital at June 30, 1996 was a surplus $284,800, as compared to a deficit of ($7,300) at June 30, 1995. Working capital increased by $292,100 for the year, as the proceeds from the sale of the cottages were kept liquid in anticipation of a possible property acquisition while current liabilities increased minimally for the year. The Company anticipates that it will need substantial capital to fund its operations and business plan which includes: further renovations to the Reno hotel/casino, the completion of the purchase of the Vero Beach and Orlando properties, subdividing the property in Maui, Hawaii, developing the land in Ireland and the acquisition of three additional hotels. The Company believes that it will have sufficient cash to fund its operations and business plan from the improved results of the Gatlinburg chalets, management fees from the Vero Beach and Orlando properties, distributions from the Vero Beach and Orlando properties and the proceeds of the sales of securities in private placements. Results of Operations For the year ended June 1996, the Company incurred a loss from continuing operations of ($1,500,188), and an extraordinary gain of $273,261 for a total net loss of ($1,226,927). Rental revenues totaled $836,527, an increase of 34.4% over the prior year. The increase is a result of increased rates along with more rooms available as 12 months of the Reno hotel/casino are contained in this years results as opposed to 6 months for the prior year (Reno was acquired in January 1995). Direct rental expenses, excluding depreciation, exceeded rental revenues by $234,581. This was partially due to the renovation of the Reno property during the year resulting in reduced revenues while basic operating expenses at the property continued to be incurred. With the majority of the renovations now complete in Reno, the Company will be focusing on implementing new management and marketing strategies in an effort to bring the 5 hotel/casino to a break-even position. The Company recognized a $467,147 gain from the sale of 22 of its 23 cottages in Hilton Head, South Carolina. The cottages were sold to reduce the overall indebtedness of the Company and provide funds for additional acquisitions. During fiscal 1994, the Travel subsidiary produced an infomercial to sell the "Travel Card". The infomercial was later deemed unprofitable by management and discontinued. As a result, all costs associated with the production, $142,013, were immediately charged to the Statement of Operations for the year ended June 30, 1995. The Company experienced a decrease in salaries and wages of $94,155 as activity in the Travel subsidiary declined and measures were taken to reduce overhead expenses. Interest expense for the year totaled $646,704, an increase of 98% over the prior year. The major contributor to the increase is the additional interest on the Reno property of which six months was reflected in the prior year (acquired January 1995) and twelve months is reflected in the current year. For the year ended June 1995, the Company incurred a loss from continuing operations of ($989,767), and a loss from discontinued operations of ($577,981) for a total loss of ($1,567,748). The loss from discontinued operations resulted from the Company's disposition of the Company's financial services subsidiary, Great American Financial Network, Inc. in July 1995. The Company's real estate operations generated rental revenues of $622,491, which covered direct expenses. Revenues from the sales of "Travel Cards" totaled $1,209,713, which were substantially higher than the prior year due to the Company's Far East distributorship agreement with Golden Hollywood, Ltd. (GHL). The agreement with GHL expired September 30, 1995. In addition, the Company recorded a provision for doubtful accounts of $537,000 for amounts not paid by GHL under the contract. Interest expense for the year totaled $326,006. Analysis of Cash Flows The Company continued to meet its cash obligations despite a total net loss of ($1,226,927) for fiscal 1996. Proceeds of $2,037,601 from the sale of cottages in Hilton Head along with net proceeds from the sale of the Company's securities of $899,250 and proceeds of $1,266,000 from mortgage notes payable and long-term debt enabled the Company to meet its debt reduction requirements and operating expenses. The Company also realized proceeds of $150,000 from the sale of its stock in GAFN. Renovation costs for the Reno property totaled $451,654 for the year. The Company also incurred costs of $419,923 related to the possible acquisition of additional properties, which has been recorded as an asset on the books. Plan of Operation The Company has taken a number of steps to improve its operation and cash flow. First, the Company has made significant changes to the management team by hiring Mr. David Potts, CHA, to serve as the Chief Operating Officer and Mr. Rob Turner, CPA, to serve as Chief Financial Officer. These additions to the Company's management team should enable the Company to better implement its long term business plan by improving the performance of existing properties, assisting with new acquisitions and providing the financial information needed to facilitate the process. Second, the Company continues to make efforts to improve the performance of the Reno hotel/casino. In June 1997, the Company signed an agreement to operate the property as a "Howard Johnson's" brand hotel. The Company believes that the new "flag" along with access to a centralized reservation system will result in increased occupancies and rates. Significant management changes are currently being made at the property level in an effort to improve the level of customer service and the general operation of the property. The Company has also initiated discussions with the first mortgage holder to renegotiate the terms of the mortgage, hence freeing up additional funds for completion of the renovations and other improvements needed to be in compliance with Howard Johnson's standards. Third, the Company will continue its effort to achieve maximum rates and occupancy levels in the Gatlinburg chalets. The chalets of Gatlinburg continue to operate successfully, generating positive cash flow of approximately $5,000 per month. The Company plans to investigate the feasibility of adding additional chalets as cashflow permits. Fourth, the acquisition of the Vero Beach and Orlando properties, during May and June 1997, should provide additional cashflow for the Company in the form of management fees and cash distributions made in accordance with the Company's ownership percentage. The "season" for the two properties begins in December and runs through April. Cashflow from the properties will be used for debt service, operating expenses and additional acquisitions. The Company, however, continues to be dependant upon the receipt of proceeds from the sale of its securities to cover its operating expenses, including general and administrative expenses, and to provide the funds for the further expansion and development of its resort property business. The Company has an investment banking agreement with its former Broker/Dealer subsidiary to assist it in raising the capital to fund its business plan. If the Company were to experience a decrease in the amount of proceeds from the sales of securities, it would be forced to reduce operating expenses and its development and acquisition 6 activity. The Company has already taken actions to reduce professional fees and overhead expenses, which should be reflected in the operating results of future periods. With the exception of ordinary minor capital expenditures at the property level, the Company currently has no outstanding capital commitments. The Company will continue to explore additional expansion alternatives while increasing revenues and reducing expenses at its existing properties and businesses. The Company has deferred tax assets with a 100% valuation allowance at June 30, 1996. Management is not able to determine if it is more likely than not that the deferred tax assets will be realized. Recent Accounting Pronouncements The Financial Accounting Standards Board ("FASB") recently issued Statement of Financial Accounting Standard No. 121, "Accounting for the Impairment of Long- Lived Assets", Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation", Statement of Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"), and Statement of Financial Accounting Standards No. 129, "Disclosure of Information About an Entity's Capital Structure" ("SFAS 129"). SFAS 121 requires that long-lived assets and certain identifiable intangibles be reported at the lower of carrying amounts or their estimated recoverable amount. The adoption of this statement by the Company is not expected to have an impact on the financial statements. SFAS 123 encourages the accounting for stock based employee compensation programs to be reported within the financial statements on a fair value based method. If the fair value based method is not adopted, then the statement requires proforma disclosure of net income and earnings per share as if the fair value based method has been adopted. The Company has not yet determined how SFAS 123 will be adopted nor its impact on the financial statements. SFAS 128 provides a different method of calculating earnings per share than is currently used in accordance with Accounting Board Opinion ("APB") No. 15, "Earnings per share". Basic earnings per share includes no dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity, similar to fully diluted earnings per share. SFAS 129 establishes standards for disclosing information about an entity's capital structure. SFAS 121 and SFAS 123 are effective for fiscal years beginning after December 15, 1995. SFAS No. 128 and SFAS 129 are effective for financial statements issued for periods ending after December 15, 1997. Implementation of SFAS 128 and SFAS 129 are not expected to have a material effect on the consolidated financial statements. In June 1997, FASB issued Statement of Financial Accounting Standard No. 130 "Reporting Comprehensive Income" ("SFAS 130") and Statement of Financial Accounting Standard No. 131 "Disclosures about Segments of an Enterprise and related Information" ("SFAS 131"). SFAS 130 establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, SFAS 130 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that displays with the same prominence as other financial statements. SFAS 131 supersedes Statement of Financial Accounting Standard No. 14 "Financial Reporting for Segments of a Business Enterprise." SFAS 131 establishes standards of the way that public companies report information about operating segments in annual financial statements and requires reporting of selected information about operation segments in interim financial statements issued to the public. It also establishes standards for disclosures regarding products and services, geographic areas and major customers. SFAS 131 defines operating segments as components of a company about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. SFAS 130 and SFAS 131 are effective for financial statements for periods beginning after December 15, 1997 and require comparative information for earlier years to be restated. Because of the recent issuance of these standards, management has been unable to fully evaluate the impact, if any, the standards may have on future financial statement disclosures. Results of operations and financial position, however, will be unaffected by implementation of these standards. ITEM 7. FINANCIAL STATEMENTS Please refer to pages beginning with F-1. 7 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT The names of the Officers and Directors of the Company, and certain information about them is set forth below: Beginning of Term of Name Age Positions Held Service - ---- --- -------------- -------------------- Dr. Edward L. Bates 41 President, March 1994, Officer Chairman, Board of Directors March 1994, Director David C. Potts 43 Chief Operating Officer May 1997, Officer Rob A. Turner 34 Chief Financial Officer July 1997, Officer Teresa A. Bates 39 Secretary / Treasurer, July 1991, Officer Director William A. Whitehead 70 Director October 1993 James R. Shaw 44 Director March 1997 Dr. Edward L. Bates has been the President and Director of the Company since March 1994. Dr. Bates has served at various firms in the securities industry since 1988 including Great American Financial Network, Inc., Schneider Securities, Inc., Pacific Southern Securities, Inc., Pacific Rim Securities, Inc., Power Securities, Inc., and Painewebber. Between 1975 and 1988, he served as a minister in several churches. Dr. Bates received his Doctor of Ministry degree from the Columbia Theological Seminary in Decatur, Georgia in June 1988. He received his Master of Divinity degree from the Southern Baptist Theological Seminary in Louisville, Kentucky in May of 1982. He received his Bachelor of Arts degree from Georgetown College in Georgetown, Kentucky in May 1978. Dr. Bates is the husband of Teresa A. Bates and is a licensed securities broker. Mr. David C. Potts, CHA, accepted the position of Chief Operating Officer of the Company in May 1997. Mr. Potts has over twenty years of experience in the hospitality and restaurant industries. He has served in numerous hospitality organizations including Holiday Inn, Ramada, Days Inn, Best Western and Super 8. Since 1990, Mr. Potts has served as the General Manager for the 250 room Holiday Inn in Baymeadows, Florida and as Manager of the food and beverage outlets within the facility. Under his leadership, the property has shown continual improvements in profitability as well as customer service. Mr. Potts graduated from Tennessee Technical University in 1977 with a Bachelor of Science degree. Additionally, he has earned the designation of Certified Hotel Administrator. Mr. Rob A. Turner, CPA, joined the Company as Chief Financial Officer in July 1997. Mr. Turner served at the global headquarters for Holiday Inn Worldwide for six years. During that time he held a variety of positions including Manager of the Hotel Accounting Department and Manager of Accounting and Controls for the Hotel Division. Prior to his tenure at Holiday Inn, he was an Associate with a Public Accounting firm in Atlanta, Georgia. Mr. Turner received a B.B.A. in Accounting from Kennesaw State University in 1987. Additionally, he obtained the designation of Certified Public Accountant in 1990. Teresa A. Bates has been the Secretary, Treasurer and Director since the Company's inception. Since July 1992, Mrs. Bates has worked full time for the Company. From 1991 through 1992, Mrs. Bates worked part-time for the Company while providing consulting services in the area of nursing to various universities, schools and organizations. From 1989 through 1991, Mrs. Bates was the Health Coordinator at Georgia State University in Atlanta, Georgia. From 1981 through 1989, Mrs. Bates served several organizations in the nursing field in various 8 capacities. Mrs. Bates received her Bachelor of Science in Nursing degree in 1980 from Spalding College in Louisville, Kentucky and a Master of Science in Nursing degree in 1988 from the Medical College of Georgia. Mr. William A. Whitehead has been a Director of the Company since 1993. He has been in retirement since 1990. From 1950 through 1990, Mr. Whitehead worked as head of the technical section for Proctor and Gamble in Cincinnati, Ohio. Mr. Whitehead serves the Company only as a Director. Mr. James R. Shaw has been a Director of the Company since March 1997. Mr. Shaw is the President of Classic Restaurants International, Inc. Classic is the company, which merged with the Company's former subsidiary, Casinos International. Mr. Shaw has been the President of Classic since its inception in 1992. Mr. Shaw received a Bachelor of Arts degree from Carson Newman College. He also received a Master of Music degree from Southern Baptist Theological Seminary in 1983. The Company does not have any standing audit, nominating or compensation committees of the Board of Directors. During the fiscal year ended June 30, 1996, there was one formal meeting of the Board of Directors, which was attended by four of the five Directors. The Company currently does not provide the Directors with any regular compensation for their services as Directors. The Company reimburses the Directors for any out-of-pocket expenses they incur in the performance of their duties as Directors. For services rendered for the year ended June 30, 1996, the Company has agreed to issue Mr. Whitehead 2000 shares of Class A Common Stock for his services as Director. None of the Directors were required to file a Form 5 because either the Director did not engage in any transactions during the fiscal year or all transactions by the Director were previously reported on a Form 4 during the fiscal year. However, Mr. Smith and Mr. Whitehead each filed a timely Form 5. Ms. Bates also filed a Form 4, which disclosed no sales for the fiscal year ended June 30, 1996. ITEM 10. EXECUTIVE COMPENSATION Dr. Edward L. Bates has served as President since March 1994. Effective July 1, 1995, Dr. Bates signed an eleven-year contract providing the following compensation package: First, a salary of $1 per year, second, an annual bonus of .25% of the Company's assets which are wholly owned and/or managed by the Company, third, stock options exercisable into 690,909 Class C Shares (restricted) per year at $2.01 per share for the duration of the eleven year contract, fourth, reimbursement for medical and dental bills not covered by insurance. The bonus is payable 105 days following the close of the fiscal year. Dr. Bates may take advances on the bonus throughout the year. Neither the C class of shares nor the C Shares themselves may be publicly registered or publicly sold until after the end of the employment contract, July 1, 2006, so as not to adversely affect the trading of the Class A shareholders' stock. David C. Potts has served as the Company's Chief Operating Officer since May 1997. The Company is currently finalizing a four-year contract with Mr. Potts. Proposed terms of the contract will call for compensation as follows: From May 1997 through December 1997, Mr. Potts will earn an amount equal to 2% of the Company's revenues. From January 1998 forward, he will earn an amount equal to 2% of the Company's revenues derived from the operations that he directly oversees. Of the 2%, one half will be paid in cash and the other half in Class A Common Stock valued at the bid price as of the end of each quarter. The cash is paid monthly and the stock quarterly. Mr. Potts has the option to take the stock or twice the number of stock shares in Class A options exercisable at the same bid price on the last trading day of the quarter plus one cent. Mr. Potts will also receive 200,000 options to purchase Class A Common stock at $1.51 per share. The options will be vested at a rate of 12,500 per quarter over the four-year contract and a signing bonus of 10,000 shares of Class A Common Stock. Rob A. Turner has served as the Chief Financial Officer of the Company since July 1997. The Company is currently finalizing a three-year contract with Mr. Turner. Proposed terms of the contract will call for compensation as follows: An annual salary starting at $63,500, a stock option contract to purchase 120,000 shares of Class A Common Stock at $1.51 (vesting at 10,000 shares per quarter over the three year contract) and reimbursement for all expenses incurred to keep an active CPA license in the State of Georgia. 9 Teresa A. Bates has served as Secretary / Treasurer for the Company since inception. Ms. Bates received compensation of $3,000 per month for the year ended June 30, 1996. Ms. Bates has no options to purchase stock from the Company. William A. Whitehead has served as Director for the Company since 1993. Mr. Whitehead received 2000 shares of Class A Common Stock for his service to the Company for the Year ended June 30, 1996. James R. Shaw has served as Director for the Company since March 1997. Mr. Shaw will receive 2000 shares of Class A Common Stock for his service to the Company for the Year ended June 30, 1997. The following table sets forth compensation information for the last two fiscal years. No disclosure need be provided for any executive officer, other than the chief executive officer, whose total annual salary and bonus for the last complete fiscal year did not exceed $100,000. Accordingly, no other officers of the Company are included in the table.
Annual Compensation Long Term Compensation ---------------------- ------------------------------- Name/ Year Salary($) Bonus($) Other Restricted Options/ LTIP All Other Position Annual Stock SARs Payouts($) Compensation($) Compensation Awards($) # - ---------------------------------------------------------------------------------------------------------------------------------- Edward L. Bates 1996 $ 1 $18,750 $ 0 $0 $7,600,000(1) $0 $ 0 President 1995 $ 4,000 $ 0 $16,243 $0 $0 $1,229 1994 $12,000 $ 0 $ 0 $0 $0 $ 0
(1) See table "Warrants/Option/SAR Grants in Last Fiscal Year" Warrant/Option/SAR Grants in Last Fiscal Year:
Number of Percentage of Total Securities Underlying Warrants/Options Exercise Warrants/Option Granted to Employees or Base Expiration Name Granted In Fiscal Year Price ($/share) Date - ------------------------------------------------------------------------------------------------------------------ Edward L. Bates 7,600,000 100% $2.01 June 30, 2016
Aggregate Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values:
Number of Securities Value of Unexercised Underlying Unexercised In-the-Money Options at June 30, 1996 Options at June 30, 1996 ------------------------------------------------------- Shares Acquired Value Exercisable/ Exercisable/ Name on Exercise (#) Realized Unexercisable Unexercisable - ------------------------------------------------------------------------------------------------------------------ Edward L. Bates 0 $0 690,909/6,909,091 $0/$0
The Company has no retirement, pension, profit sharing, bonus, deferred compensation, insurance or medical reimbursement plans covering its officers or directors, although the Company has agreed to pay the medical and dental bills of Edward L. Bates to the extent that they are not covered by his personal insurance. 10 The Company obtained shareholder approval of an Employee Stock Incentive Plan at its annual meeting held March 10, 1994. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Ownership of Officers and Directors The following table sets forth information as of August 31, 1997, with respect to the beneficial ownership of the Company's Class A Common Stock and Class C Common Stock by directors, nominees, officers of the Company and by officers and directors as a group.
Class A Common Stock Class C Common Stock Effective Voting Power -------------------- --------------------- ----------------------- Number of Percent of Number of Percent of Number of Percent of Shareholder Shares Class (1) Shares Shares (1) Votes (3) Votes (3) - ---------------------------------------------------------------------------------------------------- Teresa A. Bates 569,068 19.6% 100,000 11% 128,453 14.0% 120 Firestone Pointe Duluth, GA 30136 Edward L. Bates (2) 0 0% 790,909(4) 89% 790,909 86.0% 120 Firestone Pointe Duluth, GA 30136 David C. Potts 0 0% 0 0% 0 0% 9150 Baymeadows Rd. Jacksonville, FL 32256 Rob A. Turner 0 0% 0 0% 0 0% 608 Riverview Dr. Marietta, GA 30067 William A. Whitehead 3,010 .10% 0 0% 151 0% 1628 Shady Cove Ln. Florence, KY 41042 All Officers/Directors 572,078 19.70% 890,909 100% 919,513 100% As a group
(1) Based on 2,906,525 shares of Class A Common Stock outstanding on August 31, 1997 and 200,000 shares of Class C Common Stock outstanding on August 31, 1997. The percentages do not reflect the possible conversion of 87,575 shares of Preferred Stock, which are outstanding, into 437,875 shares of Class A Common Stock. Where a person listed on this table has the right to obtain additional shares within 60 days from August 31, 1997, these additional shares are deemed to be outstanding for the purpose of computing the percentage of outstanding securities of the class owned by such person, but are not deemed to be outstanding for the purpose of computing the percentage of outstanding securities of the class owned by any other person. (2) Edward L. Bates is the husband of Teresa A. Bates, and may be considered to beneficially own the shares owned by Ms. Bates. (3) Class A Common Shares have 1/20th vote per share while Class C Common have one vote per share. (4) Includes shares of common stock underlying presently exercisable stock options. 11 Ownership of Beneficial Owners of More than Five Percent The following table sets forth information as of August 31, 1997, with respect to the beneficial ownership of the Company's Class A Common Stock and Class C Common Stock by each person known by the Company to be the beneficial owner of more than five percent (5%) of the outstanding Class A Common Stock and the Class C Common Stock.
Class A Common Stock Class C Common Stock Effective Voting Power -------------------- -------------------- ---------------------- Number of Percent of Number of Percent of Number of Percent of Shareholder Shares Class (1) Shares Shares (1) Votes (4) Votes (4) - ---------------------------------------------------------------------------------------------------------------- Teresa A. Bates 569,068 19.6% 100,000 11% 128,453 14.0% 120 Firestone Pointe Duluth, GA 30136 Edward L. Bates(2) 0 0% 790,909(5) 89% 790,909 86.0% 120 Firestone Pointe Duluth, GA 30136 Caragh Holdings, Ltd.(3) 160,000 4.1% 0 0% 8,000 0% 13A Flemings Lane Killarney, County Kerry, Ireland
(1) Based on 2,906,525 shares of Class A Common Stock outstanding on August 31, 1997 and 200,000 shares of Class C Common Stock outstanding on August 31, 1997. The percentages do not reflect the possible conversion of 87,575 shares of Preferred Stock, which are outstanding, into 437,875 shares of Class A Common Stock. Where a person listed on this table has the right to obtain additional shares within 60 days from August 31, 1997, these additional shares are deemed to be outstanding for the purpose of computing the percentage of outstanding securities of the class owned by such person, but are not deemed to be outstanding for the purpose of computing the percentage of outstanding securities of the class owned by any other person. (2) Edward L. Bates is the husband of Teresa A. Bates, and may be considered to beneficially own the shares owned by Ms. Bates. (3) Caragh Holdings, Ltd.'s shares are subject to a restrictive legend, which prevent it from disposing of the shares until it has paid for the shares. (4) Class A Common Shares have 1/20th vote per share while Class C Common have one vote per share. (5) Includes shares of common stock underlying presently exercisable options. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Certain conflicts of interest exist and will continue to exist between the Company and its officers and directors. All of the officers and directors have other business interest to which they devote their attention. They may continue to do so not withstanding the fact that management time should be devoted to the business of the Company. If a specific corporate responsibility demands attention, these persons may face a conflict in selecting between the Company and their own business interest. The Company has formulated no policy for the resolution of conflicts in these circumstances. There can be no assurance that management will resolve all conflicts of interest in favor of the Company. Failure by management to conduct the Company's business in the Company's best interest may result in a liability to the Company. Certain Transactions On August 19, 1994, the Company formed a Georgia Corporation called Casinos International, Inc. ("Georgia Casinos"). Georgia Casinos' Articles of Incorporation authorized, among other things, the issuance of Class A and Class B Common Stock. The Class A and Class B common stock had identical rights to dividends and distributions from Casinos, but the Class A common stock was entitled to one vote per share and the Class B common stock was entitled to forty 12 votes per share on each matter voted upon which the shareholders of Casinos are entitled to vote. In addition, the Articles of Incorporation provided that, to the extent there were any shares of Class B common stock outstanding, the holders of the Class B common stock would have the right to elect a majority of the board of directors at all times. The Company subscribed to 500,000 shares of Class A common stock of Casinos for $500, and Edward L. Bates subscribed to 20,000 shares of Class B common stock for $200. Mr. Bates thereafter conveyed 10,000 of his shares of Class B common stock to the Company. In October 1994, Georgia Casinos merged into Casinos. Under the merger agreement (after adjusting for subsequent stock splits), holders of Class A Common Shares of Georgia Casinos received 15 shares of Class A Common Stock of Casinos (for a total of 7,500,000 shares). And holders of Class B Shares of Georgia Casinos received 15 shares of Class B Common Stock of Casinos (for a total of 300,000 shares). In connection with the merger, Casinos' articles of incorporation were amended to entitle Class B Common Shares to the same disproportionate voting rights and right to elect a majority of the directors of Casinos which the Class B Common Shares of casinos had. None of the officers or directors of the Company have any indebtedness to the Company. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: Regulation Consecutive S-B Number Exhibit Page Number 2.1 Agreement and Plan of Share N/A Exchange among Great American Resorts, Inc., Casinos International, Inc. and Classic Restaurants International, Inc. dated June 30, 1995 (1) 2.2 Amendment to Agreement and N/A Plan for Share Exchange among Great American Resorts, Inc., Casinos International, Inc. and Classic Restaurants International, Inc.dated October 6, 1995. 2.3 Amendment to Agreement and N/A Plan for Share Exchange among Great American Resorts, Inc., Casinos International, Inc. and Classic Restaurants International, Inc. dated December 22, 1995. 3.1 Articles of Incorporation of N/A Great American Resorts, Inc. (2) 3.2 Amendments to Articles of N/A Incorporation of Great American Resorts, Inc. (3) 3.3 Amendments to Articles of N/A Incorporation of Great American Resorts, Inc. (3) 3.4 Bylaws of Great American Resorts, Inc. (2) N/A 3.5 Amended and Restated Articles N/A of Incorporation of Casinos International, Inc. (3) 3.6 Bylaws of Casinos International, N/A Inc. (3) 3.7 Amendment to Articles of N/A Incorporation of Casinos International, Inc. 4.1 Specimen of Class A Common N/A Stock Certificate (2) 4.2 Form of Series A Convertible N/A Preferred Stock Certificate (3) 4.3 Form of Class L Warrant Agreement (3) N/A 4.4 Preferred Dividend reserve Agreement (3) N/A 4.5 Indenture of Trust between N/A Great American Resorts, Inc. and Barbara 13 A. Brown, Trustee (4) 4.6 Deed to secure Debt between Great American N/A Resorts, Inc. and Barbara N/A A. Brown, as Trustee (4) 4.7 Form of Series A Secured Note (4) N/A 4.8 Indenture of Trust between Great American N/A Resorts of Florida, Inc. and Edward P. Starks, as Trustee (5) 4.9 Form of 11% Unsecured Note of Great N/A American Resorts of Florida, Inc. (5) 10.1 General Warranty Deed and Related Documents N/A for Gatlinburg Property. (6) 10.2 Letter Agreement with Chalets of Gatlinburg N/A (6) 10.3 Loan Documents for Shipyard Plantation N/A Cottages (7) 10.4 Purchase Agreement between Great American N/A Resorts, Inc., Great American Resorts of Florida, Inc. Landcom, Inc., Landcom-Ocala, Inc. and Landcom Hospitality Management, Inc. (1) 10.5 Agreement to Modify a Commercial promissory N/A Note between American Federal Savings Bank and Great American Casinos, Inc. 10.6 Deed of Trust and Assignment of Rents between N/A Baylocq Development Corporation and First Financial Service Corporation (8) 10.7 Promissory Note payable by Great American N/A Casinos, Inc. to the order of Baylocq Nevada Corp. (8) 10.8 Deed of Trust with Assignment of Rents between N/A Great American Casinos, Inc. and Baylocq Nevada Corp. (8) 10.9 Lease Agreement between Great American N/A Casinos, Inc. and Baylocq Nevada Corp. (8) 10.10 Amendment to Real Estate Purchase Agreement N/A dated September 29, 1995. 10.11 Amended Real Estate Purchase Agreement dated N/A October 6, 1995. 22.1 List of Subsidiaries N/A - ------------------------- (1) Incorporated by reference to the Exhibits to the Company's Current Report on Form 8-K dated June 30, 1995, commission file number 0-19852. (2) Incorporated by reference to the Exhibits previously filed with the Company's Registration Statement on Form S-18, Registration No. 33-42876-A. (3) Incorporated by reference to the Exhibits to the Company's Annual Report on Form 10-KSB for the fiscal year ended June 30, 1994, Commission file number 0- 19852. (4) Incorporated by reference to the Exhibits to the Company's Quarterly Report on Form 10-QSB for the quarter ended December 31, 1994, Commission file number 0-19852. 14 (5) Incorporated by reference to the Exhibits to the Company's Quarterly Report on Form 10-QSB for the quarter ended March 31, 1995, Commission file number 0- 19852. (6) Incorporated by reference to the Exhibits to the Company's Annual Report on Form 10-KSB for the fiscal year ended June 30, 1992, Commission file number 0- 19852. (7) Incorporated by reference to the Exhibits to the Company's Current Report on Form 8-K dated June 8, 1993, Commission file number 0-19852. (8) Incorporated by reference to the Exhibits to the Company's Current Report on Form 8-K dated January 20, 1995, Commission file number 0-19852. (9) Incorporated by reference to the Exhibits to the Company's Current Report on Form 8-K dated August 21, 1995, Commission file number 0-19852. (10) Incorporated by reference to the Exhibits to the Company's Current Report on Form 8-K dated September 18, 1995, Commission file number 0-19852. (b) The Company filed the following reports on Form 8-K for the quarter ended June 30, 1995: Date of Report Items Reported Financial Statements Filed June 30, 1995 (1) Agreement and Plan of Share No Exchange among Great American resorts, Inc., Casinos International, Inc. and Classic Restaurants International, Inc.; (2) Acquisition of Partnership Interest in Landcom-Ocala, Ltd., a Florida limited Partnership; and (3) Termination of Contract with Caragh Holdings, Ltd. Signatures In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused the report to be signed on its behalf by the undersigned, thereunto duly authorized. GREAT AMERICAN HOTELS & RESORTS, INC. Date: By: ----------------------- ------------------------- Edward L. Bates, President In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: By: ----------------------- ----------------------- Edward L. Bates, President and Director (Principal Executive Officer) Date: By: ------------------------ ----------------------- David C. Potts, Chief Operating Officer Date: By: ------------------------- ------------------------ Rob A. Turner, Chief Financial Officer 15 Date: By: ------------------------- ------------------------ Teresa A. Bates, Treasurer / Secretary / Director Date: By: ------------------------- -------------------------- William A. Whitehead, Director 16 GREAT AMERICAN HOTELS & RESORTS, INC. AND SUBSIDIAIRES CONTENTS - -------------------------------------------------------------------------------- Report of Independent Certified Public Accountants F-2 Consolidated Balance Sheet F-3 to F-4 Consolidated Statements of Operations F-5 to F-6 Consolidated Statements of Stockholders' Equity F-7 to F-9 Consolidated Statements of Cash Flows F-10 to F-12 Summary of Accounting Policies F-13 to F-18 Notes to Consolidated Financial Statements F-19 to F-35 F-1 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders Great American Hotels & Resorts, Inc. and Subsidiaries Duluth, Georgia We have audited the accompanying consolidated balance sheet of Great American Hotels & Resorts, Inc. and subsidiaries (the "Company") as of June 30, 1996 and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the years ended June 30, 1996 and 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based upon our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material aspects, the financial position of the Company as of June 30, 1996 and the results of their operations and their cash flows for the years ended June 30, 1996 and 1995, in conformity with generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and has negative cash flow from operating activities that raise substantial doubt of their ability to continue as a going concern. Management's plans in regard to these matters are also discussed in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ BDO Seidman, LLP Denver, Colorado April 11, 1997 F-2 GREAT AMERICAN HOTELS & RESORTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET - -------------------------------------------------------------------------------- June 30, 1996 - ------------------------------------------------------------- ASSETS CURRENT: Cash and cash equivalents $ 513,199 Restricted cash 38,188 Note receivable (Note 5) 206,859 Stock subscription receivable (Note 7) 229,326 Deposits 236,601 Accounts receivable 43,436 Property and equipment held for sale (Note 5) 89,730 - ------------------------------------------------------------- TOTAL CURRENT ASSETS 1,357,339 - ------------------------------------------------------------- PROPERTY AND EQUIPMENT (Note 6): Resort rental units 4,440,030 Land 884,981 Furniture and equipment 599,925 Office building and improvements 441,715 - ------------------------------------------------------------- 6,366,651 Accumulated depreciation 441,142 - ------------------------------------------------------------- Net property and equipment 5,925,509 - ------------------------------------------------------------- OTHER: Deferred acquisition costs 513,322 Debt issue costs 139,866 Prepayments and deposits 8,817 - ------------------------------------------------------------- Total other assets 662,005 - ------------------------------------------------------------- $7,944,853 ============================================================= See accompanying report of independent certified public accountants, summary of accounting policies and notes to consolidated financial statements. F-3 GREAT AMERICAN HOTELS & RESORTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (CONTINUED) - --------------------------------------------------------------------------------
June 30, 1996 - -------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 288,714 Accrued expenses 112,593 Current maturities of long-term debt (Note 6) 671,232 - -------------------------------------------------------------------------------------- Total current liabilities 1,072,539 LONG-TERM DEBT, less current maturities (Note 6) 5,356,138 - -------------------------------------------------------------------------------------- Total liabilities 6,428,677 - -------------------------------------------------------------------------------------- COMMITMENTS AND CONTINGENCIES (Note 10) STOCKHOLDERS' EQUITY (Note 7) Preferred stock, no par value; 16,000,000 shares authorized; none issued - Series A preferred stock, no par value; 4,000,000 shares authorized; 87,575 shares issued and outstanding; liquidation value of $10 per share (in the aggregate $785,000) 766,680 Common Stock: Class A, no par value; 20,000,000 shares authorized; 2,804,655 shares issued, 2,579,651 shares outstanding 5,565,538 Class B, no par value; 10,000,000 shares authorized; none issued - Class C, no par value; 2,000,000 shares authorized; 200,000 shares issued and outstanding 100 Treasury stock, 25,004 shares, at cost - Additional paid-in capital 211,875 Accumulated deficit (5,028,017) - -------------------------------------------------------------------------------------- Total stockholders' equity 1,516,176 - -------------------------------------------------------------------------------------- $ 7,944,853 ======================================================================================
See accompanying report of independent certified public accountants, summary of accounting policies and notes to consolidated financial statements. F-4 GREAT AMERICAN HOTELS & RESORTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS - -------------------------------------------------------------------------------- Years Ended June 30, 1996 1995 - ---------------------------------------------------------------------- Revenues: Rental $ 836,527 $ 622,491 Travel card sales (Note 11) - 1,209,713 Other income 87,270 121,127 - ---------------------------------------------------------------------- Total revenues 923,797 1,953,331 - ---------------------------------------------------------------------- Operating expenses: Rental 1,071,108 617,705 Travel card - 57,170 Salaries and wages 180,914 275,069 General and administrative 772,666 718,084 Settlement of claims 59,474 65,228 Bad debt expense - 537,000 Impairment of infomercial - 142,013 Depreciation and amortization 249,543 256,715 - ---------------------------------------------------------------------- Total operating expenses 2,333,705 2,668,984 - ---------------------------------------------------------------------- Loss from operations (1,409,908) (715,653) - ---------------------------------------------------------------------- Other income (expense): Gain on sale of property (Note 5) 467,147 - Interest income 7,252 12,661 Interest expense (646,704) (326,006) - ---------------------------------------------------------------------- Total other (expense) (172,305) (313,345) - ---------------------------------------------------------------------- Minority interest in loss of consolidated subsidiary 82,025 39,231 - ---------------------------------------------------------------------- Loss from continuing operations (1,500,188) (989,767) - ---------------------------------------------------------------------- See accompanying report of independent certified public accountants, summary of accounting policies and notes to consolidated financial statements. F-5 GREAT AMERICAN HOTELS & RESORTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
- -------------------------------------------------------------------------------- Years Ended June 30, 1996 1995 - -------------------------------------------------------------------------------- DISCONTINUED OPERATIONS (NOTE 4): Loss from operations of discontinued segment - (444,828) Loss on disposal of discontinued segment - (133,153) - -------------------------------------------------------------------------------- Total discontinued operations - (577,981) - -------------------------------------------------------------------------------- EXTRAORDINARY GAIN FROM DEBT EXTINGUISHMENT, NET OF $0 INCOME TAX EXPENSE (NOTE 3) 273,261 - - -------------------------------------------------------------------------------- Net loss (1,226,927) (1,567,748) Dividend requirements on preferred stock 65,706 28,021 - -------------------------------------------------------------------------------- Loss applicable to common stock $(1,292,633) $(1,595,769) ================================================================================ INCOME (LOSS) PER SHARE OF COMMON STOCK: Continuing operations $ (.65) $ (.63) Discontinued operations - (.35) Extraordinary gain .11 - - -------------------------------------------------------------------------------- Net loss per share $ (.54) $ (.98) - -------------------------------------------------------------------------------- Weighted-average number of common shares outstanding 2,409,741 1,616,310 ================================================================================
See accompanying report of independent certified public accountants, summary of accounting policies and notes to consolidated financial statements. F-6
GREAT AMERICAN HOTELS & RESORTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------------------------------------ Years Ended June 30, 1996 and 1995 Series A Common Stock Preferred Stock Class A Class C Additional --------------- ------------------- --------------- Paid-In Accumulated Shares Amount Shares Amount Shares Amount Capital Deficit - ----------------------------------------------------------------------------------------------------------------------------------- Balance, July 1, 1995 -0- $ -0- 1,513,390 $3,920,134 200,000 $100 $ -0- $(2,139,615) Issuance of preferred stock for cash, net of direct costs of $63,056 77,500 689,965 Issuance of common stock subscribed as of June 30, 1994; net of direct costs of $55,614 and subscription receivables of $187,334; 27,200 shares subsequently cancelled 96,999 269,202 Issuance of common stock for: Settlement of claims by stockholders 17,582 65,228 Property improvements 15,133 59,009 Services 3,180 19,175 Common stock of Casinos International, Inc. 200 1,000 Deposit on investment in limited partnership 100,000 - Exercise of warrants 7,950 42,975 Gain on sale of investment in subsidiary 62,110
F-7
GREAT AMERICAN HOTELS & RESORTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------------------------------------ Years Ended June 30, 1996 and 1995 Series A Common Stock Preferred Stock Class A Class C Additional --------------- ------------------- --------------- Paid-In Accumulated Shares Amount Shares Amount Shares Amount Capital Deficit - ----------------------------------------------------------------------------------------------------------------------------------- Issuance of stock by subsidiary resulting in increase in relative book value of subsidiary 343,160 Dividends paid (28,021) Net loss (1,567,748) - ----------------------------------------------------------------------------------------------------------------------------------- Balance, June 30, 1995 77,500 689,965 1,754,434 4,376,723 200,000 100 405,270 (3,735,384) Issuance of preferred stock for cash, net of stock receivable of $7,000 10,075 76,715 Issuance of common stock for: Cash and subscription receivable, net of offering costs of $7,689 377,620 1,026,161 Stock subscriptions 3,000 31,700 Settlement of claims by stockholders 26,166 59,474 Deposit on land 400,000 -
F-8
GREAT AMERICAN HOTELS & RESORTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------------------------------------ Years Ended June 30, 1996 and 1995 Series A Common Stock Preferred Stock Class A Class C Additional --------------- ------------------- --------------- Paid-In Accumulated Shares Amount Shares Amount Shares Amount Capital Deficit - ----------------------------------------------------------------------------------------------------------------------------------- Deposit on investment in limited partnership 12,500 - Satisfaction of liabilities 34,870 71,480 Return and cancellation of common stock (28,939) - Decrease in book value of Company due to sale of subsidiary (193,395) Dividends paid (65,706) Net loss (1,226,927) - ----------------------------------------------------------------------------------------------------------------------------------- Balance, June 30, 1996 87,575 $766,680 2,579,651 $5,565,538 200,000 $100 $211,875 $(5,028,017) =================================================================================================================================== See accompanying report of independent certified public accountants, summary of accounting policies and notes to consolidated financial statements.
F-9 GREAT AMERICAN HOTELS & RESORTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - -------------------------------------------------------------------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Years Ended June 30, 1996 1995 - ------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net loss $(1,226,927) $(1,567,748) Adjustments to reconcile net loss to net cash used in continuing operating activities: Discontinued operations - 577,981 Depreciation and amortization 249,543 256,715 Gain on sale of property and equipment held for sale (467,147) - Extraordinary gain from debt extinguishment (273,261) - Amortization of debt issuance costs 61,842 - Stock issued for services and settlement of claims 59,474 84,403 Write-off of deposit for land purchase 24,100 - Provision for uncollectible accounts receivable - 537,000 Impairment of infomercial - 142,013 Minority interest in loss of consolidated subsidiary (82,025) (39,231) Changes in operating assets and liabilities, net of acquisitions of businesses: Accounts receivable, trade 10,121 (510,186) Prepaid and other current assets - 29,040 Prepayments and deposits 2,388 412 Accounts payable 67,931 71,322 Accrued compensation, directors - 30,680 Accrued expenses (68,619) 124,603 Net cash provided by (used in) discontinued operations 74,635 (382,662) - ------------------------------------------------------------------------------------- Net cash used in operating activities (1,567,945) (645,658) - -------------------------------------------------------------------------------------
See accompanying report of independent certified public accountants, summary of accounting policies and notes to consolidated financial statements. F-10 GREAT AMERICAN HOTELS & RESORTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) - -------------------------------------------------------------------------------- Years Ended June 30, 1966 1995 - -------------------------------------------------------------------------------- INVESTING ACTIVITIES: Proceeds from sale of property and equipment held for sale 2,037,601 - Purchase and construction of property and equipment (451,654) (918,407) Payment for prepayments and deposit - (29,335) Payment for advances receivable - (80,000) Payment of deferred acquisition costs (419,923) - Payment on deposit from limited partnership acquisition - (330,000) Proceeds from sale of investment in subsidiary 150,000 174,303 Activities of discontinued operations, net (50,000) (80,434) - -------------------------------------------------------------------------------- Net cash provided by (used in) investing activities 1,266,024 (1,263,873) - -------------------------------------------------------------------------------- See accompanying report of independent certified public accountants, summary of accounting policies and notes to consolidated financial statements. F-11 GREAT AMERICAN HOTELS & RESORTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) - --------------------------------------------------------------------------------
Years Ended June 30, 1996 1995 - ------------------------------------------------------------------------------------- FINANCING ACTIVITIES: Change in restricted cash 49,312 (80,014) Proceeds from mortgage notes payable and long-term debt, net of debt-issue costs 1,266,000 1,937,345 Principal payments on mortgage notes payable and long-term debt (1,838,723) (46,618) Proceeds from issuance of Series A preferred stock, net of stock issuance costs 76,715 689,965 Proceeds from issuance of Class A common stock, net of stock issuance costs 796,835 42,975 Proceeds from Class A common stock subscribed 13,700 - Proceeds from subscription receivable 12,000 25,400 Checks written in excess of deposits 12,901 - Dividend payments on preferred stock (65,706) (28,021) Payment of debt issuance costs (112,837) - Other - (42,220) - ------------------------------------------------------------------------------------- Net cash provided by financing activities 210,197 2,498,812 - ------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents (91,724) 589,281 CASH AND CASH EQUIVALENTS, beginning of year 604,923 15,642 - ------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, end of year $ 513,199 $ 604,923 ===================================================================================== See accompanying report of independent certified public accountants, summary of accounting policies and notes to consolidated financial statements.
F-12 GREAT AMERICAN HOTELS & RESORTS, INC. AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES - -------------------------------------------------------------------------------- Organization Great American Hotels & Resorts, Inc. and (the "Company" or "GARI") formerly Business Great American Resorts, Inc., was incorporated under the laws of the state of Georgia on July 29, 1991. GARI was formed for the purpose of engaging in the business of purchasing, developing and managing properties in the overnight resort rental unit market in certain resort areas throughout the world. On April 29, 1993, GARI formed a wholly-owned subsidiary called The Great American Honeymoon Resorts, Inc. ("GAHR"), a Tennessee corporation which was formed to acquire rental property in Tennessee. In January 1994, GARI formed a wholly-owned subsidiary called Great American Travel Network, Inc. ("GATN"), a Georgia corporation, to provide travel agency related services and to sell travel discount cards to the public. On May 23, 1994, GARI purchased all of the issued and outstanding common stock of Great American Financial Network, Inc. ("GAFN"), formerly Marina Securities, Inc. ("MSI"), an Oklahoma corporation incorporated on July 29, 1983. GAFN is in the business of securities brokerage and related services as set forth by the Securities and Exchange Commission and the National Association of Securities Dealers, Inc. As discussed in Note 4, GARI sold all of its stock in GAFN during July 1995. During April, 1995, GARI formed a wholly-owned subsidiary called Great American Resorts of Florida, Inc. ("GAROF"), a Florida corporation which was formed to acquire rental property in the state of Florida. As of June 30, 1995, GARI held approximately 82% of Casinos International, Inc. ("CI"), a publicly-held Colorado corporation. As discussed in Note 3, during January 1996, GARI sold its shares in CI for 100% of the issued and outstanding common stock of Great American Casinos, Inc. ("GACI"), a Nevada corporation incorporated on January 17, 1995 which was a wholly-owned subsidiary of CI. GACI is the owner of a hotel property in Reno, Nevada (see Note 2). F-13 GREAT AMERICAN HOTELS & RESORTS, INC. AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES - -------------------------------------------------------------------------------- Principles of The accompanying financial statements Consolidation include the accounts of GARI and its wholly-owned and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Concentrations The Company's financial instruments of Credit Risk that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company's cash equivalents are in demand deposit accounts placed with Federally insured financial institutions. Such deposit accounts at times may exceed federally insured limits. The Company has not experienced any losses on such accounts. Concentrations of credit risk with respect to receivables are limited due to a few customers dispersed across geographic areas. Financial The following methods and assumptions Instruments were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value. Note Receivable The note receivable bears interest at an amount that approximates a fair market value rate. Accordingly, the fair value approximates its reported carrying amount as of June 30, 1996. Long-term debt Substantially all of these notes bear interest at a floating rate of interest based upon the lending institutions' prime lending rate. Accordingly, the fair value approximates their reported carrying amount at June 30, 1996. F-14 GREAT AMERICAN HOTELS & RESORTS, INC. AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES - -------------------------------------------------------------------------------- Use of The preparation of financial Estimates statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications Certain reclassifications have been made to the 1995 financial statements in order for them to conform to the 1996 presentation. Such reclassifications have no impact on the Company's financial position or results of operations. Cash and Cash For purposes of the statements of Equivalents cash flows, the Company considers all money market accounts and highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Restricted As of June 30, 1996, the Company Cash maintained cash in an escrow account for the benefit of its preferred stockholders in order to pay preferred stock dividends. Property and Property and equipment are stated at Equipment cost. Expenditures for repairs and maintenance are charged to expense as incurred and additions and improvements that significantly extend the lives of assets are capitalized. Upon sale or other retirement of depreciable property, the cost and accumulated depreciation are removed from the related accounts and any gain or loss is reflected in operations. Depreciation is provided using straight-line and accelerated methods based upon the estimated useful lives of the depreciable assets ranging from five to thirty-nine years. Depreciation expense for the years ended June 30, 1996 and 1995, was $247,837 and $216,989. Deferred Deferred acquisition costs include Acquisition professional fees and other direct Costs costs related to the evaluation of prospective property acquisitions. If the acquisitions are completed, these costs are included as property costs. If a prospective property is not acquired, the costs are expensed. F-15 GREAT AMERICAN HOTELS & RESORTS, INC. AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES - -------------------------------------------------------------------------------- Debt Issue Debt issue costs represent the direct Costs costs of issuing debt securities. The costs are being amortized over the term of the related debt. Issuance of Direct sales of unissued shares of Stock of subsidiaries which exceed the Subsidiary parent's carrying value are reflected as capital transactions in the consolidated financial statements. Income The Company accounts for income taxes Taxes under Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"). Temporary differences are differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. Net Loss Per Net loss per share is computed by Share of dividing the net loss after Common Stock deducting preferred stock dividends for the period by the weighted-average number of shares of common stock outstanding during the period. Common equivalent shares from stock warrants were excluded from the computation because their effect is antidilutive for the periods presented. Recent The Financial Standards Board has Accounting recently issued Statement of Pronouncements Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets" and SFAS No. 123, "Accounting for Stock-Based Compensation" and SFAS No. 128, "Earnings per Share" and SFAS No. 129, "Disclosure of Information About an Entity's Capital Structure." SFAS No. 121 requires that long-lived assets and certain identifiable intangibles be reported at the lower of the carrying amounts or their estimated recoverable amount. The adoption of this statement by the Company is not expected to have an impact on the financial statements. SFAS No. 123 encourages the accounting for stock-based employee compensation programs to be reported within the financial statements on a fair-value based method. If the fair-value based method is not adopted, then the statement requires proforma disclosure of net income and earnings per share as if the fair value based method has been adopted. The Company has not yet determined how SFAS No. 123 will be adopted nor its impact on the financial statements. SFAS No. 128 provides a different method of calculating earnings per share than is currently used in F-16 GREAT AMERICAN HOTELS & RESORTS, INC. AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES - -------------------------------------------------------------------------------- accordance with Accounting Board Opinion (APB) No. 15, "Earnings Per Share". SFAS No. 128 provides for the calculation of "Basic" and "Diluted" earnings per share. Basic earnings per share includes no dilution and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could share in the earnings of an entity, similar to fully diluted earnings per share. SFAS 129 establishes standards for disclosing information about an entity's capital structure. SFAS No. 121 and SFAS No. 123 are effective for fiscal years beginning after December 15, 1995. SFAS 128 and SFAS 129 are effective for financial statements issued for periods ending December 15, 1997. Implementation of SFAS 128 and SFAS 129 are not expected to have a material effect on the consolidated financial statements. In June 1997, FASB issued Statement of Financial Accounting Standard No. 130 "Reporting Comprehensive Income ("SFAS 130") and Statement of Financial Accounting Standard No. 131 "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 130 establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, SFAS 130 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that displays with the same prominence as other financial statements. SFAS 131 supersedes Statement of Financial Accounting Standard No. 14 "Financial Reporting for Segments of a Business Enterprise". SFAS 131 establishes standards for the way that public companies report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements issued to the public. It also establishes standards for disclosures regarding products and services, geographic areas and major customers. SFAS 131 defines operating segments as components of a company about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. F-17 GREAT AMERICAN HOTELS & RESORTS, INC. AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES - -------------------------------------------------------------------------------- SFAS 130 and SFAS 131 are effective for financial statements for periods beginning after December 15, 1997 and require comparative information for earlier years to be restated. Because of the recent issuance of these standards, management has been unable to fully evaluate the impact, if any, the standards may have on future financial statement disclosures. Results of operations and financial position, however, will be unaffected by implementation of these standards. F-18 GREAT AMERICAN HOTELS & RESORTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. Going Concern The Company has suffered recurring losses from operations and negative cash flow from operating activities that raise substantial doubt about its ability to continue as a going concern. As detailed below, significant efforts have and will continue to be expended by management in order to improve operating results and financial position, which it believes is sufficient to provide the Company with the ability to continue as a going concern. During the fiscal year ending June 30, 1997, the Company took substantial steps to improve cash flow and profitability. On January 16, 1997, the Company, through one of it's wholly owned subsidiaries, entered into a Management/Purchase agreement for the Days Inn, Super 8 and Poor Man's Castle all located in Vero Beach, Florida (See Note 16). The Company also intends to seek out additional acquisitions (See Note 16). The Company is also seeking additional financing to meet the obligations of maturing debt, retire its higher cost financing arrangements and provide for near term working capital. The financing alternatives available to the Company include the refinancing of existing debt, private placements of its common stock, third party loans, equity participation or any combination of these methods. In addition to the recent expansion, the Company has greatly strengthened its management team by adding two seasoned veterans of the hospitality industry. The Company believes that the recent acquisitions and the recruitment of seasoned hotel management professionals will result in the Company continuing as a going concern. There are no assurances that the Company's plan will be successful. The accompanying financial statements do not include any adjustments that might result from the outcome of these uncertainties. F-19 GREAT AMERICAN HOTELS & RESORTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 2. Business and Cheers Hotel and Casino Property Acquisitions On January 20, 1995, CI acquired, through its wholly-owned subsidiary GACI, the Cheers Hotel and Casino in Reno, Nevada (the "Cheers Hotel") from Baylocq Nevada Corporation ("BNC"), which is not an affiliate of the Company. The aggregate cost of the Cheers Hotel was $4,053,345 which included a contract price of $3,750,000 and closing costs of $303,345. The contact price consisted of the assumption of a mortgage note payable to a bank in the principal amount of $1,944,804, the execution of a promissory note payable to BNC for $1,055,196 (See Note 6) and cash of $750,000. This acquisition has been accounted for as a purchase and, accordingly, the acquired assets and liabilities have been recorded at their estimated fair values at the date of acquisition. The operating results of this acquisition have been included in the accompanying consolidated financial statements from the date of acquisition. See pro forma information in Note 3. Land Acquisition On August 21, 1994, CI entered into an agreement to purchase two tracts of unimproved land ("Tract #1" and "Tract #2") located in Ireland from Caragh Holdings, Inc. ("Caragh"), an unaffiliated company, and issued 1.5 million shares of its Class A common stock to Caragh. During October 1994, CI completed the purchase of Tract #1 for a purchase price of $334,800 including cash of $41,723 and 270,000 shares of the Class A common stock of CI, valued at $293,077, based upon the appraised value of the tract. Thereafter, CI assigned its rights in Tract #1 to GARI for $384,877, which consisted of the amount paid by CI plus a fee paid by GARI as reimbursement for the expense and management time incurred to acquire the land. The acquisition fee of approximately $50,000 eliminates in consolidation. Pursuant to subsequent agreements between CI and Caragh, the purchase of Tract #2 was cancelled and 1,050,000 shares of CI were returned to CI in November 1995. Caragh has an option to purchase the remaining 180,000 shares of CI common stock (also see Note 7). F-20 GREAT AMERICAN HOTELS & RESORTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 3. Debt In June 1995, CI and Classic Forgiveness Restaurants, Inc. ("Classic"), an unrelated party, entered into an Agreement and Plan of Share Exchange, which was consummated in January 1996, for CI to acquire all of the outstanding stock of Classic. The agreement also provides that CI will sell all of its GACI common stock, representing 100 percent ownership, to GARI in exchange for all of GARI's and certain of GARI's officers' shares of CI, cancellation of intercompany indebtedness and the mutual release of any claims between CI and GARI. The Company recognized a $273,261 extraordinary gain from extinguishment of debt from this transaction. Pro Forma Information The following unaudited pro forma information presents the results of operations of the Company as if the Company acquired Cheers Hotel, the Company's ownership of CI was transferred to Classic, and the sale of GAC to GARI had occurred at the beginning of fiscal 1996 and 1995. The unaudited pro forma information may not be indicative of results that would have occurred if the transfer and sale had been consummated as of those dates or of the results that may be obtained in the future.
Years Ended June 30, 1996 1995 ------------------------------------------------ Revenues $ 923,797 $ 2,215,122 Operating expenses (2,333,705) (3,070,556) Other expenses (172,305) (564,682) ------------------------------------------------ Loss from continuing operations $(1,582,213) $(1,420,116) ================================================ Loss per share of common stock from continuing operations $ (.68) $ (.89) ================================================
F-21 GREAT AMERICAN HOTELS & RESORTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 4. Discontinued On June 30, 1995 (the measurement Operations date), GARI entered into an agreement to sell 100 percent of the issued and outstanding common stock of GAFN on July 21, 1995 (the disposal date) to an unrelated party for a $150,000 promissory note which was paid in full during August 1995. GAFN was an operating broker/dealer engaged in the business of securities brokerage. The estimated loss on disposal of the segment was calculated as of the measurement date and includes estimated losses from operations through the disposal date of $87,181 and a loss on the sale of the net book value of GAFN of $133,153. The following is a summary of the operations of the discontinued business segment for the year ended June 30, 1995. Year Ended June 30, 1995 --------------------------------------- Revenues $ 595,710 Operating expenses (1,040,538) --------------------------------------- Net loss $ (444,828) ======================================= 5. Property Held During fiscal 1996, the Company sold for Sale 22 of its 23 condominiums located in Hilton Head, South Carolina for net proceeds of $2,244,460, of which $206,859 was unpaid as of June 30, 1996. The Company recognized a $467,147 gain from the sale. Subsequent to June 30, 1996, the Company closed on the sale of the last condo for $112,925 which will result in a gain of approximately $23,000. F-22 GREAT AMERICAN HOTELS & RESORTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 6. Long-Term Long-term debt consisted of the following: Debt June 30, 1996 --------------------------------------------------------------- Mortgage note payable of $1,944,804, collateralized by a first deed of trust on the Cheers Hotel; payable in initial monthly installments of principal and interest of $15,834 beginning in February 1995; stated interest rate of 9 percent from January 1, 1995 through October 31, 1996; interest rate adjustable annually to the prime rate as quoted by the Wall Street Journal plus 1.5 percent with a minimum interest rate of 9 percent per annum beginning November 1996 with adjustment of payment amount as needed; unpaid principal and accrued interest due December 1, 2008; guaranteed by certain officers of the Company. $ 1,922,265 Mortgage note payable to BNC of $1,055,196, collateralized by a second deed of trust on the Cheers Hotel; interest at 7 percent with principal and interest payments due monthly through October 1999; beginning November 1999, equal monthly installments of principal plus interest at 2 percent above the most recent rate according to the Federal Home Loan Bank of San Francisco Monthly Weighted Average Cost of Funds Index for Eleventh District Savings Institutions, with certain minimums and maximums; unpaid principal and accrued interest due December 1, 2008. 800,903 F-23 GREAT AMERICAN HOTELS & RESORTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Series A Secured Notes of up to $3,000,000; interest at 10 to 12 percent per annum; interest payable monthly; principal and accrued interest due at maturity dates of December 31, 1996, 1997 or 1998; collateralized by a first priority lien on the Company's office building; redeemable in whole or in part at any time without premium or penalty. 1,483,216 Unsecured Notes of up to $3,000,000; interest at 11 to 14 percent per annum; interest payable monthly; principal and accrued interest due at various maturity dates through June 30, 1999; redeemable in whole or in part at any time without premium or penalty. 1,445,595 Notes payable; interest at 15% per annum; interest-only payments through August 1, 1998 at which time all principal plus accrued interest is due; collateralized by the Company's Gatlinburg, Tennessee property 300,000 Notes payable to banks 75,391 ----------------------------------------------------------- 6,027,370 Less current maturities 671,232 ----------------------------------------------------------- $5,356,138 =========================================================== The Series A Secured Notes and Unsecured Notes were provided by private offering pursuant to Rule 505 under Regulation D of the Securities and Exchange Commission. F-24 GREAT AMERICAN HOTELS & RESORTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Future maturities of long-term debt as of June 30, 1996 are as follows: Years Ending June 30, ----------------------------------------------------------- 1997 $ 671,232 1998 864,378 1999 1,836,688 2000 54,029 2001 37,422 Thereafter 2,563,621 ----------------------------------------------------------- 6,027,370 =========================================================== 7. Stockholders' Common Stock Equity The Company's common stock consists of Class A common voting stock, Class B common voting stock, and Class C common voting stock. The shares of each class of common stock have the same rights, except that the Class A and Class B shares have 1/20th of one vote for each share and the Class C shares have one vote for each share in each matter voted upon by the stockholders. In addition, holders of Class C common stock are entitled to elect a majority of the members of the Board of Directors at all times. Such stock is owned by an officer of the Company. Private Offerings During fiscal 1995, the Company cancelled subscription agreements for 68,336 units and related proceeds of $410,000 relating to stock sold in a private stock offering under Regulation D, Rule 505 of the Securities and Exchange Commission as of June 30, 1994. As of June 30, 1995, $96,000 remained outstanding on shares issued in connection with the subscription agreements. During fiscal 1996, 28,939 shares of Class A common stock were returned to the Company in satisfaction of the $96,000 receivable. F-25 GREAT AMERICAN HOTELS & RESORTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Preferred Stock The Company's Series A preferred stock ("Series A preferred") consists of 4,000,000 authorized shares convertible into shares of common stock. The number of shares of common stock issuable upon conversion of each share of the Series A preferred will be equal to $10 divided by the conversion price in effect at the time of conversion. Such conversion price was initially deemed to be $5 per share and is subject to adjustment from time to time by the board of directors based upon changes in outstanding shares of the Company and upon the market value of the Company's common stock. The Company will reserve sufficient shares of common stock to meet any conversion of all of the outstanding preferred stock. In addition to the conversion feature, each share of Series A preferred will be entitled to a dividend preference of $.80 per share per annum, noncumulative, in any dividends declared in any fiscal year before any dividends are paid to any other class of stock. Dividends, to the extent declared by the board of directors will be payable monthly beginning on November 1, 1994. The Company may redeem the Series A preferred at any time, in whole or in part, at the option of the Company for cash at the redemption price of $10 per share, plus all declared but unpaid dividends to the date fixed for redemption. The Series A preferred have a liquidation value of $10 per share. In addition, whenever dividends on the outstanding Series A preferred have not been paid for a period of one year, and thereafter until the Company has paid all dividends on the outstanding Series A preferred for one consecutive year, the holders of such stock (voting as a class) shall be entitled to elect one director at the next annual meeting and at all subsequent annual meetings of the stockholders of the Company. On August 30, 1994, the Company's board of directors approved to offer and sell 1,000,000 Units in a private offering of up to $10 million in Series A preferred and warrants at $10 per Unit pursuant to Regulation D, Rule 506, of the Securities and Exchange Commission. Each Unit consists of one share of Series A preferred, one Class J Warrant, one Class K Warrant and one Class L Warrant. The Class J, Class K, and Class L Warrants were exercisable to purchase one share of preferred stock for $10 per share through May 31, 1995, November 30, 1995 and May 31, 1996, respectively. The Company has provided that sixteen percent of the gross proceeds will be placed in an escrow account to pay dividends to the extent declared by the board of directors. F-26 GREAT AMERICAN HOTELS & RESORTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Stock Issued, Caragh The Company issued 400,000 shares of Class A common stock to Caragh during August, 1995 as a deposit on the purchase of a parcel of land. Such purchase was later cancelled by mutual consent of the parties. Caragh may purchase the shares by paying $2.00 per share to the Company until December 31, 1997, at which time any non-purchased shares will be returned to the Company. In related agreements, Caragh agreed to purchase an additional 200,000 and 100,000 shares of GARI's Class A common stock for $3.20 and $2.00 per share or $840,000. GARI issued the 300,000 shares of stock to Caragh in September 1995 and has received $610,674 from Caragh towards the subscription. As of June 30, 1996, the Company had recorded a $229,326 stock subscription receivable of which all was paid subsequent to year end. Employee Stock Incentive Plan On March 10, 1994, the Company's board of directors adopted an employee stock incentive plan (the Plan). The Plan is a noncompensatory plan as defined by APB No. 25 and allows the issuance of incentive stock options to purchase up to 133,333 shares of Class A common stock to certain officers and managers of the Company. The purchase price of the Class A common stock underlying options granted pursuant to the Plan will not be less than 100 percent of the fair market value of the Class A common stock at the time the options are granted. Furthermore, no options may be granted under the Plan to an employee who, immediately after such option is granted, owns stock possessing more than five percent of the total combined voting power or value of all classes of stock of the Company. No stock options have been granted under the Plan. Other Stock Options On February 2, 1996, the Company granted stock options to an officer of the Company to purchase 200,000 shares of the Company's Class A common stock at an exercise price of $3.50 per share. The stock options expire on January 1, 2003. Twenty-five percent of the stock options vest on October 1, 1996 and an additional twenty-five percent vest every year thereafter. Subsequent to June 30, 1996, the Company terminated its service agreement with the officer and the officer forfeited all but 50,000 of the stock options. F-27 GREAT AMERICAN HOTELS & RESORTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- On February 15, 1996, the Company granted stock options to the president of the Company to purchase 7,600,000 shares of the Company's Class C common stock at an exercise price of $2.01 per share. The stock options expire on June 30, 2016. Nine percent of the stock options vested on June 30, 1996 and an additional nine percent vest every year thereafter.
Grant Expiration Exercise Options Options Date Date Price Granted Vested ----------------------------------------------------------------------- February 2, 1996 January 1, 2003 $ 3.50 200,000 - February 15, 1996 June 30, 2016 $ 2.01 7,600,000 690,909 ----------------------------------------------------------------------- Options outstanding, June 30, 1996 7,800,000 690,909 =======================================================================
8. Income The Company has no tax provision for the years ended June Taxes 30, 1996 and 1995 as the Company has losses in both of those years. The tax effect on components of the net deferred tax asset is as follows:
June 30, 1996 ----------------------------------------------------------------------- Net operating loss carryforwards $ 1,660,000 Basis of property and equipment (66,000) ----------------------------------------------------------------------- 1,594,000 Valuation allowance (1,594,000) ----------------------------------------------------------------------- Net deferred tax asset $ -0- =======================================================================
A 100 percent valuation allowance has been established to reflect management's evaluation that it is more likely than not that all of the deferred tax assets will not be realized. During the year ended June 30, 1996 the Company's valuation allowance for the net deferred tax asset increased by $484,000. At June 30, 1996, the Company had available net operating loss carryforwards of approximately $4,426,000 for income tax reporting purposes. The net operating loss carryforwards expire through 2011. These carryforwards are subject to various limitations imposed by the rules and regulations of the Internal Revenue Service. F-28 GREAT AMERICAN HOTELS & RESORTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 9. Related Party Stockholder Benefit Transactions The Company provides certain benefits to its stockholders. The benefits are summarized below: Every stockholder of 1,000 shares or more of common stock or preferred stock shall have the right to purchase a coupon which shall entitle that stockholder up to six consecutive night's lodging per 1,000 shares owned per year in any one of the Company's hotel properties for the cost of cleaning ($49) for as long as that stockholder holds the shares. Every stockholder of 2,000 shares or more of common stock or preferred stock shall have the right to purchase a coupon which shall entitle that stockholder up to six consecutive night's lodging per 2,000 shares owned per year in any of the Company's resort rental properties or hotel properties for the cost of cleaning ($49) for as long as that stockholder holds the shares. The Company rents the properties to stockholders subject to availability. 10. Commitments Operating Leases and Contingencies The Company leases equipment under noncancelable operating leases which expire through February 2001. Future minimum lease payments are as follows: Years Ending June 30, --------------------------------------------------------- 1997 $ 54,600 1998 53,000 1999 48,900 2000 41,300 2001 14,100 --------------------------------------------------------- $211,900 ========================================================= Rent expense during the years ended June 30, 1996 and 1995 on all operating leases was approximately $20,800 and $15,700. F-29 GREAT AMERICAN HOTELS & RESORTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Lease Agreement On January 20, 1995, the Company entered into an agreement to lease the casino and cabaret operations located within the Cheers Hotel to BNC for a period of two years. BNC has agreed to pay rent of $15,000 per month to the Company and to be responsible for all revenues and operating costs associated with the casino and cabaret with the exception of utilities, real property taxes, real property insurance premiums and expenses to maintain or repair the leasehold structure. On July 1, 1995, the Company and BNC agreed to eliminate the cabaret operations from the lease agreement and to reduce the monthly payment to $7,500. For the years ended June 30, 1996 and 1995, the Company recognized $90,000 and $80,500 in lease income. License Agreement The Company entered into a license agreement with Ramada Franchise Systems, Inc. ("Ramada") in April 1995 whereby the Company's hotel in Reno, Nevada would be allowed to operate as a Ramada Inn. This license agreement became effective on March 5, 1996 and terminates March 4, 2001. The Company is required to pay Ramada 4% of the monthly gross room revenue. For the year ended June 30, 1996, the Company's royalty expense was not significant. Legal Proceedings The Company has been named as a defendant in various legal actions for which the claimants are seeking actual damages in excess of $3,150,000. The Company believes the allegations are without merit and intends to defend the actions vigorously. In view of the state of the litigations, management and counsel of the Company are unable to determine the outcome of the actions or estimate the amount of loss, if any. In addition, management and counsel of the Company are unable to determine what effect these legal actions will have on the Company. Accordingly, no provision for any liability that may result has been reflected in the accompanying financial statements. F-30 GREAT AMERICAN HOTELS & RESORTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 11. Significant In October 1994, the Company entered into an agreement to Customer sell a total of 240,000 airline cards to Golden Hollywood Company, Limited ("Golden"), a Hong Kong Corporation, granting Golden the exclusive right to market the Company's airline card in Asia and other territories. Golden agreed to purchase the cards for $5 each and pay the Company quarterly over a twelve-month period with the first $300,000 purchase being September 30, 1994. Golden paid $723,000 of the $1,200,000 due under the agreement and the Company wrote-off the remaining amount due under the contract since collection was uncertain. For the year ended June 30, 1995, the Company recorded travel card sales of $1,200,000 relating to the contract. There are no assurances that similar contracts will be entered into by the Company in the future. 12. Issuance of CI made the following direct issuances of its common Stock by stock during the year ended June 30, 1995: Subsidiary Issuance of 270,000 shares of Class A common stock valued at $293,077 for an investment in land located in Ireland. The land was subsequently transferred to GARI at historical cost plus an acquisition fee of approximately $50,000. See Note 2. Issuance of 1,230,000 shares of Class A common stock as a deposit on an additional tract of land in Ireland. As discussed in Note 2, 1,050,000 of the shares were returned and cancelled in November 1995 and the remaining 180,000 shares are subscribed for $2.67 per share. There were no transaction gains or losses in connection with the above share issuances. F-31 GREAT AMERICAN HOTELS & RESORTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 3. Supplemental The following is a summary of non-cash investing and Disclosures financing activities: for the Statements of Years Ended June 30, 1996 1995 Cash Flows ----------------------------------------------------------- Sales of property and equipment held for sale for note receivable $206,859 $ - Issuance of Class A common stock for subscription receivable $229,326 $ - Issuance of common stock in settlement of liabilities $ 71,480 $ - Acquisition of property and equipment through mortgage notes payable $ - $3,000,000 Acquisition of property through issuance of Class A common stock $ - $ 59,009 Subsidiary's stock issued for land $ - $ 293,007 Gain recognized on sale of subsidiary's stock $ - $ 62,110 Stock subscription receivable offset against Class A common stock $ - $ 91,334 Issuance of Class A common stock due to be issued as of June 30, 1994 $ - $ 399,469 =========================================================== For the years ended June 30, 1996 and 1995, the Company paid interest of $506,319 and $293,919. F-32 GREAT AMERICAN HOTELS & RESORTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 14. Segment The reportable industry segments are as follows: Information GARI, GAROF and GAHR are in the business of real estate rental operations and GARI is responsible for the management of the operations and its subsidiaries. GATN is in the business of travel card sales and travel agency. For the year ended June 30, 1996, GATN's business activities were not significant and therefore is not a reportable industry segment. The desegregated information about the Company's industry segments as of and for the year ended June 30, 1995 is as follows:
Real Estate Travel Card and Eliminating Consolidated Rental Travel Agency Entries Totals - ------------------------------------------------------------------------------------------------------- Revenue $ 732,963 $1,220,368 $ - $1,953,331 Operating loss $ (928,427) $ 359,040 $ (146,266) $ (715,653) Identifiable assets $11,145,153 $ 351,360 $(2,715,388) $8,781,125 Depreciation and amortization $ 216,102 $ 42,616 $ (2,003) $ 256,715 Property and equipment additions $ 4,457,993 $ - $ (187,500) $4,270,493 =======================================================================================================
F-33 GREAT AMERICAN HOTELS & RESORTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 15. Subsequent Land Purchase Events During September 1996, the Company formed a wholly-owned subsidiary, Palisade Pointe Estates, Inc. ("Palisade"), a Georgia corporation. On October 31, 1996, Palisade purchased 109 acres in Kula, Hawaii for $172,000 in cash and $833,000 mortgage note payable. Preferred Stock Offering During September 1996, through GAROF, the Company formed a wholly-owned subsidiary, Gold Coast Security Trust Properties, Inc. ("Gold Coast"), a Florida corporation. In a private placement, Gold Coast offered to sell 1,000 shares of its Class A 20% cumulative participating preferred shares for $1,000 per share. Through the date of the auditors' report, Gold Coast sold 938 shares for gross proceeds of approximately $934,000. 16. Events On May 1, 1997, Gold Coast acquired 80 percent of the issued (Unaudited) and outstanding common stock of Jacjon, Inc. ("Jacjon"), a Subsequent Florida corporation. The remaining 20% of the issued and to the Date outstanding common stock of Jacjon was acquired by an of the Report outside investor. The purchase price was $1,188,590 in cash, of Independent $3,233,091 in mortgage and notes payable and $480,122 in Certified acquisition costs. Jacjon owns the Vero Beach Days Inn, Public Super 8 and Poor Man's Castle Restaurant. The acquisition Accountants was recorded using the purchase method of accounting by which the assets are valued at fair market value at the date of acquisition. The purchase price allocation is as follows: ----------------------------------------------------------- Buildings $3,840,000 Land 680,000 Furniture, fixtures and equipment 280,000 Other assets 101,803 ----------------------------------------------------------- Total purchase price $4,901,803 =========================================================== F-34 GREAT AMERICAN HOTELS & RESORTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- In June 1997, the Company formed a majority owned subsidiary, Orlando Security Trust, Ltd. ("Orlando"). The Company owns 74.25% of the limited partners' interest and 100% of the general partner's interest for a total ownership percentage of 75.25%. On June 27, 1997, Orlando purchased 100% of ASIG, Inc., the sole corporate owner of the Ramada Limited, Universal Studios, Orlando, Florida. The purchase price was $451,016 in cash, $350,000 in note payable and $242,789 in acquisition costs. This acquisition was recorded using the purchase method of accounting by which the assets are valued at fair market value at the date of acquisition. The purchase price allocation is as follows: ---------------------------------------------------------- Building $ 2,025,116 Land 354,263 Furniture, fixtures and equipment 264,375 Other assets 29,702 ---------------------------------------------------------- 2,673,456 Less: Mortgage note payable 1,629,651 ---------------------------------------------------------- Total purchase price $ 1,043,805 ========================================================== The following unaudited pro forma information presents the consolidated results of operations of the Company as if the acquisitions had occurred at the beginning of fiscal 1996. The audited pro forma financial data does not purport to be indicative of the results which actually would have been obtained had the purchases been effected on the date indicated or of the results which may be obtained in the future. Year ended June 30, 1996 ---------------------------------------------------------- Revenues $ 4,206,153 Operating expenses (4,645,899) Other expenses (640,717) Minority interest in income of consolidated subsidiaries (25,699) ---------------------------------------------------------- Loss from operations $(1,106,162) ========================================================== Loss per share of common stock from operations $ (.49) ========================================================== F-35 EX-27 2 FINANCIAL DATA SCHEDULE
5 YEAR JUN-30-1996 JUL-01-1995 JUN-30-1996 551,387 0 479,621 0 0 1,357,339 6,366,651 441,142 7,944,853 1,072,539 0 0 766,680 5,565,638 211,875 7,944,853 0 923,797 0 2,333,705 254,330 0 646,704 (1,500,188) 0 (1,500,188) 0 273,261 0 (1,226,927) (.54) (.54)
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