Exhibit 99
CAPITOL COMMUNITIES CORPORATION, INC.
AND SUBSIDIARIES
AUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
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CAPITOL COMMUNITIES CORPORATION, INC. AND SUBSIDIARIES
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TABLE OF CONTENTS
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Page
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Independent Auditor's Report 1
Financial Statements
Balance Sheets 2
Statements of Operations 3
Statements of Changes in Shareholders' Equity 4
Statements of Cash Flows 5
Notes to Financial Statements 6-18
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INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Board of Directors and Stockholders
of Capitol Communities Corporation, Inc. and Subsidiaries
We have audited the accompanying balance sheets of Capitol Communities
Corporation, Inc. and Subsidiaries as of September 30, 1996 and the related
statements of income and accumulated deficit, stockholders equity and cash flows
for the years ended September 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 on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Capital Communities
Corporation, Inc. and Subsidiaries as of September 30, 1996 and the results of
its operations and its cash flows for the years ended September 30, 1996 and
1995 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 15 to the
financial statements, the Company has suffered recurring losses from operations
and has net capital deficiencies that raise substantial doubt about it's ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 15. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
January 8, 1997
(Except for Note 20 which
is dated August 1, 1997)
/s/ Joel S. Baum, P.A., CPA
Coral Springs, Florida
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ASSETS
------
1996
----
Current Assets
Account Receivable $ 1,057
Prepaid Assets 6,893
Accrued Interest 62,140
-----------
Total Current Assets 70,090
Loan & Origination Fees,
Net of Amortization (60,253) 211,601
Other Assets
Deposits 129
Real Estate Holdings 9,156,357
Investments 3,500,000
-----------
Total other Assets 12,656,486
-----------
Total Assets $12,938,177
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities
Cash Overdraft $ 185,911
Accounts Payable & Accrued Expenses 1,108,926
Accrued Interest 252,671
Notes Payable - Current Maturities 1,964,406
-----------
Total Current Liabilities 3,511,914
Notes Payable - Non Current 6,973,128
-----------
Total Liabilities 10,485,042
-----------
Shareholders' Equity
Preferred Stock, $.01 par value
none issued and outstanding - 0 -
Common Stock, $.001 Par Value;
Authorized 40,000,000 Shares;
Issued and Outstanding - 7,000,000 7,000
Additional Paid in Capital 4,764,108
Accumulated Deficit (2,317,973)
-----------
Total Shareholders' Equity 2,453,135
-----------
Total Liabilities and
Shareholders' Equity $12,938,177
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1996 1995
----------- -----------
Revenues:
Sales (Note 11) $ 31,676 $ 565,467
Cost of Sales - 0 - 587,525
----------- -----------
Gross Profit (Loss) 31,676 (22,058)
----------- -----------
Operating Expenses:
General & Administrative
Expenses 610,820 283,393
Interest Expense 775,814 593,684
----------- -----------
1,386,634 877,077
----------- -----------
Net Loss Before
Interest Income (1,354,958) (899,135)
Interest Income 245,905 13,217
----------- -----------
Net Loss (1,109,053) (885,918)
Accumulated Deficit (1,208,920) (323,002)
----------- -----------
$(2,317,973) $(1,208,920)
=========== ===========
Weighted Average
Common Shares Outstanding (.158) (.086)
=========== ===========
ADDITIONAL
COMMON STOCK PAID-IN ACCUMULATED
# SHARES AMOUNT CAPITAL DEFICIT
-------- ------ ---------- -----------
September 30, 1994 11,135,018 $11,135 $1,438,191 $ (323,002)
Reverse Stock
Split (July, 1995) (8,908,014) (8,908) 8,908 - 0 -
Additional Stock
Issued 4,772,996 4,773 3,317,009 - 0 -
Net Loss - 0 - - 0 - - 0 - (885,918)
----------- ------- ---------- -----------
September 30, 1995 7,000,000 7,000 4,764,108 (1,208,920)
Net Loss - 0 - - 0 - - 0 - (1,109,053)
----------- ------- ---------- -----------
September 30, 1996 7,000,000 $ 7,000 $4,764,108 $(2,317,973)
=========== ======= ========== ===========
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1996 1995
----------- -----------
Cash Flows From Operating
Activities:
Net Loss $(1,109,053) $ (885,918)
Adjustments to Reconcile
Net Loss to Net Cash Used
for Operating Activities:
Amortization 57,232 - 0 -
(Increase) in Receivables (38,191) (9,832)
(Increase) in Real Estate
Holdings (254,936) (90,935)
Increase (Decrease) in
Accrued Expenses 906,631 (137,766)
(Increase) Decrease in
Prepaid Assets 535 (7,557)
(Increase) in Loan
Origination Fees - 0 - (271,854)
----------- -----------
Net Cash (Used)
For Operations (437,782) (1,403,862)
Cash Flows From Financing
Activities:
Increase (Decrease)in
Long Term Debt (13,832) 1,639,169
----------- -----------
Net Increase (Decrease) in
Cash (451,614) 235,307
Cash - Beginning of Year 265,703 30,396
----------- -----------
Cash - (Overdraft) End of Year $ (185,911) $ 265,703
=========== ===========
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CAPITAL COMMUNITIES CORPORATION, INC. AND SUBSIDIARIES
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NOTES TO FINANCIAL STATEMENT
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SEPTEMBER 30, 1996
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NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
A. BACKGROUND
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The Company was originally incorporated in the State of New York on
November 8, 1968 under the name of Century Cinema Corporation. In
1983, the Company merged with a privately owned company, Diagnostic
Medical Equipment Corp. and as a
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CAPITAL COMMUNITIES CORPORATION, INC. AND SUBSIDIARIES
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NOTES TO FINANCIAL STATEMENT (CONTINUED)
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SEPTEMBER 30, 1996
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result changed its name to that of the acquired company. By 1990, the
Company was an inactive publicly held corporation. In 1993, the
Company changed its name to AWEC Resources, Inc. and commenced
operations. On February 11, 1994 the Company formed a wholly owned
subsidiary AWEC Development Corp, an Arkansas Corporation, which later
changed its name to Capitol Development of Arkansas. The Company is
currently in the business of developing and selling real estate
properties.
In February, 1994 Petro Source Energy Corporation transferred the
majority of its holdings in the common shares of the predecessor
corporation, AWEC Resources, Inc., to Prescott Investments Limited
Partnership and Charlie Corporation, both of which were then and
currently are affiliates of Michael Todd, Herbert Russell and John
DeHaven, the beneficial owners of the Company. These shares were
transferred in consideration for public relations services provided by
Prescott Limited Partnership and Charlie Corporation to Petro Source.
Such services were deemed by Petro Source to be integral and
indispensable to the concurrent acquisition of approximately 2,041
acres of land in Maumelle, Arkansas by the Company's Operating
Subsidiary. The Company was not a party to the transfer of shares. The
Company did not issue any new shares pursuant to the acquisition of
the land. Accordingly, the transfer of shares did not affect the
capitalization of the Company, and was non-dilutive to all other
shareholders.
In order to effectuate a change in domicile and name change approved
by a majority of the Predecessor Corporation shareholders, the
Predecessor Corporation merged, effective January 30, 1996, into
Capitol Communities Corporation, a Nevada corporation formed in August
1995 solely for the purpose of the merger.
B. PRINCIPLES OF CONSOLIDATION
---------------------------
The Consolidated financial statements include accounts of its wholly-
owned subsidiaries. All material intercompany transactions have been
eliminated.
C. REAL ESTATE HOLDINGS
--------------------
Real estate investments are stated at the lower of cost or market.
Acquisition costs are allocated to respective properties based on
appraisals of the various properties acquired in the acquisition.
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
-------------------------------------------
D. INCOME TAXES
------------
In February 1992, the Financial Accounting Standards Board issued
Statement on Financial Accounting standards 109 of "Accounting for
Income Taxes." Under Statement 109, deferred tax assets and
liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and
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CAPITAL COMMUNITIES CORPORATION, INC. AND SUBSIDIARIES
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NOTES TO FINANCIAL STATEMENT (CONTINUED)
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SEPTEMBER 30, 1996
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liabilities and their respective tax bases.
E. REVENUE RECOGNITION
-------------------
Revenue is recognized under the full accrual method of accounting upon
the completed sale of real property held for development and sale. All
costs incurred directly or indirectly in acquiring and developing the
real property are capitalized.
F. USE OF ESTIMATES
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the period. Actual results could differ
from those estimates.
G. CASH AND CASH EQUIVALENTS
-------------------------
Cash and cash equivalents include cash on hand, cash in banks, and any
highly liquid investments with a maturity of three months or less at
the time of purchase.
The Company and its Subsidiaries maintain cash and cash equivalent
balances at several financial institutions which are insured by the
Federal Deposit Insurance Corporation up to $100,000. At September 30,
1996 there is no concentration of credit risk from uninsured bank
balances.
H. EARNINGS/LOSS PER SHARE
-----------------------
Primary earnings per common share are computed by dividing the net
income (loss) by the weighted average number of shares of common stock
and common stock equivalents outstanding during the year. The number
of shares used for the fiscal years ended September 30, 1996 and 1995
were 7,000,000 and 10,273,558, respectively.
NOTE 2 - CAPITAL TRANSACTIONS
--------------------
A. In May 1993, the Company executed a 15 to 1 reverse stock split.
B. In September 1993, the company issued an additional 4,282,126 shares
of common stock to existing stockholders.
C. In October 1993, the Company issued to Petro Source 6,079,000 shares
of common stock to acquire royalty interests in oil and gas properties
owned by Petro Source Energy Corp.
D. In July 1995, the Company executed a 5 to 1 reverse stock split.
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CAPITAL COMMUNITIES CORPORATION, INC. AND SUBSIDIARIES
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NOTES TO FINANCIAL STATEMENT (CONTINUED)
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SEPTEMBER 30, 1996
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E. In July 1995, the Company issued an additional 4,772,996 shares of
common stock to existing stockholders.
NOTE 3 - INVESTMENT IN OIL AND GAS PROPERTIES AND LITIGATION
---------------------------------------------------
On October 20, 1993, the Company incorporated Resource Equity
Corporation, a wholly-owned subsidiary. The purpose of that subsidiary
was to acquire royalty interests in oil and gas producing properties.
During November, 1993, Resource Equity Corporation acquired what it
believed were deposits to acquire royalty rights in producing oil and
gas fields located in the State of Texas for a total cost of
$1,360,567.
In 1994, the Company's corporate counsel determined that these rights
were fraudulently conveyed. A lawsuit was initiated to recover such
funds. Although the threatened lawsuit succeeded in obtaining a
settlement with summary judgment against the party who had conveyed
these rights and received the deposit proceeds, the Company's
corporate counsel does not believe any efforts to collect on the
judgement will be successful. Accordingly, the Company has concluded
that this asset be written off as a non-recurring loss.
On February 13, 1996, Resource Equity Corporation was dissolved by the
state of Texas for failure to pay state franchise taxes. The
dissolution has no material impact on the Company's future operations.
NOTE 4 - REFINANCING DEBT
----------------
During fiscal year ended September 30, 1995, Capitol Development of
Arkansas, Inc., a wholly owned subsidiary of the Corporation,
negotiated with Century Realty to eliminate a portion of the debt;
$3,321,794 of the balance owed was converted into 700,000 common
shares representing 10% of the outstanding common stock of the
corporation (See Note 10 for detailed explanation of the refinancing).
NOTES TO FINANCIAL STATEMENTS
-----------------------------
SEPTEMBER 30, 1996
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NOTE 5 - INVESTMENT - DEBENTURE
----------------------
On September 11, 1995, the Corporation entered into a contribution
agreement with Resure, Inc. contributing to Resure, Inc. a note from
the corporation in the principal amount of $3,500,000 secured by
approximately 409.73 acre residential tract of land in the city of
Maumelle, Pulaski County, Arkansas, in exchange for which Resure, Inc.
issued to the Corporation a subordinated surplus debenture in the
amount of $3,500,000 bearing interest at a rate of 7% per annum. (See
Note 9, Mortgages)
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CAPITAL COMMUNITIES CORPORATION, INC. AND SUBSIDIARIES
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NOTES TO FINANCIAL STATEMENT (CONTINUED)
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SEPTEMBER 30, 1996
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The debenture is payable to the Company in semi-annual payments of
interest only commencing December, 1995 and ending in June, 2000, at
which time the principle of $3,500,000 is due. The debenture payments
generally match the amount of the semi-annual interest payments,
payable by the Company to Resure, Inc. under Resure Note II. If the
Company defaults on its obligation under Resure Note II, Resure may
withhold the semi-annual interest payment due the Company on the
debenture. (See Note 20 B, Subsequent Events, for current status of
the subordinated surplus debenture).
NOTE 6 - AGREEMENTS
----------
The Corporation entered into an agreement with Century 21 Metro, Inc.
for managerial and agency services. This agreement was terminated as
of September 30, 1994.
Currently the Company has an oral agreement with Maumelle Enterprise,
Inc. (Maumelle), an affiliated company, to provide management, sales
and administrative services for the Company's inventory of property.
Under this oral agreement, payment to Maumelle for management services
depends upon the actual services rendered in a given month and the
current liquidity of the Company. If funds are not available, Maumelle
has agreed to defer payment of its fees.
For the fiscal year ended September 30, 1995, the Company paid
Maumelle $74,381 and the Company has accrued the unpaid fees to
Maumelle, in the aggregate amount of $198,230, for fiscal years ended
September 30, 1996 and 1995. Management intends to formalize this
agreement in writing in as yet to be determined terms and conditions.
NOTE 7 - CONTINGENCIES
-------------
There is a lawsuit pending in the amount of $200,000 with interest at
5% per annum dated February 9, 1994 against Pine Ridge Improvement
District, filed by Robert D. Holloway, Inc. for engineering services,
planning, and surveying. Capitol Communities Corporation, Inc. and its
subsidiary are not a party to the action; however, as owner of the
property, any judgement against the property is a liability of the
Company. Negotiations are currently taking place in order to settle
this lawsuit. (See note 20 F, Subsequent Events, for current status of
this contingency).
NOTE 8 - LIENS
-----
The special improvement district taxes constitute a lien on the
commercial tracts that is superior to mortgage liens in the event a
delinquency causes the improvement district to foreclose on the
property for nonpayment of the special tax. Payments to retire
improvement bond debt arising from tax delinquencies are accounted for
as additions to the cost basis of the related property.
Specifically, company owned property was subject to a special tax
levied by the residential improvement district for 1992,
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CAPITAL COMMUNITIES CORPORATION, INC. AND SUBSIDIARIES
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NOTES TO FINANCIAL STATEMENT (CONTINUED)
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SEPTEMBER 30, 1996
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1993 and 1994. The revenues from the special tax were pledged by the
District to the payment of the bonds. The property was acquired by the
Company in February, 1994 subject to the special tax. It was sold in
December, 1994 under terms requiring that a "bond release price" be
paid to the bond trustee to release the property from future levies of
the special tax. The total amount paid to release the property, and to
satisfy delinquent taxes levied on the property prior to 1994, was
$148,356. This amount was an addition to basis, and consequently, a
cost of sales, since it was for payment of an improvement tax levied
for the purpose of paying the bond issue which provided the funds to
improve the property. This resulted in the classification of the tax
payments as a capital expenditure.
Currently the Company does not hold any funds, and has not deposited
money in any escrow accounts on behalf of any lot owners, with respect
to the improvement taxes referred to in the previous paragraphs.
However, the Company has accrued a liability in the amount $200,000 in
its fiscal year end 1995 financial statements because certain
properties located in Pine Ridge have been indentured to pay any taxes
levied by the Pine Ridge Improvement District in order to satisfy a
potential judgement against the Pine Ridge Improvement District
arising from the suit discussed in Note 7.
NOTE 9 - MORTGAGES
---------
On September 11, 1995, the Company entered into a promissory note with
Resure, Inc. for $3,500,000, bearing interest at 10% per annum,
payable in full on July 1, 2000 and secured by a 701.3 acre tract of
land in Maumelle, Arkansas. Payments of accrued interest only are due
for 1 year, payable quarterly on the unpaid principal balance, first
payment due October 1, 1995. Then payments in the amount of
$101,591.16 including principal and interest at 10% per annum, will be
paid quarterly with the first payment due October 1, 1996. The
remaining unpaid balance on this note after quarterly installments is
subjected to a final balloon payment. All payments shall be applied
first to interest, then to principal. The Company has not made the
quarterly payment due on October 1, 1996, in the amount of
$101,591.16, on the aforementioned Note, but on November 25, 1996 it
was granted an extension of time until April 1, 1997 in consideration
of a pledge of 200,000 shares of the Company's Common Stock by two of
the Company's major share holders. Under this extension of the time
agreement, Resure, Inc. has agreed to waive all rights, powers and
remedies it may have had on November 25, 1996, with respect to any
breach or default, including waiving any right to default due to the
Century Note default (see Note 14). See Note 20 B, Subsequent Events,
for a discussion of the current status of default by the Company due
to its inability to pay the Resure Note I, January payment and, as a
result its default on Note II under the cross-default provisions.
As discussed in Note 5, as part of the debenture agreement the Company
also entered into a second loan agreement with Resure,
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CAPITAL COMMUNITIES CORPORATION, INC. AND SUBSIDIARIES
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NOTES TO FINANCIAL STATEMENT (CONTINUED)
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SEPTEMBER 30, 1996
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Inc. as lender and the Corporation as borrower, borrowing $3,500,000
from the lender and granting a mortgage on an approximate 409.73 acre
residential tract of land in the city of Maumelle, Pulaski County
Arkansas.
NOTE 10 - REFINANCING DEBT
----------------
The Company refinanced the promissory note to Century Realty as
follows: obtained a $3,500,000 loan from Resure, Inc. secured by 701.3
acres of property, of which $2,500,000 was paid directly to Century
Realty, $1,400,000 and $350,000 in promissory notes with Century
Realty, and issued 700,000 shares of the Company's common stock which
amounted to $3,321,794, representing $2,487,000 of the balance of the
original mortgage, $186,562.50 taxes, and $648,231.75 accrued
interest. The refinancing note from Resure, Inc. is cross
collateralized with a debenture and investment note for $3,500,000
discussed in Note 5. The proceeds of the investment note purchased a
$3,500,000 investment in Resure, Inc. (See Note 14 with regard to
foreclosure litigation on the Century debt).
The Company issued the Above mentioned 700,000 shares to Century
Realty in November of 1995 from Treasury Shares that had been
contributed to the Company by Michael Todd and John DeHaven, in the
amount of 350,000 shares from each shareholder, which therefore
resulted in no change to the capital structure of the Company during
the year ended September 30, 1996.
NOTE 11 - REVENUE
-------
For the year ending September 30, 1996, the only revenue that was
generated was from the receipt of timber royalties from the
residential lots.
NOTE 12 - LEASE AGREEMENT
---------------
The Company is subleasing office space from Dehaven & Todd Co., in
which Mike G. Todd, is a partner. The monthly lease payment began on
October 1, 1995 and is $1,800 per month. The lease expires September
30, 1998.
The lease commitment is as follows:
Year ended September 30
1996 $21,600
1997 21,600
1998 21,600
-------
Total Minimum
Rental Payments $64,800
=======
As of September 30, 1996, all amounts due under this agreement have
been accrued.
NOTE 13 - EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
The Company has a five-year written agreement with Michael Todd to
perform the duties of President. Under the agreement, which
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CAPITAL COMMUNITIES CORPORATION, INC. AND SUBSIDIARIES
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NOTES TO FINANCIAL STATEMENT (CONTINUED)
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SEPTEMBER 30, 1996
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became effective on October 1, 1995, Michael Todd is to be compensated
at a rate of $20,000. per month. The agreement expires on September
30, 2000. The Company is not a party to any other employment
agreements.
NOTE 14 - FORECLOSURE LITIGATION - CENTURY
--------------------------------
On August 12, 1996 Century Realty Inc. entered into a lawsuit against
Capitol Development of Arkansas & Capitol Communities Corporation,
Inc. in an action for foreclosure of a lien on approximately 36 acres
of commercial property for the non-payment of the entire unpaid
principal balances of promissory Note 1 and Note 2 previously
discussed in Note 10, together with all accrued and unpaid interest,
which became due and payable in full on January 9, 1996.
On September 16, 1996 a counter claim was filed against Century
Realty, Inc. for the complaint to be dismissed and that the Company
have judgement against Century for double the amount of interest paid
on both the February 15, 1994 note and the September 11, 1995 note.
The basis of the complaint was that Century Realty, Inc. mislabeled
other charges and interest exceeded the lawful amount allowable in an
effort to avoid Arkansas usury law. (See Note 20 A, Subsequent Events,
for current status of foreclosure litigation.)
NOTE 15 - GOING CONCERN
-------------
The Company currently is unable to meet its liquidity requirements
consisting of such items as taxes, interest payments, debt reduction,
assessments and general operating expenses. As discussed in Note 9,
the Company did not make the $101,591.16 October 1, 1996 payment under
the Resure Note I, but was granted an extension until April 1, 1997 in
consideration of a pledge of 200,000 shares of the Company's common
stock by two of the Company's major shareholders and Charlie
Corporation. The Company has not made the $101,591.16 quarterly
payment due January 1, 1997, and does not expect to be able to make
such payment unless it liquidates additional property inventory or can
otherwise raise capital. (See Note 20 B, Subsequent Events, for a
discussion of the current status of this debt.)
The Company is in negotiations with an investment banking firm to
arrange debt and construction financing in the total amount of
$20,000,000 (the "Construction Financing Loan"). If the Construction
Financing Loan is obtained, the Company intends to use the net
proceeds to begin operations as a home builder and to service existing
debt. The Company intends to use part of the unsecured potions of the
Maumelle Property to secure $10,000,000 of the loan, with the
remaining $10,000,000 to be secured by home construction.
The Company is negotiating with private sources to secure bridge
financing of approximately $600,000, of which the Company would
receive net proceeds of $500,000. $200,000 of the net proceeds will be
used to service existing debt.
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CAPITAL COMMUNITIES CORPORATION, INC. AND SUBSIDIARIES
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NOTES TO FINANCIAL STATEMENT (CONTINUED)
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SEPTEMBER 30, 1996
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The Company raised $110,000 from the sale of one commercial lot on
December 31, 1996. The Company expects to raise $542,000 from pending
sale of another 11 acre commercial parcel of the Maumelle Property.
The parcel is expected to close on or before March 31, 1997, with net
proceeds of approximately $500,000. Sale proceeds will be used to pay
accrued interest on the Resure Note I, and for general corporate
purposes.
With respect to prospective long-term liquidity, the Company intends
to generate the bulk of its cash from operations by building and
selling homes. At present, management of the Company believes that the
most likely source of substantial cash flow during the next two years
is the development of single-family home product in the $115,000 to
$200,000 price range on the approximately 3,500 single family home
sites it owns in Maumelle, assuming the Company can obtain the
necessary financial resources to undertake substantial building
operations on the Maumelle Property. Although there can be no
assurance that the Company can obtain such resources, the Company
believes that its ownership of a majority of the undeveloped home
sites in Maumelle will enable the Company to attract the necessary
financing to implement an orderly build-out program that will generate
cash flow.
The Company intends to raise operating capital by selling debt and/or
equity securities to the public or in private transactions. There can
be no assurance, however, that such public or, private offerings will
be successful.
NOTE 16 - NOTES PAYABLE
-------------
Notes payable consist of the following:
9/30/1996 9/30/1995
--------- ----------
Note Payable -Century Realty
----------------------------
Secured 9% per annum due
January 9, 1996 (Notes 10
and 14) $1,400,000 $1,400,000
Note Payable - Century Realty
-----------------------------
Unsecured 10% per annum due
September 11, 1998, deemed
current under default agreement
(notes 10 and 14) 350,000 - 0 -
Note Payable - Davister
-----------------------
Unsecured 9% per annum due
January 9, 1996 200,000 200,000
Notes Payable
-------------
Miscellaneous Short-Term 906 1,366
Note Payable - Resure Mortgage 13,500 - 0 -
------------------------------ ---------- ----------
Total Current Maturities 1,964,406 1,601,366
---------- ----------
Note Payable - Century Realty
-----------------------------
Unsecured 10% per annum due
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CAPITAL COMMUNITIES CORPORATION, INC. AND SUBSIDIARIES
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NOTES TO FINANCIAL STATEMENT (CONTINUED)
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SEPTEMBER 30, 1996
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September 11, 1998 (Note 10) - 0 - 350,000
Note Payable - Resure Mortgage
------------------------------
Secured 10% per annum due
July 01, 2000 - Quarterly
payments beginning 10/01/96
for $101,591 (Note 9) 3,473,128 3,500,000
Note Payable -Resure Debenture
------------------------------
Secured 7% semi-annually due
June 30, 2000 (Notes 9 & 10) 3,500,000 3,500,000
---------- ----------
Total Non-Current 6,973,128 7,350,000
---------- ----------
Total Notes Payable $8,937,533 $8,951,366
========== ==========
NOTE 17 - LOAN ORIGINATION FEES
---------------------
Loan origination fees were incurred in connection with the Resure,
Inc. debt refinancing September 11, 1995 as discussed in Notes 9 and
10. Said costs included attorney, consult, title, appraisal and survey
fees and are being amortized over 57 months on a straight-line basis.
NOTE 18 - JOINT VENTURE
-------------
The Company formed a joint venture in August 1996 with the Monterra
Group and purchased 6 lots on 1-1/2 acres of land in Calexico,
California for an aggregate purchase price of approximately $100,000.
The Company and the Monterra Group intended to build and sell homes on
the Calexico Property, but received an offer to sell the lots. The
sale of the lots was completed in October 1996. Prior to the
completion of the sale, the Company deeded its interest to Monterra,
and 50% of the sale profits, approximately $20,000, was credited to
the Company by Monterra for prepaid consulting fees.
NOTE 19 - SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
Year End 1996 1995
---- ----
Interest Paid $775,814 $593,684
NOTE 20 - SUBSEQUENT EVENTS
-----------------
A. The Company has entered into a tentative settlement agreement with
Century, which required a substantial payment on August 1, 1997. The
Company was unable to make this payment, but negotiated an extension
of the agreement to September 1, 1997 for a fee of $25,000. The
agreement may be further extended to October 1, 1997 upon payment of
an additional $25,000 fee. There are no assurances that the Company
will be able to meet Century's proposed terms due to its lack of
liquidity.
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CAPITAL COMMUNITIES CORPORATION, INC. AND SUBSIDIARIES
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NOTES TO FINANCIAL STATEMENT (CONTINUED)
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SEPTEMBER 30, 1996
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B. Resure Note I and Resure Note II
a. The Company continues to be in technical default under the Resure
Note I, having not made the $101,591 quarterly payments due on
January 1, 1997 and April 1, 1997 nor the extension payment due
April 1, 1997. The extension payment originally due October 1,
1996 in the amount of $101,591.16 was extended in consideration
of a pledge of $200,000 shares of the Company's common stock by
two of the Company's major shareholders, Charlie Corporation and
Prescott Investment Limited Partnership.
b. On February 22, 1997, Mark Boozell, Director of Insurance of the
State of Illinois was appointed liquidator for Resure, Inc., due
to concerns about Resure's liquidity. The Company is currently
negotiating with Resure's liquidator to bring the technical
defaults current. If such negotiations are not successful, the
Company may commence litigation against the Resure assets or
estate violations the Company believes were committed by Resure
in connection with Resure's sale of the Resure Debenture to the
Company.
c. In May, 1997, Resure's liquidator agreed to release 67 acres he
held as collateral under the Resure Note I, to permit the Company
to sell the property. Approximately $128,000 of the sales
proceeds were used to pay interest due on the Resure Note II, and
$675,100 of the proceeds were placed in a restricted cash
collateral account as substitute collateral for the 67 acres.
d. Resure has not paid the semi-annual interest payment due on the
Resure Debenture. As a result, the Company was not able to make
the payment due to Resure in January and June, 1997 under the
Resure Note II. However, the Company made the January 1997
payment under the Resure Note II in May 1997, using the proceeds
from the sale of the 67 acres of the Maumelle Property released
by the Resure liquidator. The Company has not yet made its June
1997 payment due under the Resure Note II and is in technical
default under this Note.
e. Although Resure is in technical default under the Resure
Debenture and a liquidator has been appointed to oversee
liquidation of Resure, Company management believes that the
Resure Debenture should not yet be considered impaired and that
no actual deficit exists on the related $3,500,000 note, because
of negotiations that are currently taking place between the
Company and the Resure Liquidator. Based on such negotiations,
the Company believes that the Resure Liquidator is agreeable to a
settlement which would require the cancellation of the $3,500,000
Resure Debenture in exchange for the cancellation of the
$3,500,000 Resure Note II. However, there can be no assurance
that such a settlement will be reached
C. Subsequent to the Company's fiscal year-end, it obtained $977,706 in
short-term debt financing from private sources, with net proceeds to
the Company of $733,279 (collectively the "Bridge Loan"). The Majority
of the promissory notes interest
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CAPITAL COMMUNITIES CORPORATION, INC. AND SUBSIDIARIES
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NOTES TO FINANCIAL STATEMENT (CONTINUED)
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SEPTEMBER 30, 1996
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at a rate of 10% per annum and mature nine months from the date of
issuance of each note. The Bridge Notes are unsecured, however the
Company has provided a guarantee approximately 10% of the gross
proceeds received from the Bridge Loan. The Company has paid to the
investment banking firm that assisted the Company in obtaining the
Bridge Loan a fee equal to 15% of the Bridge Loan gross proceeds
received. As of June 30, 1997, the Company has accrued $8,138.39 in
interest on the Bridge Notes. The Company is using the proceeds for
general operating purposes.
D. On March 31, 1997, the Company obtained a fixed rate commercial
revolving line of credit from the Bank of Little Rock in the amount of
$400,000, bearing an interest rate of 10.00% per annum, payable
monthly, and maturing on May 10, 1998. The line is secured by
approximately 10.7999 multi-family zoned acres of the Company's
Maumelle Property. On July 29, 1997, the Company obtained a second
commercial revolving line of credit from the Bank of Little Rock, in
the amount of $450,000, also bearing interest at the rate of 10.00%
per annum, payable principal and interest on demand or at maturity,
November 5, 1997. This line is secured by approximately 19 multi-
family zoned acres of the Company's Maumelle Property. As of August
10, 1997, the Company has drawn a total of $847,000 against the lines.
The proceeds were used to complete the purchase of the property in
Osceola County, Florida. (See H below)
E. On May 20, 1997, the Company closed the sale of 67 acres of its
Maumelle single-family property for a total sales price of $1,552,730.
Resure agreed to release the 67 acres as collateral under the Resure
Note I in exchange for the Company agreeing to place $675,100 of the
sale proceeds in a restricted cash collateral account for the benefit
of Resure.
F. On March 13, 1997 the Chancery Court of Pulaski County, Arkansas,
Second Division granted a summary judgement in favor of the Company,
relieving it of any liability arising from assessment or tax levy in
the matter of Robert Holloway, Inc. vs. Pine Ridge Residential
Property Owners Improvement District. The Plaintiff has filed a Notice
of Appeal to the Supreme Court of Arkansas.
G. In March, 1997, Michael G. Todd, a director and controlling
shareholder of the Company and James DeHaven, a beneficial shareholder
of the Company, together relinquished an aggregate of 200 shares of
Maumelle Enterprises' common stock, an affiliate of the Company, as
consideration for the agreement of Maumelle Enterprises to sell 3.829
acres of commercial property in the City of Maumelle to the Company.
The Maumelle Enterprise property was purchased for a total cost of
$200,665.
H. On July 30, 1997, The Company acquired Capitol Resorts of Florida,
Inc. ("CRF") in a stock exchange in which the Company exchanged
100,000 shares of its common stock for 1,000 shares of CFR common
stock, a newly formed corporation whose sole asset was the right
to purchase approximately 34.7 acres of land and improvements in
Osceola County, Florida. The Company entered into a reorganization
agreement with MLT Management Corp., the parent of CRF, with the
Company acquiring all of the stock. On the same day, CRF closed on the
contract to acquire
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CAPITAL COMMUNITIES CORPORATION, INC. AND SUBSIDIARIES
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NOTES TO FINANCIAL STATEMENT (CONTINUED)
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SEPTEMBER 30, 1996
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the Property for $922,000.
I. Since the end of the Company's last fiscal year, the Company has
expanded its business focus to include the development, sale and
operation of vacation ownership interest ("VIP") properties. The
Company has signed agreements on June 16, 1997 to purchase
approximately 21 acres of undeveloped land in Branson, Missouri, by no
later than September 12, 1997. The aggregate purchase price for the
property is approximately $4,200,000. The Company intends to develop
VOI units on the property. The Company does not currently have the
financing necessary to purchase the property.
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