EXHIBIT 13
RIDGEWOOD
PROPERTIES, INC.
ANNUAL REPORT
1996
FINANCIAL STATEMENTS
Ridgewood Properties, Inc. (the "Company") is primarily engaged
in the business of acquiring, developing, operating and selling real
estate property in the Southeast and "Sunbelt" areas. Additionally,
the Company, through its investment in a limited partnership, is
engaged in acquiring and managing hotel properties in the Southeast.
Board of Directors Officers
Michael M. Earley N. Russell Walden
President - Triton Group Ltd. President
Luther A. Henderson Byron T. Cooper
President - Pirvest, Inc. Vice President, Construction and
Planning
N. Russell Walden
President - Ridgewood Karen S. Hughes
Properties, Inc. Vice President, Chief Financial
Officer and Secretary
Corporate Offices
2859 Paces Ferry Road, Suite 700
Atlanta, Georgia 30339
Telephone: (770) 434-3670
Market For Registrant's Common Equity and Related Stockholder Matters
The common stock, $0.01 par value per share (the "Common
Stock"), of the Company is listed in the broker-dealer "Pink Sheets"
and trades in the over-the-counter market. Prior to June 12, 1989,
the Common Stock was quoted in the automated quotation system of the
National Association of Securities Dealers (NASDAQ). Subsequent to
the deletion of the Common Stock from the automated quotation system
of NASDAQ, there has been an absence of an established public trading
market for the Common Stock.
Shares outstanding and per share amounts for all periods
presented have been retroactively adjusted for the twenty-for-one
stock split effected in the form of a stock dividend on December 31,
1992, two-for-one stock split effected in the form of a stock dividend
on August 31, 1993, and a three-for-one stock split effected in the
form of a stock dividend on October 31, 1994. On October 31, 1996,
there were 1,088,480 shares of common stock outstanding held by
approximately 222 shareholders of record. The Company paid its first
and only cash dividend on the common stock during fiscal year 1990.
The dividend paid was approximately $0.06 per share of common stock,
which totaled approximately $397,000. The Company may pay future
dividends if and when earnings and cash are available. The
declaration of dividends on the common stock is within the discretion
of the Board of Directors of the Company and is, therefore, subject to
many considerations, including operating results, business and capital
requirements and other factors.
Selected Financial Data
-----------------------------------------------------------------
($000's omitted, except
per share data) 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------
Balance Sheet Data as of August 31
Total Assets $ 8,724 $ 9,673 $ 14,351 $ 34,655 $ 38,857
Term Loan(s) Payable 2,858 2,796 5,415 12,316 14,620
Shareholders' Investment 4,441 5,612 7,440 20,564 22,424
Income Statement Data
Year Ended August 31
Net Revenues 4,314 8,675 30,082 18,619 16,667
Net Loss (1,178) (1,656) (3,631) (1,860) (4,460)
Loss Per Common Share (1) $ (1.29) $ (1.90) $ (0.64) $ (0.32) $ (0.76)
<FN>
(1) Retroactively adjusted for the twenty-for-one stock split effected
in the form of a stock dividend on December 31, 1992, two-for-one
stock split effected in the form of a stock dividend on August 31, 1993,
and a three-for-one stock split effected in the form of a stock dividend
on October 31, 1994.
</FN>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources -
During fiscal year 1996, the Company received net proceeds of
approximately $634,000 primarily from the sale of undeveloped land in Ohio
and Georgia. The proceeds were used to provide additional working capital
to the Company.
In June 1995, the Company received a loan from a commercial
lender to refinance the Ramada Inn in Longwood, Florida. The loan
proceeds were $2,800,000. The loan is for a term of 20 years with an
amortization period of 25 years, at the rate of 10.35%. Principal and
interest payments will be approximately $26,000 per month beginning August
1, 1995. A portion of the proceeds from the loan was used to repay a term
loan, and the remaining proceeds of approximately $1,500,000 were used for
working capital. In addition, the Company is required to make a repair
escrow payment comprised of 4% of estimated revenues, as well as real
estate tax and insurance escrow payments. The total amount for these
items will be a payment of approximately $20,000 per month and can be
adjusted annually. The escrow funds are used as tax, insurance and repair
needs arise. As of August 31, 1996, there was approximately $150,000 of
escrowed funds related to this loan agreement.
On August 16, 1995, RW Hotel Partners, L.P. was organized as a
limited partnership (the "Partnership") under the laws of the State of
Delaware. Concurrently, the Company formed Ridgewood Hotels, Inc., a
Georgia corporation ("Ridgewood Hotels") which became the sole general
partner in the Partnership with RW Hotel Investments, L.L.C. ("Investor")
as the limited partner. Ridgewood Hotels has a 1% base distribution
percentage versus 99% for the Investor. However, distribution percentages
do vary depending on certain defined preferences and priorities pursuant
to the Partnership Agreement ("Agreement") which are discussed below. The
partnership was originally formed to acquire a hotel property in
Louisville, Kentucky. The Partnership consists of six hotel properties at
August 31, 1996. The terms of this partnership will serve as a guideline
for other potential acquisitions with this or other investors.
Income and loss are allocated to the Company and the limited
partner based upon the formula for allocating distributable cash as
described below but subject to an annual limitation which would result in
no more than 88% of partnership income or loss (as defined) being
allocated to the limited partner.
Distributable Cash is defined as the net income from the
property before depreciation plus any net sale proceeds and net financing
proceeds less capital costs. Distributions of Distributable Cash shall be
made as follows:
- First, to the Investor until there has been distributed to
the Investor an amount equal to a 15% cumulative internal rate of return
on the Investor's investment.
- Second, to Ridgewood Hotels until the aggregate amount
received by Ridgewood Hotels equals the aggregate cash contributions made
by Ridgewood Hotels to the Partnership (as of 8/31/96, Ridgewood Hotels
had contributed approximately $748,000).
- Third, 12% to Ridgewood Hotels and 88% to the Investor until
there has been distributed to the Investor an amount equal to a 25%
cumulative internal rate of return on Investor's investment.
- Fourth, 75% of the residual to the Investor and 25% to
Ridgewood Hotels.
A Management Agreement exists between the Partnership and the
Company as Manager ("Manager") for the purpose of managing hotels in
Kentucky, Georgia and South Carolina. The Manager shall be entitled to
the following property management fees:
(1) 2.5% of the gross revenues from the hotel property.
(2) 1% of the gross revenues from the hotel property as an
incentive fee if distributable cash equals or exceeds 13.5% of certain
aggregate acquisition costs. No management fees are payable with respect
to the first 12-month period of management of the hotel in Kentucky.
A Construction Management Agreement exists between the
Partnership and the Manager for the purpose of managing future
improvements to the properties.
The Company currently has approximately $748,000 invested in
the Partnership. Also, at August 31, 1996, the Company recorded
approximately $209,000 equity in the income of the partnership, bringing
the total investment in the limited partnership to approximately $957,000.
The Partnership purchased a hotel in Louisville, Kentucky for
approximately $16,000,000. In December 1995 and January 1996, the
Partnership purchased four hotel properties in Georgia for approximately
$15,000,000 and a hotel in South Carolina for $4,000,000, respectively.
The Company may make future capital contributions to the Partnership.
Management expects to fund such capital contributions through available
cash or from loans from the Partnership. Additionally, the Company may
invest in other partnerships to acquire hotels in the future.
In December 1995, the Company acquired the stock of the Wesley
Hotel Group, a hotel management company located in Atlanta, Georgia. At
the time of acquisition, Wesley managed five hotels. In conjunction with
the acquisition, the Company issued 125,000 shares of common stock and
assumed three promissory notes with a combined outstanding principal of
approximately $106,000.
Since the Company is not currently generating sufficient
operating cash to cover overhead and debt service, the Company must
continue to sell real estate, seek alternative financing or otherwise
recapitalize the Company. Due to the sale of land in Florida and Texas in
September and October 1996, respectively, there is available cash of
approximately $1.2 million. This available cash will be used to fund
operating losses until new sources of income can be generated. The
Company also intends to aggressively pursue the acquisition of hotels and
hotel management contracts through similar partnerships as described above
which would provide additional cash flow.
The Company owns one hotel, has 1% ownership in six other
hotels which it also manages and currently has five other hotels which it
manages but has no ownership. The success of the Company's operations
continues to be dependent upon such unpredictable factors as the general
and local economic conditions to which the real estate and hotel industry
is particularly sensitive: labor, environmental issues, weather
conditions, consumer spending or general business conditions and the
availability of satisfactory financing.
Results of Operations -
Sales of real estate properties for the fiscal year ended
August 31, 1996 decreased 88% compared to 1995 due to the sale of a hotel
and residential lots in 1995. The Company had gains from real estate
sales of approximately $281,000, $291,000 and $1,789,000 during fiscal
years 1996, 1995 and 1994, respectively. Gains or losses on real estate
sales are dependent upon the timing, sales price and the Company's basis
in specific assets sold and will vary considerably from period to period.
Revenues from real estate properties for fiscal year 1996
decreased $504,000, or 15%, compared to 1995. The decrease was due to the
sale of a hotel in 1995. Revenues from real estate properties for fiscal
year 1995 decreased $2,158,000, or 40%, compared to 1994. The decrease
was primarily due to the sale of the mobile home parks and apartments in
1994.
During fiscal year 1996, expenses of hotel management increased
$320,000, or 88%, compared to 1995. The increase was primarily due to
larger payroll costs associated with the increased staff necessary to
manage a larger number of hotels.
Revenues from hotel management for fiscal year 1996 increased
$410,000, or 143%, compared to 1995. The increase was due to a larger
number of hotels under management in 1996. There were no revenues from
hotel management in 1994 since the Company had not yet begun this
activity.
Expenses of real estate properties decreased $498,000, or 17%,
compared to 1995. The decrease was due to the sale of a hotel in 1995.
Expenses of real estate properties decreased $1,984,000, or 41%, for the
fiscal year ended August 31, 1995 compared to 1994 due to the sale of the
mobile home parks, apartments and hotel.
There were no mobile home sales or expenses during fiscal year
ended August 31, 1996 due to the sale of the mobile home parks in prior
years.
Due to the Company's investment in a limited partnership during
fiscal year 1996, the Company recognized equity in the income of the
partnership of approximately $209,000.
Income from loans and temporary investments decreased $70,000
and $68,000 for the fiscal year 1996 compared to 1995 and 1995 compared to
1994, respectively, due to less cash available for investment.
Other income remained relatively insignificant for all three
fiscal years ending August 31, 1996, 1995 and 1994. The provision of
$50,000 for possible losses in fiscal year 1995 pertains to a land parcel
in Atlanta, Georgia which has been sold. The provision of $1,638,000 for
possible losses in fiscal year 1994 pertains to land parcels in Dallas,
Texas; Phoenix, Arizona and Atlanta, Georgia. It was management's belief
that an additional provision in 1995 and 1994 was necessary to properly
reflect the current net realizable value of these properties.
Interest expense decreased by $65,000 during fiscal year 1996
compared to 1995 and $328,000 during fiscal year 1995 compared to 1994.
The decreases are primarily due to lower interest rates pertaining to the
Company's term loans.
General, administrative and other expenses have increased by
$99,000 for fiscal year 1996 compared to 1995 due to an overall increase
in costs associated with a larger business entity. General,
administrative and other expenses decreased by $323,000 for the fiscal
year 1995 compared to 1994. The decrease was due to management's effort
to reduce and control overhead in line with a smaller business entity.
Due to the Company's continuing aggressive movement into the
business of acquiring, developing, operating and selling hotel properties
throughout the country, the Company incurred business development costs of
$193,000 in fiscal year 1996 compared to $165,000 in fiscal year 1995.
In March 1995, the Financial Accounting Standards Board issued
Statement of Accounting Standards No. 121 (FAS 121), "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of."
FAS 121 establishes new standards for determining and measuring impairment
of long-lived assets held by an entity for investment purposes or for
disposal. According to the provisions of FAS 121, an entity should assess
impairment on assets held for investment or disposal whenever events or
changes in circumstances, whether economical or otherwise, indicate the
recorded amount of the asset may not be recoverable. FAS 121 is effective
for fiscal years beginning after December 15, 1995, although early
adoption is encouraged. The Company's management has elected to defer
early adoption of the effects of FAS 121; however, upon adoption,
management does not expect the effects of FAS 121 to have a material
adverse impact on the Company's financial statements.
Effect of Inflation -
Inflation tends to increase the Company's cash flow from income
producing properties since rental rates generally increase by a greater
amount than associated expenses. Inflation also generally tends to
increase the value of the Company's land portfolio.
Offsetting these beneficial effects of inflation are the
increased cost and decreased supply of investment capital for real estate
that generally accompany inflation.
RIDGEWOOD PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1996 AND 1995
($000'S omitted, except per share data)
August 31, August 31,
ASSETS 1996 1995
------ --------- ---------
REAL ESTATE INVESTMENTS:
Real Estate Properties
Operating Properties $ 1,383 $ 1,461
Land Held for Sale 9,769 10,104
---------- ----------
11,152 11,565
Mortgage Loans 5 44
---------- ----------
Total real estate investments 11,157 11,609
Allowance for Possible Losses (4,700) (4,700)
---------- ----------
Net real estate investments 6,457 6,909
INVESTMENT IN LIMITED PARTNERSHIP 957 232
CASH AND CASH EQUIVALENTS 298 1,880
OTHER ASSETS 1,012 652
---------- ----------
$ 8,724 $ 9,673
========== ==========
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</FN>
August 31, August 31,
LIABILITIES AND SHAREHOLDERS' INVESTMENT 1996 1995
---------------------------------------- ---------- ----------
ACCOUNTS PAYABLE $ 103 $ 102
ACCRUED SALARIES, BONUSES AND
OTHER COMPENSATION 782 737
ACCRUED PROPERTY TAX EXPENSE 151 146
ACCRUED INTEREST AND OTHER LIABILITIES 389 280
TERM LOANS 2,858 2,796
---------- ----------
Total Liabilities 4,283 4,061
---------- ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' INVESTMENT
Series A Convertible Preferred Stock,
$1 par value, 1,000,000 shares
authorized, 450,000 shares
issued and outstanding in 1995 and 1996
liquidation preference
and callable at $3,600,000. 450 450
Common stock, $0.01 par value, 5,000,000
shares authorized, 963,480 and 1,088,480
shares issued and outstanding in 1995 and 11 10
1996, respectively.
Paid-in Surplus 16,202 16,196
Accumulated deficit since
December 30, 1985 (12,222) (11,044)
---------- ----------
Total Shareholders' Investment 4,441 5,612
---------- ----------
$ 8,724 $ 9,673
========== ==========
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</FN>
RIDGEWOOD PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF LOSS
FOR THE YEARS ENDED AUGUST 31, 1996, 1995 AND 1994
($000's Omitted, except per share data)
1996 1995 1994
--------- --------- ---------
REVENUES:
Revenues from real estate properties............... $ 2,748 $ 3,252 $ 5,410
Revenues from hotel management .................... 697 287 --
Sales of real estate properties ................... 617 5,018 19,848
Equity in net income of partnership ............... 209 -- --
Sales of mobile homes.............................. -- -- 4,594
Income from loans and temporary investments........ 43 113 181
Other.............................................. -- 5 49
---------- ---------- ---------
4,314 8,675 30,082
---------- ---------- ---------
COSTS AND EXPENSES:
Expenses of real estate properties................. 2,364 2,862 4,846
Expenses of hotel management ...................... 682 362 --
Costs of real estate sold ......................... 336 4,727 18,059
Costs of mobile homes sold......................... -- -- 5,757
Depreciation and amortization ..................... 268 512 1,147
Provision for possible losses ..................... -- 50 1,638
Interest expense, net of interest capitalized...... 345 410 738
General, administration and other.................. 1,304 1,205 1,528
Business development .............................. 193 165 --
---------- ---------- ---------
5,492 10,293 33,713
---------- ---------- ---------
LOSS BEFORE INCOME TAXES (1,178) (1,618) (3,631)
INCOME TAXES -- (38) --
---------- ---------- ---------
NET LOSS $ (1,178) $ (1,656) $ (3,631)
---------- ---------- ---------
LOSS PER COMMON SHARE (1.29) $ (1.90) (0.64)
========== ========== =========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
Ridgewood Properties, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended August 31, 1996, 1995 and 1994
($000's Omitted)
1996 1995 1994
Cash flows from operating activities: --------- --------- -----------
Net loss ................................................... $ (1,178) $ (1,656) $ (3,631)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization .......................... 268 512 1,147
(Decrease) increase in allowance for possible losses.... -- (173) 1,638
Gain from sale of real estate properties ............... (293) (68) (1,788)
Equity in net income of partnership ........ ........... (209) -- --
Decrease in mobile home inventory ...................... -- -- 1,355
(Increase) decrease in other assets .................... (214) 134 342
Increase (decrease) in accounts payable
and accrued liabilities .............................. 115 (232) (370)
---------- ---------- ------------
Total adjustments ...................................... (333) 173 2,324
---------- ---------- ------------
Net cash used by operating activities .................. (1,511) (1,483) (1,307)
---------- ---------- ------------
Cash flows from investing activities:
Principal payments received on mortgage loans ............ 39 36 60
Investment in limited partnership ........................ (516) (232) --
Proceeds from sale of real estate ........................ 634 4,620 17,867
Additions to real estate properties ...................... (49) (915) (1,015)
---------- ---------- ------------
Net cash provided by investing activities .............. 108 3,509 16,912
---------- ---------- ------------
Cash flows from financing activities:
Dividends on preferred stock ............................. (135) (172) --
Purchase and retirement of common stock .................. -- -- (8,042)
Proceeds from issuance of debt ........................... -- 2,800 2,433
Debt financing costs ..................................... -- (159) --
Repayments of debt ....................................... (44) (5,419) (9,334)
---------- ---------- ------------
Net cash used by financing activities .................. (179) (2,950) (14,943)
---------- ---------- ------------
Net (decrease) increase in cash and cash equivalents ......... (1,582) (924) 662
Cash and cash equivalents at beginning of year ............... 1,880 2,804 2,142
---------- ---------- ------------
Cash and cash equivalents at end of year ..................... $ 298 $ 1,880 $ 2,804
========== ========== ============
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
Ridgewood Properties, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended August 31, 1996, 1995 and 1994
- -------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
1996 1995 1994
------------ ------------ ------------
Interest paid ...................................... $ 345,000 $ 450,000 $ 698,000
Income taxes paid .................................. $ -- $ 38,000 $ --
- -------------------------------------------------------------------------------------------------
Supplemental disclosure of non-cash activity:
1996 1995 1994
------------ ------------ ------------
Issuance of 125,000 shares of common stock.......... $ 187,500 -- --
Assumption of term notes in conjunction with
purchase of hotel management company ..............$ 106,000 -- --
Charge-off of fully-reserved loan ................... -- -- $ 227,000
Issuance of preferred stock in exchange for shares of
common stock ........................................ -- -- $ 450,000
Purchase of common stock in exchange for note........ -- -- $ 1,450,000
- -------------------------------------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
RIDGEWOOD PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
FOR THE YEARS ENDED AUGUST 31, 1996, 1995 AND 1994
($000's Omitted, except per share data)
Preferred Common
Stock Stock Accumulated Total
------------------------- ------------------------ Paid-in Earnings Shareholders'
Shares Amount Shares Amount Surplus (Deficit) Investment
---------- ---------- ------------ ---------- ---------- ---------- ----------
Balance, August 31, 1993 -- $ -- 5,868,960 $ 59 $ 26,262 $ (5,757) $ 20,564
Purchase of common stock
for cash and issuance
of preferred stock 450,000 450 (4,365,840) (44) (8,449) -- (8,043)
Purchase of common
stock in exchange
for note -- -- (539,640) (5) (1,445) -- (1,450)
Net Loss -- -- -- -- -- (3,631) (3,631)
----------- ----------- ------------- ----------- ----------- ----------- -----------
Balance, August 31, 1994 450,000 $ 450 963,480 $ 10 $ 16,368 $ (9,388) $ 7,440
Dividends on
Preferred Stock -- -- -- -- (172) -- (172)
Net Loss -- -- -- -- -- (1,656) (1,656)
----------- ----------- ------------- ----------- ----------- ----------- -----------
Balance, August 31, 1995 450,000 $ 450 963,480 $ 10 $ 16,196 $ (11,044) $ 5,612
Dividends on
Preferred Stock -- -- -- -- (180) -- (180)
Issuance of Common Stock -- -- 125,000 1 186 -- 187
Net Loss -- -- -- -- -- (1,178) (1,178)
----------- ----------- ------------- ----------- ----------- ----------- -----------
Balance, August 31, 1996 450,000 $ 450 1,088,480 $ 11 $ 16,202 $ (12,222) $ 4,441
=========== =========== ============= =========== =========== =========== ===========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
Ridgewood Properties, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
August 31, 1996, 1995 and 1994
1. Significant Accounting Policies
General -
The Company's common stock is listed in the broker-dealer "Pink
Sheets" and traded in the over-the-counter market (see Note 6). During
the fourth quarter of fiscal year 1994, the Company purchased and retired
all of the shares of common stock ("Triton Shares") owned by the Company's
then-majority stockholder, Triton Group, Ltd. ("Triton"). The cash used
to purchase the common stock was from the proceeds received by the Company
from the sale of its mobile home parks in June 1994. In conjunction with
this purchase, the Company issued 450,000 shares of Series A Convertible
Preferred Stock (the "preferred stock") to Triton. The preferred stock is
redeemable by the Company at $8.00 per share and accrues dividends at a
rate of $0.40 per share annually for the first two years and at a rate of
$0.80 per share annually thereafter. Dividends are payable quarterly
commencing on November 1, 1994. Each share of the preferred stock is
convertible into three shares of the Company's common stock effective
August 16, 1996 and is subject to certain anti-dilution adjustments. As
of August 31, 1996, no shares have been converted. In the event of any
liquidation, dissolution or winding up of the Company, whether voluntary
or involuntary, the holders of the shares of preferred stock shall be
entitled to receive $8.00 per share of preferred stock plus all dividends
accrued and unpaid thereon. So long as a minimum of 50,000 shares of
preferred stock is outstanding, Triton shall be entitled to elect one
additional director to serve on the Board of Directors of the Company.
The Company's President, N. Russell Walden, is the owner of approximately
37% of the Company's outstanding shares of common stock.
The Company also purchased and retired all the shares of common
stock owned by Hesperus Partners, Ltd. ("Hesperus") (the "Hesperus
Shares), formerly known as Harris Associates, L.P. The stock was
exchanged for a note the Company received from Sun Communities Operating
Limited Partnership in conjunction with the sale of the mobile home parks
(the "Note"). In addition to assigning the Note and the mortgage securing
the Note, the Company had agreed and did pay Hesperus interest on the
outstanding principal balance of the Note from the closing date through
June 15, 1995.
Since the Company is not currently generating sufficient operating
cash to cover overhead and debt service cost, the Company must continue to
sell real estate (see Note 12), seek alternative financing, or otherwise,
recapitalize the Company. It is currently reviewing the viability of all
of these alternatives.
Basis of Presentation and Consolidation -
The accompanying financial statements of the Company present the
historical cost basis amount of assets, liabilities, revenues, costs and
expenses and shareholders' investment of the real estate business,
formerly known as CMEI, for the periods presented.
Certain prior year amounts have been reclassified to conform with the
current presentation.
In fiscal year 1996, the Company purchased a hotel management
company, which is now a wholly-owned subsidiary of the Company. In
conjunction with this purchase, five other active corporations were
acquired, and all are wholly-owned subsidiaries. These subsidiaries
manage and employ the employees at various hotels. For financial
reporting purposes, subsidiaries are consolidated. In fiscal year 1995,
the Company formed two wholly-owned subsidiaries for the purpose of
managing hotels and another for the sole purpose of owning the hotel in
Longwood, Florida, which serves as collateral for the Company's term loan.
The lender required that a separate subsidiary own the hotel. One other
subsidiary remains, but is not operational.
The investment in the limited partnership is being accounted for
using the equity method of accounting (See Note 8).
All significant intercompany balances and transactions have been
eliminated.
Valuation of Real Estate Properties -
The Company carries its real estate properties at the lower of cost
or net realizable value. Where estimated net realizable value is lower
than cost, an allowance for possible losses is provided (see Note 2).
The allowance for possible losses relates to all real estate
investments, including mortgage loans and real estate properties. The
adequacy of the allowance for possible losses is evaluated by means of
periodic reviews of the investment portfolio on an individual asset basis.
In March 1995, the Financial Accounting Standards Board issued
Statement of Accounting Standards No. 121 (FAS 121), "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of."
FAS 121 establishes new standards for determining and measuring impairment
of long-lived assets held by an entity for investment purposes or for
disposal. According to the provisions of FAS 121, an entity should assess
impairment on assets held for investment or disposal whenever events or
changes in circumstances, whether economical or otherwise, indicate the
recorded amount of the asset may not be recoverable. FAS 121 is effective
for fiscal years beginning after December 15, 1995, although early
adoption is encouraged. The Company's management has elected to defer
early adoption of the effects of FAS 121; however, upon adoption,
management does not expect the effects of FAS 121 to have a material
adverse impact on the Company's financial statements.
Depreciation Policies -
The Company depreciates operating properties and any related
improvements by using the straight-line method over the estimated useful
lives of such assets, which are generally 30 years for building and land
improvements and 5 years for furniture, fixtures and equipment.
Capitalization Policies -
The Company capitalizes interest as a cost of properties while they
are under construction or development. Costs of planning and development
performed by outside contractors and all other direct costs related to
properties under construction or development are also capitalized.
Capitalization of interest and other costs is discontinued when a project
is substantially completed, or if active development ceases.
Total interest incurred and paid amounted to approximately $345,000,
$450,000, and $698,000 in 1996, 1995 and 1994, respectively. No interest
was capitalized; however, the effect on the financial statements from
capitalizing amounts permitted would not have been material.
Repairs and maintenance costs are expensed in the period incurred.
Major improvements to existing properties which increase the usefulness or
useful life of the property are capitalized.
Sale of Real Estate -
All revenue related to the sale of real estate is recognized at the
time of closing. The Company allocates costs of real estate sold using
the specific identification or relative sales value methods based on the
nature of the development. Profit recognition is based upon the Company
receiving adequate cash down payments and other criteria specified by
existing accounting literature.
Cash and Cash Equivalents -
For the purpose of the Statement of Cash Flows, cash includes cash
equivalents. Cash equivalents include all highly liquid investments with
maturities of three months or less.
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
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported grants of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
2. Real Estate Investments
The Company's real estate properties by type at August 31, 1996, and
1995 were as follows ($000's omitted):
Furniture,
August 31, 1996 Land & Fixtures &
Type of Project Buildings Equipment Total
Hotel $ 2,535 $ 308 $ 2,843
Less -- accumulated
depreciation (1,460)
-------
Net operating property 1,383
Land 9,769 -- 9,769
-------
Total $11,152
=======
Furniture
August 31, 1995 Land & Fixtures &
Type of Project Buildings Equipment Total
Hotels 2,535 295 2,830
Less -- accumulated
depreciation (1,369)
Net operating properties 1,461
Land 10,104 -- 10,104
Total $11,565
=======
Changes in the allowance for possible losses for the
years ended August 31, 1996, 1995 and 1994 were as follows
($000's omitted):
1996 1995 1994
Allowance, beginning of year $4,700 $4,873 $3,625
Provision for possible losses -- 50 1,638
Chargeoff and reversal of
reserves from the sales of
real estate assets -- (223) (163)
Chargeoff of fully reserved
loan -- -- (227)
Allowance, end of year $4,700 $4,700 $4,873
====== ====== ======
3. Commitments and Contingencies
In August 1991, each executive officer was offered a Post-Employment
Consulting Agreement (the "Consulting Agreement(s)") whereby the officer
agrees that if he or she is terminated by the Company for other than good
cause, the officer will be available for consulting at a rate equal to
their annual compensation immediately prior to termination. All officers
have chosen to enter into Consulting Agreements. In addition, three other
employees were offered and have chosen to enter into one year Consulting
Agreements. The executive, upon termination, agrees to sign an
unconditional release of all claims and liability in exchange for a one
year (four employees) or two year (two employees) consulting fee
arrangement, depending upon the years of service as an officer or the
designation as a senior executive officer.
On May 2, 1995 a complaint was filed in the Court of Chancery of the
State of Delaware (New Castle County) entitled William N. Strassburger v.
Michael M. Early, Luther A. Henderson, John C. Stiska, N. Russell Walden,
and Triton Group, Ltd., defendants, and Ridgewood Properties, Inc.,
nominal defendant, C.A. No. 14267 (the "Complaint"). The plaintiff is an
individual shareholder of the Company who purports to file the Complaint
individually, representatively on behalf of all similarly situated
shareholders, and derivatively on behalf of the Company. The Complaint
challenges the actions of the Company and its directors in consummating
the Company's August 1994 repurchase of its common stock held by Triton
Group, Ltd. and Hesperus Partners Ltd. in five counts, denominated Waste
of Corporate Assets, Breach of Duty of Loyalty to Ridgewood, Breach of
Duty of Good Faith, Intentional Misconduct, and Breach of Duty of Loyalty
and Good Faith to Class. On July 5, 1995, the Company filed a timely
answer generally denying the material allegations of the complaint and
asserting several affirmative defenses. This case is in the concluding
stages of discovery. No trial date has been set. The Company intends to
vigorously contest this matter. While the Company cannot predict the
outcome, Management believes the ultimate resolution of this matter will
not have a material effect on the Company's financial condition.
On December 22, 1995, the Company and its wholly-owned subsidiary,
Cornerstone Management & Development, Inc., a Georgia corporation
("Cornerstone Georgia"), sued Charles S. Taylor ("Taylor"), Deborah L.
Cannon ("Cannon"), their affiliated corporations, Cornerstone Management &
Development, Inc., a Maryland corporation ("Cornerstone Maryland") and
Cornerstone Hospitality Group, Inc. ("Cornerstone Hospitality") in the
Superior Court of Cobb County, Georgia (No. 95-1943805), for actions taken
by the defendants both before and after Taylor and Cannon were terminated
as officers and directors of Cornerstone Georgia. The complaint alleges
that in violation of their fiduciary duties and in violation of an Asset
Purchase Agreement among the parties, Taylor and Cannon misappropriated
assets and business from Cornerstone Georgia; that since their termination
by Cornerstone Georgia, Taylor and Cannon have continued to misappropriate
assets and to usurp business opportunities and to interfere with business
and contractual relationships; and that this wrongful activity has been
for the benefit and with the assistance of Cornerstone Maryland and
Cornerstone Hospitality. The suit is for money damages, an accounting,
the imposition of a constructive trust, expenses of litigation including
attorneys' fees, and punitive damages. The defendants have filed an
Answer and Counterclaim, alleging that the individual defendants were
terminated in violation of the Agreement; that the Company breached the
Asset Purchase Agreement; that the Company otherwise interfered with
business and contractual relationships; and for conversion. The
counterclaim is for money damages, restitution, expenses of litigation
including attorneys' fees, and punitive damages. The Company intends to
vigorously pursue this matter. While the Company cannot predict the
outcome, Management believes the ultimate resolution of this matter will
not have a material effect on the Company's financial condition.
On August 23, 1996, Great American Resorts filed a complaint in the
Superior Court of Cobb County, State of Georgia, entitled Great American
Resorts, Inc. and Great American Casinos, Inc. v. Charles Taylor, Deborah
Lynn Cannon, Walter D. Hrab and Ridgewood Properties, Inc., Civil Action
File No. 9616398-05, alleging that the Company and the other defendants
are liable for breach of contract and breach of fiduciary duty stemming
from a contract between Great American and one of the Company's
subsidiaries. The complaint seeks damages, attorneys' fees and
pre-judgment interest. It also seeks an order requiring that certain
books and records be turned over to the plaintiffs. On September 27,
1996, the Company filed a timely answer generally denying the material
allegations of the complaint and asserting several affirmative defenses.
The Company intends to vigorously contest this matter. While the Company
cannot predict the outcome, Management believes the ultimate resolution of
this matter will not have a material effect on the Company's financial
condition.
In conjunction with the acquisition of a hotel management company in
December 1995, 25,000 shares of the Company's common stock were issued to
the Senior Vice President of the hotel management company. The 25,000
shares are subject to a Put Agreement ("Agreement"). The Agreement states
that within ninety days after the two year anniversary of the effective
date of the Agreement (which was effective in December 1995), the Company
shall be obligated to purchase all or part of the 25,000 shares from the
Senior Vice President of Wesley at a purchase price of $4.50 per share.
As more fully described in Note 8, the Company is required to fund
certain capital contributions to RW Hotel Partners, L.P. as the
partnership acquires hotels.
4. Notes Payable
In June 1995, the Company entered into a loan with a commercial
lender to refinance the Ramada Inn in Longwood, Florida. The loan
proceeds are $2,800,000. The loan is for a term of 20 years with an
amortization period of 25 years, at the rate of 10.35%. Principal and
interest payments are approximately $26,000 per month beginning August 1,
1995. In addition, the Company is required to make a repair escrow
payment comprised of 4% of estimated revenues, as well as real estate tax
and insurance escrow payments. The total amount for these items will be a
payment of approximately $20,000 per month and can be adjusted annually.
The escrow funds will be used as tax, insurance and repair needs arise.
As of August 31, 1996, there was approximately $150,000 of escrowed funds
related to this loan agreement. Also, commitment fees and loan costs of
approximately $159,000 are being amortized over 20 years.
The approximate average amount of borrowings on the term loan during
fiscal year 1996 was $2,784,000, at an average interest rate of 10.35%.
The maximum amount of borrowings outstanding under this loan was
$2,796,000. The balance of the loan at August 31, 1996 was approximately
$2,771,000.
In December 1995 and in conjunction with the acquisition of a hotel
management company, the Company assumed three promissory notes dated
September 22, 1994 and payable to three different Georgia corporations.
The total combined outstanding principal was approximately $106,000. All
three notes are for a term of five years at a rate of 6.83%. Combined
principal and interest payments are approximately $2,667 per month through
October 1, 1999. The combined balance of these loans at August 31, 1996
was approximately $87,000.
The approximate average amount of borrowings on the combined term
loans during fiscal year 1996 was $97,000, at an average interest rate of
6.83%. The maximum amount of combined borrowings outstanding under these
loans was $106,000.
Maturities of long-term debt during the Company's next five fiscal
years are as follows: 1997 - $55,000; 1998 - $59,000; 1999 - $65,000;
2000 - $43,000; 2001 - $42,000; thereafter - $2,594,000.
5. Income Taxes
In September 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 (FAS 109), "Accounting for Income Taxes".
Upon adoption, the Company changed its method of accounting for income
taxes from the deferred method (APB 11) to an asset and liability
approach. This approach requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of
temporary differences between the carrying amounts and the tax bases of
other assets and liabilities. The adoption of FAS 109 had no effect on
the Company's financial condition or results of operations for the year
ended August 31, 1994.
The Company's 1995 provision for income taxes is comprised of $38,000
in alternative minimum tax. There was no provision for income taxes for
the year ended August 31, 1996 or 1994.
Deferred tax assets (liabilities) are comprised of the following at
August 31, 1996, and September 1, 1995, respectively:
(000's omitted)
1996 1995
Allowance for possible losses $ 1,598 $ 1,598
Excess of tax over book basis, land held
for sale or future development 11 14
Depreciation and amortization 139 105
Other 273 232
Tax loss carryforwards 4,227 3,759
------- --------
Gross deferred tax assets 6,248 5,708
------- --------
Excess of book over tax basis, land held
for sale or future development (39) (39)
Excess of book over tax basis, income
from partnership (38) --
------- --------
Gross deferred tax liabilities (77) (39)
------- --------
Deferred tax assets valuation allowance (6,171) (5,669)
------- --------
$ 0 $ 0
======= ========
The net change in the valuation allowance for deferred tax assets was
an increase of $502,000. This change resulted primarily from an increase
in the Company's tax loss carryforward and other deferred tax assets.
Approximately $12,434,000 of tax loss carryforwards remain at August
31, 1996 for income tax purposes. The carryforwards expire $2,080,000 in
2005, $4,150,000 in 2006, $1,524,000 in 2007, $1,699,000 in 2008,
$1,602,000 in 2010 and $1,379,000 in 2011. As a result of a change in
control during fiscal year 1994, the amount of tax loss carryforwards
incurred prior to the change in control which may be utilized by the
Company in any one year period is limited to approximately $940,000.
In certain circumstances because of "built-in" gains on some properties,
the actual use of net operating loss carryforwards may exceed this amount.
The Company has unused net operating loss carryforwards in certain states
in which it operates which are available to offset future state taxable
income in those states. No benefit for the remaining loss carryforwards
has been recognized in the financial statements.
6. Shareholders' Investment
Authorized Shares of Common and Preferred Stock -
On January 4, 1995, the shareholders of the Company approved an
amendment to the Company's Certificate of Incorporation increasing the
authorized number of shares of the Company's common stock from 3,000,000
shares to 5,000,000 shares and to increase the number of authorized shares
of the Company's preferred stock, par value $1.00 per share, from 500,000
shares to 1,000,000 shares. In addition, the shareholders approved and
adopted a proposal to amend the Ridgewood Properties, Inc. 1993 Stock
Option Plan, increasing the number of shares of common stock reserved for
issuance or transfer upon the exercise of options to be granted from time
to time thereunder, from an aggregate of 900,000 to 1,200,000 shares of
common stock. Accordingly, 3,911,520 shares of common stock are available
for future issuance, of which 1,200,000 are reserved for the Company's
stock option plan. There are currently 1,088,480 shares of common stock
outstanding, of which approximately 37% is owned by the Company's
President, N. Russell Walden.
There are currently 1,000,000 authorized shares of the Company's
Series A Convertible Preferred Stock. On August 15, 1994, the Company
issued 450,000 shares of the Company's preferred stock (see "Purchase of
Common Shares" below), which represent the only outstanding preferred
shares. Accordingly, 550,000 shares of preferred stock are available for
future issuance.
Loss Per Common Share --
Loss per common share is calculated based upon the weighted average
number of shares outstanding during the period of approximately 1,055,000,
963,000 and 5,676,000 in 1996, 1995 and 1994, respectively.
Purchases of Common Stock by the Company -
As described in Note 1, on August 15, 1994, the Company purchased all
(4.38 million) of the shares of the Company's common stock, $0.01 par
value, held by the Company's then-majority stockholder, Triton Group Ltd.
The Triton Shares represented 74.4% of the 5.88 million shares of common
stock outstanding prior to the consummation of the transaction. In
consideration for the Triton Shares, the Company paid $8.0 million in cash
and authorized and issued 450,000 shares of the Company's preferred stock.
As of August 15, 1996, Triton's preferred stock may be converted into
three shares of the Company's common stock.
In addition, on August 29, 1994, the Company acquired all (539,640)
of the shares of common stock owned by Hesperus Partners Ltd., formerly
known as Harris Associates, L.P., in exchange for a note receivable in the
principal amount of $1.45 million executed by Sun Communities Operating
Limited Partnership and held by the Company (see Note 1). In addition to
assigning the Note and the mortgage securing the Note, the Company had
agreed and did pay to Hesperus interest on the outstanding principal
balance of the Note from the closing date through June 15, 1995.
Issuance of Common Shares and Mandatorily Redeemable Equity Securities --
In December 1995, the Company purchased a hotel management company in
part by issuing 125,000 shares of the Company's common stock: 100,000
shares and 25,000 shares to the President and Senior Vice President of
Wesley Hotel Group ("Wesley"), respectively. See also Note 11. The
25,000 shares issued to the Senior Vice President of Wesley are subject
to a Put Agreement ("Agreement"). The Agreement states that within ninety
days after the two year anniversary of the effective date of the Agreement
(which was effective in December 1995), the Company shall be obligated to
purchase all or part of the 25,000 shares from the Senior Vice President
of Wesley at a purchase price of $4.50 per share.
1993 Stock Option Plan --
On March 30, 1993, the Company granted options to purchase
378,000 shares of common stock at a price of approximately $1.83 per share
to its key employees and one director under the Ridgewood Properties, Inc.
1993 Stock Option Plan (the "Plan"). The options vested over a four year
period in 25% increments. All options expire ten years from the date of
grant, unless earlier by reason of death, disability, termination of
employment, or for other reasons outlined in the Plan. As of August 31,
1996, all of the options are exercisable.
On January 28, 1994, the Company granted options to purchase 375,000
and 75,000 shares of common stock at a price of $1.00 per share to its
President and Chief Financial Officer, respectively, under the Plan. The
options are exercisable immediately and expire on January 31, 1997. If
all vested options are exercised, the President and Chief Financial
Officer would hold 49% and 8%, respectively, of the total outstanding
shares of common stock.
On January 4, 1995, the shareholders approved an increase in the
number of authorized shares reserved for the Company's stock option plan
from 900,000 to 1,200,000.
In October 1995 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 123, "Accounting for
Stock-Based Compensation" (FAS 123) which establishes financial accounting
and reporting for stock based awards issued to employees and certain
non-employees. FAS 123 establishes a fair value based method using an
option pricing model to value options and determine compensation costs at
the date of grant. FAS 123 is effective for fiscal years beginning after
December 15, 1995, although early adoption is encouraged. The Company's
management has elected to defer early adoption of the effects of FAS 123;
however, upon adoption, management does not expect the effects of FAS 123
to have a material adverse impact on the Company's financial statements.
7. Supplemental Retirement and Death Benefit Plan
The Company implemented a non-qualified Supplemental Retirement and
Death Benefit Plan with an effective date of January 1, 1987. The Plan
supplements other retirement plans and also provides pre-retirement death
benefits to participants' beneficiaries.
Concurrent with the implementation of the Supplemental Retirement and
Death Benefit Plan, the Company purchased key-person life insurance
contracts on the lives of the Plan participants. The policies are owned
by and payable to the Company and are "increasing whole life" insurance.
The Company pays level annual premiums, may borrow against cash values
earned, and pays interest annually on any loans which may be cumulatively
outstanding. In March 1995, the Company borrowed approximately $381,000
against the cash values. The net proceeds to the Company were
approximately $358,000 due to the prepayment of interest on the loan. The
Company has recorded a total pension liability of approximately $726,000
as of August 31, 1996. At August 31, 1996 the cash surrender value
available to settle the outstanding pension liability was approximately
$777,000.
For the fiscal years ending August 31, 1996, 1995 and 1994, the
pension expense was approximately $33,000, $60,000 and $63,000,
respectively.
8. Investment in Limited Partnership
On August 16, 1995, RW Hotel Partners, L.P. was organized as a
limited partnership (the "Partnership") under the laws of the State of
Delaware. Concurrently, the Company formed Ridgewood Hotels, Inc., a
Georgia corporation ("Ridgewood Hotels") which became the sole general
partner in the Partnership with RW Hotel Investments Associates, L.L.C.
("Investor") as the limited partner. Ridgewood Hotels has a 1% base
distribution percentage versus 99% for the Investor. However,
distribution percentages do vary depending on certain defined preferences
and priorities pursuant to the Partnership Agreement ("Agreement") which
are discussed below. The partnership was originally formed to acquire a
hotel property in Louisville, Kentucky. The partnership consists of
six hotel properties at August 31, 1996. The terms of this partnership
will serve as a guideline for other potential acquisitions with this or
other investors.
Income and loss are allocated to the Company and the limited
partner based upon the formula for allocating distributable cash as
described below but subject to an annual limitation which would result in
no more than 88% of partnership income or loss (as defined) being
allocated to the limited partner.
Distributable Cash is defined as the net income from the property
before depreciation plus any net sale proceeds and net financing proceeds
less capital costs. Distributions of Distributable Cash shall be made as
follows:
- First, to the Investor until there has been distributed to the
Investor an amount equal to a 15% cumulative internal rate of return on
the Investor's investment.
- Second, to Ridgewood Hotels until the aggregate amount received by
Ridgewood Hotels equals the aggregate cash contributions made by Ridgewood
Hotels to the Partnership (as of 8/31/96, Ridgewood Hotels contributed
approximately $748,000).
- Third, 12% to Ridgewood Hotels and 88% to the Investor until there
has been distributed to the Investor an amount equal to a 25% cumulative
internal rate of return on Investor's investment.
- Fourth, 75% of the residual to the Investor and 25% to Ridgewood
Hotels.
A Management Agreement exists between the Partnership and the Company
as Manager ("Manager") for the purpose of managing hotels in Kentucky,
Georgia and South Carolina. The Manager shall be entitled to the
following property management fees:
(1) 2.5% of the gross revenues from the hotel property.
(2) 1% of the gross revenues from the hotel property as an incentive
fee if distributable cash equals or exceeds 13.5% of certain aggregate
acquisition costs. No management fees were payable with respect to the
first 12-month period of management of the hotel in Kentucky.
A Construction Management Agreement exists between the Partnership
and the Manager for the purpose of managing future improvements to the
properties.
The Company currently has approximately $748,000 invested in the
Partnership. Also, at August 31, 1996, the Company recorded approximately
$209,000 equity in the income of the partnership, bringing the total
investment in the limited partnership to approximately $957,000. The
equity method of accounting is used for accounting for the investment in
the Partnership. Also, the investment of $957,000 is after the
elimination of intercompany transactions. The Partnership purchased a
hotel in Louisville, Kentucky for approximately $16,000,000. In December
1995 and January 1996, the Partnership purchased four hotel properties in
Georgia for approximately $15,000,000 and a hotel in South Carolina for
$4,000,000, respectively. The Company may make future capital
contributions to the Partnership. Management expects to fund such capital
contributions through available cash or from loans from the Partnership.
Additionally, the Company may invest in other partnerships to acquire
hotels in the future.
The condensed balance sheet and statement of income of the
Partnership as of August 31, 1996 and from inception (August 16, 1995) to
August 31, 1996 are as follows:
RW HOTEL PARTNERS, L.P.
CONDENSED BALANCE SHEET
AUGUST 31, 1996
ASSETS
($000'S Omitted)
CURRENT ASSETS $ 1,915
PROPERTY AND EQUIPMENT, net (See Note) 36,441
INTANGIBLE ASSETS, net 525
-------------
TOTAL ASSETS $ 38,881
=============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES $ 2,405
LONG-TERM DEBT (See Note) 17,895
-------------
TOTAL LIABILITIES 20,300
-------------
PARTNERS' CAPITAL, net 18,581
-------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 38,881
=============
RW HOTEL PARTNERS, L.P.
CONDENSED STATEMENT OF INCOME
FROM INCEPTION (AUGUST 16, 1995) TO AUGUST 31, 1996
($000'S Omitted)
HOTEL OPERATIONS:
Revenues $ 14,971
Operating Expenses 9,941
------------
Income From Hotel Operations 5,030
------------
PARTNERSHIP OPERATIONS 3,486
------------
NET INCOME 1,544
============
<FN>
Note:
On December 8, 1995, the Partnership entered into a long-term debt
agreement with General Electric Capital Corporation ("GECC") in
the amount of $9,613,748 (the "Note"). Also, under the Note,
the Partnership may borrow up to an additional $386,252 for the
purpose of capital improvements at the Louisville property.
The capital improvements are subject to approval by GECC. The
note bears interest at 3% above the GECC composite commercial paper
rate and is due in monthly installments of $20,833 plus interest.
In addition, if the ratio of net operating income, as defined, to
average outstanding Note balance ("cash-on-cash yield") is
less than 18% for the preceding 12 months, as calculated
quarterly, 50% of excess cash flow, as defined, must be paid.
If the cash-on-cash yield is less than 14%, 100% of the excess
cash flow, as defined, must be paid. The outstanding principal
balance will be due upon maturity, November 30, 1999. The Note
cannot be prepaid until December 1996. The Note is secured
by a first mortgage on the Kentucky property and the
assignment of any revenues, rentals, and income of the property.
The Note also requires the Partnership to establish a reserve
for capital improvements.
On January 31, 1996, the Partnership and GECC amended and
restated the Note (the "Amended Note"). Under the Amended
Note, the Partnership obtained additional borrowings of
$8,144,000 (the "Additional Borrowings"). Also, under the
Amended Note, the Partnership may borrow up to an additional
$2,656,000 for the purpose of capital improvements at the
Georgia Hotels. The capital improvements are subject to
approval by GECC. The Amended Note is secured by Hurstbourne
and the Georgia Hotels. The Amended Note provides for a
two-year maturity extension option. The Additional Borrowings
bear interest at the GECC composite commercial paper rate plus
3.25%. Additional monthly installments of $45,000, plus
interest on the Additional Borrowings, commence on March 1, 1996.
The Additional Borrowings cannot be prepaid until January 1997.
The debt amount is now subject to be increased by $3,042,252,
allowing the potential liability under the note agreement to
increase to $20,800,000. The additional increase is subject
to approval of certain agreed-upon property improvements.
</FN>
9. Employee Savings Plan
The Ridgewood Properties Employee Savings Plan ("Savings Plan") is a
savings and salary deferral plan which is intended to qualify for favorable
tax treatment under Sections 401(a) and 401(k) of the Internal Revenue
Code of 1986. The Savings Plan includes all employees of the Company who
have completed one year of service and have attained age twenty-one.
Each participant in the Savings Plan may elect to reduce his or her
compensation by any percentage, not to exceed 15% of compensation when
combined with any Matching Basic or Discretionary Employer Contributions
(below) made on behalf of the participant, and have such amount contributed
to his or her account under the Savings Plan. Elective employer
contributions are made prior to the withholding of income taxes on such
amounts. A participant may also elect to contribute to the Plan an amount
of cash or property equal to or up to 10% of his or her compensation
("Voluntary Contributions"). Voluntary Contributions are made on an
after-tax basis.
The Savings Plan provides for an employer matching contribution in
an amount equal to 50% of the elective employer contributions, provided
that in no event shall such employer matching contributions exceed 3% of
the participant's compensation. In addition, the Board of Directors of
the Company is authorized to make discretionary contributions to the
Savings Plan out of the Company's current or accumulated profits
("Discretionary Contributions"). Discretionary Contributions are
allocated among those participants who complete at least 1,000
hours of service during the plan year and are employed by the Company
on the last day of the plan year.
Employees are subject to a seven year graduated vesting schedule with
respect to Basic Employer Contributions, Matching Employer Contributions and
Discretionary Contributions.
Distributions from the Savings Plan will generally be available upon or
shortly following a participant's termination of employment with the Company,
with additional withdrawal rights with respect to Voluntary Contributions.
For the fiscal years ending August 31, 1996, 1995 and 1994, expense
for the Employee Savings Plan was approximately $21,000, $15,000 and $17,000,
respectively.
10. Sale of Operating Properties
In March 1994, the Company sold its apartments in Dallas, Texas, for
$4,100,000, resulting in a gain of approximately $1,227,000. The gross
purchase price included a $1,015,000 term loan secured by one of the
apartments which is insured by the Department of Housing and Urban
Development and which was assumed by the buyer at the time of purchase.
An additional $1,710,000 of the proceeds were used to reduce the Company's
debt. Net proceeds to the Company were approximately $1,100,000.
In June 1994, the Company sold its five mobile home parks for
$13,900,000, resulting in a gain of approximately $694,000. Net
proceeds to the Company were approximately $12,000,000. Approximately
$386,000 was applied to certain selling and operational costs. In
addition, the Company accepted a $1,450,000 note which is secured by
one of the mobile home parks. The note was subsequently exchanged
for common stock of the Company in August 1994 as discussed in Note 1.
In April 1995, the Company sold the Ridgewood Lodge, its weekly
rental hotel in Orlando, Florida. The net proceeds, after commissions,
were approximately $2,700,000. The gain on the sale was approximately
$250,000. The proceeds were used to reduce the outstanding balance of
the Company's term loan.
11. Acquisition of Hotel Management Company
In December 1995, the Company acquired the Wesley Hotel Group, a hotel
management company located in Atlanta, Georgia. At the time of acquisition,
Wesley managed five hotels. The acquisition has been accounted for using the
purchase method of accounting. The results of operations for Wesley are
included in the Company's results of operations for the period December
1995 through August 1996. In conjunction with the acquisition, the
Company issued 125,000 shares of common stock with a determined market
value of $1.50 per share (see Note 6) and assumed three promissory notes
with a combined outstanding principal of approximately $106,000, bringing
the total investment in Wesley to $293,000. The investment recorded by
the Company for the acquisition is being amortized over the useful life
of the assets acquired. Since approximately $103,000 of amortization
had been recognized, the net investment in Wesley as of August 31,
1996 is approximately $190,000. The consolidated financial statements
include the operating results of the Wesley Hotel Group from the date of
acquisition. Pro forma results of operations have not been presented
because the effects of this acquisition were not significant.
12. Subsequent Events
In September 1996, the Company sold a portion of its land in Maitland,
Florida for $1,435,000. Net proceeds to the Company were approximately
$1,221,000.
In October 1996, the Company sold a portion of its land in Dallas,
Texas for approximately $510,000. Net proceeds to the Company were
approximately $448,000.
Report of Independent Accountants
To the Board of Directors and
Shareholders of Ridgewood Properties, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of loss, of cash flows and of shareholders' investment
present fairly, in all material respects, the financial position of Ridgewood
Properties, Inc. and its subsidiaries at August 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years
in the period ended August 31, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the
accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Atlanta, Georgia
October 11, 1996
Market Information
The Company's common stock is traded in the over-the-counter market
and is listed in the broker-dealer "Pink Sheets."
Transfer Agent and Registrar
Society National Bank, Dallas, Texas is the Company's stock transfer
agent and registrar. Society National Bank maintains the Company's shareholder
records. To change name, address or ownership of stock, to report lost
certificates, or to consolidate accounts, contact:
Society National Bank
Shareholder Services, Inc.
1201 Elm Street, Suite 5050
Dallas, Texas 75270
(214) 658-0200
General Counsel
Rogers & Hardin
2700 Cain Tower
229 Peachtree Street, N.E.
Atlanta, Georgia 30303
Independent Accountants
Price Waterhouse LLP
50 Hurt Plaza
Suite 1700
Atlanta, Georgia 30303
Shareholder and General Inquiries
The Company is required to file an Annual Report on Form 10-K for its
fiscal year ended August 31, 1996 with the Securities and Exchange Commission.
Copies of this annual report may be obtained without charge upon written request
to:
Ridgewood Properties, Inc.
Shareholder Relations
2859 Paces Ferry Road
Suite 700
Atlanta, Georgia 30339
(770) 434-3670