SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number 0-14019
Ridgewood Hotels, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 58-1656330
- ------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2859 Paces Ferry Road, Suite 700
Atlanta, Georgia
30339
- -------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(770) 434-3670
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No _____
Common stock, par value $.01 per share - 1,538,480 shares
outstanding at February 28, 1998.
PART I. FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
FEBRUARY 28, 1998 AND AUGUST 31, 1997
-------------------------------------
($000'S omitted, except per share data)
---------------------------------------
(Unaudited)
Feb. 28, August 31,
ASSETS 1998 1997
------ ----------- -----------
Real Estate Investments:
Real Estate Properties
Operating Properties, net $ 1,307 $ 1,325
Land Held for Sale 5,958 6,661
------------ ------------
Total real estate investments 7,265 7,986
Allowance for Possible Losses (3,544) (3,544)
------------ ------------
Net real estate investments 3,721 4,442
Investment in Hotel Joint Ventures 1,088 772
Cash and Cash Equivalents 1,858 1,596
Other Assets 1,451 1,456
------------ ------------
$ 8,118 $ 8,266
============ ============
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</FN>
RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
FEBRUARY 28, 1998 AND AUGUST 31, 1997
-------------------------------------
($000's omitted, except per share data)
---------------------------------------
(Unaudited)
Feb. 28, August 31,
LIABILITIES AND SHAREHOLDERS' INVESTMENT 1998 1997
---------------------------------------- ------------ ------------
Accounts Payable $ 143 $ 159
Accrued Salaries, Bonuses and
Other Compensation 883 863
Accrued Property Tax Expense 49 118
Accrued Interest and Other Liabilities 226 284
Term Loans 2,775 2,804
------------ ------------
Total Liabilities 4,076 4,228
------------ ------------
Commitments and Contingencies
Shareholders' Investment
Series A Convertible Cumulative Preferred Stock,
$1 par value, 1,000,000 shares authorized, 450,000
shares issued and outstanding at February 28, 1998
and August 31, 1997, liquidation preference
and callable at $3,600,000. 450 450
Common Stock, $.01 par value, 5,000,000
shares authorized, 1,538,480 shares issued
and outstanding at February 28, 1998 and
August 31, 1997. 15 15
Note receivable from officer for
purchase of common stock (75) (75)
Paid-in Surplus 16,153 16,333
Accumulated Deficit since December 30, 1985 (12,501) (12,685)
------------ ------------
4,042 4,038
------------ ------------
$ 8,118 $ 8,266
============ ============
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</FN>
RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES
---------------------------------------
STATEMENTS OF CONSOLIDATED INCOME
---------------------------------
FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 28, 1998 AND FEBRUARY 28, 1997
--------------------------------------------------------------------------
($000's omitted, except per share data)
---------------------------------------
For the Three Months Ended For the Six Months Ended
----------------------------- -----------------------------
Feb. 28, Feb. 28, Feb. 28, Feb. 28,
1998 1997 1998 1997
------------ ------------ ------------ ------------
REVENUES:
Revenues from wholly-owned hotel operations ....... $ 866 $ 857 $ 1,567 $ 1,493
Revenues from hotel management .................... 222 243 476 498
Sales of real estate properties ................... 850 66 1,575 2,011
Equity in net income of partnership ............... -- (55) -- (52)
Income from loans and temporary investments ....... 7 11 20 11
Other ............................................. 57 398 60 398
------------- ------------- ------------- -------------
2,002 1,520 3,698 4,359
------------- ------------- ------------- -------------
COSTS AND EXPENSES:
Expenses of wholly-owned real estate properties ... 615 596 1,193 1,161
Expenses of hotel management ...................... 190 196 363 386
Costs of real estate sold ......................... 580 13 854 880
Depreciation and amortization ..................... 48 64 95 127
Interest expense .................................. 84 86 168 171
General, administration and other ................. 357 372 687 681
Business development .............................. 114 38 154 70
------------- ------------- ------------- -------------
1,988 1,365 3,514 3,476
------------- ------------- ------------- -------------
NET INCOME ............................................ $ 14 $ 155 $ 184 $ 883
============= ============= ============= =============
EARNINGS (LOSS) PER COMMON SHARE ...................... $ (0.05) $ 0.05 $ -- $ 0.65
============= ============= ============= =============
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 28, 1998 AND FEBRUARY 28, 1997
------------------------------------------------------------------
Increase in Cash and Cash Equivalents
-------------------------------------
($000's Omitted)
----------------
1998 1997
------------- -------------
Cash flows from operating activities:
Net income .................................................... $ 184 $ 883
Adjustments to reconcile net income to net
cash used by operating activities:
Depreciation and amortization ............................. 95 127
Gain from sales of real estate property ................... (721) (1,131)
Increase in other assets .................................. (22) (438)
Decrease in accounts payable and
accrued liabilities ..................................... (123) (37)
------------- -------------
Total adjustments ......................................... (771) (1,479)
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Net cash used by operating activities ..................... (587) (596)
Cash flows from investing activities:
Proceeds from sales of real estate .......................... 1,450 1,701
Additions to real estate properties ......................... (76) (31)
Investment in joint venture ................................. (316) 76
Deposits on future hotel acquisitions ....................... -- (700)
------------- -------------
Net cash received from investing activities ............... 1,058 1,046
Cash flows from financing activities:
Repayments of notes payable ................................. (29) (23)
Payment of dividends on preferred stock ..................... (180) (135)
Issuance of common stock .................................... -- 100
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Net cash used by financing activities ..................... (209) (58)
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Net increase in cash and cash equivalents ....................... $ 262 $ 392
Cash and cash equivalents at beginning of period ................ 1,596 298
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Cash and cash equivalents at end of period ...................... $ 1,858 $ 690
============= =============
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1998 AND FEBRUARY 28, 1997
-------------------------------------------------------------
Increase in Cash and Cash Equivalents
-------------------------------------
($000's Omitted)
----------------
1998 1997
---------- -------------
Supplemental disclosure of cash flow information
and non-cash activity:
Decrease in allowance for possible losses
due to sale of parcel of land ............................. $ -- $ 1,156,000
During the second quarter of fiscal year 1997, the
Company's President and Chief Financial Officer exercised
their stock options for 450,000 shares of the Company's
common stock. In conjunction with the exercise, promissory
notes and cash were received by the Company and common stock
issued as follows:
Cash received from Company's President ................... $ -- $ 100,000
Promissory note received from President
and Chief Financial Officer ............................ $ -- $ 350,000
Issuance of 450,000 shares of common stock
at $.01 par value ...................................... $ -- $ 4,500
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998 AND FEBRUARY 28, 1997
(Unaudited)
1. GENERAL:
Ridgewood Hotels, 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 joint ventures,
is engaged in acquiring and managing hotel properties, as well as
managing other hotels throughout the country. The Company also owns
and operates a hotel in Longwood, Florida. All of the Company's
other properties are land properties held for sale, and no
additional development is currently anticipated for the land. The
Company was incorporated under the laws of the State of Delaware on
October 29, 1985. In January 1997, the Company changed its name
from Ridgewood Properties, Inc. to Ridgewood Hotels, Inc. Prior to
December 31, 1985, the Company operated under the name CMEI, Inc.
The Company's common stock is currently listed in the
National Association of Securities Dealers (NASDAQ) over-the-counter
bulletin board service. Of the Company's issued and outstanding
shares of common stock, 51% of the common stock is owned by the
Company's President, N. Russell Walden. All of the Company's issued
and outstanding shares of preferred stock are owned by Alarmguard
Holdings, Inc.
The accompanying financial statements of the Company
present the historical cost basis amount of assets, liabilities and
shareholders' investment of the real estate business for the periods
presented. The consolidated financial statements include the
accounts of the Company, its wholly-owned subsidiaries and its joint
venture investments after the elimination of all intercompany
amounts.
2. BASIS OF PRESENTATION:
The accompanying consolidated financial statements have
been prepared by the Company, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. In the
opinion of management, the consolidated financial statements reflect
all adjustments, consisting of normal recurring adjustments, which
are necessary to present fairly the financial position, results of
operations and changes in cash flow for the interim periods covered
by this report. Although certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations,
management believes that the disclosures are adequate to make the
information presented not misleading. These financial statements
should be read in conjunction with the audited consolidated
financial statements and notes thereto included in the Company's
annual report for the fiscal year ended August 31, 1997. The
results of operations for the six months ended February 28, 1998 are
not necessarily indicative of the results to be expected for the
fiscal year ending August 31, 1998.
The Company has net operating loss carryforwards for both
book and tax purposes which may be used to offset future taxable
income.
For the purpose of the Statement of Cash Flows, cash
includes cash equivalents which are highly liquid investments with
maturity of three months or less.
The Company accounts for its investment in the joint
ventures under the equity method of accounting after the elimination
of all intercompany transactions, including management fees.
Certain prior year amounts have been reclassified to
conform with the current presentation.
3. INCOME TAXES:
The Company's income tax provision for the three and
six months ended February 28, 1998 and February 28, 1997 is as
follows:
For the Three For the Six
Months Ended Months Ended
------------- ------------
Feb. 28, Feb. 28, Feb. 28, Feb. 28,
1998 1997 1998 1997
-------- -------- -------- --------
Income tax provision 6,600 62,000 73,000 353,000
Utilization of net operating
loss carryforwards (6,600) (62,000) (73,000) (353,000)
-------- -------- -------- ---------
Net income tax provision -- -- -- --
======== ======== ======== =========
4. SHAREHOLDERS' INVESTMENT:
Gain (Loss) Per Common Share --
The loss per common share is calculated based upon the
weighted average number of shares outstanding of approximately
1,538,000 for the three and six months ended February 28, 1998. The
gain per common share is calculated based upon the weighted average
number of shares outstanding of approximately 1,228,000 and 1,158,000
for the three and six months ended February 28, 1997, respectively.
Dividends paid or accrued on preferred stock were $90,000
and $180,000 for the three and six months ended February 28, 1998,
respectively, and $90,000 and $135,000 for the three and six months
ended February 28, 1997, respectively. These dividends were deducted
from the net income for purposes of computing the earnings (loss) per
common share.
The $75,000 promissory note due from the Chief Financial
Officer was extended and is payable in full on January 31, 1999 and
accrues interest at a rate per annum of 8.25%.
5. INVESTMENT IN JOINT VENTURE
On December 9, 1997, Houston Hotel, LLC ("Houston Hotel")
was organized as a limited liability corporation under the laws of
the State of Delaware. The purpose which Houston Hotel was organized
is limited solely to owning and managing the Hampton Inn Galleria in
Houston, Texas. The Company contributed approximately $316,000 into
Houston Hotel which represents a 10% interest, and the other 90%
interest is owned by Houston Hotel, Inc. (the "Manager"), a Nevada
corporation. Distributions of distributable cash shall be made as
follows:
- First, 100% to the Manager until it has been distributed
an amount equal to its accrued but unpaid 13% preferred return.
- Second, 100% to the Company until the Company has been
distributed an amount equal to its accrued but unpaid 13% preferred
return.
- Third, 80% to the Manager and 20% to the Company.
Distributable cash is defined as the cash from operations
and capital contributions determined by the Manager to be available
for distribution. Cash from operations is defined as the net cash
realized from the operations of Houston Hotel after payment of all
cash expenditures of Houston Hotel including, but not limited to,
operating expenses, fees, payments of principal and interest on
indebtedness, capital improvements and replacements, and such
reserves and retentions as the Manager reasonably determines to be
necessary.
A Property Management Agreement exists between Houston
Hotel, LLC and the Company as Property Manager ("Property Manager")
for the purpose of managing the hotel. The Property Manager shall be
entitled to the following property management fees:
1) 1.5% of the gross revenues from the hotel property.
2) 1.5% of the gross revenues from the hotel property as
an incentive fee if 85% of the budgeted net operating income is met.
The Company is currently receiving the 13% preferred
return and the management and incentive fees. The Company also
anticipates receiving 20% of distributable cash.
6. SUBSEQUENT EVENTS:
On March 17, 1998, RW Hotel Partners, L.P., the limited
partnership of which the Company is the sole general partner and has
a 1% base distribution percentage, sold three of its six hotels.
Although the Company did not receive any cash from the sale, the
Company does not consider its investment impaired since the Company
has signed a new and enhanced management agreement to continue
managing the three hotels. As a management fee, the Company will
receive 3% of revenues plus 15% of net operating income plus 5% of
any profit realized upon the sale of the hotels.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 28, 1998
COMPARED TO THE THREE AND SIX MONTHS ENDED
FEBRUARY 28, 1997
LIQUIDITY AND CAPITAL RESOURCES --
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 February 28, 1998,
there was approximately $139,000 of escrowed funds related to this
loan agreement.
During the three months ended February 28, 1998, the
Company sold land in Florida and Ohio for net proceeds of
approximately $139,000 and $667,000, respectively. During the first
six months of fiscal year 1998, the Company sold land in Florida,
Ohio and Georgia for net proceeds of approximately $294,000, $838,000
and $318,000, respectively.
On December 9, 1997, Houston Hotel, LLC ("Houston Hotel")
was organized as a limited liability corporation under the laws of
the State of Delaware. The purpose which Houston Hotel was organized
is limited solely to owning and managing the Hampton Inn Galleria in
Houston, Texas. The Company contributed approximately $316,000 into
Houston Hotel which represents a 10% interest, and the other 90%
interest is owned by Houston Hotel, Inc. (the "Manager"), a Nevada
corporation. Distributions of distributable cash shall be made as
follows:
- First, 100% to the Manager until it has been distributed
an amount equal to its accrued but unpaid 13% preferred return.
- Second, 100% to the Company until the Company has been
distributed an amount equal to its accrued but unpaid 13% preferred
return.
- Third, 80% to the Manager and 20% to the Company.
Distributable cash is defined as the cash from operations
and capital contributions determined by the Manager to be available
for distribution. Cash from operations is defined as the net cash
realized from the operations of Houston Hotel after payment of all
cash expenditures of Houston Hotel including, but not limited to,
operating expenses, fees, payments of principal and interest on
indebtedness, capital improvements and replacements, and such
reserves and retentions as the Manager reasonably determines to be
necessary.
A Property Management Agreement exists between Houston
Hotel, LLC and the Company as Property Manager ("Property Manager")
for the purpose of managing the hotel. The Property Manager shall be
entitled to the following property management fees:
1) 1.5% of the gross revenues from the hotel property.
2) 1.5% of the gross revenues from the hotel property as
an incentive fee if 85% of the budgeted net operating income is met.
The Company is currently receiving the 13% preferred
return and the management and incentive fees. The Company also
anticipates receiving 20% of distributable cash.
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
Georgia, Inc., a wholly-owned Georgia corporation ("Ridgewood
Georgia") which became the sole general partner in the Partnership
with RW Hotel Investments, L.L.C. ("Investor") as the limited
partner.
A Management Agreement exists between the Partnership and
the Company as Manager for the purpose of managing hotels in
Kentucky, Georgia and South Carolina. The Company received
management fees for the first six months of fiscal year 1998 from
managing these hotels.
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. 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 joint ventures as
described above which would provide additional cash flow. Currently,
the Company has a letter proposal with another company to locate and
assist in the acquisition of hotel properties for that company.
Additionally, as hotel properties are acquired, the Company would
receive management contracts to manage those properties. However,
given increased competition in the hotel acquisition market,
acquisitions of economically viable properties are more difficult to
identify and purchase.
The Company owns one hotel, has 1% ownership interest in
three other hotels, a 10% ownership in another which it also manages
and currently has eight other hotels which it manages but has no
ownership. Under the terms of franchise agreements, the Company is
required to comply with standards established by franchisors,
including property renovations and upgrades. 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 --
The Company had gains from real estate sales of
approximately $270,000 and $721,000 for the three and six months
ended February 28, 1998. During the three and six months ended
February 28, 1997, the Company had gains from real estate sales of
approximately $53,000 and $1,131,000. Gains or losses on sales are
dependent upon the specific assets sold in a particular period and
the terms of each sale.
Operating revenues increased approximately $9,000, or 1%,
and $74,000, or 5%, for the three and six months ended February 28,
1998, respectively, compared to the three and six months ended
February 28, 1997 due to increased revenues at the Company's hotel in
Longwood, Florida. Even though occupancy decreased slightly for the
six months ended February 28, 1998 compared to the six months ended
February 28, 1997, the average daily room rate has increased, thus
increasing room revenues.
Revenues from hotel management decreased approximately
$21,000, or 9%, and $22,000, or 4%, for the three and six months
ended February 28, 1998, respectively, compared to the three and six
months ended February 28, 1997. The decrease is due to management
termination fees received from two hotels in fiscal year 1997 but not
received in fiscal year 1998. Expenses of hotel management decreased
approximately $6,000, or 3% and $23,000, or 6%, for the three and six
months ended February 28, 1998, respectively. The decrease was due
to less hotel management staff than in the prior year's three and six
months ending February 28, 1997.
Due to the Company's investment in a limited partnership,
the Company recognized equity in the loss of the partnership of
approximately $55,000 and $52,000 for the three and six months ended
February 28, 1997, respectively.
During the three and six months ended February 28, 1998,
the Company recognized other revenue of approximately $57,000 from
its investment in a small joint venture which develops residential
lots in Atlanta, Georgia. The Company received approximately
$398,000 as a consulting fee during the three and six months ended
February 28, 1997. This consulting fee was earned by the Company for
its ivolvement in the negotiations and purchase of a large hotel by
another hotel company.
Expenses of wholly-owned real estate properties increased
$19,000, or 3%, and $32,000, or 3%, for the three and six months
ended February 28, 1998, respectively, compared to the three and six
months ended February 28, 1997. The increase is due to increased
business at the Company's hotel in Florida.
Business development expenses increased $76,000, or 200%,
and $84,000, or 120%, for the three and six months ended February 28,
1998, respectively, compared to the three and six months ended
February 28, 1997. The increase was due to certain due diligence
costs incurred on several hotels considered for acquisition but never
purchased.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company was held
on January 20, 1998. At the annual meeting, three directors were
elected by the holders of the Company's common stock, par value $0.01
per share. The votes were as follows:
Director For Against Abstain
Michael M. Earley 842,270 0 0
Luther A. Henderson 843,770 0 0
N. Russell Walden 843,770 0 0
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
A. Exhibits:
27 Financial Data Schedule
B. Reports on Form 8-K:
No exhibits or reports on Form 8-K were filed
during the three months ended February 28, 1998.
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned
thereunto duly authorized.