SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended August 31, 1998 [ ] 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. ------------------------------------------------------- (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) Registrant's telephone number, including area code (770) 434-3670 -------------- Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value ---------------------------- (Title of Class) 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 _____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. _X__ Aggregate market value of voting stock held by non-affiliates on October 31, 1998 - $777,000; Common shares outstanding on October 31, 1998 - 1,513,480 shares (1) Portions of the registrant's Annual Report to Shareholders for the fiscal year ended August 31, 1998 (the "1998 Annual Report to Shareholders") are incorporated by reference in Part II of this Report. (2) Portions of the registrant's definitive Proxy Statement relating to the 1999 Annual Meeting (the "1999 Proxy Statement") to be filed with the Commission on or about December 15, 1998, are incorporated by reference in Part III of this Report. PART I Item 1. Business 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 certain entities, is engaged in acquiring and managing hotel properties in the Southeast, 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 has invested in three hotel entities as follows: RW Hotel Partners, L.P. 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 Georgia corporation ("Ridgewood Georgia") which became the sole general partner in the Partnership with RW Hotel Investments Associates, L.L.C. ("Investor") as the limited partner. Ridgewood Georgia 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, but subsequently purchased five additional hotels. The Partnership purchased the 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. Three of the Georgia hotels were sold at a loss in March 1998, and the hotel in Louisville was transferred to a new entity in June 1998 in conjunction with refinancing that hotel (see below). The two remaining hotels in the Partnership are in Thomasville, Georgia and Orangeburg, South Carolina. Income and loss are allocated to Ridgewood Georgia and the limited partner based upon the formula for allocating Distributable Cash as described below. 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 Georgia until the aggregate amount received by Ridgewood Georgia equals the aggregate cash contributions made by Ridgewood Georgia to the Partnership. - Third, 12% to Ridgewood Georgia 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 Georgia. Management of the Partnership intends to adopt a plan of liquidation and will sell the remaining two hotels. Based on management's estimate, Ridgewood Georgia will not receive cash in excess of its investment in the Partnership. The Company has recorded a loss from the partnership totaling $184,000 for the fiscal year ended August 31, 1998. A Management Agreement exists between the Partnership and the Company as Manager ("Manager") for the purpose of managing the hotels. 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 total aggregate acquisition costs. Total management fees for the years ended August 31, 1998, 1997 and 1996 were approximately $233,000, $301,000 and $275,000, respectively. On March 17, 1998, the Partnership sold three of its six hotels. The Company signed a management agreement with the new owner of the three hotels wherein it will receive a management fee equal to 3% of revenues plus 15% of the net operating income plus 5% of any profit realized upon the sale of the hotels. In connection with the management agreement, the Company received management fees totaling approximately $114,000 for the year ended August 31, 1998. For the fiscal year ended August 31, 1997 and 1996, the Company recorded equity in income (loss) of the Partnership totaling $(134,000) net of provision for possible losses and $209,000, respectively. The Company has recorded during 1997 a provision for possible losses of approximately $199,000 as there is no indication that the Company will be able to recover the equity income in the Partnership given the provisions of the partnership agreement regarding the distribution of cash to the partners upon liquidation. Houston Hotel, LLC On December 9, 1997, Houston Hotel, LLC ("Houston Hotel") was organized as a limited liability company under the laws of the State of elaware. 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 "Managing Member"), a Nevada corporation. Income or loss allocated to the Company and the Managing Member is based upon the formula for distributing cash. 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. 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. 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. In connection with the management agreement, the Company received management fees totaling approximately $83,000 for the year ended August 31, 1998. RW Louisville Hotel Associates, LLC On May 13, 1998, RW Louisville Hotel Associates LLC ("RW Louisville Hotel Associates") was organized as a limited liability company under the laws of the State of Delaware. The purpose which RW Louisville Hotel Associates was organized is limited solely to owning and managing the Holiday Inn ("the Hotel") in Louisville, Kentucky. The Company's investment in RW Hotel Partners, L.P. of $337,500 (see above) was transferred to RW Louisville Hotel Associates at its historical basis. Simultaneously, the Company acquired a 10% interest in Louisville Hotel, LLC for $362,000. Louisville Hotel, LLC loaned $3,620,000 to RW Louisville Hotel Associates, which resulted in all cash flow from the Hotel being distributed to Louisville Hotel, LLC. Income or loss allocated to the Company is based upon the formula for distributing cash. Distributable cash is defined as the net cash realized from operations but after payment of management fees, principal and interest, capital improvements and other such retentions as the managing member determines to be necessary. Distributions of distributable cash from Louisville Hotel, LLC shall be made as follows: - First, to the managing member until the managing member has been distributed an amount equal to its accrued but unpaid 13% preferred return. - Second, to the Company until the Company has been distributed an amount equal to its accrued but unpaid 13% preferred return. - Third, 20% to the Company and 80% to the managing member. Cash from a sale or refinancing would be distributed 10% to the Company and 90% to the managing member. A Management Agreement exists between the Owner 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) Base Management Fee equal to 1.5% of gross revenues from the hotel property. (2) Incentive Management Fee equal to 1.5% of gross revenues from the hotel in which the actual net operating income exceeds 85% of the budgeted goal for the year. (3) Super Incentive Management fee equal to: (a) .25% of gross revenues from the hotel in which the net operating income exceeds 106% of the budgeted goal for the year; (b) an additional .25% of gross revenues in which the net operating income exceeds 112% of the budgeted goal; and (c) an additional .50% of gross revenues in which the net operating income exceeds 120% of the budgeted goal. The Company paid an additional $200,000 to Louisville Hotel, LLC as a fee to acquire the management contract for the hotel. This amount is included in other assets. The Company is amortizing the fee $70,000 per year for the first two years and $20,000 per year for the next three years. With respect to the sum of $100,000, in the event that the management contract is terminated by Louisville Hotel, LLC with or without cause and not pursuant to a third party sale prior to June 5, 2000, Louisville Hotel, LLC will pay to the Company the sum of $4,166.67 times the number of months prior to June 5, 2000 that the management contract is terminated. With respect to the second sum of $100,000, in the event that the management contract is terminated by Louisville Hotel, LLC prior to June 5, 2003, Louisville Hotel, LLC will pay to the Company the sum of $1,666.67 times the number of months prior to June 5, 2003 that the management contract is terminated. In connection with the management agreement, the Company received management fees totaling approximately $57,000 for the year ended August 31, 1998. The hotel management business has become very competitive. In order to obtain management agreements, owners of hotels are frequently requiring management companies to acquire an ownership in the hotel. The hotel industry has become very attractive to many investors and, in turn, it has become very competitive to purchase hotels. This has also prompted the building of many new hotels in various markets. The Company believes that it is in a position to remain competitive in this industry. The Company has the ability to generate equity to contribute to additional acquisitions as well as to provide the expertise to manage the acquisitions, operations and ultimate disposition of properties so acquired for both the Company and for third-party owners. As the Company acquires additional hotel properties, it will enter into management agreements to manage those properties. The Company owns and operates one hotel and owns a number of land parcels which are held for sale. 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 industry is particularly sensitive: zoning, labor, material and energy availability, weather conditions and the availability of satisfactory financing. The annual average occupancy of the Company's only hotel was approximately 64% for the fiscal year 1998. The Company's principal office is located at 2859 Paces Ferry Road, Suite 700, Atlanta, Georgia 30339 (telephone number: (770) 434-3670). The Company employed approximately 90 persons (of which 17 were located at its principal office) at August 31, 1998. Item 2. Properties The Company does not own any real property material to conducting the administrative aspects of its business operations. Its principal office in Atlanta, Georgia is leased until June 2002 and consists of approximately 6,200 square feet. As a result of its operations, the Company is the owner of various other properties, including developed and undeveloped real estate. The Company's operating properties are as follows: Name of Hotel Location # of Rooms Ownership Interest Ramada Inn Longwood, FL 192 Wholly-Owned (a) Holiday Inn Orangeburg, SC 160 (b) Holiday Inn Thomasville, GA 147 (b) Holiday Inn Louisville, KY 267 (c) Hampton Inn Houston, TX 176 (d) (a) The hotel serves as collateral for the Company's $2,711,000 term loan with a commercial lender. (b) The Company has a 1% ownership interest in these hotels as the general partner of RW Hotel Partners, L.P., which owns the hotels. (c) The Company has a 10% ownership interest in this hotel as a member of RW Louisville Hotel Associates, LLC and Louisville Hotel, LLC, which owns the hotel. (d) The Company has a 10% ownership interest in this hotel as a member of Houston Hotel, LLC, which owns the hotel. The Company also holds six land parcels for sale, two of which are located in Florida, one in Georgia and one each in Texas, Ohio and Arizona. For further information on such properties, see the accompanying consolidated financial statements and Schedule III, Real Estate and Accumulated Depreciation, contained elsewhere herein. Item 3. Legal Proceedings 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 Hotels, 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 repurchases 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. Discovery has been concluded, and on March 19, 1998, the Court dismissed all class claims, with only the derivative claims remaining for trial. Trial has been scheduled for February, 1999. The Company intends to vigorously contest this matter. The Company serves as a general partner in a limited partnership. As a general partner, the Company may be liable for certain deficiencies which arise in meeting the terms of loan obligations incurred by the limited partnership and for operating expenses and other liabilities incurred by the partnership in the ordinary course of business. Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of security holders during the fourth quarter of the Company's fiscal year ended August 31, 1998. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Information regarding the market for the Company's common stock, the Company's dividend policy and the approximate number of holders of the common stock at October 31, 1998, is included under the caption "Market for Registrant's Common Equity and Related Stockholder Matters" on page 1 of the 1998 Annual Report to Shareholders and is incorporated herein by reference. There were no sales of unregistered securities of the Company in the fourth quarter of the Company's fiscal year ended August 31, 1998. Item 6. Selected Financial Data A summary of selected financial data for the Company for the fiscal years 1994 through 1998 is included under the caption entitled "Selected Financial Data" on page 3 of the 1998 Annual Report to Shareholders and is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Information regarding the Company's financial condition, changes in financial condition and results of operations is included under the caption entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 4 through 8 of the 1998 Annual Report to Shareholders and is incorporated herein by reference. Item 8. Financial Statements Consolidated financial statements and notes thereto for the Company, which are included on pages 11 through 34 of the 1998 Annual Report to Shareholders under the following captions listed below, are incorporated herein by reference. Consolidated Balance Sheets at August 31, 1998 and 1997. Consolidated Statements of Operations for the years ended August 31, 1998, 1997 and 1996. Consolidated Statements of Cash Flows for the years ended August 31, 1998, 1997 and 1996. Consolidated Statements of Shareholders' Investment for the years ended August 31, 1998, 1997 and 1996. Notes to Consolidated Financial Statements. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III Item 10. Directors and Executive Officers of the Registrant Information required by this item with respect to directors and with respect to Item 405 of Regulation S-K is incorporated by reference to the Company's 1999 Proxy Statement. Item 11. Executive Compensation Information regarding compensation of officers and directors of the Company is set forth under the caption entitled "Executive Compensation" in the Company's 1999 Proxy Statement and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management Information regarding ownership of certain of the Company's securities is set forth under the caption entitled "Beneficial Ownership of the Company's Securities" in the Company's 1999 Proxy Statement and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions Information regarding certain relationships and related transactions with the Company is set forth under the caption entitled "Certain Relationships and Related Transactions" in the Company's 1999 Proxy Statement and is incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a)(1) The following financial statements, together with the applicable report of independent public accountants, are set forth on pages 11 through 34 of the 1998 Annual Report to Shareholders and are incorporated by reference at Item 8 herein: Report of Independent Accountants. Consolidated Balance Sheets at August 31, 1998 and 1997. Consolidated Statements of Operations for the years ended August 31, 1998, 1997 and 1996. Consolidated Statements of Cash Flows for the years ended August 31, 1998, 1997 and 1996. Consolidated Statements of Shareholders' Investment for the years ended August 31, 1998, 1997 and 1996. Notes to Consolidated Financial Statements. (a)(2) The following financial statement schedule, together with the applicable report of independent public accountants, are filed as a part of this Report: Page Number(s) in Form 10-K Report of Independent Accountants on Financial Statement Schedule S-1 III - Real Estate and Accumulated Depreciation - August 31, 1998 S-2 thru S-3 All other schedules are omitted because they are not applicable or because the required information is given in the financial statements or notes thereto. (a)(3) The exhibits filed herewith or incorporated by reference herein are set forth on the Exhibit Index on pages E-1 through E-9 hereof. Included in those exhibits are the following Executive Compensation Plans and Arrangements: 10(a) Employment Agreement between N. R. Walden and CMEI, Inc., dated March 28, 1985 (filed as an Exhibit to Registrant's Registration Statement on Form 10 filed November 19, 1985 (Securities Exchange Act File No. 0-14019) and incorporated herein by reference). 10(c) Ridgewood Properties, Inc. Supplemental Retirement and Death Benefit Plan dated January 1, 1987 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1988 and incorporated herein by reference). 10(d) Post-Employment Consulting Agreement between N. R. Walden and Ridgewood Properties, Inc. dated September 4, 1991 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1991 and incorporated herein by reference). 10(e) Post-Employment Consulting Agreement between Karen S. Hughes and Ridgewood Properties, Inc. dated September 4, 1991 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1991 and incorporated herein by reference). 10(f) Post-Employment Consulting Agreement between Byron T. Cooper and Ridgewood Properties, Inc. dated September 4, 1991 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1991 and incorporated herein by reference). 10(g) Post-Employment Consulting Agreement between M. M. McCullough and Ridgewood Properties, Inc. dated September 4, 1991 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1991 and incorporated herein by reference). 10(h) Ridgewood Properties, Inc. Stock Option Plan dated March 30, 1993 and as amended September 14, 1993 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(i) Stock Option Agreement between Byron T. Cooper and Ridgewood Properties, Inc. dated April 1, 1993 and as approved on January 12, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(j) Stock Option Agreement between Luther A. Henderson and Ridgewood Properties, Inc. dated April 1, 1993 and as approved on January 12, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(k) Stock Option Agreement between Karen S. Hughes and Ridgewood Properties, Inc. dated April 1, 1993 and as approved on January 12, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(l) Stock Option Agreement between M. M. McCullough and Ridgewood Properties, Inc. dated April 1, 1993 and as approved on January 12, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(m) Stock Option Agreement between N. R. Walden and Ridgewood Properties, Inc. dated April 1, 1993 and as approved on January 12, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(n) Stock Option Agreement between Gregory T. Weigle and Ridgewood Properties, Inc. dated April 1, 1993 and as approved on January 12, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(o) Stock Option Agreement between Karen S. Hughes and Ridgewood Properties, Inc. dated January 31, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(p) Stock Option Agreement between N. R. Walden and Ridgewood Properties, Inc. dated January 31, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(q) Ridgewood Properties, Inc. 1993 Stock Option Plan, as amended on October 26, 1994 (filed as an Exhibit to Registrant's Registration Statement on Form S-8 filed November 8, 1994 (No. 33-86084) and incorporated herein by reference). 10(ff) Amendment No. 1 to Post-Employment Consulting Agreement between Ridgewood Hotels, Inc. and N. Russell Walden dated August 13, 1998. 10(gg) Amendment No. 1 to Post-Employment Consulting Agreement between Ridgewood Hotels, Inc. and Byron T. Cooper dated August 18, 1998. 10(hh) Amendment No. 1 to Post-Employment Consulting Agreement between Ridgewood Hotels, Inc. and Karen S. Hughes dated August 13, 1998. (b) No reports on Form 8-K were filed during the fourth quarter of the Company's fiscal year ended August 31, 1998. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. RIDGEWOOD HOTELS, INC. By: /s/ N. R. Walden N. Russell Walden, President, Chief Executive Officer Dated: November 24, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated: /s/ N. R. Walden N. Russell Walden, President, Chief Executive Officer and Director /s/ Karen S. Hughes Karen S. Hughes, Vice President, Chief Accounting and Financial Officer and Secretary /s/ Michael M. Earley Michael M. Earley, Director /s/ Luther A. Henderson Luther A. Henderson, Director Dated: November 24, 1998 Report of Independent Accountants on Financial Statement Schedule October 23, 1998 To the Board of Directors of Ridgewood Hotels, Inc. Our audits of the consolidated financial statements referred to in our report dated October 23, 1998 appearing in the 1998 Annual Report to Shareholders of Ridgewood Hotels, Inc. (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedules listed in Item 14(a) of this Form 10-K. In our opinion, these Financial Statement Schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PRICEWATERHOUSECOOPERS LLP Atlanta, Georgia RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES SCHEDULE III ----------------------------------------- Page 1 of 2 SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION ------------------------------------------------------- AUGUST 31, 1998 --------------- (000'S Omitted) Cost Capitalized Gross Amount at Which Initial Cost Subsequent to Carried at August 31, 1998 to Company Acquisition (A)(B)(D) ------------------ ------------------ ---------------------------------- Building Building Accumu- and Carry- and lated Date of Encum- Improve- Improve- ing Improve- Deprecia- Construc- Date Description brances Land ments ments Costs Land ments Total tion (C) tion Acquired - ----------- -------- ---- -------- -------- ------ ---- -------- ----- -------- ----------------- LAND - ---- Georgia -- 58 -- -- -- 58 -- 58 -- -- 12/75 Texas -- 5,338 -- 2 -- 3,776 2 3,778 -- -- 12/85 -- Florida -- 475 -- -- -- 402 -- 402 -- -- 3/85 Florida -- 41 -- -- -- 41 -- 41 -- -- 6/78 Arizona -- 978 -- 110 -- 978 110 1,088 -- -- 3/85 Ohio -- 1,006 -- 175 -- 367 74 441 -- -- 12/77 --------- --------- --------- --------- --------- --------- --------- --------- --------- Total Non- operating properties -- 7,896 -- 287 -- 5,622 186 5,808 -- --------- --------- --------- --------- --------- --------- --------- --------- --------- HOTEL - -------------- Florida 2,742 439 1,921 1,120 -- 439 2,488 2,927 1,679 1973 9/74 -------- -------- -------- -------- -------- -------- -------- -------- -------- Total operating properties 2,742 439 1,921 1,120 -- 439 2,488 2,927 1,679 -------- -------- -------- -------- -------- -------- -------- -------- -------- GRAND TOTAL $ 2,742 $ 8,335 $ 1,921 $ 1,407 $ -- $ 6,061 $ 2,674 $ 8,735 $ 1,679 ========= ========= ========= ========= ========= ========= ========= ========= ========= SCHEDULE III Page 2 of 2 (A) Except as discussed in Note 2 to the "Notes to Consolidated Financial Statements," real estate owned is carried at the lower of cost or fair value less costs to sell. At August 31, 1998, the amount of the allowance for possible losses was approximately $3,447,000, which related to land held for sale. (B) Reconciliation of real estate properties: For the Year Ended (000's omitted) 8/31/98 8/31/97 8/31/96 ------- ------- ------- Balance, beginning of year $ 9,553 $12,612 $12,934 Additions during the period: Acquisitions -- -- -- Capitalized costs 88 78 49 Deductions during the period: Real estate sold or assets retired (on which financing was provided by the Company in certain cases) 906 3,137 371 ------- ------- ------- Balance, end of year $ 8,735 $ 9,553 $12,612 ======= ======= ======= (C) Operating properties and any related improvements are being depreciated by the "straight line" method over the estimated useful lives of such assets, which are generally 30 years for buildings and 5 years for furniture and fixtures. Reconciliation of accumulated depreciation: For the Year Ended (000's omitted) 8/31/98 8/31/97 8/31/96 ------- ------- ------- Balance, beginning of year $1,567 $1,460 $1,369 Additions during the period 139 128 121 Depreciation associated with assets sold or retired (27) (21) (30) ------ ------ ------ Balance, end of year $1,679 $1,567 $1,460 ====== ====== ====== (D) The aggregate cost for federal income tax purposes is approximately $8,938,000 at August 31, 1998. EXHIBIT INDEX Report on Form 10-K for the fiscal year ended August 31, 1998 Page Number Exhibit in Manually Number Description Signed Original 3(a) Certificate of Incorporation of Registrant.* 3(b) By-Laws of Registrant.* 3(c) Certificate of Amendment to the Certificate of Incorporation (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1987 and incorporated herein by reference). 3(d) Certificate of Amendment to the Certificate of Incorporation of the Registrant (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1989 and incorporated herein by reference). 3(e) Certificate of Amendment of the Certificate of Incorporation of Ridgewood Properties, Inc. dated May 23, 1991 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1991 and incorporated herein by reference). 3(f) Certificate of Amendment of the Certificate of Incorporation of Ridgewood Properties, Inc. dated March 30, 1993 (filed as Exhibit 3 to Registrant's Form 10-Q for the fiscal quarter ended February 28, 1993 and incorporated herein by reference). 3(g) Certificate of Amendment of the Certificate of Incorporation of Ridgewood Properties, Inc. dated January 26, 1994 (filed as Exhibit 3 to Registrant's Form 10-Q for the fiscal quarter ended February 28, 1994 and incorporated herein by reference). 3(h) Certificate of Amendment to Certificate of Incorporation by Ridgewood Hotels, Inc. (filed as an Exhibit to Registrant's Form 8-K on February 5, 1997, and incorporated herein by reference). 4(a) Stock Purchase Agreement between Ridgewood Properties, Inc. and Triton Group Ltd., dated as of August 15, 1994 (filed as an Exhibit to Registrant's Form 8-K on August 15, 1994, and incorporated herein by reference). 4(b) August 15, 1994 Press Release issued by Ridgewood Properties, Inc. (filed as an Exhibit to Registrant's Form 8-K on August 15, 1994, and incorporated herein by reference). 4(c) Certificate of Designation, Preferences and Rights of Series A Convertible Preferred Stock of the Registrant (filed as an Exhibit to Registrant's Registration Statement on Form S-8 filed on November 8, 1994 (No. 33-866084) and incorporated herein by reference). 4(d) Notice of Exercise by N. Rusell Walden dated January 31, 1997 (filed as an Exhibit to Registrant's Form 8-K on February 5, 1997, and incorporated herein by reference). 4(e) Notice of Exercise by Karen S. Hughes dated January 31, 1997 (filed as an Exhibit to Registrant's Form 8-K on February 5, 1997, and incorporated herein by reference). 4(f) Share Security Agreement between N. Russell Walden and Ridgewood Properties, Inc. dated January 31, 1997 (filed as an Exhibit to Registrant's Form 8-K on February 5, 1997, and incorporated herein by reference). 4(g) Share Security Agreement between Karen S. Hughes and Ridgewood Properties, Inc. dated January 31, 1997 (filed as an Exhibit to Registrant's Form 8-K on February 5, 1997, and incorporated herein by reference). 10(a) Employment Agreement between N. R. Walden and CMEI, Inc., dated March 28, 1985.* 10(b) Bill of Sale and Assumption of Liabilities between CMEI, Inc. and Ridgewood Properties, Inc. dated December 9, 1985.* 10(c) Ridgewood Properties, Inc. Supplemental Retirement and Death Benefit Plan dated January 1, 1987 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1988 and incorporated herein by reference). 10(d) Post-Employment Consulting Agreement between N. R. Walden and Ridgewood Properties, Inc. dated September 4, 1991 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1991 and incorporated herein by reference). 10(e) Post-Employment Consulting Agreement between Karen S. Hughes and Ridgewood Properties, Inc. dated September 4, 1991 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1991 and incorporated herein by reference). 10(f) Post-Employment Consulting Agreement between Byron T. Cooper and Ridgewood Properties, Inc. dated September 4, 1991 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1991 and incorporated herein by reference). 10(g) Post-Employment Consulting Agreement between M. M. McCullough and Ridgewood Properties, Inc. dated September 4, 1991 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1991 and incorporated herein by reference). 10(h) Ridgewood Properties, Inc. Stock Option Plan dated March 30, 1993 and as amended September 14, 1993 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(i) Stock Option Agreement between Byron T. Cooper and Ridgewood Properties, Inc. dated April 1, 1993 and as approved on January 12, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(j) Stock Option Agreement between Luther A. Henderson and Ridgewood Properties, Inc. dated April 1, 1993 and as approved on January 12, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(k) Stock Option Agreement between Karen S. Hughes and Ridgewood Properties, Inc. dated April 1, 1993 and as approved on January 12, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(l) Stock Option Agreement between M. M. McCullough and Ridgewood Properties, Inc. dated April 1, 1993 and as approved on January 12, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(m) Stock Option Agreement between N. R. Walden and Ridgewood Properties, Inc. dated April 1, 1993 and as approved on January 12, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(n) Stock Option Agreement between Gregory T. Weigle and Ridgewood Properties, Inc. dated April 1, 1993 and as approved on January 12, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(o) Stock Option Agreement between Karen S. Hughes and Ridgewood Properties, Inc. dated January 31, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(p) Stock Option Agreement between N. R. Walden and Ridgewood Properties, Inc. dated January 31, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(q) Ridgewood Properties, Inc. 1993 Stock Option Plan, as amended on October 26, 1994 (filed as an Exhibit to Registrant's Registration Statement on Form S-8 filed on November 8, 1994 (No. 33-86084) and incorporated herein by reference). 10(r) Amended and Restated Basic Agreement between RW Hotel Investment Partners, L.P. and Ridgewood Hotels, Inc. dated August 14, 1995 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1995, and incorporated herein by reference). 10(s) Amended and Restated Limited Partnership Agreement of RW Hotel Partners, L.P. dated September 8, 1995 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1995, and incorporated herein by reference). 10(t) Management Agreement (Holiday Inn Hurstbourne) between RW Hotel Partners, L.P. and Ridgewood Properties, Inc. dated August 16, 1995 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1995, and incorporated herein by reference). 10(u) Mortgage, Assignment of Leases and Rents and Security Agreement Between Bloomfield Acceptance Company, L.L.C. and Ridgewood Orlando, Inc. dated June 30, 1995 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1995, and incorporated herein by reference). 10(v) Security Agreement between Ridgewood Orlando, Inc. and Bloomfield Acceptance Company, L.L.C. dated June 30, 1995 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1995, and incorporated herein by reference). 10(w) Mortgage Note between Bloomfield Acceptance Company and Ridgewood Orlando, Inc. dated June 30, 1995 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1995, and incorporated herein by reference). 10(x) Agreement and Plan of Merger between and among Ridgewood Properties, Inc., Ridgewood Acquisition Corp., Wesley Hotel Group, Inc., Wayne McAteer and Samuel King dated December 7, 1995 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended November 30, 1995, and incorporated herein by reference). 10(y) Shareholders' Agreement by and between Samuel King and Ridgewood Properties, Inc. dated December 1995 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1996, and incorporated herein by reference). 10(z) Warrants to Purchase Shares of Common Stock of Ridgewood Properties, Inc. issued to Hugh Jones on December 16, 1996 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended November 30, 1996, and incorporated herein by reference). 10(aa) Promissory Note between N. Russell Walden and Ridgewood Properties, Inc. dated January 31, 1997 (filed as an Exhibit to Registrant's Form 8-K on February 5, 1997 and incorporated herein by reference). 10(bb) Promissory Note between Karen S. Hughes and Ridgewood Properties, Inc. dated January 31, 1997 (filed as an Exhibit to Registrant's Form 8-K on February 5, 1997 and incorporated herein by reference). 10(cc) Operating Agreement between Houston Hotel, LLC and Ridgewood Hotels, Inc. effective December 9, 1997 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended May 31, 1998). 10(dd) Operating Agreement between RW Hurstbourne Hotel, Inc. and RW Louisville Hotel Investors, LLC effective May 13, 1998 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended May 31, 1998). 10(ee) Operating Agreement between Ridgewood Hotels, Inc. and Louisville Hotel, L.P. effective June 5, 1998 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended May 31, 1998). 10(ff) Amendment No. 1 to Post-Employment Consulting Agreement between Ridgewood Hotels, Inc. and N. Russell Walden dated August 13, 1998. 10(gg) Amendment No. 1 to Post-Employment Consulting Agreement between Ridgewood Hotels, Inc. and Byron T. Cooper dated August 18, 1998. 10(hh) Amendment No. 1 to Post-Employment Consulting Agreement between Ridgewood Hotels, Inc. and Karen S. Hughes dated August 13, 1998. 13 1998 Annual Report to Shareholders. 22 Subsidiaries of Registrant. 27 Financial Data Schedule. [FN] _______________ * Previously filed as an Exhibit to Registrant's Registration Statement on Form 10 filed on November 19, 1985 (Securities Exchange Act File No. 0-14019), and incorporated herein by reference. </FN>