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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-22930
ALLSTAR INNS INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0323962
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
200 E. Carrillo Street, #300
Santa Barbara, California 93101
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (805-730-3383)
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 ___
As of June 30, 1998, there were 1,047,443 shares of the Registrant's
common stock outstanding.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ALLSTAR INNS INC.
STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION
(In thousands, except per share data)
(unaudited)
Three Months Ended June 30,
---------------------------
1998 1997
---------- ----------
Revenues:
Rent income $ -- $ --
Interest income -- 470
------- -------
Total revenues -- 470
Expenses:
Administrative and general 215 324
Depreciation & amortization -- --
Other expense -- 47
Write-down (gain) vacant land value -- --
Gain from sale of assets -- --
------- -------
Total expenses 215 371
------- -------
Operating (loss) income (215) 99
Interest expense -- --
------- -------
Net (loss) income before provision
for income taxes (215) 99
Provision for income taxes 26 176
------- -------
Net (loss) income $ (241) $ (77)
======= =======
Net (loss) income per common share $ (.24) $ (.07)
======= =======
Net (loss) income per common share
assuming dilution $ (.24) $ (.07)
======= =======
Weighted average common shares outstanding 1,047 1,047
======= =======
Diluted weighted average common shares
outstanding 1,047 1,047
======= =======
See accompanying notes.
2
ALLSTAR INNS INC.
STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION
(In thousands, except per share data)
(unaudited)
Six Months Ended June 30,
-------------------------
1998 1997
-------- ----------
Revenues:
Rent income $ -- $ 1,839
Interest income -- 950
--------- ---------
Total revenues -- 2,789
Expenses:
Administrative and general 241 4,443
Depreciation & amortization -- 662
Other expense -- 52
Write-down (gain) vacant land value -- 540
Gain from sale of assets -- (116,408)
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Total expenses 241 (110,711)
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Operating (loss) income (241) 113,500
Interest expense -- 1,508
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Net (loss) income before provision
for income taxes (241) 111,992
Provision for income taxes 26 45,270
--------- ---------
Net (loss) income $ (267) $ 66,722
========= =========
Net (loss) income per common share $ (.26) $ 63.70
========= =========
Net (loss) income per common share
assuming dilution $ (.26) $ 63.70
========= =========
Weighted average common shares outstanding 1,047 1,047
========= =========
Diluted weighted average common shares
outstanding 1,047 1,047
========= =========
See accompanying notes.
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ALLSTAR INNS INC.
STATEMENT OF NET ASSETS IN LIQUIDATION
June 30, 1998 (unaudited) and December 31, 1997 (audited)
(in thousands of dollars)
JUNE 30, DECEMBER 31,
A S S E T S 1998 1997
- --------------------------------------------- ------- ------------
Current assets:
Cash and cash equivalents $4,014 $4,069
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Total current assets 4,014 4,069
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$4,014 $4,069
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 614 $ 428
Federal taxes payable 26 --
------ ------
Total current liabilities 640 428
Stockholders' equity:
Preferred stock, $.01 par value, authorized
1,000,000 shares; no shares issued
and outstanding at June 30, 1998 and
December 31, 1997 -- --
Common stock, $.01 par value, authorized
10,000,000 shares; 1,047,443 shares
issued and outstanding at June 30,
1998 and December 31, 1997 10 10
Accumulated equity 3,364 3,631
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Total stockholders' equity 3,374 3,641
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$4,014 $4,069
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See accompanying notes.
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ALLSTAR INNS INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Period from January 1, 1998 to June 30, 1998
(in thousands)
(unaudited)
Common Stock Additional
--------------- Paid-in Accumulated
Shares Amount Capital Equity
------ ------ ------- ------
Balance, January 1, 1998 1,047 $ 10 $ -- $ 3,631
Net loss -- -- -- (267)
------ ------- -------- -------
Balance, June 30, 1998 1,047 $ 10 $ -- $ 3,364
====== ======= ======== =======
See accompanying notes.
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ALLSTAR INNS INC.
STATEMENTS OF CASH FLOWS
(in thousands of dollars)
(unaudited)
Six Months Ended June 30,
-------------------------
1998 1997
-------- ---------
Cash flows from operating activities:
Cash received $ -- $ 2,501
Cash paid to suppliers and employees (55) (2,262)
Interest paid -- (1,508)
Federal and state taxes paid -- (7,328)
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Net cash used in operating activities (55) (8,597)
Cash flows from investing activities:
Total proceeds from sale of motels
to the Motel 6 Operator -- 243,028
Payment of long-term debt from
proceeds from the sale of motels -- (204,062)
Refund of deferred Basic Rent -- (3,212)
Proceeds from sale of assets -- 431
--------- ---------
Net cash provided by investing
activities -- 36,185
Cash flows from financing activities:
Principal payments - mortgages -- (43)
Liquidating distribution paid to
stockholders -- (29,343)
Proceeds from exercise of stock options -- 216
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Net cash provided by financing
activities -- (29,170)
Net decrease in cash and cash equivalents (55) (1,582)
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Cash and cash equivalents at beginning of
period 4,069 15,131
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Cash and cash equivalents at end of period $ 4,014 $ 13,549
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(Continued on next page)
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ALLSTAR INNS INC.
STATEMENTS OF CASH FLOWS
(in thousands of dollars)
(unaudited)
(continued)
Six Months Ended June 30,
-------------------------
1998 1997
-------- ---------
Reconciliation of net income (loss) to
net cash used in operating activities:
Net income (loss) $ (267) $ 66,722
Adjustment to reconcile net income
to net cash used in operating
activities:
Depreciation and amortization -- 662
Write-down vacant land value -- 540
Refund of deferred Basic Rent -- 3,212
Gain from sale of assets -- (116,408)
Tax benefit resulting from the
exercise of employee stock options
and the vesting of restricted stock -- 2,436
Write-off obligation under capital
lease -- 84
Changes in assets and liabilities:
Decrease in receivable from Motel 6 -- 3,620
Decrease in deferred tax assets -- 30,320
Increase (decrease) in accounts
payable and accrued liabilities 186 (2,475)
Decrease in deferred Basic Rent -- (3,500)
Decrease in accrued interest -- (2,032)
Increase in Federal and State
taxes payable 26 7,621
Increase in accumulated equity -- 601
--------- ---------
Net cash used in operating activities $ (55) $ (8,597)
========= =========
See accompanying notes.
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Item 1. Financial Statements (continued)
ALLSTAR INNS INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. History and Basis of Presentation
Allstar Inns Inc. was originally organized as a privately-owned
corporation in 1982 to purchase 52 motels. The acquisition was consummated
on April 28, 1983. On February 11, 1987 a partnership (the "Partnership")
was formed and succeeded to the business and operations of the original
company on April 3, 1987. On November 25, 1993 the Partnership merged with
and into Allstar Inns Inc. (the "Company").
In July 1992, the security holders of the Company approved a plan that
placed the business and operations of the Company's motels under a
Management Contract with Motel 6 Operating L.P., a Delaware limited
partnership (the "Motel 6 Operator").
In May 1995, the security holders of the Company approved the plan to
terminate the Management Contract effective January 1, 1995 and replace it
with a Master Lease Agreement under terms of which the Motel 6 Operator
would lease the Company's motels through December 31, 2009. Under the
Master Lease Agreement, the Motel 6 Operator had an option (the "Purchase
Option") to purchase the Company's motels prior to the end of 1998 at a
price of $40.0 million plus assumption by the Motel 6 Operator of all
indebtedness secured by the Company's motels. The Purchase Option was
exercised by the Motel 6 Operator in January 1997.
Effective January 30, 1997 and pursuant to the Master Lease Agreement, all
of the Company's motels were sold to the Motel 6 Operator and its
assignees for the Lease Purchase Option price of $40.0 million plus the
assumption of approximately $206 million of debt secured by the motels.
Since January 30, 1997, the Company has sold for $910,000 five parcels of
vacant land which were purchased for the construction of new motels. On
May 8, 1997 the Company Stockholders approved a plan of liquidation and
dissolution of the Company. The Company is currently engaged in the final
liquidation process and on November 18, 1997 filed a final federal tax
return with the Internal Revenue Service (the "IRS") and final state tax
returns with six states, and commenced withdrawal procedures in all of the
states in which it did business. As of June 30, 1998 the Company has
successfully obtained withdrawal certificates from the states of Arizona,
Idaho, Nevada, New Mexico, Oklahoma, Oregon, Texas and Washington.
Withdrawal procedures have yet to be finalized with the Internal Revenue
Service and the States of California and Delaware.
The accompanying unaudited condensed financial statements have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, all adjustments,
consisting of normal recurring adjustments, which are necessary for a fair
presentation
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of financial position and results of operations have been made. The
results of operations for the period from January 1, 1998 to June 30, 1998
are not indicative of the results for the full year.
2. Net Income (Loss) Per Share
For the quarter ended June 30, 1998, the Company has calculated the net
income per share under standards and procedures in FASB Statement No. 128,
Earnings Per Share. The new standards require the earnings per share to be
calculated under two methods. The first method, Earnings per common share,
is calculated using only outstanding stock. This method is new and is
required to be reported on for the current year 1998 and prior year 1997.
The second method, Earnings per common share assuming dilution,
incorporates potential dilution from all potentially dilutive securities.
There has been no change to the calculation of this method. As of June 30,
1998 there were 1,047,443 outstanding Shares ("Shares") of common stock.
3. Property and Equipment
All of the Company's motel assets were sold to the Motel 6 Operator and
its assignees on January 30, 1997.
4. Long-Term Debt
As a result of the sale of the Company's motel assets, all of the
Company's lenders were paid-in-full by the Motel 6 Operator and its
assignees as required by the Purchase Option.
5. Litigation
From time to time, the Company is a party to lawsuits arising in the
ordinary course of its business. Substantially all of the claims made in
these lawsuits are covered by the Company's insurance policies. Management
believes that such lawsuits arising in the ordinary course of business
will not have a material adverse effect on the financial statements of the
Company.
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations
General
Effective January 30, 1997 and pursuant to the Master Lease Agreement, all
of the Company's motels were sold to the Motel 6 Operator and its assignees for
the Lease Purchase Option price of $40.0 million plus the assumption of
approximately $206 million of debt secured by the motels. Since January 30,
1997, the Company has sold for $910,000 five parcels of vacant land which were
purchased for the construction of new motels. The Company is currently engaged
in the final liquidation process and on November 18, 1997 filed a final federal
tax return with the IRS and final state tax returns with six states, and
commenced withdrawal procedures in all of the states in which it did business.
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As a consequence of the sale of the motel assets, the Board of Directors
approved and recommended on March 14, 1997, and the stockholders approved on May
8, 1997, a Plan of Complete Liquidation and Dissolution of Allstar Inns Inc.
which, among other items, provides that:
The Company will be liquidated by the sale of its remaining assets after
paying or providing for all its claims, obligations and expenses, and will
distribute its cash to stockholders on a pro rata basis. An initial cash
distribution to stockholders of $28.00 per share, or approximately $29.3
million was paid on May 22, 1997 to stockholders of record on May 8, 1997.
The Company was subject to substantial Federal and State taxes on the gain
realized by the sale of its motel assets and the disposition of the additional
parcels of vacant land.
The Company's business strategy in order to achieve complete liquidation
and dissolution is as follows:
o Finalize all tax matters;
o Withdraw the Company from all states in which it has been authorized to
do business;
o Negotiate final settlement of all unexpired leases and contracts;
o Issue a press release notifying all parties of the Final Record Date
(when the Company will close its transfer books and its shares will no
longer be traded);
o Distribute remaining cash available in the Contingency Reserve to
stockholders according to their common stock holdings as of the Final
Record Date;
o Suspend the Company's reporting obligations under Section 15(d) of the
Securities Act of 1933, as amended, and terminate the Company's
registration statement under Section 12(g) of the Securities Exchange
Act of 1934, as amended; and
o Dissolve the Company under the General Corporation Law of the State of
Delaware.
As of June 30, 1998 the Company has successfully obtained withdrawal
certificates from the states of Arizona, Idaho, Nevada, New Mexico, Oklahoma,
Oregon, Texas and Washington. Withdrawal procedures have yet to be finalized
with the Internal Revenue Service and the States of California and Delaware.
Quarter and Six Months Ended June 30, 1998 versus
Quarter and Six Months Ended June 30, 1997
As a result of the sale of the Company's motel assets and the
consequential implementation of the Plan of Complete Liquidation and Dissolution
of Allstar Inns Inc., the results for the quarters and six months ended June 30,
1998 and June 30, 1997 are not comparable. For the quarter and first six months
of 1998, the Company had no revenues and $215,000 and $241,000, respectively, of
net
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administrative and general expenses. In addition, the Company provided for
$26,000 of additional Federal Income Taxes.
Liquidity and Capital Resources
At June 30, 1998, the Company had $4.0 million of cash and cash
equivalents, a decrease of approximately $55.0 thousand from December 31, 1997.
As of June 30, 1998, the Company had no borrowing capacity.
EBITDA was $(241.0) thousand for the six months ended June 30, 1998
compared to $114.2 million for the same period last year. EBITDA, as used above,
is defined as earnings before interest expense, income taxes, depreciation and
amortization. The 1997 results reflect the $116.4 million gain from sale of
assets resulting from the Motel 6 Operator exercising the Purchase Option.
During the first six months of 1998, cash decreased $55.0 thousand. The
Company, as a result of carrying out its plan for complete liquidation and
dissolution, had no revenues and paid a net of approximately $55.0 thousand to
suppliers.
PART II. OTHER INFORMATION
Item 5. Other Events
None.
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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.
August 10, 1998
ALLSTAR INNS INC.
BY: /S/ Edward J. Gallagher
--------------------------------
Edward J. Gallagher
Director, Vice Chairman and
Principal Accounting Officer
BY: /S/ Edward A. Paul
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Edward A. Paul
Vice President and Principal
Financial Officer
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