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 June 30, 2001
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.
(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.)
1106 Highway 124
Hoschton, Georgia 30548
(Address of principal executive offices) (Zip Code)
(770) 867-9497
(Registrant's telephone number, including area code)
----------------------------------------------------
(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 [_] No [X]
Common stock, par value $.01 per share - 2,513,480 shares outstanding at June
30, 2001.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2001 AND MARCH 31, 2001
($000's omitted, except share and per share data)
June 30, March 31,
2001 2001
---------- ----------
Assets:
- ------
Current assets:
Cash and cash equivalents $ 1,895 $ 1,478
Receivables from affiliates (note 6) 451 402
Other operating receivables, net of allowance for doubtful accounts
of $198 and $262, respectively 747 407
Note receivable -- 250
Other current assets 986 109
---------- ----------
Total current assets 4,079 2,646
Real estate investments:
Real estate properties
Operating properties, net of accumulated
depreciation of $208 and $-0-, respectively 20,565 --
Land held for sale, net of allowance for possible losses of $3,155 1,400 1,400
Investment in unconsolidated hotel entity, net of writedown
of $3,200 (note 5) -- --
---------- ----------
Total real estate investments, net 21,965 1,400
Management contracts, net of accumulated amortization of $854 and
$728, respectively (note 6) 1,562 1,688
Other assets, net of accumulated depreciation of $226 and $95,
Respectively 315 37
---------- ----------
$ 27,921 $ 5,771
========== ==========
The accompanying notes are an integral part of these consolidated balance sheets
RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2001 AND MARCH 31, 2001
LIABILITIES AND SHAREHOLDERS' INVESTMENT
($000's omitted, except share and per share data)
June 30, March 31,
2001 2001
---------- ----------
Liabilities:
- ------------
Current liabilities:
Accounts payable 1,152 296
Payables to affiliates (note 6) 296 206
Accrued salaries, bonuses and other compensation 142 101
Accrued legal and audit expense 172 207
Lease commitment for vacated office 86 94
Accrued interest and other liabilities 608 310
---------- ----------
Total current liabilities 2,456 1,214
Accrued pension liability, including deferred curtailment gain 894 894
Other long-term liabilities -- 30
Long-term debt (note 7) 22,965 1,933
---------- ----------
Total liabilities 26,315 4,071
---------- ----------
Commitments and contingencies: (note 5)
Shareholders' investment: (note 4)
- -----------------------
Series A convertible cumulative preferred
stock, $1 par value, 1,000,000 shares authorized, 450,000 shares
issued and outstanding 450 450
Common stock, $0.01 par value, 5,000,000 shares authorized,
2,513,480 shares issued and outstanding 25 25
Paid-in surplus 17,671 17,671
Accumulated deficit (16,540) (16,446)
---------- ----------
Total shareholders' investment 1,606 1,700
---------- ----------
$ 27,921 $ 5,771
========== ==========
The accompanying notes are an integral part of these consolidated balance
sheets.
RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2001 AND 2000
($000's omitted, except share and per share data)
For the Three
Months Ended
-----------------------------
June 30, June 30,
2001 2000
-----------------------------
Revenues:
Revenues from wholly-
owned hotel operations $ 2,279 $ 771
Revenues from
hotel management 386 670
Sales of real estate properties -- 5,525
Equity in net income
of unconsolidated entities 63 63
Interest income 6 1
Other 4 3
-----------------------------
2,738 7,033
Costs and expenses:
Expenses of wholly-
owned real estate properties 1,432 822
Costs of real estate sold 6 2,879
Depreciation and amortization 349 153
Interest expense 490 83
General, administrative
and other 555 626
-----------------------------
2,832 4,563
-----------------------------
Net (loss) income (94) 2,470
Preferred dividends (90) (90)
-----------------------------
Net (loss) income applicable to
common shareholders $ (184) $ 2,380
-----------------------------
(Loss) earnings per common share:
Basic $ (0.07) $ 0.95
Diluted $ (0.07) 0.61
The accompanying notes are an integral part of these consolidated statements.
RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 2001 AND 2000
($000's omitted)
For the Three
Months Ended
--------------------------
June 30, June 30,
2001 2000
Cash flows from operating activities:
Net (loss) income $ (94) $ 2,470
Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:
Depreciation and amortization 349 153
Loss (gain) from sale of real estate properties 6 (2,646)
Increase in receivables from affiliates (49) --
Increase in payables to affiliates 90 --
Increase in other assets (223) (110)
Increase in accounts payable and accrued liabilities 109 67
--------------------------
Total adjustments 282 (2,536)
--------------------------
Net cash provided by (used in) operating activities 188 (66)
--------------------------
Cash flows from investing activities:
Acquisition of business, net of cash acquired 128 --
Proceeds from sale of real estate 250 4,392
Additions to real estate properties (10) --
--------------------------
Net cash provided by investing activities 368 4,392
--------------------------
Cash flows from financing activities:
Repayments of debt (139) (2,657)
--------------------------
Net increase in cash and cash equivalents 417 1,669
Cash and cash equivalents at beginning of period 1,478 258
--------------------------
Cash and cash equivalents at end of period $ 1,895 $ 1,927
==========================
Supplemental disclosure of cash flow information
and non-cash activity:
Interest paid $ 490 $ 83
The accompanying notes are an integral part of these consolidated statements
RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND JUNE 30, 2000
(Unaudited)
1. GENERAL:
Ridgewood Hotels, Inc. (the "Company") is primarily engaged in the hotel
management business. The Company currently manages twelve mid to luxury hotels
located in three states, including the Chateau Elan Winery & Resort in
Braselton, Georgia ("Chateau Elan Georgia"). The Company also has an ownership
interest in one hotel and owns undeveloped land that it holds for sale.
The Company's common stock is listed in the National Association of
Securities Dealers (NASDAQ) over-the-counter bulletin board service. On January
10, 2000, the Company entered into a management agreement ("Management
Agreement") with Fountainhead Development Corp., a Georgia corporation
("Fountainhead"), to perform management services at Chateau Elan Georgia, one of
Fountainhead's properties, for a period of five years beginning on March 24,
2000. In consideration of the Management Agreement, the Company issued to
Fountainhead 1,000,000 shares of common stock ("Fountainhead Shares"). The
determined market value of the management contract was $2,000,000 at the time of
the transaction. In connection with the issuance of the Fountainhead Shares, the
number of directors constituting the full Board of Directors of the Company was
increased from three to seven members, effective on February 3, 2000. See also
note 6.
On January 11, 2000, one of the principal stockholders and President of the
Company, N. Russell Walden ("Walden"), sold 650,000 shares of the common stock
to Fountainhead and a new President of the Company was elected. Another
principal shareholder, ADT Security Services, Inc. ("ADT"), sold 450,000 shares
of preferred stock of the Company to Fountainhead. Through the issuance of the
common stock pursuant to the Management Agreement and the acquisitions of the
Walden common stock and ADT preferred stock, Fountainhead obtained beneficial
ownership of approximately 79% of the common stock. Fountainhead is engaged
principally in the business of owning and operating hotel, resort, and other
real estate properties. See also note 6.
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 flows for the interim
periods covered by this report. Although certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States 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 March 31, 2001. The results of
operations for the three months ended June 30, 2001 are not necessarily
indicative of the results to be expected for the fiscal year ending March 31,
2002.
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries after the elimination of all inter-company
amounts. The Company has an ownership interest in a Holiday Inn hotel in
Louisville, Kentucky (the "Hotel"). The Hotel is owned by RW Louisville Hotel
Associates LLC ("Associates"). As of March 31, 2001, the Company, through its
wholly-owned subsidiaries, was the manager of and had a minority ownership
interest in Associates. In April, 2001, the Company, through its wholly-owned
subsidiaries, acquired 100% of the membership interests in Associates. For the
three months ended June 30, 2001, Associates is consolidated for financial
reporting purposes. See also Note 5.
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 Company provides reserves for doubtful accounts after considering such
factors as the nature and age of the receivable and the willingness and ability
of the debtor to pay.
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.
On March 28, 2000, the Company changed its fiscal year from August 31 to
March 31.
Recent Accounting Developments-
In June 2001, the Financial Accounting Standards Board approved Statements
of Financial Accounting Standards No. 141 "Business Combinations" ("SFAS141")
and No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142") which are
effective July 1, 2001 and January 1, 2002, respectively. SFAS 141 requires that
the purchase method of accounting be used for all business combinations
initiated after June 30, 2001. Under SFAS 142, amortization of goodwill,
including goodwill recorded in past business combinations, will discontinue upon
adoption of this standard. All goodwill and intangible assets will be tested for
impairment in accordance with the provisions of the Statement. The Company is
currently reviewing the provisions of SFAS 141 and SFAS 142 and assessing the
impact of adoption.
3. INCOME TAXES:
The Company has net operating loss carry-forwards for both book and tax
purposes which may be used to offset future taxable income. However, due to the
change of control of the Company discussed in Note 1 above, there are
limitations on the amount of net operating loss carry-forwards that may be
utilized each year to offset taxable income.
The Company's income tax provision for the three months ended June 30, 2001
and June 30, 2000 is as follows:
For the Three
Months Ended
------------
June 30, June 30,
2001 2000
---- ----
Income Tax Provision $ -- $ 894
Utilization of Net Operating
Loss Carry-forwards -- (894)
------ ------
Regular Income Tax Provision -- --
Alternative Minimum Income Tax
Provision -- 70
Deferred Income Tax Benefit
from AMT Tax Credit -- (70)
------ ------
Net Income Tax Provision $ -- $ --
====== ======
4. SHAREHOLDERS' INVESTMENT
Earnings Per Share-
The following table sets forth the computation of basic and diluted (loss)
profit per share:
For the Three
Months Ended
-----------------------------
June 30, June 30,
2001 2000
----------- -----------
Net (loss) income $ (94,000) $ 2,470,000
Less undeclared preferred dividends (90,000) (90,000)
----------- -----------
Net (loss) income applicable to
common shareholders $ (184,000) $ 2,380,000
=========== ===========
Weighted average shares outstanding
Basic 2,513,000 2,513,000
Diluted 2,513,000 3,883,000
Net (loss) income per share
Basic $ (0.07) $ 0.95
Diluted (0.07) 0.61
As of June 30, 2001 there are $840,000 of preferred stock dividends in
arrears and due to Fountainhead. The last time the Company declared preferred
dividends in February 1999, dividends were declared out of paid-in surplus and
recorded against that account in accordance with applicable Delaware law.
The effect of the Company's stock options and convertible securities was
excluded from the computations for the three months ended June 30, 2001 as it is
antidilutive.
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 Hotels, Inc. 1993 stock option plan (the
"Option Plan"). The exercise price equaled the fair market value at the date of
grant. 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
Option Plan.
On June 13, 2000, 25,000 additional grants were issued to a director at an
exercise price of $2.25, which was no less than the fair market value at the
date of the grant. These options vest immediately and expire five years after
the date of grant, unless earlier by reason of death, disability, termination of
employment, or for other reasons outlined in the Option Plan. None of these
options were exercised as of June 30, 2001.
On July 1, 2000, 258,500 additional grants were issued to key employees at
a price of $2.00 per share, which was no less than the fair market value at the
date of the grant. Certain employees' options vest over a four-year period in
25% increments while certain others vest over a four-year period with 10% the
first year, 25% the second year, 50% the third year and 100% the fourth year.
All options granted on July 1, 2000 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 Option Plan. None of these options were exercised
as of June 30, 2001.
5. INVESTMENT IN LOUISVILLE HOTEL:
On May 13, 1998, Associates was organized as a limited liability company
under the laws of the State of Delaware. Associates was organized to own and
manage the Hotel in Louisville, Kentucky. The Company's investment in RW Hotel
Partners, L.P. of $337,500 was transferred to Associates at its historical
basis. Simultaneously, the Company invested $362,000 into Louisville Hotel, LLC,
a Delaware limited liability company (the "LLC"). The combined equity of
$699,500 represented a 10% interest in the Hotel. The LLC loaned $3,623,690 to
the Hotel (see Note 7) and also has an option to purchase Associates for a
nominal consideration. On September 30, 1999, the Company purchased additional
equity in the LLC. The Company increased its ownership from 10% to 80%. The
consideration paid to acquire the increased ownership was $2,500,000. The
majority of the purchase price was evidenced by three promissory notes (the
"Notes") totaling $1,933,000. The Notes are cross-defaulted, bear interest at
13% and mature on September 30, 2002. With 80% ownership, the Company is now the
Managing Member of the LLC. Louisville Hotel, L.P. ("Louisville") now has 20%
ownership in the LLC and is the Non-Managing Member. Pursuant to the LLC's
operating agreement dated as of May 1998, as amended on September 30, 1999 (the
"Operating Agreement"), the Company has the right at any time to purchase
Louisville's remaining interest in the LLC (the "Purchase Option"). The
Operating Agreement provides that the purchase price for Louisville's interest
is equal to the sum of (a) Louisville's total capital contributions to the LLC
($3,061,000), plus (b) any accrued but unpaid preferred return on such capital
contributions, plus (c) the residual value of the remaining interest (the amount
that would be distributed to Louisville if the LLC sold the Hotel for its fair
market value and distributed the proceeds to the members pursuant to the
Operating Agreement) (the "Option Price"). However, the Purchase Option is only
exercisable in connection with concurrent payment in full of all remaining
amounts due under the Notes. Under the terms of the Operating Agreement, the
Company is required, no later than September 30, 2002, to purchase Louisville's
remaining interest in the LLC for the Option Price. Based on the estimated value
of the Hotel as of June 30, 2001, the estimated Option Price is approximately
$3,061,000. The Company's obligation to purchase the remaining LLC`s interest is
secured by the Company's interest in the LLC, the Longwood, Florida property and
the Phoenix, Arizona property.
Unless current market conditions change or the Company is able to obtain an
additional source of funds (whether through operations, financing or otherwise)
the Company currently does not have sufficient liquidity to acquire Louisville's
interest in the LLC for the Option Price and to pay off the Notes on September
30, 2002. Under the terms of the Operating Agreement, the failure of the Company
to acquire Louisville's interest by September 30, 2002 could result in the
Company forfeiting its interests in the LLC, the Longwood, Florida property and
the Phoenix, Arizona property. As a result, management is currently evaluating
all of its options with respect to the Louisville Hotel, including its potential
sale prior to September 30, 2002.
Associates is a licensee under a franchise agreement with Holiday Inn (the
"Franchise Agreement"). The Company has guaranteed Associates obligations under
the Franchise Agreement. In the event that the Franchise Agreement is terminated
as a result of a breach of the Franchise Agreement by Associates, Associates may
be subject to liquidated damages under the Franchise Agreement equal to
approximately 36 times the monthly franchise fees payable pursuant to the
Franchise Agreement. The current monthly franchise fees are approximately
$41,000.
In conjunction with the Franchise Agreement, the Hotel is subject to a
Property Improvement Plan ("the Plan"). Under the Plan, the Hotel is required to
make certain improvements by December 31, 2002, with certain interim milestones.
The Company estimates that the cost of these improvements is approximately
$1,858,000. As of June 30, 2001, the Hotel has spent approximately $124,000 on
improvements and has approximately $437,000 in escrow to spend on improvements.
The Company has not determined whether Associates will be able to fund the
remainder of the Plan. If the Hotel is unable to fund the remainder of the Plan,
the Company may be required to complete the Plan pursuant to the Company's
guaranty of the Franchise Agreement.
In March 2001 and 2000, the Company recognized writedowns of $2,000,000 and
$1,200,000, respectively, on its investment in the LLC. The March 2000 writedown
was due to the anticipated shortfall of the company's return of equity as a
result of the decreased operating performance of the hotel. In March 2001, in
light of the deterioration of market conditions affecting the hotel industry
during the fourth quarter and subsequent to year-end and due to a further
decrease in the operating performance of the Hotel, management of the Company
concluded that their economic ownership interest had been totally impaired. The
carrying value of the investment in the LLC on the Company's books is $0 as of
June 30, 2001.
Ridgewood Georgia, Inc., a Georgia corporation ("Ridgewood Georgia") and a
wholly-owned subsidiary of the Company, entered into a certain Assignment and
Assumption Agreement (the "Assignment Agreement") dated as of April, 2001 with
RW Hotel Investment Associates, LLC, ("Transferee") pursuant to which Transferee
assigned to Ridgewood Georgia, Transferee's 99% membership interest in RW
Louisville Hotel Investors, LLC, a Delaware limited liability company ("RW Hotel
Investors"). As a result, Ridgewood Georgia, which previously owned the
remaining 1% membership interest in RW Hotel Investors, owns 100% of the
membership interests in RW Hotel Investors (the "Membership Interests").
RW Hotel Investors, in turn, owns 99% of Associates, which owns the Hotel
in Hurstbourne, Kentucky. The remaining 1% interest in Associates is owned by RW
Hurstbourne Hotel, Inc., a Delaware corporation and a wholly-owned subsidiary of
the Company. Therefore, as a result of the Assignment Agreement, the Company
became the indirect owner of 100% of the Membership Interests of Associates.
The Assignment Agreement was entered into to provide the Company with
ownership of Associates in connection with Associates application for a new
franchise agreement for its Holiday Inn franchise.
The Company began consolidating Associates effective April 1, 2001. The
acquisition of Associates was accounted for as a purchase in accordance with APB
No. 16, and accordingly, the purchase price has been preliminarily allocated to
the net tangible and identifiable intangible assets acquired based on their
estimated fair values as of the acquisition date.
The following unaudited data summarizes the pro forma results of operations
for the quarter ended June 30, 2000 as if the acquisition had occurred on the
first fiscal day of such period. The unaudited pro forma information has been
prepared for comparative purposes only and does not purport to represent what
the results of operations would actually have been had the transaction actually
occurred on the date indicated or what the results of operations may be in the
future.
For the
Three Months
Ended
June 30,
2001 2000
------------------------
Revenues $ 2,738 $ 9,402
Operating Expenses 1,993 5,812
---------- ----------
Income From Operations 745 3,590
---------- ----------
Interest Expense 490 541
Depreciation/Amortization 349 363
---------- ----------
Net (Loss) Income $ (94) $ 2,686
Preferred Dividends (90) (90)
---------- ----------
Net (Loss) Income Applicable to
Common Shareholders (184) 2,596
========== ==========
(Loss) Earnings Per Common Share
Basic $ (0.07) $ 1.03
Diluted (0.07) 0.67
6. FOUNTAINHEAD TRANSACTIONS:
On January 10, 2000, the Company entered into the Management Agreement with
Fountainhead (see note 1), pursuant to which Fountainhead retained the Company
to perform management services at Chateau Elan Georgia, one of Fountainhead's
properties, for a period of five years beginning on March 24, 2000. In
consideration of Fountainhead's agreement to enter into the Management Agreement
and a payment of $10,000 by Fountainhead to the Company, the Company issued to
Fountainhead 1,000,000 shares of common stock at a fair market value of $2.00
per share. In the Management Agreement, Fountainhead agreed to pay the Company a
base management fee equal to 2% of the gross revenues of the properties being
managed, plus an annual incentive management fee to be determined each year at
the end of Chateau Elan Georgia's fiscal year, March 31. The annual incentive
fee is based on the profitability of the properties being managed during that
year.
The Management Agreement has a term of five years but is terminable upon
the transfer by Fountainhead of all or a material portion of the properties
covered by the Management Agreement. If the Management Agreement is terminated
upon such a transfer or upon the occurrence of an event of default by
Fountainhead, Fountainhead shall pay to the Company a portion of the projected
fees owed to the Company under the agreement, with adjustments based on the term
of the Management Agreement remaining. In such event, Fountainhead may elect to
surrender to the Company shares of common stock in lieu of a cash payment. As a
result of the Fountainhead transactions, the Company's President resigned, and
Henk H. Evers was appointed as President and Chief Operating Officer effective
January 11, 2000. At the Company's request, Fountainhead continues to pay Mr.
Evers' salary as an advance to the Company. Effective September, 2000, Mr. Evers
has assumed certain responsibilities previously handled by the general manager
of Chateau Elan Georgia. As a result, Chateau Elan Georgia has agreed to assume
a portion of Mr. Evers' annual salary. In addition, Mr. Evers has performed
certain services for Fountainhead (in addition to the services for which the
Company received a development fee) and, in consideration therefore,
Fountainhead has agreed to assume a portion of Mr. Evers annual salary while he
continues to perform such services. The Company has accrued $296,000 in expenses
relating to the advanced compensation including $90,000 for the three months
ended June 30, 2001 (after taking into account the portions assumed by Chateau
Elan Georgia and Fountainhead).
As of June 30, 2001 the Company manages Chateau Elan Georgia and Chateau
Elan Sebring ("Sebring"). Both of these hotels are Fountainhead's properties.
Fountainhead opened a hotel in St. Andrews, Scotland ("St. Andrews") on June 14,
2001. The Company received $6,000 per month from Fountainhead since January 2000
through May 2001 as a development fee while St. Andrews was under construction.
The Company has been managing St. Andrews since its opening and has been
negotiating the terms of the contract with Fountainhead. For the three months
ended June 30, 2001 the Company earned management fees of approximately
$183,000, $15,000 and $5,000, for Chateau Elan Georgia, Sebring and St. Andrews,
respectively. The combined management and development fees for these
Fountainhead hotels were approximately $215,000 and represented 56% of the total
management fee revenue for the three months ended June 30, 2001.
In the normal course of its business of managing hotels, the Company may
incur various expenses on behalf of Fountainhead or its subsidiaries that the
Company pays and is reimbursed by Fountainhead for these expenditures. As of
June 30, 2001, Fountainhead owed the Company approximately $451,000 for unpaid
management fees and expenses, which represents 51% of the Company's total
receivables as of June 30, 2001.
For the three months ended June 30, 2001, the Company was charged
approximately $10,000 of salary related to the Human Resources Director of
Chateau Elan Georgia. The Company does not have a full-time Human Resources
Director and utilizes Chateau Elan Georgia's Human Resource Director part-time.
Chateau Elan Georgia deducts this charge from the monthly management fees owed
to the Company.
7. LONG-TERM DEBT:
On September 30, 1999, the Company entered into three promissory notes in
order to purchase additional equity in the LLC. A promissory note for $1,333,000
is secured by the Company's ownership interest in the LLC. The two other
promissory notes are for $300,000 each, with one secured by the Company's
Phoenix, Arizona land and the other secured by the Company's Longwood, Florida
land. The total carrying value of the assets pledged as collateral is
approximately $620,000 as of June 30, 2001. The three promissory notes are
cross-defaulted, bear interest at 13%, mature on September 30, 2002 and are
non-recourse to the Company. Interest payments are $20,941 per month beginning
in November 1999.
On May 21, 1998, Associates entered into a loan with a commercial lender to
purchase the Hotel in Louisville, Kentucky. The loan proceeds were $18,500,000,
and the Hotel serves as collateral for the loan. The loan is for a term of 25
years at a fixed rate of 7.39%. Principal and interest payments are
approximately $135,000 per month beginning July 1, 1998. Per the loan agreement,
principal and interest payments may increase after July 1, 2008 based on certain
terms per the agreement. In addition, Associates is required to make insurance,
taxes and repair escrow payments each month. The total amount for these items is
a payment of approximately $45,000 per month and could be adjusted annually. The
escrow funds are used as tax, insurance and repair needs arise. The repair funds
are also being used to fund the Plan described in Note 5. As of June 30, 2001,
the balance of the loan was approximately $17,705,000. Interest expense for the
three months ended June 30, 2001 was approximately $318,000.
On June 2, 1998, Associates, in conjunction with the purchase of the Hotel,
entered into a promissory note with LLC in the amount of $3,623,690 and the
promissory note is secured by the ownership interest in Associates. The loan is
for a term of ten years at a fixed rate of 13%. Principal and interest payments
are payable in monthly installments equal to the monthly net revenue of
Associates for each month. As of June 30, 2001, the balance of the promissory
note was approximately $3,327,000. Interest expense for the three months ended
June 30, 2001 was approximately $109,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2001
COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2000
The following discussion and analysis provides information that management
believes is relevant to an assessment and understanding of the consolidated
results of operations and financial condition of Ridgewood Hotels, Inc. and its
subsidiaries (collectively, the "Company"). The discussion should be read in
conjunction with the Company's consolidated financial statements for the three
months ending June 30, 2001.
Certain statements included in this document are forward-looking, such as
statements relating to estimates of operating and capital expenditure
requirements, future revenue and operating income, and cash flow and liquidity.
Such forward-looking statements are based on the Company's current expectations,
estimates and projections about the Company's industry, Management's beliefs and
certain assumptions made by the Company, and are subject to number of risks and
uncertainties that could cause actual results in the future to differ
significantly from results expressed or implied in any such forward-looking
statements. These risks and uncertainties include, but are not limited to,
uncertainties relating to economic and business conditions, governmental and
regulatory policies, and the competitive environment in which the Company
operates. Words such as "anticipates," "expects," "intends," "plans,"
"believes," "may," "will," or similar expressions are intended to identify
forward-looking statements. In addition, any statements that refer to
expectations, projections or other characterizations of future events or
circumstances, including any underlying assumptions, are forward-looking
statements. Such statements are not guarantees of future performance and are
subject to the risks and uncertainties referred to above. Therefore, the
Company's actual results could differ materially and adversely from those
expressed in any forward-looking statements as a result of various factors. The
Company undertakes no obligation to revise or update publicly any
forward-looking statements for any reason. The information contained in this
document is not a complete description of the Company's business or the risks
associated with an investment in the Company's common stock. The Company urges
you to carefully review and consider the various disclosures made in this report
and in the Company's other reports filed with the Securities and Exchange
Commission.
RESULTS OF OPERATIONS --
Revenues from hotel operations increased approximately $1,508,000 or 196%
for the three months ended June 30, 2001 compared to the three months ended June
30, 2000. This increase was due to the consolidation of RW Louisville Hotel
Associates, LLC ("Associaties") for the three months ended June 30, 2001.
Associates owns a hotel in Louisville, Kentucky (the "Hotel"). The Company has
no other wholly-owned hotel operations since it sold its hotel in Longwood,
Florida in May 2000 and discontinued its lease of a hotel in Lubbock, Texas in
February 2001. As a result, the Hotel is the Company's only wholly-owned hotel
operation.
Revenues from hotel management are generally based on agreements which
provide monthly base management fees, accounting fees, and periodic incentive
fees. The base management fees are typically a percentage of total revenue for a
managed property, while incentive fees are typically based on net income and/or
ownership returns on investment for the managed property. Accounting fees are
set monthly fees charged to hotels which utilize centralized accounting services
provided by the Company.
Revenues from hotel management decreased approximately $284,000, or 42% for
the three months ended June 30, 2001 compared to the three months ended June 30,
2000. Management of Fountainhead Development Corporation's ("Fountainhead")
Chateau Elan properties in Georgia ("Chateau Elan Georgia"), Florida ("Sebring")
and technical advising for development of St. Andrews accounted for
approximately $215,000, or 56% of the Company's hotel management revenues for
the three months ending June 30, 2001. The decrease is due to the loss of
several management contracts since June 30, 2000.
The Company entered into one new management agreement during the three
months ended June 30, 2001 to manage a 60 room Shoney's Inn in Lavonia, Georgia.
The Company's management agreements with respect to four properties which
the Company derived approximately $25,000 of base management revenues during the
three months ending June 30, 2001 have been terminated as follows: (i) a 120
room hotel in Lakeland, Florida, (ii) a 400 room Ramada Inn in Atlanta, Georgia,
(iii) a 221 room Ramada Inn in Spartenburg, South Carolina and (iv) a 197 room
Howard Johnson's in Atlanta, Georgia.
Equity in net income of unconsolidated entities for the three months ended
June 30, 2001 and 2000 was received from Louisville Hotel, LLC ("LLC"). This
equity is offset, on a dollar for dollar basis, by interest payments on notes
outstanding with Louisville Hotel, LP, which are recorded as interest expense.
Expenses of real estate properties increased $610,000, or 74% for the three
months ended June 30, 2001 compared to the three months ended June 30, 2001. The
increase was due to the consolidation of the Hotel.
During the three months ending June 30, 2000 the Company had gains from
real estate sales of approximately $2,646,000. Approximately $2,634,000 of the
gain was due to the sale of the hotel in Longwood, Florida and $12,000 was due
to the sale of a parcel of land in Phoenix, Arizona. Gains or losses on sales
are dependent upon the specific assets sold in a particular period and the terms
of each sale. The Company had no gains from real estate sales during the three
months ended June 30, 2001. During the three months ended June 30, 2001 the
Company incurred approximately $6,000 of additional costs associated with the
sale of the hotel in Longwood, Florida in May, 2000.
Depreciation and amortization expense increased approximately $196,000, or
128% for the three months ended June 30, 2001 compared to the three months ended
June 30, 2000. The increase was due to the consolidation of the Hotel.
Interest expense increased approximately $407,000, or 490% for the three
months ended June 30, 2001 compared to the three months ended June 30, 2000. The
increase was due to the consolidation of the Hotel.
General, administration and other expenses decreased approximately $71,000,
or 11% for the three months ended June 30, 2001 compared to the three months
ended June 30, 2000. The decrease is due to the Company's continuing overall
efforts to decrease overhead.
The Company's hotel management activities accounted for approximately
$243,000 of the net loss and the Hotel in Louisville contributed approximately
$149,000 of net income. The Company's net loss of $94,000 for the three months
ended June 30, 2001 was primarily due to overhead costs including interest
expense, depreciation and amortization exceeding net operating income.
LIQUIDITY AND CAPITAL RESOURCES -
Fountainhead Transactions-
On January 10, 2000, the Company entered into a management agreement
("Management Agreement") with Fountainhead, pursuant to which Fountainhead
retained the Company to perform management services at Chateau Elan Winery and
Resort, one of Fountainhead's properties, for a period of five years. In
consideration of Fountainhead's agreement to enter into the Management Agreement
and a payment of $10,000 by Fountainhead to the Company, the Company issued to
Fountainhead 1,000,000 shares of common stock at a fair market value of $2.00
per share. In the Management Agreement, Fountainhead agreed to pay the Company a
base management fee equal to 2% of the gross revenues of the properties being
managed, plus an annual incentive management fee to be determined each year
based on the profitability of the properties being managed during that year.
The Management Agreement has a term of five years but is terminable upon
the transfer by Fountainhead of all or a material portion of the properties
covered by the Management Agreement. If the Management Agreement is terminated
upon such a transfer or upon the occurrence of an event of default by
Fountainhead, Fountainhead shall pay to the Company a portion of the projected
fees owed to the Company under the agreement, with adjustments based on the term
of the Management Agreement remaining. In such event, Fountainhead may elect to
surrender to the Company shares of common stock in lieu of a cash payment. The
Company's new management continues to seek new hotel management opportunities,
including possible opportunities to manage other properties being developed by
Fountainhead. In addition to Chateau Elan Georgia, the Company manages Sebring
and St. Andrews. The Company intends to seek management opportunities with other
Fountainhead properties; however, Fountainhead has no obligation to enter into
further management relationships with the Company, and there can be no assurance
that the Company will manage any Fountainhead properties in the future.
The Company has recorded a total of $296,000 payable to affiliates for the
salary of Mr. Henk Evers, President and Chief Operating Officer, which continues
to be advanced by Fountainhead. During the three months ended June 30, 2001,
$90,000 of this payable was incurred. Balances receivable from affiliates are
approximately $451,000 for Fountainhead's Chateau Elan properties in Georgia,
Florida, and St. Andrews, Scotland.
Louisville Hotel-
The Company has an ownership interest in a Holiday Inn hotel in
Hurstbourne, Kentucky. The Hotel is owned by Associates. In April, 2001, the
Company, through its wholly-owned subsidiaries, acquired 100% of the membership
interests in Associates. The membership interests are pledged as security for a
$3,623,690 loan made by Louisville Hotel, LLC (the "LLC"). The membership
interests are also subject to an option pursuant to which LLC has the right to
acquire the membership interests for nominal value. Pursuant to the terms of the
loan, all revenues (including proceeds from sale or refinancing) of the LLC
(after payment of expenses including a management fee to the Company) are
required to be paid to the LLC until principal and interest on the loan are paid
in full. As a result, the LLC has all of the economic interests in the Hotel.
On September 30, 1999, the Company, which already owned a 10% interest in
the LLC, acquired an additional interest in the LLC from Louisville Hotel, L.P.
("Louisville LP") for $2,500,000. The majority of the purchase price was
evidenced by three promissory notes (the "Notes") totaling $1,933,000. The Notes
are cross-defaulted, bear interest at 13% and mature on September 30, 2002. As a
result of the transaction, the Company has an 80% economic interest in the LLC.
With 80% ownership, the Company is the Managing Member of the LLC. Louisville LP
has the remaining 20% ownership in the LLC. Pursuant to the LLC's operating
agreement dated as of May 1998, as amended on September 30, 1999 (the "Operating
Agreement"), the Company has the right at any time to purchase the remaining
interest in the LLC (the "Purchase Option"). The Operating Agreement provides
that the purchase price for Louisville LP's interest is equal to the sum of (a)
Louisville LP's total capital contributions to the LLC ($3,061,000), plus (b)
any accrued but unpaid preferred return on such capital contributions, plus (c)
the residual value of the remaining interest (the amount that would be
distributed to Louisville LP if the LLC sold the Hotel for its fair market value
and distributed the proceeds to the members pursuant to the Operating Agreement)
(the "Option Price"). However, the Purchase Option is only exercisable in
connection with concurrent payment in full of all remaining amounts due under
the Notes. Further, under the terms of the Operating Agreement, the Company is
required, no later than September 30, 2002, to purchase Louisville LP's
remaining interest in the LLC for the Option Price. Based on the estimated
market value of the Hotel as of June 30, 2001, the estimated Option Price is
approximately $3,061,000. The Company's obligation to purchase the remaining
interest in the LLC is secured by the Company's interest in the LLC, the
Longwood, Florida property and the Phoenix, Arizona property.
In connection with the new management agreement effective September 30,
1999, the Company received management fees totaling approximately $68,000 for
the three months ended June 30, 2001.
Associates is a licensee under a franchise agreement with Holiday Inn (the
"Franchise Agreement"). The Company has guaranteed Associates obligations under
the Franchise Agreement. In the event that the Franchise Agreement is terminated
as a result of a breach of the Franchise Agreement by Associates, Associates may
be subject to liquidated damages under the Franchise Agreement equal to
approximately 36 times the monthly franchise fees payable pursuant to the
Franchise Agreement. The current monthly franchise fees are approximately
$41,000.
In conjunction with the Franchise Agreement, the Hotel is subject to a
Property Improvement Plan ("the Plan"). Under the Plan, the Hotel is required to
make certain improvements by December 31, 2002, with certain interim milestones.
The Company estimates that the cost of these improvements is approximately
$1,858,000. As of June 30, 2001, the Hotel has spent approximately $124,000 on
improvements and has approximately $437,000 in escrow to spend on improvements.
The Company has not determined whether Associates will be able to fund the
remainder of the Plan. If the Hotel is unable to fund the remainder of the Plan,
the Company may be required to complete the Plan pursuant to the Company's
guaranty of the Franchise Agreement.
The Company has approximately $1,500,000 of available cash as of August 15,
2001.
Based on the Company's current assessment of market conditions effecting
the hotel industry and the current operating performance of the Hotel, the
Company has written off its remaining interest in the LLC. In addition, unless
current market conditions change or the Company is able to obtain an additional
source of funds (whether through operations, financing or otherwise) the Company
currently does not have sufficient liquidity to acquire Louisville LP's interest
in the LLC for the Option Price and to pay off the Notes in September 30, 2002.
Under the terms of the Operating Agreement, the failure of the Company to
acquire Louisville LP's interest by September 30, 2002 could result in the
Company forfeiting its interests in the LLC, the Longwood, Florida property and
the Phoenix, Arizona property. As a result, management is currently evaluating
all of its options with respect to the Hotel, including its potential sale prior
to September 30, 2002.
Other -
The Company currently manages nine hotels which are not owned by
Fountainhead. Under the terms of franchise agreements, the Company is required
to comply with standards established by franchisers, 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.
The Company has reserved an allowance for doubtful accounts of $198,000,
which relates to estimated uncollectible assets related to the terminated lease
on a hotel in Lubbock, Texas, and to several doubtful accounts related to the
loss of several management contracts in which the Company was still owed
management fees and other expenses normally reimbursed by the hotels under
management. While the Company believes these accounts will not be collected,
collection efforts are still being made.
In June 2001, the Company received full payment on the $250,000 note
receivable due from the purchaser of the hotel in Longwood, Florida in May 2000.
PART II. OTHER INFORMATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
While the Company is exposed to various market risks, including changes in
interest rates, the Company does not believe that it has any material exposure
to the market risks covered by this item. As of June 30, 2001, the Company
primarily carries interest rates which are fixed and, therefore, does not expect
to have material exposure to interest rate changes in the short term. The
Company does not enter into derivatives or other financial instruments for
trading purposes and has not entered into financial instruments to manage and
reduce the impact of changes in interest rates.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits:
2.1 Assignment and Assumption Agreement dated as of April 16,
2001 between RW Hotel Investment Associates, LLC and
Ridgewood Georgia, Inc. (filed as an Exhibit to Registrant's
Form 8-K dated May 31, 2001 and incorporated herein by
reference).
2.2 Contract for the Purchase and Sale of Property dated June,
1999 between the Company, Ridgewood Orlando, Inc., Fulgent
Street Motel & Hotel, Inc. and Brokers Title, L.L.C. (filed
as an Exhibit to Registrant's Form 8-K dated May 31, 2001
and incorporated herein by reference).
2.3 Reinstatement of and Second Amendment to Contract for the
Purchase and Sale of Property Dated January 24th, 2000.
(filed as an Exhibit to Registrant's Form 8-K dated May 31,
2001 and incorporated herein by reference).
B. Reports on Form 8-K:
No reports on Form 8-K were filed during the three months ended
June 30, 2001
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.
RIDGEWOOD HOTELS, INC.
By: /s/ Henk H. Evers
-------------------------
Henk H. Evers
President
By: /s/ Peter M. Conboy
-------------------------
Peter M. Conboy
Director of Finance &
Accounting
Date: August 20, 2001