<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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
For the transition period from __________ to ___________
Commission File No. 000-22941
EXECUSTAY CORPORATION
(Exact name of registrant as specified in its charter)
MARYLAND 52-2042280
(State of Incorporation) (I.R.S. Employer identification No.)
7595 RICKENBACKER DRIVE
GAITHERSBURG, MARYLAND 20879
(Address of principal executive offices)
(301) 948-4888
(Registrant's telephone number, including area code)
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
----- -----
At August 10, 1998, there were outstanding 8,135,699 shares of the
Company's common stock.
<PAGE> 2
EXECUSTAY CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 1998 (unaudited)
and December 31, 1997 3
Consolidated Statements of Operations for the
Three Months Ended June 30, 1998 and 1997 (unaudited) 4
Consolidated Statements of Operations for the
Six Months Ended June 30, 1998 and 1997 (unaudited) 5
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1998 and 1997 (unaudited) 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market
Risks 13
PART II. OTHER INFORMATION
Item 1. Legal proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES
EXHIBIT INDEX
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1 CONSOLIDATED FINANCIAL STATEMENTS
EXECUSTAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
-------------------------------
DECEMBER 31, JUNE 30,
1997 1998
-------------------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents $16,134,958 $ 2,044,645
Accounts receivable, net 5,657,600 11,020,049
Prepaid rent and other 723,350 1,974,433
Property on or held for lease, net 4,912,013 6,616,713
Property and equipment, net 2,383,958 3,442,258
Deferred tax-asset 241,000 597,000
Intangible and other assets 13,777,058 45,635,403
-------------------------------
Total assets $43,829,937 $71,333,501
===============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Bank line of credit $ 5,000,000 $ 2,636,239
Notes payable to bank - 11,500,000
Capital lease obligation 1,519,844 1,500,474
Accounts payable 2,632,348 4,974,731
Accrued and other liabilities 3,651,960 3,316,879
-------------------------------
Total liabilities 12,804,152 23,928,323
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares
authorized, none issued and outstanding - -
Common stock, $.01 par value; 45,000,000 shares authorized,
6,983,500 and 8,230,392 shares issued and outstanding 69,835 82,304
Additional paid-in capital 29,720,738 44,036,019
Retained earnings 1,235,212 3,283,855
-------------------------------
Total stockholders' equity 31,025,785 47,402,178
-------------------------------
Total liabilities and stockholders' equity $43,829,937 $71,333,501
===============================
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
EXECUSTAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
-----------------------------------
1997 1998
-----------------------------------
(UNAUDITED)
<S> <C> <C>
Revenue:
Interim housing revenue $ 8,642,456 $ 26,705,817
Furniture and housewares revenue 2,148,028 2,542,451
-----------------------------------
Total revenue 10,790,484 29,248,268
Operating costs and expenses:
Cost of revenue 7,194,858 21,357,504
Personnel and payroll costs 1,831,164 3,717,887
Occupancy costs and nonrental
Depreciation and amortization 402,251 990,889
Other operating costs 534,557 1,041,102
-----------------------------------
Total operating costs and expenses 9,962,830 27,107,382
-----------------------------------
Earnings from operations 827,654 2,140,886
Interest expense 128,426 89,696
-----------------------------------
Earnings before income taxes 699,228 2,051,190
Income tax expense - 819,000
-----------------------------------
Net income $ 699,228 $ 1,232,190
===================================
Pro Forma Data
Historical earnings before income taxes $ 699,228 $ 2,051,190
Provision for income taxes 280,000 819,000
-----------------------------------
Pro forma net income $ 419,228 $ 1,232,190
===================================
Pro forma income per share - basic $ 0.10 $ 0.16
===================================
- diluted $ 0.10 $ 0.16
===================================
Weighted average common shares outstanding - basic 4,074,000 7,524,377
===================================
- diluted 4,074,000 7,552,371
===================================
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
EXECUSTAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------------------
1997 1998
---------------------------------------
(UNAUDITED)
<S> <C> <C>
Revenue:
Interim housing revenue $ 15,553,118 $ 42,744,467
Furniture and housewares revenue 4,882,670 5,031,101
---------------------------------------
Total revenue 20,435,788 47,775,568
Operating costs and expenses:
Cost of revenue 13,361,941 34,356,221
Personnel and payroll costs 3,505,668 6,597,147
Occupancy costs and nonrental
Depreciation and amortization 685,086 1,592,715
Other operating costs 1,040,540 1,814,529
---------------------------------------
Total operating costs and expenses 18,593,235 44,360,612
---------------------------------------
Earnings from operations 1,842,553 3,414,956
Interest expense 208,961 2,313
---------------------------------------
Earnings before income taxes 1,633,592 3,412,643
Income tax expense - 1,364,000
---------------------------------------
Net income $ 1,633,592 $ 2,048,643
=======================================
Pro Forma Data
Historical earnings before income taxes $ 1,633,592 $ 3,412,643
Provision for income taxes 654,000 1,364,000
---------------------------------------
Pro forma net income $ 979,592 $ 2,048,643
=======================================
Pro forma income per share - basic $ 0.24 $ 0.28
=======================================
- diluted $ 0.24 $ 0.28
=======================================
Weighted average common shares outstanding - basic 4,074,000 7,278,034
=======================================
- diluted 4,074,000 7,306,015
=======================================
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
EXECUSTAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------------------
1997 1998
--------------------------------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,633,592 $ 2,048,643
Adjustments to reconcile net income to net cash provided
By operating activities
Provision for doubtful accounts and vacancy reserve 595,512 677,780
Depreciation and amortization 1,179,667 1,977,039
Deferred income tax benefit - 90,000
Net purchase of property on or held for lease (1,072,516) (2,626,327)
Changes in assets and liabilities
Increase in accounts receivable (2,098,184) (5,166,570)
Increase in prepaid rent and other (1,324,388) (313,850)
Increase in other assets (2,866,505) ( 794,061)
Increase accounts payable 191,846 365,239
Decrease in accrued and other liabilities (122,689) (952,817)
Increase in due to stockholders 1,102,467 -
--------------------------------------
Total adjustments (4,414,790) (6,743,567)
--------------------------------------
Net cash used in operating activities (2,781,198) (4,694,924)
--------------------------------------
Cash flows from investing activities:
Purchases of property and equipment (140,763) (737,690)
Net increase in due from unconsolidated affiliates (40,668) (228,310)
Cash paid for acquisitions - (17,568,758)
--------------------------------------
Net cash used in investing activities (181,431) (18,534,758)
--------------------------------------
Cash flows from financing activities:
Net borrowings (payments) on line of credit 1,189,603 (2,363,761)
Distributions to stockholders (2,386,665) -
Payments on bank loans (669,189) -
Borrowings on bank loans 4,350,000 11,500,000
Proceeds from issuance of common stock - 22,500
Payments on capital lease obligations (17,569) (19,370)
--------------------------------------
Net cash provided by financing activities 2,466,180 9,139,369
--------------------------------------
Net decrease in cash (496,449) (14,090,313)
Cash at beginning of period 503,099 16,134,958
--------------------------------------
Cash at end of period $ 6,650 $ 2,044,645
======================================
Supplemental cash flows information:
Interest paid during the period $ 183,848 $ 75,877
Income taxes paid during the period $ - $ 1,835,019
Non-cash financing and investing activities:
Issuance of common stock in connection with acquisitions $ - $ 14,305,250
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
EXECUSTAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Execustay Corporation (the "Company") is a provider of interim housing for
corporate clients and professionals. In addition to providing fully
furnished housing, the Company also rents housewares and furniture to
property management companies and apartment communities. The Company has
offices in the mid-atlantic, southeast and western regions of the United
States.
The summarized financial information included herein does not include all
disclosures required to be included in a complete set of financial
statements prepared in conformity with generally accepted accounting
principles. Such disclosures were included with the financial statements of
the Company at December 31, 1997, and for the year then ended included in
the 1997 Annual Report on Form 10-K, filed by the Company with the
Securities and Exchange Commission.
The financial information contains all adjustments (consisting of normal
recurring accruals) which, in the opinion of management, are deemed
necessary for a fair presentation of the results for the interim periods.
The results for the interim periods are not necessarily indicative of
results that may be expected for the full fiscal year.
NOTE B - PRO FORMA INFORMATION
Prior to the consummation of the initial public offering, the Company filed
its federal and state income tax returns under the provisions of Subchapter
S of the Internal Revenue Code. Accordingly, no provision was provided in
the accompanying financial statements for federal and state income taxes for
the S Corporation periods, since the income of the Company was taxable
directly to its stockholders. On August 27, 1997, the Company converted to a
C Corporation and became subject to both federal and state income taxes.
The pro forma adjustment in the consolidated statements of operations for
the quarter ended June 30, 1997 reflects a provision for income taxes based
upon pro forma pretax earnings as if the Company had been subject to
federal, state and local income taxes. The pro forma income tax provision
has been prepared in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 109.
PRO FORMA EARNINGS PER SHARE
Pro forma earnings per share are based upon the weighted average number of
common and common equivalents shares outstanding during the period. The
shares outstanding for June 30, 1997 give retroactive effect to the
recapitalization and stock split of the Company that was effected in
conjunction with the Company's initial public offering, as well as 324,000
shares deemed to be sold by the Company (at the initial offering price of
$10.00 per share) to fund the S-Corporation distribution in excess of the
previous 12 months undrawn earnings totaling $3.1 million, and the $1.1
million distribution declared on June 13, 1997.
In 1997, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 128 (SFAS 128), "Earnings Per Share." This
statement replaces the presentation of primary EPS with a presentation of
basic EPS. It also requires dual presentation of basic and diluted EPS on
the face of theincome statement for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator of
the basic EPS computation to the numerator and denominator of the diluted
EPS computation. Basic EPS excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or resulted
in the issuance of common stock that then shared in the earnings of the
entity. Diluted EPS is computed similarity to fully diluted EPS pursuant to
Opinion 15. In complying with the requirements of SFAS No. 128, the Company
has restated all prior period pro forma EPS data.
7
<PAGE> 8
EXECUSTAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
For purposes of computing the diluted EPS, the Company has dilutive stock
options as share equivalents using the treasury stock method.
The following table reconciles basic and diluted EPS:
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------------------
1997 1998
--------------------------------------
<S> <C> <C>
Numerator
---------
Pro forma net income $ 979,592 $2,048,643
Denominator/Weighted Average Shares
-----------------------------------
Denominator for basic EPS 4,074,000 7,278,034
Effect of dilutive securities stock
options - 27,981
--------- ---------
Denominator for diluted EPS 4,074,000 7,306,015
========= =========
</TABLE>
NOTE C - RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information," was issued. The statement must be adopted by the
Company on December 31, 1998. Under provisions of this statement, the
Company will be required to modify or expand the financial statement
disclosures for operating segments, products and services, and geographic
areas. Implementation of this disclosure standard will not affect the
Company's financial position or results of operations.
In December 1997, SFAS No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits," was issued and is effective for the
Company's 1998 fiscal year. The statement revises current disclosure
requirements for employers' pension and other retiree benefits.
Implementation of this disclosure standard will not affect the company's
financial position or results of operations.
NOTE D - ACQUISITIONS
On January 1, 1998, the Company purchased 100% of the outstanding stock of
Corporate Accommodations, Inc., an interim housing company in Connecticut,
for approximately $1,450,000, consisting of $1,050,000 in cash and 45,455 of
the Company's unregistered shares of common stock valued at $400,000 at the
time of the purchase. The purchase price also included seller non-compete
agreements and employment agreements with certain employees of seller. The
Company has accounted for the transaction in 1998 using purchase accounting
and recorded intangible assets including $ 25,000 relating to a non-compete
agreement and goodwill of approximately $1.1 million.
On February 1, 1998 the Company purchased the net assets of F.L. Taylor
Corporation, an interim housing company located in Arizona, for
approximately $837,000. The total purchase price is subject to a post
closing adjustment based upon the 1997 gross profit as compared to the
annualized gross profit for the eight months ended August 31, 1998 or the
last day of the month prior to the termination of services of the seller's.
The purchase price also included a seller non-compete agreement. The
Company has accounted for the transaction in 1998 using purchase accounting
and recorded tangible assets of $30,000 and intangible assets including
$25,000 relating to a non-compete agreement and goodwill of approximately
$782,000.
8
<PAGE> 9
EXECUSTAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
On April 1, 1998 the Company purchased the net assets of Southern California
Relocations, Inc., an interim housing company located in California, for
approximately $4,621,000 consisting of $3,365,750 in cash and 94,693 of the
Company's unregistered shares of common stock valued at $1,155,250 at the
time of the purchase. The purchase price also included a seller non-compete
agreement. The Company has accounted for the transaction in 1998 using
purchase accounting and recorded tangible assets of $36,100 and intangible
assets including $75,000 relating to a non-compete agreement and goodwill
of approximately $4,510,000.
On May 29, 1998 the Company merged with Accommodations America 1998, Inc.,
an interim housing company headquartered in Atlanta, Georgia. The Company
paid approximately $25.5 million, consisting of $12.75 million in cash and
1,104,494 of the Company's unregistered shares of common stock valued at
$12.75 million. The purchase price is subject to post closing adjustments
based upon Accommodations America 1998, Inc. net working capital at the
closing date, the amount of uncollected net receivables within 90 days of
the closing date and the amount of bad debts collected by the Company. The
purchase price also included seller non-compete agreements. The Company has
accounted for this transaction in 1998 using purchase accounting and
recorded net assets of approximately $2.5 million and goodwill and other
intangible assets of approximately $23.0 million.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
OVERVIEW
ExecuStay Corporation ("ExecuStay" or the "Company") is a leading provider of
interim housing for corporate clients and professionals. ExecuStay provides
fully furnished high-quality apartments for stays of 30 days or more. In
addition to providing fully furnished interim housing to ExecuStay residents,
the Company also rents housewares and furniture to customers other than
ExecuStay residents such as owners and managers of apartment communities who
wish to offer fully furnished accommodations directly to their tenants. While
housewares rental services are provided by the Company in most locations where
it has sales offices, the Company provides furniture rental services to its
residents located within approximately 200 miles of its warehouse in
Gaithersburg, Maryland.
In recent years, the Company has experienced significant increases in revenue
from its interim housing operations. Since the costs associated with interim
housing revenue are greater as a percentage of revenue than the costs of
furniture and housewares revenue, the Company's earnings from operations as a
percentage of total revenue has declined as the revenue mix has shifted heavily
toward interim housing revenue. As interim housing revenue continues to
increase as a percentage of the Company's total revenue, earnings as a
percentage of revenue may continue to decline slightly.
Growth in revenue is derived primarily from increases in the number of leases
signed with ExecuStay residents from existing sales offices as well as leases
obtained through the acquisition of other interim housing companies.
RESULTS OF OPERATIONS
In the discussions below, the following terms have the meanings described
hereinafter.
Interim housing revenue consists of the total charges to ExecuStay residents
for their housing accommodations, including charges for furniture, housewares,
accessories and utilities.
Furniture and houseware revenue includes all income from customers other than
ExecuStay residents and also includes revenue from the sale of new and used
inventory.
Cost of revenue includes costs related to apartment units rented to ExecuStay
residents, such as property rent, furniture and houseware rental costs,
utilities, telephone and cable television expenses. Also included is
depreciation on furniture and housewares inventory on rental or held in
inventory and the cost of inventory sold.
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1998 TO THE THREE MONTHS ENDED
JUNE 30, 1997
Revenue increased 171% to $29.2 million for the three months ended June 30,
1998 from $10.8 million for the three months ended June 30, 1997. The increase
was primarily due to a $18.1 million increase (209%) in interim housing
revenue, from $8.6 million in the second quarter of 1997. Acquisitions and new
offices accounted for $13.9 million of the increase in interim housing revenue.
Aggregate interim housing revenue from the offices that were operating during
both periods increased 49%, which reflects the continued development and market
penetration of these offices. Consistent with the Company's growth strategy,
revenue from rental and sale of furniture and housewares did not increase or
decrease materially in the second quarter of 1998 as compared to the second
quarter of 1997.
Cost of revenue increased by $14.2 million or 197% from $7.2 million for the
three months ended June 30, 1997 to $21.4 million for the three months ended
June 30, 1998. The increase in cost of revenue was primarily due to the growth
in interim housing business and the acquisition of interim housing providers.
Because of the continuing change in revenue mix from interim housing and
furniture and housewares rentals (interim housing revenue accounted for 91% of
revenue for the three months ended June 30, 1998 and 80% of revenues for the
three months ended June 30, 1997), the gross margin (revenue less cost of
revenue) decreased from 33% for the three months ended June 30, 1997 to 27% for
the same period in 1998.
10
<PAGE> 11
Personnel and payroll costs increased 103% from $1.8 million in the second
quarter of 1997 to $3.7 million in the second quarter of 1998. The increase was
due mainly to the addition of sales and office personnel who were necessary to
support the Company's growth and the acquisition of interim housing providers.
Occupancy costs and nonrental depreciation and amortization increased by
$589,000, a 146% increase over the same period in 1997. This increase was
primarily the result of the expansion of the Company's office and housewares
warehouse locations. Other operating costs for the three months ended June 30,
1998 increased 95% to $1.0 million, mainly because of increased advertising and
promotional expenses incurred as the Company expanded into new markets.
Net interest expense decreased by $39,000 in the three months ended June 30,
1998, due primarily to the fact that the Company used proceeds from the initial
public offering to repay the debt incurred in connection with acquisitions made
earlier in 1997. Interest earned on the remaining offering proceeds has been
offset against interest expense incurred during the period.
Pro forma net income increased from $419,000 ($.10 per share) for the three
months ended June 30, 1997 to $1.2 million ($.16 per share) for the three
months ended June 30, 1998.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1998 TO THE SIX MONTHS ENDED JUNE
30, 1997
Revenue increased 134% to $47.8 million for the six months ended June 30,
1998 from $20.4 million for the six months ended June 30, 1997. This increase
was primarily due to a $27.2 million increase (175%) in interim housing
revenue, reflecting the Company's continued focus on expanding its interim
housing business. Acquisitions and new offices accounted for $22.2 million of
the increase in interim housing revenue. Aggregate interim housing revenue from
the offices that were operating during both periods increased 36%, which
reflects the continued development and market penetration of these offices.
Revenue from rental and sale of furniture and housewares increased $148,000
(3.0%) for the second quarter of 1998 as compared to the second quarter of
1997. This increase included a furniture sale of approximately $480,000 to one
customer in 1997.
Cost of revenue increased 157% for the six months ended June 30, 1998 to
$34.4 million from $13.4 million for the same period in 1997. This increase was
driven by the Company's continued growth in the volume of interim housing units
leased and rented to customers and the acquisition of interim housing
providers. The Company's gross margin (revenue less cost of revenue) decreased
from 35% to 28% primarily because of the Company's changing revenue mix as
discussed above.
Compared to the six months ended June 30, 1997, personnel and payroll cost
during the six months ended June 30, 1998 increased by $3.1 million (88%), and
occupancy and nonrental depreciation and amortization increased by $908,000
(132%). These increases were due to recent acquisitions and management's
continued emphasis on strengthening the current infrastructure to support the
Company's growth and the acquisition of interim housing providers. Other
operating costs increased 74% to $1.8 million from $1.0 million during the same
period, primarily as a result of new acquisitions and increased national
advertising and promotional expenses.
Net interest expense decreased by $207,000 in the six months ended June 30,
1998, due primarily to the fact that the Company used proceeds from the initial
public offering to repay the debt incurred in connection with acquisitions made
earlier in 1997. Interest earned on cash equivalents has been offset against
interest expense incurred during the period.
Pro forma net income increased from $980,000 ($.24 per share) for the six
months ended June 30, 1997 to $2.0 million ($.28 per share) for the six months
ended June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 1998 the Company's cash and cash
equivalents decreased by $14.1 million, from $16.1 to $2.0 million. The
decrease is due primarily to the purchase of $2.6 million of net property on or
held for lease and an increase of $5.2 million in accounts receivable. The
Company's cash resources were satisfactory to meet its obligations for the six
months ended June 30, 1998.
11
<PAGE> 12
Cash used in investing activities for the six months ended June 30, 1998 was
$18.5 million, of which $17.6 million, net of cash acquired, was used to fund
four acquisitions of interim housing companies during 1998. The aggregate
purchase price was $32.4 million, comprised of $18.1 million in cash and
1,244,642 unregistered shares of the Company's common stock valued at $14.3
million at the time of the purchase. In addition, approximately $1.6 million
was used to pay the post closing adjustment for an acquisition completed in
November 1997.
Cash flows used in financing activities for the six months ended June 30,
1998 totaled $9.1 million. On January 2, 1998 the Company repaid the $5.0
million bridge loan secured on December 31, 1997. During the six months ended
June 30, 1998 the Company borrowed $2.6 million on its working capital line of
credit and $11.5 million on its acquisition loan commitment to fund the
acquisition of Accommodations America 1998, Inc.
In addition to the $2.0 million in cash available to the Company as of June
30, 1998, the Company also has available a working capital line of credit and
an acquisition loan commitment in the amount of $10.9 million available for
future acquisitions and working capital needs.
OTHER MATTERS
The Company is currently assessing and working to resolve the potential
impact of the year 2000 on the processing of date-sensitive information by the
Company's computerized information systems. The year 2000 problem is the
result of computer programs being written using two digits (rather than four)
to define the applicable year. Any of the Company's programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000, which could result in miscalculations or systems failures.
The Company has and will continue to make certain investments in its software
systems and applications to ensure the Company is Year 2000 compliant. The
financial impact of becoming Year 2000 compliant has not been and is not
expected by the Company to be material to the Company's financial position or
results of operations in a given year. However, there is no guarantee that the
systems of other companies on which the Company's systems and operations rely
will be converted on a timely basis and will not have a material effect on the
Company.
12
<PAGE> 13
CAUTIONARY NOTE
This Quarterly Report on Form 10-Q contains forward-looking statements
reflecting management's knowledge and judgment about factors which could
materially affect Company performance in the future. Terms indicating future
expectation and optimism about future potential and anticipated growth in
revenue and earnings of the Company's business lines and like expressions
typically identify such statements. Actual results and events may differ
significantly from those discussed in forward-looking statements.
All forward-looking statements are subject to the risks and uncertainties
inherent with predictions and forecasts. They are necessarily speculative
statements, and unforeseen factors, such as a significant downturn in the
economy, increased competitive pressures, failure to absorb newly acquired
businesses or to successfully develop newly opened offices, could cause results
to differ materially from any that may be projected.
Forward-looking statements are made in the context of information available
as of the date stated. The Company undertakes no obligation to update or revise
such statements to reflect new circumstances or unanticipated events as they
occur.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Not applicable.
13
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
a. Changes in Securities.
None.
b. Recent Sales of Unregistered Securities
On April 1, 1998, the Company issued 94,693 shares of Company common
stock, valued at the time at approximately $1.15 million, to the
shareholder of Southern California Relocations, Inc. The issuance of
the shares was part of the consideration paid by the Company in
exchange of all the outstanding stock of Southern California
Relocations, Inc. The placement, which did not involve a public
offering of the shares, was exempt from registration under Section
4(2) of the Securities Act of 1933, as amended.
On May 29, 1998 the Company issued 1,104,494 shares of Company common
stock, valued at the time at approximately $12.75 million, to the
shareholders of Accommodations America 1998, Inc. The issuance of the
shares was part of the consideration paid by the Company in exchange
of all the outstanding stock of Accommodations America 1998, Inc. The
placement, which did not involve a public offering of the shares, was
exempt from registration under Section 4(2) of the Securities Act of
1933, as amended.
c. Use of Proceeds.
The net offering proceeds to the Company of $27,754,158 from its
initial Registration Statement on Form S-1 (file No. 333-0049) was
used for the following purposes:
<TABLE>
<S> <C>
Construction of plant, building and facilities $ -
Purchase and installation of machinery and equipment: -
Purchase of real estate: -
Repayment of indebtedness: 6,307,941
Acquisition of other businesses: 15,834,848
Working capital: -
Temporary investments:
Short term bonds -
Interest bearing money market accounts -
Other purposes:
Undistributed S corporation earnings 4,531,433
Payment of previously declared distributions 1,079,936
</TABLE>
The use of proceeds contained herein does not represent a material
change in the use of proceeds described in the prospectus.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
14
<PAGE> 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of the shareholders of the Company was held on May
14, 1998. The election of directors was submitted to the shareholders for
approval.
Five nominees, namely Gary R. Abrahams, Marc B. Kaplan, Robert W.
Zaugg, David S. Santee and Stuart C. Siegal were duly elected as directors
of the Company until the next annual meeting or until their successors are
chosen. Each nominee received at least approximately ninety-nine percent
of the votes cast in favor of his election. Further results of the voting
were as follows:
<TABLE>
<CAPTION>
Votes Cast for
Director The Director Votes Withheld
-------- ------------ --------------
<S> <C> <C>
Gary R. Abrahams 6,096,405 28,620
Marc B. Kaplan 6,096,405 28,620
Robert W. Zaugg 6,096,405 28,620
David S. Santee 6,096,405 28,620
Stuart C. Siegal 6,096,405 28,620
</TABLE>
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
27.1 Financial Data Schedule
b. Reports on Form 8-K
On April 15, 1998, the Company filed a Current Report on Form 8-K to
report the acquisition of Southern California Relocations, Inc. pursuant
to Item 2 to the Form 8-K.
On June 12, 1998 the Company filed a Current Report on Form 8-K to
report the merger of Accomodations America 1998, Inc. ("Accommodations")
pursuant to Item 2 to the Form 8-K. In an amendment to the Form 8-K, the
Company filed the following financial reports (dated as of July 2, 1998):
audited balance sheets of Accommodations as of May 29, 1998, December 31,
1997 and 1996 and the related combined statements of operations, changes
in equity (deficit) and cash flows for the period from January 1, 1998
through May 29, 1998 and the years ended December 31, 1997 and 1996;
unaudited pro forma consolidated balance sheet of ExecuStay Corporation
and subsidiaries as if the Accomodations merger had occurred on May 29,
1998; and unaudited pro forma consolidated statements of operations of
ExecuStay Corporation and subsidiaries for the period from January 1, 1998
through May 29, 1998 and the year ended December 31, 1997 as if the
Accomodations merger had been completed at the beginning of the respective
periods.
15
<PAGE> 16
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.
Date: August 14, 1998
ExecuStay Corporation
By: /s/ Marc B. Kaplan
--------------------
Marc B. Kaplan
(Principal Financial Officer
and Authorized Officer)
16
<PAGE> 17
EXHIBIT INDEX
EXHIBIT NO. PAGE
------------------------------------ ----
27.1 Financial Data Schedule
17
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,044,645
<SECURITIES> 0
<RECEIVABLES> 11,434,878
<ALLOWANCES> (414,829)
<INVENTORY> 6,616,713
<CURRENT-ASSETS> 0
<PP&E> 5,458,130
<DEPRECIATION> (2,015,872)
<TOTAL-ASSETS> 71,333,501
<CURRENT-LIABILITIES> 0
<BONDS> 15,636,713
0
0
<COMMON> 82,304
<OTHER-SE> 44,036,019
<TOTAL-LIABILITY-AND-EQUITY> 71,333,501
<SALES> 0
<TOTAL-REVENUES> 47,775,568
<CGS> 0
<TOTAL-COSTS> 34,356,221
<OTHER-EXPENSES> 10,004,391
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,313
<INCOME-PRETAX> 3,412,643
<INCOME-TAX> 1,364,000
<INCOME-CONTINUING> 2,048,643
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,048,643
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
</TABLE>
