SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number 0-14019
Ridgewood Hotels, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 58-1656330
------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2859 Paces Ferry Road, Suite 700
Atlanta, Georgia 30339
---------------------------------------- -----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 434-3670
--------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
----------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes __X__ No _____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. _____
Aggregate market value of voting stock held by non-affiliates on October
31, 1997 - $668,937; Common shares outstanding on October 31, 1997 -
1,538,480 shares
(1) Portions of the registrant's Annual Report to Shareholders for the
fiscal year ended August 31, 1997 (the "1997 Annual Report to
Shareholders") are incorporated by reference in Part II of this
Report.
(2) Portions of the registrant's definitive Proxy Statement relating to
the 1998 Annual Meeting (the "1998 Proxy Statement") to be filed
with the Commission on or about December 1, 1997, are incorporated
by reference in Part III of this Report.
PART I
Item 1. Business
Ridgewood Hotels, Inc. (the "Company") is primarily engaged in the
business of acquiring, developing, operating and selling real estate
property in the Southeast and "Sunbelt" areas. Additionally, the
Company, through its investment in a limited partnership, is engaged in
acquiring and managing hotel properties in the Southeast, as well as
managing other hotels throughout the country. The Company also owns and
operates a hotel in Longwood, Florida. All of the Company's other
properties are land properties held for sale, and no additional
development is currently anticipated for the land. The Company was
incorporated under the laws of the State of Delaware on October 29,
1985. In January 1997, the Company changed its name from Ridgewood
Properties, Inc. to Ridgewood Hotels, Inc. Prior to December 31, 1985,
the Company operated under the name CMEI, Inc.
On August 16, 1995, RW Hotel Partners, L.P. was organized as a
limited partnership (the "Partnership") under the laws of the State of
Delaware. Concurrently, the Company formed Ridgewood Georgia, Inc., a
Georgia corporation ("Ridgewood Georgia") which became the sole general
partner in the Partnership with RW Hotel Investments, L.L.C.
("Investor") as the limited partner. Ridgewood Georgia has a 1% base
distribution percentage versus 99% for the Investor. However,
distribution percentages do vary depending on certain defined
preferences and priorities pursuant to the Partnership Agreement
("Agreement") which are discussed below. The partnership was originally
formed to acquire a hotel property in Louisville, Kentucky. The
partnership consists of six hotel properties at August 31, 1997. The
terms of this partnership will serve as a guideline for other potential
acquisitions with this or other investors.
Income and losses are allocated to Ridgewood Georgia and the
limited partner based upon the formula for allocating distributable cash
as described below but subject to an annual limitation which would
result in no more than 88% of partnership income or loss (as defined)
being allocated to the limited partner.
Distributable Cash is defined as the net income from the property
before depreciation plus any net sale proceeds and net financing
proceeds less capital costs. Distributions of distributable Cash shall
be made as follows:
- First, to the Investor until there has been distributed to the
Investor an amount equal to a 15% cumulative internal rate of return on
the Investor's investment.
- Second, to Ridgewood Georgia until the aggregate amount received
by Ridgewood Georgia equals the aggregate cash contributions made by
Ridgewood Georgia to the Partnership (as of August 31, 1997, Ridgewood
Georgia had contributed approximately $772,000).
- Third, 12% to Ridgewood Georgia and 88% to the Investor until
there has been distributed to the Investor an amount equal to a 25%
cumulative internal rate of return on Investor's investment.
- Fourth, 75% of the residual to the Investor and 25% to Ridgewood
Georgia.
A Management Agreement exists between the Partnership and the
Company as Manager ("Manager") for the purpose of managing hotels in
Kentucky, Georgia and South Carolina. The Manager shall be entitled to
the following property management fees:
(1) 2.5% of the gross revenues from the hotel property.
(2) 1% of the gross revenues from the hotel property as an
incentive fee if distributable cash equals or exceeds 13.5% of total
aggregate acquisition costs.
A Construction Management Agreement exists between the Partnership
and the Manager for the purpose of managing future improvements to the
properties.
The Company currently has approximately $772,000 invested in the
Partnership. As of August 31, 1997, the Company has recorded
approximately $199,000 equity in the income of the Partnership, but has
recorded a provision for possible losses of approximately $199,000 as
there is no indication that the Company will be able to recover the
equity income in the Partnership given the provisions of the partnership
agreement regarding the distribution of cash to the partners upon
liquidation. In August 1995, the Partnership purchased a hotel in
Louisville, Kentucky for approximately $16,000,000. In December 1995
and January 1996, the Partnership purchased four hotel properties in
Georgia for approximately $15,000,000 and a hotel in South Carolina for
$4,000,000, respectively. The Company may make future capital
contributions to the Partnership. Management expects to fund such
capital contributions through available cash or from loans from the
Partnership. Additionally, the Company may invest in other partnerships
to acquire hotels in the future.
The Company owns and operates one hotel and owns a number of land
parcels which are held for sale. The success of the Company's
operations continues to be dependent upon such unpredictable factors as
the general and local economic conditions to which the real estate
industry is particularly sensitive: zoning, labor, material and energy
availability, weather conditions and the availability of satisfactory
financing.
The hotel management business has become very competitive. In
order to obtain management contracts, owners are frequently requiring
management companies to also have ownership in the hotel. The hotel
industry has become very attractive to many investors and, in turn, it
has become very competitive to purchase hotels. This has also prompted
the building of many new hotels in various markets. The Company
believes that it is in a position to remain competitive in this
industry. The Company has the ability to generate equity to contribute
to the acquisitions as well as to provide the expertise to manage the
acquisitions, operations and ultimate disposition of properties for both
the Company and third-party owners. Currently, the Company has a letter
proposal with another company to locate and assist in the acquisition of
hotel properties for that company. Additionally, as hotel properties
are acquired, the Company would receive management contracts to manage
those properties.
The annual average occupancy of the Company's only hotel was
approximately 70% for the fiscal year 1997.
The Company's principal office is located at 2859 Paces Ferry Road,
Suite 700, Atlanta, Georgia 30339 (telephone number: (770) 434-3670).
The Company employs approximately 90 persons (of which 19 are located at
its principal office) at August 31, 1997.
Item 2. Properties
The Company does not own any real property material to conducting
the administrative aspects of its business operations. Its principal
office in Atlanta, Georgia is leased until June 2002 and consists of
approximately 6,200 square feet. As a result of its operations, the
Company is the owner of various other properties, including developed
and undeveloped real estate.
The Company's operating properties are as follows:
Name of Hotel Location # of Rooms Ownership Interest
Ramada Inn (a) Longwood, FL 192 Wholly-Owned
Holiday Inn Louisville, KY 267 Owned by Partnership (b)
Holiday Inn Orangeburg, SC 160 Owned by Partnership (b)
Holiday Inn Gainesville, GA 132 Owned by Partnership (b)
Holiday Inn Thomasville, GA 147 Owned by Partnership (b)
Holiday Inn Suwanee, GA 120 Owned by Partnership (b)
Holiday Inn
Express Commerce, GA 96 Owned by Partnership (b)
(a) The hotel serves as collateral for the Company's $2,742,000
term loan with a commercial lender.
(b) The Company has a 1% ownership interest in these hotels as the
general partner in a partnership.
The Company also holds seven land parcels for sale, two of which
are located in Florida, two in Georgia and one in Texas, Ohio and
Arizona. For further information on such properties, see the
accompanying consolidated financial statements and Schedule III, Real
Estate and Accumulated Depreciation, contained elsewhere herein.
Item 3. Legal Proceedings
On May 2, 1995 a complaint was filed in the Court of Chancery
of the State of Delaware (New Castle County) entitled William N.
Strassburger v. Michael M. Early, Luther A. Henderson, John C.
Stiska, N. Russell Walden, and Triton Group, Ltd., defendants, and
Ridgewood Hotels, Inc., nominal defendant, C.A. No. 14267 (the
"Complaint"). The plaintiff is an individual shareholder of the
Company who purports to file the Complaint individually,
representatively on behalf of all similarly situated shareholders,
and derivatively on behalf of the Company. The Complaint challenges
the actions of the Company and its directors in consummating the
Company's August 1994 repurchases of its common stock held by Triton
Group, Ltd. and Hesperus Partners Ltd. in five counts, denominated
Waste of Corporate Assets, Breach of Duty of Loyalty to Ridgewood,
Breach of Duty of Good Faith, Intentional Misconduct, and Breach of
Duty of Loyalty and Good Faith to Class. On July 5, 1995, the
Company filed a timely answer generally denying the material
allegations of the complaint and asserting several affirmative
defenses. This case is in the concluding stages of discovery. No
trial date has been set, but the court has certified a class of
shareholders as plaintiffs for the non-derivative claims but has not
certified the suit as a class action suit. The Company intends to
vigorously contest this matter.
On August 23, 1996, Great American Resorts filed a complaint
in the Superior Court of Cobb County, State of Georgia, entitled
Great American Resorts, Inc. and Great American Casinos, Inc. v.
Charles Taylor, Deborah Lynn Cannon, Walter D. Hrab and Ridgewood
Hotels, Inc., Civil Action File No. 9616398-05, alleging that the
Company and the other defendants are liable for breach of contract
and breach of fiduciary duty stemming from a contract between Great
American and one of the Company's subsidiaries. The complaint seeks
damages, attorneys' fees and pre-judgment interest. It also seeks an
order requiring that certain books and records be turned over to the
plaintiffs. On September 27, 1996, the Company filed a timely answer
generally denying the material allegations of the complaint and
asserting several affirmative defenses. While the discovery deadline
has passed, no trial date has been set, nor have the plaintiffs
actively pursued the matter. The Company intends to vigorously
contest this matter.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders
during the fourth quarter of the Company's fiscal year ended August
31, 1997.
Item 4.5 Executive Officers of the Registrant
The following sets forth certain information regarding the
executive officers of the Company:
Name Age Present Positions
N. Russell Walden 59 President and Chief Executive
Officer, Director
Byron T. Cooper 47 Vice President -
Construction and Planning
Karen S. Hughes 42 Vice President, Chief Financial
Officer and Secretary
The officers of the Company, who are appointed by the Board of
Directors, hold office until their successors are chosen and
qualified, or until their earlier death, resignation or removal.
Mr. Walden has been President and Chief Executive Officer of the
Company since its formation on October 29, 1985. Mr. Walden was a
director of Sunbelt Nursery Group, Inc. ("Sunbelt") from 1983 until
1990. He is the former President, Chief Executive Officer and
director of CMEI, Inc. and a former director of Pier 1 Inc.
Mr. Cooper has been Vice President - Construction and Planning
of the Company since its formation.
Ms. Hughes has been Vice President, Chief Financial Officer and
Secretary of the Company since its formation.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Information regarding the market for the Company's common stock,
the Company's dividend policy and the approximate number of holders
of the common stock at October 31, 1997, is included under the
caption "Market for Registrant's Common Equity and Related
Stockholder Matters" on page 1 of the 1997 Annual Report to
Shareholders and is incorporated herein by reference. There were no
sales of unregistered securities of the Company in the fourth quarter
of the Company's fiscal year ended August 31, 1997.
Item 6. Selected Financial Data
A summary of selected financial data for the Company for the
fiscal years 1993 through 1997 is included under the caption entitled
"Selected Financial Data" on page 3 of the 1997 Annual Report to
Shareholders and is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Information regarding the Company's financial condition, changes
in financial condition and results of operations is included under
the caption entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 4 through 8
of the 1997 Annual Report to Shareholders and is incorporated herein
by reference.
Item 8. Financial Statements
Consolidated financial statements and notes thereto for the
Company, which are included on pages 9 through 32 of the 1997 Annual
Report to Shareholders under the following captions listed below, are
incorporated herein by reference.
Consolidated Balance Sheets at August 31, 1997 and 1996.
Consolidated Statements of Loss for the years ended August 31,
1997, 1996 and 1995.
Consolidated Statements of Shareholders' Investment for the
years ended August 31, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows for the years ended August
31, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item with respect to directors
and with respect to Item 405 of Regulation S-K is incorporated by
reference to the Company's Proxy Statement for its 1998 Annual
Shareholder Meeting (the "1998 Proxy Statement"). Information
concerning the Company's executive officers is included in Item 4.5 in
Part I of this report.
Item 11. Executive Compensation
Information regarding compensation of officers and directors of
the Company is set forth under the caption entitled "Executive
Compensation" in the Company's 1998 Proxy Statement and is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Information regarding ownership of certain of the Company's
securities is set forth under the caption entitled "Beneficial
Ownership of the Company's Securities" in the Company's 1998 Proxy
Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Information regarding certain relationships and related
transactions with the Company is set forth under the caption entitled
"Certain Relationships and Related Transactions" in the Company's 1998
Proxy Statement and is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K
(a)(1) The following financial statements, together with the
applicable report of independent public accountants, are set forth on
pages 9 through 32 of the 1997 Annual Report to Shareholders and are
incorporated by reference at Item 8 herein:
Report of Independent Accountants
Consolidated Balance Sheets at August
31, 1997 and 1996
Consolidated Statements of Loss
for the years ended August 31, 1997,
1996 and 1995
Consolidated Statements of Shareholders'
Investment for the years ended
August 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the
years ended August 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
(a)(2) The following financial statement schedules, together
with the applicable report of independent public accountants, are
filed as a part of this Report.
Page Number
in Form 10-K
Report of Independent Accountants
on Schedule S-1
III - Real Estate and Accumulated
Depreciation - August 31, 1997 S-2 thru S-3
All other schedules are omitted because they are not applicable or
because the required information is given in the financial statements
or notes thereto.
(a)(3) The exhibits filed herewith or incorporated by reference
herein are set forth on the Exhibit Index on pages E-1
through E-9 hereof. Included in those exhibits are the
following Executive Compensation Plans and Arrangements:
10(a) Employment Agreement between N. R. Walden and CMEI, Inc.,
dated March 28, 1985.
10(c) Ridgewood Properties, Inc. Supplemental Retirement and
Death Benefit Plan dated January 1, 1987 (filed as an
Exhibit to Registrant's Form 10-K for the fiscal year ended
August 31, 1988 and incorporated herein by reference).
10(e) Post-Employment Consulting Agreement between N. R. Walden
and Ridgewood Properties, Inc. dated September 4, 1991
(filed as an Exhibit to Registrant's Form 10-K for the
fiscal year ended August 31, 1991 and incorporated herein
by reference).
10(f) Post-Employment Consulting Agreement between Karen S.
Hughes and Ridgewood Properties, Inc. dated September 4,
1991 (filed as an Exhibit to Registrant's Form 10-K for the
fiscal year ended August 31, 1991 and incorporated herein
by reference).
10(g) Post-Employment Consulting Agreement between Byron T.
Cooper and Ridgewood Properties, Inc. dated September 4,
1991 (filed as an Exhibit to Registrant's Form 10-K for the
fiscal year ended August 31, 1991 and incorporated herein
by reference).
10(h) Post-Employment Consulting Agreement between M. M.
McCullough and Ridgewood Properties, Inc. dated
September 4, 1991 (filed as an Exhibit to Registrant's Form
10-K for the fiscal year ended August 31, 1991 and
incorporated herein by reference).
10(p) Ridgewood Properties, Inc. Stock Option Plan dated March
30, 1993 and as amended September 14, 1993 (filed as an
Exhibit to Registrant's Form 10-Q for the quarter ended
February 28, 1994, and incorporated herein by reference).
10(q) Stock Option Agreement between Byron T. Cooper and
Ridgewood Properties, Inc. dated April 1, 1993 and as
approved on January 12, 1994 (filed as an Exhibit to
Registrant's Form 10-Q for the quarter ended February 28,
1994, and incorporated herein by reference).
10(r) Stock Option Agreement between Luther A. Henderson and
Ridgewood Properties, Inc. dated April 1, 1993 and as
approved on January 12, 1994 (filed as an Exhibit to
Registrant's Form 10-Q for the quarter ended February 28,
1994, and incorporated herein by reference).
10(s) Stock Option Agreement between Karen S. Hughes and
Ridgewood Properties, Inc. dated April 1, 1993 and as
approved on January 12, 1994 (filed as an Exhibit to
Registrant's Form 10-Q for the quarter ended February 28,
1994, and incorporated herein by reference).
10(t) Stock Option Agreement between M. M. McCullough and
Ridgewood Properties, Inc. dated April 1, 1993 and as
approved on January 12, 1994 (filed as an Exhibit to
Registrant's Form 10-Q for the quarter ended February 28,
1994, and incorporated herein by reference).
10(u) Stock Option Agreement between N. R. Walden and Ridgewood
Properties, Inc. dated April 1, 1993 and as approved on
January 12, 1994 (filed as an Exhibit to Registrant's Form
10-Q for the quarter ended February 28, 1994, and
incorporated herein by reference).
10(v) Stock Option Agreement between Gregory T. Weigle and
Ridgewood Properties, Inc. dated April 1, 1993 and as
approved on January 12, 1994 (filed as an Exhibit to
Registrant's Form 10-Q for the quarter ended February 28,
1994, and incorporated herein by reference).
10(w) Stock Option Agreement between Karen S. Hughes and
Ridgewood Properties, Inc. dated January 31, 1994 (filed as
an Exhibit to Registrant's Form 10-Q for the quarter ended
February 28, 1994, and incorporated herein by reference).
10(x) Stock Option Agreement between N. R. Walden and Ridgewood
Properties, Inc. dated January 31, 1994 (filed as an
Exhibit to Registrant's Form 10-Q for the quarter ended
February 28, 1994, and incorporated herein by reference).
10(bb) Ridgewood Properties, Inc. 1993 Stock Option Plan, as
amended on October 26, 1994 (filed as an Exhibit to
Registrant's Registration Statement on Form S-8 filed
November 8, 1994 (No. 33-86084) and incorporated herein
by reference).
(b) No reports on Form 8-K were filed during the fourth
quarter of the Company's fiscal year ended August 31, 1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
RIDGEWOOD HOTELS, INC.
By: /s/ N. R. Walden
_____________________
N. Russell Walden,
President, Chief
Executive Officer
Dated: November 24, 1997
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the date indicated:
/s/ N. R. Walden
____________________________
N. Russell Walden, President,
Chief Executive Officer and
Director
/s/ Karen S. Hughes
___________________________
Karen S. Hughes,
Vice President, Chief
Accounting and Financial
Officer and Secretary
/s/ Michael M. Earley
____________________________
Michael M. Earley, Director
/s/ Luther A. Henderson
_____________________________
Luther A. Henderson, Director
Dated: November 24, 1997
Report of Independent Accountants on
Financial Statement Schedule
October 21, 1997
To the Board of Directors
of Ridgewood Hotels, Inc.
Our audits of the consolidated financial statements referred to in
our report dated October 21, 1997 appearing in the 1997 Annual
Report to Shareholders of Ridgewood Hotels, Inc. (which report and
consolidated financial statements are incorporated by reference in
this Annual Report on Form 10-K) also included an audit of the
Financial Statement Schedule listed in Item 14(a) of this Form
10-K. In our opinion, this Financial Statement Schedule presents
fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated
financial statements.
PRICE WATERHOUSE LLP
Atlanta, Georgia
<TABLE>
RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES SCHEDULE III
----------------------------------------- Page 1 of 2
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
-------------------------------------------------------
AUGUST 31, 1997
---------------
(000'S Omitted)
<C>
Cost Capitalized Gross Amount at Which
Initial Cost Subsequent to Carried at August 31, 1997
to Company Acquisition (A)(B)(D)
------------------ ------------------ ----------------------------------
Building Building Accumu-
and Carry- and lated Date of
Encum- Improve- Improve- ing Improve- Deprecia- Construc- Date
Description brances Land ments ments Costs Land ments Total tion (C) tion Acquired
- ----------- -------- ---- -------- -------- ------ ---- -------- ----- -------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LAND
- ----
Georgia -- 78 -- 1 -- 74 1 75 -- -- 12/75
Texas -- 5,338 -- 2 -- 3,926 2 3,928 -- -- 12/85
--
Florida -- 475 -- -- -- 402 -- 402 -- -- 3/85
Florida -- 41 -- -- -- 41 -- 41 -- -- 6/78
Florida -- 80 -- -- -- 80 -- 80 -- -- 11/79
Arizona -- 978 -- 110 -- 978 110 1,088 -- -- 3/85
Ohio -- 1,006 -- 175 -- 872 175 1,047 -- -- 12/77
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total Non-
operating
properties -- 7,996 -- 288 -- 6,373 288 6,661 --
--------- --------- --------- --------- --------- --------- --------- --------- ---------
HOTEL
- --------------
Florida 2,742 439 1,921 1,120 -- 439 2,453 2,892 1,567 1973 9/74
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total
operating
properties 2,742 439 1,921 1,120 -- 439 2,453 2,892 1,567
-------- -------- -------- -------- -------- -------- -------- -------- --------
GRAND TOTAL $ 2,742 $ 8,435 $ 1,921 $ 1,408 $ -- $ 6,812 $ 2,741 $ 9,553 $ 1,567
========= ========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
SCHEDULE III
Page 2 of 2
(A) Except as discussed in Note 2 to the "Notes to Consolidated
Financial Statements," real estate owned is carried at the lower
of cost or fair value less costs to sell. At August 31, 1997,
the amount of the allowance for possible losses was approximately
$3,545,000, which related to land held for sale.
(B) Reconciliation of real estate properties:
For the Year Ended
(000's omitted)
8/31/97 8/31/96 8/31/95
------- ------- -------
Balance, beginning of year $12,612 $12,934 $17,768
Additions during the period:
Acquisitions -- -- 830
Capitalized costs 78 49 81
Deductions during the period:
Real estate sold or assets
retired (on which financing
was provided by the Company
in certain cases) 3,137 371 5,745
------- ------- -------
Balance, end of year $ 9,553 $12,612 $12,934
======= ======= =======
(C) Operating properties and any related improvements are being
depreciated by the "straight line" method over the estimated
useful lives of such assets, which are generally 30 years for
buildings and 5 years for furniture and fixtures.
Reconciliation of accumulated depreciation:
For the Year Ended
(000's omitted)
8/31/97 8/31/96 8/31/95
------- ------- -------
Balance, beginning of year $1,460 $1,369 $2,669
Additions during the period 128 121 326
Depreciation associated with
assets sold or retired (21) (30) (1,626)
------ ------ ------
Balance, end of year $1,567 $1,460 $1,369
====== ====== ======
(D) The aggregate cost for federal income tax purposes is approximately
$9,643,000 at August 31, 1997.
EXHIBIT INDEX
Report on Form 10-K for the fiscal year ended August 31, 1997
Page Number
Exhibit in Manually
Number Description Signed Original
3(a) Certificate of Incorporation of
Registrant.*
3(b) By-Laws of Registrant.*
3(c) Certificate of Amendment to the
Certificate of Incorporation (filed
as an Exhibit to Registrant's Form
10-K for the fiscal year ended August
31, 1987 and incorporated herein by
reference).
3(d) Certificate of Amendment to the
Certificate of Incorporation of the
Registrant (filed as an Exhibit to
Registrant's Form 10-K for the
fiscal year ended August 31, 1989 and
incorporated herein by reference).
3(e) Certificate of Amendment of the
Certificate of Incorporation of
Ridgewood Properties, Inc. dated May
23, 1991 (filed as an Exhibit
to Registrant's Form 10-K for the
fiscal year ended August 31, 1991 and
incorporated herein by reference).
3(f) Certificate of Amendment of the
Certificate of Incorporation of
Ridgewood Properties, Inc.
dated March 30, 1993 (filed as
Exhibit 3 to Registrant's Form 10-Q
for the fiscal quarter ended February
28, 1993 and incorporated herein by
reference).
3(g) Certificate of Amendment of the
Certificate of Incorporation of
Ridgewood Properties, Inc. dated
January 26, 1994 (filed as Exhibit 3
to Registrant's Form 10-Q for the
fiscal quarter ended February 28,
1994 and incorporated herein by
reference).
3(h) Certificate of Amendment to
Certificate of Incorporation by
Ridgewood Hotels, Inc. (filed as an
Exhibit to Registrant's Form 8-K on
February 5, 1997, and incorporated
herein by reference).
4(a) Stock Purchase Agreement between
Ridgewood Properties, Inc. and Triton
Group Ltd., dated as of August 15,
1994 (filed as an Exhibit to
Registrant's Form 8-K on August 15,
1994, and incorporated herein by
reference).
4(b) August 15, 1994 Press Release issued
by Ridgewood Properties, Inc. (filed
as an Exhibit to Registrant's Form
8-K on August 15, 1994, and
incorporated herein by reference).
4(c) Stock Purchase Agreement between
Ridgewood Properties, Inc. and
Hesperus Partners Ltd., dated as of
August 29, 1994 (filed as an Exhibit
to Registrant's Form 8-K on August
15, 1994, and incorporated herein by
reference).
4(d) Certificate of Designation,
Preferences and Rights of Series A
Convertible Preferred Stock of the
Registrant (filed as an Exhibit to
Registrant's Registration Statement
on Form S-8 filed on November 8, 1994
(No. 33-866084) and incorporated
herein by reference).
4(e) Notice of Exercise by N. Rusell
Walden dated January 31, 1997 (filed
as an Exhibit to Registrant's Form
8-K on February 5, 1997, and
incorporated herein by reference).
4(f) Notice of Exercise by Karen S. Hughes
dated January 31, 1997 (filed as an
Exhibit to Registrant's Form 8-K on
February 5, 1997, and incorporated
herein by reference).
4(g) Share Security Agreement between N.
Russell Walden and Ridgewood
Properties, Inc. dated January 31,
1997 (filed as an Exhibit to
Registrant's Form 8-K on February 5,
1997, and incorporated herein by
reference).
4(h) Share Security Agreement between
Karen S. Hughes and Ridgewood
Properties, Inc. dated January 31,
1997 (filed as an Exhibit to
Registrant's Form 8-K on February 5,
1997, and incorporated herein by
reference).
10(a) Employment Agreement between N. R.
Walden and CMEI, Inc., dated March
28, 1985.*
10(b) Bill of Sale and Assumption of
Liabilities between CMEI, Inc. and
Ridgewood Properties, Inc. dated
December 9, 1985.*
10(c) Ridgewood Properties, Inc.
Supplemental Retirement and Death
Benefit Plan dated January 1, 1987
(filed as an Exhibit to Registrant's
Form 10-K for the fiscal year ended
August 31, 1988 and incorporated
herein by reference).
10(d) Post-Employment Consulting Agreement
between N. R. Walden and Ridgewood
Properties, Inc. dated September 4,
1991 (filed as an Exhibit to
Registrant's Form 10-K for the fiscal
year ended August 31, 1991 and
incorporated herein by reference).
10(e) Post-Employment Consulting Agreement
between Karen S. Hughes and Ridgewood
Properties, Inc. dated September 4,
1991 (filed as an Exhibit to
Registrant's Form 10-K for the fiscal
year ended August 31, 1991 and
incorporated herein by reference).
10(f) Post-Employment Consulting Agreement
between Byron T. Cooper and Ridgewood
Properties, Inc. dated September 4,
1991 (filed as an Exhibit to
Registrant's Form 10-K for the fiscal
year ended August 31, 1991 and
incorporated herein by reference).
10(g) Post-Employment Consulting Agreement
between M. M. McCullough and
Ridgewood Properties, Inc. dated
September 4, 1991 (filed as an
Exhibit to Registrant's Form 10-K for
the fiscal year ended August 31, 1991
and incorporated herein by
reference).
10(h) Ridgewood Properties, Inc. Stock
Option Plan dated March 30, 1993 and
as amended September 14, 1993 (filed
as an Exhibit to Registrant's Form
10-Q for the quarter ended February
28, 1994, and incorporated herein by
reference).
10(i) Stock Option Agreement between Byron
T. Cooper and Ridgewood Properties,
Inc. dated April 1, 1993 and as
approved on January 12, 1994 (filed
as an Exhibit to Registrant's Form
10-Q for the quarter ended February
28, 1994, and incorporated herein by
reference).
10(j) Stock Option Agreement between Luther
A. Henderson and Ridgewood
Properties, Inc. dated April 1, 1993
and as approved on January 12, 1994
(filed as an Exhibit to Registrant's
Form 10-Q for the quarter ended
February 28, 1994, and incorporated
herein by reference).
10(k) Stock Option Agreement between Karen
S. Hughes and Ridgewood Properties,
Inc. dated April 1, 1993 and as
approved on January 12, 1994 (filed
as an Exhibit to Registrant's Form
10-Q for the quarter ended February
28, 1994, and incorporated herein by
reference).
10(l) Stock Option Agreement between M. M.
McCullough and Ridgewood Properties,
Inc. dated April 1, 1993 and as
approved on January 12, 1994 (filed
as an Exhibit to Registrant's Form
10-Q for the quarter ended February
28, 1994, and incorporated herein by
reference).
10(m) Stock Option Agreement between N. R.
Walden and Ridgewood Properties, Inc.
dated April 1, 1993 and as approved
on January 12, 1994 (filed as an
Exhibit to Registrant's Form 10-Q for
the quarter ended February 28, 1994,
and incorporated herein by
reference).
10(n) Stock Option Agreement between
Gregory T. Weigle and Ridgewood
Properties, Inc. dated April 1, 1993
and as approved on January 12, 1994
(filed as an Exhibit to Registrant's
Form 10-Q for the quarter ended
February 28, 1994, and incorporated
herein by reference).
10(o) Stock Option Agreement between Karen
S. Hughes and Ridgewood Properties,
Inc. dated January 31, 1994 (filed as
an Exhibit to Registrant's Form 10-Q
for the quarter ended February 28,
1994, and incorporated herein by
reference).
10(p) Stock Option Agreement between N. R.
Walden and Ridgewood Properties, Inc.
dated January 31, 1994 (filed as an
Exhibit to Registrant's Form 10-Q for
the quarter ended February 28, 1994,
and incorporated herein by
reference).
10(q) Ridgewood Properties, Inc. 1993 Stock
Option Plan, as amended on October
26, 1994 (filed as an Exhibit to
Registrant's Registration Statement
on Form S-8 filed on November 8, 1994
(No. 33-86084) and incorporated
herein by reference).
10(r) Amended and Restated Basic Agreement
between RW Hotel Investment Partners,
L.P. and Ridgewood Hotels, Inc. dated
August 14, 1995 (filed as an Exhibit
to Registrant's Form 10-K for the
fiscal year ended August 31, 1995,
and incorporated herein by
reference).
10(s) Amended and Restated Limited
Partnership Agreement of RW Hotel
Partners, L.P. dated September 8,
1995 (filed as an Exhibit to
Registrant's Form 10-K for the fiscal
year ended August 31, 1995, and
incorporated herein by reference).
10(t) Management Agreement (Holiday Inn
Hurstbourne) between RW Hotel
Partners, L.P. and Ridgewood
Properties, Inc. dated August 16,
1995 (filed as an Exhibit to
Registrant's Form 10-K for the fiscal
year ended August 31, 1995, and
incorporated herein by reference).
10(u) Mortgage, Assignment of Leases and
Rents and Security Agreement Between
Bloomfield Acceptance Company, L.L.C.
and Ridgewood Orlando, Inc. dated
June 30, 1995 (filed as an Exhibit to
Registrant's Form 10-K for the fiscal
year ended August 31, 1995, and
incorporated herein by reference).
10(v) Security Agreement between Ridgewood
Orlando, Inc. and Bloomfield
Acceptance Company, L.L.C. dated June
30, 1995 (filed as an Exhibit to
Registrant's Form 10-K for the fiscal
year ended August 31, 1995, and
incorporated herein by reference).
10(w) Mortgage Note between Bloomfield
Acceptance Company and Ridgewood
Orlando, Inc. dated June 30, 1995
(filed as an Exhibit to Registrant's
Form 10-K for the fiscal year ended
August 31, 1995, and incorporated
herein by reference).
10(x) Agreement and Plan of Merger between
and among Ridgewood Properties, Inc.,
Ridgewood Acquisition Corp., Wesley
Hotel Group, Inc., Wayne McAteer and
Samuel King dated December 7, 1995
(filed as an Exhibit to Registrant's
Form 10-Q for the quarter ended
November 30, 1995, and incorporated
herein by reference).
10(y) Shareholders' Agreement by and between
Samuel King and Ridgewood Properties,
Inc. dated December 1995 (filed as an
Exhibit to Registrant's Form 10-K for
the fiscal year ended August 31, 1996,
and incorporated herein by reference).
10(z) Warrants to Purchase Shares of Common
Stock of Ridgewood Properties, Inc.
issued to Hugh Jones on December 16,
1996 (filed as an Exhibit to
Registrant's Form 10-Q for the quarter
ended November 30, 1996, and
incorporated herein by reference).
10(aa) Promissory Note between N. Russell
Walden and Ridgewood Properties, Inc.
dated January 31, 1997 (filed as an
Exhibit to Registrant's Form 8-K on
February 5, 1997 and incorporated
herein by reference).
10(bb) Promissory Note between Karen S.
Hughes and Ridgewood Properties, Inc.
dated January 31, 1997 (filed as an
Exhibit to Registrant's Form 8-K on
February 5, 1997 and incorporated
herein by reference).
13 1997 Annual Report to Shareholders.
22 Subsidiaries of Registrant.
23 Consent of Price Waterhouse LLP
27 Financial Data Schedule.
_______________
* Previously filed as an Exhibit to Registrant's
Registration Statement on Form 10 filed on November 19,
1985 (Securities Exchange Act File No. 0-14019), and
incorporated herein by reference.
EXHIBIT 13
RIDGEWOOD
HOTELS, INC.
ANNUAL REPORT
1997
FINANCIAL STATEMENTS
Ridgewood Hotels, Inc. (the "Company") is primarily engaged in
the business of acquiring, developing, operating and managing hotel
properties in the Southeast and "Sunbelt" areas. Additionally, the
Company owns several land parcels which are held for sale.
Board of Directors Officers
Michael M. Earley N. Russell Walden
President - Triton Group President
Management
Luther A. Henderson Byron T. Cooper
President - Pirvest, Inc. Vice President, Construction and
Planning
N. Russell Walden
President - Ridgewood Karen S. Hughes
Hotels, Inc. Vice President, Chief Financial
Officer and Secretary
Corporate Offices
2859 Paces Ferry Road, Suite 700
Atlanta, Georgia 30339
Telephone: (770) 434-3670
Market For Registrant's Common Equity and Related Stockholder Matters
The common stock, $0.01 par value per share (the "Common
Stock"), of the Company is listed in the National Association of
Securities Dealers (NASDAQ) over-the-counter bulletin board service.
However, there has been an absence of an established public trading
market for the Common Stock.
Shares outstanding and per share amounts for all periods
presented have been retroactively adjusted for the two-for-one
stock split effected in the form of a stock dividend on August 31,
1993 and a three-for-one stock split effected in the form of a
stock dividend on October 31, 1994. On October 31, 1997, there
were 1,538,480 shares of Common Stock outstanding held by
approximately 238 shareholders of record. The Company paid its
first and only cash dividend on the Common Stock during fiscal
year 1990. The dividend paid was approximately $0.06 per share
of Common Stock, which totaled approximately $397,000. The Company
may pay future dividends if and when earnings and cash are
available. The declaration of dividends on the Common Stock is
within the discretion of the Board of Directors of the Company
and is, therefore, subject to many considerations, including
operating results, business and capital requirements and other
factors.
<TABLE>
Selected Financial Data
<CAPTION> ----------------------------------------------------------------------
($000's omitted, except
per share data) 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data as of August 31
Total Assets $ 8,266 $ 8,724 $ 9,673 $ 14,351 $ 34,655
Term Loan(s) Payable 2,804 2,858 2,796 5,415 12,316
Shareholders' Investment 4,038 4,441 5,612 7,440 20,564
Income Statement Data
Year Ended August 31
Net Revenues 8,408 4,314 8,675 30,082 18,619
Net Loss (463) (1,178) (1,656) (3,631) (1,860)
Loss Per Common Share (1) $ (0.58) $ (1.29) $ (1.90) $ (0.64) $ (0.32)
<FN>
(1) Retroactively adjusted for the two-for-one stock split effected
in the form of a stock dividend on August 31, 1993 and a
three-for-one stock split effected in the form of a stock dividend
on October 31, 1994.
</FN>
</TABLE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources -
During fiscal year 1997, the Company received net proceeds of
approximately $3,320,000 from the sale of undeveloped land in Florida,
Texas, Ohio and Georgia. The proceeds were used to provide additional
working capital to the Company.
In June 1995, the Company received a loan from a commercial
lender to refinance the Ramada Inn in Longwood, Florida. The loan
proceeds were $2,800,000. The loan is for a term of 20 years with
an amortization period of 25 years, at the rate of 10.35%. Principal
and interest payments will be approximately $26,000 per month beginning
August 1, 1995. A portion of the proceeds from the loan was used to
repay a term loan, and the remaining proceeds of approximately
$1,500,000 were used for working capital. In addition, the Company
is required to make a repair escrow payment comprised of 4% of estimated
revenues, as well as real estate tax and insurance escrow payments.
The total amount for these items will be a payment of approximately
$20,000 per month and can be adjusted annually. The escrow funds are
used as tax, insurance and repair needs arise. As of August 31, 1997,
there was approximately $280,000 of escrowed funds related to this loan
agreement.
On January 23, 1994, the Company granted options to purchase
375,000 and 75,000 shares of Common Stock at a price of $1.00 per
share to its President and Chief Financial Officer, respectively,
under the Stock Option Plan. On January 31, 1997, all of the options
were exercised. In conjunction with the exercise, a promissory note
for $75,000 was received from the Chief Financial Officer in exchange
for the Company's common stock. The $75,000 promissory note due from
the Chief Financial Officer is payable in full on January 31, 1998
and accrues interest at a rate per annum of 8.25%. The note receivable
is reflected as a contra equity account in the financial statements.
On December 16, 1996, 75,000 warrants were issued to Hugh Jones, a
hotel acquisitions consultant for the Company. Each warrant represents
the right to purchase from the Company one share of Common Stock at the
exercise price of $3.50 per share. The warrants may be exercised at any
time within five years from the date of issuance.
On August 16, 1995, RW Hotel Partners, L.P. was organized as a
limited partnership (the "Partnership") under the laws of the State of
Delaware. Concurrently, the Company formed Ridgewood Georgia, Inc., a
wholly-owned Georgia corporation ("Ridgewood Georgia") which became the
sole general partner in the Partnership with RW Hotel Investments, L.L.C.
("Investor") as the limited partner. Ridgewood Georgia has a 1% base
distribution percentage versus 99% for the Investor. However,
distribution percentages do vary depending on certain defined preferences
and priorities pursuant to the Partnership Agreement ("Agreement") which
are discussed below. The partnership was originally formed to acquire a
hotel property in Louisville, Kentucky. The Partnership consists of six
hotel properties at August 31, 1997. The terms of this partnership will
serve as a guideline for other potential acquisitions with this or other
investors.
Income and loss are allocated to the Company and the limited
partner based upon the formula for allocating distributable cash as
described below but subject to an annual limitation which would result
in no more than 88% of partnership income or loss (as defined) being
allocated to the limited partner.
Distributable Cash is defined as the net income from the
property before depreciation plus any net sale proceeds and net financing
proceeds less capital costs. Distributions of Distributable Cash shall
be made as follows:
- First, to the Investor until there has been distributed to
the Investor an amount equal to a 15% cumulative internal rate of return
on the Investor's investment.
- Second, to Ridgewood Georgia until the aggregate amount
received by Ridgewood Georgia equals the aggregate cash contributions
made by Ridgewood Georgia to the Partnership (as of August 31, 1997,
Ridgewood Georgia had contributed approximately $772,000).
- Third, 12% to Ridgewood Georgia and 88% to the Investor until
there has been distributed to the Investor an amount equal to a 25%
cumulative internal rate of return on Investor's investment.
- Fourth, 75% of the residual to the Investor and 25% to
Ridgewood Georgia.
A Management Agreement exists between the Partnership and the
Company as Manager ("Manager") for the purpose of managing hotels in
Kentucky, Georgia and South Carolina. The Manager shall be entitled to
the following property management fees:
(1) 2.5% of the gross revenues from the hotel property.
(2) 1% of the gross revenues from the hotel property as an
incentive fee if distributable cash equals or exceeds 13.5% of certain
aggregate acquisition costs.
A Construction Management Agreement exists between the Partnership
and the Manager for the purpose of managing future improvements to the
properties.
The Company currently has approximately $772,000 invested in
the Partnership. As of August 31, 1997, the Company has recorded
approximately $199,000 equity in the income of the Partnership, but
has recorded a provision for possible losses of approximately $199,000
as there is no indication that the Company will be able to recover the
equity income in the Partnership given the provisions of the
partnership agreement regarding the distribution of cash to the
partners upon liquidation. In August 1995, the Partnership purchased
a hotel in Louisville, Kentucky for approximately $16,000,000. In
December 1995 and January 1996, the Partnership purchased four hotel
properties in Georgia for approximately $15,000,000 and a hotel in
South Carolina for $4,000,000, respectively. The Company may make
future capital contributions to the Partnership. Management expects
to fund such capital contributions through available cash or from
loans from the Partnership. Additionally, the Company may invest in
other partnerships to acquire hotels in the future.
During the third quarter of fiscal year 1997, the Company
forfeited approximately $878,000 of non-refundable deposits and other
costs related to the unsuccessful purchase of a hotel in Atlanta,
Georgia.
Since the Company is not currently generating sufficient
operating cash to cover overhead and debt service, the Company must
continue to sell real estate, seek alternative financing or otherwise
recapitalize the Company. Including the sale of land in Georgia in
September 1997 of $350,000, there is available cash of approximately
$1.3 million. This available cash will be used to fund operating
losses until new sources of income can be generated. The Company also
intends to aggressively pursue the acquisition of hotels and hotel
management contracts through similar partnerships as described
above which would provide additional cash flow. Currently, the Company
has a letter proposal with another company to locate and assist in the
acquisition of hotel properties for that company. Additionally,
as hotel properties are acquired, the Company would receive management
contracts to manage those properties. However, given increased
competition in the hotel acquisition market, acquisitions of
economically viable properties are more difficult to identify and
purchase.
The Company owns one hotel, has 1% ownership interest in six
other hotels which it also manages and currently has five other hotels
which it manages but has no ownership. Under the terms of franchise
agreements, the Company is required to comply with standards established
by franchisors, including property renovations and upgrades. The
success of the Company's operations continues to be dependent upon such
unpredictable factors as the general and local economic conditions to
which the real estate and hotel industry is particularly sensitive:
labor, environmental issues, weather conditions, consumer spending or
general business conditions and the availability of satisfactory
financing.
Results of Operations -
Sales of real estate properties for the fiscal year ended
August 31, 1997 increased compared to 1996 due primarily to the sale
of the Company's undeveloped land in Maitland, Florida. Sales of real
estate properties for the fiscal year ended August 31, 1996 decreased
compared to 1995 due to the sale of a hotel and residential lots in
1995. The Company had gains from real estate sales of approximately
$1,354,000, $281,000 and $291,000 during fiscal years 1997, 1996 and
1995, respectively. Gains or losses on real estate sales are
dependent upon the timing, sales price and the Company's basis in
specific assets sold and will vary considerably from period to period.
Revenues from wholly-owned hotel operations for fiscal year 1997
increased $300,000, or 11%, compared to 1996. The increase was due to
occupancy and rate increases at the Company's hotel in Longwood, Florida.
Revenues from real estate properties for fiscal year 1996 decreased
$504,000, or 15%, compared to 1995. The decrease was due to the sale
of a hotel in April 1995.
Revenues from hotel management for the fiscal year 1997 increased
$353,000, or 51%, compared to 1996. Also, revenues from hotel management
for fiscal year 1996 increased $410,000, or 143%, compared to 1995. The
increases were due to a larger number of hotels under management in both
years due to the acquisition of the Wesley Hotel Group in 1995 and the
Company's partnership in RW Hotel Partners, L.P.
Expenses of wholly-owned real estate increased $32,000, or 1%,
for the fiscal year ended August 31, 1997 compared to 1996 due to an
increased occupancy level at the Company-owned hotel. Expenses of
real estate properties decreased $498,000, or 17%, compared to 1995.
The decrease was due to the sale of a hotel in April 1995.
During fiscal year 1997, expenses of hotel management increased
$99,000, or 15%, compared to 1996. During fiscal year 1996, expenses
of hotel management increased $320,000, or 88%, compared to 1995. The
increases were primarily due to larger payroll costs associated with
the increased staff necessary to manage a larger number of hotels.
Due to the Company's investment in a limited partnership during
fiscal years 1997 and 1996, the Company recognized equity in the income
of the partnership of approximately $65,000 and $209,000, respectively.
Income from loans and temporary investments decreased $3,000 and
$70,000 for the fiscal year 1997 compared to 1996 and 1996 compared to
1995, respectively, due to less cash available for investment throughout
those fiscal years.
The Company received approximately $398,000 as a consulting fee
during fiscal year 1997. This consulting fee was earned by the Company
for its involvement in the negotiations and purchase of a large hotel
by another hotel company.
The provision of $50,000 for possible losses on real estate
investments in fiscal year 1995 pertains to a land parcel in Atlanta,
Georgia which was subsequently sold in fiscal year 1996.
The provision of $199,000 for possible losses on investment in
limited partnership in fiscal year 1997 was recorded as there is no
indication that the Company will be able to recover the equity income
in the partnership.
Interest expense decreased by $65,000 during fiscal year 1996
compared to 1995. The decrease was primarily due to lower interest
rates pertaining to the Company's term loans.
General, administrative and other expenses increased by $67,000
for fiscal year 1997 compared to 1996 and $99,000 for fiscal year 1996
compared to 1995 due to an overall increase in costs associated with
managing and acquiring more hotels.
Due to the Company's continuing aggressive movement into the
business of acquiring, developing, operating and selling hotel
properties throughout the country, the Company incurred business
development costs of $1,067,000, $193,000 and $165,000, respectively,
in fiscal years 1997, 1996 and 1995. Approximately $878,000 of the
business development expense in fiscal year 1997 related to costs on
the unsuccessful purchase of a hotel in Atlanta, Georgia.
Effect of Inflation -
Inflation tends to increase the Company's cash flow from income
producing properties since rental rates generally increase by a greater
amount than associated expenses. Inflation also generally tends to
increase the value of the Company's land portfolio.
Offsetting these beneficial effects of inflation are the
increased cost and decreased supply of investment capital for real
estate that generally accompany inflation.
<TABLE>
RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1997 AND 1996
($000'S omitted, except per share data)
<CAPTION>
August 31, August 31,
ASSETS 1997 1996
------ --------- ---------
<S> <C> <C>
REAL ESTATE INVESTMENTS:
Real Estate Properties
Operating Properties, net $ 1,325 $ 1,383
Land Held for Sale 6,661 9,769
---------- ----------
7,986 11,152
Mortgage Loans 2 5
---------- ----------
Total real estate investments 7,988 11,157
Allowance for Possible Losses
on Real Estate Investments (3,544) (4,700)
---------- ----------
Net real estate investments 4,444 6,457
INVESTMENT IN LIMITED PARTNERSHIP, NET 772 957
CASH AND CASH EQUIVALENTS 1,596 298
OTHER ASSETS 1,454 1,012
---------- ----------
$ 8,266 $ 8,724
========== ==========
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</FN>
</TABLE>
<TABLE>
<CAPTION>
August 31, August 31,
LIABILITIES AND SHAREHOLDERS' INVESTMENT 1997 1996
---------------------------------------- ---------- ----------
<S> <C> <C>
ACCOUNTS PAYABLE $ 159 $ 103
ACCRUED SALARIES, BONUSES AND
OTHER COMPENSATION 863 782
ACCRUED PROPERTY TAX EXPENSE 118 151
ACCRUED INTEREST AND OTHER LIABILITIES 284 389
TERM LOANS 2,804 2,858
---------- ----------
Total Liabilities 4,228 4,283
---------- ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' INVESTMENT
Series A Convertible Cumulative Preferred
Stock, $1 par value, 1,000,000 shares
authorized, 450,000 shares issued and
outstanding in 1997 and 1996 liquidation
preference and callable at $3,600,000 450 450
Common stock, $0.01 par value, 5,000,000
shares authorized, 1,538,480 and 1,088,480
shares issued and outstanding in 1997 and 15 11
1996, respectively.
Paid-in Surplus 16,333 16,202
Note receivable from officer for
purchase of common stock (75) --
Accumulated deficit since
December 30, 1985 (12,685) (12,222)
---------- ----------
Total Shareholders' Investment 4,038 4,441
---------- ----------
$ 8,266 $ 8,724
========== ==========
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</FN>
</TABLE>
<TABLE>
RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED AUGUST 31, 1997, 1996 AND 1995
($000's Omitted, except per share data)
<CAPTION>
1997 1996 1995
-------- --------- ---------
<S> <C> <C> <C>
REVENUES:
Revenues from wholly-owned hotel operations........ $ 3,048 $ 2,748 $ 3,252
Revenues from hotel management .................... 1,050 697 287
Sales of real estate properties ................... 3,808 617 5,018
Equity in net income of partnership ............... 65 209 --
Income from loans and temporary investments........ 40 43 113
Other.............................................. 397 -- 5
- -------- ---------- ----------
8,408 4,314 8,675
---------- ---------- ----------
COSTS AND EXPENSES:
Expenses of wholly-owned real estate properties ... 2,396 2,364 2,862
Expenses of hotel management ...................... 781 682 362
Costs of real estate sold ......................... 2,454 336 4,727
Depreciation and amortization ..................... 258 268 512
Provision for possible losses on
real estate investments ......................... -- -- 50
Provision for possible losses on
investment in limited partnership ............... 199 -- --
Interest expense, net of interest capitalized...... 345 345 410
General, administrative and other.................. 1,371 1,304 1,205
Business development .............................. 1,067 193 165
---------- ---------- ----------
8,871 5,492 10,293
---------- ---------- ----------
LOSS BEFORE INCOME TAXES (463) (1,178) (1,618)
INCOME TAXES -- -- (38)
---------- ---------- ----------
NET LOSS $ (463) $ (1,178) $ (1,656)
---------- ---------- ----------
LOSS PER COMMON SHARE $ (0.58) $ (1.29) $ (1.90)
========== ========== ==========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<TABLE>
Ridgewood Hotels, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended August 31, 1997, 1996 and 1995
($000's Omitted)
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ................................................... $ (463) $ (1,178) $ (1,656)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization .......................... 258 268 512
Decrease in allowance for possible losses
on real estate investments ........................... -- -- (173)
Increase in allowance for possible losses
on investment in limited partnership ................. 199 -- --
Gain from sale of real estate properties ............... (1,354) (293) (68)
Equity in net income of partnership .................... (14) (209) --
(Increase) decrease in other assets .................... (571) (214) 134
Increase (decrease) in accounts payable
and accrued liabilities .............................. (1) 115 (232)
---------- ---------- ----------
Total adjustments ...................................... (1,483) (333) 173
---------- ---------- ----------
Net cash used in operating activities .................. (1,946) (1,511) (1,483)
---------- ---------- ----------
Cash flows from investing activities:
Principal payments received on mortgage loans ............ 3 39 36
Investment in limited partnership ........................ -- (516) (232)
Proceeds from sale of real estate ........................ 3,313 634 4,620
Additions to real estate properties ...................... (78) (49) (915)
---------- ---------- ----------
Net cash provided by investing activities .............. 3,238 108 3,509
---------- ---------- ----------
Cash flows from financing activities:
Dividends on preferred stock ............................. (315) (135) (172)
Issuance of common stock upon exercise of stock options .. 375 -- --
Proceeds from issuance of debt ........................... -- -- 2,800
Debt financing costs ..................................... -- -- (159)
Repayments of debt ....................................... (54) (44) (5,419)
---------- ---------- ----------
Net cash provided by (used in) financing activities .... 6 (179) (2,950)
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents ......... 1,298 (1,582) (924)
Cash and cash equivalents at beginning of year ............... 298 1,880 2,804
---------- ---------- ----------
Cash and cash equivalents at end of year ........................ $ 1,596 $ 298 $ 1,880
========== ========== ==========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<TABLE>
Ridgewood Hotels, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended August 31, 1997, 1996 and 1995
- -------------------------------------------------------------------------------------------------
<CAPTION>
Supplemental disclosures of cash flow information:
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Interest paid ...................................... $ 345,000 $ 345,000 $ 450,000
Income taxes paid .................................. $ -- $ -- $ 38,000
- -------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information and non-cash activity:
1997 1996 1995
------------ ------------ ------------
Decrease in allowance for possible losses due
to sale of parcel of land ......................... $ 1,156,000 $ -- $ --
During the second quarter of fiscal year 1997, the
Company's President and Chief Financial Officer
exercised their stock options for 450,000 shares of
the Company's common stock. In conjunction with the
exercise, a promissory note and cash were received
by the Company and common stock issued as follows:
Cash received from Company's President .......... $ 375,000 $ -- $ --
Promissory Note received from Chief Financial
Officer upon exercise of stock options ...... $ 75,000 $ -- $ --
Issuance of 450,000 shares of common stock,
$0.01 par value, in 1997 .................... $ 450,000 $ -- $ --
Issuance of 125,000 shares of common stock, $.01
par value, in conjunction with purchase of hotel
management company ................................ $ -- $ 187,500 $ --
Assumption of notes payable in conjunction with
purchase of hotel management company .............. $ -- $ 106,000 $ --
- -------------------------------------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<TABLE>
RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
FOR THE YEARS ENDED AUGUST 31, 1997, 1996 AND 1995
($000's Omitted, except per share data)
<CAPTION>
Note
Receivable
Preferred Common From Total
Stock Stock Officer for Share-
---------------------- ------------------------ Paid-in Purchase of Accumulated holders'
Shares Amount Shares Amount Surplus Common Stock Deficit Investment
---------- ---------- ------------ ---------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, August 31, 1994 450,000 $ 450 963,480 $ 10 $ 16,368 $ -- $ (9,388) $ 7,440
Dividends on
Preferred Stock -- -- -- -- (172) -- -- (172)
Net Loss -- -- -- -- -- -- (1,656) (1,656)
----------- ----------- ------------- ----------- ----------- ------------- ----------- -----------
Balance, August 31, 1995 450,000 $ 450 963,480 $ 10 $ 16,196 $ -- $ (11,044) $ 5,612
Dividends on
Preferred Stock -- -- -- -- (180) -- -- (180)
Issuance of Common
Stock -- -- 125,000 1 186 -- 187
Net Loss -- -- -- -- -- -- (1,178) (1,178)
----------- ----------- ------------- ----------- ----------- ------------- ----------- -----------
Balance, August 31, 1996 450,000 $ 450 1,088,480 $ 11 $ 16,202 $ -- $ (12,222) $ 4,441
Dividends on
Preferred Stock -- -- -- -- (315) -- -- (315)
Issuance of Common
Stock -- -- 450,000 4 446 (75) -- 375
Net Loss -- -- -- -- -- -- (463) (463)
----------- ----------- ------------- ----------- ----------- ------------- ----------- -----------
Balance, August 31, 1997 450,000 $ 450 1,538,480 $ 15 $ 16,333 $ (75) $ (12,685) $ 4,038
=========== =========== ============= =========== =========== ============= =========== ===========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
Ridgewood Hotels, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
August 31, 1997, 1996 and 1995
1. Description of Business and Significant Accounting Policies
Description of the Business
Ridgewood Hotels, Inc. (the "Company") is primarily engaged in
the business of acquiring, developing, operating and managing hotel
properties in the Southeast and "Sunbelt" areas. Additionally, the
Company owns several land parcels which are held for sale.
The Company's common stock is listed in the National Association
of Securities Dealers (NASDAQ) over-the-counter bulletin board service
(see Note 6). During the fourth quarter of fiscal year 1994, the
Company purchased and retired all of the shares of common stock owned
by the Company's then-majority stockholder, Triton Group, Ltd. On April
15, 1997, Security Systems Holdings, Inc. merged with Triton Group Ltd.,
and the newly-combined entity was named Alarmguard Holdings, Inc.
("Alarmguard"). The cash used to purchase the common stock ("Alarmguard
Shares") was from the proceeds received by the Company from the sale of
its mobile home parks in June 1994.
The Company also purchased and retired all the shares of common
stock owned by Hesperus Partners, Ltd. ("Hesperus") (the "Hesperus
Shares), formerly known as Harris Associates, L.P. The stock was
exchanged for a note the Company received from Sun Communities
Operating Limited Partnership in conjunction with the sale of the
mobile home parks (the "Note"). In addition to assigning the Note
and the mortgage securing the Note, the Company had agreed and did pay
Hesperus interest on the outstanding principal balance of the Note from
the closing date through June 15, 1995.
Since the Company is not currently generating sufficient operating
cash to cover overhead and debt service cost, the Company must continue
to sell real estate (see Note 12), seek alternative financing, or
otherwise, recapitalize the Company. The Company is currently reviewing
the viability of all of these alternatives.
Basis of Presentation and Consolidation -
The consolidated financial statements of the Company include the
accounts of all of its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
Certain prior year amounts have been reclassified to conform with
the current year presentation.
In fiscal year 1996, the Company purchased a hotel management
company, which is now a wholly-owned subsidiary of the Company. In
conjunction with this purchase, five other active corporations were
acquired, and four remain as wholly-owned subsidiaries. Additionally,
another wholly-owned subsidiary was formed in 1996 and one in fiscal
year 1997. These subsidiaries manage and employ the employees at
various hotels. In fiscal year 1995, the Company formed two wholly-owned
subsidiaries for the purpose of managing hotels and another for the
sole purpose of owning the hotel in Longwood, Florida, which serves as
collateral for the Company's term loan. The lender required that a
separate subsidiary own the hotel. One other subsidiary remains, but
is not operational.
The investment in the limited partnership is being accounted for
using the equity method of accounting (See Note 8).
Valuation of Real Estate Properties -
In 1997, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets
to be Disposed of ("FAS 121"). This statement requires that long-lived
assets and certain identified intangibles to be held and used by an
entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The statement requires the use of undiscounted estimated
cash flows expected from the asset's operations and eventual disposition.
If the sum of the expected future cash flows is less than the carrying
value of the asset, an impairment loss is recognized based on the fair
value of the asset. Adoption of this pronouncement had no material
effect on the consolidated statement of operations for the year ended
August 31, 1997.
Under FAS 121, properties are classified as either operating
properties or properties held for sale. If determined to be impaired,
operating properties are written down to their fair value, and the
associated loss cannot be recovered if the fair value of the property
increases. Properties held for sale are written down to their fair
value less cost to sell, but the associated loss can be recovered in
the event the fair value of the property increases.
Stock-Based Compensation -
During 1997, the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123").
This statement provides entities a choice between fair value and
intrinsic value based methods of accounting for stock based compensation
plans. The Company has elected to continue using the intrinsic value
method. Adoption of this pronouncement had no material effect on the
consolidated statement of operations for the year ended August 31, 1997.
Depreciation Policies -
The Company depreciates operating properties and any related
improvements by using the straight-line method over the estimated
useful lives of such assets, which are generally 30 years for building
and land improvements and 5 years for furniture, fixtures and equipment.
Depreciation expense for the year ended August 31, 1997 was $166,000.
Capitalization Policies -
The Company capitalizes interest as a cost of properties while
they are under construction or development. Costs of planning and
development performed by outside contractors and all other direct
costs related to properties under construction or development are also
capitalized. Capitalization of interest and other costs is discontinued
when a project is substantially completed, or if active development
ceases.
Total interest incurred and paid amounted to approximately
$345,000, $345,000 and $450,000 in 1997, 1996 and 1995, respectively.
No interest was capitalized; however, the effect on the financial
statements from capitalizing amounts permitted would not have been
material.
Repairs and maintenance costs are expensed in the period incurred.
Major improvements to existing properties which increase the usefulness
or useful life of the property are capitalized.
Sale of Real Estate -
All revenue related to the sale of real estate is recognized at
the time of closing. The Company allocates costs of real estate sold
using the specific identification or relative sales value methods based
on the nature of the development. Profit recognition is based upon the
Company receiving adequate cash down payments and other criteria
specified by existing accounting literature.
Cash and Cash Equivalents -
For the purpose of the Statement of Cash Flows, cash includes
cash equivalents. Cash equivalents include all highly liquid
investments with maturities of three months or less.
Fair Value of Financial Instruments -
The recorded values of cash, accounts receivable, accounts payable
and accrued liabilities reflected in the financial statements are
representative of their fair value due to the short-term nature of
the instruments.
Use of Estimates -
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported grants of
revenues and expenses during the reporting period. Actual results
could differ from those estimates. Significant estimates included in
the Company's financial statements include allowances for impairment of
real estate assets and for deferred tax assets.
New Accounting Pronouncements -
In February 1997, Statement of Financial Accounting Standards No.
128, "Earnings Per Share" ("FAS 128") was issued and is effective for
fiscal periods ending after December 15, 1997. The Company will adopt
FAS 128 in fiscal year 1998 and does not expect the effects of FAS 128
to have a material impact on the Company's financial statements.
In June 1997, Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("FAS 130") was issued and is effective
for fiscal years beginning after December 15, 1997. The Company expects
to adopt FAS 130 in fiscal year 1998 and does not expect the effects of
FAS 130 to have a material impact on the Company's financial statements.
In June 1997, Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information"
("FAS 131") was issued and is effective for fiscal years beginning after
December 15, 1997. The Company expects to adopt FAS 131 in fiscal year
1998 and does not expect the effects of FAS 131 to have a material
impact on the Company's financial statements.
2. Real Estate Investments
The Company's real estate properties by type at August 31, 1997,
and 1996 were as follows ($000's omitted):
Furniture
August 31, 1997 Land & Fixtures &
Type of Project Buildings Equipment Total
Hotels 2,535 357 2,892
Less -- accumulated
depreciation (1,567)
1,325
Net operating properties
Land 6,661 -- 6,661
Total $ 7,986
=======
Furniture,
August 31, 1996 Land & Fixtures &
Type of Project Buildings Equipment Total
Hotel $ 2,535 $ 308 $ 2,843
Less -- accumulated
depreciation (1,460)
-------
Net operating property 1,383
Land 9,769 -- 9,769
-------
Total $11,152
=======
Changes in the allowance for possible losses on real estate
investments for the years ended August 31, 1997, 1996 and 1995
were as follows ($000's omitted):
1997 1996 1995
Allowance, beginning of year $4,700 $4,700 $4,873
Provision for possible losses -- -- 50
Reversal of reserves associated
with sales of real estate
assets (1,156) -- (223)
Allowance, end of year $3,544 $4,700 $4,700
====== ====== ======
3. Commitments and Contingencies
In August 1991, each executive officer was offered a Post-Employment
Consulting Agreement (the "Consulting Agreement(s)") whereby the officer
agrees that if he or she is terminated by the Company for other than good
cause, the officer will be available for consulting at a rate equal to
their annual compensation immediately prior to termination. All officers
have chosen to enter into Consulting Agreements. In addition, three other
employees were offered and have chosen to enter into one year Consulting
Agreements. The executive, upon termination, agrees to sign an
unconditional release of all claims and liability in exchange for a one
year (four employees) or two year (two employees) consulting fee
arrangement, depending upon the years of service as an officer or the
designation as a senior executive officer.
On May 2, 1995 a complaint was filed in the Court of Chancery of
the State of Delaware (New Castle County) entitled William N.
Strassburger v. Michael M. Early, Luther A. Henderson, John C. Stiska,
N. Russell Walden, and Triton Group, Ltd., defendants, and Ridgewood
Hotels, Inc., nominal defendant, C.A. No. 14267 (the "Complaint").
The plaintiff is an individual shareholder of the Company who purports
to file the Complaint individually, representatively on behalf of all
similarly situated shareholders, and derivatively on behalf of the
Company. The Complaint challenges the actions of the Company and its
directors in consummating the Company's August 1994 repurchase of its
common stock held by Triton Group, Ltd. and Hesperus Partners Ltd. in
five counts, denominated Waste of Corporate Assets, Breach of Duty of
Loyalty to Ridgewood, Breach of Duty of Good Faith, Intentional
Misconduct, and Breach of Duty of Loyalty and Good Faith to Class.
On July 5, 1995, the Company filed a timely answer generally denying
the material allegations of the complaint and asserting several
affirmative defenses. This case is in the concluding stages of
discovery. No trial date has been set, but the Court has certified
a class of shareholders as plaintiffs for the non-derivative claims but
has not certified the suit as a class action suit. The Company intends
to vigorously contest this matter. While the Company cannot predict
the outcome, Management believes the ultimate resolution of this matter
will not have a material effect on the Company's financial condition.
On August 23, 1996, Great American Resorts filed a complaint in
the Superior Court of Cobb County, State of Georgia, entitled Great
American Resorts, Inc. and Great American Casinos, Inc. v. Charles
Taylor, Deborah Lynn Cannon, Walter D. Hrab and Ridgewood Hotels, Inc.,
Civil Action File No. 9616398-05, alleging that the Company and the
other defendants are liable for breach of contract and breach of
fiduciary duty stemming from a contract between Great American and
one of the Company's subsidiaries. The complaint seeks damages,
attorneys' fees and pre-judgment interest. It also seeks an order
requiring that certain books and records be turned over to the
plaintiffs. On September 27, 1996, the Company filed a timely answer
generally denying the material allegations of the complaint and
asserting several affirmative defenses. While the discovery deadline
has passed, no trial date has been set, nor have the plaintiffs
actively pursued the matter. The Company intends to vigorously
contest this matter. While the Company cannot predict the outcome,
Management believes the ultimate resolution of this matter will not
have a material effect on the Company's financial condition.
In conjunction with the acquisition of a hotel management company
in December 1995, 25,000 shares of the Company's common stock were
issued to the Senior Vice President of the hotel management company.
The 25,000 shares are subject to a Put Agreement ("Agreement"). The
Agreement states that within ninety days after the two year anniversary
of the effective date of the Agreement (which was effective in December
1995), the Company shall be obligated to purchase all or part of the
25,000 shares from the Senior Vice President of Wesley at a purchase
price of $4.50 per share.
As more fully described in Note 8, the Company is required to
fund certain capital contributions to RW Hotel Partners, L.P. as the
partnership acquires hotels.
4. Notes Payable
In June 1995, the Company entered into a loan with a commercial
lender to refinance the Ramada Inn in Longwood, Florida. The loan
proceeds are $2,800,000. The loan is for a term of 20 years with an
amortization period of 25 years, at the rate of 10.35%. Principal and
interest payments are approximately $26,000 per month beginning
August 1, 1995. In addition, the Company is required to make a repair
escrow payment comprised of 4% of estimated revenues, as well as real
estate tax and insurance escrow payments. The total amount for these
items will be a payment of approximately $20,000 per month and can be
adjusted annually. The escrow funds will be used as tax, insurance
and repair needs arise. As of August 31, 1997, there was approximately
$280,000 of escrowed funds related to this loan agreement. Also,
commitment fees and loan costs of approximately $159,000 were deferred
and are being amortized over 20 years.
The approximate average amount of borrowings on the term loan
during fiscal year 1997 was $2,757,000, at an average interest rate of
10.35%. The maximum amount of borrowings outstanding under this loan
was $2,771,000. The balance of the loan at August 31, 1997 was
approximately $2,742,000. The carrying value of the note approximates
its fair value at August 31, 1997.
In December 1995 and in conjunction with the acquisition of a
hotel management company, the Company assumed three promissory notes
dated September 22, 1994 and payable to three different Georgia
corporations. The total combined outstanding principal was approximately
$106,000. All three notes are for a term of five years at a rate of
6.83%. Combined principal and interest payments are approximately
$2,667 per month through October 1, 1999. The combined balance of
these loans at August 31, 1997 was approximately $62,000.
The approximate average amount of borrowings on the combined term
loans during fiscal year 1997 was $75,000, at an average interest rate
of 6.83%. The maximum amount of combined borrowings outstanding under
these loans was $87,000.
Maturities of long-term debt during the Company's next five fiscal
years are as follows: 1998 - $59,000; 1999 - $65,000; 2000 - $43,000;
2001 - $42,000; 2002 - $47,000; thereafter - $2,548,000.
5. Income Taxes
The Company accounts for income taxes in accordance with Statement
of Financial Accounting Standards No. 109 ("FAS 109"), "Accounting for
Income Taxes", which requires the recognition of deferred tax liabilities
and assets for the expected future tax consequences of temporary
differences between the carrying amounts and the tax bases of other
assets and liabilities.
The Company's 1995 provision for income taxes is composed of
$38,000 in alternative minimum tax. There was no provision for income
taxes for the year ended August 31, 1997 or 1996.
Deferred tax assets (liabilities) are composed of the following
at August 31, 1997 and August 1996, respectively:
1997 1996
Allowance for possible losses $ 1,202 $ 1,598
Excess of tax over book basis, land held
for sale or future development 9 9
Depreciation and amortization 73 139
Excess of tax over book basis, income
from partnership 7 --
Other 302 273
Tax loss carryforwards 4,564 4,227
------- --------
Gross deferred tax assets 6,157 6,246
------- --------
Excess of book over tax basis, land held
for sale or future development -- (28)
Excess of book over tax basis, income
from partnership -- (38)
Loan amortization (18) (9)
------- --------
Gross deferred tax liabilities (18) (75)
------- --------
Deferred tax assets valuation allowance (6,139) (6,171)
------- --------
$ 0 $ 0
======= ========
The net change in the valuation allowance for deferred tax assets was
a decrease of $32,000. This change resulted primarily from a decrease in
the Company's deferred tax assets.
Approximately $13,424,000 of tax loss carryforwards remain at August
31, 1997 for income tax purposes. The carryforwards expire $2,082,000 in
2005, $4,150,000 in 2006, $1,524,000 in 2007, $1,699,000 in 2008,
($1,632,000) in 2010 and ($1,482,000) in 2011. As a result of a change in
control during fiscal year 1994, the amount of tax loss carryforwards
incurred prior to the change in control which may be utilized by the
Company in any one year period is limited to approximately $940,000. In
certain circumstances because of "built-in" gains on some properties, the
actual use of net operating loss carryforwards may exceed this amount.
The Company has unused net operating loss carryforwards in certain states
in which it operates which are available to offset future state taxable
income in those states. No benefit for the remaining loss carryforwards
has been recognized in the financial statements.
6. Shareholders' Investment
Authorized Shares of Common and Preferred Stock -
On January 4, 1995, the Company approved an increase in the
authorized number of shares of the Company's common stock from 3,000,000
shares to 5,000,000 shares and increased the number of authorized shares
of the Company's preferred stock from 500,000 shares to 1,000,000 shares.
In addition, the Company increased the number of shares reserved under the
Ridgewood Hotels, Inc. 1993 Stock Option Plan from 900,000 to 1,200,000
shares. There are currently 1,538,480 shares of common stock outstanding,
of which approximately 51% is owned by the Company's President, N. Russell
Walden.
There are currently 1,000,000 authorized shares of the Company's
Series A Convertible Preferred Stock. In conjunction with this purchase,
the Company issued 450,000 shares of Series A Convertible Preferred Stock
to Alarmguard. The preferred stock is redeemable by the Company at $8.00
per share and accrues dividends at a rate of $0.40 per share annually for
the first two years and at a rate of $0.80 per share annually thereafter.
Dividends are payable quarterly commencing on November 1, 1994. Each
share of the preferred stock is convertible into three shares of the
Company's common stock effective August 16, 1996 and is subject to certain
anti-dilution adjustments. As of August 31, 1996, no shares have been
converted. In the event of any liquidation, dissolution or winding up of
the Company, whether voluntary or involuntary, the holders of the shares
of preferred stock shall be entitled to receive $8.00 per share of
preferred stock plus all dividends accrued and unpaid thereon.
Loss Per Common Share -
Loss per common share is calculated based upon the weighted average
number of shares outstanding during the period of approximately 1,350,000,
1,055,000 and 963,000 in 1997, 1996 and 1995, respectively.
Issuance of Common Shares -
In December 1995, the Company purchased a hotel management company in
part by issuing 125,000 shares of the Company's common stock: 100,000
shares and 25,000 shares to the President and Senior Vice President of
Wesley Hotel Group ("Wesley"), respectively. See also Note 11. The
25,000 shares issued to the Senior Vice President of Wesley are subject
to a Put Agreement ("Agreement"). The Agreement states that within ninety
days after the two year anniversary of the effective date of the Agreement
(which was effective in December 1995), the Company shall be obligated to
purchase all or part of the 25,000 shares from the Senior Vice President
of Wesley at a purchase price of $4.50 per share.
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 "Plan"). 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 Plan. As of August 31,
1997, all of the options are exercisable.
On January 28, 1994, the Company granted options to purchase 375,000
and 75,000 shares of common stock at a price of $1.00 per share to its
President and Chief Financial Officer, respectively, under the Plan. On
January 31, 1997, all of the options were exercised. In conjunction with
the exercise, a promissory note for $75,000 was received from the Chief
Financial Officer in exchange for the Company's common stock. The $75,000
promissory note due from the Chief Financial Officer is payable in full on
January 31, 1998 and accrues interest at a rate per annum of 8.25%.
Warrants -
On December 16, 1996, 75,000 warrants were issued to Hugh Jones, a
hotel acquisitions consultant for the Company. Each warrant represents
the right to purchase from the Company one share of common stock at the
exercise price of $3.50 per share. The warrants may be exercised at any
time within five years from the date of issuance.
7. Supplemental Retirement and Death Benefit Plan
The Company implemented a non-qualified Supplemental Retirement and
Death Benefit Plan with an effective date of January 1, 1987. The Plan
supplements other retirement plans and also provides pre-retirement death
benefits to participants' beneficiaries.
Concurrent with the implementation of the Supplemental Retirement and
Death Benefit Plan, the Company purchased key-person life insurance
contracts on the lives of the Plan participants. The policies are owned
by and payable to the Company and are "increasing whole life" insurance.
The Company pays level annual premiums, may borrow against cash values
earned, and pays interest annually on any loans which may be cumulatively
outstanding. The Company has recorded a total pension liability of
approximately $768,000 as of August 31, 1997. At August 31, 1997 the cash
surrender value available to settle the outstanding pension liability was
approximately $500,000.
For the fiscal years ending August 31, 1997, 1996 and 1995, the
pension expense was approximately $42,000, $33,000 and $60,000,
respectively.
8. Investment in Limited Partnership
On August 16, 1995, RW Hotel Partners, L.P. was organized as a
limited partnership (the "Partnership") under the laws of the State of
Delaware. Concurrently, the Company formed Ridgewood Georgia, Inc., a
Georgia corporation ("Ridgewood Georgia") which became the sole general
partner in the Partnership with RW Hotel Investments Associates, L.L.C.
("Investor") as the limited partner. Ridgewood Georgia has a 1% base
distribution percentage versus 99% for the Investor. However,
distribution percentages do vary depending on certain defined preferences
and priorities pursuant to the Partnership Agreement ("Agreement") which
are discussed below. The partnership was originally formed to acquire a
hotel property in Louisville, Kentucky. The partnership consists of six
hotel properties at August 31, 1997. The terms of this partnership will
serve as a guideline for other potential acquisitions with this or other
investors.
Income and loss are allocated to Ridgewood Georgia and the limited
partner based upon the formula for allocating distributable cash as
described below but subject to an annual limitation which would result in
no more than 88% of partnership income or loss (as defined) being
allocated to the limited partner.
Distributable Cash is defined as the net income from the property
before depreciation plus any net sale proceeds and net financing proceeds
less capital costs. Distributions of Distributable Cash shall be made as
follows:
- First, to the Investor until there has been distributed to the
Investor an amount equal to a 15% cumulative internal rate of return on
the Investor's investment.
- Second, to Ridgewood Georgia until the aggregate amount received by
Ridgewood Georgia equals the aggregate cash contributions made by
Ridgewood Georgia to the Partnership (as of August 31, 1997, Ridgewood
Georgia contributed approximately $772,000).
- Third, 12% to Ridgewood Georgia and 88% to the Investor until there
has been distributed to the Investor an amount equal to a 25% cumulative
internal rate of return on Investor's investment.
- Fourth, 75% of the residual to the Investor and 25% to Ridgewood
Georgia.
A Management Agreement exists between the Partnership and the Company
as Manager ("Manager") for the purpose of managing hotels in Kentucky,
Georgia and South Carolina. The Manager shall be entitled to the
following property management fees:
(1) 2.5% of the gross revenues from the hotel property.
(2) 1% of the gross revenues from the hotel property as an incentive
fee if distributable cash equals or exceeds 13.5% of total aggregate
acquisition costs. No management fees were payable with respect to the
first 12-month period of management of the hotel in Kentucky.
A Construction Management Agreement exists between the Partnership
and the Manager for the purpose of managing future improvements to the
properties.
The Company currently has approximately $772,000 invested in the
Partnership. As of August 31, 1997, the Company has recorded
approximately $199,000 equity in the income of the Partnership, but has
recorded a provision for possible losses of approximately $199,000 as
there is no indication that the Company will be able to recover the
equity income in the Partnership given the provisions of the partnership
agreement regarding the distribution of cash to the partners upon
liquidation.
Changes in the allowance for possible losses on investment in limited
partnership for the years ended August 31, 1997, 1996 and 1995 were as
follows ($000's omitted):
1997 1996 1995
Allowance, beginning of year $ -- $ -- $ --
Provision for possible losses 199 -- --
----- ----- -----
Allowance, end of year $ 199 $ -- $ --
===== ===== =====
The Partnership purchased a hotel in Louisville, Kentucky for
approximately $16,000,000. In December 1995 and January 1996, the
Partnership purchased four hotel properties in Georgia for approximately
$15,000,000 and a hotel in South Carolina for $4,000,000, respectively.
The Company may make future capital contributions to the Partnership.
Management expects to fund such capital contributions through available
cash or from loans from the Partnership. Additionally, the Company may
invest in other partnerships to acquire hotels in the future.
The condensed balance sheets and statements of income of the
Partnership as of and for the year ended August 31, 1997 and as of August
31, 1996 and for the period from inception (August 16, 1995) to August 31,
1996 are as follows:
<TABLE>
RW HOTEL PARTNERS, L.P.
CONDENSED BALANCE SHEETS
ASSETS
($000'S Omitted)
<CAPTION>
August 31, August 31,
1997 1996
------------- -------------
<S> <C> <C>
CURRENT ASSETS $ 2,183 $ 1,915
PROPERTY AND EQUIPMENT, net (See Note) 36,628 36,441
INTANGIBLE ASSETS, net 401 525
------------- -------------
TOTAL ASSETS $ 39,212 $ 38,881
============= =============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES $ 2,765 $ 2,405
LONG-TERM DEBT (See Note) 18,833 17,895
------------- -------------
TOTAL LIABILITIES 21,598 20,300
------------- -------------
PARTNERS' CAPITAL, net 17,614 18,581
------------- -------------
TOTAL LIABILITIES AND
PARTNERS' CAPITAL $ 39,212 $ 38,881
============= =============
</TABLE>
<TABLE>
RW HOTEL PARTNERS, L.P.
CONDENSED STATEMENT OF INCOME
($000's Omitted)
<CAPTION>
From Inception
(8/16/95) to
8/31/97 8/31/96
--------- ---------------
<S> <C> <C>
HOTEL OPERATIONS:
Revenues $ 17,058 $ 14,971
Operating Expenses 13,696 9,941
---------- ----------------
Income From Hotel Operations 3,362 5,030
---------- ----------------
PARTNERSHIP OPERATIONS 3,608 3,486
---------- ----------------
NET INCOME (LOSS) $ (246) $ 1,544
========== ================
<FN>
Note:
On December 8, 1995, the Partnership entered into a long-term debt
agreement with General Electric Capital Corporation ("GECC") in
the amount of $9,613,748 (the "Note"). Also, under the Note,
the Partnership may borrow up to an additional $386,252 for the
purpose of capital improvements at the Louisville property.
The capital improvements are subject to approval by GECC.
The note bears interest at 3% above the GECC composite commercial paper
rate and is due in monthly installments of $20,833 plus interest.
In addition, if the ratio of net operating income, as defined, to
average outstanding Note balance ("cash-on-cash yield") is
less than 18% for the preceding 12 months, as calculated
quarterly, 50% of excess cash flow, as defined, must be paid.
If the cash-on-cash yield is less than 14%, 100% of the excess
cash flow, as defined, must be paid. The outstanding principal
balance will be due upon maturity, November 30, 1999. The Note
cannot be prepaid until December 1996. The Note is secured
by a first mortgage on the Kentucky property and the
assignment of any revenues, rentals, and income of the property.
The Note also requires the Partnership to establish a reserve
for capital improvements.
On January 31, 1996, the Partnership and GECC amended and
restated the Note (the "Amended Note"). Under the Amended
Note, the Partnership obtained additional borrowings of
$8,144,000 (the "Additional Borrowings"). Also, under the
Amended Note, the Partnership may borrow up to an additional
$2,656,000 for the purpose of capital improvements at the
Georgia Hotels. The capital improvements are subject to
approval by GECC. The Amended Note is secured by Hurstbourne
and the Georgia Hotels. The Amended Note provides for a
two-year maturity extension option. The Additional Borrowings
bear interest at the GECC composite commercial paper rate plus
3.25%. Additional monthly installments of $45,000, plus
interest on the Additional Borrowings, commence on March 1, 1996.
The Additional Borrowings cannot be prepaid until January 1997.
The debt amount is now subject to be increased by $3,042,252,
allowing the potential liability under the note agreement to
increase to $20,800,000. The additional increase is subject
to approval of certain agreed-upon property improvements.
</FN>
</TABLE>
9. Employee Savings Plan
The Ridgewood Properties Employee Savings Plan ("Savings Plan") is a
savings and salary deferral plan which is intended to qualify for
favorable tax treatment under Sections 401(a) and 401(k) of the Internal
Revenue Code of 1986. The Savings Plan includes all employees of the
Company who have completed one year of service and have attained age
twenty-one.
Each participant in the Savings Plan may elect to reduce his or her
compensation by any percentage, not to exceed 15% of compensation when
combined with any Matching Basic or Discretionary Employer Contributions
(below) made on behalf of the participant, and have such amount
contributed to his or her account under the Savings Plan. Elective
employer contributions are made prior to the withholding of income taxes
on such amounts. A participant may also elect to contribute to the Plan
an amount of cash or property equal to or up to 10% of his or her
compensation ("Voluntary Contributions"). Voluntary Contributions are
made on an after-tax basis.
The Savings Plan provides for an employer matching contribution in an
amount equal to 50% of the elective employer contributions, provided that
in no event shall such employer matching contributions exceed 3% of the
participant's compensation. In addition, the Board of Directors of the
Company is authorized to make discretionary contributions to the Savings
Plan out of the Company's current or accumulated profits ("Discretionary
Contributions"). Discretionary Contributions are allocated among those
participants who complete at least 1,000 hours of service during the plan
year and are employed by the Company on the last day of the plan year.
Employees are subject to a seven year graduated vesting schedule with
respect to Basic Employer Contributions, Matching Employer Contributions
and Discretionary Contributions.
Distributions from the Savings Plan will generally be available upon
or shortly following a participant's termination of employment with the
Company, with additional withdrawal rights with respect to Voluntary
Contributions.
For the fiscal years ending August 31, 1997, 1996 and 1995, expense
for the Employee Savings Plan was approximately $21,000, $21,000 and
$15,000, respectively.
10. Sale of Operating Properties
In April 1995, the Company sold the Ridgewood Lodge, its weekly
rental hotel in Orlando, Florida. The net proceeds, after commissions,
were approximately $2,700,000. The gain on the sale was approximately
$250,000. The proceeds were used to reduce the outstanding balance of the
Company's term loan.
11. Acquisition of Hotel Management Company
In December 1995, the Company acquired the Wesley Hotel Group, a
hotel management company located in Atlanta, Georgia. At the time of
acquisition, Wesley managed five hotels. The acquisition has been
accounted for using the purchase method of accounting. In conjunction
with the acquisition, the Company issued 125,000 shares of common stock
with a determined market value of $1.50 per share (see Note 6) and assumed
three promissory notes with a combined outstanding principal of
approximately $106,000, bringing the total investment in Wesley to
$293,000. The investment recorded by the Company for the acquisition is
being amortized over the useful life of the assets acquired. Since
approximately $185,000 of amortization had been recognized, the net
investment in Wesley as of August 31, 1997 is approximately $108,000. The
consolidated financial statements include the operating results of the
Wesley Hotel Group from the date of acquisition. Pro forma results of
operations have not been presented because the effects of this acquisition
were not significant.
12. Subsequent Events
In September 1997, the Company sold the majority of its land in
Athens, Georgia for $350,000. Net proceeds to the Company were
approximately $330,000.
Report of Independent Accountants
To the Board of Directors and
Shareholders of Ridgewood Hotels, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of loss, of cash flows and of
shareholders' investment present fairly, in all material respects, the
financial position of Ridgewood Hotels, Inc. and its subsidiaries (the
"Company") at August 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended August 31, 1997, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
Atlanta, Georgia
October 21, 1997
Market Information
The Company's common stock is listed in the National Association of
Securities Dealers (NASDAQ) over-the-counter bulletin board service.
Transfer Agent
Harris Trust and Savings Bank, Dallas, Texas is the Company's stock
transfer agent. Harris maintains the Company's shareholder records. To
change name, address or ownership of stock, to report lost certificates,
or to consolidate accounts, contact:
Harris Trust and Savings Bank
1601 Elm Street
Thanksgiving Tower, Suite 2320
Dallas, Texas 75201
(214) 665-6033
General Counsel
Rogers & Hardin
2700 International Tower
229 Peachtree Street, N.E.
Atlanta, Georgia 30303
Independent Accountants
Price Waterhouse LLP
50 Hurt Plaza
Suite 1700
Atlanta, Georgia 30303
Shareholder and General Inquiries
The Company is required to file an Annual Report on Form 10-K for its
fiscal year ended August 31, 1997 with the Securities and Exchange
Commission. Copies of this annual report may be obtained without charge
upon written request to:
Ridgewood Hotels, Inc.
Shareholder Relations
2859 Paces Ferry Road
Suite 700
Atlanta, Georgia 30339
(770) 434-3670
EXHIBIT 22
RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
Percentage
State or of Voting
Jurisdiction Securities
of Incorporation Owned
---------------- ----------
Florida Communities, Inc. Florida 100%
Ridgewood Orlando, Inc. Florida 100%
Ridgewood Hotels, Inc. Georgia 100%
Cornerstone Management &
Development, Inc. Georgia 100%
Wesley Hotel Group, Inc. Georgia 100%
Florida Beta Hotel Corp. Florida 100%
California Zeta Hotel Corp. California 100%
Capitol Alpha Hotel Corp. Washington, D.C. 100%
California Eta Hotel Corp. California 100%
Pennsylvania Alpha Hotel Corp. Pennsylvania 100%
Wesley Alabama Corp. Georgia 100%
The foregoing subsidiaries are included in the consolidated financial
statements of the Company.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted from
the Consolidated Balance Sheets, Statements of Consolidated Loss and
Consolidated Statement of Cash Flow and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> AUG-31-1997
<CASH> 1,596,000
<SECURITIES> 0
<RECEIVABLES> 397,000
<ALLOWANCES> 3,743,000
<INVENTORY> 16,000
<CURRENT-ASSETS> 0
<PP&E> 3,105,000
<DEPRECIATION> 1,687,000
<TOTAL-ASSETS> 8,266,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
450,000
<COMMON> 15,000
<OTHER-SE> 3,573,000
<TOTAL-LIABILITY-AND-EQUITY> 8,266,000
<SALES> 3,808,000
<TOTAL-REVENUES> 8,408,000
<CGS> 2,454,000
<TOTAL-COSTS> 5,889,000
<OTHER-EXPENSES> 2,637,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 345,000
<INCOME-PRETAX> (463,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (463,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (463,000)
<EPS-PRIMARY> (0.58)
<EPS-DILUTED> (0.58)
</TABLE>
