RIDGEWOOD HOTELS INC, 10-K, 1998-11-25

RIDGEWOOD HOTELS INC
10-K, 1998-11-25
REAL ESTATE DEALERS (FOR THEIR OWN ACCOUNT)

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 1998

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________
Commission file number 0-14019
Ridgewood Hotels, Inc.
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 58-1656330
------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2859 Paces Ferry Road, Suite 700
Atlanta, Georgia 30339
---------------------------------------- -----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 434-3670
--------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
----------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes __X__ No _____

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. _X__

Aggregate market value of voting stock held by non-affiliates on October
31, 1998 - $777,000; Common shares outstanding on October 31, 1998 -
1,513,480 shares
(1) Portions of the registrant's Annual Report to Shareholders for the
fiscal year ended August 31, 1998 (the "1998 Annual Report to
Shareholders") are incorporated by reference in Part II of this
Report.
(2) Portions of the registrant's definitive Proxy Statement relating to
the 1999 Annual Meeting (the "1999 Proxy Statement") to be filed
with the Commission on or about December 15, 1998, are incorporated
by reference in Part III of this Report.

PART I

Item 1. Business

Ridgewood Hotels, Inc. (the "Company") is primarily engaged in the
business of acquiring, developing, operating and selling real estate
property in the Southeast and "Sunbelt" areas. Additionally, the
Company, through its investment in certain entities, is engaged in
acquiring and managing hotel properties in the Southeast, as well as
managing other hotels throughout the country. The Company also owns and
operates a hotel in Longwood, Florida. All of the Company's other
properties are land properties held for sale, and no additional
development is currently anticipated for the land. The Company was
incorporated under the laws of the State of Delaware on October 29,
1985. In January 1997, the Company changed its name from Ridgewood
Properties, Inc. to Ridgewood Hotels, Inc. Prior to December 31, 1985,
the Company operated under the name CMEI, Inc.

The Company has invested in three hotel entities as follows:

RW Hotel Partners, L.P.

On August 16, 1995, RW Hotel Partners, L.P. was organized as a
limited partnership (the "Partnership") under the laws of the State of
Delaware. Concurrently, the Company formed Ridgewood Georgia, Inc., a
Georgia corporation ("Ridgewood Georgia") which became the sole general
partner in the Partnership with RW Hotel Investments Associates, L.L.C.
("Investor") as the limited partner. Ridgewood Georgia has a 1% base
distribution percentage versus 99% for the Investor. However,
distribution percentages do vary depending on certain defined
preferences and priorities pursuant to the Partnership Agreement
("Agreement") which are discussed below. The partnership was originally
formed to acquire a hotel property in Louisville, Kentucky, but
subsequently purchased five additional hotels. The Partnership
purchased the hotel in Louisville, Kentucky for approximately
$16,000,000. In December 1995 and January 1996, the Partnership
purchased four hotel properties in Georgia for approximately $15,000,000
and a hotel in South Carolina for $4,000,000, respectively. Three of
the Georgia hotels were sold at a loss in March 1998, and the hotel in
Louisville was transferred to a new entity in June 1998 in conjunction
with refinancing that hotel (see below). The two remaining hotels in
the Partnership are in Thomasville, Georgia and Orangeburg, South
Carolina.

Income and loss are allocated to Ridgewood Georgia and the limited
partner based upon the formula for allocating Distributable Cash as
described below.

Distributable Cash is defined as the net income from the property
before depreciation plus any net sale proceeds and net financing
proceeds less capital costs. Distributions of Distributable Cash shall
be made as follows:

- First, to the Investor until there has been distributed to the
Investor an amount equal to a 15% cumulative internal rate of return on
the Investor's investment.

- Second, to Ridgewood Georgia until the aggregate amount received
by Ridgewood Georgia equals the aggregate cash contributions made by
Ridgewood Georgia to the Partnership.

- Third, 12% to Ridgewood Georgia and 88% to the Investor until
there has been distributed to the Investor an amount equal to a 25%
cumulative internal rate of return on Investor's investment.

- Fourth, 75% of the residual to the Investor and 25% to Ridgewood
Georgia.

Management of the Partnership intends to adopt a plan of
liquidation and will sell the remaining two hotels. Based on
management's estimate, Ridgewood Georgia will not receive cash in excess
of its investment in the Partnership. The Company has recorded a loss
from the partnership totaling $184,000 for the fiscal year ended August
31, 1998.

A Management Agreement exists between the Partnership and the
Company as Manager ("Manager") for the purpose of managing the hotels.
The Manager shall be entitled to the following property management fees:

(1) 2.5% of the gross revenues from the hotel property.

(2) 1% of the gross revenues from the hotel property as an
incentive fee if distributable cash equals or exceeds 13.5% of total
aggregate acquisition costs.

Total management fees for the years ended August 31, 1998, 1997 and
1996 were approximately $233,000, $301,000 and $275,000, respectively.

On March 17, 1998, the Partnership sold three of its six hotels.
The Company signed a management agreement with the new owner of the
three hotels wherein it will receive a management fee equal to 3% of
revenues plus 15% of the net operating income plus 5% of any profit
realized upon the sale of the hotels. In connection with the management
agreement, the Company received management fees totaling approximately
$114,000 for the year ended August 31, 1998.

For the fiscal year ended August 31, 1997 and 1996, the Company
recorded equity in income (loss) of the Partnership totaling $(134,000)
net of provision for possible losses and $209,000, respectively. The
Company has recorded during 1997 a provision for possible losses of
approximately $199,000 as there is no indication that the Company will
be able to recover the equity income in the Partnership given the
provisions of the partnership agreement regarding the distribution of
cash to the partners upon liquidation.

Houston Hotel, LLC

On December 9, 1997, Houston Hotel, LLC ("Houston Hotel") was
organized as a limited liability company under the laws of the State of
elaware. The purpose which Houston Hotel was organized is limited
solely to owning and managing the Hampton Inn Galleria in Houston,
Texas. The Company contributed approximately $316,000 into Houston
Hotel which represents a 10% interest, and the other 90% interest is
owned by Houston Hotel, Inc. (the "Managing Member"), a Nevada
corporation.

Income or loss allocated to the Company and the Managing Member is
based upon the formula for distributing cash.

Distributable cash is defined as the cash from operations and
capital contributions determined by the Manager to be available for
distribution. Cash from operations is defined as the net cash realized
from the operations of Houston Hotel after payment of all cash
expenditures of Houston Hotel including, but not limited to, operating
expenses, fees, payments of principal and interest on indebtedness,
capital improvements and replacements, and such reserves and retentions
as the Manager reasonably determines to be necessary.

Distributions of distributable cash shall be made as follows:

- First, 100% to the Manager until it has been distributed an
amount equal to its accrued but unpaid 13% preferred return.

- Second, 100% to the Company until the Company has been
distributed an amount equal to its accrued but unpaid 13% preferred
return.

- Third, 80% to the Manager and 20% to the Company.

A Property Management Agreement exists between Houston Hotel, LLC
and the Company as Property Manager ("Property Manager") for the purpose
of managing the hotel. The Property Manager shall be entitled to the
following property management fees:

(1) 1.5% of the gross revenues from the hotel property.

(2) 1.5% of the gross revenues from the hotel property as an
incentive fee if 85% of the budgeted net operating income is
met.

In connection with the management agreement, the Company received
management fees totaling approximately $83,000 for the year ended August
31, 1998.

RW Louisville Hotel Associates, LLC

On May 13, 1998, RW Louisville Hotel Associates LLC ("RW Louisville
Hotel Associates") was organized as a limited liability company under
the laws of the State of Delaware. The purpose which RW Louisville
Hotel Associates was organized is limited solely to owning and managing
the Holiday Inn ("the Hotel") in Louisville, Kentucky. The Company's
investment in RW Hotel Partners, L.P. of $337,500 (see above) was
transferred to RW Louisville Hotel Associates at its historical basis.
Simultaneously, the Company acquired a 10% interest in Louisville Hotel,
LLC for $362,000. Louisville Hotel, LLC loaned $3,620,000 to RW Louisville
Hotel Associates, which resulted in all cash flow from the Hotel being
distributed to Louisville Hotel, LLC.

Income or loss allocated to the Company is based upon the formula
for distributing cash.

Distributable cash is defined as the net cash realized from
operations but after payment of management fees, principal and interest,
capital improvements and other such retentions as the managing member
determines to be necessary. Distributions of distributable cash from
Louisville Hotel, LLC shall be made as follows:

- First, to the managing member until the managing member has been
distributed an amount equal to its accrued but unpaid 13% preferred
return.

- Second, to the Company until the Company has been distributed an
amount equal to its accrued but unpaid 13% preferred return.

- Third, 20% to the Company and 80% to the managing member.

Cash from a sale or refinancing would be distributed 10% to the
Company and 90% to the managing member.

A Management Agreement exists between the Owner and the Company as
Property Manager ("Property Manager") for the purpose of managing the
hotel. The Property Manager shall be entitled to the following property
management fees:

(1) Base Management Fee equal to 1.5% of gross revenues from the
hotel property.

(2) Incentive Management Fee equal to 1.5% of gross revenues from
the hotel in which the actual net operating income exceeds 85% of the
budgeted goal for the year.

(3) Super Incentive Management fee equal to: (a) .25% of gross
revenues from the hotel in which the net operating income exceeds 106%
of the budgeted goal for the year; (b) an additional .25% of gross
revenues in which the net operating income exceeds 112% of the budgeted
goal; and (c) an additional .50% of gross revenues in which the net
operating income exceeds 120% of the budgeted goal.

The Company paid an additional $200,000 to Louisville Hotel, LLC as
a fee to acquire the management contract for the hotel. This amount is
included in other assets. The Company is amortizing the fee $70,000 per
year for the first two years and $20,000 per year for the next three
years.

With respect to the sum of $100,000, in the event that the
management contract is terminated by Louisville Hotel, LLC with or
without cause and not pursuant to a third party sale prior to June 5,
2000, Louisville Hotel, LLC will pay to the Company the sum of $4,166.67
times the number of months prior to June 5, 2000 that the management
contract is terminated.

With respect to the second sum of $100,000, in the event that the
management contract is terminated by Louisville Hotel, LLC prior to June
5, 2003, Louisville Hotel, LLC will pay to the Company the sum of
$1,666.67 times the number of months prior to June 5, 2003 that the
management contract is terminated.

In connection with the management agreement, the Company received
management fees totaling approximately $57,000 for the year ended August
31, 1998.

The hotel management business has become very competitive. In
order to obtain management agreements, owners of hotels are frequently
requiring management companies to acquire an ownership in the hotel.
The hotel industry has become very attractive to many investors and, in
turn, it has become very competitive to purchase hotels. This has also
prompted the building of many new hotels in various markets. The
Company believes that it is in a position to remain competitive in this
industry. The Company has the ability to generate equity to contribute
to additional acquisitions as well as to provide the expertise to manage
the acquisitions, operations and ultimate disposition of properties so
acquired for both the Company and for third-party owners. As the
Company acquires additional hotel properties, it will enter into
management agreements to manage those properties.

The Company owns and operates one hotel and owns a number of land
parcels which are held for sale. The success of the Company's
operations continues to be dependent upon such unpredictable factors as
the general and local economic conditions to which the real estate
industry is particularly sensitive: zoning, labor, material and energy
availability, weather conditions and the availability of satisfactory
financing.

The annual average occupancy of the Company's only hotel was
approximately 64% for the fiscal year 1998.

The Company's principal office is located at 2859 Paces Ferry Road,
Suite 700, Atlanta, Georgia 30339 (telephone number: (770) 434-3670).
The Company employed approximately 90 persons (of which 17 were located
at its principal office) at August 31, 1998.

Item 2. Properties

The Company does not own any real property material to conducting
the administrative aspects of its business operations. Its principal
office in Atlanta, Georgia is leased until June 2002 and consists of
approximately 6,200 square feet. As a result of its operations, the
Company is the owner of various other properties, including developed
and undeveloped real estate.

The Company's operating properties are as follows:

Name of Hotel Location # of Rooms Ownership Interest

Ramada Inn Longwood, FL 192 Wholly-Owned (a)
Holiday Inn Orangeburg, SC 160 (b)
Holiday Inn Thomasville, GA 147 (b)
Holiday Inn Louisville, KY 267 (c)
Hampton Inn Houston, TX 176 (d)

(a) The hotel serves as collateral for the Company's
$2,711,000 term loan with a commercial lender.

(b) The Company has a 1% ownership interest in these hotels as
the general partner of RW Hotel Partners, L.P., which owns the
hotels.

(c) The Company has a 10% ownership interest in this hotel as a
member of RW Louisville Hotel Associates, LLC and Louisville
Hotel, LLC, which owns the hotel.

(d) The Company has a 10% ownership interest in this hotel as a
member of Houston Hotel, LLC, which owns the hotel.

The Company also holds six land parcels for sale, two of which
are located in Florida, one in Georgia and one each in Texas, Ohio
and Arizona. For further information on such properties, see the
accompanying consolidated financial statements and Schedule III, Real
Estate and Accumulated Depreciation, contained elsewhere herein.

Item 3. Legal Proceedings

On May 2, 1995 a complaint was filed in the Court of Chancery of
the State of Delaware (New Castle County) entitled William N.
Strassburger v. Michael M. Early, Luther A. Henderson, John C.
Stiska, N. Russell Walden, and Triton Group, Ltd., defendants, and
Ridgewood Hotels, Inc., nominal defendant, C.A. No. 14267 (the
"Complaint"). The plaintiff is an individual shareholder of the
Company who purports to file the Complaint individually,
representatively on behalf of all similarly situated shareholders,
and derivatively on behalf of the Company. The Complaint challenges
the actions of the Company and its directors in consummating the
Company's August 1994 repurchases of its common stock held by Triton
Group, Ltd. and Hesperus Partners Ltd. in five counts, denominated
Waste of Corporate Assets, Breach of Duty of Loyalty to Ridgewood,
Breach of Duty of Good Faith, Intentional Misconduct, and Breach of
Duty of Loyalty and Good Faith to Class. On July 5, 1995, the
Company filed a timely answer generally denying the material
allegations of the complaint and asserting several affirmative
defenses. Discovery has been concluded, and on March 19, 1998, the
Court dismissed all class claims, with only the derivative claims
remaining for trial. Trial has been scheduled for February, 1999.
The Company intends to vigorously contest this matter.

The Company serves as a general partner in a limited
partnership. As a general partner, the Company may be liable for
certain deficiencies which arise in meeting the terms of loan
obligations incurred by the limited partnership and for operating
expenses and other liabilities incurred by the partnership in the
ordinary course of business.

Item 4. Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of security holders
during the fourth quarter of the Company's fiscal year ended August
31, 1998.

PART II

Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters

Information regarding the market for the Company's common stock,
the Company's dividend policy and the approximate number of holders
of the common stock at October 31, 1998, is included under the
caption "Market for Registrant's Common Equity and Related
Stockholder Matters" on page 1 of the 1998 Annual Report to
Shareholders and is incorporated herein by reference. There were no
sales of unregistered securities of the Company in the fourth quarter
of the Company's fiscal year ended August 31, 1998.

Item 6. Selected Financial Data

A summary of selected financial data for the Company for the
fiscal years 1994 through 1998 is included under the caption entitled
"Selected Financial Data" on page 3 of the 1998 Annual Report to
Shareholders and is incorporated herein by reference.

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations

Information regarding the Company's financial condition, changes
in financial condition and results of operations is included under
the caption entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 4 through 8
of the 1998 Annual Report to Shareholders and is incorporated herein
by reference.

Item 8. Financial Statements

Consolidated financial statements and notes thereto for the
Company, which are included on pages 11 through 34 of the 1998 Annual
Report to Shareholders under the following captions listed below, are
incorporated herein by reference.

Consolidated Balance Sheets at August 31, 1998 and 1997.

Consolidated Statements of Operations for the years ended August
31, 1998, 1997 and 1996.

Consolidated Statements of Cash Flows for the years ended August
31, 1998, 1997 and 1996.

Consolidated Statements of Shareholders' Investment for the
years ended August 31, 1998, 1997 and 1996.

Notes to Consolidated Financial Statements.

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

None.

PART III

Item 10. Directors and Executive Officers of the Registrant

Information required by this item with respect to directors and
with respect to Item 405 of Regulation S-K is incorporated by reference
to the Company's 1999 Proxy Statement.

Item 11. Executive Compensation

Information regarding compensation of officers and directors of the
Company is set forth under the caption entitled "Executive Compensation"
in the Company's 1999 Proxy Statement and is incorporated herein by
reference.

Item 12. Security Ownership of Certain Beneficial Owners and
Management

Information regarding ownership of certain of the Company's
securities is set forth under the caption entitled "Beneficial Ownership
of the Company's Securities" in the Company's 1999 Proxy Statement and
is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions

Information regarding certain relationships and related
transactions with the Company is set forth under the caption entitled
"Certain Relationships and Related Transactions" in the Company's 1999
Proxy Statement and is incorporated herein by reference.

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K

(a)(1) The following financial statements, together with the
applicable report of independent public accountants, are set forth on
pages 11 through 34 of the 1998 Annual Report to Shareholders and are
incorporated by reference at Item 8 herein:

Report of Independent Accountants.

Consolidated Balance Sheets at August
31, 1998 and 1997.

Consolidated Statements of Operations
for the years ended August 31, 1998,
1997 and 1996.

Consolidated Statements of Cash Flows for the
years ended August 31, 1998, 1997 and 1996.

Consolidated Statements of Shareholders'
Investment for the years ended
August 31, 1998, 1997 and 1996.

Notes to Consolidated Financial Statements.

(a)(2) The following financial statement schedule, together with
the applicable report of independent public accountants, are filed as a
part of this Report:

Page Number(s)
in Form 10-K

Report of Independent Accountants
on Financial Statement Schedule S-1

III - Real Estate and Accumulated
Depreciation - August 31, 1998 S-2 thru S-3

All other schedules are omitted because they are not applicable or
because the required information is given in the financial statements or
notes thereto.

(a)(3) The exhibits filed herewith or incorporated by reference
herein are set forth on the Exhibit Index on pages E-1 through E-9
hereof. Included in those exhibits are the following Executive
Compensation Plans and Arrangements:

10(a) Employment Agreement between N. R. Walden and CMEI,
Inc., dated March 28, 1985 (filed as an Exhibit to
Registrant's Registration Statement on Form 10 filed
November 19, 1985 (Securities Exchange Act File No.
0-14019) and incorporated herein by reference).

10(c) Ridgewood Properties, Inc. Supplemental Retirement and
Death Benefit Plan dated January 1, 1987 (filed as an
Exhibit to Registrant's Form 10-K for the fiscal year
ended August 31, 1988 and incorporated herein by
reference).

10(d) Post-Employment Consulting Agreement between N. R.
Walden and Ridgewood Properties, Inc. dated September 4,
1991 (filed as an Exhibit to Registrant's Form 10-K for
the fiscal year ended August 31, 1991 and incorporated
herein by reference).

10(e) Post-Employment Consulting Agreement between Karen S.
Hughes and Ridgewood Properties, Inc. dated September 4,
1991 (filed as an Exhibit to Registrant's Form 10-K for
the fiscal year ended August 31, 1991 and incorporated
herein by reference).

10(f) Post-Employment Consulting Agreement between Byron T.
Cooper and Ridgewood Properties, Inc. dated September 4,
1991 (filed as an Exhibit to Registrant's Form 10-K for
the fiscal year ended August 31, 1991 and incorporated
herein by reference).

10(g) Post-Employment Consulting Agreement between M. M.
McCullough and Ridgewood Properties, Inc. dated
September 4, 1991 (filed as an Exhibit to Registrant's
Form 10-K for the fiscal year ended August 31, 1991 and
incorporated herein by reference).

10(h) Ridgewood Properties, Inc. Stock Option Plan dated March
30, 1993 and as amended September 14, 1993 (filed as an
Exhibit to Registrant's Form 10-Q for the quarter ended
February 28, 1994, and incorporated herein by
reference).

10(i) Stock Option Agreement between Byron T. Cooper and
Ridgewood Properties, Inc. dated April 1, 1993 and as
approved on January 12, 1994 (filed as an Exhibit to
Registrant's Form 10-Q for the quarter ended February
28, 1994, and incorporated herein by reference).

10(j) Stock Option Agreement between Luther A. Henderson and
Ridgewood Properties, Inc. dated April 1, 1993 and as
approved on January 12, 1994 (filed as an Exhibit to
Registrant's Form 10-Q for the quarter ended February
28, 1994, and incorporated herein by reference).

10(k) Stock Option Agreement between Karen S. Hughes and
Ridgewood Properties, Inc. dated April 1, 1993 and as
approved on January 12, 1994 (filed as an Exhibit to
Registrant's Form 10-Q for the quarter ended February
28, 1994, and incorporated herein by reference).

10(l) Stock Option Agreement between M. M. McCullough and
Ridgewood Properties, Inc. dated April 1, 1993 and as
approved on January 12, 1994 (filed as an Exhibit to
Registrant's Form 10-Q for the quarter ended February
28, 1994, and incorporated herein by reference).

10(m) Stock Option Agreement between N. R. Walden and
Ridgewood Properties, Inc. dated April 1, 1993 and as
approved on January 12, 1994 (filed as an Exhibit to
Registrant's Form 10-Q for the quarter ended February
28, 1994, and incorporated herein by reference).

10(n) Stock Option Agreement between Gregory T. Weigle and
Ridgewood Properties, Inc. dated April 1, 1993 and as
approved on January 12, 1994 (filed as an Exhibit to
Registrant's Form 10-Q for the quarter ended February
28, 1994, and incorporated herein by reference).

10(o) Stock Option Agreement between Karen S. Hughes and
Ridgewood Properties, Inc. dated January 31, 1994 (filed
as an Exhibit to Registrant's Form 10-Q for the quarter
ended February 28, 1994, and incorporated herein by
reference).

10(p) Stock Option Agreement between N. R. Walden and
Ridgewood Properties, Inc. dated January 31, 1994 (filed
as an Exhibit to Registrant's Form 10-Q for the quarter
ended February 28, 1994, and incorporated herein by
reference).

10(q) Ridgewood Properties, Inc. 1993 Stock Option Plan, as
amended on October 26, 1994 (filed as an Exhibit to
Registrant's Registration Statement on Form S-8 filed
November 8, 1994 (No. 33-86084) and incorporated herein
by reference).

10(ff) Amendment No. 1 to Post-Employment Consulting Agreement
between Ridgewood Hotels, Inc. and N. Russell Walden dated
August 13, 1998.

10(gg) Amendment No. 1 to Post-Employment Consulting Agreement
between Ridgewood Hotels, Inc. and Byron T. Cooper dated
August 18, 1998.

10(hh) Amendment No. 1 to Post-Employment Consulting Agreement
between Ridgewood Hotels, Inc. and Karen S. Hughes dated
August 13, 1998.

(b) No reports on Form 8-K were filed during the fourth
quarter of the Company's fiscal year ended August 31, 1998.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

RIDGEWOOD HOTELS, INC.

By: /s/ N. R. Walden
N. Russell Walden,
President, Chief
Executive Officer
Dated: November 24, 1998

Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the date indicated:

/s/ N. R. Walden
N. Russell Walden, President,
Chief Executive Officer and
Director

/s/ Karen S. Hughes
Karen S. Hughes,
Vice President, Chief
Accounting and Financial
Officer and Secretary

/s/ Michael M. Earley
Michael M. Earley, Director

/s/ Luther A. Henderson
Luther A. Henderson, Director

Dated: November 24, 1998

Report of Independent Accountants on
Financial Statement Schedule

October 23, 1998

To the Board of Directors
of Ridgewood Hotels, Inc.

Our audits of the consolidated financial statements referred to in
our report dated October 23, 1998 appearing in the 1998 Annual
Report to Shareholders of Ridgewood Hotels, Inc. (which report and
consolidated financial statements are incorporated by reference in
this Annual Report on Form 10-K) also included an audit of the
Financial Statement Schedules listed in Item 14(a) of this Form
10-K. In our opinion, these Financial Statement Schedules present
fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated
financial statements.

PRICEWATERHOUSECOOPERS LLP
Atlanta, Georgia

<TABLE>

RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES SCHEDULE III
----------------------------------------- Page 1 of 2
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
-------------------------------------------------------
AUGUST 31, 1998
---------------
(000'S Omitted)

<CAPTION>
Cost Capitalized Gross Amount at Which
Initial Cost Subsequent to Carried at August 31, 1998
to Company Acquisition (A)(B)(D)
------------------ ------------------ ----------------------------------
Building Building Accumu-
and Carry- and lated Date of
Encum- Improve- Improve- ing Improve- Deprecia- Construc- Date
Description brances Land ments ments Costs Land ments Total tion (C) tion Acquired
- ----------- -------- ---- -------- -------- ------ ---- -------- ----- -------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LAND
- ----
Georgia -- 58 -- -- -- 58 -- 58 -- -- 12/75

Texas -- 5,338 -- 2 -- 3,776 2 3,778 -- -- 12/85
--
Florida -- 475 -- -- -- 402 -- 402 -- -- 3/85
Florida -- 41 -- -- -- 41 -- 41 -- -- 6/78

Arizona -- 978 -- 110 -- 978 110 1,088 -- -- 3/85

Ohio -- 1,006 -- 175 -- 367 74 441 -- -- 12/77
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total Non-
operating
properties -- 7,896 -- 287 -- 5,622 186 5,808 --
--------- --------- --------- --------- --------- --------- --------- --------- ---------

HOTEL
- --------------
Florida 2,742 439 1,921 1,120 -- 439 2,488 2,927 1,679 1973 9/74
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total
operating
properties 2,742 439 1,921 1,120 -- 439 2,488 2,927 1,679
-------- -------- -------- -------- -------- -------- -------- -------- --------

GRAND TOTAL $ 2,742 $ 8,335 $ 1,921 $ 1,407 $ -- $ 6,061 $ 2,674 $ 8,735 $ 1,679
========= ========= ========= ========= ========= ========= ========= ========= =========
</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, 1998,
the amount of the allowance for possible losses was approximately
$3,447,000, which related to land held for sale.

(B) Reconciliation of real estate properties:
<TABLE>
<CAPTION> For the Year Ended
(000's omitted)
8/31/98 8/31/97 8/31/96
------- ------- -------
<S> <C> <C> <C>
Balance, beginning of year $ 9,553 $12,612 $12,934
Additions during the period:
Acquisitions -- -- --
Capitalized costs 88 78 49

Deductions during the period:
Real estate sold or assets
retired (on which financing
was provided by the Company
in certain cases) 906 3,137 371
------- ------- -------

Balance, end of year $ 8,735 $ 9,553 $12,612
======= ======= =======
</TABLE>

(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:
<TABLE>
<CAPTION>
For the Year Ended
(000's omitted)
8/31/98 8/31/97 8/31/96
------- ------- -------
<S> <C> <C> <C>
Balance, beginning of year $1,567 $1,460 $1,369
Additions during the period 139 128 121
Depreciation associated with
assets sold or retired (27) (21) (30)
------ ------ ------
Balance, end of year $1,679 $1,567 $1,460
====== ====== ======
</TABLE>

(D) The aggregate cost for federal income tax purposes is approximately
$8,938,000 at August 31, 1998.

EXHIBIT INDEX

Report on Form 10-K for the fiscal year ended August 31, 1998

Page Number
Exhibit in Manually
Number Description Signed Original

3(a) Certificate of Incorporation of
Registrant.*

3(b) By-Laws of Registrant.*

3(c) Certificate of Amendment to the
Certificate of Incorporation (filed
as an Exhibit to Registrant's Form
10-K for the fiscal year ended August
31, 1987 and incorporated herein by
reference).

3(d) Certificate of Amendment to the
Certificate of Incorporation of the
Registrant (filed as an Exhibit to
Registrant's Form 10-K for the
fiscal year ended August 31, 1989 and
incorporated herein by reference).

3(e) Certificate of Amendment of the
Certificate of Incorporation of
Ridgewood Properties, Inc. dated May
23, 1991 (filed as an Exhibit
to Registrant's Form 10-K for the
fiscal year ended August 31, 1991 and
incorporated herein by reference).

3(f) Certificate of Amendment of the
Certificate of Incorporation of
Ridgewood Properties, Inc.
dated March 30, 1993 (filed as
Exhibit 3 to Registrant's Form 10-Q
for the fiscal quarter ended February
28, 1993 and incorporated herein by
reference).

3(g) Certificate of Amendment of the
Certificate of Incorporation of
Ridgewood Properties, Inc. dated
January 26, 1994 (filed as Exhibit 3
to Registrant's Form 10-Q for the
fiscal quarter ended February 28,
1994 and incorporated herein by
reference).

3(h) Certificate of Amendment to
Certificate of Incorporation by
Ridgewood Hotels, Inc. (filed as an
Exhibit to Registrant's Form 8-K on
February 5, 1997, and incorporated
herein by reference).

4(a) Stock Purchase Agreement between
Ridgewood Properties, Inc. and Triton
Group Ltd., dated as of August 15,
1994 (filed as an Exhibit to
Registrant's Form 8-K on August 15,
1994, and incorporated herein by
reference).

4(b) August 15, 1994 Press Release issued
by Ridgewood Properties, Inc. (filed
as an Exhibit to Registrant's Form
8-K on August 15, 1994, and
incorporated herein by reference).

4(c) Certificate of Designation,
Preferences and Rights of Series A
Convertible Preferred Stock of the
Registrant (filed as an Exhibit to
Registrant's Registration Statement
on Form S-8 filed on November 8, 1994
(No. 33-866084) and incorporated
herein by reference).

4(d) Notice of Exercise by N. Rusell
Walden dated January 31, 1997 (filed
as an Exhibit to Registrant's Form
8-K on February 5, 1997, and
incorporated herein by reference).

4(e) Notice of Exercise by Karen S. Hughes
dated January 31, 1997 (filed as an
Exhibit to Registrant's Form 8-K on
February 5, 1997, and incorporated
herein by reference).

4(f) Share Security Agreement between N.
Russell Walden and Ridgewood
Properties, Inc. dated January 31,
1997 (filed as an Exhibit to
Registrant's Form 8-K on February 5,
1997, and incorporated herein by
reference).

4(g) Share Security Agreement between
Karen S. Hughes and Ridgewood
Properties, Inc. dated January 31,
1997 (filed as an Exhibit to
Registrant's Form 8-K on February 5,
1997, and incorporated herein by
reference).

10(a) Employment Agreement between N. R.
Walden and CMEI, Inc., dated March
28, 1985.*

10(b) Bill of Sale and Assumption of
Liabilities between CMEI, Inc. and
Ridgewood Properties, Inc. dated
December 9, 1985.*

10(c) Ridgewood Properties, Inc.
Supplemental Retirement and Death
Benefit Plan dated January 1, 1987
(filed as an Exhibit to Registrant's
Form 10-K for the fiscal year ended
August 31, 1988 and incorporated
herein by reference).

10(d) Post-Employment Consulting Agreement
between N. R. Walden and Ridgewood
Properties, Inc. dated September 4,
1991 (filed as an Exhibit to
Registrant's Form 10-K for the fiscal
year ended August 31, 1991 and
incorporated herein by reference).

10(e) Post-Employment Consulting Agreement
between Karen S. Hughes and Ridgewood
Properties, Inc. dated September 4,
1991 (filed as an Exhibit to
Registrant's Form 10-K for the fiscal
year ended August 31, 1991 and
incorporated herein by reference).

10(f) Post-Employment Consulting Agreement
between Byron T. Cooper and Ridgewood
Properties, Inc. dated September 4,
1991 (filed as an Exhibit to
Registrant's Form 10-K for the fiscal
year ended August 31, 1991 and
incorporated herein by reference).

10(g) Post-Employment Consulting Agreement
between M. M. McCullough and
Ridgewood Properties, Inc. dated
September 4, 1991 (filed as an
Exhibit to Registrant's Form 10-K for
the fiscal year ended August 31, 1991
and incorporated herein by
reference).

10(h) Ridgewood Properties, Inc. Stock
Option Plan dated March 30, 1993 and
as amended September 14, 1993 (filed
as an Exhibit to Registrant's Form
10-Q for the quarter ended February
28, 1994, and incorporated herein by
reference).

10(i) Stock Option Agreement between Byron
T. Cooper and Ridgewood Properties,
Inc. dated April 1, 1993 and as
approved on January 12, 1994 (filed
as an Exhibit to Registrant's Form
10-Q for the quarter ended February
28, 1994, and incorporated herein by
reference).

10(j) Stock Option Agreement between Luther
A. Henderson and Ridgewood
Properties, Inc. dated April 1, 1993
and as approved on January 12, 1994
(filed as an Exhibit to Registrant's
Form 10-Q for the quarter ended
February 28, 1994, and incorporated
herein by reference).

10(k) Stock Option Agreement between Karen
S. Hughes and Ridgewood Properties,
Inc. dated April 1, 1993 and as
approved on January 12, 1994 (filed
as an Exhibit to Registrant's Form
10-Q for the quarter ended February
28, 1994, and incorporated herein by
reference).

10(l) Stock Option Agreement between M. M.
McCullough and Ridgewood Properties,
Inc. dated April 1, 1993 and as
approved on January 12, 1994 (filed
as an Exhibit to Registrant's Form
10-Q for the quarter ended February
28, 1994, and incorporated herein by
reference).

10(m) Stock Option Agreement between N. R.
Walden and Ridgewood Properties, Inc.
dated April 1, 1993 and as approved
on January 12, 1994 (filed as an
Exhibit to Registrant's Form 10-Q for
the quarter ended February 28, 1994,
and incorporated herein by
reference).

10(n) Stock Option Agreement between
Gregory T. Weigle and Ridgewood
Properties, Inc. dated April 1, 1993
and as approved on January 12, 1994
(filed as an Exhibit to Registrant's
Form 10-Q for the quarter ended
February 28, 1994, and incorporated
herein by reference).

10(o) Stock Option Agreement between Karen
S. Hughes and Ridgewood Properties,
Inc. dated January 31, 1994 (filed as
an Exhibit to Registrant's Form 10-Q
for the quarter ended February 28,
1994, and incorporated herein by
reference).

10(p) Stock Option Agreement between N. R.
Walden and Ridgewood Properties, Inc.
dated January 31, 1994 (filed as an
Exhibit to Registrant's Form 10-Q for
the quarter ended February 28, 1994,
and incorporated herein by
reference).

10(q) Ridgewood Properties, Inc. 1993 Stock
Option Plan, as amended on October
26, 1994 (filed as an Exhibit to
Registrant's Registration Statement
on Form S-8 filed on November 8, 1994
(No. 33-86084) and incorporated
herein by reference).

10(r) Amended and Restated Basic Agreement
between RW Hotel Investment Partners,
L.P. and Ridgewood Hotels, Inc. dated
August 14, 1995 (filed as an Exhibit
to Registrant's Form 10-K for the
fiscal year ended August 31, 1995,
and incorporated herein by
reference).

10(s) Amended and Restated Limited
Partnership Agreement of RW Hotel
Partners, L.P. dated September 8,
1995 (filed as an Exhibit to
Registrant's Form 10-K for the fiscal
year ended August 31, 1995, and
incorporated herein by reference).

10(t) Management Agreement (Holiday Inn
Hurstbourne) between RW Hotel
Partners, L.P. and Ridgewood
Properties, Inc. dated August 16,
1995 (filed as an Exhibit to
Registrant's Form 10-K for the fiscal
year ended August 31, 1995, and
incorporated herein by reference).

10(u) Mortgage, Assignment of Leases and
Rents and Security Agreement Between
Bloomfield Acceptance Company, L.L.C.
and Ridgewood Orlando, Inc. dated
June 30, 1995 (filed as an Exhibit to
Registrant's Form 10-K for the fiscal
year ended August 31, 1995, and
incorporated herein by reference).

10(v) Security Agreement between Ridgewood
Orlando, Inc. and Bloomfield
Acceptance Company, L.L.C. dated June
30, 1995 (filed as an Exhibit to
Registrant's Form 10-K for the fiscal
year ended August 31, 1995, and
incorporated herein by reference).

10(w) Mortgage Note between Bloomfield
Acceptance Company and Ridgewood
Orlando, Inc. dated June 30, 1995
(filed as an Exhibit to Registrant's
Form 10-K for the fiscal year ended
August 31, 1995, and incorporated
herein by reference).

10(x) Agreement and Plan of Merger between
and among Ridgewood Properties, Inc.,
Ridgewood Acquisition Corp., Wesley
Hotel Group, Inc., Wayne McAteer and
Samuel King dated December 7, 1995
(filed as an Exhibit to Registrant's
Form 10-Q for the quarter ended
November 30, 1995, and incorporated
herein by reference).

10(y) Shareholders' Agreement by and between
Samuel King and Ridgewood Properties,
Inc. dated December 1995 (filed as an
Exhibit to Registrant's Form 10-K for
the fiscal year ended August 31, 1996,
and incorporated herein by reference).

10(z) Warrants to Purchase Shares of Common
Stock of Ridgewood Properties, Inc.
issued to Hugh Jones on December 16,
1996 (filed as an Exhibit to
Registrant's Form 10-Q for the quarter
ended November 30, 1996, and
incorporated herein by reference).

10(aa) Promissory Note between N. Russell
Walden and Ridgewood Properties, Inc.
dated January 31, 1997 (filed as an
Exhibit to Registrant's Form 8-K on
February 5, 1997 and incorporated
herein by reference).

10(bb) Promissory Note between Karen S.
Hughes and Ridgewood Properties, Inc.
dated January 31, 1997 (filed as an
Exhibit to Registrant's Form 8-K on
February 5, 1997 and incorporated
herein by reference).

10(cc) Operating Agreement between Houston
Hotel, LLC and Ridgewood Hotels, Inc.
effective December 9, 1997 (filed as
an Exhibit to Registrant's Form 10-Q
for the quarter ended May 31, 1998).

10(dd) Operating Agreement between RW
Hurstbourne Hotel, Inc. and RW
Louisville Hotel Investors, LLC
effective May 13, 1998 (filed as an
Exhibit to Registrant's Form 10-Q for
the quarter ended May 31, 1998).

10(ee) Operating Agreement between Ridgewood
Hotels, Inc. and Louisville Hotel,
L.P. effective June 5, 1998 (filed as
an Exhibit to Registrant's Form 10-Q
for the quarter ended May 31, 1998).

10(ff) Amendment No. 1 to Post-Employment
Consulting Agreement between Ridgewood
Hotels, Inc. and N. Russell Walden
dated August 13, 1998.

10(gg) Amendment No. 1 to Post-Employment
Consulting Agreement between Ridgewood
Hotels, Inc. and Byron T. Cooper dated
August 18, 1998.

10(hh) Amendment No. 1 to Post-Employment
Consulting Agreement between Ridgewood
Hotels, Inc. and Karen S. Hughes dated
August 13, 1998.

13 1998 Annual Report to Shareholders.

22 Subsidiaries of Registrant.

27 Financial Data Schedule.

[FN]
_______________

* Previously filed as an Exhibit to Registrant's
Registration Statement on Form 10 filed on November 19,
1985 (Securities Exchange Act File No. 0-14019), and
incorporated herein by reference.
</FN>

AMENDMENT NO. 1 TO
POST-EMPLOYMENT CONSULTING AGREEMENT

THIS AGREEMENT NO. 1 (the "Amendment") to that certain
Post-Employment Consulting Agreement (the "Agreement") dated
September 4, 1991, by and between Ridgewood Hotels, Inc., a
Delaware corporation (formerly known as Ridgewood
Properties, Inc.) (the "Company"), with offices at 2859
Paces Ferry Road, Suite 700, Atlanta, Georgia 30339 and
N. Russell Walden, an individual residing at 3190 Ridgewood
Road, Atlanta, Georgia 30327 (the "Executive").

WHEREAS, Executive is employed by the Company as a
senior executive officer as such term is used in Section
3(b) of the Agreement;

WHEREAS, pursuant to the terms and conditions of the
Agreement, Executive would be entitled to a Consulting
Period (as defined in the Agreement) of twenty-four (24)
months; and

WHEREAS, Executive and the Company desire to amend the
Agreement to reduce the Consulting Period upon the terms and
subject to the conditions set forth in this Amendment,

NOW, THEREFORE, in consideration of the mutual premises
herein set forth, and for other good and valuable
consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:

1. Definitions. Unless otherwise defined herein,
capitalized terms used herein shall have the same meaning as
ascribed to them in the Agreement.

2. Reduction of Consulting Period. Commencing on
September 1, 1998, the Consulting Period shall be reduced by
one (1) month for each month that Executive continues to be
employed by the Company, through and including August 31,
1999 (the "Reduction Period"), such that if Executive
remains employed by the Company through the Reduction
Period, thereafter the Consulting Period shall be twelve
(12) months in duration. Effective September 1, 1999, the
Agreement shall be amended by deleting Section 3(b) thereof
in its entirety.

IN WITNESS WHEREOF, the parties hereto have executed
this Amendment as of the 13th day of August, 1998.

EXECUTIVE RIDGEWOOD HOTELS, INC.

By: ____________________________________
___________________________
N. Russell Walden Its:

AMENDMENT NO. 1 TO
POST-EMPLOYMENT CONSULTING AGREEMENT

THIS AGREEMENT NO. 1 (the "Amendment") to that certain
Post-Employment Consulting Agreement (the "Agreement") dated
September 4, 1991, by and between Ridgewood Hotels, Inc., a
Delaware corporation (formerly known as Ridgewood
Properties, Inc.) (the "Company"), with offices at 2859
Paces Ferry Road, Suite 700, Atlanta, Georgia 30339 and
Byron T. Cooper, an individual residing at 2580 Raintree
Way, Marietta, Georgia 30068 (the "Executive").

WHEREAS, Executive is employed by the Company as a
senior executive officer as such term is used in Section
3(b) of the Agreement;

WHEREAS, pursuant to the terms and conditions of the
Agreement, Executive would be entitled to a Consulting
Period (as defined in the Agreement) of twenty-four (24)
months; and

WHEREAS, Executive and the Company desire to amend the
Agreement to reduce the Consulting Period upon the terms and
subject to the conditions set forth in this Amendment,

1. Definitions. Unless otherwise defined herein,
capitalized terms used herein shall have the same meaning as
ascribed to them in the Agreement.

IN WITNESS WHEREOF, the parties hereto have executed
this Amendment as of the 18th day of August, 1998.

EXECUTIVE RIDGEWOOD HOTELS, INC.

By: ____________________________________
___________________________
Byron T. Cooper Its:

AMENDMENT NO. 1 TO
POST-EMPLOYMENT CONSULTING AGREEMENT

THIS AGREEMENT NO. 1 (the "Amendment") to that certain
Post-Employment Consulting Agreement (the "Agreement") dated
September 4, 1991, by and between Ridgewood Hotels, Inc., a
Delaware corporation (formerly known as Ridgewood
Properties, Inc.) (the "Company"), with offices at 2859
Paces Ferry Road, Suite 700, Atlanta, Georgia 30339 and
Karen S. Hughes, an individual residing at 2377 Emory Lane,
Marietta, Georgia 30068 (the "Executive").

WHEREAS, Executive is employed by the Company as a
senior executive officer as such term is used in Section
3(b) of the Agreement;

WHEREAS, pursuant to the terms and conditions of the
Agreement, Executive would be entitled to a Consulting
Period (as defined in the Agreement) of twenty-four (24)
months; and

WHEREAS, Executive and the Company desire to amend the
Agreement to reduce the Consulting Period upon the terms and
subject to the conditions set forth in this Amendment,

1. Definitions. Unless otherwise defined herein,
capitalized terms used herein shall have the same meaning as
ascribed to them in the Agreement.

IN WITNESS WHEREOF, the parties hereto have executed
this Amendment as of the 13th day of August, 1998.

EXECUTIVE RIDGEWOOD HOTELS, INC.

By: ____________________________________
___________________________
Karen S. Hughes Its:

EXHIBIT 13

RIDGEWOOD
HOTELS, INC.

ANNUAL REPORT
1998

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 effectively 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 a three-for-one stock
split effected in the form of a stock dividend on October 31, 1994.
On October 31, 1998, there were 1,513,480 shares of Common Stock
outstanding held by approximately 206 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

-----------------------------------------------------------------
($000's omitted, except
per share data) 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>

Balance Sheet Data as of August 31
Total Assets $ 7,280 $ 8,266 $ 8,724 $ 9,673 $ 14,351
Term Loan(s) Payable 2,744 2,804 2,858 2,796 5,415
Shareholders' Investment 2,944 4,038 4,441 5,612 7,440
Income Statement Data
Year Ended August 31
Net Revenues 5,830 8,408 4,314 8,675 30,082
Net Loss (622) (463) (1,178) (1,656) (3,631)
Basic and Diluted Loss Per
Common Share (1) $ (0.64) $ (0.58) $ (1.29) $ (1.90) $ (0.64)

<FN>
(1) Retroactively adjusted for 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 1998, the Company received net proceeds of
approximately $1,526,000 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, and an interest rate of 10.35%. Principal and
interest payments were 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 amount to a payment of approximately $20,000 per month and are
adjusted annually. The escrow funds are used as tax, insurance and repair
needs arise. As of August 31, 1998, there was approximately $177,000 of
escrowed funds related to this loan agreement.

In March 1998 the executive in charge of hotel operations exercised a
Put Agreement whereby the Company repurchased his 25,000 shares of Common
Stock at $4.50 per share. The shares were subsequently cancelled by the
Company.

The Company has invested in three hotel entities as follows:

RW Hotel Partners, L.P.

On August 16, 1995, RW Hotel Partners, L.P. was organized as a
limited partnership (the "Partnership") under the laws of the State of
Delaware. Concurrently, the Company formed Ridgewood Georgia, Inc., a
Georgia corporation ("Ridgewood Georgia") which became the sole general
partner in the Partnership with RW Hotel Investments Associates, L.L.C.
("Investor") as the limited partner. Ridgewood Georgia has a 1% base
distribution percentage versus 99% for the Investor. However,
distribution percentages do vary depending on certain defined preferences
and priorities pursuant to the Partnership Agreement ("Agreement") which
are discussed below. The partnership was originally formed to acquire a
hotel property in Louisville, Kentucky, but subsequently purchased five
additional hotels. The Partnership purchased the hotel in Louisville,
Kentucky for approximately $16,000,000. In December 1995 and January
1996, the Partnership purchased four hotel properties in Georgia for
approximately $15,000,000 and a hotel in South Carolina for $4,000,000,
respectively. Three of the Georgia hotels were sold at a loss in March
1998, and the hotel in Louisville was transferred to a new entity in June
1998 in conjunction with refinancing that hotel (see below). The two
remaining hotels in the Partnership are in Thomasville, Georgia and
Orangeburg, South Carolina.

Income and loss are allocated to Ridgewood Georgia and the limited
partner based upon the formula for allocating Distributable Cash as
described below.

Distributable Cash is defined as the net income from the property
before depreciation plus any net sale proceeds and net financing proceeds
less capital costs. Distributions of Distributable Cash shall be made as
follows:

- First, to the Investor until there has been distributed to the
Investor an amount equal to a 15% cumulative internal rate of return on
the Investor's investment.

- Second, to Ridgewood Georgia until the aggregate amount received by
Ridgewood Georgia equals the aggregate cash contributions made by
Ridgewood Georgia to the Partnership.

- Third, 12% to Ridgewood Georgia and 88% to the Investor until there
has been distributed to the Investor an amount equal to a 25% cumulative
internal rate of return on Investor's investment.

- Fourth, 75% of the residual to the Investor and 25% to Ridgewood
Georgia.

Management of the Partnership intends to adopt a plan of liquidation
and will sell the remaining two hotels. Based on management's estimate,
Ridgewood Georgia will not receive cash in excess of its investment in the
Partnership. The Company has recorded a loss from the partnership
totaling $184,000 for the fiscal year ended August 31, 1998.

A Management Agreement exists between the Partnership and the Company
as Manager ("Manager") for the purpose of managing the hotels. The
Manager shall be entitled to the following property management fees:

(1) 2.5% of the gross revenues from the hotel property.

(2) 1% of the gross revenues from the hotel property as an incentive
fee if distributable cash equals or exceeds 13.5% of total aggregate
acquisition costs.

Total management fees for the years ended August 31, 1998, 1997 and
1996 were approximately $233,000, $301,000 and $275,000, respectively.

On March 17, 1998, the Partnership sold three of its six hotels. The
Company signed a management agreement with the new owner of the three
hotels wherein it will receive a management fee equal to 3% of revenues
plus 15% of the net operating income plus 5% of any profit realized upon
the sale of the hotels. In connection with the management agreement, the
Company received management fees totaling approximately $114,000 for the
year ended August 31, 1998.

For the fiscal year ended August 31, 1997 and 1996, the Company
recorded equity in income (loss) of the Partnership totaling $(134,000)
net of provision for possible losses and $209,000, respectively. The
Company has recorded during 1997 a provision for possible losses of
approximately $199,000 as there is no indication that the Company will be
able to recover the equity income in the Partnership given the provisions
of the partnership agreement regarding the distribution of cash to the
partners upon liquidation.

Houston Hotel, LLC

On December 9, 1997, Houston Hotel, LLC ("Houston Hotel") was
organized as a limited liability company under the laws of the State of
Delaware. The purpose which Houston Hotel was organized is limited solely
to owning and managing the Hampton Inn Galleria in Houston, Texas. The
Company contributed approximately $316,000 into Houston Hotel which
represents a 10% interest, and the other 90% interest is owned by Houston
Hotel, Inc. (the "Managing Member"), a Nevada corporation.

Income or loss allocated to the Company and the Managing Member is
based upon the formula for distributing cash.

Distributable cash is defined as the cash from operations and capital
contributions determined by the Manager to be available for distribution.
Cash from operations is defined as the net cash realized from the
operations of Houston Hotel after payment of all cash expenditures of
Houston Hotel including, but not limited to, operating expenses, fees,
payments of principal and interest on indebtedness, capital improvements
and replacements, and such reserves and retentions as the Manager
reasonably determines to be necessary.

Distributions of distributable cash shall be made as follows:

- First, 100% to the Manager until it has been distributed an amount
equal to its accrued but unpaid 13% preferred return.

- Second, 100% to the Company until the Company has been distributed
an amount equal to its accrued but unpaid 13% preferred return.

- Third, 80% to the Manager and 20% to the Company.

A Property Management Agreement exists between Houston Hotel, LLC and
the Company as Property Manager ("Property Manager") for the purpose of
managing the hotel. The Property Manager shall be entitled to the
following property management fees:

(1) 1.5% of the gross revenues from the hotel property.

(2) 1.5% of the gross revenues from the hotel property as an
incentive fee if 85% of the budgeted net operating income is
met.

In connection with the management agreement, the Company received
management fees totaling approximately $83,000 for the year ended August
31, 1998.

RW Louisville Hotel Associates, LLC

On May 13, 1998, RW Louisville Hotel Associates LLC ("RW Louisville
Hotel Associates") was organized as a limited liability company under the
laws of the State of Delaware. The purpose which RW Louisville Hotel
Associates was organized is limited solely to owning and managing the
Holiday Inn ("the Hotel") in Louisville, Kentucky. The Company's
investment in RW Hotel Partners, L.P. of $337,500 (see above) was
transferred to RW Louisville Hotel Associates at its historical basis.
Simultaneously, the Company acquired a 10% interest in Louisville Hotel, LLC
for $362,000. Louisville Hotel, LLC loaned $3,620,000 to RW Louisville
Hotel Associates, which resulted in all cash flow from the Hotel being
distributed to Louisville Hotel, LLC.

Income or loss allocated to the Company is based upon the formula for
distributing cash.

- First, to the managing member until the managing member has been
distributed an amount equal to its accrued but unpaid 13% preferred
return.

- Second, to the Company until the Company has been distributed an
amount equal to its accrued but unpaid 13% preferred return.

- Third, 20% to the Company and 80% to the managing member.

Cash from a sale or refinancing would be distributed 10% to the
Company and 90% to the managing member.

(1) Base Management Fee equal to 1.5% of gross revenues from the
hotel property.

(2) Incentive Management Fee equal to 1.5% of gross revenues from
the hotel in which the actual net operating income exceeds 85% of the
budgeted goal for the year.

(3) Super Incentive Management fee equal to: (a) .25% of gross
revenues from the hotel in which the net operating income exceeds 106% of
the budgeted goal for the year; (b) an additional .25% of gross revenues
in which the net operating income exceeds 112% of the budgeted goal; and
(c) an additional .50% of gross revenues in which the net operating income
exceeds 120% of the budgeted goal.

The Company paid an additional $200,000 to Louisville Hotel, LLC as a
fee to acquire the management contract for the hotel. This amount is
included in other assets. The Company is amortizing the fee $70,000 per
year for the first two years and $20,000 per year for the next three
years.

With respect to the sum of $100,000, in the event that the management
contract is terminated by Louisville Hotel, LLC with or without cause and
not pursuant to a third party sale prior to June 5, 2000, Louisville
Hotel, LLC will pay to the Company the sum of $4,166.67 times the number
of months prior to June 5, 2000 that the management contract is
terminated.

In connection with the management agreement, the Company received
management fees totaling approximately $57,000 for the year ended August
31, 1998.

Since the Company is not currently generating sufficient operating
cash to cover overhead and debt service, the Company must continue to sell
its real estate assets, seek alternative financing or otherwise
recapitalize the Company. There is currently approximately $800,000 of
available cash. 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 entities similar to those described above which would
provide additional cash flow. As hotel properties are acquired, the
Company plans to enter into management agreements 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 10% ownership interest in two other
hotels and has a 1% ownership interest in two others. The Company also
currently has eight other hotels which it manages but has no ownership
interest. 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,
1998 decreased compared to 1997 due primarily to the sale of the Company's
undeveloped land in Maitland, Florida in 1997. Sales of real estate
properties for the fiscal year ended August 31, 1997 increased compared to
1996 due primarily to the sale of the land in Maitland. The Company had
gains from real estate sales of approximately $744,000, $1,354,000 and
$281,000 during fiscal years 1998, 1997 and 1996, 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 1998
decreased $14,000, or .5%, compared to 1997. The decrease was due to
lower occupancy at the Company's hotel in Longwood, Florida in 1998.
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 1997.

Revenues from hotel management increased $26,000, or 2%, and
$353,000, or 51%, compared to 1998 and 1997 compared to 1996,
respectively. The increases were due to a larger number of hotels under
management in both years due to the increase in joint venture
participation by the Company.

Expenses of wholly-owned real estate decreased $69,000, or 3%, for
the fiscal year ended August 31, 1998 compared to 1997 due primarily to
fewer land parcels (and their associated expenses) held by the Company.
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.

During fiscal year 1998, expenses of hotel management increased
$91,000, or 12%, and $99,000, or 15%, compared to 1997 and 1997 compared
to 1996, respectively. For 1998, the increase was due to severance paid
to the executive in charge of hotel operations. The increase during 1997
was 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 unconsolidated entities during
fiscal years 1998, 1997 and 1996, the Company recognized equity in the
income (loss) of the entities of approximately $(98,000), $65,000 and
$209,000, respectively. A provision of $199,000 for possible losses on
investments in unconsolidated entities 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. In turn, the equity in net loss of the
unconsolidated entities reported for 1997 was $134,000.

The other revenue of $117,000 received during fiscal year 1998 was
primarily from profits received on land joint ventures in Atlanta, Georgia
and a worker's compensation insurance refund. 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.

General, administrative and other expenses increased $10,000, or 1%,
for fiscal year 1998 compared to 1997. General, administrative and other
expenses increased $67,000, or 5%, for fiscal year 1997 compared to 1996
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
$361,000, $1,067,000 and $193,000, respectively, in fiscal years 1998,
1997 and 1996. 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.

Year 2000 -

The Company has established policies and procedures to coordinate
changes to computer systems and applications necessary to achieve a year
2000 date conversion with no effect on customers or disruption to business
operations. These actions are necessary to ensure that the systems and
applications will recognize and process the year 2000 and beyond. Major
areas of potential business impact have been identified and conversion
efforts have been completed or are underway. The Company's primary
operating and financial systems are already Year 2000 compliant. The
Company also is communicating with suppliers, vendors, financial
institutions and others with which it does business to coordinate Year
2000 conversion. The total cost of compliance and its effect on the
Company's future results of operations is being determined as part of the
conversion planning, but is not expected to be material.

<TABLE>
RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AUGUST 31, 1998 AND 1997

($000'S omitted, except per share data)

August 31, August 31,
ASSETS 1998 1997
------ --------- ---------
<S> <C> <C>
REAL ESTATE INVESTMENTS:
Real Estate Properties
Operating Properties, net $ 1,248 $ 1,325
Land Held for Sale 5,808 6,661
---------- ----------
7,056 7,986

Mortgage Loans -- 2
---------- ----------
Total real estate investments 7,056 7,988

Allowance for Possible Losses
on Real Estate Investments (3,447) (3,544)
---------- ----------
Net real estate investments 3,609 4,444

INVESTMENT IN UNCONSOLIDATED ENTITIES 814 338

CASH AND CASH EQUIVALENTS 1,255 1,596

OTHER ASSETS 1,602 1,888
---------- ----------

$ 7,280 $ 8,266
========== ==========

(continued)
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</FN>
</TABLE>

<TABLE>

RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1998 AND 1997
($000's omitted, except per share data)
<CAPTION>
August 31, August 31,
LIABILITIES AND SHAREHOLDERS' INVESTMENT 1998 1997
---------------------------------------- ---------- ----------
<S> <C> <C>
ACCOUNTS PAYABLE $ 260 $ 159

ACCRUED SALARIES, BONUSES AND
OTHER COMPENSATION 927 863

ACCRUED PROPERTY TAX EXPENSE 110 118

ACCRUED INTEREST AND OTHER LIABILITIES 295 284

TERM LOANS 2,744 2,804
---------- ----------
Total Liabilities 4,336 4,228
---------- ----------

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 1998 and 1997 450 450
Common stock, $0.01 par value, 5,000,000
shares authorized, 1,513,480 and 1,538,480
shares issued and outstanding in 1998 and 15 15
1997, respectively.
Paid-in Surplus 15,861 16,333
Note receivable from officer for
purchase of common stock (75) (75)
Accumulated deficit since
December 30, 1985 (13,307) (12,685)
---------- ----------
Total Shareholders' Investment 2,944 4,038
---------- ----------
$ 7,280 $ 8,266
========== ==========
<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, 1998, 1997 AND 1996

($000's Omitted, except per share data)

1998 1997 1996
--------- ------- ---------
<S> <C> <C> <C>
REVENUES:
Revenues from wholly-owned hotel operations........ $ 3,034 $ 3,048 $ 2,748
Revenues from hotel management .................... 1,076 1,050 697
Sales of real estate properties ................... 1,655 3,808 617
Equity in net income (loss) of
unconsolidated entities ......................... (98) (134) 209
Interest income ................................... 46 40 43
Other.............................................. 117 397 --
---------- - -------- ----------
$ 5,830 $ 8,209 $ 4,314
---------- ---------- ----------
COSTS AND EXPENSES:
Expenses of wholly-owned real estate properties ... $ 2,327 $ 2,396 $ 2,364
Expenses of hotel management ...................... 872 781 682
Costs of real estate sold ......................... 911 2,454 336
Depreciation and amortization ..................... 260 258 268
Interest expense .................................. 340 345 345
General, administrative and other.................. 1,381 1,371 1,304
Business development .............................. 361 1,067 193
---------- ---------- ----------
$ 6,452 $ 8,672 $ 5,492
---------- ---------- ----------
NET LOSS $ (622) $ (463) $ (1,178)
---------- ---------- ----------
BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.64) $ (0.58) $ (1.29)
========== ========== ==========
<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, 1998, 1997 and 1996

($000's Omitted)
<CAPTION>

1998 1997 1996
<S> --------- --------- ---------
Cash flows from operating activities: <C> <C> <C>
Net loss ................................................... $ (622) $ (463) $ (1,178)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization .......................... 278 258 268
Increase in allowance for possible losses
on investment in unconsolidated entities ............. -- 199 --
Gain from sale of real estate properties ............... (744) (1,354) (293)
Equity in loss (net income) of unconsolidated entities.. 184 (14) (209)
(Increase) decrease in other assets .................... 167 (571) (214)
Increase (decrease) in accounts payable
and accrued liabilities .............................. 168 (1) 115
---------- ---------- ----------
Total adjustments ...................................... 53 (1,483) (333)
---------- ---------- ----------
Net cash used in operating activities .................. (569) (1,946) (1,511)
---------- ---------- ----------
Cash flows from investing activities:
Principal payments received on mortgage loans ............ -- 3 39
Investment in unconsolidated entities .................... (678) -- (516)
Proceeds from sale of real estate ........................ 1,526 3,313 634
Additions to real estate properties ...................... (88) (78) (49)
---------- ---------- ----------
Net cash provided by investing activities .............. 760 3,238 108
---------- ---------- ----------
Cash flows from financing activities:
Dividends on preferred stock ............................. (360) (315) (135)
Issuance of common stock upon exercise of stock options .. -- 375 --
Repurchase of common stock ............................... (112) -- --
Repayments of debt ....................................... (60) (54) (44)
---------- ---------- ----------
Net cash provided by (used in) financing activities .... (532) 6 (179)
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents ......... (341) 1,298 (1,582)
Cash and cash equivalents at beginning of year ............... 1,596 298 1,880
---------- ---------- ----------
Cash and cash equivalents at end of year ........................ $ 1,255 $ 1,596 $ 298
========== ========== ==========

(continued)

<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, 1998, 1997 and 1996

- -------------------------------------------------------------------------------------------------
<CAPTION>
Supplemental disclosures of cash flow information and non-cash activity:

1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Interest paid ....................................... $ 340,000 $ 345,000 $ 345,000

Repurchase of 25,000 shares of common stock subject
to a Put Agreement, at $4.50 per share ............ $ 112,500 $ -- $ --

Decrease in allowance for possible losses due
to sale of parcel of land ......................... 97,000 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, 1998, 1997 AND 1996
($000's Omitted, except per share data)

<CAPTION>
Note
Receivable
Preferred Common From
Stock Stock Officer for Total
---------------------- ------------------------ Paid-in Purchase of Accumulated Shareholders'
Shares Amount Shares Amount Surplus Common Stock Deficit Investment
---------- ---------- ------------ ---------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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

Repurchase of Common Stock -- -- (25,000) -- (112) -- -- (112)
Dividends on
Preferred Stock -- -- -- -- (360) -- -- (360)
Net Loss -- -- -- -- -- -- (622) (622)
----------- ----------- ------------- ----------- ----------- ------------- ----------- -----------
Balance, August 31, 1998 450,000 $ 450 1,513,480 $ 15 $ 15,861 $ (75) $ (13,307) $ 2,944
=========== =========== ============= =========== =========== ============= =========== ===========

<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, 1998, 1997 and 1996

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.
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.

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.

The investments in the unconsolidated entities are being accounted
for using the equity method of accounting (See Note 8).

Per Share Data -

In fiscal 1998, the Company adopted Statement of Financial Accounting
Standards No. 128, Earnings Per Share ("SFAS 12"). Basic earnings per
share is based on the weighted effect of all common shares issued and
outstanding, and is calculated by dividing net income available to common
stockholders by the weighted average shares outstanding during the period.
Diluted earnings per share is calculated by dividing net income available
to common stockholders, adjusted for the effect, if any, from assumed
conversion of all potentially dilutive common shares outstanding, by the
weighted average number of common shares used in the basic earning per
share calculation plus the number of common shares that would be issued
assuming conversion of all potentially dilutive common shares outstanding.
All historical earnings per share amounts have been restated to conform to
provisions of this statement.

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.

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.

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 years ended August 31, 1998, 1997 and 1996
was approximately $172,000, $166,000 and $157,000, respectively.

Capitalization Policies -

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. 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.

Reclassifications -

Certain prior year amounts have been reclassified to conform with the
current year presentation.

New Accounting Pronouncements -

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 will
adopt FAS 130 in fiscal year 1999 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 will adopt FAS 131 in fiscal year 1999 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, 1998, and
1997 were as follows ($000's omitted):

Furniture,
August 31, 1998 Land & Fixtures &
Type of Project Buildings Equipment Total

Hotel $ 2,535 $ 392 $ 2,927
Less -- accumulated
depreciation (1,679)
-------
Net operating property 1,248
Land 5,808 -- 5,808
-------
Total $ 7,056
=======
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
=======
Changes in the allowance for possible losses on real estate
investments for the years ended August 31, 1998, 1997 and 1996
were as follows ($000's omitted):
1998 1997 1996

Allowance, beginning of year $3,544 $4,700 $4,700
Reversal of reserves associated
with sales of real estate
assets (97) (1,156) --

Allowance, end of year $3,447 $3,544 $4,700
====== ====== ======

3. Commitments and Contingencies

In August 1991, each executive officer was offered a two year
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 August 1998, an amendment was signed by the two executive
officers reducing the consulting period by one month for each month that
the executive continues to be employed by the Company through August 31,
1999, such that if the executive remains employed by the Company through
August 31, 1999, the consulting period shall be twelve months in duration.
In addition, two other employees were offered and have chosen to enter
into one year Consulting Agreements. The executives and two other
employees, upon termination, agree to sign an unconditional release of all
claims and liability in exchange for a one year consulting fee
arrangement.

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. Discovery has been concluded, and
on March 19, 1998, the Court dismissed all class claims, with only the
derivative claims remaining for trial. Trial has been scheduled for
February, 1999. The Company intends to vigorously contest this matter.

The Company serves as a general partner in a limited partnership.
As a general partner, the Company may be liable for certain deficiencies
which arise in meeting the terms of loan obligations incurred by the
limited partnership and for operating expenses and other liabilities
incurred by the partnership in the ordinary course of business.

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, and the hotel serves as collateral for the loan.
The loan is for a term of 20 years with an amortization period of 25
years, at a fixed interest 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, 1998, there was approximately $177,000 of escrowed funds
related to this loan agreement that are included with Other Assets on the
balance sheet. 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 1998 was $2,727,000, at an average interest rate of 10.35%.
The maximum amount of borrowings outstanding under this loan was
$2,742,000. The balance of the loan at August 31, 1998 was approximately
$2,711,000. The carrying value of the note approximates its fair value at
August 31, 1998.

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, 1998
was approximately $33,000.

The approximate average amount of borrowings on the three promissory
notes during fiscal year 1998 was $48,000, at an average interest rate of
6.83%. The maximum amount of combined borrowings outstanding under these
loans was $62,000.

Maturities of long-term debt during the Company's next five fiscal
years are as follows: 1999 - $65,000; 2000 - $43,000; 2001 - $42,000;
2002 - $47,000; 2003 - $52,000; thereafter - $2,496,000.

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 assets and liabilities.

There was no provision for income taxes for the years ended August
31, 1998, 1997 or 1996.

Deferred tax assets (liabilities) are composed of the following at
August 31, 1998 and August 1997, respectively:

<TABLE>
<CAPTION>
000's Omitted
1998 1997
<S> <C> <C>
Allowance for possible losses $ 1,169 $ 1,202
Excess of tax over book basis, land held
for sale or future development 16 9
Depreciation and amortization 71 73
Excess of tax over book basis, income
from partnership 40 7
Other 331 302
Tax loss carryforwards 4,724 4,564
------- --------
Gross deferred tax assets 6,351 6,157
------- --------
Loan amortization (26) (18)
------- --------
Gross deferred tax liabilities (26) (18)
------- --------
Deferred tax assets valuation allowance (6,325) (6,139)
------- --------
$ 0 $ 0
======= ========
</TABLE>

The net change in the valuation allowance for deferred tax assets was
an increase of $186,000. This change resulted primarily from an increase
in the Company's deferred tax assets.

Approximately $13,795,000 of tax loss carryforwards remain at August
31, 1998 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 and $756,000 in 2012. 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 1,513,480 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. The Company has 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, 1998, 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 Share -

The following table sets forth the computation of basic and diluted
loss per share:
<TABLE>
<CAPTION>
1998 1997 1996

<S> <C> <C> <C>
Net loss $(622,000) $(463,000) $(1,178,000)
Less preferred dividends (360,000) (315,000) (180,000)
---------- --------- -----------
Net loss available to common
shareholders $(982,000) $(778,000) $(1,358,000)

Weighted average shares
outstanding - basic and
diluted 1,526,000 1,350,000 1,055,000
========== ========== ==========
Net loss per share - basic and
diluted $ (0.64) $ (0.58) $ (1.29)
========== ========= ============
</TABLE>

The effect of the Company's stock options and convertible securities was
excluded from the computations for each of the three years ended August
31, 1998, 1997 and 1996 as it is antidilutive. Accordingly, for the
periods presented, diluted net loss per share is the same as basic net
loss per share.

Issuance and Repurchase 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 10. The
25,000 shares issued to the Senior Vice President of Wesley were 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. In March 1998, the Put
Agreement was exercised, whereby the shares were repurchased by the
Company and subsequently cancelled.

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,
1998, 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 was payable in full
on January 31, 1998 and accrues interest at a rate per annum of 8.25%.
The note was extended and is payable in full on January 31, 1999, along
with any accrued interest.

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.

The net periodic pension cost includes the following components:

August 31, 1998 August 31, 1997
<S> <C> <C>
Service cost for the period $ 34,628 $ 32,086
Interest cost on projected
benefit obligation 46,170 40,214
Net amortization of transition
liability 11,026 11,026
Recognized net actuarial gain (39,938) (41,137)
------- -------
Net periodic pension cost $51,886 $42,189
======= =======
</TABLE>

The following sets forth the funded status of the plan and the amounts
shown in the accompanying balance sheet as of August 31, 1998 and 1997.

August 31, 1998 August 31, 1997
<S> <C> <C>
Unfunded excess of projected benefit
obligation over plan assets $(819,826) $(767,940)
======== ========
Projected benefit obligation (654,260) (542,498)
Unrecognized net obligation at
transition 44,100 55,126
Unrecognized net gain (209,666) (280,568)
Net accrued pension liability $(819,826) $(767,940)
========= =========
</TABLE>

The weighted average discount rate used to measure the projected benefit
obligation was 7.5% in 1998 and 8% in 1997. There was no compensation
increase and no expected return on plan assets assumed for 1998 and 1997.

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 $820,000 as of August 31, 1998. At August 31, 1998 the net
cash surrender value available to settle the outstanding pension liability
was approximately $181,000.

8. Investment in Unconsolidated Entities