EXHIBIT 13
RIDGEWOOD
HOTELS, INC.
ANNUAL REPORT
2000
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 Donald E. Panoz
Henk H. Evers Chief Executive Officer
Luther A. Henderson
Sheldon E. Misher Henk H. Evers
Donald E. Panoz President
Nancy C. Panoz
N. Russell Walden* Byron T. Cooper***
Vice President,
Construction & Planning
Karen S. Hughes
Vice President,
Chief Financial Officer**
Sheldon E. Misher
Secretary
* Mr. Walden retired as an officer of the Company on
January 11, 2000.
** Ms. Hughes resigned as of May 12, 2000.
*** Mr. Cooper resigned as of June 27, 2000.
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 March 31, 2000, there were 2,513,480 shares of
Common Stock outstanding held by approximately 194 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 but has no present
intention to do so. 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. The Company is currently in arrears with
respect to $390,000 of dividends with respect to the Company's
outstanding shares of the Company's Series A Convertible
Cumulative Preferred Stock. The Company is prohibited from
paying dividends on its shares of Common Stock at any time that
the Company is in arrears with respect to such preferred stock
dividend.
<PAGE>
<TABLE>
Selected Financial Data
<CAPTION>
($000's omitted, except
per share data)
-------------------------------------------------------------------------------------------------------------
March 31, August 31,
--------- --------------------------------------------------------
Balance Sheet Data as of 2000 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Total Assets $ 8,243 $ 5,910 $ 7,280 $ 8,266 $ 8,724 $ 9,673
Long-Term Debt 4,590 2,682 2,744 2,804 2,858 2,796
Shareholders' Investment 1,740 1,556 2,944 4,038 4,441 5,612
</TABLE>
<TABLE>
<CAPTION>
Seven Months Ended
Income Statement Data for the March 31, March 31, Fiscal Years Ended August 31,
-------- --------- ------------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net Revenues $ 3,378 $2,769 $ 4,547 $ 5,830 $ 8,209 $ 4,314 $ 8,675
Net Loss (1,816) (593) (1,283) (622) (463) (1,178) (1,656)
Basic and Diluted Loss Per
Common Share (1.07) (0.53) (1.09) (0.64) (0.58) (1.29) (1.90)
</TABLE>
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion and analysis provides
information that management believes is relevant to an
assessment and understanding of the consolidated results of
operations and financial condition of Ridgewood Hotels, Inc.
and its subsidiaries (collectively, the "Company"). The
discussion should be read in conjunction with the Company's
consolidated financial statements for the seven months ending
March 31, 2000.
Certain statements included in this document are
forward-looking, such as statements relating to estimates of
operating and capital expenditure requirements, future
revenue and operating income, and cash flow and liquidity.
Such forward-looking statements are based on the Company's
current expectations, estimates and projections about the
Company's industry, management's beliefs and certain
assumptions made by the Company, and are subject to a number
of risks and uncertainties that could cause actual results in
the future to differ significantly from results expressed or
implied in any such forward-looking statements. These risks
and uncertainties include, but are not limited to,
uncertainties relating to economic and business conditions,
governmental and regulatory policies, and the competitive
environment in which the Company operates. Words such as
"anticipates," "expects," "intends," "plans," "believes,"
"may," "will," or similar expressions are intended to
identify forward-looking statements. In addition, any
statements that refer to expectations, projections or other
characterizations of future events or circumstances,
including any underlying assumptions, are forward-looking
statements. Such statements are not guarantees of future
performance and are subject to the risks and uncertainties
referred to above. Therefore, the Company's actual results
could differ materially and adversely from those expressed in
any forward-looking statements as a result of various
factors. The Company undertakes no obligation to revise or
update publicly any forward-looking statements for any
reason. The information contained in this document is not a
complete description of the Company's business or the risks
associated with an investment in the Company's common stock.
The Company urges you to carefully review and consider the
various disclosures made in this report and in the Company's
other reports filed with the Securities and Exchange
Commission.
Results of Operations -
Sales of real estate properties for the seven months
ended March 31, 2000 increased compared to the seven months
ended March 31, 1999 due primarily to sales in Texas and
Georgia. Sales of real estate properties for the fiscal year
ended August 31, 1999 decreased compared to 1998 due
primarily to greater sales in Ohio and Florida during 1998.
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. The Company had a gain from real estate
sales of approximately $335,000 for the seven months ended
March 31, 2000. The Company had gains from real estate sales
of approximately $79,000, $744,000 and $1,354,000 during
fiscal years 1999, 1998 and 1997, 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.
During the period ending March 31, 2000, the Company
owned and operated a hotel in Longwood, Florida. The hotel
was sold in May 2000 (see Subsequent Events in Notes to
Consolidated Financial Statements) and has an 80% ownership
interest in another hotel. The Company presently manages
seventeen other hotel properties pursuant to management
agreements that generally provide the Company with a fee
calculated as a percentage of gross revenues of the hotel
property and generally include an incentive management fee
based on a percentage of gross revenues exceeding a
negotiated amount. The contract terms governing management
fees vary depending on the size and location of the hotel and
other factors relative to such hotel property. The hotel
properties managed by the Company are located in Georgia,
Florida, Texas, Virginia, Indiana and Kentucky, and are
generally affiliated with nationally recognized hospitality
franchises including Holiday Inn, Ramada, Sheraton and
Hampton Inns. Under the terms of franchise agreements on
certain properties, the Company is required to comply with
standards established by the franchisers, including property
upgrades and renovations. Under the terms of the management
agreements, the owners of the hotels are responsible for all
operating expenses, including property upgrades and
renovations. The hotel properties managed by the Company are
primarily full service properties which offer food and
beverage services and meeting and banquet facilities. The
Company's current management agreements generally have
initial terms of one to five years. Currently the Company
has several agreements that may be terminated with sixty days
notice, including four properties owned by the same third
party which, if terminated, would result in a significant
reduction of management fees to the Company.
During the seven months ended March 31, 2000, the
Company entered into four new management agreements. During
the same period, three management agreements were terminated
by property owners.
Revenues from wholly-owned hotel operations for the
seven months ended March 31, 2000 increased $47,000, or 3%,
compared to the seven months ended March 31, 1999. The net
increase was the result of an additional $262,000 of revenues
from a hotel leased by the Company in Lubbock, Texas and a
$215,000 decrease in revenue from the hotel in Longwood,
Florida. Revenues from wholly-owned hotel operations for
fiscal year 1999 decreased $331,000, or 11%, compared to
1998. Revenues from wholly-owned hotel operations for fiscal
year 1998 decreased $14,000, or .5%, compared to 1997. The
decreases were due to lower occupancy at the Company's hotel
in Longwood, Florida in 1999 and 1998.
Revenues from hotel management for the seven months
ended March 31, 2000 increased $265,000, or 40%, compared to
the seven months ended March 31, 1999. Revenues from hotel
management increased $137,000, or 13%, and $26,000, or 2%,
compared to fiscal year 1999 and fiscal year 1998 compared to
fiscal year 1997, respectively. The increases were due to a
larger number of hotels under management each year.
In relation to the Company's investment in
unconsolidated entities, the Company recognized equity in the
income of these entities of $133,000 and $85,000,
respectively, for the seven months ended March 31, 2000 and
March 31, 1999. During fiscal years 1999, 1998 and 1997, the
Company recognized equity in the income (loss) of these
entities of approximately $156,000, $(98,000), and $65,000,
respectively. A provision of $199,000 for possible losses on
investments in unconsolidated entities in fiscal year 1997
was recorded as there was no indication that the Company
would 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 $23,000 received during the seven
months ended March 31, 2000 was primarily from a favorable
adjustment received for workers' compensation claims. 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
adjustment. 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.
Expenses of wholly-owned real estate increased $167,000,
or 12%, for the seven months ended March 31, 2000 compared to
the seven months ended March 31, 1999. The increase was
primarily due to the hotel leased by the Company in Lubbock,
Texas.
Expenses of wholly-owned real estate increased $38,000,
or 2%, for the fiscal year ended August 31, 1999 compared to
1998 due to increased expenses at the Company's hotel in
Longwood, Florida. 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.
Interest expense increased $150,000, or 76%, for the
seven months ended March 31, 2000 compared to the seven
months ended March 31, 1999. The increase was due to the
additional debt incurred by the Company for its acquisition
of an interest in the hotel in Louisville, Kentucky.
There was no significant change in depreciation and
amortization expense for the seven months ended March 31,
2000 compared to the seven months ended March 31, 1999.
Depreciation and amortization expense increased by $199,000,
or 77%, during fiscal year 1999 compared to 1998. The
increase was due to greater amortization of the Company's
hotel management agreements and the write-off of the
remaining investment in a hotel management company.
General, administrative and other expenses increased
$362,000, or 31%, for the seven months ended March 31, 2000
compared to the seven months ended March 31, 1999. The
increase was due to several reasons. Payroll and benefits
increased due to additional staff required to manage a larger
number of hotels. Additionally, consulting fees increased
due primarily to a consulting agreement with the Company's
former President, and legal expense increased due to an
ongoing lawsuit. See note 3 in the Notes to Consolidated
Financial Statements. General, administrative and other
expenses decreased $116,000, or 5%, for fiscal year 1999
compared to 1998. General, administrative and other expenses
increased $101,000, or 5%, for fiscal year 1998 compared to
1997. Expenses in fiscal year 1998 were unusually high due
to severance paid to the executive in charge of hotel
operations.
Business development expenses decreased $28,000, or 32%,
for the seven months ended March 31, 2000 compared to the
seven months ended March 31, 1999. The decrease was due to
the termination of a consultant used by the Company. During
fiscal years 1999, 1998 and 1997, while the Company was
aggressively pursuing the business of acquiring, developing,
operating and selling hotel properties throughout the
country, the Company incurred business development costs of
$148,000, $361,000 and $1,067,000, respectively.
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.
In March 2000, the Company recognized a writedown of
$1,200,000 on its investment in Louisville Hotel, LLC. This
writedown was due to the anticipated shortfall of the
Company's return of equity as a result of the decreased
operating performance of the hotel.
Liquidity and Capital Resources -
During the seven months ended March 31, 2000, the
Company received net proceeds of approximately $423,000 from
the sale of undeveloped land in Florida 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
$22,000 per month and are adjusted annually. The escrow
funds are used as tax, insurance and repair needs arise. As
of March 31, 2000, there was approximately $239,000 of
escrowed funds related to this loan agreement.
On May 31, 2000 the Company sold its hotel in Longwood,
Florida for $5,350,000 and received net cash proceeds of
approximately $1,300,000 and a $250,000 note from the
purchaser. Approximately $3,500,000 of the sales proceeds
were used to pay off the mortgage and defeasance penalty on
the hotel. See Subsequent Events in the Notes to
Consolidated Financial Statements.
On January 10, 2000, the Company entered into a
management agreement ("Management Agreement") with
Fountainhead Development Corp., a Georgia corporation
("Fountainhead"), to perform management services at Chateau
Elan Winery and Resort, one of Fountainhead's properties, for
a period of five years beginning on March 24, 2000. In
consideration of the Management Agreement, the Company issued
to Fountainhead 1,000,000 shares of common stock
("Fountainhead Shares") at a fair value of $2.00 per share.
In the Management Agreement, Fountainhead agreed to pay the
Company a base management fee equal to 2% of the gross
revenues of the properties being managed, plus an annual
incentive management fee to be determined each year based on
the profitability of the properties being managed during that
year.
The Management Agreement has a term of five years but is
terminable upon the transfer by Fountainhead of all or a
material portion of the properties covered by the Management
Agreement. If the Management Agreement is terminated upon
such a transfer or upon the occurrence of an event of default
by Fountainhead, Fountainhead shall pay to the Company a
portion of the projected fees owed to the Company under the
agreement, with adjustments based on the term of the
Management Agreement remaining. In such event, Fountainhead
may elect to surrender to the Company shares of common stock
in lieu of a cash payment. In connection with the issuance of
the Fountainhead Shares, the number of directors constituting
the full Board of Directors of the Company was increased from
three to seven members, effective on February 3, 2000. See
also note 6 to the financial statements.
On January 11, 2000, one of the principal stockholders
and President of the Company, N. Russell Walden ("Walden")
sold 650,000 shares of the common stock to Fountainhead and a
new President of the Company was elected. Another principal
shareholder, ADT Security Services, Inc. ("ADT"), sold
450,000 shares of preferred stock of the Company to
Fountainhead. Through the issuance of the common stock
pursuant to the Management Agreement and the acquisitions of
the Walden common stock and ADT preferred stock, Fountainhead
has obtained beneficial ownership of approximately 79% of the
common stock. Fountainhead is engaged principally in the
business of owning and operating hotel, resort, and other
real estate properties. See also note 6 to the financial
statements.
As a result of the Fountainhead transactions, the
Company's President resigned and Mr. Evers was appointed as
President and Chief Operating Officer effective January 11,
2000. At the Company's request, Fountainhead continued to
pay Mr. Evers' salary as an advance to the Company through
June 30, 2000. Fountainhead has agreed that the Company may
repay the advance by issuing additional shares of common
stock to Fountainhead at $2.00 per share. The Company has
accrued $75,000 in expenses relating to the advanced
compensation for the seven month period ending March 31,
2000. Effective July 1, 2000, the Company will commence
paying Mr. Evers' salary directly.
The Company has invested in a hotel entity as follows:
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.
RW Louisville Hotel Associates was organized to own and
manage the Holiday Inn ("the Hotel") in Louisville, Kentucky.
The Company's investment in RW Hotel Partners, L.P. of
$337,500 was transferred to RW Louisville Hotel Associates at
its historical basis. Simultaneously, the Company invested
$362,000 into Louisville Hotel, LLC. The combined equity of
$699,500 represented a 10% interest in the Hotel. Louisville
Hotel, LLC loaned $3,620,000 to the Hotel in return for all
cash flows generated from the Hotel.
On September 30, 1999, the Company purchased additional
equity in Louisville Hotel, LLC. The Company increased its
ownership from 10% to 80%. The consideration paid to acquire
the increased ownership was $2,500,000, composed of the
following:
Transfer of 10% ownership interest in
Houston Hotel, LLC $443,000
Cash payment(1) 124,000
Promissory note to Louisville Hotel, L.P.
secured by the Company's ownership
interest in Louisville Hotel, LLC(2) 1,333,000
Promissory note to Louisville Hotel, L.P.
secured by the Company's Phoenix,
Arizona land(2) 300,000
Promissory note to Louisville Hotel, L.P.
secured by one parcel of the Company's
Longwood, Florida land (2) 300,000
----------
Total additional equity in Louisville Hotel,
LLC $2,500,000
==========
(1) The cash to make this payment was obtained from
Louisville Hotel, LLC in connection with a
modification of the management contract of the hotel.
This amount represents the unamortized portion of the
original $200,000 participation fee paid to Louisville
Hotel, LLC to acquire the management contract of the
hotel.
(2) The three promissory notes are cross defaulted. The
three promissory notes bear interest at 13% and
mature on September 30, 2002.
With 80% ownership, the Company is now the Managing Member
of Louisville Hotel, LLC. Louisville Hotel, L.P. now has 20%
ownership in Louisville Hotel, LLC and is the Non-Managing
Member.
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 Company in an amount equal to the
cumulative interest paid on the acquisition loans of
$1,333,000, $300,000 and $300,000. The Company would then use
these funds to pay Louisville Hotel, L.P.
- Second, a 13% preferred return to Louisville Hotel, L.P.
on their original $3,061,000 investment.
- Third, a 13% preferred return to the Company on its
capital contribution of $1,207,000.
- Fourth, 80% to the Company and 20% to Louisville Hotel,
L.P.
Cash from a sale or refinancing would be distributed as
follows:
- First, to the Company in an amount equal to the
cumulative interest paid on the acquisition loans of
$1,333,000, $300,000 and $300,000. The Company would then
use these funds to pay Louisville Hotel, L.P.
- Second, to the Company in an amount equal to the
acquisition loans of $1,333,000, $300,000 and $300,000.
- Third, to Louisville Hotel, L.P. until it has received
aggregate distributions in an amount equal to its 13%
preferred return.
- Fourth, to Louisville Hotel, L.P. until its net capital
contribution is reduced to zero.
- Fifth, to the Company until it has received an amount
equal to its 13% preferred return.
- Sixth, to the Company until its net capital contribution
is reduced to zero.
- Thereafter, 10% to Louisville and 90% to the Company.
If a sale or refinancing occurs after September 30, 2000
but before September 30, 2001, then the distribution would
change to 15% and 85%, respectively.
In March 2000, the Company recognized a writedown of
$1,200,000 on its investment in Louisville Hotel, LLC. This
writedown was due to the anticipated shortfall of the Company's
return of equity as a result of the decreased operating
performance of the hotel.
Effective September 30, 1999 a new management agreement
was entered into between the Company and RW Louisville Hotel
Associates, LLC. The Company ("Manager") is entitled to the
following property management fees:
(1) A Base Management Fee equal to 3% of gross revenues
from the hotel property.
(2) An Incentive Management Fee in an amount up to 1% of
gross revenue per period calculated as follows:
(a) 0.5% of gross revenue per year in which the
actual net operating income ("NOI") reaches 105%
of the budgeted NOI for that period, and
(b) an additional 0.5% of gross revenue per year in
which the actual net operating income ("NOI")
reaches 110% of the budgeted NOI for that
period.
(c) The Incentive Management Fee will be accrued
monthly and disbursed quarterly. The quarterly
disbursements for the Incentive Management Fee
will be reconciled quarterly and annually.
In connection with the management agreement prior to
September 30, 1999, the Company received management fees
totaling approximately $32,000 for the seven months ended March
31, 2000 and $285,000 and $57,000 for the years ended August
31, 1999 and 1998, respectively. In connection with the new
management agreement effective September 30, 1999, the Company
received management fees totaling approximately $131,000 for
the seven months ended March 31, 2000.
There is approximately $1,900,000 of available cash as of
June 15, 2000. The increase in cash since March 31, 2000 is
due to the sale of land in Phoenix, Arizona and the sale of the
hotel in Longwood, Florida. The Company intends to
aggressively pursue the acquisition of hotels and hotel
management contracts with this cash.
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 did not experience any disruptions to its
business related to the Year 2000. The total costs of
compliance have been minimal, and the Company does not
anticipate any disruptions in the future.
<TABLE>
RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND AUGUST 31, 1999 AND 1998
($000'S omitted, except share and per share data)
<CAPTION>
March 31, August 31, August 31,
ASSETS: 2000 1999 1998
------ --------- --------- ---------
<S> <C> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 258 $ 471 $ 1,255
Receivables 394 241 240
Other Current Assets 320 394 438
---------- ---------- ----------
Total Current Assets 972 1,106 1,933
Real Estate Investments:
Real Estate Properties
Operating Properties, net 1,106 1,172 1,248
Land Held for Sale, net 1,806 2,028 2,361
Investments in Unconsolidated
Hotel Entities 2,000 1,016 832
---------- ---------- ----------
Total real estate investments 4,912 4,216 4,441
Management Contracts, net 2,192 260 --
Other Assets 167 328 906
---------- ---------- ----------
$ 8,243 $ 5,910 $ 7,280
========== ========== ==========
<FN>
The accompanying notes are an integral part of these consolidated
balance sheets.
</FN>
</TABLE>
<TABLE>
RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND AUGUST 31, 1999 AND 1998
($000's omitted, except share and per share data)
LIABILITIES AND SHAREHOLDERS' INVESTMENT
<CAPTION>
March 31, August 31, August 31,
2000 1999 1998
---------- ---------- ---------
<S> <C> <C> <C>
LIABILITIES:
-----------
Current Liabilities:
Current Maturities of Long-Term Debt $ 37 $ 40 $ 53
Accounts Payable 284 246 260
Accrued Salaries, Bonuses and
Other Compensation 172 84 107
Accrued Property Tax Expense 39 111 116
Accrued Interest and Other Liabilities 524 338 289
---------- ---------- ----------
Total Current Liabilities 1,056 819 825
Accrued Pension Liability 520 893 820
Deferred Curtailment Gain on
Pension Liability 374 -- --
Long-Term Debt 4,553 2,642 2,691
---------- ---------- ----------
Total Liabilities 6,503 4,354 4,336
---------- ---------- ----------
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 2000, 1999 and 1998 450 450 450
Common stock, $0.01 par value, 5,000,000
shares authorized, 2,513,480 shares issued
and outstanding in 2000, and 1,513,480
shares issued and outstanding in
1999 and 1998 25 15 15
Paid-in Surplus 17,671 15,681 15,861
Note receivable from officer for
purchase of common stock -- -- (75)
Accumulated deficit (16,406) (14,590) (13,307)
---------- ---------- ----------
Total Shareholders' Investment 1,740 1,556 2,944
---------- ---------- ----------
$ 8,243 $ 5,910 $ 7,280
========== ========== ==========
<FN>
The accompanying notes are an integral part of these consolidated
balance sheets.
</FN>
</TABLE>
<TABLE>
RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SEVEN MONTHS ENDED MARCH 31, 2000 AND 1999 AND
FOR THE YEARS ENDED AUGUST 31, 1999, 1998 AND 1997
($000's Omitted, except per share data)
<CAPTION>
For the Seven
Months Ended For the Fiscal Year Ended
--------------------- -------------------------------
March 31, March 31, August 31, August 31, August 31,
2000 1999 1999 1998 1997
(Unaudited)
--------- ---------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
REVENUES:
Revenues from wholly-owned hotel operations........ $ 1,696 $ 1,649 $ 2,703 $ 3,034 $ 3,048
Revenues from hotel management .................... 927 662 1,213 1,076 1,050
Sales of real estate properties ................... 598 363 458 1,655 3,808
Equity in net income (loss) of
unconsolidated entities ......................... 133 85 156 (98) (134)
Interest income ................................... 1 10 15 46 40
Other.............................................. 23 -- 2 117 397
---------- ----------- ---------- ---------- ----------
$ 3,378 $ 2,769 $ 4,547 $ 5,830 $ 8,209
---------- ----------- ---------- ---------- ----------
COSTS AND EXPENSES:
Expenses of wholly-owned real estate properties ... $ 1,566 $ 1,399 $ 2,365 $ 2,327 $ 2,396
Costs of real estate sold ......................... 263 283 379 911 2,454
Depreciation and amortization ..................... 218 217 459 260 258
Interest expense .................................. 348 198 342 340 345
General, administrative and other.................. 1,540 1,178 2,137 2,253 2,152
Business development .............................. 59 87 148 361 1,067
Writedown on hotel investment ..................... 1,200 -- -- -- --
---------- ----------- ---------- ---------- ----------
$ 5,194 $ 3,362 $ 5,830 $ 6,452 $ 8,672
---------- ----------- ---------- ---------- ----------
NET LOSS $ (1,816) $ (593) $ (1,283) $ (622) $ (463)
PREFERRED DIVIDENDS (210) (210) (360) (360) (315)
---------- ----------- ---------- ---------- ----------
NET LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (2,026) $ (803) (1,643) (982) (778)
---------- ----------- ---------- ---------- ----------
BASIC AND DILUTED LOSS PER COMMON SHARE $ (1.07) $ (0.53) $ (1.09) $ (0.64) $ (0.58)
========== =========== ========== ========== ==========
<FN>
The accompanying notes are an integral part of these consolidated statements.
</FN>
</TABLE>
<TABLE>
RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
FOR THE SEVEN MONTHS ENDED MARCH 31, 2000 AND
FOR THE YEARS ENDED AUGUST 31, 1999, 1998 AND 1997
($000's Omitted)
<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, 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
Repayment of Note
Receivable -- -- -- -- -- 75 -- 75
Dividends on
Preferred Stock -- -- -- -- (180) -- -- (180)
Net Loss -- -- -- -- -- -- (1,283) (1,283)
----------- ---------- ------------ ----------- ----------- ------------ ----------- -----------
Balance, August 31, 1999 450,000 $ 450 1,513,480 $ 15 $ 15,681 -- $ (14,590) $ 1,556
Issuance of Common Stock -- -- 1,000,000 10 1,990 -- -- 2,000
Net Loss -- -- -- -- -- -- (1,816) (1,816)
----------- ----------- ------------- ----------- ----------- ------------- ----------- -----------
Balance, March 31, 2000 450,000 $ 450 2,513,480 $ 25 $ 17,671 -- $ (16,406) $ 1,740
=========== =========== ============ =========== =========== ============= =========== ===========
<FN>
The accompanying notes are an integral part of these consolidated statements.
</FN>
</TABLE>
<TABLE>
Ridgewood Hotels, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Seven Months Ended March 31, 2000 and 1999 and
For the Years Ended August 31, 1999, 1998 and 1997
<CAPTION>
For the Seven
($000's Omitted) Months Ended
------------ For the Fiscal Years Ended
March 31, --------------------------
March 31, 1999 August 31, August 31, August 31,
2000 (Unaudited) 1999 1998 1997
Cash flows from operating activities: --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net loss ................................................... $ (1,816) $ (593) $ (1,283) $ (622) $ (463)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization .......................... 218 217 459 260 258
Writedown on hotel investment .......................... 1,200 -- -- -- --
Increase in allowance for possible losses
on investment in unconsolidated entities ............. -- -- -- -- 199
Gain from sale of real estate properties ............... (335) (72) (79) (744) (1,354)
Distributions from unconsolidated entities greater
(less) than equity in net (loss) income .............. -- -- -- 184 (14)
(Increase) decrease in other assets .................... (112) (13) 32 185 (571)
Increase (decrease) in accounts payable
and accrued liabilities .............................. 236 (236) 80 168 (1)
---------- ---------- ---------- ---------- ----------
Total adjustments ...................................... 1,207 (104) 492 53 (1,483)
---------- ---------- ---------- ---------- ----------
Net cash used in operating activities .................. (609) (697) (791) (569) (1,946)
---------- ---------- ---------- ---------- ----------
Cash flows from investing activities:
Principal payments received on mortgage loans ............ -- -- -- -- 3
Investment in unconsolidated entities .................... (124) -- (184) (678) --
Proceeds from sale of real estate ........................ 562 340 423 1,526 3,313
Additions to real estate properties ...................... (17) (42) (65) (88) (78)
---------- ---------- ---------- ---------- ----------
Net cash provided by investing activities .............. 421 298 174 760 3,238
---------- ---------- ---------- ---------- ----------
Cash flows from financing activities:
Dividends on preferred stock ............................. -- (180) (180) (360) (315)
Issuance of common stock upon exercise of stock options .. -- -- -- -- 375
Repurchase of common stock ............................... -- -- -- (112) --
Repayments of debt ....................................... (25) (37) (62) (60) (54)
Payment received on note receivable from stock issuance... -- -- 75 -- --
---------- ---------- ---------- ---------- ----------
Net cash (used in) provided by financing activities .... (25) (217) (167) (532) 6
---------- ---------- ---------- ---------- ----------
Net (decrease) increase in cash and cash equivalents ......... (213) (616) (784) (341) 1,298
Cash and cash equivalents at beginning of period ............. 471 1,255 1,255 1,596 298
---------------------- ---------- ---------- ----------
Cash and cash equivalents at end of period ................... $ 258 $ 639 $ 471 $ 1,255 $ 1,596
========== ========== ========== ========== ==========
<FN>
The accompanying notes are an integral part of these consolidated statements.
</FN>
</TABLE>
<TABLE>
Ridgewood Hotels, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Seven Months Ended March 31, 2000 and 1999 and
For the Years Ended August 31, 1999, 1998 and 1997
----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Supplemental disclosures of cash flow information and non-cash activity:
For the
Seven Months
Ended For the Fiscal Year Ended
--------------------- ----------------------------------
March 31, March 31, August 31, August 31, August 31,
2000 1999 1999 1998 1997
(Unaudited)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Interest paid ....................................... $ 322,000 $ 198,000 $ 342,000 $ 340,000 $ 345,000
Issuance of 1,000,000 common shares in exchange
for management contract ........................... 2,000,000 -- -- -- --
Notes payable issued in conjunction with
additional investment in Louisville Hotel, LLC .. 1,933,000 -- -- -- --
Transfer of 10% ownership interest in Houston Hotel,
LLC for additional investment in Louisville
Hotel, LLC ....................................... 443,000 -- -- -- --
Decrease in allowance for possible losses due
to sale of parcel of land ......................... -- -- $ 128,000 $ 97,000 $1,156,000
Repurchase of 25,000 shares of common stock subject
to a Put Agreement, at $4.50 per share ............ -- -- -- $ 112,500 --
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
----------------------------------------------------------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these consolidated statements.
</FN>
</TABLE>
<PAGE>
Ridgewood Hotels, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2000 and August 31, 1999, 1998 and 1997
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"). Alarmguard later merged with ADT Security
Services, Inc. ("ADT").
On January 10, 2000, the Company entered into a management
agreement ("Management Agreement") with Fountainhead
Development Corp. ("Fountainhead") to perform management
services at Chateau Elan Winery and Resort, one of
Fountainhead's properties, for a period of five years beginning
on March 24, 2000. In consideration of the Management
Agreement, the Company issued to Fountainhead 1,000,000 shares
of common stock ("Fountainhead Shares"). The determined market
value of the management contract was $2,000,000 at the time of
the transaction. In connection with the issuance of the
Fountainhead Shares, the number of directors constituting the
full Board of Directors of the Company was increased from three
to seven members, effective on February 3, 2000. See also note
6.
On January 11, 2000, one of the principal stockholders and
President of the Company, N. Russell Walden, sold 650,000
shares of the common stock to Fountainhead and a new President
of the Company was elected. Another principal shareholder,
ADT, sold 450,000 shares of preferred stock of the Company to
Fountainhead. Through the issuance of the common stock
pursuant to the Management Agreement and the acquisitions of
the Walden common stock and ADT preferred stock, Fountainhead
has obtained beneficial ownership of approximately 79% of the
common stock. Fountainhead is engaged principally in the
business of owning and operating hotels, resorts and other real
estate properties. See also note 6.
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).
On March 28, 2000 the Company changed its fiscal year from
August 31 to March 31.
Per Share Data -
In fiscal year 1998, the Company adopted Statement of
Financial Accounting Standards No. 128, Earnings Per Share
("SFAS 128"). Basic earnings per share is based on the
weighted average effect of all common shares issued and
outstanding, and is calculated by dividing net income available
to common shareholders by the weighted average shares
outstanding during the period. Diluted earnings per share is
calculated by dividing net income available to common
shareholders, 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 and Long-Lived Assets to be Disposed of"
("SFAS 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 SFAS 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 writedown cannot
be restored 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" ("SFAS 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 and Amortization 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 seven months ended March 31, 2000 was approximately
$145,000 and for the years ended August 31, 1999, 1998 and 1997
was approximately $180,000, $172,000 and $166,000,
respectively.
The Company amortizes certain intangible assets over the
useful life of those assets. Management contracts for which
consideration is given are amortized over the life of the
contract. Amortization expense for the seven months ended
March 31, 2000 was approximately $73,000 and for the years
ended August 31, 1999, 1998 and 1997 was approximately
$279,000, $88,000 and $92,000, 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. Management contracts are capitalized based on
their estimated fair value at the date of the contract and
amortized on a straight-line basis over the duration of the
contract.
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 Consolidated Statements of Cash
Flows, cash includes cash equivalents. Cash equivalents
include all highly liquid investments with original maturities
of three months or less.
Fair Value of Financial Instruments -
The recorded values of financial instruments including
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.
Revenue Recognition -
Revenue related to management contracts is recognized in
the month in which the services are provided. Incentive
revenue is recognized when earned.
New Accounting Pronouncements -
In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 133
"Accounting for Derivative and Hedging Activities" ("SFAS No.
133"). SFAS No. 133 requires companies to record derivatives
on the balance sheet as assets or liabilities at fair value.
It is effective for financial statements for fiscal years
beginning after June 15, 2000, as amended by SFAS No. 137.
Management is evaluating the impact of SFAS No. 133 on the
Company's future earnings and financial position, but does not
expect it to be material.
In fiscal year 1999, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130"). This statement requires
enterprises to classify items of other comprehensive income by
their nature in the financial statements and to display the
accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in-capital in the
equity statement of the financial statements. Adoption of this
pronouncement had no material effect on the consolidated
statement of operations for the year ended August 31, 1999.
The Company has no other comprehensive income and as a result,
there is no difference between comprehensive income and net
income for the year ended August 31, 1999 and for the seven
months ended March 31, 2000.
In fiscal year 1999, the Company adopted Statement of
Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS
131"). This standard requires that enterprises report
financial and descriptive information about its reportable
operating segments. The Company currently has only one
segment, real estate ownership and management, which is the
basis for the consolidated information in the financial
statements.
2. Real Estate Investments
The Company's real estate properties by type at March 31,
2000 and August 31, 1999 were as follows ($000's omitted):
<TABLE>
<CAPTION>
Furniture,
March 31, 2000 Land & Fixtures &
Type of Project Buildings Equipment Total
<S> <C> <C> <C>
Wholly-owned hotel $ 2,535 $ 426 $2,961
Less -- accumulated
depreciation (1,855)
--------
Net operating property 1,106
--------
Land $ 5,125 -- 5,125
Less -- allowance for
possible losses (3,319)
--------
Net land 1,806
Investment in unconsolidated
hotel entities 3,200
Less -- allowance for possible losses (1,200)
--------
Net investment in unconsolidated
hotel entities 2,000
--------
Total net real estate
investments $ 4,912
========
</TABLE>
<TABLE>
<CAPTION>
Furniture
August 31, 1999 Land & Fixtures &
Type of Project Buildings Equipment Total
<S> <C> <C> <C>
Wholly-owned hotel $ 2,535 $ 418 $2,953
Less -- accumulated
depreciation (1,781)
--------
Net operating property 1,172
Land $ 5,347 -- 5,347
Less -- allowance for
possible losses (3,319)
--------
Net land 2,028
Investment in unconsolidated
hotel entities 1,016
--------
Total net real estate
investments $ 4,216
========
</TABLE>
<PAGE>
Changes in the allowance for possible losses on real
estate investments for the seven months ended March 31, 2000
and years ended August 31, 1999, 1998 and 1997 were as follows
($000's omitted):
<TABLE>
<CAPTION>
For the Seven
Months Ended For the Years Ended
March 31, Aug. 31, Aug. 31, Aug. 31,
2000 1999 1998 1997
<S> <C> <C> <C> <C>
Allowance, beginning
of period $3,319 $3,447 $3,544 $4,700
Reversal of reserves
associated with sales
of real estate assets -- (128) (97) (1,156)
Writedown of investment 1,200 -- -- --
------ ------ ------ ------
Allowance, end of period $4,519 $3,319 $3,447 $3,544
====== ====== ====== ======
</TABLE>
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.
In January 2000, one of the executives was terminated and
entered into an amended six month consulting agreement. In May 2000,
one of the executives and one of the employees were terminated, and
each has entered into the 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. The case was tried to Vice Chancellor Jacobs
during the period February 1 through February 3, 1999.
On January 24, 2000, the Court rendered its Opinion. The Court
found in favor of the plaintiff and against three of the four
individual director-defendants (Messrs. Walden, Stiska and Earley).
The Court held that the repurchase transactions being challenged were
unlawful under Delaware law, for two primary reasons: (1) the
transactions were entered into for the improper purpose of
entrenching Mr. Walden in his then-current position of President and
Director, and thus constituted an unlawful self-dealing transaction;
and (2) the use of the Company's assets to repurchase its common
stock held by Triton Group, Ltd. and Hesperus Partners Ltd. was not
demonstrated to the Court's satisfaction to be "entirely fair" to the
minority shareholders under the entire fairness doctrine as
enunciated under Delaware law. Having found that the challenged
transactions were unlawful, the Court determined that further
proceedings would be necessary to identify the precise form that the
final decree in this case should take. Although the Court's opinion
contemplates further proceedings, no further hearing date has yet
been scheduled to address the remaining remedy issues.
On May 15, 2000, the plaintiff filed a Memorandum in Support of
Judgment after Trial requesting that the Court enter an order
rescinding the Company's issuance of preferred stock in connection
with repurchase transactions and requesting that the Court enter a
judgment for damages against Messrs. Stiska, Earley and Walden. The
Company expects that the defendants will file written responses to
plaintiff's memorandum, but no scheduling order has been entered.
The Company does not believe that the ultimate outcome of the
Complaint will result in material adverse effects on its financial
condition.
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 $22,000 per month
and can be adjusted annually. The escrow funds will be used as tax,
insurance and repair needs arise. As of March 31, 2000, there was
approximately $239,000 of escrowed funds related to this loan
agreement that are included with Other Current 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 the seven months ended March 31, 2000 was $2,657,000, at an
average interest rate of 10.35%. The maximum amount of borrowings
outstanding under this loan during that period was $2,676,000. The
balance of the loan at March 31, 2000 was approximately $2,657,000.
The carrying value of the note approximates its fair value at March
31, 2000. This loan was transferred upon the sale of the property in
May 2000, and is no longer an obligation of the Company. See
Subsequent Events in note 10.
On September 30, 1999, the Company entered into three promissory
notes in order to purchase additional equity in Louisville Hotel,
LLC. A promissory note for $1,333,000 is secured by the Company's
ownership interest in Louisville Hotel, LLC. The two other
promissory notes are for $300,000 each, with one secured by the
Company's Phoenix, Arizona land and the other secured by the
Company's Longwood, Florida land. The three promissory notes are
cross-defaulted, bear interest at 13% and mature on September 30,
2002. Interest payments are $20,941 per month beginning in November
1999. See also note 8.
The combined approximate average amount of borrowings on the
promissory notes during the seven months ended March 31, 2000 was
$1,933,000 at an average interest rate of 13%. The combined maximum
amount of borrowings outstanding under these notes was $1,933,000,
and the balance of the notes at March 31, 2000 was $1,933,000. The
carrying value of the note approximates its fair value at March 31,
2000.
Maturities of long-term debt as of March 31, 2000 during the
Company's next five fiscal years are as follows: 2001 - $40,000;
2002 - $45,000; 2003 - $1,983,000; 2004 - $55,000; 2005 - $61,000;
thereafter - $2,406,000.
5. Income Taxes
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109 ("SFAS 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.
The income tax provision is as follows:
<TABLE>
<CAPTION>
March 31, August 31,
2000 1999 1998
<S> <C> <C> <C>
Current:
Federal $ -- $ -- $ --
State -- -- --
---- ---- ----
Total Current -- -- --
Deferred:
Federal -- -- --
State -- -- --
---- ---- ----
Total Deferred $ -- $ -- $ --
==== ==== ====
</TABLE>
A reconciliation of the provision for income taxes (benefit) to
the federal statutory rate is as follows:
<TABLE>
<CAPTION>
March 31, August 31,
2000 1999 1998
<S> <C> <C> <C>
Tax at statutory rate $(617) $ (404) $(194)
State taxes, net of
federal benefit (66) (43) --
Permanent items 2 36 17
Valuation reserve 646 1,101 186
Other 35 (690) (9)
----- ------ -----
$ -- $ -- $ --
===== ====== =====
</TABLE>
Deferred tax assets (liabilities) are composed of the following at
August 31, 1999 and August 31, 1998, respectively:
<TABLE>
<CAPTION>
(000's Omitted)
March 31, August 31,
2000 1999 1998
<S> <C> <C> <C>
Allowance for Possible Losses-
Impairments $1,700 $ 1,246 $ 1,169
Excess of Tax over Book Basis -- -- 16
Excess of Book over Tax Depreciation 80 86 71
Excess of Tax over Book Basis, Income
from Partnership -- -- 40
Other 425 378 331
Tax Loss Carryforwards 6,092 5,966 4,724
------ ------- --------
Gross Deferred Tax Assets 8,297 7,676 6,351
------ ------- --------
Excess of Book over Tax Basis, Income
from Partnership (230) (213) --
Excess of Tax over Book Basis --
Loan Amortization (44) (37) (26)
------ ------- --------
Gross Deferred Tax Liabilities (274) (250) (26)
------ ------- --------
Deferred Tax Assets
Valuation Allowance (8,023) (7,426) (6,325)
------ ------- --------
$ 0 $ 0 $ 0
====== ======= ========
</TABLE>
For financial reporting purposes, a valuation allowance has been
recognized at March 31, 2000 and August 31, 1999 to reduce the net
deferred income tax assets to zero. The net change in the valuation
allowance for deferred tax asset was an increase of $597,000. This change
resulted primarily from an increase in the Company's deferred tax assets
relating to the impairment in the investment in Louisville Hotel LLC.
On March 31, 2000, the Company had federal net operating loss
carryforwards for income tax purposes of approximately $15,727,000, which
will begin to expire in 2005. In January 2000, the Company had an
ownership change as defined in Section 382 of the Internal Revenue Code.
As such, the net operating loss available to offset future income is
limited. The amount of net operating loss available in any year may
increase if certain assets are sold.
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 2,513,480 shares of common stock outstanding,
of which approximately 79% is owned by Fountainhead Development Corp.
There are currently 1,000,000 authorized shares of the Company's
Series A Convertible Preferred Stock and 450,000 shares issued and
outstanding. 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 March 31, 2000, 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 not previously declared and unpaid
thereon. As of March 31, 2000, there are $390,000 of dividends in
arrears.
Issuance and Repurchase of Common Shares -
On January 10, 2000, the Company entered into a Management Agreement
with Fountainhead to perform management services at Chateau Elan Winery
and Resort, one of Fountainhead's properties, for a period of five years
beginning on March 24, 2000. In consideration of the Management
Agreement, the Company issued to Fountainhead 1,000,000 shares of common
stock at a fair value of $2.00 per share. The determined market value of
the management contract was $2,000,000 at the time of the transaction.
This asset is being amortized over the life of the contract. In
connection with the issuance of the Fountainhead Shares, the number of
directors constituting the full Board of Directors of the Company was
increased from three to seven members, effective on February 3, 2000.
On January 11, 2000, one of the principal stockholders and President
of the Company, N. Russell Walden sold 650,000 shares of the common stock
to Fountainhead and a new President of the Company was elected. Another
principal shareholder, ADT Security Services, Inc., sold 450,000 shares of
preferred stock of the Company to Fountainhead. Through the issuance of
the common stock pursuant to the Management Agreement and the acquisitions
of the Walden common stock and ADT preferred stock, Fountainhead has
obtained beneficial ownership of approximately 79% of the common stock.
Fountainhead is engaged principally in the business of owning and
operating hotel, resort, and other real estate properties.
Since January 10, 2000, the Company's new President has been
compensated by Fountainhead on behalf of the Company to assist the
liquidity of the Company. As of March 31, 2000, the Company has accrued
$75,000 for the President's salary. In consideration of the President's
salary, Fountainhead will be issued an amount of common stock with a
determined market value of $2.00 per share or be reimbursed directly for
these expenditures.
In December 1995, the Company acquired the Wesley Hotel Group
("Wesley"), a hotel management company located in Atlanta, Georgia. At
the time of acquisition, Wesley managed five hotels. The acquisition has
been accounted for using the purchase method of accounting. In
conjunction with the acquisition, the Company issued 125,000 shares of
common stock with a determined market value of $1.50 per share and assumed
three promissory notes with a combined outstanding principal of
approximately $106,000, bringing the total investment in Wesley to
$293,000. The investment recorded by the Company for the acquisition is
being amortized over the useful life of the assets acquired. As of March
31, 2000 the useful life of the assets acquired was determined to be -0-,
as the entire investment has been fully amortized. 100,000 shares and
25,000 shares of the Company's common stock was issued to the President
and Senior Vice President of Wesley, respectively. 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.
Loss Per Share -
The following table sets forth the computation of basic and diluted
loss per share:
<TABLE>
<CAPTION>
For the Seven
Months Ended For the Years Ended
March 31, March 31, Aug. 31, Aug, 31, Aug, 31,
2000 1999 1999 1998 1997
<S> <C> <C> <C> <C> <C>
Net loss $(1,816,000) $ (593,000) $(1,283,000) $(622,000) $ (463,000)
Less preferred
dividends paid -- (90,000) (180,000) (360,000) (315,000)
Less undeclared
preferred
dividends (210,000) (120,000) (180,000) -- --
--------- --------- ---------- ---------- -----------
Net loss applicable
to common share-
holders ($2,026,000) $(803,000) $(1,643,000) $(982,000) $ (778,000)
Weighted average
shares outstanding -
basic and diluted 1,898,000 1,513,000 1,513,000 1,526,000 1,350,000
========== =========== =========== ========== ==========
Basic and diluted loss
per common share $ (1.07) $ (0.53) $ (1.09) $ (0.64) $ (0.58)
========== =========== ============ ========= ==========
</TABLE>
The effect of the Company's stock options and convertible securities
was excluded from the computations for the seven months ended March
31, 2000, 1999 and each of the three years ended August 31, 1999,
1998 and 1997 as it is antidilutive. Accordingly, for the periods
presented, diluted net loss per share is the same as basic net loss
per share.
1993 Stock Option Plan -
On March 30, 1993, the Company granted options to purchase
378,000 shares of common stock at a price of approximately $1.83 per
share to its key employees and one director under the Ridgewood
Hotels, Inc. 1993 Stock Option Plan (the "Plan"). The options vested
over a four year period in 25% increments. All options expire ten
years from the date of grant, unless earlier by reason of death,
disability, termination of employment, or for other reasons outlined
in the Plan. As of March 31, 2000, there are remaining options for
the exercise of 228,000 shares of Common Stock.
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 was payable in full on January 31, 1999, along with any accrued
interest. The note was paid in full in April 1999.
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,
but none have been exercised as of March 31, 2000.
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:
<TABLE>
<CAPTION>
August 31, 1999 August 31, 1998
<S> <C> <C>
Service cost for the period $39,256 $34,628
Interest cost on projected
benefit obligation 52,014 46,170
Net amortization of transition
liability 11,026 11,026
Recognized net actuarial gain (28,848) (39,938)
------- -------
Net periodic pension cost $73,448 $51,886
======= =======
</TABLE>
The following sets forth the funded status of the plan and the
amounts shown in the accompanying balance sheet as of August 31, 1999
and 1998.
<TABLE>
<CAPTION>
August 31, 1999 August 31, 1998
<S> <C> <C>
Unfunded excess of projected benefit
obligation over plan assets $(893,274) $(819,826)
========= =========
Projected benefit obligation (778,536) (654,260)
Unrecognized net obligation at
transition 33,074 44,100
Unrecognized net gain (147,812) (209,666)
--------- ---------
Net accrued pension liability $(893,274) $(819,826)
========= =========
</TABLE>
The weighted average discount rate used to measure the projected
benefit obligation was 7.0% in 1999 and 7.5% in 1998. There was no
compensation increase and no expected return on plan assets assumed
for 1998.
On January 11, 2000, the Plan's only participant waived all of
his rights under or benefits accrued pursuant to the Plan, except
that he shall have the right to receive $55,000 per year for 15 years
beginning at the age of 65. The gain from the decreased benefit
obligation is approximately $374,000 and will be amortized over 15
years when payments to the participant begin. The Company has
recorded a total pension liability of approximately $520,000 as of
March 31, 2000.
Concurrent with the implementation of the Supplemental
Retirement and Death Benefit Plan, the Company purchased key-person
life insurance contracts on the life of the Plan participant. 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. Since the Plan's
benefits were waived as described above, the Company chose to cancel
the policies and will receive approximately $7,000.
8. Investments in Unconsolidated Hotel Entities
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 "Louisville Hotel Associates LLC" below). The hotel in
Orangeburg, South Carolina was sold at a loss in November 1998. In
November 1999, the remaining hotel in Thomasville, Georgia was sold
at a loss. The Partnership will be dissolved, and the Company will
neither receive cash nor be required to pay out cash related to the
Partnership.
Total management fees related to these hotels for the seven
months ended March 31, 2000 were $10,000 and for the years ended
August 31, 1999, 1998 and 1997 were approximately $68,000, $233,000
and $301,000 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 $107,000 for the seven months ended March 31, 2000 and
$191,000 and $114,000 for the years ended August 31, 1999 and 1998,
respectively.
For the fiscal year ended August 31, 1997, the Company recorded
equity in income (loss) of the Partnership totaling $(134,000) net of
provision for possible losses. The Company has recorded during 1997
a provision for possible losses of approximately $199,000 as there
was no indication that the Company would 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 "Manager"), 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 $56,000 for the seven
months ended March 31, 2000 and $98,000 and $83,000 for the fiscal
years ended August 31, 1999 and 1998, respectively.
On September 30, 1999 the Company transferred its 10% ownership
in Houston Hotel, LLC for additional equity in Louisville Hotel, LLC.
See further discussion below under "Louisville Hotel Associates LLC."
Effective September 30, 1999 a new management agreement exists
between the Company and Houston Hotel, LLC. The Company ("Manager")
shall be entitled to the following property management fees:
(1) A Base Management Fee equal to 3% of gross revenues from
the hotel property.
(2) An Incentive Management Fee in an amount up to 1% of gross
revenue per period calculated as follows:
(a) 0.5% of gross revenue per year in which the actual net
operating income ("NOI") reaches 105% of the budgeted
NOI for that period, and
(b) an additional 0.5% of gross revenue per year in which
the actual net operating income ("NOI") reaches 110% of
the budgeted NOI for that period.
(c) The Incentive Management fee will be accrued monthly
and disbursed quarterly. The quarterly disbursements
for the Incentive Management Fee will be reconciled
quarterly and annually.
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
invested $362,000 into Louisville Hotel, LLC. The combined equity of
$699,500 represented a 10% interest in the Hotel. Louisville Hotel,
LLC loaned $3,620,000 to the Hotel in return for all cash flows
generated from the Hotel.
Income or loss allocated to the Company was 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 were made as follows:
- First, to the managing member until the managing member was
distributed an amount equal to its accrued but unpaid 13% preferred
return.
- Second, to the Company until the Company was 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 have been distributed 10%
to the
Company and 90% to the managing member.
A Management Agreement existed between the Owner and the Company
as Property Manager ("Property Manager") for the purpose of managing
the hotel. The Property Manager was 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 exceeded 112% of the
budgeted goal; and (c) an additional .50% of gross revenues in which
the net operating income exceeded 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 was included in other assets. The Company was 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 $32,000 for the seven
months ended March 31, 2000 and $285,000 and $57,000 for the years
ended August 31, 1999 and 1998, respectively.
On September 30, 1999, the Company purchased additional equity
in Louisville Hotel, LLC. The Company increased its ownership from
10% to 80%. The consideration issued to acquire the increased
ownership was $2,500,000, composed of the following:
Transfer of 10% ownership interest in
Houston Hotel, LLC $443,000
Cash payment(1) 124,000
Promissory note to Louisville Hotel, L.P.
secured by the Company's ownership
interest in Louisville Hotel, LLC(2) 1,333,000
Promissory note to Louisville Hotel, L.P.
secured by the Company's Phoenix,
Arizona land(2) 300,000
Promissory note to Louisville Hotel, L.P.
secured by one parcel of the Company's
Longwood, Florida land (2) 300,000
----------
Total additional equity in Louisville Hotel,
LLC $2,500,000
==========
(1) The cash to make this payment was obtained from Louisville
Hotel, LLC in connection with a modification of the
management contract of the hotel. This amount represents
the unamortized portion of the original $200,000
participation fee paid to Louisville Hotel, LLC to acquire
the management contract of the hotel.
(2) The three promissory notes are cross defaulted. The three
promissory notes bear interest at 13% and mature on
September 30, 2002.
With 80% ownership, the Company is now the Managing Member of
Louisville Hotel, LLC. Louisville Hotel, L.P. now has 20% ownership
in Louisville Hotel, LLC and is the Non-Managing Member.
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 Company in an amount equal to the cumulative
interest paid on the acquisition loans of $1,333,000, $300,000 and
$300,000. The Company would then use these funds to pay Louisville
Hotel, L.P.
- Second, a 13% preferred return to Louisville Hotel, L.P. on
their original $3,061,000 investment.
- Third, a 13% preferred return to the Company on its capital
contribution of $1,207,000.
- Fourth, 80% to the Company and 20% to Louisville Hotel, L.P.
Cash from a sale or refinancing would be distributed as follows:
- First, to the Company in an amount equal to the cumulative
interest paid on the acquisition loans of $1,333,000, $300,000 and
$300,000. The Company would then use these funds to pay Louisville
Hotel, L.P.
- Second, to the Company in an amount equal to the
acquisition loans of $1,333,000, $300,000 and $300,000.
- Third, to Louisville Hotel, L.P. until it has received
aggregate distributions in an amount equal to its 13%
preferred return.
- Fourth, to Louisville Hotel, L.P. until its net capital
contribution is reduced to zero.
- Fifth, to the Company until it has received an amount
equal to its 13% preferred return.
- Sixth, to the Company until its net capital contribution
is reduced to zero.
- Thereafter, 10% to Louisville and 90% to the Company.
If a sale or refinancing occurs after September 30, 2000
but before September 30, 2001, then the distribution would
change to 15% and 85%, respectively.
In March 2000, the Company recognized a writedown of
$1,200,000 on its investment in Louisville Hotel, LLC. This
writedown was due to the anticipated shortfall of the Company's
return of equity as a result of the decreased operating
performance of the hotel.
Effective September 30, 1999 a new management agreement
exists between the Company and RW Louisville Hotel Associates,
LLC. The Company ("Manager") shall be entitled to the
following property management fees:
(1) A Base Management Fee equal to 3% of gross revenues
from the hotel property.
(2) An Incentive Management Fee in an amount up to 1% of
gross revenue per period calculated as follows:
(a) 0.5% of gross revenue per year in which the
actual net operating income ("NOI") reaches 105%
of the budgeted NOI for that period, and
(b) an additional 0.5% of gross revenue per year in
which the actual net operating income ("NOI")
reaches 110% of the budgeted NOI for that
period.
(c) The Incentive Management Fee will be accrued
monthly and disbursed quarterly. The quarterly
disbursements for the Incentive Management Fee
will be reconciled quarterly and annually.
In connection with the management agreement, the Company
received management fees totaling approximately $131,000 for
the seven months ended March 31, 2000.
A summary of the investment in unconsolidated entities is as follows:
<TABLE>
<CAPTION>
For the Seven
Months Ended For the Years Ended
March 31, Aug. 31, Aug 31,
2000 1999 1998
<S> <C> <C> <C>
Beginning balance of investment
in unconsolidated entities $1,016 $ 832 $ 338
Capital contributions(1) 2,184 184 678
Writedown(2) (1,200) -- --
Equity in loss -- -- (98)
Distributions -- -- (86)
------ ------ ------
Ending balance of investment
in unconsolidated entities $2,000 $1,016 $ 832
====== ====== ======
<FN>
(1) The capital contribution shown here of $2,184,000 plus the original
investment in Houston Hotel, LLC of $316,000 equals the total
additional investment in Louisville Hotel, LLC of $2,500,000.
(2) In March 2000, the Company recognized a writedown of $1,200,000
on its investment in Louisville Hotel, LLC. This writedown was
due to the anticipated shortfall of the Company's return of
equity as a result of the decreased operating performance of the
hotel.
</FN>
</TABLE>
The unaudited combined balance sheet and statement of operations
of the unconsolidated entities are as follows:
<TABLE>
COMBINED UNCONSOLIDATED ENTITIES
CONDENSED BALANCE SHEET
UNAUDITED
(000's omitted)
<CAPTION>
For the
Seven Months
Ended For the Years Ended
3/31/00 8/31/99 8/31/98
----------- ---------- ----------
<S> <C> <C> <C>
CURRENT ASSETS $ 732 $ 2,018 $ 2,730
PROPERTY AND EQUIPMENT, net 20,811 37,499 36,410
INTANGIBLE ASSETS, net 577 629 565
------------ ---------- ----------
TOTAL ASSETS $ 22,120 $ 40,146 $ 39,705
============ ========== ==========
CURRENT LIABILITIES $ 608 $ 1,854 $ 1,850
LONG-TERM DEBT 21,684 31,622 28,382
------------ ---------- ----------
TOTAL LIABILITIES 22,292 33,476 30,232
(DEFICIT) CAPITAL, net $ (172) 6,670 9,473
------------ ---------- ----------
TOTAL LIABILITIES AND
CAPITAL $ 22,120 $ 40,146 $ 39,705
============ ========== ==========
</TABLE>
<TABLE>
COMBINED UNCONSOLIDATED ENTITIES
CONDENSED STATEMENT OF OPERATIONS
UNAUDITED
($000's Omitted)
<CAPTION>
For the
Seven Months
Ended For the Years Ended
3/31/00 3/31/99 8/31/99 8/31/98 8/31/97
HOTEL OPERATIONS: ----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues $ 5,224 $ 8,120 $ 11,681 $ 17,057 $ 17,058
Operating Expenses 3,777 5,498 10,146 12,781 13,696
------------ ---------- ---------- ---------- ----------
Income From Hotel
Operations 1,447 2,622 1,535 4,276 3,362
------------ ---------- ---------- ---------- ----------
Interest Expense 1,096 1,552 2,632 2,059 1,682
Depreciation/Amortization 819 838 1,562 1,943 1,926
Loss due to change to
liquidation basis of
accounting for RW
Hotel Partners, L.P. -- -- -- 2,828 --
------------ ---------- ---------- ---------- ----------
NET (LOSS) INCOME $ (468) $ 232 $ (2,659) $ (2,554) $ (246)
============ ========== ========== ========== ==========
</TABLE>
9. Employee Savings Plan
The Ridgewood Hotels Employee Savings Plan ("Savings Plan") is a
savings and salary deferral plan which is qualified under Sections 401(a)
and 401(k) of the Internal Revenue Code of 1986. The Savings Plan
includes all employees of the Company who have completed one year of
service and have attained age twenty-one.
Each participant in the Savings Plan may elect to reduce his or her
compensation by any percentage, not to exceed 15% of compensation when
combined with any Matching Basic or Discretionary Employer Contributions
(below) made on behalf of the participant, and have such amount
contributed to his or her account under the Savings Plan. Elective
employer contributions are made prior to the withholding of income taxes
on such amounts.
The Savings Plan provides for an employer matching contribution in an
amount equal to 50% of the elective employer contributions, provided that
in no event shall such employer matching contributions exceed 3% of the
participant's compensation. In addition, the Board of Directors of the
Company is authorized to make discretionary contributions to the Savings
Plan out of the Company's current or accumulated profits ("Discretionary
Contributions"). Discretionary Contributions are allocated among those
participants who complete at least 1,000 hours of service during the plan
year and are employed by the Company on the last day of the plan year.
Beginning on January 1, 2000, the Savings Plan now provides for an
employer matching contribution in an amount equal to 100% of the first 3%
of pay that an employee contributes to the Plan and an amount equal to 50%
on the next 2% of pay that an employee contributes to the Plan. In no
event shall such employer matching contributions exceed 4% of the
participant's compensation. In addition, the Board of Directors of the
Company is authorized to make discretionary contributions to the Savings
Plan out of the Company's current or accumulated profits ("Discretionary
Contributions"). Discretionary Contributions are allocated among those
participants who complete at least 1,000 hours of service during the plan
year and are employed by the Company on the last day of the plan year.
Employees are subject to a seven year graduated vesting schedule with
respect to Basic Employer Contributions, Matching Employer Contributions
and Discretionary Contributions.
Distributions from the Savings Plan will generally be available upon
or shortly following a participant's termination of employment with the
Company, with additional withdrawal rights with respect to Voluntary
Contributions.
For the seven months ended March 31, 2000, expense for the Employee
Savings Plan was approximately $17,000. For the fiscal years ending
August 31, 1999, 1998 and 1997, expense for the Employee Savings Plan was
approximately $18,000, $18,000 and $21,000, respectively.
10. Subsequent Events
On May 22, 2000, the Company sold a parcel of land in Phoenix,
Arizona for net proceeds of approximately $381,000.
On May 31, 2000, the Company sold its hotel in Longwood, Florida for
$5,350,000. The Company received net proceeds from the sale of
approximately $1,300,000, and a $250,000 note from the purchaser payable
in installments through June 1, 2005. The Company will recognize
approximately a $2,700,000 profit on the sale before tax. Due to
ownership changes, the entire gain may not be offset by existing net
operating losses for tax purposes.
<PAGE>
Report of Independent Public Accountants
To Ridgewood Hotels, Inc.
We have audited the accompanying consolidated balance sheet of RIDGEWOOD
HOTELS, INC. (a Delaware Corporation) as of March 31, 2000 and the related
consolidated statements of operations, shareholders' investment and cash
flows for the seven months then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Ridgewood
Hotels, Inc. as of March 31, 2000 and the results of their operations and
their cash flows for the seven months then ended in conformity with
accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
May 26, 2000, except with respect to the matter discussed in Note 10,
as to which the date is May 31, 2000.
<PAGE>
Report of Independent Accountants
To the Board of Directors and
Shareholders of Ridgewood Hotels, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of cash flows and of
shareholders' investment present fairly, in all material respects, the
financial position of Ridgewood Hotels, Inc. and its subsidiaries (the
"Company") at August 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period
ended August 31, 1999, in conformity with accounting principles generally
accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing
standards generally accepted in the United States, which require that we
plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Atlanta, Georgia
November 17, 1999
<PAGE>
Market Information
The Company's common stock is listed in the National Association of
Securities Dealers (NASDAQ) over-the-counter bulletin board service.
Transfer Agent
Harris Trust and Savings Bank, Dallas, Texas is the Company's stock
transfer agent. Harris maintains the Company's shareholder records. To
change name, address or ownership of stock, to report lost certificates,
or to consolidate accounts, contact:
Harris Trust and Savings Bank
1601 Elm Street
Thanksgiving Tower, Suite 2320
Dallas, Texas 75201
(214) 665-6033
General Counsel
Rogers & Hardin
2700 International Tower
229 Peachtree Street, N.E.
Atlanta, Georgia 30303
Independent Public Accountants
Arthur Andersen LLP
Suite 2500
133 Peachtree Street, N.E.
Atlanta, Georgia 30303-1816
Shareholder and General Inquiries
The Company is required to file an Annual Report on Form 10-K for its
fiscal year ended August 31, 1999 with the Securities and Exchange
Commission. Copies of this annual report may be obtained without charge
upon written request to:
Ridgewood Hotels, Inc.
Shareholder Relations
2859 Paces Ferry Road
Suite 700
Atlanta, Georgia 30339
(770) 434-3670
