SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 29, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number 0-14019
Ridgewood Hotels, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 58-1656330
- ------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2859 Paces Ferry Road, Suite 700
Atlanta, Georgia
30339
- -------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(770) 434-3670
----------------------------------------------------
(Registrant's telephone number, including area code)
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No _____
Common stock, par value $.01 per share - 2,513,480 shares
outstanding at February 29, 2000.
<TABLE>
PART I. FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
FEBRUARY 29, 2000 AND AUGUST 31, 1999
-------------------------------------
($000'S omitted, except per share data)
---------------------------------------
<CAPTION>
(Unaudited)
February 29, August 31,
ASSETS 2000 1999
------ ----------- -----------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 418 $ 471
Receivables 259 241
Other Current Assets 415 394
------------ ------------
Total Current Assets 1,092 1,106
Real Estate Investments:
Real Estate Properties
Operating Properties, net 1,116 1,172
Land Held for Sale, net 1,806 2,028
Investment in Unconsolidated
Hotel Entities 3,200 1,016
----------- -----------
Total Real Estate Investments 6,122 4,216
Management Contracts, net 2,208 260
Other Assets 179 328
------------ ------------
$ 9,601 $ 5,910
============ ============
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</FN>
</TABLE>
<TABLE>
RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
FEBRUARY 29, 2000 AND AUGUST 31, 1999
-------------------------------------
($000's omitted, except per share data)
---------------------------------------
<CAPTION>
(Unaudited)
February 29, August 31,
2000 1999
------------ ------------
LIABILITIES:
-----------
<S> <C> <C>
Current Liabilities:
Current Maturities of Long-Term Debt $ 37 $ 40
Accounts Payable 190 246
Accrued Salaries, Bonuses and
Other Compensation 110 84
Accrued Property Tax Expense 36 111
Accrued Interest and Other Liabilities 665 338
------------ ------------
Total Current Liabilities 1,038 819
Accrued Pension Liability 520 893
Deferred Curtailment Gain on Pension Liability 374 --
Long-Term Debt 4,556 2,642
------------ ------------
Total Liabilities 6,488 4,354
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 450 450
Common Stock, $.01 par value, 5,000,000
shares authorized, 2,513,480 shares
issued and outstanding 25 15
Paid-in surplus 17,671 15,681
Accumulated deficit since December 30, 1985 (15,033) (14,590)
------------ ------------
Total Shareholders' Investment 3,113 1,556
------------ ------------
$ 9,601 $ 5,910
============ ============
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</FN>
</TABLE>
<TABLE>
RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
($000's omitted, except per share data)
---------------------------------------
Unaudited
---------
<CAPTION>
For the Three Months Ended For the Six Months Ended
----------------------------- --------------------------
Feb. 29, Feb. 28, Feb. 29, Feb. 28,
2000 1999 2000 1999
------------ ------------ --------- ---------
<S> <C> <C>
REVENUES:
Revenues from hotel operations .................... $ 749 $ 727 $ 1,259 $ 1,336
Revenues from hotel management .................... 351 229 772 535
Sales of real estate properties ................... 372 -- 598 10
Equity in net income of unconsolidated
entities ........................................ 63 34 116 81
Interest income ................................... -- 2 1 10
Other ............................................. 59 -- 61 --
------------- ------------- ---------- ----------
1,594 992 2,807 1,972
------------- ------------- ---------- ----------
COSTS AND EXPENSES:
Expenses of real estate properties ................ 682 620 1,219 1,191
Costs of real estate sold ......................... 260 -- 263 5
Depreciation and amortization ..................... 88 93 176 187
Interest expense .................................. 155 85 279 170
General, administration and other ................. 637 524 1,255 990
Business development .............................. 15 41 58 77
------------- ------------- ---------- ----------
1,837 1,363 3,250 2,620
------------- ------------- ---------- ----------
NET LOSS .............................................. $ (243) $ (371) $ (443) $ (648)
============= ============= ========== ==========
BASIC AND DILUTED LOSS PER COMMON SHARE ............... $ (0.16) $ (0.30) $ (0.35) $ (0.55)
============= ============= ========== ==========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<TABLE>
RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
($000's Omitted)
----------------
Unaudited
---------
<CAPTION> For the Six Months Ended
------------------------
Feb. 29, Feb. 28,
2000 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ...................................................... $ (443) $ (648)
Adjustments to reconcile net income (loss) to net
cash used by operating activities:
Depreciation and amortization ............................. 176 187
Gain from sales of real estate property ................... (335) (5)
Decrease (increase) in other assets ....................... (74) 89
Increase (decrease) in accounts payable and
accrued liabilities ..................................... 223 (141)
------------- -------------
Total adjustments ......................................... (10) 130
------------- -------------
Net cash used by operating activities ..................... (453) (518)
Cash flows from investing activities:
Proceeds from sales of real estate .......................... 562 9
Additions to real estate properties ......................... (16) (41)
Investment in unconsolidated entity ......................... (124) --
------------- -------------
Net cash used by investing activities ..................... 422 (32)
Cash flows from financing activities:
Repayments of notes payable ................................. (22) (31)
Payment of dividends on preferred stock ..................... -- (180)
------------- -------------
Net cash used in financing activities ..................... (22) (211)
------------- -------------
Net decrease in cash and cash equivalents ....................... $ (53) $ (761)
Cash and cash equivalents at beginning of period ................ 471 1,255
------------- -------------
Cash and cash equivalents at end of period ...................... $ 418 $ 494
============= =============
Supplemental disclosure of cash flow information and 2000 1999
non-cash activity: ------------ ------------
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 --
Interest paid ............................................... 279,000 170,000
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
(Unaudited)
1. GENERAL:
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
was incorporated under the laws of the State of Delaware on October 29,
1985. In January 1997, the Company changed its name from Ridgewood
Properties, Inc. to Ridgewood Hotels, Inc. Prior to December 31, 1985,
the Company operated under the name CMEI, Inc.
The Company's common stock is listed in the National
Association of Securities Dealers (NASDAQ) over-the-counter bulletin board
service. On January 10, 2000, the Company entered into a management
agreement ("Management Agreement") with Fountainhead Development Corp., a
Georgia corporation ("Fountainhead"), to perform management services at
Chateau Elan 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"). In connection with the issuance
of the Fountainhead Shares, the number of directors constituting the full
Board of Directors of the Company was increased from three to seven
members, effective on February 3, 2000. See also note 6.
On January 11, 2000, one of the principal stockholders and
President of the Company, N. Russell Walden ("Walden"), sold 650,000
shares of the common stock to Fountainhead and a new President of the
Company was elected. Another principal shareholder, ADT Securitiy
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.
The accompanying financial statements of the Company present
the historical cost basis amount of assets, liabilities and shareholders'
investment of the real estate business for the periods presented. The
consolidated financial statements include the accounts of the Company, its
wholly-owned subsidiaries and its investments in unconsolidated entities
after the elimination of all intercompany amounts.
2. BASIS OF PRESENTATION:
The accompanying consolidated financial statements have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. In the opinion of
management, the consolidated financial statements reflect all adjustments,
consisting of normal recurring adjustments, which are necessary to present
fairly the financial position, results of operations and changes in cash
flow for the interim periods covered by this report. Although certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, management believes that the disclosures are adequate to make
the information presented not misleading. These financial statements
should be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company's annual report for
the fiscal year ended August 31, 1999. The results of operations for the
six months ended February 29, 2000 are not necessarily indicative of the
results to be expected for the fiscal year ending August 31, 2000.
For the purpose of the Statement of Cash Flows, cash includes
cash equivalents which are highly liquid investments with maturity of
three months or less.
The Company accounts for its investments in unconsolidated
entities under the equity method of accounting after the elimination of
all intercompany transactions.
In February 2000, the Company began leasing a hotel in Lubbock,
Texas. All revenues and expenses of the hotel are included in the
Consolidated Statements of Operations.
Certain prior year amounts have been reclassified to conform
with the current presentation.
3. INCOME TAXES:
The Company has net operating loss carryforwards for both book
and tax purposes which may be used to offset future taxable income.
However, due to the change of control of the Company discussed in note 1
above, there are limitations on the amount of net operating loss
carryforwards that may be utilized each year to offset taxable income.
4. SHAREHOLDERS' INVESTMENT:
Issuance of Common Shares --
See notes 1 and 6.
Loss Per Share --
The following table sets forth the computation of basic
and diluted loss per share:
<TABLE>
<CAPTION>
For the Three For the Six
Months Ended Months Ended
-------------------------- --------------------
Feb. 29, Feb. 28, Feb. 29, Feb. 28,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net loss $ (243,000) $ (371,000) $ (443,000) $ (648,000)
Less preferred
dividends paid -- (90,000) -- (180,000)
Less undeclared
preferred dividends (90,000) -- (180,000) --
---------- ---------- --------- ---------
Net loss applicable
to common share-
holders $ (333,000) $ (461,000) $ (623,000) $ (828,000)
Weighted average
shares outstanding
-- basic & diluted 2,063,000 1,513,000 1,788,000 1,513,000
========== ========== ========== ==========
Net loss per share --
basic and diluted $ (0.16) $ (0.30) $ (0.35) $ (0.55)
========== ========== ========== ===========
</TABLE>
The effect of the Company's stock options and convertible securities
was excluded from the computations for February 29, 2000 and February
28, 1999 as it is antidilutive. Accordingly, for the periods
presented, diluted net loss per share is the same as basic net loss
per share.
5. INVESTMENT IN UNCONSOLIDATED ENTITY
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 10% to Louisville
Hotel, L.P. 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.
6. MANAGEMENT AGREEMENT
On January 10, 2000, the Company entered into the Management
Agreement with Fountainhead (see note 1), pursuant to which Fountainhead
retained the Company to perform management services at Chateau Elan Winery
and Resort, one of Fountainhead's properties, for a period of five years
beginning on March 24, 2000. In consideration of Fountainhead's agreement
to enter into the Management Agreement and a payment of $10,000 by
Fountainhead to the Company, the Company issued to Fountainhead 1,000,000
shares of common stock. 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 Management Agreement, 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. The
Directors will hold office as directors for a term of one year or until
their successors are elected and qualified.
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. 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.
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 cash out of the policies and will
receive approximately $50,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE SIX MONTHS ENDED FEBRUARY 29, 2000
COMPARED TO THE SIX MONTHS ENDED
FEBRUARY 28, 1999
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 quarter and six months ending February 29,
2000.
Certain statements included in this docoument 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.
LIQUIDITY AND CAPITAL RESOURCES --
In June 1995, the Company entered into a loan with a commercial
lender to refinance the Ramada Inn in Longwood, Florida. The loan
proceeds are $2,800,000. The loan is for a term of 20 years with an
amortization period of 25 years, at the rate of 10.35%. Principal and
interest payments are approximately $26,000 per month beginning August 1,
1995. In addition, the Company is required to make a repair escrow
payment comprised of 4% of estimated revenues, as well as real estate tax
and insurance escrow payments. The total amount for these items will be a
payment of approximately $22,000 per month and can be adjusted annually.
The escrow funds will be used as tax, insurance and repair needs arise.
As of February 29, 2000, there was approximately $217,000 of escrowed
funds related to this loan agreement.
In November 1999, the Company sold a parcel of land in Georgia
for net proceeds of approximately $84,000. In January 2000, the Company
sold a parcel of land in Florida for net proceeds of approximately
$294,000. In February 2000, the Company sold a parcel of land in Georgia
for net proceeds of approximately $46,000.
In June 1999, the Company entered into a contract for the sale
of its hotel and land in Longwood, Florida for approximately $6.1 million.
In November 1999, the contract was amended to include only the sale of the
hotel for $5,000,000. The Company would recognize net profit on the sale
of approximately $3,500,000. There remain numerous contingencies which
allow the seller to cancel the contract. The closing is expected to occur
by the end of June; however, with the remaining contingencies, there is no
assurance that the sale will be consummated.
On January 10, 2000, the Company entered into the Management
Agreement with Fountainhead, pursuant to which Fountainhead retained the
Company to perform management services at Chateau Elan Winery and Resort,
one of Fountainhead's properties, for a period of five years. In
consideration of Fountainhead's agreement to enter into the Management
Agreement and a payment of $10,000 by Fountainhead to the Company, the
Company issued to Fountainhead 1,000,000 shares of common stock. 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.
Since the Company is not currently generating sufficient
operating cash to cover overhead and debt service, the Company must
continue to sell its real estate assets, seek alternative financing or
otherwise recapitalize the Company. The Company also intends to
aggressively pursue the acquisition of hotels and hotel management
contracts through entities similar to those described above which would
provide additional cash flow. However, given increased competition in the
hotel acquisition market, acquisitions of economically viable properties
are more difficult to identify and purchase.
The Company owns one hotel and has 1% ownership interest in a
joint venture that owns one hotel. The Company also currently has 17
other hotels which it manages but has no ownership interest. Under the
terms of franchise agreements, the Company is required to comply with
standards established by franchisors, including property renovations and
upgrades. The success of the Company's operations continues to be
dependent upon such unpredictable factors as the general and local
economic conditions to which the real estate and hotel industry is
particularly sensitive: labor, environmental issues, weather conditions,
consumer spending or general business conditions and the availability of
satisfactory financing.
RESULTS OF OPERATIONS --
Revenues from hotel operations increased approximately $22,000,
or 3%, for the three months ended February 29, 2000 compared to the three
months ended February 28, 1999 due to revenues received from the Company's
leased hotel in Texas. The Company received approximately $106,000 in
revenues from the leased hotel. Revenues from the Company's hotel in
Florida decreased approximately $84,000 for the three months ended
February 29, 2000. Several new hotels opened near the hotel in Longwood,
temporarily creating a very competitive market. Revenues from hotel
operations decreased approximately $77,000, or 6%, for the six months
ended February 29, 2000 compared to the six months ended February 28, 1999
due to decreased revenues at the hotel in Florida.
Revenues from hotel management increased approximately
$122,000, or 53%, and $237,000, or 44%, for the three and six months ended
February 29, 2000, respectively, compared to the three and six months
ended February 28, 1999 due to overall increased revenues at the hotels
managed by the Company and a larger number of hotels under management.
Equity in net income of unconsolidated entities was $63,000 and
$116,000, respectively, during the three and six months ended February 29,
2000 compared to $34,000 and $81,000, respectively, during the three and
six months ended February 28, 1999. The equity for the three and six
months ended February 29, 2000 was received from Louisville Hotel, LLC.
During the three and six months ended February 29, 2000, the
Company had gains from real estate sales of approximately $112,000 and
$335,000, respectively. The Company had gains from real estate sales of
approximately -0- and $5,000, respectively, for the three and six months
ended February 28, 1999. Gains or losses on sales are dependent upon the
specific assets sold in a particular period and the terms of each sale.
Other income was approximately $59,000 and $61,000,
respectively, for the three and six months ended February 29, 2000. Other
income primarily consisted of a dividend payment received for favorable
workers' compensation claims of approximately $17,000 and a working
capital settlement of approximately $38,000 received in conjunction with
the lease of a hotel.
Expenses of real estate properties increased $62,000, or 10%,
and $28,000, or 2%, respectively, for the three and six months ended
February 29, 2000. The increase was due to the expenses associated with
the leased hotel in Texas.
Interest expense increased approximately $70,000, or 82%, and
$109,000, or 64%, for the three and six months ended February 29, 2000,
respectively, compared to the three and six months ended February 28, 1999
due to the additional debt incurred by the Company for its acquisition of
an interest in the hotel in Louisville, Kentucky.
General, administration and other expenses increased
approximately $113,000, or 22%, and $265,000, or 27%, for the three and
six months ended February 29, 2000 compared to the three and six months
ended February 28, 1999. Several general, administration and other
expenses increased compared to the prior year. Payroll and benefits
increased approximately $110,000 due to additional staff required to
manage a larger number of hotels. Consulting fees increased approximately
$84,000 due primarily to a consulting agreement with the Company's former
President. Legal expense increased approximately $97,000 due to an
ongoing lawsuit.
Business development expenses decreased $26,000, or 63%, and
$19,000, or 25%, for the three and six months ended February 29, 2000,
respectively, compared to the three and six months ended February 28,
1999. The decrease was due to the termination of a consultant used by the
Company.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 2, 1995 a complaint was filed in the Court of Chancery of the
State of Delaware (New Castle County) entitled William N. Strassburger v.
Michael M. Early, Luther A. Henderson, John C. Stiska, N. Russell Walden,
and Triton Group, Ltd., defendants, and Ridgewood Hotels, Inc., nominal
defendant, C.A. No. 14267 (the "Complaint"). The plaintiff is an
individual shareholder of the Company who purports to file the Complaint
individually, representatively on behalf of all similarly situated
shareholders, and derivatively on behalf of the Company. The Complaint
challenges the actions of the Company and its directors in consummating
the Company's August 1994 repurchases of its common stock held by Triton
Group, Ltd. and Hesperus Partners Ltd. in five counts, denominated Waste
of Corporate Assets, Breach of Duty of Loyalty to Ridgewood, Breach of
Duty of Good Faith, Intentional Misconduct, and Breach of Duty of Loyalty
and Good Faith to Class. On July 5, 1995, the Company filed a timely
answer generally denying the material allegations of the complaint and
asserting several affirmative defenses. Discovery has been concluded, and
on March 19, 1998, the Court dismissed all class claims, with only the
derivative claims remaining for trial. 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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits:
27 Financial Data Schedule
B. Reports on Form 8-K:
There were two Form 8-K reports filed during the
three months ended February 29, 2000.
Form 8-K dated January 11, 2000 was filed to
report a change in control of the Company.
Form 8-K dated January 24, 2000 was filed to
report the postponement of the Company's Annual Meeting of
Stockholders. The report also discussed the lawsuit of
Strassburger v. Earley, et al.
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned
thereunto duly authorized.
RIDGEWOOD HOTELS, INC.
By: /s/ Henk H. Evers
Henk H. Evers
President
By: /s/ Karen S. Hughes
Karen S. Hughes
Vice President,
Chief Accounting Officer
Date: April 14, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted from the
Consolidated Balance Sheets, Consolidated Statements of Operations and
Consolidated Statement of Cash Flow and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-2000
<PERIOD-END> FEB-29-2000
<CASH> 418,000
<SECURITIES> 0
<RECEIVABLES> 259,000
<ALLOWANCES> 3,319,000
<INVENTORY> 23,000
<CURRENT-ASSETS> 1,092,000
<PP&E> 3,210,000
<DEPRECIATION> 2,038,000
<TOTAL-ASSETS> 9,601,000
<CURRENT-LIABILITIES> 1,038,000
<BONDS> 0
0
450,000
<COMMON> 25,000
<OTHER-SE> 2,638,000
<TOTAL-LIABILITY-AND-EQUITY> 9,601,000
<SALES> 598,000
<TOTAL-REVENUES> 2,807,000
<CGS> 263,000
<TOTAL-COSTS> 1,658,000
<OTHER-EXPENSES> 1,313,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 279,000
<INCOME-PRETAX> (443,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (443,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (443,000)
<EPS-BASIC> (0.35)
<EPS-DILUTED> (0.35)
</TABLE>
