<PAGE>
THIS DOCUMENT IS A COPY OF THE FORM 10-QSB FOR THE QUARTERLY PERIOD
ENDED FEBRUARY 29, 1996 PREVIOUSLY FILED ON APRIL 16, 1996 PURSUANT
TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION.
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended February 29, 1996
Or
[ ] Transition report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _____________ to ___________
Commission File Number: 0-17442
THOMAS EDISON INNS, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
Michigan 38-2730460
(State or Other Jurisdiction (I.R.S. Employer of
Incorporation or Organization) Identification No.)
40 Pearl Street, N.W., Suite 900
Grand Rapids, Michigan 49503
(Address of Principal Executive Offices)
(616)776-2600
(Issuer's Telephone Number, including Area Code)
Check whether the issuer; (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
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
As of April 12, 1996, there were 3,020,150 outstanding Common
Shares, $.01 per value.
Transitional Small Business Format (check one): Yes No X
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
The following unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-QSB and Item 310(b) of Regulation S-B.
Accordingly, they do not contain all the information and
footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management,
all adjustments (consisting solely of normal recurring
adjustments) considered necessary for a fair presentation of the
financial position, results of operations, shareholders' equity
and cash flows of the Company have been included. For further
information, please refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual
Report on Form 10-KSB/A Amendment No. 2 for the fiscal year ended
November 30, 1995.
Thomas Edison Inns, Inc. and Subsidiaries
Consolidated Balance Sheet
as of February 29, 1996
(Unaudited)
__________________________________________
ASSETS
Current Assets
Cash and cash equivalents $ 2,978,830
Trade accounts receivable, less
allowance for doubtful accounts
of $29,000 493,538
Inventories 199,379
Refundable income taxes 683,384
Prepaid expenses and other current
assets 460,156
___________
Total Current Assets 4,815,286
Property, Plant and Equipment, net 13,174,290
Deferred Income Taxes 437,100
Other Assets 802,557
Amounts Due from Current and Former
Related Parties 481,394
___________
Total Assets $19,710,627
___________
___________
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 164,391
Deferred Charges 98,946
Trade accounts payable 297,094
Accrued Expenses 1,224,539
__________
Total Current Liabilities 1,784,970
Long-Term Debt 14,758,844
Deferred Income Taxes 752,000
__________
Total Liabilities 17,295,815
__________
Shareholders' Equity
Preferred Shares - $.01 par value;
authorized 5,000,000 shares; issued
and outstanding, none --
Common Shares - $.01 par value;
authorized 30,000,000 shares; issued and
outstanding, 3,020,150 shares 30,200
Additional paid in capital 10,684,751
Note receivable from sale of shares (5,758,018)
Accumulated earnings (deficit) (2,542,121)
__________
Total Shareholders' Equity 2,414,812
__________
Total Liabilities and
Shareholders' Equity $19,710,627
___________
___________
<PAGE>
Thomas Edison Inns, Inc. and Subsidiaries
Consolidated Statement of Operations
For the three month periods ended February 29, 1996
and February 28, 1995
(Unaudited)
___________________________________________________
1996 1995
Net Revenue
Room revenue $1,137,465 $1,017,854
Food revenue 1,413,914 1,273,581
Beverage revenue 549,950 524,705
Telephone revenue 23,368 --
Sundry revenue 158,129 51,087
__________ _________
Total Revenue 3,282,825 2,867,227
Cost and expenses
Cost of food sales 542,810 491,385
Cost of beverage sales 143,213 135,500
Operating expenses 1,863,468 1,674,958
General and administra-
tive expenses 776,591 651,530
Depreciation and
amortization 293,321 311,362
________ _______
Total costs and
expenses 3,619,402 3,264,735
Earnings (loss) from
operations (336,577) (397,508)
Other income (expense)
Interest expense (395,714) (331,180)
Interest income 170,280 --
Other expenses (172,941) --
Earnings (loss) before
federal income tax (734,952) (728,688)
Federal income tax expense (249,884) (247,800)
__________ _________
Net earnings (loss) $(485,068) $(480,888)
__________ __________
__________ __________
Earnings (loss) per share $ (0.16) $ (0.32)
___________ ___________
___________ ___________
Number of shares outstanding 3,020,150 1,520,150
_________ _________
_________ _________
<PAGE>
Thomas Edison Inns, Inc. and Subsidiaries
Consolidated Statement of Shareholders' Equity
For the three month period ended February 29, 1996
(Unaudited)
____________________________________________________
<TABLE>
<CAPTION>
Note Retained
Pre- Additional Receivable Earnings
ferred Common Paid-in From Share (Accumulated
Shares Shares Capital Sale Deficit) Total
<S> <C> <C> <C> <C> <C> <C>
Balance
at
November
30, 1994 $ -- $15,200 $ 5,217,820 $ -- $ (7,950) $5,225,070
Issuance
of Common
Shares -- 15,000 5,466,930 (5,481,930) -- --
Recogni-
tion of
interest
income on
note
receiv-
able from
sale of
shares -- -- -- (120,602) -- (120,602)
Net Loss -- -- -- -- (2,049,102) (2,049,102)
_______ _______ ___________ ____________ ____________ ___________
Balance
at
November
30, 1995 -- 30,200 10,684,750 (5,602,532) (2,057,052) 3,055,366
Issurance
of Common
Shares -- -- -- -- -- --
Recogni-
tion of
interest
income on
note
receiv-
able from
sale of
shares -- -- -- (155,486) -- (155,486)
Net loss -- -- -- -- (485,068) (485,068)
_____ _______ __________ ____________ ____________ _________
Balance
at
February
29, 1996 $ -- $30,200 $10,684,750 $(5,758,018) $(2,542,121) $2,414,811
______ _______ ___________ ____________ ____________ __________
______ _______ ___________ ____________ ____________ __________
</TABLE>
<PAGE>
Thomas Edison Inns, Inc. and Subsidiaries
Consolidated Statement of Cash Flows
For the three month periods ended February 29, 1996
and February 28, 1995
(Unaudited)
____________________________________________________
1996 1995
Cash Flows From Operating Activities
Net loss $(485,068) $(480,888)
Adjustments to reconcile net
income to net cash
provided by operating activities
Depreciation and amortization 293,321 311,362
Deferred income tax expense
(benefit) -- 11,192
Interest income on note
receivable from sale
of shares (155,486) --
(Increase) decrease in assets
Accounts receivable 76,890 348,840
Other current assets
and deferred charges 14,581 (260,188)
Refundable federal
income taxes (249,884) (247,800)
Increase (decrease) in
liabilities
Accounts payable and
accrued expenses (1,009,118) 139,843
Net cash provided by
operating activities (1,514,764) (177,639)
Cash Flows From Investing
Activities
Purchase of property, plant
and equipment (249,271) (126,850)
Decrease (increase) in
other assets 75,141 (6,860)
Additions to amount due from
current and former
related parties (45,964) (12,109)
Payments on loans to current
and former related
parties -- 201,424
_________ _________
Net Cash provided by
(used in) investing
activities (220,094) 55,605
Cash Flows From Financing
Activities
Proceeds from long-term
borrowings 14,875,000 --
Proceeds from short-term
borrowings 96,646 --
Proceeds (payments) related
to borrowings from
shareholders and related
parties -- (24,156)
Principal payments of
long-term debt (11,594,849) (26,063)
____________ _________
Net cash provided by
(used in) financing 3,376,797 (50,219)
__________ __________
Net increase (decrease)
in cash 1,641,939 (172,253)
Cash and cash equivalents -
beginning of period $ 1,336,891 $ 621,761
___________ __________
Cash and cash equivalents -
end of period $ 2,978,830 $ 449,508
___________ _________
___________ _________
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of
Operation.
The following is management's discussion and analysis of
certain significant factors which have affected the Company's
results of operations and financial condition during the periods
included in the accompanying unaudited consolidated financial
statements.
Plan of Operation
From the Company's inception in 1986 until January 1996,
Donald W. Reynolds served as Chairman of the Board, President,
Chief Executive Officer, Treasurer and Secretary of the Company,
and the Company engaged Innkeepers Management Company, a Michigan
corporation wholly owned by Mr. Reynolds ("Innkeepers"), to
manage the Company's business, including the Hotels, pursuant to
a Management Agreement.
As previously reported in the Company's Current Report on Form
8-K filed with the Securities and Exchange Commission ("SEC") on
February 5, 1996, Mr. Reynolds was removed as an officer and
director of the Company by the St. Clair County (Michigan)
Circuit Court on January 8, 1996, in the course of a proceeding
brought by TEI Acquisition, Inc. ("TAI") (Case No. 95-00-33-CZ,
Deegan, J.). The court appointed Frank O. Staiger as acting
President and director. On January 25, 1996, Meritage Capital
Corp., formerly known as Meritage Hospitality Group Incorporated
("Meritage"), the Company's majority shareholder, amended the
Company's Bylaws to classify the Board of Directors into two
classes, expanded the Board of Directors to 10 directors and
appointed five new directors: Christopher B. Hewett, David S.
Lundeen, Joseph L. Maggini, Robert E. Schermer, Jr. and Robert E.
Schermer, Sr. On January 25, 1996, the Company's newly expanded
Board of Directors removed David C. Distad, son-in-law of Mr.
Reynolds, as Vice President and Chief Financial Officer of the
Company and terminated the Management Agreement with Innkeepers.
The Company no longer employs a third party management company.
Instead, the Company has installed new management to operate its
business directly in an effort to utilize more efficiently the
Company's resources and employees.
Since January 25, 1996, the Company has fundamentally changed
its operations in a manner management believes will have a
positive effect on future performance. During the first quarter
of fiscal 1996, the Company (i) elected new executive officers
with extensive experience in the hospitality industry, (ii) began
implementing a new management structure, (iii) closed on $15
million in new mortgage financing, (iv) began implementing a
capital expenditure program to improve and upgrade its
properties, and (v) began implementing sales and marketing
programs.
The Company's new executive officers are Mr. Hewett, President
and Chief Executive Officer; Mr. Schemer, Jr., Executive Vice
President and Treasurer; Gerald Belisle, Jr., Senior Vice
President - Operations; and James R. Saalfeld, Vice President,
General Counsel and Secretary. In addition, the Company has
hired nine new management level employees who have an active role
in, and substantial responsibilities with regard to, the
operational management of the Company's properties.
Results of Operations
The Company's total revenues for the first quarter of 1996 and
1995 were $3,282,825 and $2,867,227 respectively, an increase of
$415,598 or 14.5%. The increase in total revenues is
attributable to an increase in hotel occupancy for the first
quarter of 1996 (50.5%) as compared to the first quarter of 1995
(43.5%).
<PAGE>
Cost of food sales for the first quarter of 1996 and 1995 was
$542,810 and $491,385, respectively. Cost of beverage sales for
the first quarter of 1996 and 1995 was $143,213 and $135,500,
respectively. The increase in cost of food sales of $51,425 and
cost of beverage sales of $7,713 is relative to the increase in
food and beverage revenues.
In the first quarter of 1996, the Company experienced an
increase in operating expenses of $188,510 (11.3%). This
increase is directly related to the increase in total revenues.
The net loss is partially attributable to a net increase in
general and administrative expenses of $125,061, which includes
$130,246 in legal expenses. The increase in legal expenses is
attributable to certain unusual events which occurred over the
last fiscal year and which the Company does not anticipate will
recur in its ordinary course of business. (See "Impact of
Unusual Events" below.)
Interest expense for the first quarter of 1996 and 1995 was
$395,714 and $331,180, respectively. The increase of $64,534
(19.5%) is due to increases in the prime rate and the
restructuring of long-term debt on February 26, 1996.
Interest income was $170,280 for the first quarter of 1996, as
compared to no interest income for the first quarter of 1995.
The interest income consists primarily of interest on notes
receivable from the sale of Common Shares, which interest totaled
$155,486.
Sundry other income in the first quarter of 1996 was $181,497,
as compared to $51,087 in the first quarter of 1995. The
increase of $130,410 (255.3%) is primarily attributable to the
recognition of expired gift certificates as income.
Other expenses of $172,941 for the first quarter of 1996
represent expenses incurred in order to effect the change in
control and management of the Company.
Impact of Unusual Events
In the first quarter of 1996, the Company had general and
administrative expenses of $776,591, an increase of $125,061 in
comparison to the same period last year, of which $130,246
related to a litigation settlement and associated professional
fees. These expenses are a result of the lawsuits described in
Part I, Item 3, "Legal Proceedings," and Part II, Item 6, "Impact
of Unusual Events," in Amendment No. 2 to the Company's Annual
Report on Form 10-KSB for the fiscal year ended November 30,
1995.
Financial Condition and Liquidity
Following the change in control to Meritage, the Company
entered into an agreement with Great American Life Insurance
Company ("GALIC"), an affiliate of American Financial Group,
Inc., to refinance all of the Company's mortgage debt. This
transaction is described in detail in Part I, Item 2, "Financing
and Encumbrances," and Part II, Item 6, "Financial Condition and
Liquidity," in Amendment No. 2 to the Company's Annual Report on
Form 10-KSB for the fiscal year ended November 30, 1995. The
refinancing of the Company's mortgage indebtedness during the
first quarter of 1996 has placed the Company in a stronger
financial position for the coming fiscal year.
To remain competitive in its respective markets and to
increase revenues, management believes the Company must make
substantial capital expenditures in both the short and long term.
As described in Part II, Item 6, "Financial Condition and
Liquidity," in Amendment No. 2 to the Company's Annual Report on
<PAGE>
Form 10-KSB for the fiscal year ended November 30, 1995, the
Company has embarked on a capital expenditure program to
refurbish and upgrade its properties.
In September 1995, the Company received a secured, non-
interest bearing promissory note from Meritage in the amount of
$10,500,000 in exchange for 1,500,000 Common Shares (the
"Meritage Note"). Beginning on the third anniversary of the
Meritage Note, Meritage is required to make an annual payment of
$1,312,500 for the next eight years. The note is secured by a
Stock Pledge Agreement covering all 1,500,000 shares. The
Meritage Note has a present discounted value of $5,758,018 (using
a discount rate of 11%).
As of February 29, 1996, Mr. Reynolds and parties affiliated
with him owed the Company approximately $741,394. Management
believes these loans are not on terms favorable to the Company
and intends to pursue collection of these loans. The Company has
established an allowance of $260,000 against these receivables.
As of February 29, 1996 the Company's current assets exceeded
its current liabilities by $3,030,316, as compared to February
28, 1995 when current liabilities exceeded current assets by
$10,483,671. For these periods, the ratios of current assets to
current liabilities were 2.7:1 and 0.25:1, respectively. The
Company's substantial increase in current assets was attributable
in part to an increase in cash and cash equivalents of $2,529,322
and an increase in refundable income taxes of $320,789. The
decrease in current liabilities consists primarily of a decrease
in the current portion of long-term debt of $12,456,905. As
described in Part I, Item 2, "Management's Discussion and
Analysis or Plan of Operation," on Form 10-QSB for the quarter
ended February 28, 1995, a potential default under the Company's
loan agreement resulted in all of the Company's long-term
indebtedness under the loan agreements being reclassified as
current debt. As further described in Part II, Item 7,
"Financial Statements," Note G, in Amendment No. 2 to the
Company's Annual Report on Form 10-KSB for the fiscal year ended
November 30, 1995, the Company used the proceeds from the new
loan agreement with GALIC to retire these reclassified current
debts on February 26, 1996.
Effects of Changing Prices
Similar to other businesses in the hospitality industry, the
Company is sensitive to changes in interest rates and costs. The
Company currently has indebtedness of $15,000,000, $12,000,000 of
which is subject to interest at a floating rate of 1% over the
prime rate and $3,000,000 of which is subject to interest at a
floating rate of 8% over the prime rate. Increases or decreases
in the prime rate would increase or decrease the Company's
interest expense for a fiscal year. In fiscal 1995, the Federal
Reserve Board increased the discount rate on several occasions,
resulting in increases in the prime rate. Because of these
increases, the Company's interest expense in the first quarter of
1996 rose by $64,534 as compared to the first quarter of 1995.
If inflation increases or there is a general economic
recession in the Company's markets, the Company would likely
experience a decline in business travel, tourism, and attendance
at conventions and conferences. Similarly, inflation would also
likely lead to higher food, beverage and labor costs.
Inflationary increases in such costs may be difficult to pass
through to customers, resulting in a reduced operating profit
margin.
<PAGE>
PART II
OTHER INFORMATION
Item 2. Changes in Securities.
Pursuant to the loan agreement entered into with GALIC, the
Company cannot, without the prior written consent of GALIC,
declare or pay any dividends, other than the special dividend
described in Item 5 below.
Item 5. Other Information.
On March 9, 1996, the Board of Directors declared a special
dividend in the amount of $.50 per outstanding Common Share. The
special dividend is payable on April 26, 1996, to shareholders of
record as of March 28, 1996. The Board of Directors also
unanimously resolved that the Company shall withhold the cash
dividend payable with respect to Common Shares owned legally or
beneficially on September 19, 1995 by Mr. Reynolds (individually
or jointly with any of his children) or Innkeepers, and shall
apply the same, on the dividend payment date, toward satisfaction
of indebtedness owed by Mr. Reynolds and Mr. Reynolds's
affiliates to the Company.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit List. The following exhibits are filed as part
of this Report:
Exhibit No. Description of Document
27 Financial Data Schedule.
(b) Reports on Form 8-K. The Company filed a report on
Form 8-K on February 5, 1996, which reported (i) an
amendment to the Registrant's Bylaws whereby the Board
of Directors was expanded to ten directors and
classified into two classes, (ii) the appointment of
new executive officers, (iii) the creation of new
committees of the Board of Directors, and (iv) the
termination of the Management Agreement with
Innkeepers. No financial statements were filed.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THOMAS EDISON INNS, INC.
Dated: April 15, 1996 By /s/ Christopher B. Hewett
_________________________________
Christopher B. Hewett
President and Chief Executive
Officer
By /s/ Robert E. Schermer, Jr.
________________________________
Robert E. Schermer, Jr.
Executive Vice President
and Treasurer
(Chief Financial Officer)
EXHIBIT INDEX
Exhibit No. Description of Document
27 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-1-1995
<PERIOD-END> FEB-29-1996
<CASH> 2,978,830
<SECURITIES> 0
<RECEIVABLES> 522,538
<ALLOWANCES> 29,000
<INVENTORY> 199,379
<CURRENT-ASSETS> 4,815,286
<PP&E> 27,313,197
<DEPRECIATION> 14,138,908
<TOTAL-ASSETS> 19,710,627
<CURRENT-LIABILITIES> 1,784,970
<BONDS> 0
0
0
<COMMON> 30,200
<OTHER-SE> 2,384,612
<TOTAL-LIABILITY-AND-EQUITY> 19,710,627
<SALES> 1,963,864
<TOTAL-REVENUES> 3,282,825
<CGS> 686,023
<TOTAL-COSTS> 3,619,402
<OTHER-EXPENSES> 172,941
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 395,714
<INCOME-PRETAX> (734,952)
<INCOME-TAX> (249,884)
<INCOME-CONTINUING> (485,068)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (485,068)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.16)
</TABLE>
