<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
____________
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): AUGUST 28, 1996
-------------------------------
HUDSON HOTELS CORPORATION
(FORMERLY MICROTEL FRANCHISE AND DEVELOPMENT CORPORATION)
-----------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
NEW YORK 0-17838 16-1312167
- --------------------------------------------------------------------------------
(State of Other Jurisdiction (Commission File (IRS Employer
of Incorporation) Number) Identification No.)
ONE AIRPORT WAY, SUITE 200, ROCHESTER, NEW YORK 14624
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (716) 436-6000
-----------------------
- --------------------------------------------------------------------------------
(Former Name of Founder Address, if Changed Since Last Report)
<PAGE>
HUDSON HOTELS CORPORATION
AMENDMENT NO. 1 TO
CURRENT REPORT
ON FORM 8-K/A
Hudson Hotels Corporation hereby amends items 2 and 7 of its Current Report on
Form 8-K, which was filed on August 28, 1996, as set forth in the pages attached
hereto:
ITEM 2. ACQUISITION OF ASSETS
Financial statements for Delray Beach Hotel Properties Limited, Brookwood Hotel
Properties, Ridge Road Hotel Properties, L.P., Jamestown Hotel Properties, L.P.
and Muar Lakes Associates, L.P., acquired during the third quarter of 1996 are
presented in item 7.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
a. FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED:
Audited balance sheets of Delray Beach Hotel Properties Limited,
Brookwood Hotel Properties, Ridge Road Hotel Properties, L.P.,
Jamestown Hotel Properties, L.P. and Muar Lakes Associates, L.P.,
as of December 31, 1995 and 1994 and the related statements of
income, changes in partners equity and cash flows for each of the
three years ended December 31, 1995.
Audited combined statements of revenue and certain expenses for
each of the three years ended December 31, 1995.
b. PRO FORMA FINANCIAL INFORMATION:
Pro forma Condensed Consolidated Balance Sheet of the Company as
of June 30, 1996 (unaudited).
Pro forma Consolidated Statement of Income of the Company for the
year ended December 31, 1995 and six months ended June 30, 1996
(unaudited).
Notes to Pro Forma Consolidated Balance Sheet and Statement of
Operations (unaudited)
c. EXHIBITS:
There are no exhibits which are filed with this report.
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 hereunto duly authorized.
HUDSON HOTELS CORPORATION
By: /s/ Taras M. Kolcio
----------------------------------
Taras M. Kolcio
Chief Financial Officer
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Hudson Hotels Corp:
We have audited the accompanying balance sheets of Ridge Road Hotel Properties,
L.P. (a New York Limited Partnership) as of December 31, 1995 and 1994, and the
related statements of income, changes in partners' equity and cash flows for
each of the three years ended December 31, 1995. These financial statements are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ridge Road Hotel Properties,
L.P. as of December 31, 1995 and 1994, and the results of its operations and its
cash flows for each of the three years ended December 31, 1996 in conformity
with generally accepted accounting principles.
/s/ BONADIO & CO., LLP
Rochester, New York,
February 16, 1996.
<PAGE>
RIDGE ROAD HOTEL PROPERTIES
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
------
-------- December 31, -------
July 31,
1995 1994 1996
---- ---- --------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 64,837 $ 77,161 $ 65,427
Accounts receivable 16,595 14,683 26,208
Demand notes receivable from related parties - 15,042 -
Prepaid expenses 13,096 12,878 12,182
------ ------ ------
Total current assets 94,528 119,764 103,817
------ ------ ------
PROPERTY AND EQUIPMENT, net 2,197,543 2,229,254 2,158,184
--------- --------- ---------
OTHER ASSETS:
Mortgage acquisition costs, net 31,403 42,169 25,122
Other - 1,611 8,900
--------- ----- -----
$ 2,323,474 $ 2,392,798 $ 2,296,023
---------- --------- ---------
---------- --------- ---------
LIABILITIES AND PARTNERS' EQUITY
--------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 114,305 $ 103,788 $ 122,288
Current portion of capital lease obligations 4,287 4,806 2,042
Accounts payable 41,263 19,801 51,589
Accrued payroll and related expenses 10,883 5,060 10,238
Accrued interest 17,983 18,137 16,742
Other accrued expenses 18,574 18,133 19,098
------ ------ ------
Total current liabilities 207,295 169,725 221,997
------- ------- -------
LONG-TERM LIABILITIES:
Long-term debt, net of current portion 2,056,921 2,167,486 1,982,933
Capital lease obligations, net of current portion - 4,286 -
--------- --------- ---------
Total long-term liabilities 2,056,921 2,171,772 1,982,933
--------- --------- ---------
Total liabilities 2,264,216 2,341,497 2,204,930
--------- --------- ---------
PARTNERS' EQUITY 59,258 51,301 91,093
------ ------ ------
$ 2,323,474 $ 2,392,798 $ 2,296,023
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
RIDGE ROAD HOTEL PROPERTIES
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
------ Years Ended December 31, ------ -- Seven Months Ended July 31, --
1995 1994 1993 1996 1995
---- ---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
INCOME:
Room rent $ 1,298,219 $ 1,281,737 $ 1,259,504 $ 694,223 $ 711,797
Telephone 42,801 44,666 43,980 20,656 26,189
Other 18,631 5,995 5,737 16,907 6,298
------ ----- ----- ------ -----
Total income 1,359,651 1,332,398 1,309,221 731,786 744,284
--------- --------- --------- ------- -------
OPERATING EXPENSES:
Room expense 346,983 342,781 327,867 192,218 199,544
Administrative expenses 94,409 91,613 86,513 70,094 56,564
Repairs and maintenance 79,524 69,285 76,710 36,387 46,193
Advertising and promotion 89,889 82,181 64,628 48,809 49,526
Utilities 72,660 67,749 62,508 44,070 42,511
Telephone 25,728 27,061 23,402 11,933 16,081
Other 25,904 7,812 9,600 17,955 7,422
------ ----- ----- ------ -----
Total operating expenses 735,097 688,482 651,228 421,466 417,841
------- ------- ------- ------- -------
Income from operations 624,554 643,916 657,993 310,320 326,443
------- ------- ------- ------- -------
OTHER (INCOME) EXPENSE:
Interest expense 235,101 200,315 245,138 129,439 139,109
Depreciation and amortization 111,190 104,505 102,195 61,164 64,860
Management fee 62,420 60,853 59,453 33,343 34,034
Real estate taxes 44,522 44,831 44,519 29,130 26,090
Franchise fee 39,007 38,310 38,034 19,517 20,108
Insurance 10,827 11,992 14,172 5,892 6,308
Interest income (1,470) (406) (1,814) - (1,447)
------- ------- ------- ------- -------
Total other (income) expense 501,597 460,400 501,697 278,485 289,062
------- ------- ------- ------- -------
NET INCOME $122,957 $183,516 $156,296 $31,835 $37,381
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
RIDGE ROAD HOTEL PROPERTIES, L.P.
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
PARTNERS' EQUITY - January 1, 1992 $(467,779)
Change in accounting method 544,541
Net income - 1993 156,296
Distributions - 1993 (100,000)
Syndication costs (3,473)
-----
PARTNERS' EQUITY - December 31, 1993 129,585
Net income - 1994 183,516
Distributions - 1994 (80,000)
Repurchase of partnership interest (181,800)
-------
PARTNERS' EQUITY - December 31, 1994 51,301
Net income - 1995 122,957
Distributions - 1995 (115,000)
-------
PARTNERS' EQUITY - December 31, 1995 59,258
Net income for the seven months ended
July 31, 1996 (unaudited) 31,835
------
$91,093
-------
-------
The accompanying notes are an integral part of these statements.
<PAGE>
RIDGE ROAD HOTEL PROPERTIES, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
----- Years Ended December 31, ---- -- Seven Months Ended July 31, --
1995 1994 1993 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 122,957 $ 183,516 $ 156,296 $ 31,835 $ 37,381
Adjustment to reconcile net
income to net cash flow from
operating activities:
Depreciation and amortization 111,190 104,505 102,195 61,164 64,860
Changes in:
Accounts receivable (1,912) 1,079 1,471 (9,613) 38,027
Prepaid expenses (218) 2,661 3,814 914 (3,155)
Other assets 1,611 (1,011) (600) (8,900) 1,611
Accounts payable 21,462 4,249 (15,585) 10,326 33,145
Accrued expenses 5,969 11,578 (14,856) (1,362) (866)
Other current liabilities 142 - - - -
Net cash flow from operating activities 261,201 306,577 232,735 84,364 171,003
CASH FLOW FROM INVESTING ACTIVITIES:
Decrease (increase) in demand notes
receivable from related party 15,042 (15,042) - - 14,688
Property and equipment additions (68,714) (42,755) (27,759) (15,524) (49,061)
Net cash flow from investing activities (53,672) (57,797) (27,759) (15,524) (34,373)
CASH FLOW FROM FINANCING ACTIVITIES:
Repayments of mortgage payable (68,142) (72,039) (87,833) (66,005) (37,949)
Purchase of partnership interest - (21,300) - - -
Repayment of notes payable (31,906) (12,561) - - (18,302)
Repayments of capital lease obligations (4,805) (4,807) (4,125) (2,245) (2,803)
Partners' distributions (115,000) (80,000) (100,000) - (75,000)
Increase in mortgage acquisition costs - - (53,832) - -
Increase in syndication costs - - (3,473) - -
Net cash flow from financing activities (219,853) (190,707) (249,263) (68,250) (134,054)
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (12,324) 58,073 (44,287) 590 2,576
CASH AND EQUIVALENTS - beginning of period 77,161 19,088 63,375 64,837 77,161
CASH AND EQUIVALENTS - end of period $ 64,837 $ 77,161 $ 19,088 $ 65,427 $ 79,737
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
RIDGE ROAD HOTEL PROPERTIES, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(1) THE PARTNERSHIP
Ridge Road Hotel Properties, L.P. (the Partnership) owns and operates a
hotel located in Rochester, New York. During 1993, the Partnership was
reorganized as a limited partnership and Ridge Road Hotel Corp. was named
as the general partner.
Ridge Road Hotel Corp. purchased one percent of the partnership from the
Estate of Loren Ansley in December, 1993. The new general partner started
sharing in profits, losses and distributions in 1994.
Profits, losses and distributions are allocated to the partners based on
their ownership percentages.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting -
The Partnership prepares its financial statements using the accrual basis
of accounting.
Cash and Equivalents -
Cash and equivalents include demand deposits and money market accounts.
Deposits are federally insured up to $100,000 at each institution. At
times, amounts in these accounts may exceed federally insured limits. The
Partnership has not experienced any losses in such accounts. The
Partnership believes it is not exposed to any significant credit risk on
cash and equivalents.
Property and Equipment -
Property and equipment is stated at cost. Depreciation is provided using
accelerated and straight-line methods over the following estimated useful
lives:
Building and improvements 31.5 - 40 years
Furniture and equipment 3 - 7 years
Mortgage Acquisition Costs -
Costs incurred to obtain financing are being amortized using the
straight-line method over the term of the related mortgage.
<PAGE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes -
No provision is made for income taxes in the accompanying financial
statements as the taxable income or loss of the Partnership is included on
the individual income tax returns of the partners.
Estimates -
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and revenue and expenses during the reporting period.
Actual results could differ from those estimates.
(3) DEMAND NOTES RECEIVABLE FROM RELATED PARTIES
Demand notes receivable from related parties bear interest at the prime
rate plus 1-1/2%.
It is impracticable to estimate the fair value of these receivables due to
the related party nature of the transactions.
(4) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
December 31,
------------
July 31,
1995 1994 1996
---- ---- --------
(Unaudited)
Land, building and improvements $2,584,986 $2,590,185 $2,584,986
Furniture and equipment 611,567 542,853 627,092
---------- ---------- ----------
3,196,553 3,133,038 3,212,078
Less: Accumulated depreciation (999,010) (903,784) (1,053,894)
---------- ------------ ------------
$2,197,543 $ 2,229,254 $ 2,158,184
---------- ------------ ------------
---------- ------------ ------------
<PAGE>
(5) LONG-TERM DEBT
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
December 31,
------------
July 31,
1995 1994 1996
---- ---- --------
(Unaudited)
<S> <C> <C> <C>
Mortgage payable to a bank requiring
monthly payments of $23,894, including
interest at the prime rate plus 1.75%
through January, 1999, at which time a
balloon payment of $1,789,311 is due.
The mortgage is collateralized by
substantially all assets of the Partnership,
substantially all assets of Airport Hotel
Properties, L.P. (a related partnership)
and guaranteed by the partners based on
their ownership percentages. $2,055,193 $2,123,335 $2,009,009
Note payable to a former partner,
requiring monthly payments of $3,549
including interest at 8%, through
January, 1999. 116,033 147,939 96,212
------- ------- ------
2,171,226 2,271,274 2,105,221
Less: Current portion (114,305) (103,788) (122,288)
------- ------- -------
$2,056,921 $2,167,486 $1,982,933
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Future scheduled principal payments on long-term debt at December 31, 1995
were as follows:
1996 $114,305
1997 125,742
1998 138,339
1999 1,792,840
---------
$2,171,226
----------
----------
Interest paid in 1995, 1994 and 1993 was approximately $235,000, $183,000
and $256,000, respectively. Interest paid for the seven months ended July
31, 1996 and 1995 was $131,000 (unaudited) and $139,000 (unaudited),
respectively.
The carrying values of debt approximates fair value based on the interest
rate currently charged.
<PAGE>
(6) CAPITAL LEASE OBLIGATIONS
Capital lease obligations consisted of the following:
December 31,
------------
July 31,
1995 1994 1996
---- ---- --------
(Unaudited)
Capital lease obligations to GE Capital
Corp. for telephone equipment, requiring
monthly payments of $681, including
interest at 11.68%, through October,
1996. $ 4,287 $ 9,092 $ 2,042
Less: Current portion (4,287) (4,806) (2,042)
-------- -------- --------
$ - $ 4,286 $ -
-------- -------- --------
-------- -------- --------
(7) RELATED PARTY TRANSACTIONS
The Partnership is related to other hotel properties through common
management (Hudson Hotel) and, for some properties, similar owners. Hudson
Hotels is a limited partner in the Partnership and owns the Partnership's
general partner.
On an interim basis, the related entities may borrow from or loan funds to
each other on an unsecured basis with interest at market rates. The
related entities may also have accounts receivable from and payable to each
other arising in the normal course of business.
The Partnership's managing agent, Hudson Hotels, is paid for services it
provides to the Partnership under the terms of a management agreement which
extends through March, 1998 as follows:
a) monthly management fee equal to 4.5% of the gross revenues of the
Partnership plus direct expenses incurred. This fee was $62,420,
$60,853 and $59,453 in 1995, 1994 and 1993, respectively. The fee was
$33,343 (unaudited) and $34,034 (unaudited) for the seven months ended
July 31, 1996 and 1995, respectively.
b) monthly accounting fee of $800. This fee was $9,600 in both 1995 and
1994 and $8,900 in 1993. This fee was $5,600 (unaudited) for each of
the seven months ended July 31, 1996 and 1995.
c) monthly corporate sales fee of $400. This fee was $4,800 in both 1995
and 1994 and $4,300 in 1993. This fee was $2,800 (unaudited) for each
of the seven months ended July 31, 1996 and 1995.
<PAGE>
(8) Contingent Liabilities
The Partnership has pledged substantially all of its assets as collateral
for a mortgage of Airport Hotel Properties, L.P., a related partnership,
with a balance of approximately $1,553,000 at December 31, 1995 and
$1,518,000 (unaudited) at July 31, 1996.
(9) COMMITMENTS
The Partnership is currently required to remit monthly royalty fees of 3%
of gross room revenue plus additional monies for marketing assessments and
reservation fees to its franchisor, Choice Hotels International based on a
franchise agreement which extends through April, 2015. This agreement may
be terminated at various intervals by either party. Total fees were
$100,101, $98,459 and $99,000 in 1995, 1994 and 1993, respectively.
Total fees were approximately $51,000 (unaudited) and $52,000 (unaudited)
for the seven months ended July 31, 1996 and 1995, respectively.
(10) PARTNERS' EQUITY
During 1994, the Partnership repurchased 10.75% limited partnership
interest from a partner for $21,300 in cash and issuance of an 8% note
payable for $160,500 (see Note 5).
(11) CHANGE IN ACCOUNTING METHOD
Prior to 1993, the Partnership kept its records and prepared its financial
statements on the income tax basis of accounting which differed from
generally accepted accounting principles primarily in the calculation of
depreciation and the recording of changes in the basis of property related
to changes in ownership of partnership interests. During 1993, the
Partnership adopted depreciation methods and adjusted the accounting for
changes in ownership of partnership interest to be consistent with
generally accepted accounting principles. Appropriate adjustments were
made to restate partners' equity for these changes.
(12) LITIGATION
On February 11, 1993, a complaint was filed in the Western District of New
York, United States District Court, by John Miranda, Susan Miranda and
Christopher Miranda, seeking damages and costs against Quality Inn
International, Choice Hotels International, and naming Hudson Hotels as a
co-defendant. The requested relief in this case, John Miranda and Susan
Miranda and Christopher Miranda vs. Quality Inns International, Inc.,
Choice Hotels International, Inc., Ridge Road Hotel Properties, Ridge Road
Hotel Properties d/b/a Comfort Inn, a/k/a Comfort Inn West, Hudson Hotels
Corp., and Jennifer L. Ansley, as Executrix of the Estate of Loren G.
Ansley, was based on allegations that John Miranda, while staying at the
Comfort Inn, stepped on a needle, and claims negligence and lack of due
care on the part of the defendants. This case is being diligently defended
by the insurance carrier of Ridge Road Hotel Properties and Hudson Hotels.
The Partnership believes that it has adequate insurance for any potential
loss.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Hudson Hotels Corp.:
We have audited the accompanying balance sheets of Muar Lakes Associates, L.P.
(a New York Limited Partnership) as of December 31, 1995 and 1994, and the
related statements of income, changes in partners' equity and cash flows for
each of the three years ended December 31, 1995. These financial statements are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Muar Lakes Associates, L.P. as
of December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the three years ended December 31, 1995 in conformity with
generally accepted accounting principles.
/s/ BONADIO & CO., LLP
Rochester, New York,
February 16, 1996.
<PAGE>
MUAR LAKES ASSOCIATES, L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
----- December 31, -----
July 31,
1995 1994 1996
---- ---- --------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 54,573 $ 76,420 $ 83,044
Accounts receivable 6,797 7,325 10,113
Inventory 4,279 4,499 4,012
Prepaid expenses 16,457 13,278 10,175
----------- ----------- -----------
Total current assets 82,106 101,522 107,344
----------- ----------- -----------
PROPERTY AND EQUIPMENT, net 1,054,049 1,087,506 1,030,990
----------- ----------- -----------
OTHER ASSETS
Mortgage acquisition costs, net 19,469 21,016 18,566
Deposits 2,100 3,711 2,100
----------- ----------- -----------
Total other costs 21,569 24,727 20,666
----------- ----------- -----------
$ 1,157,724 $ 1,213,755 $ 1,159,000
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Current portion of mortgage payable $ 37,818 $ 38,114 $ 41,427
Capital lease obligation - 215 -
Accounts payable 33,191 14,157 35,667
Due to related party - 29,000 -
Accrued payroll and related expenses 6,471 4,092 5,187
Accrued interest 9,924 10,215 8,893
Other accrued expenses 3,614 6,725 13,820
----------- ----------- -----------
Total current liabilities 91,018 102,518 104,994
MORTGAGE PAYABLE, net of current portion 1,046,125 1,075,946 1,014,186
----------- ----------- -----------
Total liabilities 1,137,143 1,178,464 1,119,180
PARTNERS' EQUITY 20,581 35,291 39,820
----------- ----------- -----------
$ 1,157,724 $ 1,213,755 $ 1,159,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<TABLE>
<CAPTION>
MUAR LAKES ASSOCIATES, L.P.
---------------------------
STATEMENTS OF OPERATIONS
------------------------
-------- Years Ended December 31,---------- ---Seven Months Ended July 31,---
1995 1994 1993 1996 1995
---- ---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
INCOME:
Room rent $ 751,000 $ 730,149 $ 806,407 $ 422,260 $ 376,098
Telephone 20,105 15,647 19,068 11,639 10,613
Other 6,168 5,722 7,470 2,877 2,765
---------- ---------- ---------- ---------- ----------
Total Income 772,273 751,518 832,945 436,776 389,476
---------- ---------- ---------- ---------- ----------
OPERATING EXPENSES:
Room expense 205,600 194,911 185,579 116,466 113,546
Administrative expenses 67,886 75,987 73,762 51,222 39,876
Utilities 50,888 51,579 51,562 34,052 29,152
Repairs and maintenance 47,676 39,068 46,517 20,927 25,527
Advertising and promotion 43,000 38,296 47,680 21,062 21,101
Telephone 12,311 12,851 12,185 6,842 6,644
Manager bonus 2,319 1,200 5,454 - -
Other 3,965 4,949 6,682 1,529 2,406
---------- ---------- ---------- ---------- ----------
Total operating expenses 433,645 418,841 429,421 252,090 238,252
---------- ---------- ---------- ---------- ----------
Income from operations 343,628 332,677 403,524 184,686 151,224
---------- ---------- ---------- ---------- ----------
OTHER EXPENSE:
Interest expense, net 116,112 98,479 83,040 62,059 66,937
Depreciation and amortization 68,419 87,466 78,844 38,173 39,912
Real estate taxes 40,819 37,495 35,317 24,471 23,550
Management fee 35,914 35,351 38,378 20,244 18,325
Franchise fee 30,043 29,264 32,328 16,890 15,044
Insurance 7,031 8,325 9,068 3,160 4,244
---------- ---------- ---------- ---------- ----------
Total other expenses 298,338 296,380 276,975 165,447 168,012
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS) $ 45,290 $ 36,297 $ 126,549 $ 19,239 $ (16,788)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
MUAR LAKES ASSOCIATES, L.P.
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
PARTNERS' EQUITY - January 1, 1992 $(368,310)
Change in accounting method 424,767
Net income - 1993 126,549
Distributions - 1993 (120,000)
Syndication costs (3,458)
---------
PARTNERS' EQUITY - December 31, 1993 59,548
Net income - 1994 36,297
Distributions - 1994 (60,000)
Syndication costs (554)
-------
PARTNERS' EQUITY - December 31, 1994 35,291
Net income - 1995 45,290
Distributions - 1995 (60,000)
-------
PARTNERS' EQUITY - December 31, 1995 20,581
Net income for the seven months ended
July 31, 1996 (unaudited) 19,239
------
PARTNERS' EQUITY - July 31, 1996 (unaudited) $39,820
-------
-------
The accompanying notes are an integral part of these statements.
<PAGE>
MUAR LAKES ASSOCIATES, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
----- Years Ended December 31, ----- -- Seven Months Ended July 31, --
1995 1994 1993 1996 1995
---- ---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ 45,290 $ 36,297 $ 126,549 $ 19,239 $ (16,788)
Adjustment to reconcile net income (loss)
to net cash flow from operating activities:
Depreciation and amortization 68,419 87,466 78,844 38,173 39,912
Changes in:
Accounts receivable 528 1,575 609 (3,316) (4,157)
Inventory 220 75 888 267 -
Prepaid expenses (3,179) (1,325) 19,510 6,282 6,174
Deposits 1,611 (1,611) (300) - 1,611
Accounts payable 19,034 (2,725) (1,475) 2,476 13,658
Due to related party (29,000) 29,000 - - (29,000)
Accrued expenses (1,023) (944) 4,681 7,891 6,023
------------ ------------ ------------ ------------ -----------
Net cash flow from operating activities 101,900 147,808 229,306 71,012 17,433
------------ ------------ ------------ ------------ -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Property and equipment additions (33,415) (31,014) (24,367) (14,211) (23,363)
------------ ------------ ------------ ------------ -----------
Net cash flow from investing activities (33,415) (31,014) (24,367) (14,211) (23,363)
------------ ------------ ------------ ------------ -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Borrowings on mortgage payable - - 4,633 - -
Repayments on mortgage payable (30,117) (25,777) (25,236) (28,330) (12,301)
Increase in mortgage acquisition costs - - (23,208) - -
Increase in syndication costs - (554) (3,458) - -
Repayments on capital lease obligation (215) (2,368) (2,583) - (215)
Partners' distributions (60,000) (60,000) (120,000) - -
------------ ------------ ------------ ------------ -----------
Net cash flow from financing activities (90,332) (88,699) (169,852) (28,330) (12,516)
------------ ------------ ------------ ------------ -----------
NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS (21,847) 28,095 35,087 28,471 (18,446)
CASH AND EQUIVALENTS - beginning of period 76,420 48,325 13,238 54,573 76,420
------------ ------------ ------------ ------------ -----------
CASH AND EQUIVALENTS - end of period $ 54,573 $ 76,420 $ 48,325 $ 83,044 $ 57,974
------------ ------------ ------------ ------------ -----------
------------ ------------ ------------ ------------ -----------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
MUAR LAKES ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
(1) THE PARTNERSHIP
Muar Lakes Associates, L.P. (the Partnership) owns and operates a hotel
located in Canandaigua, New York. During 1993, the Partnership was
reorganized as a limited Partnership and named Muar Lakes Hotel Corp. as
the general partner.
In 1993, Muar Lakes Hotel Corp. purchased one percent of the partnership
from the Estate of Loren Ansley, a former partner in the Partnership.
Profits, losses and distributions are allocated to partners based on their
ownership percentages.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting -
The Partnership prepares its financial statements using the accrual basis
of accounting.
Cash and Equivalents -
Cash and equivalents include demand deposits and money market accounts.
Deposits are federally insured up to $100,000 at each institution. At
times, amounts in these accounts may exceed federally insured limits. The
Partnership has not experienced any losses in such accounts. The
Partnership believes it is not exposed to any significant credit risk on
cash and equivalents.
Inventory -
Inventory is recorded at the lower of cost, on the first-in, first-out
basis, or market. Inventory consists primarily of linens.
Property and Equipment -
Property and equipment is recorded at cost. Depreciation is provided using
accelerated and straight-line methods over the following estimated useful
lives:
Building and improvements 31.5 - 40 years
Furniture and equipment 3 - 7 years
Mortgage Acquisition Costs -
Costs incurred to obtain financing are being amortized using the
straight-line method over the term of the related mortgage.
<PAGE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes -
No provision is made for income taxes in the accompanying financial
statements as the taxable income of the Partnership is included on the
individual income tax returns of the partners.
Estimates -
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and revenue and expenses during the reporting period.
Actual results could differ from those estimates.
(3) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
December 31,
------------
July 31,
1995 1994 1996
---- ---- --------
(Unaudited)
Land, building and improvements $ 1,407,215 $ 1,407,215 $ 1,407,215
Furniture and equipment 280,499 247,084 294,711
----------- ----------- -----------
1,687,714 1,654,299 1,701,926
Less: Accumulated depreciation (633,665) (566,793) (670,936)
----------- ----------- -----------
$ 1,054,049 $ 1,087,506 $ 1,030,990
----------- ----------- -----------
----------- ----------- -----------
(4) MORTGAGE ACQUISITION COSTS
Mortgage acquisition costs consisted of the following:
December 31,
------------
July 31,
1995 1994 1996
---- ---- --------
(Unaudited)
Mortgage acquisition costs $ 23,208 $ 23,208 $ 23,208
Less: Accumulated amortization (3,739) (2,192) (4,642)
----------- ----------- -----------
$ 19,469 $ 21,016 $ 18,566
----------- ----------- -----------
----------- ----------- -----------
<PAGE>
(5) MORTGAGE PAYABLE
The Partnership's mortgage requires monthly payments of $12,434, including
principal and interest at the prime rate plus 1 1/2% through August, 2008,
at which time the remaining balance is due. The mortgage is collateralized
by substantially all assets of the Partnership and is guaranteed by the
partners based on their ownership percentages.
Future scheduled principal payments on the mortgage payable at December 31,
1995 were as follows:
1996 $37,818
1997 41,961
1998 46,557
1999 51,657
2000 57,316
Thereafter 848,634
-------
$1,083,943
----------
----------
Interest paid in 1995, 1994 and 1993 was approximately $116,000, $96,000
and $83,000, respectively. Interest paid for the seven months ended July
31, 1996 and 1995 was approximately $63,000 (unaudited) and $69,000
(unaudited), respectively.
The carrying value of debt approximates fair value based on the interest
rate currently charged.
(6) RELATED PARTY TRANSACTIONS
The Partnership is related to other hotel properties through common
management (Hudson Hotels) and for some properties, similar owners. Hudson
Hotels is a limited partner in the Partnership and owns the PartNership's
general partner.
On an interim basis, the related entities may borrow funds from or loan
funds to each other on an unsecured basis with interest at market rates.
The related entities may also have accounts receivable from and payable to
each other arising in the normal course of business.
The Partnership's managing agent, Hudson Hotels, is paid for services it
provides to the Partnership under the terms of a management agreement which
extends through May, 2004 as follows:
a) monthly management fee equal to 4.5% of the gross revenues of the
Partnership plus direct expenses incurred. This fee was $35,914,
$35,351 and $38,378 in 1995, 1994 and 1993, respectively. This fee
was $20,244 (unaudited) and $18,325 (unaudited) for the seven months
ended July 31, 1996 and 1995, respectively.
b) monthly accounting fee of $725. This fee was $8,700 in both 1995 and
1994 and $8,300 in 1993. This fee was $5,075 (unaudited) for each of
the seven months ended July 31, 1996 and 1995.
<PAGE>
(6) RELATED PARTY TRANSACTIONS (Continued)
c) monthly corporate sales fee of $350. This fee was $4,200 in both 1995
and 1994 and $3,400 in 1993. This fee was $2,450 (unaudited) for each
of the seven months ended July 31, 1996 and 1995.
(7) COMMITMENTS
The Partnership is required to remit monthly royalty fees of 4% of gross
room revenue plus additional monies for marketing assessments and
reservation fees to its Franchisor, Choice Hotels International based on a
franchise agreement which extends through December, 2013. This agreement
may be terminated at various intervals by either party. Total fees were
approximately $61,000 and $60,000 and $57,000 in 1995, 1994 and 1993,
respectively. Total fees were approximately $35,000 (unaudited) and
$30,000 (unaudited) for the seven months ended July 31, 1996 and 1995,
respectively.
(8) CHANGE IN ACCOUNTING METHOD
Prior to 1993, the Partnership kept its records and prepared its financial
statements on the income tax basis of accounting which differed from
generally accepted accounting principles primarily in the calculation of
depreciation and the recording of changes in the basis of property related
to changes in ownership of partnership interests. During 1993, the
Partnership adopted depreciation methods and adjusted the accounting for
changes in ownership of partnership interests to be consistent with
generally accepted accounting principles. Appropriate adjustments were
made to restate partners' equity for these changes.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of
Jamestown Hotel Properties, L.P.:
We have audited the accompanying balance sheets of Jamestown Hotel Properties,
L.P. (a New York Limited Partnership) as of December 31, 1995 and 1994, and the
related statements of income, changes in partners' equity and cash flows for
each of the three years ended December 31, 1995. These financial statements are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Jamestown Hotel Properties,
L.P. as of December 31, 1995 and 1994, and the results of its operations and its
cash flows for each of the three years ended December 31, 1995 in conformity
with generally accepted accounting principles.
/s/ BONADIO & CO., LLP
Rochester, New York,
February 21, 1996.
<PAGE>
JAMESTOWN HOTEL PROPERTIES
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
--------- December 31, ---------
July 31,
1995 1994 1996
---- ---- --------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 61,584 $ 72,671 $ 168,512
Accounts receivable 27,709 22,756 32,094
Inventory 9,254 9,116 9,069
Prepaid expenses 23,230 31,627 14,916
----------- ----------- -----------
Total current assets 121,777 136,170 224,591
----------- ----------- -----------
PROPERTY AND EQUIPMENT, net 2,233,051 2,243,331 2,195,789
----------- ----------- -----------
OTHER ASSETS:
Escrow deposit - 70,883 -
Mortgage acquisition costs, net 15,255 31,896 5,546
----------- ----------- -----------
Total other costs 15,255 102,779 5,546
----------- ----------- -----------
$ 2,370,083 $ 2,482,280 $ 2,425,926
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Current portion of mortgage payable $ 1,804,451 $ 189,842 $ 1,693,710
Accounts payable 25,097 56,523 51,625
Accrued payroll and related expense 9,777 8,595 12,518
Other accrued expenses 22,403 24,323 26,921
----------- ----------- -----------
Total current liabilities 1,861,728 279,283 1,784,774
MORTGAGE PAYABLE, net of current portion - 1,807,600 -
----------- ----------- -----------
Total liabilities 1,861,728 2,086,883 1,784,774
PARTNERS' EQUITY 508,355 395,397 641,152
----------- ----------- -----------
$ 2,370,083 $ 2,482,280 $ 2,425,926
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
JAMESTOWN HOTEL PROPERTIES
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
------- Years Ended December 31, -------- --- Seven Months Ended July 31, ---
1995 1994 1993 1996 1995
---- ---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
INCOME:
Room rent $ 1,476,617 $ 1,324,650 $ 1,274,100 $ 830,062 $ 856,157
Telephone 40,207 41,686 40,916 17,368 25,259
Bar income 10,133 - - 13,823 1,976
Other 23,250 23,736 23,937 15,383 13,113
---------- ---------- ---------- ---------- ----------
Total income 1,550,207 1,390,072 1,338,953 876,636 896,505
---------- ---------- ---------- ---------- ----------
OPERATING EXPENSES:
Room expense 399,830 355,685 332,817 232,011 222,943
Advertising and promotion 110,655 94,937 97,571 55,295 54,029
Administrative expenses 106,065 97,020 84,826 73,473 64,525
Repairs and maintenance 91,484 79,030 79,261 41,516 47,918
Utilities 47,470 51,319 51,133 31,422 28,684
Telephone 17,377 20,016 16,515 8,295 11,111
Bar expenses 8,208 - - 7,664 3,045
Other 27,677 22,031 21,950 16,522 12,724
---------- ---------- ---------- ---------- ----------
Total operating expenses 808,766 720,038 684,073 466,198 444,979
---------- ---------- ---------- ---------- ----------
Income from operations 741,441 670,034 654,880 410,438 451,526
---------- ---------- ---------- ---------- ----------
OTHER (INCOME) EXPENSE:
Interest expense 177,716 164,008 235,517 90,016 106,253
Depreciation and amortization 126,850 121,766 112,067 77,449 73,996
Management fee 72,402 64,970 62,322 40,357 41,860
Real estate taxes 63,473 58,772 58,287 40,919 34,823
Franchise fee 44,038 39,598 37,649 22,423 23,080
Insurance 11,662 12,831 15,067 6,567 6,909
Gain on sale of property - (72,174) - - -
Interest income (2,658) (1,465) (1,397) (90) (1,205)
---------- ---------- ---------- ---------- ----------
Total other (income) expense 493,483 388,306 519,512 277,641 285,716
---------- ---------- ---------- ---------- ----------
NET INCOME $ 247,958 $ 281,728 $ 135,368 $ 132,797 $ 165,810
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
JAMESTOWN HOTEL PROPERTIES, L.P.
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
PARTNERS' EQUITY - January 1, 1993 $ (654,135)
Change in accounting method 725,991
Net income 135,368
Distributions - 1993 (50,000)
Syndication costs (3,555)
---------------
PARTNERS' EQUITY - December 31, 1993 153,669
Net income - 1994 281,728
Distributions - 1994 (40,000)
---------------
PARTNERS' EQUITY - December 31, 1994 395,397
Net income - 1995 247,958
Distributions - 1995 (135,000)
---------------
PARTNERS' EQUITY - December 31, 1995 508,355
Net income for the seven months ended
July 31, 1996 (unaudited) 132,797
---------------
PARTNERS' EQUITY - July 31, 1996 (unaudited) $ 641,152
---------------
---------------
The accompanying notes are an integral part of these statements.
<PAGE>
JAMESTOWN HOTEL PROPERTIES
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
------Years Ended December 31,------ -Seven Months Ended July 31,-
1995 1994 1993 1996 1995
---- ---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 247,958 $ 281,728 $ 135,368 $ 132,797 $ 165,810
Adjustment to reconcile net income to
net cash flow from operating activities:
Depreciation and amortization 126,850 121,766 112,067 77,449 73,996
Gain on sale of property - (72,174) - - -
Changes in:
Accounts receivable (4,953) 4,194 (8,879) (4,385) (22)
Inventory (138) (2,305) 1,637 185 (939)
Prepaid expenses 8,397 (13,784) 1,353 8,314 12,820
Accounts payable (31,426) 32,445 (6,390) 26,528 (31,698)
Accrued expenses (738) 9,714 (9,821) 7,259 1,089
---------- ---------- ---------- ---------- ----------
Net cash flow from
operating activities 345,950 361,584 225,335 248,147 221,056
---------- ---------- ---------- ---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES:
Property and equipment additions (99,929) (86,130) (38,376) (30,478) (75,112)
Proceeds from sale of property, net - 143,311 - - -
Changes in escrow deposit 70,883 (70,883) - - 70,883
---------- ---------- ---------- ---------- ----------
Net cash flow from
investing activities (29,046) (13,702) (38,376) (30,478) (4,229)
---------- ---------- ---------- ---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES:
Repayments on mortgage payable (192,991) (249,022) (104,356) (110,741) (113,890)
Partners' distributions (135,000) (40,000) (50,000) - (75,000)
Increase in mortgage acquisition costs - - (48,537) - -
Increase in syndication costs - - (3,555) - -
---------- ---------- ---------- ---------- ----------
Net cash flow from
financing activities (327,991) (289,022) (206,448) (110,741) (188,890)
---------- ---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND
EQUIVALENTS (11,087) 58,860 (19,489) 106,928 27,937
CASH AND EQUIVALENTS - beginning of period 72,671 13,811 33,300 61,584 72,671
---------- ---------- ---------- ---------- ----------
CASH AND EQUIVALENTS - end of period $ 61,584 $ 72,671 $ 13,811 $ 168,512 $ 100,608
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
JAMESTOWN HOTEL PROPERTIES, L.P.
NOTES TO FINANCIAL STATEMENTS
(1) THE PARTNERSHIP
Jamestown Hotel Properties, L.P. (the Partnership) owns and operates a
hotel located in Jamestown, New York. During 1993, the Partnership was
reorganized as a limited partnership and named Jamestown Hotel Corp. as its
general partner.
Profits, losses and distributions are allocated to partners based on their
ownership percentages.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting -
The Partnership prepares its financial statements using the accrual basis
of accounting.
Cash and Equivalents -
Cash and equivalents include demand deposits and money market accounts.
Deposits are federally insured up to $100,000 at each institution. At
times, amounts in these accounts may exceed federally insured limits. The
Partnership has not experienced any losses in such accounts. The
Partnership believes it is not exposed to any significant credit risk on
cash and equivalents.
Inventory -
Inventory is recorded at the lower of cost, determined on the first-in,
first-out basis, or market. Inventory consists primarily of linens.
Property and Equipment -
Property and equipment is recorded at cost. Depreciation is provided using
accelerated and straight-line methods over the following estimated useful
lives:
Building and improvements 31.5 - 40 years
Furniture and equipment 3 - 7 years
Escrow Deposit -
The Partnership escrow deposit at December 31, 1994 of $70,883 represented
an amount held in escrow by a bank as security for the construction of
improvements to the property. During 1995, the improvements were completed
and the escrow was released to the Partnership.
<PAGE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Mortgage Acquisition Costs -
Costs incurred to obtain financing are being amortized using the straight-
line method over the term of the related mortgage.
Income Taxes -
No provision is made for income taxes in the accompanying financial
statements as the taxable income of the Partnership is included on the
individual income tax returns of the partners.
Estimates -
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and revenue and expenses during the reporting period.
Actual results could differ from those estimates.
(3) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
December 31,
------------ July 31,
1995 1994 1996
---- ---- --------
(Unaudited)
Land, building and
improvements $2,685,928 $2,765,155 $2,685,928
Furniture and equipment 609,047 499,652 639,523
---------- ---------- ----------
3,294,975 3,264,807 3,325,451
Less: Accumulated
depreciation (1,061,924) (1,021,476) (1,129,662)
---------- ---------- ----------
$2,233,051 $2,243,331 $2,195,789
---------- ---------- ----------
---------- ---------- ----------
(4) MORTGAGE PAYABLE
The Partnership's mortgage requires monthly payments of $15,820 plus
interest at the LIBOR rate plus 3.25% (8.94%, 9.25% and 6.8125% at December
31, 1995, 1994 and 1993, respectively) through November 1996, at which time
a balloon payment of $1,649,400 is due. The Partnership is in the process
of refinancing the mortgage. The mortgage is collateralized by
substantially all assets of the Partnership and is guaranteed by the
partners based on their ownership percentages.
Interest paid in 1995, 1994 and 1993 was approximately $179,000, $148,000
and $256,000, respectively. Interest paid for the seven months ended July
31, 1996 and 1995 was approximately $92,000 (unaudited) and $106,000
(unaudited), respectively.
<PAGE>
(5) LONG-TERM DEBT (Continued)
The carrying value of the mortgage approximates fair value based on the
interest rate charged.
(6) RELATED PARTY TRANSACTIONS
The Partnership is related to other hotel properties through common
management (Hudson Hotels) and, for some properties, similar owners.
Hudson Hotels is a limited partner in the Partnership and owns the
Partnership's general partner.
On an interim basis, the related entities may borrow funds from or loan
funds to each other on an unsecured basis with interest at market rates.
The related entities may also have accounts receivable from and payable to
each other arising in the normal course of business.
The Partnership's managing agent, Hudson Hotels, is paid for services it
provides to the Partnership under the terms of a month-to-month management
agreement as follows:
a) monthly management fee equal to 4.5% of the gross revenue of the
partnership plus direct expenses incurred. This fee was $72,402,
$64,970 and $62,322 in 1995, 1994 and 1993, respectively. This fee
was $40,357 (unaudited) and $41,860 (unaudited) for the seven months
ended July 31, 1996 and 1995, respectively.
b) monthly accounting fee of $775. This fee was $9,300 in both 1995 and
1994 and $8,700 in 1993. This fee was $5,425 (unaudited) for each of
the seven months ended July 31, 1996 and 1995.
c) monthly corporate sales fee of $400. This fee was $4,800 in both 1995
and 1994 and $4,700 in 1993. This fee was $2,800 (unaudited) for each
of the seven months ended July 31, 1996 and 1995.
(7) COMMITMENTS
The Partnership is required to remit monthly royalty fees of 3% of gross
room revenue plus additional monies for marketing assessments and
reservation fees to its franchisor, Choice Hotels International, based on a
franchise agreement which extends through August 2003. This agreement may
be terminated at various intervals by either party. Total fees were
approximately $113,000, $101,000 and $100,000 in 1995, 1994 and 1993,
respectively.
Total fees were approximately $58,000 (unaudited) and $59,000 (unaudited)
for the seven months ended July 31, 1996 and 1995, respectively.
(8) CHANGE IN ACCOUNTING METHOD
Prior to 1993, the Partnership kept its records and prepared its financial
statements on the income tax basis of accounting which differed from
generally accepted accounting principles primarily in the calculation of
depreciation and the recording of changes in the basis of property related
to changes in ownership of partnership interests. During 1993, the
partnership adopted depreciation methods and adjusted the accounting for
changes in ownership of partnership interests to be consistent with
generally accepted accounting principles. Appropriate adjustments were
made to restate partners' equity for these changes.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of
Delray Beach Hotel Properties, Ltd.:
We have audited the accompanying balance sheets of Delray Beach Hotel
Properties, Ltd. (a Florida Limited Partnership) as of December 31, 1995 and
1994, and the related statements of income, changes in partners' equity
(deficit) and cash flows for each of the three years ended December 31, 1995.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Delray Beach Hotel Properties,
Ltd. as of December 31, 1995 and 1994, and the results of its operations and its
cash flows for each of the three years ended December 31, 1995 in conformity
with generally accepted accounting principles.
/s/ BONADIO & CO., LLP
Rochester, New York,
February 8, 1996.
<PAGE>
DELRAY BEACH HOTEL PROPERTIES LIMITED
BALANCE SHEETS
ASSETS
------
------December 31,----
July 31,
1995 1994 1996
---- ---- ----
(Unaudited)
CURRENT ASSETS:
Cash and equivalents $ 481,777 $ 323,473 $ 144,605
Accounts receivable 159,851 195,419 100,720
Demand notes receivable from
related parties - 122,000 148,583
Inventory 53,048 53,091 41,722
Prepaid expenses 37,412 44,239 60,075
Due from related party - 29,000 -
Other - 2,688 -
---------- ---------- ----------
Total current assets 732,088 769,910 495,705
---------- ---------- ----------
PROPERTY AND EQUIPMENT, net 6,422,918 6,434,734 6,276,336
---------- ---------- ----------
OTHER ASSETS:
Deposits 19,671 22,375 15,675
Intangible assets, net 169,398 28,935 159,101
---------- ---------- ----------
Total other costs 189,069 51,310 174,776
---------- ---------- ----------
$7,344,075 $7,255,954 $6,946,817
---------- ---------- ----------
---------- ---------- ----------
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
------------------------------------------
CURRENT LIABILITIES:
Current portion of note payable $ 60,000 $ - $ 90,000
Current portion of mortgage payable 89,355 117,251 93,917
Accounts payable 134,104 74,707 87,610
Customer deposits 81,746 70,615 58,345
Accrued expenses 98,031 94,270 185,408
Deferred revenue 921,976 914,781 292,395
---------- ---------- ----------
Total current liabilities 1,385,212 1,271,624 807,675
NOTE PAYABLE - net of current portion 940,000 - 902,500
---------- ---------- ----------
MORTGAGE PAYABLE, net of current portion 5,310,645 5,304,434 5,259,756
---------- ---------- ----------
Total liabilities 7,635,857 6,576,058 6,969,931
PARTNERS' EQUITY (DEFICIT) (291,782) 679,896 (23,1142)
---------- ---------- ----------
$ 7,344,0 $7,255,954 $6,946,817
---------- ---------- ----------
---------- ---------- ----------
The accompanying notes are an integral part of these statements.
<PAGE>
DELRAY BEACH HOTEL PROPERTIES LIMITED
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
--------- Years Ended December--------- -Seven Months Ended July 31,-
1995 1994 1993 1996 1995
---- ---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
INCOME:
Room rent $ 1,873,329 $ 1,770,916 $ 1,798,626 $ 1,322,808 $ 1,292,213
Beach club 1,450,965 1,389,760 1,182,456 842,051 808,155
Food and beverage 1,168,590 1,193,172 1,120,619 748,276 770,239
Telephone 62,708 55,499 59,512 33,113 42,858
Other 24,135 24,552 19,095 11,240 16,310
----------- ----------- ----------- ----------- -----------
Total income 4,579,727 4,433,899 4,180,308 2,957,488 2,929,775
----------- ----------- ----------- ----------- -----------
OPERATING EXPENSES:
Food and beverage 1,096,788 1,100,606 959,621 693,390 681,919
Room expense 591,249 547,787 521,621 352,236 341,552
Repairs and maintenance 284,622 307,550 293,052 161,685 161,076
Administrative expenses 243,385 263,498 242,027 166,240 145,578
Beach club 189,582 183,887 170,758 109,119 112,813
Utilities 158,695 153,198 155,568 105,283 89,502
Advertising and promotion 153,211 130,552 113,400 112,240 85,793
Telephone 34,047 30,075 30,822 13,653 24,230
Employee bonuses 7,866 7,664 8,511 5,046 -
Other 23,698 24,572 16,439 11,000 16,589
----------- ----------- ----------- ----------- -----------
Total operating expenses 2,783,143 2,749,389 2,511,819 1,729,892 1,659,052
----------- ----------- ----------- ----------- -----------
Income from operations 1,796,584 1,684,510 1,668,489 1,227,596 1,270,723
----------- ----------- ----------- ----------- -----------
OTHER (INCOME) EXPENSE:
Interest expense 689,958 589,118 598,563 387,617 397,610
Depreciation and amortization 372,061 338,645 322,350 205,202 208,451
Management fee 315,369 224,485 211,822 125,714 200,868
Insurance 155,792 140,315 128,841 97,133 89,929
Real estate and property taxes 124,222 125,278 124,129 73,616 81,486
Interest income (13,374) (17,410) (9,534) (11,604) (12,130)
----------- ----------- ----------- ----------- -----------
Total other (income) expense 1,644,028 1,400,431 1,376,171 877,678 966,214
----------- ----------- ----------- ---------- -----------
NET INCOME $ 152,556 $ 284,079 $ 292,318 $ 349,918 $ 304,509
----------- ----------- ----------- ---------- -----------
----------- ----------- ----------- ---------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
DELRAY BEACH HOTEL PROPERTIES, LTD.
STATEMENTS OF CHANGES IN PARTNERS' EQUITY (DEFICIT)
PARTNERS' EQUITY - January 1, 1993 $ 541,079
Net income - 1993 292,318
Distributions - 1993 (185,640)
-----------
PARTNERS' EQUITY - December 31, 1993 647,757
Net income - 1994 284,079
Distributions - 1994 (251,940)
-----------
PARTNERS' EQUITY - December 31, 1994 679,896
Net income - 1995 152,556
Distributions - 1995 (1,124,234)
-----------
PARTNERS' DEFICIT - December 31, 1995 (291,782)
Net income for the seven months ended
July 31, 1996 (unaudited) 349,918
Distributions for the seven months ended
July 31, 1996 (unaudited) (81,250)
-----------
PARTNERS' DEFICIT - July 31, 1996 (unaudited) $ (23,114)
-----------
-----------
The accompanying note are an integral part of these statements.
<PAGE>
DELRAY BEACH HOTEL PROPERTIES LIMITED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
--------Years Ended December 31,----- -Seven Months Ended July 31,-
1995 1994 1993 1996 1995
---- ---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 152,556 $ 284,079 $ 292,318 $ 349,918 $ 304,509
Adjustment to reconcile net income to
net cash flow from operating activities:
Depreciation and amortization 372,061 338,645 322,350 205,202 208,451
Changes in:
Accounts receivable 35,568 10,273 (3,672) 59,131 111,929
Inventory 43 (16,017) (1,578) 11,326 9,655
Other current assets 9,515 (18,010) (14,889) (22,663) (27,943)
Due from related party 29,000 (29,000) - - 29,000
Accounts payable 59,397 12,458 (17,142) (46,494) 16,855
Customer deposits 11,131 (10,593) (12,116) (23,401) (70,615)
Accrued expenses 3,761 (2,101) (15,843) 87,377 62,104
Deferred revenue 7,195 65,611 118,463 (629,581) (626,172)
------------- ----------- ----------- ---------- ----------
Net cash flow from
operating activities 680,227 635,345 667,891 (9,185) 17,773
------------- ----------- ----------- ---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES:
Increase in demand notes receivable
from related party (105,000) (97,400) (85,000) (148,583) -
Collection of demand notes receivable 227,000 60,400 140,000 - 119,461
Property and equipment additions (339,971) (192,604) (349,606) (48,323) (150,448)
Deposits 2,704 (7,114) 28,562 3,996 (62,113)
------------- ----------- ----------- ---------- ----------
Net cash flow from
investing activities (215,267) (236,718) (266,044) (192,910) (93,100)
------------- ----------- ----------- ---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES:
Borrowings on mortgage payable 5,400,000 - - - -
Borrowing (repayment) under mortgage
payable (5,421,685) (105,351) (94,658) (46,327) (66,867)
Borrowing (repayment) on note payable 1,000,000 - - (7,500) 1,000,000
Mortgage acquisition costs (160,737) - - - -
Partners' distributions (1,124,234) (251,940) (185,640) (81,250) (1,104,994)
------------- ----------- ----------- ---------- ----------
Net cash flow from financing activities (306,656) (357,291) (280,298) (135,077) (171,861)
------------- ----------- ----------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND
EQUIVALENTS 158,304 41,336 121,549 (337,172) (247,188)
CASH AND EQUIVALENTS - beginning of period 323,473 282,137 160,588 481,777 323,473
------------- ----------- ----------- ---------- ----------
CASH AND EQUIVALENTS - end of period $ 481,777 $ 323,473 $ 282,137 $ 144,605 $ 76,285
------------- ----------- ----------- ---------- ----------
------------- ----------- ----------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
DELRAY BEACH HOTEL PROPERTIES, LTD.
NOTES TO FINANCIAL STATEMENTS
(1) THE PARTNERSHIP
Delray Beach Hotel Properties, Ltd. (the Partnership) is a limited
partnership organized to operate a hotel and beach club located in Delray
Beach, Florida.
Profits and losses were originally allocated 2% to the general partner and
98% to the limited partners until such time as the limited partners
received their original capital contributions, together with cash
distributions equal to 10% per annum of the total cash invested. During
1995, this level of cash distributions was achieved and subsequent profits
and losses are allocated 20% to the general partner and 80% to the limited
partners.
The general partner is also entitled to share in proceeds from a sale or
refinancing of the facility as provided in the partnership agreement.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting -
The Partnership prepares its financial statements using the accrual basis
of accounting.
Cash and Equivalents -
Cash and equivalents include demand deposits and money market accounts.
Deposits are federally insured up to $100,000 at each institution. At
times, amounts in these accounts may exceed federally insured limits. The
Partnership has not experienced any losses in such accounts. The
Partnership believes it is not exposed to any significant credit risk on
cash and equivalents.
Inventory -
Inventory is recorded at the lower of cost, determined on the first-in,
first-out basis, or market.
Property and Equipment -
Property and equipment is recorded at cost. Depreciation is provided using
accelerated and straight-line methods over the following estimated useful
lives:
Building and improvements 31.5 - 39 years
Furniture and equipment 3 - 7 years
Land improvements 15 years
Mortgage Acquisition Costs -
Costs incurred to obtain financing are being amortized using the straight-
line method over the term of the related financing.
<PAGE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Organization Costs -
Costs incurred in organizing the Partnership are being amortized using the
straight-line method over 60 months.
Deferred Revenue -
Deferred revenue consists of beach club membership revenue paid or billed
in advance. This income is recognized ratably over the membership period.
Income Tax -
No provision is made for income taxes in the accompanying financial
statements as the taxable income of the Partnership is included on the
individual income tax returns of the partners.
Estimates -
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and revenue and expenses during the reporting period.
Actual results could differ from those estimates.
(3) DEMAND NOTES RECEIVABLE FROM RELATED PARTIES
Demand notes receivable from related parties bear interest at market rates
and were as follows:
December 31,
------------
July 31,
1995 1994 1996
---- ---- ------
(Unaudited)
Canandaigua Hotel Corp. $ - $ - $ 148,583
950 Jefferson Road
Associates, L.P. - 94,100 -
Airport Hotel Properties, L.P. - 27,900 -
---------- ----------- -----------
$ - $ 122,000 $ 148,583
---------- ----------- -----------
---------- ----------- -----------
These entities are related through similar ownership. See Note 9.
It is impracticable to estimate the fair value of these receivables due to
the related party nature of the transactions.
<PAGE>
(4) INVENTORY
Inventory consisted of the following:
December 31,
------------
July 31,
1995 1994 1996
---- ---- ------
(Unaudited)
Linen and supplies $ 26,975 $ 25,064 $ 19,955
Food 14,113 15,182 10,938
Bar 11,960 12,845 10,829
---------- ----------- -----------
$ 53,048 $ 53,091 $ 41,722
---------- ----------- -----------
---------- ----------- -----------
(5) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
December 31,
------------
July 31,
1995 1994 1996
---- ---- ------
(Unaudited)
Building and improvements $6,905,619 $ 6,766,596 $ 6,905,619
Furniture and equipment 998,811 889,258 1,047,134
Land improvements 91,394 5,139 91,394
---------- ----------- -----------
7,995,824 7,660,993 8,044,147
Less: Accumulated
depreciation (1,572,906) (1,226,259) (1,767,811)
---------- ----------- -----------
$6,422,918 $ 6,434,734 $ 6,276,336
---------- ----------- -----------
---------- ----------- -----------
(6) INTANGIBLE ASSETS
Intangible assets consisted of the following:
December 31,
------------
July 31,
1995 1994 1996
---- ---- ------
(Unaudited)
Mortgage acquisition costs $ 160,737 $ 88,266 $ 160,737
Organization costs 15,000 15,000 15,000
Goodwill 10,000 10,000 10,000
---------- ----------- -----------
185,737 113,266 185,737
Less: Accumulated
amortization (16,339) (84,331) (26,636)
---------- ----------- -----------
$ 169,398 $ 28,935 $ 159,101
---------- ----------- -----------
---------- ----------- -----------
<PAGE>
(7) MORTGAGE PAYABLE
During 1995, the Partnership refinanced its mortgage with a bank. The new
mortgage of $5,400,000 requires monthly payments of $52,111 including
interest at 10%, through December, 1996 at which time the rate will adjust
to the highest prime rate of U.S. money center banks, plus 1%. The payment
will also adjust so that the remaining principal balance will amortize over
twenty years. The mortgage is due in full December 2005. The mortgage is
collateralized by substantially all assets of the Partnership and is
guaranteed by the general partner. The limited partners have also
proportionately guaranteed repayment of fixed sums of the mortgage balance
not to exceed 78% of their proportionate share of the original mortgage
balance.
Future scheduled principal payments on the mortgage payable were as follows
at December 31, 1995:
1996 $ 89,355
1997 98,712
1998 109,048
1999 120,467
2000 133,081
Thereafter 4,849,337
----------
$5,400,000
----------
----------
The Partnership's financing arrangement with the bank includes the
following annual financial covenants:
a) 1.25 debt coverage.
b) distributions to L.P.'s not greater than net income.
As of December 31, 1995 the Partnership is in compliance with both
covenants.
Interest paid in cash was approximately $692,000, $590,000 and $600,000 in
1995, 1994 and 1993, respectively. Interest was approximately $368,000
(unaudited) and $398,000 (unaudited) for the seven months ended July 31,
1996 and 1995, respectively.
The carrying value of Partnership debt approximates fair value based on the
interest rate charged.
(8) NOTE PAYABLE
On January 30, 1995, the Partnership issued a $1,000,000 note due in full
on March 1, 2000 to Microtel Franchise & Development Corporation (MFDC).
During 1996, MFDC changed its name to Hudson Hotels Corp. (Hudson Hotels).
Hudson Hotels' wholly-owned subsidiary, Delray Beach Hotel Corp. is the
Partnership's general partner. Hudson Hotels also owns a limited
partnership interest in the Partnership.
The note bears interest at 12% , with interest payable monthly. Minimum
monthly principal payments of $7,500 are required beginning May 1, 1996.
Additional principal payments can be made at any time, without penalty.
The note is collateralized by the beach club accounts receivables and beach
club dues with a second priority to that of the first mortgage.
<PAGE>
(8) NOTE PAYABLE (Continued)
Future scheduled principal payments were as follows at December 31, 1995:
1996 $ 60,000
1997 90,000
1998 90,000
1999 90,000
2000 670,000
$1,000,000
----------
----------
It is impracticable to estimate the fair value of the note payable due to
the related party nature of the transaction.
(9) RELATED PARTY TRANSACTIONS
The Partnership is related to other hotel properties through common
management (Hudson Hotels) and for some properties, similar owners. Hudson
Hotels is a limited partner in the Partnership and owns the Partnership's
general partner.
On an interim basis, the related entities may borrow from or loan funds to
each other on an unsecured basis with interest at market rates. The
related entities may also have accounts receivable from and payable to each
other arising in the normal course of business.
The Partnership's managing agent, Hudson Hotels, is paid for services it
provides to the Partnership under the terms of a management agreement which
extends through December, 1996 as follows:
a) monthly management fee equal to 4.5% of the gross revenues of the
partnership plus direct expenses incurred. Additionally, during 1995,
the Partnership paid a bonus management fee to the managing agent of
$40,000 and began paying the management fee on deferred revenue.
Total management fees were $303,369, $212,485 and $199,822 in 1995,
1994 and 1993, respectively. Total management fees were $125,714
(unaudited) and $200,868 (unaudited) for the seven months ended July
31, 1996 and 1995, respectively.
b) monthly accounting fee of $1,300 since February, 1994 and $1,250 prior
to February, 1994. This fee was $15,600, $15,500 and $14,250 in 1995,
1994 and 1993, respectively. This fee was $9,100 (unaudited) for each
of the seven months ended July 31, 1996 and 1995.
c) monthly corporate sales fee of $1,000 since May, 1994 and $800 per
month prior to May, 1994. This fee was $12,000, $11,200 and $9,600 in
1995, 1994 and 1993, respectively. This fee was $7,000 (unaudited)
for each of the seven months ended July 31, 1996 and 1995.
A monthly consulting fee of $1,000 was paid to the general partner through
December 1995. This fee was $12,000 in each of 1995, 1994 and 1993. This
fee increased to $1,833 per month on January 1, 1996 (unaudited). This fee
was $12,833 (unaudited) and $7,000 (unaudited) for the seven months ended
July 31, 1996 and 1997, respectively.
<PAGE>
(10) LITIGATION
On October 26, 1990, a complaint was filed in Palm Beach County Circuit
Court, Florida, by Seagate Beach Quarters, Inc., a Florida corporation
(Bearing Case #90-12358-AB), seeking damages plus interest and costs,
against Rochester Community Savings Bank, (RCSB), a New York based bank,
SHORE Holdings, Inc. (SHORE), a subsidiary of RCSB and naming Hudson Hotels
as a co-defendant. On December 6, 1990, Delray Beach Hotel Properties
Limited, a Florida limited partnership controlled by Hudson Hotels,
purchased the Seagate Hotel and Beach Club from RCSB's subsidiary, SHORE.
The purchase contract included in indemnification of Hudson Hotels against
any action resulting from previously negotiated contracts between RCSB's
subsidiaries and third-parties. Case #90-12358-AB contained allegations
that RCSB's subsidiary, SHORE Holdings, defaulted in its obligation under a
Contract for Purchase and Sale, dated August 16, 1990, and failed to go
forward with the transaction due to alleged tortious negotiations between
RCSB and Hudson Hotels. On March 17, 1994, the Court granted Summary
Judgment in favor or RCSB and Hudson Hotels which judgment was appealed by
Seagate. The Fourth District Court of Appeal in Florida affirmed the
summary judgment on RCSB and reversed the summary judgment granted in favor
of Hudson Hotels, remanding the action to Circuit Court for further
consideration. On August 15, 1994, Seagate proceeded to trial against
SHORE in Case #90-12358-AB. During the course of the trial, Seagate took a
voluntary dismissal of their action against SHORE. On September 8, 1994,
Seagate refiled its lawsuit against SHORE and joined Delray Beach Hotel
Properties Limited, through its general partner, Delray Beach Hotel Corp.
(Bearing Case #94-6961-AF). The new case against SHORE was brought
essentially on the same facts as stated above. The claim against Delray
Beach Hotel Properties Limited was identical to the conspiracy and tortious
interference with a business relationship claim currently existing against
Hudson Hotels. On January 27, 1995, the Court issued an Order dismissing
the Amended Complaint as to Delray Beach Hotel Properties Limited. The
Circuit Court has consolidated the case against Hudson Hotels (Case
#90-12358-AB) and the case against SHORE (Case #94-6961-AF) and it is
anticipated those suits will go to trial during 1996.
After taking into consideration legal counsel's evaluation of all such
actions, management is of the opinion that the outcome of each such
proceeding or claim which is pending will not have a significant effect on
Delray Beach Hotel Properties, Ltd.'s financial statements.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of
Brookwood Hotel Properties:
We have audited the accompanying balance sheets of Brookwood Hotel Properties (a
New York General Partnership) as of December 31, 1995 and 1994, and the related
statements of operations, changes in partners' deficit and cash flows for each
of the three years ended December 31, 1995. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Brookwood Hotel Properties as
of December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the three years ended December 31, 1995 in conformity with
generally accepted accounting principles.
/s/ BONADIO & CO., LLP
Rochester, New York,
February 13, 1996.
<PAGE>
BROOKWOOD HOTEL PROPERTIES
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
------- December 31, -------
July 31,
1995 1994 1996
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 138,518 $ 77,099 $ 122,610
Real estate tax escrow deposits 89,400 79,824 124,607
Accounts receivable 99,217 113,515 102,645
Other receivables - 42,609 2,915
Inventory 14,803 17,962 13,281
Prepaid expenses 61,435 56,858 23,510
Due from related party 7,273 4,187 -
---------- ----------- -----------
Total current assets 410,646 392,054 389,568
---------- ----------- -----------
PROPERTY AND EQUIPMENT, net 5,678,278 5,897,755 5,553,629
---------- ----------- -----------
OTHER ASSETS:
Intangible assets, net 60,398 85,598 45,698
Other - 2,784 -
---------- ----------- -----------
Total other costs 60,398 88,382 45,698
---------- ----------- -----------
$6,149,322 $ 6,378,191 $ 5,988,895
---------- ----------- -----------
---------- ----------- -----------
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Line-of-credit $ - $ 94,975 $ 80,000
Current portion of mortgages payable 121,685 110,151 128,963
Current portion of capital lease obligations 6,144 6,144 5,122
Accounts payable 55,192 42,587 53,899
Accrued payroll and related expenses 20,382 14,326 20,986
Accrued interest 85,972 57,413 73,485
Other accrued expenses 38,309 31,846 29,209
Customer deposits 19,891 22,281 28,255
Due to related party 571 6,595 103,507
---------- ----------- -----------
Total current liabilities 348,146 386,318 523,426
---------- ----------- -----------
LONG-TERM LIABILITIES:
Mortgages payable, net of current portion 6,583,958 6,707,064 6,507,174
Capital lease obligations, net of current portion 2,564 8,710 -
---------- ----------- -----------
Total long-term liabilities 6,586,522 6,715,774 6,507,174
---------- ----------- -----------
Total liabilities 6,934,668 7,102,092 7,030,600
PARTNERS' EQUITY (DEFICIT) (785,346) (723,901) (1,041,705)
---------- ----------- -----------
$6,149,322 $ 6,378,191 $ 5,988,895
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
BROOKWOOD HOTEL PROPERTIES
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
------------ Years Ended December 31, ------- -- Seven Months Ended July 31, --
1995 1994 1993 1996 1995
---- ---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
INCOME:
Room rent $2,518,111 $2,337,901 $2,485,625 $1,434,500 $1,369,088
Restaurant rent 44,652 73,246 143,030 - 33,202
Telephone 84,486 75,926 82,081 42,625 50,558
Other 65,714 61,527 66,621 52,751 37,594
---------- ---------- ---------- ---------- ----------
Total income 2,712,963 2,548,600 2,777,357 1,529,876 1,490,442
---------- ---------- ---------- ---------- ----------
OPERATING EXPENSES:
Room expense 652,605 615,813 632,430 383,313 359,181
Administrative expenses 196,078 182,416 182,215 193,627 114,299
Repairs and maintenance 164,493 166,543 169,998 93,813 97,474
Utilities 166,513 170,221 155,871 117,503 100,300
Advertising and promotion 137,755 144,645 127,603 76,176 81,253
Telephone 46,043 45,357 44,907 20,984 26,804
Restaurant rent - - - 50,664 -
Other 47,237 43,579 46,445 29,322 24,895
---------- ---------- ---------- ---------- ----------
Total operating expenses 1,410,724 1,368,574 1,359,469 965,402 804,206
---------- ---------- ---------- ---------- ----------
Income from operations 1,302,239 1,180,026 1,417,888 564,474 686,236
---------- ---------- ---------- ---------- ----------
OTHER (INCOME) EXPENSE:
Interest expense 723,613 708,867 745,535 413,694 424,406
Depreciation and amortization 303,904 348,722 368,613 172,999 172,783
Real estate taxes 165,626 156,639 144,623 90,421 95,750
Management fee 124,976 112,952 119,372 70,134 67,509
Insurance 46,503 47,757 46,909 23,602 25,895
Interest income (938) (1,292) (4,337) (17) (30)
---------- ---------- ---------- ---------- ----------
Total other (income) expense 1,363,684 1,373,645 1,420,715 770,833 786,313
---------- ---------- ---------- ---------- ----------
NET LOSS $ (61,445) $ (193,619) $ (2,827) $ (206,359) $ (100,077)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
BROOKWOOD HOTEL PROPERTIES
STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
PARTNERS' DEFICIT - January 1, 1993 $ (427,455)
Net loss - 1993 (2,827)
Distributions - 1993 (100,000)
------------
PARTNERS' DEFICIT - December 31, 1993 (530,282)
Net loss - 1994 (193,619)
------------
PARTNERS' DEFICIT - December 31, 1994 (723,901)
Net loss - 1995 (61,445)
------------
PARTNERS' DEFICIT - December 31, 1995 (785,346)
Net loss for the seven months ended
July 31, 1996 (unaudited) (206,359)
Distributions for the seven months ended
July 31, 1996 (unaudited) (50,000)
------------
PARTNERS' DEFICIT - July 31, 1996 (unaudited) $ (1,041,705)
------------
------------
The accompanying notes are an integral part of these statements.
<PAGE>
BROOKWOOD HOTEL PROPERTIES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
------Years Ended December 31, ------- -- Seven Months Ended July 31, --
1995 1994 1993 1996 1995
---- ---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $ (61,445) $(193,619) $ (2,827) $(206,359) $(100,077)
Adjustment to reconcile net loss to net
cash flow from operating activities:
Depreciation and amortization 303,904 348,722 368,613 172,999 172,783
Changes in:
Real estate tax escrow deposits (9,576) (3,456) (7,958) (35,207) (40,779)
Accounts receivable 14,298 (25,972) (56,787) (3,428) 68,815
Other receivables 42,609 (42,609) - (2,915) 42,609
Inventory 3,159 (5,120) (1,209) 1,522 1
Prepaid expenses (4,577) 2,098 (4,464) 37,925 29,091
Due from/to related party (9,110) 14,420 (12,012) 110,209 (29,777)
Other assets 2,784 (2,484) (300) - 2,784
Accounts payable 12,605 (37,101) (1,551) (1,293) 31,243
Accrued expenses 41,078 (21,994) 69,428 (20,983) (8,715)
Customer deposits (2,390) (1,158) 23,439 8,364 (22,281)
--------- --------- --------- --------- ----------
Net cash flow from operating activities 333,339 31,727 374,372 60,834 145,697
--------- --------- --------- --------- ----------
CASH FLOW FROM INVESTING ACTIVITIES:
Change in demand notes receivable - 55,000 (55,000) - -
Property and equipment additions (59,227) (53,254) (68,199) (33,650) (44,605)
Increase in intangible assets - (10,000) - - -
--------- --------- --------- --------- ----------
Net cash flow from investing activities (59,227) (8,254) (123,199) (33,650) (44,605)
--------- --------- --------- --------- ----------
CASH FLOW FROM FINANCING ACTIVITIES:
Increase in mortgage acquisition costs - - (246) - -
Net (repayments) borrowings under line-of-credit (94,975) 24,975 15,000 80,000 25,000
Repayments on mortgage payable (111,572) (99,710) (83,075) (69,506) (62,918)
Repayments on capital lease obligations (6,146) (12,827) (15,758) (3,586) (3,585)
Partners' distributions - - (100,000) (50,000) -
--------- --------- --------- --------- ----------
Net cash flow from financing activities (212,693) (87,562) (184,079) (43,092) (41,503)
--------- --------- --------- --------- ----------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 61,419 (64,089) 67,094 (15,908) 59,589
CASH AND EQUIVALENTS - beginning of period 77,099 141,188 74,094 138,518 77,099
--------- --------- --------- --------- ----------
CASH AND EQUIVALENTS - end of period $ 138,518 $ 77,099 $ 141,188 $ 122,610 $ 136,688
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
BROOKWOOD HOTEL PROPERTIES
NOTES TO FINANCIAL STATEMENTS
(1)THE PARTNERSHIP
Brookwood Hotel Properties (the Partnership) is a general partnership which owns
and operates a hotel located in Rochester, New York.
Profits, losses and distributions are allocated to the partners based on their
ownership percentages.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Method of Accounting -
The Partnership prepares its financial statements using the accrual basis of
accounting.
Cash and Equivalents -
Cash and equivalents include demand deposit and money market accounts. Deposits
are federally insured up to $100,000 at each institution. At times, amounts in
these accounts may exceed federally insured limits. The Partnership has not
experienced any losses in such accounts. The Partnership believes it is not
exposed to any significant credit risk on cash and equivalents.
Inventory -
Inventory is recorded at the lower of cost, determined on the first-in,
first-out basis, or market. Inventory consists primarily of linens.
Property and Equipment -
Property and equipment is recorded at cost. Depreciation is provided using
accelerated and straight-line methods over the following estimated useful lives:
Building and improvements 31.5 years
Furniture and equipment 3 - 7 years
Mortgage Acquisition Costs -
Costs incurred to obtain financing are being amortized using the straight-line
method over the terms of the related mortgages.
Income taxes -
No provision is made for income taxes since the taxable income (loss) of the
Partnership is includable on the individual income tax returns of the partners.
<PAGE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Estimates -
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
(3) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
December 31,
------------
July 31,
1995 1994 1996
---- ---- ------
(Unaudited)
Land, building and
improvements $7,374,420 $7,368,883 $7,374,420
Furniture and equipment 1,175,978 1,122,288 1,209,628
---------- ---------- ----------
8,550,398 8,491,171 8,584,048
Less: Accumulated
depreciation (2,872,120) (2,593,416) (3,030,419)
---------- ---------- ----------
$5,678,278 $5,897,755 $5,553,629
---------- ---------- ----------
---------- ---------- ----------
(4)INTANGIBLE ASSETS
Intangible assets consisted of the following:
December 31,
------------
July 31,
1995 1994 1996
---- ---- ------
(Unaudited)
Mortgage acquisition costs $269,105 $269,105 $269,105
Restaurant organization costs 10,000 10,000 10,000
---------- ---------- ----------
279,105 279,105 279,105
Less: Accumulated
amortization (218,707) (193,507) (233,407)
---------- ---------- ----------
$ 60,398 $85,598 $46,698
-------- ------- -------
-------- ------- -------
<PAGE>
(5) LINE-OF-CREDIT
The Partnership may borrow up to $150,000 under the terms of a revolving
line-of-credit with First National Bank of Rochester. The agreement is subject
to annual review and bank renewal. Amounts borrowed bear interest at the prime
rate plus 1-1/2% and are guaranteed by several partners. At July 31, 1996 and
December 31, 1994, $80,000 (unaudited) and $94,975, respectively, was
outstanding under the terms of this line-of-credit agreement.
(6) LONG-TERM DEBT
Long-term debt consisted of the following at December 31:
December 31,
------------
July 31,
1995 1994 1996
---- ---- ------
(Unaudited)
First mortgage payable to Key Bank of
New York, requiring monthly payments
of $53,076 including interest at 10%.
A balloon payment of $4,950,953 is
due January, 1998. The mortgage is
collateralized by substantially all
assets of the Partnership and
guaranteed by the partners based on
their ownership percentages.
$ 5,205,643 $ 5,317,215 $ 5,136,137
Subordinated mortgage payable to
Brookwood Funding Associates, L.P.,
requiring monthly payments of
interest only at 10% per annum.
Additionally, supplemental interest
shall be payable annually March 1st
at the rate of 2% per annum,
conditional upon sufficient net
operating income as defined in the
mortgage note. Beginning March 1,
1998, monthly installments of
principal and interest in the amount
of $14,475 are required. A balloon
payment of $1,461,810 is due August,
1999. The mortgage is collateralized
by substantially all assets of the
Partnership.
1,500,000 1,500,000 1,500,000
--------- --------- ---------
6,705,643 6,817,215 6,636,137
Less: Current portion (121,685) (110,151) (128,963)
-------- -------- --------
$6,583,958 $6,707,064 $6,507,174
---------- ---------- ----------
---------- ---------- ----------
<PAGE>
(6) LONG-TERM DEBT (Continued)
Future scheduled principal payments on long-term debt are as follows at December
31, 1995:
1996 121,685
1997 134,426
1998 4,970,039
1999 1,479,493
----------
$6,705,643
----------
----------
Interest paid in 1995, 1994 and 1993 was approximately $695,000, $725,000 and
$677,000, respectively. Interest paid for the seven months ended July 31, 1996
and 1995 was approximately $426,000 (unaudited) and $407,000, (unaudited),
respectively.
The carrying value of Partnership debt approximates fair value based on the
interest rates currently charged.
(7) CAPITAL LEASE OBLIGATIONS
Capital lease obligations consisted of the following:
December 31,
------------
July 31,
1995 1994 1996
---- ---- ------
(Unaudited)
Capital lease obligations requiring
aggregate monthly installments of
approximately $1,116, including
interest. The obligations are
collateralized by various equipment.
Final payments are due on various
dates through 1996.
$ 8,708 $ 14,854 $ 5,122
Less: Current portion (6,144) (6,144) (5,122)
-------- --------- --------
$ 2,564 $ 8,710 $ -
-------- --------- --------
-------- --------- --------
(8) RELATED PARTY TRANSACTIONS
The Partnership is related to other hotel properties through common management
(Hudson Hotels) and for some properties, similar owners. Hudson Hotels is a
limited partner in the Partnership and is related to the general partner through
common ownership.
On an interim basis, the related entities may borrow funds from or loan funds to
each other on an unsecured basis with interest at market rates. The related
entities may also have accounts receivable from and payable to each other
arising in the normal course of business.
<PAGE>
(8) RELATED PARTY TRANSACTIONS (Continued)
The Partnership's managing agent, Hudson Hotels, is paid for services it
provides to the Partnership under the terms of a management agreement which
extends through March, 1998 as follows:
a)monthly management fee equal to 4.5% of the gross revenue of the
Partnership plus direct expenses incurred. This fee was $124,976, $112,952 and
$119,372 in 1995, 1994 and 1993, respectively. This fee was $70,134
(unaudited) and $67,509 (unaudited) for the seven months ended July 31, 1996 and
1995, respectively.
b)monthly accounting fee of $850. This fee was approximately $10,200 in
both 1995 and 1994 and $9,200 in 1993. This fee was approximately $5,950
(unaudited) for each of the seven months ended July 31, 1996 and 1995.
c)monthly corporate sales fee of $800 since May, 1994 and $600 prior to
May, 1994. This fee was approximately $9,600, $8,800 and $6,000 in 1995, 1994
and 1993, respectively. This fee was approximately $5,600 (unaudited) for each
of the seven months ended July 31, 1996 and 1995.
The Partnership leases its restaurant to a corporation which is owned by
individuals related to Hudson Hotels. During 1994, the Partnership purchased
restaurant equipment from the corporation in exchange for accounts receivable of
$14,153 and cash of $15,000. The Partnership also purchased all accounts
receivable from the corporation and bought out the previously existing lease for
$10,000 and entered into a new lease with the corporation. Rental charges are
based on restaurant income. If the restaurant operations result in a loss, the
Partnership records rental expense.
During the seven month period ended July 31, 1996, the Partnership assumed a
$64,500 liability of the restaurant to Hudson Hotels. The Partnership had
previously guaranteed repayment of this liability.
The Partnership owed Hudson Hotels $64,500 as of July 31, 1996. The Partnership
owed the restaurant $39,007 at July 31, 1996 (unaudited) of which $30,000 was
subsequently paid (unaudited).
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Hudson Hotels Corp.:
We have audited the accompanying combined statements of revenue and certain
expenses of the Hudson Acquisition Properties, as defined in Note 1, for each of
the three years ended December 31, 1995. These combined statements of revenue
and certain expenses are the responsibility of the Hudson Acquisition
Properties' management. Our responsibility is to express an opinion on these
combined statements of revenue and certain expenses based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenue and certain expenses
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statements of revenue and
certain expenses. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall presentation of the statements of revenue and certain expenses. We
believe that our audits provide a reasonable basis for our opinion.
The accompanying combined statements of revenue and certain expenses were
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission, as described in Note 1, and are not intended
to be a complete presentation of the Hudson Acquisition Properties' revenue and
expenses.
In our opinion, the combined statements of revenue and certain expenses referred
to above presents fairly, in all material respects, the revenue and certain
expenses, as defined in Note 1, of the Hudson Acquisition Properties for each of
the three years ended December 31, 1995, in conformity with generally accepted
accounting principles.
/s/ BONADIO & CO., LLP
Rochester, New York,
September 10, 1996.
<PAGE>
HUDSON ACQUISITION PROPERTIES
COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES
FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 1995
1995 1994 1993
---- ---- ----
REVENUE:
Room rent $7,917,276 $7,445,353 $7,624,262
Beach club 1,450,965 1,389,760 1,182,456
Other 1,611,580 1,621,374 1,632,066
---------- ---------- ----------
10,979,821 10,456,487 10,438,784
---------- ---------- ----------
EXPENSES:
Operating 6,171,375 5,945,324 5,636,010
Interest expense 1,942,500 1,760,787 1,907,793
Management and consulting fees 611,081 498,611 491,347
Real estate taxes 438,662 423,015 406,875
Insurance 231,815 221,220 214,057
Franchise fees 113,088 107,172 108,011
Amortization 71,679 71,806 59,150
Gain on sale of property - (72,174) -
Interest income (18,440) (20,573) (17,082)
---------- ---------- ----------
9,561,760 8,935,188 8,806,161
---------- ---------- ----------
REVENUE IN EXCESS OF
CERTAIN EXPENSES $1,418,061 $1,521,299 $1,632,623
---------- ---------- ----------
---------- ---------- ----------
The accompanying notes are an integral part of these statements.
<PAGE>
HUDSON ACQUISITION PROPERTIES
NOTES TO FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business -
The accompanying financial statements include the combined operations (see
"Basis of Presentation" below) of Brookwood Hotel Properties, Delray Beach
Hotel Properties, Ltd., Jamestown Hotel Properties, L.P., Muar Lakes
Associates, L.P. and Ridge Road Hotel Properties, L.P. (the Hudson
Acquisition Properties), entities related to Hudson Hotels Corp. (Hudson
Hotels).
Hudson Hotels, through its wholly-owned subsidiary Hudson Hotels Properties
Corp., acquired all general and limited partnership interests in the Hudson
Acquisition Properties owned by third-parties. Hudson Hotels previously
owned minority general and limited partnership interests in each of the
entities.
Basis of Presentation -
The accompanying statements of revenue and certain expenses are not
representative of the actual operations of the Hudson Acquisition
Properties for the periods shown as certain expenses, which may not be
comparable to the proposed future operations of the Hudson Acquisition
Properties, have been excluded. Hudson Hotels is not aware of any material
factors relating to the Hudson Acquisition Properties that would cause the
reported financial information not to be necessarily indicative of future
operating results. Expenses excluded relate to depreciation and
amortization expense not directly related to the future operations of the
Hudson Acquisition Properties.
Revenue Recognition -
Beach club membership revenue for Delray Beach Hotel Properties, Ltd. is
recognized ratably over the membership period.
Mortgage Acquisition Costs -
Costs incurred to obtain financing are being amortized using the straight-
line method over the terms of the related financing.
Estimates -
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and revenue and expenses during the reporting period.
Actual results could differ from those estimates.
<PAGE>
(2) RELATED PARTY TRANSACTIONS
The Hudson Acquisition Properties are related to other hotel properties
through common management (Hudson Hotels) and, for some properties, similar
owners. Hudson Hotels is a limited and/or general partner in the Hudson
Acquisition Properties either directly or through wholly-owned
subsidiaries.
On an interim basis, the related entities may borrow funds from or loan
funds to each other on an unsecured basis with interest at market rates.
The related entities may also have accounts receivable from and payable to
each other arising in the normal course of business.
The Hudson Acquisition Properties' managing agent, Hudson Hotels, is paid
for services it provides to the Hudson Acquisition Properties under the
terms of management agreements which extend through May, 2004 as follows:
a) monthly management fee equal to 4.5% of the gross revenue plus direct
expenses incurred. This fee was $599,081, $486,611 and $479,347 in
1995, 1994 and 1993, respectively, including a $40,000 bonus fee
related to Delray Beach Hotel Properties, Ltd. in 1995.
b) monthly accounting fee of $4,450. This fee was $53,400, $53,300 and
$49,350 in 1995, 1994 and 1993, respectively.
c) monthly corporate sales fee of $2,950. This fee was $35,400, $33,800
and $28,000 in 1995, 1994 and 1993, respectively.
Delray Beach Hotel Properties, Ltd. also paid a monthly consulting fee of
$1,000 to its general partner which is a wholly-owned subsidiary of Hudson
Hotels. This fee was $12,000 in each of 1995, 1994 and 1993.
(3) COMMITMENTS
Jamestown Hotel Properties, L.P., Muar Lakes Associates, L.P. and Ridge
Road Hotel Properties, L.P. are required to remit monthly royalty fees of
3% - 4% of gross room revenue plus additional monies for marketing
assessments and reservation fees to their franchisors, based on franchise
agreements which extend to various dates through April 2015. These
agreements may be terminated at various intervals by either party. Total
fees were approximately $275,000, $259,000 and $256,000 in 1995, 1994 and
1993, respectively.
<PAGE>
(4) LITIGATION
Delray Beach Hotel Properties, Ltd. -
On October 26, 1990, a complaint was filed in Palm Beach County Circuit
Court, Florida, by Seagate Beach Quarters, Inc., a Florida corporation
(Bearing Case #90-12358-AB), seeking damages plus interest and costs,
against Rochester Community Savings Bank, (RCSB), a New York based bank,
SHORE Holdings, Inc. (SHORE), a subsidiary of RCSB and naming Hudson Hotels
as a co-defendant. On December 6, 1990, Delray Beach Hotel Properties
Limited, a Florida limited partnership controlled by Hudson Hotels,
purchased the Seagate Hotel and Beach Club from RCSB's subsidiary, SHORE.
The purchase contract included in indemnification of Hudson Hotels against
any action resulting from previously negotiated contracts between RCSB's
subsidiaries and third-parties. Case #90-12358-AB contained allegations
that RCSB's subsidiary, SHORE Holdings, defaulted in its obligation under a
Contract for Purchase and Sale, dated August 16, 1990, and failed to go
forward with the transaction due to alleged tortious negotiations between
RCSB and Hudson Hotels. On March 17, 1994, the Court granted Summary
Judgment in favor or RCSB and Hudson Hotels which judgment was appealed by
Seagate. The Fourth District Court of Appeal in Florida affirmed the
summary judgment on RCSB and reversed the summary judgment granted in favor
of Hudson Hotels, remanding the action to Circuit Court for further
consideration. On August 15, 1994, Seagate proceeded to trial against
SHORE in Case #90-12358-AB. During the course of the trial, Seagate took a
voluntary dismissal of their action against SHORE. On September 8, 1994,
Seagate refiled its lawsuit against SHORE and joined Delray Beach Hotel
Properties Limited, through its general partner, Delray Beach Hotel Corp.
(Bearing Case #94-6961-AF). The new case against SHORE was brought
essentially on the same facts as stated above. The claim against Delray
Beach Hotel Properties Limited was identical to the conspiracy and tortious
interference with a business relationship claim currently existing against
Hudson Hotels. On January 27, 1995, the Court issued an Order dismissing
the Amended Complaint as to Delray Beach Hotel Properties Limited. The
Circuit Court has consolidated the case against Hudson Hotels (Case
#90-12358-AB) and the case against SHORE (Case #94-6961-AF) and it is
anticipated those suits will go to trial during 1996.
After taking into consideration legal counsel's evaluation of all such
actions, management is of the opinion that the outcome of each such
proceeding or claim which is pending will not have a significant effect on
Delray Beach Hotel Properties, Ltd.'s financial statements.
Ridge Road Hotel Properties, L.P. -
On February 11, 1993, a complaint was filed in the Western District of New
York, United States District Court, by John Miranda, Susan Miranda and
Christopher Miranda, seeking damages and costs against Quality Inn
International, Choice Hotels International, and naming Hudson Hotels as a
co-defendant. The requested relief in this case, John Miranda and Susan
Miranda and Christopher Miranda vs. Quality Inns International, Inc.,
Choice Hotels International, Inc., Ridge Road Hotel Properties, Ridge Road
Hotel Properties d/b/a Comfort Inn, a/k/a Comfort Inn West, Hudson Hotels
Corp., and Jennifer L. Ansley, as Executrix of the Estate of Loren G.
Ansley, was based on allegations that John Miranda, while staying at the
Comfort Inn, stepped on a needle, and claims negligence and lack of due
care on the part of the defendants. This case is being diligently defended
by the insurance carrier of Ridge Road Hotel Properties and Hudson Hotels.
Ridge Road Hotel Properties, L.P. believes that it has adequate insurance
for any potential loss.
<PAGE>
HUDSON HOTELS CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
The unaudited Pro Forma Condensed Balance Sheet is presented as if the Company
had acquired Delray Beach Hotel Properties Limited, Brookwood Hotel Properties,
Ridge Road Hotel Properties, L.P., Jamestown Hotel Properties, L.P. and Muar
Lakes Associates, L.P., on June 30, 1996. The hotel partnership interests were
acquired by Hudson Hotels Properties Corp., a wholly owned subsidiary of Hudson
Hotels Corporation. A total of 1,170,103 shares was exchanged for the
partnership interests acquired. The Company utilized 657,292 treasury shares
and 512,811 newly issued shares to satisfy its obligations. For purposes of the
pro formas at June 30, 1996, the Company only had 49,142 shares in treasury
which was used for purposes of this transaction. The management of the hotels
acquired will be performed by Hudson Hotels Corporation.
The unaudited Pro Forma Consolidated and Combined Statements of Operations for
the year ended December 31, 1995 and six months ended June 30, 1996, is
presented as if the acquisition of Delray Beach Hotel Properties Limited,
Brookwood Hotel Properties, Ridge Road Hotel Properties, L.P., Jamestown Hotel
Properties, L.P. and Muar Lakes Associates, L.P. had occurred on January 1,
1995. The unaudited Pro Forma Consolidated and Combined Statements of
Operations should be read in conjunction with the Statements of Operations of
Delray Beach Hotel Properties Limited, Brookwood Hotel Properties, Ridge Road
Hotel Properties, L.P., Jamestown Hotel Properties, L.P. and Muar Lakes
Associates, L.P. and notes thereto included elsewhere herein.
For the purposes of presenting the Statement of Operations for Hudson Hotels
Corporation and Subsidiaries for the twelve months ended December 31, 1995, the
Company combined the three months ended March 31, 1995 with the nine months
ended December 31, 1995, as the Company changed its year end to December 31
for the period beginning April 1,1995.
The acquisitions have been accounted for using the purchase method of
accounting. Accordingly, assets acquired and liabilities assumed have been
recorded at their estimated fair values, which were based on internal valuations
and confirmed through independent appraisals. In management's opinion, all
necessary adjustments to reflect the acquisition of certain assets of Delray
Beach Hotel Properties Limited, Brookwood Hotel Properties, Ridge Road Hotel
Properties, L.P., Jamestown Hotel Properties, L.P. and Muar Lakes Associates,
L.P. have been made.
The Pro Forma Consolidated Financial Statements do not purport to present the
financial position or results of operations of the Company had the transactions
and events assumed therein occurred on the dates specified, nor are they
necessarily indicative of the results of operations that may be achieved in the
future. The Pro Forma Consolidated Statements of Operations do not reflect
certain cost savings that management believes may be realized following the
acquisitions. These savings are expected to be realized through the refinancing
of current mortgages of the acquired entities at favorable rates and terms. No
assurances can be made as to the amount of cost savings, if any, that actually
will be realized.
The Pro Forma Consolidated Financial Statements are based on certain assumptions
and adjustments described in the Notes to the Pro Forma Consolidated Balance
Sheet and Statements of Operations and should be read in conjunction therewith
and with the Consolidated financial Statements and related notes of the Company
included in its December 31, 1995 10-KSB and the June 30, 1996 10-QSB and the
financial statements and related notes of the acquired entities included
elsewhere herein.
<PAGE>
HUDSON HOTELS CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1996
(unaudited)
<TABLE>
<CAPTION>
(A) (C) (C) (C) (C) (D)
BROOKWOOD RIDGE ROAD JAMESTOWN
HUDSON HOTEL HOTEL HOTEL MUAR LAKES
HOTELS PROPERTIES, PROPERTIES, PROPERTIES, ASSOCIATES, PRO FORMA
CORPORATION L.P. L.P. L.P. L.P. ADJUSTMENTS COMPANY
----------- ----------- ----------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents 289,700 70,629 41,648 52,955 41,621 496,553
Accounts receivable - trade 349,601 76,293 16,439 25,593 10,607 478,533
Accounts receivable - affiliate 338,800 338,800
Other current assets 1,294,591 247,451 61,695 104,301 26,687 1,734,725
---------- --------- --------- --------- --------- ----------
Total current assets 2,272,692 394,373 119,782 182,849 78,915 3,048,611
Investment in Partnership
interests 2,537,424 239,325 2,776,749
Investment in land 780,822 780,822
Real estate development 2,763,276 2,763,276
Property and equipment - net 6,414,468 5,568,833 2,161,903 2,193,205 1,019,392 4,421,155 21,778,956
Deferred tax asset 492,385 492,385
Mortgage note receivable -
affiliate 1,300,000 1,300,000
Other assets 747,347 52,248 29,493 11,187 34,807 3,030,301 3,905,383
---------- --------- --------- --------- --------- ---------- ----------
Total assets 17,308,414 6,015,454 2,311,178 2,387,241 1,133,114 7,690,781 36,846,182
---------- --------- --------- --------- --------- --------- ----------
---------- --------- --------- --------- --------- --------- ----------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities 2,645,774 236,980 89,503 77,287 45,741 3,095,285
Deferred revenue - Beach Club 398,359 398,359
Long-term debt 8,502,780 6,737,473 2,137,627 1,709,530 1,060,605 20,148,015
Deferred revenue - land sale 185,055 185,055
Limited partners' interest in
consolidated partnerships 1,255,811 42,121 1,297,932
Partnership interest (958,999) 84,048 600,424 26,768 247,759
Shareholders' investment
Common stock 3,301 1,121 4,422
Preferred stock 295 295
Additional paid-in capital 7,196,256 7,276,925 14,473,181
Warrants outstanding 60,000 60,000
Accumulated deficit (2,806,362)
---------- --------- --------- --------- --------- --------- ----------
4,453,490 0 0 0 0 7,278,046 11,731,536
Less: Common stock in treasury (122,855) 122,855 0
---------- --------- --------- --------- --------- --------- ----------
Total shareholders'
investment 4,330,635 0 0 0 0 7,400,901 11,731,536
---------- --------- --------- --------- --------- --------- ----------
Total liabilities and
shareholders' investment 17,318,414 6,015,454 2,311,178 2,387,241 1,133,114 7,690,781 36,856,182
---------- --------- --------- --------- --------- --------- ----------
---------- --------- --------- --------- --------- --------- ----------
</TABLE>
- ---------------------------
See notes to pro forma consolidated balance sheet and statement of operations.
<PAGE>
HUDSON HOTELS CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATION FOR THE
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
(A) (C) (C) (C) (C) (D)
BROOKWOOD RIDGE ROAD JAMESTOWN
HUDSON HOTEL HOTEL HOTEL MUAR LAKES
HOTELS PROPERTIES, PROPERTIES, PROPERTIES, ASSOCIATES, PRO FORMA
CORPORATION L.P. L.P. L.P. L.P. ADJUSTMENTS COMPANY
----------- ----------- ----------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES
Hotel room revenue 1,694,680 1,227,973 569,684 652,929 333,244 4,478,510
Beach Club income 1,414,094 0 0 0 0 1,414,094
Management fees 482,081 0 0 0 0 (133,009)(E) 349,072
Royalties 266,122 0 0 0 0 266,122
Other 656,021 137,649 32,517 40,234 12,747 879,168
----------- --------- ------- ------- ------- ---------- ----------
Total operating revenues 4,512,998 1,365,622 602,201 693,163 345,991 (133,009) 7,386,966
Operating expenses 2,994,421 986,038 419,324 461,735 258,015 (133,009)(E) 4,986,524
----------- --------- ------- ------- ------- ---------- ---------
Income from operations
before depreciation and
amortization 1,518,577 379,584 182,877 231,428 87,976 0 2,400,442
Depreciation and amortization 250,193 145,614 51,881 65,690 32,637 (54,930) (F) 491,085
----------- --------- ------- ------- ------- ---------- ---------
Income from operations 1,268,384 233,970 130,996 165,738 55,339 54,930 1,909,357
Other income (expenses)
Gain on sale of worldwide
franchise rights 0 0 0 0 0 0 0
Interest - net (265,046) (354,606) (109,679) (77,223) (53,166) (859,720)
Gain on repurchase of
franchise rights 0 0 0 0 0 0 0
----------- --------- ------- ------- ------- ---------- ---------
Total other income (expense) (265,046) (354,606) (109,679) (77,223) (53,166) 0 (859,720)
Income from operations, before
income taxes, minority interest
and equity in net losses of
affiliates 1,003,338 (120,636) 21,317 88,515 2,173 54,930 1,049,637
BENEFIT/(PROVISION) FROM TAXES (187,997) 0 0 0 0 (154,842)(H) (342,839)
----------- --------- ------- ------- ------- ---------- ---------
Income from operations before
minority interest and equity
in net losses of affiliates 815,341 (120,636) 21,317 88,515 2,173 (99,912) 706,798
MINORITY INTEREST (401,738) 0 0 0 0 336,846(G) (64,892)
EQUITY IN INCOME OF AFFILIATES 45,138 0 0 0 0 (4,670)(I) 40,468
----------- --------- ------- ------- ------- ---------- ---------
NET INCOME 458,741 (120,636) 21,317 88,515 2,173 232,264 682,374
----------- --------- ------- ------- ------- ---------- ---------
----------- --------- ------- ------- ------- ---------- ---------
NET INCOME PER SHARE - PRIMARY $0.11 $0.13
----- -----
----- -----
NET INCOME PER SHARE - FULLY
DILUTED $0.11 $0.12
----- -----
----- -----
WEIGHTED AVERAGE SHARES
OUTSTANDING:
-PRIMARY 3,762,151 1,170,103 4,932,254
--------- --------- ---------
--------- --------- ---------
-FULLY DILUTED 4,656,874 1,170,103 5,826,977
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ---------------------------
See notes to pro forma consolidated balance sheet and statement of operations.
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATION FOR THE
TWELVE MONTHS ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
(A) (C) (C) (C) (C) (D)
BROOKWOOD RIDGE ROAD JAMESTOWN
HUDSON HOTEL HOTEL HOTEL MUAR LAKES
HOTELS PROPERTIES, PROPERTIES, PROPERTIES, ASSOCIATES, PRO FORMA
CORPORATION L.P. L.P. L.P. L.P. ADJUSTMENTS COMPANY
----------- ----------- ----------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES
Hotel room revenue 5,007,772 2,518,111 1,298,219 1,476,617 751,000 11,051,719
Beach Club income 2,632,563 0 0 0 0 2,632,563
Management fees 809,548 0 0 0 0 (295,712)(E) 513,836
Royalties 455,284 0 0 0 0 455,284
Other 519,115 194,852 61,432 73,590 26,273 875,262
---------- --------- --------- --------- ------- ----------- ----------
Total operating revenues 9,424,282 2,712,963 1,359,651 1,550,207 777,273 (295,712) 15,528,664
Operating expenses 7,926,617 1,747,829 891,873 1,000,341 547,452 (295,712)(E) 11,818,400
---------- --------- --------- --------- ------- ----------- ----------
Income from operations
before depreciation and
amortization 1,497,665 965,134 467,778 549,866 229,821 0 3,710,264
Depreciation and amortization 514,557 303,904 111,190 126,850 68,419 (109,861)(F) 1,015,059
---------- --------- --------- --------- ------- ----------- ----------
Income from operations 983,108 661,230 356,588 423,016 161,402 109,861 2,695,205
Other Income (Expense)
Gain on sale of worldwide
franchise rights 1,530,123 0 0 0 0 0 1,530,123
Interest - net (625,287) (722,675) (233,631) (175,058) (116,112) (1,872,763)
Gain on repurchase of franchise
rights 150,000 0 0 0 0 150,000
---------- --------- --------- --------- ------- ----------- ----------
Total other income (expense) 1,054,836 (722,675) (233,631) (175,058) (116,112) 0 (192,640)
Income from operations, before
income taxes, minority
interests and equity in net
losses of affiliates 2,037,944 (61,445) 122,957 247,958 45,290 109,861 2,502,565
BENEFIT/(PROVISION) FROM TAXES 338,781 0 0 0 0 (92,788)(H) 245,993
---------- --------- --------- --------- ------- ----------- ----------
Income from operations before
minority interest and equity in
net losses of affiliates 2,376,725 (61,445) 122,957 247,958 45,290 17,073 2,748,558
MINORITY INTEREST (240,172) 0 0 0 0 138,207(G) (101,965)
EQUITY IN LOSSES OF AFFILIATES (26,926) 0 0 0 0 (16,098)(I) (43,024)
---------- --------- --------- --------- ------- ----------- ----------
NET INCOME 2,109,627 (61,445) 122,957 247,958 45,290 139,182 2,603,569
---------- --------- --------- --------- ------- ----------- ----------
---------- --------- --------- --------- ------- ----------- ----------
NET INCOME PER SHARE-PRIMARY $0.55 $0.51
----- -----
----- -----
NET INCOME PER SHARE-FULLY
DILUTED $0.51 $0.48
----- -----
----- -----
WEIGHTED AVERAGE SHARES
OUTSTANDING:
-PRIMARY 3,643,123 1,170,103 4,813,226
--------- --------- ---------
--------- --------- ---------
-FULLY DILUTED 4,599,618 1,170,103 5,769,721
--------- --------- ---------
--------- --------- ---------
</TABLE>
____________________________________
(1) See consolidated historical statement of operations as adjusted for the
twelve months ended December 31, 1995.
See notes to pro forma consolidated balance sheet and statement of operations.
<PAGE>
HUDSON HOTELS CORPORATION AND SUBSIDIARIES
CONSOLIDATED HISTORICAL STATEMENT OF OPERATIONS AS ADJUSTED
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
(unaudited)
<TABLE>
<CAPTION>
HUDSON HOTELS CORPORATION HUDSON HOTELS CORPORATION
AND SUBSIDIARIES FOR THE THREE AND SUBSIDIARIES FOR THE NINE
MONTHS ENDED MARCH 31, 1995 MONTHS ENDED DECEMBER 31, 1995 COMBINED
------------------------------ ------------------------------ --------
<S> <C> <C> <C>
OPERATING REVENUES
Hotel rom revenue 1,454,987 3,552,785 5,007,772
Beach Club income 722,688 1,909,875 2,632,563
Management fees 87,787 721,761 809,548
Royalties 77,952 377,332 455,284
Other 185,115 334,000 519,115
---------- ---------- ----------
Total operating revenues 2,528,529 6,895,753 9,424,282
Operating expenses 2,061,544 5,865,073 7,926,617
---------- ---------- ----------
Income from operations before
depreciation and amortization 466,985 1,030,680 1,497,665
Depreciation and amortization 136,587 377,970 514,557
---------- ---------- ----------
Income from operations 330,398 652,710 983,108
Other income (expenses)
Gain on sale of worldwide
franchise rights 0 1,530,123 1,530,123
Interest - net (142,171) (483,116) (625,287)
Gain on repurchase of franchise
rights 0 150,000 150,000
---------- ---------- ----------
Total other income (expense) (142,171) 1,197,007 1,054,836
Income from operations, before income
taxes, minority interest and equity
in net losses of affiliates 188,227 1,849,717 2,037,944
BENEFIT/(PROVISION) FROM TAXES 877,542 (538,761) 338,781
---------- ---------- ----------
Income from operations before
minority interest and equity in net
losses of affiliates 1,065,769 1,310,956 2,376,725
MINORITY INTEREST (263,278) 23,106 (240,172)
EQUITY IN LOSSES OF AFFILIATES (3,456) (23,470) (26,926)
---------- ---------- ----------
NET INCOME 799,035 1,310,592 2,109,627
---------- ---------- ----------
---------- ---------- ----------
NET INCOME PER SHARE - PRIMARY $0.22 $0.33 $0.55
----- ----- -----
----- ----- -----
NET INCOME PER SHARE - FULLY DILUTED $0.20 $0.31 $0.51
----- ----- -----
----- ----- -----
WEIGHTED AVERAGE SHARES OUTSTANDING:
-PRIMARY 3,452,586 3,706,333 3,643,123
--------- --------- ---------
--------- --------- ---------
-FULLY DILUTED 4,280,642 4,683,419 4,599,618
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ---------------------------
Note: The three months ended March 31, 1995 Statement of Operations
represents unaudited numbers and the nine months ended
December 31, 1995 represents audited numbers found in the
December 31, 1995 Form 10-KSB. The following was presented in
order to compare the Company's twelve month results with the acquired
entities twelve month results for pro forma purposes.
See notes to pro forma consolidated balance sheet and statement of
operations.
<PAGE>
HUDSON HOTELS CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS
(UNAUDITED)
(A) Reflects the Company's historical consolidated balance sheet and statement
of operation as of June 30, 1996, as reported on Form 10-QSB. The Company,
in its capacity as sole general partner and by the terms of the partnership
agreement, controls the partnership of Delray Beach Hotel Properties
Limited, and thus consolidates its balance sheet and statement of
operation. Consolidation of Delray Beach Hotel Properties Limited provides
no additional net income or loss to the Company than from reporting the
investment under the equity method of accounting. See notes D and G for
certain pro forma adjustments made to correctly reflect the acquisition of
the remaining interest of Delray Beach Hotel Properties Limited.
(B) Reflects the historical balance sheets as of June 30, 1996, for the
assets/liabilities acquired by the Company.
(C) Reflect the historical statement of operations for the entities acquired
for the six months ended June 30, 1996 and the historical statement of
operations for the entities acquired for the year ended December 31, 1995.
(D) ACQUISITION OF ASSETS
The purchase price for the five hotel entities has been allocated to assets
acquired and liabilities assumed at their estimated fair values. The pro
forma adjustments consist of the elimination of partnership interests the
Company had in the acquired entities and the elimination of purchased net
worth, net of the fair value ascribed to purchased assets and liabilities.
The Company acquired the entities for 1,170,103 shares of $.001 par value
common stock at a price of $6.325 a share. For purposes of presenting the
acquisition of Delray Beach Hotel Properties Limited; Brookwood Hotel
Properties; Jamestown Hotel Properties, L.P.; Ridge Road Hotel Properties,
L.P. and Muar Lakes Associates, L.P., at June 30, 1996, the Company
utilized 49,142 shares from treasury with the remaining shares (1,120,961)
being newly issued. At July 31, 1996, the Company had 657,292 shares in
treasury and issued 512,811 new shares to satisfy its obligation. The
Company has agreed to register the shares so exchanged for sale pursuant to
the Securities Act of 1993.
(E) Reflects the elimination of management fees as the Company managed the
entities prior to the acquisition.
(F) Reflects adjusted depreciation and amortization related to the acquisition.
The furniture, fixtures and equipment have an estimated useful life of five
years. The hotel structures have a useful life of forty years and the
value established to the Beach Club has a useful life of twenty years.
(G) Reflects the elimination of minority interest share of net income generated
by Delray Beach Hotel Properties Limited
(H) The pro forma adjustment to income taxes is based on the statutory tax
rate.
(I) Reflects the elimination of income from equity interest the Company had in
the acquired entities.
