<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended..................................................June 30, 1997
Commission File Number...................................................0-17838
Hudson Hotels Corporation
- -----------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
New York 16-1312167
- --------------------------------------------------------------------------------
State or other jurisdiction of I.R.S. Employer
in corporation or organization Identification No.
One Airport Way, Suite 200, Rochester, New York 14624
- --------------------------------------------------------------------------------
(Address or principal executive offices) (Zip Code)
(716) 436-6000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--------- -------------
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of July 18, 1997 the Registrant had issued and outstanding 5,038,962
shares of its $.001 par value common stock.
<PAGE>
HUDSON HOTELS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996 AND THE SIX MONTHS ENDED JUNE
30, 1997 and 1996
(unaudited)
- -------------------------------------------------------------------------------
Three Months Ended Six Months Ended
1997 1996 1997 1996
---- ---- ---- ----
OPERATING REVENUES:
Hotel operations $9,145,032 $1,446,947 $17,106,389 $3,108,774
Management fees -
Nonaffiliate 54,814 66,977 113,271 $115,053
Affiliate 194,991 178,235 294,485 367,028
Royalties 167,298 158,581 301,123 266,122
Franchise placement income 55,500 25,000 55,500 100,000
Sale of land -- 50,000 28,812 --
Development fees 10,000 265,000 10,000 290,000
Consulting fees 37,500 50,000 75,000 250,000
Miscellaneous 12 15,435 2,293 16,021
--------- --------- --------- ---------
Total operating revenues 9,665,147 2,206,175 17,986,873 4,512,998
OPERATING COSTS AND EXPENSES
Direct 5,927,935 1,105,407 11,323,985 2,034,706
Corporate 648,264 483,077 1,226,724 959,715
--------- --------- --------- ---------
Total operating costs and
expenses before
depreciation and
amortization 6,576,199 1,588,484 12,550,709 2,994,421
--------- --------- --------- ---------
Income from operations
before depreciation
and amortization 3,088,948 617,691 5,436,164 1,518,577
DEPRECIATION AND AMORTIZATION 984,254 128,038 1,911,708 250,193
--------- --------- --------- ---------
Income from operations 2,104,694 489,653 3,524,456 1,268,384
--------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest income 44,559 65,846 88,941 153,821
Interest expense (2,050,242) (213,478) (4,044,079) (418,867)
--------- --------- --------- ---------
Total other expense (2,005,683) (147,632) (3,955,138) (265,046)
--------- --------- --------- ---------
Income (Loss) from
continuing operations,
before income taxes,
minority interest and
equity on net losses
of affiliates 99,011 342,021 (430,682) 1,003,338
PROVISION (BENEFIT) FROM
INCOME TAXES 28,629 106,316 (192,335) 187,997
--------- --------- --------- ---------
Income (Loss) from continuing
operations, before minority
interest and equity on net
losses of affiliates 70,382 235,705 (238,347) 815,341
MINORITY INTEREST (27,225) (30,555) (52,965) (401,738)
EQUITY IN INCOME OF AFFILIATES 15,012 49,084 7,818 45,138
--------- --------- --------- ---------
NET INCOME (LOSS) 58,169 254,234 (283,494) 458,741
--------- --------- --------- ---------
--------- --------- --------- ---------
NET INCOME (LOSS) PER COMMON
SHARE - PRIMARY $ 0.01 $ .06 $ (0.07) $ 0.11
--------- --------- --------- ---------
--------- --------- --------- ---------
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
HUDSON HOTELS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997
(unaudited)
- -------------------------------------------------------------------------------
ASSETS 1997
----
CURRENT ASSETS:
Cash and cash equivalents 1,227,314
Cash - restricted 2,638,328
Accounts receivable - trade 858,130
Inventories 236,566
Prepaid expenses and other 498,643
Accounts and notes receivable -
Affiliates 212,826
Nonaffiliate 186,422
Receivable from sale of franchise rights - current 288,112
------------
Total current assets 6,146,341
------------
INVESTMENTS IN PARTNERSHIP INTERESTS 1,887,713
------------
INVESTMENT IN LAND 780,822
------------
REAL ESTATE DEVELOPMENT 3,341,845
------------
PROPERTY AND EQUIPMENT, NET 82,696,045
------------
DEFERRED TAX ASSET 569,784
------------
OTHER ASSETS:
Beach club, net 3,059,565
Deferred financing costs, net 2,424,835
Mortgage and note receivable - affiliate 1,100,000
Deposit 841,867
Intangibles and other assets 65,677
Receivable from sale of franchise rights - long term 454,546
------------
Total other assets 7,946,490
------------
Total assets $103,369,040
------------
------------
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
HUDSON HOTELS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1997
(unaudited)
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' INVESTMENT 1997
----
CURRENT LIABILITIES:
Line of credit $ 200,000
Accounts payable - trade 2,286,427
Accrued payroll and related taxes 292,293
Accrued interest 485,393
Other accrued expenses 1,710,182
Current portion of long-term debt 3,238,545
Deferred revenue - beach club 372,687
Deferred consulting 37,500
Deferred franchise revenue 3,000
------------
Total current liabilities 8,626,027
------------
LONG-TERM DEBT 80,064,186
------------
DEFERRED REVENUE - LAND SALE 185,055
------------
LIMITED PARTNERS' INTEREST IN CONTROLLED PARTNERSHIPS 1,098,272
------------
SHAREHOLDERS' INVESTMENT:
Preferred stock 295
Common stock 5,049
Additional paid-in capital 16,421,274
Warrants outstanding 50,000
Accumulated deficit (3,039,867)
------------
13,436,751
------------
Less: 10,000 shares of common stock in treasury, at cost (41,251)
Total shareholders' investment 13,395,500
------------
Total liabilities and shareholders' investment $103,369,040
------------
------------
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
<TABLE>
<CAPTION>
HUDSON HOTELS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' INVESTMENT
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
(unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
Additional Additional
Series A Paid-In Paid-In
Preferred Capital Common Capital Warrants Accumulated Treasury
Stock Preferred Stock Common Outstanding Deficit Stock Total
---------- ---------- ---------- ---------- ----------- ---------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996 $ 295 $1,560,705 $4,788 $14,394,040 $50,000 $(2,692,713) $ -- $13,317,115
Net Loss -- -- -- -- -- (283,494) -- (283,494)
Purchase of treasury stock -- -- -- -- -- -- (41,251) (41,251)
Exercise of stock options -- -- 116 431,072 -- -- -- 431,188
Issuance of common stock for
investor relation services -- -- 145 (145) -- -- -- --
Other -- -- -- 35,602 -- -- -- 35,602
Cash dividends paid on
preferred stock -- -- -- -- -- (63,660) -- (63,660)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, June 30, 1997 $295 $1,560,705 $5,049 $14,860,569 $50,000 $(3,039,867) $(41,251) $13,395,500
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Stock balances at December 31, 1996:
Common stock: 4,787,462 shares; Preferred stock: 294,723 shares
Stock balances at June 30, 1997:
Common stock: 4,787,462 shares; Preferred stock: 294,723 shares
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
HUDSON HOTELS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997 and 1996
(unaudited)
- --------------------------------------------------------------------------------
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (283,494) $ 458,741
Adjustments to reconcile net income (Loss) to
net cash from operating activities:
Deferred tax provision (192,336) 150,830
Depreciation and amortization 1,911,708 250,193
Gain on sale of land (28,812) --
Minority interest in operations 52,965 402,094
Non-cash consulting 35,603 13,061
Equity in operations (7,818) (45,138)
Capital distributions from unconsolidated
partnership interests 45,251 54,091
(Increase) decrease in assets:
Accounts receivable - trade (415,138) (43,659)
Inventories (34,866) (33,022)
Prepaid expenses 54,446 (482,894)
Increase (decrease) in liabilities:
Accounts payable 426,827 118,340
Accrued payroll and related taxes 102,903 (16,846)
Other accrued expenses 522,831 (36,052)
Accrued interest 33,425 (1,814)
Deferred revenue - beach club (497,215) (523,617)
Deferred consulting (75,004) (250,000)
Customer deposits -- (62,183)
Deferred franchise revenue (25,000) (65,000)
------------ ------------
Net cash from operating activities 1,626,276 (112,875)
------------ ------------
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
HUDSON HOTELS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997 and 1996
(unaudited)
- --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES: 1997 1996
---- ----
Acquisition of land/real estate development $ (60,570) $(1,205,704)
Increase in restricted cash (1,122,449) --
Cash collected on sale of land 399,659 --
Change in affiliates accounts and notes receivable 113,174 77,451
Purchase of equipment (707,157) (57,244)
Change in other assets (2,069) 11,774
Deposits (202,873) (200,000)
Change in non-affiliate accounts receivable (57,417) (458,201)
------------ ------------
Net cash from investing activities (1,639,702 (1,831,924)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of mortgages (289,405) (110,662)
Distributions to limited partners (53,500) (144,275)
Purchase of treasury stock (41,251) --
Proceeds from stock options exercised 431,188 1,667
Dividends paid (63,660) (63,660)
Borrowings on line of credit, net 200,000 1,785,000
------------ ------------
Net cash from financing activities 183,372 1,468,070
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 169,946 (476,729)
CASH AND CASH EQUIVALENTS - beginning of period 1,057,368 766,428
------------ ------------
CASH AND CASH EQUIVALENTS - end of period $1,227,314 $ 289,699
------------ ------------
------------ ------------
OTHER INFORMATION:
Cash paid during the period for:
Interest $4,010,654 $ 420,681
Income taxes $ 11,890 $ 178,269
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
HUDSON HOTELS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1997
(unaudited)
1. Basis of Presentation
In the opinion of Management, the interim financial statements included
herewith reflect all adjustments which are necessary for a fair statement
of the results for the interim periods presented. All significant
intercompany transactions and accounts have been eliminated in
consolidation.
The results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for the full year.
The accounting policies followed by the Company are set forth in Note 2 to
the Company's financial statements in the December 31, 1996 10-KSB.
Other footnote disclosures normally included in the financial statements
prepared in accordance with generally accepted accounting principles have
been condensed or omitted. The Company believes the disclosures made are
adequate to make the information presented not misleading; however, these
consolidated financial statements should be read in conjunction with the
financial statements and notes included in the Company's December 31, 1996
10-KSB.
2. The Company
Hudson Hotels Corporation (the "Company") was organized as Microtel
Franchise and Development Corporation to develop and franchise a national
chain of economy limited service lodging facilities ("Microtels"), using
the service mark "MICROTEL", which offers downsized rooms with higher
quality furnishings at rates below those available at competing national
lodging chains. The Company was incorporated in New York State on June 5,
1987.
On October 5, 1995, the Company signed an exclusive Joint Venture Agreement
with US Franchise Systems, Inc., in which US Franchise Systems, Inc.
purchased worldwide franchising and administration for the Microtel
franchise chain. As a result of the Joint Venture Agreement, the Company
has focused its efforts on developing, building and managing various hotel
products, including Microtels, which has been the Company's strength since
it acquired Hudson Hotels Corporation in 1992. During 1996, the Company
embarked upon a significant expansion and development program, which
includes several acquisitions and development of four Microtel Inns through
a joint venture partnership.
At December 31, 1995, the Company changed its fiscal year from March 31 to
December 31. This fiscal year coincides with individual hotel property,
partnership and joint venture investment year ends and simplifies the
Company's accounting and reporting.
The Company operates in the industry segment of hotel development,
management and ownership. The Company has shifted the majority of its
focus from a management fee and royalty fee driven business to a hotel
operating company. As a result, the Company subjects its revenues and
earnings to cycles typical to hotel operation, with stronger results
expected in the second and third calendar quarters.
8
<PAGE>
3. 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 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 an 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 obligations 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. On March 17, 1994, the Court granted Summary Judgment in favor of
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, 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
1997.
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 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. The Company believes
that it has adequate insurance for any potential loss.
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, or known to be threatened (as
described above), will not have a significant effect on the Company's
financial statements.
On June 20, 1995, Ladenburg, Thalmann & Co., Inc., the Company's former
investment bankers, filed a complaint in New York State Supreme Court
against the Company alleging breach of contract and damages of $906,250
relating to the Company's rescission of a warrant granted to them in
connection with the investment advisory agreement. In February 1994, the
Board of Directors of the Company determined that Ladenburg had been
otherwise adequately compensated for such services as were actually
performed, and voted to rescind the warrant. The Company has answered the
complaint, denying the relevant allegations and asserting several
affirmative defenses.
Discovery in the case has commenced and is continuing. The ultimate
outcome of the litigation cannot presently be determined. Accordingly, no
provision for any liability that may result has been made in the financial
statements.
9
<PAGE>
4. SUMMARIZED FINANCIAL INFORMATION - INVESTMENTS IN PARTNERSHIP INTERESTS
The following is a summary of condensed financial information for the
partnership (Watertown Hotel Properties II, L.P.) which the Company exercises
control for the six month period ended June 30, 1997, and a combined summary of
condensed financial information for the partnerships which the Company does not
control for the six month period ended June 30, 1997.
Watertown Hotel Unconsolidated
Properties II, L.P. Partnerships
------------------- ----------------
Property and equipment, net of
accumulated depreciation $ -- $28,077,627
Current assets 9,372 2,647,457
Notes and mortgage receivable - noncurrent 1,100,000 --
Other assets -- 1,041,410
------------- ------------
TOTAL ASSETS 1,109,372 31,766,494
------------- ------------
Mortgage and notes payable - current -- 1,852,871
Other current liabilities -- 850,911
Mortgage/Notes payable - noncurrent -- 22,509,663
------------- ------------
TOTAL LIABILITIES -- 25,213,445
NET ASSETS $1,109,372 $6,553,049
------------- ------------
------------- ------------
Net Revenues $ -- $ 5,213,048
Operating Expenses 1,500 3,179,373
------------- ------------
Income (Loss) from Operations (1,500) 2,033,675
Other Income (Expense), Net 55,000 (1,991,030)
NET INCOME $ 53,500 $ 42,645
------------- ------------
------------- ------------
10
<PAGE>
5. Long Term Debt
Future minimum repayments under long-term debt are as follows:
Remainder 1997 3,238,545
1998 4,086,027
1999 4,145,975
2000 4,215,720
2001 total and thereafter 67,616,464
----------
83,302,731
----------
----------
6. Line of Credit
In May 1997, the Company signed a $200,000 working capital demand line
credit note with a commercial bank, which bears interest at prime plus
1/2%. Amounts borrowed are collateralized by a hotel property which the
Company owns in Virginia Beach, Virginia. At June 30, 1997, $200,000 was
borrowed under the terms of this line.
7. Commitments and Contingencies
The Company has various operating lease arrangements for automobiles and
office space. Total rent expense under operating leases amounted to
$79,002 and $75,215 for the six month period ending June 30, 1997 and
1996, respectively. Future minimum lease payments under operating leases
are approximately: 1997 remainder - $72,243; 1998 - $90,014; 1999 - $6,998.
The Company is required to remit monthly royalty fees from 2% to 4% of
gross room revenue, plus additional monies for marketing assessments and
reservation fees to its franchisors, Choice Hotels International, Marriott
Corp. and Cricket Inn based on franchise agreements which extend from ten
to fifteen years. Some of these agreements specify restrictions on
transferability of franchise and liquidated damages upon termination of
franchise agreement due to the franchisee's default. Total fees were
approximately $326,022 and $-0- for the six months ended June 30, 1997 and
1996, respectively.
As an equity partner in various hotel partnerships, the Company has
guaranteed portions of mortgages payable relating to the partnerships. The
guarantees range from 50% to 200% of the outstanding mortgages payable to
banks. Amounts guaranteed by the Company related to the partnerships'
mortgages payable were approximately $3.6 million at June 30, 1997.
In November 1994, the Company provided a $250,000 cash deposit to secure a
ten year operating lease and management contract of a full-service hotel
located in Canandaigua, New York from L, R, R & M L.L.C. In June 1996, the
Company provided an additional $200,000 cash deposit which extends the
lease term an additional eighteen months and provides additional security
on the renovations performed from November 1995 through May 1996. Also,
during 1996, the Company earned a $250,000 fee for managing the
reconstruction project. One of the minority owners of L, R, R & M, L.L.C.,
is a greater than 5% shareholder who is not involved in the management or
operation of the Company. Base rent is equal to one-twelfth of 2% of the
outstanding principal balance under the credit facilities per month, plus
amounts payable by the Landlord under the credit facilities monthly. The
Company is also obligated to pay/or have due additional monthly rent/or
abatement on positive/negative earnings based on 15% of the leased
operation's adjusted net revenues, as defined in the lease agreement.
The deposit shall be returned to the Company in the event the Landlord
sells the premises based on 25% of the net proceeds of such sale, as
defined in the lease agreement. Future minimum lease payments under this
operating lease are approximately: remainder of 1997 - $457,000; 1998 -
$914,000; 1999 - $914,000; 2000 - $914,000; thereafter $3,503,667.
11
<PAGE>
The Company assumed a ground lease for the land on which a hotel was
acquired by the Company in 1996 in Statesville, North Carolina. The
initial term of this lease commenced in February 1984 and expires April 30,
2005. The Company renewed the lease at its option, for three additional
ten-year periods ending April 30, 2035. The annual rental during the final
ten years of the initial term and each extension is the greater of $22,000
plus one-half percent of gross room rentals from the Statesville hotel
during the 1991 lease year of the lease term or four percent of gross room
rentals from the Statesville hotel during each lease year.
The Company has a right of first refusal to buy the land subject to the
ground lease from the lessor during the lease term subject to the first
refusal rights of Roses Department Stores, Inc., or its successors.
Rent expense on the ground lease was $11,000 and $-0- for the six month
period ended June 30, 1997 and 1996, respectively.
The future minimum ground lease rental payments, assuming no gross room
rentals during the initial lease term and no increases in the consumer
price index, are as follows for the years ended December 31:
Remainder of 1997 $11,000
1998 22,000
1999 22,000
2000 22,000
2001 22,000
Thereafter 73,333
--------
$172,333
--------
--------
8. Income Taxes
Income taxes are provided in accordance with Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes", which requires
an asset and liability approach to financial accounting and reporting for
income taxes. The Statement requires that deferred income taxes be
provided to reflect the impact of "temporary differences" between the
amount of assets and liabilities for financial reporting purposes and such
amounts as measured by current tax laws and regulations. A valuation
allowance is established, when necessary, to reduce deferred tax assets to
the amount expected to be realized.
Deferred tax assets include loss carryforwards and deferred revenue.
Deferred tax liability represents the gross up relating to the purchase of
Hudson.
At June 30, 1997, the Company has net operating loss carryforwards for
income tax purposes of approximately $1,420,000 which may be used to offset
future taxable income. These loss carryforwards will begin to expire in
2003.
9. Receivables/Payables with Affiliates
The Company has advanced affiliated entities the following as of June 30,
1997:
Microtel Partners 1995-I, L.. $142,178
Airport Hotel Properties, L.P. 10,000
Other 60,648
--------
$212,826
--------
--------
12
<PAGE>
10. Joint Venture Agreement
On October 5, 1995, the Company signed an exclusive joint venture agreement
with US Franchise Systems, Inc. in which USFS assumed worldwide franchising
and administration for the Microtel hotel chain.
The Company in return will receive $4 million over a three year period in
exchange for the exclusive franchise rights of the Microtel name and
various consulting services; $2 million was paid at closing, another $1
million was paid at the first anniversary and $500,000 each will be paid at
the second and third anniversary. In addition to the lump sum payment, the
Company will receive royalty payments from properties franchised by USFS.
Royalty payments will consist of 1% of gross room revenues from hotels
1-100; .75% from hotels 101-250; and .5% above 250 units. In addition, the
Company issued USFS 100,000 warrants exercisable at $8.375.
The Company has retained the right to franchise and construct an additional
twenty-three (23) Microtel properties and ten (10) "Suites" properties (if
offered by USFS), and to receive all royalties on the fifty (50) Microtels
(30 existing and 20 new ones to be undertaken by the Company) and ten (10)
Suites. During 1996, US Franchise Systems, Inc. completed an initial
public offering with proceeds to that entity of approximately $37,000,000.
As a result, it was determined that the future collectibility was not in
doubt and the balance of the deferred revenue was recognized at December
31, 1996.
11. Shareholders' Investment
In April 1997, the Company engaged an entity to provide the Company with
investor relations services over a five (5) year period. In addition to
issuing 145,000 common shares as payment for such services, the Company
issued options to the entity to purchase 525,000 shares of common stock at
prices ranging from $5.00 to $9.00. The options expire over a two (2) year
period. The issuance of common stock and related expense associated with
the option grants are expensed over the expected period in which services
will be performed.
13
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis should be read in conjunction with
Selected Financial Data (item 6); Management's Discussion and Analysis of
Financial Condition and Results of Operations (item 7); and Accountant's Report,
Financial Statements and Notes to Financial Statements (item 8) of the Company's
December 31, 1996 Annual Report on Form 10-KSB.
RESULTS OF OPERATIONS
Three months ended June 30, 1997, compared to the three months ended June 30,
1996:
Total operating revenues increased $7,458,972, or 338% to $9,665,147 for 1997,
reflecting changes in revenue categories, as discussed below.
HOTEL OPERATIONS were $9,145,032 for the three months ended June 30, 1997, an
increase of $7,698,085, or 532%, from the three months ended June 30, 1996.
Hotel operations consist of the following:
Three Months Ended
June 30, 1997 June 30, 1996
------------- -------------
Hotel room revenue $7,538,650 $ 642,648
Beach club revenue 316,059 359,172
Food and beverage revenue 906,830 422,914
Other 383,493 22,213
Total $9,145,032 $1,446,947
---------- -----------
Hotel room revenues for the three month period ended June 30, 1997 increased
$6,896,002 from the three month period ended June 30, 1996. The increase is a
result of the acquisition of seventeen (17) hotels during the second half of
1996. Five (5) of the hotels were acquired July 31, 1996, with the remaining
twelve (12) being acquired on November 27, 1996. In addition, the Canandaigua
Inn on the Lake was open only one month during the three month period ended June
30, 1996, as the facility underwent major renovations from November 1995 to May
1996. Operating revenues (which includes hotel room revenue, beach club revenue
and food and beverage revenue) for the Seagate Hotel and Beach Club are included
prior to the acquisition on July 31, 1996, as a result of the Company being the
controlling partner in the limited partnership. Occupancy and average daily
room rate were 70.0% and $55.14, respectively, for the three months ended June
30, 1997.
The beach club revenue relates to the operation of the beach club at the Seagate
Hotel and Beach Club, which decreased $43,113, or 12%, from the three month
period ended June 30, 1996, as a result of a reduction in new member fees
(initiation fees).
Food and beverage revenue was $906,830 for the three month period ended June 30,
1997, compared to $422,914 for the three month period ended June 30, 1996, an
increase of $483,916 or 114%. The increase is primarily the result of the
Canandaigua Inn on the Lake being closed for most of the three month period
ended June 30, 1996, as the facility underwent major renovations and reopened
June 1996.
The increase in Other is a result of the acquisition of seventeen (17) hotels in
1996; 62% of Other represents telephone revenue, with the remaining percentage
being vending and movie revenues.
FRANCHISE PLACEMENT INCOME for the three month period ended June 30, 1996
reflects the opening of one (1) franchise (Charlotte, North Carolina). There
were two (2) franchise sales (Greenville, South Carolina and Springfield,
Missouri) during the three month period ended June 30, 1997.
14
<PAGE>
ROYALTIES for the three month period ended June 30, 1997 have increased $8,717
over the three month period ended June 30, 1996, an increase of 6%. The
increase is attributable to thirty (30) franchised Microtels in operation, as
opposed to twenty six (26) during the same three month period in 1996.
As a result of the Company's joint venture with US Franchise Systems, Inc. (see
Note 9), the Company has retained the right to franchise, construct and collect
franchise placement fees on an additional twenty-two (22) Microtel properties
and ten (10) "suite" properties and retain all royalties on the fifty (50)
Microtels (28 existing and 22 new ones to be undertaken by the Company) and ten
(10) suites. The Company will also receive royalty payments in the future from
US Franchise Systems, Inc., for franchises they open, along with consulting
payments over the next three years.
Overall, MANAGEMENT FEES for the three month period ended June 30, 1997 remained
consistent with the same three month period ended June 30, 1996. One new
management contract was signed during the three month period ended June 30,
1997. The Company's ownership position in hotels managed, is summarized below:
June 30, 1997 June 30, 1996
------------- -------------
Owned 17 -0-
Managed with financial interest 10 14
Other managed 5 4
--- ---
32 18
--- ---
--- ---
Management fees of approximately $403,000 were generated by the seventeen (17)
owned hotels for the three months ended June 30, 1997, which were eliminated for
consolidation purposes.
DEVELOPMENT FEES decreased $255,000 from the same period in 1996. The decrease
is attributable to one (1) hotel under development compared to two (2) Microtels
and one (1) full-service hotel under various stages of development for which
fees were charged. These fees represent a reimbursement of costs incurred.
CONSULTING FEES for the three months ended June 30, 1997 represent fees received
as part of our joint venture with US Franchise Systems, Inc., under which the
Company will be receiving fees for various consulting services over the next two
years (see Note 10).
The Company plans to continue its rapid revenue growth by implementing the
following strategies: (i) enhance operating performance of its existing hotels
owned or under management (ii) develop and building Microtels Inns on sites
acquired and (iii) opportunistic acquisition of existing hotels.
GROSS OPERATING MARGIN for hotel operations (consisting of total hotel revenues,
less direct expenses; departmental expenses, undistributed expenses, property
occupancy costs and insurance costs) for the three months ended June 30, 1997
was 35.2% compared to 23.6% for the three months ended June 30, 1996. The
increase is primarily due to the acquisition of seventeen (17) hotel properties
(five of which were acquired on July 31, 1996, and the remaining twelve acquired
on November 27, 1996). Also, the Canandaigua Inn on the Lake reopened and
resumed operations in June 1996 and incurred significant start-up expenses. The
direct costs and expenses for the Seagate Hotel and Beach Club are included
prior to the acquisition on July 31, 1996, as a result of the Company being the
controlling partner in the limited partnership.
CORPORATE represents general and administrative costs and expenses associated
with the corporate office. Corporate costs and expenses increased $165,187 from
prior year. The increase is primarily a result of the following: (1)
professional fees increased for the three month period as a result of Company
growth, (2) payroll expense increased as a result of pay increases and the
addition of four employees, and (3) recording non-cash investor relations
expense for services performed.
15
<PAGE>
DEPRECIATION AND AMORTIZATION for the period ended June 30, 1997 increased
$856,216, or 669% , over the three month period ended June 30, 1996. The
increase is a result of the acquisition of five (5) hotels on July 31, 1996, and
twelve (12) hotels on November 27, 1996. One of the five (5) hotels purchased
on July 31, 1996, the Seagate Hotel and Beach Club, is included in the operating
results of the Company during the three month period ended June 30, 1996, as a
result of the Company's ownership interest in the partnership.
OTHER INCOME (EXPENSE) - Interest income is $44,559, of which $27,500, or 62%,
is generated by interest on the mortgage receivable from Watertown Hotel
Properties II, L.P. Another $17,054 relates primarily to interest earned by the
Company on the outstanding balance owed the Company by US Franchise Systems,
Inc. Of the $2,050,242 in total interest expense, 65% relates to the mortgage
held on the hotels acquired in 1996. The remaining represents interest on the
Company's outstanding convertible debentures, mezzanine financing, notes payable
relating to purchase of hotels, Tonawanda bond issue and line of credit.
MINORITY INTEREST for the three month period ended June 30, 1996 represents the
elimination of the minority partners interest in operations of Delray Beach
Hotel Properties Limited and Watertown Hotel Properties II, L.P., and the
minority interest for the three month period ended June 30, 1997 represents the
elimination of the minority partners interest in Watertown Hotel Properties II,
L.P.
EQUITY IN INCOME OF AFFILIATES represents the net income incurred from the
Company's equity investment in various hotels. On July 31, 1996, the Company
acquired the remaining interest of Delray Beach Hotel Properties Limited and has
included its results of operations from the acquisition date, without the
elimination of the minority partners interest.
INCOME TAXES - The provision for income taxes for the three month period
ended June 30, 1997, represents federal and state income tax generated by the
net income before tax of $86,798. The provision includes tax expense/benefit
from the valuation of deferred tax assets and liabilities. The provision for
income taxes of $106,316 for the three month period ended June 30, 1996
represents federal and state tax expense on income before tax of $360,550.
NET INCOME - As a result of the above factors, net income decreased $196,065
from the three month period ended June 30, 1996 to a net income of $58,169
for the three month period ended June 30, 1997. The net income per common
share of $0.01, compared with a net income per common share of $.06 for the
three month period ended June 30, 1996.
Six months ended June 30, 1997, compared to the six months ended June 30,
1996:
Total operating revenues increased $13,473,875, or 299 % to $17,986,873 for
1997, reflecting changes in revenue categories, as discussed below.
HOTEL OPERATIONS were $17,106,389 for the six months ended June 30, 1997, an
increase of $13,997,615, or 450%, from the six months ended June 30, 1996.
Hotel operations consist of the following:
Six Months Ended
June 30, 1997 June 30, 1996
------------- -------------
Hotel room revenue $14,089,506 $1,453,120
Beach club revenue 666,572 729,162
Food and beverage revenue 1,651,985 879,535
Other 698,326 46,957
------------ ------------
Total $17,106,389 $3,108,774
------------ ------------
------------ ------------
Hotel room revenues for the six month period ended June 30, 1997 increased
$12,636,386 from the six month period ended June 30, 1996. The increase is a
result of the acquisition of seventeen (17) hotels during the second half of
1996. Five (5) of the hotels were acquired July 31, 1996, with the remaining
twelve (12) being
16
<PAGE>
acquired on November 27, 1996. In addition, the Canandaigua Inn on the Lake
was open only one month during the six month period ended June 30, 1996, as
the facility underwent major renovations during the first five months.
Operating revenues (which includes hotel room revenue, beach club revenue and
food and beverage revenue) for the Seagate Hotel and Beach Club are included
prior to the acquisition on July 31, 1996, as a result of the Company being
the controlling partner in the limited partnership. Occupancy and average
daily room rate were 65.5% and $55.98, respectively, for the six months ended
June 30, 1997.
The beach club revenue relates to the operation of the beach club at the Seagate
Hotel and Beach Club, which decreased $62,590 or 9%, from the six month period
ended June 30, 1996, as a result of a reduction in new member dues (initiation
fees).
Food and beverage revenue was $1,651,985 for the six month period ended June 30,
1997, compared to $879,535 for the six month period ended June 30, 1996, an
increase of $772,450, or 88%. The increase is primarily the result of the
Canandaigua Inn on the Lake being closed, as the facility underwent major
renovations and reopened June 1996.
The increase in Other is a result of the acquisition of seventeen (17) hotels in
1996; 59% of Other represents telephone revenue, with the remaining percentage
being vending and movie revenues.
FRANCHISE PLACEMENT INCOME for the three month period ended June 30, 1996
reflects the opening of four (4) franchises (Charlotte - University, North
Carolina; Raleigh, North Carolina; Lake Norman, North Carolina and Charlotte -
Airport, North Carolina). There were two (2) franchise sales (Greenville, South
Carolina and Springfield, Missouri) during the six month period ended June 30,
1997.
ROYALTIES for the six month period ended June 30, 1997 have increased $35,001
over the six month period ended June 30, 1996, an increase of 13%. The increase
is attributable to thirty (30) franchised Microtels in operation, as opposed to
twenty six (26) during the same six month period in 1996.
As a result of the Company's joint venture with US Franchise Systems, Inc. (see
Note 10), the Company has retained the right to franchise, construct and collect
franchise placement fees on an additional twenty-two (22) Microtel properties
and ten (10) "suite" properties and retain all royalties on the fifty (50)
Microtels (28 existing and 22 new ones to be undertaken by the Company) and ten
(10) suites. The Company will also receive royalty payments in the future from
US Franchise Systems, Inc., for franchises they open, along with consulting
payments over the next three years.
Overall, MANAGEMENT FEES for the six month period ended June 30, 1997 remained
consistent with the same three month period ended June 30, 1996. During the six
month period ended June 30, 1997, the Company obtained one (1) management
contract, compared with three (3) for the six month period ended June 30, 1996.
The Company's ownership position in hotels managed, is summarized below:
June 30, 1997 June 30, 1996
------------- -------------
Owned 17 -0-
Managed with financial interest 10 14
Other managed 5 4
--- ---
32 18
--- ---
--- ---
Management fees of approximately $790,000 were generated by the seventeen
(17) owned hotels for the six months ended June 30, 1997, which were
eliminated for consolidation purposes.
DEVELOPMENT FEES decreased $280,000 from the same period in 1996. The decrease
is attributable to one (1) hotel under development compared to four (4)
Microtels and one (1) full-service hotel under various stages of development
for which fees were charged. These fees represent a reimbursement of costs
incurred.
17
<PAGE>
CONSULTING FEES for the six months ended June 30, 1997 represent fees received
as part of our joint venture with US Franchise Systems, Inc., under which the
Company will be receiving fees for various consulting services over the next two
years (see Note 10).
The Company plans to continue its rapid revenue growth by implementing the
following strategies: (i) enhance operating performance of its existing hotels
owned or under management (ii) develop and building Microtels Inns on sites
acquired and (iii) opportunistic acquisition of existing hotels.
GROSS OPERATING MARGIN for hotel operations (consisting of total hotel
revenues, less direct expenses; departmental expenses, undistributed
expenses, property occupancy costs and insurance costs) for the six months
ended June 30, 1997 was 33.8%, compared to 34.6% for the six months ended
June 30, 1996. The decrease is a result of operating only one (1) hotel, the
Seagate Hotel and Beach Club, for the six month period ended June 30, 1996,
which is its peak operating period. The 1997 results include the acquisition
of seventeen (17) hotel properties (five of which were acquired on July 31,
1996, and the remaining twelve acquired on November 27, 1996). The direct
costs and expenses for the Seagate Hotel and Beach Club are included prior to
the acquisition on July 31, 1996, as a result of the Company being the
controlling partner in the limited partnership.
CORPORATE represents general and administrative costs and expenses associated
with the corporate office. Corporate costs and expenses increased $267,009
from prior year. The increase is primarily a result of the following: (1)
professional fees increased for the three month period as a result of Company
growth, (2) payroll expense increased as a result of pay increases and the
addition of four employees, and (3) recording non-cash investor relations
expense for services performed.
DEPRECIATION AND AMORTIZATION for the six month period ended June 30, 1997
increased $1,661,515, or 664% , over the six month period ended June 30, 1996.
The increase is a result of the acquisition of five (5) hotels on July 31, 1996,
and twelve (12) hotels on November 27, 1996. One of the five (5) hotels
purchased on July 31, 1996, the Seagate Hotel and Beach Club, is included in the
operating results of the Company during the six month period ended June 30,
1996, as a result of the Company's ownership interest in the partnership.
OTHER INCOME (EXPENSE) - Interest income is $88,941 of which $55,000, or 62%, is
generated by interest on the mortgage receivable from Watertown Hotel Properties
II, L.P. Another $33,941 relates primarily to interest earned by the Company on
the outstanding balance owed the Company by US Franchise Systems, Inc. Of the
$4,044,079 in total interest expense, 64% relates to the mortgage held on the
hotels acquired in 1996. The remaining represents interest on the Company's
outstanding convertible debentures, mezzanine financing, notes payable relating
to the purchase of hotels, Tonawanda bond issue and line of credit.
MINORITY INTEREST for the six month period ended June 30, 1996 represents the
elimination of the minority partners interest in operations of Delray Beach
Hotel Properties Limited and Watertown Hotel Properties II, L.P., and the
minority interest for the six month period ended June 30, 1997 represents the
elimination of the minority partners interest in Watertown Hotel Properties II,
L.P.
EQUITY IN INCOME OF AFFILIATES represents the net income incurred from the
Company's equity investment in various hotels. On July 31, 1996, the Company
acquired the remaining interest of Delray Beach Hotel Properties Limited and has
included its results of operations from the acquisition date, without the
elimination of the minority partners interest.
INCOME TAXES - The benefit provision for income taxes for the six month
period ended June 30, 1997, represents federal and state income tax benefit
generated by the net loss before tax of $475,829. The provision includes tax
expense/benefit from the valuation of deferred tax assets and liabilities.
The provision for income taxes of $187,997 for the six month period ended
June 30, 1996 represents federal and state tax expense on income before tax
of $646,738.
18
<PAGE>
NET INCOME/LOSS - As a result of the above factors, net income decreased
$742,235 from the six month period ended June 30, 1996 to a net loss of $283,494
for the six month period ended June 30, 1997. The net loss per common share of
$.07, compared with a net income per common share of $.11 for the six month
period ended June 30, 1996.
Capital Resources and Liquidity
At June 30, 1997, the Company had a $200,000 working capital demand line note
with a commercial bank which bears interest at prime plus 1/2%. Amounts
borrowed are collateralized by a hotel property which the Company owns.
Subsequent to June 30, 1997, the Company has obtained an additional $1,100,000
in working capital line with two (2) commercial banks at interest rates of prime
plus 1/2%. The notes are secured by unencumbered land and hotel.
At June 30, 1997, the Company had $1,227,314 of cash and cash equivalents
compared with $289,699 at June 30, 1996.
The Company is required to maintain certain levels of escrowed cash in order to
comply with the terms of its debt agreements. All cash is trapped for
application against required escrows for debt, tax, insurance and capital asset
reserves. A substantial portion of the escrowed cash funds are released several
times monthly for application against current liabilities. The balance held in
escrow on June 30, 1997 and 1996 was $2,638,328 and $-0-, respectively.
Net cash from operating activities increased $1,739,151 to $1,626,276 at June
30, 1997 from a deficit from operating activities of $112,875 at June 30, 1996.
The net increase is primarily the result of the acquisition of seventeen (17)
hotel properties five (5) of which were acquired on July 31, 1996, and the
remaining twelve (12) acquired on November 27, 1996.
Net cash from investing activities increased by $192,222 from June 30, 1996 to
June 30, 1997. Net cash from investing activities for the six months ended June
30, 1997, reflects amounts placed into escrow as required by our loan
agreements, capital improvements to the seventeen (17) hotels acquired in 1996
and deposits submitted for the acquisition of three (3) hotels.
Net cash provided by financing activities decreased by $1,284,698 to $183,372 at
June 30, 1997. Net borrowing on the line of credit decreased to $200,000 for
the 1997 six month period, compared to $1,785,000 for the 1996 six months. The
decrease is primarily the result of the Company using the line of credit in 1996
for the acquisition/development of real estate. In addition, the Company
received cash proceeds of $431,188 from the exercise of options for the 1997 six
months, compared to $1,667 for the 1996 six months.
EBITDA increased to $5,436,164 during the 1997 six months, an increase of 258%
over the 1996 six months. EBITDA is defined as earnings before interest
expense, income taxes, depreciation, amortization, minority interest and equity
of affiliates. The Company believes this definition of EBITDA provides a
meaningful measure of its ability to service debt. The increase is a result of
the acquisition of seventeen (17) hotel properties (five (5) of which were
acquired on July 31, 1996, and the remaining twelve (12) acquired on November
27, 1996).
Funds on hand, internally generated future cash flows and funds available on the
Company's secured demand notes are expected to be sufficient to meet capital
requirements, as well as operating expenses and debt service requirements
through at least the third quarter of 1997. From time to time, the Company
will continue to evaluate the necessity of other financing alternatives.
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128--Earnings Per Share
("SFAS No. 128"), which will be effective for the Company's fiscal year ended
December 31, 1997. SFAS No. 128 is intended to simplify the earnings per
share computation and make them more comparable from company to company. The
adoption of SFAS No. 128 is not expected to have a significant impact on the
company's earnings per share, as currently determined.
Special Note Regarding Forward-Looking Statements
Certain matters discussed in this Management's Discussion and Analysis
of Financial Condition and Results of Operations and Capital Resources and
Liquidity are "forward-looking statements" intended to qualify for the safe
harbors from liability established by the Private Securities Litigation
19
<PAGE>
Reform Act of 1996. These forward-looking statements can generally be
identified as such because the context of the statement will include
words such as the company "believes", "anticipates", "expects", or
words of similar meaning. Similarly, statements that describe the
Company's future plans, objectives or goals are also forward-looking
statements. Such forward-looking statements are subject to certain
risks, assumptions and uncertainties which are described in close
proximity to such statements and which could cause actual results to
differ materially from those currently anticipated. Shareholders,
potential investors and other readers are urged to consider these
risks, assumptions and uncertainties carefully in evaluating the
forward-looking statements are are cautioned not to place undue
reliance on such forward-looking statements. The forward-looking
statements made herein are only made as of the date of this form
10-QSB and the Company undertakes no obligation to publicly update
such forward-looking statements to reflect subsequent events or
circumstances.
20
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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 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 an 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 obligations 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. On March 17, 1994, the Court granted Summary Judgment in favor of
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, 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
1997.
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 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. The Company believes
that it has adequate insurance for any potential loss.
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, or known to be threatened (as
described above), will not have a significant effect on the Company's
financial statements.
On June 20, 1995, Ladenburg, Thalmann & Co., Inc., the Company's former
investment bankers, filed a complaint in New York State Supreme Court
against the Company alleging breach of contract and damages of $906,250
relating to the Company's rescission of a warrant granted to them in
connection with the investment advisory agreement. In February 1994, the
Board of Directors of the Company determined that Ladenburg had been
otherwise adequately compensated for such services as were actually
performed, and voted to rescind the warrant. The Company has answered the
complaint, denying the relevant allegations and asserting several
affirmative defenses. Discovery in the case has commenced and is
continuing. The ultimate outcome of the litigation cannot presently be
determined. Accordingly, no provision for any liability that may result
has been made in the financial statements.
21
<PAGE>
Item 2. Change in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of the stockholders of the Company, held on May 29, 1997,
the stockholders of the Company approved the following:
The shareholders approved the appointment of the Board of Directors consisting
of six Directors. Each Director shall hold office until the next annual meeting
of shareholders and until the successor of the Director is duly elected and
qualifies.
Appointment of Coopers & Lybrand, L.L.P., as the Company's independent public
accountants for the year ending December 31, 1997.
The table below sets forth the number of votes cast for, against or withheld for
each nominee to the Company's Board of Directors, as well as votes cast for
other proposals discussed above at the May 29, 1997 shareholders meeting:
Nominee For Against Abstained
E. Anthony Wilson 3,213,408 32,160 --
Michael Cahill 3,213,408 32,160 --
Bruce A. Sahs 3,213,408 32,160 --
Ralph L. Peek 3,213,408 32,160 --
Robert Fagenson 3,213,408 32,160 --
John P. Buza 3,213,408 32,160 --
As to the proposal to appointing Coopers & Lybrand, L.L.P. as the Company's
independent public accountant for the year ending December 31, 1997.
3,213,143 shares have voted FOR
28,825 shares have voted AGAINST and
3,600 shares have ABSTAINED
Item 5. Exhibits and Reports on Form 8-K
A. Exhibits
--------
Exhibit No. Description
- ----------- -----------
11 Statement re: computation of per share earnings
27 Financial Data Schedule
B. Form 8-K: The following report was filed on Form 8-K/A
Date of Report Item
- -------------- ----
April 29, 1997 Change in Registrant's Certifying Accountants
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
HUDSON HOTELS CORPORATION
----------------------------------------
(Registrant)
Date: 7/30/97 /s/ Bruce A. Sahs
----------------------------------------
Bruce A. Sahs, Executive Vice President
and Chief Operating Officer
Date: 7/30/97 /s/ Taras M. Kolcio
----------------------------------------
Taras M. Kolcio, Chief Financial Officer
24
<PAGE>
<TABLE>
<CAPTION>
Exhibit 11
COMPUTATION OF EARNINGS PER COMMON SHARE
THREE MONTHS SIX MONTHS
------------ -----------
6/30/97 6/30/96 6/30/97 6/30/96
------- ------- ------- -------
<S> <C> <C> <C> <C>
PRIMARY
- -----------------------------------------
Net earnings applicable to common stock:
Net earnings/(loss) $ 58,169 $ 254,234 $(283,494) $458,741
Deduct preferred stock dividends paid (31,830) (31,830) (63,660) (63,660)
--------- --------- --------- -------
Net earnings/(loss) applicable to common stock $ 26,339 $222,404 $(347,154) $395,081
--------- --------- --------- -------
--------- --------- --------- -------
Weighted average number of common shares and
common equivalents outstanding:
Weighted average common shares outstanding 4,955,209 3,251,852 4,872,268 3,242,465
Additional shares assuming conversion of
options and warrants 276,225 453,802 323,746 519,686
---------- --------- --------- -------
Weighted average number of common shares
and common equivalents outstanding 5,231,434 3,705,654 5,196,014 3,762,151
---------- --------- --------- -------
Primary earnings/(loss) per share $ 0.01 $ 0.06 $ (0.07) $ 0.11
---------- --------- --------- -------
---------- --------- --------- -------
FULLY DILUTED*
- -----------------------------------------
Net earnings applicable to common stock
on a fully diluted basis:
Net earnings applicable to common stock per above $ 26,339 $ 222,404 $ 395,081
Add net interest expense related to convertible
debentures 84,375 19,500 39,000
Add dividends on convertible preferred stock 31,830 31,830 63,660
--------- --------- -------
Net earnings applicable to common stock on a fully
diluted basis $142,544 $273,734 $497,741
--------- --------- -------
--------- --------- -------
Total shares for fully diluted:
Shares used in calculating primary earnings per share 5,231,434 3,705,654 3,762,151
Additional shares to be issued under full dilution using
ending market price 660 -- --
Additional shares to be issued under full conversion of
convertible debentures 1,000,000 600,000 600,000
Additional shares to be issued under full conversion of
preferred stock 294,723 294,723 294,723
--------- --------- -------
Total shares for fully diluted 6,526,817 4,600,377 4,656,874
--------- --------- -------
--------- --------- -------
Fully diluted earnings per share $ 0.02 $ 0.06 $ 0.11
--------- --------- -------
</TABLE>
*This calculation is submitted in accordance with
Securities Exchange Act of 1934 Release No. 9083,
although not required by footnote 8, paragraph 40,
of APB No. 15 because it results in anti-dilution.
In addition, common equivalent shares are not
considered in the computation of earnings per
common share for March 31, 1997, as the impact
would be antidilutive.
23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet, Consolidated Statement of Operations, Consolidated
Statements of Change in Shareholders' Investment, Consolidated Statements of
Cash Flows and Notes to Consolidated Statements, and is qualified in its
entirety by reference to such financial statements and notes to Consolidated.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,865,642
<SECURITIES> 0
<RECEIVABLES> 858,130
<ALLOWANCES> 0
<INVENTORY> 236,566
<CURRENT-ASSETS> 6,146,341
<PP&E> 85,180,695
<DEPRECIATION> 2,484,650
<TOTAL-ASSETS> 103,369,040
<CURRENT-LIABILITIES> 8,626,027
<BONDS> 83,302,731
0
295
<COMMON> 5,049
<OTHER-SE> 13,390,156
<TOTAL-LIABILITY-AND-EQUITY> 103,369,040
<SALES> 17,986,873
<TOTAL-REVENUES> 17,986,873
<CGS> 12,550,709
<TOTAL-COSTS> 12,550,709
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,044,079
<INCOME-PRETAX> (430,682)
<INCOME-TAX> (192,335)
<INCOME-CONTINUING> (238,347)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (283,494)
<EPS-PRIMARY> $(.07)
<EPS-DILUTED> 0<F1>
<FN>
<F1>NOTE: If information required by the applicable schedule is not included in
the underlying financial data because it is either immaterial or inapplicable,
the value "0" (zero) will be responded to that item.
</FN>
</TABLE>
