<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-Q/A1
AMENDMENT NO. 1
TO
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the securities Exchange
Act of 1934 For the Period ended March 31, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the securities Exchange
Act of 1934 for the Period From to .
--------------- ---------------
Commission file number 0-23256
JAMESON INNS, INC.
(Exact name of registrant as specified in its Articles)
Georgia 58-2079583
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
8 Perimeter Center East, Suite 8050
Atlanta, Georgia 30346-1603
(Address of principal executive offices including zip codes)
(770) 901-9020
(Registrant's telephone number, including area code)
-----------------------------------------------
(Former name, former address and former
fiscal year, if changed since last report)
------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. X Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date - Common Stock, $.10 Par Value -
9,832,422 shares outstanding as of April 30, 1998.
<PAGE> 2
<TABLE>
<CAPTION>
INDEX
PART 1. FINANCIAL STATEMENTS
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of March 31, 1998
(unaudited) and December 31, 1997.............................................. 3
Condensed Consolidated Statements of Income for the Three Month
Periods Ended March 31, 1998 and 1997 (unaudited).............................. 4
Condensed Consolidated Statements of Cash Flows for the Three Month
Periods Ended March 31, 1998 and 1997 (unaudited).............................. 5
Notes to Condensed Financial Statements (unaudited)............................ 7
ITEM 2. MANAGEMENTS'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................... 11
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................................... 17
SIGNATURES.......................................................................... 18
EXHIBITS
</TABLE>
2
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
JAMESON INNS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------- -------------
(Unaudited)
ASSETS
<S> <C> <C>
Property and equipment, at cost $ 127,761,776 $ 117,515,375
Less accumulated depreciation (13,632,396) (12,584,189)
------------- -------------
114,129,380 104,931,186
Cash 352,310 338,581
Lease revenue receivable 1,935,821 1,457,672
Prepaid expenses 67,446 6,280
Deferred finance costs, net 811,340 781,472
Other assets 159,868 90,505
------------- -------------
$ 117,456,165 $ 107,605,696
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage notes payable $ 12,658,197 $ 29,624,889
Accounts payable and accrued expenses 352,679 213,411
Accounts payable to affiliates 823,221 2,185,884
Accrued interest 170,659 164,757
Accrued property taxes 211,918 255,874
------------- -------------
14,216,674 32,444,815
Stockholders' equity:
Preferred stock, $1 par value, 10,000,000
shares authorized, 1,200,000 shares of 9.25%
Series A Cumulative Preferred Stock, $25
liquidation value, issued and outstanding 1,200,000 --
Common stock, $.10 par value, 40,000,000
shares authorized, 9,815,523 (9,774,075 in
1997) shares issued and outstanding 981,552 977,408
Additional paid-in capital 102,084,930 75,210,464
Retained deficit (1,026,991) (1,026,991)
------------- -------------
Total stockholders' equity 103,239,491 75,160,881
------------- -------------
$ 117,456,165 $ 107,605,696
============= =============
</TABLE>
See accompanying notes.
3
<PAGE> 4
JAMESON INNS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTH PERIOD ENDED
MARCH 31
--------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Lease revenue $ 3,852,678 $ 2,735,543
Expenses:
Property tax expense 217,904 127,070
Insurance expense 113,041 93,404
Depreciation 1,295,271 855,866
General and administrative expenses 138,037 72,032
Loss on disposal of furniture and equipment 106,763 29,886
------------- -------------
Total expenses 1,871,016 1,178,258
Income from operations 1,981,662 1,557,285
Interest expense, net of capitalized amounts 516,248 346,416
------------- -------------
Income before extraordinary loss 1,465,414 1,210,869
Extraordinary loss 28,036 689,542
------------- -------------
Net income 1,437,378 521,327
Undeclared cumulative preferred stock dividends 106,800 --
------------- -------------
Net income attributable to common stockholders $ 1,330,578 $ 521,327
============= =============
Per common share:
Income before extraordinary loss:
Basic $ .14 $ .15
Diluted $ .14 $ .15
Net income:
Basic $ .14 $ .07
Diluted $ .13 $ .06
Dividends paid $ .23 $ .22
</TABLE>
See accompanying notes.
4
<PAGE> 5
JAMESON INNS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTH PERIOD ENDED
MARCH 31
--------------------------------
1998 1997
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,437,378 $ 521,327
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Extraordinary item 28,036 596,526
Depreciation and amortization 1,321,039 878,217
Loss on disposal of furniture and equipment 106,763 29,886
Stock option and other expenses -- 22,063
Changes in assets and liabilities increasing
(decreasing) cash:
Lease revenue receivable (478,149) (711,753)
Prepaid expenses and other assets (130,530) 47,337
Accounts receivable from and advances to
affiliates -- (1,318,001)
Accounts payable and accrued expenses 139,268 64,150
Accounts payable to affiliates (1,362,663) (633,460)
Accrued interest 5,902 (77,815)
Accrued property taxes (43,956) 8,707
------------- -------------
Net cash provided by (used in) operating activities 1,023,088 (572,816)
INVESTING ACTIVITIES
Additions to property and equipment (10,600,228) (4,587,637)
------------- -------------
Net cash used in investing activities (10,600,228) (4,587,637)
</TABLE>
See accompanying notes.
5
<PAGE> 6
JAMESON INNS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
FOR THE THREE MONTH PERIOD ENDED
MARCH 31
--------------------------------
1998 1997
------------- -------------
<S> <C> <C>
FINANCING ACTIVITIES
Proceeds from issuance of preferred stock 28,530,236 --
Common stock dividends paid (2,250,812) (1,620,831)
Proceeds from issuance of common stock 162,758 25,977,954
Proceeds from exercise of stock options 199,051 71,887
Proceeds from long-term debt 12,711,754 6,256,777
Payment of deferred finance costs (83,672) (90,554)
Payments on long-term debt (29,678,446) (25,643,692)
------------- -------------
Net cash provided by financing activities 9,590,869 4,951,541
------------- -------------
Net increase (decrease) in cash 13,729 (208,912)
Cash at beginning of period 338,581 208,912
============= =============
Cash at end of period $ 352,310 $ --
============= =============
</TABLE>
6
See accompanying notes.
<PAGE> 7
JAMESON INNS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND BASIS OF FINANCIAL STATEMENTS
Jameson Inns, Inc. (the "Company") is a self-administered real estate investment
trust ("REIT") headquartered in Atlanta which develops and owns limited service
hotel properties ("Inns") operating in the southeastern United States under the
trademark "The Jameson Inn (R)." At March 31, 1998, the Company had a total of
96 Inns either in operation or under development, including 67 Inns in operation
(3,159 available rooms), 14 Inns under construction and contracts to acquire 15
parcels of land on which additional Inns are expected to be constructed during
1998 or 1999. Upon completion of these projects, the Company will have 4,619
available rooms.
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounted principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. The condensed consolidated balance sheet at December 31, 1997,
has been derived from the audited consolidated financial statements at that
date. Operating results for the three month period ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1998, or any other interim period. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
annual report on Form 10-K for the year ended December 31, 1997.
2. STOCKHOLDERS' EQUITY
On March 18, 1998, the Company completed the sale of 1,200,000 newly issued
shares of 9.25% Series A Cumulative Preferred Stock (the "Series A Preferred
Stock") at $25 per share before underwriting discounts and expenses. Net
proceeds of approximately $28.5 million were used to repay certain existing
mortgage indebtedness at that date. The Company recorded an extraordinary loss
of $28,036 due to the write off of unamortized deferred finance costs. As of
March 31, 1998, undeclared dividends on the Series A Preferred Stock for the
portion of the quarter the Preferred Stock was outstanding have been considered
in determining net income attributable to common stockholders. These dividends
were declared in April 1998 and paid in May 1998.
On March 10, 1997, the Company completed the sale of 2,300,000 newly issued
shares of common stock at $12 per share before underwriting discounts and
expenses. Net proceeds of approximately $26 million were used to repay certain
existing mortgage indebtedness at that date.
7
<PAGE> 8
The Company recorded an extraordinary loss of $689,542 due to prepayment
penalties and the write off of unamortized deferred finance costs.
The Series A Preferred Stock has no stated maturity and will not be subject to
any sinking fund or mandatory redemption. With respect to the payment of
dividends and amounts upon liquidation, the Series A Preferred Stock ranks
senior to the Company's Common Stock. Dividends on the Series A Preferred Stock
are cumulative from the date of original issue and are payable quarterly in
arrears on or about the 20th day of January, April, July and October to
shareholders of record on the last business day of December, March, June and
September at the fixed rate of 9.25% per annum of the liquidation preference of
$25 per share (equivalent to a fixed annual rate of $2.3125 per share).
Upon any voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Company, the holders of shares of Series A Preferred Stock are
entitled to be paid out of the assets of the Company legally available for
distribution to its shareholders the liquidation preference of $25 per share,
plus an amount equal to any accrued and unpaid dividends to the date of payment,
but without interest, before any distribution of assets is made to holders of
Common Stock or any other class or series of capital stock of the Company that
ranks junior to the Series A Preferred Stock as to liquidation rights.
The Company may not redeem the Series A Preferred Stock prior to March 18, 2003,
except upon the occurrence of certain specified events which would result in a
change of control of the Company (a "change of control event") or if a
stockholder acquires shares in excess of the ownership limitations imposed under
the Company's Amended and Restated Articles of Incorporation, as amended. Upon
the occurrence of a change of control event at any time prior to March 18, 2003,
the Company may redeem all of the outstanding Series A Preferred Stock at a
purchase price ranging from $25.05 to $26.05 per share (depending on the date of
the redemption), plus accrued and unpaid dividends (if any) to the date of
redemption. On and after March 18, 2003, the Series A Preferred Stock is
redeemable for cash at the option of the Company, in whole or in part, at a
redemption price of $25 per share, plus dividends accrued and unpaid to the
redemption date (whether or not declared) without interest.
Holders of Series A Preferred Stock generally have no voting rights except as
required by law. However, whenever dividends on any shares of Series A Preferred
Stock are in arrears for six or more quarters (whether consecutive or not), the
holders of such shares (voting separately as a voting group with all other
series of preferred stock ranking on a parity with the Series A Preferred Stock
upon which like voting rights have been conferred and are exercisable) will be
entitled to vote for the election of two additional directors of the Company
until all dividends accumulated on such shares of Series A Preferred Stock have
been fully paid or declared and a sum sufficient for the payment thereof set
aside for payment. The Series A Preferred Stock is not convertible into or
exchangeable for any other property or securities of the Company. Subject to
certain exceptions, no person, directly or indirectly, may own shares
representing more than 6.75% of the outstanding Series A Preferred Stock.
8
<PAGE> 9
3. EARNINGS PER SHARE
Earnings per share has been calculated, and restated in the case of fiscal
quarters ending prior to December 31, 1997, in accordance with Financial
Accounting Standards Board Statement No. 128, Earnings per Share ("FAS 128") and
the Securities and Exchange Commission Staff Accounting Bulletin No. 98 ("SAB
98").
Basic earnings per share is calculated using weighted average shares outstanding
less issued and outstanding but unvested restricted shares of Common Stock.
Diluted earnings per share is calculated using weighted average shares
outstanding plus the dilutive effect of outstanding restricted shares of Common
Stock and outstanding stock options, using the treasury stock method and the
average stock price during the period.
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
FOR THE THREE MONTH PERIOD ENDED
MARCH 31
--------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Numerator:
Income from continuing operations $ 1,465,414 $ 1,210,869
Less: Extraordinary loss (28,036) (689,542)
------------- -------------
Net income 1,437,378 521,327
Less: Undeclared cumulative preferred stock
dividends (106,800) --
------------- -------------
Numerator for basic and diluted earnings per share -
income available to common stockholders $ 1,330,578 $ 521,327
============= =============
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
FOR THE THREE MONTH PERIOD ENDED
MARCH 31
--------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Denominator:
Weighted average shares outstanding 9,791,360 7,906,499
Less: Unvested restricted shares of Common Stock (64,401) (63,043)
------------- -------------
Denominator for basic earnings per share 9,726,959 7,843,456
Plus: Effect of dilutive securities
Employee and director stock options 138,438 172,260
Unvested restricted shares of Common Stock 43,734 46,490
------------- -------------
Total dilutive potential common shares 182,172 218,750
------------- -------------
Denominator for diluted earnings per share-adjusted
weighted average shares and assumed conversions 9,909,131 8,062,206
============= =============
Basic Earnings Per Common Share:
Income before extraordinary loss $ 0.14 $ 0.15
Less: Extraordinary loss -- (.08)
------------- -------------
Net income per common share $ 0.14 $ 0.07
============= =============
Diluted Earnings Per Common Share:
Income before extraordinary loss $ 0.14 $ 0.15
Less: Extraordinary loss (.01) (.09)
------------- -------------
Net income per common share $ 0.13 $ 0.06
============= =============
</TABLE>
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Jameson Inns,
Inc. condensed consolidated financial statements and notes thereto appearing
elsewhere in this quarterly report.
Jameson Inns, Inc. (the "Company") is a self-administered real estate investment
trust ("REIT") headquartered in Atlanta which develops and owns limited service
hotel properties ("Inns") operating in the southeastern United States under the
trademark "The Jameson Inn (R)." At March 31, 1998, the Company had a total of
96 Inns either in operation or under development, including 67 Inns in operation
(3,159 available rooms), 14 Inns under construction and contracts to acquire 15
parcels of land on which additional Inns are expected to be constructed during
1998 or 1999. Upon completion of these projects, the Company expects to have
4,619 available rooms.
The Company's primary source of revenue is rent payments by Jameson Hospitality,
LLC ("JH") under master leases (the "Leases") covering all of the Inns in
operation. The expenses of the Company consist of property taxes, insurance,
corporate overhead, interest on mortgage debt and depreciation of the Inns. The
Leases provide for the payment of base rent and percentage rent. For the quarter
ended March 31, 1998, base rent and percentage rent in the aggregate amount of
$3.85 million was earned by the Company. The principal determinant of percentage
rent is JH's Room Revenues of the Inns, as defined by the Leases. Therefore,
management believes that a review of the historical performance of the
operations of the operating Inns, particularly with respect to occupancy,
average daily rate ("ADR") and revenue per available room ("REVPAR") is
appropriate for understanding revenue from the Leases.
The following table shows certain historical financial and other information for
the periods indicated.
<TABLE>
<CAPTION>
FOR THE THREE MONTH PERIOD ENDED
MARCH 31
--------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Occupancy rate 61.45% 63.53%
ADR $ 47.81 $ 45.55
REVPAR $ 29.38 $ 28.94
Room Revenues (000s) $ 8,197 $ 5,820
Room nights available 272,481 195,479
Room nights occupied 167,440 124,190
Operating Inns (at period end) 67 46
Rooms available (at period end) 3,159 2,227
</TABLE>
11
<PAGE> 12
RESULTS OF OPERATIONS
Comparison of the Three Months Ended March 31, 1998 to the Three Months Ended
March 31, 1997.
Revenue from the Leases for the Company for the three month period ended March
31, 1998, increased 44% to $3.9 million as compared to $2.7 million for the same
period in 1997. The increase was due to the increase in JH's Room Revenues.
The number of room nights available increased from 195,479 in 1997 to 272,481 in
1998, or 39%, due to the opening from January 1, 1997, through March 31, 1998,
of 24 new Inns (totaling 999 rooms), and three expansions of existing Inns
(adding 53 rooms). ADR increased 5% from $45.55 in the first quarter of 1997 to
$47.81 in the same period in 1998. The occupancy rate decreased from 63.53%
during the first quarter of 1997 to 61.45% during the first quarter of 1998. As
a result of these three factors, first quarter Room Revenues rose 41%, from $5.8
million for the first quarter of 1997 to $8.2 million in the first quarter of
1998. Same Inn Room Revenues in the first quarter of 1998 versus the first
quarter of 1997 grew to $6.0 million from $5.7 million, or 5%. The growth is due
to an increase in ADR from $45.55 to $47.44 for these Inns, and an increase in
room nights available (due to expansions of certain of these Inns) from 191,183
to 195,333, partially offset by a decrease in the occupancy rate from 63.60% to
62.84% for these Inns for the first quarter of 1998 compared to the same period
in 1997.
General and administrative expense includes overhead charges for management,
accounting and legal services for the corporate home office. General and
administrative expense for the three months ended March 31, 1998, was $138,037,
as compared to $72,032 for the three months ended March 31, 1997. The 1997
expense is lower than 1998 due to less time spent by shared employees on the
Company's business matters as compared to other related entities and ground
lease expense on two Inns which was greater in 1998 than 1997.
Property taxes and insurance expenses totaled $330,945 for the three month
period ended March 31, 1998, compared with $220,474 for the same period in 1997.
The increase is attributable to the increase in number of Inns and the expansion
of existing Inns.
Interest expense increased from $346,416 for the three-month period ended March
31, 1997, to $516,248 for the same period ended March 31, 1998, due to the
greater amount of principal indebtedness outstanding in the first quarter of
1998. Interest expense amounts exclude interest capitalized in the cost of new
Inn development. As a result of the early extinguishment of debt in the first
quarters of 1998 and 1997, the Company had losses of $28,036 and $689,542,
respectively, comprised of the write-offs of deferred finance costs and
prepayment penalties, which are reflected as extraordinary items.
Depreciation expense increased from $855,866 to $1,295,271 for the three month
periods ended March 31, 1997 and 1998, respectively, due to an increase in the
number of operating Inns and the expansion of existing Inns.
12
<PAGE> 13
FUNDS FROM OPERATIONS
The Company notes that industry analysts and investors use funds from operations
as another tool to evaluate and compare equity REITs. The Company also believes
it is meaningful as an indicator of net income excluding most non-cash items and
provides information about the Company's cash available for distributions, debt
service and capital expenditures. The Company follows the March 1995
interpretation of the National Association of Real Estate Investment Trusts
("NAREIT") definition of funds from operations ("Funds from Operations") which
is calculated (in the Company's case) as net income plus depreciation, loss on
disposal of furniture and equipment and extraordinary items, if applicable.
Other non-cash expenses such as amortization and stock option expense have not
been added back in Funds from Operations. Funds from Operations does not
represent cash flow from operating activities in accordance with generally
accepted accounting principles ("GAAP") and is not indicative of cash available
to fund all of the Company's cash needs. Funds from Operations should not be
considered as an alternative to net income or any other GAAP measure as an
indicator of performance and should not be considered as an alternative to cash
flows as a measure of liquidity. In addition, the Company's Funds from
Operations may not be comparable to other companies' Funds from Operations due
to differing methods of calculating Funds from Operations and varying
interpretations of the NAREIT definition.
<TABLE>
<CAPTION>
FOR THE THREE MONTH PERIOD ENDED
MARCH 31
--------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Net income attributable to common stockholders $ 1,330,578* $ 521,327
Depreciation 1,295,271 855,866
Extraordinary loss 28,036 689,542
Loss on disposal of furniture and equipment 106,763 29,886
------------- -------------
Funds from Operations $ 2,760,648* $ 2,096,621
============= =============
</TABLE>
___________________
* Corrected
LIQUIDITY AND CAPITAL RESOURCES
In January 1997, the Company filed a shelf registration statement with the
Securities and Exchange Commission that provides for the issuance of an
aggregate of up to $100 million in Common Stock, Preferred Stock and Common
Stock warrants to be offered and sold from time to time. On March 18, 1998, the
Company completed the sale of 1,200,000 newly issued shares of 9.25% Series A
Cumulative Preferred Stock at $25 per share before underwriting discounts and
expenses. Net proceeds of approximately $28.5 million were used to repay certain
existing mortgage indebtedness at that date. On March 10, 1997, under the same
registration statement, the Company completed the sale of 2,300,000 newly issued
shares of common stock at $12 per share before underwriting discounts and
expenses. Net proceeds of approximately $26 million were used to repay certain
existing mortgage indebtedness at that date. The Company intends to
13
<PAGE> 14
use future net proceeds, if any, from any sale of securities under such
registration statement for the repayment of existing indebtedness, working
capital and general corporate purposes.
Since its election to be taxed as a REIT, the Company has financed and currently
intends to continue financing the construction of new Inns entirely with bank
borrowings. At March 31, 1998, the Company had approximately $12.7 million in
outstanding debt. It is management's intention to continue to borrow from some
or all of its previous lenders to finance future projects.
At March 31, 1998, the Company had a $36 million line of credit (the "Line")
convertible in June 1999 to a term note and $34.5 million was available for
borrowing. Loans made under the Line are secured by mortgages on 31 of the Inns.
Construction and long-term mortgages are expected to be available to fund the
balance of construction costs not funded under the Line. For each new Inn
developed by the Company, generally a construction loan has been obtained for a
portion of the cost. The balance is funded under the Line. Each construction
loan converts to a long-term mortgage upon completion of the Inn without any
further action by the Company. As of March 31, 1998, the Company had 22 Inns
unencumbered and available to use as collateral for any additional financing.
The Company is currently negotiating with its lenders to increase the Line to
approximately $43 million, but has no full commitment from such lenders at this
time regarding such an increase.
The Company expects to continue to develop additional Inns as suitable
opportunities arise, and the Company will not undertake investments unless
adequate sources of financing are available. The Company has recently completed
design and begun development of its first larger Jameson Inn model, with an
interior hallway and 60, 70 or 80 rooms. The Company currently is constructing
new 40-, 60- or 80-room Inns in Alabama, Georgia, Mississippi, North Carolina
and Tennessee. The total turnkey construction price for the Inns currently under
construction is $26 million, of which approximately $5 million had been expended
at March 31, 1998. Future Inns are expected to be 40-, 60- or 80-room Inns. The
Company may in the future expand additional Inns if management determines that
sufficient market demand exists and financing is available for any such
expansion.
As with most real estate investments, the Company's investments in the Inns are
relatively illiquid and such illiquidity is further increased by the Inns'
location in small communities. As a result, the ability of the Company to sell
or otherwise dispose of any Inn to provide liquidity may be very limited.
FORWARD-LOOKING STATEMENTS
There are a number of statements in this report which address activities, events
or developments which the Company expects or anticipates will or may occur in
the future, including such things as the Company's expansion plans, including
construction of new Inns and expansion of existing Inns, availability of debt
financing and capital, payment of quarterly dividends and other matters. These
statements are based on certain assumptions and analyses made by the Company in
the light of its experience and its perception of historical trends, current
conditions and expected future
14
<PAGE> 15
developments, as well as other factors it believes are appropriate under the
circumstances. However, whether actual results and developments will conform to
the Company's expectations and predictions is subject to a number of risks and
uncertainties, including (1) the Company's ability to (a) secure construction
and permanent financing to finance such development on terms and conditions
favorable to the Company, (b) assess accurately the market demand for new Inns
and expansions of existing Inns, (c) identify and purchase new sites which meet
its various criteria, including reasonable land prices, (d) contract for the
construction of new Inns and expansions of existing Inns in a manner which
produces Inns consistent with its present quality and standards at a reasonable
cost and without significant delays, (e) provide ongoing renovation and
refurbishment of the Inns sufficient to maintain consistent quality among the
Inns, and (f) manage its business in a cost-effective manner given the increase
in the number of Inns; (2) JH's willingness and ability to manage the Inns
profitably; (3) general economic, market and business conditions, particularly
those in the lodging industry generally and in the geographic markets where the
Inns are located; (4) the business opportunities (or lack thereof) that may be
presented to and pursued by the Company; (5) the availability of qualified
managers and employees necessary for the Company's planned growth; (6) changes
in laws or regulations and (7) other factors, most of which are beyond the
control of the Company. Consequently, all of the forward-looking statements made
in this report are qualified by these cautionary statements and there can be no
assurance that the actual results of developments anticipated by the Company
will be realized, or even if substantially realized, that they will have the
expected consequences to or effects on the Company or its business or
operations.
THE LESSEE
The Company seeks to enhance Lease revenue by working in a collaborative manner
with JH, lessee of the Inns. Presently, JH also has an exclusive relationship
with the Company in that JH does not manage any hotel properties other than the
Inns. The Company believes this exclusive relationship ensures that the
Company's and JH's interests are well-aligned. JH is the successor to Jameson
Operating Company, LLC ("JOCLLC") and its predecessor Jameson Operating Company
("JOC"). These companies were both wholly owned by Thomas W. Kitchin, Chairman,
President and Chief Executive Officer of the Company, JOCLLC since its inception
and JOC since Mr. Kitchin's acquisition of the remaining 90.1% stock of JOC in
September 1997. Effective March 31, 1998, JOCLLC merged with Jameson Development
Company, LLC, the company which constructs the Inns, and other related Jameson
entities. The resulting company, which will construct and operate the Inns,
subsequently changed its name to Jameson Hospitality, LLC. Thomas W. Kitchin and
his spouse are the sole owners of Jameson Hospitality, LLC. While the Company
does not control the operations of JH or the day-to-day operation of the Inns,
the two companies work together to enhance both occupancy and ADR. The Leases'
formula allows the Company to benefit from increases in Room Revenues,
regardless of the mix between occupancy and ADR.
The following table summarizes the unaudited financial results of Jameson
Hospitality, LLC, the lessee. Since Jameson Operating Company, LLC and the other
companies which were parties to the March 1998 merger with Jameson Development
Company, LLC were under common control
15
<PAGE> 16
of Thomas W. Kitchin and his spouse at the time of the merger, the financial
statements present the financial position, results of operations and cash flows
of both Jameson Operating Company, LLC and its predecessor Jameson Operating
Company as well as other parties to the merger. This merger has been accounted
for similar to a pooling of interests due to the common ownership and control of
the companies. The comparison of Inn Room Revenues of JH between the two periods
is the same as that described above for the Company.
<TABLE>
<CAPTION>
FOR THE THREE MONTH PERIOD ENDED
MARCH 31
1998 1997
<S> <C> <C>
Room Revenues as defined by Lease $ 8,197,188 $ 5,820,328
Construction and other revenues 6,943,247 * 3,044,925
------------- -------------
Total revenues 15,140,435 * 8,865,253
Operating expenses, cost of construction and
other revenues (11,641,282)* (5,886,517)
Lease expense to Jameson Inns, Inc. (3,852,678) (2,735,543)
------------- -------------
Income (loss) before income taxes $ (353,525)* $ 243,193
============= =============
</TABLE>
___________________
* Amounts have been restated to reflect a correction of errors in the revenue
recognized and costs related to the construction of the inns.
DISTRIBUTIONS TO STOCKHOLDERS
The table below sets forth, for the periods indicated, the cash distributions
declared per share since January 1, 1997.
<TABLE>
<CAPTION>
Common Stock Preferred Stock
------------- -------------
<S> <C> <C>
First Quarter, 1997 $ 0.22 $ n/a
Second Quarter, 1997 0.23 n/a
Third Quarter, 1997 0.23 n/a
Fourth Quarter, 1997 0.23 n/a
First Quarter, 1998 0.23 * 0.089**
</TABLE>
* On April 20, 1998, the Company declared this dividend, which is payable
on May 20, 1998, to shareholders of record on May 5, 1998.
** On April 20, 1998, the Company declared a dividend of $.089 per share
for the 9.25% Series A Cumulative Preferred Stock for the period March
18 to March 31, 1998. The dividend was paid on May 1, 1998 to
shareholders of record on March 31, 1998.
16
<PAGE> 17
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
On March 18, 1998, the Company filed a current report on Form
8-K reporting the execution by the Company of an underwriting agreement with
Morgan Keegan & Company, Inc. relating to the March 18, 1998, sale by the
Company of 1,200,000 shares of 9.25% Series A Cumulative Preferred Stock.
EXHIBITS
12.1 Calculation of Ratios of Earnings to Combined Fixed Charges and Preferred
Stock Dividends
27.1 Financial Data Schedule (for SEC use only)*
* Previously filed
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Jameson Inns, Inc.
(Registrant)
Dated: August 20, 1998 By: /s/ Thomas W. Kitchin
-------------------------------------
Thomas W. Kitchin
President and Chief Executive Officer
Dated: August 20, 1998 By: /s/ Craig R. Kitchin
-------------------------------------
Craig R. Kitchin
Chief Financial Officer
(Principal Financial Officer)
18
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Page
- ------ ----
<S> <C> <C>
12.1 - Calculation of Ratios of Earnings to Combined Fixed Charges and Preferred Stock
Dividends..............................................................................
27.1 - Financial Data Schedule (for SEC use only)* ...........................................
* Previously filed
</TABLE>
<PAGE> 1
EXHIBIT 12.1
JAMESON INNS, INC.
CALCULATION OF RATIOS OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
FOR THE THREE MONTH PERIOD ENDED
MARCH 31
--------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Consolidated income before extraordinary items $ 1,465,414 $ 1,210,869
Interest 490,480 324,064
Amortization 25,768 22,352
------------- -------------
Earnings $ 1,981,662 $ 1,557,285
============= =============
Interest $ 490,480 $ 324,064
Amortization
25,768 22,352
Undeclared cumulative preferred stock
dividends 106,800 --
Interest capitalized during the period 168,539 80,792
------------- -------------
Fixed Charges $ 791,587 $ 427,208
============= =============
Ratio of earnings to fixed charges and preferred
stock dividends
2.50 3.65
============= =============
</TABLE>
