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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended
March 31, 1998 Commission file number 1-14280
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
HOST FUNDING, INC.
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(Exact name of Registrant as specified in its charter)
Maryland 52-1907962
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6116 N. Central Expressway, Suite 1313, Dallas, TX 75206
- -------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (214) 750-0760
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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
----- -----
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date.
The number of outstanding shares of the Registrant's Class A Common Stock was
1,553,557 as of April 30, 1998.
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TABLE OF CONTENTS
<TABLE>
Item Number Page
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PART I
<S> <C> <C>
1. Financial Statements 3
Notes to Financial Statements 9
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
3. Quantitative and Qualitative Disclosures
About Market Risk 15
PART II
1. Legal Proceedings 15
2. Changes in Securities 15
3. Defaults Upon Senior Securities 15
4. Submission of Matters to a Vote of Security Holders 15
5. Other Information 15
6. Exhibits and Reports on Form 8-K 15
</TABLE>
2
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PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
3
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HOST FUNDING, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
- ------------------------------------------------------------------------------------------------------
March 31, December 31,
1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
LAND, PROPERTY AND EQUIPMENT - AT COST:
Building and improvements $20,868,436 $20,667,995
Furnishings and equipment 3,510,775 3,471,336
Less accumulated depreciation (1,504,084) (1,241,798)
----------- -----------
22,875,127 22,897,533
Land 6,845,711 6,844,650
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Land, property and equipment - net 29,720,838 29,742,183
CASH AND CASH EQUIVALENTS 5,197 48,867
RESTRICTED CASH 625,934 557,758
RENT RECEIVABLE - CROSSROADS 166,171 115,328
DUE FROM RELATED PARTIES 21,769 19,942
LONG-TERM ADVANCES TO CROSSROADS 238,317 255,841
LOAN COMMITMENT FEES - NET 891,003 964,551
FRANCHISE FEES - NET 107,985 110,760
PREPAID AND OTHER ASSETS 169,787 180,950
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TOTAL $31,947,001 $31,996,180
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
LONG-TERM DEBT $24,963,055 $25,036,346
SHORT TERM DEBT 1,345,154 1,345,154
LONG-TERM LEASE DEPOSIT 300,000 300,000
ACCOUNTS PAYABLE AND OTHER ACCRUED LIABILITIES 570,354 335,645
ACCRUED INTEREST 228,164 196,053
ACCRUED PROPERTY TAXES 237,332 248,823
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Total liabilities 27,644,059 27,462,021
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MINORITY INTEREST IN PARTNERSHIPS 251,983 254,822
SHAREHOLDERS' EQUITY:
Class A Common stock, $.01 par value; authorized
50,000,000 shares; issued and outstanding
1,553,557 shares and 1,535,868 shares at
March 31, 1998 and December 31, 1997 16,435 16,258
Additional Paid in Capital 8,615,925 8,499,876
Accumulated Deficit (3,492,109) (3,134,005)
Less: Unearned directors' compensation (189,292) (202,792)
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4,950,959 5,179,337
Less: Common stock in treasury at cost, 90,000
shares at March 31, 1998 (900,000) (900,000)
----------- -----------
Total shareholders' equity 4,050,959 4,279,337
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TOTAL $31,947,001 $31,996,180
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The accompanying notes are an integral part of the consolidated financial statements.
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</TABLE>
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HOST FUNDING, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
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<TABLE>
1998 1997
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<S> <C> <C>
REVENUES:
Lease revenue - related party
Lease revenue - Crossroads $ 910,003 $ 749,157
Interest income - related parties 0 59,420
Interest income & Other income 5,159 1,008
----------------------------
Total revenue 915,162 809,585
----------------------------
EXPENSES:
Interest expense (including amortization of
loan costs) 703,442 519,149
Depreciation and amortization 265,061 177,401
Administrative expenses - related party
Administrative expenses - other 212,074 274,316
Advisory fees - related party 2,500
Property taxes 82,884 61,585
Minority Interest in Partnerships (3,695)
Amortization of unearned directors' compensation 13,500 13,500
----------------------------
Total expenses 1,273,266 1,048,451
----------------------------
LOSS BEFORE INCOME TAXES (358,104) (238,866)
PROVISION (BENEFIT) FOR INCOME TAXES
----------------------------
NET LOSS $ (358,104) $ (238,866)
----------------------------
----------------------------
BASIC AND DILUTED NET LOSS PER SHARE $ (0.23) $ (0.16)
----------------------------
----------------------------
WEIGHTED AVERAGE NUMBER OF BASIC AND DILUTED
COMMON SHARES OUTSTANDING 1,552,171 1,514,049
----------------------------
----------------------------
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
-5-
<PAGE>
HOST FUNDING, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998
UNAUDITED
- -------------------------------------------------------------------------------
<TABLE>
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Class A Additional
Common Paid in Accumulated
Stock Capital Deficit
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<S> <C> <C> <C>
BALANCE, December 31, 1997 $16,258 $8,499,876 $(3,134,005)
AMORTIZATION OF UNEARNED DIRECTORS
COMPENSATION
COMMON STOCK ISSUED FOR ACQUIRED
PROPERTIES ACQUISITION FEE 175 114,925
COMMON STOCK ISSUED AS COMPENSATION
TO EMPLOYEE 2 1,124
NET LOSS (358,104)
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BALANCE, March 31, 1998 $16,435 $8,615,925 $(3,492,109)
------- ---------- -----------
------- ---------- -----------
<CAPTION>
- --------------------------------------------------------------------------------
Unearned Total
Directors' Treasury Shareholders'
Compensaton Stock Equity(Deficit)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE, December 31, 1997 $(202,792) $(900,000) $4,279,337
AMORTIZATION OF UNEARNED DIRECTORS
COMPENSATION 13,500 13,500
COMMON STOCK ISSUED FOR ACQUIRED
PROPERTIES ACQUISITION FEE 115,100
COMMON STOCK ISSUED AS COMPENSATION
TO EMPLOYEE 1,126
NET LOSS (358,104)
--------- --------- ----------
BALANCE, March 31, 1998 $(189,292) $(900,000) $4,050,959
--------- --------- ----------
--------- --------- ----------
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
-6-
<PAGE>
HOST FUNDING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
1998 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $(358,104) $ (238,866)
Adjustments to reconcile net income to net cash:
provided by operating activities
Depreciation and amortization 265,061 177,401
Amortization of loan fees 74,197 151,513
Amortization of unearned directors' compensation 13,500 13,500
Stock issued as compensation 1,125
Minority interest in Partnerships (2,839)
Changes in operating assets and liabilities:
Rent receivable - Crossroads (50,843) (186,972)
Rent, interest and other receivable - related party (1,827) (11,296)
Prepaid and other assets 11,163 27,362
Accounts payable and accrued expenses 255,330 44,772
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Net cash (used in) provided by operating activities 206,763 (22,586)
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INVESTING ACTIVITIES:
Acquisition of land, property and equipment (125,840) (5,140,600)
Restricted cash (68,176) (165,136)
Long-term advances to Crossroads 17,524 (7,855)
Franchise fees - (21,000)
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Net cash used in investing activities (176,492) (5,334,591)
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FINANCING ACTIVITIES:
Payment of loan fees (650) (787,152)
Borrowings on long-term debt 6,225,000
Payments on long-term debt (73,291)
Long-term lease deposit 300,000
Distributions (329,771)
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Net cash provided by (used in) financing
activities (73,941) 5,408,077
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NET CHANGE IN CASH AND CASH EQUIVALENTS (43,670) 50,900
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 48,867 218,693
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,197 $ 269,593
--------- -----------
--------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period for interest $ 597,132 $ 382,042
--------- -----------
--------- -----------
</TABLE>
(Continued)
-7-
<PAGE>
HOST FUNDING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
1998 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION (Continued)
Common stock issued for Acquired Properties
Acquisition Fee
Additional paid in capital $ 114,925 $ 151,840
Class A Common Stock 175 160
Land, property and equipment (115,100) (152,000)
--------- -----------
Net non-cash investing activity $ 0 $ 0
--------- -----------
--------- -----------
Conversion of Class C common stock
to Class A common stock
Class A common stock $ $ 1,400
Class C common stock (1,400)
--------- -----------
Net non-cash investing activity $ 0 $ 0
--------- -----------
--------- -----------
Common stock issued as compensation
Class A common $ 2 $
Additional paid in captial 1,123
Salary expense (1,125)
--------- -----------
Net non-cash investing activity $ 0 $ 0
--------- -----------
--------- -----------
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
-8- (Concluded)
<PAGE>
1. ORGANIZATION AND BASIS OF PRESENTATION.
The accompanying unaudited consolidated financial statements of Host
Funding, Inc., a Maryland corporation (the "Registrant" or the
"Company"), include the accounts of the Company and its consolidated
subsidiaries. These unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
for Form 10-Q. Accordingly, these statements do not include all of
the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management of the Registrant, all adjustments necessary for
a fair presentation have been included. The financial statements
presented herein have been prepared in accordance with the accounting
policies described in the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1997 and should be read in accordance
therewith. The results of operations for the three-month period ended
March 31, 1998 are not necessarily indicative of the results to be
expected for the full year.
2. NET INCOME (LOSS) PER SHARE.
Net Income or Loss per share for the three months ended March 31 1998,
and 1997 is computed based on the weighted average number of shares
of common stock outstanding. The impact of common stock equivalents
to earnings per share is immaterial.
The Company adopted Statement of Financial Standards No. 128 ("SFAS
128"), Earnings per Share ("EPS"), beginning with the Company's fourth
quarter of 1997. SFAS 128 requires basic EPS to be computed by
dividing income available to common stockholders by weighted-average
number of common shares outstanding for the period and diluted EPS to
reflect dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the
earnings of the entity. All prior period EPS data is required to be
restated to conform to the provision of this statement. There is no
difference between basic and diluted EPS; therefore, no restatement
of prior periods nor reconciliation of these amounts is needed.
3. COMMITMENTS AND CONTINGENCIES.
REIT STATUS
The Company, as a requirement under the Internal Revenue Code (the
"Code") to elect REIT status, must have no more than five (5)
shareholders, who own no more than 50% of the common stock, common
stock equivalents, or other forms of equity
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outstanding of the Company. The Company has not satisfied
this requirement and therefore, has not elected to qualify
as a REIT during the 1997 tax year and currently is subject
to the corporate tax provisions. However, the Company is in
a net operating loss position, and has a net deferred tax
asset under SFAS 109, Accounting for Income Taxes, that has
been fully reserved. The Company's decision not to elect
REIT qualification will not adversely affect the
stockholders of the Company in that the Company had no
taxable income for the 1997.
CONTRACTS TO PURCHASE PROPERTIES
The Company has entered into contracts to purchase two properties
along the West Coast of Florida for an approximate aggregate price of
$14 million. The properties are located in Clearwater and Port Richey
and contain an aggregate of 258 rooms. Closing is anticipated early
in the third quarter, 1998, subject to customary due diligence
conditions. The Company is currently negotiating with Buckhead
America Corporation, a publicly traded corporation ("Buckhead"),
to lease and manage both properties. Southwest Securities of
Dallas, Texas is assisting the Company in procuring financing
of these transactions.
FRANCHISE AGREEMENTS
Host Funding has been granted franchise license agreements relating to
the Super 8 Motels, Sleep Inns, and Country Hearth Inns for terms
expiring in 2005, 2011, and 2012, respectively. Pursuant to the terms
of the agreements, the Company is required to pay royalty fees and
advertising fees of 5% to 4% and 3% to 1.3%, respectively, reservation
fees due under the Sleep Inn agreements of 1.75% of gross room
revenue, and reservation fees due under the Country Hearth agreements
of 1% of gross room revenues plus $1.00 per each room night generated
by the Country Hearth reservation system. Pursuant to the lease
agreements for each of the hotel properties owned by the Company, the
responsibility for payment of the fees on the Sleep Inns and the Super
8 Motels has been assigned to Crossroads Hospitality Tenant Company,
LLC, as lessee ("Crossroads"). Likewise, the responsibility for
payment of the fees on the Country Hearth Inns has been assigned to
Buckhead America Corporation as lessee of the Country Hearth Inns.
WARRANTS
The Company has issued and outstanding two series of warrants
designated "Series A Warrants" and "Series B Warrants". The Series A
Warrants provide warrants to purchase 225,000 shares of Host Funding's
Class A Common Stock, $0.01 par value per share, at $9.90 per share,
and expire on February 2, 2000. The Series B Warrants provide warrants
to purchase 225,000 shares of the Company's Class A Common Stock,
$0.01 par value per share, at $10.80 per share, and expire on February
2, 2001. There are additional provisions in the Series A Warrants and
the Series B Warrants that allow pari passu treatment upon
recapitalization of the Company. In addition, the
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Series B Warrants include certain restrictions prohibiting exercise
of the warrants if the Company gives notice of a potential public
offering of the securities of the Company under certain terms and
conditions. The prohibition against exercise terminates on the
earlier to occur of (i) sixty days after the effective date of the
public offering or (ii) February 2, 1999. On August 29, 1997, the
Company gave notice to the holders of the Series B Warrants of a
possible public offering thereby imposing the foregoing restrictions
on exercise of the Series B Warrants.
4. SUBSEQUENT EVENTS.
LOAN FROM BLACOR, INC.
On April 13, 1998 Blacor, Inc. ("Blacor"), an affiliate of Michael S.
McNulty, President of the Company, loaned the Company $28,000. The
Company executed and delivered to Blacor a promissory note with all
outstanding principal and accrued interest payable (at 12%) no later
than May 15, 1998. $18,000 in principal was unpaid as of May 1, 1998.
MODIFICATION AND EXTENSION OF NOTES PAYABLE
In October, 1997, B-H Findlay L.P. ("Findlay") entered into a note
payable (the "Findlay Note") to the sellers of the Country Hearth Inn
in Findlay, Ohio (the "Findlay Country Hearth Inn") and B-H Auburn
L.P. ("Auburn") entered into a note payable (the "Auburn Note") to the
sellers of the Country Hearth Inn located in Auburn, Indiana (the
"Auburn Country Hearth Inn"). The Auburn Note and the Findlay Note
are herein referred to collectively as the "Country Hearth Notes". The
sellers of the Findlay Country Hearth Inn and the Auburn Country
Hearth Inn are herein referred to as the "Sellers". The Company is
the beneficial owner of 81% of both Findlay and Auburn, and previously
executed corporate guarantees pursuant to which the Company guarantees
the performance of Findlay and Auburn under the Country Hearth Notes.
The Country Hearth Notes provide that all outstanding principal and
interest were due and payable on April 1, 1998.
Effective as of April 1, 1998, Findlay, Auburn, the Company, and the
Sellers entered into agreements (the "Modification Agreements")
whereby the payments due under the Country Hearth Notes were extended
beyond April 1, 1998. Pursuant to the Modification Agreements, the
Company paid the accrued interest on each of the Country Hearth Notes
in the aggregate approximate amount of $27,000. Also the Modification
Agreements provide that interest on each of the Country Hearth Notes
is due and payable monthly with the entire principal balance of
approximately $651,111 due under the Findlay Note and $175,000 of the
outstanding principal balance due under the Auburn Note being due and
payable May 15, 1998. The remaining balance of approximately $476,111
due under the Auburn Note is due on July 31, 1998.
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TERMINATION OF CROSSROADS AS LESSEE; LETTER OF INTENT TO SELL
LEASING/MANAGEMENT RIGHTS TO BUCKHEAD
The Company has agreed in principle with Crossroads to terminate,
during the second quarter of 1998, all of the lease agreements,
including the Master Agreements, relating to Company hotels leased by
Crossroads. In addition, the Company has entered into a letter of
intent with Buckhead whereby, upon termination of the lease agreements
with Crossroads, the Company and Buckhead will enter into new lease
agreements or management agreements with respect to all of the Company
hotels currently leased to Crossroads. The Company anticipates that
the new lease agreements will contain substantially the same terms as
the current lease agreements with Crossroads. Buckhead will pay the
Company cash and restricted Buckhead stock for the right to lease or
manage the Company hotels previously leased by Crossroads.
ADDITIONAL FINANCING
The Company and Credit Suisse First Boston Capital LLC ("First
Boston") have consummated loan agreements in which First
Boston refinanced the $8,725,000 loan outstanding and
owed by Host Ventures, Inc. to First Boston; satisfied by
a long-term loan facility with a principal amount of $9.075
million, a term of ten (10) years (20-year amortization) and
annual interest rate of approximately 7.8%. Additionally,
First Boston provided a loan facility in the amount of $875,000
with a five (5) year term and interest paid monthly at an
annual rate of LIBOR plus 550 basis points. As Security for the loan,
the Company pledged all of the issued and outstanding shares of the
common stock of Host Ventures, Inc. owned by the Company.
Item 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RECENT DEVELOPMENTS
The Company currently owns 12 properties, all of which are
subject to percentage leases (the "Percentage Leases") pursuant to which
Crossroads Hospitality Tenant Company, L.L.C. ("Crossroads") is responsible
for management and operation of 10 properties and Buckhead America
Corporation ("Buckhead") is responsible for 2 properties. The Company has
entered into agreements in principle with Buckhead and Crossroads whereby the
Company will terminate the Percentage Leases between Crossroads and the
Company (the "Crossroads Leases") and will enter into new leases with
Buckhead (the "New Buckhead Leases"). The New Buckhead Leases will contain
substantially the same provisions as the Crossroads Leases.
12
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RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997:
The Company acquired four hotel properties on April 1, 1995 (the
"Initial Hotels"), one property on April 1, 1996 (the "Mission Bay Hotel"),
four properties on September 13, 1996 (the "Sleep Inn Properties"), one
property on March 14, 1997 (the "Flagstaff Property"), and two properties on
October 21, 1997 (the "Country Hearth Inns"). Collectively, the twelve
properties owned by the Company are herein referred to as the "Company
Properties".
Occupancy and average room rates of 52.4% and $52.97 for the Company
Properties for the three months ended March 31, 1998 resulted in total sales of
approximately $2,309,000 and generated lease revenues of approximately
$910,000. Occupancy and average room rates of 63.5% and $46.98 for the
Initial Hotels, the Mission Bay Hotel, and the Sleep Inn Properties for the
three months ended March 31, 1997 and 89.37% and $52.87 for the Flagstaff
property for the period from March 14 to March 31, 1997 resulted in total
sales of approximately $1,930,000 which generated lease revenues of
approximately $749,000.
The increase in Interest Expense (including amortization of loan
costs) to approximately $703,000 for the three months ended March 31, 1998
from $519,000 in 1997 results from debt associated with property acquisitions
over these periods. The 1998 and 1997 amounts include approximately $74,000
and $151,000 in loan fees.
The increase in Depreciation and amortization results from
acquisition of the Company Properties over the three years. The Company
Properties are recorded at cost and depreciated over the useful lives.
Franchise fees totaling approximately $3,000 are included in Depreciation and
Amortization.
Administrative expenses - other totaled approximately $212,000
and $274,000 for the three months ended March 31, 1998 and 1997 including
salary and benefit costs of $77,000 and $56,000, audit and accounting fees of
$19,000 and $28,000, contract labor of $11,000 and $0, rent of $3,000 and $0,
fees to the American Stock Exchange of $7,000 and $0, fees to the stock
transfer agent of $15,500 and $23,000, filing and printing costs of
$10,000 and $0, relinquished project costs of $33,000 and $0, legal fees of
$11,000 and $60,000, travel costs of $2,000 and $37,000, and other costs of
$23,500 and $46,000.
Net income or loss per share and weighted average shares
outstanding have been calculated based upon the daily average of the number
of shares outstanding for the applicable reporting periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company has no committed additional sources of external
liquidity available, therefore the Company will rely on its internal cash
flow to meet its liquidity needs. The Company's principal source of cash to
meet its cash requirements, including distributions to stockholders, is its
share of the Company's cash flow from the Percentage Leases relating to the
hotel properties owned by the Company. Although the obligations of
Crossroads, as lessee, under the Percentage Leases are
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guaranteed in part by Crossroads Hospitality Company, LLC, a Delaware limited
liability company (a subsidiary of Interstate Hotels, Inc., a publicly
traded, Delaware corporation and parent company of Crossroads), the ability
of Crossroads to make lease payments under the Percentage Leases, and
therefore the Company's liquidity, including its ability to make
distributions to stockholders, is dependent on the ability of Crossroads to
generate sufficient cash flow from the hotels.
The Company intends to make additional investments in hotel
properties and may incur indebtedness to make such investments or to meet
distribution requirements imposed on a REIT under the Code to the extent that
working capital and cash flow from the Company's investments are insufficient
to make such distributions. The Company will invest in additional hotel
properties only as suitable opportunities arise, and the Company will not
undertake investments unless adequate sources of financing are available.
Based upon potential REIT distribution requirements, the Company expects that
future investments in hotel properties will be financed, in whole or in part,
with common stock, proceeds from additional issuances of common stock in the
form of future public offerings or private placements, or from the issuance
of other debt or equity securities. The Company in the future may seek to
obtain a line of credit or a permanent credit facility, negotiate additional
credit facilities, or issue corporate debt instruments, all in compliance
with its charter restrictions. Any debt incurred or issued by the Company
may be secured or unsecured, long-term or short-term, charge a fixed or
variable interest rate and may be subject to such other terms as the Board of
Directors of the Company deems prudent.
INFLATION
Operators of hotels, in general, possess the ability to adjust
room rates quickly. Competitive pressures may, however, limit the ability of
the lessee to raise room rates in the face of inflation.
SEASONALITY
Hotel operations are generally seasonal in nature based upon
geographic locations. This seasonality can be expected to cause fluctuations
in the Company's quarterly lease revenue to the extent that it receives
percentage rent. To the extent that cash flow form operations is insufficient
during any quarter, due to temporary or seasonal fluctuations in lease
revenue, the Company expects to utilize other cash on hand or borrowings to
make distributions to its shareholders. No assurance can be given, however,
that the Company will make distributions in the future.
"THE SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION ACT OF 1995
This Quarterly Report on Form 10-Q contains or incorporates
statements that constitute forward looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Those statements
appear in a number of places in this Quarterly Report on Form 10-Q and
include statements regarding, among other matters, the Company's growth
opportunities, the Company's acquisition strategy, regulatory matters
pertaining to compliance with governmental regulations and other factors
affecting the Company's financial condition or results of operations.
Stockholders are cautioned that
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any such forward looking statements are not guarantees of future performance
and involve risks, uncertainties and other factors which may cause actual
results, performance or achievements to differ materially from the future
results, performance or achievements, expressed or implied in such forward
looking statements.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
PART II-OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
None.
Item 2. CHANGES IN SECURITIES.
In January the Company issued 17,539 shares of Class A Common
Stock to HMR Capital, LLC ("HMR") pursuant to the Post Formation Acquisition
Agreement, as amended (the "Acquisition Agreement") between the Company and
HMR. The shares issued to HMR are restricted securities under the Securities
Act of 1933, and subject to the resale provisions of Rule 144 promulgated
under the Act.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
Item 5. OTHER INFORMATION.
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit
Number Description
- ------- -----------
3.1 Amended and Restated Charter of the Company (incorporated by
reference to Exhibit 3.1 to Company's Amendment to Form S-11
effective April 17, 1996).
3.2 Amended and Restated By-Laws of the Company (incorporated by
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reference to Exhibit 3.2 to Company's Amendment No. 8 to
Form S-11 effective April. 17, 1996).
4.1 Form of Share Certificate (incorporated by reference to
Exhibit 4.1 to Company's Amendment No. 8 to Form S-11
effective April 17, 1996).
4.2 Form of Series A Warrant dated effective as of February 3, 1997
(incorporated by reference to Exhibit 4.2 to Company's Annual
Report on Form 10-K filed on March 31, 1997).
4.3 Form of Series B Warrant dated effective as of February 3, 1997
(incorporated by reference to Exhibit 4.3 to Company's Annual
Report on Form 10-K filed on March 31, 1997).
27 Financial Data Schedule.
(b) Reports on Form 8-K
None.
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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 and in the capacity as the
Registrant's President and Chief Executive Officer and Chief Financial and
Accounting Officer, respectively.
Dated: May 14, 1998 HOST FUNDING, INC.
/s/ Michael S. McNulty
-----------------------------------------
By: Michael S. McNulty
Its: President and Chief Executive Officer
/s/ Bona K. Allen
-----------------------------------------
By: Bona K. Allen
Its: Chief Financial and Accounting Officer
17
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