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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
September 30, 1999 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
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6116 N. Central Expressway, Suite 1313, Dallas, TX 75206
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(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
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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
1,719,700 as of November 4, 1999.
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TABLE OF CONTENTS
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Item Number Page
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PART I
1. Financial Statements 3
Notes to Financial Statements 10
2. Management's Discussion and Analysis of Financial 16
Condition and Results of Operations
3. Quantitative and Qualitative Disclosure 21
About Market Risk
PART II
1. Legal Proceedings 21
2. Changes in Securities 22
3. Defaults Upon Senior Securities 22
4. Submission of Matters to a Vote of Security Holders 22
5. Other Information 22
6. Exhibits and Reports on Form 8-K 22
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PART I FINANCIAL INFORMATION
Item 1: Financial Statements
3
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HOST FUNDING, INC.
CONSOLIDATED BALANCE SHEET
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September 30, December 31,
1999 1998
(UNAUDITED)
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ASSETS
LAND, PROPERTY AND EQUIPMENT - HELD FOR INVESTMENT:
Building and improvements $ 17,511,039 $ 17,323,312
Furnishings and equipment 3,004,695 2,873,180
Less accumulated depreciation (2,586,956) (1,906,466)
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17,928,778 18,290,026
Land 5,667,570 5,667,570
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Land, property and equipment - held for investment 23,596,348 23,957,596
LAND, PROPERTY AND EQUIPMENT - HELD FOR SALE:
Building and improvements 4,317,200 4,299,007
Furnishings and equipment 885,443 876,093
Less accumulated depreciation (450,764) (392,539)
Less impairment reserve (964,000) (444,000)
Land 1,239,206 1,239,206
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Land, property and equipment - held for sale 5,027,085 5,577,767
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Total Land, property and equipment 28,623,433 29,535,363
CASH AND CASH EQUIVALENTS 52,409 66,328
RESTRICTED CASH 780,793 486,573
RENT RECEIVABLE 237,169 236,754
NOTES AND OTHER RECEIVABLES, SALE OF LEASE RIGHTS 83,853 265,459
DUE FROM RELATED PARTIES 60,784 36,612
LONG-TERM ADVANCES TO LESSEES 110,090 110,090
RESTRICTED INVESTMENTS 288,000 288,000
LOAN COMMITMENT FEES, NET OF ACCUMULATED AMORTIZATION OF
$744,764 AT SEPTEMBER 30, 1999 AND $703,211 AT DECEMBER 31, 1998 1,062,268 1,105,402
FRANCHISE FEES - NET OF ACCUMULATED AMORTIZATION OF
$29,665 AT SEPTEMBER 30, 1999 AND $21,340 AT DECEMBER 31, 1998 91,335 99,660
PREPAID AND OTHER ASSETS 289,623 219,417
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TOTAL ASSETS $ 31,679,757 $ 32,449,658
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</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
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HOST FUNDING, INC.
CONSOLIDATED BALANCE SHEET
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September 30, December 31,
1999 1998
(UNAUDITED)
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LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
LONG-TERM DEBT $ 25,370,393 $ 25,790,837
SHORT TERM DEBT 993,221 1,025,941
LONG-TERM LEASE DEPOSIT 588,000 588,000
OPTION DEPOSITS 171,947
ACCOUNTS PAYABLE AND OTHER ACCRUED LIABILITIES 994,348 854,556
ACCRUED INTEREST 327,641 231,577
ACCRUED PROPERTY TAXES 306,634 132,465
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Total liabilities 28,752,184 28,623,376
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MINORITY INTEREST IN PARTNERSHIPS 112,815 238,782
SHAREHOLDERS' EQUITY:
Class A Common stock, $.01 par value; authorized 50,000,000 shares;
issued and outstanding 1719,700 and 1,546,369 shares at
September 30, 1999 and December 31, 1998 respectively 18,645 16,907
Additional Paid in Capital 9,160,237 8,805,953
Accumulated Deficit (5,225,783) (4,038,321)
Less: Unearned directors' compensation net of accumulated amortization
of $62,319 and $146,000 at September 30, 1999 and
December 31, 1998 respectively (83,681) (142,792)
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3,869,418 4,641,747
Less: Common stock in treasury at cost, 144,550 and 144,400 shares
at September 30, 1999 and December 31, 1998, respectively (1,054,660) (1,054,247)
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Total shareholders' equity 2,814,758 3,587,500
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 31,679,757 $ 32,449,658
============== ==============
Concluded
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
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HOST FUNDING, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
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REVENUES:
Lease revenue $ 1,151,497 1,103,283 $ 2,970,172 2,880,494
Interest & other income 6,521 10,104 70,609 24,165
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Total revenue 1,158,018 1,113,387 3,040,781 2,904,659
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EXPENSES:
Interest expense, including amortization of loan costs of $41,552
and $121,235 for the nine months ended September 30, 1999 and 1998 675,766 647,664 2,011,907 2,022,036
Depreciation and amortization 234,078 271,109 747,038 801,231
Administrative expenses - other 207,526 186,936 622,072 550,512
Director fees 83,800 3,150 88,700 16,756
Property taxes 91,174 85,363 273,875 253,642
Minority Interest in Partnerships 7,812 7,137 (125,967) 2,946
Amortization of unearned directors' compensation 4,916 13,500 109,111 40,500
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Total expenses 1,305,072 1,214,859 3,726,736 3,687,623
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NET LOSS FROM OPERATIONS $ (147,054) (101,472) $ (685,955) (782,964)
Relinquished project costs (247,889) (2,669) (260,369) (107,153)
VALUATION RESERVE (520,000)
NET GAIN (LOSS) FROM TRANSFER OF LEASE (88,644) 278,862 572,846
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NET LOSS $ (394,943) (192,785) $(1,187,462) (317,271)
======================== ==========================
BASIC AND DILUTED LOSS PER SHARE $ (0.25) (0.12) $ (0.76) (0.20)
======================== ==========================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 1,597,173 1,580,596 1,558,378 1,563,120
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</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
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HOST FUNDING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
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1999 1998
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OPERATING ACTIVITIES:
Net loss $ (1,187,462) $ (317,271)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 747,038 801,231
Amortization of loan fees 41,552 121,235
Amortization of unearned directors' compensation 109,111 40,500
Stock issued as compensation 2,250 1,126
Gain from transfer of lease (278,862) (572,846)
Minority interest in partnerships (125,967) 2,545
Impairment loss on assets held for sale 520,000
Loss from stock sale 80,800
Common stock issued to directors for director fees 82,500
Common stock issued in payment of interest 19,335
Changes in operating assets and liabilities:
Rent receivable (415) (178,806)
Rent, interest and other receivable - due from related party (24,172) (9,668)
Prepaid and other assets (70,206) (63,010)
Short Term Debt (426,222)
Notes receivable: directors 6,000
Deferred income 276,682
Accounts payable and accrued expenses 410,025 669,370
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Net cash provided by operating activities 244,727 431,666
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INVESTING ACTIVITIES:
Investment in land, property and equipment (165,178) (955,585)
Investment in restricted cash (294,220) (422,471)
Long-term advances to lessee (110,090)
Proceeds related to transfer of lease 500,000
Payments related to transfer of lease (221,138)
Reimbursement of advances to lessee 255,841
Purchase of Company stock (139,881)
Proceeds related to sale of leasing rights 807,200
Payments related to sale of leasing rights (427,154)
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Net cash used in investing activities (180,536) (992,140)
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FINANCING ACTIVITIES:
Stock sold to director 20,000
Payment of loan fees (275,532)
Write off loan fee 1,585
Borrowings on short-term debt 190,000
Payment of short term debt (40,785)
Borrowings on long-term debt 1,175,000
Purchase of Company stock (413)
Payments on long-term debt (420,444) (285,471)
Receipt of Option Deposits 171,947
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Net cash (used in) provided by financing activities (78,110) 613,997
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NET CHANGE IN CASH AND CASH EQUIVALENTS (13,919) 53,523
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 66,328 48,867
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 52,409 $ 102,390
================== ===================
Continued
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
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HOST FUNDING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
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<CAPTION>
1999 1998
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period for interest $ 1,874,292 $ 956,201
================ ==============
Non-cash investing activities:
Common stock issued for Acquired Properties
Acquisition Fee
Additional paid in capital $ $ 114,925
Class A Common Stock 175
Land, property and equipment (115,100)
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Net non-cash investing activity $ 0 $ 0
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Common stock issued as compensation
Class A common $ 10 $ 2
Additional paid in captial 2,240 1,123
Salary expense (2,250) (1,125)
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Net non-cash investing activity $ 0 $ 0
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Property & equipment additions; repairs made by Buckhead
to certain properties
Notes and other receivables $ (181,606) $
Land, property & equipment 181,606
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Net non-cash investing activity $ 0 $ 0
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Common stock issued pursuant to the sale of lease rights
Class A common $ $ 622
Additional paid in capital 287,378
N/R: Buckhead (288,000)
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Net non-cash investing activity $ 0 $ 0
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Common stock pledged to Host Funding as security deposit
relating to leases to Buckhead
Restricted investments $ $ 288,000
Security deposits (288,000)
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Net non-cash investing activity $ 0 $ 0
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Continued
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
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<PAGE>
HOST FUNDING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
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1999 1998
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Acquisition costs funded by note payable
Other assets $ 190,000 $
Short term debt (190,000)
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Net non-cash investing activity $ 0 $ 0
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Common stock issued in payment of interest and principal on
short term debt
Common stock $ 1,028 $
Additional paid in capital 200,244
Interest (19,336)
Short term debt (181,936)
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Net non-cash financing activity $ - $
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Common stock issued to former directors and Chairman
Common Stock $ 300 $
Additional paid in capital 82,200
Directors fees (82,500)
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Total non cash activity $ - $ -
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Common Stock issued to new directors
Common Stock $ 200 $
Additional paid in capital 19,800
Notes receivable, directors (20,000)
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Net non-cash investing activity $ - $
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Common stock returned as deposit for legal fee
Deposits $ $ 97,500
Additional paid in capital (97,350)
Class A Common (150)
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Net non-cash investing activity $ 0 $ 0
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Sale of leasing rights
Buckhead stock receivable $ $ (400,000)
Acquisition finance note receivable (212,000)
Sale of lease rights 612,000
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Net non-cash investing activity $ 0 $ 0
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Receipt of Buckhead stock
Buckhead stock receivable $ $ 400,000
Investment in Buckhead (400,000)
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Net non-cash investing activity $ 0 $ 0
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Reimbursement of capital expenditures relating to property
leased to Buckhead
Capital expenditure reserve $ $ 100,000
Note receivable, Buckhead (100,000)
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Net non-cash investing activity $ 0 $ 0
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</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
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Host Funding, Inc. Notes to Consolidated Financial Statements
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, Host Ventures, Inc.
("Host Ventures"), CrossHost, Inc ("CrossHost"), and Host
Enterprises, Inc. ("Enterprises"), and the Company's interest
in the Country Hearth Inns located in Findlay, Ohio and
Auburn, Indiana. The Company is in the business of acquiring
motel properties and leasing such properties to professional
hotel and motel management companies who operate and manage
the Company's hotels. As of September 30, 1999, the Company
owned interests in 12 hotels in 9 states (the "Company
Properties").
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, all
adjustments necessary for a fair presentation have been
included. These adjustments are of a normal, recurring nature.
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, 1998, and should be read in accordance therewith.
The results of operations for the nine-month period ended
September 30, 1999, are not necessarily indicative of the
results to be expected for the full year.
2. USE OF ESTIMATES
The preparation of the financial statements in conforming
with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of rental revenue during the reporting
period. Actual results could differ from those estimates.
3. RECLASSIFICATIONS
Certain prior year balances have been reclassified to
conform to the current year presentation.
4. NET LOSS PER SHARE
Basic Net Loss per share for the three and nine months ended
September 30, 1999 and 1998 is computed based on the
weighted average number of shares of common stock outstanding.
For the purpose of determining diluted earnings per share,
there was no change in the weighted average shares outstanding
for the effect of stock options during the three and nine
months ended September 30, 1999 and 1998 since the stock
options were antidilutive.
5. TRANSFER OF LEASE AND GRANTING OF OPTION TO PURCHASE: MISSION
BAY PROPERTY
Effective January 1, 1999, the Company terminated the lease
and related franchise agreement on the Super 8 property
located in Mission Bay, California (the "Mission Bay
Property"). A termination fee of $84,400 was due and paid to
the previous lessee. Concurrently with such termination, the
Company entered into a lease agreement with RPD 18, LLC
("RPD"), an affiliate of Vagabond Inns, whereby RPD agreed to
lease the Mission Bay Property under substantially the same
terms and conditions as the previous lessee. In consideration
for such transfer, RPD paid the Company a non-refundable fee
(the "Mission Bay Lease Fee") in the
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amount of $500,000. Upon execution of the lease with RPD, RPD
converted the Mission Bay Property from a Super 8 motel to a
Vagabond Inn. In conjunction with such conversion, the Company
paid the amount of $71,000 to the previous franchisor in
termination fees. The Mission Bay Lease Fee, the termination
fee paid to the previous lessee, the termination fee paid to
the previous franchisor, and certain other costs incurred by
the Company are all reflected in the Company's Consolidated
Statement of Operations under the title "Net Gain from
Transfer of Lease." In February 1999, the Company granted an
option to purchase the Mission Bay Property to RPD (the "RPD
Option") for a purchase price of $3,225,000, which was
subsequently exercised by RPD in March 1999.
The sale of the Mission Bay Property to RPD resulting
from the exercise of the RPD Option has not yet closed due to
a dispute relating to the governing deed of trust and the
applicable defeasance and release requirements. RPD and the
Company, with the knowledge of First Union National Bank (the
"Master Servicer"), relied upon the Deed of Trust filed of
record in the Recorder's Office of San Diego County on March
17, 1997, as the basis for negotiating the terms of the RPD
Option. Additionally, Lennar Partners (the "Special
Servicer"), on behalf of the Master Servicer, acknowledged
such deed of trust through the Subordination, Non-Disturbance,
& Attornment Agreement executed by the Special Servicer in the
first quarter 1999. Upon giving notice to the Master Servicer
of the exercise of the RPD Option and requesting a release of
the Mission Bay Property, the Master Servicer informed the
Company that the deed of trust filed of record (the "Recorded
Deed of Trust") was an incorrect document. The Master Servicer
further informed the Company that the Mission Bay Property
could not be released until certain additional release and
defeasance requirements set forth in the deed of trust
contained in the Master Servicer's files (which the Master
Servicer claims is the correct deed of trust) were satisfied
by the Company. On June 24, 1999 a second deed of trust was
filed of record (the "Slander of Title Deed of Trust"). The
Slander of Title Deed of Trust amended and restated the
Recorded Deed of Trust. The Company has been informed by the
Company's California legal counsel that, unless the Slander of
Title Deed of Trust is removed, all defeasance costs may be
negated.
6. EXECUTION OF LEASE AGREEMENT AND GRANTING OF OPTION TO
PURCHASE FLAGSTAFF PROPERTY
Effective February 24, 1999, the Company entered into
a lease agreement (the "Flagstaff Lease") with RPD Flagstaff,
LLC, an affiliate of Vagabond Hotels ("RPD Flagstaff"),
relating to the Super 8 motel located in Flagstaff, Arizona
(the "Flagstaff Property"), and in connection therewith
granted RPD Flagstaff an option to purchase the Flagstaff
Property for a purchase price of $4,700,000 (the "RPD
Flagstaff Option"), less certain adjustments including
amortization of a portion of rent. The RPD Flagstaff Option
requires RPD Flagstaff to make an option payment of $300,000
(the "Initial Option Payment") upon execution of the RPD
Flagstaff Option and an additional payment of $265,000 upon
the commencement date of the Flagstaff Lease. The term of
the RPD Flagstaff Option commences on March 1, 2001 and
expires on the termination date of the Flagstaff Lease.
Approximately $172,000 of the Initial Option
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Payment was paid to the Company, and was recorded as a
liability, with the remainder of the Initial Option Payment
paid into a separate escrow account. The Flagstaff Lease is
subject to approval by the Company's lender and contains
substantially the same terms and conditions as the currently
existing lease. The commencement date of the Flagstaff Lease
has not yet occurred pending lender approval and final
agreement with RPD Flagstaff. Pending such approval and final
agreement, Crossroads Tenant Hospitality Company, LLC
continues to manage and operate the Flagstaff Property
pursuant to the existing lease.
7. CONTRACT TO SELL COUNTRY HEARTH INN LOCATED IN FINDLAY, OHIO
Effective June 28, 1999, the Company, on behalf of B-H
Findlay, L.P. ("B-H Findlay"), entered into an agreement to
sell the Country Hearth Inn located in Findlay, Ohio (the
"Findlay Property") for a sales price of $2,400,000. The
Company anticipates that the net sales proceeds will
significantly reduce seller financed debt related to the
purchase of the Findlay Property and the Country Hearth Inn
located in Auburn, Indiana (the "Auburn Property"). See
"Commitments and Contingencies: Litigation Related to the
Country Hearth Notes". The proposed sales price for the
Findlay Property is less than the carrying cost recorded on
the books of the Company, thus an impairment reserve was
recorded in the second quarter, 1999 in the total amount of
$520,000, bringing the total impairment reserve to
approximately $964,000. The Company's portion of the total
impairment reserve is $824,000. The Findlay Property was
subsequently sold, see Note 12, Subsequent Events.
8. NEGOTIATIONS TO PURCHASE SOUTHEAST HOTEL PROPERTIES
The Company has entered into an agreement (the "Purchase
Agreement") to purchase four (4) or five (5) hotel properties
located in the southeastern United States (the "Southeast
Properties"). The Southeast Properties contain an aggregate of
approximately 662 to 526 rooms and are comprised of Comfort
Suite, Hampton Inn, and Holiday Inn Express hotels. The
Company intends to fund the acquisition of the Southeast
Properties through a combination of cash funded by new
investment in the Company and the issuance, to the sellers of
the Southeast Properties, of shares of Series "A"
Convertible Preferred Stock of the Company (the "Preferred
Stock"). The Preferred Stock would be convertible into shares
of the Class "A" Common Stock of the Company based upon the
lesser of the average per share market price of the Class "A"
Common Stock of the Company and $4.00 per share. The holders
of the Preferred Stock would be entitled to certain demand
registration rights upon conversion of the shares of Preferred
Stock. The Company has also agreed to issue warrants to the
sellers of the Southeast Properties to purchase 100,000 shares
of the Class "A" Common Stock of the Company at an exercise
price of $3.00 per share. The closing of the purchase of the
Southeast Hotels is subject to final agreed upon documentation
and the satisfaction of certain additional due diligence items
and other customary closing conditions typical of hotel
properties. The Company anticipates closing the Southeast
Properties
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during the 1st quarter of 2000.
9. LETTER OF INTENT WITH POTENTIAL INVESTORS IN THE COMPANY
In July 1999 the Company entered into a letter of intent with
an investor group (the "Investor Group") whereby the Investor
Group would, through a private placement, purchase up to six
million dollars ($6,000,000) of the Company's Class A Common
Stock. The investment is proposed to be funded three million
dollars ($3,000,000) at closing and approximately three
million dollars ($3,000,000) within 90 days of closing.
10. 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 outstanding
of the Company. The Company has not satisfied this requirement
and, therefore, has not elected to qualify as a REIT during
the 1998 tax year and currently is subject to the corporate
tax provisions. At September 30, 1999, the Company 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 status should not adversely affect the
stockholders of the Company in that the Company had no taxable
income for the 1998 year and expects no material federal
income tax liability for the year ended 1999.
FRANCHISE AGREEMENTS
The Company has been granted franchise license agreements
relating to the Super 8 Motels, Sleep Inns, and Country Hearth
Inns owned by the Company or its affiliates 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 Super 8 Motel
located in Flagstaff, Arizona has been assigned to Crossroads,
as lessee. The Company is not responsible for any franchise
costs associated with the Mission Bay Property. The
responsibility for payment of the fees on the remaining
Company Properties has been assigned to Buckhead or its
affiliates.
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NOTES PAYABLE RELATED TO PROPERTY ACQUISITIONS
In May 1999, the Company entered into negotiations to purchase
certain properties, see Note 6, "Negotiations to Purchase
Southeast Properties". In connection therewith, the Company
executed an application with a lender to obtain financing for
the Southeast Properties. Certain costs associated with the
borrowing in the amount of approximately $140,000 were paid
to the lender by an unaffiliated party on behalf of the
Company. Costs related to such financing. In September, 1999
an additional $50,000 was advanced by the same unaffiliated
party in partial payment of certain legal fees. Approximately
$140,000 in such funds were reimbursed by the issuance of
69,781 shares of the Company's Class A Common Stock in
September, 1999. Repayment of the remaining amount of
approximately $56,746 is evidenced by two notes payable to the
unaffiliated party. Interest accrues on each outstanding
balance at an annual interest rate of 12%; and each note
matures on December 31, 1999. The beneficiary of such notes
may, at the beneficiary's option, elect to receive shares of
the Company in full or partial satisfaction of the notes at a
per share price of $2.00 per share.
LITIGATION RELATED TO THE COUNTRY HEARTH NOTES
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 executed corporate guarantees pursuant to which
the Company guarantees the performance of Findlay and Auburn
under the Country Hearth Notes. The Country Hearth Notes are
further secured by 90,000 shares of Class B Common Stock of
the Company.
The Company issued 80,819 shares of the Company's Class A
Common Stock with a per-share value of approximately $9.27 and
an aggregate value of approximately $750,000 in partial
payment of the purchase price of the Country Hearth Inns. The
Country Hearth Notes were modified to provide that, if, on
October 21, 1998, the closing price of the Company's Class A
Common Stock as traded on the American Stock Exchange was less
than $6.50 per share, the Company would be obligated to make
an additional cash payment (the "Price Protection Amount") to
the Sellers so that the total value of Class A Common Stock
issued to the Sellers at the per-share price on October 21,
1998, plus the amount of such Price Protection Amount, equaled
$750,000. The Company has recorded a liability in the
approximate amount of $455,000 related to the Price Protection
Amount for the Class A Common Stock that the Sellers currently
hold based upon a closing price of $2.00 per share on October
21, 1998. The Company believes
14
<PAGE>
the obligation related to the Stock Protection Amount may be
reduced based on a per-share price of $3.00 per share on the
basis that each of the Sellers had the opportunity to sell
their respective shares of Class A Common Stock in a tender
offer that was filed with the Securities and Exchange
Commission in February 1999.
In April 1999, subsequent to the filing of the Company's
Annual Report on Form 10-K for the year ended December 31,
1998, the Company was notified that Auburn Equity Partners
filed a complaint, case number 99CVE-04-2725 (the "Auburn
Complaint"), in the Franklin County Common Pleas Court,
Columbus, Ohio, Civil Division (the "Franklin County Court").
The Auburn Complaint named BH-Auburn LP and Host Funding,
Inc., as defendants. Concurrently with receiving notice of the
Auburn Complaint, the Company received notice that Findlay
Equity Partners had also filed a complaint, case number
99CVH-04-2726 (the "Findlay Complaint"), in the Franklin
County Court. The Findlay Complaint named BH-Findlay, LP and
Host Funding, Inc., as defendants.
The Auburn Complaint and the Findlay Complaint together demand
payment of the Country Hearth Notes and the Price Protection
amounts in the aggregate amount of approximately $1,249,000.
On July 30, 1999, the Franklin County Court entered a
judgement for the plaintiffs in both the Findlay Complaint and
the Auburn Complaint.
Effective June 28, 1999, the Company, on behalf of Findlay,
entered into an agreement to sell the Findlay Property for a
price of $2,400,000. (See Note 12, Subsequent events)
11. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS No. 133"). FAS No.
133 establishes accounting and reporting standards for
derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively
referred to as "derivatives") and for hedging activities. It
requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position
and measure those instruments at fair value. In June 1999, the
FASB issued Statement of Financial Accounting Standards No.
137, "Accounting for Derivative Instruments and Hedging
Activities, Deferral of the effective date of FASB Statement
Number 133" ("FAS No. 137"). FAS No. 133 was originally
effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. FAS No. 137 deferred the effective date
of FAS No. 133 until June 15, 2000. The Company believes that,
upon implementation, FAS 133 will not have a material impact
on the financial statements of the Company.
15
<PAGE>
12. SUBSEQUENT EVENTS.
COMPANY NEGOTIATIONS WITH POTENTIAL INVESTORS
While the Company continues to negotiate the terms of a
private placement of the Company's securities with the
Investor Group, the Company's directors have contacted
certain other potential investors and requested proposals
which would provide the Company and/or its shareholders
with cash, either through equity investment, merger, or
purchase of certain assets. November 19, 1999 has been set
as the deadline for submission of final proposals by all
parties including the Investor Group.
PROPOSALS RECEIVED ON NOVEMBER 19, 1999
The Company has received three proposals from third party
investors (one of which was a revised proposal from the
Investor Group). The proposals include cash contributions
to the Company ranging from $600,000 to $2,000,000. The
Company expects to accept one or more of the proposals in
order to provide the Company with sufficient cash to meet
current cash requirements.
SALE OF THE COUNTRY HEARTH INN LOCATED IN FINDLAY, OHIO
In November, 1999 the Findlay Country Hearth Inn was sold
$2,400,000 cash. The cash proceeds were used to partially
satisfy the Country Hearth Notes, related price protection
amounts, and other outstanding debt obligations collectively
totaling approximately $2,200,000. The remaining proceeds
were used to pay closing costs.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 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. Certain factors that might cause a difference in actual results
include, but are not limited to, the Company's ability to locate and acquire
hotel properties on economically suitable terms and conditions; the Company's
dependence upon rental payments from the lessees of the Company's hotel
properties for substantially all of the Company's income; the Company's
dependence upon the abilities of the lessees of the Company's hotel properties
to manage the hotel properties; risks associated with the hotel industry and
real estate markets in general; and risks associated with debt financing and its
availability.
16
<PAGE>
RECENT DEVELOPMENTS
The Company currently owns 11 properties, all of which are subject to
percentage leases (the "Percentage Leases") pursuant to which an affiliate of
Buckhead America Corporation ("Buckhead") is responsible for management and
operation of 9 properties, Crossroads Hospitality Tenant Company, LLC
("Crossroads") is responsible for management and operation of one property, and
RPD Mission Bay, LLC ("Vagabond") is responsible for management and operation of
one property.
Effective November 12, 1999, the Company sold the Country Hearth Inn
property located in Findlay, Ohio (the "Findlay Country Hearth Inn") for
$2,400,000 cash. The cash proceeds were used to partially satisfy the Country
Hearth Notes, related price protection amounts, and other outstanding debt
obligations collectively totaling approximately $2,200,000. The remaining
proceeds were used to pay closing costs.
Effective January 1, 1999, the Company transferred leasing and
management of the Super 8 motel located in Mission Bay, California (the
"Mission Bay Property") to an affiliate of Vagabond ("RPD"), a proven hotel
operator located in California. Upon execution of the leasing documents,
Vagabond converted the Mission Bay property to a Vagabond Inn. In
consideration for such lease transfer, Vagabond paid the Company a
non-refundable fee (the "Mission Bay Lease Fee") in the amount of $500,000.
The Mission Bay Lease Fee was used to pay certain termination fees to the
previous franchisor, to pay the termination fee to the previous lessee, and
for general corporate purposes.
In February, 1999, the Company granted Vagabond an option to purchase
the Mission Bay Property. Vagabond exercised such option in March 1999. The sale
of the Mission Bay Property to RPD resulting from the exercise of the RPD Option
has not yet closed due to a dispute relating to the governing deed of trust and
the applicable defeasance and release requirements. RPD and the Company, with
the knowledge of First Union National Bank (the "Master Servicer"), relied upon
the Deed of Trust filed of record in the Recorder's Office of San Diego County
on March 17, 1997 as the basis for negotiating the terms of the RPD Option.
Additionally, Lennar Partners (the "Special Servicer"), on behalf of the Master
Servicer, acknowledged such deed of trust through the Subordination,
Non-Disturbance, & Attornment Agreement executed by the Special Servicer in the
first quarter 1999. Upon giving notice to the Master Servicer of the exercise of
the RPD Option and requesting a release of the Mission Bay Property, the Master
Servicer informed the Company that the deed of trust filed of record was an
incorrect document. The Master Servicer further informed the Company that the
Mission Bay Property could not be released until certain additional release and
defeasance requirements set forth in the deed of trust contained in the Master
Servicer's files (which the Master Servicer claims is the correct deed of trust)
were satisfied by the Company. On June 24, 1999 a second deed of trust was filed
of record (the "Slander of Title Deed of Trust"). The Slander of Title Deed of
Trust amended and restated the Recorded Deed of Trust. The Company has been
informed by the Company's California legal counsel that, unless the Slander of
Title Deed of Trust is removed, all defeasance costs may, at a minimum, be
negated in full.
17
<PAGE>
YEAR 2000.
The Company is currently in the process of addressing the "Year 2000
Problem," in which certain electronic systems may be affected by the turn of the
millennium. The manufacturer of the Company's accounting system has represented
that the Company's accounting system is year 2000 compliant. Management has
determined that the Company's remaining automated systems are either compliant
or will be made compliant for an immaterial cost.
Buckhead, Crossroads, and Vagabond are currently evaluating or have
evaluated the systems relating to the Company Properties that may be affected by
the Year 2000 Problem. This evaluation includes consideration of all front
office systems, electronic locks, telephone systems, credit card processing,
communications software with primary bankers, motel VCRs, FAX machines, copiers,
cash registers, television systems, and elevators, among other systems. The
items which are considered mission critical are either currently compliant or
are in the process of being converted in order to reach compliance. Further, if
any lessee suffers material loss or significant adverse effects to operations
resulting from non-compliance, the Company may terminate the related lease due
to default by the lessee and execute leases with a new lessee who is Year 2000
compliant.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER, 1999 AND 1998:
Occupancy and average room rates of approximately 65% and $53.02 for
the Company Properties for the three months ended September 30, 1999 resulted
in total room revenue of approximately $2,900,000 and generated total lease
revenues of approximately $1,152,000. Occupancy and average room rates of 69%
and $47.62 for the Company Properties for the three months ended September
30, 1998 resulted in total sales of approximately $2,800,000, which generated
total lease revenues of approximately $1,333,000, of which $1,103,000 was
recognized and $230,000 deferred, pursuant to EITF98-9, which was reversed in
the fourth quarter 1998. Lease revenues were negatively impacted in the third
quarter of 1999 by the significant refurbishment activities at the Sleep Inn
motel in Sarasota, Florida and the reduction in percentage rent on the
Company Properties located in Somerset, Kentucky; Ocean Springs, Mississippi;
Flagstaff, Arizona; and Auburn, Indiana.
The increase in amortization of unearned directors' compensation
resulted from Mr. Charles Dunn and Mr. Don Cockroft no longer being on the
Company's Board of Directors. The Board of Directors approved the release of the
notes that were due from Mr. Dunn and Mr. Cockroft, thus the related
amortization was written off. The Board also approved the issuance of 10,000
shares each to Mesers. Dunn and Cockroft as well as Mr. William Birdsall.
Administrative expenses - other were approximately $208,000 and
$187,000 for the three month periods ended September 30, 1999 and 1998,
respectively, and consisted primarily of the following approximate amounts:
salary and benefits costs of $65,000 and $65,000; audit and tax prep fees of
$20,000 and $16,000; legal fees of $45,700 and $16,000; contract labor of
$18,000 and $14,000; travel of $8,000 and $17,000; transfer agent costs of
$5,000 and $15,000; printing
18
<PAGE>
costs for filed materials: $7,300 and $11,000; taxes and licenses $11,000 and
$3,000; investor mailings $500 and $5,500; and other costs of $27,550 and
$24,321.
The 1999 Net Gain from Transfer of Lease consists of the Mission Bay
Lease Fee reduced by termination fees to the previous lessee of $84,000;
termination fees to the previous franchisor of $71,000; fees and legal costs to
the Company's lender related to obtaining the lender's consent to the transfer
of approximately $40,000; and legal and other costs to the Company related to
the transfer. Effective June 3, 1998, the Company terminated lease agreements
with Crossroads pertaining to certain of the Company hotels, sold the right to
lease such properties to Buckhead, and entered into lease agreements with
Buckhead. The leases with Buckhead are substantially the same in all material
respects as the previous leases with Crossroads. The sale of lease rights
generated a net book gain in 1998 of approximately $661,000. Net cash received
by the Company at the close of the transaction was approximately $86,000. In
connection with the sale by the Company of the hotel lease rights to Buckhead,
the Company received 53,647 shares of Buckhead common stock which the Company
sold on August 11, 1998, and received approximately $319,000 in cash.
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998:
Occupancy and average room rates of approximately 62% and $49.63 for
the Company Properties for the nine months ended September 30, 1999 resulted
in total room revenue of approximately $8,007,000 and generated total lease
revenues of approximately $2,970,000. Occupancy and average room rates of 65%
and $48.09 for the Company Properties for the six months ended September 30,
1998 resulted in total room revenue of approximately $8,067,000 which
generated total lease revenues of approximately $3,157,000, $2,880,000 of
which was recognized and approximately $277,000 was deferred, pursuant to
EITF98-9, which was reversed in the fourth quarter 1998. Lease revenues were
negatively impacted in 1999 by the significant refurbishment expenses related
to the Sleep Inn motels in Destin and Sarasota, Florida; the reduction in
percentage rent on the Company Properties located in Somerset, Kentucky;
Ocean Springs, Mississippi; Flagstaff, Arizona; and Auburn, Indiana; and, the
delayed recognition of certain 1997 rental amounts into 1998.
The increase in Interest Income and Other Income for the nine months
ended September 30, 1999 to $70,609 from $24,165 in the same period in 1998
results from the recognition of payments to the Company from an investor group
(the "Investor Group"), which was exploring making a significant investment in
the Company in late 1998 and early 1999. The payments from the Investor Group
were offset by costs incurred by the Company.
Administrative expenses - other totaled approximately $622,000 and
$550,000 for the nine months ended September 30, 1999 and 1998, including the
following approximate amounts: salary and benefit costs of $197,000 and
$220,000, audit and accounting fees of $44,000 and $57,000, legal fees of
$117,000 and $56,000, contract labor of $54,000 and $32,000, rent of $9,000 and
$13,000, bank and late charges of $22,000 and $3,000, telephone charges of
$11,000 and $11,000, fees to the American Stock Exchange of $7,000 and $7,000;
fees to the stock transfer agent of $20,000 and $40,000, filing and printing
costs of $23,000 and $34,000, repairs and maintenance of $44,000 and ($1,000)
and other costs of $74,000 and $78,000.
19
<PAGE>
Net Gain from Transfer of Lease consists of the Mission Bay Lease Fee
reduced by termination fees to the previous lessee of $84,000; termination fees
to the previous franchisor of $71,000; fees and legal costs to the Company's
lender related to obtaining the lender's consent to the transfer of
approximately $40,000; and legal and other costs to the Company related to the
transfer.
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
In July 1999, the Company entered into a letter of intent with an
investor group (the "Investor Group") whereby the investors would, through a
private placement, purchase up to six million dollars ($6,000,000) of the
Company's Class A Common Stock. The investment is proposed to be funded three
million dollars ($3,000,000) at closing and approximately three million
dollars ($3,000,000) within 90 days of closing. Closing is subject to
definitive documentation and compliance with all applicable exchange
regulations and securities laws. Negotiations with the investor group are
ongoing.
On or about November 19, 1999 the Company received three proposals
from third party investors (one of which was a revised proposal from the
Investor Group). The proposals include cash contributions to the Company
ranging from $600,000 to $2,000,000. The Company expects to accept one or
more of the proposals in order to provide the Company with sufficient cash to
meet current cash requirements.
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 and any amounts owing
under the Country Hearth Notes and Price Protection Amounts (if ultimately
adjudged against the Company), are its share of the Company's cash flow from the
Percentage Leases relating to the hotel properties owned by the Company and
anticipated proceeds from the sale of certain of the Company properties.
Although the obligations of the lessees under the Percentage Leases are
guaranteed in part by the parent companies of each lessee, the ability of the
lessees 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 the lessees to generate sufficient
cash flow from the hotels. Based on recent results, the cash flows of the
Company are not adequate to meet its immediate needs. However, the Company
expects to meet such needs through a transaction with an outside investor
group as described above.
The Company is currently in negotiations with several outside investors
to acquire hotel properties and may incur indebtedness to make such acquisitions
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
20
<PAGE>
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 from 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.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information and disclosures regarding market risks applicable to the
Company are incorporated herein by reference to the discussion under "Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations", "Liquidity and Capital Resources", or as contained elsewhere in
this Quarterly Report on Form 10-Q for the nine months ended September 30, 1999.
PART II-OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
In April, 1999, subsequent to the Company's filing of the Annual Report
on Form 10-K for the year ended December 31, 1998, the Company was notified that
Auburn Equity Partners filed a complaint, case number 99CVE-04-2725 (the "Auburn
Complaint"), in the Franklin County Common Pleas Court, Columbus, Ohio, Civil
Division (the "Franklin County Court"). The Auburn Complaint named BH-Auburn LP
and Host Funding, Inc., as defendants. Concurrently with receiving notice of the
Auburn Complaint, the Company received notice that Findlay Equity Partners had
filed a complaint, case number 99CVH-04-2726 (the "Findlay Complaint"), in the
Franklin County Court. The Findlay Complaint named BH-Findlay, LP and Host
Funding, Inc., as defendants. The Auburn Complaint and the Findlay Complaint
together demand payment of the Country Hearth Notes and the Price Protection
Amount. On July 30, 1999, the Franklin County Court entered a judgement for the
plaintiffs in both the Findlay Complaint and the Auburn
21
<PAGE>
Complaint. The Company is currently negotiating settlements for these claims
as a part of the investment proposals described in Recent Developments:
Liquidity and Capital Resources.
The Company is a party to other, non-material legal proceedings through
the normal course of business. The Company does not anticipate the losses, if
any, will have a material impact on the financial position or results of
operation of the Company.
Item 2. CHANGES IN SECURITIES.
There were no material changes in securities in the current
quarter.
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
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
<S> <C>
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
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).
22
<PAGE>
27 Financial Data Schedule.
</TABLE>
Reports on Form 8-K
None.
23
<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 and in the capacity as the Registrant's
President and Chief Executive Officer and Chief Financial and Accounting
Officer, respectively.
Dated: November 22, 1999 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
24
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1999
<CASH> 52
<SECURITIES> 0
<RECEIVABLES> 382
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 434
<PP&E> 32,174
<DEPRECIATION> (3,038)
<TOTAL-ASSETS> 31,680
<CURRENT-LIABILITIES> 2,794
<BONDS> 0
0
0
<COMMON> 8,124
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 31,680
<SALES> 0
<TOTAL-REVENUES> 3,041
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,715
<LOSS-PROVISION> (520)
<INTEREST-EXPENSE> 2,012
<INCOME-PRETAX> (686)
<INCOME-TAX> 0
<INCOME-CONTINUING> (686)
<DISCONTINUED> 0
<EXTRAORDINARY> 19
<CHANGES> 0
<NET-INCOME> (1,187)
<EPS-BASIC> (0.76)
<EPS-DILUTED> (0.76)
</TABLE>
