-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KGJsovmYAH6oVSAD7tK+dSTW0+IRFKnvecE7F1qGmln9iuRN0fYNZxrMSvfZg2Wm 6poavGIxciNucsmSBob6dA== 0000783728-97-000022.txt : 19971125 0000783728-97-000022.hdr.sgml : 19971125 ACCESSION NUMBER: 0000783728-97-000022 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970831 FILED AS OF DATE: 19971124 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIDGEWOOD PROPERTIES INC CENTRAL INDEX KEY: 0000783728 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE DEALERS (FOR THEIR OWN ACCOUNT) [6532] IRS NUMBER: 581656330 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-14019 FILM NUMBER: 97727301 BUSINESS ADDRESS: STREET 1: 2859 PACES FERRY RD STE 700 CITY: ATLANTA STATE: GA ZIP: 30339 BUSINESS PHONE: 4044343670 MAIL ADDRESS: STREET 1: 2859 PACES FERRY ROAD STREET 2: SUITE 700 CITY: ATLANTA STATE: GA ZIP: 30339 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended August 31, 1997 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to ______________ Commission file number 0-14019 Ridgewood Hotels, Inc. ------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 58-1656330 ------------------------------- ------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2859 Paces Ferry Road, Suite 700 Atlanta, Georgia 30339 ---------------------------------------- ----------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (770) 434-3670 -------------- Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value ---------------------------- (Title of Class) 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. _____ Aggregate market value of voting stock held by non-affiliates on October 31, 1997 - $668,937; Common shares outstanding on October 31, 1997 - 1,538,480 shares (1) Portions of the registrant's Annual Report to Shareholders for the fiscal year ended August 31, 1997 (the "1997 Annual Report to Shareholders") are incorporated by reference in Part II of this Report. (2) Portions of the registrant's definitive Proxy Statement relating to the 1998 Annual Meeting (the "1998 Proxy Statement") to be filed with the Commission on or about December 1, 1997, are incorporated by reference in Part III of this Report. PART I Item 1. Business Ridgewood Hotels, Inc. (the "Company") is primarily engaged in the business of acquiring, developing, operating and selling real estate property in the Southeast and "Sunbelt" areas. Additionally, the Company, through its investment in a limited partnership, is engaged in acquiring and managing hotel properties in the Southeast, as well as managing other hotels throughout the country. The Company also owns and operates a hotel in Longwood, Florida. All of the Company's other properties are land properties held for sale, and no additional development is currently anticipated for the land. The Company was incorporated under the laws of the State of Delaware on October 29, 1985. In January 1997, the Company changed its name from Ridgewood Properties, Inc. to Ridgewood Hotels, Inc. Prior to December 31, 1985, the Company operated under the name CMEI, Inc. On August 16, 1995, RW Hotel Partners, L.P. was organized as a limited partnership (the "Partnership") under the laws of the State of Delaware. Concurrently, the Company formed Ridgewood Georgia, Inc., a Georgia corporation ("Ridgewood Georgia") which became the sole general partner in the Partnership with RW Hotel Investments, L.L.C. ("Investor") as the limited partner. Ridgewood Georgia has a 1% base distribution percentage versus 99% for the Investor. However, distribution percentages do vary depending on certain defined preferences and priorities pursuant to the Partnership Agreement ("Agreement") which are discussed below. The partnership was originally formed to acquire a hotel property in Louisville, Kentucky. The partnership consists of six hotel properties at August 31, 1997. The terms of this partnership will serve as a guideline for other potential acquisitions with this or other investors. Income and losses are allocated to Ridgewood Georgia and the limited partner based upon the formula for allocating distributable cash as described below but subject to an annual limitation which would result in no more than 88% of partnership income or loss (as defined) being allocated to the limited partner. Distributable Cash is defined as the net income from the property before depreciation plus any net sale proceeds and net financing proceeds less capital costs. Distributions of distributable Cash shall be made as follows: - First, to the Investor until there has been distributed to the Investor an amount equal to a 15% cumulative internal rate of return on the Investor's investment. - Second, to Ridgewood Georgia until the aggregate amount received by Ridgewood Georgia equals the aggregate cash contributions made by Ridgewood Georgia to the Partnership (as of August 31, 1997, Ridgewood Georgia had contributed approximately $772,000). - Third, 12% to Ridgewood Georgia and 88% to the Investor until there has been distributed to the Investor an amount equal to a 25% cumulative internal rate of return on Investor's investment. - Fourth, 75% of the residual to the Investor and 25% to Ridgewood Georgia. A Management Agreement exists between the Partnership and the Company as Manager ("Manager") for the purpose of managing hotels in Kentucky, Georgia and South Carolina. The Manager shall be entitled to the following property management fees: (1) 2.5% of the gross revenues from the hotel property. (2) 1% of the gross revenues from the hotel property as an incentive fee if distributable cash equals or exceeds 13.5% of total aggregate acquisition costs. A Construction Management Agreement exists between the Partnership and the Manager for the purpose of managing future improvements to the properties. The Company currently has approximately $772,000 invested in the Partnership. As of August 31, 1997, the Company has recorded approximately $199,000 equity in the income of the Partnership, but has recorded a provision for possible losses of approximately $199,000 as there is no indication that the Company will be able to recover the equity income in the Partnership given the provisions of the partnership agreement regarding the distribution of cash to the partners upon liquidation. In August 1995, the Partnership purchased a hotel in Louisville, Kentucky for approximately $16,000,000. In December 1995 and January 1996, the Partnership purchased four hotel properties in Georgia for approximately $15,000,000 and a hotel in South Carolina for $4,000,000, respectively. The Company may make future capital contributions to the Partnership. Management expects to fund such capital contributions through available cash or from loans from the Partnership. Additionally, the Company may invest in other partnerships to acquire hotels in the future. The Company owns and operates one hotel and owns a number of land parcels which are held for sale. The success of the Company's operations continues to be dependent upon such unpredictable factors as the general and local economic conditions to which the real estate industry is particularly sensitive: zoning, labor, material and energy availability, weather conditions and the availability of satisfactory financing. The hotel management business has become very competitive. In order to obtain management contracts, owners are frequently requiring management companies to also have ownership in the hotel. The hotel industry has become very attractive to many investors and, in turn, it has become very competitive to purchase hotels. This has also prompted the building of many new hotels in various markets. The Company believes that it is in a position to remain competitive in this industry. The Company has the ability to generate equity to contribute to the acquisitions as well as to provide the expertise to manage the acquisitions, operations and ultimate disposition of properties for both the Company and third-party owners. Currently, the Company has a letter proposal with another company to locate and assist in the acquisition of hotel properties for that company. Additionally, as hotel properties are acquired, the Company would receive management contracts to manage those properties. The annual average occupancy of the Company's only hotel was approximately 70% for the fiscal year 1997. The Company's principal office is located at 2859 Paces Ferry Road, Suite 700, Atlanta, Georgia 30339 (telephone number: (770) 434-3670). The Company employs approximately 90 persons (of which 19 are located at its principal office) at August 31, 1997. Item 2. Properties The Company does not own any real property material to conducting the administrative aspects of its business operations. Its principal office in Atlanta, Georgia is leased until June 2002 and consists of approximately 6,200 square feet. As a result of its operations, the Company is the owner of various other properties, including developed and undeveloped real estate. The Company's operating properties are as follows: Name of Hotel Location # of Rooms Ownership Interest Ramada Inn (a) Longwood, FL 192 Wholly-Owned Holiday Inn Louisville, KY 267 Owned by Partnership (b) Holiday Inn Orangeburg, SC 160 Owned by Partnership (b) Holiday Inn Gainesville, GA 132 Owned by Partnership (b) Holiday Inn Thomasville, GA 147 Owned by Partnership (b) Holiday Inn Suwanee, GA 120 Owned by Partnership (b) Holiday Inn Express Commerce, GA 96 Owned by Partnership (b) (a) The hotel serves as collateral for the Company's $2,742,000 term loan with a commercial lender. (b) The Company has a 1% ownership interest in these hotels as the general partner in a partnership. The Company also holds seven land parcels for sale, two of which are located in Florida, two in Georgia and one in Texas, Ohio and Arizona. For further information on such properties, see the accompanying consolidated financial statements and Schedule III, Real Estate and Accumulated Depreciation, contained elsewhere herein. Item 3. Legal Proceedings On May 2, 1995 a complaint was filed in the Court of Chancery of the State of Delaware (New Castle County) entitled William N. Strassburger v. Michael M. Early, Luther A. Henderson, John C. Stiska, N. Russell Walden, and Triton Group, Ltd., defendants, and Ridgewood Hotels, Inc., nominal defendant, C.A. No. 14267 (the "Complaint"). The plaintiff is an individual shareholder of the Company who purports to file the Complaint individually, representatively on behalf of all similarly situated shareholders, and derivatively on behalf of the Company. The Complaint challenges the actions of the Company and its directors in consummating the Company's August 1994 repurchases of its common stock held by Triton Group, Ltd. and Hesperus Partners Ltd. in five counts, denominated Waste of Corporate Assets, Breach of Duty of Loyalty to Ridgewood, Breach of Duty of Good Faith, Intentional Misconduct, and Breach of Duty of Loyalty and Good Faith to Class. On July 5, 1995, the Company filed a timely answer generally denying the material allegations of the complaint and asserting several affirmative defenses. This case is in the concluding stages of discovery. No trial date has been set, but the court has certified a class of shareholders as plaintiffs for the non-derivative claims but has not certified the suit as a class action suit. The Company intends to vigorously contest this matter. On August 23, 1996, Great American Resorts filed a complaint in the Superior Court of Cobb County, State of Georgia, entitled Great American Resorts, Inc. and Great American Casinos, Inc. v. Charles Taylor, Deborah Lynn Cannon, Walter D. Hrab and Ridgewood Hotels, Inc., Civil Action File No. 9616398-05, alleging that the Company and the other defendants are liable for breach of contract and breach of fiduciary duty stemming from a contract between Great American and one of the Company's subsidiaries. The complaint seeks damages, attorneys' fees and pre-judgment interest. It also seeks an order requiring that certain books and records be turned over to the plaintiffs. On September 27, 1996, the Company filed a timely answer generally denying the material allegations of the complaint and asserting several affirmative defenses. While the discovery deadline has passed, no trial date has been set, nor have the plaintiffs actively pursued the matter. The Company intends to vigorously contest this matter. Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of security holders during the fourth quarter of the Company's fiscal year ended August 31, 1997. Item 4.5 Executive Officers of the Registrant The following sets forth certain information regarding the executive officers of the Company: Name Age Present Positions N. Russell Walden 59 President and Chief Executive Officer, Director Byron T. Cooper 47 Vice President - Construction and Planning Karen S. Hughes 42 Vice President, Chief Financial Officer and Secretary The officers of the Company, who are appointed by the Board of Directors, hold office until their successors are chosen and qualified, or until their earlier death, resignation or removal. Mr. Walden has been President and Chief Executive Officer of the Company since its formation on October 29, 1985. Mr. Walden was a director of Sunbelt Nursery Group, Inc. ("Sunbelt") from 1983 until 1990. He is the former President, Chief Executive Officer and director of CMEI, Inc. and a former director of Pier 1 Inc. Mr. Cooper has been Vice President - Construction and Planning of the Company since its formation. Ms. Hughes has been Vice President, Chief Financial Officer and Secretary of the Company since its formation. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Information regarding the market for the Company's common stock, the Company's dividend policy and the approximate number of holders of the common stock at October 31, 1997, is included under the caption "Market for Registrant's Common Equity and Related Stockholder Matters" on page 1 of the 1997 Annual Report to Shareholders and is incorporated herein by reference. There were no sales of unregistered securities of the Company in the fourth quarter of the Company's fiscal year ended August 31, 1997. Item 6. Selected Financial Data A summary of selected financial data for the Company for the fiscal years 1993 through 1997 is included under the caption entitled "Selected Financial Data" on page 3 of the 1997 Annual Report to Shareholders and is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Information regarding the Company's financial condition, changes in financial condition and results of operations is included under the caption entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 4 through 8 of the 1997 Annual Report to Shareholders and is incorporated herein by reference. Item 8. Financial Statements Consolidated financial statements and notes thereto for the Company, which are included on pages 9 through 32 of the 1997 Annual Report to Shareholders under the following captions listed below, are incorporated herein by reference. Consolidated Balance Sheets at August 31, 1997 and 1996. Consolidated Statements of Loss for the years ended August 31, 1997, 1996 and 1995. Consolidated Statements of Shareholders' Investment for the years ended August 31, 1997, 1996 and 1995. Consolidated Statements of Cash Flows for the years ended August 31, 1997, 1996 and 1995. Notes to Consolidated Financial Statements. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III Item 10. Directors and Executive Officers of the Registrant The information required by this item with respect to directors and with respect to Item 405 of Regulation S-K is incorporated by reference to the Company's Proxy Statement for its 1998 Annual Shareholder Meeting (the "1998 Proxy Statement"). Information concerning the Company's executive officers is included in Item 4.5 in Part I of this report. Item 11. Executive Compensation Information regarding compensation of officers and directors of the Company is set forth under the caption entitled "Executive Compensation" in the Company's 1998 Proxy Statement and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management Information regarding ownership of certain of the Company's securities is set forth under the caption entitled "Beneficial Ownership of the Company's Securities" in the Company's 1998 Proxy Statement and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions Information regarding certain relationships and related transactions with the Company is set forth under the caption entitled "Certain Relationships and Related Transactions" in the Company's 1998 Proxy Statement and is incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a)(1) The following financial statements, together with the applicable report of independent public accountants, are set forth on pages 9 through 32 of the 1997 Annual Report to Shareholders and are incorporated by reference at Item 8 herein: Report of Independent Accountants Consolidated Balance Sheets at August 31, 1997 and 1996 Consolidated Statements of Loss for the years ended August 31, 1997, 1996 and 1995 Consolidated Statements of Shareholders' Investment for the years ended August 31, 1997, 1996 and 1995 Consolidated Statements of Cash Flows for the years ended August 31, 1997, 1996 and 1995 Notes to Consolidated Financial Statements (a)(2) The following financial statement schedules, together with the applicable report of independent public accountants, are filed as a part of this Report. Page Number in Form 10-K Report of Independent Accountants on Schedule S-1 III - Real Estate and Accumulated Depreciation - August 31, 1997 S-2 thru S-3 All other schedules are omitted because they are not applicable or because the required information is given in the financial statements or notes thereto. (a)(3) The exhibits filed herewith or incorporated by reference herein are set forth on the Exhibit Index on pages E-1 through E-9 hereof. Included in those exhibits are the following Executive Compensation Plans and Arrangements: 10(a) Employment Agreement between N. R. Walden and CMEI, Inc., dated March 28, 1985. 10(c) Ridgewood Properties, Inc. Supplemental Retirement and Death Benefit Plan dated January 1, 1987 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1988 and incorporated herein by reference). 10(e) Post-Employment Consulting Agreement between N. R. Walden and Ridgewood Properties, Inc. dated September 4, 1991 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1991 and incorporated herein by reference). 10(f) Post-Employment Consulting Agreement between Karen S. Hughes and Ridgewood Properties, Inc. dated September 4, 1991 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1991 and incorporated herein by reference). 10(g) Post-Employment Consulting Agreement between Byron T. Cooper and Ridgewood Properties, Inc. dated September 4, 1991 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1991 and incorporated herein by reference). 10(h) Post-Employment Consulting Agreement between M. M. McCullough and Ridgewood Properties, Inc. dated September 4, 1991 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1991 and incorporated herein by reference). 10(p) Ridgewood Properties, Inc. Stock Option Plan dated March 30, 1993 and as amended September 14, 1993 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(q) Stock Option Agreement between Byron T. Cooper and Ridgewood Properties, Inc. dated April 1, 1993 and as approved on January 12, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(r) Stock Option Agreement between Luther A. Henderson and Ridgewood Properties, Inc. dated April 1, 1993 and as approved on January 12, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(s) Stock Option Agreement between Karen S. Hughes and Ridgewood Properties, Inc. dated April 1, 1993 and as approved on January 12, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(t) Stock Option Agreement between M. M. McCullough and Ridgewood Properties, Inc. dated April 1, 1993 and as approved on January 12, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(u) Stock Option Agreement between N. R. Walden and Ridgewood Properties, Inc. dated April 1, 1993 and as approved on January 12, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(v) Stock Option Agreement between Gregory T. Weigle and Ridgewood Properties, Inc. dated April 1, 1993 and as approved on January 12, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(w) Stock Option Agreement between Karen S. Hughes and Ridgewood Properties, Inc. dated January 31, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(x) Stock Option Agreement between N. R. Walden and Ridgewood Properties, Inc. dated January 31, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(bb) Ridgewood Properties, Inc. 1993 Stock Option Plan, as amended on October 26, 1994 (filed as an Exhibit to Registrant's Registration Statement on Form S-8 filed November 8, 1994 (No. 33-86084) and incorporated herein by reference). (b) No reports on Form 8-K were filed during the fourth quarter of the Company's fiscal year ended August 31, 1997. 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. RIDGEWOOD HOTELS, INC. By: /s/ N. R. Walden _____________________ N. Russell Walden, President, Chief Executive Officer Dated: November 24, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated: /s/ N. R. Walden ____________________________ N. Russell Walden, President, Chief Executive Officer and Director /s/ Karen S. Hughes ___________________________ Karen S. Hughes, Vice President, Chief Accounting and Financial Officer and Secretary /s/ Michael M. Earley ____________________________ Michael M. Earley, Director /s/ Luther A. Henderson _____________________________ Luther A. Henderson, Director Dated: November 24, 1997 Report of Independent Accountants on Financial Statement Schedule October 21, 1997 To the Board of Directors of Ridgewood Hotels, Inc. Our audits of the consolidated financial statements referred to in our report dated October 21, 1997 appearing in the 1997 Annual Report to Shareholders of Ridgewood Hotels, Inc. (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 14(a) of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PRICE WATERHOUSE LLP Atlanta, Georgia RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES SCHEDULE III ----------------------------------------- Page 1 of 2 SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION ------------------------------------------------------- AUGUST 31, 1997 --------------- (000'S Omitted) Cost Capitalized Gross Amount at Which Initial Cost Subsequent to Carried at August 31, 1997 to Company Acquisition (A)(B)(D) ------------------ ------------------ ---------------------------------- Building Building Accumu- and Carry- and lated Date of Encum- Improve- Improve- ing Improve- Deprecia- Construc- Date Description brances Land ments ments Costs Land ments Total tion (C) tion Acquired - ----------- -------- ---- -------- -------- ------ ---- -------- ----- -------- ----------------- LAND - ---- Georgia -- 78 -- 1 -- 74 1 75 -- -- 12/75 Texas -- 5,338 -- 2 -- 3,926 2 3,928 -- -- 12/85 -- Florida -- 475 -- -- -- 402 -- 402 -- -- 3/85 Florida -- 41 -- -- -- 41 -- 41 -- -- 6/78 Florida -- 80 -- -- -- 80 -- 80 -- -- 11/79 Arizona -- 978 -- 110 -- 978 110 1,088 -- -- 3/85 Ohio -- 1,006 -- 175 -- 872 175 1,047 -- -- 12/77 --------- --------- --------- --------- --------- --------- --------- --------- --------- Total Non- operating properties -- 7,996 -- 288 -- 6,373 288 6,661 -- --------- --------- --------- --------- --------- --------- --------- --------- --------- HOTEL - -------------- Florida 2,742 439 1,921 1,120 -- 439 2,453 2,892 1,567 1973 9/74 -------- -------- -------- -------- -------- -------- -------- -------- -------- Total operating properties 2,742 439 1,921 1,120 -- 439 2,453 2,892 1,567 -------- -------- -------- -------- -------- -------- -------- -------- -------- GRAND TOTAL $ 2,742 $ 8,435 $ 1,921 $ 1,408 $ -- $ 6,812 $ 2,741 $ 9,553 $ 1,567 ========= ========= ========= ========= ========= ========= ========= ========= =========
SCHEDULE III Page 2 of 2 (A) Except as discussed in Note 2 to the "Notes to Consolidated Financial Statements," real estate owned is carried at the lower of cost or fair value less costs to sell. At August 31, 1997, the amount of the allowance for possible losses was approximately $3,545,000, which related to land held for sale. (B) Reconciliation of real estate properties: For the Year Ended (000's omitted) 8/31/97 8/31/96 8/31/95 ------- ------- ------- Balance, beginning of year $12,612 $12,934 $17,768 Additions during the period: Acquisitions -- -- 830 Capitalized costs 78 49 81 Deductions during the period: Real estate sold or assets retired (on which financing was provided by the Company in certain cases) 3,137 371 5,745 ------- ------- ------- Balance, end of year $ 9,553 $12,612 $12,934 ======= ======= ======= (C) Operating properties and any related improvements are being depreciated by the "straight line" method over the estimated useful lives of such assets, which are generally 30 years for buildings and 5 years for furniture and fixtures. Reconciliation of accumulated depreciation: For the Year Ended (000's omitted) 8/31/97 8/31/96 8/31/95 ------- ------- ------- Balance, beginning of year $1,460 $1,369 $2,669 Additions during the period 128 121 326 Depreciation associated with assets sold or retired (21) (30) (1,626) ------ ------ ------ Balance, end of year $1,567 $1,460 $1,369 ====== ====== ====== (D) The aggregate cost for federal income tax purposes is approximately $9,643,000 at August 31, 1997. EXHIBIT INDEX Report on Form 10-K for the fiscal year ended August 31, 1997 Page Number Exhibit in Manually Number Description Signed Original 3(a) Certificate of Incorporation of Registrant.* 3(b) By-Laws of Registrant.* 3(c) Certificate of Amendment to the Certificate of Incorporation (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1987 and incorporated herein by reference). 3(d) Certificate of Amendment to the Certificate of Incorporation of the Registrant (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1989 and incorporated herein by reference). 3(e) Certificate of Amendment of the Certificate of Incorporation of Ridgewood Properties, Inc. dated May 23, 1991 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1991 and incorporated herein by reference). 3(f) Certificate of Amendment of the Certificate of Incorporation of Ridgewood Properties, Inc. dated March 30, 1993 (filed as Exhibit 3 to Registrant's Form 10-Q for the fiscal quarter ended February 28, 1993 and incorporated herein by reference). 3(g) Certificate of Amendment of the Certificate of Incorporation of Ridgewood Properties, Inc. dated January 26, 1994 (filed as Exhibit 3 to Registrant's Form 10-Q for the fiscal quarter ended February 28, 1994 and incorporated herein by reference). 3(h) Certificate of Amendment to Certificate of Incorporation by Ridgewood Hotels, Inc. (filed as an Exhibit to Registrant's Form 8-K on February 5, 1997, and incorporated herein by reference). 4(a) Stock Purchase Agreement between Ridgewood Properties, Inc. and Triton Group Ltd., dated as of August 15, 1994 (filed as an Exhibit to Registrant's Form 8-K on August 15, 1994, and incorporated herein by reference). 4(b) August 15, 1994 Press Release issued by Ridgewood Properties, Inc. (filed as an Exhibit to Registrant's Form 8-K on August 15, 1994, and incorporated herein by reference). 4(c) Stock Purchase Agreement between Ridgewood Properties, Inc. and Hesperus Partners Ltd., dated as of August 29, 1994 (filed as an Exhibit to Registrant's Form 8-K on August 15, 1994, and incorporated herein by reference). 4(d) Certificate of Designation, Preferences and Rights of Series A Convertible Preferred Stock of the Registrant (filed as an Exhibit to Registrant's Registration Statement on Form S-8 filed on November 8, 1994 (No. 33-866084) and incorporated herein by reference). 4(e) Notice of Exercise by N. Rusell Walden dated January 31, 1997 (filed as an Exhibit to Registrant's Form 8-K on February 5, 1997, and incorporated herein by reference). 4(f) Notice of Exercise by Karen S. Hughes dated January 31, 1997 (filed as an Exhibit to Registrant's Form 8-K on February 5, 1997, and incorporated herein by reference). 4(g) Share Security Agreement between N. Russell Walden and Ridgewood Properties, Inc. dated January 31, 1997 (filed as an Exhibit to Registrant's Form 8-K on February 5, 1997, and incorporated herein by reference). 4(h) Share Security Agreement between Karen S. Hughes and Ridgewood Properties, Inc. dated January 31, 1997 (filed as an Exhibit to Registrant's Form 8-K on February 5, 1997, and incorporated herein by reference). 10(a) Employment Agreement between N. R. Walden and CMEI, Inc., dated March 28, 1985.* 10(b) Bill of Sale and Assumption of Liabilities between CMEI, Inc. and Ridgewood Properties, Inc. dated December 9, 1985.* 10(c) Ridgewood Properties, Inc. Supplemental Retirement and Death Benefit Plan dated January 1, 1987 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1988 and incorporated herein by reference). 10(d) Post-Employment Consulting Agreement between N. R. Walden and Ridgewood Properties, Inc. dated September 4, 1991 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1991 and incorporated herein by reference). 10(e) Post-Employment Consulting Agreement between Karen S. Hughes and Ridgewood Properties, Inc. dated September 4, 1991 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1991 and incorporated herein by reference). 10(f) Post-Employment Consulting Agreement between Byron T. Cooper and Ridgewood Properties, Inc. dated September 4, 1991 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1991 and incorporated herein by reference). 10(g) Post-Employment Consulting Agreement between M. M. McCullough and Ridgewood Properties, Inc. dated September 4, 1991 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1991 and incorporated herein by reference). 10(h) Ridgewood Properties, Inc. Stock Option Plan dated March 30, 1993 and as amended September 14, 1993 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(i) Stock Option Agreement between Byron T. Cooper and Ridgewood Properties, Inc. dated April 1, 1993 and as approved on January 12, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(j) Stock Option Agreement between Luther A. Henderson and Ridgewood Properties, Inc. dated April 1, 1993 and as approved on January 12, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(k) Stock Option Agreement between Karen S. Hughes and Ridgewood Properties, Inc. dated April 1, 1993 and as approved on January 12, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(l) Stock Option Agreement between M. M. McCullough and Ridgewood Properties, Inc. dated April 1, 1993 and as approved on January 12, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(m) Stock Option Agreement between N. R. Walden and Ridgewood Properties, Inc. dated April 1, 1993 and as approved on January 12, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(n) Stock Option Agreement between Gregory T. Weigle and Ridgewood Properties, Inc. dated April 1, 1993 and as approved on January 12, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(o) Stock Option Agreement between Karen S. Hughes and Ridgewood Properties, Inc. dated January 31, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(p) Stock Option Agreement between N. R. Walden and Ridgewood Properties, Inc. dated January 31, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(q) Ridgewood Properties, Inc. 1993 Stock Option Plan, as amended on October 26, 1994 (filed as an Exhibit to Registrant's Registration Statement on Form S-8 filed on November 8, 1994 (No. 33-86084) and incorporated herein by reference). 10(r) Amended and Restated Basic Agreement between RW Hotel Investment Partners, L.P. and Ridgewood Hotels, Inc. dated August 14, 1995 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1995, and incorporated herein by reference). 10(s) Amended and Restated Limited Partnership Agreement of RW Hotel Partners, L.P. dated September 8, 1995 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1995, and incorporated herein by reference). 10(t) Management Agreement (Holiday Inn Hurstbourne) between RW Hotel Partners, L.P. and Ridgewood Properties, Inc. dated August 16, 1995 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1995, and incorporated herein by reference). 10(u) Mortgage, Assignment of Leases and Rents and Security Agreement Between Bloomfield Acceptance Company, L.L.C. and Ridgewood Orlando, Inc. dated June 30, 1995 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1995, and incorporated herein by reference). 10(v) Security Agreement between Ridgewood Orlando, Inc. and Bloomfield Acceptance Company, L.L.C. dated June 30, 1995 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1995, and incorporated herein by reference). 10(w) Mortgage Note between Bloomfield Acceptance Company and Ridgewood Orlando, Inc. dated June 30, 1995 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1995, and incorporated herein by reference). 10(x) Agreement and Plan of Merger between and among Ridgewood Properties, Inc., Ridgewood Acquisition Corp., Wesley Hotel Group, Inc., Wayne McAteer and Samuel King dated December 7, 1995 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended November 30, 1995, and incorporated herein by reference). 10(y) Shareholders' Agreement by and between Samuel King and Ridgewood Properties, Inc. dated December 1995 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1996, and incorporated herein by reference). 10(z) Warrants to Purchase Shares of Common Stock of Ridgewood Properties, Inc. issued to Hugh Jones on December 16, 1996 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended November 30, 1996, and incorporated herein by reference). 10(aa) Promissory Note between N. Russell Walden and Ridgewood Properties, Inc. dated January 31, 1997 (filed as an Exhibit to Registrant's Form 8-K on February 5, 1997 and incorporated herein by reference). 10(bb) Promissory Note between Karen S. Hughes and Ridgewood Properties, Inc. dated January 31, 1997 (filed as an Exhibit to Registrant's Form 8-K on February 5, 1997 and incorporated herein by reference). 13 1997 Annual Report to Shareholders. 22 Subsidiaries of Registrant. 23 Consent of Price Waterhouse LLP 27 Financial Data Schedule. _______________ * Previously filed as an Exhibit to Registrant's Registration Statement on Form 10 filed on November 19, 1985 (Securities Exchange Act File No. 0-14019), and incorporated herein by reference. EX-13 2 EXHIBIT 13 RIDGEWOOD HOTELS, INC. ANNUAL REPORT 1997 FINANCIAL STATEMENTS Ridgewood Hotels, Inc. (the "Company") is primarily engaged in the business of acquiring, developing, operating and managing hotel properties in the Southeast and "Sunbelt" areas. Additionally, the Company owns several land parcels which are held for sale. Board of Directors Officers Michael M. Earley N. Russell Walden President - Triton Group President Management Luther A. Henderson Byron T. Cooper President - Pirvest, Inc. Vice President, Construction and Planning N. Russell Walden President - Ridgewood Karen S. Hughes Hotels, Inc. Vice President, Chief Financial Officer and Secretary Corporate Offices 2859 Paces Ferry Road, Suite 700 Atlanta, Georgia 30339 Telephone: (770) 434-3670 Market For Registrant's Common Equity and Related Stockholder Matters The common stock, $0.01 par value per share (the "Common Stock"), of the Company is listed in the National Association of Securities Dealers (NASDAQ) over-the-counter bulletin board service. However, there has been an absence of an established public trading market for the Common Stock. Shares outstanding and per share amounts for all periods presented have been retroactively adjusted for the two-for-one stock split effected in the form of a stock dividend on August 31, 1993 and a three-for-one stock split effected in the form of a stock dividend on October 31, 1994. On October 31, 1997, there were 1,538,480 shares of Common Stock outstanding held by approximately 238 shareholders of record. The Company paid its first and only cash dividend on the Common Stock during fiscal year 1990. The dividend paid was approximately $0.06 per share of Common Stock, which totaled approximately $397,000. The Company may pay future dividends if and when earnings and cash are available. The declaration of dividends on the Common Stock is within the discretion of the Board of Directors of the Company and is, therefore, subject to many considerations, including operating results, business and capital requirements and other factors. Selected Financial Data
---------------------------------------------------------------------- ($000's omitted, except per share data) 1997 1996 1995 1994 1993 - --------------------------------------------------------------------------------------------------------- Balance Sheet Data as of August 31 Total Assets $ 8,266 $ 8,724 $ 9,673 $ 14,351 $ 34,655 Term Loan(s) Payable 2,804 2,858 2,796 5,415 12,316 Shareholders' Investment 4,038 4,441 5,612 7,440 20,564 Income Statement Data Year Ended August 31 Net Revenues 8,408 4,314 8,675 30,082 18,619 Net Loss (463) (1,178) (1,656) (3,631) (1,860) Loss Per Common Share (1) $ (0.58) $ (1.29) $ (1.90) $ (0.64) $ (0.32) (1) Retroactively adjusted for the two-for-one stock split effected in the form of a stock dividend on August 31, 1993 and a three-for-one stock split effected in the form of a stock dividend on October 31, 1994.
Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources - During fiscal year 1997, the Company received net proceeds of approximately $3,320,000 from the sale of undeveloped land in Florida, Texas, Ohio and Georgia. The proceeds were used to provide additional working capital to the Company. In June 1995, the Company received a loan from a commercial lender to refinance the Ramada Inn in Longwood, Florida. The loan proceeds were $2,800,000. The loan is for a term of 20 years with an amortization period of 25 years, at the rate of 10.35%. Principal and interest payments will be approximately $26,000 per month beginning August 1, 1995. A portion of the proceeds from the loan was used to repay a term loan, and the remaining proceeds of approximately $1,500,000 were used for working capital. In addition, the Company is required to make a repair escrow payment comprised of 4% of estimated revenues, as well as real estate tax and insurance escrow payments. The total amount for these items will be a payment of approximately $20,000 per month and can be adjusted annually. The escrow funds are used as tax, insurance and repair needs arise. As of August 31, 1997, there was approximately $280,000 of escrowed funds related to this loan agreement. On January 23, 1994, the Company granted options to purchase 375,000 and 75,000 shares of Common Stock at a price of $1.00 per share to its President and Chief Financial Officer, respectively, under the Stock Option Plan. On January 31, 1997, all of the options were exercised. In conjunction with the exercise, a promissory note for $75,000 was received from the Chief Financial Officer in exchange for the Company's common stock. The $75,000 promissory note due from the Chief Financial Officer is payable in full on January 31, 1998 and accrues interest at a rate per annum of 8.25%. The note receivable is reflected as a contra equity account in the financial statements. On December 16, 1996, 75,000 warrants were issued to Hugh Jones, a hotel acquisitions consultant for the Company. Each warrant represents the right to purchase from the Company one share of Common Stock at the exercise price of $3.50 per share. The warrants may be exercised at any time within five years from the date of issuance. On August 16, 1995, RW Hotel Partners, L.P. was organized as a limited partnership (the "Partnership") under the laws of the State of Delaware. Concurrently, the Company formed Ridgewood Georgia, Inc., a wholly-owned Georgia corporation ("Ridgewood Georgia") which became the sole general partner in the Partnership with RW Hotel Investments, L.L.C. ("Investor") as the limited partner. Ridgewood Georgia has a 1% base distribution percentage versus 99% for the Investor. However, distribution percentages do vary depending on certain defined preferences and priorities pursuant to the Partnership Agreement ("Agreement") which are discussed below. The partnership was originally formed to acquire a hotel property in Louisville, Kentucky. The Partnership consists of six hotel properties at August 31, 1997. The terms of this partnership will serve as a guideline for other potential acquisitions with this or other investors. Income and loss are allocated to the Company and the limited partner based upon the formula for allocating distributable cash as described below but subject to an annual limitation which would result in no more than 88% of partnership income or loss (as defined) being allocated to the limited partner. Distributable Cash is defined as the net income from the property before depreciation plus any net sale proceeds and net financing proceeds less capital costs. Distributions of Distributable Cash shall be made as follows: - First, to the Investor until there has been distributed to the Investor an amount equal to a 15% cumulative internal rate of return on the Investor's investment. - Second, to Ridgewood Georgia until the aggregate amount received by Ridgewood Georgia equals the aggregate cash contributions made by Ridgewood Georgia to the Partnership (as of August 31, 1997, Ridgewood Georgia had contributed approximately $772,000). - Third, 12% to Ridgewood Georgia and 88% to the Investor until there has been distributed to the Investor an amount equal to a 25% cumulative internal rate of return on Investor's investment. - Fourth, 75% of the residual to the Investor and 25% to Ridgewood Georgia. A Management Agreement exists between the Partnership and the Company as Manager ("Manager") for the purpose of managing hotels in Kentucky, Georgia and South Carolina. The Manager shall be entitled to the following property management fees: (1) 2.5% of the gross revenues from the hotel property. (2) 1% of the gross revenues from the hotel property as an incentive fee if distributable cash equals or exceeds 13.5% of certain aggregate acquisition costs. A Construction Management Agreement exists between the Partnership and the Manager for the purpose of managing future improvements to the properties. The Company currently has approximately $772,000 invested in the Partnership. As of August 31, 1997, the Company has recorded approximately $199,000 equity in the income of the Partnership, but has recorded a provision for possible losses of approximately $199,000 as there is no indication that the Company will be able to recover the equity income in the Partnership given the provisions of the partnership agreement regarding the distribution of cash to the partners upon liquidation. In August 1995, the Partnership purchased a hotel in Louisville, Kentucky for approximately $16,000,000. In December 1995 and January 1996, the Partnership purchased four hotel properties in Georgia for approximately $15,000,000 and a hotel in South Carolina for $4,000,000, respectively. The Company may make future capital contributions to the Partnership. Management expects to fund such capital contributions through available cash or from loans from the Partnership. Additionally, the Company may invest in other partnerships to acquire hotels in the future. During the third quarter of fiscal year 1997, the Company forfeited approximately $878,000 of non-refundable deposits and other costs related to the unsuccessful purchase of a hotel in Atlanta, Georgia. Since the Company is not currently generating sufficient operating cash to cover overhead and debt service, the Company must continue to sell real estate, seek alternative financing or otherwise recapitalize the Company. Including the sale of land in Georgia in September 1997 of $350,000, there is available cash of approximately $1.3 million. This available cash will be used to fund operating losses until new sources of income can be generated. The Company also intends to aggressively pursue the acquisition of hotels and hotel management contracts through similar partnerships as described above which would provide additional cash flow. Currently, the Company has a letter proposal with another company to locate and assist in the acquisition of hotel properties for that company. Additionally, as hotel properties are acquired, the Company would receive management contracts to manage those properties. However, given increased competition in the hotel acquisition market, acquisitions of economically viable properties are more difficult to identify and purchase. The Company owns one hotel, has 1% ownership interest in six other hotels which it also manages and currently has five other hotels which it manages but has no ownership. Under the terms of franchise agreements, the Company is required to comply with standards established by franchisors, including property renovations and upgrades. The success of the Company's operations continues to be dependent upon such unpredictable factors as the general and local economic conditions to which the real estate and hotel industry is particularly sensitive: labor, environmental issues, weather conditions, consumer spending or general business conditions and the availability of satisfactory financing. Results of Operations - Sales of real estate properties for the fiscal year ended August 31, 1997 increased compared to 1996 due primarily to the sale of the Company's undeveloped land in Maitland, Florida. Sales of real estate properties for the fiscal year ended August 31, 1996 decreased compared to 1995 due to the sale of a hotel and residential lots in 1995. The Company had gains from real estate sales of approximately $1,354,000, $281,000 and $291,000 during fiscal years 1997, 1996 and 1995, respectively. Gains or losses on real estate sales are dependent upon the timing, sales price and the Company's basis in specific assets sold and will vary considerably from period to period. Revenues from wholly-owned hotel operations for fiscal year 1997 increased $300,000, or 11%, compared to 1996. The increase was due to occupancy and rate increases at the Company's hotel in Longwood, Florida. Revenues from real estate properties for fiscal year 1996 decreased $504,000, or 15%, compared to 1995. The decrease was due to the sale of a hotel in April 1995. Revenues from hotel management for the fiscal year 1997 increased $353,000, or 51%, compared to 1996. Also, revenues from hotel management for fiscal year 1996 increased $410,000, or 143%, compared to 1995. The increases were due to a larger number of hotels under management in both years due to the acquisition of the Wesley Hotel Group in 1995 and the Company's partnership in RW Hotel Partners, L.P. Expenses of wholly-owned real estate increased $32,000, or 1%, for the fiscal year ended August 31, 1997 compared to 1996 due to an increased occupancy level at the Company-owned hotel. Expenses of real estate properties decreased $498,000, or 17%, compared to 1995. The decrease was due to the sale of a hotel in April 1995. During fiscal year 1997, expenses of hotel management increased $99,000, or 15%, compared to 1996. During fiscal year 1996, expenses of hotel management increased $320,000, or 88%, compared to 1995. The increases were primarily due to larger payroll costs associated with the increased staff necessary to manage a larger number of hotels. Due to the Company's investment in a limited partnership during fiscal years 1997 and 1996, the Company recognized equity in the income of the partnership of approximately $65,000 and $209,000, respectively. Income from loans and temporary investments decreased $3,000 and $70,000 for the fiscal year 1997 compared to 1996 and 1996 compared to 1995, respectively, due to less cash available for investment throughout those fiscal years. The Company received approximately $398,000 as a consulting fee during fiscal year 1997. This consulting fee was earned by the Company for its involvement in the negotiations and purchase of a large hotel by another hotel company. The provision of $50,000 for possible losses on real estate investments in fiscal year 1995 pertains to a land parcel in Atlanta, Georgia which was subsequently sold in fiscal year 1996. The provision of $199,000 for possible losses on investment in limited partnership in fiscal year 1997 was recorded as there is no indication that the Company will be able to recover the equity income in the partnership. Interest expense decreased by $65,000 during fiscal year 1996 compared to 1995. The decrease was primarily due to lower interest rates pertaining to the Company's term loans. General, administrative and other expenses increased by $67,000 for fiscal year 1997 compared to 1996 and $99,000 for fiscal year 1996 compared to 1995 due to an overall increase in costs associated with managing and acquiring more hotels. Due to the Company's continuing aggressive movement into the business of acquiring, developing, operating and selling hotel properties throughout the country, the Company incurred business development costs of $1,067,000, $193,000 and $165,000, respectively, in fiscal years 1997, 1996 and 1995. Approximately $878,000 of the business development expense in fiscal year 1997 related to costs on the unsuccessful purchase of a hotel in Atlanta, Georgia. Effect of Inflation - Inflation tends to increase the Company's cash flow from income producing properties since rental rates generally increase by a greater amount than associated expenses. Inflation also generally tends to increase the value of the Company's land portfolio. Offsetting these beneficial effects of inflation are the increased cost and decreased supply of investment capital for real estate that generally accompany inflation. RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AUGUST 31, 1997 AND 1996 ($000'S omitted, except per share data)
August 31, August 31, ASSETS 1997 1996 ------ --------- --------- REAL ESTATE INVESTMENTS: Real Estate Properties Operating Properties, net $ 1,325 $ 1,383 Land Held for Sale 6,661 9,769 ---------- ---------- 7,986 11,152 Mortgage Loans 2 5 ---------- ---------- Total real estate investments 7,988 11,157 Allowance for Possible Losses on Real Estate Investments (3,544) (4,700) ---------- ---------- Net real estate investments 4,444 6,457 INVESTMENT IN LIMITED PARTNERSHIP, NET 772 957 CASH AND CASH EQUIVALENTS 1,596 298 OTHER ASSETS 1,454 1,012 ---------- ---------- $ 8,266 $ 8,724 ========== ========== The accompanying notes are an integral part of these consolidated financial statements.
August 31, August 31, LIABILITIES AND SHAREHOLDERS' INVESTMENT 1997 1996 ---------------------------------------- ---------- ---------- ACCOUNTS PAYABLE $ 159 $ 103 ACCRUED SALARIES, BONUSES AND OTHER COMPENSATION 863 782 ACCRUED PROPERTY TAX EXPENSE 118 151 ACCRUED INTEREST AND OTHER LIABILITIES 284 389 TERM LOANS 2,804 2,858 ---------- ---------- Total Liabilities 4,228 4,283 ---------- ---------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' INVESTMENT Series A Convertible Cumulative Preferred Stock, $1 par value, 1,000,000 shares authorized, 450,000 shares issued and outstanding in 1997 and 1996 liquidation preference and callable at $3,600,000 450 450 Common stock, $0.01 par value, 5,000,000 shares authorized, 1,538,480 and 1,088,480 shares issued and outstanding in 1997 and 15 11 1996, respectively. Paid-in Surplus 16,333 16,202 Note receivable from officer for purchase of common stock (75) -- Accumulated deficit since December 30, 1985 (12,685) (12,222) ---------- ---------- Total Shareholders' Investment 4,038 4,441 ---------- ---------- $ 8,266 $ 8,724 ========== ========== The accompanying notes are an integral part of these consolidated financial statements.
RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED AUGUST 31, 1997, 1996 AND 1995 ($000's Omitted, except per share data)
1997 1996 1995 -------- --------- --------- REVENUES: Revenues from wholly-owned hotel operations........ $ 3,048 $ 2,748 $ 3,252 Revenues from hotel management .................... 1,050 697 287 Sales of real estate properties ................... 3,808 617 5,018 Equity in net income of partnership ............... 65 209 -- Income from loans and temporary investments........ 40 43 113 Other.............................................. 397 -- 5 - -------- ---------- ---------- 8,408 4,314 8,675 ---------- ---------- ---------- COSTS AND EXPENSES: Expenses of wholly-owned real estate properties ... 2,396 2,364 2,862 Expenses of hotel management ...................... 781 682 362 Costs of real estate sold ......................... 2,454 336 4,727 Depreciation and amortization ..................... 258 268 512 Provision for possible losses on real estate investments ......................... -- -- 50 Provision for possible losses on investment in limited partnership ............... 199 -- -- Interest expense, net of interest capitalized...... 345 345 410 General, administrative and other.................. 1,371 1,304 1,205 Business development .............................. 1,067 193 165 ---------- ---------- ---------- 8,871 5,492 10,293 ---------- ---------- ---------- LOSS BEFORE INCOME TAXES (463) (1,178) (1,618) INCOME TAXES -- -- (38) ---------- ---------- ---------- NET LOSS $ (463) $ (1,178) $ (1,656) ---------- ---------- ---------- LOSS PER COMMON SHARE $ (0.58) $ (1.29) $ (1.90) ========== ========== ========== The accompanying notes are an integral part of these consolidated financial statements.
Ridgewood Hotels, Inc. and Subsidiaries Consolidated Statements of Cash Flows For the Years Ended August 31, 1997, 1996 and 1995 ($000's Omitted)
1997 1996 1995 --------- --------- --------- Cash flows from operating activities: Net loss ................................................... $ (463) $ (1,178) $ (1,656) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization .......................... 258 268 512 Decrease in allowance for possible losses on real estate investments ........................... -- -- (173) Increase in allowance for possible losses on investment in limited partnership ................. 199 -- -- Gain from sale of real estate properties ............... (1,354) (293) (68) Equity in net income of partnership .................... (14) (209) -- (Increase) decrease in other assets .................... (571) (214) 134 Increase (decrease) in accounts payable and accrued liabilities .............................. (1) 115 (232) ---------- ---------- ---------- Total adjustments ...................................... (1,483) (333) 173 ---------- ---------- ---------- Net cash used in operating activities .................. (1,946) (1,511) (1,483) ---------- ---------- ---------- Cash flows from investing activities: Principal payments received on mortgage loans ............ 3 39 36 Investment in limited partnership ........................ -- (516) (232) Proceeds from sale of real estate ........................ 3,313 634 4,620 Additions to real estate properties ...................... (78) (49) (915) ---------- ---------- ---------- Net cash provided by investing activities .............. 3,238 108 3,509 ---------- ---------- ---------- Cash flows from financing activities: Dividends on preferred stock ............................. (315) (135) (172) Issuance of common stock upon exercise of stock options .. 375 -- -- Proceeds from issuance of debt ........................... -- -- 2,800 Debt financing costs ..................................... -- -- (159) Repayments of debt ....................................... (54) (44) (5,419) ---------- ---------- ---------- Net cash provided by (used in) financing activities .... 6 (179) (2,950) ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents ......... 1,298 (1,582) (924) Cash and cash equivalents at beginning of year ............... 298 1,880 2,804 ---------- ---------- ---------- Cash and cash equivalents at end of year ........................ $ 1,596 $ 298 $ 1,880 ========== ========== ========== The accompanying notes are an integral part of these consolidated financial statements.
Ridgewood Hotels, Inc. and Subsidiaries Consolidated Statements of Cash Flows For the Years Ended August 31, 1997, 1996 and 1995 - -------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information: 1997 1996 1995 ------------ ------------ ------------ Interest paid ...................................... $ 345,000 $ 345,000 $ 450,000 Income taxes paid .................................. $ -- $ -- $ 38,000 - ------------------------------------------------------------------------------------------------- Supplemental disclosure of cash flow information and non-cash activity: 1997 1996 1995 ------------ ------------ ------------ Decrease in allowance for possible losses due to sale of parcel of land ......................... $ 1,156,000 $ -- $ -- During the second quarter of fiscal year 1997, the Company's President and Chief Financial Officer exercised their stock options for 450,000 shares of the Company's common stock. In conjunction with the exercise, a promissory note and cash were received by the Company and common stock issued as follows: Cash received from Company's President .......... $ 375,000 $ -- $ -- Promissory Note received from Chief Financial Officer upon exercise of stock options ...... $ 75,000 $ -- $ -- Issuance of 450,000 shares of common stock, $0.01 par value, in 1997 .................... $ 450,000 $ -- $ -- Issuance of 125,000 shares of common stock, $.01 par value, in conjunction with purchase of hotel management company ................................ $ -- $ 187,500 $ -- Assumption of notes payable in conjunction with purchase of hotel management company .............. $ -- $ 106,000 $ -- - ------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these consolidated financial statements.
RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT FOR THE YEARS ENDED AUGUST 31, 1997, 1996 AND 1995 ($000's Omitted, except per share data)
Note Receivable Preferred Common From Total Stock Stock Officer for Share- ---------------------- ------------------------ Paid-in Purchase of Accumulated holders' Shares Amount Shares Amount Surplus Common Stock Deficit Investment ---------- ---------- ------------ ---------- ---------- ------------ ---------- ---------- Balance, August 31, 1994 450,000 $ 450 963,480 $ 10 $ 16,368 $ -- $ (9,388) $ 7,440 Dividends on Preferred Stock -- -- -- -- (172) -- -- (172) Net Loss -- -- -- -- -- -- (1,656) (1,656) ----------- ----------- ------------- ----------- ----------- ------------- ----------- ----------- Balance, August 31, 1995 450,000 $ 450 963,480 $ 10 $ 16,196 $ -- $ (11,044) $ 5,612 Dividends on Preferred Stock -- -- -- -- (180) -- -- (180) Issuance of Common Stock -- -- 125,000 1 186 -- 187 Net Loss -- -- -- -- -- -- (1,178) (1,178) ----------- ----------- ------------- ----------- ----------- ------------- ----------- ----------- Balance, August 31, 1996 450,000 $ 450 1,088,480 $ 11 $ 16,202 $ -- $ (12,222) $ 4,441 Dividends on Preferred Stock -- -- -- -- (315) -- -- (315) Issuance of Common Stock -- -- 450,000 4 446 (75) -- 375 Net Loss -- -- -- -- -- -- (463) (463) ----------- ----------- ------------- ----------- ----------- ------------- ----------- ----------- Balance, August 31, 1997 450,000 $ 450 1,538,480 $ 15 $ 16,333 $ (75) $ (12,685) $ 4,038 =========== =========== ============= =========== =========== ============= =========== =========== The accompanying notes are an integral part of these consolidated financial statements.
Ridgewood Hotels, Inc. and Subsidiaries Notes to Consolidated Financial Statements August 31, 1997, 1996 and 1995 1. Description of Business and Significant Accounting Policies Description of the Business Ridgewood Hotels, Inc. (the "Company") is primarily engaged in the business of acquiring, developing, operating and managing hotel properties in the Southeast and "Sunbelt" areas. Additionally, the Company owns several land parcels which are held for sale. The Company's common stock is listed in the National Association of Securities Dealers (NASDAQ) over-the-counter bulletin board service (see Note 6). During the fourth quarter of fiscal year 1994, the Company purchased and retired all of the shares of common stock owned by the Company's then-majority stockholder, Triton Group, Ltd. On April 15, 1997, Security Systems Holdings, Inc. merged with Triton Group Ltd., and the newly-combined entity was named Alarmguard Holdings, Inc. ("Alarmguard"). The cash used to purchase the common stock ("Alarmguard Shares") was from the proceeds received by the Company from the sale of its mobile home parks in June 1994. The Company also purchased and retired all the shares of common stock owned by Hesperus Partners, Ltd. ("Hesperus") (the "Hesperus Shares), formerly known as Harris Associates, L.P. The stock was exchanged for a note the Company received from Sun Communities Operating Limited Partnership in conjunction with the sale of the mobile home parks (the "Note"). In addition to assigning the Note and the mortgage securing the Note, the Company had agreed and did pay Hesperus interest on the outstanding principal balance of the Note from the closing date through June 15, 1995. Since the Company is not currently generating sufficient operating cash to cover overhead and debt service cost, the Company must continue to sell real estate (see Note 12), seek alternative financing, or otherwise, recapitalize the Company. The Company is currently reviewing the viability of all of these alternatives. Basis of Presentation and Consolidation - The consolidated financial statements of the Company include the accounts of all of its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform with the current year presentation. In fiscal year 1996, the Company purchased a hotel management company, which is now a wholly-owned subsidiary of the Company. In conjunction with this purchase, five other active corporations were acquired, and four remain as wholly-owned subsidiaries. Additionally, another wholly-owned subsidiary was formed in 1996 and one in fiscal year 1997. These subsidiaries manage and employ the employees at various hotels. In fiscal year 1995, the Company formed two wholly-owned subsidiaries for the purpose of managing hotels and another for the sole purpose of owning the hotel in Longwood, Florida, which serves as collateral for the Company's term loan. The lender required that a separate subsidiary own the hotel. One other subsidiary remains, but is not operational. The investment in the limited partnership is being accounted for using the equity method of accounting (See Note 8). Valuation of Real Estate Properties - In 1997, the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed of ("FAS 121"). This statement requires that long-lived assets and certain identified intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The statement requires the use of undiscounted estimated cash flows expected from the asset's operations and eventual disposition. If the sum of the expected future cash flows is less than the carrying value of the asset, an impairment loss is recognized based on the fair value of the asset. Adoption of this pronouncement had no material effect on the consolidated statement of operations for the year ended August 31, 1997. Under FAS 121, properties are classified as either operating properties or properties held for sale. If determined to be impaired, operating properties are written down to their fair value, and the associated loss cannot be recovered if the fair value of the property increases. Properties held for sale are written down to their fair value less cost to sell, but the associated loss can be recovered in the event the fair value of the property increases. Stock-Based Compensation - During 1997, the Company adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"). This statement provides entities a choice between fair value and intrinsic value based methods of accounting for stock based compensation plans. The Company has elected to continue using the intrinsic value method. Adoption of this pronouncement had no material effect on the consolidated statement of operations for the year ended August 31, 1997. Depreciation Policies - The Company depreciates operating properties and any related improvements by using the straight-line method over the estimated useful lives of such assets, which are generally 30 years for building and land improvements and 5 years for furniture, fixtures and equipment. Depreciation expense for the year ended August 31, 1997 was $166,000. Capitalization Policies - The Company capitalizes interest as a cost of properties while they are under construction or development. Costs of planning and development performed by outside contractors and all other direct costs related to properties under construction or development are also capitalized. Capitalization of interest and other costs is discontinued when a project is substantially completed, or if active development ceases. Total interest incurred and paid amounted to approximately $345,000, $345,000 and $450,000 in 1997, 1996 and 1995, respectively. No interest was capitalized; however, the effect on the financial statements from capitalizing amounts permitted would not have been material. Repairs and maintenance costs are expensed in the period incurred. Major improvements to existing properties which increase the usefulness or useful life of the property are capitalized. Sale of Real Estate - All revenue related to the sale of real estate is recognized at the time of closing. The Company allocates costs of real estate sold using the specific identification or relative sales value methods based on the nature of the development. Profit recognition is based upon the Company receiving adequate cash down payments and other criteria specified by existing accounting literature. Cash and Cash Equivalents - For the purpose of the Statement of Cash Flows, cash includes cash equivalents. Cash equivalents include all highly liquid investments with maturities of three months or less. Fair Value of Financial Instruments - The recorded values of cash, accounts receivable, accounts payable and accrued liabilities reflected in the financial statements are representative of their fair value due to the short-term nature of the instruments. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported grants of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates included in the Company's financial statements include allowances for impairment of real estate assets and for deferred tax assets. New Accounting Pronouncements - In February 1997, Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("FAS 128") was issued and is effective for fiscal periods ending after December 15, 1997. The Company will adopt FAS 128 in fiscal year 1998 and does not expect the effects of FAS 128 to have a material impact on the Company's financial statements. In June 1997, Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS 130") was issued and is effective for fiscal years beginning after December 15, 1997. The Company expects to adopt FAS 130 in fiscal year 1998 and does not expect the effects of FAS 130 to have a material impact on the Company's financial statements. In June 1997, Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("FAS 131") was issued and is effective for fiscal years beginning after December 15, 1997. The Company expects to adopt FAS 131 in fiscal year 1998 and does not expect the effects of FAS 131 to have a material impact on the Company's financial statements. 2. Real Estate Investments The Company's real estate properties by type at August 31, 1997, and 1996 were as follows ($000's omitted): Furniture August 31, 1997 Land & Fixtures & Type of Project Buildings Equipment Total Hotels 2,535 357 2,892 Less -- accumulated depreciation (1,567) 1,325 Net operating properties Land 6,661 -- 6,661 Total $ 7,986 ======= Furniture, August 31, 1996 Land & Fixtures & Type of Project Buildings Equipment Total Hotel $ 2,535 $ 308 $ 2,843 Less -- accumulated depreciation (1,460) ------- Net operating property 1,383 Land 9,769 -- 9,769 ------- Total $11,152 ======= Changes in the allowance for possible losses on real estate investments for the years ended August 31, 1997, 1996 and 1995 were as follows ($000's omitted): 1997 1996 1995 Allowance, beginning of year $4,700 $4,700 $4,873 Provision for possible losses -- -- 50 Reversal of reserves associated with sales of real estate assets (1,156) -- (223) Allowance, end of year $3,544 $4,700 $4,700 ====== ====== ====== 3. Commitments and Contingencies In August 1991, each executive officer was offered a Post-Employment Consulting Agreement (the "Consulting Agreement(s)") whereby the officer agrees that if he or she is terminated by the Company for other than good cause, the officer will be available for consulting at a rate equal to their annual compensation immediately prior to termination. All officers have chosen to enter into Consulting Agreements. In addition, three other employees were offered and have chosen to enter into one year Consulting Agreements. The executive, upon termination, agrees to sign an unconditional release of all claims and liability in exchange for a one year (four employees) or two year (two employees) consulting fee arrangement, depending upon the years of service as an officer or the designation as a senior executive officer. On May 2, 1995 a complaint was filed in the Court of Chancery of the State of Delaware (New Castle County) entitled William N. Strassburger v. Michael M. Early, Luther A. Henderson, John C. Stiska, N. Russell Walden, and Triton Group, Ltd., defendants, and Ridgewood Hotels, Inc., nominal defendant, C.A. No. 14267 (the "Complaint"). The plaintiff is an individual shareholder of the Company who purports to file the Complaint individually, representatively on behalf of all similarly situated shareholders, and derivatively on behalf of the Company. The Complaint challenges the actions of the Company and its directors in consummating the Company's August 1994 repurchase of its common stock held by Triton Group, Ltd. and Hesperus Partners Ltd. in five counts, denominated Waste of Corporate Assets, Breach of Duty of Loyalty to Ridgewood, Breach of Duty of Good Faith, Intentional Misconduct, and Breach of Duty of Loyalty and Good Faith to Class. On July 5, 1995, the Company filed a timely answer generally denying the material allegations of the complaint and asserting several affirmative defenses. This case is in the concluding stages of discovery. No trial date has been set, but the Court has certified a class of shareholders as plaintiffs for the non-derivative claims but has not certified the suit as a class action suit. The Company intends to vigorously contest this matter. While the Company cannot predict the outcome, Management believes the ultimate resolution of this matter will not have a material effect on the Company's financial condition. On August 23, 1996, Great American Resorts filed a complaint in the Superior Court of Cobb County, State of Georgia, entitled Great American Resorts, Inc. and Great American Casinos, Inc. v. Charles Taylor, Deborah Lynn Cannon, Walter D. Hrab and Ridgewood Hotels, Inc., Civil Action File No. 9616398-05, alleging that the Company and the other defendants are liable for breach of contract and breach of fiduciary duty stemming from a contract between Great American and one of the Company's subsidiaries. The complaint seeks damages, attorneys' fees and pre-judgment interest. It also seeks an order requiring that certain books and records be turned over to the plaintiffs. On September 27, 1996, the Company filed a timely answer generally denying the material allegations of the complaint and asserting several affirmative defenses. While the discovery deadline has passed, no trial date has been set, nor have the plaintiffs actively pursued the matter. The Company intends to vigorously contest this matter. While the Company cannot predict the outcome, Management believes the ultimate resolution of this matter will not have a material effect on the Company's financial condition. In conjunction with the acquisition of a hotel management company in December 1995, 25,000 shares of the Company's common stock were issued to the Senior Vice President of the hotel management company. The 25,000 shares are subject to a Put Agreement ("Agreement"). The Agreement states that within ninety days after the two year anniversary of the effective date of the Agreement (which was effective in December 1995), the Company shall be obligated to purchase all or part of the 25,000 shares from the Senior Vice President of Wesley at a purchase price of $4.50 per share. As more fully described in Note 8, the Company is required to fund certain capital contributions to RW Hotel Partners, L.P. as the partnership acquires hotels. 4. Notes Payable In June 1995, the Company entered into a loan with a commercial lender to refinance the Ramada Inn in Longwood, Florida. The loan proceeds are $2,800,000. The loan is for a term of 20 years with an amortization period of 25 years, at the rate of 10.35%. Principal and interest payments are approximately $26,000 per month beginning August 1, 1995. In addition, the Company is required to make a repair escrow payment comprised of 4% of estimated revenues, as well as real estate tax and insurance escrow payments. The total amount for these items will be a payment of approximately $20,000 per month and can be adjusted annually. The escrow funds will be used as tax, insurance and repair needs arise. As of August 31, 1997, there was approximately $280,000 of escrowed funds related to this loan agreement. Also, commitment fees and loan costs of approximately $159,000 were deferred and are being amortized over 20 years. The approximate average amount of borrowings on the term loan during fiscal year 1997 was $2,757,000, at an average interest rate of 10.35%. The maximum amount of borrowings outstanding under this loan was $2,771,000. The balance of the loan at August 31, 1997 was approximately $2,742,000. The carrying value of the note approximates its fair value at August 31, 1997. In December 1995 and in conjunction with the acquisition of a hotel management company, the Company assumed three promissory notes dated September 22, 1994 and payable to three different Georgia corporations. The total combined outstanding principal was approximately $106,000. All three notes are for a term of five years at a rate of 6.83%. Combined principal and interest payments are approximately $2,667 per month through October 1, 1999. The combined balance of these loans at August 31, 1997 was approximately $62,000. The approximate average amount of borrowings on the combined term loans during fiscal year 1997 was $75,000, at an average interest rate of 6.83%. The maximum amount of combined borrowings outstanding under these loans was $87,000. Maturities of long-term debt during the Company's next five fiscal years are as follows: 1998 - $59,000; 1999 - $65,000; 2000 - $43,000; 2001 - $42,000; 2002 - $47,000; thereafter - $2,548,000. 5. Income Taxes The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109 ("FAS 109"), "Accounting for Income Taxes", which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of other assets and liabilities. The Company's 1995 provision for income taxes is composed of $38,000 in alternative minimum tax. There was no provision for income taxes for the year ended August 31, 1997 or 1996. Deferred tax assets (liabilities) are composed of the following at August 31, 1997 and August 1996, respectively: 1997 1996 Allowance for possible losses $ 1,202 $ 1,598 Excess of tax over book basis, land held for sale or future development 9 9 Depreciation and amortization 73 139 Excess of tax over book basis, income from partnership 7 -- Other 302 273 Tax loss carryforwards 4,564 4,227 ------- -------- Gross deferred tax assets 6,157 6,246 ------- -------- Excess of book over tax basis, land held for sale or future development -- (28) Excess of book over tax basis, income from partnership -- (38) Loan amortization (18) (9) ------- -------- Gross deferred tax liabilities (18) (75) ------- -------- Deferred tax assets valuation allowance (6,139) (6,171) ------- -------- $ 0 $ 0 ======= ======== The net change in the valuation allowance for deferred tax assets was a decrease of $32,000. This change resulted primarily from a decrease in the Company's deferred tax assets. Approximately $13,424,000 of tax loss carryforwards remain at August 31, 1997 for income tax purposes. The carryforwards expire $2,082,000 in 2005, $4,150,000 in 2006, $1,524,000 in 2007, $1,699,000 in 2008, ($1,632,000) in 2010 and ($1,482,000) in 2011. As a result of a change in control during fiscal year 1994, the amount of tax loss carryforwards incurred prior to the change in control which may be utilized by the Company in any one year period is limited to approximately $940,000. In certain circumstances because of "built-in" gains on some properties, the actual use of net operating loss carryforwards may exceed this amount. The Company has unused net operating loss carryforwards in certain states in which it operates which are available to offset future state taxable income in those states. No benefit for the remaining loss carryforwards has been recognized in the financial statements. 6. Shareholders' Investment Authorized Shares of Common and Preferred Stock - On January 4, 1995, the Company approved an increase in the authorized number of shares of the Company's common stock from 3,000,000 shares to 5,000,000 shares and increased the number of authorized shares of the Company's preferred stock from 500,000 shares to 1,000,000 shares. In addition, the Company increased the number of shares reserved under the Ridgewood Hotels, Inc. 1993 Stock Option Plan from 900,000 to 1,200,000 shares. There are currently 1,538,480 shares of common stock outstanding, of which approximately 51% is owned by the Company's President, N. Russell Walden. There are currently 1,000,000 authorized shares of the Company's Series A Convertible Preferred Stock. In conjunction with this purchase, the Company issued 450,000 shares of Series A Convertible Preferred Stock to Alarmguard. The preferred stock is redeemable by the Company at $8.00 per share and accrues dividends at a rate of $0.40 per share annually for the first two years and at a rate of $0.80 per share annually thereafter. Dividends are payable quarterly commencing on November 1, 1994. Each share of the preferred stock is convertible into three shares of the Company's common stock effective August 16, 1996 and is subject to certain anti-dilution adjustments. As of August 31, 1996, no shares have been converted. In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of the shares of preferred stock shall be entitled to receive $8.00 per share of preferred stock plus all dividends accrued and unpaid thereon. Loss Per Common Share - Loss per common share is calculated based upon the weighted average number of shares outstanding during the period of approximately 1,350,000, 1,055,000 and 963,000 in 1997, 1996 and 1995, respectively. Issuance of Common Shares - In December 1995, the Company purchased a hotel management company in part by issuing 125,000 shares of the Company's common stock: 100,000 shares and 25,000 shares to the President and Senior Vice President of Wesley Hotel Group ("Wesley"), respectively. See also Note 11. The 25,000 shares issued to the Senior Vice President of Wesley are subject to a Put Agreement ("Agreement"). The Agreement states that within ninety days after the two year anniversary of the effective date of the Agreement (which was effective in December 1995), the Company shall be obligated to purchase all or part of the 25,000 shares from the Senior Vice President of Wesley at a purchase price of $4.50 per share. 1993 Stock Option Plan - On March 30, 1993, the Company granted options to purchase 378,000 shares of common stock at a price of approximately $1.83 per share to its key employees and one director under the Ridgewood Hotels, Inc. 1993 Stock Option Plan (the "Plan"). The options vested over a four year period in 25% increments. All options expire ten years from the date of grant, unless earlier by reason of death, disability, termination of employment, or for other reasons outlined in the Plan. As of August 31, 1997, all of the options are exercisable. On January 28, 1994, the Company granted options to purchase 375,000 and 75,000 shares of common stock at a price of $1.00 per share to its President and Chief Financial Officer, respectively, under the Plan. On January 31, 1997, all of the options were exercised. In conjunction with the exercise, a promissory note for $75,000 was received from the Chief Financial Officer in exchange for the Company's common stock. The $75,000 promissory note due from the Chief Financial Officer is payable in full on January 31, 1998 and accrues interest at a rate per annum of 8.25%. Warrants - On December 16, 1996, 75,000 warrants were issued to Hugh Jones, a hotel acquisitions consultant for the Company. Each warrant represents the right to purchase from the Company one share of common stock at the exercise price of $3.50 per share. The warrants may be exercised at any time within five years from the date of issuance. 7. Supplemental Retirement and Death Benefit Plan The Company implemented a non-qualified Supplemental Retirement and Death Benefit Plan with an effective date of January 1, 1987. The Plan supplements other retirement plans and also provides pre-retirement death benefits to participants' beneficiaries. Concurrent with the implementation of the Supplemental Retirement and Death Benefit Plan, the Company purchased key-person life insurance contracts on the lives of the Plan participants. The policies are owned by and payable to the Company and are "increasing whole life" insurance. The Company pays level annual premiums, may borrow against cash values earned, and pays interest annually on any loans which may be cumulatively outstanding. The Company has recorded a total pension liability of approximately $768,000 as of August 31, 1997. At August 31, 1997 the cash surrender value available to settle the outstanding pension liability was approximately $500,000. For the fiscal years ending August 31, 1997, 1996 and 1995, the pension expense was approximately $42,000, $33,000 and $60,000, respectively. 8. Investment in Limited Partnership On August 16, 1995, RW Hotel Partners, L.P. was organized as a limited partnership (the "Partnership") under the laws of the State of Delaware. Concurrently, the Company formed Ridgewood Georgia, Inc., a Georgia corporation ("Ridgewood Georgia") which became the sole general partner in the Partnership with RW Hotel Investments Associates, L.L.C. ("Investor") as the limited partner. Ridgewood Georgia has a 1% base distribution percentage versus 99% for the Investor. However, distribution percentages do vary depending on certain defined preferences and priorities pursuant to the Partnership Agreement ("Agreement") which are discussed below. The partnership was originally formed to acquire a hotel property in Louisville, Kentucky. The partnership consists of six hotel properties at August 31, 1997. The terms of this partnership will serve as a guideline for other potential acquisitions with this or other investors. Income and loss are allocated to Ridgewood Georgia and the limited partner based upon the formula for allocating distributable cash as described below but subject to an annual limitation which would result in no more than 88% of partnership income or loss (as defined) being allocated to the limited partner. Distributable Cash is defined as the net income from the property before depreciation plus any net sale proceeds and net financing proceeds less capital costs. Distributions of Distributable Cash shall be made as follows: - First, to the Investor until there has been distributed to the Investor an amount equal to a 15% cumulative internal rate of return on the Investor's investment. - Second, to Ridgewood Georgia until the aggregate amount received by Ridgewood Georgia equals the aggregate cash contributions made by Ridgewood Georgia to the Partnership (as of August 31, 1997, Ridgewood Georgia contributed approximately $772,000). - Third, 12% to Ridgewood Georgia and 88% to the Investor until there has been distributed to the Investor an amount equal to a 25% cumulative internal rate of return on Investor's investment. - Fourth, 75% of the residual to the Investor and 25% to Ridgewood Georgia. A Management Agreement exists between the Partnership and the Company as Manager ("Manager") for the purpose of managing hotels in Kentucky, Georgia and South Carolina. The Manager shall be entitled to the following property management fees: (1) 2.5% of the gross revenues from the hotel property. (2) 1% of the gross revenues from the hotel property as an incentive fee if distributable cash equals or exceeds 13.5% of total aggregate acquisition costs. No management fees were payable with respect to the first 12-month period of management of the hotel in Kentucky. A Construction Management Agreement exists between the Partnership and the Manager for the purpose of managing future improvements to the properties. The Company currently has approximately $772,000 invested in the Partnership. As of August 31, 1997, the Company has recorded approximately $199,000 equity in the income of the Partnership, but has recorded a provision for possible losses of approximately $199,000 as there is no indication that the Company will be able to recover the equity income in the Partnership given the provisions of the partnership agreement regarding the distribution of cash to the partners upon liquidation. Changes in the allowance for possible losses on investment in limited partnership for the years ended August 31, 1997, 1996 and 1995 were as follows ($000's omitted): 1997 1996 1995 Allowance, beginning of year $ -- $ -- $ -- Provision for possible losses 199 -- -- ----- ----- ----- Allowance, end of year $ 199 $ -- $ -- ===== ===== ===== The Partnership purchased a hotel in Louisville, Kentucky for approximately $16,000,000. In December 1995 and January 1996, the Partnership purchased four hotel properties in Georgia for approximately $15,000,000 and a hotel in South Carolina for $4,000,000, respectively. The Company may make future capital contributions to the Partnership. Management expects to fund such capital contributions through available cash or from loans from the Partnership. Additionally, the Company may invest in other partnerships to acquire hotels in the future. The condensed balance sheets and statements of income of the Partnership as of and for the year ended August 31, 1997 and as of August 31, 1996 and for the period from inception (August 16, 1995) to August 31, 1996 are as follows: RW HOTEL PARTNERS, L.P. CONDENSED BALANCE SHEETS ASSETS ($000'S Omitted)
August 31, August 31, 1997 1996 ------------- ------------- CURRENT ASSETS $ 2,183 $ 1,915 PROPERTY AND EQUIPMENT, net (See Note) 36,628 36,441 INTANGIBLE ASSETS, net 401 525 ------------- ------------- TOTAL ASSETS $ 39,212 $ 38,881 ============= ============= LIABILITIES AND PARTNERS' CAPITAL CURRENT LIABILITIES $ 2,765 $ 2,405 LONG-TERM DEBT (See Note) 18,833 17,895 ------------- ------------- TOTAL LIABILITIES 21,598 20,300 ------------- ------------- PARTNERS' CAPITAL, net 17,614 18,581 ------------- ------------- TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 39,212 $ 38,881 ============= =============
RW HOTEL PARTNERS, L.P. CONDENSED STATEMENT OF INCOME ($000's Omitted)
From Inception (8/16/95) to 8/31/97 8/31/96 --------- --------------- HOTEL OPERATIONS: Revenues $ 17,058 $ 14,971 Operating Expenses 13,696 9,941 ---------- ---------------- Income From Hotel Operations 3,362 5,030 ---------- ---------------- PARTNERSHIP OPERATIONS 3,608 3,486 ---------- ---------------- NET INCOME (LOSS) $ (246) $ 1,544 ========== ================ Note: On December 8, 1995, the Partnership entered into a long-term debt agreement with General Electric Capital Corporation ("GECC") in the amount of $9,613,748 (the "Note"). Also, under the Note, the Partnership may borrow up to an additional $386,252 for the purpose of capital improvements at the Louisville property. The capital improvements are subject to approval by GECC. The note bears interest at 3% above the GECC composite commercial paper rate and is due in monthly installments of $20,833 plus interest. In addition, if the ratio of net operating income, as defined, to average outstanding Note balance ("cash-on-cash yield") is less than 18% for the preceding 12 months, as calculated quarterly, 50% of excess cash flow, as defined, must be paid. If the cash-on-cash yield is less than 14%, 100% of the excess cash flow, as defined, must be paid. The outstanding principal balance will be due upon maturity, November 30, 1999. The Note cannot be prepaid until December 1996. The Note is secured by a first mortgage on the Kentucky property and the assignment of any revenues, rentals, and income of the property. The Note also requires the Partnership to establish a reserve for capital improvements. On January 31, 1996, the Partnership and GECC amended and restated the Note (the "Amended Note"). Under the Amended Note, the Partnership obtained additional borrowings of $8,144,000 (the "Additional Borrowings"). Also, under the Amended Note, the Partnership may borrow up to an additional $2,656,000 for the purpose of capital improvements at the Georgia Hotels. The capital improvements are subject to approval by GECC. The Amended Note is secured by Hurstbourne and the Georgia Hotels. The Amended Note provides for a two-year maturity extension option. The Additional Borrowings bear interest at the GECC composite commercial paper rate plus 3.25%. Additional monthly installments of $45,000, plus interest on the Additional Borrowings, commence on March 1, 1996. The Additional Borrowings cannot be prepaid until January 1997. The debt amount is now subject to be increased by $3,042,252, allowing the potential liability under the note agreement to increase to $20,800,000. The additional increase is subject to approval of certain agreed-upon property improvements.
9. Employee Savings Plan The Ridgewood Properties Employee Savings Plan ("Savings Plan") is a savings and salary deferral plan which is intended to qualify for favorable tax treatment under Sections 401(a) and 401(k) of the Internal Revenue Code of 1986. The Savings Plan includes all employees of the Company who have completed one year of service and have attained age twenty-one. Each participant in the Savings Plan may elect to reduce his or her compensation by any percentage, not to exceed 15% of compensation when combined with any Matching Basic or Discretionary Employer Contributions (below) made on behalf of the participant, and have such amount contributed to his or her account under the Savings Plan. Elective employer contributions are made prior to the withholding of income taxes on such amounts. A participant may also elect to contribute to the Plan an amount of cash or property equal to or up to 10% of his or her compensation ("Voluntary Contributions"). Voluntary Contributions are made on an after-tax basis. The Savings Plan provides for an employer matching contribution in an amount equal to 50% of the elective employer contributions, provided that in no event shall such employer matching contributions exceed 3% of the participant's compensation. In addition, the Board of Directors of the Company is authorized to make discretionary contributions to the Savings Plan out of the Company's current or accumulated profits ("Discretionary Contributions"). Discretionary Contributions are allocated among those participants who complete at least 1,000 hours of service during the plan year and are employed by the Company on the last day of the plan year. Employees are subject to a seven year graduated vesting schedule with respect to Basic Employer Contributions, Matching Employer Contributions and Discretionary Contributions. Distributions from the Savings Plan will generally be available upon or shortly following a participant's termination of employment with the Company, with additional withdrawal rights with respect to Voluntary Contributions. For the fiscal years ending August 31, 1997, 1996 and 1995, expense for the Employee Savings Plan was approximately $21,000, $21,000 and $15,000, respectively. 10. Sale of Operating Properties In April 1995, the Company sold the Ridgewood Lodge, its weekly rental hotel in Orlando, Florida. The net proceeds, after commissions, were approximately $2,700,000. The gain on the sale was approximately $250,000. The proceeds were used to reduce the outstanding balance of the Company's term loan. 11. Acquisition of Hotel Management Company In December 1995, the Company acquired the Wesley Hotel Group, a hotel management company located in Atlanta, Georgia. At the time of acquisition, Wesley managed five hotels. The acquisition has been accounted for using the purchase method of accounting. In conjunction with the acquisition, the Company issued 125,000 shares of common stock with a determined market value of $1.50 per share (see Note 6) and assumed three promissory notes with a combined outstanding principal of approximately $106,000, bringing the total investment in Wesley to $293,000. The investment recorded by the Company for the acquisition is being amortized over the useful life of the assets acquired. Since approximately $185,000 of amortization had been recognized, the net investment in Wesley as of August 31, 1997 is approximately $108,000. The consolidated financial statements include the operating results of the Wesley Hotel Group from the date of acquisition. Pro forma results of operations have not been presented because the effects of this acquisition were not significant. 12. Subsequent Events In September 1997, the Company sold the majority of its land in Athens, Georgia for $350,000. Net proceeds to the Company were approximately $330,000. Report of Independent Accountants To the Board of Directors and Shareholders of Ridgewood Hotels, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of loss, of cash flows and of shareholders' investment present fairly, in all material respects, the financial position of Ridgewood Hotels, Inc. and its subsidiaries (the "Company") at August 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended August 31, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Atlanta, Georgia October 21, 1997 Market Information The Company's common stock is listed in the National Association of Securities Dealers (NASDAQ) over-the-counter bulletin board service. Transfer Agent Harris Trust and Savings Bank, Dallas, Texas is the Company's stock transfer agent. Harris maintains the Company's shareholder records. To change name, address or ownership of stock, to report lost certificates, or to consolidate accounts, contact: Harris Trust and Savings Bank 1601 Elm Street Thanksgiving Tower, Suite 2320 Dallas, Texas 75201 (214) 665-6033 General Counsel Rogers & Hardin 2700 International Tower 229 Peachtree Street, N.E. Atlanta, Georgia 30303 Independent Accountants Price Waterhouse LLP 50 Hurt Plaza Suite 1700 Atlanta, Georgia 30303 Shareholder and General Inquiries The Company is required to file an Annual Report on Form 10-K for its fiscal year ended August 31, 1997 with the Securities and Exchange Commission. Copies of this annual report may be obtained without charge upon written request to: Ridgewood Hotels, Inc. Shareholder Relations 2859 Paces Ferry Road Suite 700 Atlanta, Georgia 30339 (770) 434-3670 EX-22 3 EXHIBIT 22 RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT Percentage State or of Voting Jurisdiction Securities of Incorporation Owned ---------------- ---------- Florida Communities, Inc. Florida 100% Ridgewood Orlando, Inc. Florida 100% Ridgewood Hotels, Inc. Georgia 100% Cornerstone Management & Development, Inc. Georgia 100% Wesley Hotel Group, Inc. Georgia 100% Florida Beta Hotel Corp. Florida 100% California Zeta Hotel Corp. California 100% Capitol Alpha Hotel Corp. Washington, D.C. 100% California Eta Hotel Corp. California 100% Pennsylvania Alpha Hotel Corp. Pennsylvania 100% Wesley Alabama Corp. Georgia 100% The foregoing subsidiaries are included in the consolidated financial statements of the Company. EX-27 4
5 The Schedule contains summary financial information extracted from the Consolidated Balance Sheets, Statements of Consolidated Loss and Consolidated Statement of Cash Flow and is qualified in its entirety by reference to such financial statements. 12-MOS AUG-31-1997 AUG-31-1997 1,596,000 0 397,000 3,743,000 16,000 0 3,105,000 1,687,000 8,266,000 0 0 0 450,000 15,000 3,573,000 8,266,000 3,808,000 8,408,000 2,454,000 5,889,000 2,637,000 0 345,000 (463,000) 0 (463,000) 0 0 0 (463,000) (0.58) (0.58)
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