-----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, JSVawmBGpXc52ZRH81ZQ09Lm5iMM3CHwInkYf5MtqtyaiGSZE+it961Dl7r5xkrS trkUlB0KzHkLxA2RnoTzlA== 0000783728-98-000012.txt : 19981126 0000783728-98-000012.hdr.sgml : 19981126 ACCESSION NUMBER: 0000783728-98-000012 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19980831 FILED AS OF DATE: 19981125 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIDGEWOOD HOTELS 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: 98758962 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 FORMER COMPANY: FORMER CONFORMED NAME: RIDGEWOOD PROPERTIES INC DATE OF NAME CHANGE: 19920703 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, 1998 [ ] 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. _X__ Aggregate market value of voting stock held by non-affiliates on October 31, 1998 - $777,000; Common shares outstanding on October 31, 1998 - 1,513,480 shares (1) Portions of the registrant's Annual Report to Shareholders for the fiscal year ended August 31, 1998 (the "1998 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 1999 Annual Meeting (the "1999 Proxy Statement") to be filed with the Commission on or about December 15, 1998, 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 certain entities, 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. The Company has invested in three hotel entities as follows: RW Hotel Partners, L.P. 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, but subsequently purchased five additional hotels. The Partnership purchased the 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. Three of the Georgia hotels were sold at a loss in March 1998, and the hotel in Louisville was transferred to a new entity in June 1998 in conjunction with refinancing that hotel (see below). The two remaining hotels in the Partnership are in Thomasville, Georgia and Orangeburg, South Carolina. Income and loss are allocated to Ridgewood Georgia and the limited partner based upon the formula for allocating Distributable Cash as described below. 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. - 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. Management of the Partnership intends to adopt a plan of liquidation and will sell the remaining two hotels. Based on management's estimate, Ridgewood Georgia will not receive cash in excess of its investment in the Partnership. The Company has recorded a loss from the partnership totaling $184,000 for the fiscal year ended August 31, 1998. A Management Agreement exists between the Partnership and the Company as Manager ("Manager") for the purpose of managing the hotels. 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. Total management fees for the years ended August 31, 1998, 1997 and 1996 were approximately $233,000, $301,000 and $275,000, respectively. On March 17, 1998, the Partnership sold three of its six hotels. The Company signed a management agreement with the new owner of the three hotels wherein it will receive a management fee equal to 3% of revenues plus 15% of the net operating income plus 5% of any profit realized upon the sale of the hotels. In connection with the management agreement, the Company received management fees totaling approximately $114,000 for the year ended August 31, 1998. For the fiscal year ended August 31, 1997 and 1996, the Company recorded equity in income (loss) of the Partnership totaling $(134,000) net of provision for possible losses and $209,000, respectively. The Company has recorded during 1997 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. Houston Hotel, LLC On December 9, 1997, Houston Hotel, LLC ("Houston Hotel") was organized as a limited liability company under the laws of the State of elaware. The purpose which Houston Hotel was organized is limited solely to owning and managing the Hampton Inn Galleria in Houston, Texas. The Company contributed approximately $316,000 into Houston Hotel which represents a 10% interest, and the other 90% interest is owned by Houston Hotel, Inc. (the "Managing Member"), a Nevada corporation. Income or loss allocated to the Company and the Managing Member is based upon the formula for distributing cash. Distributable cash is defined as the cash from operations and capital contributions determined by the Manager to be available for distribution. Cash from operations is defined as the net cash realized from the operations of Houston Hotel after payment of all cash expenditures of Houston Hotel including, but not limited to, operating expenses, fees, payments of principal and interest on indebtedness, capital improvements and replacements, and such reserves and retentions as the Manager reasonably determines to be necessary. Distributions of distributable cash shall be made as follows: - First, 100% to the Manager until it has been distributed an amount equal to its accrued but unpaid 13% preferred return. - Second, 100% to the Company until the Company has been distributed an amount equal to its accrued but unpaid 13% preferred return. - Third, 80% to the Manager and 20% to the Company. A Property Management Agreement exists between Houston Hotel, LLC and the Company as Property Manager ("Property Manager") for the purpose of managing the hotel. The Property Manager shall be entitled to the following property management fees: (1) 1.5% of the gross revenues from the hotel property. (2) 1.5% of the gross revenues from the hotel property as an incentive fee if 85% of the budgeted net operating income is met. In connection with the management agreement, the Company received management fees totaling approximately $83,000 for the year ended August 31, 1998. RW Louisville Hotel Associates, LLC On May 13, 1998, RW Louisville Hotel Associates LLC ("RW Louisville Hotel Associates") was organized as a limited liability company under the laws of the State of Delaware. The purpose which RW Louisville Hotel Associates was organized is limited solely to owning and managing the Holiday Inn ("the Hotel") in Louisville, Kentucky. The Company's investment in RW Hotel Partners, L.P. of $337,500 (see above) was transferred to RW Louisville Hotel Associates at its historical basis. Simultaneously, the Company acquired a 10% interest in Louisville Hotel, LLC for $362,000. Louisville Hotel, LLC loaned $3,620,000 to RW Louisville Hotel Associates, which resulted in all cash flow from the Hotel being distributed to Louisville Hotel, LLC. Income or loss allocated to the Company is based upon the formula for distributing cash. Distributable cash is defined as the net cash realized from operations but after payment of management fees, principal and interest, capital improvements and other such retentions as the managing member determines to be necessary. Distributions of distributable cash from Louisville Hotel, LLC shall be made as follows: - First, to the managing member until the managing member has been distributed an amount equal to its accrued but unpaid 13% preferred return. - Second, to the Company until the Company has been distributed an amount equal to its accrued but unpaid 13% preferred return. - Third, 20% to the Company and 80% to the managing member. Cash from a sale or refinancing would be distributed 10% to the Company and 90% to the managing member. A Management Agreement exists between the Owner and the Company as Property Manager ("Property Manager") for the purpose of managing the hotel. The Property Manager shall be entitled to the following property management fees: (1) Base Management Fee equal to 1.5% of gross revenues from the hotel property. (2) Incentive Management Fee equal to 1.5% of gross revenues from the hotel in which the actual net operating income exceeds 85% of the budgeted goal for the year. (3) Super Incentive Management fee equal to: (a) .25% of gross revenues from the hotel in which the net operating income exceeds 106% of the budgeted goal for the year; (b) an additional .25% of gross revenues in which the net operating income exceeds 112% of the budgeted goal; and (c) an additional .50% of gross revenues in which the net operating income exceeds 120% of the budgeted goal. The Company paid an additional $200,000 to Louisville Hotel, LLC as a fee to acquire the management contract for the hotel. This amount is included in other assets. The Company is amortizing the fee $70,000 per year for the first two years and $20,000 per year for the next three years. With respect to the sum of $100,000, in the event that the management contract is terminated by Louisville Hotel, LLC with or without cause and not pursuant to a third party sale prior to June 5, 2000, Louisville Hotel, LLC will pay to the Company the sum of $4,166.67 times the number of months prior to June 5, 2000 that the management contract is terminated. With respect to the second sum of $100,000, in the event that the management contract is terminated by Louisville Hotel, LLC prior to June 5, 2003, Louisville Hotel, LLC will pay to the Company the sum of $1,666.67 times the number of months prior to June 5, 2003 that the management contract is terminated. In connection with the management agreement, the Company received management fees totaling approximately $57,000 for the year ended August 31, 1998. The hotel management business has become very competitive. In order to obtain management agreements, owners of hotels are frequently requiring management companies to acquire an 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 additional acquisitions as well as to provide the expertise to manage the acquisitions, operations and ultimate disposition of properties so acquired for both the Company and for third-party owners. As the Company acquires additional hotel properties, it will enter into management agreements to manage those properties. 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 annual average occupancy of the Company's only hotel was approximately 64% for the fiscal year 1998. The Company's principal office is located at 2859 Paces Ferry Road, Suite 700, Atlanta, Georgia 30339 (telephone number: (770) 434-3670). The Company employed approximately 90 persons (of which 17 were located at its principal office) at August 31, 1998. 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 Longwood, FL 192 Wholly-Owned (a) Holiday Inn Orangeburg, SC 160 (b) Holiday Inn Thomasville, GA 147 (b) Holiday Inn Louisville, KY 267 (c) Hampton Inn Houston, TX 176 (d) (a) The hotel serves as collateral for the Company's $2,711,000 term loan with a commercial lender. (b) The Company has a 1% ownership interest in these hotels as the general partner of RW Hotel Partners, L.P., which owns the hotels. (c) The Company has a 10% ownership interest in this hotel as a member of RW Louisville Hotel Associates, LLC and Louisville Hotel, LLC, which owns the hotel. (d) The Company has a 10% ownership interest in this hotel as a member of Houston Hotel, LLC, which owns the hotel. The Company also holds six land parcels for sale, two of which are located in Florida, one in Georgia and one each 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. Discovery has been concluded, and on March 19, 1998, the Court dismissed all class claims, with only the derivative claims remaining for trial. Trial has been scheduled for February, 1999. The Company intends to vigorously contest this matter. The Company serves as a general partner in a limited partnership. As a general partner, the Company may be liable for certain deficiencies which arise in meeting the terms of loan obligations incurred by the limited partnership and for operating expenses and other liabilities incurred by the partnership in the ordinary course of business. 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, 1998. 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, 1998, is included under the caption "Market for Registrant's Common Equity and Related Stockholder Matters" on page 1 of the 1998 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, 1998. Item 6. Selected Financial Data A summary of selected financial data for the Company for the fiscal years 1994 through 1998 is included under the caption entitled "Selected Financial Data" on page 3 of the 1998 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 1998 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 11 through 34 of the 1998 Annual Report to Shareholders under the following captions listed below, are incorporated herein by reference. Consolidated Balance Sheets at August 31, 1998 and 1997. Consolidated Statements of Operations for the years ended August 31, 1998, 1997 and 1996. Consolidated Statements of Cash Flows for the years ended August 31, 1998, 1997 and 1996. Consolidated Statements of Shareholders' Investment for the years ended August 31, 1998, 1997 and 1996. 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 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 1999 Proxy Statement. 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 1999 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 1999 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 1999 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 11 through 34 of the 1998 Annual Report to Shareholders and are incorporated by reference at Item 8 herein: Report of Independent Accountants. Consolidated Balance Sheets at August 31, 1998 and 1997. Consolidated Statements of Operations for the years ended August 31, 1998, 1997 and 1996. Consolidated Statements of Cash Flows for the years ended August 31, 1998, 1997 and 1996. Consolidated Statements of Shareholders' Investment for the years ended August 31, 1998, 1997 and 1996. Notes to Consolidated Financial Statements. (a)(2) The following financial statement schedule, together with the applicable report of independent public accountants, are filed as a part of this Report: Page Number(s) in Form 10-K Report of Independent Accountants on Financial Statement Schedule S-1 III - Real Estate and Accumulated Depreciation - August 31, 1998 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 (filed as an Exhibit to Registrant's Registration Statement on Form 10 filed November 19, 1985 (Securities Exchange Act File No. 0-14019) and incorporated herein by reference). 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 November 8, 1994 (No. 33-86084) and incorporated herein by reference). 10(ff) Amendment No. 1 to Post-Employment Consulting Agreement between Ridgewood Hotels, Inc. and N. Russell Walden dated August 13, 1998. 10(gg) Amendment No. 1 to Post-Employment Consulting Agreement between Ridgewood Hotels, Inc. and Byron T. Cooper dated August 18, 1998. 10(hh) Amendment No. 1 to Post-Employment Consulting Agreement between Ridgewood Hotels, Inc. and Karen S. Hughes dated August 13, 1998. (b) No reports on Form 8-K were filed during the fourth quarter of the Company's fiscal year ended August 31, 1998. 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, 1998 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, 1998 Report of Independent Accountants on Financial Statement Schedule October 23, 1998 To the Board of Directors of Ridgewood Hotels, Inc. Our audits of the consolidated financial statements referred to in our report dated October 23, 1998 appearing in the 1998 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 Schedules listed in Item 14(a) of this Form 10-K. In our opinion, these Financial Statement Schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PRICEWATERHOUSECOOPERS LLP Atlanta, Georgia RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES SCHEDULE III ----------------------------------------- Page 1 of 2 SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION ------------------------------------------------------- AUGUST 31, 1998 --------------- (000'S Omitted)
Cost Capitalized Gross Amount at Which Initial Cost Subsequent to Carried at August 31, 1998 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 -- 58 -- -- -- 58 -- 58 -- -- 12/75 Texas -- 5,338 -- 2 -- 3,776 2 3,778 -- -- 12/85 -- Florida -- 475 -- -- -- 402 -- 402 -- -- 3/85 Florida -- 41 -- -- -- 41 -- 41 -- -- 6/78 Arizona -- 978 -- 110 -- 978 110 1,088 -- -- 3/85 Ohio -- 1,006 -- 175 -- 367 74 441 -- -- 12/77 --------- --------- --------- --------- --------- --------- --------- --------- --------- Total Non- operating properties -- 7,896 -- 287 -- 5,622 186 5,808 -- --------- --------- --------- --------- --------- --------- --------- --------- --------- HOTEL - -------------- Florida 2,742 439 1,921 1,120 -- 439 2,488 2,927 1,679 1973 9/74 -------- -------- -------- -------- -------- -------- -------- -------- -------- Total operating properties 2,742 439 1,921 1,120 -- 439 2,488 2,927 1,679 -------- -------- -------- -------- -------- -------- -------- -------- -------- GRAND TOTAL $ 2,742 $ 8,335 $ 1,921 $ 1,407 $ -- $ 6,061 $ 2,674 $ 8,735 $ 1,679 ========= ========= ========= ========= ========= ========= ========= ========= =========
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, 1998, the amount of the allowance for possible losses was approximately $3,447,000, which related to land held for sale. (B) Reconciliation of real estate properties:
For the Year Ended (000's omitted) 8/31/98 8/31/97 8/31/96 ------- ------- ------- Balance, beginning of year $ 9,553 $12,612 $12,934 Additions during the period: Acquisitions -- -- -- Capitalized costs 88 78 49 Deductions during the period: Real estate sold or assets retired (on which financing was provided by the Company in certain cases) 906 3,137 371 ------- ------- ------- Balance, end of year $ 8,735 $ 9,553 $12,612 ======= ======= =======
(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) 8/31/98 8/31/97 8/31/96 ------- ------- ------- Balance, beginning of year $1,567 $1,460 $1,369 Additions during the period 139 128 121 Depreciation associated with assets sold or retired (27) (21) (30) ------ ------ ------ Balance, end of year $1,679 $1,567 $1,460 ====== ====== ======
(D) The aggregate cost for federal income tax purposes is approximately $8,938,000 at August 31, 1998. EXHIBIT INDEX Report on Form 10-K for the fiscal year ended August 31, 1998 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) 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(d) 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(e) 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(f) 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(g) 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). 10(cc) Operating Agreement between Houston Hotel, LLC and Ridgewood Hotels, Inc. effective December 9, 1997 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended May 31, 1998). 10(dd) Operating Agreement between RW Hurstbourne Hotel, Inc. and RW Louisville Hotel Investors, LLC effective May 13, 1998 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended May 31, 1998). 10(ee) Operating Agreement between Ridgewood Hotels, Inc. and Louisville Hotel, L.P. effective June 5, 1998 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended May 31, 1998). 10(ff) Amendment No. 1 to Post-Employment Consulting Agreement between Ridgewood Hotels, Inc. and N. Russell Walden dated August 13, 1998. 10(gg) Amendment No. 1 to Post-Employment Consulting Agreement between Ridgewood Hotels, Inc. and Byron T. Cooper dated August 18, 1998. 10(hh) Amendment No. 1 to Post-Employment Consulting Agreement between Ridgewood Hotels, Inc. and Karen S. Hughes dated August 13, 1998. 13 1998 Annual Report to Shareholders. 22 Subsidiaries of Registrant. 27 Financial Data Schedule. [FN] _______________ * 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-10 2 AMENDMENT NO. 1 TO POST-EMPLOYMENT CONSULTING AGREEMENT THIS AGREEMENT NO. 1 (the "Amendment") to that certain Post-Employment Consulting Agreement (the "Agreement") dated September 4, 1991, by and between Ridgewood Hotels, Inc., a Delaware corporation (formerly known as Ridgewood Properties, Inc.) (the "Company"), with offices at 2859 Paces Ferry Road, Suite 700, Atlanta, Georgia 30339 and N. Russell Walden, an individual residing at 3190 Ridgewood Road, Atlanta, Georgia 30327 (the "Executive"). WHEREAS, Executive is employed by the Company as a senior executive officer as such term is used in Section 3(b) of the Agreement; WHEREAS, pursuant to the terms and conditions of the Agreement, Executive would be entitled to a Consulting Period (as defined in the Agreement) of twenty-four (24) months; and WHEREAS, Executive and the Company desire to amend the Agreement to reduce the Consulting Period upon the terms and subject to the conditions set forth in this Amendment, NOW, THEREFORE, in consideration of the mutual premises herein set forth, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Definitions. Unless otherwise defined herein, capitalized terms used herein shall have the same meaning as ascribed to them in the Agreement. 2. Reduction of Consulting Period. Commencing on September 1, 1998, the Consulting Period shall be reduced by one (1) month for each month that Executive continues to be employed by the Company, through and including August 31, 1999 (the "Reduction Period"), such that if Executive remains employed by the Company through the Reduction Period, thereafter the Consulting Period shall be twelve (12) months in duration. Effective September 1, 1999, the Agreement shall be amended by deleting Section 3(b) thereof in its entirety. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the 13th day of August, 1998. EXECUTIVE RIDGEWOOD HOTELS, INC. By: ____________________________________ ___________________________ N. Russell Walden Its: EX-10 3 AMENDMENT NO. 1 TO POST-EMPLOYMENT CONSULTING AGREEMENT THIS AGREEMENT NO. 1 (the "Amendment") to that certain Post-Employment Consulting Agreement (the "Agreement") dated September 4, 1991, by and between Ridgewood Hotels, Inc., a Delaware corporation (formerly known as Ridgewood Properties, Inc.) (the "Company"), with offices at 2859 Paces Ferry Road, Suite 700, Atlanta, Georgia 30339 and Byron T. Cooper, an individual residing at 2580 Raintree Way, Marietta, Georgia 30068 (the "Executive"). WHEREAS, Executive is employed by the Company as a senior executive officer as such term is used in Section 3(b) of the Agreement; WHEREAS, pursuant to the terms and conditions of the Agreement, Executive would be entitled to a Consulting Period (as defined in the Agreement) of twenty-four (24) months; and WHEREAS, Executive and the Company desire to amend the Agreement to reduce the Consulting Period upon the terms and subject to the conditions set forth in this Amendment, NOW, THEREFORE, in consideration of the mutual premises herein set forth, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Definitions. Unless otherwise defined herein, capitalized terms used herein shall have the same meaning as ascribed to them in the Agreement. 2. Reduction of Consulting Period. Commencing on September 1, 1998, the Consulting Period shall be reduced by one (1) month for each month that Executive continues to be employed by the Company, through and including August 31, 1999 (the "Reduction Period"), such that if Executive remains employed by the Company through the Reduction Period, thereafter the Consulting Period shall be twelve (12) months in duration. Effective September 1, 1999, the Agreement shall be amended by deleting Section 3(b) thereof in its entirety. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the 18th day of August, 1998. EXECUTIVE RIDGEWOOD HOTELS, INC. By: ____________________________________ ___________________________ Byron T. Cooper Its: EX-10 4 AMENDMENT NO. 1 TO POST-EMPLOYMENT CONSULTING AGREEMENT THIS AGREEMENT NO. 1 (the "Amendment") to that certain Post-Employment Consulting Agreement (the "Agreement") dated September 4, 1991, by and between Ridgewood Hotels, Inc., a Delaware corporation (formerly known as Ridgewood Properties, Inc.) (the "Company"), with offices at 2859 Paces Ferry Road, Suite 700, Atlanta, Georgia 30339 and Karen S. Hughes, an individual residing at 2377 Emory Lane, Marietta, Georgia 30068 (the "Executive"). WHEREAS, Executive is employed by the Company as a senior executive officer as such term is used in Section 3(b) of the Agreement; WHEREAS, pursuant to the terms and conditions of the Agreement, Executive would be entitled to a Consulting Period (as defined in the Agreement) of twenty-four (24) months; and WHEREAS, Executive and the Company desire to amend the Agreement to reduce the Consulting Period upon the terms and subject to the conditions set forth in this Amendment, NOW, THEREFORE, in consideration of the mutual premises herein set forth, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Definitions. Unless otherwise defined herein, capitalized terms used herein shall have the same meaning as ascribed to them in the Agreement. 2. Reduction of Consulting Period. Commencing on September 1, 1998, the Consulting Period shall be reduced by one (1) month for each month that Executive continues to be employed by the Company, through and including August 31, 1999 (the "Reduction Period"), such that if Executive remains employed by the Company through the Reduction Period, thereafter the Consulting Period shall be twelve (12) months in duration. Effective September 1, 1999, the Agreement shall be amended by deleting Section 3(b) thereof in its entirety. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the 13th day of August, 1998. EXECUTIVE RIDGEWOOD HOTELS, INC. By: ____________________________________ ___________________________ Karen S. Hughes Its: EX-13 5 EXHIBIT 13 RIDGEWOOD HOTELS, INC. ANNUAL REPORT 1998 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 effectively 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 a three-for-one stock split effected in the form of a stock dividend on October 31, 1994. On October 31, 1998, there were 1,513,480 shares of Common Stock outstanding held by approximately 206 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) 1998 1997 1996 1995 1994 - --------------------------------------------------------------------------------------------------------- Balance Sheet Data as of August 31 Total Assets $ 7,280 $ 8,266 $ 8,724 $ 9,673 $ 14,351 Term Loan(s) Payable 2,744 2,804 2,858 2,796 5,415 Shareholders' Investment 2,944 4,038 4,441 5,612 7,440 Income Statement Data Year Ended August 31 Net Revenues 5,830 8,408 4,314 8,675 30,082 Net Loss (622) (463) (1,178) (1,656) (3,631) Basic and Diluted Loss Per Common Share (1) $ (0.64) $ (0.58) $ (1.29) $ (1.90) $ (0.64) (1) Retroactively adjusted for 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 1998, the Company received net proceeds of approximately $1,526,000 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, and an interest rate of 10.35%. Principal and interest payments were 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 amount to a payment of approximately $20,000 per month and are adjusted annually. The escrow funds are used as tax, insurance and repair needs arise. As of August 31, 1998, there was approximately $177,000 of escrowed funds related to this loan agreement. In March 1998 the executive in charge of hotel operations exercised a Put Agreement whereby the Company repurchased his 25,000 shares of Common Stock at $4.50 per share. The shares were subsequently cancelled by the Company. The Company has invested in three hotel entities as follows: RW Hotel Partners, L.P. 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, but subsequently purchased five additional hotels. The Partnership purchased the 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. Three of the Georgia hotels were sold at a loss in March 1998, and the hotel in Louisville was transferred to a new entity in June 1998 in conjunction with refinancing that hotel (see below). The two remaining hotels in the Partnership are in Thomasville, Georgia and Orangeburg, South Carolina. Income and loss are allocated to Ridgewood Georgia and the limited partner based upon the formula for allocating Distributable Cash as described below. 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. - 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. Management of the Partnership intends to adopt a plan of liquidation and will sell the remaining two hotels. Based on management's estimate, Ridgewood Georgia will not receive cash in excess of its investment in the Partnership. The Company has recorded a loss from the partnership totaling $184,000 for the fiscal year ended August 31, 1998. A Management Agreement exists between the Partnership and the Company as Manager ("Manager") for the purpose of managing the hotels. 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. Total management fees for the years ended August 31, 1998, 1997 and 1996 were approximately $233,000, $301,000 and $275,000, respectively. On March 17, 1998, the Partnership sold three of its six hotels. The Company signed a management agreement with the new owner of the three hotels wherein it will receive a management fee equal to 3% of revenues plus 15% of the net operating income plus 5% of any profit realized upon the sale of the hotels. In connection with the management agreement, the Company received management fees totaling approximately $114,000 for the year ended August 31, 1998. For the fiscal year ended August 31, 1997 and 1996, the Company recorded equity in income (loss) of the Partnership totaling $(134,000) net of provision for possible losses and $209,000, respectively. The Company has recorded during 1997 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. Houston Hotel, LLC On December 9, 1997, Houston Hotel, LLC ("Houston Hotel") was organized as a limited liability company under the laws of the State of Delaware. The purpose which Houston Hotel was organized is limited solely to owning and managing the Hampton Inn Galleria in Houston, Texas. The Company contributed approximately $316,000 into Houston Hotel which represents a 10% interest, and the other 90% interest is owned by Houston Hotel, Inc. (the "Managing Member"), a Nevada corporation. Income or loss allocated to the Company and the Managing Member is based upon the formula for distributing cash. Distributable cash is defined as the cash from operations and capital contributions determined by the Manager to be available for distribution. Cash from operations is defined as the net cash realized from the operations of Houston Hotel after payment of all cash expenditures of Houston Hotel including, but not limited to, operating expenses, fees, payments of principal and interest on indebtedness, capital improvements and replacements, and such reserves and retentions as the Manager reasonably determines to be necessary. Distributions of distributable cash shall be made as follows: - First, 100% to the Manager until it has been distributed an amount equal to its accrued but unpaid 13% preferred return. - Second, 100% to the Company until the Company has been distributed an amount equal to its accrued but unpaid 13% preferred return. - Third, 80% to the Manager and 20% to the Company. A Property Management Agreement exists between Houston Hotel, LLC and the Company as Property Manager ("Property Manager") for the purpose of managing the hotel. The Property Manager shall be entitled to the following property management fees: (1) 1.5% of the gross revenues from the hotel property. (2) 1.5% of the gross revenues from the hotel property as an incentive fee if 85% of the budgeted net operating income is met. In connection with the management agreement, the Company received management fees totaling approximately $83,000 for the year ended August 31, 1998. RW Louisville Hotel Associates, LLC On May 13, 1998, RW Louisville Hotel Associates LLC ("RW Louisville Hotel Associates") was organized as a limited liability company under the laws of the State of Delaware. The purpose which RW Louisville Hotel Associates was organized is limited solely to owning and managing the Holiday Inn ("the Hotel") in Louisville, Kentucky. The Company's investment in RW Hotel Partners, L.P. of $337,500 (see above) was transferred to RW Louisville Hotel Associates at its historical basis. Simultaneously, the Company acquired a 10% interest in Louisville Hotel, LLC for $362,000. Louisville Hotel, LLC loaned $3,620,000 to RW Louisville Hotel Associates, which resulted in all cash flow from the Hotel being distributed to Louisville Hotel, LLC. Income or loss allocated to the Company is based upon the formula for distributing cash. Distributable cash is defined as the net cash realized from operations but after payment of management fees, principal and interest, capital improvements and other such retentions as the managing member determines to be necessary. Distributions of distributable cash from Louisville Hotel, LLC shall be made as follows: - First, to the managing member until the managing member has been distributed an amount equal to its accrued but unpaid 13% preferred return. - Second, to the Company until the Company has been distributed an amount equal to its accrued but unpaid 13% preferred return. - Third, 20% to the Company and 80% to the managing member. Cash from a sale or refinancing would be distributed 10% to the Company and 90% to the managing member. A Management Agreement exists between the Owner and the Company as Property Manager ("Property Manager") for the purpose of managing the hotel. The Property Manager shall be entitled to the following property management fees: (1) Base Management Fee equal to 1.5% of gross revenues from the hotel property. (2) Incentive Management Fee equal to 1.5% of gross revenues from the hotel in which the actual net operating income exceeds 85% of the budgeted goal for the year. (3) Super Incentive Management fee equal to: (a) .25% of gross revenues from the hotel in which the net operating income exceeds 106% of the budgeted goal for the year; (b) an additional .25% of gross revenues in which the net operating income exceeds 112% of the budgeted goal; and (c) an additional .50% of gross revenues in which the net operating income exceeds 120% of the budgeted goal. The Company paid an additional $200,000 to Louisville Hotel, LLC as a fee to acquire the management contract for the hotel. This amount is included in other assets. The Company is amortizing the fee $70,000 per year for the first two years and $20,000 per year for the next three years. With respect to the sum of $100,000, in the event that the management contract is terminated by Louisville Hotel, LLC with or without cause and not pursuant to a third party sale prior to June 5, 2000, Louisville Hotel, LLC will pay to the Company the sum of $4,166.67 times the number of months prior to June 5, 2000 that the management contract is terminated. With respect to the second sum of $100,000, in the event that the management contract is terminated by Louisville Hotel, LLC prior to June 5, 2003, Louisville Hotel, LLC will pay to the Company the sum of $1,666.67 times the number of months prior to June 5, 2003 that the management contract is terminated. In connection with the management agreement, the Company received management fees totaling approximately $57,000 for the year ended August 31, 1998. Since the Company is not currently generating sufficient operating cash to cover overhead and debt service, the Company must continue to sell its real estate assets, seek alternative financing or otherwise recapitalize the Company. There is currently approximately $800,000 of available cash. 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 entities similar to those described above which would provide additional cash flow. As hotel properties are acquired, the Company plans to enter into management agreements 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 10% ownership interest in two other hotels and has a 1% ownership interest in two others. The Company also currently has eight other hotels which it manages but has no ownership interest. 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, 1998 decreased compared to 1997 due primarily to the sale of the Company's undeveloped land in Maitland, Florida in 1997. Sales of real estate properties for the fiscal year ended August 31, 1997 increased compared to 1996 due primarily to the sale of the land in Maitland. The Company had gains from real estate sales of approximately $744,000, $1,354,000 and $281,000 during fiscal years 1998, 1997 and 1996, 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 1998 decreased $14,000, or .5%, compared to 1997. The decrease was due to lower occupancy at the Company's hotel in Longwood, Florida in 1998. 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 1997. Revenues from hotel management increased $26,000, or 2%, and $353,000, or 51%, compared to 1998 and 1997 compared to 1996, respectively. The increases were due to a larger number of hotels under management in both years due to the increase in joint venture participation by the Company. Expenses of wholly-owned real estate decreased $69,000, or 3%, for the fiscal year ended August 31, 1998 compared to 1997 due primarily to fewer land parcels (and their associated expenses) held by the Company. 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. During fiscal year 1998, expenses of hotel management increased $91,000, or 12%, and $99,000, or 15%, compared to 1997 and 1997 compared to 1996, respectively. For 1998, the increase was due to severance paid to the executive in charge of hotel operations. The increase during 1997 was 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 unconsolidated entities during fiscal years 1998, 1997 and 1996, the Company recognized equity in the income (loss) of the entities of approximately $(98,000), $65,000 and $209,000, respectively. A provision of $199,000 for possible losses on investments in unconsolidated entities 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. In turn, the equity in net loss of the unconsolidated entities reported for 1997 was $134,000. The other revenue of $117,000 received during fiscal year 1998 was primarily from profits received on land joint ventures in Atlanta, Georgia and a worker's compensation insurance refund. 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. General, administrative and other expenses increased $10,000, or 1%, for fiscal year 1998 compared to 1997. General, administrative and other expenses increased $67,000, or 5%, for fiscal year 1997 compared to 1996 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 $361,000, $1,067,000 and $193,000, respectively, in fiscal years 1998, 1997 and 1996. 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. Year 2000 - The Company has established policies and procedures to coordinate changes to computer systems and applications necessary to achieve a year 2000 date conversion with no effect on customers or disruption to business operations. These actions are necessary to ensure that the systems and applications will recognize and process the year 2000 and beyond. Major areas of potential business impact have been identified and conversion efforts have been completed or are underway. The Company's primary operating and financial systems are already Year 2000 compliant. The Company also is communicating with suppliers, vendors, financial institutions and others with which it does business to coordinate Year 2000 conversion. The total cost of compliance and its effect on the Company's future results of operations is being determined as part of the conversion planning, but is not expected to be material. RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AUGUST 31, 1998 AND 1997 ($000'S omitted, except per share data)
August 31, August 31, ASSETS 1998 1997 ------ --------- --------- REAL ESTATE INVESTMENTS: Real Estate Properties Operating Properties, net $ 1,248 $ 1,325 Land Held for Sale 5,808 6,661 ---------- ---------- 7,056 7,986 Mortgage Loans -- 2 ---------- ---------- Total real estate investments 7,056 7,988 Allowance for Possible Losses on Real Estate Investments (3,447) (3,544) ---------- ---------- Net real estate investments 3,609 4,444 INVESTMENT IN UNCONSOLIDATED ENTITIES 814 338 CASH AND CASH EQUIVALENTS 1,255 1,596 OTHER ASSETS 1,602 1,888 ---------- ---------- $ 7,280 $ 8,266 ========== ========== (continued) The accompanying notes are an integral part of these consolidated financial statements.
RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AUGUST 31, 1998 AND 1997 ($000's omitted, except per share data)
August 31, August 31, LIABILITIES AND SHAREHOLDERS' INVESTMENT 1998 1997 ---------------------------------------- ---------- ---------- ACCOUNTS PAYABLE $ 260 $ 159 ACCRUED SALARIES, BONUSES AND OTHER COMPENSATION 927 863 ACCRUED PROPERTY TAX EXPENSE 110 118 ACCRUED INTEREST AND OTHER LIABILITIES 295 284 TERM LOANS 2,744 2,804 ---------- ---------- Total Liabilities 4,336 4,228 ---------- ---------- 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 1998 and 1997 450 450 Common stock, $0.01 par value, 5,000,000 shares authorized, 1,513,480 and 1,538,480 shares issued and outstanding in 1998 and 15 15 1997, respectively. Paid-in Surplus 15,861 16,333 Note receivable from officer for purchase of common stock (75) (75) Accumulated deficit since December 30, 1985 (13,307) (12,685) ---------- ---------- Total Shareholders' Investment 2,944 4,038 ---------- ---------- $ 7,280 $ 8,266 ========== ========== 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, 1998, 1997 AND 1996 ($000's Omitted, except per share data)
1998 1997 1996 --------- ------- --------- REVENUES: Revenues from wholly-owned hotel operations........ $ 3,034 $ 3,048 $ 2,748 Revenues from hotel management .................... 1,076 1,050 697 Sales of real estate properties ................... 1,655 3,808 617 Equity in net income (loss) of unconsolidated entities ......................... (98) (134) 209 Interest income ................................... 46 40 43 Other.............................................. 117 397 -- ---------- - -------- ---------- $ 5,830 $ 8,209 $ 4,314 ---------- ---------- ---------- COSTS AND EXPENSES: Expenses of wholly-owned real estate properties ... $ 2,327 $ 2,396 $ 2,364 Expenses of hotel management ...................... 872 781 682 Costs of real estate sold ......................... 911 2,454 336 Depreciation and amortization ..................... 260 258 268 Interest expense .................................. 340 345 345 General, administrative and other.................. 1,381 1,371 1,304 Business development .............................. 361 1,067 193 ---------- ---------- ---------- $ 6,452 $ 8,672 $ 5,492 ---------- ---------- ---------- NET LOSS $ (622) $ (463) $ (1,178) ---------- ---------- ---------- BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.64) $ (0.58) $ (1.29) ========== ========== ========== 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, 1998, 1997 and 1996 ($000's Omitted)
1998 1997 1996 --------- --------- --------- Cash flows from operating activities: Net loss ................................................... $ (622) $ (463) $ (1,178) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization .......................... 278 258 268 Increase in allowance for possible losses on investment in unconsolidated entities ............. -- 199 -- Gain from sale of real estate properties ............... (744) (1,354) (293) Equity in loss (net income) of unconsolidated entities.. 184 (14) (209) (Increase) decrease in other assets .................... 167 (571) (214) Increase (decrease) in accounts payable and accrued liabilities .............................. 168 (1) 115 ---------- ---------- ---------- Total adjustments ...................................... 53 (1,483) (333) ---------- ---------- ---------- Net cash used in operating activities .................. (569) (1,946) (1,511) ---------- ---------- ---------- Cash flows from investing activities: Principal payments received on mortgage loans ............ -- 3 39 Investment in unconsolidated entities .................... (678) -- (516) Proceeds from sale of real estate ........................ 1,526 3,313 634 Additions to real estate properties ...................... (88) (78) (49) ---------- ---------- ---------- Net cash provided by investing activities .............. 760 3,238 108 ---------- ---------- ---------- Cash flows from financing activities: Dividends on preferred stock ............................. (360) (315) (135) Issuance of common stock upon exercise of stock options .. -- 375 -- Repurchase of common stock ............................... (112) -- -- Repayments of debt ....................................... (60) (54) (44) ---------- ---------- ---------- Net cash provided by (used in) financing activities .... (532) 6 (179) ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents ......... (341) 1,298 (1,582) Cash and cash equivalents at beginning of year ............... 1,596 298 1,880 ---------- ---------- ---------- Cash and cash equivalents at end of year ........................ $ 1,255 $ 1,596 $ 298 ========== ========== ========== (continued) 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, 1998, 1997 and 1996 - -------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information and non-cash activity: 1998 1997 1996 ------------ ------------ ------------ Interest paid ....................................... $ 340,000 $ 345,000 $ 345,000 Repurchase of 25,000 shares of common stock subject to a Put Agreement, at $4.50 per share ............ $ 112,500 $ -- $ -- Decrease in allowance for possible losses due to sale of parcel of land ......................... 97,000 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, 1998, 1997 AND 1996 ($000's Omitted, except per share data)
Note Receivable Preferred Common From Stock Stock Officer for Total ---------------------- ------------------------ Paid-in Purchase of Accumulated Shareholders' Shares Amount Shares Amount Surplus Common Stock Deficit Investment ---------- ---------- ------------ ---------- ---------- ------------ ---------- ---------- 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 Repurchase of Common Stock -- -- (25,000) -- (112) -- -- (112) Dividends on Preferred Stock -- -- -- -- (360) -- -- (360) Net Loss -- -- -- -- -- -- (622) (622) ----------- ----------- ------------- ----------- ----------- ------------- ----------- ----------- Balance, August 31, 1998 450,000 $ 450 1,513,480 $ 15 $ 15,861 $ (75) $ (13,307) $ 2,944 =========== =========== ============= =========== =========== ============= =========== =========== The accompanying notes are an integral part of these consolidated financial statements.
Ridgewood Hotels, Inc. and Subsidiaries Notes to Consolidated Financial Statements August 31, 1998, 1997 and 1996 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. 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. 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. The investments in the unconsolidated entities are being accounted for using the equity method of accounting (See Note 8). Per Share Data - In fiscal 1998, the Company adopted Statement of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 12"). Basic earnings per share is based on the weighted effect of all common shares issued and outstanding, and is calculated by dividing net income available to common stockholders by the weighted average shares outstanding during the period. Diluted earnings per share is calculated by dividing net income available to common stockholders, adjusted for the effect, if any, from assumed conversion of all potentially dilutive common shares outstanding, by the weighted average number of common shares used in the basic earning per share calculation plus the number of common shares that would be issued assuming conversion of all potentially dilutive common shares outstanding. All historical earnings per share amounts have been restated to conform to provisions of this statement. 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. 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. 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 years ended August 31, 1998, 1997 and 1996 was approximately $172,000, $166,000 and $157,000, respectively. Capitalization Policies - 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. 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. Reclassifications - Certain prior year amounts have been reclassified to conform with the current year presentation. New Accounting Pronouncements - 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 will adopt FAS 130 in fiscal year 1999 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 will adopt FAS 131 in fiscal year 1999 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, 1998, and 1997 were as follows ($000's omitted): Furniture, August 31, 1998 Land & Fixtures & Type of Project Buildings Equipment Total Hotel $ 2,535 $ 392 $ 2,927 Less -- accumulated depreciation (1,679) ------- Net operating property 1,248 Land 5,808 -- 5,808 ------- Total $ 7,056 ======= 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 ======= Changes in the allowance for possible losses on real estate investments for the years ended August 31, 1998, 1997 and 1996 were as follows ($000's omitted): 1998 1997 1996 Allowance, beginning of year $3,544 $4,700 $4,700 Reversal of reserves associated with sales of real estate assets (97) (1,156) -- Allowance, end of year $3,447 $3,544 $4,700 ====== ====== ====== 3. Commitments and Contingencies In August 1991, each executive officer was offered a two year 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 August 1998, an amendment was signed by the two executive officers reducing the consulting period by one month for each month that the executive continues to be employed by the Company through August 31, 1999, such that if the executive remains employed by the Company through August 31, 1999, the consulting period shall be twelve months in duration. In addition, two other employees were offered and have chosen to enter into one year Consulting Agreements. The executives and two other employees, upon termination, agree to sign an unconditional release of all claims and liability in exchange for a one year consulting fee arrangement. 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. Discovery has been concluded, and on March 19, 1998, the Court dismissed all class claims, with only the derivative claims remaining for trial. Trial has been scheduled for February, 1999. The Company intends to vigorously contest this matter. The Company serves as a general partner in a limited partnership. As a general partner, the Company may be liable for certain deficiencies which arise in meeting the terms of loan obligations incurred by the limited partnership and for operating expenses and other liabilities incurred by the partnership in the ordinary course of business. 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, and the hotel serves as collateral for the loan. The loan is for a term of 20 years with an amortization period of 25 years, at a fixed interest 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, 1998, there was approximately $177,000 of escrowed funds related to this loan agreement that are included with Other Assets on the balance sheet. 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 1998 was $2,727,000, at an average interest rate of 10.35%. The maximum amount of borrowings outstanding under this loan was $2,742,000. The balance of the loan at August 31, 1998 was approximately $2,711,000. The carrying value of the note approximates its fair value at August 31, 1998. 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, 1998 was approximately $33,000. The approximate average amount of borrowings on the three promissory notes during fiscal year 1998 was $48,000, at an average interest rate of 6.83%. The maximum amount of combined borrowings outstanding under these loans was $62,000. Maturities of long-term debt during the Company's next five fiscal years are as follows: 1999 - $65,000; 2000 - $43,000; 2001 - $42,000; 2002 - $47,000; 2003 - $52,000; thereafter - $2,496,000. 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 assets and liabilities. There was no provision for income taxes for the years ended August 31, 1998, 1997 or 1996. Deferred tax assets (liabilities) are composed of the following at August 31, 1998 and August 1997, respectively:
000's Omitted 1998 1997 Allowance for possible losses $ 1,169 $ 1,202 Excess of tax over book basis, land held for sale or future development 16 9 Depreciation and amortization 71 73 Excess of tax over book basis, income from partnership 40 7 Other 331 302 Tax loss carryforwards 4,724 4,564 ------- -------- Gross deferred tax assets 6,351 6,157 ------- -------- Loan amortization (26) (18) ------- -------- Gross deferred tax liabilities (26) (18) ------- -------- Deferred tax assets valuation allowance (6,325) (6,139) ------- -------- $ 0 $ 0 ======= ========
The net change in the valuation allowance for deferred tax assets was an increase of $186,000. This change resulted primarily from an increase in the Company's deferred tax assets. Approximately $13,795,000 of tax loss carryforwards remain at August 31, 1998 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 and $756,000 in 2012. 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 1,513,480 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. The Company has 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, 1998, 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 Share - The following table sets forth the computation of basic and diluted loss per share:
1998 1997 1996 Net loss $(622,000) $(463,000) $(1,178,000) Less preferred dividends (360,000) (315,000) (180,000) ---------- --------- ----------- Net loss available to common shareholders $(982,000) $(778,000) $(1,358,000) Weighted average shares outstanding - basic and diluted 1,526,000 1,350,000 1,055,000 ========== ========== ========== Net loss per share - basic and diluted $ (0.64) $ (0.58) $ (1.29) ========== ========= ============
The effect of the Company's stock options and convertible securities was excluded from the computations for each of the three years ended August 31, 1998, 1997 and 1996 as it is antidilutive. Accordingly, for the periods presented, diluted net loss per share is the same as basic net loss per share. Issuance and Repurchase 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 10. The 25,000 shares issued to the Senior Vice President of Wesley were 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. In March 1998, the Put Agreement was exercised, whereby the shares were repurchased by the Company and subsequently cancelled. 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, 1998, 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 was payable in full on January 31, 1998 and accrues interest at a rate per annum of 8.25%. The note was extended and is payable in full on January 31, 1999, along with any accrued interest. 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. The net periodic pension cost includes the following components:
August 31, 1998 August 31, 1997 Service cost for the period $ 34,628 $ 32,086 Interest cost on projected benefit obligation 46,170 40,214 Net amortization of transition liability 11,026 11,026 Recognized net actuarial gain (39,938) (41,137) ------- ------- Net periodic pension cost $51,886 $42,189 ======= =======
The following sets forth the funded status of the plan and the amounts shown in the accompanying balance sheet as of August 31, 1998 and 1997.
August 31, 1998 August 31, 1997 Unfunded excess of projected benefit obligation over plan assets $(819,826) $(767,940) ======== ======== Projected benefit obligation (654,260) (542,498) Unrecognized net obligation at transition 44,100 55,126 Unrecognized net gain (209,666) (280,568) Net accrued pension liability $(819,826) $(767,940) ========= =========
The weighted average discount rate used to measure the projected benefit obligation was 7.5% in 1998 and 8% in 1997. There was no compensation increase and no expected return on plan assets assumed for 1998 and 1997. 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 $820,000 as of August 31, 1998. At August 31, 1998 the net cash surrender value available to settle the outstanding pension liability was approximately $181,000. 8. Investment in Unconsolidated Entities RW Hotel Partners, L.P. 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, but subsequently purchased five additional hotels. The Partnership purchased the 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. Three of the Georgia hotels were sold at a loss in March 1998, and the hotel in Louisville was transferred to a new entity in June 1998 in conjunction with refinancing that hotel (see below). The two remaining hotels in the Partnership are in Thomasville, Georgia and Orangeburg, South Carolina. Income and loss are allocated to Ridgewood Georgia and the limited partner based upon the formula for allocating Distributable Cash as described below. 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. - 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. Management of the Partnership intends to adopt a plan of liquidation and will sell the remaining two hotels. Based on management's estimate, Ridgewood Georgia will not receive cash in excess of its investment in the Partnership. The Company has recorded a loss from the partnership totaling $184,000 for the fiscal year ended August 31, 1998. A Management Agreement exists between the Partnership and the Company as Manager ("Manager") for the purpose of managing the hotels. 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. Total management fees for the years ended August 31, 1998, 1997 and 1996 were approximately $233,000, $301,000 and $275,000, respectively. On March 17, 1998, the Partnership sold three of its six hotels. The Company signed a management agreement with the new owner of the three hotels wherein it will receive a management fee equal to 3% of revenues plus 15% of the net operating income plus 5% of any profit realized upon the sale of the hotels. In connection with the management agreement, the Company received management fees totaling approximately $114,000 for the year ended August 31, 1998. For the fiscal year ended August 31, 1997 and 1996, the Company recorded equity in income (loss) of the Partnership totaling $(134,000) net of provision for possible losses and $209,000, respectively. The Company has recorded during 1997 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. Houston Hotel, LLC On December 9, 1997, Houston Hotel, LLC ("Houston Hotel") was organized as a limited liability company under the laws of the State of Delaware. The purpose which Houston Hotel was organized is limited solely to owning and managing the Hampton Inn Galleria in Houston, Texas. The Company contributed approximately $316,000 into Houston Hotel which represents a 10% interest, and the other 90% interest is owned by Houston Hotel, Inc. (the "Managing Member"), a Nevada corporation. Income or loss allocated to the Company and the Managing Member is based upon the formula for distributing cash. Distributable cash is defined as the cash from operations and capital contributions determined by the Manager to be available for distribution. Cash from operations is defined as the net cash realized from the operations of Houston Hotel after payment of all cash expenditures of Houston Hotel including, but not limited to, operating expenses, fees, payments of principal and interest on indebtedness, capital improvements and replacements, and such reserves and retentions as the Manager reasonably determines to be necessary. Distributions of distributable cash shall be made as follows: - First, 100% to the Manager until it has been distributed an amount equal to its accrued but unpaid 13% preferred return. - Second, 100% to the Company until the Company has been distributed an amount equal to its accrued but unpaid 13% preferred return. - Third, 80% to the Manager and 20% to the Company. A Property Management Agreement exists between Houston Hotel, LLC and the Company as Property Manager ("Property Manager") for the purpose of managing the hotel. The Property Manager shall be entitled to the following property management fees: (1) 1.5% of the gross revenues from the hotel property. (2) 1.5% of the gross revenues from the hotel property as an incentive fee if 85% of the budgeted net operating income is met. In connection with the management agreement, the Company received management fees totaling approximately $83,000 for the year ended August 31, 1998. RW Louisville Hotel Associates, LLC On May 13, 1998, RW Louisville Hotel Associates LLC ("RW Louisville Hotel Associates") was organized as a limited liability company under the laws of the State of Delaware. The purpose which RW Louisville Hotel Associates was organized is limited solely to owning and managing the Holiday Inn ("the Hotel") in Louisville, Kentucky. The Company's investment in RW Hotel Partners, L.P. of $337,500 (see above) was transferred to RW Louisville Hotel Associates at its historical basis. Simultaneously, the Company acquired a 10% interest in Louisville Hotel, LLC for $362,000. Louisville Hotel, LLC loaned $3,620,000 to RW Louisville Hotel Associates, which resulted in all cash flow from the Hotel being distributed to Louisville Hotel, LLC. Income or loss allocated to the Company is based upon the formula for distributing cash. Distributable cash is defined as the net cash realized from operations but after payment of management fees, principal and interest, capital improvements and other such retentions as the managing member determines to be necessary. Distributions of distributable cash from Louisville Hotel, LLC shall be made as follows: - First, to the managing member until the managing member has been distributed an amount equal to its accrued but unpaid 13% preferred return. - Second, to the Company until the Company has been distributed an amount equal to its accrued but unpaid 13% preferred return. - Third, 20% to the Company and 80% to the managing member. Cash from a sale or refinancing would be distributed 10% to the Company and 90% to the managing member. A Management Agreement exists between the Owner and the Company as Property Manager ("Property Manager") for the purpose of managing the hotel. The Property Manager shall be entitled to the following property management fees: (1) Base Management Fee equal to 1.5% of gross revenues from the hotel property. (2) Incentive Management Fee equal to 1.5% of gross revenues from the hotel in which the actual net operating income exceeds 85% of the budgeted goal for the year. (3) Super Incentive Management fee equal to: (a) .25% of gross revenues from the hotel in which the net operating income exceeds 106% of the budgeted goal for the year; (b) an additional .25% of gross revenues in which the net operating income exceeds 112% of the budgeted goal; and (c) an additional .50% of gross revenues in which the net operating income exceeds 120% of the budgeted goal. The Company paid an additional $200,000 to Louisville Hotel, LLC as a fee to acquire the management contract for the hotel. This amount is included in other assets. The Company is amortizing the fee $70,000 per year for the first two years and $20,000 per year for the next three years. With respect to the sum of $100,000, in the event that the management contract is terminated by Louisville Hotel, LLC with or without cause and not pursuant to a third party sale prior to June 5, 2000, Louisville Hotel, LLC will pay to the Company the sum of $4,166.67 times the number of months prior to June 5, 2000 that the management contract is terminated. With respect to the second sum of $100,000, in the event that the management contract is terminated by Louisville Hotel, LLC prior to June 5, 2003, Louisville Hotel, LLC will pay to the Company the sum of $1,666.67 times the number of months prior to June 5, 2003 that the management contract is terminated. In connection with the management agreement, the Company received management fees totaling approximately $57,000 for the year ended August 31, 1998. A summary of the investment in unconsolidated entities is as follows:
1998 1997 Beginning balance of investment in unconsolidated entities $ 338 $ 472 Capital contributions 678 -- Equity in loss (98) (134) Distributions (104) -- ------ ------ Ending balance of investment in unconsolidated entities $ 814 $ 338 ====== ======
The unaudited combined balance sheet and statement of operations of the unconsolidated entities are as follows: COMBINED UNCONSOLIDATED ENTITIES CONDENSED BALANCE SHEET UNAUDITED (000's omitted)
8/31/98 8/31/97 ---------- ---------- CURRENT ASSETS $ 2,730 $ 2,183 PROPERTY AND EQUIPMENT, net 36,410 36,628 INTANGIBLE ASSETS, net 565 401 ---------- ---------- TOTAL ASSETS $ 39,705 $ 39,212 ========== ========== CURRENT LIABILITIES $ 1,850 $ 1,486 LONG-TERM DEBT 28,382 18,833 ---------- ---------- TOTAL LIABILITIES 30,232 20,319 CAPITAL, net 9,473 18,893 ---------- ---------- TOTAL LIABILITIES AND CAPITAL $ 39,705 $ 39,212 ========== ==========
COMBINED UNCONSOLIDATED ENTITIES CONDENSED STATEMENT OF OPERATIONS UNAUDITED ($000's Omitted)
From Inception (8/16/95) to 8/31/98 8/31/97 8/31/96 HOTEL OPERATIONS: --------- --------- ------------- Revenues $ 17,057 $ 17,058 $ 14,956 Operating Expenses 12,781 13,696 10,727 ---------- ---------- -------------- Income From Hotel Operations 4,276 3,362 4,229 ---------- ---------- -------------- Interest Expense 2,059 1,682 1,024 Depreciation/Amortization 1,943 1,926 1,305 Loss due to change to liquidation basis of accounting for RW Hotel Partners, L.P. 2,828 -- -- ---------- ---------- -------------- NET INCOME (LOSS) $ (2,554) $ (246) $ 1,900 ========== ========== ==============
9. Employee Savings Plan The Ridgewood Hotels Employee Savings Plan ("Savings Plan") is a savings and salary deferral plan which is qualified 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, 1998, 1997 and 1996, expense for the Employee Savings Plan was approximately $18,000, $21,000 and $21,000, respectively. 10. 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, 1998 is approximately $95,000 and is included in other assets. The consolidated financial statements include the operating results of the Wesley Hotel Group from the date of acquisition. Report of Independent Accountants October 23, 1998 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, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended August 31, 1998, 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. PRICEWATERHOUSECOOPERS LLP Atlanta, Georgia 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 PricewaterhouseCoopers LLP 1100 Campanile Building 1155 Peachtree Street Atlanta, Georgia 30309 Shareholder and General Inquiries The Company is required to file an Annual Report on Form 10-K for its fiscal year ended August 31, 1998 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 6 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 Georgia, 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 7
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-31-1998 AUG-31-1998 1,255,000 0 240,000 3,447,000 18,000 0 3,140,000 1,783,000 7,280,000 0 0 0 450,000 15,000 2,479,000 7,280,000 1,655,000 5,830,000 911,000 4,370,000 1,742,000 0 340,000 (622,000) 0 (622,000) 0 0 0 (622,000) (0.64) (0.64)
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