UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002.
or
[ ] 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: 33-78866
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MOA HOSPITALITY, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0166914
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
----------------------
701 Lee Street, Suite 1000
Des Plaines, Illinois 60016
(847) 803-1200
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
----------------------
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
Number of shares of Common Stock, $.01 par value outstanding as of
September 10,2003: 800,000
INDEX TO FORM 10-Q
Page
Part I Financial Information
Item 1. Financial Statements
Condensed consolidated balance sheets - June 30, 2002 2
(unaudited) and December 31, 2001.
Condensed consolidated statements of operations - Three 3
months ended June 30, 2002 and 2001 and Six months ended
June 30, 2002 and 2001 (unaudited).
Condensed consolidated statements of cash flows - Six 4
months ended June 30, 2002and 2001 (unaudited).
Notes to condensed consolidated financial statements - 5
June 30, 2002 (unaudited).
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
General 9
Results of Operations 10
Liquidity and Capital Resources 16
Item 3. Controls and Procedures 17
Part II Other Information
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
Certifications 20
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MOA HOSPITALITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
June 30, December 31,
2002 2001
------------- --------------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 3,823 $ 3,152
Accounts receivable from property operations 2,149 1,461
Operating supplies and prepaid expenses 2,419 2,313
Current portion of mortgage and notes receivable 122 233
------------- --------------
Total Current Assets 8,513 7,159
Investment property:
Operating properties, net of accumulated depreciation 199,152 206,172
Land held for development 13,218 9,585
------------- --------------
Total investment property 212,370 215,757
Other Assets:
Deposits and other assets 6,318 2,915
Mortgage and other notes receivable, less current portion 25,149 28,081
Net deferred tax asset 1,182 1,560
Financing and other deferred costs, net of accumulated
amortization of $17,191 in 2002 and $17,013 in 2001 7,818 8,934
------------- --------------
Total Other Assets 40,467 41,490
------------- --------------
Total Assets $ 261,350 $ 264,406
============= ==============
LIABILITIES, MINORITY INTERESTS AND
STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 2,141 $ 1,521
Real estate taxes payable 1,374 1,460
Accrued interest payable 2,756 2,043
Nonrefundable lease deposits and purchase price credits 25,577 23,296
Other liabilities for leased locations 6,745 4,581
Deferred income 5,475 5,475
Other accounts payable and accrued expenses 2,399 2,340
Current portion of long-term debt 29,593 31,667
------------- --------------
Total Current Liabilities 76,060 72,383
Long-term debt, less current portion:
Mortgage and other notes payable 171,186 175,250
12% Senior Subordinated Notes, net of unamortized
discount of $188 in 2002 and $223 in 2001 11,339 11,304
------------- --------------
Total Long-term debt, excluding current portion 182,525 186,554
------------- --------------
Total Liabilities 258,585 258,937
------------- --------------
Stockholders' equity:
Common stock, $.01 par value, 1,500,000 shares
authorized; 800,000 shares issued and outstanding 8 8
Additional paid-in capital 15,294 15,294
Retained deficit (12,537) (9,833)
------------- --------------
Total Stockholders' Equity 2,765 5,469
------------- --------------
Total Liabilities and Stockholders' Equity $ 261,350 $ 264,406
============= ==============
See accompanying notes to condensed consolidated financial statements.
MOA HOSPITALITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands except share data)
Three Months Ended Six Months Ended
June 30 June 30
----------------------- -----------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
Revenues:
Motel operating revenues $ 10,319 $ 12,163 $ 18,150 $ 21,924
Lease revenues 3,129 2,781 6,026 5,675
Vending revenues 1,014 422 1,856 751
Other revenues 711 615 1,318 1,207
---------- ---------- ---------- ----------
Total revenues 15,173 15,981 27,350 29,557
Costs and expenses:
Motel operating expenses 5,109 6,447 9,936 12,411
Marketing and royalty fees 711 823 1,271 1,552
General and administrative 1,623 1,489 3,185 3,275
Lease expenses 310 (54) 591 174
Vending expenses 882 443 1,569 824
Depreciation and amortization 3,009 3,526 6,017 7,074
---------- ---------- ---------- ----------
Total direct expenses 11,644 12,674 22,569 25,310
---------- ---------- ---------- ----------
Net operating income 3,529 3,307 4,781 4,247
Interest expense 4,655 5,222 9,279 10,402
---------- ---------- ---------- ----------
Income (loss) from operations
before gain on sale of properties,
minority interest and income taxes (1,126) (1,915) (4,498) (6,155)
Gain on sale of properties - 2,659 - 2,659
Minority interests - (33) - (20)
---------- ---------- ---------- ----------
Income (loss) from continuing operations
before income taxes (1,126) 711 (4,498) (3,516)
Income tax expense (benefit) (464) 277 (1,750) (1,369)
---------- ---------- ---------- ----------
Income (loss) from continuing operations (662) 434 (2,748) (2,147)
Discontinued operations (including net
gain on disposal of $147 in 2002)
net of income tax - (25) 43 (87)
---------- ---------- ---------- ----------
Net income (loss) $ (662) $ 409 $ (2,705) $ (2,234)
========== ========== ========== ==========
Income (loss) per common share
(basic and diluted):
Income (loss) per common share from
continuing operations $ (0.83) $ 0.54 $ (3.43) $ (2.68)
========== ========== ========== ==========
Net income (loss) per common share $ (0.83) $ 0.51 $ (3.38) $ (2.79)
========== ========== ========== ==========
Weighted average number of
common shares outstanding 800,000 800,000 800,000 800,000
========== ========== ========== ==========
See accompanying notes to condensed consolidated financial statements.
MOA HOSPITALITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Six Months Ended
June 30
-----------------------
2002 2001
---------- ----------
Cash flows used in operating activities:
Net loss $ (2,705) $ (2,234)
Adjustments to reconcile net loss to cash provided by
(used in) operating activities:
Depreciation, amortization and accretion of
discount on notes 6,071 7,313
Minority interests of others in net loss
from operations - 20
Deferred income taxes 378 (760)
Gain on sale of properties (147) (2,659)
Change in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (688) (408)
Operating supplies, prepaid expenses,
deposits and other assets (3,775) (1,164)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 5,958 2,470
Accrued interest payable 719 (251)
---------- ----------
Net cash provided by (used in) operating activities 5,811 2,327
Cash flows provided by (used in) investing activities:
Acquisition and development of investment properties (3,632) (4,011)
Refurbishment of investment properties (1,105) (1,615)
Net proceeds from sale of investment properties 3,319 2,903
Cash restricted for refurbishment of properties (395) 995
Collections on mortgage and other notes receivable 3,044 12,616
---------- ----------
Net cash provided by investing activities 1,231 10,888
Cash flows provided by (used in) financing activities:
Proceeds from notes payable 2,673 8,411
Repayment of notes payable (8,811) (19,909)
Deferred financing costs (233) (239)
---------- ----------
Net cash used in financing activities (6,371) (11,737)
---------- ----------
Net increase in cash and cash equivalents 671 1,478
Cash and cash equivalents at beginning of period 3,152 3,162
---------- ----------
Cash and cash equivalents at end of period $ 3,823 $ 4,640
========== ==========
Supplementary disclosure of cash flow information:
Cash paid during the period for interest $ 8,540 $ 10,674
========== ==========
Cash paid (net of refunds received) during the
period for income taxes $ - $ 77
========== ==========
See accompanying notes to condensed consolidated financial statements.
MOA HOSPITALITY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002
(Unaudited)
1. Basis of Presentation
The accompanying unaudited interim condensed consolidated financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the six-month period ended June 30, 2002 are not necessarily
indicative of the results that may be expected for the year ended December 31,
2002. For further information, refer to the consolidated financial statements
and footnotes thereto included in MOA Hospitality, Inc. and Subsidiaries' Annual
Report on Form 10-K for the year ended December 31, 2001. The terms "MOA" and
the "Company" mean MOA Hospitality, Inc. and its subsidiaries. Certain
reclassifications of prior-period amounts have been made to conform with
current-period presentation, which have not changed operations or stockholders'
equity.
2. Divestitures and Leasing Activities
In January through June 30, 2002, the Company leased an additional
four, and re-leased one of its lodging facilities to third party operators under
terms similar to previous operating leases executed by the Company.
In January through June 30, 2002, the Company sold two of its lodging
facilities for approximately $3.7 million for a gain of approximately $147,000.
Deferred purchase price credits and non-refundable security deposits aggregating
approximately $280,000 were credited to the buyers in connection with these
sales.
In January through June 30, 2002, the company also sold and leased back
two properties to related parties. Under FAS 66: Accounting for Sales of Real
Estate, both sales were required to be recorded on the deposit method, because
of the down payment and the continuing involvement of the company in the
properties. In the attached financial statements the properties are reflected as
operating properties.
Subsequent to June 30, 2002 and prior to December 31, 2002, the Company
leased an additional three of its lodging facilities to third party operators
under terms similar to previous operating leases executed by the Company. Also
the Company took back three of its leased lodging facilities and four of its
leased locations exercised their right to purchase prior to lease expiration and
one other property was sold. The five combined sales were for approximately $8.5
million resulting in a loss of $117,000 and a note receivable of $225,000.
Subsequent to December 31, 2002, a property lessee defaulted on the
operating lease. The Company operated the property for one month. At that time
it was leased to a new third-party tenant.
In accordance with SFAS 144 "Accounting for the Impairment or
Disposal of Long Lived Assets," effective for financial statements issued for
fiscal years beginning after December 31, 2001, operating results and
gain/(loss) on sales of real estate for properties sold subsequent to December
31, 2001 are reflected in the consolidated statements of operations as
discontinued operations for all periods presented. Below is a summary of the
results of operations of these properties through their respective disposition
dates:
For the Three Months Ended For the Six Months Ended
June 30 June 30
-------------------------- --------------------------
2002 2001 2002 2001
----------- ------------ ----------- ------------
( in thousands ) ( in thousands )
Revenues
Motel operating revenues $ - $ 159 $ 46 $ 268
Lease revenues - 36 8 73
----------- ------------ ----------- ------------
Total revenues - 195 54 341
Costs and expenses:
Motel operating expenses - 95 80 187
Marketing and royalty fees - 18 9 32
Lease expenses - 2 1 4
Depreciation and amortization - 75 33 153
----------- ------------ ----------- ------------
Total direct expenses - 190 123 376
----------- ------------ ----------- ------------
Net operating income - 5 (69) (35)
Interest expense - 46 8 107
----------- ------------ ----------- ------------
Income (loss) from operations - (41) (77) (142)
Gain (loss) on sale of properties - - 147 -
----------- ------------ ----------- ------------
Income (loss) before income taxes - (41) 70 (142)
Income tax expense (benefit) - (16) 27 (55)
----------- ------------ ----------- ------------
Net income (loss) $ - $ (25) $ 43 $ (87)
=========== ============ =========== ============
3. Mortgage and Other Notes Payable
In January through June 30, 2002 the Company was advanced $2.5million
on loans of $7 million for construction advances on one property under
construction in Santa Monica, CA bringing the total advanced to $5.0 million.
During July through December 31, 2002, the Company was advanced an
additional $1.4 million on loans of $7 million for construction advances on one
property under construction in Santa Monica, CA bringing the total advanced to
$6.4 million. Subsequent to December 31, 2002 the remaining .6 million was
advanced.
In April 2002, a subsidiary of the Company purchased a vending company
for $210,000 by issuing a note payable of $110,000 with monthly principal and
interest payments of $10,400, due March 1, 2003. Goodwill of $120,000 and fixed
assets of $90,000 were preliminarily recorded as a result of this transaction.
The Company is currently in default with respect to certain covenants
on its Senior Subordinated Notes and also a $8.4 million note. The Company is
seeking to extend the maturity dates and reduce the interest rates. The Company
does not have sufficient liquidity to repay the notes if demanded by the holders
and accordingly, there is substantial doubt about the Company's ability to
contiue as a going concern.
4. Income Taxes
Income tax expense differs from the amounts computed by applying the
U.S. federal income tax rate of 34% to income before income taxes principally as
a result of state income taxes.
5. Contingencies
The Company is involved in various legal proceedings arising
in the ordinary course of business. The Company does not believe that any of
these actions, either individually or in the aggregate, will have a material
adverse effect on the Company's business, results of operations or financial
condition.
6. Related Parties
During the quarters ended June 30, 2002 and 2001, the company
received approximately $54,000 and $8,000 in management fees from related
parties. For the six months ended June 30, 2002 and 2001 the Company received
approximately $92,000 and $8,000 in management fees. The Company recognized
interest income from related parties during the quarter ended June 30, 2002 of
approximately $301,000. For the six months ended June 30, 2002 interest from
related parties totaled approximately $603,000. Ground lease revenue from
related parties for the six months and the quarter ended June 30, 2002 totaled
approximately $65,000. The Company had receivables from related parties of
approximately $763,000 at June 30, 2002.
7. Reclassifications
Certain reclassifications have been made to previously
reported 2001 statements in order to provide comparability with the 2002
statements reported herein. Theses reclassifications have not changed the 2001
results or stockholders' equity.
8. Subsequent Events
The Company though a subsidiary (LLC) has a mortgage note payable secured by 93
of LLC's motels, 24 of which are operated by the Company, and 69 that are leased
to third-party tenants. On February 28, 2003, the Company received a default
notice from the servicer of the loan ("Servicer") alleging that LLC's lease
program violated certain loan covenants. The Company believes that the leasing
program, which began in 1998, has been properly disclosed to the lender in both
monthly and annual financial reports provided to the lender. In addition, on
March 31, 2003, the Company was notified that the loan had been accelerated. The
Company disputes the validity of both the default and acceleration notices and
has been in negotiations with the Servicer to resolve these issues. In
conjunction with such continuing negotiations, the cure date was tolled and
extended by the Servicer through July 11, 2003. In July 2003, negotiations with
the Servicer stalled and on July 10th, LLC filed a voluntary petition for relief
under Chapter 11 of the United States Bankruptcy Code. Subsequent to filing the
petition, LLC obtained a commitment to refinance the existing loan and the
Servicer agreed to such refinancing subject to a $2.5 million prepayment penalty
plus expenses.
On August 26, 2003, the refinancing closed in the amount of $137.25 million. The
new loan bears interest at LIBOR plus 5% with a floor of 7.5%, matures September
13, 2008 and stipulates that aggregate net proceeds in excess of $2.5 million
from the sale of collateral properties must be applied as principal reductions
on the loan. The loan has a requirement for cumulative mandatory principal
reductions of $60 million by 9/13/2004, $90 million by 9/13/2005 and $112.25
million by 9/13/06. Additional payments of "Exit Interest" are required based on
the proceeds of each property sale (as defined). The exit interest ranges from
2.5% to 5% and is capped at $6.25 million.
The bankruptcy petition was dismissed by the court immediately prior to the
closing of the refinancing.
9. Segments
As of June 30, 2002 the Company, directly and through
subsidiaries, owned 111 lodging facilities in 38 states. The Company owns a 100%
interest in all of its properties. The Company operates thirty-three of its
motels and leases seventy-eight of its motels to third party tenants pursuant to
operating leases. The Company separately evaluates the performance of each of
its motels.
Three months ended Six months ended
June 30 June 30
--------------------------- ----------------------------
2002 2001 2002 2001
----------- ------------ ------------ ------------
(in thousands) (in thousands)
Motel operations Motel operating revenues:
Room revenues $ 9,420 $ 10,978 $ 16,372 $ 19,904
Ancillary motel revenues 899 1,185 1,778 2,020
----------- ------------ ------------ ------------
Total motel operating revenues 10,319 12,163 18,150 21,924
Motel costs and expenses:
Motel operating expenses 5,109 6,447 9,936 12,411
Marketing and royalty fees 711 823 1,271 1,552
Depreciation and amortization 1,271 1,558 2,548 3,127
----------- ------------ ------------ ------------
Total motel direct expenses 7,091 8,828 13,755 17,090
----------- ------------ ------------ ------------
3,228 3,335 4,395 4,834
Lease operations:
Lease revenues 3,129 2,781 6,026 5,675
Lease expenses 310 (54) 591 174
Depreciation and amortization 1,534 1,692 3,080 3,422
----------- ------------ ------------ ------------
1,285 1,143 2,355 2,079
Vending operations:
Vending revenues 1,014 422 1,856 751
Vending expenses 882 443 1,569 824
Depreciation and amortization 139 86 283 162
----------- ------------ ------------ ------------
(7) (107) 4 (235)
Corporate operations:
Other revenues, net 711 615 1,318 1,207
General and administrative expenses:
Management Company Operations 1,054 1,086 2,197 2,557
Construction/Acquisition and divestiture 88 107 92 141
Vending general and administrative 481 296 896 577
----------- ------------ ------------ ------------
Total general and administrative expenses 1,623 1,489 3,185 3,275
Depreciation and amortization 65 190 106 363
----------- ------------ ------------ ------------
(977) (1,064) (1,973) (2,431)
----------- ------------ ------------ ------------
Net operating income 3,529 3,307 4,781 4,247
Interest expense 4,655 5,222 9,279 10,402
----------- ------------ ------------ ------------
Income (loss) from continuing operations before minority (1,126) (1,915) (4,498) (6,155)
interests
Minority interests - (33) - (20)
Gain on sale of properties - 2,659 - 2,659
----------- ------------ ------------ ------------
Income (loss) from continuing operations before income taxes (1,126) 711 (4,498) (3,516)
Income tax expense (benefit) (464) 277 (1,750) (1,369)
----------- ------------ ------------ ------------
Income (loss) from continuing operations (662) 434 (2,748) (2,147)
Discontinued operations (including net gain on disposal
of $147 and $0), net of income taxes. - (25) 43 (87)
----------- ------------ ------------ ------------
Net income (loss) $ (662) $ 409 $ (2,705) $ (2,234)
=========== ============ ============ ============
Total Assets:
Motel Operations $ 107,014 $ 132,367
Lease Operations 117,074 117,768
Other Operations 37,262 24,353
------------ ------------
$ 261,350 $ 274,488
============ ============
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CERTAIN STATEMENTS UNDER THE CAPTION "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS," CONSTITUTE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995 AND AS SUCH, SPEAK ONLY AS OF THE DATE MADE. FORWARD-LOOKING STATEMENTS
ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES
THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS OR
THOSE ANTICIPATED AT THE TIME OF THE FORWARD-LOOKING STATEMENTS ARE MADE,
INCLUDING, WITHOUT LIMITATION, RISKS AND UNCERTAINTIES ASSOCIATED WITH THE
FOLLOWING: GENERAL REAL ESTATE, TRAVEL AND NATIONAL AND INTERNATIONAL ECONOMIC
CONDITIONS, INCLUDING THE SEVERITY AND DURATION OF THE DOWNTURN RESULTING FROM
THE SEPTEMBER 11, 2001 TERRORIST ATTACKS ON NEW YORK AND WASHINGTON, D.C.;. SUCH
FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES AND
OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF
THE COMPANY TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR
ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH
FACTORS INCLUDE, AMONG OTHERS, THE FOLLOWING: THE COMPANY'S ABILITY TO OBTAIN
FINANCING, COMPETITION, INTEREST RATE FLUCTUATIONS, OR GENERAL BUSINESS AND
ECONOMIC CONDITIONS.
THIS DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE INTERIM CONDENSED
CONSOLIDATED HISTORICAL FINANCIAL STATEMENTS OF THE COMPANY AND THE NOTES
THERETO INCLUDED ELSEWHERE HEREIN. THE SUPPLEMENTAL HISTORICAL OPERATING RESULTS
PRESENTED BELOW FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001 HAVE
BEEN DERIVED FROM THE INTERIM CONDENSED CONSOLIDATED HISTORICAL FINANCIAL
STATEMENTS AND, IN THE OPINION OF THE COMPANY, INCLUDE ALL ADJUSTMENTS
(CONSISTING ONLY OF NORMAL RECURRING ADJUSTMENTS) NECESSARY TO PRESENT FAIRLY
THE INFORMATION SET FORTH THEREIN.
General
MOA operates principally in the economy limited service segment of the
lodging industry. As a result, its average room rates tend to be lower than the
average room rates of full service lodging facilities. However, due to the
limited nature of the public space and ancillary services provided by limited
service motels, the Company's expenses tend to be lower than those of full
service lodging facilities. The profitability of the lodging industry in general
is significantly dependent upon room rental rates and occupancy rates. Due to
the fixed nature of a relatively high portion of the Company's expenses, changes
in either room rates or occupancy rates result in significant changes in the
operating profit of the Company's motels.
The United States lodging industry has experienced downward pressure on
ADR and occupancy throughout 2002 due to the overall slowdown in the economy.
Such pressure was substantially increased as a result of the September 11, 2001
terrorist attacks on New York and Washington D.C. On a same store basis, through
the second quarter ADR decreased to $47.75 for 2002 versus $47.80 for 2001, and
occupancy increased to 66.48% for 2002 versus 66.02% for 2001.
The Company is actively working with its managers and lessees to reduce
operating and overhead expenses and has curtailed or postponed non-essential
capital expenditure activities; however, there can be no assurance that the
results of such efforts will be sufficient to enable the Company to continue
meeting its obligations as they come due.
Three Months Ended June 30, 2002 compared to the Three Months Ended
June 30, 2001
The following chart presents certain historical operating results and
statistics discussed herein and is being provided as a supplement to the
condensed consolidated financial statements presented elsewhere herein. (certain
of the 2001 numbers have been reclassified to conform to the 2002 presentation):
Supplemental Operating Results and Statistics
---------------------------------------------------------------------------
(unaudited)
Three Months Ended June 30
---------------------------------------------------------------------------
Motels Owned Acquisitions/
Both Periods Divestitures (6) Consolidated
----------------------- ---------------------- --------------------------
2002 2001 2002 2001 2002 2001
---------- ----------- ---------- ---------- ------------ ------------
(dollars in thousands, except Other data)
Motel operations:
Motel operating revenues:
Room revenues $ 9,105 $ 8,834 $ 315 $ 2,144 $ 9,420 $ 10,978
Ancillary motel revenues 877 826 22 359 899 1,185
---------- ----------- ---------- ---------- ------------ ------------
Total motel operating revenues 9,982 9,660 337 2,503 10,319 12,163
Motel costs and expenses:
Motel operating expenses 4,730 4,770 379 1,677 5,109 6,447
Marketing and royalty fees 686 652 25 171 711 823
Depreciation and amortization 1,254 1,284 17 274 1,271 1,558
---------- ----------- ---------- ---------- ------------ ------------
Total motel direct expenses 6,670 6,706 421 2,122 7,091 8,828
---------- ----------- ---------- ---------- ------------ ------------
$ 3,312 $ 2,954 $ (84) $ 381 3,228 3,335
========== =========== ========== ==========
Lease operations:
Lease revenues 3,129 2,781
Lease expenses 310 (54)
Depreciation and amortization 1,534 1,692
------------ ------------
1,285 1,143
Vending operations:
Vending revenues 1,014 422
Vending expenses 882 443
Depreciation and amortization 139 86
------------ ------------
(7) (107)
Corporate operations:
Other revenues, net 711 615
General and administrative expenses:
Management Company Operations 1,054 1,086
Construction/Acquisition
and Divestiture 88 107
Vending general and administrative 481 296
------------ ------------
Total general and administrative expenses 1,623 1,489
Depreciation and amortization 65 190
------------ ------------
(977) (1,064)
------------ ------------
Net operating income $ 3,529 $ 3,307
============ ============
Other data:
Number of motels at period end (5) 31 31 2 9 33 40
Number of rooms at period end (5) 2,700 2,702 168 647 2,868 3,349
Occupancy percentage (5) 73.38% 70.84% 40.88% 71.00% 71.48% 70.71%
ADR (1) (5) $ 50.48 $ 50.70 $ 41.82 $ 39.84 $ 50.19 $ 47.81
REVPAR (2) (5) $ 40.61 $ 39.27 $ 17.71 $ 28.53 $ 39.27 $ 37.43
Net operating income margin (3) 23.26% 20.69%
Net motel revenue margin (4) (5) 50.14% 47.97% -21.27% 30.55% 47.76% 44.57%
- --------------------------------------------------
(1) ADR represents room revenues divided by the total number of rooms occupied.
(2) REVPAR represents total motel operating revenues divided by the total number
of rooms available.
(3) Net operating income margin represents net operating income divided by total
motel operating revenues plus lease revenues plus vending revenues plus
corporate other revenues.
(4) Net motel revenue margin represents total motel operating revenues
less motel operating expenses and marketing and royalty fees, divided by
motel room revenues.
(5) At June 30, 2002 and June 30, 2001, and for the three month periods then
ended, excludes amounts related to the seventy-eight motels and
seventy-five motels, respectively, which are leased to third party tenants.
(6) Includes newly aquired properties, newly leased properties and properties
which were leased that the Company is now operating.
Effective January 1, 2002 the Company adopted the provisions of
Statement of Financial Accounting Standards No. 144 ("SFAS 144"), "Accounting
for the Impairment or Disposal of Long-Lived Assets." SFAS 144 addresses the
financial accounting and reporting for the impairment or disposal of long-lived
assets. SFAS 144 extends the reporting requirements of discontinued operations
to include components of an entity that have either been disposed of or are
classified as held for sale subsequent to December 31, 2001. For the three
months ended June 30, 2002, the Company had no disposals of properties, however
for the three months ended March 31, 2002 there were three properties disposed.
The operating results of these properties have been reclassified as discontinued
operations in the unaudited consolidated statements of operations for each of
the periods included herein.
Total revenues consist principally of motel operating revenues. Motel
operating revenues are derived from room rentals and ancillary motel revenues
such as charges to guests for food and beverage service, long distance telephone
calls, and fax machine use. Lease revenues are derived from properties leased to
third parties. Vending revenues are derived from vending machines used in the
motels and also vending machines placed in non owned locations. Other revenues
include interest income, and other miscellaneous income. Total revenues
decreased to $15,173,000 for the three months ended June 30, 2002 from
$15,981,000 for the three months ended June 30, 2001, a decrease of $808,000 or
5.06% primarily as a result of the leasing and sales activities of the Company.
As lessor of 78 motels at June 30, 2002 the Company records rental income and
does not reflect the gross revenues and expenses of operating these motels.
Motel revenues decreased to $10,319,000 for the three months ended June
30, 2002 from $12,163,000 for the three months ended June 30, 2001, a decrease
of $1,844,000 or 15.16%. The motel revenues for motels owned during both periods
increased approximately $322,000, in addition there was a decrease of $2,166,000
in motel revenues for motels acquired and divested since April 1, 2001. Motel
revenues for motels owned during both periods increased by 3.3%. The increase in
motel revenues for motels owned during both periods was attributable principally
to an increase in the occupancy. The occupancy percentage increased from 70.84%
for the three months ended June 30, 2001 to 73.38% for the three months ended
June 30, 2002. The ADR for the motels owned during both periods decreased to
$50.48 for the three months ended June 30, 2002 from $50.70 for the three months
ended June 30, 2001, a decrease of $.22 or less than 1%. Revenue per available
room ("REVPAR") for motels owned during both periods increased to $40.61 for the
three months ended June 30, 2002 from $39.27 for the three months ended June 30,
2001, an increase of $1.34 or 3.4%.
Motel operating expenses include payroll and related costs, utilities,
repairs and maintenance, property taxes, insurance, linens and other operating
supplies. Motel operating expenses decreased to $5,109,000 for the three months
ended June 30, 2002 from $6,447,000 for the three months ended June 30, 2001, a
net decrease of $1,338,000 or 20.8%. Motel operating expenses for motels
acquired and divested since April 1, 2001 decreased to $379,000 for the three
months ended June 30, 2002 from $1,677,000 for the three months ended June 30,
2001, a decrease of $1,298,000 or 77.4%. The cost of operating motels owned
during both periods decreased to $4,730,000 for the three months ended June 30,
2002 from $4,770,000 for the three months ended June 30, 2001. The decrease in
operating costs is principally due to decreased labor and related costs and a
decrease in repairs and maintenance expenditures. Motel operating expenses as a
percentage of motel revenues decreased to 49.5% for the three months ended June
30, 2002 from 53% for the three months ended June 30, 2001. Motel operating
expenses as a percentage of motel revenues for the motels owned in both periods
decreased to 47.4% for the three months ended June 30, 2002 from 49.4% for the
three months ended June 30, 2001.
Marketing and royalty fees include media advertising, billboard rental
expense, advertising fund contributions and royalty charges paid to franchisors
and other related marketing expenses. Marketing and royalty fees decreased to
$711,000 for the three months ended June 30, 2002 from $823,000 for the three
months ended June 30, 2001, a decrease of $112,000 or 13.6%. The marketing and
royalty fees for motels owned during both periods increased to $686,000 for the
three months ended June 30, 2002 from $652,000 for the three months ended June
30, 2001, an increase of $34,000 or 5.2%. For the motels owned during both
periods, marketing and royalty fees as a percentage of room revenues increased
to 7.5% for the three months ended June 30, 2002 from 7.4% for the three months
ended June 30, 2001. The increase in marketing and royalty fees for motels owned
in both periods are principally due to more room revenues.
Lease operations increased to $1,285,000 for the three months ended
June 30, 2002 from $1,143,000 for the three months ended June 30, 2001, an
increase of $142,000.There are 78 leased properties with an asset value of
$117,074,000 at June 30, 2002 compared with 75 leased properties with an asset
value of $117,768,000 at June 30, 2001.
Vending operations increased to ($7,000) for the three months ended
June 30, 2002 from ($107,000) for the three months ended June 30, 2001 as the
result of additional new vending locations added.
Corporate general and administrative expenses are segregated
by the Company into three separate areas: Management Company Operations,
Construction/Acquisition and Divestiture Division and Vending general and
administrative. Included in the Management Company Operations, which is the
division responsible for the motel operations, are the costs associated with
training, marketing, purchasing, administrative support, property related legal
and accounting costs. The major components of these costs are salaries, wages
and related expenses, travel, rent and other administrative expenses. The
general and administrative expenses for the Management Company Operations
decreased $32,000 to $1,054,000 for the three months ended June 30, 2002 from
$1,086,000 for the three months ended June 30, 2001, a decrease of 2.9%. The
general and administrative expenses associated with Construction/Acquisition and
Divestiture Division decreased $19,000 from $107,000 for the three months ended
June 30, 2001 to $88,000 for the three months ended June 30, 2002. Vending
general and administrative expenses increased $185,000 to $481,000 for the three
months ended June 30, 2002 from $296,000 for the three months ended June 30,
2001, primarily due to the increased personnel in preparation of expansion. As a
percentage of total motel operating revenues, Management Company Operations
general and administrative expenses were 10.2% for the three months ended June
30, 2002 and 8.9% for the three months ended June 30, 2001.
Depreciation and amortization decreased to $3,009,000 for the three
months ended June 30, 2002 from $3,526,000 for the three months ended June 30,
2001, a net decrease of $517,000 or 14.7%. This decrease is due to the reduction
in depreciation expense on furniture and fixtures which were fully depreciated
for the three months ended June 30, 2002 compared to the three months ended June
30, 2001 of approximately $365,000. Also, there was a reduction of amortization
expense on corporate of $38,000 for the three months ended June 30, 2002
compared to $141,000 for the three months ended June 30, 2001 on various loan
costs which are now fully amortized.
Net operating income increased to $3,529,000 for the three months ended
June 30, 2002 from $3,307,000 for the three months ended June 30, 2001, an
increase of $222,000 or 6.27%. Net operating income as a percent of total
revenues was 23.3% for the three months ended June 30, 2002 as compared to 20.7%
for the three months ended June 30, 2001.
Interest expense decreased to $4,655,000 for the three months ended
June 30, 2002 from $5,222,000 for the three months ended June 30, 2001, a
decrease of $567,000. The decrease in interest expense is reflective of the
lower average amount of outstanding borrowings during the second quarter of 2002
as compared to the second quarter 2001.
Gain on sale of properties amounted to $0 for the three months ended
June 30, 2002 compared to $2,659,000 for the respective period in 2001. For the
quarter ended June 30, 2001, one property was sold for $3.6 million in cash and
a deferred gain of $1.7 million was recognized on a second property upon
repayment of the respective mortgage receivable balance.
Discontinued operations decreased to $0 for the three months ended June
30, 2002 compared to a loss of $25,000 for the three months ended June 30, 2001
as a result of the sale of properties. See Note 2 to the condensed consolidated
financial statements.
Net income decreased to a loss of $662,000 for the three months ended
June 30, 2002 from net income of $409,000 for the three months ended June 30,
2001.
Six Months Ended June 30, 2002 Compared to the Six Months Ended June 30, 2001
The following chart presents certain historical operating results and
statistics discussed herein and is being provided as a supplement to the
condensed consolidated financial statements presented elsewhere herein. (certain
of the 2001 numbers have been reclassified to conform to the 2002 presentation):
Supplemental Operating Results and Statistics
-------------------------------------------------------------------------------
(unaudited)
Six Months Ended June 30
-------------------------------------------------------------------------------
Motels Owned Acquisitions/
Both Periods Divestitures (6) Consolidated
------------------------- ------------------- ---------------------------
2002 2001 2002 2001 2002 2001
----------- ----------- -------- -------- ------------ ------------
(dollars in thousands, except Other data)
Motel operations:
Motel operating revenues:
Room revenues $ 15,518 $ 15,439 $ 854 $ 4,465 $ 16,372 $ 19,904
Ancillary motel revenues 1,703 1,636 75 384 1,778 2,020
----------- ----------- -------- -------- ------------ ------------
Total motel operating revenues 17,221 17,075 929 4,849 18,150 21,924
Motel costs and expenses:
Motel operating expenses 9,039 9,249 897 3,162 9,936 12,411
Marketing and royalty fees 1,204 1,193 67 359 1,271 1,552
Depreciation and amortization 2,501 2,574 47 553 2,548 3,127
----------- ----------- -------- -------- ------------ ------------
Total motel direct expenses 12,744 13,016 1,011 4,074 13,755 17,090
----------- ----------- -------- -------- ------------ ------------
$ 4,477 $ 4,059 $ (82) $ 775 4,395 4,834
=========== =========== ======== ========
Lease operations:
Lease revenues 6,026 5,675
Lease expenses 591 174
Depreciation and amortization 3,080 3,422
------------ ------------
2,355 2,079
Vending operations:
Vending revenues 1,856 751
Vending expenses 1,569 824
Depreciation and amortization 283 162
------------ ------------
4 (235)
Corporate operations:
Other revenues, net 1,318 1,207
General and administrative expenses:
Management Company Operations 2,197 2,557
Construction/Acquisition
and Divestiture 92 141
Vending general and administrative 896 577
------------ ------------
Total general and administrative expenses 3,185 3,275
Depreciation and amortization 106 363
------------ ------------
(1,973) (2,431)
------------ ------------
Net operating income $ 4,781 $ 4,247
============ ============
Other data:
Number of motels at period end (5) 31 31 2 9 33 40
Number of rooms at period end (5) 2,700 2,702 168 647 2,868 3,349
Occupancy percentage (5) 66.48% 66.02% 37.04% 67.57% 65.08% 66.26%
ADR (1) (5) $ 47.75 $ 47.80 $ 36.05 $ 40.20 $ 47.43 $ 47.01
REVPAR (2) (5) $ 35.23 $ 34.90 $ 13.96 $ 27.95 $ 34.22 $ 34.05
Net operating income margin (3) 17.48% 14.37%
Net motel revenue margin (4) (5) 44.97% 42.96% -4.10% 29.74% 42.41% 40.00%
- --------------------------------------------------
(1) ADR represents room revenues divided by the total number of rooms occupied.
(2) REVPAR represents total motel operating revenues divided by the total number
of rooms available.
(3) Net operating income margin represents net operating income divided by total
motel operating revenues plus lease revenues plus vending revenues plus
corporate other revenues.
(4) Net motel revenue margin represents total motel operating revenues less
motel operating expenses and marketing and royalty fees, divided by motel
room revenues.
(5) At June 30, 2002 and June 30, 2001, and for the six month periods then
ended, excludes amounts related to the seventy-eight motels and
seventy-five motels, respectively, which are leased to third party tenants.
(6) Includes newly aquired properties, newly leased properties and properties
which were leased that the Company is now operating.
Effective January 1, 2002 the Company adopted the provisions of
Statement of Financial Accounting Standards No. 144 ("SFAS 144"), "Accounting
for the Impairment or Disposal of Long-Lived Assets." SFAS 144 addresses the
financial accounting and reporting for the impairment or disposal of long-lived
assets. SFAS 144 extends the reporting requirements of discontinued operations
to include components of an entity that have either been disposed of or are
classified as held for sale subsequent to December 31, 2001. For the six months
ended June 30, 2002, the Company disposed of three properties. The operating
results of theses properties have been reclassified as discontinued operations
in the unaudited consolidated statements of operations for each of the periods
included herein.
Total revenues decreased $2,207,000 to $27,350,000 for the six months
ended June 30, 2002 from $29,557,000 for the six months ended June 30, 2001 or
7.47% primarily as a result of the sales and leasing activities of the Company.
As lessor of 78 motels at June 30, 2002 the Company records rental income and
does not reflect the gross revenues and expenses of operating these motels.
Motel revenues decreased to $18,150,000 for the six months ended June
30, 2002 from $21,924,000 for the six months ended June 30, 2001, a decrease of
$3,774,000 or 17.2%. The motel room revenues for motels owned during both
periods increased approximately $79,000 or less than 1%, there also was a
decrease of $3,611,000 for acquired and divested motels, since January 1, 2001.
The ADR for the motels owned during both periods decreased to $47.75 for the six
months ended June 30, 2002 from $47.80 for the six months ended June 30, 2001, a
decrease of $.05 or less than 1%. The occupancy percentage increased from 66.02%
for the six months ended June 30, 2001 to 66.48% for the six months ended June
30, 2002. The REVPAR for motels owned during both periods increased to $35.23
for the six months ended June 30, 2002 from $34.90 for the six months ended June
30, 2001, an increase of $.33 or 1%.
Motel operating expenses include payroll and related costs, utilities,
repairs and maintenance, property taxes, insurance, linens and other operating
supplies. Motel operating expenses decreased to $9,936,000 for the six months
ended June 30, 2002 from $12,411,000 for the six months ended June 30, 2001, a
decrease of $2,475,000 or 19.9%. The cost of operating motels owned during both
periods decreased to $9,039,000 for the six months ended June 30, 2002 from
$9,249,000 for the six months ended June 30, 2001, a decrease of $210,000 or
2.3%. Motel operating expenses for motels acquired and divested since January 1,
2001 decreased to $897,000 for the six months ended June 30, 2002 from
$3,162,000 for the six months ended June 30, 2001. The decrease in operating
costs is principally due to decreased labor and related costs and a decrease in
repairs and maintenance expenditures. Motel operating expenses as a percentage
of motel revenues decreased to 54.7% for the six months ended June 30, 2002 from
56.6% for the six months ended June 30, 2001. Motel operating expenses as a
percentage of motel revenues for the motels owned in both periods decreased to
52.5% for the six months ended June 30, 2002 from 54.2% for the six months ended
June 30, 2001.
Marketing and royalty fees include media advertising, billboard rental
expense, advertising fund contributions and royalty charges paid to franchisers
and other related marketing expenses. Marketing and royalty fees decreased to
$1,271,000 for the six months ended June 30, 2002 from $1,552,000 for the six
months ended June 30, 2001, a decrease of $281,000 or 18.1%. The marketing and
royalty fees for motels owned during both periods increased to $1,204,000 for
the six months ended June 30, 2002 from $1,193,000 for the six months ended June
30, 2001, an increase of $11,000 or less than 1%. For the motels owned during
both periods, marketing and royalty fees as a percentage of room revenues was
7.7% for both periods. Marketing and royalty fees for motels acquired and
divested since January 1, 2001 decreased to $67,000 for the six months ended
June 30, 2002 from $359,000 for the six months ended June 30, 2001.
Lease operations increased to $2,355,000 for the six months ended June
30, 2002 from $2,079,000 for the six months ended June 30, 2001, an increase of
$276,000, which results from an increase to 78 leased properties with an asset
value of $117,074,000 at June 30, 2002 compared with 75 leased properties with
an asset value of $117,768,000 at June 30, 2001.
Vending operations increased to $4,000 for the six months ended June
30, 2002 from ($235,000) for the six months ended June 30, 2001, an increase of
$239,000 as a result of new vending locations added subsequent to January 1,
2001.
Corporate general and administrative expenses are segregated by the
Company into three separate areas: Management Company Operations, Construction
and Development and Vending general and administrative. Included in the
Management Company Operations, which is the division responsible for the motel
operations, are the costs associated with training, marketing, purchasing,
administrative support, property related legal and accounting costs. The major
components of these costs are salaries, wages and related expenses, travel, rent
and other administrative expenses. The general and administrative expenses for
the Management Operations decreased $360,000 to $2,197,000 for the six months
ended June 30, 2002 from $2,557,000 for the six months ended June 30, 2001, a
decrease of 14.1%. This is due primarily to discounts given on notes receivable
paid off during the first six months of 2001 of $300,000 compared to $55,000
during the six months ended June 30, 2002. The general and administrative
expenses associated with Construction and Development decreased $49,000 from
$141,000 for the six months ended June 30, 2001 to $92,000 for the six months
ended June 30, 2002. Vending general and administrative expenses increased
$319,000 to $896,000 for the six months ended June 30, 2002 from $577,000 for
the six months ended June 30, 2001. As a percentage of total motel operating
revenues, Management Operations general and administrative expenses were 12.1%
for the six months ended June 30, 2002 and 11.7% for the six months ended June
30, 2001.
Depreciation and amortization decreased to $6,017,000 for the six
months ended June 30, 2002 from $7,074,000 for the six months ended June 30,
2001, a net decrease of $1,057,000 or 14.94%. This decrease is due to the
reduction in depreciation expense on furniture and fixtures which were fully
depreciated for the six months ended June 30, 2002 compared to the six months
ended June 30, 2001 of approximately $820,000. Also, there was a reduction of
amortization expense on corporate of $51,000 for the six months ended June 30,
2002 compared to $262,000 for the six months ended June 30, 2001 on various loan
costs which are now fully amortized.
Net operating income increased to $4,781,000 for the six months ended
June 30, 2002 from $4,247,000 for the six months ended June 30, 2001, an
increase of $534,000 or 12.6%. This is a result of a decrease in management
company operations expenses of $360,000, an increase of $319,000 in vending G&A
and a decrease in depreciation and amortization costs. Net operating income as a
percent of total revenues was 17.5% for the six months ended June 30, 2002 as
compared to 14.4% for the six months ended June 30, 2001.
Interest expense decreased to $9,279,000 for the six months ended June
30, 2002 from $10,402,000 for the six months ended June 30, 2001, a decrease of
$1,123,000. The decrease in interest expense is reflective of the lower average
amount of outstanding borrowings during the six months ending June 30, 2002 as
compared to the six months ending June 30, 2001.
Gain on sale of properties amounted to $2,659,000 for the six months
ended June 30, 2001 compared to $0 for the period ended June 30, 2002 due to the
newly adopted reporting requirements at January 1, 2002. For the six months
ended June 30, 2001, one property was sold for $3.6 million and a deferred gain
of $1.7 million was recognized on a second property upon repayment of the
respective mortgage receivable balance.
Discontinued operations increased to $43,000 for the six months ended
June 30, 2002 compared to a loss of $87,000 for the six months ended June 30,
2001 as a result of the gain on sale of properties in 2002 included in
discontinued operations. See Note 2 to the condensed consolidated financial
statements.
Net loss increased to $2,705,000 for the six months ended June 30, 2002
from a net loss of $2,234,000 for the six months ended June 30, 2001 primarily
as a result of a decrease in interest expense, depreciation expense and the
reporting of gains on sale of properties of $2,659,000 for the six months ended
June 30, 2001 compared with $0 for the six months ended June 30, 2002.
Liquidity and Capital Resources
The Company's primary uses of its capital resources include debt
service, capital expenditures and working capital. In addition, on a
discretionary basis, the Company utilizes its capital resources for the
development and acquisition of motel properties.
The Company's debt service requirements consist of the
obligation to make interest and principal payments on its outstanding
indebtedness.
In January through June 30, 2002 the Company was advanced $2.5million
on loans of $7 million for construction advances on one property under
construction in Santa Monica, CA bringing the total advanced to $5.0 million.
During July through December 31, 2002, the Company was advanced an
additional $1.4 million on loans of $7 million for construction advances on one
property under construction in Santa Monica, CA bringing the total advanced to
$6.4 million. Subsequent to December 31, 2002 the remaining $0.6 million was
advanced.
In April 2002, a subsidiary of the Company purchased a vending company
for $210,000 by issuing a note payable of $110,000 with monthly principal and
interest payments of $10,400, due March 1, 2003. Goodwill of $120,000 and fixed
assets of $90,000 were preliminarily recorded as a result of this transaction.
The Company's capital expenditure requirements principally include
capital improvements and refurbishment of its lodging facilities as part of its
ongoing operating strategy to provide well-maintained facilities. The Company
made capital expenditures (exclusive of acquisitions and development of
properties) of $1,105,000 and $1,615,000 for the six months ended June 30, 2002
and 2001, respectively. In addition, as of June 30, 2002, the Company had
$706,000 of cash restricted for future refurbishment of motel properties, in
accordance with certain debt agreements. Management is not aware of any unusual
required level of future capital expenditures necessary to maintain its existing
properties. Capital repairs and maintenance expenses on leased properties are
funded by lessees.
For the six months ended June 30, 2002, cash and cash equivalents
increased $671,000. This increase consisted of $1,231,000 of funds provided by
investing activities and $6,371,000 of funds used in financing activities and
$5,811,000 of funds provided by operations. Net investing activities of
$1,231,000 include: $3,632,000 of cash utilized for motel development and
$1,105,000 expended on refurbishment of existing properties, offset by
$6,363,000 of cash provided from the sale of investment properties and
collections on mortgage and other notes receivable and a change in cash
restricted for refurbishment of $395,000. Cash used in financing activities
includes: $8,811,000 of cash utilized to repay indebtedness; and $233,000 of
cash used for deferred financing costs and other items offset by $2,673,000 from
proceeds from notes payable.
The Company is currently in default with respect to certain covenants
on its Senior Subordinated Notes and also a $8.4 million note. The Company is
seeking to extend the maturity dates and reduce the interest rates. The Company
does not have sufficient liquidity to repay the notes if demanded by the holders
and accordingly, there is substantial doubt about the Company's ability to
continue as a going concern.
Subsequent to June 30, 2002, a subsidiary of the Company (the "LLC")
was placed in technical default on one of its loans and was forced to file for
Bankruptcy protection under Chapter 11 of the United States Bankruptcy Code on
July 10, 2003. On August 26, 2003 the LLC refinanced the loan and the Bankruptcy
proceedings were dismissed. The Company believes that the refinancing will not
have any negative impact on the operations or liquidity in the future.
Item 3. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our principal executive officer, Paul F. Wallace, and our principal
financial officer, Kurt M. Mueller, evaluated within 90 days prior to the filing
of this Form 10-K the effectiveness of the design and operation of our
disclosure controls and other procedures that are designed to ensure that
information required to be disclosed by us in the reports that we file or submit
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms. As a
result of this evaluation, these executive officers have concluded that, as of
such date, the design and operation of our disclosure controls and procedures
were effective.
Changes in Internal Controls
Since the date of the evaluation of our disclosure controls and
procedures by Mr. Wallace and Mr. Mueller described above, there have been no
significant changes in our internal controls or in other factors that could
significantly affect our disclosure controls and procedures.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in various legal proceedings arising in the
ordinary course of business. The Company does not believe that any of these
actions, either individually or in the aggregate, will have a material adverse
effect on the Company's business, results of operations or financial condition.
See Note 5 of the Notes to the Condensed Consolidated Financial Statements.
Subsequent to June 30, 2002, a subsidiary of the Company (the "LLC") was placed
in technical default on one of its loans and was forced to file for Bankruptcy
protection under Chapter 11 of the United States Bankruptcy Code on July 10,
2003. On August 26, 2003 the LLC refinanced the loan and the Bankruptcy
proceedings were dismissed.
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Not Applicable
(b) Reports on Form 8-K:
Not Applicable
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MOA HOSPITALITY, INC.
September 29, 2003 By: /s/ Kurt M. Mueller
Kurt M. Mueller
President and Chief Financial Officer
September 29, 2003 By: /s/ Blane P. Evans
Blane P. Evans
Secretary and Treasurer
CERTIFICATIONS
Written Statement of the Chief Financial Officer Pursuant to Section 906 of the
Sarbanes- Oxley Act of 2002.
I, Kurt M. Mueller, certify that:
1. I have reviewed this quarterly report on Form 10-Q of MOA Hospitality, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statements of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report.
Date: September 29, 2003
/s/ Kurt M. Mueller
Kurt M. Mueller
Chief Financial Officer
CERTIFICATIONS
Written Statement of the Chief Executive Officer Pursuant to Section 906 of the
Sarbanes- Oxley Act of 2002.
I, Paul F. Wallace, certify that:
1. I have reviewed this quarterly report on Form 10-Q of MOA Hospitality, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statements of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
4. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report.
Date: September 29, 2003
/s/ Paul F. Wallace
Paul F. Wallace
Chief Executive Officer