Back to GetFilings.com
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 September 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
----------------------
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 15, 2003: 800,000
INDEX TO FORM 10-Q
Page
Part I Financial Information
Item 1. Financial Statements
Condensed consolidated balance sheets - September 30, 2002 2
(unaudited) and December 31, 2001.
Condensed consolidated statements of operations - 3
Three months ended September 30, 2002 and 2001
and Nine months ended September 30, 2002 and 2001
(unaudited).
Condensed consolidated statements of cash flows - 4
Nine months ended September 30, 2002and 2001 (unaudited).
Notes to condensed consolidated financial statements - 5
September 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)
September 30, December 31,
2002 2001
-------------- ------------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 3,411 $ 3,152
Accounts receivable from property operations,net 1,951 1,461
Operating supplies and prepaid expenses 1,796 2,313
Current portion of mortgage and notes receivable 117 233
-------------- ------------
Total Current Assets 7,275 7,159
Investment property:
Operating properties, net of accumulated depreciation 192,922 206,172
Land held for development 15,046 9,585
-------------- ------------
Total investment property 207,968 215,757
Other Assets:
Deposits and other assets 6,718 2,915
Mortgage and other notes receivable, less current portion 25,117 28,081
Net deferred tax asset 1,150 1,560
Financing and other deferred costs, net of accumulated
amortization of $17,737 in 2002 and $17,013 in 2001 7,051 8,934
-------------- ------------
Total Other Assets 40,036 41,490
-------------- ------------
Total Assets $ 255,279 $ 264,406
============== ============
LIABILITIES, MINORITY INTERESTS AND
STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 1,447 $ 1,521
Real estate taxes payable 1,467 1,460
Accrued interest payable 3,308 2,043
Nonrefundable lease deposits and purchase price credits 25,292 23,296
Other liabilities for leased locations 6,416 4,581
Deferred income 5,475 5,475
Other accounts payable and accrued expenses 2,489 2,340
Current portion of long-term debt 27,374 31,667
-------------- ------------
Total Current Liabilities 73,268 72,383
Long-term debt, less current portion:
Mortgage and other notes payable 167,566 175,250
12% Senior Subordinated Notes, net of unamortized
discount of $171,000 in 2002 and $223,000 in 2001 11,356 11,304
-------------- ------------
Total Long-term debt, excluding current portion 178,922 186,554
-------------- ------------
Total Liabilities 252,190 258,937
-------------- ------------
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 (12,213) (9,833)
-------------- ------------
Total Stockholders' Equity 3,089 5,469
-------------- ------------
Total Liabilities and Stockholders' Equity $ 255,279 $ 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 Nine Months Ended
September 30 September 30
--------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Revenues:
Motel operating revenues $ 12,277 $ 13,256 $ 30,145 $ 34,896
Lease revenues 2,895 3,103 8,798 8,648
Vending revenues 1,059 624 2,915 1,375
Other revenues 659 542 1,977 1,749
------------ ------------ ------------ ------------
Total revenues 16,890 17,525 43,835 46,668
Costs and expenses:
Motel operating expenses 5,268 5,725 15,024 17,935
Marketing and royalty fees 794 926 2,039 2,451
General and administrative 1,576 1,377 4,761 4,652
Lease expenses 19 436 597 603
Vending expenses 1,063 533 2,632 1,357
Depreciation and amortization 2,901 3,262 8,746 10,143
------------ ------------ ------------ ------------
Total direct expenses 11,621 12,259 33,799 37,141
------------ ------------ ------------ ------------
Net operating income 5,269 5,266 10,036 9,527
Interest expense 4,578 5,057 13,759 15,330
------------ ------------ ------------ ------------
Income (loss) from operations before
gain on sale of properties,
minority interest and income taxes 691 209 (3,723) (5,803)
Gain on sale of properties - 820 - 3,479
Minority interests - - - (20)
------------ ------------ ------------ ------------
Income (loss) from continuing operations
before income taxes 691 1,029 (3,723) (2,344)
Income tax expense (benefit) 269 401 (1,449) (912)
------------ ------------ ------------ ------------
Income (loss) from continuing operations 422 628 (2,274) (1,432)
Discontinued operations (98) 3 (107) (171)
------------ ------------ ------------ ------------
Net income (loss) $ 324 $ 631 $ (2,381) $ (1,603)
============ ============ ============ ============
Income (loss) per common share
(basic and diluted):
Income (loss) per common share
from continuing operations $ 0.53 $ 0.79 $ (2.84) $ (1.79)
============ ============ ============ ============
Net income (loss) per common share $ 0.41 $ 0.79 $ (2.98) $ (2.00)
============ ============ ============ ============
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)
Nine Months Ended
September 30
----------------------------
2002 2001
------------ ------------
Cash flows provided by operating activities:
Net loss $ (2,381) $ (1,603)
Adjustments to reconcile net loss to cash provided by
(used in) operating activities:
Depreciation, amortization and accretion of
discount on notes 9,018 10,779
Minority interests of others in net loss
from operations - 20
Deferred income taxes 410 (473)
Forfeiture of security deposits and PPC (254) -
(Gain) loss on sale of properties 20 (3,479)
Change in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (490) (635)
Operating supplies, prepaid expenses,
deposits and other assets 328 (278)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 1,995 2,122
Accrued interest payable 1,273 441
------------ ------------
Net cash provided by operating activities 9,919 6,894
Cash flows provided by (used in) investing activities:
Acquisition and development of investment properties (5,461) (4,992)
Refurbishment of investment properties (1,649) (2,398)
Net proceeds from sale of investment properties 7,215 4,357
Cash restricted for refurbishment of properties (600) 662
Collections on mortgage and other notes receivable 3,080 12,657
------------ ------------
Net cash provided by investing activities 2,585 10,286
Cash flows provided by (used in) financing activities:
Proceeds from notes payable 3,145 12,883
Repayment of notes payable (15,122) (25,724)
Deferred financing costs (268) (490)
------------ ------------
Net cash used in financing activities (12,245) (13,331)
------------ ------------
Net increase in cash and cash equivalents 259 3,849
Cash and cash equivalents at beginning of period 3,152 3,162
------------ ------------
Cash and cash equivalents at end of period $ 3,411 $ 7,011
============ ============
Supplementary disclosure of cash flow information:
Cash paid during the period for interest $ 12,571 $ 15,079
============ ============
Cash paid (net of refunds received) during the
period for income taxes $ - $ 20
============ ============
See accompanying notes to condensed consolidated financial statements.
MOA HOSPITALITY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 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 nine-month period ended September 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 September 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 September 30, 2002, the Company sold five of its
lodging facilities for approximately $8.4 million resulting in a net loss of
approximately $20,000. Deferred purchase price credits and non-refundable
security deposits aggregating approximately $923,000 were credited to the buyers
in connection with these sales.
In January through September 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 September 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
two of its leased locations exercised their right to purchase prior to lease
expiration. The two combined sales were for approximately $3.8 million resulting
in a gain of $52,000 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 Nine Months Ended
September 30 September 30
---------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
( in thousands ) ( in thousands )
Revenues
Motel operating revenues $ 89 $ 397 $ 417 $ 949
Lease revenues 60 103 191 306
------------ ------------ ------------ ------------
Total revenues 149 500 608 1,255
Costs and expenses:
Motel operating expenses 69 207 329 595
Marketing and royalty fees 8 39 43 98
Lease expenses 5 4 19 15
Depreciation and amortization 38 160 243 506
------------ ------------ ------------ ------------
Total direct expenses 120 410 634 1,214
------------ ------------ ------------ ------------
Net operating income 29 90 (26) 41
Interest expense 23 85 129 321
------------ ------------ ------------ ------------
Income (loss) from operations 6 5 (155) (280)
Gain (loss) on sale of properties (167) - (20) -
------------ ------------ ------------ ------------
Income (loss) before income taxes (161) 5 (175) (280)
Income tax expense (benefit) (63) 2 (68) (109)
------------ ------------ ------------ ------------
Net income (loss) $ (98) $ 3 $ (107) $ (171)
============ ============ ============ ============
3. Mortgage and Other Notes Payable
In January through September 30, 2002 the Company was advanced
$3.0million on loans of $7 million for construction advances on one property
under construction in Santa Monica, CA bringing the total advanced to $5.5
million.
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.
During October through December 31, 2002, the Company was advanced an
additional $945,000 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 company was advanced the
remaining $0.6 million.
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.
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 September 30, 2002 and 2001, the
company received approximately $70,000 and $12,000 in management fees from
related parties. For the nine months ended September 30, 2002 and 2001 the
Company received approximately $162,000 and $20,000 in management fees. The
Company recognized interest income from related parties during the quarter ended
September 30, 2002 and 2001 of approximately $301,000 and $136,000 respectively.
For the nine months ended September 30, 2002 and 2001interest from related
parties totaled approximately $904,000 and $136,000 respectively. Ground lease
revenue from related parties for the nine months and the quarter ended
September 30, 2002 totaled approximately $130,000 and $65,000 respectively. The
Company had receivables from related parties of approximately $337,000 at
September 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 September 30, 2002 the Company, directly and through
subsidiaries, owned 108 lodging facilities in 38 states. The Company owns a 100%
interest in all of its properties. The Company operates thirty-two of its motels
and leases seventy-six 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 Nine months ended
September 30 September 30
---------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
(in thousands) (in thousands)
Motel operations Motel operating revenues:
Room revenues $ 11,152 $ 12,277 $ 27,255 $ 32,108
Ancillary motel revenues 1,125 979 2,890 2,788
------------ ------------ ----------- ------------
Total motel operating revenues 12,277 13,256 30,145 34,896
Motel costs and expenses:
Motel operating expenses 5,268 5,725 15,024 17,935
Marketing and royalty fees 794 926 2,039 2,451
Depreciation and amortization 1,259 1,431 3,905 4,423
------------ ------------ ----------- ------------
Total motel direct expenses 7,321 8,082 20,968 24,809
------------ ------------ ----------- ------------
4,956 5,174 9,177 10,087
Lease operations:
Lease revenues 2,895 3,103 8,798 8,648
Lease expenses 19 436 597 603
Depreciation and amortization 1,425 1,545 4,235 4,910
------------ ------------ ----------- ------------
1,451 1,122 3,966 3,135
Vending operations:
Vending revenues 1,059 624 2,915 1,375
Vending expenses 1,063 533 2,632 1,357
Depreciation and amortization 158 97 441 259
------------ ------------ ----------- ------------
(162) (6) (158) (241)
Corporate operations:
Other revenues, net 659 542 1,977 1,749
General and administrative expenses:
Management Company Operations 978 944 3,174 3,501
Construction/Acquisition and divestiture 137 84 230 225
Vending general and administrative 461 349 1,357 926
------------ ------------ ----------- ------------
Total general and administrative expenses 1,576 1,377 4,761 4,652
Depreciation and amortization 59 189 165 551
------------ ------------ ----------- ------------
(976) (1,024) (2,949) (3,454)
------------ ------------ ----------- ------------
Net operating income 5,269 5,266 10,036 9,527
Interest expense 4,578 5,057 13,759 15,330
------------ ------------ ----------- ------------
Income (loss) form continuing operations 691 209 (3,723) (5,803)
before minority interests
Minority interests - - - (20)
Gain on sale of properties - 820 - 3,479
------------ ------------ ----------- ------------
Income (loss) form continuing operations 691 1,029 (3,723) (2,344)
before income taxes
Income tax expense (benefit) 269 401 (1,449) (912)
------------ ------------ ----------- ------------
Income (loss) form continuing operations 422 628 (2,274) (1,432)
Discontinued operations (98) 3 (107) (171)
------------ ------------ ----------- ------------
Net income (loss) $ 324 $ 631 $ (2,381) $ (1,603)
============ ============ =========== ============
Total Assets:
Motel Operations $ 105,072 $ 130,184
Lease Operations 113,504 117,244
Other Operations 36,703 26,594
----------- ------------
$ 255,279 $ 274,022
=========== ============
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 NINE MONTHS ENDED SEPTEMBER 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 third quarter ADR decreased to $51.45 for 2002 versus $51.66 for 2001, and
occupancy increased to 70.24% for 2002 versus 69.56% 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 September 30, 2002 compared to the Three Months
Ended September 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 September 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 $ 10,881 $ 10,826 $ 271 $ 1,451 $ 11,152 $ 12,277
Ancillary motel revenues 916 876 209 103 1,125 979
---------- ---------- ---------- ---------- ---------- ----------
Total motel operating revenues 11,797 11,702 480 1,554 12,277 13,256
Motel costs and expenses:
Motel operating expenses 5,014 4,929 254 796 5,268 5,725
Marketing and royalty fees 773 777 21 149 794 926
Depreciation and amortization 1,222 1,231 37 200 1,259 1,431
---------- ---------- ---------- ---------- ---------- ----------
Total motel direct expenses 7,009 6,937 312 1,145 7,321 8,082
---------- ---------- ---------- ---------- ---------- ----------
$ 4,788 $ 4,765 $ 168 $ 409 4,956 5,174
========== ========== ========== ==========
Lease operations:
Lease revenues 2,895 3,103
Lease expenses 19 436
Depreciation and amortization 1,425 1,545
---------- ----------
1,451 1,122
Vending operations:
Vending revenues 1,059 624
Vending expenses 1,063 533
Depreciation and amortization 158 97
---------- ----------
(162) (6)
Corporate operations:
Other revenues, net 659 542
General and administrative expenses:
Management Company Operations 978 944
Construction/Acquisition
and Divestiture 137 84
Vending general and administrative 461 349
---------- ----------
Total general and administrative expenses 1,576 1,377
Depreciation and amortization 59 189
---------- ----------
(976) (1,024)
---------- ----------
Net operating income $ 5,269 $ 5,266
========== ==========
Other data:
Number of motels at period end (5) 30 30 2 8 32 38
Number of rooms at period end (5) 2,647 2,647 168 523 2,815 3,170
Occupancy percentage (5) 77.88% 76.99% 40.88% 68.44% 75.70% 75.61%
ADR (1) (5) $ 57.35 $ 57.71 $ 41.82 $ 50.73 $ 56.85 $ 56.69
REVPAR (2) (5) $ 48.42 $ 48.03 $ 17.71 $ 35.26 $ 46.61 $ 45.97
Net operating income margin (3) 31.20% 30.05%
Net motel revenue margin (4) (5) 55.22% 55.40% 75.65% 41.97% 55.73% 53.80%
- --------------------------------------------------
(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 September 30, 2002 and September 30, 2001, and for the three months
period then ended, excludes amounts related to the seventy-six 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 September 30, 2002, the Company had three properties disposed. 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 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 $16,890,000 for the three months ended September 30, 2002 from
$17,525,000 for the three months ended September 30, 2001, a decrease of
$635,000 or 3.6% primarily as a result of the leasing and sales activities of
the Company. As lessor of 76 motels at September 30, 2002 the Company records
rental income and does not reflect the gross revenues and expenses of operating
these motels.
Motel revenues decreased to $12,277,000 for the three months ended
September 30, 2002 from $13,256,000 for the three months ended September 30,
2001, a decrease of $979,000 or 7.4%. The motel revenues for motels owned during
both periods increased approximately $95,000, in addition there was a decrease
of $1,074,000 in motel revenues for motels acquired and divested since July 1,
2001. Motel revenues for motels owned during both periods increased by less than
1%. 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 76.99% for the three months ended September 30, 2001
to 77.88% for the three months ended September 30, 2002. The ADR for the motels
owned during both periods decreased to $57.35 for the three months ended
September 30, 2002 from $57.71 for the three months ended September 30, 2001, a
decrease of $.36 or less than 1%. Revenue per available room ("REVPAR") for
motels owned during both periods increased to $48.42 for the three months ended
September 30, 2002 from $48.03 for the three months ended September 30, 2001, an
increase of $.39 or less than 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 $5,268,000 for the three months
ended September 30, 2002 from $5,725,000 for the three months ended September
30, 2001, a net decrease of $457,000 or 7.97%. Motel operating expenses for
motels acquired and divested since July 1, 2001 decreased to $254,000 for the
three months ended September 30, 2002 from $796,000 for the three months ended
September 30, 2001, a decrease of $542,000 or 68%. The cost of operating motels
owned during both periods increased to $5,014,000 for the three months ended
September 30, 2002 from $4,929,000 for the three months ended September 30,
2001. The increase in operating costs is principally due to increased labor and
related costs and an increase in repairs and maintenance expenditures. Motel
operating expenses as a percentage of motel revenues decreased to 42.9% for the
three months ended September 30, 2002 from 43.2% for the three months ended
September 30, 2001. Motel operating expenses as a percentage of motel revenues
for the motels owned in both periods increased to 42.5% for the three months
ended September 30, 2002 from 42.1% for the three months ended September 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
$794,000 for the three months ended September 30, 2002 from $926,000 for the
three months ended September 30, 2001, a decrease of $132,000 or 14.25%. The
marketing and royalty fees for motels owned during both periods decreased to
$773,000 for the three months ended September 30, 2002 from $777,000 for the
three months ended September 30, 2001, a decrease of $4,000 or less than 1%. For
the motels owned during both periods, marketing and royalty fees as a percentage
of room revenues decreased to 7.1% for the three months ended September 30, 2002
from 7.2% for the three months ended September 30, 2001. The decrease in
marketing and royalty fees for motels owned in both periods are principally due
to a lower Average Daily Room Rate (ADR).
Lease operations increased to $1,451,000 for the three months ended
September 30, 2002 from $1,122,000 for the three months ended September 30,
2001, an increase of $329,000. There are 76 leased properties with an asset
value of $113,504,000 at September 30, 2002 compared with 75 leased properties
with an asset value of $117,244,000 at September 30, 2001.
Vending operations decreased to ($162,000) for the three months ended
September 30, 2002 from ($6,000) for the three months ended September 30, 2001
as the result of additional employees added to accommodate anticipated new
business.
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
increased $34,000 to $978,000 for the three months ended September 30, 2002 from
$944,000 for the three months ended September 30, 2001, an increase of 3.6%. The
general and administrative expenses associated with Construction/Acquisition and
Divestiture Division increased $53,000 from $84,000 for the three months ended
September 30, 2001 to $137,000 for the three months ended June 30, 2002. Vending
general and administrative expenses increased $112,000 to $461,000 for the three
months ended September 30, 2002 from $349,000 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 8% for the three months ended September
30, 2002 and 7.1% for the three months ended September 30, 2001.
Depreciation and amortization decreased to $2,901,000 for the three
months ended September 30, 2002 from $3,262,000 for the three months ended
September 30, 2001, a net increase of $361,000 or 11.07%. This decrease is due
to the reduction in depreciation expense on furniture and fixtures which were
fully depreciated for the three months ended September 30, 2002 compared to the
three months ended September 30, 2001 of approximately $365,000.
Net operating income increased to $5,269,000 for the three months ended
September 30, 2002 from $5,266,000 for the three months ended September 30,
2001, an increase of $3,000 or less than 1%. Net operating income as a percent
of total revenues was 31.2% for the three months ended September 30, 2002 as
compared to 30% for the three months ended September 30, 2001.
Interest expense decreased to $4,578,000 for the three months ended
September 30, 2002 from $5,057,000 for the three months ended September 30,
2001, a decrease of $479,000. The decrease in interest expense is reflective of
the lower average amount of outstanding borrowings during the third quarter of
2002 as compared to the third quarter 2001.
Gain on sale of properties amounted to $0 for the three months ended
September 30, 2002 compared to $820,000 for the respective period in 2001. For
the quarter ended September 30, 2001, one property which was currently leased
was sold for $1.9 million in cash for a gain of $820,000.
Discontinued operations decreased to a loss of $98 for the three months
ended September 30, 2002 compared to a gain of $3,000 for the three months ended
September 30, 2001 as a result of the sale of properties. See Note 2 to the
condensed consolidated financial statements.
Net income decreased to $324,000 for the three months ended September
30, 2002 from net income of $631,000 for the three months ended September 30,
2001.
Nine Months Ended September 30, 2002 Compared to the Nine Months Ended
September 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)
Nine Months Ended September 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 $ 26,126 $ 25,989 $ 1,129 $ 6,119 $ 27,255 $ 32,108
Ancillary motel revenues 2,609 2,505 281 283 2,890 2,788
---------- ---------- ---------- ---------- ------------ ------------
Total motel operating revenues 28,735 28,494 1,410 6,402 30,145 34,896
Motel costs and expenses:
Motel operating expenses 13,872 13,975 1,152 3,960 15,024 17,935
Marketing and royalty fees 1,950 1,943 89 508 2,039 2,451
Depreciation and amortization 3,666 3,739 239 684 3,905 4,423
---------- ---------- ---------- ---------- ------------ ------------
Total motel direct expenses 19,488 19,657 1,480 5,152 20,968 24,809
---------- ---------- ---------- ---------- ------------ ------------
$ 9,247 $ 8,837 $ (70) $ 1,250 9,177 10,087
========== ========== ========== ==========
Lease operations:
Lease revenues 8,798 8,648
Lease expenses 597 603
Depreciation and amortization 4,235 4,910
------------ ------------
3,966 3,135
Vending operations:
Vending revenues 2,915 1,375
Vending expenses 2,632 1,357
Depreciation and amortization 441 259
------------ ------------
(158) (241)
Corporate operations:
Other revenues, net 1,977 1,749
General and administrative expenses:
Management Company Operations 3,174 3,501
Construction/Acquisition
and Divestiture 230 225
Vending general and administrative 1,357 926
------------ ------------
Total general and administrative expenses 4,761 4,652
Depreciation and amortization 165 551
------------ ------------
(2,949) (3,454)
------------ ------------
Net operating income $ 10,036 $ 9,527
============ ============
Other data:
Number of motels at period end (5) 30 30 2 8 32 38
Number of rooms at period end (5) 2,647 2,647 168 644 2,815 3,291
Occupancy percentage (5) 70.24% 69.56% 41.94% 71.04% 68.55% 69.77%
ADR (1) (5) $ 51.45 $ 51.66 $ 39.75 $ 48.49 $ 51.03 $ 51.20
REVPAR (2) (5) $ 39.75 $ 39.39 $ 17.30 $ 35.13 $ 38.41 $ 38.79
Net operating income margin (3) 22.89% 20.41%
Net motel revenue margin (4) (5) 49.43% 48.39% 14.97% 31.61% 48.00% 45.19%
(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 September 30, 2002 and September 30, 2001, and for the nine months
period then ended, excludes amounts related to the seventy-six 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 nine months
ended September 30, 2002, the Company disposed of five 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 $2,833,000 to $43,835,000 for the nine months
ended September 30, 2002 from $46,668,000 for the nine months ended September
30, 2001 or 6.1% primarily as a result of the sales and leasing activities of
the Company. As lessor of 76 motels at September 30, 2002 the Company records
rental income and does not reflect the gross revenues and expenses of operating
these motels.
Motel revenues decreased to $30,145,000 for the nine months ended
September 30, 2002 from $34,896,000 for the nine months ended September 30,
2001, a decrease of $4,751,000 or 13.6%. The motel room revenues for motels
owned during both periods increased approximately $137,000 or less than 1%,
there also was a decrease of $4,990,000 for acquired and divested motels, since
January 1, 2001. The ADR for the motels owned during both periods decreased to
$51.45 for the nine months ended September 30, 2002 from $51.66 for the nine
months ended September 30, 2001, a decrease of $.21 or less than 1%. The
occupancy percentage increased from 69.56% for the nine months ended September
30, 2001 to 70.24% for the nine months ended September 30, 2002. The REVPAR for
motels owned during both periods increased to $39.75 for the nine months ended
September 30, 2002 from $39.39 for the nine months ended September 30, 2001, an
increase of $.36 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 $15,024,000 for the nine months
ended September 30, 2002 from $17,935,000 for the nine months ended September
30, 2001, a decrease of $2,909,000 or 16.2%. The cost of operating motels owned
during both periods decreased to $13,872,000 for the nine months ended September
30, 2002 from $13,975,000 for the nine months ended September 30, 2001, a
decrease of $103,000 or less than 1%. Motel operating expenses for motels
acquired and divested since January 1, 2001 decreased to $1,152,000 for the nine
months ended September 30, 2002 from $3,960,000 for the nine months ended
September 30, 2001. Motel operating expenses as a percentage of motel revenues
decreased to 49.8% for the nine months ended September 30, 2002 from 51.4% for
the nine months ended September 30, 2001. Motel operating expenses as a
percentage of motel revenues for the motels owned in both periods decreased to
48.3% for the nine months ended September 30, 2002 from 49.0% for the nine
months ended September 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
$2,039,000 for the nine months ended September 30, 2002 from $2,451,000 for the
nine months ended September 30, 2001, a decrease of $412,000 or 16.8%. The
marketing and royalty fees for motels owned during both periods increased to
$1,950,000 for the nine months ended September 30, 2002 from $1,943,000 for the
nine months ended September 30, 2001, an increase of $7,000 or less than 1%. For
the motels owned during both periods, marketing and royalty fees as a percentage
of room revenues decreased to 7.46% for the nine months ended September 30, 2002
from 7.48% for the nine months ended September 30, 2001, a decrease of less than
1%. The decrease in marketing and royalty fees is attributable to a reduction in
franchise fees due to the decline in room revenues on which most such fees are
based and a reduction in rates for certain contractual franchise fees due to the
number of motels either sold or leased subsequent to September 30, 2001.
Marketing and royalty fees for motels acquired and divested since January 1,
2001 decreased to $89,000 for the nine months ended September 30, 2002 from
$508,000 for the nine months ended September 30, 2001.
Lease operations increased to $3,966,000 for the nine months ended
September 30, 2002 from $3,135,000 for the nine months ended September 30, 2001,
an increase of $831,000, which results from an increase to 76 leased properties
with an asset value of $113,504,000 at September 30, 2002 compared with 75
leased properties with an asset value of $117,244,000 at September 30, 2001.
Vending operations loss was reduced to $158,000 for the nine months
ended September 30, 2002 from $241,000 for the nine months ended September 30,
2001, an reduction of $83,000 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 $327,000 to $3,174,000 for the nine months
ended September 30, 2002 from $3,501,000 for the nine months ended September 30,
2001, a decrease of 9%. This is due primarily to discounts given on notes
receivable paid off during the first nine months of 2001 of $300,000 compared to
$55,000 during the nine months ended September 30, 2002. The general and
administrative expenses associated with Construction and Development increased
$5,000 from $225,000 for the nine months ended September 30, 2001 to $230,000
for the nine months ended September 30, 2002. Vending general and administrative
expenses increased $431,000 to $1,357,000 for the nine months ended September
30, 2002 from $926,000 for the nine months ended September 30, 2001. As a
percentage of total motel operating revenues, Management Operations general and
administrative expenses were 10.5% for the nine months ended September 30, 2002
and 10% for the nine months ended September 30, 2001.
Depreciation and amortization decreased to $8,746,000 for the nine
months ended September 30, 2002 from $10,143,000 for the nine months ended
September 30, 2001, a net decrease of $1,397,000 or 13.77%. This decrease is due
to the reduction in depreciation expense on furniture and fixtures which were
fully depreciated for the nine months ended September 30, 2002 compared to the
nine months ended September 30, 2001 of approximately $820,000. Also, there was
a reduction of amortization expense on corporate of $51,000 for the nine months
ended September 30, 2002 compared to $262,000 for the nine months ended
September 30, 2001 on various loan costs which are now fully amortized.
Net operating income increased to $10,036,000 for the nine months ended
September 30, 2002 from $9,527,000 for the nine months ended September 30, 2001,
an increase of $509,000 or 5.33%. This is a result of a decrease in management
company operations expenses of $327,000 an increase of $431,000 in vending G&A
and a decrease in depreciation and amortization costs. Net operating income as a
percent of total revenues was 22.9% for the nine months ended September 30, 2002
as compared to 20.4% for the nine months ended September 30, 2001.
Interest expense decreased to $13,760,000 for the nine months ended
September 30, 2002 from $15,330,000 for the nine months ended September 30,
2001, a decrease of $1,570,000. The decrease in interest expense is reflective
of the lower average amount of outstanding borrowings during the nine months
ending September 30, 2002 as compared to the nine months ending September 30,
2001.
Gain on sale of properties amounted to $3,479,000 for the nine months
ended September 30, 2001 compared to $0 for the period ended September 30, 2002
due to the newly adopted reporting requirements at January 1, 2002. For the nine
months ended September 30, 2001, two properties were sold for $5.5 million in
cash and a deferred gain of $1.7 million was recognized on one property upon
repayment of the respective mortgage receivable balance.
Discontinued operations loss was reduced to $107,000 for the nine
months ended September 30, 2002 compared to a loss of $171,000 for the nine
months ended September 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 $2,381,000 for the nine months ended September
30, 2002 from a net loss of $1,603,000 for the nine months ended September 30,
2001 primarily as a result of a decrease in the reporting of gains on sale of
properties of $3,479,000 for the nine months ended September 30, 2001 compared
with $0 for the nine months ended September 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 September 30, 2002 the Company was advanced
$3.0 million on loans of $7.0 million for construction advances on one property
under construction in Santa Monica, CA bringing the total advanced to $5.5
million.
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 $1,649,000 and $2,398,000 for the nine months ended September 30,
2002 and 2001, respectively. In addition, as of September 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 nine months ended September 30, 2002, cash and cash equivalents
increased $259,000. This increase consisted of $2,585,000 of funds provided by
investing activities and $12,245,000 of funds used in financing activities and
$9,919,000 of funds provided by operations. Net investing activities of
$2,585,000 include: $5,461,000 of cash utilized for motel development and
$1,649,000 expended on refurbishment of existing properties, offset by
$7,215,000 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 $2,480,000. Cash used in financing activities
includes: $15,122,000 of cash utilized to repay indebtedness; and $268,000 of
cash used for deferred financing costs and other items offset by $3,145,000 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 September 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 September 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 302 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.
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during
the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report ( the
"Evaluation Date" ); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of the registrant's board of directors
(or persons performing the equivalent functions;
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses
in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
efficiencies and material weaknesses.
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 302 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;
5. 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.
6. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during
the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report ( the
"Evaluation Date" ); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing
the equivalent functions;
c) all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
d) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
efficiencies and material weaknesses.
Date: September 29, 2003
/s/ Paul F. Wallace
Paul F. Wallace
Chief Executive Officer
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