U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
(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
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from _______ to _______
Commission file number: 0-22132
BUCKHEAD AMERICA CORPORATION
(Exact name of registrant as specified in
its charter)
DELAWARE 58-2023732
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
7000 CENTRAL PARKWAY, SUITE 850, ATLANTA, GEORGIA
30328 (Address of principal executive offices)
(Zip Code)
(770) 393-2662
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former
fiscal year, if changed since last report.)
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
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: JULY 31, 2002
Common stock, par value $.01 - 2,015,885 shares outstanding
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Financial Statements
June 30, 2002 and December 31, 2001
and
For the Six Month and Three Month Periods
Ended June 30, 2002 and 2001
(Unaudited)
2
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
June 30, 2002 and December 31, 2001
(Unaudited)
June 30, December 31,
Assets 2002 2001
---------------- ----------------
Current assets:
Cash and cash equivalents, including restricted cash of
$137,761 at June 30, 2002 and $329,479 at December 31, 2001 $ 313,169 625,005
Investment securities, including restricted securities of
$148,270 at June 30, 2002 and $168,259 at December 31, 2001 169,783 190,678
Accounts receivable, net 708,867 1,013,534
Current portions of notes receivable, net 336,477 676,017
Property, equipment, and leasehold interests held for sale, net 4,108,638 10,539,253
Deferred costs relating to franchise rights held for sale 879,145 -
Other current assets 306,148 289,438
---------------- ----------------
Total current assets 6,822,227 13,333,925
Noncurrent portions of notes receivable, net 4,638,288 3,871,373
Property, equipment, and leasehold interests held for sale, net 7,307,793 9,415,229
Other property and equipment, at cost, net 492,646 966,640
Deferred costs 74,582 1,149,831
---------------- ----------------
$ 19,335,536 28,736,998
================ ================
Liabilities and Shareholders' Deficit
Current liabilities:
Accounts payable $ 814,995 1,250,123
Accrued expenses 1,495,259 2,514,933
Current portions of notes payable 8,778,848 15,227,767
---------------- ----------------
Total current liabilities 11,089,102 18,992,823
Noncurrent portions of notes payable 9,286,086 9,537,617
Other liabilities 271,645 289,551
---------------- ----------------
Total liabilities 20,646,833 28,819,991
---------------- ----------------
Minority interests 340,073 587,520
Shareholders' deficit:
Series B preferred stock; par value $100; 200,000 shares
authorized; 30,000 shares issued and outstanding 3,000,000 3,000,000
Common stock; $.01 par value; 5,000,000 shares authorized;
2,113,881 shares issued and 2,015,885 outstanding 21,139 21,139
Additional paid-in capital 7,897,530 7,897,530
Accumulated deficit (11,882,722) (10,901,865)
Treasury stock, 97,996 common shares (687,317) (687,317)
---------------- ----------------
Total shareholders' deficit (1,651,370) (670,513)
---------------- ----------------
$ 19,335,536 28,736,998
================ ================
See accompanying notes to condensed consolidated financial statements.
3
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Income (Loss)
Six Months ended June 30, 2002 and 2001
(Unaudited)
2002 2001
-------------- ---------------
Revenues:
Hotel revenues $ 3,598,089 9,365,295
Investment income 185,879 244,197
Other income 27,987 1,584
-------------- ---------------
Total revenues 3,811,955 9,611,076
-------------- ---------------
Expenses:
Hotel operations 3,141,906 7,369,028
Other operating and administrative 589,975 711,620
Leasehold rent 463,909 1,330,754
Interest 898,387 1,557,413
Depreciation and amortization 6,000 412,500
-------------- ---------------
Total expenses 5,100,177 11,381,315
-------------- ---------------
Loss from continuing operations before income taxes (1,288,222) (1,770,239)
Provision for income taxes - -
-------------- ---------------
Loss from continuing operations $ (1,288,222) (1,770,239)
-------------- ---------------
Discontinued operations:
Income (loss) from operations of hotel management segment
and hotel franchising segment 330,490 (47,034)
-------------- ---------------
Net loss $ (957,732) (1,817,273)
============== ===============
Net income (loss) per common share:
Basic:
Continuing operations $ (0.71) (0.95)
Discontinued operations 0.16 (0.02)
-------------- ---------------
Net loss $ (0.55) (0.97)
============== ===============
Diluted:
Continuing operations $ (0.71) (0.95)
Discontinued operations 0.16 (0.02)
-------------- ---------------
Net loss $ (0.55) (0.97)
============== ===============
Weighted average number of shares used to
calculate net income (loss) per common share:
Basic 2,015,885 2,017,459
============== ===============
Diluted 2,015,885 2,017,459
============== ===============
See accompanying notes to condensed consolidated financial statements.
4
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Income (Loss)
Three Months ended June 30, 2002 and 2001
(Unaudited)
2002 2001
-------------- ---------------
Revenues:
Hotel revenues $ 1,483,429 5,088,520
Investment income 74,944 123,708
Other income 1,270 878
-------------- ---------------
Total revenues 1,559,643 5,213,106
-------------- ---------------
Expenses:
Hotel operations 1,151,129 3,624,019
Other operating and administrative 325,823 424,195
Leasehold rent 206,930 691,514
Interest 404,094 746,800
Depreciation and amortization 3,000 195,926
-------------- ---------------
Total expenses 2,090,976 5,682,454
-------------- ---------------
Loss from continuing operations before income taxes (531,333) (469,348)
Provision for income taxes - -
-------------- ---------------
Loss from continuing operations $ (531,333) (469,348)
-------------- ---------------
Discontinued operations:
Income from operations of hotel management segment
and hotel franchising segment 161,511 34,616
-------------- ---------------
Net loss $ (369,822) (434,732)
============== ===============
Net income (loss) per common share:
Basic:
Continuing operations $ (0.30) (0.27)
Discontinued operations 0.08 0.02
-------------- ---------------
Net loss $ (0.22) (0.25)
============== ===============
Diluted:
Continuing operations $ (0.30) (0.27)
Discontinued operations 0.08 0.02
-------------- ---------------
Net loss $ (0.22) (0.25)
============== ===============
Weighted average number of shares used to
calculate net income (loss) per common share:
Basic 2,015,885 2,015,885
============== ===============
Diluted 2,015,885 2,015,885
============== ===============
See accompanying notes to condensed consolidated financial statements.
5
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 2002 and 2001
(Unaudited)
2002 2001
-------------- --------------
Cash flows from operating activities:
Loss from continuing operations $ (1,288,222) (1,770,239)
Adjustments to reconcile loss from continuing operations
to net cash used in continuing operating activities:
Depreciation and amortization 6,000 412,500
Minority interest in loss (60,288) (129,472)
Decrease (increase) in accounts receivable 351,667 (463,188)
(Decrease) increase in accounts payable and accrued expenses (490,516) (191,182)
Other, net 24,763 (177,212)
-------------- --------------
Net cash used in continuing operating activities (1,456,596) (2,318,793)
-------------- --------------
Net cash (used in) provided by discontinued operations (415,341) 83,229
-------------- --------------
Net cash used in operations (1,871,937) (2,235,564)
-------------- --------------
Cash flows from investing activities:
Principal receipts on notes receivable 567,625 446,290
Originations of notes receivable (45,000) (140,000)
Capital expenditures (35,554) (341,600)
Proceeds from property and leasehold interest sales, net 1,627,982 1,651,418
Other, net - 195,042
-------------- --------------
Net cash provided by investing activities 2,115,053 1,811,150
-------------- --------------
Cash flows from financing activities:
Repayments of notes payable (528,795) (408,000)
Proceeds from notes payable - 240,000
Distributions to minority interest partners (3,032) (27,648)
Preferred stock dividends paid (23,125) (23,125)
Other, net - 27,014
-------------- --------------
Net cash used in financing activities (554,952) (191,759)
-------------- --------------
Net decrease in cash and cash equivalents (311,836) (616,173)
Cash and cash equivalents at beginning of period 625,005 1,345,671
-------------- --------------
Cash and cash equivalents at end of period $ 313,169 729,498
============== ==============
See accompanying notes to condensed consolidated financial statements.
6
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2002 and 2001
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
The results of operations for interim periods are not necessarily
indicative of the results that may be expected for a full year or any other
interim period. For further information, see the consolidated financial
statements included in the Company's Form 10-K for the year ended December
31, 2001.
(2) Comprehensive Loss
Total comprehensive loss for the six months ended June 30, 2002 and 2001
was $(957,732) and $(1,853,823), respectively, and for the three months
ended June 30, 2002 and 2001 was $(369,822) and$(447,175), respectively.
(3) Operating Segments and Discontinued Operations
The Company conducted recurring operations in three segments of the
limited-service hotel industry - hotel franchising, hotel management, and
hotel operations. The Company generates additional revenues and results of
operations from hotel development and sale activities which also include
servicing notes receivable generated from hotel sales.
During the fourth quarter of 2001, the Company adopted a plan to
discontinue its hotel management activities. During the second quarter of
2002, the Company categorized its hotel franchising business as held for
sale. Since the Company has determined to discontinue the hotel management
and hotel franchising segments of its business, the net results of
operations and cash flows from these segments are segregated and reported
separately from the results of operations and cash flows from continuing
operations.
7
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2002 and 2001
(Unaudited)
Condensed operating results for each continuing segment for the six months
ended June 30, 2002 and 2001 are presented below:
Six months ended June 30, 2002
------------------------------------------------------------------------------------------------
Hotel Development
Operations & Corporate Consolidated
--------------- -------------- -------------
Revenues $ 3,598,089 213,866 3,811,955
Expenses 3,141,906 589,975 3,731,881
--------------- -------------- -------------
EBITDAR* 456,183 (376,109) 80,074
Rent 463,909 463,909
Interest 590,357 308,030 898,387
Depreciation - 6,000 6,000
--------------- -------------- -------------
Income (loss) before
income taxes $ (598,083) (690,139) (1,288,222)
=============== ============== =============
Six months ended June 30, 2001
-----------------------------------------------------------------------------------------------------
Hotel Development
Operations & Corporate Consolidated
--------------- -------------- -------------
Revenues $ 9,365,295 245,781 9,611,076
Expenses 7,369,028 711,620 8,080,648
--------------- -------------- -------------
EBITDAR* 1,996,267 (465,839) 1,530,428
Rent 1,330,754 1,330,754
Interest 1,222,677 334,736 1,557,413
Depreciation 400,500 12,000 412,500
--------------- -------------- -------------
Income (loss) before
income taxes $ (957,664) (812,575) (1,770,239)
=============== ============== =============
* Earnings before interest, taxes, depreciation, amortization and rent
8
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2002 and 2001
(Unaudited)
Condensed operating results for each continuing segment for the three
months ended June 30, 2002 and 2001 are presented below:
Three months ended June 30, 2002
-----------------------------------------------------------------------------------------------------
Hotel Development
Operations & Corporate Consolidated
--------------- -------------- -------------
Revenues $ 1,483,429 76,214 1,559,643
Expenses 1,151,129 325,823 1,476,952
--------------- -------------- -------------
EBITDAR* 332,300 (249,609) 82,691
Rent 206,930 206,930
Interest 250,434 153,660 404,094
Depreciation - 3,000 3,000
--------------- -------------- -------------
Income (loss) before
income taxes $ (125,064) (406,269) (531,333)
=============== ============== =============
Three months ended June 30, 2001
-----------------------------------------------------------------------------------------------------
Hotel Development
Operations & Corporate Consolidated
--------------- -------------- -------------
Revenues $ 5,088,520 124,586 5,213,106
Expenses 3,624,019 424,195 4,048,214
--------------- -------------- -------------
EBITDAR* 1,464,501 (299,609) 1,164,892
Rent 691,514 691,514
Interest 576,462 170,338 746,800
Depreciation 189,926 6,000 195,926
--------------- -------------- -------------
Income (loss) before
income taxes $ 6,599 (475,947) (469,348)
=============== ============== =============
* Earnings before interest, taxes, depreciation, amortization and rent
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Material Changes in Financial Condition
The Company conducted recurring operations in three segments of the
limited-service hotel industry - hotel franchising, hotel management, and hotel
operations. The Company generates additional revenues and results of operations
from hotel development and sale activities which also include servicing notes
receivable generated from hotel sales.
During the fourth quarter of 2001, the Company adopted a plan to discontinue its
hotel management activities. During the second quarter of 2002, the Company
categorized its hotel franchising business as held for sale. Since the Company
has determined to discontinue the hotel management and hotel franchising
segments of its business, the net results of operations and cash flows from
these segments are segregated and reported separately from the results of
operations and cash flows from continuing operations.
The Company completed its exit from the hotel management business during the
second quarter of 2002. Certain continuing obligations remain, principally rent,
tax compliance, and other compliance reporting. The Company's June 30, 2002
balance sheet includes current liabilities of approximately $350,000 relating to
such obligations.
The Board of Directors has approved the sale of the Company's hotel franchising
business. The Company's June 30, 2002 balance sheet includes deferred costs of
$879,145 relating to the hotel franchising business. Management expects proceeds
from the sale to exceed such amount, therefore no provision for loss has been
made. The timing and ultimate proceeds from the anticipated sale remain
uncertain.
The Company experienced negative cash flow from operations of approximately $1.9
million during the first half of 2002, including approximately $415,000 relating
to the Company's discontinued hotel management and hotel franchising segments.
The Company also repaid approximately $530,000 of debt obligations, not
including repayments related to the sale of properties (see below). Cash inflows
of approximately $570,000 resulted from principal receipts on notes receivable
and over $1.6 million from the sale of hotel properties after the repayment of
approximately $6.2 million of related mortgage obligations. The combined effect
of these and other activities resulted in a decrease in cash of approximately
$312,000 from December 31, 2001. The Company's hotel operations are highly
seasonal. Historically, the Company's hotel revenues and operating profits have
been stronger during the second and third quarters as opposed to the first and
fourth quarters. Management expects this trend to continue and believes that
additional cash will be generated from third quarter hotel operations, from
additional sales of hotel properties, and possibly from the sale of other
assets.
As of December 31, 2001 the Company had 15 owned or leased properties classified
as held for sale. Seven hotel properties were sold during the first and second
quarters of 2002 and an additional property was sold in July 2002. Two others
are presently under contract for sale. Further, three long-term hotel leases
were terminated during the first quarter . All of the Company's remaining owned
hotels are held for sale.
The Company is also exploring the possibility of selling its notes receivable
portfolio. If the Company completes the sale of its hotel franchising business,
its hotels, and its notes receivable portfolio; virtually all of the Company's
assets will have been sold and the Company's operations, as presently
configured, will have ceased.
Liquidity and Capital Resources
The Company has suspended payment of preferred stock dividends and has
negotiated deferrals of certain note payable obligations. The Company has
significantly reduced personnel and implemented a salary deferral program.
Certain other overhead costs have been reduced or eliminated. The combination of
these and the previously discussed actions are expected to reduce the Company's
negative cash flow from operations to an amount which management expects could
be funded from continued property sales and other sources.
The Company is presently in default on certain of its note payable obligations.
Management is presently conducting negotiations with certain of its creditors
regarding the modification of repayment terms. If such negotiations are not
successful, the Company will most likely not be able to satisfy all its
obligations as they become due.
Management is also exploring other sources of liquidity as further described
above. No assurance can be given that any of the previously described activities
will be successful. These circumstances raise substantial doubt about the
Company's ability to continue as a going concern.
10
Contractual Commitments
Following is a summary of the Company's material contractual cash commitments as
of June 30, 2002:
* Notes Operating ** Contingent
Due In: Payable Lease Payments Obligations Total
-------------- -------------- -------------- -------------
Remainder of 2002 $ 8,537,680 459,596 700,068 9,697,344
2003 751,641 717,120 1,230,251 2,699,012
2004 692,507 697,184 992,228 2,381,919
2005 468,305 637,655 742,700 1,848,660
2006 325,669 617,100 674,556 1,617,325
Thereafter 7,289,132 5,228,300 7,220,409 19,737,841
-------------- -------------- -------------- -------------
$ 18,064,934 8,356,955 11,560,212 37,982,101
============== ============== ============== =============
* Includes capital lease obligations of $115,006 in 2002.
** Contingent obligations consist of rent and debt payments relating to
leases and notes payable on which other entities are primarily
obligated. (See "ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.") The Company will become responsible for such
obligations should the primary obligors default. Thus far, the Company
has not been required to make any such payments. If management
determines that the Company will more likely than not be required to
make any payments relating to contingent obligations, the liability
for such will be accrued and reported as an obligation of the Company.
Material Changes in Results of Operations
The decline in hotel revenues is principally attributable to the 2001 and 2002
property sales. Same hotel revenues in the aggregate declined from the same
three and six month periods in 2001 which continues to reflect the weakened
economic conditions affecting the hospitality industry. The property sales and
revenue declines resulted in reduced earnings before interest, taxes,
depreciation, amortization and rent ("EBITDAR") from the hotel operations
segment from $1,996,267 in the first half of 2001 to $456,183 in the current
half and from $1,464,501 in the second quarter of 2001 to $332,300 in the
current second quarter. Negotiated first quarter rent abatements relating to
terminated leases and the elimination of depreciation expense relating to
properties held for sale resulted in a reduction of the first half hotel
operations segment loss of approximately $360,000. The net second quarter
results declined by over $130,000 in spite of a $190,000 decrease in
depreciation expense. This indicates that the properties which remain held by
the Company are not as profitable as the properties which have been sold.
Management expects continued reductions in hotel revenues, EBITDAR, and segment
losses as additional properties are sold and leases terminated.
As discussed above, due to the planned sale of the Company's hotel franchising
business, its results are included in discontinued operations. Had its results
been included in continuing operations, the hotel franchising segment results
would have been reported as follows:
Six Months Six Months Three Months Three Months
June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001
------------- ------------- ------------- -------------
Revenues $ 803,247 1,010,592 394,297 505,034
Expenses 409,757 570,842 201,286 270,180
------------- ------------- ------------- -------------
EBITDAR 393,490 439,750 193,011 234,854
Amortization 63,000 63,000 31,500 31,500
------------- ------------- ------------- -------------
Income before income taxes $ 330,490 376,750 161,511 203,354
============= ============= ============= =============
11
The hotel management segment lost $423,784 and $168,738 during the six and three
month periods ended June 30, 2001, respectively. Such amounts are included in
discontinued operations. Net expenditures of approximately $750,000 relating to
the operation of and phasing out of the hotel management business were made
during the first half of 2002 and were charged to previously established
reserves for such. As discussed above, management expects approximately $350,000
of additional expenditures to be made.
Net losses of approximately $3.8 million resulting from first and second quarter
2002 hotel property sales were charged to previously established impairment
allowances and therefore had no impact on 2002 net loss. Net losses of
approximately $1.3 million resulting from first and second quarter 2001 hotel
property sales were charged to previously established impairment allowances and
therefore had no impact on 2001 net loss.
Corporate expenses, EBITDAR loss, and loss before income taxes decreased from
the first and second quarters of 2001. This is primarily attributable to expense
reductions which were offset somewhat by increased professional fees. Management
expects this may continue.
The Company files income tax returns and recognizes income tax expense (benefit)
on an annual calendar basis. In the fourth quarter of 2000, management elected
to establish a valuation allowance for the full amount of the Company's deferred
tax assets. Consequently, no deferred tax benefit has been recognized in 2001 or
2002.
Risk Factors
This Form 10-Q contains forward looking statements that involve risks and
uncertainties. Statements contained in this Form 10-Q that are not historical
facts are forward looking statements that are subject to the safe harbor created
by the Private Securities Litigation Reform Act of 1995. The Company's actual
results may differ significantly from the results indicated by such forward
looking statements.
The Company is subject to a number of risks, including the general risks of
investing in real estate, the illiquidity of real estate, environmental risks,
possible uninsured or under insured losses, fluctuations in property taxes,
hotel operating risks, the impact of competition, the difficulty of managing
growth, seasonality, the risks inherent in operating a hotel franchise business,
and the uncertainty of obtaining additional financing or extensions of existing
credit facilities as needed. For a discussion of these and other risk factors,
see the "RISK FACTOR" section contained in the Company's Registration Statement
on Form S-3 (File No. 333-37691). Also see "Liquidity and Capital Resources"
above and "Item 3. Quantitative and Qualitative Disclosures About Market Risk."
Critical Accounting Policies
The Company defines critical accounting policies as those accounting policies
that require management to exercise their most difficult, subjective and complex
judgements.
Discontinued Operations
The Company reports its results of discontinued operations in accordance with
APB Opinion No. 30, Reporting the Results of Operations - Reporting the Effects
of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions. Under APB Opinion No. 30, since
the Company has determined to discontinue the hotel management segment of its
business and to sell its hotel franchising business, the net results of
operations and cash flows from the management and franchising segments are
segregated and reported separately from the results of operations and cash flows
from continuing operations. Additionally, costs associated with the phasing out
of the management segment and the expected losses to be sustained during the
phase out period were accrued in the fourth quarter of 2002 and reported as an
additional component of discontinued operations. Such accrued costs are based on
management's current best estimates and are subject to changes based on future
events.
Property, Equipment, and Leasehold Interests Held for Sale
Property, equipment, and leasehold interests held for sale are stated at the
lower of cost or fair value less costs to sell. Fair value of property and
12
leasehold interests held for sale has been determined by the Company based upon
current market information assuming a non-distressed sale. Future events, such
as a forced liquidation, could negatively impact such values. At the date on
which a decision is made to dispose of a property or leasehold interest, any
amount by which the carrying amount of an asset exceeds the fair value less cost
to sell is reported as a provision for impairment. Due to the intent of the
Company to dispose of such properties and leasehold interests in the short-term,
the properties, leasehold interests, and all related notes payable are initially
reflected as current in the consolidated balance sheets. Properties and
leasehold interests which have remained held for sale for more than one year and
are not under contract for sale are classified as noncurrent.
Going Concern
Management is continuing negotiations with creditors for extensions and/or
reductions of obligations. Management believes that it is possible that current
obligations in 2002 could be met through assets sales and restructuring of
certain obligations. However, no assurance can be given that such activities
will be successful. These circumstances raise substantial doubt about the
Company's ability to continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Effect of New Accounting Pronouncements
In April 2002, the FASB issued SFAS 145 "Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." The
Company is required to adopt SFAS 145 on January 1, 2003. SFAS 145 significantly
limits the treatment of losses associated with early extinguishment of debt as
an extraordinary item. SFAS 145 also impacts certain sale-leaseback
transactions. Upon adoption, management does not believe that SFAS 145 will have
a material impact on the Company's financial position, results of operations or
cash flows.
In July 2002, the FASB issued SFAS 146 "Accounting for Costs Associated with
Exit or Disposal Activities." The Company is required to adopt SFAS 146 on
January 1, 2003. SFAS 146 requires that expenses associated with restructuring
charges be accrued as liabilities in the period in which the liability is
incurred. Management does not anticipate the adoption of SFAS 146 will have a
material impact on the Company's financial position, results of operations or
cash flows.
13
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of June 30, 2002, the Company's obligations included variable rate mortgage
notes and a bank note with aggregate principal balances of $1,553,095 which
mature at various dates through 2015. The Company is exposed to the market risk
of significant increases in future interest rates. Each incremental point
increase in the prime interest rate would increase the Company's interest
expense by approximately $15,500 per year. This risk is somewhat mitigated in
that inflationary increases in interest rates would theoretically result in
increases in average hotel room rates. Also, significant increases in interest
rates would have a dampening effect on additions of competitive hotels in the
Company's markets.
At June 30, 2002, the Company's unrestricted investment securities included
equity securities valued at $21,513. The Company is exposed to the risk that
such securities will become worthless. The Company's restricted investment
securities also include equity securities. Such restricted securities comprise
the assets of the Company's deferred compensation plan and changes in the value
of such securities have no net impact on the Company's earnings.
The ultimate collection of the Company's notes receivable is subject to various
credit risks. Net notes receivable at June 30, 2002 amounted to $4,974,765 and
consisted of 31 notes, most of which were collateralized by or related to
various hotel assets. Additionally, the Company remains contingently liable on
four mortgage notes payable on which the Company is guarantor relating to
properties sold in 2000, 2001, and 2002. The notes' balances at June 30, 2002
were approximately $5 million and the notes are due in aggregate monthly
installments of $47,945. The Company also remains contingently liable for future
minimum rental payments totaling approximately $1.9 million on sold leasehold
interests and on subleased and assigned properties and equipment in the event of
default by the purchasers, sublessees and/or assignees. The collection of such
notes receivable and the potential financial exposure for guaranteed note
obligations and contingent rents is determined by the ability of other hotel
operators to satisfy these obligations. Their ability to satisfy such
obligations is subject to many risks, including economic conditions affecting
the hotel industry, their ability to effectively manage their hotel assets, new
competition, and other factors. See "Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations. - Contractual
Commitments" for a summary of contingent liabilities.
14
PART II - OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As of August 14, 2002, a total of $231,250 of Series B preferred dividends are
in arrears.
As of August 14, 2002, a total of $293,570 of accrued interest which was
previously due and payable remained unpaid on the Company's convertible
debenture notes.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on June 20, 2002. The
purpose of the meeting was to consider and vote upon the following matters:
1. To elect five directors to serve until the next annual meeting of
stockholders and until their successors are elected and have qualified.
2. To transact such other business as may have properly come before the
meeting.
The Company's five incumbent directors (Douglas C. Collins, David C. Glickman,
Robert B. Lee, David B. Mumford, and Steven A. Van Dyke) were nominated for
re-election. Each of the nominees was elected as follows:
Votes For Votes Withheld
----------- --------------
Douglas C. Collins 1,627,530 4,722
David C. Glickman 1,627,425 4,827
Robert B. Lee 1,627,535 4,717
David B. Mumford 1,627,294 4,958
Steven A. Van Dyke 1,627,425 4,827
No other matters came before the meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBIT INDEX
Exhibit Description
------- -----------
3(i) Articles of Incorporation. (Incorporated by
reference to Exhibit 3(i) to the Registrant's
Registration Statement on Form 10-SB (No.0-22132)
which became effective on November 22, 1993.)
3(i)(a) Certificate of Amendment of Certificate of
Incorporation. (Incorporated by reference to
Exhibit 3(i)(a) to the Registrant's Annual Report
on Form 10-KSB for the fiscal year ended December
31, 1994.)
15
3(i)(b) Certificate of Amendment of Certificate of
Incorporation. (Incorporated by reference to
Appendix "A" to the Registrant's Definitive Proxy
Statement filed with the Securities and Exchange
Commission on June 9, 1997.)
3(i)(c) Certificate of Amendment of Certificate of
Incorporation. (Incorporated by reference to
Appendix "A" to the Registrant's Definitive Proxy
Statement filed with the Securities and Exchange
Commission on May 5, 1998.)
3(ii) By-Laws - Amended and Restated as of June 27, 1994.
(Incorporated by reference to Exhibit 3(ii) to the
Registrant's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1994.)
4(i) Certificate of Designation, Preferences and Rights
of Series B Preferred Stock of the Registrant.
(Incorporated by reference to Exhibit 4(i) to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2001.)
11 Statement re: Computation of per share Earnings
99.1 Certification of Periodic Financial Report
(B) REPORTS ON FORM 8-K
On or about May 28, 2002, the Company filed a Current Report on Form 8-K
which reported the Company's imminent delisting of its common shares by The
Nasdaq Stock Market, Inc.
16
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.
Buckhead America Corporation
(Registrant)
August 19, 2002 /s/ Douglas C. Collins
----------------------------- ---------------------------
Date Douglas C. Collins
President and Chief Executive Officer
August 19, 2002 /s/ Robert B. Lee
----------------------------- ---------------------------
Date Robert B. Lee
Senior Vice President and
Chief Financial and Accounting Officer
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