Southern Scottish Inns (SSCT) 10-Q/A 2002 Q1 Quarterly report (amended)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q/A

X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES

EXCHANGE ACT OF 1934

COMMISSION FILE NO. 0-7107

SOUTHERN SCOTTISH INNS, INC.

(Exact name of registrant as specified in its charter)

LOUISIANA	72-0711739
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1726 Montreal Circle

Tucker, Georgia 30084

(Address of principal executive offices)

(Zip Code)

(770) 938-5966

(Registrant's telephone number, including area code)

(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, and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes No

CLASS	SHARES OUTSTANDING AT MARCH 31, 2002
Common Stock, Par Value $0.01 per share	2,366,395

SOUTHERN SCOTTISH INNS, INC.

INDEX

	PAGE NO.
PART I. FINANCIAL INFORMATION:
Financial Statements
Consolidated Balance Sheets As of March 31, 2002 (Unaudited) and December 31, 2001	2-3
Consolidated Statements of Income For the three months ended March 31, 2002 and March 31, 2001 (Unaudited)	4-5
Consolidated Statements of Cash Flows For the three months ended March 31, 2002 and March 31, 2001 (Unaudited)	6-7
Notes to Consolidated Financial Statements	8-10
PART II. MANAGEMENT'S DISCUSSION AND ANALYSIS:
Item 1- Business	11-14
Item 2-Legal Proceedings	14
Item 3-Management's Discussion and Analysis of Financial Conditions and Results of Operations	14-15
Item 4-Controls and Procedures	16
SIGNATURE	17-18

PART I. FINANCIAL INFORMATION

SOUTHERN SCOTTISH INNS, INC.

CONSOLIDATED BALANCE SHEETS

ASSETS

		March 31, 2002 (Unaudited)		December 31, 2001
CURRENT ASSETS
Cash	$	64,740	$	160,400
Accounts Receivable-Net		391,338		350,363
Accounts Receivable-Affiliates		657,637		830,857
Mortgages & Notes-Affiliates		59,315		31,660
Mortgages & Notes Receivable		546,202		514,696
Inventory		344		40,834
Prepaid Expenses		82,495		111,802
Interest Receivable		630,998		601,549
Net Deferred Tax Asset		79,299		30,371
TOTAL CURRENT ASSETS		2,512,368		2,672,532
PROPERTY AND EQUIPMENT
Land		1,567,044		1,567,044
Buildings & Building Improvements		2,566,900		2,562,953
Furniture, Fixtures & Equipment		374,894		362,492
Vehicles		216,045		193,896
Total Property & Equipment		4,724,883		4,686,385
Less: Accumulated Depreciation		(1,201,225)		(1,167,477)
TOTAL NET PROPERTY AND EQUIPMENT		3,523,658		3,518,908
OTHER ASSETS
Mortgages & Notes Receivable		4,462,255		4,485,328
Mortgages & Notes-Affiliates		456,547		488,509
Investments in Unconsolidated Affiliates		11,082		(17,242)
Investment in Real Estate		244,370		244,370
Trademarks- Net		1,210,030		1,210,030
Loan Cost		5,955		6,105
Other Assets		4,803		4,498
Deferred Tax Asset		129,282		124,888
Marketable Equity Securities, Carried at Market		28,373		28,373
TOTAL OTHER ASSETS		6,552,697		6,574,859
TOTAL ASSETS	$	12,588,723	$	12,766,299

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS

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SOUTHERN SCOTTISH INNS, INC.

CONSOLIDATED BALANCE SHEETS (CONTINUED)

LIABILITIES AND STOCKHOLDER'S EQUITY

		March 31, 2002 (Unaudited)		December 31, 2001
CURRENT LIABILITIES
Accounts Payable - Trade	$	220,506	$	178,758
Interest Payable		236,434		264,473
Income Taxes Payable		194,732		177,604
Other Taxes Payable		250,011		205,767
Other Liabilities		370,187		454,723
Mortgages & Notes Payable		355,357		352,929
Mortgages & Notes Payable-Affiliates		167,420		149,195
Deferred Severance Pay		6,000		6,000
TOTAL CURRENT LIABILITIES		1,800,647		1,789,449
LONG-TERM LIABILITIES
Mortgages & Notes Payable		864,350		880,750
Mortgages & Notes Payable-Affiliates		291,624		319,119
Escrow - Real Estate Tax		2,008		2,118
TOTAL LONG-TERM LIABILITIES		1,157,982		1,201,987
DEFERRED AMOUNTS
Deferred Income-Installment		566,612		574,787
Deferred Severance Pay		167,500		167,500
TOTAL DEFERRED AMOUNTS		734,112		742,287
TOTAL LIABILITIES & DEFERRED AMOUNTS		3,692,741		3,733,723
MINORITY INTEREST		853,978		858,835
STOCKHOLDER'S EQUITY
Common Stock- no par value, Authorized 5,000,000 shares, Issued & Outstanding 2,366,395 ended March 31, 2002 and year ended 2001		6,023,981		6,023,981
Additional Paid in Capital		42,201		42,201
Retained Earnings		1,975,822		2,107,559
TOTAL STOCKHOLDER'S EQUITY		8,042,004		8,173,741
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY	$	12,588,723	$	12,766,299

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS

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SOUTHERN SCOTTISH INNS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

		Three Months Ended
		March 31,
		2002		2001
REVENUES
Franchising Revenues	$	453,964	$	426,930
Financing Revenues		129,987		113,636
Leasing Revenues		68,201		118,047
Equity in Income of Unconsolidated Affiliates		42,514		36,007
Legal Settlement Revenues		24,527		500
Gain on the Sale of Assets		0		133,955
Other Income		56,512		34,926
TOTAL REVENUES		775,705		864,001
EXPENSES
Operating Expense-Franchise Division		485,667		382,138
Operating Expense-Financing & Investing		334,972		127,771
Leasing Expense		49,541		27,895
Interest Expense		48,543		44,251
Depreciation & Amortization		33,899		48,581
Equity in Loss of Unconsolidated Affiliates		14,189		14,689
TOTAL EXPENSES		966,811		645,325
Net Income (Loss) from Continuing Operations before Taxes & Minority Interest		(191,106)		218,676
Provisions for Income Taxes		55,353		(81,290)
Net Income (Loss) before Minority Interest		(135,753)		137,386
Minority Interest in (Income) Loss - RCII		4,017		(3,072)
NET INCOME (LOSS)	$	(131,736)	$	134,314

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS

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		Three Months Ended March 31, 2002 2001
INCOME (LOSS) PER SHARE
Income (Loss) per Share before Taxes &, Minority Interest	$	(.08)	$	.09
Income (Loss) per Share before Minority Interest		(.06)		.06
Basic Net Income (Loss) per Common Share	$	(.06)	$	.06
Average Shares Outstanding		2,366,395		2,366,395

SOUTHERN SCOTTISH INNS, INC.

CONSOLIDATED STATEMENTS OF INCOME (Continued)

(Unaudited)

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS

5

SOUTHERN SCOTTISH INNS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

			Three Months Ended
			March 31,
			2002		2001
CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES
Net Income	$		(131,736)	$	134,314
Non-Cash Items Included in Net Income:
Depreciation and Amortization			33,899		48,581
Deferred Income Recognized			(8,175)		0
Investment (Income)/Loss - Affiliates			(28,325)		(21,318)
Minority Interest Income			(4,017)		3,072
(Gain) Loss on Sale of Assets			0		(133,955)
Accounts Payable Converted to Notes Payable			22,576		0
Note Receivable Charged to Income			(12,861)		0
Miscellaneous			(1,902)		(2,152)
Net Changes In Current Assets and Liabilities:
Accounts Receivable			(40,975)		(74,611)
Accounts Receivable-Affiliates			159,561		1,080
Inventories			40,490		0
Deposits			(305)		787
Interest Receivable			(29,449)		(42,319)
Prepaid Expense			29,307		(844)
Accounts Payable			41,748		23,741
Interest Payable			(28,039)		(16,727)
Taxes Payable			61,372		3,619
Deferred Income Tax			(53,322)		81,290
Other Accrued Liabilities and Deferrals			(84,541)		15,458
Escrow - Real Estate Taxes			(110)		2,181
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES		$	(34,804)	$	22,197

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS

6

SOUTHERN SCOTTISH INNS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)

				Three Months Ended
				March 31,
				2002				2001
CASH FLOWS PROVIDED BY (USED FOR) INVESTING ACTIVITIES
Notes Receivable Issued		$		(24,678)		$		(26,601)
Collections on Mortgages and Notes Receivable				23,437				29,453
Investment Purchases				0				(1,202)
(Acquisition) Disposition of Fixed Assets				(7,031)				(3,256)
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES				(8,272)				(1,606)
CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES
Principal Payments on Mortgages and Notes Payable			(52,584)				(31,277)
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES			(52,584)				(31,277)
Increase (Decrease) in Cash			(95,660)				(10,686)
Cash - Beginning			160,400				54,612
Cash - Ending	$		64,740		$		43,926

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS

7

SOUTHERN SCOTTISH INNS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE

A - BASIS OF PRESENTATION

The accompanying consolidated financial statements for the three months ended March 31, 2002 and 2001 have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10Q and Rule 10-01 of Regulation S-X. These financial statements for the three months ended March 31, 2002 and March 31, 2001 have not been audited by independent public accountants but include all adjustments, consisting of normal recurring accruals, which in the management of Southern Scottish Inns, Inc. and subsidiaries ("SSI" or "the Company") are necessary for a fair statement of the financial position, results of operations and cash flows for the period presented. These statements should be read in conjunction with the audited financial statements and footnotes in the Company's annual report on Form 10-K for the year ended December 31, 2002. The accompanying consolidated balance sheet as of Dece mber 31, 2001 has been derived from audited financial statements but does not include all disclosures required by GAAP. The results of operations for the three months ended March 31, 2002 are not necessarily indicative of the results to be expected for the full year ending December 31, 2002.

The consolidated financial statements include the accounts of the Company and all subsidiaries except where control is temporary or does not rest with the Company. The Company's investments in companies in which it has the ability to exercise significant influence over operating and financial policies are accounted for by the equity method. Accordingly, the Company's share of the net earnings of these companies is included in consolidated net income. The Company's investments in other companies are carried at cost or fair value, as appropriate. All significant inter-company accounts and transactions are eliminated.

B - RECLASSIFICATIONS

Certain reclassifications have been made to prior period information to conform to the current period presentation. Such reclassifications mostly affected Other Assets - Mortgages & Notes - Affiliates which decreased from $1,015,107 as of December 31, 2001 to $456,547 as of March 31, 2002. The bulk of said amount consisted of the Tour Inn Mortgage and Note of $526,598, which was moved to Other Assets - Mortgage and Notes Receivable.

Vehicles were separated out of the Furniture, Fixtures & Equipment category and Leasehold Improvements were added to Building Improvements.

8

SOUTHERN SCOTTISH INNS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

C - RELATED PARTY

Receivables in the amount of $149,798 due from an entity which was operating the FantaSea, a "cruise to nowhere" gambling boat belonging to ExtaSea Casino Cruises of North Florida, Inc., which is owned by Registrant and some of its affiliates and which is controlled by Registrant were written off in March of 2002. Of said $149,798, $148,925 was an uncollectible debt for monies loaned, directly and indirectly by Registrant for operating expenses; the other $873 was a debt to the franchising division. The operating entity became insolvent and was administratively dissolved by its State of incorporation.

D - INDUSTRY SEGMENTS

Our operations consist of three reportable segments, which are based on similar products or services. Information on segments is as follows:

		Three Months Ended March 31,
		2002		2001
Sales to Unaffiliated Customers
Franchising	$	453,964	$	426,930
Financing & Investing		172,501		283,598
Leasing		68,201		118,047
Total Sales to Unaffiliated Customers		694,666		828,575
Other Income:
Franchising		67,129		11,182
Financing & Investing		13,910		20,250
Leasing		0		3,994
Total Other Income		81,039		35,426
Depreciation and Amortization:
Franchising		11,275		11,511
Financing & Investing		2,527		7,900
Leasing		20,097		29,170
Total Depreciation and Amortization		33,899		48,581
Interest Expense:
Franchising		5,963		1,411
Financing & Investing		26,611		15,170
Leasing		15,969		27,670
Total Interest Expense		48,543		44,251

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SOUTHERN SCOTTISH INNS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

		Three Months Ended
		March 31,
		2002		2001
Bad Debt Expense:
Franchising		7,160		6,286
Financing & Investing		148,925		0
Leasing		0		0
Total Bad Debt Expense		156,085		6,286
Net Income (Loss):
Franchising		(16,457)		48,125
Financing & Investing		(94,482)		48,883
Leasing		(20,797)		37,306
Total Net Income (Loss)	$	(131,736)	$	134,314
Identifiable Assets:
Franchising	$	1,810,288	$	1,910,815
Financing & Investing		8,414,673		8,613,004
Leasing		2,299,022		3,878,004
Total Identifiable Assets		12,523,983		14,401,823
Additions in Property & Equipment:
Franchising		35,906		3,256
Financing & Investing		0		0
Leasing		2,592		0
Total Additions in Property & Equipment	$	38,498	$	3,256

In the Financing & Investing Segment, the Company has included net income/ (loss) from unconsolidated equity investments totaling $28,324 as of March 31, 2002.

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PART II

Item 1. Business

A. - General

Due to the Company's development and finance division's acquiring and selling properties, the number of properties owned, operated, leased and the number of wrap around mortgages held fluctuates frequently.

B. - Segment Information

The Company identifies three significant industry segments as "franchising," "financing & investing," and "leasing & lodging." All revenue items represent sales to unaffiliated customers, as sales or transfers between industry segments are negligible.

C. - Description of Business

Products and Services

The Company's franchise division offers advertising, reservation, group sales, quality assurance and consulting services to motel owner/operators.

The Company's Financing division offers owner financing to persons acquiring motel properties previously operated and/or owned by the Company.

Leasing revenue is derived from the leasing of real and personal properties, i.e. motels, restaurants and part of Hospitality's office building belonging to the Company.

Status of Products and Segments

Each of the Company's industry segments is fully developed with an operational history of several years under Company's direction.

Raw Materials

Not Applicable.

Patents, Trademarks, Licenses, Franchises, and Concessions

The Company has no patents. The Company does own the trade names "Master Hosts Inns", "Red Carpet Inns", "Scottish Inns", "Downtowner Inns", "Passport Inns", "Sundowner Inns" and related trademarks, etc. used in operating lodging facilities or reservation services under these names.

"Sundowner Inns" Trademarks, Registration No. 1,280,236 and No. 1,280,237, United States Patent and Trademark office, were registered May 29, 1984. In 1994, Joe W. Hudgins, the owner of the corporation to which said marks were then registered, transferred ownership of

11

said corporation, Sundowner Reservations, Inc., a Tennessee corporation, to Hospitality International, Inc. in consideration of cancellation of inter-company debt and promise to pay the assigned corporation's debt to Red Carpet Inns International, Inc. On April 30, 1995, Sundowner Reservations, Inc. transferred title to the subject marks to Hospitality International, Inc. As of December 31, 1996, Hospitality International, Inc. transferred ownership of the subject marks to Red Carpet Inns International, Inc. for consideration of $360,000.

Seasonality

The Company's financing and leasing businesses by their nature are not subject to seasonal fluctuations except, perhaps, as to mortgagors and lessees' ability to meet payment schedules due to seasonality of their businesses. The revenues from the Company's franchising and lodging segments tend to be greater in the spring and summer months during peak travel periods than during slower business months.

Working Capital

The Company's financing receipts are comprised primarily of interest which does not become reflected on its balance sheet until after it is earned, whereas its payments on underlying debts are comprised primarily of principal reduction and the portion which will be returned over the next twelve months is reflected on the balance sheet as a current liability. Because of this, the Company believes a current ratio of less than one to one is appropriate for its business. However, the Company continues to attempt to, among other things, (1) reduce and contain overhead costs, (2) seek to dispose of underproductive assets, and (3) seek the most advantageous financing terms available.

From 1995 to 2000, in particular, the Company aggressively pursued its legal rights to its trademarks. Largely, it has been successful in stopping motel operations from illegally using its trademarks as well as in enforcing compliance to its franchisee agreements. Settlements were reached on a number of lawsuits in several of the past few years that significantly increased the revenues of the Company. Attorney fees related to those settlements also increased in those same years.

Customers

The Company's business of franchising motels is contingent upon its being able to locate qualified property owner-operators who are seeking national affiliation. Through use of its franchise sales force, the Company has not experienced insurmountable difficulty in locating independent motel owner-operators willing to franchise or owner-operators seeking to change national affiliation nor does it anticipate any such difficulty in the future. However, more franchisors are offering multi-level brands, resulting in more downscaling conversions into the economy lodging sector and, therefore, providing more competition. Likewise, the Company's financing division requires that it locate qualified owner-operators or investors for its properties. Because of its franchise affiliations the financing division has not experienced, nor does it anticipate experiencing too much difficulty in locating qualified investors to purchase its developed properties. However, due to the Company's desire to limi t the loans it holds to a manageable number and because third party or institutional financings for used motel properties are difficult to arrange, once a property is sold the Company carries the

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entire financing package and accordingly, each individual loan represents a larger portion of portfolio than it does with traditional lending institutions. Therefore, the continued performance of each existing loan may be material to the operation of the financing division.

Backlogs - Not Applicable.

Government Contracts

The Company is not involved in, nor does it anticipate becoming involved in, any government contracts.

Competition

The Company's franchising, leased lodging and leased food service divisions each compete with other similar businesses, many of which are larger and have more national recognition than the Company. Each of these divisions competes on the basis of service and price/value relationship.

The Company's financing division competes with other, more traditional sources of long-term financing, most of which have greater financial resources than does the Company.

Developing and financing lodging properties is being significantly affected by over-development in many areas and is somewhat adversely affected by the area's and the country's general economic downturn.

Research and Development

No significant research activities were conducted by the Company during the Fiscal year and the Company does not expect to expend sums on research activities during the next Fiscal Year.

Environmental Protection

The Company is not directly affected by environmental protection measures of federal, state or local authorities to any extent which would reasonably be expected to cause material capital expenditures for compliance, so far as in known. However, it is possible that an approximately five and three-tenths (5.09) acre tract of land held as an investment and acquired as a possible motel site, located on I-10 in Ocean Springs, Mississippi, may under the new guidelines, be determined to be in part "wetlands." If so, its use and value would be adversely affected. On January 27, 1995, 3.2 acres contiguous to said tract were sold at a consideration undiminished by the wetlands issue; the value of the remaining 5.09 acres, therefore, may not be diminished. The 5.09 acre tract is carried on the Company's books at $55,647.

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Foreign Operations

The Company is not currently involved in any business operations outside of the United States of America, except through its franchising division which does do limited business in Canada and has one franchise in the Bahamas.

Item 2 Legal Proceedings

The Company is named as a defendant for damages in an unspecified amount, reasonable attorney fees, interest and costs as a result of the Company's alleged violation of a patent. It is counsel's opinion that the Company will be dismissed without liability.

Item 3 Management's Discussion and Analysis of Financial Conditions and Results of Operations

Results of Operation:

Franchising revenues in the first quarter of 2002 rose 6% from the first quarter of 2001; however, operating expenses increased by $113,869 or almost 30% over first quarter of 2001. Part of said $113,869 was an increase of $15,000 for advertising costs, a bonus of approximately $9,000 to president, salesmen's commissions increased by approximately $9,000, an $8,300 increase for a franchisee management training seminar, and a casual labor increase of $3,000. $36,000 of said increase was a management fee to Bob Guimbellot, who was CEO of Hospitality International, Inc. and of Red Carpet inns International, Inc. and Southern Scottish Inns, Inc., Hospitality's two shareholders. The remainder of the increase was due to several other smaller amounts in different categories. The smallness of this increase may be due to increased competition from other franchisors offering multi-level brands, resulting in more down-scaling conversions into the economy lodging sector. The Company responded by b ecoming more stringent in its requirements relating to franchises in the areas of quality assurance. A major source of revenue for the franchising area is legal settlements. The Company vigorously asserts its legal rights in the area of franchise infringements and violations of the franchise agreements.

Financing revenues increased slightly in the first quarter of 2002 over the first quarter of 2001. In general, however, revenues continue to drop because the interest amount on the notes receivable is declining as the notes move toward maturity. Financing and Investing operating expenses increased by $210,995 over the first quarter of 2001. See Note C - Related Party for explanation of $148,925 of said amount.

On January 8, 2002, a note and second mortgage which Registrant held on a motel at Register, Georgia, on which the 2002 audited balance of $176,686.56 principal and $17,860.74 accrued interest owed, was written off as a result of a foreclosure on the property by the first mortgage holder.

14

The company's subsidiary, Red Carpet Inns International, Inc. holds a note and mortgage receivable on a motel property. This note is non-performing. In addition to the motel property, Holder also has a second mortgage on an approximately eleven acre commercial tract and a second mortgage on a rural thirty-eight acre tract. It may be necessary to pay delinquent taxes to prevent a tax sale which might otherwise occur prior to the Red Carpet Inns International, Inc.'s foreclosure efforts; if so, it is possible that additional collateral can be obtained. It is believed, between the three tracts, that the Holder is adequately secured.

The Company, for several years prior to 2002, had operated a used motel furniture outlet. This operation continued to lose money. In early 2002, the Company closed this operation and wrote down the inventory by approximately $40,000.

Leasing revenue decreased in the first quarter of 2002 from that of same quarter of 2001 by $49,846 or approximately 42%. In current quarter the Company continued its practice of not accruing unpaid lease payments due to pending termination of the leases and the lack of probability of collection.

Liquidity:

Management believes that our current sources of capital including cash on hand, operating cash flow, and expected proceeds from sales of assets, were adequate to finance our operating and commitments through 2002. The question of liquidity should not be an issue in the near future. If cash requirements become an issue, any of the notes could be sold at a discount or some free and clear properties could be hypothecated. We do not believe these measures will be required.

Capital Resources

No material commitments for capital expenditures are planned for 2002 other than possible purchases of properties through the financing division.

The trend in capital resources has resulted in a gradual tightening of credit with regard to new motel construction but continues tighter with regard to older properties. This has forced more sellers of older properties into the seller-financed arena creating more competition for the Company in its Finance and Development Division. This fact, coupled with less available loan money on the new property construction side, has meant less profitable opportunities for the Company. Although the economy for the past two years has not been good, fewer foreclosures have resulted than in recent prior periods of economic downturns and therefore there are not a lot of bank REO properties available. Individual sellers are asking multiples of sales of pre-downturn years rather than of more current years. These events and tendencies shorten the supply of motel inventory while increasing the cost of acquiring the same.

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Item 4 Controls & Procedures

Evaluation of disclosure controls and procedures.

As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the "Exchange Act"), as of March 31, 2002, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. In designing and evaluating our disclosure controls and procedures, we and our management recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Based upon the required evaluation, the Chief Executive Officer and Chief Financial Officer believe that, as of the date of completion of the evaluation, our disclosure controls and procedures were reasonably effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. In connection with the rules, we are continuing the process of reviewing and documenting our disclosure controls and procedures, including our internal controls and procedures for financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.

Changes in internal controls.

There has been no change in our internal controls over financial reporting during our most recent fiscal year that has been materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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SIGNATURES

(Originals on file)

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SOUTHERN SCOTTISH INNS, INC.

(Registrant)

By: __________________ ______ __ ________________ ______

Bobby E. Guimbellot Date Jack M. Dubard Date

Chief Executive Officer President & CFO

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

FOR THE BOARD OF DIRECTORS:

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Michael M. Bush Date Richard A. Johnson Date

Director Director

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Melanie C. Hanemann Date C. Guy Lowe, Jr. Date

Director Director

_______________________________________________________

Jack M. Dubard Date Harry C. McIntire Date

Director Director

_______________________________________________________

Bobby E. Guimbellot Date Gretchen W. Nini Date

Director Director

17

_______________________________________________________

George O. Swindell Date John Snyder Date

Director Director

_______________________________________________________

Melinda Hotho Date Timothy DeSandro Date

Director Director

18