UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Annual Report pursuant to section 13 or 15 (d) of
the Securities Exchange Act of 1934
for the fiscal year ended December 31, 2000
Commission File number 0-7107
Southern Scottish Inns, Inc.
A Louisiana Corporation
IRS No. 72-0711739
1726 Montreal Circle
Tucker, Georgia 30084
(770) 938-5966
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Common stock, No Par Value
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 report(s), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _______ No X
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the voting stock held by nonaffiliated of the
registrant on December 31, 2000 was $715,869 aggregate market value shall be
computed by reference to the closing price of the stock on the New York Stock
Exchange on such date. For the purposes of this response, executive officers
and directors are deemed to be the affiliates of the Registrant and the holding
by nonaffiliated was computed as 954,492 shares.
The number of shares outstanding of the Registrant's Common Stock as of December
31, 2000, was 2,366,395 shares.
DOCUMENTS INCORPORATED BY REFERENCE
None
Definitions: The "Company", the "Registrant" and the "Fiscal Year"
When used in this Annual Report, the "Company," unless the context indicates
otherwise, refers to Southern Scottish Inns, Inc. and its subsidiaries on a
consolidated basis. The "Registrant" refers to Southern Scottish Inns, Inc. as
a separate corporate entity without reference to its subsidiaries. The "Fiscal
Year" refers to the year ended December 31, 2000, which is the year for which
this Annual Report is filed. The items, numbers and letters appearing herein
correspond with those contained in Form 10-K of the Securities and Exchange
Commission, as amended through the date hereof, which specifies the information
required to be included in Annual reports on such Form. In accordance with
General Instructions C(2) to Form 10-K, the information contained herein is,
unless indicated herein being given as of a specified date or for a specified
period, given as of December 31, 2000 and referred to "as of this writing"
PART I
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 constantly. The table below shows the
various different business holdings for the last five years.
12/00 12/99 12/98 12/97 12/96
Motel Franchises Held - Total 253 228 227 239 262
Master Host Inns 2 2 4 5 12
Red Carpet Inn 102 98 96 95 107
Scottish Inns 129 118 120 126 128
Downtowner Inns 5 2 2 2 4
Passport Inns 15 8 5 11 11
Motel Operated - Total 0 0 0 0 0
Master Host Inns 0 0 0 0 0
Red Carpet Inn 0 0 0 0 0
Scottish Inns 0 0 0 0 0
Independent 0 0 0 0 0
Motel Owned and Leased To
Operators - Total 4 3 4 3 4
Master Hosts Inns 0 0 0 1 1
Red Carpet Inn 1 1 1 1 1
Scottish Inns 2 2 2 2 1
Independent 1 0 1 0 1
Free Standing Restaurants
Owned 0 0 0 0 0
Leased In - Note 1 0 1 1 1 1
Operated 0 0 0 0 0
Subleased - Note 1 0 1 1 1 1
Vacant 0 0 0 0 0
Wrap Around Mortgages or Other
Types of Financing Held 10 13 13 13 13
Parcels of Land Held for Investment
or Development 6 6 6 6 5
Note 1:
One property leased from a third party was being operated as a restaurant by
Company's sub-lessee.
(b) Segment Information
The Company identifies its significant industry segments as set forth in the
table below. All revenue items represent sales to unaffiliated customers, as
sales or transfers between industry segments are negligible.
Segment Information For the Year Ending December 31,
2000 1999 1998
Franchising:
Revenues 1,772,185 1,833,472 1,843,335
Operating Profit (Loss) 31,598 14,957 12,582
Financing & Investing:
Revenues 676,706 754,421 579,865
Operating Profit (Loss) 18,371 16,342 (99,264)
Leasing:
Revenues 450,667 507,064 601,909
Operating Profit (Loss) 136,918 190,748 196,363
(c) Description of Business
(I) 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.
(II) 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.
(III) Raw Materials
In a sense, independent motel operations seeking national affiliation for their
properties or motel operations seeking to change national affiliations
constitute raw materials for the Company's franchising division.
To date, the Company has experienced little difficulty in obtaining information
on locations to be reviewed by either its franchise committee or its evaluation
committee.
(IV) 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.
Note 2. "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 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.
(V) Seasonability
The Company's financing and leasing businesses by their nature are not subject
to seasonal fluctuations. The revenues from the Company's franchising division
tends to be concentrated in the Spring and Summer months during peak travel
periods.
(VI) 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, 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
(VII) 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 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 limit 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 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.
(VIII) Backlogs - Not Applicable.
(IX) Government Contracts
The Company is not involved in, nor does it anticipate becoming involved in, any
government contracts.
(X) 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 but benefits from the area's and the country's
general economic condition.
(XI) 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.
(XII) 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.
(XIII) Employees
Division 12/00 12/99 12/98
Lodging Leased to Outsiders - Note 3 62 69 109
Franchise Division 28 32 40
Administrative & Finance 6 6 7
Total 96 107 156
Note 3:
These are not employees of the Company at date of this writing, since operations
are leased out but are given for comparative purposes.
(d) 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
limited business in Canada and has one franchise in the Bahamas and two in
Jamaica.
Item 2 Properties
The following table sets forth certain information, as of this writing,
concerning properties on which the Company holds notes secured by mortgages and
other types of financing instruments held by the Company:
Location Description Amount Receivable Underlying Mortgages
Bald Knob, AR 42 Room Hotel 236,281.89 -0-
Gulfport, MS Office & Warehouse Bldg. 154,975.00 -0-
Jacksonville, FL 144 Room Motel 1,476.989.51 -0-
(Lane Road)
Jacksonville, FL 120 Room Motel 1,100,000.00 -0-
(Arlington Road)
McComb, MS 51 Room Motel 269,052.61 2,318.04
Marrero, L 100 Room Motel 427,539.13 -0-
Morgan City, LA 49 Room Motel 259,048.55 -0-
Natchez, MS 100 Room Motel 694,322.48 -0-
Register, GA 40 Room Motel (2nd Mtg.) 176,686.56 -0-
Sabine Pass, TX 30 Room Motel 287,560.74 -0-
The following table sets forth certain information, as of this writing,
concerning motel properties owned by the Company and under management contract
or leased to Operators.
Location Description Mortgage Balance
Houma, LA Note 4. 120 Room Motel $ 56,600.26
Marietta, GA Note 4. 154 Room Motel 504,130.39
New Iberia, LA 100 Room Motel 137,703.79
Vicksburg, MS Note 4. 100 Room Motel 232,890.90
Jacksonville, FL
(Arlington Road) Note 4 120 Room Motel -0-
Note 4:
These properties, are leased to First Hospitality Management Corporation, a
corporation owned by Timothy J.DeSandro, a former employee of the Company.
The following table sets forth certain information, as of this writing,
concerning other properties owned by the company.
Location Description Mortgage Balance
Atlanta, GA Warehouse, on two parcels of land 184,240.41
(1.2 Acres), 22,220 square feet
, heated & air conditioned including
1,300 square feet of showroom/office.
Gulfport, MS Unimproved land (4) lots in City of
Gulfport $ 8,048.27
Jackson County, MS Two parcels of land, unimproved, 1,803.67
held for investment
Madison County, MS 3.0 acre tract of land at Ross Barnett $300 per month
Reservoir on which was a night club land lease
when property was acquired. The
building had been untenantable, was
deemed to be economically unfeasible to
repair and was recently razed. Land is
leased from the Pearl River Valley
Water Supply District and the leasehold
is marketable approved assignment, sublease
or redevelopment.
Pass Christian, MS. 46 Residential lots located
in Blue Lake Subdivision. -0-
Held for investment.
Pass Christian, Partially improved water-front property.. 78,170.14
Item 3 Legal Proceedings
None
PART II
Item 5 Market for Registrant's Common Equity Securities and Related Matters
(a) The common stock, no par value, of the Registrant is traded on the Over-
the-Counter market. The following table sets forth the range of per share bid
and asked price quotations during the periods indicated. The following
represents quotations between dealers, and do not include retail mark-ups,
markdowns, or other fees or commissions, and do not represent actual
transactions.
Bid Price Asked Price
2000 High Low High Low
1st Quarter $ .75 $ .75 $1.00 $1.00
2nd Quarter $ .75 $ .75 $1.00 $1.00
3rd Quarter $ .75 $ .75 $1.00 $1.00
4th Quarter $ .75 $ .75 $1.00 $1.00
Bid Price Asked Price
1999 High Low High Low
1st Quarter .75 $ .75 $1.00 $1.00
2nd Quarter .75 $ .75 $1.00 $1.00
3rd Quarter .75 $ .75 $1.00 $1.00
4th Quarter $ .75 $ .75 $1.00 $1.00
(b) As of this writing there are approximately 758 shareholders of the
Registrant's common stock, plus those held in brokerage houses.
(c) No cash dividends have been paid on the Company's common stock during the
two most recent Fiscal Years and none anticipated to be paid in the foreseeable
future.
Item 6 Selected Financial Data
The following table summarizes selected financial data of the Company for the
past five Fiscal Years. It should be read in conjunction with the more detailed
consolidated financial statements of the Company appearing elsewhere in this
Annual report.
2000 1999 1998 1997 1996
REVENUE $ 3,758,786 3,532,449 3,814,986 4,396,435 4,911,874
NET INCOME 90,118 105,231 81,538 30,443 (815,303)
EARNINGS PER
SHARE 0.04 0.04 0.03 0.01 (0.35)
TOTAL ASSETS 4,290,017 14,303,779 14,924,365 15,370,061 5,084,285
LONG TERM DEBT 1,552,248 1,680,781 2,301,241 2,726,135 2,978,560
STOCKHOLDERS'
EQUITY 8,322,502 8,333,184 8,127,606 8,024,850 7,946,090
CASH DIVIDENDS
PER SHARE -0- -0- -0- -0- -0-
Item 7 Management's Discussion and Analysis of Financial Conditions and
Results of Operations
Summary of Operations for the Year Ending 2000, 1999, 1998 and 1997;
2000 1999 1998 1997
TOTAL ASSETS 14,290,017 14,303,779 14,924,365 15,370,061
TOTAL EQUITY
CAPITAL 8,322,502 8,233,184 8,127,606 8,024,850
OPERATING INCOME 3,758,786 3,532,449 3,814,986 4,396,435
OPERATING EXPENSE 3,622,840 3,283,902 3,656,215 4,308,860
INCOME BEFORE TAXES 135,946 248,547 158,771 87,575
INCOME TAXES (29,535) (117,439) (73.280) (44,998)
NET INCOME 90,118 105,231 81,538 30,443
NET INCOME PER SHARE 0.04 0.04 0.03 0.01
Results of Operation:
The Company's operations are comprised of three main components: Franchising
financing and investments, and leasing. The following discussion presents an
analysis of results of operations of the Company for the years ended December
31, 2000, 1999,1998 and 1997.
The preceding chart reflects the most recent four years of the Company's
operations. In 1999 operations resulted in income, before income taxes of
$248,547, compared to $158,771 in 1998, and $87,575 in 1997. In 1995, the
Company recognized a gain of $738,833 from an ownership in a partnership. The
recognition of the gain was deferred until 1996 for tax purposes. The
partnership was undecided as to whether it would liquidate the proceeds or
reinvest the monies. In 1996, the partnership decided to distribute the monies.
The capital received by the Company did equal the Company's investment in the
partnership. However, a loss of $699,346 was recognized on the income statement.
Also, in 1996 the Company wrote off outstanding loans in the amount of $594,808.
Those write-offs were to companies in which the Company had vested interests.
Franchising revenues rose slightly over 1998, as did the number of franchises
(0.44%), although the number or rooms available within the system decreased
slightly (4.3%). These relatively flat numbers are due to increased competition
from other franchisors offering mutli-level brands, resulting in more down-
scaling conversions into the economy lodging sector, also, the company has
become more stringent in its requirements, relating to franchises in the areas
of quality assurance and financial reporting. Along with the slight increase in
revenues, the Franchise Division has decreased its administrative cost 18.0%
between 1999 and 1998 and by 9.0% between 1998 and 1997 and 7.5% between 1997
and 1996. 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 agreement. Revenues in
this area generated gross revenues of $62,356 in 1999, $334,028.85 in 1998,
$435,570 in 1997, and $100,741 in 1996.
Financing revenues continue to drop because interest on the notes receivable is
declining as the notes move to maturity. Mortgages and notes receivable
balances rose due to the sale of a foreclosed property that had been in fixed
assets.
Leasing revenues are declining due to the restructuring of the lease agreements
due to economic conditions, such as new competition at each of our locations and
our failure to refurbish and upgrade.
Liquidity:
The question of liquidity should not be an issue in the near future. The non
- -affiliated entity leasing properties from the Company is in arrears in its
lease payments. The company has taken steps calculated to insure payments from
the leasee are brought current. If cash requirements became an issue, any of
the notes could be sold at a discount. However, there is not reason to believe
this will be required.
Capital Resources
(I) No material commitments for capital expenditures are planned other than
any possible purchases or development of properties through the financing
division.
(II) 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 lower credit on the new
property construction side, has meant less profitable opportunities for the
Company.Item 8 Financial Statements and Supplemental Data
The financial statements and financial statement schedules filed as part of the
Annual report are listed in Part IV, Item 14 below.
Item 9 Disagreements of Accounting and Financial Disclosures
None.
Part III
Item 10 Directors and Executive Officers of the Registrant
The Following persons are the directors and the executive officers of the
Registrant.
POSITION and TERM
NAME AGE WITH REGISTRANT
Bobby E. Guimbellot 60 CEO - 26 Years
Director - 28 Years
Michael M. Bush 52 Director - 19 Years
Jack M. Dubard 69 President - 7 Years
Director - 12 Years
C. Guy Lowe, Jr. 65 Director - 28 Years
Gretchen W. Nini 53 Director - 14 Years
Harry C. McIntire 71 Chairman - 7 Years
Director - 24 Years
Richard A. Johnson 56 Director - 11 Years
Melanie Campbell Hanemann 45 Director - 10 Years
John L. Synder, Jr. 74 Director - 10 Years
Melinda P. Hotho 38 Director - 7 Years
The Board of Directors of the Company held no regularly scheduled meeting in
2000.
The term of office for all directors expires at the close of the next annual
meeting of shareholders. Officers serve at the pleasure of the Board of
Directors.
Bobby E. Guimbellot served as President of the Registrant from January of 1976
through 1994. Mr. Guimbellot remains as Chief Executive Officer of Registrant.
Mr. Guimbellot is also the principal shareholder and Chairman of the Board of
Western Wireline Services, Inc. ("Western Wireline"), an oil well service
company headquartered in Belle Chasse, Louisiana. Mr. Guimbellot has been
Chairman of Red Carpet Inns, International, Inc. a subsidiary of the registrant,
since 1982, and has been President of Red Carpet since January 1, 1992. Since
1995, Mr. Guimbellot has served as CEO of Hospitality International, the
Company's franchising subsidiary.
Michael M. Bush is President and Chief Executive Officer of the Mississippi
River Bank, Belle Chasse, Louisiana, a position which he has held for more than
ten years.
Jack M. Dubard since 1994 has been the Registrant's President, after having
served as the Vice President for several years, and was previously an
independent consultant to the Registrant and its affiliates. Prior to that, he
held an administrative position with Red Carpet Inns International, Inc. In
1994 - 1995, Mr. Dubard served as CEO of Hospitality International, Inc., the
Company's franchising subsidiary.
C. Guy Lowe, Jr. is a self-employed real estate developer and also provides
office building management services. He has been so engaged for more than 12
years.
Harry C. McIntire is a retired senior captain (pilot) with Delta Air Lines, Inc.
and has been a captain for more than 25 years prior to his retirement. He has
served as Vice Chairman of registrant's Board of Directors and as a Vice
President. Upon Dr. Hotho's resignation, Captain McIntire was elected as
Chairman of the Registrant's Board.
Gretchen W. Nini was a Director, Corporate Secretary, and treasurer of Western
Wireline Services, Inc., an oil well service company headquartered in Bell
Chasse, Louisiana, a position she held for more than 9 years (See Bobby E.
Guimbellot, supra).
George O. Swindell formerly owned Diamond Realty Construction, Gretna Louisiana;
he has been a real estate broker since 1970 and was a general contractor for
over 17 years.
Richard A. Johnson has had prior experience in construction, manufacturing,
health care, agriculture, recreational facilities, apartments and real estate.
Since June of 1992, Mr. Johnson served as Franchise Development Coordinator for
Hospitality International, Inc., a subsidiary of the Registrant. He resigned in
July of 1995 from his employment with Hospitality International, Inc.
Melanie Campbell Hanemann is the current Corporate Secretary and Treasurer of
Western Wireline Services, Inc. She has been with this company for more than
nine years and during that time has held the position of Office Administrator
for Western. (See Bobby E. Guimbellot, supra).
Melinda P. Hotho - Dr. Vincent W. Hotho, after being a Director of the
Registrant for over twenty-two (22) years, the last eighteen (18) of which he
served with distinction as Chairman, due to some imprudent personal investments
and a potentially ruinous malpractice suit went through a Chapter 7 Bankruptcy
proceeding. He felt it to be in the best interest of the Registrant and of the
Company that he resign as Director and Chairman. The Board of Directors,
pending action of the Stockholders, selected Melinda P. Hotho, his daughter, to
serve on an interim basis.
John L. Snyder, Jr. is recently retired from his position as manager of
engineering at Mid-America Transportation Company. Mr. Snyder had more than
thirty years experience in marine operations. He previously held administrative
or managerial positions with Wisconsin Barge Line, Walker Boat Yard and Mid-
outh Towing Company.
Directors who have resigned:
Robert H. Douglas was Director of Motel Operations for the Company until April
1, 1990, and prior to assuming that position has been in the independent plant
nursery business. He previously served as Secretary and Treasurer of the
Registrant from September 1983, until April 1986. Prior to that, Mr. Douglas
was Director of Operations for the Company for 8 years. On April 1, 1990, Mr.
Douglas, formed a corporation to whom several of the Company's motels were
leased. Mr. Douglas resigned and retired in 1996.
Richard H. Rogers was employed as marketing consultant for the Knoxville's
World's Fair from January 1982 to May 1982. From 1978 to January 1982, Mr.
Roger served as Vice President and Director of Operations of Cindy's Inc., a
hotel company. He became President of Hospitality International, Inc. as
subsidiary of the Registrant, in May 1982. On October 1993, Mr. Rogers resigned
his presidency of Hospitality International, Inc. He resigned for personal
reasons and to pursue other interests. Mr. Rogers resigned as Director of the
Registrant in 1994.
Dr. Vincent W. Hotho, M.D., after being a Director of the Registrant for over
twenty-two (22) years, the last eighteen (18) of which he served with
distinction as Chairman, due to some imprudent personal investments and a
potentially ruinous malpractice suit went through a Chapter 7 Bankruptcy
proceeding. He felt it to be in the best interest of the Registrant and of the
company that he resign as Director and Chairman. The Board of Directors,
pending action of the Stockholders, selected Melinda P. Hotho, his daughter, to
serve on an interim basis. The Directors elected Harry C. McIntire as Chairman
upon Dr. Hotho's resignation.
Harry C. Geller, an able and loyal Director for fourteen (14) years, in an
effort to shed some activities with a view toward his imminent retirement,
resigned in 1994 as a Director of the Registrant. Mr. Geller, the sole
stockholder and president of Securities Transfer Company, the Registrant's
Transfer Agent, has now sold this company.
Committees of the Board of Directors
The Board of Directors of the Registrant does not maintain any standing
committees.
Item 11 Executive Compensation
For services rendered in all capacities to the Company and its subsidiaries
during the Fiscal Year ended December 31, 1999, the Company paid aggregate cash
compensation in the amount of $75,000 to Mr. Guimbellot, the Registrant's. Chief
Executive Officer. In 1999, the Company paid aggregate cash compensation in the
amount of $91,487.42 to Mr. Dubard, who for said period was Registrant's
president. The Company provides Messrs. Guimbellot and Dubard with automobiles
and does not require them to account for the personal use, if any, of the
automobiles. The personal uses are not included in the compensations reported
above. However, the Company estimates that the amount, which cannot be
specifically or precisely ascertained, does not exceed 10% of the aggregate
compensation, paid and unpaid, reported above.
Item 12 Security Ownership of Certain Beneficial Owners and Management
Principal Holders
The following table sets forth, as of this writing, information with respect to
each person who, to the knowledge of the Registrant, might be deemed to own
beneficially 5% or more of the outstanding Southern Scottish Inns, Inc. common
stock, which is the only class of voting securities of the Registrant. Except,
as otherwise indicated, the named beneficial owners possess sole voting power
and sole investment power with respect to the shares set forth opposite their
respective names.
Name and Address of Amount and Nature of Present
Beneficial Owner Beneficial Ownership Percent of Class - Note 5
Bobby E. Guimbellot 1,202,797 50.85%
1726 Montreal Circle
Tucker, Georgia 30084 Note 6
Harry C. McIntire 161,289 6.82%
Roswell, Georgia Note 7
Note 5:
Based on 2,366,395 shares outstanding.
Note 6:
Includes 470,750 shares owned by Bobby Guimbellot d/b/a Coastal Companies, and
35,238 owned by Industrial Funds, an entity of Western Wireline Services, Inc.
Mr. Guimbellot's shares also include 17,713 and 1,664 shares owned by Lift
Boats, Inc. and Tri Delta Dredge, Inc., respectively and 361,405 shares owned by
Shelly Plantation. Ms. Campbell shares voting rights as to Industrial Funds
shares with Mr. Guimbellot. Mr. Snyder shares voting rights as to Shelly
Plantation with Mr. Guimbellot.
Note 7:
Voting and investment power on 113,331 shares are shared with his wife.
Management Ownership
The following table sets forth, as of this writing, information concerning the
ownership of Southern Scottish Inns, Inc. common stock by all directors and by
all directors and officers as a group. Southern Scottish Inns, Inc. common
stock is the only class of equity securities of the registrant. Except as
otherwise indicated, the named beneficial owners possess sole voting power and
sole investment power with respect to the shares set forth opposite their
respective names.
Name of Amount and
Nature of Present
Beneficial Owner Beneficial Ownership Percent of Class - Note 8
Michael W. Bush Note 9 3,611 .15%
Jack M. Dubard Note 10 8,907 .38%
Bobby E. Guimbellot Note 11 1,202,797 50.85%
Melanie Campbell Hanemann 2,600 .10%
Melinda P. Hotho 1,200 .05%
Richard A. Johnson 21,200 .90%
C. Guy Lowe, Jr. 1,335 .05%
Harry C. McIntire Note 12 161,289 6.82%
Gretchen W. Nini Note 13 4,801 .20%
George O. Swindell 1,563 .06%
John L. Snyder, Jr. 2,600 .10%
________ ______
1,411,903 59.66%
Note 8:
Based on 2,366,395 shares outstanding.
Note 9:
Includes 250 shares in the name of his minor son.
Note 11:
Includes 470,750 shares owned by Bobby Guimbellot d/b/a Coastal Companies, and
35,238 owned by Industrial Funds, an entity of Western Wireline Services, Inc.
Mr. Guimbellot's shares also include 17,713 and 1,664 shares owned by
LiftBoats, Inc. and Tri Delta Dredge, Inc., respectively and 361,405 shares
owned by Shelly Plantation. Melanie Campbell, the Secretary of Western Wireline
Services, Inc., shares voting and investment powers with respect to the 35,238
shares owned by Industrial Funds. John L. Snyder Jr. shares voting and
investment powers with repeat to the 361,405 shares owns by Shelly Plantation
Note 10:
Includes 513 shares in the name of his wife.
Note 12:
Voting and investment powers on 113,331 shares are shared with his wife.
Note 13:
Includes 639 shares in the name of her minor child.
Item 13 Certain Relationships and Related Transactions
Pan American Hospitality
From time to time, and on an as needed basis, the Registrant and the Company
made advances or loans to Pan American Hospitality, a partnership composed of
Red Carpet Inns International, Inc. (a subsidiary of the Registrant), Bobby E.
Guimbellot, the Registrant's CEO, Emilee Guimbellot (Mr. Guimbellot's mother),
Western Wireline Services, Inc. (an oil field service company belonging to Mr.
Guimbellot), Mildred Puckett, Mary R. Dubard (wife of Jack M. Dubard,
Registrant's President) and two unrelated individuals. As of December 31, 1997,
these advances totaled $300,752.55 and either by direct advancements or inter-
ompany transfer said receivable is held by Red Carpet Inns International, Inc.,
which as disclosed is a partner of the debtor and which holds a first mortgage
on the motel which is the partnership's major asset. The motel was sold in 1996
with seller financing. Pan American Hospitality dissolved in 1998. The
Company's negative investment was written off against receivables due from the
Partnership. The Partnership assigned its mortgage receivable to the Company in
satisfaction of the remaining balance of principal and accrued interest due to
the Company.
PART IV
Item 14 Exhibits, Financial schedules and Reports on Form 8-K
(a) Listed below are the following documents which are filed as a part of this
Annual Report.
1. Financial statements
Auditor's Report. Note 14
Consolidated balance sheets of the Company as of December 31, 2001,
and 2000.
Consolidated statements of changes in cash flow of the Company for the
Fiscal Years ended
December 31, 2000 and 1999
Notes to consolidated financial statements.
2. Exhibits. The exhibits filed as part of the Annual report are listed on the
exhibit index which immediately precedes and is bound with such exhibits.
(b) No reports on Form 8-K have been filed by the Registrant during the last
quarter of the period covered by this Annual Report.
Note 14:
For the company's fiscal years of 1985 through 1990, our Auditor was Robert M.
Mosher, C.P.A. of Biloxi, of Mississippi. For the Company's fiscal years of
1991 through 1992, our Auditor was the firm of Fountain, Seymour, Mosher &
Associates of D'Iberville, Mississippi. In February of 1994 (See Item 7,
Capital Resources (I)), Registrant and Company moved to the Atlanta area. About
such time and in connection with future audits, the decision was made to change
auditors and to employ Robert J. Clark of Roswell, Georgia. Mr. Clark had done
the Company's Audits for 1983 and 1984. Mr. Clark had done the Audits of 1992
and 1993 for Red Carpet Inns International, Inc., an affiliate of Registrant.
Mr. Clark has done the Audits for Hospitality International, Inc., a partially
owned subsidiary of Registrant, continuously since 1982. From 1994 and for the
foreseeable future, Mr. Clark has done and will do the audits for Southern
Scottish Inns, Inc., Red Carpet Inns International, Inc. and Hospitality
International, Inc. In accordance with the SEC PRACTICE SECTION of the
A.I.C.P.A., a partner other than the partner in charge must perform a concurring
review of the audit report. When the firm is a sole proprietorship, an outside
qualified professional must be utilized and one was so utilized.
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:_____________ _______ By:______________________________ ____
Bobby E. Guimbelott 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:
_________________ _______ ____________________ _______
Michael M. Bush Date Richard A. Johnson Date
Director Director
_________________ _______ ____________________ _______
Melanie C. Hanemann Date C. Guy Lowe, Jr. Date
Director Director
_________________ _______ ____________________ _______
Jack M. Dubard Date Harry C McIntire Date
Director Director
_________________ _______ ____________________ _______
Bobby E. Guimbello Date Gretchen W. Nini Date
irector Director
_________________ _______ ____________________ _______
George O. Swindell Date John Snyder Date
Director Director
SOUTHERN SCOTTISH INNS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
TABLE OF CONTENTS
PAGE NO.
INDEPENDENT AUDITOR'S REPORT 2
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 3-4
CONSOLIDATED STATEMENTS OF INCOME 5-6
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 7
CONSOLIDATED STATEMENTS OF CASH FLOWS 8-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10-27
Board of Directors
Southern Scottish Inns, Inc.
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying consolidated balance sheets of Southern
Scottish Inns, Inc. and subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Southern Scottish
Inns, Inc. and subsidiaries as of December 31, 2000 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the periods ended December 31, 2000, in conformity with generally
accepted accounting principles.
ROBERT J. CLARK, PC, CPA
Certified Public Accountants
Roswell, Georgia
May 31, 2001
SOUTHERN SCOTTISH INNS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
ASSETS
CURRENT ASSETS 2000 1999
Cash
54,612 $75,253
Accounts Receivable-Net (Note G) 1,234,991 1,124,962
Accounts Receivable-Affiliates
(Note G and P) 502,649 580,403
Income Tax Receivable (Note K) $0 9,310
Mortgages & Notes-Affiliates
(Note G and P) 82,919 121,240
Mortgages & Notes Receivable
(Note G) 807,673 688,072
Inventory (Note C) 40,749 40,819
Prepaid Expenses 69,256 50,098
Loans - Employees (Note H) 0 213
Interest Receivable 612,246 464,505
Net Deferred Tax Asset (Note K) 28,776 7,447
TOTAL CURRENT ASSETS 3,433,871 3,162,322
PROPERTY AND EQUIPMENT (Note O)
Land 1,649,726 1,515,118
Buildings & Building Improvements 2,587,634 2,149,732
Furniture, Fixtures & Equipment 569,412 561,128
Leasehold Improvements 41,773 331
Total Property & Equipment 4,848,545 4,226,309
Less: Accumulated Depreciation (1,248,451) (1,123,004)
PROPERTY AND EQUIPMENT - NET 3,600,094 3,103,305
OTHER ASSETS
Mortgages & Notes Receivable 4,785,076 5,030,468
Mortgages & Notes-Affiliates (Note P) 1,010,132 1,116,802
Investments in Unconsolidated
Affiliates (Note I) (233,345) 199,832
Investment - Affiliate 124,899 118,896
Investment in Real Estate 217,964 235,752
Trademarks - Net (Notes J and P) 1,252,859 1,295,688
Organization Cost 7,822 9,540
Deposits 4,498 4,498
Deferred Tax Asset 61,603 0
Marketable Equity Securities,
Carried at Market 25,210 26,676
TOTAL OTHER ASSETS 7,256,718 8,038,152
TOTAL ASSETS 14,290,683 14,303,779
SOUTHERN SCOTTISH INNS, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 31, 2000 AND 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
2000 1999
CURRENT LIABILITIES
Accounts Payable - Trade $281,416 106,097
Interest Payable 241,363 174,668
Taxes Payable 160,486 179,260
Other Taxes Payable 311,630 189,683
Other Liabilities 332,975 546,982
Mortgages & Notes Payable (Note L) 396,617 482,843
Mortgages & Notes Payable-
Affiliates (Note P) 118,327 118,327
Deferred Severance Pay (Note X) 14,250 12,000
TOTAL CURRENT LIABILITIES 1,857,064 1,809,860
LONG-TERM LIABILITIES
Mortgages & Notes Payable (Note L) 1,223,658 1,308,603
Mortgages & Notes Payable-
Affiliates (Note P) 327,619 357,178
Escrow - Advance Construction Draw
(Note X) 971 15,000
TOTAL LONG-TERM LIABILITIES 1,552,248 1,680,781
DEFERRED AMOUNTS
Deferred Income-Installment 1,485,071 1,511,361
Deferred Rent Income 450 0
Net Deferred Tax Liability 66,552 101,839
Deferred Severance Pay (Note X) 167,500 143,750
TOTAL DEFERRED AMOUNTS 1,719,573 1,756,950
TOTAL LIABILITIES &
DEFERRED AMOUNTS 5,128,885 5,247,591
MINORITY INTEREST (Note A) 839,296 823,004
STOCKHOLDERS' EQUITY
Common Stock- no par value, Authorized 5,000,000 shares, Issued &
Outstanding 2,366,395 year ended 2000 and 2,365,284 for 1999
6,023,981 6,023,315
Additional Paid in Capital 42,201 42,201
Retained Earnings 2,256,320 2,167,668
TOTAL STOCKHOLDERS' EQUITY 8,322,502 8,233,184
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY 14,290,683 14,303,779
SOUTHERN SCOTTISH INNS, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
REVENUES
Franchising Revenues 1,772,185 1,833,472 1,843,335
Financing Revenues 584,278 620,325 572,201
Sale of Furniture 21 39 19,519
Operating Lease Revenues 450,667 507,064 601,909
Gain on Sale of Assets 7,607 134,096 649
Investment Income 84,821 0 7,015
Contract Negotiated Revenues 534,363 62,356 334,029
Other Income 324,844 374,697 436,329
TOTAL REVENUES 3,758,786 3,532,449 3,814,986
COST & EXPENSES
Operating Expense-Franchise
Division 2,126,044 1,595,417 1,950,467
Operating Expense-Financing &
Investing 911,463 1,024,330 916,328
Cost of Sales -Furniture
Sales 45 4,174 14,233
Interest Expense 237,610 256,347 310,851
Depreciation &
Amortization 215,569 238,590 284,656
Investment Loss 132,109 165,044 179,680
TOTAL COST & EXPENSES 3,622,840 3,283,902 3,656,215
Income (Loss) from
Continuing Operations
before Taxes & Minority
Interest 135,946 248,547 158,771
Less: Provisions for
Income Taxes (Note K) (29,535) (117,439) (73,280)
Income (Loss) before Minority
Interest 106,411 131,108 85,491
85
Less: Minority Interest
in Income (Loss) of
Consolidated Subsidiaries (16,293) (25,877) (3,953)
NET INCOME (LOSS) 90,118 105,231 81,538
SOUTHERN SCOTTISH INNS, INC.
CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
INCOME (LOSS) PER SHARE 2000 1999 1998
Income (Loss) per Share
from Operations before Taxes
and Minority Interest $ 06 $ .11 .07
Income (Loss) per Share before
Minority Interest $.04 $.06 $ .04
Basic Net Income (Loss) per
Common Share $.04 $ 04 .03
Average Shares Outstanding 2,366,395 2,365,284 2,356,949
SOUTHERN SCOTTISH INNS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Number of Common Additional Retained
Common Shares Stock Paid In Earnings
Outstanding Capital
Balance
December 31,
1997 2,349,729 6,003,871 42,201 1,978,778
Shares Issued to 15,555 19,444
Directors
Comprehensive Income:
Net Income 81,538
Unrealized Gain on
Securities, net of tax 1,774
Balance December 31, 1998 2,365,284 $6,023,315 $42,201 2,062,090
Shares Issued to Directors
Comprehensive Income:
Net Income 105,231
Unrealized Gain on
Securities, net of tax 347
Balance December 31, 1999 2,365,284 6,023,315 $ 42,201 $2,167,668
Shares Issued to
Non-Directors 1,111 666
Shares Issued to Directors
Comprehensive Income:
Net Income 90,118
Unrealized Gain/(Loss) on
Securities, net of tax (1,466)
Balance December 31, 2000 2,366,395 $ 6,023,981 $42,201 $2,256,320
SOUTHERN SCOTTISH INNS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
CASH FLOWS PROVIDED
BY (USED FOR) OPERATING
ACTIVITIES
Net Income 90,118 $ 105,231 $ 81,538
Non-Cash Items Included
in Net Income:
Depreciation and
Amortization 215,570 238,590 284,656
Conversion Payable
to Note Receivable 3,173 (18,762) 0
Uncollectible Amounts (11,706) 0 252,916
(Gain) Loss -
Sale of Assets 1,083 172,014 (649)
Deferred Income
Recognized (25,840) (34,733) (30,468)
Discount Earned (26,624) (3,951) 0
Investment Income-
Affiliates 19,119 157,566 162,385
Minority Interest
Income 16,293 25,877 3,953
Transfer of Note Payable 0 (79,552) 0
Assets for Accounts
Receivable 4,920 0 0
Write off Note Payable 0 (1,250) (5,404)
Interest Receivable
Adjustment 0 0 45,724
Note Payable Assignment 0 4,976 0
Note Payable for Lawsuit Settlement
Legal Expense 110,166 0 0
Note Payable Sale
of Land (42,569) 0 0
Note Receivable Credit/
Assignment 0 0 (236,741)
Note Receivable for
Lawsuit settlement (279,803) 0 0
Note Receivable
Converted to Expense 2,500 0 0
Expense Paid for Note
Payable 0 0 68,052
Accruals for
Investments 0 0 (2,892)
Accounts Receivable Converted
To Investment or Note (117,209) (34,000) (41,705)
Sale Payables for
Receivables 0 (27,558) (190,560)
Miscellaneous 322 8,261 15,149
Net Changes In Current
Assets and Liabilities:
Accounts Receivable (7,255) (346,359) (118,403)
Accounts Receivable-
Affiliates 0 86,364 (97,347)
Inventories 70 4,248 9,362
Loan Receivable-Employee 213 500 (213)
Deposits 0 0 1,399
Interest Receivable (213,148) (91,935) 44,245
Income Tax Receivable 0 (4,629) 17,683
Prepaid Expense (19,158) 3,396 12,798
Organization Cost 1,718 0 0
Accounts Payable 188,281 (92,657) 28,901
Interest Payable 66,695 8,261 (24,627)
Taxes Payable 104,427 (31,701) (48,333)
SOUTHERN SCOTTISH INNS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
Deferred Income Tax $ 4,654 $ 53,704 $ 70,751
Other Accrued
Liabilities (303,151) 242,598 20,528
Deferred Severance
Pay 26,000 3,700 (117,655)
NET CASH PROVIDED BY
(USED FOR) OPERATING
ACTIVITIES (161,141) 348,199 205,043
CASH FLOWS PROVIDED BY (USED FOR) INVESTING ACTIVITIES
Investment
Distribution 0 0 14,437
Payments on Mortgages
and Notes Receivable -
Incurred 0 (78,648) (20,000)
Notes Receivable
Issued (16,000) 0 0
Collections on
Mortgages and
Notes Receivable 489,220 148,136 418,553
Acquisition (Disposition)
of Fixed Assets (63,484) (19,831) (22,450)
Receipts with
Sales of Assets 36,115 0 0
Investment Purchases (5,334) (129,870) (35,596)
Payments Made with Sale
of Assets 0 (36,036) 0
Payments Received
for Assets Sold 0 0 0
Advance Receipts
for Investments (14,029) 15,000 0
NET CASH PROVIDED
BY (USED FOR)
INVESTING ACTIVITIES 426,488 (101,249) 354,944
CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES
Proceeds from Notes
Payable 124,217 209,919 111,484
Principal Payments
on Mortgages and
Notes Payable (409,961) (2,049) (16,995)
Issuance of Stock 666 0 0
Principal Payments on Capital
Lease Obligations (910) (480,465) (627,810)
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES (285,988) (272,595) (533,321)
Increase (Decrease)
in Cash (20,641) (25,645) 26,666
Cash - Beginning 75,253 100,898 74,232
Cash - Ending 54,612 75,253 $ 100,898
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 AND 1998
NOTE
A - HISTORY
The Company was incorporated on November 8, 1971, under the laws of the state of
Louisiana.
The Company has consolidated the operations of two corporations, Red Carpet Inns
International, Inc. and Hospitality International, Inc. The Company owns a 50
percent interest in Hospitality International, Inc. and Red Carpet Inns
International, Inc. owns the other 50 percent; therefore, all of its operations
are included in these financial statements and it is noted as the franchising
division. The Company owns 74.6 percent of Red Carpet Inns International, Inc.
The Company's financing and investing division provides owner financing to
persons acquiring motel properties previously operated and/or owned by the
Company. They look to acquire available properties for development and/or
future sale. The Company also invests in companies whose business operations
include property development. These activities primarily occur in the
Southeast.
The Company's franchise division offers advertising, reservation, group sales,
quality assurance and consulting services to motel owner/operators. It is the
exclusive franchiser for Red Carpet Inns and Master Host Inns as well as
Scottish Inns. Its market has historically been the contiguous United States;
however, in 1994 the Company began to explore international markets. As of
December 31, 2000 the Company had one franchise in Jamaica and one in the
Bahamas. The Company also provides a nationwide central reservation service for
its franchisees.
B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
B1 - CONSOLIDATION
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.
B2 - ESTIMATES IN FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes
Although these estimates are based on management's knowledge of current events
and actions it may undertake in the future, they may ultimately differ from
actual results.
B3 - REVENUE AND EXPENSE RECOGNITION
I. Accrual Basis
The accrual basis of accounting is used for both book and tax records. Revenue
is recognized when it is earned. Expenses are recognized when incurred.
II. Franchise Fees
Revenue from franchise sales is recognized when all material conditions of the
sale have been substantially performed. Substantial performance by the
franchiser occurs when, 1) the franchiser is not obligated in any way to excuse
payment of any unpaid notes or to refund any cash already received, 2) initial
services required by the franchiser by contract or otherwise have been
substantially performed, and 3) all other conditions have been met which affect
the consummation of the sale.
B4 - ACCOUNTING POLICY - STATEMENT OF CASH FLOWS
For purposes of the cash flow statement, the Company considers all highly liquid
debt instruments with maturity of three months or less to be cash equivalents.
The following non-cash transactions took place in 2000:
The Company issued a note payable in the amount of $16,898 related to the
purchase of land.
The Company sold land with a book value of $3,027 for $7,500.
The Company converted accounts receivable in the amount of $101,039 to a
note receivable.
The Company was involved in a multifaceted non-cash transaction with a net
change of $35,686.
The Company had bad debt recovery in the amount of $11,706 assumed by a
related party in the form of a note.
The Company converted a note payable to a note receivable totaling $3,173.
The Company purchased a vehicle for $16,697 with a note payable for the lack
of consideration.
The Company sold a vehicle for $2,250 to an employee for a note receivable
from the employee.
The Company disposed fully depreciated equipment with original costs
totaling $6,713.
The Company was involved in a multifaceted non-cash transaction with a net
change of $34,383.
The following non-cash transactions took place in 1999:
The Company retired fully depreciated furniture and fixtures in the amount
of $9,000.
The Company purchased 50% ownership of a vehicle for $4,976 with a note
payable for the lack of consideration.
The Company sold land and paid off the related note payable and escrow in
the amount of $105,783 and $100,200, respectively.
The Company sold their portion of land and related motel investment and paid
off the related note payable in the amount of $204,701.
The Company cancelled the related notes receivable of $86,850 and a new
note receivable was created for $200,000.
The Company recorded a note receivable in the amount of $1,100,000 in
relation to the sale of a motel and the land.
The Company transferred notes in the amount of $79,552 to accounts payable.
A vehicle with a book value of $9,600 and accumulated depreciation of $5,760
was disposed.
Furniture, fixtures, and equipment with a book value of $66,695 and
accumulated depreciation of $65,874 were disposed.
The Company wrote off a note payable in the amount of $1,250.
The management company made payments on notes payable in the amount of
$18,762. The management company received credit for these payments on their
accounts receivable balance.
A note payable to a company owned 100% by the CEO was reduced by credits of
$15,026 given to the management company for payments made on behalf of a
partnership in which CEO has a 25% and the Company a 50% interest.
A note payable due to an affiliated individual was reduced by $12,352 and
accrued interest payable resolved a note payable due to an affiliated individual
by $2,494 for further payments for the partnership by the management company.
The Company had the following non-cash transactions in 1998:
The Company retired old, fully depreciated leasehold improvements and
furniture and fixtures in the amount of $211,137.
The Company purchased two vehicles for $22,925 with two new notes payable
for the lack of consideration.
The Company sold a note payable with a principal balance of $122,246 and
accrued interest of $68,314 due to the CEO to a company in which the CEO is a
majority shareholder. This transaction paid off receivables due to the Company
from the CEO's company and left a credit balance in the receivable of $61,999,
which was converted, to a note payable to the CEO's company.
The Company wrote off its negative investment balance of $48,337 in a
partnership against a note receivable due from the partnership. The partnership
assigned its mortgage receivable in satisfaction of the remaining notes
receivables and accrued interest due to the Company. The write-off to bad debt
for the note adjustments was $61,899.
The Company increased notes payable and interest payable totaling $7,303 to
record additional equitable liabilities for its investment in two land
purchases.
The Company purchased land for $153,464 and booked a note payable of
$300,000. $75,484 was put into an escrow account for future expenses and the
remainder was used to pay accrued property taxes and loan costs.
The management company that collects lease payments for the Company advanced
monies to a partnership of the Company. The Company increased its investment
in the partnership and gave a credit of $29,107 to accounts receivable for these
payments (See Investments in Unconsolidated Affiliates).
The management company (accounts receivable) was also credited $29,107 for
monies due from the remaining two partners in the partnership. A loan due to
one partner from the Company was reduced by $14,553 and a note receivable from
the other partner (the CEO of the Company) was increased by $14,554 (See Related
Party).
The management company transferred a note receivable on its books due from
the CEO of the Company for a credit of $16,456 to accounts receivable (See
Related Party).
The management company transferred accounts receivable on its books from
companies in which the CEO has majority interests for credits of $ 179,965 to
accounts receivable (See Related Party).
The Company purchased a tug boat for $35,000 from a company owned by the CEO
and reduced a note receivable due from the CEO for the lack of consideration
paid (See Related Party).
The Company sold an investment in an affiliate at a loss of $73,826 (See
Investments in Unconsolidated Affiliates).
In 2000, the Company paid $30,000 in income taxes and $237,610 in interest.
In 1999, the Company paid $0 in income taxes and $205,370 in interest.
In 1998, the Company paid $25,110 in income taxes and $246,017 in interest.
C - INVENTORY
Inventory is valued at the lower of cost or market and consists of hotel and
motel furniture. The method used in determining the cost is the average cost
paid for the items.
Listed below are sales and cost of inventory sold:
2000 1999 1998
Sales $ 21 $ 439 $ 19,519
Cost 45 4,174 14,233
GROSS PROFIT (LOSS)$ (24) $ (3,735) $ 5,286
D - REAL ESTATE SALES
Gains on real estate transactions on which substantial down payments are not
received are deferred and recognized as income only as the principal amount of
the obligation is received. This deferred income is shown on the balance sheet
as a deferred income installment. Deferred income recognized was 26,289 in
2000, $33,433 in 1999 and $30,868 in 1998.
E - DEFERRED DEBT ISSUE COSTS
Deferred debt costs (primarily commitment fees) are being amortized over the
original term of the long-term debt to which they relate.
F - NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed by dividing net income by the
weighted average number of shares outstanding during the period. The weighted
average number of shares outstanding for the years ending December 31, 2000,
1999 and 1998 was 2,366,395, 2,365,284 and 2,356,949 respectively.
G - ACCOUNTS, MORTGAGES AND NOTES RECEIVABLE
In accounts receivable - trade for franchise sales, an allowance account is
provided based on a percentage of the outstanding accounts. During the year,
all bad debt write-offs were made to the allowance account. Accounts
Receivables for 2000 and 1999 are presented net of allowance for doubtful
accounts of $43,510 and $87,224 respectively.
The Company extends credit to individuals and companies in the normal course of
its operations. These loans relate to motel properties located throughout the
Southeast, and the Company requires these advances to be secured by mortgages on
the related property. The Company's exposure to loss on these notes is
dependent on the financial performance of the property and the fair value of the
property.
No reserves for uncollectible mortgages and notes receivable are maintained.
Any non-performing note is secured by assets with values greater than the
principal and accrued interest.
Included in the mortgages and notes receivable - short term are notes the
Company has with franchisees for initial franchise fees, royalty fees, sign
rental and room reservation income. The notes are either non-interest bearing
or convey an interest rate of up to 12 percent. These notes total $373,279 in
2000 and $93,369 in 1999. All are originally due within one year. However,
certain notes have been extended and have been outstanding for over one year.
Those notes due over one year are interest bearing.
Mortgages and notes receivable are stated net of associated discounts. In 2000
and 1999, the discounts totaled $ 54,175 and $80,800 respectively.
The weighted average interest rate of the mortgage notes held by the Company is
11.4 percent, and they range from 6 percent to 12.5 percent.
The Company plans to hold the notes until maturity.
Maturities over the next five (5) years are as follows:
2001 230,133
2002 256,434
2003 285,766
2004 318,471
2005 354,941
Beyond 3,339,331
H - LOANS - EMPLOYEES
Loans-Employees represents travel advances and/or loans to employees.
I - INVESTMENTS
I. INVESTMENTS IN UNCONSOLIDATED AFFILIATES
The Company has investments in unconsolidated affiliates that are accounted for
under the equity method. Under the equity method, original investments are
recorded at cost and adjusted by the Company's share of earnings, losses and
distributions of these companies. Investments in unconsolidated affiliates
consist of the following:
% Ownership 2000 1999
Houma Atrium Bldg.-
Partnership 50% (593,182) (131,942)
Extasea Casino Cruises
Of No. Fla, Inc. 40% 373,656 430,414
Hospitality Int'l
Real Estate, Inc. 45% (13,819) (23,844)
Hospitality Insurance
Services, Inc. 45% 0 (74,796)
Totals $ (233,345) $ 199,832
The CEO and another individual own the remaining 50% of the Houma Atrium
Building Partnership. Hospitality International Real Estate, Inc. is 55% owned
by one individual. Hospitality Insurance Services, Inc. is 55% owned by one
individual this entity closed in 2000. The CEO and two other individuals own
the remaining ownership of Expanse Casino Cruises of North Florida, Inc.
The Company's share of the Houma Atrium Building Partnership losses was $75,349
in 2000 and $ 70,122 in 1999. Losses on the investment have been recognized up
to the Company's at risk amount. Unrecorded losses totaled $43,202 at December
31, 2000. In 1999 and 1998, the management company, which collects lease
payments for its properties, advanced monies to the partnership. The Company
increased its investment in the partnership for these payments in 1998 (See Cash
Flow). In 1999, the Company increased its receivable due from the partnership
for these payments. The CEO of the Company owns 25% of this partnership (See
Related Party). In 2000, investment in the Houma Atrium Building partnership was
reduced and converted to a note receivable interest bearing. This was to bring
capital balances to agree to percentage of ownership. Also, the accounts
receivable was included in notes receivable.
Pan American Hospitality dissolved in 1998. The Company wrote-off its negative
investment against receivables due from the partnership. The partnership
assigned its mortgage receivable to the Company in satisfaction of the remaining
balance in principal and accrued interest due to the Company (See Cash Flow).
The Company reduced its ownership of Hospitality International Real Estate, Inc.
and Hospitality Insurance Services Inc., from 75% to 45% in 1998.
Negative investments reflect losses in excess of investment. The Company is at
risk up to at least the amount indicated.
The J. Puckett/Buena Vista Partnership dissolved in 1996. The remaining value
represents undistributed monies. The CEO was an 11% partner (See Related
Party).
Extasea Casino Cruises of No. Fla, Inc. owns the M/V Fantasea, which was
originally named the M/V Commonwealth. The CEO as well as some of the directors
have interests in this investment (See Related Party).
All the Company's investments in unconsolidated affiliates operate with fiscal
years ending on December 31. Summarized balance sheet information of the
unconsolidated affiliates as of December 31, 2000 and 1999 are as follows:
2000 1999
Current Assets $ 30,430 21,757
Property and other assets, net 3,514,348 3,772,826
Current liabilities 551,741 500,157
Long-term debt and other liabilities 3,344,703 3,105,772
Equity (351,166) 188,654
Gross Revenues 797,960 766,329
Net Income/ (Loss) (126,947) (157,799)
II. UNDISTRIBUTED EARNINGS OF UNCONSOLIDATED AFFILIATES
Pursuant to SEC Rule 4-08, the Company discloses that the consolidated retained
earnings does not contain undistributed earnings of 50 percent or less owned
investments accounted for by the equity method as of December 31,1998.
III. MARKETABLE EQUITY SECURITIES
Marketable equity securities are available for sale. Holding gains are
presented in stockholder's equity. Income taxes related to the gains are $3,408
in 2000, $41 in 1999 and $2,502 in 1998.
J - INTANGIBLE ASSETS - TRADEMARKS
Trademarks are stated on the basis of cost and are amortized, principally on a
straight-line basis, over the estimated future periods to be benefited (not
exceeding 40 years). They are periodically reviewed for impairment based on an
assessment of future operations to ensure that they are appropriately valued.
Accumulated amortization was $460,303 and $417,474 on December 31, 2000 and
1999, respectively.
Trademarks consist of $1,713,161, $510,000 of which represents the historical
cost of acquiring the trade name "Master Hosts" and related service marks,
$360,000 of which represents the cost of the Sundowner Inns and $843,161 of
which represents the marks of Downtowner/Passport International Hotel.
The Company also owns the trade name "Red Carpet Inns". A historical cost basis
in excess of $600,000 was carried on the books of the old Red Carpet Inns
Company prior to its acquisition by the Company. This amount was apparently
written off prior to the acquisition.
Management believes the current value far exceeds the historical cost to the old
company and thus the Company has in its possession an asset of substantial worth
that has no recorded cost in the financial statements. The Company also owns the
trade name "Scottish Inns" and its value is not reflected in the financial
statements.
K - INCOME TAX
The components of the provision for income taxes are as follows:
2000 1999 1998
Current:
Federal $ 10,564 $ 53,551 $ (296)
State, local, and franchise
Taxes 3,974 8,681 (126)
Total Current 14,538 62,232 (422)
Deferred Book Tax (Benefit):
Federal 11,010 46,424 56,399
State, local, and franchise
Taxes 3,987 8,783 17,303
Total Deferred 14,997 55,207 73,702
Net Tax Expense/(Benefit) $ 29,535 $ 117,439 $ 73,280
The reconciliation of the difference between the federal statutory tax rate and
the Company's effective tax rate is as follows:
2000 1999 1998
Federal statutory tax rate 15.9% 38.3% 35.3%
Deferred severance pay 3.0 0.6 (26.1)
Undistributed earnings from
Affiliates 0 0 21.9
Capital loss carryover 0 6.6 9.6
Net operating loss carryover (2.6) (14.1) (33.1)
Change in bad debt reserve (5.1) (1.3) (3.4)
Amortization of trademarks (5.9) (7.7) (8.4)
State taxes, net of
Federal income taxes (0.3) (1.3) 0
Penalties 0 0 0.7
Nondeductible employee meals 0 0 3.0
Other 0.3 0.4 0.3
Effective tax rate 5.3% 21.5% (0.2)%
INCOME TAX - (Continued)
The income tax effects of temporary differences between financial and income tax
reporting that gave rise to deferred income tax assets and liabilities are as
follows:
2000 1999 1998
Current deferred income tax assets:
Net operating loss carryover $26,678 $4,454 $2,951
Change in reserve for bad debts 0 0 0
Deferred severance pay 2,046 2,976 3,420
Contribution carryover 52 17 10
Total current deferred $28,776 $7,447 $6,381
Long-term deferred income tax assets:
Net operating loss carryover $7,943 $0 26,166
Change in reserve for bad debts 0 39,796 41,439
Deferred severance pay 43,028 35,650 39,915
Capital loss carry forward 10,632 10,632 12,287
Total Long-term deferred $61,603 $ 86,078 $119,807
Long-term deferred income tax liabilities:
Amortization on trademarks $66,552 $ 85,779 $ 72,319
Installment sale 0 102,138 102,138
Total long-term deferred $ 66,552 $187,917 $174,457
Hospitality International, Inc. incurred a net operating loss of $14,678 for
federal income tax purposes in 1998. The net operating loss carryover expires
in 2013. The Company also had a net operating loss of $7,479 that expires in
the year 2014.
In 1996, Southern Scottish Inns, Inc. (SSI) had an unused net operating loss
(NOL) carryover of $631,423. As a result of an IRS audit of SSI's 1996 tax
return and SSI's amendment of its 1994 tax returns, this NOL was reduced by
$291,998 and income tax receivables of $26,993 were recorded. SSI used $99,717
of the NOL in 1997 and $148,669 in 1998 leaving $91,809, which was applied
against 1999 income taxes.
Listed below are the years, amounts and tax benefits of the net loss carryover:
2000 1999 1998
Net operating loss utilized $ 22,649 $ 91,809 $ 148,669
Tax benefit 5,889 19,270 46,672
Tax rate 26.0% 21.0% 31.4%
The Company and its subsidiaries file unconsolidated tax returns. The entities
are not subject to IRC SEC. 1563.
L - DEBT OBLIGATIONS
The Company has incurred debt obligations principally through public and private
offerings and bank loans. Debt obligations consist of the following:
NOTES MATURITIES 2000 1999
8% - 8.95% 2001 - 2011 206,563 323,874
9% - 9.75% 2001 - 2007 358,610 391,377
10% - 10.50% 2001 - 2011 265,642 143,408
11% 2001 - 2008 538,793 504,994
12%-14% 2001 - 2004 14,876 0
16.4%-17.65% 2001 0 703
18.33%-23.80% 2001 0 2,842
Variable 2001 - 2003 235,791 424,248
Total Debt Obligations 1,620,275 1,791,446
Less: Amounts Maturing
Within one year 396,617 482,843
Net Long-Term Notes 1,223,658 1,308,603
Maturities of debt for the five years succeeding December 31, 2000 are as
follows:
2001 396,617
2002 223,271
2003 217,844
2004 169,489
2005 131,574
Beyond 481,480
Total 1,620,275
The above notes include various restrictions, none of which are presently
significant to the Company.
The Company's mortgage on the corporate headquarters was payable in full on
February 1, 1998. However, the Company obtained a bridge note through May 1,
1998 and negotiated a 5-year note on June 1, 1998.
The debt obligations are secured by assets on the consolidated balance sheet
with a book value of $2,797,176 and a market value of $4,901,481.
There are no compensating cash balance requirements attached to any of the debt
instruments.
M - OPERATING LEASES
The Company leases out as office space a portion of the corporate headquarters
it owns. The allocated cost of the portion leased for 2000 and 1999 is $340,332
and $331,350 respectively and its allocated accumulated depreciation is $118,079
in 2000 and $99,669 in 1999. The Company also leases properties it owns in
various states. These properties are recorded in Property and Equipment with a
cost of $3,498,924 in 2000 with accumulated depreciation of $658,014 and a cost
of $2,785,414 with accumulated depreciation of $585,636 in 1999.
The terms of lease agreements vary by tenant and circumstance; however, all
current lease agreements are for one year or less.
In 1997, the Company signed a four-year lease for a copier. The lease did not
meet the requirements under FAS 13 for a capital lease and was recorded as an
operating lease. Rental expense for 2000 was $6,476. Future minimum rental
payments required through the year 2001 when the copier may be purchased for its
market value are as follows:
2001 1,619
The present value of the minimum lease payments is $1,583.
INDUSTRY SEGMENTS
2000 1999 1998
Sales to unaffiliated customers:
Franchising 1,772,185 1,833,472 1,843,335
Financing & Investing 676,706 754,421 579,865
Leasing 450,667 507,064 601,909
Net profit (loss):
Franchising 31,598 14,957 12,582
Financing & Investing 18,371 16,342 (99,264)
Leasing 136,918 190,748 196,363
Identifiable assets:
Franchising 1,842,913 1,664,828 1,793,377
Financing & Investing 2,138,292 12,479,423 13,004,459
Leasing 3,725,798 3,683,599 3,556,263
Depreciation expense:
Franchising 53,746 71,292 76,512
Leasing 71,141 72,219 72,021
Amortization expense:
Franchising 21,079 21,079 1,079
Leasing 1,717 1,817 1,966
Additions in property, plant and equipment:
Franchising 62,568 12,883 44,558
Leasing 7,010 1,971 153,464
In the Financing & Investing Segment, the Company has included net income/(loss)
from unconsolidated equity investments totaling $(57,321) in 2000, $(147,648) in
1999 and $ (162,386) in 1998.
O - PROPERTY AND EQUIPMENT
Major classifications of property and equipment and their respective depreciable
lives are summarized below:
Property and equipment are recorded at cost. Depreciation is provided on a
straight-line basis over the estimated useful lives of the respective assets.
Maintenance and repairs are charged to expense as incurred. Major renewals and
betterments are capitalized. When items of property or equipment are sold or
retired, the related cost and accumulated depreciation are removed from the
accounts and any gain or loss is included in the statement of income.
Depreciable Lives
Land Improvements 10 - 37 years
Buildings 31 1/2 years
Furniture, Fixtures & Equipment 3 - 7 years
Leasehold Improvements Term of lease
Depreciation and amortization expense was $215,569 in 2000, $238,590 in 1999
and $284,656 in 1998.
P - RELATED PARTY TRANSACTIONS
In 1998, the Company wrote off its investment and loans to the dissolved
partnership (See Investment in Unconsolidated Affiliates). The partnership
assigned its mortgage receivable in satisfaction of the remaining principal and
accrued interest due to the Company from the partnership (See Cash Flow).
The CEO of the Company is a partner in two of the investments in which there
have been losses. He also has interests in two other investments (See
Investments in Unconsolidated Affiliates). In 1998, the Company invested
$35,440 yielding a 15% ownership interest in a corporation owned by the CEO. In
1999, the Company increased this investment to $118,896 yielding a 38% ownership
interest. The Company's management company of the Company's motels transferred
a receivable of $36,805 due from this company for lease payments in 1998
RELATED PARTY TRANSACTIONS - (Continued)
(See Cash Flow). In 1998, the note receivable due from the CEO was increased by
credits of $31,010 for lease payments given to the management company (See Cash
Flow). In 1999, a note payable to a company owned 100% by the CEO was reduced
by credits of $15,026 given to the management company for payments it made on
behalf of a partnership in which the CEO has a 25% and the Company a 50%
interest (See Cash Flow). The Company paid expenses in 1999 on behalf of one
CEO in the amount of $5,707. This amount is included in Receivables-
Affiliates. The CEO elected to forego an accrued severance pay of $121,205 in
1998. The write off is reflected in other income and reduced the Company's
deferred tax asset (See Long-term Liabilities and Deferred Amounts). The
Company also held a mortgage in the amount of $590,138 from a corporation in
which the CEO is a 50% shareholder in 1999. The CEO's ownership of the
Company's common stock was 50.85% as of December 31,1999. In 2000, the Company
took back the land and motel for the amounts of the unpaid principal of
590,138 and accrued interest of $64,772.
Included in Accounts Receivable-Affiliates are expenses totaling 142,414 in 2000
and $140,281 in 1999 for expenses the Company paid on behalf of Emerald Coast
Cruises, Inc., the operating company for M/V Fantasea which is owned by Extasea
Casino Cruises of No. Fla, Inc., an investment in which some of the directors
also have interests (See Investments in Unconsolidated Affiliates). In 1998,
$125,896 of the receivable was settled by selling a note payable and accrued
interest due to the CEO to Extasea Casino Cruises of No. Fla, Inc. The sale of
receivable gave rise to a credit balance, which was converted to a note payable
to Extasea Casino Cruises of No. Fla, Inc. (See Cash Flow). The receivable was
increased at the end of the year by credits for lease payments given to the
management company for payments of $143,160 it made on behalf of Emerald Coast
Cruises, Inc. (See Cash Flow). In 1999, the note payable to Extasea Casino
Cruises was paid off.
In 1998, a note payable due to an affiliated individual was reduced by $14,553
for expenses paid by the Company's management company on behalf of a partnership
in which the Company has a 50% and the individual a 25% interest (See Cash
Flow). Similarly, in 1999, the note was reduced by $12,352 and accrued interest
payable by $2,494 for further payments for the partnership by the management
company (See Cash Flow).
The Company increased the receivable due from this same partnership by payments
of $27,690 made by the management company.
In 1997, a bonus for a past president was reinstated as a note payable for
$32,833, which included accrued interest. In 1998, the Company paid $9,676 in
principal and $3,079 in interest leaving a principal balance of $1,814 and
accrued interest of $67 at December 31,1998. The note and accrued interest were
paid off in 1999.
RELATED PARTY TRANSACTIONS - (Continued)
The following is a schedule of loans to related parties:
RELATED
PARTY INTEREST RATE PRINCIPAL BALANCE ACCRUED INTEREST RECEIVABLE
12/31/00 12/31/99 12/31/00 12/31/99
Individual 6% 0 $2,500 $ 0 $ 0
Partnership
Mortgage 10% 586,791 586,791 135,016 85,676
Partnership6% 10% 17,264 17,264 20,602 19,567
CEO 6% 10% 52,811 41,349 21,574 14,635
Partnership 6% 436,185 0 23,521 0
Partnership 6% 0 590,138 0 64,772
Totals $1,093,051 $1,238,042 $200,713 $184,650
The following is a schedule of loans from related parties:
RELATED INTEREST PRINCIPAL ACCURED INTERES
PARTY MATURITIES RATE BALANCE PAYABLE
12/31/00 12/31/99 12/31/00 12/31/99
Company 2000-2005 10% $207,377 $225,230 113,318 92,850
Individual 2000-2005 12% 81,801 81,801 39,131 9,315
CEO 2000-2005 6% 129,813 141,519 15,578 0
Individual 2000-2005 15% 7,579 7,579 1,669 568
Individual 2000-2005 13% 18,850 18,850 17,628 20,240
Individual 1999 10% 526 526 158 105
Totals 445,946 475,505 187,482 143,078
Less: Amounts Maturing within one year 118,327 118,327
Net Long-Term Notes - Affiliates 327,619 357,178
Maturities of Long-Term:
2000 118,327
2001 0
2002 0
2003 0
2004 0
2005 0
Beyond 327,619
Total 5,946
Interest paid to related parties was $0 in 2000, $9,888 in 1999 and $5,871 in
1998.
Q - CAPITAL LEASES
Computers and hardware upgrades were purchased under two and three year lease
agreements in 1997. All had bargain purchase options and were recorded as
capital leases.
The equipment valuation (the same as its fair value) is as follows:
2000 1999
Computer Equipment 11,985 13,285
Accumulated Depreciation (8,390) (6,643)
Book Value 3,595 6,642
The leases were paid in full in 2000.
R - LITIGATION, CLAIMS AND ASSESSMENTS
The Company is named as a defendant in 5 litigation claims along with other
parties who are primarily responsible (i.e. cases relating to injuries that
occurred at a franchisee's location, or where another party is directly liable).
For claims against a franchise location, the Company requires that its
franchisee maintain insurance coverage including the Company as an additional
insured. The Company has its own independent liability insurance policy and an
umbrella policy. The Company has placed its insurance carrier on notice of all
outstanding claims, and there are cases pending wherein the Company is a primary
defendant. The Company has received notice of insurance coverage for each case
in which it is named as a defendant either from its insurance carrier, or from a
carrier, which has the Company, named as an additional insured. In certain
personal injury cases, wherein the liability or the value of a claim has not
been determined, the Company has received, in certain cases, notice that a
defense is being provided under a reservation of rights.
Legal fees paid during 2000, 1999 and 1998 were $165,005, $194,207 and $239,090
respectively.
S - STOCK ISSUANCE
TO OFFICERS:
In 2000, there was no stock issued.
In 1999, there was no stock issued.
In 1998, 280,000 shares of Red Carpet Inns International, Inc. common stock were
exchanged for 15,555 shares of Southern Scottish Inns' common stock by
directors. The issuance was valued at the fair market value ($1.25 per share)
of Southern Scottish Inns' common stock. Minority Interest has been diluted by
these stock swaps.
In 1997, 44,333 shares of Red Carpet Inns International, Inc., common stock were
exchanged for 2,463 shares of Southern Scottish Inns' common stock by two
directors and 24,300 shares were issued to directors and officers for board
meeting attendance. The issuance was valued at the fair market value ($1.50 per
share) of Southern Scottish Inns' stock.
TO OTHER THAN OFFICERS:
In 2000, 20,000 shares of Red Carpet Inns International, Inc., common stock was
issued for 1,111 shares of Southern Scottish Inns, Inc., common stock. The
issuance was valued at fair market value ($0.60 per share) of Southern Scottish
Inns, Inc., common stock, minority interest has been diluted by these stock
swaps.
T - LITIGATION SETTLEMENTS
From 1995 to 2000, the Company aggressively pursued its legal rights to its
trademarks. 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 all years that
significantly increased the revenues of the Company. Attorney fees related to
those settlements also increased in all years.
U - ADVERTISING COSTS
The franchising division collects advertising income to fund advertising
services that are provided to benefit franchisees. Advertising costs are
expensed as incurred with the exception of its semi-annual directories, which
are amortized on a monthly basis.
Following is a summary of advertising income and advertising costs for the years
ended December 31:
2000 1999 1998
Advertising Income 283,491 302,979 309,499
Advertising Costs (581,382) (556,259) 618,651)
Excess of Advertising Costs over
Advertising Income (297,891) (253,280) (309,152)
V - CONTINGENCIES
The amount of accounts receivable in litigation or collections was $22,848 at
the end of 2000 and $163,339 at the end of 1999. It is management and counsel's
opinion that the chances for collection are good.
The Company's franchising division pays commissions to its sales representatives
on franchises sold. The Company policy is to pay the sales person based on
receipts of royalties from the franchisee. The commissions are recognized a
earned when the franchisee pays the royalty fees.
Estimated contingent commissions for future years are approximately $60,539,
this amount has not been accrued.
The Company is the defendant in various legal actions. In the opinion of
management and counsel such actions will not materially affect the financial
position or results of operations of the Company (See Litigation, Claims, and
Assessments).
W - FINANCIAL INSTRUMENTS
I. MARKET AND OFF BALANCE SHEET RISK
The Company holds financial instruments that relate to real estate located
throughout the Southeast. If these properties decline significantly in market
value, the valuation of the associated receivable could become impaired. No
such decline is foreseen at the present time.
In 1996, the Company had two secured mortgage notes classified as non-
performing. They totaled $2,482,861 with accrued interest of $382,099 at
December 31, 1996. On December 31, 1997, the Company foreclosed one of the
mortgages and took back the land and motel for the amounts of the unpaid
principal of $1,008,971 and accrued interest of $163,756. (The operating income
of this motel is not included in the Company's income statement in 1997 nor were
the two prior years' operating results available from the prior owners). In
1998, the motel was leased to a management company. In 1999, the land and motel
obtained in 1997 by foreclosure
was sold for $1,100,000. The remaining non-performing note totaled $1,473,990
at December 31, 1999 and 1998 with accrued interest of $185,102 at December 31,
2000 and $182,602 at December 31, 1999. The fair market value of the property
secured by this mortgage exceeds the balance of principal and accrued interest.
In 1998, the Company pledged one of its properties as security for a second
mortgage on a building owned by the Houma Atrium Partnership. The book value
and market value of the pledged property was $551,028 and $2,382,981
respectively at December 31, 2000 (See Investments in Unconsolidated
Affiliates).
II. FAIR VALUE OF FINANCIAL INSTRUMENTS
INVESTMENTS - It is not practicable to estimate the fair value of investments
because there are no quoted market prices for its untraded common stock
investments, and a reasonable estimate of fair value could not be made without
incurring excessive costs.
MORTGAGES AND NOTES RECEIVABLE - The fair value of the mortgage and notes
receivable was determined by management estimates of the property values that
secure the mortgage notes. The fair value of these instruments is $6,685,800 at
December 31, 2000 and $6,956,583 at December 31, 1999, the carrying values on
the balance sheet.
MORTGAGES AND NOTES PAYABLE - The fair value of long-term debt equals the
carrying value. Fair values for these instruments are $2,066,221 in 2000 and
$2,266,951 in 1999.
III. ENVIRONMENTALLY SENSITIVE PROPERTY
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 is
known. However, it is possible that an approximately five and one-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 of 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 remaining land is carried at $55,647.
FINANCIAL INSTRUMENTS - (Continued)
IV. YEAR 2000 ISSUE
The year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. Any of the
computer programs or hardware that have date - sensitive hardware or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000.
The Company addressed year 2000 compliance in the normal upgrading of its
computer programs and replacement of defective hardware and had all systems in
compliance by June 30, 1999. The Company experienced no problems related to
Y2K.
X- LONG-TERM LIABILITIES AND DEFERRED AMOUNTS
Escrow-Advanced Construction Draw represents unspent monies advanced for site
preparation. Expenditures for the land improvements totaled $229,411 in 1997.
There were no expenditures in 1998. In 1999, the land was sold to the to the
party who had advanced these monies.
Deferred Severance Pay reflects amounts due to officers of the corporation,
which have been earned to date for continued service. Since the arrangement is
not a qualified plan for federal income taxes, the expense recognized for
financial statement purposes is not deductible for tax until paid. The deferral
of this tax deduction is recognized as deferred tax asset (See Income Tax).
Y - DISCONTINUED OPERATIONS
The furniture sales division of the Company was closed in February 1998. Gross
profits derived from the furniture sales division are disclosed in Note C -
Inventory. Losses from the operations of the division, net of tax benefits /
expenses) of $0 in 2000, $856 in 1999, and $ 216 in 1998. Costs to close the
division were minimal.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS
Exhibit 22
Wholly Owned Subsidiaries of Southern Scottish Inns, Incorporated
Alabama Motel Corporation
Carriage Inn of Huntsville, Inc.
Gulfside Mortgage Company
Hospitality Mortgage Company
Houmas Hospitality Corporation
Labove Apartment Company
LAFLA, Inc.
Mid. Continent Supply of Louisiana
Morgan City Hospitality, Inc.
Scottish Venture One, Inc.
Scottish Venture/Canton, Inc.
Southern Inns of Arkansas, Inc.
Southern Scottish Inns No. 1, Inc.
Southern Scottish Inns No. 2, Inc.
Southern Scottish Inns No. 4, Inc.
Southern Scottish Inns of Miss, Inc.
Spanish Trail Hospitality, Inc.
Zane Enterprises
Partially Owned Subsidiaries of Southern Scottish Inns, Incorporated
Hospitality International Real Estate, Inc.
Hospitality International, Inc.
Red Carpet Inns International, Inc.
Scottish Ventures No. 2, LLC
Southern Hospitality Insurance Services, Inc.
Exhibit 27
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> DEC-31-2000
<PERIOD-TYPE> YEAR
<CASH> 54,612
<SECURITIES> 0
<RECEIVABLES> 2,628,232
<ALLOWANCES> 0
<INVENTORY> 40,749
<CURRENT-ASSETS> 3,433,871
<PP&E> 4,848,545
<DEPRECIATION> (1,248,451)
<TOTAL ASSETS> 14,290,683
<CURRENT-LIABILITIES> 1,857,064
<BONDS> 1,552,248
<COMMON> 6,023,981
<PREFERRED-MANDATORY> 0
<PREFERRED> 0
<OTHER-SE> 3,137,817
<TOTAL-LIABILITY-AND-EQUITY> 14,290,683
<SALES> 21
<TOTAL-REVENUES> 3,758,786
<CGS> 0
<TOTAL-COST> 45
<OTHER-EXPENSE> 3,622,795
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 237,610
<INCOME-PRETAX> 135,946
<INCOME-TAX> (29,535)
<INCOME-CONTINUING> 106,411
<DISCONTINUED> 0
<EXTRAORDINARY> (16,293)
<CHANGES> 0
<NET-INCOME> 90,118
<ESP-PRIMARY> .06
<ESP-DILUTED> .04
Exhibit Index
Exhibit
1. Inapplicable
2. Inapplicable
3. (a) Exhibit 3 (a) to the Registrant's Annual Report on Form 10-K for
the fiscal year ended
December 31, 1983 is hereby incorporated by reference (Articles
of Incorporation of
Southern Scottish Inns, Inc. as amended)
(b) Exhibit 3 (b) to the Registrant's Annual Report on Form 10-K for
(c) the fiscal year ended
December 31, 1983 is hereby incorporated by reference (By-Laws of
Southern Scottish Inns, Inc.)
4. Specimen Common Stock Certificate.
5. Inapplicable
6. Inapplicable
7. Inapplicable
8. Inapplicable
9. Inapplicable
10. Material Contracts (Asset Sales - Lease Agreements)
11. Earnings per Share Computation
12. Security Ownership of Certain Beneficial Owners & Management
13. Inapplicable
14. Inapplicable
15. Inapplicable
16. Inapplicable
17. Inapplicable
18. Inapplicable
19. Inapplicable
20. Inapplicable
21. Inapplicable
22. List of Subsidiaries of Southern Scottish Inns, Inc.
23. Inapplicable
24. Inapplicable
25. Inapplicable
26. Inapplicable
27 Inapplicable
28 Inapplicable
29. Inapplicable