UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-K
----------------------
Annual Report pursuant to section 13 or 15 (d) of
the Securities Exchange Act of 1934
for the fiscal year ended December 31, 1995
Commission File number 0-7107
Southern Scottish Inns, Inc.
A Louisiana Corporation
IRS No. 72-0711739
1726 Montreal Circle
Tucker, Georgia 30084
(404) 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, 1995 was $1,262,363.75. The 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
1,009,891 shares.
The number of shares outstanding of the Registrant's Common Stock as of
December 31, 1995, was 2,322,466 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,
1995, 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, 1995 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 show the various different business holdings for the last five years.
12/95 12/94 12/93 12/92
12/91
----- ----- ----- -----
- -----
Motel Franchises Held - Total 269 343 354 314 316
Master Hosts Inns 11 18 21 18 22
Red Carpet Inn 112 147 121 118
Scottish Inns 130 156 163 151
Downtowner Inns - Note 1 2 3 2 3
Passport Inns - Note 1 14 19 20 22
Motel Operated - Total 0 0 1
Master Hosts Inns 0 0
Red Carpet Inn 0 0
Scottish Inns 0 0 1
Independent 0 0
Motel Owned & Leased To
Operators - Total 4 4 5 4 7
Master Hosts Inns 1 1
Red Carpet Inn 1 1 2
Scottish Inns 1 2 3 2 3
Independent 1 0 1
Free Standing Restaurants
Owned 0 0 1
Leased In - Note 2 1 1
Operated 0 0
Subleased - Note 2 1 1 0 2
Vacant 0 0 1 0
Wrap Around Mortgages or Other
types of Financing Held 14 13 11 9 7
Parcels of Land Held for Investment
or Development 3 3
Note 1. On August 15, 1990, the Company acquired Downtowner passport
International Motel Corporation, the owner of Downtowner and Passport
registered marks. This acquisition of corporate stock was in the nature of
a conveyance in satisfaction of debt. In late 1991 the Company deemed the
1990 acquisition to be flawed and in February of 1992, the Company acquired
the assets of Passport International Motel Corporation for assumption of
debt and simultaneously conveyed same to Hospitality International, Inc.
the Company's franchising subsidiary, for the same consideration.
Note 2. One property leased from a third party is being operated as a
restaurant by Company's sub-lessee.
(b) Segment Information - Note 3
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 Ended Dec.
31,
1995 1994
1993
---------- ----------
----------
Franchising:
Revenues 2,816,074 2,656,368
2,431,452
Operating Profit (Loss) (434,218) 87,825
190,667
Financing & Investing:
Revenues 1,701,901 1,054,164
982,788
Operating Profit (Loss) 1,282,707 275,880
194,410
Leasing:
Revenues 913,602 634,675
503,421
Operating Profit (Loss) 390,175 298,817
175,020
Note 3: In previous years, Franchising and Financing/Property
Development were the catagories. Leasing has been added
for
1995, and 1994 and 1993 have been restated to show the
additional category.
* Included in Financing & Property Development Information.
(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 provides owner financing to persons
acquiring motel properties previously operated and/or owned by the
Company. For amounts of revenue of similar products and services in
excess of 15% total, see Item 1 (b) above.
(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 constitute raw materials for the Company's
franchising division, and sites suitable for development and existing
properties which may be acquired constitute raw materials for both the
Company's lodging division and its financial 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" and related trademarks, etc. used in operating
lodging facilities under these names.
(V) Seasonability
The Company's financing business by its nature is 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 nor does it anticipate any such
difficulty in the future. However, more franchisors are offering
multi-level brands, resulting in more down-scaling 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 financing
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.
(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
division each compete with other similar businesses, many of which are
larger and have more national recognition than does the Company. Each
of these divisions compete 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.
Competition in developing and financing lodging properties has been
significantly affected by over-development in some areas as well as the
area's and the country's general economic condition, and by the market
force of the Resolution Trust Corporation, the latter of which
decreased in the current reporting period.
(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 (5.3) 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 5.3 acres, therefore, may not be diminished.
(XIII) Employees
Division 12/95 12/94
12/93
Lodging Leased to Outsiders - Note 4 95 93
69
Franchise Division 45 46
46
Administrative & Finance 6 6
3
------ ------
-----
Total 146 119
119
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, as of June 30, 1995, was not then 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 franchisee in the Bahamas. As of April 30, 1995, the franchising
division has two franchisees in Costa Rica 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:
Amount
Underlying
Location Description Receivable
Mortgages
- --------- ------------ -----------
- ---------
Arlington Rd 120 Room Motel 1,020,469.18
- -0-
Jacksonville, FL on 3.5 acres
Bald Knob, AR 42 Room Motel 260,514.49
- -0-
Gretna, LA 45 Room Motel 263,092.20
- -0-
Gulfport, MS Racquet Club 267,147.97
- -0-
(courts, clubhouse, vacant lot)
Hattiesburg, MS 48 Room Motel 412,626.68
95,991.67
Lafayette, La 80 Room Motel 288,436.09
210,824.65
on 1.76 acres
Lane Avenue 144 Room Motel 1,473,989.51
- -0-
Jacksonville, FL on 4 acres
McComb, MS 51 Room Motel 323,360.89
9,134.29
Marrero, LA 100 Room Motel 481,050.60
- -0-
on 2.5 acres
Morgan City, LA 49 Room Motel 262,286.43
45,255.66
Natchez, MS 100 Room Motel 865,507.44
*313,070.90
New Iberia, LA 80 Room Motel 595,167.54
273,377.99
Ocean Springs, MS Unimproved Land 241,350.35 44,244.86
* While the indenture in favor of a bank in connection with
this receivable is not a mortgage, an original sum of
$475,000.00 of the receivable was assigned and pledged in
1990 to a bank and might be considered as being in the
nature of an underlying mortgage. Said $475,000 is reduced
to $290,563.31.
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 5 120 Room Motel $
539,892.73
Huntsville, AL - Note 6 197 Room Motel
- -0-
3.3 acres of leased land
Marietta, GA - Note 7 154 Room Motel
606,051.33
Sabine Pass, TX 30 Room Motel
55,729.67
Vicksburg, MS - Note 5 100 Room Motel
28,303.57
Note 5 These properties, on April 1, 1990, were leased to First
Hospitality Management Corporation, a corporation owned by Robert H.
Douglas, a Director of the Company and a former employee of the
Company.
Note 6 Title to this property was reacquired by foreclosure December
7, 1990. It re-opened for business April, 1990, under an agreement
with Alahunt, Inc., a corporation wholly owned by Richard A. Johnson,
a Director of Registrant. During the current reporting period, the
Company leased this property to Thelma Pullin, a sister of the
Registrant's then president.
Note 7 The Marietta property in 1992 was operated by the Company.
Since 1993, it has been leased to Timothy J. DeSandro, a former
employee of the Company.
Also, until August 2, 1991, the Company operated one "Omelet House"
restaurant located in New Iberia, Louisiana, which it leases from an
individual. On August 1, 1991, the Company entered into a rental agreement
with Alfred W. Schoeffler, who operated same from August 3, 1991, through
September 24, 1992; the property was vacant until March of 1993 since which
time the property has been leased to First Hospitality Management Company.
The following table sets forth certain information, as of this writing,
concerning other properties owned or recently owned by the company.
Location Description Mortgage
Balance
- --------- -----------
- ----------------
Atlanta, GA Warehouse on two parcels 239,867.47
of land (1.2 acres), 22,200
square feet, heated & air conditioned
including 13,000 square feet of
showroom/office.
Gulfport, MS Unimproved land, (4) lots 26,079.51
in city of Gulfport.
Gulfport, MS Warehouse/office building 41,101.81
Madison County, MS 3.0 acres of land at $300 per
month
Ross Barnett Reservoir land lease
on which was a night club
when property was acquired.
The building had been
untenantable, was deemed
to be economically unfeasible
to repair and was razed during
current reporting period. Land
is leased from Pearl River
Valley Water Supply District
and the leasehold is marketable
by assignment, sublease or
redevelopment.
Pass Christian, MS 42 Residential lots located -0-
in Blue Lake Subdivision, held
for investment.
Note On 6/9/94 our interest in Purvis, MS land was sold subject to
then debt for consideration of $250,000 to John M. Hill, a
partner of Nelson & Hill, owner of the other undivided 1/2
interest in said land.
Item 3 Legal Proceedings
Waymon Barron, Plaintiff, v. Southern Scottish Inns, of
Mississippi, Inc., et al, Defendants
On or about September 4, 1986, a Complaint for damages for negligence and
breach of implied warranty was filed in the circuit Court of Warren County,
Mississippi, styled Waymon Barron v. Motel Recovery & Development, Ltd.,
d/b/a Scottish Inn of Vicksburg, a Partnership, Lewis Slaughter and
Southern Scottish Inns, Inc., General Partner, and Sam Patel, bearing Cause
No. 14,307 on the docket of said Court. Service of Process was not had on
Registrant.
On or about August 10, 1987, an Amended Complaint for damages in the same
matter was filed in the same Court, styled Waymon Barron v. Motel Recovery
& Development, a Limited Partnership, Lewis Slaughter and Reba Slaughter,
General Partners, Scott Yeoman and James Johnstone, Limited Partners;
Southern Scottish Inns of Mississippi, Inc., N. V. Patel and Sam Patel,
bearing Cause No. 14,307 C on the docket of said Court. Later, Registrant
and Hospitality International, Inc., a partially owned subsidiary of the
Company, were made additional party Defendants. The Company and its
defendant subsidiaries have obtained separate counsel, answered the
complaints and are preparing defenses.
The Amended Complaint demands judgement of $1,500,000 plus interest and
costs of Court, and trial by jury.
The Amended Complaint alleges that Plaintiff on October 26, 1985, while a
guest in Room 101 of the Scottish Inn in Vicksburg stepped onto a rotten
place in the floor, that his leg went through and he fell injuring his
back, which injury required surgery and resulted in loss of wage earning
ability and loss of his ability to enjoy life.
On October 25, 1985, the date Mr. Barron checked into said room and on
October 26, 1985, the date of his injury, the record title of the Scottish
Inn in Vicksburg was in Defendant Southern Scottish Inns of Miss., Inc.
The motel was not being operated by said subsidiary of the Company or the
Registrant on either of said dates.
On January 26, 1984, this motel was the subject of a Contract For Deed with
Defendants Lewis Slaughter and Reba K. Slaughter, his wife. Subsequently,
and prior to August of 1984, said Defendants transferred their rights,
duties and interest under and in the Contract For Deed to Defendant Motel
Recovery and Development, a limited partnership, of which the named
individual persons were the general or limited partners. In August of
1984, Motel Recovery and Development, leased the subject motel to Defendant
N. V. Patel. On October 2, 1984, Registrant and its defendant subsidiary
recognized the transfer from Mr. and Mrs. Slaughter to Motel Recovery and
Development and the lease from Motel Recovery and development to N. V.
Patel. In May of 1986, Registrant and its defendant subsidiary, through
surrender of possession and of operation of Mr. Patel and Motel Recovery
and Development regained possession and leased same.
For some time, the Plaintiff did not diligently pursue this claim, except
for the taking of depositions of the Plaintiff's doctor and of an expert
building tradesman. Motions for Summary Judgement were filed by the Co-
Defendants, Southern Scottish Inns, Inc. and Southern Scottish Inns of
Miss., Inc. Also, Hospitality International, Inc. filed a motion for
Summary Judgement. Circa October 31, 1993, the Court file reflects that
during the last eight (8) months, the insurer for our Franchisee settled,
on behalf of Hospitality, with the plaintiff and Hospitality International,
Inc. was dismissed. During the current reporting period, the Registrant
was dismissed on Summary Judgement and Southern Scottish Inns, of
Mississippi, Inc. was dismissed on Summary Judgements. Plaintiff has
appealed both dismissals and the appeals are pending.
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, mark-downs, or other fees or commissions, and
do not represent actual transactions.
Bid Price
Asked Price
1994 High Low High
Low
----------------- ----------------
- ---------------
1st Quarter .875 .875 1.75
1.75
2nd Quarter .875 .875 1.75
1.75
3rd Quarter .875 .875 1.75
1.75
4th Quarter 1.25 1.25 1.75
1.75
(b) As of this writing, there are approximately 910 shareholders of the
Registrant's common stock.
(c) No cash dividends have been paid on the Company's common stock during
the two most recent Fiscal Years and none are 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.
1995 1994 1993 1992
1991
--------- --------- -------- --------
- --------
REVENUE 6,193,245 4,986,556 4,151,305 3,982,938
4,645,699
NET 851,209 363,480 210,678 360,047
245,598
INCOME
EARNINGS PER
SHARE .37 .16 .09
.16 .11
TOTAL 16,259,446 14,079,146 13,915,514 13,982,208 14,215,100
LONG TERM 2,710,577 2,294,691 2,356,475
2,853,736 3,049,661
STOCKHOLDER'S
EQUITY 8,764,807 7,913,598 8,231,133
8,100,892 7,725,004
CASH DIVIDENDS
PER SHARE - 0 - - 0 - - 0 - - 0 -
- 0 -
Item 7 Management's Discussion and Analysis of Financial Conditions and
Results of Operations
Capital Resources
(I) No material commitments for capital expenditures are planned other than
any possible purchases or development of properties through the
financing division.
Hospitality International, Inc. was able to acquire a suitable office
facility and moved into same on November 1, 1992. The property
consists of 2.76 acres of land and 26,888 square feet of office space,
of which 15,592 square feet is in use , of which Hospitality uses
11,296 square feet. The property costs $425,000, of which $409,000 was
financed. The loan was guaranteed by Registrant and by Bob Guimbellot,
personally. During the first week of February of 1994, the Company
moved its offices into this facility. At this time, and for the
foreseeable future, Southern Scottish Inns, Inc., Red Carpet Inns
International, Inc. and Hospitality International, Inc. are all sharing
the same office building.
(II) The trend in capital resources has resulted in a loosening of credit
with regard to new motel construction but has not changed perceptively
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 tighter credit on the purchase 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 Item 14 below.
Item 9 Disagreements of Accounting and Financial Disclosures
Not applicable.
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 55 CEO - 21
Years
Director -
23 Years
Michael M. Bush 47 Director -
14 Years
Donald Deaton 65 Director -
9 Years
Robert H. Douglas 63 Director -
17 Years
Jack M. Dubard 64 President
- - 2 Years
Director -
7 Years
C. Guy Lowe, Jr. 60 Director -
23 Years
Gretchen W. Nini 48 Director -
9 Years
Harry C. McIntire 66 Chairman -
2 Years
Director -
19 Years
George O. Swindell 58 Director -
20 Years
Richard A. Johnson 51 Director -
6 Years
Melanie G. Campbell 40 Director -
5 Years
John L. Snyder, Jr. 69 Director -
5 Years
Melinda P. Hotho 33 Director -
2 Years
Timothy D. DeSandro 46 Director -
2 Years
The Board of Directors of the Company held one regularly scheduled meeting
in 1994.
The term of office for all directors expires at the close of the next annual
meeting of shareholders. Officers serve at the please 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.
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 six years.
Donald Deaton is President of Hospitality International, Inc., a motel
franchising company and subsidiary of the Registrant.
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 the corporation to whom several of the
Company's motels are leased.
Jack M. Dubard is currently 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. Since
early 1994, Mr. Dubard has 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 8
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 5 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 has been a
general contractor of over 18 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 1995 from his employment by Hospitality
International, Inc.
Melanie Campbell is the current Corporate Secretary and Treasurer of Western
Wireline Services, Inc. She has been with this company for more than six
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-South Towing Company.
Timothy J. Desandro has been selected to serve as Director on an interim
basis. He is currently the Lessee of the Scottish Inn located in Marietta,
Georgia, which property he has managed for the past six (6) years.
Previously he functioned in the capacity of oil well service operator, a
position that Mr. DeSandro held for 20 years.
Directors who have resigned:
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 ye 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 the past 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 given Registrant notice that he is closing
Securities Transfer Company at Calendar year end.
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, 1995, the Company paid aggregate
cash compensation in the amount of $98,000.00 to Mr. Guimbellot, the
Registrant's then President and present Chief Executive Officer. His salary
was partially deferred and he is owed $169,687.27, most of which is from
prior periods. His annual salary is $88,200. In 1995, the Company paid
aggregate cash compensation in the amount of $62,969.99 to Mr. Dubard, who
for most of said period was vice president of Registrant and CEO of its
franchising subsidiary, and who for the latter part of said period was
Registrant's president and CEO of Hospitality Inc.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 cost is not
included in the compensation 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.
Amount and Nature
Present
Name of of Beneficial
Percent
Beneficial Owner Ownership Of
Class - Note 8
- ----------------- ------------------
- --------
Bobby E. Guimbellot 1,127,094
48.53%
1726 Montreal Circle
Tucker, Georgia 30084 - Note 9
Harry C. McIntire 156,011
6.71%
Roswell, GA - Note 10
Note 8 Based on 2,322,466 shares outstanding.
Note 9 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.
Note 10 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.
Amount and Nature
Present
Name Address of of Beneficial
Percent
Beneficial Owner Ownership Of
Class - Note 11
- ----------------- ------------------
- --------
Michael W. Bush Note 12 2,811
.12%
Melanie Campbell 400
.02%
Donald Deaton 1,860
.08%
Timothy DeSandro 1,248
.06%
Robert H. Douglas 1,630
.07%
Jack M. Dubard Note 14 6,407
.28%
<CATION>
Amount and Nature
Present
Name Address of of Beneficial
Percent
Beneficial Owner Ownership Of
Class - Note 11
- ----------------- ------------------
- --------
S>
Bobby E. Guimbellot Note 13 1,127,094
48.53%
Richard A. Johnson 9,215
.40%
C. Guy Lowe, Jr. 1,135
.05%
Harry C. McIntire Note 15 156,011
6.71%
Gretchen W. Nini Note 16 2,601
.11%
George O. Swindell 1,563
.06%
John L. Snyder, Jr. 600
.02%
------------------
- --------
1,312,575
56.51%
Note 11 Based on 2,322,466 shares outstanding.
Note 12 Includes 250 shares in the name of his minor son.
Note 13 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. 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.
Note 14 Includes 413 shares in the name of his wife.
Note 15 Voting and investment powers on 113,331 shares are shared with his
wife.
Note 16 Includes 639 shares in the name of her minor child.
Item 13 Certain Relationships and Related Transactions
J. Puckett and Company/Buena Vista Venture
This entity is an ordinary particular Louisiana partnership. The
Registrant owns twenty-five (25) of the one hundred (100) partnership
units. Bobby E. (Bob) Guimbellot, individually, Registrant's Chief
Executive Officer, owns eleven (11) of said partnership units.
Additionally, Mr. Guimbellot, d/b/a Coastal Companies, owns twenty (20)
of said units. Emilee B. Guimbellot, Bob Guimbellot's mother, owns one
(1) said units. Shelly Plantation Ventures, a partnership in which Mr.
Guimbellot is a principal unit owner and in which his mother is a small
unit owner, while not a partner, is a three (3) per cent equity owner
in J. Puckett. The Registrant, in June of 1992, borrowed $50,000.00
from J. Puckett. This debt was represented by a demand note bearing
interest at twelve (12) % per year and was paid off March 1995. On
November 17, 1995 this partnership sold the motel it owned on the
Southside of Highway 90 in Biloxi, Mississippi. Funds from the sale
were placed on deposit in a Trust Account with the intention of the
partnership finding a like kind exchange. After the 45 day period, it
was clear that a like kind property had not been found. The
Registrant's portion of the sale was received in January, 1996. At the
time of the property sale, a note held by J. Puckett on a prior
property credit sale on the Northside of Highway 90 in Biloxi,
Mississippi was paid and the Registrant received $258,000 in November,
1995 from that payment.
Pan American Hospitality
From time to time, and on an as needed basis, the Registrant has
made advances to Pan American Hospitality, a partnership comprised
of Red Carpet Inns International, Inc. (a subsidiary of the
Registrant), Bobby E. Guimbellot, Emilee Guimbellot (Mr.
Guimbellot's mother), Western Wireline Services, Inc., Mildred
Puckett, Mary R. Dubard (wife of Jack M. Dubard), and two
unrelated individuals. As of December 31, 1995, these advances
total $145,676.
C. Guy Lowe, Jr.
On April 4, 1986, the Company acquired from C. Guy Lowe, Jr., (a
director of the Registrant) all of the outstanding stock of O.S.
of South Louisiana, Inc. in exchange for the Registrant's
promissory note in the face amount of $132,448. On May 5, 1986,
Mr. Lowe assigned this note to Merchants Trust and Savings Bank.
No scheduled payments were made on this note. On July 31, 1990,
Red Carpet Inns International, Inc., a consolidated subsidiary of
the Company, borrowed $100,000 from Merchants Trust and Savings
Bank and loaned it to the Company. The Company, in turn, paid the
$100,000 back to Merchants Trust and savings Bank as assignee, in
full, compromise settlement of the original note of $132,448 to
Mr. Lowe. The Company will lower its basis in its O.S. of South
Louisiana, Inc. stock. The new note from Merchants Trust and
Savings Bank to Red Carpet Inns International, Inc. was guaranteed
by two affiliated entities belonging to the Company President,
Bobby E. Guimbellot. The Company is now indebted to Red Carpet
Inns International, Inc. in the amount of $70,000 at an interest
rate of one and one-half (1/2%) percent over Chase Manhattan Bank
prime rate.
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 17
Consolidated balance sheets of the Company as of December 31, 1995
and 1994.
Consolidated statements of changes in cash flow of the Company for
the Fiscal Years ended December 31, 1995, 1994 and 1993.
Notes to consolidated financial statements.
2. Financial statement schedules.
3. 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 17 For the company's fiscal years of 1985 through 1990, our Auditor
was Robert M. Mosher, C.P.A. of Biloxi, 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, P.C. 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. For the year 1994 and for the foreseeable future, Mr. Clark
will do the audits for Southern Scottish Inns, Inc., Red Carpet
Inns International, Inc. and Hospitality International, Inc. Mr.
Mosher cooperated with Mr. Clark in the transition. 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
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. Guimbelott 9/5/95 By: Jack M. Dubard 9/5/95
--------------------------- ------------------------
Bobby E. Guimbellot Date Jack M. Dubard Date
Chief Executive Officer President & CFO
SIGNATURES
(Cont.)
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 Melinda P. Hotho
- ------------------------ ------ ------------------------ ------
Michael M. Bush Date Melinda P. Hotho Date
Director Director
Melanie Campbell Richard A. Johnson
- ------------------------ ------ ------------------------ ------
Melanie Campbell Date Richard A. Johnson Date
Director Director
Donald Deaton C. Guy Lowe, Jr.
- ------------------------ ------ ------------------------ ------
Donald Deaton Date C. Guy Lowe, Jr. Date
Director Director
Timothy D. DeSandro Harry C. McIntire
- ------------------------ ------ ------------------------ ------
Timothy D. DeSandro Date Harry C. McIntire Date
Director Director
Robert H. Douglas Gretchen W. Nini
- ------------------------ ------ ------------------------ ------
Robert H. Douglas Date Gretchen W. Nini Date
Director Director
Jack M Dubard John Snyder
- ------------------------ ------ ------------------------ ------
Jack M. Dubard Date John Snyder Date
Director Director
Bobby E. Guimbellot George O. Swindell
- ------------------------ ------ ------------------------ ------
Bobby E. Guimbellot Date George O. Swindell Date
Director Director
SOUTHERN SCOTTISH INNS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
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, 1995 and 1994, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1995.
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 audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 audit provides a
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, 1995 and 1994, and
the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
ROBERT J. CLARK, PC
Roswell, Georgia
June 7, 1996
SOUTHERN SCOTTISH INNS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
1995 1994
ASSETS
CURRENT ASSETS
Cash $ 138,563 $ 83,355
Accounts Receivable - net 427,627 463,790
Accounts Receivable-Affiliates 116,196 80,057
Mortgages & Notes-Affiliates 174,210 138,690
Mortgages & Notes Receivable 174,258 261,786
Inventory 12,386 12,506
Prepaid Expenses 174,010 128,442
Loan Employees 6,512 0
Interest Receivable 323,399 213,365
Deferred Tax Benefit 0 86,771
TOTAL CURRENT ASSETS 1,547,161 1,468,762
PROPERTY AND EQUIPMENT
Land 1,221,369 1,202,811
Buildings & Buildings Improvements 2,591,206 2,946,353
Furniture, Fixtures & Equipment 1,172,517 1,025,187
Leasehold Improvements 44,449 3,007
Total Property & Equipment 5,029,539 5,177,358
Less: Accumulated Depreciation (1,208,551) (1,088,140)
TOTAL PROPERTY AND EQUIPMENT 3,820,988 4,089,218
OTHER ASSETS
Mortgages & Notes Receivable 6,534,076 5,792,047
Mortgages & Notes-Affiliates 1,141,160 267,173
Investments 579,832 166,744
Investment in Partnerships 1,512,526 1,151,550
Trademarks - Net 1,107,004 1,140,832
Other Assets 16,699 2,820
TOTAL OTHER ASSETS 10,891,297 8,521,166
TOTAL ASSETS $ 16,259,446 $ 14,079,146
The accompanying notes are an integral part of these financial statements.
SOUTHERN SCOTTISH INNS, INC.
CONSOLIDATED BALANCE SHEETS - CONTINUED
DECEMBER 31, 1995 AND 1994
1995 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 135,951 $ 133,392
Interest Payable 81,471 84,826
Taxes Payable 408,942 330,975
Other Taxes Payable 293,822 177,183
Other Liabilities 654,201 239,361
Mortgages & Notes Payable 459,280 623,148
Mortgages & Notes Payable-Affiliates 319,140 230,337
Capital Lease Obligations 0 752
Current Deferred Tax Liabilities 301,927 0
TOTAL CURRENT LIABILITIES 2,654,734 1,819,974
LONG-TERM LIABILITIES
Mortgages & Notes Payable 2,374,644 2,056,314
Mortgages & Notes Payable-Affiliates 335,933 238,377
TOTAL LONG-TERM LIABILITIES 2,710,577 2,294,691
DEFERRED AMOUNTS
Deferred Income-Installment 1,323,412 1,336,460
Deferred Income Taxes 17,655 10,593
TOTAL DEFERRED AMOUNTS 1,341,067 1,347,053
TOTAL LIABILITIES & DEFERRED AMOUNTS 6,706,378 5,461,718
MINORITY INTEREST 788,261 703,830
STOCKHOLDERS' EQUITY
Common Stock- no par value,
Authorized 50,000,000 shares,
Issued & Outstanding 2,322,466 $ 5,963,039 $ 5,963,039
Additional Paid in Capital 42,201 42,201
Retained Earnings 2,759,567 1,908,358
TOTAL STOCKHOLDERS' EQUITY $ 8,764,807 $ 7,913,598
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY $ 16,259,446 $ 14,079,146
The accompanying notes are an integral part of these financial statements.
SOUTHERN SCOTTISH INNS, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
REVENUES
Franchising Revenues $ 2,816,074 $ 2,656,368 $ 2,431,452
Financing Revenues 777,851 748,766 818,041
Sale of Furniture 175 50,458 74,653
Operating Lease Revenues 913,602 634,675 503,421
Gain on Sale of Assets 554,398 235,922 0
Investment Income 374,216 305,398 164,747
Legal Settlement Revenues 664,441 242,586 0
Other Income 92,488 112,383 158,991
TOTAL INCOME 6,193,245 4,986,556 4,151,305
COST & EXPENSES
Operating Exp.-Franchise Div. 3,253,292 2,555,793 2,228,035
Operating Exp.-Finance/Invest. Div. 841,712 1,052,816 739,705
Cost of Sales -Furniture Sales 120 59,839 0
Interest Expense 307,871 284,003 447,840
Depreciation & Amortization 270,081 216,313 188,378
TOTAL EXPENSES 4,673,076 4,168,764 3,603,958
Earnings from continuing
operations before taxes &
extraordinary items 1,520,169 817,792 547,347
Less:
Provisions for income taxes (584,530) (316,199) (208,350)
Net earnings before
extraordinary items 935,639 501,593 338,997
Extraordinary items (Net of Tax Benefit)
Write-off of signs - Red Carpet 0 (28,175) 0
Write-off of condemned building 0 (30,148) (89,342)
Net Earnings 935,639 443,270 249,655
Minority Interest in Income
of Consolidated Subsidiaries (84,430) (79,790) (38,977)
NET INCOME $ 851,209 $ 363,480 $ 210,678
Earnings per common share from operations
before taxes and extraordinary items $ .65 $ .35 $ .24
Earnings per common share before extra-
ordinary items .40 .22 .15
Net Income per common share .37 .16 .09
The accompanying notes are an integral part of these financial statements.
SOUTHERN SCOTTISH INNS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1995, 1994 AND 1993
Number of Additional
Common Shares Common Paid in Retained
Outstanding Stock Capital Earnings
Balance December 31, 1992 2,316,921 $5,963,039 $42,201 $1,792,193
Shares Issued to Directors 5,545
Adjustment for Minority
Interest (488,082)
Adjustment to Prior Periods 30,809
Net Income 210,678
Balance December 31, 1993 2,322,466 5,963,039 42,201 1,544,878
Net Income 363,480
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Balance December 31, 1994 2,322,466 5,963,039 42,201 1,908,358
Net Income 851,209
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Balance December 31, 1995 2,322,466 $5,963,039 $42,201 $2,759,567
^^^^^^^^^ ^^^^^^^^^ ^^^^^^ ^^^^^^^^^
The accompanying notes are an integral part of these financial statements.
SOUTHERN SCOTTISH INNS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
YEAR ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
CASH FLOWS FROM PROVIDED BY (USED
FOR) OPERATING ACTIVITIES
Net Income $ 851,209 $ 363,480 $ 210,678
Non-Cash Items Included in
Net Income:
Depreciation and Amortization 270,080 216,313 188,378
Uncollectible Amounts 41,224 295,504 206,036
(Gain) Loss Recognized (554,954) (235,922) 0
Deferred Income Recognized (13,048) (11,753) (10,586)
Discount Earned (3,752) (3,884) (3,471)
Investment Income-Affiliates (833,291) (202,530) 7,154
Minority Interest Income 84,430 79,790 38,977
Net Changes In Current Assets
and Liabilities:
Accounts Receivable 36,163 (145,994) (256,446)
Accounts Receivable-Affiliates 55,662 (12,330) (90,500)
Inventories 120 62,808 (75,314)
Loan Receivable-Employee (6,513) 1,313 (1,313)
Other Assets 13,878 430 675
Interest Receivable (110,034) (71,243) (76,481)
Prepaid Expense (45,568) (83,798) 9,391
Accounts Payable 2,559 (173,370) (127,381)
Interest Payable (3,355) 70,730 (934)
Taxes Payable 193,557 343,409 (65,595)
Deferred Income Tax 396,809 67,138 51,721
Other Accrued Liabilities (97,353) (9,743) 177,955
NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES 277,823 550,348 182,944
CASH FLOWS PROVIDED BY (USED FOR)
INVESTING ACTIVITIES
Investment Distribution 415,000 0
Payments on Mortgages and
Notes Receivable-Incurred (565,453) (76,262) (230,103)
Collections on Mortgages and
Notes Receivable 117,527 228,660 401,123
Acquisition of Fixed Assets (223,930) (348,335) (58,528)
Investment Purchases (85,827) 0
NET CASH PROVIDED BY (USED FOR)
INVESTING ACTIVITIES (342,683) (195,937) 112,492
The accompanying notes are an integral part of these financial statements.
SOUTHERN SCOTTISH INNS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW - CONTINUED
FOR THE YEAR ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
CASH FLOWS PROVIDED BY (USED
FOR) FINANCING ACTIVITIES
Proceeds from Notes Payable $ 814,900 $ 461,600 $ 300,605
Principal Payments on Mortgages
and Notes Payable (694,080) (876,462) (557,046)
Principal Payments on Capital
Lease Obligations (752) (4,401) (2,924)
NET CASH PROVIDED BY (USED
FOR) FINANCING ACTIVITIES 120,068 (419,263) (259,365)
Increase (Decrease) in Cash 55,208 (64,852) 36,071
Cash - Beginning 83,355 148,207 112,136
Cash - Ending $ 138,563 $ 83,355 $ 148,207
^^^^^^^^^^^ ^^^^^^^^^^^ ^^^^^^^^^^^
The accompanying notes are an integral part of these financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
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% interest in Hospitality International, Inc.
and Red Carpet Inns International, Inc. owns the other 50%;
therefore, all of its operations are included in these financial
statements and it is noted as the franchising division. The Company
owns 70.8% 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 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 franchisor for Red Carpet Inns
and Master Host Inns as well as Scottish Inns and owns the
Downtowner/Passport trademarks. Its market has historically been the
contiguous United States; however, in 1994 the Company began to
explore international markets. The Company also provides a
nationwide central reservation service for its franchisees.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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 Company's 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.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1995
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.
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 are recognized when all material
conditions of the sale have been substantially performed.
Substantial performance by the franchisor occurs when, 1) the
franchisor 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 franchisor by contract or otherwise have
been substantially performed, and 3) all other conditions have been
met which affect the consummation of the sale.
ACCOUNTING POLICY - STATEMENT OF CASH FLOWS
For purposes of the cash flow statement, the Company considers all
highly liquid debt instruments with a maturity of three months or
less to be cash equivalents.
In 1995 the Company purchased an investment for $512,192 and recorded
a payable for the same amount. The cash was paid in January 1996.
During 1994, the Company had the following non-cash transactions:
1. The Company exchanged land for an installment note
receivable of $13,000.
2. The Company purchased a building and land by financing
$250,000 of the purchase price with a mortgage note.
In 1995, the company paid $95,149 in income taxes and approximately
$261,113 in interest.
In 1994, the Company paid $985 in income taxes and approximately
$236,940 in interest.
In 1993, the Company paid approximately $361,361 in interest.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1995
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. The furniture sold in 1993
had a zero basis; and therefore, no cost of sales was recorded.
Inventory was sold at a loss in 1994. In 1995, $175 of inventory was
sold at a cost of $120.
REAL ESTATE SALES
Gains on real estate transactions on which substantial down payments
are not received are deferred and recognized as income only when the
principle amount of the obligation is received. This deferred income
is shown on the balance sheet as a deferred credit.
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.
NET INCOME PER SHARE
Net income per common 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, 1995 and 1994 was 2,322,466 and 2,319,694 in 1993.
ACCOUNTS, MORTGAGES AND NOTES RECEIVABLE
For accounts receivable - trade, 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 1995 and 1994 are presented net of allowance for
doubtful accounts of $71,082, and $92,318 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 reserve for uncollectible mortgages and notes receivable is
maintained. Questionable unsecured notes receivable are written down
to net realizable value; secured mortgages and notes receivable are
written down to the adjusted basis of the secured property.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1995
ACCOUNTS, MORTGAGES AND NOTES RECEIVABLE - (CONTINUED)
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%. The
management elected to write off some of the accrued interest for this
year. These notes amount to $32,469 in 1995 and $46,762 in 1994.
All are due within one year. 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 1995, these totaled $135,897.
The weighted average interest rate of the mortgage notes held by the
Company is 11.4%, and they range from 10% to 12.5%.
Maturities over the next five (5) years are as follows:
1996 $174,258
1997 104,821
1998 128,999
1999 138,357
2000 149,989
Beyond 6,011,910
LOAN EMPLOYEES
Loan Employees represents travel advances and/or loans to employees.
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:
December 31,
% ownership 1995 1994
Mid Continental Supply Company 20% $ 2,000 $ 0
ExtaSea Casino Cruises, Inc. 47% 53,827 59,574
J Puckett/ Buena Vista-Partnership 25% 1,615,286 990,740
Pendex Corp 50% 6,334 8,000
Houma Atrium Bldg-Partnership 50% (54,423) 81,472
Labove Apartment Company 50% 30,000 0
Pan American Hospitality-Partnership 13% (48,337) (31,956)
Commonwealth-Partnership 50% 512,192 0
Hospitality Int'l Real Estate, Inc. 50% (24,521) (21,073)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1995
INVESTMENTS IN UNCONSOLIDATED AFFILIATES - (CONTINUED)
Those negative investments reflect losses in excess of investment,
and the Company is at risk up to at least the amount noted.
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, 1995
and 1994 are as follows:
1995 1994
Current Assets $ 3,632,281 $2,972,041
Property and other assets, net 3,742,662 3,002,985
Current liabilities 700,175 563,340
Long-term debt and other liabilities 3,123,098 2,497,398
Equity 3,392,030 2,809,874
INTANGIBLE ASSETS - TRADEMARKS
Trademarks are stated on the basis of cost and are amortized,
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
$246,158 and $212,329 on December 31, 1995 and 1994, respectively.
The trade name "Red Carpet Inns" is also owned by the Company. 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 apparently was 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.
In 1993 the franchising division accepted the marks of
Downtowner/Passport International Hotel Corporation from Southern
Scottish Inns, Inc. in satisfaction of Southern Scottish Inns, Inc.
payable to the franchising division. In this transaction, the
Company also assumed some debt of Downtowner/Passport International
Hotel Corporation to outside parties. The amount booked as
Downtowner/Passport International Hotel Corporation's trademark
comprises three amounts: (1) the receivable from Southern Scottish
Inns, Inc., (2) the debts of Downtowner/Passport International Hotel
Corporation assumed and (3) an outstanding receivable due to the
company from Downtowner/Passport International Hotel Corporation.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1995
INCOME TAX
The components of the provision for income taxes are as follows:
Year ended December 31, 1995 1994 1993
Current:
Federal $155,153 $166,138 $134,410
State, local, and franchise taxes 33,618 32,412 25,260
Total Current 188,771 198,550 159,670
Deferred:
Federal 335,957 99,142 38,919
State, local, and franchise taxes 59,802 18,507 9,760
Total Deferred 395,759 117,649 48,679
TOTAL $584,530 $316,199 $208,349
The reconciliation of the difference between the federal statutory
tax rate and the Company's effective tax rate is as follows:
Year ended December 31, 1995 1994 1993
Federal statutory tax rate 33.6% 33.7% 31.3%
Undistributed earnings from partnership -16.4 - -
Net operating loss carryforward -4.4 -11.8 -8.3
Change in bad debt reserve -0.5 0.5 -
Amortization of trademarks -0.5 -0.9 -0.3
State, local and franchise taxes,
net of federal income taxes 1.5 2.6 3.1
Penalties 0.1 - 0.3
Nondeductible employee meals 0.4 0.8 0.4
Other -1.4 -0.7 2.7
Effective tax rate 12.4% 24.2% 29.2%
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1995
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:
Year ended December 31, 1995 1994 1993
Current deferred income tax assets:
Net Operating loss carryforward $ 0 $84,281 $113,067
Change in reserve for bad debts 0 2,490 0
Total Current deferred income tax assets: 0 86,771 113,067
Long-term deferred income tax assets:
Net operating loss carryforward 0 84,281
Current deferred income tax liabilities:
Change in reserve for bad debts 16,985 0
Undistributed earnings from a
partnership 284,942 0
Total current deferred
income tax liabilities: $301,927 $ 0 $84,281
Long-term deferred income tax liabilities:
Amortization on trademarks $17,655 $10,593 $3,531
On December 31, 1992, the Company had an unused net operating loss of
$628,319 to be applied toward future taxable income. Listed below
are the years, amounts, and tax benefit of the net loss carryforward.
The remaining loss carryforward was totally used against taxable
income in 1995. Such amounts reduce the current portion of tax that
is actually payable.
Year ended December 31, 1995 1994 1993
Net operating loss utilized $197,564 $285,658 $145,097
Tax benefit 84,281 113,067 45,148
Tax rate 39.7% 39.6% 31.1%
The Company and its subsidiaries file unconsolidated tax returns.
The entities are not subject to Internal Revenue Code Section 1563.
The taxes have been calculated accordingly.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1995
DEBT OBLIGATIONS
The Company has incurred debt obligations primarily through public
and private offerings and bank loans. Debt obligations consist of
the following:
NOTES MATURITIES 1995 1994
7% 1995 $ 0 $ 16,016
8% - 8.95% 1996 - 2009 537,239 625,021
9% - 9.75% 1996 - 2007 880,066 860,022
10% - 10.5% 1996 - 2001 436,276 340,369
11% 1996 - 2010 592,793 0
12.5% 1996 - 1997 7,021 25,093
15% 1995 0 30,582
Variable 1996 - 1998 380,529 782,359
Total Long-Term Notes 2,833,924 2,679,462
Less: Amounts Maturing within one
year 459,280 623,148
Net Long-Term Notes $2,374,644 $2,056,314
^^^^^^^^^ ^^^^^^^^^
Maturities of long-term debt for the five years succeeding December
31, 1995, are as follows (in thousands):
1996 459,280
1997 238,273
1998 353,842
1999 206,586
2000 219,452
Beyond 1,356,491
The above notes include various restrictions, none of which are
presently significant to the Company.
OPERATING LEASES
The Company leases out as office space a portion of the building it
owns. The allocated cost of the portion leased is $161,856 and its
allocated accumulated depreciation is $16,700 at the end of 1995.
The company also leases properties it owns in various states. These
properties are recorded in Property & Equipment and total $2,859,661
with accumulated depreciation of $448,926. The terms of lease
agreements vary by tenant and circumstance; however, all current
lease agreements are for one year or less. Contingent lease income
for one property is based on ninety percent of property profits and
amounts to $471,700 in 1995.
Schedule of Minimum Future Rental on Noncancelable Operating Leases
1996 $ 355,321
^^^^^^^^
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1995
INDUSTRY SEGMENTS
The information about the Company's operations in different
industries are as follows:
For the years ended December 31, 1995 1994 1993
Sales to unaffiliated customers:
Franchising 2,816,074 2,656,368 2,431,452
Financing & Investing 1,701,901 1,054,164 982,788
Leasing 913,602 634,675 503,421
Operating profit (loss):
Franchising (434,218) 87,825 190,667
Financing & Investing 1,282,707 275,882 194,410
Leasing 390,175 298,817 175,020
Identifiable assets:
Franchising 2,281,901 2,136,899 2,099,217
Financing & Investments 7,175,293 5,806,980 5,109,412
Leasing 2,697,806 2,745,240 2,701,514
Depreciation expense:
Franchising 129,859 87,224 66,140
Financing & Investing 0 0 0
Leasing 60,217 54,223 57,813
Amortization expense:
Franchising 21,079 21,079 0
Financing & Investing 0 0 0
Leasing 0 0 0
Additions in property, plant and equipment:
Franchising 204,582 62,799 93,513
Financing & Investing 0 285,536 0
Leasing 19,348 0 0
Included in the Financing & Investing Segment the Company has
included net income from unconsolidated equity investments totaling
$375,316 in 1995, $305,398 in 1994 and $164,747 in 1993.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1995
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 straight-line 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 deprecation 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 30 1/2 years
Furniture, Fixtures & Equipment 3-7 years
Leasehold Improvements Term of lease
Depreciation and amortization expense was $270,081 in 1995, $216,313
in 1994 and $188,378 in 1993.
RELATED PARTY TRANSACTIONS
The Company paid expenses on behalf of four of its unconsolidated
subsidiaries. The balance due from the subsidiaries was $116,016 at
December 31, 1995 and $80,057 at December 31, 1994.
The Company purchased a mortgage note of a related unconsolidated
partnership from a third party in 1995. The mortgage is on the motel
which the partnership operates and derives its revenues. The
mortgage was purchased for $350,000 cash when it had a carrying value
of $481,943; therefore, the Company booked an original issue discount
of $131,943.
The following is a schedule of loans to related parties:
RELATED INTEREST PRINCIPAL ACCRUED INTEREST
PARTY RATE BALANCE RECEIVABLE
12/31/95 12/31/94 12/31/95 12/31/94
Partnership 10% $263,955 $197,783 $ 7,400 $ 18,290
Individual 10% 0 10,441 0 186
Partnership 6 - 10% 67,264 67,264 6,473 3,291
Corporation 10% 36,640 0 0 0
Director 6% 130,553 130,375 8,055 0
Corporation 12% 466,959 0 0 0
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1995
RELATED PARTY TRANSACTIONS - (CONTINUED)
The following is a schedule of loans from related parties:
RELATED INTEREST PRINCIPAL ACCRUED INTEREST
PARTY MATURITIES RATE BALANCE BALANCE
12/31/95 12/31/94 12/31/95 12/31/94
Company 1996-2000 15% $240,506 $ 76,893 $ 6,199 $ 0
Director 1996 12% 5,239 0 0 0
Individual 1996-2000 12% 48,445 30,804 555 50
CEO 1996-2000 6% 218,447 273,098 44,076 31,667
Individual 1996-2000 15% 9,792 9,792 5,915 4,510
Individual 1996-2000 13% 94,620 57,181 8,161 5,598
Partnership 1996-2000 9% 38,024 11,497 0 0
Partnership 1995 15% 0 9,449 0 3,855
Total Long-Term Notes and
Interest due from Affiliates $655,073 $468,714 $ 64,906 $ 45,680
Less Amounts Maturing
within one Year 319,140 230,337
Net Long-Term Notes
from Affiliates $335,933 $238,377
^^^^^^^ ^^^^^^^
Maturities of Long-Term:
1996 319,140
1997 48,487
1998 39,854
1999 38,658
2000 37,567
Beyond 171,367
CONDEMNED BUILDING WRITE OFF
In 1993 an existing building was condemned and written off. The loss
shown on the books was $148,904.00. The fixed asset and accumulated
depreciation for this property was removed from the corporate books,
except for an allowance of $50,000 for salvage of scrap metal. This
amount was written off in 1994.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1995
PENDING LITIGATION
At present time the company has a pending litigation against them in
the amount of $1,500,000. The lawsuit has been dismissed, however
the plaintiff still has time to appeal. The Company is also the
defendant in other 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.
CHANGE IN METHODOLOGY FOR CALCULATING MINORITY INTEREST IN
SUBSIDIARIES
A change in the calculation for determining minority interest was
made in 1993. Minority interest was increased based on requirements
stated in Statements of Financial Accounting Standards No. 94.
STOCK ISSUANCE TO OFFICERS
During 1993 common stock was issued to corporate officers. These
shares were exchanged for Red Carpet Inns International, Inc. common
stock based on like kind market rules and totaled 3,334 shares.
LITIGATION SETTLEMENTS
In 1994 and 1995 the franchising division aggressively pursued its
legal rights to its trademarks. It has been successful in stopping
motel operations from illegally using its trademarks, as well as
enforcing compliance to its franchise agreements. Settlements were
reached on a number of lawsuits in 1995 and 1994 that significantly
increased the revenues of the Company. Attorneys collected one-third
of settlements as fees; therefore, legal expenses also increased
significantly in 1995 and 1994.
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. The
Company is carrying a prepaid advertising balance for the years
ending 1995 and 1994 in the amount of $85,678 and $49,967
respectively.
A summary of advertising income and advertising costs for the years
ended December 31,
1995 1994 1993
Advertising Income 500,862 460,027 403,831
Advertising Costs (858,628) (735,642) (615,340)
Excess of Advertising
Costs over Advertising
Income (357,766) (275,615) (211,509)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1995
SIGNS - RED CARPET INNS
The Company held Red Carpet Inns signs for future sale. In 1994, a
change in personnel and a lack of sufficient documentation made the
existence and thus valuation of the signs unknown and accordingly
management decided to write-off these assets at their historical
cost.
CONTINGENCIES
The amount of accounts receivable in litigation or collections at the
end of 1995 was $59,365 and $35,571 in 1994. It was management's and
counsel's opinion that the chances for collection were 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 as earned when the franchisee pays the
royalty fees. Estimated contingent commissions for future years are
approximately $102,000. The turnover of franchises makes the
likelihood of payment only reasonably possible; therefore, this
amount has not been accrued.
In 1995, the Company purchased an equity interest in a corporation
and guaranteed some of its loans. The guarantees totaled $235,760.
The Company also perfected an interest in the corporation's property.
PRIOR PERIOD ADJUSTMENT
The Company made an adjustment to the retained earnings for 1993 to
correctly amortize its trademarks and to properly account for tax
benefits of the net operating loss carryforward on the books of a
consolidated subsidiary. The amortization of the trademarks does not
have any income tax effect, and it reduced net income in years prior
to 1993 by $165,750. The tax benefit of the carryforward loss
increased net income in years prior to 1993 by $196,559. This
carryforward benefit was completely used in 1995.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1995
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.
The Company is carrying a 13% investment in a partnership which
operates a motel and restaurant. This Partnership has had operating
losses in previous years and the Company has loaned the Partnership
monies to fund its daily operations. These loans total $263,954 and
carry an interest rate ranging from 9% to 12%. The loans are due on
demand; however, the Company does not intend to call them in the near
future. If the property and all of its assets were sold at their
estimated fair market values, the monies received might not yield
enough to repay these unsecured loans to the Company. However, the
Company does own the mortgage note on the property of the
Partnership. (See related party notes.) Since the note was
purchased at a discount and the estimated fair value of the property
exceeds the carrying value of the note, the Company reasonably
expects to recover the purchase price of the mortgage.
The Company has three secured mortgage notes classified as non-
performing. They total $2,806,221 with accrued interest of $186,589
at December 31, 1995. However, the fair market values of the
properties secured by these mortgages exceed the balance of principal
and accrued interest.
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. (See
Investments.)
MORTGAGES AND NOTES RECEIVABLE - The fair value of the mortgage and
notes receivable was determined by management estimates of the
property values which secure the mortgage notes. The fair value of
these instruments is $7,175,293 at December 31, 1995 and $6,053,833
at December 31, 1994.
LONG-TERM DEBT - The fair value of the long-term debt is based on the
borrowing rates currently available to the Company for bank loans
with similar security arrangements, terms and average maturities.
The fair value for these instruments is $2,833,924 at December 31,
1995 and $2,679,462 at December 31, 1994.
Consolidated statements of share-holders equity
Number of Additional
Three Years Ended Common Shares Common Paid in Retained
December 31, 1995 Outstanding Stock Capital Earnings
Balance December 31, 1992 $2,316,921 $5,963,039 $42,201 $1,792,193
Shares Issued to Directors 5,545
Adjustment for Minority
Interest (488,082)
Adjustment to Prior Periods 30,809
Net Income 210,678
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Balance December 31, 1993 2,322,466 5,963,039 42,201 1,544,878
Net Income 363,480
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Balance December 31, 1994 2,322,466 5,963,039 42,201 1,908,358
Net Income 851,209
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Balance December 31, 1995 $2,322,466 $5,963,039 $42,201 $2,759,567
^^^^^^^^^ ^^^^^^^^^ ^^^^^^ ^^^^^^^^^