AUDIT REPORT
OF
UPTOWNER INNS, INC. AND SUBSIDIARIES
FOR THE YEARS ENDED JUNE 30, 1997, 1996, AND 1995
AUGUST 20, 1997
SOMERVILLE & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITORS' REPORT
Board of Directors
Uptowner Inns, Inc. and Subsidiary
Huntington, West Virginia
We have audited the accompanying consolidated balance sheets of
Uptowner Inns, Inc. and Subsidiary as of June 30, 1997 and June 30, 1996,
and the related consolidated statements of income, stockholders' equity
and cash flows for the year then ended. 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
audit.
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 included
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 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Uptowner Inns, Inc. and Subsidiary as of June
30, 1997 and June 30, 1996, and the consolidated results of its
operations and cash flows for the three years then ended in conformity
with generally accepted accounting principles.
(signed)
SOMERVILLE & COMPANY
August 20, 1997
Huntington, West Virginia
UPTOWNER INNS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
June 30, 1997 and 1996
ASSETS
1997 1996
Current Assets:
Cash $ 245,427. $ 463,998.
Accounts receivable (less
allowance for doubtful
accounts of $3,000.
in 1997 and 1996) 25,203. 54,656.
Inventories 5,996. 9,226.
Prepaid expenses 51,439. 28,398.
Total current assets $ 328,065. 556,278.
Property, Plant and Equipment:
Land 1,554,112. 1,087,921.
Buildings and improvements 4,989,345. 5,322,204.
Furniture and equipment 1,463,768. 1,442,494.
Construction in Progress 1,698,276. 143,390.
9,705,501. 7,996,009.
Less accumulated depreciation
and amortization 3,625,966. 3,610,706.
Property, plant and
equipment - net 6,079,535. 4,385,303.
Other Assets:
Deposits and other 128,210. 69,804.
$ 6,535,810. $ 5,011,385.
The accompanying notes are an integral part of these financial
statements.
UPTOWNER INNS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
June 30, 1997 and 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
1997 1996
Current Liabilities:
Accounts payable $ 635,311. $ 71,182.
Accrued liabilities 103,360. 94,041.
Taxes other than
Federal income tax 192,283. 107,742.
Current portion of long-term debt 272,482. 277,925.
Total current liabilities $ 1,203,436. $ 550,890.
Long-Term Debt:
Notes payable 3,119,901. 2,322,279.
Total liabilities 4,323,337. 2,873,169.
Stockholders' Equity:
Common stock - $.50 par value;
authorized - 5,000,000 shares
issued - 1,583,563 shares 791,782. 791,782.
Additional paid - in capital 1,032,290. 1,032,290.
Retained earnings 388,401. 314,144.
Total stockholders' equity 2,212,473. 2,138,216.
Total Liabilities and Equity: $ 6,535,810. $ 5,011,385.
The accompanying notes are an integral part of these financial
statements.
UPTOWNER INNS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
For the years ended June 30, 1997, 1996 and 1995
1997 1996 1995
Revenues:
Rooms $ 1,198,307. $ 1,322,668. $ 1,528,981.
Food and beverage 352,279. 435,756. 463,231.
Telephone 36,005. 31,676. 47,118.
Rent 235,986. 233,853. 226,197.
Other 44,436. 74,132. 52,163.
Total operating revenues $ 1,867,013. $ 2,098,085. $ 2,317,690.
Costs and Expenses:
Operating departments:
Cost of sales 182,211. 241,148. 236,210.
Salaries 475,893. 475,637. 489,763.
Other 109,408. 120,881. 161,005.
General and administrative 131,750. 159,848. 202,154.
Advertising 80,171. 117,833. 136,137.
Utilities 118,048. 150,454. 142,520.
Repairs and maintenance 64,610. 66,769. 95,049.
Interest 204,798. 222,742. 236,900.
Taxes and licenses 196,937. 197,093. 208,048.
Insurance and other 36,145. 34,912. 45,027.
Depreciation and amortization 192,785. 216,933. 177,207.
Total costs and expenses 1,792,756. 2,004,250. 2,130,020.
Operating income (loss) 74,257. 93,835. 187,670.
Other Income (Expense):
Gain on disposal of subsidiary - - 306,930.
Income before Federal
Income Taxes 74,257. 93,835. 494,600.
Federal Income Taxes:
Current - 4,377. -
Deferred - - -
Net Income (Loss) $ 74,257. $ 89,458. $ 494,600.
Net Income per Share $ .05 $ .06 $ .31
The accompanying notes are an integral part of these financial
statements.
UPTOWNER INNS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the years ended June 30, 1997, 1996 and 1995
Additional Retained
Common Paid-In Earnings
Stock Capital (Deficit) Total
Balance -
June 30, 1994 $ 791,782. $ 1,032,290. $( 269,914.) $ 1,554,158.
Net Income - - 494,600. 494,600.
Balance -
June 30, 1995 $ 791,782. $ 1,032,290. $ 224,686. $ 2,048,758.
Net Income - - 89,458. 89,458.
Balance -
June 30, 1996 $ 791,782. $ 1,032,290. $ 314,144. $ 2,138,216.
Net Income - - 74,257. 74,257.
June 30, 1997 $ 791,782. $ 1,032,290. $ 388,401. $ 2,212,473.
The accompanying notes are an integral part of these financial
statements.
UPTOWNER INNS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
For the years ended June 30, 1997, 1996 and 1995
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
1997 1996 1995
Cash Flows From Operating Activities:
Net income $ 74,257. $ 89,458. $ 494,600.
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 192,785. 216,933. 177,207.
Debt forgiveness ( 9,000.) ( 9,000.) -
(Gain) loss on disposal of subsidiary - - ( 306,930.)
(Increase) decrease in other assets ( 58,406.) ( 65,619.) 37,072.
(Increase) decrease in current assets:
Accounts receivable 29,453. 25,046. ( 28,910.)
Receivable - stockholders - 5,931. ( 4,549.)
Receivable - other - 430. ( 280.)
Inventories 3,230. 1,477. 7,903.
Prepaid expenses (23,041.) ( 9,688.) 2,544.
Increase (decrease) in current liabilities:
Accounts payable 564,128. 38,590. 20,105.
Accrued liabilities 9,319. 4,407. ( 55.)
Taxes other than Federal
income taxes 84,542. ( 50,494.) ( 22,217.)
Total adjustments 793,010. 158,013. ( 118,110.)
Net Cash Provided By
Operating Activities 867,267. 247,471. 376,490.
The accompanying notes are an integral part of these financial
statements.
UPTOWNER INNS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended June 30, 1997, 1996 and 1995
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
1997 1996 1995
Cash Flows From Investing Activities:
Purchase of investments $ - $ - $( 576,470.)
Proceeds from sale of investments 576,470. -
Proceeds from sale of fixed assets - - 750,000.
Capital expenditures (1,887,017.)( 477,641.) ( 21,053.)
Net cash provided
by investing activities (1,887,017.) 98,829. 152,477.
Cash Flows From Financing Activities:
Issuance of long-term debt 983,175. - -
Principal payments of long-term debt ( 181,996.) ( 180,682.) ( 349,786.)
Net cash provided
by financing activities: 801,179. ( 180,682.) ( 349,786.)
Net Increase
in Cash and Cash Equivalents ( 218,571.) 165,618. 179,181.
Cash and Cash Equivalents
at Beginning of Year 463,998. 298,380. 119,199.
Cash and Cash Equivalents
at End of Year $ 245,427. 463,998. 298,380.
Supplemental Disclosure of Cash Flow Information:
Cash Paid During the Year for:
Interest $ 204,798. 218,827. 232,323.
Income taxes - 4,377. -
The accompanying notes are an integral part of these financial
statements.
UPTOWNER INNS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies:
A. Principles of consolidation:
The consolidated financial statements include the
accounts of Uptowner Inns, Inc. and its Subsidiary after
elimination of all material intercompany balances and
transactions. The wholly owned subsidiary has had no
activity since 1981.
B. Business activity:
The Company operates a motor inn in Huntington,
West Virginia that consists of dining, banquet, and
lounge facilities. In addition, the Company operates
apartment buildings and rental properties located in
Huntington, West Virginia.
C. Inventories:
Inventories are stated at the lower of cost or market on
the first-in, first-out method.
D. Property, plant and equipment:
Property, plant and equipment are stated at cost with
depreciation being provided on the straight-line method over
the estimated useful lives of the assets as follows:
Buildings and improvements 10 - 40 years
Furniture and equipment 2 - 10 years
Repairs, maintenance and renewals are charged to
operations as incurred, and expenditures for significant
betterments and renewals are capitalized.
The cost of fixed assets retired or sold, together with
the related accumulated depreciation, are removed from the
accounts and the resulting gain or loss is included in net
earnings.
UPTOWNER INNS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies (Cont'd):
E. Income taxes:
The income taxes are provided for the tax effects of the
transactions reported in the financial statements and consist
of taxes currently due plus deferred taxes related primarily
to different methods of depreciation for book and tax
purposes and net operating loss carryovers. The deferred tax
assets and liabilities represent the future tax return
consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are
recovered or settled.
F. Per share computations:
Income per share computations are based on the weighted
average number of common shares outstanding during the year.
The average number of shares outstanding was 1,583,563 for
1997, 1996 and 1995.
G. Cash and cash equivalents:
For purposes of the statement of cash flows, cash
equivalents include time deposits, certificates of deposit, and
all highly liquid debt instruments with original maturities of
three months or less, of which the Company had none.
H. Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. Actual results could differ from these estimates.
I. Capitalized interest:
Interest costs are capitalized when incurred when proceeds
were used to finance the construction of assets. Capitalized
interest for fiscal year ending June 30, 1997 was $19,733. There
was no capitalized interest for the fiscal years ending June 30,
1996 and 1995.
UPTOWNER INNS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Disposal of subsidiary:
On August 31, 1994, the Company sold all the assets of
Uptowner Inns of Parkersburg, its wholly owned subsidiary for
cash of $750,000. The transaction resulted in a gain of
$306,930., which has been included in operations in the
year ended June 30, 1995.
Operating revenues $ -
Costs and expenses 35,527.
Net Income from operations ( 35,527.)
Other income 572,710.
Gain on disposal 306,930.
Net Income (Loss) $ 844,113.
UPTOWNER INNS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Long-term debt:
The long-term indebtedness of the Company at June 30,
1997 and 1996, were as follows:
1997 1996
10% mortgage note due a
financial institution,
secured by a deed of trust,
payable at $733. per month,
including interest, until
June 2002
$ 35,043. $ 40,100.
2% note due City of
Huntington, secured by a
second deed of trust,
payable at $2,024. per
month, including interest,
until January 2008
231,439. 250,881.
10% note due a financial institution,
secured by a deed of trust, payable at
$22,568. per month including interest,
until August 2004
1,340,087. 1,435,579.
UPTOWNER INNS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Long-term debt (Cont'd):
1997 1996
Deferred payment note due
the City of Huntington,
secured by a deed of trust
on rental property, payable
in full during first five
years if property is sold,
20% forgiveness per year
in sixth through tenth
years, dated September 1989
27,000. 36,000.
8.5% note due the Huntington
Urban Renewal Authority of Huntington,
secured by a deed of trust, payable at
$3,825. per month interest only, and final
installment of all principal and accrued
interest then outstanding due and payable
February 2004 540,000. -
Prime plus 1% installment note due a
financial institution secured by a credit
line deed of trust, payable quarterly and
then payable at $33,901. per month until
January 2008 417,809. -
7.5% mortgage note, unsecured,
payable at $218. per month,
including interest - 22,182.
Prime plus 1% installment note due a
financial institution, secured by
second deed of trust, payable
at $1,140. per month, including
interest, until September 2002
61,818. 70,278.
Prime plus 2% installment note
due a financial institution, secured
by equipment, payable at $586.
per month, including
interest - 5,106.
UPTOWNER INNS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Long-term debt (Cont'd):
1997 1996
5.5% mortgage note due to
the West Virginia Housing
Development Fund, secured
by a deed of trust, payable
at $3,070. per month,
including interest, until
November 2018
463,078. 474,122.
Prime plus 1% installment note
due a financial institution,
secured by a deed of trust,
payable at $2,902. per month,
including interest, until
February 1999
202,934. 218,146.
3,319,208. 2,552,394.
Less current portion 224,673. 230,115.
$3,094,535. $2,322,279.
Maturities of long-term debt, including debt to stockholders,
range from 1996 to 2008 and principal payment requirements during the
next five years ending June 30, are as follows:
1998 272,483.
1999 526,225.
2000 350,579.
2001 365,838.
2002 264,979.
Thereafter 1,612,279.
$ 3,392,383.
UPTOWNER INNS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Related party transactions:
During October 1988, the Company purchased property from a
related entity for the sum of $528,659. Two notes existing at the
time of purchase are being paid by the Company. One loan was
refinanced to a nonstockholder in 1989. In addition, notes were
executed for the balance of the purchase price. These loans at
June 30, 1997 and 1996 were:
1997 1996
10% note due an individual,
interest payable annually,
due December 1993 $ 8,000. $ 8,000.
10% note due an individual,
interest payable annually,
due December 1993 39,810. 39,810.
47,810. 47,810.
Less current portion 47,810. 47,810.
$ - $ -
The Company is attempting to locate the individuals in
order to satisfy these debts.
The Company and its subsidiary have entered into transactions
with various entities controlled and related to one of the Company's
shareholders. Following is a summary of transactions with these
entities as of and for the year ended June 30, 1997 and 1996:
1997 1996
Purchases from related companies $ 20,618. $ 39,018.
1997 1996
9.25% note due a company added to
their existing note, payable upon pay
down to $25,366. in October 2004 $ 25,365. -
Less current portion - -
$ 25,365. $ -
UPTOWNER INNS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Federal income taxes:
A reconciliation of income tax at the statutory rates to the
Company's effective rate for the years ended June 30, 1997, 1996
and 1995 is as follows:
1997 1996 1995
% of % of % of
Pre- Pre- Pre-
Tax Tax Tax
Amount Income Amount Income Amount Income
Income tax
provision at
statutory rate 25,247. 34.0 31,904. 34.0 168,164. 34.0
Increases (reductions):
Gain on disposal - - - - 20,228. 4.1
Dep. difference (21,549.)(29.0) (19,449.)(20.7) (26,738.)( 5.4)
Other 212. .3 519. .5 3,477. .7
Alternative
minimum tax - - 4,377. 4.7 - -
Utilization of
operating loss
carryforward ( 3,910.)( 5.3) (12,974.)(13.8) (165,131.)(33.4)
Actual provision and
effective rate - - $ 4,377. 4.7% - -
The Company has available at June 30, 1997, unused operating
loss carryforwards that may be applied against future taxable
income and that expire as follows:
Unused
Operating
Loss
Expiration Date Carryforwards
June 30, 2002 $ 20,986.
June 30, 2003 433,830.
June 30, 2004 245,295.
June 30, 2005 128,142.
June 30, 2006 147,900.
June 30, 2007 78,505.
June 30, 2008 18,147.
June 30, 2009 70,932.
June 30, 2010 -
June 30, 2011 3,816.
June 30, 2012 1,150.
UPTOWNER INNS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Federal Income taxes (Cont'd):
Deferred tax assets as of June 30, 1997 and 1996
are as follows:
1997 1996
Deferred tax asset $ 59,907. $ 83,885.
Valuation allowance 59,907. 83,885.
$ - $ -
6. Parent Company information:
Following is the selected information for Uptowner Inns, Inc.,
Parent Company only, as of June 30, 1997, 1996 and 1995 and the
years then ended:
1997 1996 1995
Operating revenues $ 1,867,013. $ 2,098,085. $ 2,317,690.
Income from operations 74,257. 93,835. 223,197.
Net income (loss) 74,257. 89,458. ( 349,513.)
Current assets 328,065. 556,278. 990,326.
Total assets 6,535,810. 5,011,385. 5,127,107.
Current liabilities 1,203,436. 550,890. 542,408.
Total liabilities 4,323,337. 2,873,169. 3,070,349.
The company has no restricted net assets.
7. Contingencies:
A $10 million suit in which the Uptowner Inns, Inc. is a
defendant has been filed by an individual who was severely injured
in an auto accident by a patron of the lounge. Legal counsel
believes that good defenses exist in this action, and that the case
will ultimately be resolved in Uptowner Inns, Inc.'s favor. The
insurance company has denied liability in this case and legal
counsel believes the risk of loss will fall to UpTowner Inns, Inc.
There are other suits pending at June 30, 1997 of approximately
$50,000. in which the Corporation is a defendant. In the opinion
of management and legal counsel, the Corporation's potential
liability arising from such cases is not reasonably determinable at
this time.
UPTOWNER INNS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Commitments:
The Company has entered into a maintenance agreement
expiring in May 1999.
Minimum future payments under the non-cancelable agreement
for each of the next five years and in the aggregate are:
Year Ended Amount
1998 1,653.
1999 1,515.
2000 -
2001 -
2002 -
Total minimum future payments $ 3,168.
On January 3, 1997, the Uptowner Inns, Inc. entered into a
loan agreement with the Twentieth Street Bank for interim financing
for construction of the Holiday Inn Hotel & Suites now under
construction in the amount of $750,000. As of June 30, 1997, the
balance on this loan is zero because the need to borrow on this
loan has not arisen.
On January 3, 1997, the Uptowner Inns, Inc. entered into a
loan agreement with the Twentieth Street Bank for financing of
construction in the amount of $3,700,000. As of June 30, 1997, the
balance on this loan is $417,809.
On December 2, 1996, the Uptowner Inns, Inc. entered into a
contract agreement with The Winter Construction Company for the
construction of the Holiday Inn Hotel & Suites now under construction
in the amount of $4,950,000. As of June 30, 1997, the commitment left
on this contract is $3,698,870.
On March 22, 1996, the Uptowner Inns, Inc. entered into a
contract agreement with Marko & Associates, Inc. for the interior
design of the Holiday Inn Hotel & Suites now under construction in
amount of $31,320. As of June 30, 1997, the commitment left on this
contract is $4,957.
On September 15, 1995, the Uptowner Inns, Inc. entered into a
contract agreement with David L. Wallace & Associates, P.A. for
architectural services of the Holiday Inn Hotel & Suites now under
construction in the amount of $76,000. As of June 30, 1997, the
commitment left on this contract is $46,427.
UPTOWNER INNS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Commitments (Cont'd):
On March 11, 1996, the Uptowner Inns, Inc. entered into a
contract agreement with Site Design for professional services for
the Holiday Inn Hotel & Suites now under construction not to
exceed $5,000. As of June 30, 1997, the possible commitment left
on this contract is $1,017.
On March 15, 1996, the UpTowner Inns, Inc. entered into a
franchise agreement for the Holiday Inn Hotel & Suites in the
amount of $65,000. This agreement is based upon specific requirements
stated for completion of the hotel and approval before opening as
Holiday Inn Hotel & Suites.
On May 6, 1996, the Uptowner Inns, Inc. entered into a master
technology agreement with Holiday Inn Worldwide for the front desk
system for the Holiday Inn Hotel & Suites for $31,949. As of
June 30, 1997, no funds have been required due to level of
construction in progress.
On May 9, 1996, the Uptowner Inns, Inc. received a proposal
from GIAC Leasing Corporation for reservation equipment for the
Holiday Inn Hotel & Suites in the amount of $31,949. As of
June 30, 1997, a contract has not been signed, but Holiday Inn
Worldwide requires this equipment and in all probability GIAC will
be contracted.
On September 23, 1996, the Uptowner Inns, Inc. entered into
a leasing agreement with GIAC Leasing Corporation for furniture,
fixtures and equipment for the Holiday Inn Hotel & Suites for
$810,000. As of June 30, 1997, they have paid $16,200. for a
lease documentation fee and proposal fee.
On November 25, 1996, the Uptowner Inns, Inc. entered into
an agreement with The Winter Construction Company to perform
construction estimated to cost $200,000. in order to reduce the
construction contract signed on December 2, 1996. As of June 30,
1997, no funds have been required due to level of construction
in progress.
9. Credit risk:
The Company maintains cash balances at a bank. Accounts at
the institution are insured by the Federal Deposit Insurance
Corporation up to $100,000.