EXHIBIT 99.3
INDEPENDENT AUDITORS' REPORT
To The Partners
Packwood Jekyll Limited Partnership
We have audited the accompanying comparative balance sheets of Packwood
Jekyll Limited Partnership as of December 31, 1996 and December 31, 1995 and the
related statement of income (loss), partners' capital and cash flows for the
years 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 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 financial position of Packwood Jekyll Limited
Partnership as of December 31, 1996 and December 31, 1995 and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
Wertheim & Company
New York, N.Y.
February 14, 1997
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PACKWOOD JEKYLL LIMITED PARTNERSHIP
COMPARATIVE BALANCE SHEETS
DECEMBER 31, DECEMBER 31,
1996 1995
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ASSETS
Current Assets
Cash.............................................................................. $ 26,146 $ 10,085
Accounts receivable............................................................... 65,323 41,011
Inventories--Note 2............................................................... 26,115 37,449
Prepaid taxes and expenses........................................................ 97,738 107,844
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Total Current Assets.......................................................... 215,322 196,389
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Property and Equipment--Note 3......................................................
Building.......................................................................... 2,085,254 2,085,254
Improvements...................................................................... 1,138,435 1,138,435
Furniture, fixtures and equipment................................................. 2,274,467 2,254,446
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Less: Accumulated depreciation.................................................. 2,816,441 2,517,827
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Total Property and Equipment.................................................. 2,681,715 2,960,308
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Other Assets--Note 4................................................................
Unamortized mortgage loan expense................................................. 6,490 10,588
Unamortized franchise fees........................................................ -- 7,090
Security deposits................................................................. 8,183 7,246
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Total Other Assets............................................................ 14,673 24,924
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$ 2,911,710 $ 3,181,621
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LIABILITIES AND CAPITAL
Current Liabilities
Mortgage payable--current portion--Note 5......................................... $ 114,301 $ 106,114
Accounts payable.................................................................. 248,697 326,313
Accrued liabilities............................................................... 217,880 138,320
Sales, payroll and other taxes payable............................................ 151,076 104,318
Loans payable--Merrill Lynch--Note 10............................................. 252,178 251,132
--other--current portion--Note 12..................................... 24,276 28,865
Note payable--Packwood Management, Inc.--Note 13.................................. 60,000 --
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Total Current Liabilities..................................................... 1,068,408 955,062
Long-Term Liabilities
Mortgage payable--net of current portion--Note 5.................................. 4,105,810 4,206,597
Loans payable--other--net of current portion--Note 12............................. 32,230 58,269
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Total Liabilities............................................................. 5,206,448 5,219,928
Commitments and Contingent Liabilities
Partners' Capital--Note 6........................................................... (2,294,738) (2,038,307)
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$ 2,911,710 $ 3,181,621
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The accompanying notes are an integral part of this report.
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PACKWOOD JEKYLL LIMITED PARTNERSHIP
COMPARATIVE STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED
--------------------------
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
Income............................................................................... $3,502,333 $3,666,278
Cost of Sales........................................................................ 1,357,048 1,319,420
------------ ------------
Gross Profit......................................................................... 2,145,285 2,346,858
------------ ------------
Operating Expenses
General and administrative......................................................... 278,523 261,496
Management fees.................................................................... 103,232 108,107
Other operating expenses........................................................... 1,060,567 1,112,964
------------ ------------
Total Operating Expenses..................................................... 1,442,322 1,482,567
------------ ------------
Operating Profit..................................................................... 702,963 864,291
------------ ------------
Other (Income) Expenses
Mortgage interest.................................................................. 365,846 370,407
Other interest..................................................................... 38,119 23,254
Rent............................................................................... 155,589 160,527
Interest income.................................................................... -- (124)
General partners' assets management fee--Note 7.................................... 35,030 38,891
Real estate and personal property taxes............................................ 55,007 57,667
------------ ------------
649,591 650,622
------------ ------------
Income before Depreciation........................................................... 53,372 213,669
------------ ------------
Depreciation....................................................................... 298,615 342,000
Amortization--loan fees............................................................ 4,098 4,099
--franchise fees........................................................ 7,090 7,090
------------ ------------
309,803 353,189
------------ ------------
Net Income (Loss) for Year........................................................... $ (256,431) $ (139,520)
------------ ------------
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The accompanying notes are an integral part of this report.
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PACKWOOD JEKYLL LIMITED PARTNERSHIP
COMPARATIVE STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
--------------------------
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
Cash Flows from Operating Activities:
Net (Loss)........................................................................... $ (256,431) $ (139,520)
------------ ------------
Adjustments to Reconcile Net Income to Cash Provided by Operations:
Depreciation....................................................................... 298,615 342,000
Amortization....................................................................... 11,188 11,189
Accounts receivable................................................................ (24,312) (7,119)
Inventories........................................................................ 11,334 (4,749)
Prepaid expenses................................................................... 10,106 (52,293)
Accounts payable................................................................... (77,616) 124,786
Accrued liabilities and taxes...................................................... 126,318 (14,808)
Security deposits.................................................................. (937) (2,702)
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Total Adjustments.............................................................. 354,696 396,304
------------ ------------
Net Cash Provided by Operating Activities............................................ 98,265 256,784
------------ ------------
Cash (Used) in Investing Activities:
Capital expenditures............................................................... (20,021) (160,568)
------------ ------------
Cash Flows From Financing Activities:
Proceeds from bank loan (net)...................................................... 1,046 53,183
Partners' drawings................................................................. -- (100,000)
Principal payments under mortgage.................................................. (92,600) (79,531)
Principal payments under lease payable (net)....................................... (30,629) (808)
Note payable--Packwood Management, Inc............................................. 60,000 --
------------ ------------
Net Cash (Used) in Financing Activities.............................................. (62,183) (127,156)
------------ ------------
Net Increase (Decrease) in Cash...................................................... 16,061 (30,940)
Cash at Beginning of Year............................................................ 10,085 41,025
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Cash at End of Year.................................................................. $ 26,146 $ 10,085
------------ ------------
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Supplemental Schedule of Financing Activities
Interest paid...................................................................... $ 375,293 $ 389,377
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The accompanying notes are an integral part of this report.
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PACKWOOD JEKYLL LIMITED PARTNERSHIP
PARTNERS' CAPITAL
BALANCE
JANUARY 1, DECEMBER 31,
1996 NET LOSS DRAWINGS 1996
------------- ----------- ----------- -------------
Limited Partners......................................... $ (844,153) $ (128,216) $ -- $ (972,369)
General Partners......................................... (1,194,154) (128,215) -- (1,322,369)
------------- ----------- ----------- -------------
$ (2,038,307) $ (256,431) -- $(2,294,738)
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
The accompanying notes are an integral part of this report.
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PACKWOOD JEKYLL LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION
The Partnership acquired the Jekyll Island Inn of Jekyll Island Georgia on
February 15, 1989. The Hotel is a 265-room resort Hotel.
BASIS OF FINANCIAL STATEMENTS
The Partnership maintains its books and records and files its tax returns on
the accrual basis.
In preparing statements in conformity with generally accepted accounting
principles, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and revenues and
expenses during the reporting period. Actual results could differ from the
estimates.
(2) INVENTORIES
Inventories are stated at the lower of cost or market. They consist of:
DECEMBER 31,
--------------------
1996 1995
--------- ---------
Linen................................................................... $ 10,331 $ 11,632
Food.................................................................... 8,616 13,799
Beverages............................................................... 5,449 4,943
Tickets and miscellaneous............................................... 1,719 7,075
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$ 26,115 $ 37,449
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--------- ---------
(3) PROPERTY AND EQUIPMENT
Property and equipment are capitalized at cost. Significant improvements are
capitalized; maintenance and repairs are charged to income. When equipment is
retired or otherwise disposed of, the cost of the assets and related accumulated
depreciation are eliminated from the accounts and any gain or loss on
disposition is credited or charged to income.
Depreciation and amortization of fixed assets is computed on accelerated
methods using lives from five to 31 1/2 years.
(4) OTHER ASSETS
Mortgage loan costs and franchise fees are all to be amortized over a
60-month period.
(5) MORTGAGE PAYABLE
The Partnership has a first mortgage with GE Capital Asset Management Corp.
for $4,500,000. Payments are at $39,052.05 per month with the balance due on
July 31, 1998. Interest is at 8.5%. The balance due at December 31, 1996 was
$4,220,111.
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(6) PARTNERS' CAPITAL
Pursuant to the partnership agreement all operating profits and losses of
the Partnership are allocated as follows:
50% -- Limited Partners
50% -- General Partners
(7) GENERAL PARTNERS' ASSET MANAGEMENT FEE:
The general partners receive in accordance with their respective interest an
asset management fee in the amount of one percent of the Partnership's gross
revenues. This fee is cumulative but subordinate to the cumulative return (10%
per annum) payable to the limited partners.
(8) MANAGEMENT AGREEMENT
On January 1, 1991 the hotel engaged "Packwood Management Inc.," a Georgia
corporation, with a fee of 3% of gross revenue plus a $900 monthly accounting
fee. Certain stockholders of Packwood Management Inc. are also stockholders of
two of the corporate general partners. This agreement was terminated on December
9, 1996 and a new management agreement was signed with an independent company
with a fee of 3% of gross revenue plus a $2,000 monthly accounting fee. The term
of this agreement ends December 31, 2001.
(9) LAND LEASE
The Partnership has a land lease with the Jekyll Island State Park Authority
which expires April 26, 2018. The current annual base rent is $52,308 plus a
percentage of revenue. The Partnership has a renewal option for an additional 16
years.
(10) BANK LOAN
The Partnership has obtained a working capital loan for $250,000 from
Merrill Lynch Business Financial Services, Inc. with an interest rate of prime
plus 1 1/2%. It is collateralized by inventory, equipment, furniture, fixtures
and accessories. The maturity date of this credit line is August 31, 1997.
(11) MEMBERSHIP AGREEMENT
On December 23, 1991, the hotel became a "Best Western." This agreement was
terminated in May 1996.
(12) LONG-TERM DEBT
Long-term debt maturing in the next five years consists of the following:
1997 -- $ 114,301
1998 -- 4,105,810
1999 -- --
2000 -- --
2001 -- --
The Partnership leases equipment for the hotels. Payments over the next five
years are as follows:
1997 -- 24,276
1998 -- 19,060
1999 -- 11,883
2000 -- 1,287
2001 -- --
(13) NOTE PAYABLE--PACKWOOD MANAGEMENT, INC.
The Partnership borrowed a total of $60,000 from Packwood Management, Inc.
in December 1996. The note is due on demand with an interest rate of 10% per
annum. Certain stockholders of Packwood Management, Inc. are also stockholders
of two of the corporate general partners.
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