SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20459
FORM 10-K/A
(Amendment No. 1)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2002, COMMISSION FILE NUMBER 0-1957
UPTOWNER INNS, INC.
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(Exact Name of Registrant as Specified in its Charter)
West Virginia 55-0457171
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
1415 4th Avenue, Huntington, West Virginia 25701
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including area code (304) 525-8162
------------------
Securities registered pursuant to Section 12 (g) of the Act:
1,583,563 shares of common stock - $0.50 par value
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(Title of Class)
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 reports), and, (2) has been subject to such
filing requirements for the past 90 days.
X Yes No
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The aggregate market value of the voting stock held by non-affiliates
of the registrant, as of the 30th day of June 2002, was $791,782. The book value
of stock was used due to the lack of an active market at which to sell the
stock.
As of June 30, 2002, the close of the period covered by this report,
the registrant had 1,568,011 shares of its common capital stock issued and
outstanding. The registrant has issued no other stock.
ITEM 6. SELECTED FINANCIAL DATA.
-----------------------
The following financial information of Uptowner Inns, Inc. and Subsidiaries
is for the years ended June 30, 2002, 2001, 2000, 1999 and 1998 on a scope
similar to that set forth in the report included elsewhere in this report. These
summaries should be read in conjunction with the financial statements and
related notes included elsewhere in this report.
-2-
UPTOWNER INNS, INC.
SELECTED FINANCIAL DATA
2002 2001 2000 1999 1998
------------ ----------- ------------ ----------- ------------
Operating Revenues $ 3,533,669 $ 4,115,146. $ 4,013,489 $ 3,357,351 $ 1,479,921
Income from Operations 56,614 746,970 603,612 546,029 87,267
Net Income (Loss) (465,518) 14,266 (97,216) 113,029 (125,643)
Net Income (Loss)
per share (.30) .01 (.06) .07 (.08)
Weighted Average
Number of Shares 1,580,069 1,583,563 1,583,563 1,583,563 1,583,563
Cash Dividends
Per Share - - - - -
Total Assets 11,129,073 10,899,922 11,059,140 11,141,750 10,878,715
Long-Term Debt 8,542,621 6,636,076 6,876,470 6,913,472 6,931,165
The increase in operating revenues and income from operations in 1999, 2000
and 2001 were entirely the result of the opening of the new Holiday Inn Hotel
and Suites, which operated for over ten months in 1999 and the full year in 2000
and 2001. The decrease in operating revenues in 2002 is due largely to the
closing of the Uptowner Inn facility in January, 2002. The income from
operations decreased in 2002. The decrease in costs and expenses in 2002 did not
decrease in relation to the decrease in revenues in 2002, as noted above. The
company ceased doing business, but many expenses continued several months later
as part of the process of closing down. The decision was made to close down the
Uptowner Inn facility due to the cash drain for the last several years.
The decrease in net income in 2002 is due to the explanation above, along
with the booking of impaired assets and a tax deferred asset. During the fiscal
year ended June 30, 2002, the Company initiated a plan to dispose of the
Uptowner Inn Hotel. The sale of the hotel closed July 3, 2002. In connection
therewith, the Company determined that the carrying value of the hotel exceeded
its fair value. Accordingly, an impairment loss of $336,075 is reported in other
expenses, which represents the excess of the carrying value of $2,106,148 over
the fair value of $1,770,073 and has been charged to operations in the fourth
quarter of the fiscal year ended June 30, 2002. The fair value is based on the
actual sales price. An income tax benefit of $132,098 was recognized in fiscal
year ended June 30, 2002 as a result of recording a net deferred tax asset.
The increase in long-term debt in 2002 is the result of the refinancing of
the Holiday Inn Hotel and Suites. The refinancing was for 6.8 million dollars at
8.25%, with a twenty-year amortization and a ten-year balloon.
-3-
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ASSETS AND LIABILITIES 2002 2001
- ---------------------- ------------ ------------
Current Assets $ 2,836,016. $ 643,660.
Percentage Increase (Decrease) 340.6% 20.8%
Total Assets 11,129,073. 10,899,922.
Percentage Increase (Decrease) 2.1% (1.4)%
Total Liabilities 9,487,791. 8,783,013.
Percentage Increase (Decrease) 8.0% (1.9)%
Current assets increased in 2002 due to listing the Uptowner Inn Hotel as
property held for sale. The Hotel sold on July 3, 2003. Total assets have
remained relatively consistent from year to year. The increase in total
liabilities in 2002 is the result of the refinancing of the Holiday Inn Hotel
and Suites.
-4-
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Cont'd)
REVENUES
- --------
2002 2001 2000
----------- ----------- -----------
Total Revenues $3,533,669. $4,115,146. $4,013,489.
Percentage Increase (Decrease) (1.4)% 2.5% 19.5%
Motor Inn Revenues 3,105,362. 3,629,192. 3,335,094.
Percentage Increase (Decrease) (14.4)% 8.8% 24.9%
Percentage of Total Revenues 87.9% 88.2% 83.1%
Food and Beverage 107,570. 189,802. 365,735.
Percentage Increase (Decrease) (43.3)% (48.1)% (3.8)%
Rents 229,710. 216,496. 221,608.
Percentage Increase (Decrease) 6.1% (2.3)% (5.8)%
Due to the Holiday Inn Hotel and Suites becoming an established property
within the Huntington market, the occupancy rate at this facility increased from
67% in 2000 to 74% in 2001 which resulted in an overall increase in motor inn
revenues in 2001. Additionally, room revenues from the Uptowner Inn increased in
2001 due to an increase in the occupancy rate attributable to increased demand
for newly renovated rooms. The decrease in motor inn revenues 2002 is due
largely to the closing of the Uptowner Inn facility in January, 2002. The
decision was made to close down the Uptowner Inn facility due to the cash drain
for the last several years.
The decrease in food and beverage revenue is largely attributed to the
elimination of the Uptowner Inn lounge facility in January, 2002. The Holiday
Inn Hotel and Suites restaurant sales have decreased 20% from 2001 due to the
added restaurants in the downtown area.
-5-
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Cont'd)
OPERATING COST AND EXPENSES AND INTEREST EXPENSES
-------------------------------------------------
2002 2001 2000
---------- ----------- -----------
Cost of Sales and Other Operating
Department Expenses $ 428,676 $ 528,565 $ 546,917
Percentage increase (decrease) (18.9)% (3.4)% 22.2%
Salaries 822,036 939,612 1,016,332
Percentage increase (decrease) (12.5)% (7.5)% 20.7%
Advertising 228,713 276,172 236,758
Percentage increase (decrease) (17.2)% 16.6% 30.6%
Utilities 241,548 244,352 231,631
Percentage increase (decrease) (1.1)% 5.5% 12.8%
Repairs and Maintenance 88,497 103,625 122,343
Percentage increase (decrease) (14.6)% (15.3)% 65.7%
Taxes and License 358,194 397,429 419,483
Percentage increase (decrease) (9.9)% (5.3)% 14.1%
Insurance and Other 78,217 70,223 66,342
Percentage increase (decrease) 11.4% 5.8% 4.8%
Impairment Loss 336,075 - -
Percentage increase (decrease) 100% -% -%
Total Cost and Expenses 3,477,075 3,368,176 3,409,877
Percentage increase (decrease) 3.2% (1.2)% 21.3%
Interest 654,455 732,704 700,828
Percentage increase (decrease) (10.7)% 4.5% 3.5%
Total cost and expenses decreased by a modest 1.2% in 2001 compared to
2000. Most of the individual categories of costs and expenses for 2001 are
relatively consistent with 2000 due to stabilization of the new facility which
opened in August 1998. Advertising increased in 2001 due to continued marketing
efforts relating to the Holiday Inn facility.
Total cost and expenses increased by 3.2% in 2002 compared to 2001. All of
the individual categories of costs and expenses for 2002 have decreased, with
the exception of Insurance expense, which increased 11.4%. Insurance expense has
increased due to the rate increases passed down by the Insurance industry. The
decreases in costs and expenses are due to the closing of the Uptowner Inn Hotel
in January, 2002. Interest has decreased due to the refinancing of the Holiday
Inn Hotel & Suites.
-6-
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Cont'd)
INCOME (LOSS)
- -------------
2002 2001 2000
--------- ------- --------
$(465,518) $14,266 $(97,216)
Revenues have increased $101,657 in 2001 , while revenues have decreased
$581,477 in 2002. Costs and expenses have decreased $41,701 in 2001, while costs
and expenses have decreased $226,846 in 2002, resulting in an increase in net
income of $111,482 in 2001, and a decrease in net income of $479,784 in 2002.
The decrease in net income in 2002 is due largely to the Uptowner Inn Hotel
continuing to lose market share in the Huntington area and the inevitable
closing of the facility in January, 2002. The decision was made to close down
the Uptowner Inn facility due to the cash drain for the last several years. The
Company also booked the impairment of assets and a tax deferred asset during the
fiscal year ended June 30, 2002. During the fiscal year ended June 30, 2002, the
Company initiated a plan to dispose of the Uptowner Inn Hotel. The sale of the
hotel closed July 3, 2002. In connection therewith, the Company determined that
the carrying value of the hotel exceeded its fair value. Accordingly, an
impairment loss of $336,075 is reported in other expenses, which represents the
excess of the carrying value of $2,106,148 over the fair value of $1,770,073 and
has been charged to operations in the fourth quarter of the fiscal year ended
June 30, 2002. The fair value is based on the actual sales price. An income tax
benefit of $132,098 was recognized in fiscal year ended June 30, 2002 as a
result of recording a net deferred tax asset. This deferred tax asset relates
primarily to net operating losses and depreciation differences which were not
offset by valuation allowances. For further discussion, see "Liquidity and
Capital Resources", which follows.
-7-
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Cont'd)
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
2002 2001
---------- ----------
Resources available at
June 30, 2002 and 2001
Cash $ 803,660. $ 186,912.
The liquidity, as measured by current assets divided by current
liabilities, has increased from .30 in 2001 to 3.00 in 2002. This increase of
liquidity is a result of the Holiday Inn Hotel and Suites refinancing and the
reclassing of the Uptowner Inn Hotel from property and equipment to property and
equipment held for sale. On July 3, 2002, the Company closed on the sale of the
Uptowner Inn Hotel. Existing loans with balances totaling $1,633,608 as of June
30, 2002 were paid off upon closing. In addition, the Company received cash
totaling $63,085.
FORWARD-LOOKING STATEMENTS
- --------------------------
Certain matters disclosed herein may be deemed to be forward-looking
statements that involve risks and uncertainties, including the facilities
utilization, costs associated with maintaining the operations, liquidity issues,
and other risks. Actual strategies and results in future time periods may differ
materially from those currently expected. Such forward-looking statements
represent management's judgment as of the current date. The registrant
disclaims, however, any intent of obligation to update such forward-looking
statements.
-8-
UPTOWNER INNS, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2002 AND 2001 AND
FOR THE YEARS ENDED
JUNE 30, 2002, 2001 AND 2000
UPTOWNER INNS, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2002 AND 2001 AND
FOR THE YEARS ENDED JUNE 30, 2002, 2001 AND 2000
TABLE OF CONTENTS
Page
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INDEPENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS
Consolidated Balance Sheets 2-3
Consolidated Statements of Income 4
Consolidated Statements of Stockholders' Equity 5
Consolidated Statements of Cash Flows 6-7
Notes to Financial Statements 8-16
INDEPENDENT AUDITORS' REPORT
Board of Directors
Uptowner Inns, Inc. and Subsidiary
Huntington, West Virginia
We have audited the accompanying consolidated balance sheet of Uptowner
Inns, Inc. and Subsidiary as of June 30, 2002 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. The consolidated financial statements of the
Uptowner Inns, Inc. as of June 30, 2001 and for the two years ended June 30,
2001, were audited by other auditors, whose report dated August 27, 2001,
expressed an unqualified opinion on these statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. 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 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, 2002, and the consolidated
results of its operations and its cash flows for the year then ended, in
conformity with accounting principles generally accepted in the United States of
America.
Huntington, West Virginia
September 12, 2002
UPTOWNER INNS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2002 AND 2001
ASSETS
2002 2001
----------- -----------
CURRENT ASSETS
Cash $ 751,180 $ 152,342
Cash - escrow 52,480 34,570
Accounts receivable (less allowance for
doubtful accounts of $3,000 in 2002 and
$6,000 in 2001) 57,421 72,830
Due from related party 5,446 -0-
Inventories 6,145 7,715
Prepaid expenses 61,173 48,392
Deferred tax asset 132,098 -0-
Property and equipment held for sale 1,770,073 327,811
----------- -----------
TOTAL CURRENT ASSETS 2,836,016 643,660
----------- -----------
PROPERTY AND EQUIPMENT
Land 1,202,786 1,519,252
Buildings and improvements 7,385,301 10,680,357
Furniture and equipment 1,276,650 2,761,410
Construction in progress 42,567 -0-
----------- -----------
9,907,304 14,961,019
Less: Accumulated depreciation and
amortization 1,842,424 4,846,594
----------- -----------
TOTAL PROPERTY AND
EQUIPMENT - NET 8,064,880 10,114,425
NONMARKETABLE SECURITIES 40,035 -0-
OTHER ASSETS
Deposits and other 188,142 141,837
----------- -----------
TOTAL ASSETS $11,129,073 $10,899,922
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
UPTOWNER INNS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
JUNE 30, 2002 AND 2001
LIABILITIES AND STOCKHOLDERS' EQUITY
2002 2001
------------ -----------
LIABILITIES
CURRENT LIABILITIES
Accounts payable $ 181,386 $ 232,588
Accrued liabilities 134,024 200,484
Taxes other than federal income tax 327,869 313,480
Unearned revenue 48,461 -0-
Current portion of long-term debt 253,430 1,400,385
------------ -----------
TOTAL CURRENT LIABILITIES 945,170 2,146,937
------------ -----------
LONG-TERM LIABILITIES
Notes payable and capitalized lease obligations 8,542,621 6,636,076
------------ -----------
TOTAL LIABILITIES 9,487,791 8,783,013
------------ -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
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 (deficit) earnings (172,681) 292,837
Treasury stock, at cost
(15,552 shares in 2002) (10,109) -0-
------------ -----------
TOTAL STOCKHOLDERS' EQUITY 1,641,282 2,116,909
------------ -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 11,129,073 $10,899,922
============ ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
UPTOWNER INNS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 2002, 2001 AND 2000
2002 2001 2000
----------- ----------- -----------
REVENUES
Rooms $ 3,105,362 $ 3,629,192 $ 3,335,094
Food and beverage 107,570 189,802 365,735
Telephone 43,925 50,489 55,534
Rent 229,710 216,496 221,608
Other 47,102 29,167 35,518
----------- ----------- -----------
TOTAL OPERATING REVENUES 3,533,669 4,115,146 4,013,489
----------- ----------- -----------
COSTS AND EXPENSE
Operating departments
Cost of sales 160,319 195,016 233,351
Salaries 822,036 939,612 1,016,332
Other 268,357 333,549 313,566
General and administrative 396,633 340,089 341,713
Advertising 228,713 276,172 236,758
Utilities 241,548 244,352 231,631
Repairs and maintenance 88,497 103,625 122,343
Taxes and licenses 358,194 397,429 419,483
Depreciation and amortization 498,816 468,109 428,358
Insurance and other 78,217 70,223 66,342
Impairment loss (336,075) -0- -0-
----------- ----------- -----------
TOTAL COSTS AND EXPENSES 3,477,055 3,368,176 3,409,877
----------- ----------- -----------
OPERATING INCOME 56,614 746,970 603,612
----------- ----------- -----------
OTHER INCOME (EXPENSES)
Gain on sale of assets 575 -0- -0-
Interest expense (654,455) (732,704) (700,828)
----------- ----------- -----------
TOTAL OTHER INCOME (EXPENSES) (653,880) (732,704) (700,828)
----------- ----------- -----------
(LOSS) INCOME BEFORE
INCOME TAXES (597,616) 14,266 (97,216)
INCOME TAXES (BENEFIT) (132,098) -0- -0-
----------- ----------- -----------
NET (LOSS) INCOME $ (465,518) $ 14,266 $ (97,216)
=========== =========== ===========
NET (LOSS) INCOME PER SHARE$ $ (0.30) $ 0.01 $ (0.06)
=========== =========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
UPTOWNER INNS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 2002, 2001 AND 2000
Additional Retained
Common Paid-in Earnings Treasury
Stock Capital (Deficit) Stock Totals
-------- ---------- --------- -------- -----------
Balance - June 30, 1999 $791,782 $1,032,290 $ 375,787 $ -0- $ 2,199,859
Net (Loss) -0- -0- (97,216) -0- (97,216)
-------- ---------- --------- -------- -----------
Balance - June 30, 2000 791,782 1,032,290 278,571 -0- 2,102,643
Net Income -0- -0- 14,266 -0- 14,266
-------- ---------- --------- -------- -----------
Balance - June 30, 2001 791,782 1,032,290 292,837 -0- 2,116,909
Net (Loss) -0- -0- (465,518) -0- (465,518)
Purchase of common stock -0- -0- -0- (10,109) (10,109)
-------- ---------- --------- -------- -----------
Balance - June 30, 2002 $791,782 $1,032,290 $(172,681) $(10,109) $ 1,641,282
======== ========== ========= ======== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
UPTOWNER INNS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2002, 20001 AND 2000
2002 2001 2000
--------- --------- ---------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net (loss) income $(465,518) $ 14,266 $ (97,216)
--------- --------- ---------
Adjustments to reconcile net (loss)
income to net cash provided by
operating activities
Provision for uncollectible accounts 10,592 -0- -0-
Depreciation and amortization 498,816 468,109 428,358
Debt forgiveness -0- -0- (9,000)
Gain on sale of assets (575) -0- -0-
Impairment loss 336,075 -0- -0-
Deferred income taxes (132,098) -0- -0-
(Increase) decrease in current assets:
Accounts receivable 4,817 (12,859) 26,676
Due from related party (5,446) -0- -0-
Inventories 1,570 4,251 (769)
Prepaid expenses (72,209) 16,701 216
Deposits and other assets (46,305) -0- (51,511)
Increase (decrease) in current liabilities:
Accounts payable (51,202) (125,654) 86,947
Accrued liabilities (66,460) 25,439 (4,560)
Taxes other than federal income taxes 14,389 (124,040) 125,007
Unearned revenue 48,461 -0- -0-
--------- --------- ---------
TOTAL ADJUSTMENTS 540,425 251,947 601,364
--------- --------- ---------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 74,907 266,213 504,148
--------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of nonmarketable securities (40,035) -0- -0-
Payments on notes receivable -0- 47,899 35,372
Proceeds from sale of fixed assets 35,575 -0- -0-
Capital expenditures (203,180) (161,535) (330,331)
--------- --------- ---------
NET CASH (USED IN) INVESTING
ACTIVITIES (207,640) (113,636) (294,959)
--------- --------- ---------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
UPTOWNER INNS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2002, 2001 AND 2000
2002 2001 2000
----------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt $ 6,800,000 $ 100,000 $ 116,400
Principal payments of long-term debt (6,040,410) (413,729) (300,188)
Purchase of treasury stock (10,109) -0- -0-
----------- --------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 749,481 (313,729) (183,788)
----------- --------- ---------
Net increase (decrease) in cash and
cash equivalents 616,748 (161,152) 25,401
Cash and cash equivalents at beginning
of year 186,912 348,064 322,663
----------- --------- ---------
Cash and cash equivalents at end
of year $ 803,660 $ 186,912 $ 348,064
=========== ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during the year for:
Interest $ 759,823 $ 826,622 $ 700,828
=========== ========= =========
Income taxes $ -0- $ -0- $ -0-
=========== ========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
In fiscal year ended June 30, 2001, the Company purchased land and a
building for $364,500. In conjunction with the acquisition, liabilities
were assumed for $272,935 and a note was issued for $91,565.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
UPTOWNER INNS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
BUSINESS ACTIVITY
The Company operates two (2) motor inns in Huntington, West Virginia,
known as Holiday Inn Hotel and Suites and Uptowner Inns. The Holiday
Inn Hotel & Suites includes dining and banquet facilities and both
motor inns include a lounge. The Uptowner Inns facility was closed in
January, 2002 (see Note 7). In addition, the Company operates apartment
buildings and rental properties located in Huntington, West Virginia.
INVENTORIES
Inventories are stated at the lower of cost or market on the first-in,
first-out method.
PROPERTY AND EQUIPMENT
Property 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:
Building and improvements 10 - 40 years
Furniture and equipment 3 - 10 years
Repairs, maintenance and renewals are charged to operations as
incurred, and expenditures for significant betterments and renewals are
capitalized.
NONMARKETABLE SECURITIES
Nonmarketable securities, which consists primarily of an affiliated
corporation and two affiliated partnerships are stated at cost which
does not exceed estimated net realizable value.
INCOME TAXES
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. The Company provides a valuation allowance for deferred tax
assets for which it does not consider realization of such assets to be
more likely than not.
UPTOWNER INNS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PER SHARE COMPUTATIONS
Income per share computations are based on the weighted average number
of common shares outstanding during the year. The weighted average
number of shares outstanding was 1,580,069 for 2002 and 1,583,563 for
2001 and 2000.
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.
USE OF ESTIMATES
The preparation of financial statements in conformity with U.S.
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.
ADVERTISING
Advertising costs totaling $83,691, $84,039 and $86,527 for 2002, 2001
and 2000, respectively, are charged to operations as incurred.
AMORTIZATION
The costs of franchise rights acquired are being amortized on the
straight-line method over their remaining contractual lives. Fees and
other expenses associated with the debt refinancing are being amortized
on the straight-line method over the life of the loan. Amortization
expense charged to operations for the fiscal years ending June 30,
2002, 2001 and 2000 was $59,428, $27,571 and $15,774, respectively.
NOTE 2 - IMPAIRMENT OF ASSETS TO BE DISPOSED OF
During the fiscal year ended June 30, 2002, the Company initiated a
plan to dispose of the Uptowner Inn Hotel. The sale of the hotel closed
July 3, 2002 (see Note 8). In connection therewith, the Company
determined that the carrying value of the hotel exceeded its fair
value. Accordingly, an impairment loss of $336,075, which is reported
in other expenses, and represents the excess of the carrying value of
$2,106,148 over the fair value of $1,770,073, has been charged to
operations in the fourth quarter of the fiscal year ended June 30,
2002. The fair value is based on the actual sales price.
UPTOWNER INNS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 3 - LONG-TERM DEBT
The long-term debt of the Company at June 30, 2002 and 2001 consisted
of:
2002 2001
---------- ----------
Notes payable to financial institutions:
Prime plus 1% installment note due a financial institution
secured by a credit line deed of trust, principal and
interest payable at $33,901 per month until January, 2008 $ -0- $3,527,675
Prime plus 1% note due a financial institution, secured by
a second deed of trust, interest payable monthly, principal
payable upon demand -0- 749,048
8.7% installment note due a financial institution, secured
by a vehicle, payable at $634 per month including interest,
until July, 2004 14,525 20,501
8.75% installment note due a financial institution, secured
by a vehicle, payable at $376 per month including interest,
until April, 2003 -0- 7,583
Note due a financial institution, secured by deed of trust,
payable at $17,268 per month including interest, current
interest rate 9.42%, variable interest rate based upon the
three year constant maturity Treasury Bill rate (change
will not occur more often than every three years) until
December, 2014* 1,503,581 1,570,167
8.75% note due a financial institution, secured by property
owned by an officer of the Company, payable in full by
December, 2001 -0- 100,000
10% term loan, due a financial institution, secured by
certain assets of an entity controlled by an officer of the
Company; payable at $1,068 per month, including interest,
until August, 2004 -0- 34,669
Prime plus 1% installment note with a floor of 8%, due a
financial institution, secured by a deed of trust, payable
at $3,342 per month, including interest, until April, 2002 -0- 177,569
Prime plus 2% demand note due a financial institution,
secured by certain assets of an entity controlled by an
officer of the Company, interest only payments -0- 46,962
UPTOWNER INNS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 3 - LONG-TERM DEBT (CONTINUED)
2002 2001
---------- ----------
Other notes payable:
8.25% note due the Ohio National Life Insurance Company,
secured by a deed of trust including equipment, furniture and
fixtures and an assignment of rents, principal and interest
payable at $57,941 per month with one final payment of the
balance due in February, 2012. $6,743,270 $ -0-
10% mortgage note due an individual, secured by a deed of
trust, payable at $733 per month, including interest, until
July, 2002 1,031 9,125
2% note due City of Huntington, secured by a second deed of
trust, payable at $2,024 per month, including interest,
until January, 2008 129,940 151,425
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 ** -0- 445,483
10% note due an individual, unsecured, payable at $100 per
month, including interest, until July, 2003 1,143 -0-
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, 2008*** 399,021 412,310
6% note due an individual, payable at $3,559, including
interest, until July, 2002 3,540 44,681
9.25% note due related company, due October, 2004 -0- 24,554
6% promissory note due a related company, secured by a deed
of trust, due April, 2002, including interest -0- 66,546
Capitalized lease obligations:
Capitalized lease obligations - Note 4 -0- 648,163
---------- ----------
8,796,051 8,036,461
Less current portion 253,430 1,400,385
---------- ----------
Long-term portion $8,542,621 $6,636,076
========== ==========
UPTOWNER INNS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 3 - LONG-TERM DEBT (CONTINUED)
* As part of the debt agreement, deposit will be made monthly
into an escrow account to be used as a reserve for repairs
and capital improvements. At June 30, 2002 and 2001, the
balance in the escrow account is $20,000 and $5,249,
respectively.
** As part of the debt agreement, the Company shall deposit any
proceeds from the sale of surplus real estate into an escrow
account. At the end of each quarter, 75% of proceeds will
remain in the escrow account for working capital, and 25%
will be sent to the Huntington Renewal Authority to reduce
the debt. At June 30, 2002 and 2001, the balance in the
escrow account is $-0-.
*** As part of the debt agreement, various escrows are required
to cover real estate taxes, hazard insurance, replacement
reserve, other interest and replacement reserve interest. At
June 30, 2002 and 2001, the balance in the escrow is $32,479
and $29,321, respectively.
Maturities of long-term debt during the next five years ending
June 30 and thereafter are as follows:
2003 $ 253,430
2004 275,568
2005 290,604
2006 314,172
2007 340,503
Thereafter 7,321,774
----------
Total $8,796,051
==========
NOTE 4 - CAPITAL LEASES
The Company is the lessee of building, furniture and equipment under
capital leases. All such capital leases were paid off during the fiscal
year ended June 30, 2002. The assets and liabilities under capital
leases are initially recorded at the lower of the present value of the
minimum lease payments or the fair value of the assets. The assets are
depreciated over their estimated productive lives. Amortization of
assets under capital leases is included in depreciation expense for the
years ended June 30, 2002, 2001 and 2000.
Following is a summary of property held under capital leases at June
30:
2002 2001
------- ----------
Building improvements $ -0- $ 109,461
Furniture and equipment -0- 973,703
------- ----------
-0- 1,083,164
Less accumulated depreciation -0- 311,092
------- ----------
Net $ -0- $ 772,072
======= ==========
UPTOWNER INNS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 4 - CAPITAL LEASES (CONTINUED)
Interest rates on capitalized leases vary from 11.4% to 22.7% and are
imputed based on the lower of Company's incremental borrowing rate at
the inception of each lease or the lessor's implicit rate of return.
NOTE 5 - RELATED PARTY TRANSACTIONS
The Company's Chairman of the Board of Directors/President and Chief
Executive Officer, who are stockholders of the Company, also control
other companies and partnerships. During the fiscal year ended June 30,
2002, the Company purchased an interest in one of the corporations and
two of the partnerships for a total investment of $39,891. In addition,
as of June 30, 2002, the Company has a receivable from the related
corporation totaling $5,446.
During the fiscal years ended June 30, 2002 and 2001, the Company paid
$92,290 and $79,911, respectively, to an insurance company which is
partially owned by a member of the Board of Directors.
The Company's Chairman of the Board of Directors/President resides in
one of the Company's hotels. The lodging and meals are provided at no
cost.
During the year ended June 30, 2001, the Company acquired assets from
an entity that is controlled by the Company's chief executive officer
and stockholder. The assets acquired were being actively marketed for
sale in fiscal year ended June 30, 2001 and are reflected in the
consolidated balance sheet as property held for sale in 2001. The
carrying value is reflected at the lower of cost or market consisting
of land and building of $59,310 and $270,190, respectively. In
addition, an investment was acquired in the amount of $35,000.
Liabilities were assumed of $272,935 and a promissory note issued for
$91,565. As of June 30, 2002 and 2001, the balance of the promissory
note is $-0- and $66,546, respectively, and is included in Note 3.
During fiscal year ended June 30, 2002, the Company leased the land and
building under a long-term lease and, therefore, the carrying value is
reflected in the consolidated balance sheet as property and equipment
in 2002. The investment was sold in fiscal year ended June 30, 2002 and
resulted in a gain of $575.
During the year ended June 30, 2001, the Company renegotiated a loan
with a former stockholder. The refinancing of this debt resulted in a
waiver of interest of $60,161 and is reflected in the statement of
operations for the year ended June 30, 2001. As of June 30, 2002 and
2001, the balance of the note payable is $3,540 and $44,681,
respectively and is included in Note 3.
UPTOWNER INNS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 5 - RELATED PARTY TRANSACTIONS (CONTINUED)
In addition, the Company had a note payable due an entity that is
controlled by a major stockholder. The balance of the note at June 30,
2002 and 2001 is $-0- and $24,554, respectively, and is included in
Note 3.
Interest expense relating to the above debt for the years ended June
30, 2002, 2001, and 2000 is $4,342, $3,753 and $4,781, respectively.
NOTE 6 - INCOME TAXES
An income tax benefit of $132,098 was recognized in fiscal year ended
June 30, 2002 as a result of recording a net deferred tax asset. The
components of deferred tax asset and deferred tax liability are as
follows as of June 30:
2002 2001 2000
--------- --------- --------
Deferred tax assets:
Net operating loss carryforward $ 599,499 $ 529,249 $533,352
Contribution carryforward 3,418 1,634 965
Franchise rights 4,095 -0- -0-
--------- --------- --------
Total Deferred Tax Asset 607,012 530,883 534,317
Deferred tax liabilities:
Depreciation (464,820) (472,828) 470,259)
--------- --------- --------
142,192 58,055 64,058
Valuation allowance (10,094) (58,055) (64,058)
--------- --------- --------
Net Deferred Tax Asset $ 132,098 $ -0- $ -0-
========= ========= ========
Utilization of the net deferred tax asset of $132,098 disclosed above
is dependent on future taxable profits in excess of profits arising
from existing taxable temporary differences. Although there was a
reported loss for the fiscal year ended June 30, 2002, the asset has
been recognized in the fourth quarter of the fiscal year ended June 30,
2002 due to the subsequent realization of taxable income on the sale of
the Uptowner Inn Hotel and other rental properties disclosed in Note 8.
Accordingly, the valuation allowance for deferred tax assets decreased
$47,961 from 2001 to 2002.
In fiscal year ended June 30, 2001, the Company utilized a portion of
the operating loss carryforward, and has reduced the unused operating
loss carryforwards accordingly.
UPTOWNER INNS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 6 - INCOME TAXES (CONTINUED)
The Company has available at June 30, 2002, 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, 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 -0-
June 30, 2011 3,816
June 30, 2012 1,150
June 30, 2013 199,619
June 30, 2019 54,375
June 30, 2020 165,986
June 30, 2021 1,341
June 30, 2022 214,194
-----------
Total $ 1,763,232
===========
NOTE 7 - COMMITMENTS AND CONTINGENCIES
On June 28, 2000, Uptowner Inns, Inc. entered into a franchise
agreement for the construction of a new Holiday Inn Express Hotel &
Suites in the amount of $50,000. This agreement states specific
requirements for completion of the hotel and approval before opening no
later than June 28, 2002. Due to various delays in site preparation,
the Company has been unable to gain site control and therefore has not
begun construction. In August, 2002, the Company received a notice of
default and termination for failure to commence construction. A
termination date of September 23, 2002 has been established on which to
terminate the license. Management asserts that they have kept the
franchisor informed of the problems encountered in gaining site
control. Due to the facts and circumstances, management believes that
the franchise agreement will be extended. The ultimate outcome of this
matter, however, cannot be determined.
On November 16, 2001, Uptowner Inns, Inc. signed a letter of intent to
purchase 2.2 acres of land at Kinetic Park on which to construct the
abovementioned Holiday Inn Express Hotel & Suites for $350,000 per
acre. In connection, therewith, the Company has paid $10,000 as earnest
money (see Note 8).
On February 25, 2002, Uptowner Inns, Inc. entered into an agreement to
sell the Uptowner Inn Hotel. In connection, therewith, the Company has
received $35,000 as earnest money (see Note 8).
UPTOWNER INNS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company maintains cash balances at local banks. Accounts at these
financial institutions are insured by the Federal Deposit Insurance
Corporation up to $100,000. At times, cash balances were in excess of
federally insured limits.
NOTE 8 - SUBSEQUENT EVENTS
On July 3, 2002, the Company closed on the sale of the Uptowner Inn
Hotel. Existing loans with balances totaling $1,633,521 as of June 30,
2002 were paid off upon closing. In addition, the Company received cash
totaling $63,085. The transaction resulted in a loss of $336,075 (see
Note 2).
On August 19, 2002, the Company entered into an agreement to purchase
approximately 2.5 acres of land at Kinetic Park for $875,000 to be
payable at closing. The property will be utilized to construct and
operate a Holiday Inn Express Hotel and Suites (or other equivalent or
superior class of franchised hotel).
On September 12, 2002, the Company entered into sales agreements to
sell three of its commercial properties for approximately $1.27
million. Upon closing, the transactions will result in the payoff of an
existing loan with a balance of $399,021 at June 30, 2002. In addition,
the Company will receive cash totaling $876,401. The transaction also
resulted in a gain of $368,282, which will be included in operations
during fiscal year ending June 30, 2003. Two of the properties were
purchased by a company partially owned by the Chief Executive Officer
and a Director of Uptowner Inns, Inc. who are also shareholders.
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.
(Registrant) UPTOWNER INNS, INC.
By /s/ Carl Midkiff
-----------------------------------
Carl Midkiff, President and Chief
Executive Officer
February 27, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
By /s/ Richard Monga
-----------------------------------
Richard Monga, Vice President and
Director
February 27, 2003
By /s/ David Robinson
-----------------------------------
David Robinson, Treasurer and
Director (Principal Financial and
Accounting Officer)
February 27, 2003
By /s/ Hobard Adkins
-----------------------------------
Hobart Adkins, Secretary
February 27, 2003
By /s/ Carl Midkiff
-----------------------------------
Carl Midkiff, President and Chief
Executive Officer
February 27, 2003