<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 8-K/A
AMENDEMENT NUMBER 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 29, 1998
EXECUSTAY CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 000-22941 52-2042280
-------- --------- ----------
(State or other (Commission file number) IRS employer
jurisdiction of incorporation) identification No.)
7595 Rickenbacker Drive, Gaithersburg, Maryland 20879
-------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (301) 948-4888
--------------
<PAGE> 2
The undersigned registrant hereby amends its Current Report on Form
8-K, for an event which occurred on May 29, 1998.
Item 2. Acquisition or Disposition of Assets
This item has not been amended from the registrant's Current Report
on Form 8-K, dated May 29, 1998 and has been included herein for
convenience of reference only.
On May 29, 1998, ExecuStay Corporation of America (the "Company"), a
wholly-owned subsidiary of ExecuStay Corporation ("ExecuStay"),
acquired Accommodations America 1998, Inc., a Texas corporation
("Accommodations"), pursuant to an Agreement and Plan of Merger
dated April 24, 1998, between the Company, ExecuStay, Accommodations
and Trammell Crow Residential Company, a Texas corporation, (the
"Merger Agreement"), for $12,750,000 in cash (the "Cash
Consideration") and 1,104,494 shares of common stock of ExecuStay
(the "Stock Consideration"), 20% of which Cash Consideration and 20%
of which Stock Consideration will be held in escrow for 120 days
unless a portion of the escrowed Cash Consideration or Stock
Consideration is used to offset amounts due to ExecuStay or the
Company under the post-closing adjustment and indemnification
provisions contained in the Merger Agreement. Pursuant to the Merger
Agreement, each share of the issued and outstanding capital stock of
Accommodations was converted into a combination of cash and common
stock of ExecuStay. The purchase price was arrived at by arms-length
negotiations between ExecuStay and Accommodations and ExecuStay
financed the cash payments made pursuant to the Merger Agreement
with cash on hand and cash borrowed from Crestar Bank under the
Company's acquisition line of credit. Prior to the effective date of
the merger, no affiliate of Accommodations was an affiliate of
ExecuStay.
As of May 29, 1998, Accommodations was merged with and into the
Company and the separate existence of Accommodations ceased.
Accommodations was a provider of interim housing for corporate
clients and professionals. ExecuStay and the Company intend to
continue such operations.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits
(a) Financial Statements of Business Acquired
Report of Independent Auditors, dated July 2, 1998.
The audited balance sheets of Accommodations America 1998,
Inc. as of May 29, 1998, December 31, 1997 and 1996, and the
related combined statements of operations, changes in equity
(deficit) and cash flows for the period from January 1, 1998
through May 29, 1998 and the years ended December 31, 1997
and 1996.
(b) Pro Forma Consolidated Financial Information
1
<PAGE> 3
Unaudited pro forma consolidated balance sheet of ExecuStay
Corporation and subsidiaries as if the acquisition had
occurred on May 29, 1998.
Unaudited pro forma consolidated statements of operations of
ExecuStay Corporation and subsidiaries for the period from
January 1, 1998 through May 29, 1998 and the year ended
December 31, 1997 as if the acquisition had been completed
at the beginning of the respective periods.
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description Method of Filing
<S> <C> <C>
2.1 Agreement and Plan of Merger by and (1)
among ExecuStay Corporation, ExecuStay
Corporation of America, Accommodations
America 1998, Inc. and Trammel Crow
Residential Company, dated as of April 24, 1998.
23.1 Consent of Ernst & Young LLP Filed herewith
99.1 Audited Financial Statements of Filed herewith
Accommodations America 1998, Inc.
for the period from January 1, 1998
through May 29, 1998 and the years
ended December 31, 1997 and 1996.
99.2 Unaudited pro forma consolidated Filed herewith
balance sheet of ExecuStay Corporation and
subsidiaries as if the acquisition had occurred
on May 29, 1998.
Unaudited pro forma consolidated
statements of operations of
ExecuStay Corporation and
subsidiaries for the period from
January 1, 1998 through May 29,
1998 and the year ended December
31, 1997 as if the acquisition
had been completed at the
beginning of the respective
periods.
</TABLE>
(1) Incorporated by reference to the Exhibit No. 2.1 on the Registrant's
Current Report on Form 8-K, dated June 12, 1998.
2
<PAGE> 4
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: August 12, 1998 ExecuStay Corporation
/ s / GARY R. ABRAHAMS
Gary R. Abrahams
Chief Executive Officer
3
<PAGE> 5
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibits
Number Item
<S> <C> <C>
2.1 Agreement and Plan of Merger by and among ExecuStay *
Corporation, ExecuStay Corporation of America,
Accommodations America 1998, Inc. and Trammel Crow
Residential Company, dated as of April 24, 1998.
23.1 Consent of Ernst & Young LLP.
99.1 Audited Financial Statements of Accommodations America
1998, Inc. for the period from January 1, 1998 through May
29, 1998 and the years ended December 31, 1997 and 1996.
99.2 Unaudited pro forma consolidated balance sheet of
ExecuStay Corporation and subsidiaries as if the acquisition
had occurred on May 29, 1998.
Unaudited pro forma consolidated statements of operations of
ExecuStay Corporation and subsidiaries for the period from
January 1, 1998 through May 29, 1998 and the year ended
December 31, 1997 as if the acquisition had been completed
at the beginning of the respective periods.
</TABLE>
* Incorporated by reference to the exhibit No. 2.1 on the Registrant's
Current Report of Form 8-K, dated May 29, 1998.
4
<PAGE> 1
Exhibit 23.1
Consent of Ernst & Young LLP
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-00000) pertaining to the 1997 Incentive and Stock Option Plan
of ExecuStay Corporation of our report dated July 2, 1998, with respect to the
combined financial statements of Accommodations America 1998, Inc. included in
the Form 8-K/A, dated May 29, 1998, filed with the Securities and Exchange
Commission.
/s/ ERNST & YOUNG LLP
San Francisco, California
August 11, 1998
1
<PAGE> 1
Exhibit 99.1
COMBINED FINANCIAL STATEMENTS
ACCOMMODATIONS AMERICA 1998, INC.
Period from January 1, 1998 through May 29, 1998
and the years ended December 31, 1997 and 1996
with Report of Independent Auditors
<PAGE> 2
Accommodations America 1998, Inc.
Combined Financial Statements
For the period from January 1, 1998 through May 29, 1998 and
the years ended December 31, 1997 and 1996
CONTENTS
Report of Independent Auditors............................................1
Audited Combined Financial Statements
Combined Balance Sheets...................................................2
Combined Statements of Operations.........................................3
Combined Statements of Changes in Equity (Deficit)........................4
Combined Statements of Cash Flows.........................................5
Notes to Combined Financial Statements....................................6
<PAGE> 3
Report of Independent Auditors
The Shareholders
Accommodations America 1998, Inc.
We have audited the accompanying combined balance sheets of Accommodations
America 1998, Inc. (the "Company") as of May 29, 1998, December 31, 1997 and
1996, and the related combined statements of operations, changes in equity
(deficit) and cash flows for the period from January 1, 1998 through May 29,
1998 and the years ended December 31, 1997 and 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide 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 the Company at May 29, 1998,
December 31, 1997 and 1996, and the results of its operations and its cash flows
for the period from January 1, 1998 through May 29, 1998 and for the years ended
December 31, 1997 and 1996, in conformity with generally accepted accounting
principles.
July 2, 1998
1
<PAGE> 4
Accommodations America 1998, Inc.
Combined Balance Sheets
<TABLE>
<CAPTION>
MAY 29 DECEMBER 31
1998 1997 1996
------------------ ------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 831,115 $ 876,456 $ 800,466
Accounts receivable, net 1,895,650 1,811,749 743,754
Prepaid rent 924,183 679,011 27,545
Security deposits and other assets 812,873 245,978 252,766
Deferred tax assets 446,000 - -
Property on or held for lease, net 400,254 192,246 -
Property and equipment, net 409,865 347,518 176,929
Other assets, net 179,721 200,620 -
----------- -------------------------------
Total assets $ 5,899,661 $ 4,353,578 $2,001,460
=========== ===============================
LIABILITIES AND EQUITY (DEFICIT)
Accounts payable (includes $267,540 in 1998,
$359,646 in 1997 and $216,216 in
1996 due to related parties) $ 1,023,426 $ 789,466 $ 479,675
Accrued operating expenses 852,072 659,087 344,308
Security deposits 168,948 157,546 66,777
Unearned revenue 448,788 661,768 460,918
Shareholders' loans 6,102,195 4,295,192 702,611
----------- -------------------------------
Total liabilities 8,595,429 6,563,059 2,054,289
Equity (deficit) (2,695,768) (2,209,481) (52,829)
----------- -------------------------------
Total liabilities and equity (deficit) $ 5,899,661 $ 4,353,578 $2,001,460
=========== ===============================
</TABLE>
See accompanying notes.
2
<PAGE> 5
Accommodations America 1998, Inc.
Combined Statements of Operations
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1998 THROUGH YEAR ENDED DECEMBER 31
MAY 29, 1998 1997 1996
----------------------- ---------------------------
<S> <C> <C> <C>
Revenues:
Interim housing revenue $17,692,249 $36,473,166 $24,076,733
Other income 375,163 707,940 328,172
----------- ---------------------------
Total revenues 18,067,412 37,181,106 24,404,905
Operating costs and expenses:
Cost of revenue (including property
rent of $9,529,371, $19,245,200
and $12,456,059 in 1998, 1997
and 1996, respectively) 14,338,047 29,789,748 19,662,732
Personnel and payroll costs 1,956,176 4,574,520 2,166,939
Other operating costs (including
advertising expense of $172,720,
$557,451 and $451,691 in 1998, 1997 and 1996, respectively) 931,571 2,551,095 1,718,214
TCR overhead allocation 564,936 1,078,168 501,095
Bad debt expense 484,078 396,130 193,742
Nonrental depreciation and amortization 278,628 189,913 37,192
----------- ---------------------------
Total operating costs and expenses 18,553,436 38,579,574 24,279,914
----------- ---------------------------
Earnings (loss) from operations before income tax benefit (486,024) (1,398,468) 124,991
Interest on shareholder loans 94,406 340,951 86,098
----------- ---------------------------
Net (loss) income before income tax benefit (580,430) (1,739,419) 38,893
Income tax benefit 446,000 - -
----------- ---------------------------
Net (loss) income $ (134,430) $(1,739,419) $ 38,893
=========== ===========================
</TABLE>
See accompanying notes.
3
<PAGE> 6
Accommodations America 1998, Inc.
Combined Statements of Changes in Equity (Deficit)
<TABLE>
<CAPTION>
TOTAL
----------------
<S> <C>
Balance, January 1, 1996 $ -
Net income 38,893
Distributions (91,722)
-----------
Balance, December 31, 1996 (52,829)
Net loss (1,739,419)
Distributions (417,233)
-----------
Balance, December 31, 1997 (2,209,481)
Net loss (134,430)
Distributions (351,857)
-----------
Balance, May 29, 1998 $(2,695,768)
===========
</TABLE>
See accompanying notes.
4
<PAGE> 7
Accommodations America 1998, Inc.
Combined Statements of Cash Flows
<TABLE>
<CAPTION>
PERIOD FROM JANUARY 1, 1998
THROUGH YEAR ENDED DECEMBER 31
MAY 29, 1998 1997 1996
------------------------------ ------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income $ (134,430) $(1,739,419) $ 38,893
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Provision for doubtful accounts 52,878 26,429 167,746
Depreciation and amortization 278,628 189,913 37,192
Income tax benefit (446,000) - -
Net purchase of property on or held for lease (335,063) (233,440) -
Changes in operating assets and liabilities:
Accounts receivable (136,779) (1,094,424) (911,500)
Prepaid rent (245,172) (651,466) (27,545)
Security deposits and other assets (566,895) 6,788 (252,766)
Other assets 726 (248,936) -
Accounts payable 233,960 309,791 479,675
Accrued operating expenses 192,985 314,779 344,308
Security deposits 11,402 90,769 66,777
Unearned revenue (212,980) 200,850 460,918
----------- ---------------------------
Net cash (used in) provided by operating activities (1,306,740) (2,828,366) 403,698
INVESTING ACTIVITIES
Additions to property and equipment (193,747) (270,992) (214,121)
----------- ---------------------------
Net cash used in investing activities (193,747) (270,992) (214,121)
FINANCING ACTIVITIES
Advances on shareholder loans 1,807,003 3,592,581 702,611
Distributions to shareholders (351,857) (417,233) (91,722)
----------- ---------------------------
Net cash provided by financing activities 1,455,146 3,175,348 610,889
Net (decrease) increase in cash (45,341) 75,990 800,466
Cash at beginning of year 876,456 800,466 -
---------------------------
Cash at end of year $ 831,115 $ 876,456 $ 800,466
=========== ===========================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $ 28,131 $ 192,580 $ 84,907
=========== ===========================
</TABLE>
See accompanying notes.
5
<PAGE> 8
Accommodations America 1998, Inc.
Notes to Combined Financial Statements
May 29, 1998
1. ORGANIZATION AND BASIS OF PRESENTATION
Accommodations America 1998, Inc. (the "Company") is a provider of interim
housing for corporate clients and professionals. Through its twelve regional
offices, the Company provides fully furnished high-quality apartments for stays
of 30 days or more, offering a choice of locations and types of accommodations
that are furnished according to the customer needs and preferences and generally
priced comparatively or more affordably than traditional full service hotels or
all-suite hotels.
Prior to 1996, the interim housing activity was operated by various separate
legal entities of an organization commonly referred to as Trammell Crow
Residential ("TCR") along with TCR's other business activities. The interim
housing activity had no separate or discrete identity.
Beginning in 1996, TCR began accounting for the business activity as divisions
of the various taxable legal entities. Effective January 2, 1997, new legal
entities were formed (which elected to be treated as a corporation for tax
purposes under Subchapter S of the Internal Revenue Code ("IRC")) and the assets
and liabilities related to the interim housing businesses were transferred to
the new entities. Effective January 2, 1998, a new entity (Accommodations
America 1998, Inc.) was formed (which elected to be treated for tax purposes as
a corporation under Subchapter C of the IRC) and the assets and liabilities of
all the Sub S entities were transferred to the new entity.
For both financial reporting in these financial statements as well as for
federal and state income tax purposes, the basis of the assets and liabilities
of the predecessor entities carried over to the new entities/entity similar to
the pooling of interests method of accounting because of the common ownership
and control (among other criteria) exercised by the owners before and after each
of the transactions.
The financial position and results of operations for 1996 of the separate
business units are presented in these financial statements as if the activity
were conducted by a separate entity. In addition, the financial position and
results of operations of the separate legal entities have been combined in these
financial statements because of the control exercised by a common majority of
the partners/shareholders in all the entities throughout the time period
presented.
6
<PAGE> 9
Accommodations America 1998, Inc.
Notes to Combined Financial Statements (continued)
1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
As of May 29, 1998, the Company had 1,000 shares of common stock authorized, of
which 109.98 shares of common stock were issued and outstanding. Shares of stock
were issued without consideration because, in the opinion of the Company, such
shares had no fair value on such dates. Further, any shares reacquired by the
Company were done so without consideration.
For convenience, the entities/entity described above are hereinafter referred
to as the "Company" and the owners are referred to as "shareholders."
MERGER WITH EXECUSTAY CORPORATION
On May 29, 1998, ExecuStay Corporation of America ("ExecuStay America"), a
wholly owned subsidiary of ExecuStay Corporation ("ExecuStay"), acquired the
Company pursuant to an Agreement and Plan of Merger (the "Merger Agreement"),
dated April 24, 1998, between the Company, ExecuStay, ExecuStay America and
Trammell Crow Residential Company for $12,750,000 in cash (the "Cash
Consideration") and 1,104,494 shares of common stock of ExecuStay (the "Stock
Consideration"). Twenty percent of the Cash Consideration and 20% of the Stock
Consideration are being held in escrow for 120 days pending the resolution of
the post-closing adjustments and indemnification provisions contained in the
Merger Agreement. Pursuant to the Merger Agreement, each share of the issued and
outstanding capital stock of the Company was converted into either cash or a
combination of cash and common stock of ExecuStay.
As of May 29, 1998, the Company was merged with and into ExecuStay America and
the separate existence of the Company ceased. The Company understands that
ExecuStay and ExecuStay America intend to continue such operations.
2. BASIS OF ACCOUNTING
CASH AND CASH EQUIVALENTS
The Company considers cash deposits with financial institutions and short-term
investments with initial maturities of 90 days or less to be cash equivalents.
7
<PAGE> 10
Accommodations America 1998, Inc.
Notes to Combined Financial Statements (continued)
2. BASIS OF ACCOUNTING (CONTINUED)
USE OF ESTIMATES
The preparation of the 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 the
disclosure of contingent assets and liabilities at the dates of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company enters into leases with corporations and professionals with terms
ranging generally from one month to one year. The Company recognizes interim
housing revenue as scheduled payments become due under the terms of the lease
agreement.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is generally recorded
using the straight-line method over the estimated useful lives of three to five
years. Leasehold improvements are amortized over the lease term.
PROPERTY ON OR HELD FOR LEASE
Furniture and household amenities on or held for lease are depreciated over an
estimated useful life of seven years for furniture and five years for household
amenities.
OTHER ASSETS
Other assets consist primarily of goodwill paid in connection with a business
acquisition and is being amortized on a straight-line basis over five years.
8
<PAGE> 11
Accommodations America 1998, Inc.
Notes to Combined Financial Statements (continued)
3. ACQUISITIONS
On April 30, 1997, the Company purchased for cash certain leases and contracts
of an interim housing business in Texas for $549,500. In conjunction with the
purchase, the Company entered into a five-year non-compete agreement. The
Company accounted for the transaction using purchase accounting and recorded
certain intangible assets, including $239,200 relating to goodwill. Earnings
since the acquisition date have been included in these financial statements.
4. ACCOUNTS RECEIVABLE
The Company grants unsecured credit to corporate and individual customers
throughout the United States. Provisions have been established for uncollectible
amounts.
<TABLE>
<CAPTION>
MAY 29, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------------------------------------------------------
<S> <C> <C> <C>
Rent receivable $1,849,885 $1,745,179 $ 893,444
Amounts due from affiliates 108,821 72,101 14,157
Other accounts receivable 183,997 188,644 3,899
Reserve for doubtful accounts (247,053) (194,175) (167,746)
--------------------------------------------------------
Accounts receivable, net $1,895,650 $1,811,749 $ 743,754
========================================================
</TABLE>
9
<PAGE> 12
Accommodations America 1998, Inc.
Notes to Combined Financial Statements (continued)
5. PROPERTY ON OR HELD FOR LEASE
The following is a summary of property on or held for lease:
<TABLE>
<CAPTION>
MAY 29, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Housewares $ 568,503 $233,440 $ -
Less accumulated depreciation (168,249) (41,194) -
-----------------------------------------------------
$ 400,254 $192,246 $ -
=====================================================
</TABLE>
Depreciation expense for the period January 1, 1998 through May 29, 1998 and for
the years ended December 31, 1997 and 1996 totaled $127,055, $41,194 and $-0-,
respectively.
6. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
MAY 29, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
--------------------------------------------------------------------
<S> <C> <C> <C>
Computer equipment and software $ 383,979 $ 220,185 $112,670
Furniture and equipment 210,272 205,402 77,381
Leasehold improvements 65,213 40,130 24,070
Vehicle 19,396 19,396 -
--------------------------------------------------------
Total property and equipment 678,860 485,113 214,121
Accumulated depreciation and amortization (268,995) (137,595) (37,192)
--------------------------------------------------------
$ 409,865 $ 347,518 $176,929
========================================================
</TABLE>
Depreciation expense for the period January 1, 1998 through May 29, 1998 and the
years ended December 31, 1997 and 1996 totaled $131,400, $100,403 and $37,192,
respectively.
10
<PAGE> 13
Accommodations America 1998, Inc.
Notes to Combined Financial Statements (continued)
7. RELATED PARTY TRANSACTIONS
The Company and TCR engage in various intercompany transactions including the
arrangements for TCR to provide various services to the Company. Such services
are currently provided pursuant to various verbal intercompany arrangements.
Services provided under the intercompany arrangements are accounting, marketing,
corporate, legal and other miscellaneous support and administrative services.
Fees paid for these services were approximately $564,936, $1,078,168 and
$501,095 for the period January 1, 1998 through May 29, 1998 and the years ended
December 31, 1997 and 1996, respectively.
The Company also rents a significant number of apartment units managed or owned
by TCR or its affiliates. Lease terms are typically month to month with leases
generally not exceeding one year term.
Certain shareholders and TCR affiliates provided loans to the Company to fund
working capital. The loans bear interest at various rates and were generally
unsecured. Subsequent to May 29, 1998, the shareholder loan balance was paid
from proceeds provided as part of the Merger Agreement, as discussed above.
8. COMMITMENTS AND CONTINGENCIES
The Company has noncancelable operating lease obligations for office space
expiring in 2001.
Future minimum payments under all noncancelable operating leases with terms in
excess of one year were as follows as of May 29, 1998:
<TABLE>
<S> <C>
1999 $ 61,716
2000 64,095
2001 21,607
--------
$147,418
========
</TABLE>
Rental expense for the period January 1, 1998 through May 29, 1998, and the
years ended December 31, 1997 and 1996 amounted to $144,990, $306,750 and
$108,334, respectively.
11
<PAGE> 14
Accommodations America 1998, Inc.
Notes to Combined Financial Statements (continued)
9. INCOME TAXES
As discussed in Note 1, prior to 1998, the Company's income tax obligations were
passed through to its owners as provided under the provisions of the Internal
Revenue Code (IRC). In 1996, the twelve regional operating centers were included
in the consolidated federal, and in certain combined state and local partnership
returns filed by TCR entities. During 1997, the Company filed its federal and
state income tax returns under the provisions of Subchapter S of the IRC.
Accordingly, no provision or liability for income tax is provided in the 1996 or
1997 financial statements.
Effective January 2, 1998, the Company converted its tax status to that provided
under Subchapter C of the IRC and thus became liable for federal and state
income taxes. Accordingly, the Company adopted the liability method of
accounting for income taxes. Under this method, the provision for income taxes
is based on income or loss recognized for financial statement purposes and
includes the effects of temporary differences between such income or loss and
that recognized for tax return purposes. Deferred income taxes, if any, are
recorded to reflect the tax consequences in future years of the differences
between the tax bases of assets and liabilities an their financial reporting
amounts.
Significant temporary differences for the Company are related to the provision
for doubtful accounts which is not deductible, and unearned revenue which is
taxable, for tax reporting purposes.
The liability method requires that the deferred tax effects of a change in tax
status be included in income from continuing operation on the date the change in
tax status occurs. Accordingly, a deferred income tax asset of $251,000 (net of
valuation allowance of $74,000) and corresponding income tax benefit was
provided on January 2, 1998 to reflect the tax consequences in future years of
the difference between the tax bases of assets and liabilities and their
financial reporting amounts.
12
<PAGE> 15
Accommodations America 1998, Inc.
Notes to Combined Financial Statements (continued)
9. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities as
of May 29, 1998 are as follows:
<TABLE>
<S> <C>
Deferred Tax Assets:
Allowance for doubtful accounts $ 94,000
Unearned revenue 171,000
Net operating loss 275,000
--------
540,000
Less valuation allowance (94,000)
--------
$446,000
========
</TABLE>
The valuation allowance increased by $20,000 during 1998.
The income tax benefit for 1998 consists of the adjustment discussed above of
$251,000 recorded as of January 2, 1998 and a $195,000 deferred federal and
state benefit associated with the activity for the period January 2, 1998 to
May 29, 1998.
The Company's effective tax rate on its income (loss) before taxes differs from
the statutory federal regular tax rate as follows:
<TABLE>
<S> <C>
Expected tax benefit 34.0%
State taxes (net of federal benefit) 4.1
Valuation allowance change (3.4)
Other (1.1)
----
33.6%
====
</TABLE>
As of May 29, 1998, the Company had an estimated net operating loss carryforward
(NOL) for federal and state income tax purposes of $725,000 which will expire in
approximately 20 years. The acquisition of the Company's stock is discussed in
Note 1 constitutes an ownership change within the meaning of Section 382 of the
Internal Revenue Code which section limits the annual amount of the NOL which
can be utilized to offset post-merger taxable income.
13
<PAGE> 1
EXECUSTAY CORPORATION AND SUBSIDIARIES Exhibit 99.2
PRO FORMA CONSOLIDATED BALANCE SHEET
As of May 29, 1998
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------------------------ -----------------------------------------
Accommodations Accommodations
Execustay America America Combined
as of as of Acquisition as of
May 29, 1998 May 29, 1998 Adjustments May 29, 1998
------------------- ------------------- ---------------- --------------------
<S> <C> <C> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS $ 4,173,279 $ 831,115 $(1,250,000)(a) $ 3,754,394
ACCOUNTS RECEIVABLE, net 8,481,718 1,895,650 10,377,368
PREPAID RENT AND OTHER 903,130 1,737,056 2,640,186
PROPERTY ON OR HELD FOR LEASE, net 5,946,992 400,254 6,347,246
PROPERTY AND EQUIPMENT, net 2,977,096 409,865 3,386,961
DEFERRED TAX-ASSET 151,000 446,000 597,000
INTANGIBLE AND OTHER ASSETS 21,021,208 179,721 22,093,573 (a) 43,294,502
----------- ----------- -----------
$43,654,423 $ 5,899,661 $70,397,657
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
BANK LINE OF CREDIT $ 1,840,135 $ - $ 1,840,135
NOTE PAYABLE TO BANK - - 11,500,000 (a) 11,500,000
CAPITAL LEASE OBLIGATION 1,503,768 - 1,503,768
ACCOUNTS PAYABLE 3,091,355 1,023,426 4,114,781
ACCRUED AND OTHER LIABILITIES 3,101,152 1,469,808 4,570,960
SHAREHOLDERS' LOANS - 6,102,195 (6,102,195)(a) -
----------- ----------- -----------
TOTAL LIABILITIES 9,536,410 8,595,429 23,529,644
STOCKHOLDERS' EQUITY
COMMON STOCK 71,236 - 11,045 (a) 82,281
ADDITIONAL PAID IN CAPITAL 31,274,586 - 12,738,955 (a) 44,013,541
RETAINED EARNINGS (DEFICIT) 2,772,191 (2,695,768) 2,695,768 (a) 2,772,191
----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY 34,118,013 (2,695,768) 46,868,013
----------- ----------- -----------
$43,654,423 $ 5,899,661 $70,397,657
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
Page 1
<PAGE> 2
EXECUSTAY CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the PERIOD January 1, 1998 through May 29,
1998
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------------------------- ----------------------------------------
Accommodations Accommodations
Execustay America America Combined
as of as of Acquisition as of
May 29, 1998 May 29, 1998 Adjustments May 29, 1998
------------------------------------------- ---------------- ----------------------
<S> <C> <C> <C> <C>
REVENUE $34,906,817 $18,067,412 $52,974,229
OPERATING COSTS AND EXPENSES
Cost of revenue 24,810,476 14,338,047 39,148,523
Personnel and payroll costs 5,060,847 1,956,176 7,017,023
Occupancy costs and nonrental
depreciation and amortization 1,156,472 843,564 263,019 (b) 2,263,055
Other operating costs 1,398,631 1,415,649 2,814,280
----------- ----------- -----------
TOTAL COSTS AND EXPENSES 32,426,426 18,553,436 51,242,881
----------- ----------- -----------
EARNINGS FROM OPERATIONS 2,480,391 (486,024) 1,731,348
INTEREST EXPENSE (INCOME) (81,588) 94,406 (12,818)
----------- ----------- -----------
EARNINGS BEFORE INCOME TAXES 2,561,979 (580,430) 1,718,530
INCOME TAX EXPENSE (BENEFIT) 1,025,000 (446,000) 108,000 (c) 687,000
----------- ----------- -----------
NET INCOME $ 1,536,979 $ (134,430) $ 1,031,530
=========== =========== ===========
INCOME PER SHARE - BASIC $ 0.22 $ 0.13
----------- -----------
- DILUTED $ 0.22 $ 0.13
----------- -----------
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING - BASIC 7,066,451 8,170,945
----------- -----------
- DILUTED 7,093,200 8,197,694
----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
Page 2
<PAGE> 3
EXECUSTAY CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------------------------- ----------------------------------------
Accommodations Accommodations
Execustay America America Combined
as of as of Acquisition as of
December 31, 1997 December 31, 1997 Adjustments December 31, 1997
------------------- ---------------------- ---------------- ---------------------
<S> <C> <C> <C> <C>
REVENUE $51,758,101 $37,181,106 $88,939,207
OPERATING COSTS AND EXPENSES
Cost of revenue 35,306,569 29,789,748 65,096,317
Personnel and payroll costs 8,245,994 4,574,520 12,820,514
Occupancy costs and nonrental
depreciation and amortization 1,599,675 1,268,081 631,245 (b) 3,499,001
Other operating costs 2,208,602 2,947,225 5,155,827
----------- ----------- -----------
TOTAL COSTS AND EXPENSES 47,360,840 38,579,574 86,571,659
----------- ----------- -----------
EARNINGS FROM OPERATIONS 4,397,261 (1,398,468) 2,367,548
INTEREST EXPENSE 156,095 340,951 497,046
----------- ----------- -----------
EARNINGS BEFORE INCOME TAXES 4,241,166 (1,739,419) 1,870,502
INCOME TAX EXPENSE 284,573 - 284,573
----------- ----------- -----------
NET INCOME $ 3,956,593 $(1,739,419) $ 1,585,929
PRO FORMA DATA
HISTORICAL EARNING BEFORE INCOME TAXES $ 4,241,166 $(1,739,419) $ 1,870,502
PROVISION FOR INCOME TAXES 1,696,000 - (963,000)(c) 733,000
----------- ----------- -----------
PRO FORMA NET INCOME $ 2,545,166 $(1,739,419) $ 1,137,502
=========== =========== ===========
PRO FORMA INCOME PER SHARE - BASIC $ 0.51 $ 0.19
----------- -----------
- DILUTED $ 0.51 $ 0.19
----------- -----------
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING - BASIC 4,986,081 6,090,575
----------- -----------
- DILUTED 4,988,006 6,092,500
----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
Page 3
<PAGE> 4
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(a) Execustay Corporation's purchase price of Accommodations America
1998, Inc. ("Accommodations") as presented in the proforma balance sheet is
$25,500,000. In accordance with the closing documents, the purchase price
consists of $12,750,000 cash and the issuance of 1,104,494 of Execustay $.01
par value common stock. Intangible assets including goodwill and non-compete
agreements will be amortized over periods of 35 years and 5 years,
respectively. Total intangibles arriving out of the transaction amounted to
approximately $22.1 million. A portion of the cash proceeds was used to repay
the shareholder loans at May 29, 1998.
(b) To record amortization of goodwill and non-compete agreements.
(c) Execustay's marginal tax rate is 40%.
Page 4
