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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1995
[ ] Transition Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Commission File Number 000-02290
Efficiency Lodge, Inc.
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(Exact name of registrant as specified in its charter)
Georgia 58-0898219
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5342 Old Floyd Road, P.O. Box 635, Mableton, GA 30059
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (770) 819-0039
Name of exchange on which registered: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.10
par value per share
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 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.
Yes X No
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Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $3,932,616.
Transitional Small Business Disclosure format Yes No X
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State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock as of a specified date within the past 60
days: as of April 1, 1997, there were 31,349 shares of Common Stock, $0.10 par
value, outstanding held by non-affiliates of the issuer, with an aggregate value
of $313,490.00 (based upon a value of $10.00 per share, the price at which
partial shares were cashed out in the issuer's November 1996, merger -- there is
no established trading market for the Common Stock, and the issuer does not know
of any sales made in the last sixty days).
At April 1, 1997, there were issued and outstanding 1,026,880 shares of
Common Stock, par value $0.10 per share.
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DOCUMENTS INCORPORATED BY REFERENCE
None.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Efficiency Lodge, Inc., formerly known as Southern Acceptance Corporation
(the "Company"), was incorporated in 1962 as a Georgia corporation, and engaged
in the business of real estate sales and development in Georgia. Specifically,
the Company purchased or built and operated motels and apartments. In 1974, the
Company filed for bankruptcy under Chapter XI of the federal bankruptcy laws.
It emerged from bankruptcy in 1980 with a few remaining properties. After
selling most of its remaining operating properties in the early 1980s, the
Company continued to engage to a limited extent in the purchase and sale of real
estate in Georgia. In addition to earning commissions from such real estate
sales, the Company earned interest on its notes receivable, rental income from
its rental properties, and income from the purchase and sale of investment
properties. The principal executive offices of the Company are located at 5342
Old Floyd Road, Mableton, Georgia 30059, and its telephone number at that
address is (770) 819-0039.
On January 22, 1996, the Company entered into an Agreement and Plan of Merger
with Efficiency Lodge, Inc., a Georgia corporation ("ELI") pursuant to which ELI
would be merged into the Company, with the Company as the surviving corporation
assuming ELI's name (the "Merger"). The Merger was effective on December 31,
1996. In the Merger, the ELI shareholders received approximately 1,102.6 shares
of the common stock of the surviving corporation for each share of ELI
(approximately 95% of the surviving corporation). Shareholders of the Company
immediately prior to the Merger received one share of the common stock of the
surviving corporation for each one hundred shares of pre-Merger common stock of
the Company held by them, with any resulting fractional shares being cashed out
at $0.10 per pre-Merger share.
ELI was formed in January 1993 as the result of the consolidation of five
existing companies, each of which operated an extended-stay lodging facility.
ELI engaged in the business of developing and owning lodging facilities that
offer both temporary and long-term accommodations ("Efficiency Lodges" or
"Lodges"). Through the Merger, the Company now owns and operates six Efficiency
Lodges, which are located in or near East Point, Douglasville, Atlanta,
Carrollton, Cartersville and Forest Park, Georgia. The Lodges have an aggregate
of 712 guest rooms. In the following description of the Company's business,
activities and properties, ELI's business, activities and properties, except as
otherwise indicated, are described as those of the Company.
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Extended-stay lodges such as the Efficiency Lodges are designed to serve
guests who require lodging for a minimum of seven days in rooms designed to
include functional space and, in particular, fully-equipped cooking facilities.
The extended-stay lodging industry (which includes economy extended-stay motels)
is a relatively small but growing part of the lodging industry. Management of
the Company believes that the consumer demand for economy extended-stay lodges
is underserved and increasing. The economic, social and demographic changes in
the United States contributing to the demand for extended-stay lodging include,
among others, the restructuring of corporate America, the increased mobility of
the population of the United States, the increase in single-person households,
the travel requirements of a service economy and the increasingly strict credit
standards of many apartment operators. Unlike most types of rental property
which are generally subject to leases of six months or longer, extended-stay
lodges, including Efficiency Lodges, may raise or lower rents (i.e., room rates)
with much greater frequency based upon occupancy levels. Typical guests in
economy extended-stay properties include people on short-term work or training
assignments, individuals in the midst of relocation for business or personal
reasons, military and government personnel, recreational travelers, and persons
who cannot meet the credit standards of apartments.
OPERATIONS
The Company's operations manual guides on-site management of each Lodge,
which is managed by a Property Manager, who resides on site, and an Assistant
Manager. Managers are trained in all aspects of extended-stay lodge operations,
with particular emphasis placed on customer service. The managers are trained
to provide conscientious customer service, they are provided with incentives to
exercise the authority granted to them, and they are efficiently supervised
through management information systems and on-site audits by the Company's
management, which visits and inspects each Efficiency Lodge on a regular basis
to ensure that consistency and quality standards are being met. Managers and
staff receive bonuses based on both performance and occupancy.
Each Efficiency Lodge is computerized with a software package that handles
all on-site transactions and record keeping. The software provides on-site
management with a database of updated information such as available units, units
needing cleaning or repairs, room charges due, guest payment history, and
telephone volume. Operating results are compiled and reviewed regularly. The
Company's corporate office handles purchasing supplies and virtually all
payments of property expenses.
Each of the Efficiency Lodges collects data about each new guest, including
his or her occupation, permanent residence, length of stay and how they learned
about the Lodge. The Company uses this information in the preparation of
advertising and sales materials for each specific Efficiency Lodge. The Company
employs various marketing techniques, including billboard and print as well as
direct marketing to potential customer groups.
BUSINESS STRATEGY
The Company plans to dispose of its remaining non-ELI properties in an orderly
manner at the best available terms. At the same time it intends to (i) develop
additional Lodges, (ii) purchase motels for conversion to the Efficiency Lodge
format or purchase existing economy extended-stay motels that meet current
Company acquisition criteria, and (iii) realize increased lease revenues from
growth in room revenues. The Company will focus initially on development and
acquisition opportunities available in the Southeastern United States. The
Company may build or acquire additional Lodges by borrowing the funds, by
exchanging capital stock, by raising capital through the issuance and sale of
equity, or through its cash flow.
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In considering opportunities for developing additional Lodges, the Company
gives strong consideration to demographic and traffic studies, and it reviews
the availability and pricing of suitable sites, the costs and risks of
developing, the availability of financing, as well as economic variables and any
other factors deemed relevant. This data is compared against site selection
criteria employed by the Company and compiled from the base of existing Lodges.
Each site must satisfy the two most important variables: a high daily automobile
traffic count and a significant amount of employment within a three-mile radius.
The Company may acquire additional economy extended-stay lodges and convert
them to Efficiency Lodges. In appropriate circumstances, the Company also may
acquire and convert conventional motels into Efficiency Lodges.
The Company considers investments in existing properties, including properties
that would require complete renovation, which meet one or more of the following
criteria: (i) the facility is located in an area with relatively high demand for
rooms, a relatively low supply of extended-stay lodges, and barriers to easy
entry into the lodge business, such as a scarcity of suitable sites or zoning
restrictions; and (ii) the facility is in an attractive location that the
Company believes could benefit significantly by becoming an Efficiency Lodge.
Efficiency Lodge of DeKalb, Inc. ("ELI-DeKalb"), a corporation owned by the
Company's majority shareholders, Roy Barnes and Ray Barnes, recently completed
construction of a 100-room Lodge in DeKalb County, Georgia. Upon completion of
the project, which occurred on March 1, 1997, ELI-DeKalb transferred the Lodge
to the Company. The Company forgave an approximate $265,000 advance to ELI-
DeKalb which was used by ELI-DeKalb for acquisition and construction of the
Lodge, and the Company assumed all of the obligations with respect to the Lodge,
including a $1.7 million mortgage. The Company gave no other consideration.
ELI-DeKalb served as a nominee of the Company in connection with this project,
not for its own economic benefit. The transfer of the assets and related
liabilities will be recorded on the Company's books at ELI-DeKalb's cost. As
with the other locations, management believes that a working capital loan will
not be required, but that the Lodge's operations will fund the debt and
operational costs. It is anticipated that within the first year of operations,
based on management's experience with other Lodges, this Lodge will have a
positive cash flow.
The Company is developing an Efficiency Lodge in Columbus, Georgia, where
property has been located and bank financing has been located. The Company
additionally is contemplating developing Efficiency Lodges in Columbia, South
Carolina and Nashville, Tennessee, where efforts are still in preliminary market
research. Management believes that the national demand for Lodges far exceeds
the current supply, and the Company plans to continue to expand.
COMPETITION
The lodging industry is highly competitive. Each Efficiency Lodge is located
in a developed area that includes motels and other lodges and in some cases
other economy extended-stay lodges. The Company does not believe that any
single competitor or small number of competitors is dominant in the markets in
which the Lodges are located. The number of competitive facilities in a
particular area has a material effect on occupancy and revenues of the Lodges.
The Company seeks to compete based on the prices charged, the quality of the
facilities, and service to guests.
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The Company competes for investment opportunities with entities which have
substantially greater financial resources than the Company and which as a
consequence may be in a position to accept more risk than the Company, including
risks with respect to the locations of facilities. Such competition may reduce
the number of suitable investment opportunities offered to the Company and
increase the bargaining power of property owners seeking to sell.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws and regulations, an owner or
operator of real estate may be liable for the costs of removal or remediation of
certain hazardous, toxic or petroleum substances on such property. Such laws
often impose such liability without regard to whether the owner or operator knew
of, or was responsible for, the presence of such substances. Furthermore, a
person that arranges for the disposal or transports for disposal or treatment a
hazardous, toxic, or petroleum substance to another property may be liable for
the costs of removal or remediation of substances released into the environment
at that property. The costs of remediation or removal of such substances may be
substantial, and the presence of such substances, or the failure to conduct
remediation promptly, may adversely affect the value of the real estate or the
owner's ability to sell the real estate or to borrow using the real estate as
collateral.
Phase I environmental audits have been obtained on all of the Lodges. The
Phase I audits were intended to identify potential sources of contamination for
which the Lodges may be responsible and to assess the status of environmental
regulatory compliance. These audits included historical reviews of the Lodges,
reviews of certain public records, preliminary investigations of the sites and
surrounding properties, screening for the presence of asbestos, PCB's, and
underground storage tanks, and the preparation and issuance of a written report.
The Phase I assessments did not include invasive procedures, such as soil
sampling or ground water analysis.
The Phase I audit reports have not revealed any environmental liability that
the Company believes would have a material adverse effect on the Company's
business, assets, or results of operations, nor is the Company aware of any such
liability. Nevertheless, it is possible that these reports do not reveal all
environmental liabilities or that there are material environmental liabilities
of which the Company is unaware.
The Company believes that the Lodges are in compliance in all material
respects with all federal, state, and local ordinances and regulations regarding
hazardous or toxic substances and other environmental matters. The Company has
not been notified by any governmental authority of any material noncompliance,
liability, or claim relating to hazardous or toxic substances or other
environmental issues in connection with any of its present or former properties.
GOVERNMENTAL REGULATION
A number of states regulate the licensing of lodging facilities by requiring
registration, disclosure statements, and compliance with specific standards of
conduct. The Company believes that each of its facilities has the necessary
permits and approvals to operate the respective businesses, and the Company
intends to obtain such permits and approvals for its new facilities. The
Company is also subject to laws governing its relationship with employees,
including minimum wage requirements, overtime, working conditions, and work
permit requirements. An increase in the minimum wage rate, employee benefit
costs, or other costs associated with employees could adversely affect the
Company. Both at the federal and state level, from time to time, there are
proposals under consideration to increase the minimum wage.
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Under the Americans with Disabilities Act ("ADA"), all public accommodations
are required to meet certain federal requirements related to access and use by
disabled persons. Although the Company has attempted to satisfy ADA
requirements in the design of its facilities, if a material ADA claim were
successfully asserted against the Company, the claim could result in a judicial
order requiring the Company to take additional steps to comply with some aspect
of the ADA. Such additional steps can necessitate the expenditure of
substantial sums, a fine would be imposed, or the private litigants could be
awarded damages. These and other initiatives can adversely affect the Company
as well as the lodging industry in general.
EMPLOYEES
As of December 31, 1996, the Company had no employees. Instead, the Company
leases approximately 38 full-time employees, including members of management,
pursuant to an agreement with Team Staff, Inc. Under the Company's agreement
with Team Staff, the Company selects its employees who are hired by Team Staff,
which provides administrative services and is responsible for the payment of all
employee wages, payroll taxes and employee benefits. The Company also
occasionally hires part-time employees through Team Staff. The Company has
elected to lease employees to minimize its administrative expenses and to take
advantage of economies of scale offered by Team Staff in providing workers'
compensation insurance, employee benefits and administrative services. The
Company is charged a fee for the employee and administrative services received.
The fee is based on the hourly rate of the employee and hours worked plus a
percentage of gross wages for payroll taxes, insurance and other benefits. The
lease was renewed on May 1, 1996, and may be terminated by the Company on May 1,
1997. The Company believes that its relationship with its leased employees is
good.
TRADEMARKS
The Company has registered the service mark "Efficiency Lodge" in the state of
Georgia and with the United States Patent and Trademark Office for hotel and
motel services.
CERTAIN FACTORS AFFECTING FORWARD LOOKING STATEMENTS
In addition to historical information, this Annual Report on Form 10-KSB
contains forward-looking statements. These statements involve a number of risks
and uncertainties that could cause actual results to differ materially from
those reflected in such statements. Some of these risks might include, but are
not limited to, those discussed in "Competition" section above. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
reflect management's analysis only as of the date hereof. The Company
undertakes no obligation to publicly revise these forward-looking statements to
reflect events or circumstances that arise after the date hereof. Readers
should carefully review the factors described in other documents the Company
files from time to time with the Securities and Exchange Commission, including
the Quarterly Reports on Form 10-QSB to be filed by the Company in 1997 and 1998
and any Current Reports on Form 8-K filed by the Company.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company constructed all but one of the Company's Efficiency Lodges using a
standard design, with similar architectural styles and guest room floor plans
and similar construction materials. One Efficiency Lodge was purchased from
another operator. Each Efficiency Lodge includes guest rooms, a manager's
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apartment, an office and a guest laundry room. Each guest room contains a
combination living room and bedroom, a bathroom, a closet, a fully-equipped
kitchenette, and a table and chairs. Guest services, which are minimal in
comparison to motels or hotels, typically include limited front desk hours and
limited maid service, and extra charges for amenities, such as televisions.
Each Efficiency Lodge is an economy extended-stay facility with room rates
that are typically lower than those charged by most motels and hotels in its
market. Although daily rates are available, most guests at the Efficiency
Lodges choose to occupy rooms on a weekly basis, at rates which, as of December
31, 1996, ranged from $109 to $139 per week for single occupancy. The
Efficiency Lodges are able to charge lower rates because of the elimination of
certain amenities found in higher-priced lodging facilities, such as
restaurants, cocktail lounges, meeting rooms, retail shops, pools and other
large common areas, which the Company has found to be unnecessary for the
comfort and enjoyment of its extended-stay guests, and because it uses
economical furniture, fixtures and equipment. The Company provides its
extended-stay guests with free access to satellite TV, convenience items for
sale in the front office, and an on-premises laundry facility.
Following is information with respect to each of the Lodges owned by the
Company:
EAST POINT LODGE. This two-story Lodge is located at 1275 Norman Berry
Drive near East Point, Georgia on approximately two-thirds of an acre. The
Lodge has been owned by the Company since 1987. The property, which has 40
guest rooms, is pledged to secure long-term debt of the Company with two lenders
with outstanding balances at December 31, 1996, aggregating approximately
$843,000. The loans accrue interest at 10.25% annually and mature in 2002.
DOUGLASVILLE LODGE. This two-story, 148-room Lodge is located in
Douglasville, Georgia on Highway 92. The Lodge has been owned by the Company
since 1988. The facility is pledged to secure long-term debt to one lender,
with an outstanding balance at December 31, 1996, of approximately $1,708,000.
The loan accrues interest at 10.50% annually and matures in 2012.
FULTON LODGE. This two-story Lodge is located on a approximately 2.77
acres at 4050 Wendell Drive in Atlanta. The Company has owned this 152-room
Lodge since 1989. This facility secures debt to two lenders with outstanding
balances at December 31, 1996, aggregating approximately $2,408,000. The loans
accrue interest at 10.75% annually and mature in 2008.
FOREST PARK LODGE. This two-story Lodge is located on approximately 2.28
acres in Forest Park, a commercial area of Atlanta. The property has 120 guest
rooms and an approximately 2,500 square-foot auxiliary building used for office
and retail space and secures long-term debt with an aggregate outstanding
balance at December 31, 1996, of approximately $1,828,000. The first mortgage
matures in 2016, and the second matures in 1999. The loans accrue interest at
10.25% annually.
BARTOW LODGE. A two-story, 124-room facility, this Lodge is located on
approximately 3.89 acres near Highway 20 in Cartersville, Georgia. The Company
has owned this Lodge since July 1995. The property secures debt to three
lenders, including the former owner of the property, with outstanding balances
at December 31, 1996, aggregating approximately $2,353,000. The first mortgage
matures in 2019, and the second matures in 2025. The loans accrue interest at
10.25% annually.
WEST GEORGIA LODGE. This two-story lodge with 128 guest rooms is located
on 4.18 acres on Bankhead Highway in Carrollton, Georgia. The West Georgia
Lodge secures long-term debt at December 31, 1996, with an aggregate outstanding
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balance of approximately $1,400,000. The first mortgage matures in 1997, and
the second matures in 1998. The loans accrue interest at 10.50% annually.
DEKALB LODGE. This 100-room lodge was completed in March 1997 and acquired
by the Company at that time. The property secures a $1.7 million 15-year
mortgage. The loan matures in 2012 and accrues interest at the rate of prime
plus 2%.
Total debt of the Company as of December 31, 1996, was approximately $10
million. The outstanding balances on the notes detailed above at December 31,
1996, total approximately $10.5 million because the Fulton and East Point Lodges
are both pledged to secure one note, and the note balance is included in the
description of both of the properties above.
As of December 31, 1996, there were no lease agreements in effect for any
of the Lodges, nor any contracts in place to sell any such properties.
For further information about the operation of the Lodges, see
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
The Company owns a 3,813 square-foot, one-story office building at 277 Pat
Mell Road in Cobb County, Georgia in which it rents space to third parties. The
property is subject to a mortgage with a balance as of December 31, 1996, of
approximately $38,900. The mortgage on the property accrues interest at the
rate of 10% per year, and will mature in 2004.
In the opinion of the Company's management, the Company's properties are
adequately covered by insurance, and the Company believes the properties are in
good condition.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
A special meeting of Shareholders was held on November 7, 1996. Because a
quorum was not present, the meeting was adjourned and reconvened on December 3,
1996. Four proposals were submitted to the shareholders.
Under the first proposal, holders of Southern Acceptance Corporation Stock
were asked to approve and adopt an Agreement and Plan of Merger dated January
22, 1996, as amended (the "Merger Agreement"), pursuant to which Efficiency
Lodge, Inc., a Georgia corporation, was to be merged with and into Southern
Acceptance Corporation, with Southern Acceptance Corporation being the surviving
corporation. Immediately prior to the Merger, three of the seven members of
Southern Acceptance Corporation's board of directors resigned, and the remaining
directors appointed Roy Barnes, Ray Barnes and Annette Bone, each of whom is a
designee of ELI, to membership on the Board. Arthur L. Crowe, Jr., Joseph A.
Cochran, Ken F. Thigpen and Dr. Roy W. Sweet, D.C. continued as directors of the
Company after the Merger. Under the merger agreement, each one hundred shares
of Southern Acceptance Corporation stock was converted into one share of the
surviving corporation following the Merger, and in lieu of issuing fractional
shares, Southern Acceptance Corporation paid shareholders $.10 per non-converted
share. Shareholders of Southern Acceptance Corporation who held fewer than one
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hundred shares of its stock prior to the Merger ceased to be shareholders of the
surviving corporation following the Merger. Southern Acceptance Corporation's
shareholders collectively hold approximately 5% of the stock in the surviving
corporation and the two former shareholders of ELI hold the remaining 95% of the
stock. In addition, the Articles of Incorporation of the Company, as amended,
were further amended upon consummation of the Merger to change the name of the
Company to "Efficiency Lodge, Inc." The number of votes cast for the proposal
was 2,654,980, the number against was 121,444, and there were 17,920
abstentions. The votes cast for the proposal were sufficient for approval.
Under the second proposal, holders of Southern Acceptance Corporation stock
were asked to approve an amendment to the Company's Articles of Incorporation to
add provisions to limit the potential monetary liability of its directors for
breaches of their duty of care or other duties as a director to the extent
allowed under Georgia law. The number of votes cast for the proposal was
2,585,933, the number against was 143,151, and there were 65,260 abstentions.
The votes cast for the proposal were not sufficient for approval, and,
accordingly, this proposal was not approved.
Under the third proposal, holders of Southern Acceptance Corporation stock
were asked to approve an amendment to Article III, Section 1 of the Company's
bylaws, as amended, to permit the annual meeting of the Company to be held in
May of each year, beginning in 1997. The number of votes cast for the proposal
was 2,706,554, the number against was 60,261, and there were 27,529 abstentions.
The votes cast for the proposal were sufficient for approval.
Under the fourth proposal, holders of Southern Acceptance Corporation stock
were asked to approve a proposal to allow management of the Company, in their
discretion, to adjourn the special meeting to permit the solicitation of
additional proxies. The number of votes cast for the proposal was 2,708,248,
the number against was 53,328, and there were 32,768 abstentions. The votes
cast for the proposal were sufficient for approval.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
PRICE RANGE OF COMMON STOCK
There is no public trading market for the Company's Common Stock. As of
January 1, 1997, there were 1,026,880 outstanding shares of Common Stock and
approximately 3,000 holders of record of such shares. Although there are
currently no legal or contractual restrictions on the payment of dividends by
the Company, the Company has not paid dividends in the last two years.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The Company owns and operates Lodges which offer both temporary and long-
term accommodations to residents. As of June 1995, the Company purchased the
Bartow Lodge in Cartersville, Georgia, which the Company now operates in a
similar manner to its other locations. Prior to this purchase, it operated five
Lodges at five different metro Atlanta locations. See "DESCRIPTION OF BUSINESS"
AND "DESCRIPTION OF PROPERTY."
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All of the Lodges' day to day operations are overseen by the President who
reviews financial and operational information on a daily basis.
The following comments on the financial condition and the results of
operations for the 1995 and 1996, fiscal years should be read in conjunction
with the Financial Statements of the Company and notes thereto included in Item
7. They compare the results of ELI for 1995 with the results of ELI combined
with Southern Acceptance Corporation for 1996. The financial effect of the
Merger is not material to the financial condition reported for the Company in
1996, and accordingly, management believes a comparison with ELI's 1995 results
is appropriate.
RESULTS OF OPERATIONS
Fiscal Years Ended December 31, 1995 and 1996.
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Operating revenue for 1996, increased $639,664, from $3,292,952 in 1995 to
$3,932,616 in 1996, due to higher occupancy and increased rental rates.
ELI experienced an increase in operating expenses of approximately $281,192
or 14% from 1995. The increase in operating expenses can primarily be
attributed to increases or decreases in the following expenses, which account
for 95% of the total increase in operating expenses:
<TABLE>
<CAPTION>
<S> <C>
Accounting $ 18,999
Depreciation 26,005
Employee Lease Expense 179,719
Insurance (9,432)
Leased Phone Expense (21,046)
Leased T.V. Expense (3,954)
Maintenance Supplies (16,396)
Management Fees 14,759
Pest Control (4,381)
Utilities 83,754
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$268,027
</TABLE>
The increased accounting costs can be attributed to the costs
associated with the Merger. Increased employee lease expenses can be attributed
to a full year of operation of the West Georgia Lodge and the Bartow Lodge by
the Company. The 1995 expenses for the same lodges were only for a portion of
1995. Savings because of expiration of leases and the subsequent purchase for
nominal amounts of televisions in 1996, and increased efficiency in buying
maintenance supplies in 1996, accounts for the decreases noted from these
expenses in 1995. Interest expense for 1995 and 1996, was $1,039,805 and
$1,084,013 respectively.
GENERAL
West Georgia Lodge was operated differently than the other Lodges from
December 1992 to June 30, 1995. During that period, the West Georgia Lodge was
leased in its entirety for operation to an unrelated third party. Effective
July 1, 1995, that arrangement ceased, and the Company's management resumed
operation of the West Georgia Lodge. The former third party lessee became an
employee of the Company.
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The spring through the fall are generally the best seasons of operation of
the Lodges, and the Company's management estimates that about 10-15% of ELI's
total revenue is affected by seasonality. Typically, revenue declines at the
end of November and begins to increase again in mid-February. This seasonality
is primarily due to the large number of Lodge residents who work in the
construction industry. The effect of the seasonal changes was more significant
in prior years than recently.
Following is a breakdown of the average occupancy rate per Lodge during the
years ended December 31, 1996, 1995, and 1994:
<TABLE>
<CAPTION>
Years Ended December 31,
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<S> <C> <C> <C>
1996 1995 1994
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East Point Lodge 99.1% 98.9% 99.8%
Douglasville Lodge 88.6 88.7 92.0
Fulton Lodge 90.4 90.1 79.9
Forest Park Lodge 99.8 99.8 99.8
Bartow Lodge 88.6 (1) (1)
West Georgia Lodge 88.7 (2) (2)
</TABLE>
(1) Average occupancy rates preceding the purchase of Bartow Lodge by the
Company are unknown to the Company. The average occupancy rate from July
through December 1995 was 91.4%.
(2) West Georgia Lodge was leased for operation to an unrelated third party
prior to July 1995, and the occupancy rates are unknown for December 1992
through June 1995. The occupancy rate for July through December 1995 was
90%.
(3) Occupancy rates were determined by dividing the total number of guest rooms
sold by the total number of available guest rooms for the applicable
period.
The following table sets forth the average weekly and annual rates per
available room and revenue per available room for all of the Lodges operated by
the Company during the years ended December 31, 1996, 1995, and 1994:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1996 1995 1994
----------- ---------- ---------
<S> <C> <C> <C>
Average weekly rental $ 109.22 $ 106.50 $ 108.87
Annual average rate 5,672.00 5,538.00 5,661.00
Revenue per available room 103.42 98.81 98.96
</TABLE>
-11-
<PAGE>
Average weekly rates are determined by dividing room revenue by guest rooms
sold and multiplying by seven. Average annual rate is determined by multiplying
the average weekly rate by 52. Weekly revenue per available room is determined
by dividing room revenue by the number of available guest rooms and multiplying
by seven.
The increase in occupancy from the year ended December 31, 1994, through
the year ended December 31, 1996, can be attributed to the increased market
demand as well as the competitive rate and attractiveness of the Lodges.
Management believes that the demand for the "extended stay" accommodations will
continue to rise because guests will continue to be attracted to the affordable
rates, amenities and convenience of the Lodges. However, there is no assurance
that the occupancy rates will continue to increase.
Set forth below is the amount of annual realty taxes paid for each Lodge
owned in 1996:
<TABLE>
<CAPTION>
Year ended December 31, 1996
----------------------------
<S> <C>
East Point Lodge $10,050
Douglasville Lodge 18,413
Fulton Lodge 33,238
Forest Park Lodge 19,436
Bartow Lodge 15,205
West Georgia Lodge 15,921
</TABLE>
No realty improvements are proposed with respect to any of the Lodges.
The Company calculates depreciation for book and federal tax purposes using
the straight line method for buildings and an accelerated method for furniture
and fixtures. At December 31, 1996, the Company calculated depreciation for
federal tax purposes as follows:
<TABLE>
<CAPTION>
Cost Life in Years Method
---------- ------------- ------------------------
<S> <C> <C> <C>
Buildings $8,680,967 31.5-39 Straight Line
Furniture and Fixtures 1,138,259 5-7 Double declining balance
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES"
The Company has historically funded its operations primarily with cash flow
from operations. For the year ended December 31, 1996, the Company generated
$1,052,594 in cash flow from operations compared to $506,519 for the year ended
December 31, 1995. The Company had cash balances of $84,064 and $159,944 at
December 31, 1995 and 1996, respectively.
Historically, the Company has funded the development of the Lodges principally
from borrowings. As of December 31, 1996, the Company had outstanding
indebtedness on its six Lodges of approximately $10 million. Debt reduction used
cash of $321,962 and $342,953 in 1995 and 1996, respectively, and distributions
to shareholders were $10,000 and $210,000 for the same period.
The Company anticipates building or acquiring additional Lodges in the future
and may seek to do so by incurring debt, by exchanging capital stock, through
cash flow or by or issuing equity. A Lodge was recently constructed for the
-12-
<PAGE>
Company in DeKalb County Georgia. This Lodge was transferred to the Company
following construction, and the Company assumed all of the related obligations,
including a $1.7 million mortgage. Management believes that no additional
financing will be required for this Lodge and that its income from operations
will be sufficient to fund its working capital and debt amortization
requirements. the Company has purchased a parcel of land in Columbus, Georgia
and has signed a letter of commitment with Columbus Bank & Trust to finance the
construction of a lodge on this parcel of land. This commitment is in the
amount of $2,000,000. Construction is expected to begin in 1997.
The Company anticipates that the cash flow from operations will be sufficient
to meet its current and future working capital needs. Management intends for
financing to be utilized only for the acquisition or construction of new Lodges
and not for working capital. Management's anticipation of meeting working
capital needs through current operations is based on the past performance of the
Lodges, which have not historically required borrowings to finance working
capital needs. However, there can be no assurance in the future that any new or
existing facility will be able to fully fund its working capital through
operations.
There are no other commitments for financing. The Company may, however, seek
to increase its debt, issue equity securities or negotiate additional debt. Any
such commitment would be subject to such terms as approved by the Company's
Board of Directors.
Two risk factors which may effect costs related to operations and development,
and thus affect liquidity, are increases in interest rates and inflation.
Management of the Company recognizes these factors and intends to manage to
reduce these risks. However, there can be no assurance that present or future
performances will be in accordance with management's expectations.
TRANSACTIONS WITH RELATED PARTIES
At December 31, 1996, the Company held an unsecured note receivable of Ray
Barnes, a substantial shareholder of the Company, in the principal amount of
$470,000. The note bears interest at 7% and matures on February 14, 1998. At
December 31, 1996, Mr. Barnes also owed accrued interest on the note totaling
$81,539.
During the 1996, fiscal year, management fees totaling $132,259 were paid to
W. Ray Barnes by the Company to compensate him for management services rendered
to the Company. The fees were paid initially pursuant to an agreement between
the Company and Mr. Barnes pursuant to which the rate was 4% of gross revenues
excluding hotel/motel taxes and sales tax. On October 6, 1996, the Company
approved a new management agreement with Mr. Barnes (doing business as Barnes
Store) for management services at the rate of 4% of gross revenues excluding
hotel/motel taxes and sales taxes. The agreement is cancelable by either party
on 60 days notice.
ITEM 7. FINANCIAL STATEMENTS.
The response to this item is included herein beginning on page F-1.
-13-
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Effective with the Merger on December 31, 1996, the Company's former independent
accountant was replaced by Grant Thornton, LLP, independent accountants of ELI.
The former principal accountant's report on the financial statements for the
years ended December 31, 1994 and 1995 did not contain an adverse opinion or
disclaimer of opinion, nor were either modified as to uncertainty, audit scope,
or accounting principles. The decision to change accountants was approved by
the Company's Board of Directors. There were no disagreements with the former
accountant, whether or not resolved, on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors are elected by the Company's shareholders at annual meetings and serve
until their successors are duly elected and qualified. Of the current directors
of the Company, two were appointed by the Board of Directors of the Company at
the time of the Merger, and the other directors were elected by the
shareholders. The current directors of the Company, whose current terms will
expire in 1997, will serve until their successors are duly elected and
qualified. Officers are elected by the Company's Board of Directors annually
and serve until their successors are duly elected and qualified. The current
officers of the Company, whose current terms will expire in 1997, were appointed
at the time of the Merger, and will serve until their successors are duly
elected and qualified.
Business Experience During
Name (Age) Position(s) the Past Five Years
- ---------- ----------- ---------------------------
Roy E. Barnes (47) Director, Mr. Roy Barnes has served
Secretary and as a director and
Treasurer Secretary/Treasurer of ELI
and its predecessors since
1986. An attorney, he is a
partner with Barnes,
Browning, Tanksley &
Casurella and has served as
a member of the Georgia
State Legislature since
1975. He is also a
director of Georgia State
Bank and Community
Financial Corporation.
W. Ray Barnes (56) Director, Mr. Ray Barnes has served
President and as a director, President
Chief Executive and Chief Executive Officer
Officer of ELI and its predecessors
since 1986. Mr. Barnes has
owned and operated Barnes
Store in Mableton, Georgia
since 1954. He is also a
director of Georgia State
Bank and Community
Financial Corporation.
-14-
<PAGE>
Arthur L. Crowe, Jr. (71) Director Mr. Crowe has served as a
director of the Company
since 1994. Mr. Crowe, an
attorney, has maintained a
solo practice since 1989,
and also currently serves
as counsel with the law
firm of Cauthorn &
Phillips, P.C. in Marietta,
Georgia.
Joseph A. Cochran (65) Director Mr. Cochran has been a
director of the Company and
its affiliates, Piedmont
Southern Co., Pacemaker
Properties, Inc., Ramco
Inns of Georgia, Inc., SAC
Building, Piedmont Southern
Insurance Agency and SAC
Holdings, since 1966 and
President of each of the
foregoing affiliates since
1990. Mr. Cochran, an
attorney, has been a member
of the law firm of Cochran
Camp & Snipes since 1966.
Ken F. Thigpen (55) Director Mr. Thigpen has served as a
director of the Company,
Piedmont Southern Co.,
Pacemaker Properties, Inc.,
Ramco Inns of Georgia,
Inc., SAC Building,
Piedmont Southern Insurance
Agency, and SAC Holdings
since 1994, and as a
director of ELI since 1994.
Mr. Thigpen has been
President and Chief
Executive Officer of
Georgia State Bank since
1990.
Dr. Roy W. Sweat, D.C. (68) Director Dr. Sweat has been a
director of the Company,
Piedmont Southern Co.,
Pacemaker Properties, Inc.,
Ramco Inns of Georgia,
Inc., SAC Building,
Piedmont Southern Insurance
Agency, and SAC Holdings
since 1963 and Vice
President of each of the
foregoing affiliates since
1990. Dr. Sweat, a
chiropractor, is president
of Sweat Chiropractic
Clinic, P.C.
Roy and Ray Barnes are brothers; otherwise, there are no family relationships
between any of the current directors or executive officers of the Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
To the Company's knowledge no officer, director, or security holder required to
file under Section 16(a) failed to file such forms on a timely basis during
1996.
-15-
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION.
MANAGEMENT COMPENSATION
During 1994, 1995, and 1996, J. A. Cochran, President of the Company until
December 31, 1996, did not receive any short or long-term compensation from the
Company, other than director's fees. No officers of the Company received
compensation in excess of $100,000. The following table sets forth the annual
and long-term compensation paid to Ray Barnes, chief executive officer of ELI,
who became chief executive officer of the Company on December 31, 1996.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation
Name and Principal ------------------------------------- Long-term All Other
Position Year Salary Bonus Other Compensation Compensation
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Ray Barnes, 1996 $132,259 None None None None
President and Chief
Executive Officer
</TABLE>
DIRECTORS' COMPENSATION
Directors of the Company received $50 for each meeting of the Board of Directors
attended. Directors will be receiving $250.00 for each meeting attended
beginning in 1997.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
PERSONS BENEFICIALLY OWNING GREATER THAN FIVE PERCENT OF THE COMPANY'S COMMON
STOCK
The following table sets forth the persons known by the Company to own
beneficially more than five percent of the Company's voting securities.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature Percent of
Title of Class Beneficial Owner of Beneficial Owner Common Stock
- ---------------- -------------------- ------------------- -------------
<S> <C> <C> <C>
Common Stock Roy E. Barnes 496,195 48.3 %
4841 Brookwood Drive
Mableton, GA 30059
Common Stock W. Ray Barnes 496,195 48.3
1680 Seayes Road
P.O. Box 21
Mableton, GA 30059
</TABLE>
-16-
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information regarding beneficial ownership of the
Company's common stock by management of the Company, as reflected in the stock
records of the Company or provided to the Company by the beneficial owners.
<TABLE>
<CAPTION>
Name and Address Amount and Nature Percent of
of Beneficial Owner of Beneficial Owner Common Stock
- ------------------- ------------------- ------------
<S> <C> <C>
Roy E. Barnes 48.3 %
4841 Brookwood Drive 496,195
Mableton, GA 30059
W. Ray Barnes 48.3
1680 Seayes Road 496,195
P.O. Box 21
Mableton, GA 30059
Arthur L. Crowe, Jr. *
567 Colston Road 211
Marietta, GA 30014
Joseph A. Cochran *
2950 Atlanta Street 347
Smyrna, GA 30080
Ken F. Thigpen *
2572 Oakwood Trace 223
Smyrna, GA 30080
Dr. Roy W. Sweat, D.C. *
4735 River Court 2,707
Duluth, GA 30155
All officers and directors as a group 995,878 97
</TABLE>
* Less than one percent
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company has in place a management agreement with W. Ray Barnes (doing
business as Barnes Store) pursuant to which Mr. Barnes provides management of
the Company's properties in exchange for 4% of gross revenues of the Company
less hotel/motel taxes and sales taxes. The agreement is cancelable by either
party upon 60 days notice. In 1996, the Company paid $132,259 to Mr. Barnes for
such management services.
-17-
<PAGE>
The Company has entered into an Agreement for Sales and Purchase of Goods,
effective September 1, 1996 with W. Ray Barnes (doing business as Barnes Store)
pursuant to which Mr. Barnes furnishes merchandise and supplies at distributor's
price plus 1% for the maintenance of the Company's facilities and for the
construction of new units to the extent such merchandise and supplies are
available to Mr. Barnes through Barnes Store's purchasing agreement with
wholesalers. The agreement is cancelable by either party upon 60 days notice.
In 1996, the Company purchased maintenance supplies totaling $83,707 from Mr.
Barnes.
Roy E. Barnes leases an office building to the Company wherein the Company
maintains its executive offices. The lease is for one year and expires on
September 1, 1997. Rental is $700 per month.
As of December 31, 1996, the Company had a payable of $100,010 due to one of its
majority shareholders and a non-interest bearing receivable of one of the
majority shareholders in the amount of $240,960. There are no specified
repayment terms for that receivable. Another note receivable of a majority
shareholder in the principal amount of $470,000 bears interest at 7% and matures
on February 14, 1998.
The Company advanced up to approximately $390,000 to two companies owned by the
two majority shareholders for the construction of new lodges for the Company.
The Company agreed to purchase the lodges upon completion at an amount equal to
the construction costs. One such lodge was completed in March.
The law firm of Barnes, Browning, Tanksley and Casurella, in which Roy E. Barnes
is a member, performs general legal services for the Company at standard rates.
Fees during 1996 were less than $10,000
ITEM 13. EXHIBITS, LIST, AND REPORTS ON FORM 8-K.
a) EXHIBITS. The exhibits filed as part of this Annual report on Form 10-
KSB are as follows:
Exhibit No. Description
- ----------- -----------
2.1 Agreement and Plan of Merger dated as of January 22, 1996, by and
between the Company and Efficiency Lodge, Inc. (incorporated by
reference to the Company's Form 10-K for the fiscal year ended
December 31, 1995, as filed with the Commission on April 9, 1996).
2.2 Amendment Number One to Agreement and Plan of Merger, dated June
11, 1996, by and between the Company and Efficiency Lodge, Inc.
(incorporated by reference to the Company's Proxy Statement, as
filed with the Commission on October 8, 1996).
2.3 Amendment Number Two to Agreement and Plan of Merger, dated
September 6, 1996, by and between the Company and Efficiency Lodge,
Inc. (incorporated by reference to the Company's Proxy Statement,
as filed with the Commission on October 8, 1996).
3.1 Restated and Amended Articles of Incorporation of the Company.*
3.1.1 Certificate of merger dated December 31, 1996.
-18-
<PAGE>
3.2 Bylaws of Efficiency Lodge, Inc., as amended.*
4.1 See Exhibits 3.1 and 3.2 for provisions of Articles of
Incorporation and Bylaws, as amended, which define the rights of
the holders of Common Stock of the Company.
21 Subsidiaries of the Registrant (incorporated by reference to the
Company's 10-K for the fiscal year ended December 31, 1995, as
filed with the Commission on April 9, 1996).
27 Financial Data Schedule
*To be filed by amendment.
b) REPORTS ON FORM 8-K. No reports on form 8-K were filed during
the last quarter of the period covered by this report.
-19-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Company duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
EFFICIENCY LODGE, INC.
By: /s/ W. Ray Barnes
------------------------------------
W. Ray Barnes
President and Chief Executive Officer
Date: March 24, 1997
----------------------------------
In accordance with the Exchange Act, this Report has been signed below by the
following persons on behalf of the Company in the capacities set forth and on
the dates indicated.
Signature Position Date
--------- -------- ----
/s/ W. Ray Barnes President and Chief Date: March 24, 1997
- --------------------------- Executive Officer and ----------------
W. Ray Barnes Director (Principal
Executive Officer)
/s/ Roy E. Barnes Secretary/Treasurer and Date: March 31, 1997
- --------------------------- Director (Principal ----------------
Roy E. Barnes Financial and Accounting
Officer)
/s/ Arthur L. Crowe, Jr. Director Date: March 24, 1997
- --------------------------- ----------------
Arthur L. Crowe, Jr.
/s/ Joseph A. Cochran Director Date: March 24, 1997
- --------------------------- ----------------
Joseph A. Cochran
/s/ Ken F. Thigpen Director Date: March 24, 1997
- --------------------------- ----------------
Ken F. Thigpen
/s/ Roy W. Sweat Director Date: March 24, 1997
- --------------------------- ----------------
Roy W. Sweat
-20-
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
EFFICIENCY LODGE, INC.
December 31, 1996
<PAGE>
C O N T E N T S
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET 4
CONSOLIDATED STATEMENTS OF EARNINGS 5
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT 6
CONSOLIDATED STATEMENTS OF CASH FLOWS 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9
<PAGE>
Report of Independent Certified Public Accountants
--------------------------------------------------
Board of Directors and Stockholders
Efficiency Lodge, Inc.
We have audited the accompanying consolidated balance sheet of Efficiency
Lodge, Inc. (a Georgia Corporation) and subsidiaries as of December 31, 1996,
and the related consolidated statements of earnings, stockholders' deficit and
cash flows for each of the two years in the period ended December 31, 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 audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Efficiency
Lodge, Inc. and subsidiaries as of December 31, 1996, and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1996 in conformity with generally accepted
accounting principles.
/s/ Grant Thornton
Atlanta, Georgia
February 3, 1997
3
<PAGE>
Efficiency Lodge, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET
December 31, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Property and equipment, net (note B) $ 8,844,764
Cash 159,944
Inventory 25,972
Due from stockholder (note F) 240,960
Note receivable - stockholder (note C) 470,000
Interest receivable - stockholder (note C) 81,539
Advances to affiliates (note F) 390,195
Loan fees, net of accumulated amortization (note D) 231,151
Other assets 92,573
----------
$10,537,098
==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES
Mortgage notes payable (note E) $10,038,389
Accounts payable 56,617
Customer deposits 20,007
Due to stockholder (note F) 100,010
Other liabilities 126,617
Deferred taxes (note H) 200,000
----------
Total liabilities 10,541,640
STOCKHOLDERS' DEFICIT
Common stock - $.10 par value, 7,500,000 shares
authorized; 1,026,880 shares issued and outstanding 102,688
Additional paid-in capital 52,674
Accumulated deficit (159,904)
----------
(4,542)
----------
$10,537,098
==========
</TABLE>
The accompanying notes are an integral part of this statement.
4
<PAGE>
Efficiency Lodge, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended December 31,
<TABLE>
<CAPTION>
1995 1996
---------- -----------
<S> <C> <C>
Revenue $3,292,952 $ 3,932,616
Operating expenses 2,058,869 2,340,061
--------- ---------
Operating profit 1,234,083 1,592,555
Other expense (income)
Interest income (627) (803)
Interest income from stockholder (note C) (32,681) (32,900)
Interest expense 1,039,805 1,084,013
Other, net (9,473) (24,756)
--------- ---------
997,024 1,025,554
--------- ---------
Earnings before income taxes 237,059 567,001
Effect of change in income tax status (note H) - (162,000)
--------- ---------
Net earnings $ 237,059 $ 405,001
========= ==========
Net earnings per share $ .24 $ .42
========= ==========
Weighted average shares outstanding 975,536 975,536
========= ==========
Historical earnings before income taxes $ 237,059 $ 567,001
Pro forma income tax expense 87,000 215,000
--------- ----------
Pro forma net earnings (note H) $ 150,059 $ 352,001
========= ==========
Pro forma net earnings per share $ .15 $ .36
========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
Efficiency Lodge, Inc. and Subsidiaries
STATEMENT OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Additional
Common paid-in Accumulated
stock capital deficit Total
------ ---------- ----------- -----
<S> <C> <C> <C> <C>
Balance at January 1, 1995 $ 900 $ - $ (581,964) $ (581,064)
Net earnings for the year - - 237,059 237,059
Distributions to stockholders - - (10,000) (10,000)
-------- ------- --------- ----------
Balance at December 31, 1995 900 - (354,905) (354,005)
Net earnings for the year - - 405,001 405,001
Distributions to stockholders - (210,000) (210,000)
Issuance of stock for merger with
Southern Acceptance Corporation
(note I) 101,788 52,674 - 154,462
-------- ------- --------- ----------
Balance at December 31, 1996 $ 102,688 $ 52,674 $ (159,904) $ (4,542)
======== ======= ========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
6
<PAGE>
Efficiency Lodge, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Increase (Decrease) in Cash
Cash flows from operating activities
Net earnings $ 237,059 $ 405,001
Adjustments to reconcile net earnings
to net cash provided by operating activities
Depreciation and amortization 354,707 379,462
Change in assets and liabilities
Increase in interest receivable (13,839) (22,900)
Increase in inventories (18,917) (2,361)
Increase in other assets (40,542) (15,627)
Increase (decrease) in accounts payable (11,012) 137,474
Increase (decrease) in customer deposits (937) 9,545
Increase in deferred taxes - 162,000
---------- ---------
Net cash provided by operating activities 506,519 1,052,594
Cash flows from investing activities
Purchases of property and equipment (2,406,550) (16,533)
Increase in due from stockholder (73,779) (111,246)
Increase in advances to affiliates - (383,713)
Other - 17,731
---------- ---------
Net cash used by investing activities (2,480,329) (493,761)
Cash flows from financing activities
Proceeds from notes payable 2,382,903 100,000
Payments made on notes payable (321,962) (342,953)
Distributions made to stockholders (10,000) (210,000)
Payments made on due to stockholder - (30,000)
---------- ---------
Net cash provided (used) by
financing activities 2,050,941 (482,953)
---------- ---------
</TABLE>
7
<PAGE>
Efficiency Lodge, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Year ended December 31,
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Net increase in cash 77,131 75,880
Cash at beginning of year 6,933 84,064
---------- --------
Cash at end of year $ 84,064 $ 159,944
========== =========
Supplemental cash flow information
Cash paid during the year for interest $ 1,039,805 $ 999,552
========== ========
</TABLE>
Noncash investing and financing activities
During 1996, assets totaling $250,836 were acquired and liabilities
totaling $96,374 were assumed in connection with the merger with
Southern Acceptance Corporation described in note I.
The accompanying notes are an integral part of these statements.
8
<PAGE>
Efficiency Lodge, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
NOTE A - SUMMARY OF ACCOUNTING POLICIES
A summary of the accounting policies consistently applied in the accompanying
consolidated financial statements follows.
1. Principles of Consolidation
---------------------------
Efficiency Lodge, Inc. (the "Company") consolidates the accounts of all
majority owned subsidiaries. All significant inter-company transactions and
balances have been eliminated.
2. Nature of Operations
--------------------
The Company owns and operates lodging facilities in Georgia which offer
both temporary (minimum seven days) and long-term accommodations which
include fully-equipped cooking facilities and on-premises laundry
facilities. Customers include people on short-term work or training
assignments, recreational travelers, and people in the midst of
relocation.
3. Inventory
---------
Inventory consists of personal care items and snack foods for resale
and is stated at the lower of cost or market using the first-in, first-
out method.
4. Property and Equipment
----------------------
Property and equipment are recorded at cost including capitalized
interest cost incurred during the period of construction. Depreciation
is provided for in amounts sufficient to relate the cost of depreciable
assets to operations over their estimated service lives using the
straight-line method for buildings and accelerated methods for
furniture and equipment. The Company adopted Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-
lived Assets and for Long-lived Assets to be Disposed Of, as of January
1, 1996. The adoption of this standard did not have a material impact
on the Company's financial position or results of operations.
Facilities are evaluated annually and written down to net realizable
value when management believes that the undepreciated cost cannot be
recovered through future cash flows.
5. Loan Fees
---------
Loan fees and other associated closing costs are recorded at cost.
Amortization is calculated using the straight-line method over the term
of the related loan.
9
<PAGE>
Efficiency Lodge, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
6. Income Taxes
------------
The Company accounts for income taxes using the asset and liability
method. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates applied to taxable
income. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date. A valuation allowance is provided for deferred tax
assets when it is more likely than not that the asset will not be
realized.
7. Cash Equivalents
----------------
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
8. Earnings Per Share
------------------
Earnings per share is computed based upon the weighted average number
of shares outstanding during the period. As a result of the merger
described in note I, the Company's 900 outstanding shares were
exchanged for 975,536 shares. Accordingly, the weighted average number
of shares reflected herein have been restated to reflect this exchange
as of January 1, 1995.
9. Use of Estimates
----------------
In preparing the Company's financial statements, management is required
to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
10
<PAGE>
Efficiency Lodge, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
NOTE B - PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31,
1996:
Depreciable
lives
-----------
Buildings and improvements 31-39 years $ 8,800,508
Furniture and equipment 5-7 years 1,154,793
---------
9,955,301
Less accumulated depreciation (2,440,571)
7,514,730
Land 1,330,034
---------
$ 8,844,764
=========
NOTE C - NOTE RECEIVABLE - STOCKHOLDER
The $470,000 note receivable from stockholder bears interest at 7%,
matures on February 14, 1998 and is uncollateralized. Accrued interest
on this note totalled $81,539 as of December 31, 1996. Interest income
on this note totalled $32,681 and $32,900 for the years ended December
31, 1995 and 1996, respectively.
NOTE D - LOAN FEES
Loan fees were as follows as of December 31, 1996:
Loan fees $ 405,522
Less: accumulated amortization 174,371
-------
Net loan fees $ 231,151
=======
11
<PAGE>
Efficiency Lodge, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
NOTE E - MORTGAGE NOTES PAYABLE
Mortgage notes payable at December 31, 1996 consists of the following
notes payable collateralized by all of the Company's real property.
<TABLE>
<CAPTION>
<S> <C>
Variable rate notes - 8.99% to 10.75%,
payments of principal and interest totalling
$114,000 per month at December 31, 1996,
maturing on various dates through 2019 $ 9,007,506
Fixed rate notes - 10%, payments of principal
and interest totalling $9,417 per month,
maturing on various dates through 2025 1,030,883
-----------
$ 10,038,389
===========
</TABLE>
Future maturities of long-term debt as of December 31, 1996 are as
follows:
1997 $ 1,737,253
1998 352,506
1999 452,497
2000 371,439
2001 405,334
Thereafter 6,719,360
----------
$ 10,038,389
==========
NOTE F - RELATED PARTY TRANSACTIONS
Management fees of $117,500 and $155,457 were paid in 1995 and 1996,
respectively, to a stockholder who owns forty seven and one half
percent of the outstanding stock of the Company. The Company entered
into an agreement for management services with this stockholder
effective September 1, 1996. Under the agreement, the Company will pay
four percent of gross revenues for management services provided by the
stockholder. This agreement has no specified expiration date and may
be terminated at any time by either party.
12
<PAGE>
Efficiency Lodge, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
NOTE F - RELATED PARTY TRANSACTIONS - Continued
As of December 31, 1996, $100,010 was due to a stockholder who owns
forty-seven and one-half percent of the outstanding stock of the
Company. This payable is non-interest bearing and has no specified
repayment terms.
As of December 31, 1996, $240,960 was due from a stockholder who owns
forty-seven and one-half percent of the outstanding stock of the
Company. This unsecured receivable is non-interest bearing and has no
specified repayment terms.
During 1995 and 1996, the Company purchased maintenance supplies
totalling $89,400 and $83,707, respectively, from a stockholder who
owns forty seven and one half percent of the outstanding stock of the
Company.
As of December 31, 1996, the Company has advances of $390,195 to two
companies owned by two shareholders. These companies are in the
process of constructing two lodges for the Company. The Company has
agreed to purchase these lodges upon their completion at an amount
equal to the cost to construct these lodges. The estimated cost to
construct the lodges is approximately $4,250,000.
NOTE G - FINANCIAL INSTRUMENTS
The carrying amounts of cash, due from stockholder, notes receivable,
and advances to affiliates approximate their fair value as they reprice
in approximately one year or less.
The carrying amount of mortgage notes payable is a reasonable estimate
of their fair value based on the variable term borrowing rates
currently available to the Company for loans with similar terms.
NOTE H - INCOME TAXES
Prior to December 31, 1996, the Company operated under the provisions
of Subchapter S of the Internal Revenue Code. Under those provisions,
the Company did not pay federal and state income taxes. Instead, the
stockholders were taxed on their proportionate share of the Company's
taxable income. Therefore, no provision for federal and state income
tax expense has been included in the accompanying statements of
earnings. Pro forma income tax expense, net earnings and earnings per
share are presented on the accompanying statement of earnings to
reflect the effect of federal and state income tax expense assuming the
Company was a taxable entity during the periods presented.
13
<PAGE>
Efficiency Lodge, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996
NOTE H - INCOME TAXES - Continued
Due to the merger discussed in note I, the Company no longer qualifies
as a Subchapter S corporation. Accordingly, a deferred tax liability
and income tax expense of $162,000 has been recorded to account for the
difference between the net income tax basis of the Company's assets and
liabilities and the amounts reported in the Company's financial
statements. This difference arose from a forgiveness of debt that
resulted in a reduction of the tax basis of the related assets. At
December 31, 1996, the Company's deferred tax liability is due solely
to the difference between the income tax basis of property and
equipment and the amount reported in the financial statements.
NOTE I - MERGER AND ACQUISITION
Merger with Southern Acceptance Corporation
On December 31, 1996, Efficiency Lodge, Inc. (ELI) merged with Southern
Acceptance Corporation, Inc. (SAC). Pursuant to the merger, SAC
shareholders received one share of the surviving corporation's common
stock (total 51,344 shares) for each one hundred shares of SAC's common
stock. Each shareholder of SAC otherwise entitled to receive a
fractional share, received, in lieu thereof, a cash payment of $.10 for
each unconverted share of SAC common stock held by the shareholder.
This amount totaled approximately $15,000. In addition, 975,536 shares
of the surviving corporation's common stock were issued in exchange for
the 900 outstanding shares of ELI's common stock. Pursuant to the
terms of the merger, SAC is the surviving corporation and changed its
name to Efficiency Lodge, Inc.
The merger was recorded under the purchase method of accounting with
ELI being considered the acquiring company. Accordingly, the purchase
price has been allocated to SAC's assets and liabilities based upon
their fair values at the date of acquisition. SAC's results of
operations will be included in the Company's statement of earnings from
the date of acquisition. The net purchase price was allocated as
follows:
Property and Equipment $ 132,626
Note Receivable 100,000
Cash 17,731
Other Assets 479
Note Payable (38,943)
Other Liabilities (19,431)
Deferred Taxes (38,000)
--------
$ 154,462
========
14
<PAGE>
Efficiency Lodge, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1996
NOTE I - MERGER AND ACQUISITION - CONTINUED
Bartow Lodge Acquisition
------------------------
On June 16, 1995, the Company acquired a lodge facility located in
Bartow County, Georgia for $2,382,903. The purchase was accomplished
by the assumption of loans totalling $1,382,903 and the issuance of a
$1,000,000 note payable. The acquisition has been accounted for as a
purchase and there was no goodwill associated with the transaction.
Results of operations of the facility have been included in the
statement of earnings from the date of acquisition.
Pro Forma Results of Operations
-------------------------------
The following pro forma results of operations are unaudited and were
prepared under the assumption that the merger with SAC and the
acquisition of Bartow Lodge occurred at the beginning of each year
presented and that the Company was a taxable entity. These pro forma
amounts are not necessarily indicative of what the actual results of
operations might have been if the transactions had occurred at the
beginning of fiscal year 1995.
1995 1996
Revenue $ 3,523,214 $ 3,957,187
Net earnings (loss) $ (40,353) $ 266,412
Earnings (loss) per share $ (0.04) $ .26
15
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
2.1 Agreement and Plan of Merger dated as of January 22, 1996, by and
between the Company and Efficiency Lodge, Inc. (incorporated by
reference to the Company's Form 10-K for the fiscal year ended
December 31, 1995, as filed with the Commission on April 9, 1996).
2.2 Amendment Number One to Agreement and Plan of Merger, dated June
11, 1996, by and between the Company and Efficiency Lodge, Inc.
(incorporated by reference to the Company's Proxy Statement, as
filed with the Commission on October 8, 1996).
2.3 Amendment Number Two to Agreement and Plan of Merger, dated
September 6, 1996, by and between the Company and Efficiency Lodge,
Inc. (incorporated by reference to the Company's Proxy Statement,
as filed with the Commission on October 8, 1996).
3.1 Restated and Amended Articles of Incorporation of the Company.*
3.1.1 Certificate of merger dated December 31, 1996.
3.2 Bylaws of Efficiency Lodge, Inc., as amended.*
4.1 See Exhibits 3.1 and 3.2 for provisions of Articles of
Incorporation and Bylaws, as amended, which define the rights of
the holders of Common Stock of the Company.
21 Subsidiaries of the Registrant (incorporated by reference to the
Company's 10-K for the fiscal year ended December 31, 1995, as
filed with the Commission on April 9, 1996).
27 Financial Data Schedule
*To be filed by amendment.
<PAGE>
EXHIBIT 3.1.1
CERTIFICATE OF MERGER
OF
SOUTHERN ACCEPTANCE CORPORATION
AND
EFFICIENCY LODGE, INC.
Pursuant to Section 14-2-1105 of
the Georgia Business Corporation Code
Southern Acceptance Corporation, a Georgia corporation, hereby certifies
that:
1. The names and states of incorporation of the constituent corporations
participating in the merger certified herein are (a) Southern Acceptance
Corporation, a Georgia corporation, and (b) Efficiency Lodge, Inc., a Georgia
corporation.
2. The surviving corporation is Southern Acceptance Corporation, which
will continue its existence as said surviving corporation under the name
"Efficiency Lodge, Inc.," upon the effective date of said merger, pursuant to
the provisions of the Georgia Business Corporation Code.
3. The Articles of Incorporation of Southern Acceptance Corporation are
to be amended and changed, by reason of the merger herein certified, by striking
out Article I thereof, relating to the name of said surviving corporation, and
inserting in lieu thereof the following Article I:
"I.
The name of the Corporation is: Efficiency Lodge, Inc."
4. The executed agreement and plan of merger of Southern Acceptance
Corporation and Efficiency Lodge, Inc. (the "Plan of Merger") is on file at the
principal place of business of Southern Acceptance Corporation at the following
address: 928 Bankhead Highway, Mableton, Georgia.
5. A copy of the Plan of Merger will be furnished by Southern Acceptance
Corporation, on request and without cost, to any shareholder of either Southern
Acceptance Corporation or Efficiency Lodge, Inc.
6. The Plan of Merger was duly approved by the shareholders of each of
the constituent corporations participating in the merger.
7. Pursuant to Section 14-2-1006.1 of the Georgia Business Corporation
Code, the undersigned hereby certifies that a request for publication of a
notice of change of corporate name and payment therefor have been made as
required by Section 14-2-1006.1(b) of the Georgia Business Corporation Code.
8. Pursuant to Section 14-2-1105.1(a) of the Georgia Business Corporation
Code, the undersigned hereby certifies that a request for publication of a
notice of filing these Articles of Merger and payment therefor have been made as
required by Section 14-2-1105.1(b) of the Georgia Business Corporation Code.
<PAGE>
9. The merger contemplated by the Plan of Merger shall become effective
on December 31, 1996.
Dated this 31st day of December, 1996.
SOUTHERN ACCEPTANCE CORPORATION
(CORPORATE SEAL)
By: /s/ J. A. Cochran
______________________________________
J. A. Cochran, President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 159,944
<SECURITIES> 0
<RECEIVABLES> 792,499
<ALLOWANCES> 0
<INVENTORY> 25,972
<CURRENT-ASSETS> 0
<PP&E> 11,285,335
<DEPRECIATION> 2,440,571
<TOTAL-ASSETS> 10,537,098
<CURRENT-LIABILITIES> 0
<BONDS> 10,038,389
0
0
<COMMON> 102,688
<OTHER-SE> (107,230)
<TOTAL-LIABILITY-AND-EQUITY> 10,537,098
<SALES> 0
<TOTAL-REVENUES> 3,991,075
<CGS> 0
<TOTAL-COSTS> 2,340,061
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,084,013
<INCOME-PRETAX> 567,001
<INCOME-TAX> 162,000
<INCOME-CONTINUING> 405,001
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 405,001
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
</TABLE>
