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, 1997
Transition Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Commission File Number 000-02290
Efficiency Lodge, Inc.
(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 30126
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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
----
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. / /
State issuer's revenues for its most recent fiscal year. $4,377,122.
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 March 1, 1998, there were
47,805 shares of Common Stock, $0.10 par value, outstanding held by non-
affiliates of the issuer, with an aggregate value of $478,050.00 (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 March 1, 1998, there were issued and outstanding 1,043,683
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
30126, 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"). The Company now owns
and operates seven Efficiency Lodges, which are located in or near East
Point, Douglasville, Atlanta, Dekalb County, Carrollton, Cartersville
and Forest Park, Georgia. The Lodges have an aggregate of 822 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.
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
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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.
For 1997, the overall average occupancy rate for the Company's
Lodges was 81.08%, the average weekly rental rate was $143.29 and the
revenue per available room was $111.93.
BUSINESS STRATEGY
The Company 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
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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.
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.
On March 1, 1997, Efficiency Lodge of DeKalb, Inc. ("ELI-DeKalb"),
a corporation owned by the Company's majority shareholders, Roy Barnes
and Ray Barnes, completed construction of a 100-room Lodge in DeKalb
County, Georgia and transferred it to the Company. The Company forgave
an approximate $283,000 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 are 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.
The Company is developing an Efficiency Lodge in Columbus, Georgia,
where property has been located and bank financing has been identified.
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
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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.
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.
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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.
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, 1997, the Company had no employees. Instead,
the Company leases approximately 39 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
June 1, 1997, and may be terminated by the Company on June 1, 1998. 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. The registration extends until
2003 and is thereafter renewable for ten-year periods.
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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 1998 and any Current Reports on Form 8-K
filed by the Company.
YEAR 2000
The "year 2000 issue" arises from the widespread use of computer
programs that rely on two-digit date codes to perform computations or
decision-making functions. Many of these programs may fail due to an
inability to properly interpret date codes beginning January 1, 2000.
For example, such programs may misinterpret "00" as the year 1900 rather
than 2000. In addition, some equipment, being controlled by
microprocessor chips, may not deal appropriately with the year "00".
The Company is evaluating its computer systems to determine which
modifications and expenditures will be necessary to make the systems
compatible with year 2000 requirements. The Company believes that its
systems will be year 2000 compliant upon implementation of any such
modifications.
The Company currently estimates that the total cost of such
modifications will not be significant. However, there can be no
assurance that all necessary modifications will be identified and
corrected or that unforeseen difficulties or costs will not arise. In
addition, there can be no assurance that the systems of other companies
on which the Company's systems rely will be modified on a timely basis,
or that the failure by another company to properly modify its systems
will not negatively impact the systems or operations of 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 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.
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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, 1997, ranged from $109 to $149
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, 1997, aggregating approximately $778,678. 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, 1997, of
approximately $1,664,922. 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, 1997, aggregating
approximately $2,267,146. 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, 1997, of
approximately $1,745,954. 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, 1997,
aggregating approximately $2,324,810. The first mortgage matures in
2019, and the second matures in 2025. The loans accrue interest at
10.25% annually.
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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, 1997, with an
aggregate outstanding balance of approximately $1,284,009. 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 15-year
mortgage with an outstanding balance at December 31, 1997, of
$1,664,878. The loan matures in 2012 and accrues interest at the rate
of prime plus 2%.
Total debt of the Company as of December 31, 1997, was
approximately $11.2 million. The outstanding balances on the notes
detailed above at December 31, 1996, total approximately $11.7 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, 1997, 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."
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.
No meeting of Shareholders was held during 1997.
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, 1998, there were 1,043,683 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.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
FISCAL YEARS ENDED DECEMBER 31, 1997 AND 1996
Total assets on December 31, 1997 were $11,846,310, an increase of
$1,309,212 from the same date in 1996. This increase can be attributed
to the addition of Dekalb Lodge during the first quarter of 1997. Total
liabilities on December 31, 1997 were $11,741,874 compared to
$10,541,640 at December 31, 1996. This increase of $1,200,234.15
primarily resulted from long term debt incurred as a result of financing
the Dekalb Lodge.
Revenue for the year ending December 31, 1997 was $4,377,122
compared to $3,932,616 for the year ending December 31, 1996, or an
increase of $444,506, or 11%. This increase was attributable to the
opening of the Dekalb Lodge on February 28, 1996. On a lodge-to-lodge
basis, excluding Dekalb Lodge, the 1997 revenue was $3,740,059, or a
decrease of $266,171, or 7%. The decrease on a lodge to lodge basis can
be attributed to the departure of the Olympics in the Atlanta area and
absorption of the excess capacity that resulted from the Olympics, and a
wetter and colder winter. The decrease in revenue was worst in the
first quarter of 1997, reflecting also the seasonal nature of the
extended stay motel market, but it improved during the year. Increased
occupancy continued strong during the fourth quarter and has improved
during the first two months of 1998 compared to the same period in 1997.
Operating expenses increased from $2,340,061 in 1996 to $2,818,570
in 1997, or an increase of $478,509. This increase in expenses can
generally be divided into expenses related to the opening and operation
of the Dekalb Lodge and expenses incurred because of the decision by
management to increase the maintenance and repair of existing properties
after a period of high occupancy and use. The significant increase in
expenses of 1997 compared to 1996 is a result of the following.
Advertising expenses in 1997 were $46,836 compared to 1996 advertising
expenses of $22,047. This increase was a result of increased
advertising of existing properties and advertising associated with the
opening of Dekalb Lodge. Cable television expenses were $68,736 in 1997
compared to $56,625 in 1996. The increase was the result of normal
price increases and the addition of Dekalb Lodge. Depreciation
increased from $362,560 in 1996 to $459,515 in 1997 and was primarily
the result of the addition of Dekalb Lodge, including buildings and
furniture, fixtures and equipment. Employee lease expense was $705,492
in 1997 compared to $685,810 in 1996 resulting from increased personnel
at Dekalb Lodge and the central office.
Management fees increased from $117,500 in 1996 to $169,487
in 1997. Beginning September 1996, Management fees were paid on a
percentage of gross revenue and the increase is attributable to an
increase in revenue of the company. Office supplies were $27,550 in
1997 compared to $11,003 in 1996 as a result of the opening of Dekalb
Lodge and the normal need for increased supplies in 1997. Repairs and
maintenance expenses were $74,659 in 1997 compared to $37,725 in 1996;
subcontracting labor expenses associated with cleaning were $11,519 in
1997 compared to $4,153 in 1996; and general subcontract labor was
$88,717 in 1997 compared to $19,652 in 1996 all of which increases were
the result of management's decision to repair and restore properties
which had been worn by high occupancy. The increases in utilities of
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telephone, electricity and sewerage were all the result of the addition
of Dekalb Lodge and normal price increases. Interest expense increased
to $1,189,272 in 1997 from $1,084,013 in 1996 as a result of the
increased long term debt associated with the construction of Dekalb
Lodge. Legal and professional fees increased from $4,290 in 1996 to
$22,012 in 1997 primarily as a result of the status of the Company a SEC
reporting company as compared to prior years when the Company was not a
reporting company.
During 1997, the Company sold an office building on Pat Mell Road
in Smyrna, Georgia, the ownership of which was deemed not consistent
with the Company's business or needs. The Company realized a loss of
$46,953 on the sale.
The increased expenses and the decreased revenue on a lodge-to-
lodge basis described above led to net income before taxes in 1997 of
$342,191 compared to $567,001 in 1996. Net income was $214,126 in 1997
compared to $405,001 in 1996. The Company was a Subchapter S
corporation in 1996 and did not have income taxes on operating income in
1996, but did have an expense relating to the change to a taxable
corporation.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has funded its operations primarily with
cash flow from operations. For the year ended December 31, 1997, the
Company generated $702,394 in cash flow from operations compared to
$1,052,594 for the year ended December 31, 1996. The Company had cash
balances of $169,246 and $159,944 at December 31, 1997 and 1996,
respectively.
Historically, the Company has funded the development of the Lodges
principally from borrowings. As of December 31, 1997, the Company had
outstanding indebtedness on its seven Lodges of approximately $11.2
million. Debt reduction used cash of approximately $478,000 and
$343,000 in 1997 and 1996, respectively, and distributions to
shareholders were approximately $107,000 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. The Company
is in the process of completing a new lodge in Columbus, Georgia,
expected to open during the second quarter of 1998. Construction of the
lodge has been financed through a loan from Columbus Bank and Trust and
through current operating funds of the Company. The Company also has
agreed to purchase two other lodges. One would cost approximately
$3,000,000, and the other would cost approximately $2,800,000 plus
shares of Common Stock equal to 29% of the then-outstanding shares.
Both agreements are conditioned upon the Company obtaining financing,
and the Company has not yet secured that financing.
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.
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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.
YEAR 2000
The Company utilizes various computer software packages as tools in
running its accounting and operations. Management plans to implement any
necessary vendor upgrades and modifications to ensure continued
functionality with respect to the widely discussed software problems
associated with the Year 2000. At present, management does not expect
that material incremental costs will be incurred in the aggregate or in
any single future year.
FORWARD-LOOKING STATEMENTS
To the extent the information contained in this discussion and
analysis of the consolidated financial statements of the Company and the
information included elsewhere in this 1997 Annual Report on Form 10-KSB
are viewed as forward-looking statements, the reader is cautioned that
various risks and uncertainties exist that could cause actual future
results to differ materially from that inferred by the forward-looking
statements. Among the risks and uncertainties that should be considered
are: (i) dependence on senior management; (ii) risks associated with the
lodging industry; (iii) risks associated with compliance with
environmental regulations and other government regulations, and (iv)
risks associated with financing. The reader is further cautioned that
risks and uncertainties may exist that have not been mentioned herein
due to their unforeseeable nature, but which, nevertheless, may impact
the Company's future operations.
ITEM 7. FINANCIAL STATEMENTS.
The response to this item is included herein beginning on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
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 Company did not hold a
-12-<PAGE>
meeting of shareholders in 1997, so the directors of the Company remain
on the Board and will continue to serve until their successors are duly
elected and qualified. Officers may be elected by the Company's Board
of Directors annually, and they serve until their successors are duly
elected and qualified. Accordingly, the current officers of the Company
are serving until their successors are so elected and qualified
<TABLE>
<CAPTION>
Name (Age) Position(s) Business Experience During the Past Five Years
- ---------- ----------- -----------------------------------------------
<S> <C> <C>
Roy E. Barnes (48) Director, Mr. Roy Barnes has served as a director and Secretary/
Secretary and Treasurer of ELI and its predecessors since 1986. An
Treasurer 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 (57) Director, Mr. Ray Barnes has served as a director, President
President and Chief Executive Officer of ELI and its predecessors
and Chief since 1986. Mr. Barnes has owned and operated Barnes
Executive Store in Mableton, Georgia since 1954. He is also a
Officer director of Georgia State Bank and Community Financial
Corporation.
Arthur L. Crowe, Jr. (72) 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 (66) 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 (56) 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. (69) 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.
</TABLE>
Roy and Ray Barnes are brothers; otherwise, there are no family
relationships between any of the current directors or executive officers
of the Company.
-13-
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to Section 16(a) of the Securities Exchange Act of 1934,
each executive officer, director and beneficial owner of 10% or more of
the Company's Common Stock is required to file certain forms with the
Securities and Exchange Commission. A report of beneficial ownership of
the Company's Common Stock on Form 3 is due at the time such person
becomes subject to the reporting requirement and a report on Form 4 or 5
must be filed to reflect changes in beneficial ownership occurring
thereafter. The Company believes that all filing requirements applicable
to its officers and directors were complied with during the 1997 fiscal
year, except Roy E. Barnes and W. Ray Barnes inadvertently failed to
file their Forms 3 as soon as required under the rules.
ITEM 10. EXECUTIVE COMPENSATION.
MANAGEMENT COMPENSATION
The following table sets forth the compensation paid to Ray Barnes,
chief executive officer of ELI.
Summary Compensation Table
Annual Compensation
----------------------
Name and Principal
Position Year Salary Other <F1>
----------------------------------------------------------
Ray Barnes, 1997 $ 50,000 $ 169,487
President and Chief 1996 $ 50,000 $ 117,500
Executive Officer
_______________
[FN]
<F1> Ray Barnes, doing business as Barnes Store, is paid a fee for
management of the Company's properties. See Item 12 -- "Certain
Relationships and Related Transactions."
DIRECTORS' COMPENSATION
Directors of the Company received $250 for each meeting of the Board of
Directors attended 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.
-14-
<PAGE>
<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 47.5 %
4841 Brookwood Drive
Mableton, GA 30059
Common Stock W. Ray Barnes 496,195 47.5
1680 Seayes Road
P.O. Box 21
Mableton, GA 30059
</TABLE>
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.
Name and Address Amount and Nature Percent of
of Beneficial Owner of Beneficial Owner Common Stock
- ------------------- ------------------- ------------
Roy E. Barnes 496,195 47.5%
4841 Brookwood Drive
Mableton, GA 30059
W. Ray Barnes 496,195 47.5%
1680 Seayes Road
P.O. Box 21
Mableton, GA 30059
Arthur L. Crowe, Jr. 211 *
567 Colston Road
Marietta, GA 30014
Joseph A. Cochran 347 *
2950 Atlanta Street
Smyrna, GA 30080
Ken F. Thigpen 223 *
2572 Oakwood Trace
Smyrna, GA 30080
Dr. Roy W. Sweat, D.C. 2,707 *
4735 River Court
Duluth, GA 30155
All officers and 995,878 95.4%
directors as a group
____________
* Less than one percent
-15-
<PAGE>
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 may be cancelled by either party upon 60 days notice. In
1997, the Company paid $169,487 to Mr. Barnes for such management
services.
The Company 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 1997, the Company
purchased maintenance supplies totaling $172,347 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, 1998. Rental is $700 per month.
As of December 31, 1997, the Company had a non-interest bearing payable
of $100,010 due to one of its majority shareholders and a non-interest
bearing, non-secured receivable of one of the majority shareholders in
the amount of $240,960. There are no specified repayment terms for that
payable or that receivable.
Another note receivable of Ray Barnes, a majority shareholder, in the
principal amount of $464,016 (plus accrued interest of $95,606) bears
interest at 7% and matures on August 18, 2012. Monthly payments of
$4,224.50 began September 25, 1997.
The Company advanced funds 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 1997,
and the Company forgave approximately $283,000 that had been advanced on
that project. As of December 31, 1997, advances totaling approximately
$179,000 was due on the other project.
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 1997 were less than $5,000.
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).
-16-<PAGE>
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
(incorporated by reference to Exhibit 3.1.1 of
the Company's Annual Report on form 10-KSB for
the fiscal year ended December 31, 1996, as
filed with the Commission on April 15, 1997).
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.
21.0 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).
27.0 Financial Data Schedule
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.
-17-
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
EFFICIENCY LODGE, INC.
December 31, 1997
C O N T E N T S
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-2
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET F-3
CONSOLIDATED STATEMENTS OF EARNINGS F-4
STATEMENT OF STOCKHOLDERS' EQUITY F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8
F-1
<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, 1997, and the related
consolidated statements of earnings, stockholders' equity and
cash flows for each of the two years in the period ended December
31, 1997. 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, 1997, and the consolidated results of their
operations and their cash flows for each of the two years in the
period ended December 31, 1997 in conformity with generally
accepted accounting principles.
/s/ Grant Thornton LLP
GRANT THORNTON LLP
Atlanta, Georgia
February 4, 1998
F-2
<PAGE>
Efficiency Lodge, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET
December 31, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Property and equipment, net (note B) $ 10,197,674
Cash 169,246
Inventory 33,920
Due from stockholder (note F) 240,960
Note receivable - stockholder (note C) 464,016
Interest receivable - stockholder (note C) 95,606
Advances to affiliates (note F) 178,747
Loan fees, net of accumulated amortization (note D) 341,838
Other assets 124,303
-------------
$ 11,846,310
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Mortgage notes payable (note E) $ 11,222,325
Accounts payable 50,851
Customer deposits 26,576
Due to stockholder (note F) 100,010
Other liabilities 180,112
Deferred taxes (note H) 162,000
-------------
Total liabilities 11,741,874
STOCKHOLDERS' EQUITY
Common stock - $.10 par value, 7,500,000 shares
authorized; 1,043,683 shares issued and outstanding 104,368
Additional paid-in capital 52,674
Accumulated deficit (52,606)
-------------
104,436
-------------
$ 11,846,310
=============
</TABLE>
The accompanying notes are an integral part of this statement.
F-3
<PAGE>
Efficiency Lodge, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
Years ended December 31,
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Revenue $ 4,377,122 $ 3,932,616
Operating expenses 2,818,570 2,340,061
--------- ---------
Operating profit 1,558,552 1,592,555
Other expense (income)
Interest income (33,881) (33,703)
Interest expense 1,189,272 1,084,013
Other, net 60,970 (24,756)
--------- ---------
1,216,361 1,025,554
--------- ---------
Net earnings before income taxes 342,191 567,001
Effect of change in income tax status (note H) - 162,000
Income tax expense (note H) 128,065 -
--------- ---------
Net earnings $ 214,126 $ 405,001
========= =========
Earnings per common share - basic $ .21 $ .42
========= =========
Historical earnings before income taxes $ 567,001
Pro forma income tax expense 215,000
--------
Pro forma net earnings (note H) $ 352,001
========
Pro forma net earnings per share $ .36
========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
Efficiency Lodge, Inc. and Subsidiaries
STATEMENT OF STOCKHOLDERS' EQUITY
Years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Common stock
---------------------- Additional
Number of paid-in Accumulated
shares Par Value capital deficit Total
--------- --------- ---------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995,
par value $1.00 per share 900 $ 900 $ - $ (354,905) $ (354,005)
Net earnings for the year - - - 405,001 405,001
Distribution to shareholders of
record on December 31, 1995 - - - (210,000) (210,000)
Issuance of stock for merger with
Southern Acceptance Corporation,
par value $0.10 per share (note I) 1,025,980 101,788 52,674 - 154,462
--------- ------- ------- ---------- --------
Balance at December 31, 1996 1,026,880 102,688 52,674 (159,904) (4,542)
Net earnings for the year - - - 214,126 214,126
Dividends to shareholders of
record on December 30, 1996 - - - (106,828) (106,828)
Issuance of stock related to the
merger with Southern
Acceptance Corporation,
par value $0.10 per share (note I) 16,803 1,680 - - 1,680
--------- ------- ------- -------- -------
1,043,683 $104,368 $ 52,674 $ (52,606) $104,436
========= ======= ======= ======== =======
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
Efficiency Lodge, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Increase (Decrease) in Cash
Cash flows from operating activities
Net earnings $ 214,126 $ 405,001
Adjustments to reconcile net earnings
to net cash provided by operating activities
Depreciation and amortization 477,082 379,462
Loss on sale of assets 46,953 -
Changes in assets and liabilities
Increase in interest receivable (14,067) (22,900)
Increase in inventories (7,948) (2,361)
Increase in other assets (31,730) (15,627)
Increase (decrease) in accounts payable (5,766) 137,474
Increase in customer deposits 6,569 9,545
Increase in other liabilities 55,175 -
Increase (decrease) in deferred taxes (38,000) 162,000
---------- ---------
Net cash provided by operating activities 702,394 1,052,594
Cash flows from investing activities
Purchases of property and equipment (1,661,223) (16,533)
Advances to stockholder - (111,246)
Advances to affiliates (71,154) (383,713)
Other 52,468 17,731
---------- ---------
Net cash used by investing activities (1,679,909) (493,761)
Cash flows from financing activities
Proceeds from notes payable 1,700,000 100,000
Payments made on notes payable (478,101) (342,953)
Payments for loan origination costs (128,254) -
Distributions made to stockholders (106,828) (210,000)
Payments made on due to stockholder - (30,000)
---------- ---------
Net cash provided (used) by
financing activities 986,817 (482,953)
---------- ---------
</TABLE>
F-6
<PAGE>
Efficiency Lodge, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years ended December 31,
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net increase in cash 9,302 75,880
Cash at beginning of year 159,944 84,064
---------- ---------
Cash at end of year $ 169,246 $ 159,944
========== =========
Supplemental cash flow information
Cash paid during the year for interest $ 1,104,811 $ 999,552
========== =========
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.
During 1997, the Company issued an additional 16,803 shares in
connection with the December 1996 merger with Southern
Acceptance Corporation.
During 1997, the Company forgave a receivable of $282,602 as
part of the purchase of a lodge facility.
During 1997, the Company sold a building. As part of the
transaction, the purchaser assumed the remaining debt of
$37,963.
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
Efficiency Lodge, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 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. 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.
F-8
<PAGE>
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
------------------
The Company adopted Statement of Financial Accounting Standards
No. 128, Earnings Per Share, which is effective for financial
statements issued after December 15, 1997. The new standard
eliminates primary and fully diluted earnings per share and
requires presentation of basic and diluted 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, 1996. The
weighted average number of shares is 1,043,683 and 975,536 for
1997 and 1996, respectively.
There are no outstanding potentially dilutive securities.
Accordingly, earnings per common share assuming dilution is the
same as basic earnings per common share.
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.
F-9
<PAGE>
NOTE B - PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31, 1997:
<TABLE>
<CAPTION>
Depreciable
lives
-----------
<S> <C> <C>
Buildings and improvements 31-39 years $ 10,263,523
Furniture and equipment 5-7 years 1,266,565
-----------
11,530,088
Less accumulated depreciation (2,898,860)
-----------
8,631,228
Land 1,566,446
-----------
$ 10,197,674
===========
</TABLE>
NOTE C - NOTE RECEIVABLE - STOCKHOLDER
The $464,016 note receivable from stockholder bears interest at 7%,
matures on September 25, 2012 and is uncollateralized. Accrued
interest on this note totalled $95,606 as of December 31, 1997.
Interest income on this note totalled $32,848 and $32,900 for the years
ended December 31, 1997 and 1996, respectively.
NOTE D - LOAN FEES
Loan fees were as follows as of December 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
Loan fees $ 533,775
Less: accumulated amortization 191,937
--------
Net loan fees $ 341,838
========
</TABLE>
F-10
<PAGE>
NOTE E - MORTGAGE NOTES PAYABLE
Mortgage notes payable at December 31, 1997 consists of the following
notes payable collateralized by all of the Company's real property.
<TABLE>
<CAPTION>
<S> <C>
Variable rate notes - 10.5% to 11.00%,
payments of principal and interest totalling
$128,952 per month, maturing on various
dates through 2019 $10,142,777
Fixed rate notes - 10%, payments of principal
and interest totalling $9,732 per month,
maturing on various dates through 2025 1,079,548
-----------
$ 11,222,325
===========
</TABLE>
Future maturities of long-term debt as of December 31, 1997 are
as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 571,784
1999 1,633,398
2000 435,557
2001 473,715
2002 1,912,122
Thereafter 6,195,749
----------
$ 11,222,325
==========
</TABLE>
NOTE F - RELATED PARTY TRANSACTIONS
Management fees of $169,487 and $117,500 were paid in 1997 and
1996, respectively, to a stockholder. 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 less certain taxes for
management services provided by the stockholder. This
agreement has no specified expiration date and may be
terminated at any time by either party.
As of December 31, 1997, $100,010 was due to a stockholder.
This payable is non-interest bearing and has no specified
repayment terms.
As of December 31, 1997, $240,960 was due from a stockholder.
This unsecured receivable is non-interest bearing and has no
specified repayment terms.
F-11
<PAGE>
During 1997 and 1996, the Company purchased maintenance
supplies totalling $172,347 and $89,400, respectively, from a
stockholder.
As of December 31, 1997, advances totaling $178,747 were due
from a company owned by two stockholders. This related company
is in the process of constructing a lodge for the Company. The
Company has agreed to purchase the lodge upon completion at an
amount equal to the cost to construct the lodge. The estimated
cost to construct the lodge is approximately $2,000,000.
NOTE G - FINANCIAL INSTRUMENTS
The carrying amounts of cash 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.
Due to the terms and conditions related to the amounts due from
a stockholder, it is not practicable to estimate the fair value
of the receivables from the stockholder.
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 for 1996. Pro forma income tax expense, net earnings
and earnings per share are presented on the accompanying
statement of earnings for 1996 to reflect the effect of federal
and state income tax expense assuming the Company was a taxable
entity.
Due to the merger discussed in Note I, the Company no longer
qualifies as a Subchapter S corporation. Accordingly, a
deferred tax liability and an expense of $162,000 was recorded
in 1996 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. Income
tax expense for 1997 of approximately $128,000 consists of
$166,000 current expense and $38,000 deferred benefit. This
expense differs from the expense based on the Federal statutory
rate due primarily to state income taxes. At December 31, 1996
and 1997, 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.
F-12
<PAGE>
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 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. 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
========
The following unaudited pro forma results of operations for
1996 were prepared under the assumption that the merger with
SAC occurred at the beginning of 1996 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 transaction had occurred at the beginning of fiscal
year 1996.
1996
----
Revenue $ 3,957,187
Net earnings $ 266,412
Earnings per share $ .26
F-13
<PAGE>
NOTE J - COMMITMENTS
The Company has entered into purchase agreements for two
lodges. The cost to purchase the first lodge is $3,000,000.
The cost of the second lodge is $2,800,000 plus 29% of the
outstanding shares of the Company. The purchase of these
lodges is contingent on the Company obtaining financing for
these acquisitions.
F-14
<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 26, 1998
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.
<TABLE>
<CAPTION>
Signature Position Date
--------- -------- ----
<S> <C> <C>
/s/ W. Ray Barnes President and Chief Date: March 26, 1998
- ------------------------- Executive Officer
W. Ray Barnes and Director
(Principal Executive
Officer)
/s/ Roy E. Barnes Secretary/Treasurer Date: March 26, 1998
- ------------------------- and Director (Principal
Roy E. Barnes Financial and Accounting
Officer)
/s/ Arthur L. Crowe, Jr. Director Date: March 26, 1998
- ------------------------
Arthur L. Crowe, Jr.
/s/ Joseph A. Cochran Director Date: March 26, 1998
- ------------------------
Joseph A. Cochran
/s/ Ken F. Thigpen Director Date: March 26, 1998
- ------------------------
Ken F. Thigpen
/s/ Roy W. Sweat Director Date: March 26, 1998
- ------------------------
Roy W. Sweat
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
3.1 Restated and Amended Articles of Incorporation
of the Company
3.2 Bylaws of Efficiency Lodge, Inc., as amended
21.0 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).
27.0 Financial Data Schedule (for SEC use only)
</TABLE>
ARTICLES OF INCORPORATION
(AS AMENDED THROUGH APRIL 10, 1997)
OF
EFFICIENCY LODGE, INC.
1.
The name of the corporation is Efficiency Lodge, Inc.
2.
The object of said corporation is pecuniary gain and profit
for itself and its shareholders.
3.
The general nature of the business or businesses to be
transacted is as follows:
To act as principal or agent in the operation of a
general factoring and finance business. To buy,
sell, own, trade, discount and invest in chattels,
notes, accounts receivable and inventories of
other companies, firms and individuals. To
purchase, finance or discount commercial paper and
warehouse receipts. To purchase or otherwise
acquire open accounts receivable, notes, drafts
and acceptances from other companies, firms and
individuals. To purchase or otherwise acquire
installment obligations, covering any and all
sales of merchandise or other commodities. To
own, operate, promote and invest in any plant,
factory, business, or business enterprise. To
buy, sell own and invest in real estate and
personal property of all kinds, nature and
description.
4.
[This Article no longer has legal effect]
5.
The maximum number of shares of stock shall be seven million
five hundred thousand of the par value of ten cents per share, all of
said stock being common voting stock and having such rights, powers
<PAGE>
and privileges as may be provided in the bylaws of the corporation.
The corporation may issue such portion of its capital stock as is
deemed advisable, and may at its option hold any of said stock
authorized but not issued in its treasury.
6.
The amount of capital with which the corporation shall begin
business shall be not less than $17,250.00.
7.
The principal office and place of doing business of the
corporation shall be in Fulton County, Georgia, but the corporation
desires the privilege of doing business and/or establishing branch
offices within or without the State of Georgia.
8.
Petitioners further desire that bylaws of the corporation
shall be adopted by the common shareholders, and such bylaws shall
provide for the officers of the corporation, the manner of their
selection, and such other rules appropriate to the bylaws which have
as their purpose the control and management of the corporation,
including provisions whereby the bylaws may be amended, however, it is
specifically set out that the minimum number of directors of the
corporation shall be five (5).
9.
[No longer applicable]
10.
The corporation desires to have and exercise all of the
powers conferred by the laws of Georgia upon corporations and to do
any and all things herein stated to the same extent as a natural
person might or could do.
AMENDED
AND RESTATED
BYLAWS
OF
EFFICIENCY LODGE, INC.
ARTICLE I: OFFICES
-------------------
The principal office and place of business of said corporation shall be
in Fulton County, Georgia. The corporation may establish and maintain an
office or offices at such other places, either within or without the State
of Georgia, as the Board of Directors may from time to time determine.
ARTICLE II: SEAL
-----------------
The seal of the corporation shall be in circular form and shall have
inscribed thereon the words "EFFICIENCY LODGE, INC., GEORGIA CORPORATE
SEAL".
ARTICLE III: STOCKHOLDERS
--------------------------
Section 1. STOCKHOLDERS' MEETINGS: The annual meeting of the
stockholders shall be held in the month of May in each year. The day, hour
and place of such meeting shall be fixed by the Board of Directors in their
regular monthly meeting held in the month preceding the proposed
stockholders' meeting, the purpose of which will be the election of
Directors and the transaction of such other business as may come before the
meeting.
<PAGE>
Section 2. SPECIAL MEETINGS: Except as otherwise provided by law,
special meetings of the stockholders of this corporation shall be held
whenever called by the President or a Vice President or by the Treasurer or
by a majority of the Board of Directors or whenever one or more stockholders
who are entitled to vote and who hold at least 25% of the capital stock
issued and outstanding and entitled to vote shall make written application
therefor to the Secretary or an Assistant Secretary stating the time, place
and purpose of the meeting called for.
Section 3. NOTICE OF MEETINGS: Notice of all stockholders' meetings
stating the time and the place, and the objects for which such meetings are
called, shall be given by the President or a Vice President or the Treasurer
or the Secretary or an Assistant Secretary or by any one or more
stockholders entitled to call for a special meeting of the stockholders, by
mail not less than ten nor more than 30 days prior to the date of the
meeting, to each stockholder of record entitled to vote at the meeting or
entitled to receive notice thereof under the laws of the State of Georgia at
his address as it appears on the stock books of the corporation.
Section 4. WAIVER OF NOTICE: Whenever any notice whatever is
required to be given by these by-laws, or the articles of incorporation of
this corporation, or any of the corporation laws of the State of Georgia, a
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto. Attendance at any meeting of the corporation in person
or by proxy, shall be deemed to be a waiver of notice thereof.
Section 5. QUORUM: A majority of the capital stock outstanding and
entitled to vote must be represented in person or by proxy in order to
constitute a quorum at any stockholders' meeting for the transaction of
business, but the stockholders represented at any meeting thereof less than
2<PAGE>
a quorum may adjourn the meeting from time to time without notice other than
announcement at the meeting until a quorum shall be present. At any such
meeting at which a quorum shall be present or represented, any business may
be transacted which might have been transacted at the meeting originally
called.
Section 6. VOTING AND PROXY: Each stockholder shall be entitled to
one (1) vote for each outstanding share of the capital stock of the
corporation standing in his, her or its name on the stock ledger or the
transfer book at least forty (40) days next preceding the date of such
meeting, and such vote may in all cases be given by such stockholder in
person or in proxy in writing. Such proxies shall be filed with the
Secretary of the meeting before being voted. Such proxies shall entitle the
holders thereof to vote at any and all adjournments of such meeting, but
shall not be valid after the final adjournment thereof.
ARTICLE IV. BOARD OF DIRECTORS
-------------------------------
Section 1. NUMBER AND QUALIFICATION OF DIRECTORS: The Board of
Directors shall consist of not less than 5 nor more than 13 members, each of
whom must be a stockholder in said corporation, and must be not less than
twenty-one years old.
Section 2. TERM OF OFFICE OF DIRECTORS: Each Director elected at the
first meeting of stockholders shall hold office for a period of two years
and until his successor shall have been elected; thereafter each Director
elected shall hold office for a period of one (1) year and until his
successor shall have been elected.
Section 3. MANNER OF ELECTION OF DIRECTORS: The Board of Directors
shall be chosen by ballot at the annual meeting of the stockholders or at
3
<PAGE>
any meeting held in place thereof as provided by law, and may be elected at
any special meeting of stockholders called for that purpose. Directors when
elected shall serve, unless removed as hereinafter set forth, until the next
annual meeting of stockholders or other meeting of stockholders called for
the purpose of the election of a Board of Directors, and until their
successors are elected. Any Director or Directors may be removed at any
time, with or without cause, by vote of the holders of the common stock.
Section 4. MEETING OF NEWLY ELECTED BOARD OF DIRECTORS: A meeting
of the newly elected directors, to be known as the annual meeting of the
Board, shall be held at the principal office of the corporation immediately
after the adjournment of the annual meeting of the stockholders for the
election of officers of the corporation and for the transaction of such
other and further business as may properly come before the Board. No notice
of such annual meeting shall be necessary or required in order to legally
constitute the meeting, provided a majority of the newly elected directors
shall be present. If a majority shall not be present at such meeting, those
present shall adjourn the meeting to a specified time in the future, and the
Secretary of the corporation shall at once mail a notice of the time and
place of holding such adjourned annual meeting to each of the newly elected
directors.
Section 5. REGULAR MEETINGS OF BOARD OF DIRECTORS: Regular
meetings of the Board of Directors shall be held at the office of the
corporation or elsewhere within or without the State of Georgia, as
specified in the notice of the meeting or the waiver of notice thereof.
Regular meetings shall be held on such dates and at such times and places as
may be determined by the Board of Directors and set forth in written notice
given at lease five (5) days prior thereto.
Section 6. SPECIAL MEETINGS OF BOARD OF DIRECTORS: Special
meetings of the Board may be called by the President or by a majority of the
4
<PAGE>
Directors, by giving to each director either personally, by mail, or by
telegraph, at least 24 hours notice of the time, place and purpose of the
meeting.
Section 7. QUORUM OF BOARD OF DIRECTORS: A majority of the members
of the Board of Directors shall be necessary to constitute a quorum for the
transaction of business at any meeting, but a smaller number may adjourn the
meeting to a future date.
Section 8. POWERS OF BOARD OF DIRECTORS: The business and affairs of
the corporation shall be managed by its Board of Directors.
Section 9. VACANCIES IN BOARD OF DIRECTORS: Any vacancy in the office
of any Director, however occasioned, may be filed, pending the election of
his successor by the members, by a majority vote of the remaining Directors.
Section 10. DEMAND OF AUDIT: Any three (3) directors shall have the
power to demand a certified audit of the company, the expense of which will
be borne by the company provided that such a demand may be made no more
often than every six (6) months.
ARTICLE V. OFFICERS
--------------------
Section 1. NUMBER: The officers of the corporation shall be a
President, a Vice-President, a Secretary and a Treasurer, each of whom shall
be elected by the Board of Directors. Such other officers and assistant
officers as may be deemed necessary may be elected or appointed by the Board
of Directors.
Section 2. ELECTION AND TERM OF OFFICE: The officers of the
corporation to be elected by the Board of Directors shall be elected
annually by the Board of Directors at the first meeting of the Board of
Directors held after each annual meeting of the shareholders. If the
5
<PAGE>
election of officers shall not be held at such meeting, such election shall
be held as soon thereafter as conveniently may be. Each officer shall hold
office until his successor shall have been duly elected and shall have
qualified or until his death or until he shall resign or shall have been
removed in the manner hereinafter provided.
Section 3. REMOVAL: Any officer elected or appointed by the Board of
Directors may be removed by the Board of Directors whenever in its judgment
the best interests of the corporation would be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the
person so removed.
Section 4. VACANCIES: A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the
Board of Directors for the unexpired portion of the term.
Section 5. POWERS OF PRESIDENT:
(a) The President shall be the chief executive officer of
the corporation. He shall preside at all meetings of the members and
Directors, shall have general and active management of the business of the
corporation, and shall see that all orders and resolutions of the Board are
carried into effect.
(b) He shall execute bonds, mortgages, and other contracts
requiring a seal, but all such contracts shall also be attested by the
Secretary.
(c) In conjunction with the Secretary, it shall be his
duty to sign all stock certificates.
(d) He shall perform all such other duties as the Board
may direct.
6
<PAGE>
Section 6. POWERS OF VICE PRESIDENT: In the absence of the President,
or in case of his failure to act, the Vice President shall have all the
powers of the President and shall perform such duties as shall from time to
time be imposed under him or them by the Board of Directors.
Section 7. POWERS OF SECRETARY: The Secretary shall attend and keep
the minutes of all meetings of the Board of Directors and stockholders. He
shall have charge of the records and seal of the corporation, and shall in
general perform all of the duties incident to the office of the Secretary of
a corporation, subject at all times to the direction and control of the
Board of Directors.
Section 8. POWERS OF TREASURER: The Treasurer shall keep full and
accurate account of receipts and disbursements of the books belonging to the
corporation, and shall deposit all monies and other valuable properties and
effects in the name of and to the credit of the corporation in such
depository or depositories as may be designated by the Board of Directors.
He shall disburse the funds of the corporation as may be ordered by the
Board, taking proper vouchers for such disbursements, and shall render to
the Board of Directors whenever they may require, an account of all his
transactions as Treasurer and of the financial condition of the corporation;
and at the annual meeting of the Board a like report for the preceding year.
The Treasurer shall perform such other duties as shall be assigned to him by
the Board of Directors of the Corporation. He may be required to give the
corporation a bond in such sum and with such surety or sureties as the Board
of Directors may require for the faithful performance of the duties of his
office, and the restoration to the Corporation, in case of his death,
resignation, or removal from office, of all books, papers, money and other
property of whatever kind in his possession and control belonging to the
Corporation.
7
<PAGE>
ARTICLE VI. STOCK CERTIFICATES AND TRANSFERS
---------------------------------------------
Section 1. CERTIFICATE OF STOCK: Each stockholder shall be
entitled to demand and receive from the corporation a certificate or
certificates of stock showing the number of shares of said corporation owned
by such stockholder, and showing such other facts as are required by the
laws of the State of Georgia to be stated in such certificates. Each
certificate shall be signed by the President or Vice-President and Secretary
of the corporation, and shall have affixed thereto and thereon the seal of
the corporation.
Section 2. TRANSFER OF STOCK: Shares of stock may be transferred
by delivery of the certificate accompanied either by an assignment in
writing on the back thereof or by a written power of attorney to sell,
assign and transfer the same on the books of the corporation, signed by the
person appearing by the certificate to be the owner of the shares
represented thereby, together with all necessary federal and state transfer
tax stamps affixed, and shall be transferable on the books of the
corporation upon surrender thereof so assigned or endorsed. The person
registered on the books of the corporation as the owner of any shares of
stock shall be entitled to all the rights of ownership with respect to such
shares. It shall be the duty of every stockholder to notify the corporation
of his post office address.
Section 3. TRANSFER BOOKS: The transfer books of the stock of the
corporation may be closed for such period, not exceeding forty (40) days, in
anticipation of stockholders' meetings as the Board of Directors may
determine. In lieu of closing the transfer books, the Board of Directors
may fix a day not more than forty (40) days prior to the day of holding any
8
<PAGE>
meeting of stockholders as the day as of which stockholders entitled to
notice of and to vote at such meeting shall be determined; and only
stockholders of record on such day shall be entitled to notice of or to vote
at such meeting.
ARTICLE VII. INTERPRETATION CLAUSE
-----------------------------------
Section 1. All of the provisions of these by-laws are subject to,
regulated and controlled by the Charter of the corporation, and the powers
of the common stockholders and the directors of the corporation are subject
to the restrictions provided in the Charter of the corporation.
Section 2. The company shall be controlled and operated:
(1) Pursuant to the provisions as set out in the charter of
the corporation;
(2) Pursuant to the provisions as set out in these by-laws.
If there should be a conflict between the provisions of the charter and the
provisions of these by-laws then, and in that event, the provisions of the
charter shall in all cases control.
ARTICLE VIII. AMENDMENTS
-------------------------
These By-Laws may be altered, amended or repealed and new By-Laws may be
adopted by a vote of the shareholders representing a majority of all the
shares issued and outstanding, at any annual shareholders' meeting or at any
special shareholders' meeting when the proposed amendment has been set out
in the notice of such meeting.
9
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000092066
<NAME> EFFICIENCY LODGE, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 169,246
<SECURITIES> 0
<RECEIVABLES> 800,582
<ALLOWANCES> 0
<INVENTORY> 33,920
<CURRENT-ASSETS> 0
<PP&E> 13,096,534
<DEPRECIATION> 2,898,860
<TOTAL-ASSETS> 11,846,310
<CURRENT-LIABILITIES> 0
<BONDS> 11,222,325
0
0
<COMMON> 104,368
<OTHER-SE> 68
<TOTAL-LIABILITY-AND-EQUITY> 11,846,310
<SALES> 0
<TOTAL-REVENUES> 4,411,003
<CGS> 0
<TOTAL-COSTS> 2,818,570
<OTHER-EXPENSES> 60,970
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,189,272
<INCOME-PRETAX> 342,191
<INCOME-TAX> 128,065
<INCOME-CONTINUING> 214,126
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 214,126
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
