SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 8-K/A
----------------------
Amendment No. 1 to
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): August 18, 1998
-----------------------
EFFICIENCY LODGE, INC.
------------------------------------------------------
(Exact name of Registrant as Specified in its Charter)
Georgia 000-02290 58-0898219
- ------------------------------------------------------------------------
(State or other Jurisdiction of (Commission File (IRS Employer
Incorporation or Organization) Number) Identification No.)
5342 Old Floyd Road
Mableton, Georgia 30126
---------------------------------------------------------
(Address of principal executive offices) (Zip code)
(770) 819-0039
-------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
-------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
The undersigned registrant (the "Company") hereby amends its Current
Report on Form 8-K filed on September 3, 1998 by amending Item 7
thereto as set forth below. The Current Report relates to the
acquisition by the Company of the real estate property known as Town
Center Lodge (the "Property").
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS
Statement Regarding Real Property Acquired
- ------------------------------------------
The real estate operations involved with the Property are similar to
those conducted by the Company with respect to its other extended-stay
lodges. Accordingly, the Company was able to assess the Property from
a financial, operational and physical facilities point of view based
on its own experience with properties in the same industry and in the
same Atlanta metropolitan market. The Property includes 124 rooms.
Management of the Company was familiar with the Property and its
operations and was aware that the Property had average occupancy rates
approaching 99% with an average weekly rental of approximately $138.
Revenue per available room was approximately $137. These occupancy
rates and REVPAR exceeded those averages for the Company's existing
properties for 1997. With other properties in the Atlanta area, the
Company was familiar with the utility rates and property tax rates to
which the Property was subject. The Company determined that historic
maintenance expenses on the Property were not out of line with its
expectations for a real estate operation of this type and size, and
the Company believed that no extraordinary expenses would be
anticipated in the near future. The Company is not anticipating
capital improvements of any significant amount in the next twelve
months with respect to the Property. After reasonable inquiry, the
Company is not aware of any material factors relating to the Property
that would cause the financial information reported herein not to be
necessarily indicative of future operating results with respect to the
Property.
The Company intends to operate the Property as part of its overall
business of owning and operating extended stay lodging facilities.
The Company anticipates some changes in the operating results of the
Property resulting from the conditions listed below, the effects of
which are shown in the accompanying Pro Forma Financial Information:
1. An "S" corporation operated the Property, prior to its
acquisition. In an "S" corporation, the shareholders elect
to pay the income tax at the individual shareholder level
and thus, in general, there is no income tax at the
corporate level. The Company is a "C" corporation and thus
incurs tax at the corporate level. The Pro Forma Financial
Information includes the income tax expense resulting from
the projected operations by the Company.
2. The Pro Forma Financial Information reflects the change in
the following expenses due to the purchase price of
$3,119,435 paid by the Company to acquire the assets:
(a) An increase in depreciation expense
-1-<PAGE>
(b) An increase in interest expense due to the financing of
the purchase price
3. The Company anticipates a decrease in the labor costs due to
the sharing of costs with the existing facilities already
owned by the Company. The Pro Forma reflects this change
and the change includes the allocation of management
overhead costs, (including management fees), consistent with
the operation of the Company's other facilities.
In preparing the Pro Forma information included below, the Company
made the following principal assumptions:
1. Other than the items noted above, the Company believes there
will be no material changes in the operating results of the Property.
2. The Company believes that the level of occupancy from the
past twelve months will be maintained.
3. There will be no material capital improvements needed in the next
twelve months.
(a) Financial Statements of Businesses Acquired
Town Center Lodge, Inc., Marietta, Georgia, Examination of
Financial Statements, for the Year Ended December 31, 1997
and for the period January 1, 1998 to August 17, 1998
For the Year Ended December 31, 1997
------------------------------------
Independent Auditors' Report dated September 28, 1998 F-1
Balance Sheet Dated December 31, 1997 F-2
Statement of Income and Retained Earnings for the Year
Ended December 31, 1997 F-4
Statement of Cash Flows for the Year Ended December 31, 1997 F-6
Notes to Financial Statements Dated December 31, 1997 F-7
For the Period January 1, 1998 to August 17, 1998
-------------------------------------------------
Independent Auditors' Report dated September 30, 1998 F-10
Balance Sheet Dated August 17, 1998 F-11
Statement of Income and Retained Earnings for the Period
January 1, 1998 to August 17, 1998 F-13
Statement of Cash Flows for the Period January 1, 1998 to
August 17, 1998 F-15
Notes to Financial Statements dated August 17, 1998 F-16
(b) Pro Forma Financial Information
Audited and Pro Forma Consolidated Financial Statements
for the Year Ended December 31, 1997 - Balance Sheet F-19
Audited and Pro Forma Consolidated Financial Statements
for the Year Ended December 31, 1997 - Cash Flows F-20
Footnotes to Pro Forma Financial Information
for the Year Ended December 31, 1997 F-21
Unaudited and Pro Forma Consolidated Financial Statements
for the Year Ended June 30, 1998 - Balance Sheet F-22
Audited and Pro Forma Consolidated Financial Statements
for the six months ended Juhe 30, 1998 F-23
Footnotes to Pro Forma Financial Information
for the six months ended June 30, 1998 F-24
<PAGE>
INDEPENDENT AUDITORS' REPORT
September 28, 1998
To the Board of Directors
Town Center Lodge, Inc.
Marietta, Georgia
We have audited the accompanying Balance Sheet of Town Center Lodge,
Inc. as of December 31, 1997, and the related Statements of Income and
Retained Earnings, and Cash Flows, for the year then ended. These
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Town
Center Lodge, Inc. as of December 31, 1997, and the results of its
operation and its cash flows for the year then ended in conformity
with generally accepted accounting principles.
Respectfully Submitted,
/s/ Thombley & Simmons, P.C.
THOMBLEY & SIMMONS, P.C.
Certified Public Accountants
F-1<PAGE>
<TABLE>
<CAPTION>
TOWN CENTER LODGE, INC.
BALANCE SHEET
December 31, 1997
-----------------
ASSETS
------
<S> <C> <C> <C>
Current Assets:
Cash (Note 1) $ 94,581.95
Accounts Receivable:
Trade $ 296.76
Affiliate (Note 2) 2,963.33
Others 4,438.97 7,699.06
-----------------
Prepaid Insurance 1,500.00
-----------------
Total Current Assets $ 103,781.01
Accumulated
Cost Depreciation
-------------- ----------------
Property and Equipment:
Land $ 300,000.00 $ 0.00
Building 954,203.50 250,142.66
Appliances 81,470.41 73,084.65
Autos and Trucks 17,900.00 17,900.00
Furniture and Furnishings 140,558.86 126,089.14
Paving 106,785.57 55,927.42
--------------- ----------------
Totals $ 1,600,918.34 $ 523,143.87 1,077,774.47
--------------- ----------------
Other Assets:
Deposits 4,199.00
-----------------
Total Assets $ 1,185,754.48
=================
The notes to financial statements are an integral part of this report.
F-2<PAGE>
Exhibit A
---------
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
Current Liabilities:
Accounts Payable $ 2,345.71
Sales Tax Payable 201.88
Refundable Deposits 5,400.00
-----------------
Total Current Liabilities $ 7,947.59
Stockholder's Equity:
Capital Stock - $ 1.00 Par Value;
100,000 Shares Authorized;
500 Shares Issued and Outstanding $ 500.00
Paid in Capital 26,800.00
Retained Earnings 1,150,506.89 1,177,806.89
--------------- -----------------
Total Liabilities and Stockholder's Equity $ 1,185,754.48
=================
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
TOWN CENTER LODGE, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
For The Year Ended December 31, 1997
------------------------------------
<S> <C> <C> <C>
Occupancy Revenues $ 855,287.64
Occupancy Costs:
Depreciation - Property $ 48,193.54
Insurance:
General $ 8,539.65
Group 4,331.18 12,870.83
-----------------
Repairs and Maintenance 40,248.72
Sub Contract:
Cleaning $ 14,628.77
Maintenance 21,110.00
Management 42,342.23
Security 6,339.50 84,420.50
-----------------
Supplies 35,942.99
Telephone 21,184.87
Television 12,405.27
Utilities 71,991.70 327,258.42
--------------- --------------
Gross Profit on Occupancy Operations $ 528,029.22
General and Administrative Expenses 148,749.04
--------------
Profit From Operations $ 379,280.18
Other Income 5,247.70
Other Costs (15,766.00)
--------------
Net Income $ 368,761.88
Retained Earnings- January 1, 1997 $ 923,228.15
Stockholder Distributions (141,483.14) 781,745.01
------------------ --------------
Retained Earnings- December 31, 1997 $ 1,150,506.89
==============
The notes to financial statements are an integral part of this report.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit B
---------
<S> <C>
General and Administrative Expenses:
Automotive Expenses $ 27,685.24
Bank Charges 965.77
Casual Labor 3,663.50
Depreciation - Autos 1,790.00
Dues and Subscriptions 555.00
Employee Benefits 7,620.70
Management Fees (Note 2) 57,000.00
Miscellaneous Expense 923.31
Office Expense 2,505.23
Professional Fees 800.00
Rent 936.00
Taxes and Licenses 29,785.29
Travel and Entertainment 14,519.00
--------------
Total General and Administrative Expenses $ 148,749.04
--------------
Other Income:
Interest Income $ 1,287.70
Sign Rental 9,306.00
--------------
Total Other Income $ 5,247.70
Other Costs:
Bad Debts $ 5,000.00
Contributions 1,460.00
Interest Expense (Note 3) 9,306.00
--------------
Total Other Costs $ 15,766.00
--------------
Earnings Per Share $ 737.52
--------------
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit C
---------
TOWN CENTER LODGE, INC.
STATEMENT OF CASH FLOWS
For The Year Ended December 31, 1997
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 368,761.88
Adjustments Needed to Reconcile to Net Cash
Provided by Operating Activities:
Non Cash Long-Term Items Included in Income:
Depreciation 49,983.54
Changes in Current Assets and Current Liabilities:
Decrease in Accounts Receivable $ 1,975.94
Increase in Prepaid Expenses (1,500.00)
Increase in Accounts Payable 2,547.59
Increase in Customer Deposits 5,400.00 8,423.53
--------------- --------------
Net Cash Flows From Operating Activities $ 427,168.95
Cash Flows From Financing Activities:
Funds Repaid on Notes Payable $ (200,825.14)
Funds Paid on Stockholder Distributions (141,483.14)
----------------
Net Cash Flows From Financing Activities (342,308.28)
--------------
Net Increase in Cash $ 84,860.67
Cash - January 1, 1997 9,721.28
--------------
Cash - December 31, 1997 $ 94,581.95
--------------
The notes to financial statements are an integral part of this report.
</TABLE>
F-6
<PAGE>
TOWN CENTER LODGE, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS ACTIVITY:
-----------------
The Company owns and operates an extended-stay residential rental
property in Cobb County, Georgia. The length of the standard rental
is weekly, but the tenants typically are longer term residents.
Management uses estimates and assumptions in preparing these financial
statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent assets
and liabilities, and the reported revenues and expenses. Actual
results could vary from the estimates that were used.
REVENUE AND COST RECOGNITION:
----------------------------
The Company recognizes revenues and costs on the accrual method. Under
this method income and expenses are recorded in the period they are
earned or incurred, regardless of when received or disbursed.
That
method is used because management considers it to be the best
available measure of revenues and costs. Because of inherent
uncertainties in estimating costs, it is at least reasonably possible
that the estimates used will change within the near term.
Occupancy revenues include revenues earned from tenants for lodging
and other user fees such as for telephone, television, laundry,
vending, and miscellaneous supplies.
ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE:
----------------------------------------
The carrying value of such items approximates their fair value at
December 31, 1997.
CASH AND CASH EQUIVALENTS:
-------------------------
The Company considers cash on hand, cash in banks, certificates of
deposit, time deposits, and U.S. government and other short-term
securities with maturities of three months or less when purchased as
cash and cash equivalents. The carrying value of such items
approximates their fair value at December 31, 1997.
F-7
<PAGE>
PROPERTY AND EQUIPMENT:
----------------------
Property and equipment are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the
assets. Assets subject to capital lease are amortized on a straight-
line basis over the term of the lease or the estimated useful lives of
the assets, whichever is shorter.
The cost of maintenance and repairs are charged to expense when
incurred; costs of renewals and betterments are capitalized. Upon the
sale or retirement of property and equipment, the cost and related
accumulated depreciation are eliminated from the respective accounts
and the resulting gain or loss is included in operations.
The estimated useful lives of the assets are as follows:
Building 40 Years
Appliances 10 Years
Autos and Trucks 5 Years
Furniture and Furnishings 10 Years
Paving 20 Years
EARNINGS PER SHARE
------------------
Earnings per share are based on a weighted average method, which
resulted in 500 shares being used in the computation.
INCOME TAXES:
------------
The Company, with the consent of its stockholder, has elected to have
its income taxed as an "S" Corporation as allowed by the Internal
Revenue Code and similar sections of the Georgia State Income Tax Law.
These laws provide that, in lieu of corporate income taxes, the
stockholder is taxed on his proportionate share of the corporate
taxable income. Therefore, the accompanying statements do not include
any provision or liability for corporate income tax.
Income or loss for financial statements and income tax purposes
differs as a result of utilizing accelerated depreciation for tax
purposes, as allowed by the Internal Revenue code.
NOTE 2 RELATED PARTY TRANSACTIONS:
The following is a summary of related party receivables and payables
at December 31, 1997:
F-8
<PAGE>
Notes Receivable from Affiliate
Notes Receivable from an affiliated company. $ 2,963.33
The note does not bear interest and has no --------
scheduled repayment terms, but was repaid in the
next month.
The Company is managed by a company 100% owned by the 100% stockholder
of the Company at rates and terms considered to be at fair market
value. Amounts totaling $57,000.00 were included in management expense
under this agreement.
NOTE 3 NOTES PAYABLE:
A mortgage payable on the property was paid off during the year.
Interest paid on all debt amounted to $9,306.00 for the year.
NOTE 4 EMPLOYEE LEASING
The company subcontracts for the on site management and operations of
the property with an employee leasing company.
F-9
<PAGE>
INDEPENDENT AUDITORS' REPORT
September 30, 1998
To the Board of Directors
Town Center Lodge, Inc.
Marietta, Georgia
We have audited the accompanying Balance Sheet of Town Center Lodge,
Inc. as of August 17, 1998, and the related Statements of Income and
Retained Earnings, and Cash Flows, for the period of January 1, 1998
to August 17, 1998. These statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Town
Center Lodge, Inc. as of August 17, 1998, and the results of its
operations and its cash flows for the period then ended in conformity
with generally accepted accounting principles.
Respectfully Submitted,
/s/ Thombley & Simmons, P.C.
THOMBLEY & SIMMONS, P.C.
Certified Public Accountants
F-10<PAGE>
<TABLE>
<CAPTION>
TOWN CENTER LODGE, INC.
BALANCE SHEET
August 17, 1998
ASSETS
------
<S> <C> <C> <C>
Current Assets:
Cash (Note 1) $ 94,870.44
Accounts Receivable:
Trade $ 132.52
Others 9,661.32 9,793.84
----------------- -----------------
Total Current Assets $ 104,664.28
Accumulated
Cost Depreciation
-------------- ----------------
Property and Equipment:
Land $ 300,000.00 $ 0.00
Building 954,203.50 266,046.05
Appliances 81,470.41 74,206.33
Autos and Trucks 17,900.00 17,900.00
Furniture and Furnishings 139,058.11 127,357.63
Paving 106,785.57 59,486.94
Carpet 1,500.75 850.52
--------------- ----------------
Totals $ 1,600,918.34 $ 545,847.47 1,055,070.87
---------------- ----------------
Other Assets:
Deposits 4,199.00
-----------------
Total Assets $ 1,163,934.15
=================
The notes to financial statements are an integral part of this report.
F-11<PAGE>
Exhibit A
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
Current Liabilities:
Accounts Payable $ 3,735.84
Sales Tax Payable 149.96
Refundable Deposits 4,300.00
---------------
Total Current Liabilities $ 8,185.80
Stockholder's Equity:
Capital Stock - $ 1.00 Par Value;
100,000 Shares Authorized;
500 Shares Issued and Outstanding $ 500.00
Paid in Capital 26,800.00
Retained Earnings 1,128,448.35 1,155,748.35
--------------- ---------------
Total Liabilities and Stockholder's $ 1,163,934.15
===============
</TABLE>
F-12<PAGE>
<TABLE>
<CAPTION>
TOWN CENTER LODGE, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
January 1, 1998 to August 17, 1998
<S> <C> <C> <C>
Occupancy Revenues $ 497,112.37
Occupancy Costs:
Depreciation - Property $ 22,703.60
Insurance:
General $ 8,960.00
Group 3,107.18 12,067.18
--------------
Repairs and Maintenance 61,136.51
Sub Contract (Note 3):
Cleaning $ 10,163.69
Maintenance 13,510.50
Management 21,341.72
Security 280.00 45,295.91
--------------
Supplies 10,877.89
Telephone 11,735.33
Television 10,743.31
Utilities 46,773.93 221,333.66
--------------- ----------------
Gross Profit on Occupancy Operations $ 275,778.71
General and Administrative Expenses 76,035.39
-----------------
Profit From Operations $ 199,743.32
Other Income 5,741.79
Other Costs (200.00)
----------------
Net Income $ 205,285.11
Retained Earnings- January 1, 1998 $ 1,150,506.89
Stockholder Distributions 227,343.65 923,163.24
--------------- ----------------
Retained Earnings- August 17, 1998 $ 1,128,448.35
================
The notes to financial statements are an integral part of this report.
</TABLE>
F-13<PAGE>
<TABLE>
<CAPTION>
Exhibit B
---------
<S> <C>
General and Administrative Expenses:
Automotive Expenses $ 10,055.53
Bank Charges 756.72
Casual Labor 3,030.97
Dues and Subscriptions 569.00
Employee Benefits 1,158.75
Management Fees (Note 2) 40,000.00
Miscellaneous Expense 1,145.11
Office Expense 652.06
Professional Fees 800.00
Rent 886.86
Taxes and Licenses 5,396.48
Travel and Entertainment 11,583.91
------------
Total General and Administrative Expenses $ 76,035.39
------------
Other Income:
Interest Income $ 1,781.79
Sign Rental 3,960.00
------------
Total Other Income $ 5,741.79
------------
Other Costs:
Contributions $ 200.00
------------
Total Other Costs $ 200.00
------------
Earnings Per Share $ 410.57
------------
</TABLE>
F-14<PAGE>
<TABLE>
<CAPTION>
Exhibit C
---------
TOWN CENTER LODGE, INC.
STATEMENT OF CASH FLOWS
January 1, 1998 to August 17, 1998
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 205,285.11
Adjustments Needed to Reconcile to Net Cash
Provided by Operating Activities:
Non Cash Long-Term Items Included in Income:
Depreciation 22,703.60
Changes in Current Assets and Current Liabilities:
Increase in Accounts Receivable $ (2,094.78)
Decrease in Prepaid Expenses 1,500.00
Increase in Accounts Payable 1,338.21
Decrease in Customer Deposits (1,100.00) (356.57)
--------------- --------------
Net Cash Flows From Operating Activities $ 227,632.14
Cash Flows From Financing Activities:
Funds Paid on Stockholder Distributions $ (227,343.65)
----------------
Net Cash Flows From Financing Activities (227,343.65)
-------------
Net Increase in Cash $ 288.49
Cash - January 1, 1998 94,581.95
-------------
Cash - August 17, 1998 $ 94,870.44
-------------
</TABLE>
The notes to financial statements are an integral part of this report.
F-15<PAGE>
TOWN CENTER LODGE, INC.
NOTES TO FINANCIAL STATEMENTS
August 17, 1998
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS ACTIVITY:
-----------------
The Company owns and operates an extended-stay residential rental
property in Cobb County, Georgia. The length of the standard rental
is weekly, but the tenants typically are longer term residents.
Management uses estimates and assumptions in preparing these financial
statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent assets
and liabilities, and the reported revenues and expenses. Actual
results could vary from the estimates that were used.
REVENUE AND COST RECOGNITION:
----------------------------
The Company recognizes revenues and costs on the accrual method. Under
this method income and expenses are recorded in the period they are
earned or incurred, regardless of when received or disbursed.
That
method is used because management considers it to be the best
available measure of revenues and costs. Because of inherent
uncertainties in estimating costs, it is at least reasonably possible
that the estimates used will change within the near term.
Occupancy revenues include revenues earned from tenants for lodging
and other user fees such as for telephone, television, laundry,
vending, and miscellaneous supplies.
ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE:
----------------------------------------
The carrying value of such items approximates their fair value at
August 17, 1998.
CASH AND CASH EQUIVALENTS:
-------------------------
The Company considers cash on hand, cash in banks, certificates of
deposit, time deposits, and U.S. government and other short-term
securities with maturities of three months or less when purchased as
cash and cash equivalents. The carrying value of such items
approximates their fair value at August 17, 1998.
F-16<PAGE>
PROPERTY AND EQUIPMENT:
----------------------
Property and equipment are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the
assets. Assets subject to capital lease are amortized on a straight-
line basis over the term of the lease or the estimated useful lives of
the assets, whichever is shorter.
The cost of maintenance and repairs are charged to expense when
incurred; costs of renewals and betterments are capitalized. Upon the
sale or retirement of property and equipment, the cost and related
accumulated depreciation are eliminated from the respective accounts
and the resulting gain or loss is included in operations.
The estimated useful lives of the assets are as follows:
Building 40 Years
Appliances 10 Years
Autos and Trucks 5 Years
Furniture and Furnishings 10 Years
Paving 20 Years
EARNINGS PER SHARE
------------------
Earnings per share are based on a weighted average method, which
resulted in 500 shares being used in the computation.
INCOME TAXES:
------------
The Company, with the consent of its stockholder, has elected to have
its income taxed as an "S" Corporation as allowed by the Internal
Revenue Code and similar sections of the Georgia State Income Tax Law.
These laws provide that, in lieu of corporate income taxes, the
stockholder is taxed on his proportionate share of the corporate
taxable income. Therefore, the accompanying statements do not include
any provision or liability for corporate income tax.
Income or loss for financial statements and income tax purposes
differs as a result of utilizing accelerated depreciation for tax
purposes, as allowed by the Internal Revenue code.
F-17<PAGE>
NOTE 2 RELATED PARTY TRANSACTIONS:
The following is a summary of related party transactions for the
period ended August 17, 1998:
The Company is managed by a company 100% owned by the 100% stockholder
of the Company at rates and terms considered to be at fair market
value. Amounts totaling $40,000.00 were included in management
expense
under this agreement.
NOTE 3 EMPLOYEE LEASING
The company subcontracts for the on site management and operations of
the property with an employee leasing company.
NOTE 4 SUBSEQUENT EVENT
The company sold all property except for the autos and trucks,
effective August 18, 1998 for $3,000,000.
F-18
<PAGE>
<TABLE>
<CAPTION>
EFFICIENCY LODGE, INC. (ELI)
AUDITED & PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
ELI TOWN CENTER LODGE ELI
HISTORICAL-AUDITED HISTORICAL-AUDITED REF PRO FORMA
12/31/97 12/31/97 FOOTNOTE ADJUSTMENTS 12/31/97
------------------ ------------------ -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET:
ASSETS:
CASH $ 169,246 $ 94,582 (1) $ (74,479) $ 189,349
PROPERTY & EQUIPMENT 13,096,534 1,600,918 (2) 1,518,517 16,215,969
ACCUMULATED DEPRECIATION (2,898,860) (523,144) (3) 394,078 (3,027,926)
OTHER ASSETS 1,479,390 13,398 1,492,788
----------- ----------- ----------- -----------
TOTAL ASSETS $11,846,310 $ 1,185,754 1,838,116 $14,870,181
=========== =========== =========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
LIABILITIES:
MORTGAGE NOTE PAYABLE $11,222,325 $ - (4) (3,119,435) $14,341,760
OTHER LIABILITIES 519,549 7,948 (5) (16,138) 543,635
----------- ----------- ---------- -----------
TOTAL LIABILITIES 11,741,874 7,948 (3,135,573) 14,885,395
STOCKHOLDERS' EQUITY
CAPITAL STOCK 104,368 500 (6) 500 104,368
PAID IN CAPITAL 52,674 26,800 (6) 26,800 52,674
RETAINED EARNINGS (266,732) 781,745 (7) 957,185 (442,172)
NET INCOME 214,126 368,762 (8) 312,972 269,916
----------- ----------- ---------- -----------
TOTAL STOCKHOLDERS' EQUITY 104,436 1,177,807 1,297,457 (15,214)
----------- ----------- ---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $11,846,310 $1,185,755 (1,838,116) $14,870,181
=========== ========== ========== ===========
CONSOLIDATED STATEMENT OF EARNINGS:
REVENUE $(4,377,122) $ (855,288) (5,232,410)
OPERATING COSTS 2,396,805 429,026 2,825,831
OTHER OPERATING COSTS:
DEPRECIATION EXPENSE 448,854 48,194 (9) 80,872 577,920
INTEREST EXPENSE 1,189,272 9,306 (9) 239,398 1,437,976
LABOR COST ADJUSTMENT (9) (23,436) (23,436)
INCOME TAX EXPENSE 128,065 0 (9) 16,138 144,203
----------- ----------- -----------
NET EARNINGS $ (214,126) $ (368,762) $ 312,972 $ (269,916)
=========== ========== ========= ===========
</TABLE>
F-19
<PAGE>
<TABLE>
<CAPTION>
EFFICIENCY LODGE, INC. (ELI)
AUDITED AND PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 12/31/97
ELI TOWN CENTER LODGE ELI
HISTORICAL-AUDITED HISTORICAL-AUDITED REF PRO FORMA
12/31/97 12/31/97 FOOTNOTE ADJUSTMENTS 12/31/97
------------------ ------------------ -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 214,126 $ 368,762 (8) $ (312,972) $ 269,916
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 477,082 49,984 (9) 80,872 607,938
LOSS ON SALE OF ASSETS 46,953 0 (9) 46,953
CHANGES IN ASSETS AND LIABILITIES
(INCREASE) DECREASE IN RECEIVABLES (14,067) 1,976 (12,091)
INCREASE IN OTHER ASSETS (39,678) (1,500) (41,178)
INCREASE (DECREASE) IN PAYABLES (5,766) 2,548 (3,218)
INCREASE IN CUSTOMER DEPOSITS 6,579 5,400 11,979
INCREASE (DECREASE) IN OTHER LIABILITIES 17,175 (5) 16,138 33,313
------------- ------------- ------------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 702,404 427,169 (215,962) 913,611
CASH FLOWS FROM INVESTING ACTIVITIES
PURCHASES OF PROPERTY & EQUIPMENT (1,661,223) (1,661,223)
ADVANCES TO AFFILIATES (71,154) (71,154)
OTHER 52,468 52,468
------------- ------------- ------------- ----------
NET CASH USED BY INVESTING ACTIVITIES (1,679,909) (1,679,909)
CASH FLOWS FROM FINANCING ACTIVITIES
PROCEEDS FROM NOTE PAYABLES 1,700,000 1,700,000
PAYMENTS ON NOTE PAYABLES (478,101) (200,825) (678,926)
PAYMENTS FOR LOAN ORIGINATION COSTS (128,254) (128,254)
DISTRIBUTIONS MADE TO STOCKHOLDERS (106,828) (141,483) (1)&(7) 141,483 (106,828)
------------- ------------- ------------- ----------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 986,817 (342,308) 141,483 785,992
------------- ------------- ------------- ----------
NET INCREASE IN CASH 9,302 84,861 (74,479) 19,684
CASH AT BEGINNING OF YEAR 159,944 9,721 169,665
------------- ------------- ------------- ----------
CASH AT END OF YEAR $ 169,246 $ 94,582 $ (74,479) $ 189,349
============= ============= ============= ==========
</TABLE>
F-20
<PAGE>
Footnotes: (12.31.97)
(1) Cash has been adjusted for the comparative changes made in the expenses
or distributions:
increase in interest expense (239,398)
decrease in labor costs 23,436
decrease in shareholder distributions 141,483
---------
(74,479)
=========
(2) Property and equipment of Town Center Lodge has been adjusted to the
total cost of acquisition by Efficiency Lodge, Inc.
(3) Accumulated depreciation has been adjusted for the additional pro
forma depreciation taken after acquisition.
(4) The mortgage payable has been increased to reflect the debt incurred
on the purchase of the Town Center assets.
(5) Other liabilities have been increased to reflect the additional income
tax expense recorded due to the Town Center income. Town Center, prior
to acquisition, operated as an s corporation and thus had no income tax
expense recorded for the corporation.
(6) These adjustments remove the historical stockholders' equity for Town
Center. The acquisition by Efficiency Lodge was an asset acquisition
not a stock acquisition.
(7) Retained earnings has been adjusted for the clearing of the remainder of
the historical balance sheet of Town Center as follows:
Accumulated depreciation at 12.31.97 (523,144)
Current year depreciation expense, before
acquired by ELI 48,194
Property and equipment prior to acquisition 1,600,918
Capital stock prior to acquisition (500)
Paid in capital prior to acquisition (26,800)
Distributions to shareholders (141,483)
----------
957,185
==========
(8) The net income changes are the product of the adjustments made to
the expenses below in order to provide comparable operating expenses.
See the explanations for these items separately below.
(9) The following expenses have been adjusted in order to be comparable
with the operating expenses of ELI as follows:
Depreciation An increase in depreciation expense has been made to
reflect the additional expense allowed due to the purchase
price paid for the assets from Town Center.
Interest An increase in the interest expense has been shown to
reflect the payments on the debt to acquire the Town
Center assets.
Labor costs This has been adjusted to show the decrease in the
labor costs estimated after the acquisition of Town Center
assets by ELI.
Income tax exp. The expense has been increased from zero on the
historical financials of the s corporation to the
calculated amount which would have been due on the
proforma income as calculated above.
F-21<PAGE>
<TABLE>
<CAPTION>
EFFICIENCY LODGE, INC. (ELI)
UNAUDITED & PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 6/30/98
ELI TOWN CENTER LODGE ELI
HISTORICAL-UNAUDITED HISTORICAL-UNAUDITED REF PRO FORMA
6/30/98 6/30/98 FOOTNOTE ADJUSTMENTS 6/30/98
-------------------- -------------------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET:
ASSETS:
CASH $ 562,846 $ 77,758 (1) $ (108,093) $ 532,511
PROPERTY & EQUIPMENT 12,459,329 1,600,918 (2) 1,518,517 15,578,764
ACCUMULATED DEPRECIATION (3,042,769) (540,172) (3) 475,639 (3,107,301)
OTHER ASSETS 2,270,888 9,926 2,280,814
------------ ------------ ------------
TOTAL ASSETS $ 12,250,294 $ 1,148,431 $ 15,284,787
============ ============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
LIABILITIES:
MORTGAGE NOTE PAYABLE $ 10,977,311 $ - (4) (3,119,435) $ 14,096,746
OTHER LIABILITIES 422,323 (921) (5) 5,083 426,485
------------ ------------ ------------
TOTAL LIABILITIES 11,399,634 (921) 14,523,231
STOCKHOLDERS' EQUITY
CAPITAL STOCK 107,200 500 (6) (500) 107,200
PAID IN CAPITAL 52,674 26,800 (6) (26,800) 52,674
RETAINED EARNINGS 283,955 933,011 (7) 1,050,474 166,492
NET INCOME (LOSS) 406,831 189,040 (8) 160,681 435,190
------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY 850,660 1,149,351 761,556
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 12,250,294 $ 1,148,431 $ 15,284,787
============ ============ ============
CONSOLIDATED STATEMENT OF EARNINGS:
REVENUE $ (2,454,806) $ (420,027) $ (2,874,833)
OPERATING COSTS 1,098,103 213,956 1,312,059
OTHER OPERATING COSTS:
DEPRECIATION EXPENSE 189,184 17,028 (9) 47,505 253,717
INTEREST EXPENSE 511,764 4 (9) 124,755 636,523
LABOR ADJUSTMENT (9) (16,662) (16,662)
INCOME TAX EXPENSE 248,924 0 (9) 5,083 254,007
------------ ------------ ------------
NET EARNINGS $ (406,831) $ (189,040) $ 160,681 $ (435,190)
============ =========== =========== ============
</TABLE>
F-22
<PAGE>
<TABLE>
<CAPTION>
EFFICIENCY LODGE, INC.
PRO FORMA FINANCIAL INFORMATION
FOR THE SIX MONTHS ENDED 06/30/98
ELI TOWN CENTER LODGE ELI
HISTORICAL-UNAUDITED HISTORICAL-UNAUDITED REF PRO FORMA
6/30/98 6/30/98 FOOTNOTE ADJUSTMENTS 6/30/98
-------------------- -------------------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 406,831 $ 189,040 (8) $ (160,681) $ 756,552
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 189,184 17,028 (9) 47,505 253,708
LOSS ON SALE OF ASSETS
CHANGES IN ASSETS AND LIABILITIES
(INCREASE) DECREASE IN RECEIVABLES (31,030) 1,475 (29,555)
INCREASE IN OTHER ASSETS 3,543 3,543
INCREASE (DECREASE) IN PAYABLES
INCREASE IN CUSTOMER DEPOSITS
INCREASE (DECREASE) IN OTHER LIABILITIES (5) 5,082 5,077
---------- ---------- ----------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 568,527 207,543 989,325
CASH FLOWS FROM INVESTING ACTIVITIES
PURCHASES OF PROPERTY & EQUIPMENT (66,657) (66,657)
ADVANCES TO AFFILIATES
OTHER 135,012 135,012
---------- ---------- ----------- ----------
NET CASH USED BY INVESTING ACTIVITIES 68,355 68,355
CASH FLOWS FROM FINANCING ACTIVITIES
PROCEEDS FROM NOTE PAYABLES
PAYMENTS ON NOTE PAYABLES (245,014) (245,014)
PAYMENTS FOR LOAN ORIGINATION COSTS
CAPITAL CONTRIBUTIONS 1,732 1,732
DISTRIBUTIONS MADE TO STOCKHOLDERS (224,367) (224,367)
---------- ---------- ----------- ----------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES (243,282) (224,367) (467,649)
---------- ---------- ----------- ----------
NET INCREASE (DECREASE) IN CASH 393,600 (16,824) 590,031
CASH AT BEGINNING OF YEAR 169,246 $ 94,582 263,828
---------- ---------- ----------- ----------
CASH AT END OF YEAR $ 562,846 $ 77,758 $ (108,093) $ 532,511
========== =========== =========== ==========
</TABLE>
F-23<PAGE>
Footnotes: (06.30.98)
(1) Cash has been adjusted for the comparative changes made in the expenses-
increase in interest expense (124,755)
decrease in labor costs 16,662
----------
(108,093)
==========
(2) Property and equipment of Town Center Lodge has been adjusted to
the total cost of acquisition by Efficiency Lodge, Inc.
(3) Accumulated depreciation has been adjusted for the additional
pro forma depreciation taken after acquisition.
(4) The mortgage payable has been increased to reflect the debt incurred on
the purchase of the Town Center assets.
(5) Other liabilities have been increased to reflect the additional
income tax expense recorded due to the Town Center income. Town
Center, prior to acquisition, operated as an s corporation
and thus had no income tax expense recorded for the corporation.
(6) These adjustments remove the historical stockholders' equity for Town
Center. The acquisition by Efficiency Lodge was an asset acquisition
not a stock acquisition,
(7) Retained earnings has been adjusted for the clearing of the remainder
of the historical balance sheet of Town Center as follows:
Accumulated depreciation at 12.31.97 (540,172)
Current year depreciation expense, before acquired by ELI 17,028
Property and equipment prior to acquisition 1,600,918
Capital stock prior to acquisition (500)
Paid in capital prior to acquisition (26,800)
----------
1,050,474
===========
(8) The net income changes are the product of the adjustments made to
the expenses below in order to provide comparable operating expenses.
See the explanations for these items separately below.
(9) The following expenses have been adjusted in order to be comparable
with the operating expenses of ELI as follows:
Depreciation An increase in depreciation expense has been made
to reflect the additional expense allowed due to the
purchase price paid for the Town Center assets
purchased.
Interest An increase in the interest expense has been shown to
reflect the payments on the debt to acquire the Town
Center assets.
Labor cost This has been adjusted to show the decrease
in the labor costs estimated after the
acquisition of Town Center assets by ELI.
Income tax expense The expense has been increased from zero shown
on the historical financial statements ( s
corporation) to the calculated amount which
would have been due on the pro forma income as
calculated above.
F-24<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this Report to be signed on its behalf
by the undersigned hereunto duly authorized.
EFFICIENCY LODGE, INC.
By: /s/ W. Ray Barnes
W. Ray Barnes
President
November 2, 1998
------------------
Date
