Item 1. Business
(a) General
Due to the Company's development and finance division's acquiring and selling properties, the number of properties owned, operated, leased and the number of wrap around mortgages held fluctuates constantly. The table below show the various different business holdings for the last five years.
Note 1. On August 15, 1990, the Company acquired Downtowner passport International Motel Corporation, the owner of Downtowner and Passport registered marks. This acquisition of corporate stock was in the nature of a conveyance in satisfaction of debt. In late 1991 the Company deemed the 1990 acquisition to be flawed and in February of 1992, the Company acquired the assets of Passport International Motel Corporation for assumption of debt and simultaneously conveyed same to Hospitality International, Inc. the Company's franchising subsidiary, for the same consideration.
Note 2. One property leased from a third party is being operated as a restaurant by Company's sub-lessee.
(b) Segment Information
The Company identifies its significant industry segments as set forth in the table below. All revenue items represent sales to unaffiliated customers, as sales or transfers between industry segments are negligible.
* Included in Financing & Property Development Information.
(c) Description of Business
(I) Products and Services
The Company's franchise division offers advertising, reservation, group sales, quality assurance and consulting services to motel owner/operators.
The Company's lodging division, through largely non-affiliated lessees, provides budget to moderate rate motel accommodations to the traveling public.
The Company's Financing division provides owner financing to persons acquiring motel properties previously operated and/or owned by the Company. For amounts of revenue of similar products and services in excess of 15% total, see Item 1 (b) above.
(II) Status of Products and Segments
Each of the Company's industry segments is fully developed with an operational history of several years under Company's direction.
(III) Raw Materials
In a sense, independent motel operations seeking national affiliation for their properties constitute raw materials for the Company's franchising division, and sites suitable for development and existing properties which may be acquired constitute raw materials for both the Company's lodging division and its financial division.
To date, the Company has experienced little difficulty in obtaining information on locations to be reviewed by either its franchise committee or its evaluation committee.
(IV) Patents, Trademarks, Licenses, Franchises, and Concessions
The Company has no patents. The Company does own the trade names "Master Hosts Inns," "Red Carpet Inns," "Scottish Inns," "Downtowner Inns," "Passport Inns" and related trademarks, etc. used in operating lodging facilities under these names.
(V) Seasonability
The Company's financing business by its nature is not subject to seasonal fluctuations. The revenues from the Company's franchising division tends to be concentrated in the Spring and Summer months during peak travel periods.
(VI) Working Capital
The Company's financing receipts are comprised primarily of interest which does not become reflected on its balance sheet until after it is earned, whereas its payments on underlying debts are comprised primarily of principal reduction and the portion which will be returned over the next twelve months is reflected on the balance sheet as a current liability. Because of this, the Company believes a current ratio of less than one to one is appropriate for its business. However, the Company continues to, among other things, (1) reduce and contain overhead costs, (2) seek to dispose of underproductive assets, and (3) seek the most advantageous financing terms available.
(VII) Customers
The Company's business of franchising motels is contingent upon its being able to locate qualified property owner-operators who are seeking national affiliation. Through use of its franchise sales force, the Company has not experienced insurmountable difficulty in locating independent motel owner-operators nor does it anticipate any such difficulty in the future. However, more franchisors are offering multi-level brands, resulting in more down-scaling conversions into the economy lodging sector and, therefore, providing more competition. Likewise, the Company's financing division requires that it locate qualified owner-operators or investors for its properties. Because of its franchise affiliations the financing division has not experienced, nor does it anticipate experiencing too much difficulty in locating qualified investors to purchase its developed properties. However, due to the Company's desire to limit the loans it holds to a manageable number and because third party or institutional financing
for used motel properties are difficult to arrange, once a property is sold the Company carries the entire financing package and accordingly, each individual loan represents a larger portion of portfolio than it does with traditional lending institutions. Therefore, the continued performance of each existing loan may be material to the operation of the financing division.
(IX) Government Contracts
The Company is not involved in, nor does it anticipate becoming involved in, any government contracts.
(X) Competition
The Company's franchising, leased lodging and leased food service division each compete with other similar businesses, many of which are larger and have more national recognition than does the Company. Each of these divisions compete on the basis of service and price/value relationship.
The Company's financing division competes with other, more traditional sources of long-term financing, most of which have greater financial resources than does the Company.
Competition in developing and financing lodging properties has been significantly affected by over-development in some areas as well as the area's and the country's general economic condition, and by the market force of the Resolution Trust Corporation, the latter of which decreased in the current reporting period.
(XI) Research and Development
No significant research activities were conducted by the Company during the Fiscal year and the Company does not expect to expend sums on research activities during the next Fiscal Year.
(XII) Environmental Protection
The Company is not directly affected by environmental protection measures of federal, state or local authorities to any extent which would reasonably be expected to cause material capital expenditures for compliance, so far as in known. However, it is possible that an approximately five and three-tenths (5.3) acre tract of land held as an investment and acquired as a possible motel site, located on I-10 in Ocean Springs, Mississippi, may under the new guidelines, be determined to be in part "wetlands." If so, its use and value would be adversely affected. On January 27, 1995, 3.2 acres of said tract were sold at a consideration undiminished by the wetlands issue; the value of the remaining 5.3 acres, therefore, may not be diminished.
(XIII) Employees
Note 3: These are not employees of the Company at date of this writing, since operations are leased out but are given for comparative purposes.
(d) Foreign Operations
The Company, as of June 30, 1995, was not then currently involved in any business operations outside of the United States of America, except through its franchising division which does do limited business in Canada and has one franchisee in the Bahamas. As of April 30, 1995, the franchising division has two franchisees in Costa Rica and two in Jamaica.
Item 2
Item 2 Properties
The following table sets forth certain information, as of this writing, concerning properties on which the Company holds notes secured by mortgages and other types of financing instruments held by the Company:
* While the indenture in favor of a bank in connection with this receivable is not a mortgage, an original sum of $475,000.00 of the receivable was assigned and pledged in 1990 to a bank and might be considered as being in the nature of an underlying mortgage. Said $475,000 is reduced to $313,070.60.
The following table sets forth certain information, as of this writing, concerning motel properties owned by the Company and under management contract or leased to Operators.
Note 4 These properties, on April 1, 1990, were leased to First Hospitality Management Corporation, a corporation owned by Robert H. Douglas, a Director of the Company and a former employee of the Company.
Note 5 Title to this property was reacquired by foreclosure December 7, 1990. It re-opened for business April, 1990, under an agreement with Alahunt, Inc., a corporation wholly owned by Richard A. Johnson, a Director of Registrant. During the current reporting period, the Company leased this property to Thelma Pullin, a sister of the Registrant's then president.
Note 6 The Marietta property in 1992 was operated by the Company. Since 1993, it has been leased to Timothy J. DeSandro, a former employee of the Company.
Note 7 This property, on April 1, 1990, was leased to First Hospitality Management Corporation. On August 1, 1991, Lessor and Lessee jointly terminated said lease and Company leased the property to Kirby Guimbellot, a brother of the Company's then President. The Company also entered into a contract with Mr. Guimbellot to sell and buy this property at a later date, pursuant to which same was sold to Mr. Kirby Guimbellot on January 5, 1995, for $615,000.00, with the Company taking back a wrap-around note and mortgage for $602,670.63. The Company purchased this property in 1989 for $400,000.
Also, until August 2, 1991, the Company operated one "Omelet House" restaurant located in New Iberia, Louisiana, which it leases from an individual. On August 1, 1991, the Company entered into a rental agreement with Alfred W. Schoeffler, who operated same from August 3, 1991, through September 24, 1992; the property was vacant until March of 1993 at which time the property was leased to First Hospitality Management Company.
The following table sets forth certain information, as of this writing, concerning other properties owned or recently owned by the company.
Note On 6/9/94 our interest in Purvis, MS land was sold subject to then debt for consideration of $250,000 to John M. Hill, a partner of Nelson & Hill, owner of the other undivided 1/2 interest in said land.
Item 3
Item 3 Legal Proceedings
Waymon Barron, Plaintiff, v. Southern Scottish Inns, of Mississippi, Inc., et al, Defendants
On or about September 4, 1986, a Complaint for damages for negligence and breach of implied warranty was filed in the circuit Court of Warren County, Mississippi, styled Waymon Barron v. Motel Recovery & Development, Ltd., d/b/a Scottish Inn of Vicksburg, a Partnership, Lewis Slaughter and Southern Scottish Inns, Inc., General Partner, and Sam Patel, bearing Cause No. 14,307 on the docket of said Court. Service of Process was not had on Registrant.
On or about August 10, 1987, an Amended Complaint for damages in the same matter was filed in the same Court, styled Waymon Barron v. Motel Recovery & Development, a Limited Partnership, Lewis Slaughter and Reba Slaughter, General Partners, Scott Yeoman and James Johnstone, Limited Partners; Southern Scottish Inns of Mississippi, Inc., N. V. Patel and Sam Patel, bearing Cause No. 14,307 C on the docket of said Court. Later, Registrant and Hospitality International, Inc., a partially owned subsidiary of the Company, were made additional party Defendants. The Company and its defendant subsidiaries have obtained separate counsel, answered the complaints and are preparing defenses.
The Amended Complaint demands judgement of $1,500,00 plus interest and costs of Court, and trial by jury.
The Amended Complaint alleges that Plaintiff on October 26, 1985, while a guest in Room 101 of the Scottish Inn in Vicksburg stepped onto a rotten place in the floor, that his leg went through and he fell injuring his back, which injury required surgery and resulted in loss of wage earning ability and loss of his ability to enjoy life.
On October 25, 1985, the date Mr. Barron checked into said room and on October 26, 1985, the date of his injury, the record title of the Scottish Inn in Vicksburg was in Defendant Southern Scottish Inns of Miss., Inc. The motel was not being operated by said subsidiary of the Company or the Registrant on either of said dates.
On January 26, 1984, this motel was the subject of a Contract For Deed with Defendants Lewis Slaughter and Reba K. Slaughter, his wife. Subsequently, and prior to August of 1984, said Defendants transferred their rights, duties and interest under and in the Contract For Deed to Defendant Motel Recovery and Development, a limited partnership, of which the named individual persons were the general or limited partners. In August of 1984, Motel Recovery and Development, leased the subject motel to Defendant N. V. Patel. On October 2, 1984, Registrant and its defendant subsidiary recognized the transfer from Mr. and Mrs. Slaughter to Motel Recovery and Development and the lease from Motel Recovery and development to N. V. Patel. In May of 1986, Registrant and its defendant subsidiary, through surrender of possession and of operation of Mr. Patel and Motel Recovery and Development regained possession and leased same.
For some time, the Plaintiff did not diligently pursue this claim, except for the taking of depositions of the Plaintiff's doctor and of an expert building tradesman. Motions for Summary Judgement were filed by the Co- Defendants, Southern Scottish Inns, Inc. and Southern Scottish Inns of Miss., Inc. Also, Hospitality International, Inc. filed a motion for Summary Judgement. Circa October 31, 1993, the Court file reflects that during the last eight (8) months, the insurer for our Franchisee settled, on behalf of Hospitality, with the plaintiff and Hospitality International, Inc. was dismissed. During the current reporting period, the Registrant was dismissed on Summary Judgement and Southern Scottish Inns, of Mississippi, Inc. was dismissed on Summary Judgements. Plaintiff has appealed both dismissals and the appeals are pending.
PART II
Item 5
Item 5 Market for Registrant's Common Equity Securities and Related Matters
(a) The common stock, no par value, of the Registrant is traded on the Over-the-Counter market. The following table sets forth the range of per share bid and asked price quotations during the periods indicated. The following represents quotations between dealers, and do not include retail mark-ups, mark-downs, or other fees or commissions, and do not represent actual transactions.
(b) As of this writing, there are approximately 910 shareholders of the Registrant's common stock.
(c) No cash dividends have been paid on the Company's common stock during the two most recent Fiscal Years and none are anticipated to be paid in the foreseeable future.
Item 6
Item 6 Selected Financial Data
The following table summarizes selected financial data of the Company for the past five Fiscal Years. It should be read in conjunction with the more detailed consolidated financial statements of the Company appearing elsewhere in this Annual report.
Item 7
Item 7 Management's Discussion and Analysis of Financial Conditions and Results of Operations
Capital Resources
(I) No material commitments for capital expenditures are planned other than any possible purchases or development of properties through the financing division.
Hospitality International, Inc. was able to acquire a suitable office facility and moved into same on November 1, 1992. The property consists of 2.76 acres of land and 26,888 square feet of office space, of which 15,592 square feet is in use , of which Hospitality uses 11,296 square feet. The property costs $425,000, of which $409,000 was financed. The loan was guaranteed by Registrant and by Bob Guimbellot, personally. During the first week of February of 1994, the Company moved its offices into this facility. At this time, and for the foreseeable future, Southern Scottish Inns, Inc., Red Carpet Inns International, Inc. and Hospitality International, Inc. are all sharing the same office building.
(II) The trend in capital resources has resulted in a loosening of credit with regard to new motel construction but has not changed perceptively with regard to older properties. This has forced more sellers of older properties into the seller financed arena creating more competition for the Company in its Finance and Development Division. This fact, coupled with tighter credit on the purchase side, has meant less profitable opportunities for the Company.
Item 8
Item 8 Financial Statements and Supplemental Data
The financial statements and financial statement schedules filed as part of the Annual report are listed in Item 14 below.
Item 9
Item 9 Disagreements of Accounting and Financial Disclosures
Not applicable.
Part III
Item 10
Item 10 Directors and Executive Officers of the Registrant
The Following persons are the directors and the executive officers of the Registrant.
The Board of Directors of the Company held one regularly scheduled meeting in 1994.
The term of office for all directors expires at the close of the next annual meeting of shareholders. Officers serve at the please of the Board of Directors.
Bobby E. Guibellot served as President of the Registrant from January of 1976 through 1994. Mr. Guimbellot remains as Chief Executive Officer of Registrant. Mr. Guimbellot is also the principal shareholder and Chairman of the Board of Western Wireline Services, Inc. ("Western Wireline"), an oil well service company headquartered in Belle Chasse, Louisiana. Mr. Guimbellot has been Chairman of Red Carpet Inns, International, Inc. a subsidiary of the registrant, since 1982, and has been President of Red Carpet since January 1, 1992.
Michael M. Bush is President and Chief Executive Officer of the Mississippi River Bank, Belle Chasse, Louisiana, a position which he has held for more than six years.
Donald Deaton is President of Hospitality International, Inc., a motel franchising company and subsidiary of the Registrant.
Robert H. Douglas was Director of Motel Operations for the Company until April 1, 1990, and prior to assuming that position has been in the independent plant nursery business. He previously served as Secretary and Treasurer of the Registrant from September 1983, until April 1986. Prior to that, Mr. Douglas was Director of Operations for the Company for 8 years. On April 1, 1990, Mr. Douglas, formed the corporation to whom several of the Company's motels are leased.
Jack M. Dubard is currently the Registrant's President, after having served as the Vice President for several years, and was previously an independent consultant to the Registrant and its affiliates. Prior to that, he held an administrative position with Red Carpet Inns International, Inc. Since early 1994, Mr. Dubard has served as CEO of Hospitality International, Inc., the Company's franchising subsidiary.
C. Guy Lowe, Jr. is a self-employed real estate developer and also provides office building management services. He has been so engaged for more than 7 years.
Harry C. McIntire is a retired senior captain (pilot) with Delta Air Lines, Inc. and has been a captain for more than 25 years prior to his retirement. He has served as Vice Chairman of registrant's Board of Directors and as a Vice President. Upon Dr. Hotho's resignation, Captain McIntire was elected as Chairman of the Registrant's Board.
Gretchen W. Nini was a Director, Corporate Secretary, and treasurer of Western Wireline Services, Inc., an oil well service company headquartered in Bell Chasse, Louisiana, a position she held for more than 5 years (See Bobby E. Guimbellot, supra).
George O. Swindell formerly owned Diamond Realty Construction, Gretna Louisiana; he has been a real estate broker since 1970 and has been a general contractor of over 17 years.
Richard A. Johnson has had prior experience in construction, manufacturing, health care, agriculture, recreational facilities, apartments and real estate. Since June of 1992, Mr. Johnson served as Franchise Development Coordinator for Hospitality International, Inc., a subsidiary of the Registrant. He resigned in July 1995 from his employment by Hospitality International, Inc.
Melanie Campbell is the current Corporate Secretary and Treasurer of Western Wireline Services, Inc. She has been with this company for more than six years and during that time has held the position of Office Administrator for Western. (See Bobby E. Guimbellot, supra).
Melinda P. Hotho - Dr. Vincent W. Hotho, after being a Director of the Registrant for over twenty-two (22) years, the last eighteen (18) of which he served with distinction as Chairman, due to some imprudent personal investments and a potentially ruinous malpractice suit went through a Chapter 7 Bankruptcy proceeding. He felt it to be in the best interest of the Registrant and of the Company that he resign as Director and Chairman. The Board of Directors, pending action of the Stockholders, selected Melinda P. Hotho, his daughter, to serve on an interim basis.
John L. Snyder, Jr. is recently retired from his position as manager of engineering at Mid-America Transportation Company. Mr. Snyder had more than thirty years experience in marine operations. He previously held administrative or managerial positions with Wisconsin Barge Line, Walker Boat Yard and Mid-South Towing Company.
Timothy J. Desandro has been selected to serve as Director on an interim basis. He is currently the Lessee of the Scottish Inn located in Marietta, Georgia, which property he has managed for the past five (5) years. Previously he functioned in the capacity of oil well service operator, a position that Mr. DeSandro held for 20 years.
Directors who have resigned:
Richard H. Rogers was employed as marketing consultant for the Knoxville's World's Fair from January 1982 to May 1982. From 1978 to January 1982, Mr. Roger served as Vice President and Director of Operations of Cindy's Inc., a hotel company. He became President of Hospitality International, Inc. as subsidiary of the Registrant, in May 1982. On October 1993, Mr. Rogers resigned his presidency of Hospitality International, Inc. He resigned for personal reasons and to pursue other interests. Mr. Rogers resigned as Director of the Registrant in 1994.
Dr. Vincent W. Hotho, M.D., after being a Director of the Registrant for over twenty-two (22) years, the last eighteen (18) of which he served with distinction as Chairman, due to some imprudent personal investments and a potentially ruinous malpractice suit went through a Chapter 7 Bankruptcy proceeding. He felt it to be in the best interest of the Registrant and of the company that ye resign as Director and Chairman. The Board of Directors, pending action of the Stockholders, selected Melinda P. Hotho, his daughter, to serve on an interim basis. The Directors elected Harry C. McIntire as Chairman upon Dr. Hotho's resignation.
Harry C. Geller, an able and loyal Director for the past fourteen (14) years, in an effort to shed some activities with a view toward his imminent retirement, resigned in 1994 as a Director of the Registrant. Mr. Geller, the sole stockholder and president of Securities Transfer Company, the Registrant's Transfer Agent, has given Registrant notice that he is closing Securities Transfer Company at Calendar year end.
Committees of the Board of Directors
The Board of Directors of the Registrant does not maintain any standing committees.
Item 11
Item 11 Executive Compensation
For services rendered in all capacities to the Company and its subsidiaries during the Fiscal Year ended December 31, 1994, the Company paid aggregate cash compensation in the amount of $92,800.00 to Mr. Guimbellot, the Registrant's then President and present Chief Executive Officer. His salary was partially deferred and he is owed $169,687.27, most of which is from prior periods. His annual salary is $75,000. In 1994, the Company paid aggregate cash compensation in the amount of $61,742.20 to Mr. Dubard, who for most of said period was vice president of Registrant and CEO of its franchising subsidiary, and who for the latter part of said period was Registrant's president and CEO of Hospitality Inc.The Company provides Messrs. Guimbellot and Dubard with automobiles and does not require them to account for the personal use, if any, of the automobiles. The cost is not included in the compensation reported above. However, the Company estimates that the amount, which cannot be specifically or precisely ascertained, does not exceed 10% of the aggregate compensation, paid and unpaid, reported above.
Item 12
Item 12 Security Ownership of Certain Beneficial Owners and Management
Principal Holders
The following table sets forth, as of this writing, information with respect to each person who, to the knowledge of the Registrant, might be deemed to own beneficially 5% or more of the outstanding Southern Scottish Inns, Inc. common stock, which is the only class of voting securities of the Registrant. Except, as otherwise indicated, the named beneficial owners possess sole voting power and sole investment power with respect to the shares set forth opposite their respective names.
Note 8 Based on 2,322,466 shares outstanding.
Note 9 Includes 470,750 shares owned by Bobby Guimbellot d/b/a Coastal Companies, and 35,238 owned by Industrial Funds, an entity of Western Wireline Services, Inc. Mr. Guimbellot's shares also include 17,713 and 1,664 shares owned by Lift Boats, Inc. and Tri Delta Dredge, Inc., respectively and 361,405 shares owned by Shelly Plantation. Ms. Campbell shares voting rights as to Industrial Funds shares with Mr. Guimbellot.
Note 10 Voting and investment power on 113,331 shares are shared with his wife.
Management Ownership
The following table sets forth, as of this writing, information concerning the ownership of Southern Scottish Inns, Inc. common stock by all directors and by all directors and officers as a group. Southern Scottish Inns, Inc. common stock is the only class of equity securities of the registrant. Except as otherwise indicated, the named beneficial owners possess sole voting power and sole investment power with respect to the shares set forth opposite their respective names.
Note 11 Based on 2,322,466 shares outstanding.
Note 12 Includes 250 shares in the name of his minor son.
Note 13 Includes 470,750 shares owned by Bobby Guimbellot d/b/a Coastal Companies, and 35,238 owned by Industrial Funds, an entity of Western Wireline Services, Inc. Mr. Guimbellot's shares also include 17,713 and 1,664 shares owned by Lift Boats, Inc. and Tri Delta Dredge, Inc., respectively and 361,405 shares owned by Shelly Plantation. Melanie Campbell, the Secretary of Western Wireline Services, Inc., shares voting and investment powers with respect to the 35,235 shares owned by Industrial Funds. Only Ms. Campbell's personal shares of 400 were included in her part of column total.
Note 14 Includes 413 shares in the name of his wife.
Note 15 Voting and investment powers on 113,331 shares are shared with his wife.
Note 16 Includes 639 shares in the name of her minor child.
Item 13
Item 13 Certain Relationships and Related Transactions
J. Puckett and Company/Buena Vista Venture
This entity is an ordinary particular Louisiana partnership. The Registrant owns twenty-five (25) of the one hundred (100) partnership units. Bobby E. (Bob) Guimbellot, individually, Registrant's Chief Executive Officer, owns eleven (11) of said partnership units. Additionally, Mr. Guimbellot, d/b/a Coastal Companies, owns twenty (20) of said units. Emilee B. Guimbellot, Bob Guimbellot's mother, owns one (1) said units. Shelly Plantation Ventures, a partnership in which Mr. Guimbellot is a principal unit owner and in which his mother is a small unit owner, while not a partner, is a three (3) per cent equity owner in J. Puckett. The Registrant, in June of 1992, borrowed $50,000.00 from J. Puckett. This debt was represented by a demand note bearing interest at twelve (12) % per year and was paid off March 1995. At the present time, Registrant receives income of $200.00 per unit or $5,000 per month from J. Puckett.
Pan American Hospitality
From time to time, and on an as needed basis, the Company has made advances to Pan American Hospitality, a partnership comprised of Red Carpet Inns International, Inc. (a subsidiary of the Registrant), Bobby E. Guimbellot, Emilee Guimbellot (Mr. Guimbellot's mother), Western Wireline Services, Inc., Mildred Puckett, Mary R. Dubard (wife of Jack M. Dubard), and two unrelated individuals. As of December 31, 1994, these advances total $113,783.
C. Guy Lowe, Jr.
On April 4, 1986, the Company acquired from C. Guy Lowe, Jr., (a director of the Registrant) all of the outstanding stock of O.S. of South Louisiana, Inc. in exchange for the Registrant's promissory note in the face amount of $132,448. On May 5, 1986, Mr. Lowe assigned this note to Merchants Trust and Savings Bank. No scheduled payments were made on this note. On July 31, 1990, Red Carpet Inns International, Inc., a consolidated subsidiary of the Company, borrowed $100,000 from Merchants Trust and Savings Bank and loaned it to the Company. The Company, in turn, paid the $100,000 back to Merchants Trust and savings Bank as assignee, in full, compromise settlement of the original note of $132,448 to Mr. Lowe. The Company will lower its basis in its O.S. of South Louisiana, Inc. stock. The new note from Merchants Trust and Savings Bank to Red Carpet Inns International, Inc. was guaranteed by two affiliated entities belonging to the Company President, Bobby E. Guimbellot. The Company is now indebted to Red Carpet Inns International, Inc. in the amount of $70,000 at an interest rate of one and one-half (1 1/2%) percent over Chase Manhattan Bank prime rate.
PART IV
Item 14
Item 14 Exhibits, Financial schedules and Reports on Form 8-K
(a) Listed below are the following documents which are filed as a part of this Annual Report.
1. Financial statements Auditor's Report. Note 17 Consolidated balance sheets of the Company as of December 31, 1994 and 1993. Consolidated statements of changes in cash flow of the Company for the Fiscal Years ended December 31, 1994, 1993 and 1992. Notes to consolidated financial statements.
2. Exhibits. The exhibits filed as part of the Annual report are listed on the exhibit index which immediately precedes and is bound with such exhibits.
(b) No reports on Form 8-K have been filed by the Registrant during the last quarter of the period covered by this Annual Report.
Note 17 For the company's fiscal years of 1985 through 1990, our Auditor was Robert M. Mosher, C.P.A. of Biloxi, Mississippi. For the Company's fiscal years of 1991 through 1992, our Auditor was the firm of Fountain, Seymour, Mosher & Associates of D'Iberville, Mississippi. In February of 1994 (See Item 7, Capital Resources (I)), Registrant and Company moved to the Atlanta area. About such time and in connection with future audits, the decision was made to change auditors and to employ Robert J. Clark of Roswell, Georgia. Mr. Clark had done the Company's Audits for 1983 and 1984. Mr. Clark had done the Audits of 1992 and 1993 for Red Carpet Inns International, Inc., an affiliate of Registrant. Mr. Clark has done the Audits for Hospitality International, Inc., a partially owned subsidiary of Registrant, continuously since 1982. For the year 1994 and for the foreseeable future, Mr. Clark will do the audits for Southern Scottish Inns, Inc., Red Carpet Inns International, Inc. and Hospitality International, Inc. Mr. Mosher cooperated with Mr. Clark in the transition. In accordance with the SEC PRACTICE SECTION of the A.I.C.P.A., a partner other than the partner in charge must perform a concurring review of the audit report. When the firm is a sole proprietorship, an outside qualified professional must be utilized and one was so utilized.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SOUTHERN SCOTTISH INNS, INC. ---------------------------- (Registrant)
By: Bobby E. Guimbelott 9/5/95 By: Jack M. Dubard 9/5/95 --------------------------- ------------------------ Bobby E. Guimbellot Date Jack M. Dubard Date Chief Executive Officer President & CFO
SIGNATURES (Cont.)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
FOR THE BOARD OF DIRECTORS:
Michael M. Bush Melinda P. Hotho
- ------------------------ ------ ---------------- ------ Michael M. Bush Date Melinda P. Hotho Date Director Director
Melanie Campbell Richard A. Johnson
- ------------------------ ------ ------------------ ------ Melanie Campbell Date Richard A. Johnson Date Director Director
Donald Deaton C. Guy Lowe, Jr.
- ------------------------ ------ ----------------- ------ Donald Deaton Date C. Guy Lowe, Jr. Date Director Director
Timothy D. DeSandro Harry C. McIntire
- ------------------------ ------ ------------------ ------ Timothy D. DeSandor Date Harry C. McIntire Date Director Director
Robert H. Douglas Gretchen W. Nini
- ------------------------ ------ ---------------- ------ Robert H. Douglas Date Gretchen W. Nini Date Director Director
Jack M Dubard John Snyder - ------------------------ ------ ----------------- ------ Jack M. Dubard Date John Snyder Date Director Director
Bobby E. Guimbellot George O. Swindell
- ------------------------ ------ ------------------ ------ Bobby E. Guimbellot Date George O. Swindell Date Director Director
SOUTHERN SCOTTISH INNS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
PAGE NO.
INDEPENDENT AUDITOR'S REPORT . . . . . . . . . . . . . . 1
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS . . . . . . . . . . 2-3
CONSOLIDATED STATEMENT OF INCOME . . . . . . . . 4
CONSOLIDATED STATEMENT OF RETAINED EARNINGS. . . 5
CONSOLIDATED STATEMENT OF CHANGES IN CASH FLOW. . . . . . . . . . . . . . . . . 6-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . 8-28
Board of Directors Southern Scottish Inns, Inc.
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying consolidated balance sheets of Southern Scottish Inns, Inc. and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, stockholder's equity and cash flows for each of the two years in the period ended December 31, 1994. 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. The financial statements of Southern Scottish Inns, Inc. as of December 31, 1992 were audited by other auditors who expressed an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 Southern Scottish Inns, Inc. and subsidiaries at of December 31, 1994 and 1993, and the consolidated results of their operations and their cash flows for each of the two years in the period ended December 31, 1994, in conformity with generally accepted accounting principles.
Roswell, Georgia August 18, 1995
SOUTHERN SCOTTISH INNS, INC. CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1994 AND 1993
ASSETS
The accompanying notes are an integral part of these financial statements.
SOUTHERN SCOTTISH INNS, INC. CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1994 AND 1993
LIABILITIES AND STOCKHOLDER'S EQUITY
The accompanying notes are an integral part of these financial statements.
SOUTHERN SCOTTISH INNS, INC. CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1994, 1993 AND 1992
The accompanying notes are an integral part of these financial statements.
SOUTHERN SCOTTISH INNS, INC. CONSOLIDATED STATEMENT OF RETAINED EARNINGS FOR THE YEAR ENDED DECEMBER 31, 1994, 1993 AND 1992
The accompanying notes are an integral part of these financial statements.
SOUTHERN SCOTTISH INNS, INC. CONSOLIDATED STATEMENT OF CHANGES IN CASH FLOW FOR YEAR ENDED DECEMBER 31, 1994, 1993 AND 1992
The accompanying notes are an integral part of these financial statements.
SOUTHERN SCOTTISH INNS, INC. CONSOLIDATED STATEMENT OF CHANGES IN CASH FLOW (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 1994, 1993 AND 1992
The accompanying notes are an integral part of these financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1994
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: A.-1 BUSINESS COMBINATION
During 1988 the Company acquired a majority interest in Red Carpet Inns Inc., by issuance and exchange of the Company's stock for some Red Carpet Inns, Inc. stock and by purchase of some. The acquisition has been accounted for on a "business combination at predecessor cost" method (pooling of interest) and the financial statements of the Company have been retroactively restated to reflect this business combination.
A.-2 PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its subsidiaries, after elimination of all significant intercompany balances and transactions. The Company owns a minority interest in two partnerships which are accounted for by the equity method.
A.-3 ACCOUNTING POLICY - STATEMENT OF CASH FLOWS
The Company considers all highly liquid debt instruments with a maturity of three months or less to be cash equivalents.
During 1994, the Company had the following non-cash transactions: 1. The Company exchanged land for an installment note receivable of $13,000.
2. The Company purchased a building and land by financing $250,000 of the purchase price with a mortgage note.
In 1994, the Company paid $985 in income taxes and approximately $236,940 in interest.
In 1993, the Company paid approximately $361,361 in interest.
B. INVENTORIES
Inventories are stated at cost determined on a first-in, first-out basis.
C. PROPERTIES AND DEPRECIATION
Property and Equipment are recorded at cost. Depreciation is provided on the straight-line method over the estimated useful lives of the respective assets. Maintenance and repairs are charged to expense as incurred; major renewals and betterments are capitalized. When items of property or equipment are sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is recognized in accordance with generally accepted accounting principles.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1994
Note 1 - (continued)
D. ACCOUNTS, MORTGAGES AND NOTES RECEIVABLE
The Company has provided an allowance for uncollectible trade accounts receivable based on a percentage of the outstanding accounts. During the year all bad debt write-offs were made to the allowance account. No reserve for uncollectible Mortgages and Notes Receivable is maintained. When and if a Note Receivable not secured by real estate becomes questionable, it is written down to its net realizable value. When a Mortgage or Note Receivable secured by real estate becomes questionable, it is written down to the adjusted basis of the property securing it.
E. FRANCHISE FEES
Franchise fee revenues are recognized after the Company has performed all material services and conditions relating to the sale.
F. REAL ESTATE SALES
Gains on real estate transactions on which substantial down payments are not received are deferred and recognized as income only as the principle amount of the obligation is received. This deferred income is shown on the balance sheet as a deferred credit.
G. DEFERRED DEBT ISSUE COSTS
Deferred debt costs (primarily commitment fees) are being amortized over the original term of the long-term debt to which they relate.
H. ORGANIZATIONAL COSTS
Organization costs are being amortized on a straight-line basis over a five year period.
I. PER SHARE DATA
Earnings per share of common stock is based on the weighted average number of shares which were outstanding during the year.
J. INVESTMENT TAX CREDIT
Investment tax credits are accounted for as a reduction of the tax liability in the year the property is placed in service using the flow through method.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1994
NOTE 2 - PROPERTY AND EQUIPMENT
Major classifications of property and equipment and their respective depreciable lives are summarized below:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1994
Note 3 - (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1994
Note 3 - (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1994
Note 3 - (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1994
Note 3 - (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1994
Note 3 - (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1994
Note 3 - (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1994
Note 4 - MORTGAGES AND NOTES PAYABLE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1994
Note 4 - (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1994
Note 4 - (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1994
Note 4 - (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1994
Note 4 - (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1994
Note 4 - (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1994
Note 4 - (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1994
Note 4 - (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1994
Note 4 - (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1994
The maturity of principle obligations on the long-term notes and mortgages payable is as follows:
NOTE 5 - RELATED RECEIVABLES CONTINGENCY
Notes and accounts receivable from a partnership, the principle partners of which are also directors of the Company, in the amount of $874,628, were exchanged in 1991 for a 25% interest in the partnership.
NOTE 6 - INCOME TAXES
The Company and its eligible subsidiaries file a consolidated federal income tax return. The following is an analysis of the income tax liabilities for the years ended December 31:
The tax due is from consolidated entities that do not file a consolidated tax return with the parent company and is a result of the taxable income of those entities.
Certain sales of investment assets, the gains on which have been recognized in the financial statements, are, for tax purposes, being recognized on the installment method. The taxes attributed to these gains have been provided for in the financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1994
NOTE 6 - (Continued)
The utilization of tax benefits is the result of net operating loss carry forward of the Company and one of the consolidated subsidiaries that is not part of the Company's consolidated tax return. That Company has a statutory tax on financial statement income before application of net operating loss carry forward.
NOTE 7 - ANALYSIS OF STOCKHOLDERS' EQUITY
A Director receives 200 shares for each meeting attended. A non- director employee receives 50 shares for each meeting attended when invited to attend. Outstanding stock has been restated for 1987 shares issued and outstanding for the acquisition of Red Carpet Inns, Inc. shares in 1988.
NOTE 8 - RELATED PARTY TRANSACTIONS
From time to time on an as needed basis, the Company has made open advances to Pan America Hospitality, a partnership comprised of certain officers and corporate shareholders of the Company. As of December 31, 1994, these advances totaled $123,783.00.
The Company has advanced monies to a related partnership through the years. See Note 5, Contingent Receivables for details of the transactions.
NOTE 9 - CONDEMNED BUILDING WRITE OFF
In 1993 an existing building was condemned and written off. The loss shown on the books was $148,904.00. The fixed asset and accumulated depreciation for this property was removed from the corporate books, except for an allowance of $50,000 for salvage of scrap metal. This amount was written off in 1994.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1994
NOTE 10 - PENDING LITIGATION
At present time the company has a pending litigation against them in the amount of $1,500,000.00. The resolution of this lawsuit is unknown at this time.
NOTE 11 - CHANGE IN METHODOLOGY FOR CALCULATING MINORITY INTEREST IN SUBSIDIARIES
A change in the calculation for determining minority interest was made in 1993. Minority interest was increased based on requirements stated in Financial Accounting Standard No. 94.
NOTE 12 - STOCK ISSUANCE TO OFFICERS
During 1993 Common Stock was issued to Corporate officers. These shares were exchanged for Red Carpet Inns, Inc. common stock based on like kind market rules and totaled 3,334 shares.