Efficiency Lodge, Inc. Form 10-KSB

10KSB40 1 eli10ksb.htm EFFICIENCY LODGE, INC. FORM 10-K Efficiency Lodge, Inc. Form 10-KSB 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, 2000

/_/ 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
(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
(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, no 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 /X/

Check if disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. /X/

State issuer's revenues for its most recent fiscal year. $8,474,149.

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, 2001, there were 8,300 shares of Common Stock, no par value, outstanding held by non-affiliates of the issuer, with an aggregate value of $249,000 (based upon a value of $30.00 per share, the cash value of the converted shares after the 10 for 1 stock split by the Company declared on November 15, 2000). 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, 2001, there were issued and outstanding 216,970 shares of Common Stock, no par value.

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.

On August 5, 1999, the Company's Shareholders approved a 30 for 1 reverse split of the Company's common stock (the "Reverse Split"). Pursuant to the Reverse Split, fractional shares of common stock were converted to cash at the rate of $10.00 per share of common stock out-standing prior to the Reverse Split.

On September 19, 2000, the Company's Board of Directors approved a 10 for 1 stock split of the Company's common stock (the "Stock Split"). Pursuant to the Stock Split, each share of the Company's common stock was converted into ten shares of common stock.

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 thirteen Efficiency Lodges, which are located in or near East Point, Douglasville, Atlanta, Dekalb County, Carrollton, Cartersville, Forest Park, Kennesaw, Columbus, Austell, and Louisville, Georgia, and Pensacola, Florida. The Lodges have an aggregate of 1,449 guest rooms. In addition, the Company owns and operates rental properties consisting of 58 single family residences, four duplex residential properties, and one commercial property in or near Atlanta, Georgia (the "Rental Properties"). 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 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.

The Company has acquired the Rental Properties in and near Atlanta, Georgia. The Rental Properties are primarily residential buildings with one year leases. Rents are paid monthly. The Company owns one commercial property which has two tenants, both of which have one year leases.

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 2000, the overall average occupancy rate for the Company's Lodges was 80%, the average weekly rental rate was $154.00 and the revenue per available room was $123.06.

The Company operates its Rental Properties by leasing units to residential occupants. The average occupancy rate is 98%. The average rental rate is $155.96 per week.

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 United States. The Company may build or acquire additional Lodges by borrowing funds, exchanging capital stock, 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.

Competition

The lodging industry is highly competitive. Each Efficiency Lodge is located in a developed area that includes motels and other lodges and in some cases other economy extended-stay lodges. The Company does not believe that any single competitor or small number of competitors is dominant in the markets in which its Lodges are located. The number of competitive facilities in a particular area has a material effect on occupancy and revenues of 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 Company's 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 and the Rental Properties are in compliance in all material respects with all federal, state, and local ordinances and regulations regarding hazardous or toxic substances and other environmental matters. The Company has not been notified by any governmental authority of any material noncompliance, liability, or claim relating to hazardous or toxic substances or other environmental issues in connection with any of its present or former properties.

Governmental Regulation

A number of states regulate the licensing of lodging facilities by requiring registration, disclosure statements, and compliance with specific standards of conduct. The Company believes that each of its facilities has the necessary permits and approvals to operate the respective businesses, and the Company intends to obtain such permits and approvals for its new facilities.

The Company is also subject to laws governing its relationship with employees, including minimum wage requirements, overtime, working conditions, and work permit requirements. An increase in the minimum wage rate, employee benefit costs, or other costs associated with employees could adversely affect the Company. Both at the federal and state level, from time to time, there are proposals under consideration to increase the minimum wage.

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, 2000, the Company had no employees. Instead, the Company leases approximately 70 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, insura nce and other benefits. The lease was renewed on June 1, 2000, and may be terminated by the Company on June 1, 2001. 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.

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 2001 and any Current Reports on Form 8-K filed by the Company.

ITEM 2. DESCRIPTION OF PROPERTY.

The Company constructed all but five of the Company's Efficiency Lodges using a standard design, with similar architectural styles and guest room floor plans and similar construction materials. Five Efficiency Lodges were purchased from other operators. 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.

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, 2000, ranged from $119 to $149 per week for single occupancy. The Efficiency Lodges are able to charge lower rates (a) 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 (b) because they use 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.

The following lodges secure a note to one lender, with an outstanding balance at December 31, 2000, of approximately $10,166,696. The loan accrues interest at 8.02% annually and matures in 2018.

East Point Lodge. This two-story 40-room 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.

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.

Fulton Lodge. This two-story 152-room Lodge is located on approximately 2.77 acres at 4050 Wendell Drive in Atlanta. The Lodge has been owned by the Company since 1989.

West Georgia Lodge. This two-story 128-room Lodge is located on 4.18 acres on Bankhead Highway in Carrollton, Georgia. The Company has owned this Lodge since March 1990.

Dekalb Lodge. This 103-room Lodge is located on Flat Shoals Road, Decatur, Georgia. It was purchased by the Company immediately after its construction was completed in 1997.

Towncenter Lodge. This two-story 124-room Lodge is located at 2665 North Cobb Parkway, Kennesaw, Georgia. The Lodge has been owned by the Company since it was acquired in August, 1998.

The following lodge has long-term debt with an aggregate outstanding balance at December 31, 2000, of approximately $3,068,875. The loan accrues interest at 8.95% annually and matures in 2024.

Forest Park Lodge. This two-story 124-room Lodge is located on approximately 2.28 acres in Forest Park, a commercial area of Atlanta. The property has an approximately 2,500 square-foot auxiliary building used for office and retail space. The Lodge has been owned by the Company since 1991.

The following lodge secures an adjustable rate mortgage with an aggregate outstanding balance at December 31, 2000 of approximately $1,923,387. The loan accrues interest at 1 1/2% over prime and matures in 2013.

Columbus Lodge. This two-story 124-room Lodge is located at 1776 Betwood Place, Columbus, Georgia. The Company has owned this Lodge since 1998.

The following lodge secures debt to two lenders, including the former owner of the property, with outstanding balances at December 31, 2000, aggregating approximately $2,148,360. The first mortgage accrues interest at 2% over prime and matures in 2019, and the second bears interest at 10% and matures in 2025.

Bartow Lodge. This two-story 124-room Lodge is located on approximately 3.89 acres near Highway 20 in Cartersville, Georgia. The Company has owned this Lodge since July 1995.

The following lodge has long-term debt with an aggregate outstanding balance at December 31, 2000 of approximately $481,273. The loan accrues interest at 8.0% annually and matures in 2019.

Louisville Lodge. This two-story 42-room Lodge is located at Highway 1 Bypass in Louisville, Georgia on 2.95 acres. It was purchased by the Company in March of 1999.

The following two lodges secure debt to two lenders, with outstanding balances at December 31, 2000 aggregating approximately $5,896,500. The first loan accrues interest at 8.5% annually and matures in 2004. The second loan accrues interest at 9.5% annually and matures in 2004.

Home Stay Lodge. This two story 124-room Lodge is located at Davis Highway in Pensacola, Florida. The Company has owned this Lodge since December, 1999.

Home Stay Lodge. This two story 124-room Lodge is located at Mobile Highway in Pensacola Florida. The Company has owned this Lodge since December, 1999.

The following lodge has long-term debt with an aggregate outstanding balance at December 31, 2000 of approximately $1,696,987. The loan accrues interest at 9.75% annually, which is adjustable, and matures in 2002.

Austell Lodge. This two story 84 room lodge is located at 1968 Veterans Memorial Highway in Austell, Georgia. It was constructed by the Company in August of 2000.

The following rental properties have long-term debt with an outstanding balance at December 31, 2000 of $2,672,943. The loan accrues interest at 8.5% annually and matures in 2002.

Rental Properties. These properties consist of 58 single family residences, four duplex residential properties and one commercial property occupied by a convenience store and an automobile repair shop. The Company sold two single family residences in 2000 and acquired seven single family residences.

Total debt of the Company as of December 31, 2000, was approximately $28,305,021.

As of December 31, 2000, 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.

None.

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, 2001, there were 216,970 outstanding shares of Common Stock and approximately 379 holders of record of such shares. There are currently no legal or contractual restrictions on the payment of dividends by the Company. The Company paid a dividend of $0.25 per share to holders of its common stock on December 15, 2000, which is the only dividend that has been paid in the last two years.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

FISCAL YEARS ENDED DECEMBER 31, 2000 AND 1999

During 1999, the Company acquired three existing lodges and 58 primarily residential rental properties. During 2000, the Company constructed one additional lodge. These additional properties resulted in significantly higher revenues and expenses in 2000 compared to 1999. The Company's mature properties typically experience lower occupancy rates during the fourth quarter of each year. Consequently, newly acquired or constructed properties are more likely to experience a lower average occupancy and lower total revenue, in the year acquired or constructed, than established properties.

Total revenue for 2000 increased $1,625,152 or 24% over 1999. $1,552,876 of this increase was related to properties acquired or constructed during 1999 and 2000. The remaining increase of $72,276 was related to properties acquired or constructed prior to 1999. Revenues on properties acquired prior to 1999 increased 1% over the prior year.

Operating expenses for 2000 increased $1,340,113 or 32% over 1999 primarily as a result of the new lodges acquired or constructed during 1999 and 2000 and due to higher maintenance activities on properties in 2000. The largest component of the increase in operating expenses from 1999 to 2000 was depreciation and amortization, which increased $362,787 or 42%. The remaining operating costs increased $977,326 or 30%. Interest expense in 2000 increased $879,390 over 1999 due to the financing of the lodges acquired during 1999 and 2000 and higher interest rates on the debt incurred during 1999 and 2000.

During 2000, the Company sold two houses, acquired in 1999, for a gain of $144,110. No such sales occurred during 1999.

Income tax expenses were 39% and 38% of net earnings before income tax expense in 2000 and in 1999, respectively. Net earnings for the year ended December 31, 2000 totaled $345,751 compared to $671,899 for the year ended December 31, 1999.

Liquidity And Capital Resources

The Company historically has funded its operations primarily with cash flow from operations. Net cash provided from operations totaled $889,838 and $1,967,778 in 2000 and 1999 respectively. For the year ended December 31, 2000, the Company had an increase in cash of $421,336 compared to a decrease in cash of $684,129 for the year ended December 31, 1999. The Company had cash balances of $658,427 and $237,091 at December 31, 2000 and 1999, respectively. Idle cash was invested in equity securities, which had a fair value of $751,463 at December 31, 2000.

The Company anticipates that the cash flow from operations will be sufficient to meet its working capital needs for the next twelve months. 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 needs through operations.

During 2000 and 1999, the Company funded purchases of property and equipment totaling $1,783,842 and $11,353,784, respectively, primarily through bank and seller financing. The Company anticipates building or acquiring additional Lodges in the future and may seek to do so by incurring debt or using existing cash, marketable securities, and cash flows from operations. The Company has purchased land for construction of a new lodge, but does not expect to begin construction during 2001.

There are no current commitments for future 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.

During June, 2000 (which was prior to the 10-for-1 stock split), the Company exchanged 3,333 shares of treasury stock for a $499,950 reduction of a note payable. 50,000 shares of treasury stock of the Company are pledged to secure a loan. In December, 2000, the Company paid a $0.25 per share dividend, for an aggregate distribution of $54,242.50.

Two risk factors, which may affect 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.

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 2000 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, one was appointed in May of 1999, and the other directors were elected by the shareholders. The Company held a special meeting of shareholders on April 5, 1999. No meetings of the shareholders were held in 2000. Directors of the Company remained 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.

Name (Age)	Position(s)	Business Experience During the Past Five Years

W. Ray Barnes (61)	Director, President and Chief Executive Officer, Chief Financial Officer and Chief Accounting officer	Mr. Ray Barnes has served as a director, President and Chief Executive Officer of ELI and its predecessors since 1986. Mr. Barnes has owned and operated Barnes Store in Mableton, Georgia since 1954. He has also been a director of Georgia State Bank and Community Financial Corporation and a director of Alabama National Bancorporation since December 1998.

Arthur L. Crowe, Jr. (76)	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 (70)	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 (60)	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. (73)	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.

Larry V. Watts (62)	Director	Mr. Watts has been a director of the Company since May 1999. He is the owner of Concorde Development & Construction, Inc., which was established in 1985. Mr. Watts has ownership interests in other extended stay lodges.

Joe Chapple (40)	Director	Mr. Chapple is owner of Chapple, Inc., which was Established in 1998. Mr. Chapple has an interest in another extended stay lodge. He has been a director since June, 2000.

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 2000 fiscal year, except that it does not believe that a Form 3 was filed by Joe Chapple upon receipt of shares of Company Common Stock on June 1, 2000.

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

Ray Barnes, President and Chief Executive Officer, Chief	2000 1999 1998	$50,000 $50,000 $50,000	$180,114 $280,459 $204,474

____________________________

(1) 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 2000.

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.

Title of Class	Name and Address of Beneficial Owner	Amount and Nature of Beneficial Owner	Percent of Common Stock

Common Stock	W. Ray Barnes 1680 Seayes Road P.O. Box 21 Mableton, GA 30059	165,400	76.23%

Common Stock	Joe Chapple 500 Lorene Drive Marietta, GA 30060	33,330	15.36%

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 of Beneficial Owner	Amount and Nature of Beneficial Owner	Percent of Common Stock

W. Ray Barnes	165,400	76.23%
1680 Seayes Road
P.O. Box 21
Mableton, GA 30059

Joe Chapple	33,330	15.36%
500 Lorene Drive
Marietta, GA 30060

Arthur L. Crowe, Jr.	1,740	*
567 Colston Road
Marietta, GA 30014

Joseph A. Cochran	260	*
2950 Atlanta Street
Smyrna, GA 30080

Ken F. Thigpen	3,410	1.57%
2572 Oakwood Trace
Smyrna, GA 30080

Dr. Roy W. Sweat, D.C.	2,830	1.30%
4735 River Court
Duluth, GA 30155

Larry V. Watts	1,700	*
988 Graymount Circle
Marietta, GA 30064

All officers and directors as a group	208,670	96.17%

___________________

* Less than one percent

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The Company has in place a management agreement with W. Ray Barnes (doing business as Barnes Store) pursuant to which Mr. Barnes provides management of the Company's properties in exchange for 4% of gross revenues of the Company less hotel/motel taxes and sales taxes. The agreement may be canceled by either party upon 60 days notice. In 2000, Mr. Barnes agreed to accept management fees equal to only 2.2% of revenues, and the Company paid $180,114 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 2000, the Company purchased maintenance supplies totaling $258,737 from Mr. Barnes.

The Company acquired the Rental Properties from a company owned by W. Ray Barnes on August 1, 1999, at a cost of $3,132,470, which included the assumption of a $2,883,000 mortgage, the application of certain receivables owed to Mr. Barnes in the amount of $246,899, and additional paid-in capital of approximately $2,571.

A note receivable of W. Ray Barnes, the majority shareholder, in the principal amount of $325,104 (which includes accrued interest of $106,898) bears interest at 7% and matures on September 25, 2012.

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	Limited Partnership Interest Purchase Agreement, dated December 1, 1999, between Crown Group, Inc. and Chadco, Inc., and the Company (incorporated by reference to Exhibit 2.1 of the Company's Current Report on Form 8-K/A, as filed with the Commission on February 14, 2000).

2.2	Stock Purchase Agreement, dated December 1, 1999, between Crown Group, Inc. and the Company (incorporated by reference to Exhibit 2.2 of the Company's Current Report on Form 8-K/A, as filed with the Commission on February 14, 2000).

3.1	Restated and Amended Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 of the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1997, as filed with the Commission on April 15, 1998), and as amended by the Articles of Amendment of Efficiency Lodge, Inc. (incorporated by reference to Exhibit A of the Information Statement filed on Schedule 14C, as filed with the Commission on July 6, 1999).

3.2	Bylaws of Efficiency Lodge, Inc., as amended (incorporated by reference to Exhibit 3.2 of the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1997, as filed with the Commission on April 15, 1998).

10.1	Towncenter Lodge Purchase Agreement by and between Efficiency Lodge, Inc. and Towncenter Lodge, Inc. (incorporated by reference to Exhibit 2.1 of the Company's 8-K as filed with the Commission on September 3, 1998).

10.2	Promissory Note by and between Efficiency Lodge, Inc. and Chapple, Inc., dated January 7, 1999 (incorporated by reference to Exhibit 10.2 of the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1999, as filed with the Commission on April 17, 2000).

10.3	Promissory Note by and between Efficiency Lodge, Inc. and Belgravia Capital Corporation, dated August 18, 1998 (incorporated by reference to Exhibit 10.3 of the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1999, as filed with the Commission on April 17, 2000).

10.4	Promissory Note in the amount of $5,420,000, dated May 21, 1998, to Bank of Pensacola (incorporated by reference to Exhibit 10.1 of the Company's Current Report on form 8-K/A, as filed with the Commission on February 14, 2000).


10.5	Unconditional and Irrevocable Guaranty of Payment to the Bank of Pensacola, dated December 1, 1999, by Efficiency Lodge, Inc. (incorporated by reference to Exhibit 10.2 of the Company's Current Report on Form 8-K/A, as filed with the Commission on February 14, 2000).

10.6	Unconditional and Irrevocable Guaranty of Payment to the Bank of Pensacola, dated December 1, 1999, by W. Ray Barnes (incorporated by reference to Exhibit 10.3 of the Company's Current Report on Form 8-K/A, as filed with the Commission on February 14, 2000).

10.7	Promissory Note in the amount of $797,040.83, dated December 1, 1999, to Crown Group, Inc. and Chadco, Inc. (incorporated by reference to Exhibit 10.4 of the Company's Current Report on Form 8-K/A, as filed with the Commission on February 14, 2000).

10.8	Unconditional and Irrevocable Guaranty of Payment to Crown Group, Inc. and Chadco, Inc., dated December 1, 1999, by W. Ray Barnes (incorporated by reference to Exhibit 10.5 of the Company's Current Report on form 8-K/A, as filed with the Commission on February 14, 2000).

10.9	Construction and Term Loan Agreement, dated May 21, 1998, among Bank of Pensacola, Home Stay Lodge I, Ltd., Bonnie M. Bray, and Crown Group, Inc. (incorporated by reference to Exhibit 10.9 of the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1999, as filed with the Commission on April 17, 2000).

10.10	Mortgage and Security Agreement, dated as of May 21, 1998, by Home Stay Lodge I, Ltd. in favor of Bank of Pensacola (incorporated by reference to Exhibit 10.10 of the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1999, as filed with the Commission on April 17, 2000).

10.11	Security Agreement, dated May 21, 1998, between Home Stay Lodge I, Ltd. and Bank of Pensacola (incorporated by reference to Exhibit 10.2 of the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1999, as filed with the Commission on April 17, 2000).

21	Subsidiaries of the Registrant (incorporated by reference to the Company's 10-K for the fiscal year ended December 31, 1995, as filed with the Commission on April 9, 1996).

b) Reports on Form 8-K.

None.

CONSOLIDATED FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
EFFICIENCY LODGE, INC.
December 31, 2000

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

	CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY	F-5

	CONSOLIDATED STATEMENTS OF CASH FLOWS	F-6

	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	F-8

F-1

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, 2000, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the two years in the period ended December 31, 2000. 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 auditing standards generally accepted in the United States of America. 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 Efficiency Lodge, Inc. and subsidiaries as of December 31, 2000, and the consolidated results of their operations and their consolidated cash flows for each of the two years in the period ended December 31, 2000, in conformity with generally accepted accounting principles in the United States of America.

/s/ Grant Thornton LLP

Atlanta, Georgia
February 19, 2001

F-2

Efficiency Lodge, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEET

December 31, 2000


ASSETS


Property and equipment, net (note B)		$ 26,169,246
Cash		658,427
Marketable equity securities - at market (note E)		751,463
Note receivable - stockholder (note C)		325,104
Loan fees, net of accumulated amortization (note D)		453,121
Other assets		509,462

		$ 28,866,823

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
Notes payable (note F)	$ 28,305,021
Accounts payable	211,208
Other liabilities	351,325

Total liabilities	28,867,554

STOCKHOLDERS' EQUITY

Common stock - no par value, 7,500,000 shares authorized; 347,900 shares issued	280,534

Retained earnings	1,088,613
Accumulated other comprehensive earnings (note E)	119,000
	1,488,147
Less 130,930 shares of common stock in treasury at cost	(1,488,878)
	(731)

	$ 28,866,823

The accompanying notes are an integral part of this statement.

F-3

Efficiency Lodge, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF EARNINGS

Years ended December 31,

	2000	1999

Revenue	$ 8,474,149	$ 6,848,997

Operating expenses	5,478,966	4,138,853

Operating profit	2,995,183	2,710,144

Other expense (income)
Investment income	(48,121)	(45,070)
Interest expense	2,557,362	1,677,972
Gain on sale of property	(144,110)
Other, net	64,301	84,323
	2,429,432	1,717,225

Net earnings before income taxes	565,751	992,919

Income tax expense (note H)	220,000	375,020

NET EARNINGS	$ 345,751	$ 617,899


Net earnings per common share - basic	$ 1.70	$ 3.27

The accompanying notes are an integral part of these statements.

F-4

Efficiency Lodge, Inc. and Subsidiaries

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

Years ended December 31, 2000 and 1999

	Common Stock
	Number of shares outstanding		Amount		Additional paid-in capital		Retained earnings		Accumulated other comprehensive income (loss)		Treasury stock		Total


Balance at December 31, 1998	190,980	$	104,368	$	52,674	$	179,206	$	-	$	(1,647,677)	$	(1,311,429)

Net earnings for the year	-		-		-		617,899		-		-		617,899

Other comprehensive loss Unrealized net loss on Investments (note E)	-		-		-		-		(52,427)		-		(52,427)

Comprehensive earnings													565,472

Repurchase of shares during 1999	(7,340)		-		-		-		-		(220,230)		(220,230)

Reclass no par common stock	-		52,674		(52,674)		-		-		-		-

Purchase of rental properties	-		2,571		-		-		-		-		2,571

Balance at December 31, 1999	183,640		159,613		-		797,105		(52,427)		(1,867,907)		(963,616)

Exchange of 33,330 shares of treasury stock for note payable	33,330		120,921		-		-		-		379,029		499,950

Net earnings for the year	-		-		-		345,751		-		-		345,751

Other comprehensive income Unrealized net gain on Investments (Note E)	-		-		-		-		171,427		-		171,427

Comprehensive earnings													517,178

Cash dividends - $0.25 per share	-		-		-		(54,243)		-		-		(54,243)

Balance at December 31, 2000	216,970	$	280,534	$	-	$	1,088,613	$	119,000	$	(1,488,878)	$	(731)

The accompanying notes are an integral part of this statement.

F-5

Efficiency Lodge, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31,

	2000	1999

Increase (Decrease) in Cash

Cash flows from operating activities
Net earnings	$ 345,751	$ 617,899
Adjustments to reconcile net earnings
to net cash provided by operating activities
Depreciation and amortization	1,233,286	870,499
Gain on sale of property	(144,110)	--
Interest and dividends	(48,121)	(45,070)
Changes in assets and liabilities
(Increase) decrease in other assets	(231,486)	25,072
Increase in accounts payable	36,594	108,163
Increase (decrease) in other liabilities	(302,076)	391,215

Net cash provided by operating activities	889,838	1,967,778

Cash flows from investing activities
Purchases of property and equipment	(1,783,842)	(8,221,314)
Proceeds from sale of property	244,000	--
Repayments of note receivable from stockholder	14,130	--
Purchases of marketable securities	(23,687)	(418,404)
Interest and dividends	48,121	45,070

Net cash used by investing activities	(1,501,278)	(8,594,648)

Cash flows from financing activities
Payments for repurchase of common stock	--	(220,230)
Proceeds from notes payable	1,774,536	9,643,020
Payments made on notes payable	(672,992)	(3,406,609)
Payments for loan origination costs	(14,525)	(73,440)
Cash dividend	(54,243)	--

Net cash provided by financing activities	1,032,776	5,942,741

F-6

Efficiency Lodge, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

Years ended December 31,

	2000	1999


Net (decrease) increase in cash	421,336	(684,129)

Cash at beginning of year	237,091	921,220

Cash at end of year	$ 658,427	$ 237,091

Supplemental cash flow information

Cash paid during the year for interest	$ 2,496,524	$ 1,638,830

Cash paid during the year for income taxes	$ 531,540	$ 164,218

Noncash investing and financing activities

During 1999, the Company acquired rental properties from a company owned by a stockholder. As a result of the transaction, the Company acquired property and equipment of $3,132,470, assumed existing mortgages of $2,883,000 and applied certain receivables from the stockholder in the amount of $246,899 against the purchase price. The resulting credit was to additional paid in capital for $2,571. The cost capitalized by the Company for this acquisition was based upon the historical cost basis of the related company.

During 2000, the Company exchanged 33,330 (which reflects the 10-for-1 stock split) shares of common stock in treasury for a $499,950 reduction of a note payable.

The accompanying notes are an integral part of these statements.

F-7

Efficiency Lodge, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2000 and 1999

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 and Florida, 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. Marketable Equity Securities

Marketable securities, which are accounted for as available for sale securities, are stated at fair value. Unrealized gains and losses on these investments, net of the related income tax effect, are included in accumulated other comprehensive income (loss). Cost basis for purposes of computing realized gains and losses is computed using the specific identification 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. Buildings and improvements are depreciated over thirty-one to thirty-nine years and furniture and fixtures are depreciated over five to seven years. Maintenance and repairs are charged to operations as incurred, and major renewals and betterments are capitalized. Non-capital costs incurred prior to opening new lodges are expensed when incurred. Facilities are evaluated annually and written down to fair value if 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

Efficiency Lodge, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2000 and 1999

NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued

6. Income Taxes

The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates applied to taxable income. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for deferred tax assets when it is more likely than not that the asset will not be realized.

7. Cash Equivalents

For purposes of the statement of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents.

8. Earnings Per Share

During 1999, the Company completed a 1 for 30 reverse stock split. During 2000, the Company completed a 10 for 1 stock split. All references to common stock within the accompanying financial statements have been restated to reflect the effect of these stock splits.

Earnings per share is computed based upon the weighted average number of shares outstanding during the period. The weighted average number of shares outstanding during 2000 and 1999 was 203,181 shares and 188,960 shares, 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. Revenue Recognition

Revenue consists primarily of charges for lodging which are recognized when earned.

F-9

Efficiency Lodge, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2000 and 1999

NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued

10. Fair Value of Financial Instruments

The Company's financial instruments recorded on the balance sheet include cash, investments, accounts receivable, accounts payable and debt. Because of their short maturities, the carrying amount of cash, investments, accounts receivable and accounts payable approximates fair market value. The fair value of the Company's long-term debt approximates carrying value based on quoted market prices of similar issues or on the current rates offered to the Company for debt of similar terms.

11. 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.

12. Reclassifications

Certain 1999 amounts have been reclassified to conform to the 2000 classifications.

NOTE B - PROPERTY AND EQUIPMENT

Property and equipment consists of the following as of December 31, 2000:

Buildings and improvements	$ 24,664,147
Furniture and equipment	3,145,681
	27,809,828
Less: accumulated depreciation	(5,449,515)
	22,360,313
Land	3,808,933

	$ 26,169,246

During 2000, the Company capitalized $46,475 of interest in connection with construction of a new lodge.

F-10

Efficiency Lodge, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2000 and 1999

NOTE C - NOTE RECEIVABLE - STOCKHOLDER

The $325,104 note receivable from stockholder (including accrued interest of $118,846) bears interest at 7%, matures on September 25, 2012 and is uncollateralized. Interest income on this note totaled $15,418 and $25,280 for the years ended December 31, 2000 and 1999, respectively.

NOTE D - LOAN FEES

Loan fees were as follows as of December 31, 2000:

Loan fees	$ 673,481
Less: accumulated amortization	(220,360)

Net loan fees	$ 453,121

NOTE E -- MARKETABLE EQUITY SECURITIES

Marketable equity securities are stated at fair value. Unrealized gains or losses on these investments, net of related deferred income taxes, are included in other comprehensive income (loss). At December 31, 2000 and 1999, these amounts were as follows:

	2000	1999

Fair value	$ 751,463	$ 451,284
Cost	559,531	535,844
Unrealized gain (loss)	191,932	(84,560)
Deferred income tax (expense) benefit	(72,932)	32,133

Accumulated other comprehensive income (loss)	$ 119,000	$ (52,427)

F-11

Efficiency Lodge, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2000 and 1999

NOTE F - NOTES PAYABLE

Notes payable consists of the following at December 31, 2000:


Variable rate mortgage notes - 9.5% to 11.5%,
Payments of principal and interest totalling $24,434
per month, maturing in 2004 and 2019	$ 1,864,944

Fixed rate mortgage notes - 8% to 10%, payments
of principal and interest totaling $231,761
per month, maturing on various dates through 2025	26,190,077

Fixed rate note payable to stockholder - 9%, principal
and interest due in 2001, collateralized by 50,000
shares of the Company's treasury stock	250,000

	$ 28,305,021

The mortgage notes payable are collateralized by all of the Company's real property and are guaranteed by the majority stockholder. One mortgage note payable requires monthly payments of $14,127 into a capital replacement reserve fund held by the mortgagee. Disbursements from the fund are subject to approval by the mortgagee. The balance in this fund was $123,631 at December 31, 2000, and is included in other assets.

Future maturities of long-term debt as of December 31, 2000 are as follows:

2001	$ 868,301
2002	3,148,072
2003	2,305,570
2004	5,329,384
2005	372,036
Thereafter	16,281,658

	$ 28,305,021

F-12

Efficiency Lodge, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2000 and 1999

NOTE G - RELATED PARTY TRANSACTIONS

Management fees of $180,114 and $280,459 were paid in 2000 and 1999, 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 excluding 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. During 2000, the stockholder agreed to accept management fees equal to 2.2% of revenues.

During 2000 and 1999, the Company purchased maintenance supplies totalling $258,737 and $247,642, respectively, from a stockholder.

During 2000, the Company paid $15,000 to the majority stockholder, under an agreement to pay $5,000 per month beginning October 2000, for the stockholder's guarantee of certain of the Company's mortgage notes payable.

During 1999, the Company acquired rental properties for approximately $3,132,470 from a company owned by a stockholder (see Note I). During 2000, the Company paid a $30,000 construction management fee to a director and stockholder.

NOTE H -- INCOME TAXES

Income tax expense consists of the following:

	2000	1999
Current expense
Federal	$ 242,825	$ 323,500
State	45,532	60,700
	288,357	384,200

Deferred benefit
Federal	(57,564)	(7,680)
State	(10,793)	(1,500)
	(68,357)	(9,180)

	$ 220,000	$ 375,020

This expense differs from the expense based on the Federal statutory rate due primarily to state income taxes. At December 31, 2000, the Company's deferred tax liability of $133,654, which is included in other liabilities, is due to the difference between the income tax basis of property and equipment and investments compared to the amount reported in the financial statements.

F-13

Efficiency Lodge, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2000 and 1999

NOTE I - MERGER AND ACQUISITIONS

Acquisition of Louisville Lodge

On March 11, 1999, the Company acquired substantially all of the assets of an existing lodge known as Louisville Lodge for $975,000.

Acquisition of Rental Properties

On August 1, 1999, the Company acquired, from a company owned by a stockholder, substantially all of the assets of 58 rental properties for $3,132,470, assumed existing mortgages of $2,883,000 and applied certain receivables from the shareholder in the amount of $246,898 against the purchase price. The resulting credit was to additional paid-in capital for $2,571. The cost capitalized by the Company for this acquisition was based upon the historical cost basis of the related company.

Acquisition of Home Stay Lodges

On December 1, 1999, the Company acquired substantially all of the assets of 2 existing lodges in Pensacola, Florida known collectively as Home Stay Lodge I, Ltd. ("Home Stay") for $6,450,000. The unaudited pro forma information for the year ended December 31, 1999 set forth below gives effect to the acquisition as if it had occurred on January 1, 1999. The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had this transaction been consummated at the beginning of the period indicated.

	(Unaudited)

Revenue	$ 7,544,379
Operating expenses	4,507,347
Operating profit	3,037,032

Other expense
Interest expense	2,148,305
Other	31,260
Net earnings before tax	857,467

Income tax expense	371,976

Net income	$ 485,491

Earnings per common share - basic	$ 2.57

F-14

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 29, 2001

In accordance with the Exchange Act, this Report has been signed below by the following persons on behalf of the Company in the capacities set forth and on the dates indicated.

Signature	Position	Date

/s/ W. Ray Barnes W. Ray Barnes	President and Chief Executive Officer and Director, (Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer)	Date: March 29, 2001

/s/ Arthur L. Crowe, Jr. Arthur L. Crowe, Jr.	Director	Date: March 29, 2001

___________________ Joseph A. Cochran	Director

/s/ Ken F. Thigpen Ken F. Thigpen	Director	Date: March 29, 2001

/s/ Roy W. Sweat Roy W. Sweat	Director	Date: March 29, 2001

/s/ Larry V. Watts Larry V. Watts	Director	Date: March 29, 2001

/s/ Joe Chapple Joe Chapple	Director	Date: March 29, 2001