SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

  [ X ]   ANNUAL  REPORT  PURSUANT  TO  SECTION  13 OR 15(d)  OF THE  SECURITIES
          EXCHANGE ACT OF 1934

For the fiscal year ended:  December 31, 1997

                                       OR

  [   ]   TRANSITION  REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES
          EXCHANGE ACT OF 1934

For the transition period from ____________ to ___________

Commission file number: 0-13499-D

                              WORLD SERVICES, INC.
                  --------------------------------------------
                 (Name of small business issuer in its charter)

       
         South Dakota                                             46-0355586
-------------------------------                              -------------------
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)

                           724 N. Kline, P.O. Box 786
                        Aberdeen, South Dakota 57402-0786
                ------------------------------------------------
               (Address of principal executive offices) Zip Code

Issuer's telephone number:   (605) 225-4131

Securities registered under Section 12(b) of the Exchange Act:  None

Securities registered under Section 12(g) of the Exchange Act:

                  Common Stock, $.001 par value

     Check  whether  the issuer (1) filed all  reports  required  to be filed by
Section 13 or 15(d) of the Exchange  Act during the  preceding 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 at least the past 90 days.
Yes  X   No      .
   -----   -----



<PAGE>



     Check if there is no disclosure  of  delinquent  filers in response to Item
405 of Regulation S-B in this form, and no disclosure will 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. [XX]

     Issuer's revenues for its most recent fiscal year: $374,000.

     Aggregate  market  value  of  voting  stock  held by  non-affiliates  as of
December  31,  1997:  $-0-.  There  is  currently  no  trading  market  for  the
Registrant's securities.

     Number of  shares of common  stock,  $.001  par  value,  outstanding  as of
December 31, 1997: 2,639,679.

     Documents  incorporated  by  reference:  No documents are  incorporated  by
reference into this annual report on Form 10-KSB.

                                        2

<PAGE>



                              WORLD SERVICES, INC.

                                   FORM 10-KSB

                                     PART I

Item 1. Description of Business
-------------------------------

(a) Business Development.

     General. World Services, Inc. (the "Registrant") was incorporated under the
laws of the State of South Dakota on December 17, 1979 under the name of Midwest
Management & Marketing  Corporation.  The name was changed in July 1983 to World
Services,  Inc. World Services,  a diversified  financial  holding company,  was
formed to invest in and manage companies primarily in the real estate, insurance
and banking industries,  along with other service industries.  World Services is
the  owner  of  approximately  16% of the  outstanding  stock  of  Super 8 Motel
Developers,  Inc.  ("Super 8"). In 1997, World Services sold its interest in the
outstanding  stock of First Savings & Loan  Association  of South  Dakota,  Inc.
("First  Savings").  In August 1997, World Services also completed a 510-for-one
reverse  stock  split  followed  by a  one-for-300  forward  stock  split.  This
recapitalization  resulted  in World  Services  repurchasing  a total of 436,000
shares (calculated after giving effect to the  recapitalization)  for a total of
$107,000 cash paid to  shareholders  who submitted  their shares for  redemption
through December 31, 1997, and an additional $73,000 payable to shareholders who
had not submitted their shares for redemption by that date.

     The current  members of the Board of Directors  were appointed in 1989 upon
the  resignation  of the former  members of the  Board.  Since that time,  World
Services has been  maintained as a valid South Dakota  corporation,  it has been
collecting receivables and settling debts incurred by World Services through the
cessation  of its  active  operations,  and has been  maintaining  the books and
records to allow  World  Services  to obtain  audited  financial  statements  as
necessary.  World Services has not engaged in any significant  business activity
for more than the past five years.

     Super 8 -- Summary. In a series of transactions during 1984, World Services
acquired shares of World Venture Capital Corporation which subsequently  changed
its name to Super 8 Venture Capital, Inc. ("S8VC") which shares, at December 31,
1985,  constituted  43.9%  of the  outstanding  common  stock  of S8VC and had a
carrying  value of  $628,327.  In May 1986 S8VC was  liquidated  and its  assets
consisting  of cash,  World  Services'  common stock and common stock of Super 8
Motel Developers, Inc. ("Super 8") were distributed to shareholders. As a result
of the liquidation and subsequent transactions,  World Services received 796,952
shares or  approximately  16% of Super 8's  common  stock,  $16,689  in cash and
125,000 shares of its own common stock. Super 8 Motel Developers Inc. is engaged
in the acquisition and operation of budget motels. See "Narrative Description of
Business" and "Financial Statements."



                                        3

<PAGE>



     As noted, the future conduct of World Services'  business is dependent upon
a number of factors,  and there can be no assurance  that World Services will be
able to conduct  its  operations  as  contemplated  herein.  Certain  statements
contained  in this  report,  such as the  possibility  that World  Services  may
acquire an operating  business or, if any such  business is acquired that it can
be successfully operated, are forward-looking  statements. The accuracy of these
statements  cannot be  guaranteed  as they are  subject  to a  variety  of risks
including,  but not limited to: the possibility  that World Services will not be
able to complete any such  acquisition on economic terms, if at all; and if such
an acquisition  does occur, the possibility that World Services will not be able
to operate the  business  successfully.  Furthermore,  if any  acquisition  does
occur, it will likely be accompanied by a change of control, and there can be no
assurance  that such change of control will be beneficial  to World  Services or
its existing shareholders.

(b) Business of Issuer.

     In the near future,  World Services  intends to maintain its investments in
Super 8. In addition,  World Services intends to consider business  combinations
and  financing  opportunities,  although  there can be no  assurance  that World
Services will be able to complete either.

Super 8 Motel Developers, Inc.
------------------------------

     Acquisition.  Super 8 Motel  Developers,  Inc., a South Dakota  corporation
("Super 8"), is engaged in the  acquisition  and  development  and management of
budget motels.  Super 8 was formerly 40% owned by Super 8 Venture Capital,  Inc.
("S8VC"),  a South Dakota corporation formed in April 1984 to invest in, develop
and manage motels.  In connection with the formation of S8VC,  125,000 shares of
World  Services'  unregistered  common  stock were issued in  September  1984 in
exchange for  2,500,000  shares of common  stock of S8VC which was  subsequently
reduced to 2,249,993 shares.

     Business  of Super 8. The  primary  objective  of Super 8 is to develop and
operate franchise budget motels primarily in Virginia, West Virginia,  Maryland,
Delaware  and the  District of Columbia.  Super 8 acquired  exclusive  franchise
rights in July 1984 from  Super 8 Motels,  Inc.,  for  $250,000.  The  agreement
grants  Super 8  certain  exclusive  rights  in the  above-referenced  states to
construct, own, and operate motels using the Super 8 name and to represent Super
8 Motels,  Inc. in the sale of  franchises  within that  territory.  Significant
terms of the agreement and amendments thereto are as follows:

     1.   The term of the agreement is through 2004;

     2.   The initial  franchise  fee payable by motels which are owned at least
          51% by Super 8 is $10,000;


                                        4

<PAGE>



     3.   Super  8 is  to  receive  one-third  of  the  initial  franchise  fee,
          presently $20,000, of each franchise sold by the Super 8 system in the
          territory; and

     4.   A  specified  percentage  of the  annual  gross  room  rentals of each
          operating unit is to be tendered to Super 8 Motels,  Inc. as a fee for
          services rendered and royalties.  Super 8 Motels, Inc. will pay 25% of
          the fee it receives from each motel unit in the territory as a fee for
          services  rendered by Super 8. Those payments are to continue from the
          date such motel unit in the territory first commences  monthly royalty
          payments for ten years (for motels  opened on or before July 11, 1990)
          and for 15 years (for motels opened after July 11, 1990). Subfranchise
          fee income to Super 8 under this  agreement  were $434,833  during the
          year ended December 31, 1997, and $422,600 (1996).

     Super 8 acquired  these  franchise  rights in July 1984.  As of March 1988,
Super 8 had  interests  in  nineteen  motels  operating  and four  motels  under
construction;  as of December  31, 1997,  Super 8 had  interests in 28 operating
motels (29 as of December 31, 1996). The size of motels vary from 42 to 73 units
and are, in most instances, located adjacent to restaurant facilities.

     At December  31, 1997,  Super 8 was also a general  partner in nine limited
partnerships  (nine as of December 31,  1996),  (which are in addition to the 28
motels owned by Super 8 at December 31, 1997),  all of which were formed for the
purpose of owning and operating Super 8 Motels.

     In  1997,  World  Services   received  dividend  income  from  Super  8  of
approximately $239,000 (as compared to $160,000 received in 1996). Management of
World  Services  believes  that the market  value of its  investment  in Super 8
equals or exceeds its current cost basis.

     Competition. Super 8 is in competition with a large number of lower priced,
"budget" motel chains, such as Motel 6, Days Inn, Econolodge,  and Red Roof Inn.
In addition,  there are many  individually-owned  motels which are not part of a
chain, or which are members of a marketing  organization such as "Best Western."
Super 8 generally  competes  with these other motels on pricing,  location,  and
advertising.

First Savings & Loan Association of South Dakota, Inc.
------------------------------------------------------

     Acquisition  of  Interest.   In  a  series  of  cash  purchases   totalling
approximately  $270,021,  from February 1981 through March 1983,  World Services
acquired  approximately 22% of the outstanding  capital stock of First Savings &
Loan  Association  of South  Dakota,  Inc.  ("First  Savings"),  a South  Dakota
corporation,  operating  primarily  in the city of  Aberdeen.  In May 1985 World
Services purchased an additional 4,250 shares of First Savings stock for $2,000.
First  Savings is engaged in the  business  of  attracting  funds in the form of
savings  deposits  from the  general  public and  originating  loans  secured by
residential,  commercial and other improved real estate,  and operates under the


                                        5

<PAGE>



rules of the OTS, the Federal  Deposit  Insurance  Corporation  ("FDIC") and the
State Banking  Commission of South Dakota.  All of its accounts are FDIC insured
up to a maximum of $100,000 per account.  First  Savings'  common stock has been
registered pursuant to Section 12(g) of the Securities Exchange Act of 1934.

     Sale of First  Savings  Interest.  In September  1996,  World  Services was
contacted by the federal Office of Thrift Supervision concerning certain changes
in the alleged  control of First Savings  stock,  the ownership of First Savings
stock by certain  affiliates of World Services,  and a threatened action against
World Services as a result thereof.  OTS notified World Services and some of its
directors that they may be in violation of OTS Reg. No. 574.4(b),  relating to a
requirement  of  submitting  either a change of control  notice or  rebuttals of
concerted  action or control.  World  Services  disputed  the bases for the OTS'
allegations. As a result of the OTS investigation,  however, World Services sold
its entire  interest in First Savings to an  unaffiliated  buyer in August 1997.
The Buyer, Spectrum  Bancorporation,  Inc., of Omaha, Nebraska purchased 169,989
shares of First Savings Common Stock for $427,000  ($2.51 per share).  In August
1997, World Services' shareholders approved the sale of the First Savings stock.
The sale was completed in October 1997.

Plan of Operations
------------------

     To date,  World Services has not been engaged in any operations  other than
attempting to organize its affairs, settle its obligations,  collect receivables
and, more recently,  bring World Services up to date with required  governmental
filings  and  compliance  with  other  regulatory  requirements.  In 1997  World
Services  held a  shareholders  meeting  and  completed  the sale of its  entire
interest in First Savings. The current Board of Directors has not yet sought any
possible business combination.

     In the future, the Board will seek direction from the shareholders as to an
appropriate  course for World Services to follow.  This course could include any
of several alternatives, briefly identified as follows:

1.   Dissolution and Liquidation.  Pursuant to this alternative,  World Services
     would seek  shareholder  approval for the liquidation of World Services and
     the distribution of net assets to shareholders on a pro rata basis.

2.   Continuation  of  World  Services  as a  going  concern.  Pursuant  to this
     alternative,  World  Services,  through its elected  Board of Directors and
     management,   would  seek  business   opportunities  and  consider  various
     possibilities  of  reorganization  with the  intention  of  allowing  World
     Services to engage in active business operations.

3.   Sale or distribution of World Services'  minority  interest.  In connection
     with  either or both of the  foregoing  alternatives,  World  Services  may
     consider  the  sale of its  minority  interest  in  Super  8.  This  may be
     necessary  to avoid the  application  of the  Investment  Company  Act,  as
     discussed below.

                                        6

<PAGE>



4.   Seeking a waiver  from the  application  of the  Investment  Company Act or
     registering as an investment company or business development company.

     The Board of Directors has not made any  determination  as to which, if any
of the foregoing  alternatives,  it may recommend to the  shareholders  of World
Services.  Any  such  recommendation  will be in the  form of a proxy  statement
meeting the requirements of Schedule 14A of the Securities Exchange Act of 1934,
as amended.

Possible Liquidation
--------------------

     To  the  extent  the  Board  of  Directors  recommends  liquidation  to the
shareholders,  it will do so in accordance  with the applicable  requirements of
South Dakota corporation law and the requirements of the Securities Exchange Act
of 1934.  Because  World  Services has attempted to sell its interest in Super 8
previously,  there can be no assurance that World Services will be able to do so
in connection with any liquidation plan. Furthermore,  there can be no assurance
whether  World  Services  would be offered a fair price in  connection  with any
attempt to liquidate its interest in Super 8.

     Consequently,  it is  possible  that  World  Services  may  propose  to the
shareholders  that it not attempt to sell World  Services'  interest in Super 8,
but rather that World Services  distribute the Super 8 shares to World Services'
shareholders  in a pro  rata  distribution.  There  are  significant  regulatory
hurdles and taxation  issues that must be considered  in connection  with either
spin off or a sale  which  World  Services  has not yet  contemplated.  Any such
transaction  will,  however,  only be done in  accordance  with  all  applicable
requirements,  including the requirements of the Securities Exchange Act of 1934
and state corporation laws.

Business Combinations.
----------------------

     It is possible that World Services may attempt to implement a business plan
to seek,  investigate,  and, if warranted,  to acquire an interest in a business
opportunity which management believes may provide a return to World Services and
its shareholders.  World Services may attempt to do so using its working capital
(including  the  funds  made  available  by the  sale of its  interest  in First
Savings) and its unissued  common stock instead of cash or debt; any issuance of
common stock or other equity  interest would dilute the ownership  percentage of
World Services' existing shareholders.

     World  Services  has  not  yet  identified  a  business   opportunity   for
acquisition.  It is expected  to seek out  developing  companies  to allow World
Services to expand into new products or markets,  or to develop a new product or
service. Established businesses which may be experiencing financial or operating
difficulties  and  would be in need of the  additional  capital  and  management
expertise  World  Services  could  provide  also will be  investigated.  In some
instances,  a business opportunity may involve the acquisition of or merger with
a corporation which does not need substantial  additional cash but which desires
to establish a public trading market for its securities.



                                        7

<PAGE>


     World  Services  anticipates  that the selection of a business  opportunity
will  be a  complex  process  and  will  involve  a  number  of  risks,  because
potentially  available  business  opportunities  may  occur  in  many  different
industries and may be in various stages of development. Due in part to depressed
economic  conditions  in a  number  of  geographic  areas,  rapid  technological
advances  being made in some  industries  and  shortages of  available  capital,
management  believes that there are numerous  firms  seeking  either the limited
additional  capital which World Services will have or the benefits of a publicly
traded  corporation,  or both.  The  perceived  benefits  of a  publicly  traded
corporation  may  include   facilitating  or  improving  the  terms  upon  which
additional  equity  financing  may be  sought,  providing  liquidity  for estate
planning  needs  of  principle  shareholders,  creating  a means  for  providing
incentive  stock  options  or  similar  benefits  to  key  employees,  providing
liquidity for all shareholders and other factors.

     In seeking business opportunities, management's decision will be based upon
the objective of seeking long-term  capital  appreciation in real value of World
Services'  investment.  Current  income  will  be only a  minor  factor  in such
decisions.

     It is anticipated  that World  Services will  essentially be limited to one
business  venture in the  foreseeable  future,  due to World  Services'  limited
financing. This lack of diversification will not permit World Services to offset
potential losses from one business opportunity against profits from another, and
should be considered an adverse factor  affecting any decision to purchase World
Services' securities.

     In some cases,  management  of World  Services  will have the  authority to
effect  acquisitions  without  submitting the proposal to the  shareholders  for
their consideration. In some instances, however, the proposed participation in a
business   opportunity   may  be  submitted  to  the   shareholders   for  their
consideration,  either  voluntarily  by the  Board  of  Directors  to  seek  the
shareholders' advice and consent, or because of a requirement of state law to do
so. There can be no assurance  that World  Services will be able to complete any
such acquisition.

Sale or Distribution of Minority Interests
------------------------------------------

     World  Services  may  attempt to sell all or a portion  of World  Services'
interests in Super 8, in connection  with any business  combination  that may be
pursued  by  World  Services.  Alternatively,   World  Services  might  consider
distributing to World Services' shareholders,  on a pro rata basis, interests in
Super  8. It is  likely  that  any  such  sale  or  distribution  would  require
shareholder approval under South Dakota law, as well as possible approval by the
South Dakota Attorney General and Division of Securities.


                                        8

<PAGE>



Registration Under or Waiver of Investment Company Act
------------------------------------------------------

     In its proxy statement for the meeting of  shareholders  held September 29,
1988,  World Services stated that if the proposal to sell World Services' assets
was approved and the transactions  completed,  World Services  intended to elect
treatment as a business development company ("BDC") under the Investment Company
Act of 1940 (the "1940 Act").  The  transactions  anticipated  by World Services
were the sale of the travel and the real estate operations to certain affiliates
(which  occurred in March  1989),  and the sale of World  Services'  interest in
First Savings  (which  occurred in August 1997).  World  Services  never made an
election to be treated as a BDC because World  Services did not have  sufficient
working capital to complete the steps necessary for such an election.

     World Services  currently  might be considered an  "investment  company" as
that term is defined in the 1940 Act.  An  investment  company  is  generally  a
company that is engaged in the business of investing,  holding,  reinvesting, or
trading of investment securities.  Investment securities are defined by the 1940
Act to include all  securities  except  United  States  government  obligations,
certain  other  securities  and cash where  World  Services  has less than a 50%
interest in the issuer.  Under that  definition,  the Super 8  securities  would
classify as investment securities.


     Because  these  securities  have  such  a  significant  position  in  World
Services' financial statements,  it is possible that the Securities and Exchange
Commission  may take the position that World  Services is an investment  company
and should be registered as such under the 1940 Act.  World  Services  believes,
however,  that if the  1940  Act is  applicable  at all,  World  Services  is an
inadvertent  investment  company.  This status  resulted  from the sale by World
Services of its operating assets in 1988-1989,  the 1997 sale of its interest in
First Savings,  and World  Services'  inability to sell its interest in Super 8.
World  Services  does not  intend  nor does it have  authority  to engage in the
business  of  investing,   holding,   reinvesting,   or  trading  of  investment
securities.

     World Services intends to vigorously resist classification as an investment
company,  and to take advantage of any exemptions or exceptions from application
of the 1940 Act, which allows an entity a one-time  option during any three-year
period to claim an exemption as a "transient"  investment company. The necessity
of asserting any such  resistance,  or making any claim of  exemption,  could be
time consuming and costly,  or even  prohibitive,  given World Services' limited
resources.

Employees and Consultants
-------------------------

     World  Services  currently has no employees.  Management  anticipates  that
employees  and/or  consultants  will be retained as may be  necessary to operate
World Services following any business combination. See also "Management."



                                        9

<PAGE>



Item 2. Description of Property
-------------------------------

     World Services is currenty  renting a one room office from an  unaffiliated
party for the sum of $250/month,  including all utilities.  Management  believes
that this arrangement  will be suitable for its needs for the immediate  future,
until such time as any business combination has been substantially completed.

     World Services owns no real property or material personal property.


Item 3. Legal Proceedings
-------------------------

     World Services is not a party to any legal  proceedings  except as follows,
and no such proceedings are known to be contemplated.

     World  Services is plaintiff in a civil action in the Circuit  Court of the
Fifth Judicial Circuit of the State of South Dakota (Civ 97-187, entitled "World
Services,  Inc. vs. Murray Woulfe") against Murray Woulfe, a former president of
World Services,  on a promissory note. The action seeks recovery of $19,000 plus
interest  and costs.  Mr.  Woulfe has denied  liability  and claims that he owes
World Services no obligation  under the promissory note. The matter is scheduled
for trial in April of 1998 and it will be heard before one of the Circuit Judges
of the Fifth  Judicial  Circuit in and for the  County of Brown,  State of South
Dakota. As to the ultimate result,  Plaintiff expects to prevail;  however,  the
defendant  would have the right of appeal to the appellate court of the State of
South Dakota and, thus,  giving it an indefinite  date and time when this matter
can be satisfactorily  concluded.  Mr. Woulfe has made no material counterclaims
against World Services.

Item 4. Submission of Matters to a Vote of Security Holders.
------------------------------------------------------------

     No  matters  were  submitted  to a vote of  shareholders  during the fourth
quarter  of  the  fiscal  year.  World  Services  did  hold  a  meeting  of  the
shareholders  in August 1997, at which  meeting the directors of World  Services
were  reelected.  The sale of First Savings  common stock was approved,  and the
shareholders  approved a 510-for-one  reverse stock split followed by a one-for-
300 forward stock split.

                                       10

<PAGE>



                                     PART II


Item 5. Market for Common Equity and Related Stockholder Matters
----------------------------------------------------------------

(a) Market Information.

     World  Services'  Common  Stock is not  eligible  for listing on the NASDAQ
system, and trading,  if any, has been strictly limited to the  over-the-counter
market.  To the knowledge of World Services,  there has been no trading in World
Services'  Common Stock for a significant  period of time.  The Common Stock has
been quoted from time to time in the "Pink  Sheets"  maintained  by the National
Quotation Bureau,  Inc.  Management  believes that no established trading market
exists for World Services' Common Stock.

(b) Holders.

     (b)(1) The approximate  number of record holders of World Services'  Common
Stock,  $.001 par value, as of December 31, 1997 was  approximately  1,777. This
figure does not reflect an  indeterminable  number of shareholders  whose shares
are held in "street name."

(c) Dividends.

     World Services has not paid a dividend with respect to its Common Stock and
cannot be  expected  to pay a dividend  on its Common  Stock in the  foreseeable
future.


Item 6. Management's Discussion and Analysis or Plan of Operation
-----------------------------------------------------------------

Results of Operations

Years Ended December 31, 1997 and 1996
--------------------------------------

     As  stated  above,  until  recently  World  Services  has been  essentially
inactive since early 1988. Until 1995, World Services'  activities  consisted of
nothing more than  maintaining  its  investments  in First  Savings and Super 8.
World  Services'  only  earnings  have been  from  dividends  received  from its
investments  in 1996 and  1997,  and a  nominal  amount  of  interest  earned on
deposits.

     Expenditures  increased during 1997 as World Services  incurred general and
administrative  expenses in connection  with expenses  necessary to continue the
effectuation  of World Services' Plan of Operations and preparation of responses
to the OTS as a result of its investigation. See Item 1(b) - Plan of Operations.


                                       11

<PAGE>



     Except for dividends  which may be paid to World Services by Super 8 (which
cannot be  assured),  and  interest  from any funds on deposit,  World  Services
anticipates no other income. World Services anticipates continuing  expenditures
during the 1998 fiscal year as it continues to comply with its  obligations as a
reporting company pursuant to the Securities  Exchange Act of 1934 and the South
Dakota corporations law.

     In 1997,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting Standards ("SFAS") 130, "Reporting  Comprehensive  Income"
and  SFAS  131,  "Disclosures  About  Segments  of  an  Enterprise  and  Related
Information."

     SFAS 130 establishes  standards for reporting and display of  comprehensive
     income, its components,  and accumulated balances.  Comprehensive income is
     defined to  include  all  changes in equity  except  those  resulting  from
     investments by owners and distributions to owners. Among other disclosures,
     SFAS 130 requires  that all  components  of  comprehensive  income shall be
     classified  based on their  nature,  and shall be reported in the financial
     statements in the period in which they are  recognized.  A total amount for
     comprehensive  income shall be displayed in the financial  statements where
     the components of other comprehensive income are reported.

     SFAS 131  supersedes  SFAS  14,  "Financial  Reporting  for  Segments  of a
     Business Enterprise." SFAS 131 establishes standards on the way that public
     companies report financial  information about operating  segments in annual
     financial  statements and requires reporting of selected  information about
     operating segments in interim financial statements issued to the public. It
     also establishes standards for disclosures regarding products and services,
     geographic areas, and major customers.  SFAS 131 defines operating segments
     as components of a company about which  separate  financial  information is
     available that is evaluated regularly by the chief operating decision maker
     in deciding how to allocate resources and in assessing performance.

     SFAS  130  and 131 are  effective  for  financial  statements  for  periods
beginning  after  December  15, 1997 and  require  comparative  information  for
earlier  years  to be  restated.  SFAS  130 and 131 are not  expected  to have a
material impact on World Services.

Liquidity and Capital Resources

December 31, 1997 and 1996
--------------------------

     At the time World Services  ceased active  business  operations in 1989, it
was  essentially  out of money  and has been  unable  to raise  any  substantial
amounts of money since that time.  World  Services  disposed of its interests in
its travel agency, real estate operations and insurance  operations in an effort
to minimize its general and  administrative  expenses  and to raise cash.  World
Services received  approximately  $239,000 in dividends from Super 8 in 1997 and
$160,000 in 1996. World Services received dividends of approximately  $17,000 in
fiscal 1996 and no dividends from First Savings in 1997.



                                       12

<PAGE>


     At December 31, 1997 and 1996,  World  Services had net working  capital of
$752,000 and $199,000  respectively,  as a result of cash dividends  received by
World Services from Super 8 and First Savings. Prior to 1994, World Services had
significant working capital deficits.

     World Services' most significant asset is its investments in Super 8, which
is carried  at cost.  Management  believes  that the fair  market  value of this
investment is equal to or in excess of its book value.  However,  as a result of
the extent of World Services'  percentage ownership in Super 8 and its inability
to  significantly  influence  this  entity,  the  ultimate  realization  of this
investment may be subject to conditions  outside the control of World  Services.
Furthermore  World Services  received  dividends of approximately  $239,000 from
Super 8 in 1997 and $160,000 in 1996,  which have provided World Services with a
means of bringing its  obligations  current and to formulate and  effectuate its
plan  of  operations.   In  1997,  World  Services  also  received  proceeds  of
approximately  $427,000  from the sale of its  investment in First Savings to an
unaffiliated  third party. As described above, in 1996 and previous years, World
Services had received  dividends from its investment in First Savings which also
added  to its  working  capital.  World  Services  will  receive  no  additional
dividends  from First Savings since World  Services sold its entire  interest in
First Savings in October 1997.

     During the years ended  December  31, 1997 and  December  31,  1996,  World
Services had limited cash flows from investing and financing activities.

Item 7. Financial Statements
----------------------------

     World Services' audited  financial  statements,  described as follows,  are
appended to the signature page of this report.

World Services, Inc.
--------------------

          Independent Auditor's Report.....................................F-2

          Balance Sheet - December 31, 1997................................F-3

          Statements of Operations - For the Years
          Ended December 31, 1997 and 1996.................................F-4

          Statement of Changes in Stockholder's Equity -
          For the Period from January 1, 1996 through December 31, 1997....F-5


                                       13

<PAGE>



          Statements of Cash Flow - For the Years
          Ended December 31, 1997 and 1996.................................F-6

          Notes to Financial Statements....................................F-7

Super 8 Motel Developers, Inc.
------------------------------


          INDEPENDENT AUDITORS' REPORT

          FINANCIAL STATEMENTS:

          Consolidated Balance Sheets

          Consolidated Statements of Operations for the
          Years Ended December 31, 1997 and 1996

          Consolidated Statements of Stockholders' Equity
          for the Years Ended December 31, 1997 and 1996

          Consolidated Statements of Cash Flows
          Notes to Consolidated Financial Statements

          SUPPLEMENTARY INFORMATION:

          Independent Auditor's Report on the
          Supplementary Information
          Schedules of Consolidated Operating Expenses
          Corporate Organizational Data


Item  8.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
--------------------------------------------------------------------------------
          Financial Disclosure.
          ---------------------

     Since inception, World Services has not filed a Form 8-K reporting a change
of  accountants,   nor  has  there  been  any  material  disagreement  with  its
accountants on any matter regarding accounting or financial disclosure.


                                       14

<PAGE>



                                    PART III


Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
--------------------------------------------------------------------------------
        With Section 16(a) of the Exchange Act
        --------------------------------------

(a) Identification of Directors and Executive Officers.

     The  officers  and  directors  of World  Services  are  listed  below.  The
directors  of World  Services  are elected to hold office  until the next annual
meeting of shareholders and until their respective  successors have been elected
and qualified.  Officers of World Services are elected by the Board of Directors
and hold office until their successors are elected and qualified.

     The current officers and directors of World Services are:

Name                             Age              Position
----                             ---              --------

Ronne Tarrell                    56               President, Director
Delores Bower                    54               Vice President, Director
David Jorgenson                  62               Director
Delbert Harty                    58               Director
Terry Heinz                      40               Secretary, Treasurer, Director

     A brief summary of the business  experience of each person who is currently
an officer or director of World Services,  and such person's  service with World
Services is as follows:

     Ronne  Tarrell  has  been  president  since  1993 and a  director  of World
Services  since 1990. He is a licensed  realtor in the State of South Dakota and
has owned and operated Tarrell Realty in Aberdeen,  South Dakota,  for more than
the past five  years.  Mr.  Tarrell is not a director  of any other  corporation
which has a class of securities  registered under the Securities Exchange Act of
1934.

     Delores  Bower has been Vice  President  and a Director  of World  Services
since 1990. She has been  financial  director of Midwest Paint, a privately held
company in Aberdeen, South Dakota, for more than the past five years. Mrs. Bower
is not a  director  of any other  corporation  which  has a class of  securities
registered under the Securities Exchange Act of 1934.

     David  Jorgenson was Secretary  and Treasurer  from 1993 until 1998,  and a
director of World  Services  since  1990.  Mr.  Jorgenson  is manager of a small
business in Aberdeen,  South Dakota. For the five prior years, Mr. Jorgenson was
a  state  video  lottery  inspector  for  the  State  of  South  Dakota  Lottery
Commission.  In  addition,  Mr.  Jorgenson  manages  his  own  investments.  Mr.
Jorgenson  is not a  director  of any  other  corporation  which  has a class of
securities registered under the Securities Exchange Act of 1934.

                                       15

<PAGE>



     Delbert Harty has been a director of World Services since 1993. He has been
retired for more than the last five years,  and  currently  manages his personal
investments.  Prior to retirement  he was employed as a machinist.  Mr. Harty is
not a  director  of any  other  corporation  which  has a  class  of  securities
registered under the Securities Exchange Act of 1934.

     Terry  Heinz  has  been  a  director  of  World  Services  since  1993  and
Secretary-Treasurer from 1998. Since October 1993, Mr. Heinz has been an account
executive at Tel Serv, Inc., a direct marketing firm in Aberdeen,  South Dakota.
From April 1984 until October 1993 he was a sales representative for Dial-Net, a
marketing firm in Sioux Falls,  South Dakota. Mr. Heinz is not a director of any
other  corporation  which  has  a  class  of  securities  registered  under  the
Securities Exchange Act of 1934.

(b) Significant Employees.

     World Services has no salaried  employees at the present time. As described
below,  World  Services  does pay  compensation  is paid to its  president as an
independent contractor.

(c) Family Relationships.

     There are no family  relationships  among any of World  Services'  officers
and/or directors.

(d) Involvement in Certain Legal Proceedings.

     During  the past  five  years,  no  current  director,  executive  officer,
promoter or control person of World Services has:

          (1) Filed or has had filed  against  him a petition  under the federal
bankruptcy laws or any state insolvency law, nor has a receiver, fiscal agent or
similar  officer been  appointed by a court for the business or property of such
person, or any partnership in which he was a general partner, or any corporation
or business  association  of which he was an executive  officer at or within two
years before such filings;

          (2) Been convicted in a criminal proceeding or is a named subject of a
pending  criminal  proceeding  (excluding  traffic  violations  and other  minor
offenses);

          (3)  Been  the  subject  of  any  order,   judgment,  or  decree,  not
subsequently  reversed,   suspended  or  vacated,  of  any  court  of  competent
jurisdiction,   permanently  or  temporarily  enjoining  such  person  from,  or
otherwise limiting, the following activities:

               (i) Acting as a futures commission merchant,  introducing broker,
commodity  trading  advisor,  commodity  pool operator,  floor broker,  leverage
transaction  merchant,  any other  person  regulated  by the  Commodity  Futures
Trading  Commission,  or an associated person of any of the foregoing,  or as an


                                       16

<PAGE>



investment  adviser,  underwriter,  broker  or dealer  in  securities,  or as an
affiliated  person,  director,  or employee  of any  investment  company,  bank,
savings and loan association or insurance company,  or engaging in or continuing
any conduct or practice in connection with such activity;

               (ii) Engaging in any type of business practice; or

               (iii) Engaging in any activity in connection with the purchase or
sale of any security or commodity or in connection with any violation of federal
or state securities laws or federal commodities laws;

          (4)  Been  the  subject  of  any  order,   judgment  or  decree,   not
subsequently  reversed,  suspended or vacated, of any federal or state authority
barring,  suspending  or  otherwise  limiting for more than 60 days the right of
such person to engage in any activity described in paragraph (3)(i) above, or to
be associated with persons engaged in any such activity; or

          (5) Been found by a court of competent  jurisdiction in a civil action
or by the Securities and Exchange Commission (the "Commission") to have violated
any federal or state  securities  law,  and the judgment in such civil action or
finding by the  Commission has not been  subsequently  reversed,  suspended,  or
vacated.

          (6) Been found by a court of competent  jurisdiction in a civil action
or by the  Commodity  Futures  Trading  Commission  to have violated any federal
commodities  law,  and the  judgment  in such  civil  action or  finding  by the
Commodity  Futures  Trading  Commission  has  not  been  subsequently  reversed,
suspended or vacated.

Item 10. Executive Compensation
-------------------------------

(a)(1) & (2) Cash Compensation.

     The following table sets forth information  regarding  compensation paid to
the chief executive officer of World Services for the three years ended December
31,  1997.  No other  person  who is  currently  an  executive  officer of World
Services earned salary and bonus  compensation  exceeding $100,000 during any of
those years.

<TABLE>
<CAPTION>

                            Annual Compensation ($$)        Long Term Compensation
                          ----------------------------    --------------------------
                                                               Awards           Payouts
                                                          ---------------       -------
       (a)            (b)   (c)        (d)        (e)     (f)         (g)        (h)        (i)
                                                          Restricted
     Name and                                             Stock       Options   LTIP        Other
     Position         Year  Salary     Bonus      Other   Awards      & SARs    Payouts     Compensation
     --------         ----  ------     -----      -----   ------      ------    -------     ------------
                             ($$)      ($$)       ($$)     ($$)       (##)       ($$)       ($$)

<S>                   <C>   <C>         <C>        <C>     <C>         <C>        <C>        <C>
Ronne Tarrell         1997  22,000     -0-        -0-     -0-         -0-        -0-        -0-
President and         1996  -0-        -0-        -0-     -0-         -0-        -0-        -0-
Chief Executive       1995  -0-        -0-        -0-     -0-         -0-        -0-        -0-
Officer


                                       17
</TABLE>

<PAGE>



(b)(1)  Compensation Under Plans.

     World  Services  has  no  stock  option  plan,   stock  bonus  plan,  other
compensatory  plan or  arrangement,  or  employee  benefit  plan for  employees,
consultants, officers, or directors.

(c) Other Compensation.

     No other compensation was paid or distributed to any officer or director of
World Services for services  rendered to World  Services  during the 1997 fiscal
year.

(d) Compensation of Directors.

     In 1996 and 1997,  World  Services paid its directors  $150 per  directors'
meeting  attended for their  services.  In addition,  officers and directors may
receive reimbursement for out-of-pocket  expenses incurred by them in connection
with the business of World Services.

     World Services has no other arrangements  pursuant to which any director of
World  Services  was  compensated  during the 1997 fiscal year for services as a
director.

(e) Termination of Employment and Change in Control.

     World Services has no compensation  plan or arrangement with respect to any
executive  officer  which plan or  arrangement  results or will  result from the
resignation, retirement or any other termination of such individual's employment
with World Services.  World Services has no plan or arrangement  with respect to
any such persons which will result from a change in control of World Services or
a change in the individual's responsibilities following a change in control.

Item 11. Security Ownership of Certain Beneficial Owners and Management
-----------------------------------------------------------------------

(a) Security Ownership of Certain Beneficial Owners.

     The following  table sets forth  information as of December 31, 1997, as to
the beneficial  ownership of shares of World Services' only outstanding class of
securities,  its Common  Stock,  by each person who, to the  knowledge  of World
Services at that date, was a beneficial  owner of 5% or more of the  outstanding
shares of Common Stock. The table does not include information  regarding shares
of Common Stock held in the names of certain  depositories/clearing  agencies as
nominee for various  brokers and  individuals.  No such broker or  individual is
believed to hold greater than 5% of World Services' Common Stock.


                                       18

<PAGE>




     Name and Address                Amount of
      of Beneficial                 Beneficial                Percent of
          Owner                       Owner                     Class
     ----------------               ----------                ----------

     Murray Woulfe               223,450 shares(1)               8.2%
     HCR 70 Box 2206
     Lake George, MN 56458

----------

(1)  Ownership is direct. 155,883 of these shares are held in escrow pursuant to
     an agreement  with the Director of  Securities  of South Dakota  until,  if
     even, World Services achieves net earnings per share of $0.10 for any three
     year period, two of which must be consecutive. As described above in Item 3
     - Legal  proceedings,  Mr. Woulfe is a Defendant in  litigation  brought by
     World Services.

(b) Security Ownership of Management.

     The following  table sets forth  information as of December 31, 1997, as to
the beneficial  ownership of shares of World Services' only outstanding class of
securities,  its Common Stock, by each person who is a director and/or executive
officer of World  Services,  and by all officers and directors of World Services
as a group.

     Name and Address                  Amount of
      of Beneficial                   Beneficial                  Percent of
          Owner                      Ownership (2)                  Class
     ----------------                -------------                  -----

     Ronne Tarrell (1)(3)             3,922 shares                      *

     Delores Bower (1)(4)            96,180 shares                   3.5%
   
     David Jorgenson (1)              1,706 shares                      *

     Delbert Harty (1)(3)             8,726 shares                      *

     Terry Heinz (1)                    471 shares                      *

     Officers and                   111,005 shares                   4.0%
     directors as a
     group (five
     persons)

----------

     *    Less than one percent.

     (1)  Ownership is direct.

     (2)  There are no warrants outstanding by which any officer,  director,  or
          other  person  has the right to  purchase  shares  of World  Services'
          Common Stock.

                                       19

<PAGE>



     (3)  These  shares are held in escrow  pursuant  to an  agreement  with the
          Director of Securities of South Dakota until, if even,  World Services
          achieves  net  earnings  per share of $0.10 for any three year period,
          two of which must be consecutive.

     (4)  8,827 of these shares are held in escrow pursuant to an agreement with
          the Director of  Securities  of South  Dakota  until,  if even,  World
          Services  achieves  net earnings per share of $0.10 for any three year
          period, two of which must be consecutive.

(c) Changes in Control.

     There was a change  in  control  of World  Services  in 1990,  by which the
current  members of the Board of Directors were appointed and the former members
resigned. There has been no change of control since that time.

Item 12. Certain Relationships and Related Transactions
-------------------------------------------------------

(a)(b)(c) Transactions with Management and Others.

     All funds held by World  Services are  deposited  with First Savings & Loan
Association  of  South  Dakota,  Inc.,  except  for  those  funds  related  to a
certificate of deposit at FVM Bank for $100,000 and a discounted  U.S.  Treasury
Note in the amount of $399,000 at A.G.  Edwards.  The current balance on deposit
with First  Savings is greater than  $100,000.  Any funds over $100,000 will not
receive the benefit of FDIC insurance.

(d) Transactions with Promoters.

     Not applicable.


                                       20

<PAGE>




Item 13. Exhibits and Reports on Form 8-K.
------------------------------------------

     (a)  Exhibits  required  to be filed are  listed  below and,  except  where
incorporated by reference, immediately follow the Financial Statements.

Number         Description
------         -----------

   3.1         Articles of Incorporation, as amended(1)

   3.2         Bylaws(1)

  10.1         Agreements relating to sale of assets:

  10.2         Purchase  Agreement  dated March 31, 1989 between World Services,
               Inc. and Rezatto II, Inc.(1)

  10.3         Addendum   Agreement   dated  December  29,  1989  between  World
               Services, Inc. and Rezatto II, Inc.(1)

  10.4         Agreement  dated  August 18,  1997 for the  Purchase  and Sale of
               169,989 shares of Common Stock of First Savings between  Spectrum
               Bancorporation, Inc., and World Services, Inc.

  22.1         Subsidiaries of World Services:

               (a) Super 8 Motel Developers, Inc., a South Dakota corporation

(b) During the last quarter of the period  covered by this report World Services
filed no reports on Form 8-K.

------------

(1)  Incorporated  by reference from the same numbered  exhibit filed with World
     Services'  Report on Form 10-KSB for the fiscal  years ended  December  13,
     1988, 1990, 1991, 1992, 1993 and 1994.


                                       21

<PAGE>


                                   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.

March 25, 1998
                                       WORLD SERVICES, INC.


                                      By /s/  RONNE TARRELL
                                        ---------------------------------------
                                        Ronne Tarrell, President


     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.


                                         /S/  RONNE TARRELL      
March 25, 1998                           ---------------------------------------
                                         Ronne Tarrell, President, Principal
                                         Executive Officer, and Director


                                         /S/  DAVID JORGENSON
March 25, 1998                           ---------------------------------------
                                         David Jorgenson, Secretary, Treasurer,
                                         Principal Accounting Officer, Principal
                                         Financial Officer, and Director


                                         /S/  DELORES BOWER
March 25, 1998                           ---------------------------------------
                                         Delores Bower, Director


                                         /S/  DELBERT HARTY
March 25, 1998                           ---------------------------------------
                                         Delbert Harty, Director


                                         /S/  TERRY HEINZ
March 25, 1998                           ---------------------------------------
                                         Terry Heinz, Director



                                       22



<PAGE>








                              World Services, Inc.

                              Financial Statements
                           December 31, 1997 and 1996




<PAGE>



                          INDEX TO FINANCIAL STATEMENTS



                                                                      PAGE
                                                                      ----

Independent Auditor's Report...........................................F-2

Balance Sheet - December 31, 1997......................................F-3

Statements of Operations - For the Years Ended
 December 31, 1997 and 1996............................................F-4

Statement of Changes in Stockholders' Equity - 
 For the Period from January 1, 1996 through December 31, 1997.........F-5

Statements of Cash Flows - For the Years Ended
 December 31, 1997 and 1996............................................F-6

Notes to Financial Statements..........................................F-7



                                       F-1

<PAGE>



                          INDEPENDENT AUDITOR'S REPORT





The Stockholders and Board of Directors
World Services, Inc.
Aberdeen, South Dakota



We have audited the  accompanying  balance sheet of World Services,  Inc., as of
December  31,  1997,  and the  related  statements  of  operations,  changes  in
stockholders'  equity,  and cash flows for the years ended December 31, 1997 and
1996.  These  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements  based on our audits.  We did not audit the  financial  statements of
First Savings and Loan  Association,  Inc (FSL),  the  investment  in which,  as
discussed in Note 2 to the  financial  statements,  was sold during 1997 and was
accounted for by the equity method of  accounting.  The Company's  equity in its
net income was $45,000 for each of the years ended  December  31, 1997 and 1996,
respectively.  The Company  received  dividends  of $-0- and $17,000 from FSL in
1997 and 1996.  The financial  statements of FSL were audited by other  auditors
whose report has been furnished to us, and our opinion, insofar as it relates to
the  amounts  included  for FSL is  based  solely  on the  report  of the  other
auditors.

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  and the  report  of  other  auditors  provides  a
reasonable basis for our opinion.

In our  opinion,  based on our  audits  and the  report of other  auditors,  the
financial statements referred to above present fairly, in all material respects,
the financial position of World Services,  Inc. as of December 31, 1997, and the
results of its  operations  and its cash flows for the years ended  December 31,
1997 and 1996, in conformity with generally accepted accounting principles.




HEIN + ASSOCIATES LLP

Denver, Colorado
February 24, 1998

                                      F-2

<PAGE>



                              WORLD SERVICES, INC.

                                  BALANCE SHEET
                                DECEMBER 31, 1997



                                     ASSETS
                                     ------



CURRENT ASSETS:

   Cash and cash equivalents                                        $    66,000
   Certificates of deposit                                              340,000
   United States Treasury Note                                          399,000
   Other                                                                 20,000
                                                                    -----------
         Total current assets                                           825,000

INVESTMENTS AND OTHER ASSETS:
   Investment in Super 8 Motel Developers                               568,000
   Other                                                                  4,000
                                                                    -----------
TOTAL ASSETS                                                        $ 1,397,000
                                                                    ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY
                      ------------------------------------


CURRENT LIABILITIES -
   Payable to redeemed stockholders                                 $    73,000

STOCKHOLDERS' EQUITY:
   Common stock, par value $.001 per share;
      50,000,000 shares authorized,
      2,640,000 shares issued                                             3,000
   Additional paid-in capital                                         6,364,000
   Accumulated deficit                                               (5,043,000)
                                                                    -----------
         Total stockholders' equity                                   1,324,000
                                                                    -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                          $ 1,397,000
                                                                    ===========



              See accompanying notes to these financial statements.

                                       F-3

<PAGE>



                      WORLD SERVICES, INC. AND SUBSIDIARIES

                            STATEMENTS OF OPERATIONS


                                                               YEARS ENDED
                                                               DECEMBER 31,
                                                         -----------------------
                                                            1997         1996
                                                         ----------   ----------
REVENUES:
   Interest income                                       $   43,000   $   15,000
   Dividend income                                          239,000      160,000
                                                         ----------   ----------
                                                            282,000      175,000
                                                         ----------   ----------
EXPENSES:
   Legal and accounting                                      55,000       34,000
   Other general and administrative expenses                 57,000       22,000
                                                         ----------   ----------
                                                            112,000       56,000
                                                         ----------   ----------
INCOME BEFORE EQUITY IN EARNINGS
   OF AFFILIATED COMPANIES                                  170,000      119,000

INCOME ATTRIBUTED TO AFFILIATED COMPANY (NOTE 2):
   Equity in earnings of affiliated company                  45,000       45,000
   Gain on sale of investment                                47,000         --
                                                         ----------   ----------
                                                             92,000       45,000
                                                         ----------   ----------
NET INCOME                                               $  262,000   $  164,000
                                                         ==========   ==========
INCOME PER SHARE OF COMMON STOCK
   (BASIC AND DILUTED)                                   $      .09   $      .05
                                                         ==========   ==========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING             2,922,000    3,078,000
                                                         ==========   ==========








              See accompanying notes to these financial statements.

                                       F-4

<PAGE>
<TABLE>
<CAPTION>


                                     WORLD SERVICES, INC. AND SUBSIDIARIES

                                 STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                FROM JANUARY 1, 1996 THROUGH DECEMBER 31, 1997



                                     COMMON STOCK          Additional
                              --------------------------     Paid-in       Treasury      Accumulated
                                 Shares         Amount       Capital         Stock         Deficit         Total
                              -----------    -----------   -----------    -----------    -----------    -----------

<S>                             <C>          <C>           <C>            <C>            <C>            <C>        
BALANCE, January 1, 1996        3,152,000    $     3,000   $ 6,547,000    $    (3,000)   $(5,469,000)   $ 1,078,000

   Net income                        --             --            --             --          164,000        164,000
                              -----------    -----------   -----------    -----------    -----------    -----------

BALANCE, December 31, 1996      3,152,000          3,000     6,547,000         (3,000)    (5,305,000)     1,242,000

   Common stock redeemed         (436,000)          --        (180,000)          --             --         (180,000)
   Treasury stock retired         (76,000)          --          (3,000)         3,000           --             --
   Net income                        --             --            --             --          262,000        262,000
                              -----------    -----------   -----------    -----------    -----------    -----------

 BALANCE, December 31, 1997     2,640,000    $     3,000   $ 6,364,000    $      --      $(5,043,000)   $ 1,324,000
                              ===========    ===========   ===========    ===========    ===========    ===========









                              See accompanying notes to these financial statements.

                                                      F-5

</TABLE>

<PAGE>


                      WORLD SERVICES, INC. AND SUBSIDIARIES

                            STATEMENTS OF CASH FLOWS



                                                               YEARS ENDED
                                                               DECEMBER 31,
                                                         ----------------------
                                                            1997         1996
                                                         ---------    ---------

CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                            $ 262,000    $ 164,000
   Adjustments to reconcile net income to
      net cash provided by operating activities:
         Gain on sale of investment                        (47,000)        --
         Equity in earnings of affiliate                   (45,000)     (45,000)
         Increase in other assets                           (3,000)     (17,000)
         (Decrease) increase in accounts payable
            and accrued expenses                              --        (10,000)
                                                         ---------    ---------
      Net cash provided by operating activities            167,000       92,000

CASH FLOWS FROM INVESTING ACTIVITIES:
   Cash from sale of First Savings & Loan investment       427,000         --
   Purchase of United States Treasury Note                (399,000)        --
   Dividends from First Savings and Loan                      --         17,000
   Purchase of certificate of deposit                      (50,000)     (90,000)
                                                         ---------    ---------
      Net cash used in investing activities                (22,000)     (73,000)
                                                         ---------    ---------
CASH FLOWS FROM FINANCING ACTIVITY -
   Redemption of common stock                             (107,000)        --
                                                         ---------    ---------

INCREASE IN CASH AND CASH EQUIVALENTS                       38,000       19,000

CASH AND CASH EQUIVALENTS, at beginning of period           28,000        9,000
                                                         ---------    ---------

CASH AND CASH EQUIVALENTS, at end of period              $  66,000    $  28,000
                                                         =========    =========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION -
   Cash payments for:
      Income taxes                                       $    --      $    --
                                                         =========    =========

      Interest                                           $    --      $    --
                                                         =========    =========

NONCASH INVESTING AND FINANCING ACTIVITIES:
      Unpaid portion of common stock redeemed            $  73,000    $    --
                                                         =========    =========

      Treasury stock retired                             $   3,000    $    --
                                                         =========    =========




              See accompanying notes to these financial statements.

                                       F-6

<PAGE>


                      WORLD SERVICES, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS



1.   NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
     --------------------------------------------------------------------

     Nature of Operations - World Services,  Inc. (the Company) was incorporated
     in December  1979 as Midwest  Management  & Marketing  Corporation  and was
     renamed World Services, Inc. in July 1983. The Company was formed to invest
     in and manage companies  primarily involved in the insurance,  real estate,
     and financial institution industries,  along with other service industries.
     The  Company  divested  itself of all  operating  subsidiaries  by 1989 and
     currently holds one investment.

     The Company's  investment in First Savings & Loan  Association,  Inc. (FSL)
     (see Note 2) was stated at the  Company's  equity in net assets,  which was
     increased  or  decreased  for  dividends  paid to the  Company  and for the
     Company's share of equity in  undistributed  earnings of the investee based
     upon its  respective  fiscal  year-end of September  30.  During 1997,  the
     Company sold its  investment  in FSL. The  Company's  investment in Super 8
     Motel Developers, Inc. (S8MD) is carried at cost.

     Earnings Per Share - In 1997,  the  Financial  Accounting  Standards  Board
     issued  Statement of Financial  Accounting  Standards  128,  "Earnings  Per
     Share." Statement 128 provides for the calculation of "basic" and "diluted"
     earnings per share.  Basic  earnings per share  includes no dilution and is
     computed  by  dividing  income  available  to  common  shareholders  by the
     weighted  average  number  of common  shares  outstanding  for the  period.
     Diluted  earnings per share  reflects the potential  dilution of securities
     that  could  share  in  the  earnings  of an  entity.  The  Company  had no
     potentially  dilutive securities during 1997 or 1996 and as such, basic and
     dilutive  earnings  per share are the same for each year.  The  adoption of
     Statement 128 had no effect on EPS for 1997 or 1996.

     Cash Equivalents - For purposes of the statement of cash flows, the Company
     considers all highly  liquid debt  instruments  purchased  with an original
     maturity of three months or less to be cash equivalents.

     Use of Estimates - The preparation of the Company's financial statements in
     conformity  with  generally  accepted  accounting  principles  requires the
     Company's  management  to make  estimates and  assumptions  that affect the
     amounts  reported in these  financial  statements and  accompanying  notes.
     Actual results could differ from those estimates.

     The Company makes significant  assumptions concerning the fair market value
     of its investment in S8MD. Due to inherent  uncertainties in the estimation
     process,  it is at  least  reasonably  possible  that  assumptions  made in
     assessing  the  fair  market  value  of S8MD  could  be  revised,  and such
     revisions could be material.

     Income Taxes - The Company  accounts  for income taxes under the  liability
     method,  which requires  recognition of deferred tax assets and liabilities
     for the expected future tax  consequences of events that have been included
     in the  financial  statements.  Under this method,  deferred tax assets and
     liabilities  are determined  based on the difference  between the financial
     statements and tax bases of assets and liabilities  using enacted tax rates
     in effect for the year in which the differences are expected to reverse.


                                       F-7

<PAGE>


                      WORLD SERVICES, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS



     Impairment of Long-Lived  Assets - Effective  January 1, 1996,  the Company
     adopted Financial Accounting Standards No. 121 (FAS 121). In the event that
     facts and  circumstances indicate that the cost of long-lived assets may be
     impaired,  an  evaluation  of  recoverability  would  be  performed.  If an
     evaluation  is  required,  the  estimated  future  undiscounted  cash flows
     associated with the asset would be compared to the asset's  carrying amount
     to determine if a write-down to market value or discounted  cash flow value
     is required. Adoption of FAS 121 had no effect on the financial statements.
     
     Impact  of  Recently  Issued  Accounting   Pronouncements  -  Statement  of
     Financial  Accounting  Standards  130  Reporting  Comprehensive  Income and
     Statement of Financial  Accounting Standards 131 Disclosures About Segments
     of an Enterprise and Related  Information were recently  issued.  Statement
     130  establishes  standards  for  reporting  and  display of  comprehensive
     income, its components,  and accumulated balances.  Comprehensive income is
     defined to  include  all  changes in equity  except  those  resulting  from
     investments by owners and distributions to owners. Among other disclosures,
     Statement 130 requires that all components of comprehensive income shall be
     classified  based on their  nature and shall be reported  in the  financial
     statements in the period in which they are  recognized.  A total amount for
     comprehensive  income shall be displayed in the financial  statements where
     the components of other  comprehensive  income are reported.  Statement 131
     supersedes   Statement  of  Financial  Accounting  Standards  14  Financial
     Reporting for Segments of a Business Enterprise.  Statement 131 establishes
     standards on the way that public  companies  report  financial  information
     about  operating  segments  in annual  financial  statements  and  requires
     reporting  of  selected  information  about  operating  segments in interim
     financial  statements issued to the public.  It also establishes  standards
     for disclosures  regarding  products and services,  geographic  areas,  and
     major customers.  Statement 131 defines operating segments as components of
     a company about which separate  financial  information is available that is
     evaluated regularly by the chief operating decisionmaker in deciding how to
     allocate resources and in assessing performance.

     Statements  130 and 131 are effective for financial  statements for periods
     beginning after December 15, 1997 and require  comparative  information for
     earlier  years to be restated.  Statements  130 and 131 are not expected to
     have a material impact on the Company.


2.   INVESTMENTS IN COMPANIES:
     -------------------------

     Prior to the sale of the  Company's  investment  in FSL  during  1997,  the
     Company owned approximately 22% of FSL (formerly Midwest Savings and Loan).
     The investment was accounted for under the equity method of accounting. The
     Company  received $-0- and $17,000 in dividends  during 1997 and 1996.  The
     Company sold its  investment  in FSL for $427,000 and  recognized a gain on
     sale of $47,000.

     The Company also owns  approximately 16% of the outstanding common stock of
     S8MD.  The  investment  is  accounted  for  under  the cost  method,  which
     management believes approximates its market value. S8MD is a privately held
     company, for which the Company does not exercise significant influence. The
     Company  recorded  approximately  $239,000 and $160,000 in dividend  income
     from S8MD during 1997 and 1996, respectively.


                                       F-8

<PAGE>


                      WORLD SERVICES, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS



     The financial  statements  of FSL and S8MD were audited by other  auditors.
     Summarized  statements  of  financial  information  for FSL and S8MD are as
     follows:


                    SUMMARIZED FINANCIAL INFORMATION FOR FSL
                    ----------------------------------------
                               (Amounts in 000's)


                                            FOR THE YEARS ENDED
                                               SEPTEMBER 30,
                                            ------------------
                                              1997      1996
                                            --------  --------


                 Total assets               $   *      $14,328
                                            ========   =======

                 Total liabilities          $   *      $12,677
                                            ========   =======

                 Stockholders' equity       $   *      $ 1,651
                                            ========   =======

                 Net income                 $    205   $   206
                                            ========   =======

----------
                   
     *    These amounts are not  considered  relevant since the Company had sold
          its investment in FSL by December 31, 1997.


                    SUMMARIZED FINANCIAL INFORMATION FOR S8MD
                    -----------------------------------------
                               (Amounts in 000's)


                                                FOR THE YEARS ENDED
                                                     DECEMBER 31
                                               -----------------------
                                                 1997           1996
                                               --------       --------

            Total assets                       $ 30,269       $ 30,608
                                               ========       ========

            Total liabilities                  $ 26,161       $ 26,241
                                               ========       ========

            Total stockholders' equity         $  4,108       $  4,367
                                               ========       ========

            Revenues                           $ 15,625       $ 15,511
                                               ========       ========

            Expenses                           $ 14,419       $ 14,596
                                               ========       ========

            Net income                         $  1,206       $    915
                                               ========       ========




                                       F-9

<PAGE>


                      WORLD SERVICES, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS



3.   FAIR VALUE OF FINANCIAL INSTRUMENTS:
     ------------------------------------

     The  estimated  fair  values  for  financial  instruments  under  Financial
     Accounting  Standards  No. 107,  Disclosures  about Fair value of Financial
     Instruments,  are  determined at discrete  points in time based on relevant
     market  information.  These estimates  involve  uncertainties and cannot be
     determined  with  precision.  The  estimated  fair  value of the  Company's
     certificates of deposit and United States Treasury Note,  approximate their
     carrying value because of the short maturity of these instruments. The fair
     value of the  Company's  investment  in S8MD is  determined on the basis of
     comparisons with similar companies whose shares are publicly traded.  After
     taking  into  effect a lack of  marketability  of the S8MD  shares  and the
     Company's  lack of control  over S8MD,  management  believes  that the fair
     value of the S8MD shares approximates its carrying value.


4.   CONCENTRATION OF CREDIT RISK:
     -----------------------------

     Credit risk  represents the accounting loss that would be recognized at the
     reporting  date  if   counterparties   failed   completely  to  perform  as
     contracted. Concentrations of credit risk (whether on or off balance sheet)
     that arise from  financial  instruments  exist for groups of  customers  or
     counterparties when they have similar economic  characteristics  that would
     cause  their  ability  to  meet  contractual  obligations  to be  similarly
     effected by changes in economic or other  conditions  described  below.  In
     accordance  with  Financial  Accounting  Standards  No. 105,  Disclosure of
     Information  about Financial  Instruments with  Off-Balance-Sheet  Risk and
     Financial  Instruments with  Concentrations of Credit Risk, the credit risk
     amounts  shown do not take  into  account  the value of any  collateral  or
     security.


5.   INCOME TAXES:
     -------------

     The  Company's  actual  effective  income  tax rate  differs  from the U.S.
     Federal corporate income tax rate of 34% as follows:


                                                   December 31,
                                                   ------------
                                                   1997    1996
                                                   ----    ----

                Statutory Rate                      34%     34%
                Dividend treatment for tax         (21)    (23)
                Reduction in valuation allowance   (13)    (11)
                                                   ---     ---
                Effective tax rate                 -0-%    -0-%
                                                   ===     ===




                                      F-10

<PAGE>


                      WORLD SERVICES, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS



     Long-term deferred tax assets (liabilities) are comprised of the following:


                                                      December 31,
                                               --------------------------
                                                  1997            1996
                                               -----------    -----------
      Net operating loss carryforward and
         investment tax credit carryforwards   $ 1,154,000    $ 1,227,000
      FSL basis difference                            --          (31,000)
                                               -----------    -----------
                                                 1,154,000      1,196,000

      Less valuation allowance                  (1,154,000)    (1,196,000)
                                               -----------    -----------

                                               $      --      $      --
                                               ===========    ===========



     As of December 31, 1997, the Company has net operating  loss  carryforwards
     for income tax  purposes of  $3,300,000  which  expire in the years 1998 to
     2011. The net operating loss  carryforwards  may be limited with respect to
     their  availability  due to prior  ownership  changes and the  consolidated
     return   regulations.   In  addition,   there  are  investment  tax  credit
     carryforwards  of  $28,000.  The  change  in  the  deferred  tax  valuation
     allowance from 1995 to 1996 was a decrease of $42,000.


6.   STOCKHOLDERS' EQUITY:
     ---------------------

     In May  1980,  the 32  promoters  of the  Company  entered  into an  escrow
     agreement  restricting  the sale of their shares (total of 429,424  shares)
     until  the  Company  generates   earnings  per  share  of  $.10  (based  on
     approximately 1.1 million outstanding shares) for three years, two of which
     must be consecutive.  An additional 147,000 shares issued to an officer and
     director,  are also restricted under the escrow agreement.  The Division of
     Securities in 1986 released 66,962 shares that were issued to a founder and
     were sold on a bankruptcy  auction.  The remaining 421,286 shares are to be
     held in escrow until the above conditions are met.

     During 1997, the Company declared a 1 for 510 reverse stock split and a 300
     for 1 forward stock split.  Accordingly,  all common stock reflected in the
     financial statements and accompanying notes reflect the effect of the split
     and reverse  split.  As a result of the reverse  stock  split,  the Company
     redeemed  and retired  approximately  436,000  shares of past split  common
     stock at approximately $.43 per share.

     During 1997, the Company  retired  approximately  76,000 shares of treasury
     stock.



                                      F-11
<PAGE>




                        SUPER 8 MOTEL DEVELOPERS, INC.
                                AND SUBSIDIARIES
                             ABERDEEN, SOUTH DAKOTA

                        CONSOLIDATED FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 1997 AND 1996
                       (With Independent Auditor's Report)



<PAGE>









                                 C O N T E N T S


                                                                        Page

INDEPENDENT AUDITOR'S REPORT......................................        1

FINANCIAL STATEMENTS:

  Consolidated Balance Sheets.....................................        2

  Consolidated Statements of Operations...........................        4

  Consolidated Statements of Stockholders' Equity.................        5

  Consolidated Statements of Cash Flows...........................        6

  Notes to Consolidated Financial Statements......................        8




<PAGE>
                                                                               1

==========================================
Eide Helmeke PLLP
Certified Public Accountants & Consultants




                          INDEPENDENT AUDITOR'S REPORT
                          ----------------------------


To the Board of Directors
Super 8 Motel Developers, Inc.
Aberdeen, South Dakota

We have audited the accompanying  consolidated historical cost balance sheets of
Super 8 Motel Developers, Inc. and Subsidiaries as of December 31, 1997 and 1996
and the related consolidated statements of operations, stockholders' equity, and
cash  flows  for the  years  then  ended.  These  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the 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 consolidated  historical cost financial statements referred
to above present fairly,  in all material  respects,  the financial  position of
Super 8 Motel Developers, Inc. and Subsidiaries as of December 31, 1997 and 1996
and the  results  of their  operations  and their  cash flows for the years then
ended in conformity with generally accepted accounting principles.

We have also  compiled the  supplemental  current value balance sheet of Super 8
Motel  Developers,  Inc.  and  Subsidiaries  as of December 31, 1997 and 1996 in
accordance  with standards  established  by the American  Institute of Certified
Public Accountants.

A compilation is limited to presenting information that is the representation of
management in the form of financial statements.  We have not audited or reviewed
the current value balance sheets and, accordingly,  do not express an opinion or
any other form of assurance on them.

As described in Note 18 to the balance  sheet,  the  supplemental  current value
balance  sheets have been prepared by management to present  relevant  financial
information  that is not provided by the historical  cost balance sheets and are
not  intended  to  be a  presentation  in  accordance  with  generally  accepted
accounting  principles.  In addition,  the  supplemental  current  value balance
sheets do not  purport to present  the net  realizable,  liquidation,  or market
value of the Company as a whole. Furthermore, amounts ultimately realized by the
Company  from the  disposal  of assets may vary  significantly  from the current
values presented.


/s/  Eide Helmeke PLLP


March 3, 1998
Aberdeen, South Dakota

<PAGE>

<TABLE>
<CAPTION>
                                                                                        2

SUPER 8 MOTEL DEVELOPERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS


DECEMBER 31, 1997 AND 1996
==========================================================================================


ASSETS

                                                1997                       1996
                                     -------------------------  --------------------------
                                     Supplemental               Supplemental
                                       Current                     Current
                                        Value       Historical      Value       Historical
                                      (Note 18)       Cost        (Note 18)       Cost
------------------------------------------------------------------------------------------
                                      (Compiled)                  (Compiled)

CASH AND CASH
<S>                                  <C>           <C>           <C>           <C>        
  EQUIVALENTS                        $ 1,774,655   $ 1,774,655   $ 1,205,451   $ 1,205,451
------------------------------------------------------------------------------------------

RECEIVABLES:
  Trade                                  291,367       291,367       274,098       274,098
  Note                                   130,260       130,260       155,492       155,492
  Other                                   20,517        20,517        12,945        12,945
------------------------------------------------------------------------------------------

     Total receivables                   442,144       442,144       442,535       442,535
------------------------------------------------------------------------------------------

PREPAID EXPENSES                         201,648       201,648       233,660       233,660
------------------------------------------------------------------------------------------

INVESTMENT IN LIMITED
  PARTNERSHIPS                           469,523       469,523       763,041       763,041
------------------------------------------------------------------------------------------

MOTEL PROPERTIES AND
  EQUIPMENT, NET                      45,239,000    25,212,737    46,710,000    25,601,748
------------------------------------------------------------------------------------------

OTHER ASSETS:
  Unamortized sub-franchise rights     1,491,000          --       1,516,000          --
  Unamortized financing costs               --       1,381,353          --       1,419,386
  Unamortized franchise fees                --         168,803          --         178,101
  Deferred income taxes                     --            --           8,000         8,000
  Restricted cash                        608,995       608,995       737,223       737,223
  Other                                    9,150         9,150        18,800        18,800
------------------------------------------------------------------------------------------

     Total other assets                2,109,145     2,168,301     2,280,023     2,361,510
------------------------------------------------------------------------------------------

     Total assets                    $50,236,115   $30,269,008   $51,634,710   $30,607,945
==========================================================================================



See Notes to Consolidated Financial Statements.

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                                        3

=========================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY

                                               1997                        1996
                                    -------------------------   -------------------------
                                    Supplemental                Supplemental
                                      Current                     Current
                                       Value       Historical      Value       Historical
                                     (Note 18)        Cost       (Note 18)        Cost
------------------------------------------------------------------------------------------
                                     (Compiled)                  (Compiled)
LIABILITIES:
  Accounts payable and
   accrued expenses, other
<S>                                  <C>           <C>           <C>           <C>        
   than income taxes                 $   628,285   $   628,285   $   718,467   $   718,467
  Notes payable                       25,491,613    25,491,613    25,522,950    25,522,950
  Deferred income taxes                   41,000        41,000          --            --
  Income taxes and sales
    commissions on realization
    of estimated values                7,713,900          --       8,103,800          --
------------------------------------------------------------------------------------------

        Total liabilities             33,874,798    26,160,898    34,345,217    26,241,417
------------------------------------------------------------------------------------------


COMMITMENTS AND
  CONTINGENCIES                             --            --            --            --
------------------------------------------------------------------------------------------

STOCKHOLDERS' EQUITY:
  Common stock: authorized
    500,000,000 shares, $.10 par
    value; issued and outstanding,
    4,882,508 shares                     488,251       488,251       488,251       488,251
  Additional paid-in capital           2,279,628     2,279,628     2,279,628     2,279,628
  Retained earnings                    1,340,231     1,340,231     1,598,649     1,598,649
  Unrealized appreciation             12,253,207          --      12,922,965          --
------------------------------------------------------------------------------------------

     Total stockholders' equity       16,361,317     4,108,110    17,289,493     4,366,528
------------------------------------------------------------------------------------------


     Total liabilities and
       stockholders' equity          $50,236,115   $30,269,008   $51,634,710   $30,607,945
==========================================================================================



</TABLE>
<PAGE>


                                                                               4

SUPER 8 MOTEL DEVELOPERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
================================================================================


                                                        1997            1996
--------------------------------------------------------------------------------

OPERATIONS

REVENUES:
  Motel revenues                                    $ 14,428,933   $ 14,372,606
  Motel management fees                                  325,933        339,957
  Accounting fees                                         82,080         85,800
  Sub-franchise fees                                     434,833        422,600
  Equity in net income of limited partnerships            59,260         77,569
  Interest income                                        221,409        219,632
  Other income                                            54,295         27,508
  Net gain (loss) on disposal of assets                   18,339        (34,240)
--------------------------------------------------------------------------------

     Total revenues                                   15,625,082     15,511,432
--------------------------------------------------------------------------------

COSTS AND EXPENSES:
  Operating expenses:
    Motel operating and management expenses            9,657,784      9,258,170
    Administration expenses                              390,807        374,680
    Special charge                                          --          250,000
--------------------------------------------------------------------------------
                                                      10,048,591      9,882,850
  Interest                                             2,235,203      2,325,410
--------------------------------------------------------------------------------

     Total costs and expenses                         12,283,794     12,208,260
--------------------------------------------------------------------------------

    Income before depreciation and amortization        3,341,288      3,303,172

  Depreciation and amortization                        1,329,954      1,491,903
--------------------------------------------------------------------------------

INCOME BEFORE INCOME TAXES
  AND EXTRAORDINARY ITEM                               2,011,334      1,811,269

PROVISION FOR INCOME TAXES                               805,000        725,000
--------------------------------------------------------------------------------

INCOME BEFORE EXTRAORDINARY ITEM                       1,206,334      1,086,269

EXTRAORDINARY ITEM:
  Loss on early extinguishment of debt net of
    related income taxes of $115,000                        --          171,295
--------------------------------------------------------------------------------

NET INCOME                                          $  1,206,334   $    914,974
================================================================================



See Notes to Consolidated Financial Statements.



<PAGE>


                                                                               5

SUPER 8 MOTEL DEVELOPERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
================================================================================


                                                      Additional
                                        Common         Paid-in        Retained
                                         Stock         Capital        Earnings
--------------------------------------------------------------------------------

BALANCE, JANUARY 1, 1996              $   488,251    $ 2,279,628    $ 1,660,177

CASH DIVIDENDS                               --             --         (976,502)

NET INCOME                                   --             --          914,974
--------------------------------------------------------------------------------

BALANCE, DECEMBER 31, 1996                488,251      2,279,628      1,598,649

CASH DIVIDENDS                               --             --       (1,464,752)

NET INCOME                                   --             --        1,206,334
--------------------------------------------------------------------------------

BALANCE, DECEMBER 31, 1997            $   488,251    $ 2,279,628    $ 1,340,231
================================================================================



See Notes to Consolidated Financial Statements.


<PAGE>
                                                             

                                                                               6

SUPER 8 MOTEL DEVELOPERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
================================================================================


                                                       1997            1996
--------------------------------------------------------------------------------

CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                       $  1,206,334    $    914,974
  Adjustments to reconcile net income to net
   cash provided by operating activities:
    Depreciation                                      1,213,440       1,383,438
    Amortization                                        116,514         108,465
    Special charge                                         --           250,000
    Noncash portion of loss on extinguishment
     of debt                                               --           286,295
    Net (gain) loss on disposal of property
     and other assets                                   (18,339)         34,240
    Allocation of net income of limited
     partnerships                                       (59,260)        (77,569)
    Deferred income taxes                                49,000        (149,000)
    Changes in assets and liabilities:
      Accounts and notes receivable                         391          25,910
      Net repayments from limited partnerships          317,435         249,688
      Prepaid expenses                                   32,012          (7,090)
      Other assets                                      126,878        (723,641)
      Accounts payable and accrued expenses             (90,182)        (31,987)
--------------------------------------------------------------------------------

     Net cash provided by operating activities        2,894,223       2,263,723
--------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Distributions from limited partnerships                35,343          16,150
  Payments for motel properties and equipment        (1,535,709)       (624,202)
  Proceeds from sale of property and equipment          735,743          18,172
--------------------------------------------------------------------------------

     Net cash used in investing activities             (764,623)       (589,880)
--------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Repayments on operating line                             --          (750,000)
  Proceeds from notes payable                           520,317      24,517,725
  Financing costs                                       (64,307)       (882,892)
  Principal payments on notes payable                  (551,654)    (22,535,154)
  Cash dividends paid                                (1,464,752)       (976,502)
--------------------------------------------------------------------------------

     Net cash used in financing activities           (1,560,396)       (626,823)
--------------------------------------------------------------------------------







(continued on next page)

<PAGE>

                                                                               7

CONSOLIDATED STATEMENTS OF CASH FLOWS - page 2
================================================================================


                                                         1997           1996
--------------------------------------------------------------------------------

NET INCREASE IN CASH
  AND CASH EQUIVALENTS                                   569,204      1,047,020

CASH AND CASH EQUIVALENTS AT BEGINNING
  OF YEAR                                              1,205,451        158,431
--------------------------------------------------------------------------------

CASH AND CASH EQUIVALENTS AT END OF YEAR              $1,774,655     $1,205,451
================================================================================


SUPPLEMENTAL DISCLOSURES OF CASH FLOW
  INFORMATION:
    Cash paid for interest                            $2,237,529     $2,244,286
================================================================================

    Cash paid for income taxes                        $  726,535     $  723,427
================================================================================




See Notes to Consolidated Financial Statements.



 
<PAGE>
                                                                               8

SUPER 8 MOTEL DEVELOPERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
--------------------------------------------------------------------------------


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------

Principles of consolidation - The consolidated  financial statements include the
accounts of the  Company  and its  wholly-owned  subsidiaries.  All  significant
intercompany accounts and transactions have been eliminated.

Cash and cash equivalents - For the purpose of reporting cash flows, the Company
considers  time deposits  with a maturity of three months or less,  cash held as
compensating balances, and bank repurchase agreements to be cash equivalents.

Receivables  - The Company  grants  credit to  customers in the  Virginia,  West
Virginia,  Maryland,  Delaware  and  District  of  Columbia  areas.  The  direct
write-off method is used for recognizing bad debt expense.

Motel  properties  and  equipment  - These  assets  are  stated at cost less any
impairment   losses  relating  to  FAS  121.   Expenditures   for  renewals  and
improvements  that  significantly  add to the productive  capacity or extend the
useful  life of an asset  are  capitalized.  Expenditures  for  maintenance  and
repairs  are  charged to expense  currently.  When  depreciable  properties  are
retired or sold, the cost and related  accumulated  depreciation  are eliminated
from the accounts and the resultant gain or loss is reflected in income.

Depreciation  is provided for over the estimated  useful lives of the individual
assets using the straight-line  method.  The range of the estimated useful lives
used in the computation of depreciation is as follows:

          Motel buildings and improvements              10-31 years
          Furniture, fixtures and equipment              3- 7 years

Sub-franchise rights - This cost is being written-off on the straight-line basis
over ten  years.  The  territorial  rights  are  subject  to  certain  terms and
conditions as set forth in the agreement.

Financing  costs - Financing  costs consist of direct costs,  such as loan fees,
legal costs and commitment fees,  associated with obtaining  financing for motel
properties.  The costs are being amortized using the  straight-line  method over
the term of the loan.

Franchise  fees - Franchise  fees consist of the amounts paid to Super 8 Motels,
Inc.  for the  right to use the  Franchisor's  trademark.  These  fees are being
amortized  using  the  straight-line  method  over  the  term  of the  franchise
agreements, twenty years.

Investments in limited  partnerships - The Company's  investments in the limited
partnerships are stated at cost, adjusted for the Company's share of partnership
earnings or losses,  cash distributions  received,  unrecognized gain on sale of
the property and advances made to supplement operations of the partnerships.

Deferred  income taxes - Deferred  taxes arise  primarily  from  differences  in
recognizing  income  from sales of motel  properties,  depreciation  methods and
asset lives for book and tax reporting purposes.




(continued on next page)


<PAGE>
                                                                               9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - page 2
--------------------------------------------------------------------------------



NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
---------------------------------------------------------------

Estimates - The preparation of financial statements in conformity with generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
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.


NOTE 2 - NATURE OF OPERATIONS AND BASIS OF FINANCIAL STATEMENT PRESENTATION
---------------------------------------------------------------------------

The  Company was  organized  in April  1984,  and is engaged in the  business of
developing,  owning and  operating  Super 8 Motels,  primarily  in the States of
Virginia, West Virginia, Maryland, Delaware and the District of Columbia.

The essential nature of the Company's operation is such that current obligations
must be liquidated  out of future  revenues to be derived from the rental of its
motel  properties.  Therefore,  assets are essentially  reflected in the balance
sheet in relative  order of  liquidity  and  liabilities  in  relative  order of
currency.


NOTE 3 - CASH AND CASH EQUIVALENTS
----------------------------------

At December 31, 1997 and 1996, the carrying  amount of the Company's  total cash
and cash equivalents was $1,774,655 and $1,205,451,  respectively.  In addition,
the  Company  considers  as cash  equivalents  its share of  deposits  held in a
combined cash account with related  parties.  Accordingly,  the  Company's  cash
equivalents  may be  affected  by  negative  cash  balances  of related  parties
included in the combined account (see Note 17).

The Company  maintains its  temporary  cash with high credit  quality  financial
institutions  and limits the amount of credit  exposure  through the use of bank
repurchase  agreements  which  are  collateralized  by  United  States  treasury
securities. At times, cash on deposit may exceed the federally insured limit.


NOTE 4 - NOTES RECEIVABLE
-------------------------

At December 31,1997,  the Company held a contract receivable from the purchasers
of its Dumfries,  Virginia  motel  property.  The note bears interest at 10%, is
secured by a second deed of trust and is due December 2001.

Minimum principal payments to be received for the remaining term of the note are
as follows:

                         1998              $  27,900
                         1999                 30,800
                         2000                 34,000
                         2001                 37,560

(continued on next page)


<PAGE>
                                                                              10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - page 3
--------------------------------------------------------------------------------


NOTE 5 - INVESTMENT IN LIMITED PARTNERSHIPS
-------------------------------------------

At  December  31,  1997,  the  Company  was a general  partner  in nine  limited
partnerships,  all of which were formed for the purpose of owning and  operating
Super 8 Motels. The Company's  investment is increased for its share of earnings
and  any  advances  to the  partnerships  which  are  made  for the  purpose  of
supplementing  operations and, in one instance,  to guarantee cash distributions
to its limited partners. Any advances to the partnerships are unsecured,  due on
demand,  and bear  interest  at  variable  rates,  currently  3.0% to 8.5%.  The
Company's  investment is decreased by its share of  partnership  losses and cash
distributions  received.  The investment is also increased by syndication  costs
incurred and decreased by  unrecognized  gains on the sale of the  property.  At
December 31, 1997 and 1996,  syndication  costs  incurred  totaled  $179,521 and
unrecognized gains on the sale of property totaled $744,253.  The following is a
schedule of the Company's  investments in limited  partnerships  at December 31,
1997 and 1996:

           Location                               1997                  1996
           --------                               ----                  ----

      Aberdeen, Maryland                       $ (40,822)            $ (40,604)
      Bristol, Virginia                          (62,244)              (56,300)
      Culpeper, Virginia                          12,850                23,292
      Farmville, Virginia                         28,217                74,259
      Fredericksburg/
       Waynesboro, Virginia                      (10,832)              (11,198)
      Havre de Grace, Maryland                   282,004               339,597
      Richmond Airport/
       Harrisonburg, Virginia                    (11,287)              (10,698)
      Richmond Broad St., Virginia/
       Martinsburg, West Virginia                149,634               120,109
      Richmond Midlothian, Virginia              122,003               323,980
      Waldorf, Maryland                            -                       604
                                                --------               -------

                                               $ 469,523             $ 763,041
                                                 =======               =======

The condensed  combined  financial  information  on the above  investments is as
follows:

                                               December 31,         December 31,
                                                   1997                1996
                                               ------------        -------------

    Assets                                     $ 15,050,286        $ 15,375,389
                                                 ==========          ==========

    Liabilities                                $ 12,242,642        $ 12,428,478
    Partners' equity                              2,807,644           2,946,911
                                                 ----------          ----------

                                               $ 15,050,286        $ 15,375,389
                                                 ==========          ==========
    Net income before depreciation
      and amortization                         $  1,235,910        $  1,512,761
                                                 ==========          ==========

    Net income                                 $    524,064        $    735,439
                                                 ==========          ==========

(continued on next page)


<PAGE>
                                                                              11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - page 4
--------------------------------------------------------------------------------


NOTE 6 - MOTEL PROPERTIES AND EQUIPMENT
---------------------------------------

The Company's property and equipment  consisted primarily of 28 and 29 operating
motels as of  December  31,  1997 and 1996,  respectively,  and one motel  under
construction at December 31, 1997.

                                                   1997                1996
                                                   ----                ----

   Land                                        $  6,804,514        $  6,425,967
   Motel buildings and improvements              23,352,708          24,025,861
   Furniture, fixtures and equipment              6,424,241           6,471,025
                                                 ----------          ----------
                                                 36,581,463          36,922,853
   Less accumulated depreciation                 11,941,181          11,321,105
                                                 ----------          ----------
                                                 24,640,282          25,601,748
   Construction in progress                         572,455               -
                                                 ----------          ----------

                                               $ 25,212,737        $ 25,601,748
                                                 ==========          ==========


NOTE 7 - SUB-FRANCHISE RIGHTS
-----------------------------

The  sub-franchise  rights,  acquired July 11, 1984 for $250,000,  was an amount
paid to Super 8 Motels, Inc. for the exclusive rights in the states of Virginia,
West  Virginia,  Maryland,  Delaware and the District of Columbia to  construct,
own, and operate motels using the Super 8 name and to represent  Super 8 Motels,
Inc. in the sale of franchises within said territory.

Significant terms of the agreement and amendments thereto are as follows:

a.   The term of the agreement is 20 years from the date of execution.

b.   The initial  franchise  fee payable by motels,  which are owned at least 51
     percent by the Company, is $10,000.

c.   The Company is to receive one-third of the initial franchise fee, presently
     $20,000, of each franchise sold by the Super 8 system in said territory.

d.   Under the current franchise agreement of Super 8 Motels,  Inc., a specified
     percentage of the annual gross room rentals of each operating unit is to be
     tendered  to  Super 8  Motels,  Inc.  as a fee for  services  rendered  and
     royalties.  The Company will  receive from Super 8 Motels,  Inc. 25% of the
     fee received from each motel located in the territory as  compensation  for
     services rendered.  Those payments are to continue from the date such motel
     unit in said territory  first  commences  monthly  royalty  payments for 10
     years for motels  open on or before  July 11,  1990 and 15 years for motels
     opened after July 11, 1990.

Sub-franchise  fee income  under this  agreement  totaled  $434,833 and $422,600
during the years ended December 31, 1997 and 1996.



(continued on next page)


<PAGE>
                                                                              12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - page 5
--------------------------------------------------------------------------------


NOTE 8 - NOTES PAYABLE
---------------------- 

The Company's  long-term debt consists of mortgage notes  collateralized by real
estate,  furniture,  fixtures  and  equipment.  The notes  which  have fixed and
variable  rates  ranging  from 8.5% to 10.5% are  generally  payable  in monthly
installments  and due at  varying  dates  through  2016.  The  weighted  average
interest rate of the notes was 8.76% and 8.73% as of December 31, 1997 and 1996,
respectively.

Approximate principal maturities during the next five years are as follows:

                       1998                $   616,000
                       1999                    685,400
                       2000                    749,300          
                       2001                  1,265,200
                       2002                    863,100

At December 31, 1997, the Company had one motel under construction.  The Company
had a  construction  and permanent  financing  commitment of $1,680,000 of which
only  $520,317 had been drawn against the  construction  loan as of December 31,
1997. Interest expense capitalized totaled $12,046.


NOTE 9 - SPECIAL CHARGE
-----------------------

The Company had entered into a contract to sell its Portsmouth,  Virginia, motel
property during 1996. The transaction,  which closed February 26, 1997, resulted
in a loss of approximately $250,000 which was charged to 1996 operations.


NOTE 10 - LAND LEASE
--------------------

In July 1987, the Company entered into an agreement to lease a parcel of land on
which it has  developed a motel.  The initial  term of the lease is 60 years and
called for initial rental of $35,200 per year.  The lease  payments  increase by
10% at the end of five  years  and by 10% at the  end of each  five-year  period
thereafter  throughout the term of the lease. The lease also requires contingent
rental  payments  equal to two and  one-half  percent of the amount by which the
motel's gross sales exceed $1,200,000. For the years ended December 31, 1997 and
1996, there were no payments  required under this provision as the motel's sales
did not exceed $1,200,000.

Future  minimum  payments for the initial term as of December 31, 1997 under the
lease are as follows:

                     1998                     $    42,592
                     1999                          42,592
                     2000                          42,592
                     2001                          42,592
                     2002                          43,657
                  Thereafter                    3,169,312
                                              -----------
                                              $ 3,383,337
                                              ===========

(continued on next page)



<PAGE>
                                                                              13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - page 6
--------------------------------------------------------------------------------

NOTE 11 - RELATED PARTY TRANSACTIONS AND OTHER AGREEMENTS
---------------------------------------------------------

The Company  conducts  business  with a major  shareholder  and certain  limited
partnerships (see Note 5).

The following is a summary of transactions with related parties:

                                             1997                 1996
                                             ----                 ----
      Revenues:
        Management fees                   $ 325,933             $ 339,957
        Accounting fees                      82,080                85,800
        Interest income                     107,018               131,440

      Costs and expenses:
        Travel expenses                      12,958                 4,455
        Office rent                          46,288                44,539


NOTE 12 - FRANCHISE AGREEMENTS
------------------------------

The Company's  wholly-owned  subsidiaries operate Super 8 motels under franchise
agreements with Super 8 Motels, Inc. As part of the agreement,  the subsidiaries
are obligated to pay Super 8 Motels,  Inc. room  royalties  equal to 4% of total
room rental revenues and 1% or 2% of room rentals as a national advertising fee.
The Company  participated  in a national  media  campaign  sponsored  by Super 8
Motels,  Inc.  under  which the  motels  contributed  an  additional  1% of room
revenues through December 31, 1997.

The following is a summary of fees paid under the franchise agreements:

                                               1997                  1996
                                               ----                  ----

     Royalty fees                           $ 566,414             $ 563,472
     National advertising fee                 244,763               245,979
     National media fee                       141,603               141,108

The  franchise  agreements  also  place  restrictions  on  the  transfer  of the
franchise and the sale or lease of the motel  without  prior written  consent of
the franchisor.


NOTE 13 - LIFE INSURANCE
------------------------

The  Company  is the owner and  beneficiary  of two  $1,000,000  life  insurance
policies insuring the lives of its president and chief executive officer.






(continued on next page)


<PAGE>
                                                                              14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - page 7
--------------------------------------------------------------------------------


NOTE 14 - INCOME TAXES
----------------------

The provision for income taxes consists of the following components:

                                          1997                   1996
                                          ----                   ----

        Current taxes                   $ 756,000              $ 759,000
        Deferred income taxes              49,000               (149,000)
                                          -------                -------

                                        $ 805,000              $ 610,000
                                          =======                =======

Deferred tax assets and  liabilities  are  calculated  based on their  estimated
effect on future  cash  flows.  Deferred  tax  assets are  recognized  for asset
impairment  losses in 1996.  In  addition,  a deferred  tax  liability  has been
recognized  for  the  taxable   temporary   differences   related  to  different
depreciation methods for financial and tax purposes.  The net deferred tax asset
(liability) in the accompanying balance sheets consists of the following:

                                                  1997               1996
                                                  ----               ----

      Deferred tax assets                      $        -         $ 100,000
      Deferred tax liabilities                   (41,000)           (92,000)
                                                  ------            -------

      Net deferred tax asset (liability)       $ (41,000)         $   8,000
                                                  ======            =======


NOTE 15 - EXTRAORDINARY ITEM
----------------------------

The extraordinary  item represents the write-off of unamortized  financing costs
in  connection  with the  refinancing  of  twenty-four  of the  Company's  motel
properties in January,  1996.  The amount of the write-off was $171,295,  net of
related income taxes of $115,000.


NOTE 16 - STOCK OPTION AGREEMENTS
---------------------------------

The Company has entered into stock  option  agreements  with  various  employees
which allow the  employees  to  purchase  up to 21,178 and 55,589  shares of the
Company's  common  stock at fair market  value as of December 31, 1997 and 1996,
respectively.  No options were  exercised in 1997 or 1996 and options for 34,411
shares expired during 1997.









(continued on next page)


<PAGE>
                                                                              15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - page 8
--------------------------------------------------------------------------------


NOTE 17 - COMMITMENTS AND CONTINGENCIES
---------------------------------------

The Company,  as general partner,  is contingently liable for liabilities of the
limited  partnerships  as listed in Note 5. The  balance of the  mortgage  notes
totaled approximately  $3,756,000 at December 31, 1997. The Company also remains
contingently  liable on the mortgage  notes of the Dumfries  property,  totaling
approximately  $1,746,000  at  December  31,  1997.  Management  believes  these
obligations are adequately secured by the underlying collateral.

The Company maintains a combined bank account for the limited partnership motels
managed by the Company  (see Notes 5 and 11).  As such,  the  overdrafts  of one
partnership  are offset by cash balances of the Company and other  partnerships.
Upon  dissolution  of the  combined  bank  account or sale or  liquidation  of a
partnership  with a positive  cash  balance,  the  Company may be liable for any
unfunded positive balances.  The December 31, 1997 and 1996 balances relating to
these entities totaled approximately $560,800 and $521,500,  respectively. These
balances are not included in the consolidated balance sheet.

At December 31, 1996,  the Company and its  subsidiaries  were the defendants in
two  lawsuits in which the  plaintiffs  alleged  they were denied full and equal
enjoyment of services, facilities, privileges and accommodations for the alleged
refusal to rent rooms.  The plaintiffs in both lawsuits sought  compensatory and
punitive  damages.  The trial for one lawsuit  began on March 17, 1997,  and the
Company was found  innocent of all charges.  The trial for the other lawsuit was
set for June 1997, but was settled prior to the trial date.


NOTE 18 - CRITERIA USED IN THE SUPPLEMENTAL CURRENT VALUE PRESENTATION
  (COMPILED)
--------------------------------------------------------------------------------

A  variety  of  criteria  may  be  used  in the  preparation  of  current  value
presentations;  accordingly, the criteria used could vary from one enterprise to
another.  The supplemental current value balance sheets have been prepared using
the criteria which the Company  believes are  appropriate in the  circumstances.
The  supplemental  current  value  balance  sheets  present  relevant  financial
information  that is not provided by the  historical  cost balance sheets and is
not  intended  to  be a  presentation  in  conformity  with  generally  accepted
accounting  principles.  The supplemental  current value amounts are intended to
represent  normal  exchange  prices of the  tangible net assets.  Current  value
amounts are not  intended to  represent  amounts that might result from a forced
sale of the net  assets,  nor do  such  amounts  contemplate  the  value  of the
business  which  might  include  identifiable  and  unidentifiable  intangibles.
Amounts  that may  ultimately  be realized by the Company  from the  disposal of
assets may vary significantly from the current values presented. Because current
values are not presented for certain properties under development, current-value
equity does not  necessarily  represent the market value of the net assets or of
the  Company  as  a  whole.  Therefore,  the  current  value  presentation  is a
supplement  to, and not a  replacement  for, the  historical  cost basis balance
sheet.  The preceding notes to balance sheet should be read in conjunction  with
the supplemental current value presentation.






(continued on next page)


<PAGE>
                                                                              16

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - page 9
--------------------------------------------------------------------------------


NOTE 18 - CRITERIA USED IN THE SUPPLEMENTAL CURRENT VALUE PRESENTATION
  (COMPILED) - continued
--------------------------------------------------------------------------------

Management's estimates of unrealized appreciation at December 31, 1997 and 1996,
are summarized as follows:
                                                1997                 1996
                                                ----                 ----

 Motel properties                            $ 45,239,000        $ 46,710,000
 Sub-franchise rights                           1,491,000           1,516,000
                                               ----------          ----------
                                               46,730,000          48,226,000
 Less:
    Historical cost basis                      26,762,893          27,199,235

    Sales commissions on realization
       of estimated current values              1,401,900           1,446,800
                                               ----------          ----------
                                               18,565,207          19,579,965
    Income taxes on realization of
       estimated current values                 6,312,000           6,657,000
                                               ----------          ----------

    Unrealized appreciation                  $ 12,253,207        $ 12,922,965
                                               ==========          ==========

Assumptions for current value estimates:

     Assets and liabilities included in current value estimation:

     The current value  computation of assets is limited to operating motels (28
     and 29 at  December  31,  1997 and 1996,  respectively),  one  motel  under
     construction  at December 31, 1997 and the Company's  sub-franchise  rights
     for all Super 8 Motels in its territory.

     General business intangibles,  such as financing costs,  franchise fees and
     organization  costs have not been carried  forward from the historical cost
     basis to the  supplemental  current  value  presentation.  Other assets and
     liabilities  have not been  revalued  since  the  historical  cost of those
     assets and the  recorded  basis of those  liabilities  approximate  current
     values.

     The current  value of the  operating  motel  properties  was  determined by
     capitalizing  adjusted  net  income at 12% in 1997 and 1996.  Adjusted  net
     income  consists  of net  income  before  debt  service,  amortization  and
     depreciation.   The  Company's  motel  under  construction  was  valued  at
     historical cost.










(continued on next page)


<PAGE>
                                                                              17

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - page 10
--------------------------------------------------------------------------------


NOTE 18 - CRITERIA USED IN THE SUPPLEMENTAL CURRENT VALUE PRESENTATION
  (COMPILED) - continued
--------------------------------------------------------------------------------

     Sub-franchise rights:

     The Company receives from Super 8 Motels,  Inc. (the franchisor) 25% of the
     annual royalty fees Super 8 Motels,  Inc.  receives from each motel located
     in  the  Company's  territory.  Estimates  of the  current  value  of  this
     agreement  are based upon the present value (using an interest rate of 10%)
     of future  estimated  cash flows from royalty  fees under the  agreement on
     operating motels in the Company's territory.

     Income taxes and sales  commissions  on  realization  of estimated  current
     values:
     ---------------------------------------------------------------------------

     Even  though  the  Company  does  not  anticipate  a sale  of its  property
     interests,  a provision of 3% of the estimated  gross current value of such
     interests has been made for estimated sales costs which would be payable on
     realization  of the  current  values.  Likewise,  income  taxes  have  been
     provided at an assumed rate of 34% of the estimated current value in excess
     of historical cost.




                                    # # # # #