UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



Form 10-KSB/A



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

For the fiscal year ended December 31, 2001



|Supreme Hospitality
(Name of small business issuer in its charter) | Nevada
(State or other jurisdiction of incorporation or organization)    
|------------------------------------------------------------------ | -------------------------------------------------------------------------
|91-2019034
(I.R.S. Employer Identification No.)                    | 41919 Skywood Drive Temecula, CA
(Address of principal executive offices)
|Issuer's telephone number:  (909)-506-3435                         | 92591-1877
(Zip Code)                                                    



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

Title of each class:  Common Stock, $.0001 par value

Name of each exchange on which registered:  NASDAQ



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

Title of class:  NONE



Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No



Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained 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. [X]

State issuer's revenues for its most recent fiscal year.  $1,722,151.00



State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days. (See definition of affiliate in Rule 12b-2 of the Exchange Act.) ;  None.



(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)



Check whether the issuer has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. [ ]Yes [ ] No



State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:  10,000,000 Common Shares.



DOCUMENTS INCORPORATED BY REFERENCE

If the following documents are incorporated by reference, briefly describe them and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) any annual report to security holders; (2) any proxy or information statement; and (3) any prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"). The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1990).  None

Transitional Small Business Disclosure Format (Check one): Yes ____; No (X)

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TABLE OF CONTENTS



|Item:                                                          | Page #
|-------------------------------------------------------------- | ------
|Description of Business                                        | 1     
|Description of Property                                        | 2     
|Legal Proceedings                                              | 2     
|Submission of Maters to a Vote of Security Holders             | 2     
|Market for Common Equity and Related Stockholder Matters       | 2     
|Managements Discussion and Analysis                           | 4     
|Financial Statements                                           | 5     
|Changes in and Disagreements with Accountants                  | 5     
|Directors and Executive Officers                               | 6     
|Executive Compensation Table                                   | 6     
|Security Ownership of Certain Beneficial Owners and Management | 7     
|Certain Relationships and Related Transactions                 | 7     
|Exhibits and Reports on Form 8-K                               | 7-8   
|Independent Auditors' Report                                   | 9     
|Balance Sheet                                                  | 10    
|Statements of Operations                                       | 11    
|Statement of Cash Flows                                        | 12    
|Statement of Stockholders Equity                              | 13    
|Notes to Financial Statements                                  | 14    
|Signatures                                                     | 20    





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PART I

DESCRIPTION OF BUSINESS



Grubstake, Inc. was organized November 10, 1997, under the laws of the State of Nevada.  On December 1, 1998, Grubstake, Inc. changed its name to Richwood, Inc. and on April 17, 2000, to Supreme Hospitality.



Temecula Valley Inn, Inc. became a wholly owned subsidiary of Supreme Hospitality through a re-capitalization on April 30, 2000.



Supreme Hospitality is in the hospitality, hotel business catering to the business, leisure and vacation traveler.  Its wholly owned subsidiary Temecula Valley Inn, Inc. owns and operates the Temecula Valley Inn.  Temecula Valley Inn has 19 full time employees.



Temecula Valley Inn is the newest hotel built in the Temecula Valley.  Being only three years old it is considered one of the premier hotel properties in the valley.  The architectural design with the massive Porte Cachare, the three-story framework and the elegant flood lighting in the evenings gives the hotel a majestic and grandeur appearance.  The hotel also features interior corridor entrance for guest safety and convenience.  The rooms are 13 wide instead of the normal 12 wide that is utilized in all of the other hotel/motel units in the surrounding area.  The hotel furnishes refrigerators, hair dryers, coffee pots and 25 color televisions with remote in every room.  There is only one other hotel in Temecula that offers the amount of extra amenities to its guests.  Temecula Valley Inn has been given the highest honors in the Days Inns Franchise group.  They have classified the hotel as a five sunburst, Chairmans Award rating.  It was selected as only one of ten out of a total of 1,925 hotels to represent the Days Inn with the picture of the hotel on the cover of the International directory.



Though cyclical in nature, Temecula Valley Inn's occupancy rates have continued to grow.  The occupancy average rate for 1999 was 47.30% while in 2000 the average was 50.10%, an increase of 5.92%.  As of March 31, 2001 the occupancy average rate was 65.09% compared to March 31, 2000 at 43.11% representing an increase of 51% for the first quarter.  The average daily rate for 1999 was $79.65 per room while in 2000 it was $81.78 per room, an increase of 2.67%.  As of March 31, 2001 the average daily rate was down at $73.61 compared to March 31, 2000 at $83.86, or a decrease of 12%.  An indicator more commonly used in the industry is the revenue per available room rate.  This rate shows 1999 at $37.67 and year 2000 at $40.97, an increase of 8.75% for the year and as of March 31, 2001 a rate of 47.91 compared to the same time in 2000 at $36.15 for an increase of 33%.



Supreme Hospitality currently serves the traveler who requires perceived value for the nightly rate he/she pays.  Through active marketing to various corporations, Supreme Hospitality has been successful during its second year of operations of attracting a reasonable volume of corporate business.  On weekends, Supreme Hospitality attracts customers who are typically in town to attend various community functions including, but not limited to, the Balloon and Wine Festival and the Rod Run.  During the summer months there are activities in the area almost every weekend.  Occupancy rates during these weekends approached approximately 100% on average during the two years of operation.



There are 11 hotels and motels with 810 rooms, in the community area including Temecula Valley Inn.  The property has excellent visibility and easy access from Interstate 15.  There are numerous restaurants within walking distance of the hotel.  Supreme Hospitality utilizes the services of AutoClerk2 to assist with the in-house reservations and Unirez for outside reservations.  The website generates approximately 15% of business, whereas walk-ins average 20%, corporate business averages 40%, AARP & AAA combined provide 25%.



Temecula Valley Inn has developed its own website to take advantage of the growing Internet market.  The hotel's web address is www.temeculavalley.com.  The hotel is insured by Legion insurance company at 4,000,000 for the building, 1,500,000 personal Property and 2,000,000 business income lost, all with a $1,000 deductible.  This insurance policy can be located as exhibit 99.10 titled Temecula Valley Inn Insurance Policy, in the companys SB-2/A filed June, 2001.



Supreme Hospitality's acquisition growth strategy is to increase cash flow and enhance shareholder value by building or acquiring additional hotels that meet Supreme Hospitality's investment criteria.



Supreme Hospitality, on July 1, 2000 entered into a franchise agreement with Days Inn of America.  The franchise fee was 8 1⁄2% of gross room revenues, payable monthly.  The first two months were charged at a reduced rate of 2%.  This agreement was terminated on December 19, 2001.









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Supreme Hospitality does not have the need for any government approval of its services.  There is no government regulation on the business.  There was no research and development activity.  Supreme Hospitality does not have any products or services, which are affected by environmental laws.



COMPETITIVE CONDITIONS



The hotel industry is highly competitive and hotels experience competition primarily from other upscale hotels in its immediate vicinity.  However there is also competition with hotel properties in the same geographic market.  Supreme Hospitality will also be in competition with hotels which may have substantially greater marketing and financial resources than Supreme Hospitality.



DESCRIPTION OF PROPERTY



Temecula Valley Inn is located at 27660 Jefferson Avenue, Temecula, CA 92590.



The mortgages on the property are as follows:



The Company's president and his wife are the only persons obligated to repay the following long-term debt. They quitclaimed their interests in the real estate to the Company, which was a violation of the banks' loan covenants. The banks anticipate that they will eventually require loan assumptions by the Company, however, no action has been taken to date. For financial presentation purposes, all of the following loans are presented as debt of the Company since the majority of them are collateralized by real and personal property of the Company.



Note payable to a bank, payable in monthly installments of $21,961 including interest at prime plus 1%, final payment due April, 2006 of $2,744,836, collateralized by first position on substantially all of the assets owned by the Company or hereinafter acquired $ 2,744,836



The interest rate at December 31, 2001 was 10.50%. Because the bank has not requested an increase in the total monthly amount since inception of the loan as a result of the increasing prime rate, there has been no reduction in loan principal since May 2000. As of December 31, 2001, total accrued interest on the loan exceeded the monthly payments required by a total of $35,469, which has been included in accrued liabilities.



Note payable to a bank, guaranteed by the Small Business Administration, payable in monthly installments of $9,444, including interest based on 8.5 % prime plus 2%, plus or minus adjustments quarterly for interest rate changes, final amortized

balance due February 2023, collateralized by a second position on substantially all of the assets owned by the Company or hereinafter acquired. The prime rate at December 31, 2001 was 9.50%. 978,972



Note payable to an individual, payable in monthly installments of $4,825, including interest at 10%, final payment due February 2003, collateralized by a third position on the Company's real property. 484,173



Capitalized lease obligation, payable in monthly installments of $28,854, including interest ranging from 12.4% to 14.4% and sales taxes, final payment due February 2004, collateralized by leased assets of the hotel. 893,845



Unsecured installment notes payable to two finance companies, $3,236 payable monthly, including interest at 12.34% to 16.52% per annum, due 2005. 122,038



LEGAL PROCEEDINGS



<r>The following loans defaulted on the specified dates:  Temecula Valley Bank defaulted on February 14, 2001, Donald Coop defaulted on February 15, 2001 and Valley Independent Bank defaulted on February 20, 2001.  The loans were scheduled to go into receivership by March 29, 2001 if the loans were not brought current with the amount of $75,828.58.  However Supreme Hospitality was able to settle with the companies for the amount of $53,867.73 and the loans did not lapse into receivership.<r>



SUBMISSION OF MATERS TO A VOTE OF SECURITY HOLDERS



None.



PART II



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MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTER



Common Stock



The Companys authorized capital common stock consists of 50,000,000 shares of common stock, $.0001 par value per share.  As of the date of this report, there are .10,000,000 shares of common stock issued and outstanding.



Market Information



Our common stock is currently traded on the National Association of Securities Dealers Automated Quotation System Over the Counter Bulletin Board ("OTCBB")under the symbol "SUHO."  . There is limited trading activity in our securities, and there can be no assurance a regular trading market for our common stock will be sustained. We began trading on the "OTC Bulletin Board" of the National Association of Securities Dealers, Inc. ("NASD") on February 1, 2002. The following table sets forth, for the period indicated, the bid price range of our common stock.



|                             | High  | Low  
|---------------------------- | ----- | -----
|Quarter Ended March 30, 2002 | $1.25 | $1.25



Such market quotations reflect the high bid and low prices as reflected by the OTCBB or by prices, without retail mark-up, markdown or commissions and may not necessarily represent actual transactions. Some of the companies who serve as market makers for our common stock include Public Securities, Charles Schwab & Co., Knight & Co., and M.H. Meyerson & Co.



Our shares are subject to the provisions of Section 15(g) and Rule 15g-9 of the Securities Exchange Act of 1934, as amended (the Exchange Act"), commonly referred to as the "penny stock" rule. Section 15(g) sets forth certain requirements for transactions in penny stocks and Rule 15g9(d)(1) incorporates the definition of penny stock as that used in Rule 3a51-1 of the Exchange Act.



The Commission generally defines penny stock to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions. Rule 3a51-1 provides that any equity security is considered to be penny stock unless that security is: registered and traded on a national securities exchange meeting specified criteria set by the Commission; authorized for quotation on The NASDAQ Stock Market; issued by a registered investment company; excluded from the definition on the basis of price (at least $5.00 persuade) or the registrant's net tangible assets; or exempted from the definition by the Commission. Since our shares are deemed to be "penny stocks", trading in the shares will be subject to additional sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors.



For transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of such securities and must have received the purchaser's written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the first transaction, of a risk disclosure document relating to the penny stock market.  A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, and current quotations for the securities.  Finally, the monthly statements must be sent disclosing recent price information for the penny stocks held in the account and information on the limited market in penny stocks.  Consequently, these rules may restrict the ability of broker dealers to trade and/or maintain a market in our Common Stock and may affect the ability or shareholders to sell their shares.



Dividend Policy:



To date, Supreme Hospitality has not paid any cash dividends on their common stock.  Supreme Hospitality currently intends to retain all of their future earnings for use in their business and, therefore, does not expect to pay dividends in the near future.



Preferred Stock



There are 1,000,000 shares of Preferred Stock issued with a par value of $0.0001 per share.  No other series of Preferred Stock has been authorized or issued.  The Preferred Stock will rank senior to the Common Stock with respect to the payment of dividends and amounts upon liquidation, dissolution or winding up of Supreme Hospitality without the consent of any holder of Preferred Stock.  The Preferred Shareholders shall have no voting rights.



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One Preferred share is convertible into three shares of Supreme Hospitalitys common stock at any time after the first twelve months of purchase during the three-year period at the option of the shareholder.  The conversion is automatic on the third year record date if not converted earlier by the shareholder.



Dividend Policy:



The Preferred shares yield a 10% per annum dividend, which is paid in common shares at the market price

upon conversion.  The 10% annual common stock dividend is determined by multiplying the preferred share offering price and dividing it by the market price per share.  This will determine the number of common shares to the shareholder upon conversion.



MANAGEMENTS DISCUSSION AND ANALYSIS AND PLAN OF OPERATION



The following discussion should be read in connection with Supreme Hospitalitys financial statements and related notes thereto included elsewhere in this report.



Overview



Supreme Hospitality was organized for the purpose of creating a corporate vehicle to seek, investigate and, if such investigation warrants, acquire an interest in one or more business opportunities presented to it by persons or firms who or which desire to seek perceived advantages of a publicity held corporation.  On April 30, 2000 Supreme Hospitality acquired Temecula Valley Inn, a Nevada Corporation as a wholly owned subsidiary of Supreme Hospitality in an exchange of Common Stock, Sub Curia.  The primary activity of Supreme Hospitality is the hospitality business for both the business and leisure traveler.



Results of Operations



Total revenues, ending December 31, 2000, were $1,410,429 compared to the year 2001, ending December 31, 2001, which were $1,722,151.



Total Operating Expenses, ending December 31, 2000, were $1,778,313 compared to the year ending December 31, 2001, which were $2,247,204.  The main reason for this increase in operating expenses is the increase in selling, general and administrative expenses in the year 2001.  In the year ending December 31, 2000 the total selling, general and administrative in operating expenses was $885,726, compared with the year ending December 31, 2001 which had a total amount of $1,350,325.  Loss from operations, ending December 31, 2000 were $367,884, compared to the year ending December 31, 2001, which was a loss of $525,053.  Since the merger, Supreme Hospitality has continued to sustain operating losses.  For income tax purposes the post merger operating loss was approximately $158,000 resulting in a deferred tax asset of $60,000, which has been completely offset by a valuation allowance of $60,000. Therefore as of December 31, 2001 and 2001, no tax benefit or deferred tax asset has been provided in the accompanying consolidated financial statements since management cannot determine, at the present time, that it is more likely than not that such benefit will be utilized in future periods.  The operating loss is available for a period of 20 years to offset future taxable income.



Supreme Hospitality may obtain funds for additional hotel construction or acquisition by private placement, equity or debt issues.  Persons purchasing securities in these placements and other shareholders will likely not have the opportunity to participate in the decision relating to any acquisition.  Investors will entrust their investment monies to Supreme Hospitality's management before they have a chance to analyze any ultimate success which is heavily dependent on Supreme Hospitality's management, which will have virtually unlimited discretion in new construction or acquisition.



Relating to the Temecula Valley Inn, depreciation is provided on the financial statements on the straight-line method.  For tax purposes, MACRS is used.  For both, the following estimated useful lives are:



Building and Improvements

40 years

Land Improvements

15-20 years

Furniture and Equipment

3-10 years



On the Temecula hotel, the realty tax rate on the building and land is 1.12925% plus fixed charges of $5,904.  The annual taxes are $82,820.  There are no proposed improvements on this property.



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Supreme Hospitality plans to develop and construct a hotel in the future in Redding, California.  It has an option to purchase approximately 2.61 acres of approved hotel property for $1,300,000 including a complete package, which consists of a business plan, construction costs, drawings, etc.  See Exhibit 99.6, Option Agreement filed April 2001 with the companys SB-2/A.  This property is located adjacent to Interstate 5 and Hilltop Drive in Redding, California.  This parcel is the last available hotel property in this immediate area.  The cost is estimated to be $5,800,000 for land, building and improvements.  Supreme Hospitality has not paid any money for the option.  The option price is $1,300,000.  The contract to purchase the land was signed in May 2000 and is effective for 12 months.  Larry Lang has verbally agreed to extend the Option through May 2002.  The current owner of the land is Larry Lang, a major stockholder of Supreme Hospitality.  The current plan is to exercise the purchase option on the Redding property and develop and build a 90-room hotel on this property.  This development is anticipated to be the next development Supreme Hospitality will undertake.



The small business does not own the above-described property and therefore, has no interest, mortgages, liens or encumbrances against such properties.  The monies will be obtained through the raising of additional equity funds. At this time Supreme Hospitality does not have the appropriate funds for this option and has not investigated any other means for acquiring these funds.



Supreme Hospitality has identified other properties in the Temecula valley of Southern California to acquire, develop and build hotels.  This will be done through the raising of additional funding.  An additional property in the Temecula Valley is included on the financial projections commencing operations in the third quarter of 2002.  Development cost for a 120-room hotel is estimated at $7,800,000 for land development, building and improvements.



The management of Supreme Hospitality believes that the Temecula Valley will continue to see unprecedented growth not seen since the mid 1980's.  Supreme Hospitality is poised to take advantage of that growth, given it can meet its financial requirements.



Supreme Hospitality believes that through the acquisition of the land and subsequent development of these properties, shareholder value will be increased.  The management team has the expertise to identify prime properties and negotiate a fair price for the land and develop it and build a quality facility, which will increase in value.



As is customary in the industry, Supreme Hospitality may pay a finder's fee for locating an acquisition prospect.  If any such is paid, it will be approved by Supreme Hospitality's Board of Directors and will be in accordance with the industry standards.



Such fees are customarily between 1% and 5% of the size of the transaction, based upon a sliding scale of the amount involved.  Such fees are typically in the range of 5% of a $1,000,000 transaction ratably down to 1% in a $4,000,000 transaction.  Management has adopted a policy that such a finder's fee or real estate brokerage fee could, in certain circumstances, be paid to any employee, officer, director or 5% shareholder of Supreme Hospitality, if such person plays a material role in bringing in a transaction to Supreme Hospitality.



FINANCIAL STATEMENTS



The following report and financial statements of the company are contained on the pages indicated.



Independent Auditors Report

Page 9

Balance Sheet

Page 10

Statement of Operations

Page 11

Statement of Cash Flow

Page 12

Statement of Stockholders Equity

Page 13

Notes to Financial Statements

Page 14



CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Form 8-k was filed on 4/30/2001, signifying a change in the certifying accountant effective March 1, 2001.  The company has engaged Braverman & Company,  P.C. as the Company's new principal independent accountants to audit the Company's consolidated financial statements for the year ending December 31, 2000.  No disagreements on accounting or financial disclosure practices occurred during the fiscal year ended December 31,2000.



<r>Form 8-k was filed on 11/29/2001, signifying a change in the certifying accountant effective November 28, 2001.  The Company has engaged Clyde Bailey, P.C. as the Companys new principal independent accountants to audit the Companys consolidated financial statements for the year ending December 31, 2001.  No disagreements on accounting or financial disclosure practices occurred during the fiscal year ended December 31,2001.  <r>

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PART III



DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS



|Name           | Age | Position                                                                                                   
|-------------- | --- | -----------------------------------------------------------------------------------------------------------
|Larry W.  Lang | 55  | Chairman, Sole Director, President And Secretary/Treasurer (Principal and Financial and Accounting Officer)



Biography:



Mr. Larry Lang is a registered Professional engineer in 17 states.  Mr. Lang through his company Mexam, Inc., provided structural engineering consulting to a number of companies.  He has over 30 years experience.  He was responsible for the joist design for the Ontario Mill Mall in Ontario California as well as the casino, New York, New York, in Las Vegas, Nevada.  Mr Lang obtained his general Contractor's License in California in April 1998 and through his construction company Lang Construction & Dev., Inc. was the general contractor responsible for the building of Temecula Valley Inn.  Mr. Lang has been involved in the hospitality industry for the last four years.  Mr. Lang acquired the land designed and constructed Temecula Valley Inn.



Key-Man Life Insurance:

The Corporation may purchase and maintain life insurance covering the life of Executive ("Key-man Insurance") in an amount determined by the Corporation. The Corporation shall be the sole owner and beneficiary of the Key-man Insurance and may apply to the payment of premiums thereunder any dividends declared and paid thereon. Executive shall submit himself to such physical examinations as the President of the Corporation may deem necessary or desirable in connection with the purchase and maintenance of the Key-man Insurance.



EXECUTIVE COMPENSATION



|Name and                                                                                                             |                |                    |       | Other        | All         
|-------------------------------------------------------------------------------------------------------------------- | -------------- | ------------------ | ----- | ------------ | ------------
|Principal                                                                                                            |                |                    |       | Annual       | Other       
|position                                                                                                             | Year           | Salary             | Bonus | Compensation | Compensation
|Larry W. Lang
Chairman, Sole Director, President And Secretary/Treasurer, Principal and Financial Accounting Officer | 1999
2000
2001 | $30,000(I)
$20,000 |       |              |             



No other officer, director, or employee received in excess of $100,000 in salary and benefits in 2001, nor do we expect to pay any officer, director, or employee in excess of $100,000 in salary and benefits in 2002.



I:  Larry W. Lang earned $3,000 per month as a consultant for the period from April 1999 through April 2000, pursuant to a written agreement.  He received no compensation from Supreme Hospitality in 1999 and in 2000 received a total of $30,000 for his services.



II:  Commencing October 1, 2000, and expiring on December 31, 2010, the Board of Directors approved an employment contract for its president, that provides for, among other benefits, annual compensation of $120,000 through December 31, 2001, and thereafter, a minimum of a 10 percent increase per annum.  In addition, the president is to receive annually, 10 percent of pre-tax income of Supreme Hospitality and stock options as more fully described above.  There are a number of fringe benefits provided in the contract during the contract term, including the use of an automobile, disability compensation based on annual compensation, and a $500,000 life insurance policy payable to beneficiaries designated by the president.  The employment contract was filed with Supreme Hospitalitys SB-2/A as exhibit 99.5 April 2001.  To date Larry W. Lang has not received any compensation from Supreme Hospitality for the year 2001.











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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT



Security Ownership of Certain Beneficial Owners and Management



The following table sets forth information relating t the beneficial ownership of Company common stock by those persons beneficially holding more than 5% of the Company capital stock, by the Company's directors and executive officers, and by all of the Company's directors as a group, as of June 9th, 2000.



Security ownership of certain beneficial owners:



|Class        | Name & Address                                   | No. Of Shares | Percent
|------------ | ------------------------------------------------ | ------------- | -------
|Common Stock | Louise Davis
40596 Via Jalapa
Murrieta, CA 92562 | 3,000,000     | 34.12% 



Security ownership of Management:



|Class        | Name & Address                                               | No. Of Shares | Percent
|------------ | ------------------------------------------------------------ | ------------- | -------
|Common Stock | Larry W. & Diana Lang
41919 Skywood Drive
Temecula, CA 92591 | 3,002,000     | 34.12% 
|Common Stock | Harrel Davis
40596 Via Jalapa
Murrieta, CA 92562             | 1,600,000     | 18.20% 





CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



A construction company owned by Supreme's president was the general contractor for the hotel, which was completed in late1998 at a cost of approximately $2,400,000. Approximately $110,000 was paid to his construction company for supervision and reimbursement of costs incurred of which less than 50 percent was compensation. The project manager for the hotel's construction was a company owned by one of three shareholders of TVI which was paid approximately $58,000 for supervision services.



Since inception the president of the Company has provided financing to maintain the positive cash flow of the Company, substantially through personal and related party corporate loans, the majority of which were interest bearing from 8 to 10 percent per annum. As of December 31, 2001, these related party loans totaled $492,123 the majority of which are considered due within one year. During the year 2001 net loans from related parties totaled $168,387.



Included in the loans payable to related parties at December 31, 2001 are two loans that were obtained from a water district and the city prior to 2000. The latter of these loans is collateralized by an interest in the Company's real estate, whereas the other loan provides for termination of the water supply to the hotel in the event the loan becomes delinquent. Although the Company was delinquent in the monthly payments to the city, the city agreed to take no action provided the loan, which was due September 1, 2000, is paid off at the rate of $10,000 a month, commencing April, 2001. The balance of that loan at December 31, 2001 was $55,637.



The president and his wife are also the obligated on all long-term debt, as more fully explained in Note 2 of the notes to financial statements.



EXHIBITS AND REPORTS ON FORM 8-K



Reports on Form 8-k:

Form 8-k was filed on 4/30/2001, signifying a change in the certifying accountant effective March 1, 2001.  The company has engaged Braverman & Company,  P.C. as the Company's new principal independent accountants to audit the Company's consolidated financial statements for the year ending December 31, 2000.



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<r>Form 8-k was filed on 11/29/2001, signifying a change in the certifying accountant effective November 28, 2001.  The Company has engaged Clyde Bailey, P.C. as the Companys new principal independent accountants to audit the Companys consolidated financial statements for the year ending December 31, 2001.



Form 8-k was filed on 12/27/2001, signifying a change in control of registrant.  Mr. Larry W. Lang now owns and controls four million seven hundred fifty-two thousand (4,752,000) common shares representing 54% ownership.<r>



Exhibits Schedule

The exhibits marked with an * were filed with the companys original registration statement June 2000, or the SB-2/fith amendment, April 2001.

Exhibit

Description



*3.1

Articles of Incorporation

*3.2

Amended Articles of Incorporation

*3.3

By-Laws



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INDEPENDENT AUDITORS REPORT



To the Board of Directors and Shareholders

Supreme Hospitality



We have audited the accompanying consolidated balance sheet of Supreme Hospitality and subsidiaries (Company) as of December 31, 2001 and the related consolidated statement of operations, changes in stockholders equity, and statement of cash flows for the year ended December 31, 2001. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on the financial statements based on our audit. The financial statements of the Company, as of December 31, 2000, were audited by other auditors whose report dated June 9, 2001 expressed an unqualified opinion on those statements.



We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.



The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has limited operations currently and suffered recurring losses from operations that raise substantial doubt about its ability to continue as a going concern. This is further explained in Note 8 in the notes to financial statements.



In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company and subsidiaries as of December 31, 2001, and the consolidated results of their operations and their cash flows for the year ended December 31, 2001 in conformity with accounting principles generally accepted in the United States.







Clyde Bailey

Certified Public Accountant



January 27, 2002

San Antonio, Texas









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SUPREME HOSPITALITY AND SUBSIDIARY

CONSOLIDATED BALANCE SHEET

As of DECEMBER 31, 2001



|                                                             |           
|------------------------------------------------------------ | ----------
|ASSETS                                                       |           
|Current Assets                                               |           
|Cash                                                         | $1,754    
|Trade accounts receivable                                    | 31,756    
|Total Current Assets                                         | 33,510    
|Property and Equipment At Cost,                              |           
|Less accumulated depreciation of                             |           
|$824,828                                                     | 4,738,902 
|Other Assets                                                 |           
|Deferred offering costs                                      | 81,000    
|Loan fees,
Less accumulated amortization of $11,556          | 16,054    
|Initial franchise fee,
Less accumulated amortization of $667 | 24,333    
|Other assets                                                 | 29,059    
|Total other assets                                           | 150,446   
|Total Assets                                                 | $4,922,858
|Liabilities and Stockholders Equity                         |           
|Current Liabilities                                          |           
|Trade accounts payable                                       | $446,173  
|Related party loans                                          | 93,650    
|Accrued liabilities                                          | 221,983   
|Current maturities of long-term debt                         | 228,686   
|Total Current Liabilities                                    | $990,492  
|                                                             |           
|Long-Term Debt, Less Current Maturities                      | 4,732,850 
|Total Liabilities                                            | $5,723,342
|                                                             |           
|Commitments and Contingencies                                |           
|Stockholders Equity                                         |           
|Preferred stock, $.0001 par value; authorized                |           
|1,000,000 shares;  none outstanding                          | --        
|Common stock, $.0001 par value; authorized                   | 1,000     
|50,000,000 shares;  10,000,000 outstanding                   |           
|Paid-in Capital                                              | 1,500     
|Retained Earnings                                            | (802,984) 
|Total Stockholders Equity                                   | (800,484) 
|Total Liabilities and Stockholders Equity                   | $4,922,858



SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

10



<page>

SUPREME HOSPITALITY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Twelve Months Ended December 31, 2001 and 2000



|                                                           | 2001        | 2000       
|---------------------------------------------------------- | ----------- | -----------
|Revenues                                                   | $
1,722,151 | $
1,410,429
|                                                           |             |            
|Operating Expenses                                         |             |            
|Selling, general                                           |             |            
|and administrative                                         | 1,350,325   | 885,726    
|Depreciation and amortization                              | 273,700     | 273,580    
|Interest                                                   | 623,179     | 619,007    
|                                                           |             |            
|Total Expenses                                             | 2,247,204   | 1,778,313  
|                                                           |             |            
|Net Income (loss) from Operations                          | (525,053)   | (367,884)  
|                                                           |             |            
|Net (Loss) per share                                       | (0.04)      | (0.04)     
|                                                           |             |            
|Weighted Average number of Common Shares Outstanding Basic | 10,000,000  | 10,000,000 



SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

11



<page>

SUPREME HOSPITALITY AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS

For the Years Ended December 31, 2001 and 2000



|                                                                                                | 2001       | 2000      
|----------------------------------------------------------------------------------------------- | ---------- | ----------
|Cash Flows From Operating Activities                                                            |            |           
|Net loss                                                                                        | $(525,053) | $(367,884)
|Adjustments to reconcile net income (loss) to net cash provided (used) to operating activities: |            |           
|Depreciation and amortization                                                                   | 273,700    | 273,580   
|Gain on disposition of vehicle                                                                  | -          | (2,418)   
|(Increase) decrease in assets:                                                                  |            |           
|Trade accounts receivable                                                                       | 16,360     | (27,314)  
|Other current assets                                                                            | (4,615)    | (464)     
|Increase (decrease) in liabilities:                                                             |            |           
|Trade accounts payable                                                                          | 212,014    | 126,712   
|Accrued liabilities                                                                             | 95,615     | 65,277    
|NET CASH PROVIDED (USED) IN OPERATING ACTIVITIES:                                               | $77,251    | $68,417   
|                                                                                                |            |           
|CASH FLOWS FROM INVESTING ACTIVITIES                                                            |            |           
|Deferred Offering Costs                                                                         | -          | (81,000)  
|Purchase of Days Inn Franchise                                                                  | -          | (25,000)  
|Other                                                                                           | (11,719)   | (3,000)   
|NET CASH (USED BY) INVESTING ACTIVITIES:                                                        | $(11,719)  | $(109,000)
|                                                                                                |            |           
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                           |            |           
|Purchase of Equipment                                                                           | -          | (11,238)  
|Loan Proceeds                                                                                   | 594,346    | 123,664   
|Related Party Loans                                                                             | (398,473)  | 168,387   
|Proceeds from sale of common,
stock                                                             | --         | 3,000     
|NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES                                                | $(66,455)  | $(29,761) 
|NET INCREASE (DECREASE) IN CASH                                                                 | (923)      | (10,822)  
|CASH, AT BEGINNING OF
PERIOD                                                                    | $2,667     | 13,499    
|CASH, AT END OF PERIOD                                                                          | $1,754     | 2,677     
|                                                                                                |            |           
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                                                |            |           
|Cash paid for interest                                                                          | $623,179   | $608,763  



SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

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SUPREME HOSPITALITY AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY (DEFICIT)





| | COMMON STOCK |  | 
| | ------------ |  | 

|                                                                               | SHARES     | AMOUNT  | PAID-IN CAPITAL | ACCUMULATED (DEFICIT) | TOTAL     
|------------------------------------------------------------------------------ | ---------- | ------- | --------------- | --------------------- | ----------
|Balances
January 1, 2000                                                       | 25,000     | $2,500  | $-              | $(2,755)              | $(255)    
|Forward stock split, change from no par value to par value of $.0001 per share | 975,000    | (2,400) | 2,400           |                       | -         
|Recapitalization                                                               | 9,000,000  | 900     | (900)           |                       | -         
|Pre-merger capital (deficit)                                                   | -          | -       | -               | (85,950)              | (85,950)) 
|Net (loss) for the period April 30 to December 31, 2000r                       | -          | -       | -               | (189,226)             | (189,226) 
|Balance December 31, 2000                                                      | 10,000,000 | $1,000  | $1,500          | $(277,931)            | $(275,431)
|Net (loss)                                                                     |            |         |                 | (525,053)             | (525,053) 
|                                                                               |            |         |                 |                       |           
|Balance, December 31, 2001                                                     | 10,000,000 | $1,000  | $1,500          | $(802,984))           | $(800,484)





SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

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<page>

SUPREME HOSPITALITY

NOTES TO FINANCIAL STATEMENTS



NOTE 1 - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES



The Company

Supreme Hospitality (the Company or Supreme), formerly Grubstake, Inc. and Richwood, Inc. were incorporated in Nevada on November 10, 1997. Until it acquired all of the outstanding common stock of Temecula Valley Inn, Inc. (TVI) in a recapitalization (reverse merger), the Company had no operations and was a development stage company as defined in FASB No.7. On April 17, 2000, pursuant to the pending recapitalization, the Company changed its name to Supreme Hospitality, and on April 30, 2000, TVI became a wholly owned subsidiary of Supreme in a qualifying reorganization under Section 368 (a)(1)(B) of the Internal Revenue Code of 1986.



TVI's activities were the construction and subsequent operation of a ninety-room, 3-story hotel located in Temecula, California, which was opened to the public in December 1998 under the name of Temecula Valley Inn. In July of 2000, the hotel, pursuant to a franchise agreement, operated under the name of Days Inn.



Principles of Consolidation

The Company's consolidated financial statements include the financial statements of Supreme and TVI for all periods presented. All significant intercompany accounts and transactions have been eliminated.



Financial Statement Presentation

The historical cost basis of all assets and liabilities of TVI have been carried forward, similar to the accounting treatment given in a "pooling of interests". TVI is considered the accounting acquirer because it became the owner of substantially all of the outstanding common stock of the acquired "shell" company. Pre-merger losses of TVI, net of $3,000 of common stock, have been classified as "pre-merger capital (deficit)" in the accompanying financial statements, since such losses have been passed through and utilized by the former owners of TVI when it was initially a proprietorship through December 31, 1999, and an S corporation in 2000, until the date of merger. Unless otherwise indicated, all references to the Company include Supreme and TVI. The corporation's year-end is December 31.



Use of Estimates and Assumptions

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in the Company's financial statements and the accompanying notes. Actual results could differ from those estimates. Certain prior year amounts have been reclassified to conform to the current year presentations.



Incorporation and Taxable Status of TVI

TVI had been a sole proprietorship for the period from its inception in 1997 through December 31, 1999. On January 1, 2000, all of the assets and liabilities relating to the hotel operation were transferred to a newly formed "S" corporation under the provision of Section 351 of the Internal Revenue Code of 1986. Therefore, no income tax provision is provided or applicable for the operating results of TVI prior to April 30, 2000, since those operations were included in the personal tax returns of the former owners of TVI and taxed based on their personal tax strategies.



As of and subsequent to the merger date, an income tax provision is applicable for the tax effects of transactions reported in the financial statements for taxes currently due, plus deferred taxes related to the difference between the basis of the property and equipment for financial and income tax reporting.



Revenue Recognition

Room and other revenues are recognized when earned.



Concentrations

Less than a majority of the customers of the hotel are corporate customers. There is no concentration of corporate customers in any one industry segment, and no one customer or corporation constitutes 10% or more of total revenues.



Cash Equivalents

The Company considers all highly liquid investments with the original maturities of three months or less to be cash equivalents.





14

<page>

NOTE 1 - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (continued)



Loan Fees

Loan fees relating to permanent financing incurred in 1999 were capitalized and are being amortized ratably over the remaining

life of the related loan. Loan fee amortization for 2001 and 2000 was $3,944 and $3,944 respectively.



Fair Value of Financial Instruments

Statement of Financial Accounting Standards No. 107, disclosures about fair value of financial instruments, defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. The carrying values of the Company's financial instruments, which include cash, accounts receivable, accounts payable and accruals, approximate fair values due to the short-term maturities of such instruments. The fair value of the Company's long-term debt, which approximates carrying value, is estimated based on the current rates offered to the Company for debt of the same remaining maturities.



Income Taxes

Income taxes are provided for using the liability method of accounting in accordance with Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes". A deferred tax asset or liability is recorded for all temporary difference between financial and tax reporting of which depreciation is the most significant. Deferred tax expense (benefit) results from the net change during the year of deferred tax assets and liabilities. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to more likely than not realized in future tax returns. Tax law and rate changes are reflected in income in the period such changes are enacted.



Since merger, the Company has continued to sustain operating losses. For income tax purposes the post merger operating loss was approximately $158,000 resulting in a deferred tax asset of $60,000, which has been completely offset by a valuation allowance of $60,000. Therefore as of December 31, 2001 and 2001, no tax benefit or deferred tax asset has been provided in the accompanying consolidated financial statements since management cannot determine, at the present time, that it is more likely than not that such benefit will be utilized in future periods. The operating loss is available for a period of 20 years to offset future taxable income.



Loss Per Share

Net loss per share is provided in accordance with Statement of Financial Accounting Standards No. 128 (SFAS No.128) "Earnings Per Share". Basic loss per share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period. For presentation purposes, all shares outstanding have been considered outstanding since inception.



Going Concern

The Company's financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company's ability to continue in existence is dependent on its ability to develop additional sources of capital, and/or achieve profitable operations. The accompanying financial statements do not include any adjustments that might result from the outcome of these uncertainties. Management's plan is to sell additional equity and eliminate its debt, thereby providing positive cash flow through its existing operations.



Composition of Certain Financial Captions



Property and Equipment



PROPERTY AND EQUIPMENT ARE STATED AT HISTORICAL COST AND ARE DEPRECIATED USING THE STRAIGHT-LINE METHOD OVER THE USEFUL LIVES INDICATED:





















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<page>

|Land and land improvements
Building
Furniture and equipment

Total Cost
Less accumulated depreciation


Property and Equipment, net



Building
Land improvements
Furniture, fixtures and equipment | $2,120,916
2,376,918
1,059,160
----------------
$5,556,994
824,828
----------------
$4,738,902
=========

Useful lives in years

40
15-20
3-10
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                    |                                                                                                                                               

Depreciation expense for the years ended December 31, 2001 and 2000 was $273,700 and $268,969, respectively.



Other Assets

Included in other assets is the cost of the Days Inn initial franchise fee of $25,000, which is being amortized ratably over the 15-year period of the franchise agreement, commencing in 2000. Amortization expense for 2001 and 2000  was $1,667 and $667, respectively. Franchise royalties and reservation system user fees totaling 8.8 percent of gross room revenues are expensed as incurred.



Deferred Offering Costs

Supreme entered into an agreement with a consulting firm in March 2000 which provides, among other things, that the firm will arrange for the acquisition of a shell company, obtain a trading symbol and market maker for the sale of the Company's stock, and arrange for the filing and successful completion of a registration statement with the Securities and Exchange Commission for the sale of the Company's common stock.



Deferred Offering Costs (continued)

As of December 31, 2000, Supreme paid in full all consulting fees of $73,500, which were capitalized as a deferred offering cost along with other related registration costs incurred, pending the successful completion of a proposed public offering. If the offering is successful, all deferred costs incurred will be charged against the net proceeds of the offering. If unsuccessful, deferred offering costs will be written off



NOTE 2 - LONG -TERM DEBT



The Company's president and his wife are the only persons obligated to repay the following long-term debt. They quitclaimed their interests in the real estate to the Company, which was a violation of the banks' loan covenants. The banks anticipate that they will eventually require loan assumptions by the Company, however, no action has been taken to date. For financial presentation purposes, all of the following loans are presented as debt of the Company since the majority of them are collateralized by real and personal property of the Company.



Note payable to a bank, payable in monthly installments of $21,961 including interest at prime plus 1%, final payment due April, 2006 of $2,744,836, collateralized by first position on substantially all of the assets owned by the Company or hereinafter acquired $ 2,744,836



The interest rate at December 31, 2001 was 10.50%. Because the bank has not requested an increase in the total monthly amount since inception of the loan as a result of the increasing prime rate, there has been no reduction in loan principal since May 2000. As of December 31, 2001, total accrued interest on the loan exceeded the monthly payments required by a total of $35,469, which has been included in accrued liabilities.



Note payable to a bank, guaranteed by the Small Business Administration, payable in monthly installments of $9,444, including interest based on 8.5 % prime plus 2%, plus or minus adjustments quarterly for interest rate changes, final amortized



16

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balance due February 2023, collateralized by a second position on substantially all of the assets owned by the Company or hereinafter acquired. The prime rate at December 31, 2001 was 9.50%. 978,972

Note payable to an individual, payable in monthly installments of $4,825, including interest at 10%, final payment due February 2003, collateralized by a third position on the Company's real property. 484,173



Capitalized lease obligation, payable in monthly installments of $28,854, including interest ranging from 12.4% to 14.4% and sales taxes, final payment due February 2004, collateralized by leased assets of the hotel. 893,845



Unsecured installment notes payable to two finance companies, $3,236 payable monthly, including interest at 12.34% to 16.52% per annum, due 2005. 122,038



|Total long-term debt                                      $ 4,961,536
Less current maturities                                        228,686
-----------------
Long-term debt, net of current maturities      $ 4,732,850
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                         
|                                                                                                                                                                                                                         



Maturities of long-term debt for the five years following December 31, 2001 are as follows:



|2002              $    228,686
2003                    820,070
2004                      95,698
2005                      41,847
Thereafter          3,775,235
==========
$ 4,961,536
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



NOTE 3 - CAPITAL LEASE



The Company leases furniture and equipment, building and land improvements under a capital lease. The economic substance of the lease is that the Company is financing the acquisition of the assets through the lease, and accordingly, these assets are capitalized as follows:



|Land improvements                     $   137,715
Building improvements                     114,247
Furniture and equipment               1,041,858
---------------
$ 1,293,820
Less accumulated depreciation        370,025
---------------
$    923,795
=========
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following is a schedule of future annual minimum lease payments required under the lease together with their net present value as of December 31, 2001:











17







<page>

|December 31,                     Amount
2002                            346,245
2003                            346,245
2004                              52,789


Total minimum lease payments        1,091,524
Amount representing interest             (197,679)
Present value of net minimum
lease payments                          893,845
Current portion                                    (246,442)
Long-term capital lease obligation     $ 647,403
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The capital lease obligations are contained in the Notes Payable category in the balance sheet.



NOTE 4 - RELATED PARTIES



A construction company owned by Supreme's president was the general contractor for the hotel, which was completed in late1998 at a cost of approximately $2,400,000. Approximately $110,000 was paid to his construction company for supervision and reimbursement of costs incurred of which less than 50 percent was compensation. The project manager for the hotel's construction was a company owned by one of three shareholders of TVI which was paid approximately $58,000 for supervision services.



Since inception the president of the Company has provided financing to maintain the positive cash flow of the Company, substantially through personal and related party corporate loans, the majority of which were interest bearing from 8 to 10 percent per annum. As of December 31, 2001, these related party loans totaled $492,123 the majority of which are considered due within one year. During the year 2001 net loans from related parties totaled $168,387.



Included in the loans payable to related parties at December 31, 2001 are two loans that were obtained from a water district and the city prior to 2000. The latter of these loans is collateralized by an interest in the Company's real estate, whereas the other loan provides for termination of the water supply to the hotel in the event the loan becomes delinquent. Although the Company was delinquent in the monthly payments to the city, the city agreed to take no action provided the loan, which was due September 1, 2000, is paid off at the rate of $10,000 a month, commencing April, 2001. The balance of that loan at December 31, 2001 was $55,637.



The president and his wife are also the obligated on all long-term debt, as more fully explained in Note 2 of the notes to financial statements.



NOTE 5 - COMMON STOCK



At inception, the Company originally had authorized and issued 25,000 shares of no par value common stock. On April 17, 2000 the articles of incorporation were amended to provide for 50,000,000 authorized shares at $.0001 par value and a forward stock split of 40 to 1, resulting in 1,000,000 issued and outstanding shares as of the merger date. An additional 9,000,000 common shares were then issued to the TVI shareholders in a recapitalization of the Company.



In connection with the employment contract of the Company's president, as more fully described below, the Board of Directors approved an annual, non-qualified option for him to acquire, at fair market value at the date of grant, a minimum of 1 percent of the Company's outstanding shares during the term of his employment contract. The number of shares to be granted shall be determined by the Board of Directors. All shares granted shall have an exercise period of 36 months following the date of grant. No options were granted as of December 31, 2001.



NOTE 6 - EMPLOYMENT CONTRACT



Commencing October 1, 2000, and expiring on December 31, 2010, the Board of Directors approved an employment contract for its president, that provides for, among other benefits, annual compensation of $120,000 through December 31, 2001, and thereafter, a minimum of a 10 percent increase per annum. In addition, the president is to receive annually, 10 percent of pre-



18





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tax income of the Company and stock options as more fully described above. There are a number of fringe benefits provided in the contract during the contract term, including the use of an automobile, disability compensation based on annual compensation, and a $500,000 life insurance policy payable to beneficiaries designated by the president.



Prior to the above employment contract, the President received $3,000 per month as a consultant for the period from April 1999 through April of 2000, pursuant to a written agreement.



NOTE 7 - OPTION AGREEMENT



In May 2000 the Company received an option from its president to acquire 2.61 acres of approved hotel property owned by him and located in Redding, California for $1,300,000, including predevelopment, use permit and building drawings. If acquired, a larger 3-story hotel would be constructed. The option expires in May 2001. The entire project is estimated to cost $5,850,000.





NOTE 8 - PAST DUE STATUS AND LOAN VIOLATIONS



Substantially all of the accounts payable at December 31, 2001, totaling $446,173 were past due based on their payment terms of which $104,000 consisted of real estate taxes, interest and penalties for the period from December, 1999 through May, 2000. The past due status and penalties added to real estate taxes are technical violations of both bank loans, however, the Company has verbal assurances that as long as the loan payments are currently maintained, and the Company timely and fully explains its reasons for any technical violations, the banks will not call the loan.



In December 2001, the Company ceased doing business as a Days Inn franchise. The Company contends that franchisor has failed to do certain things contained in the franchise agreement and the franchisor was still wanting the Company to honor the franchise agreement and pay its royalties as specified in the agreement. This has resulted in the Company taking legal action against the franchisor and the franchisor taking legal action again the Company.



The Companys financial statements are prepared using generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the issues raised above raise substantial doubt about its ability to continue as a going concern.



NOTE 9 - SUBSEQUENT EVENTS



The Company incurred substantial additional stock offering costs, principally auditing fees, subsequent to December 31, 2001, to enable it to comply with the filing requirements, on Form SB-2, of the Securities and Exchange Commission for the proposed offering of its securities.











19

<page>

SIGNATURE PAGE



In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



Supreme Hospitality

(Registrant)



By: /s/ Larry W. Lang

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

Larry W. Lang

Chairman, Sole Director, President

and Secretary/Treasurer (Principal

and Accounting Officer)



Date:  May 10, 2002





20