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FORM 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period as the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).    Yes [  ]     No [X]

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date.

As of June 4, 2003, there were 5,118,278 shares of ShoLodge, Inc. common stock outstanding.

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ShoLodge, Inc. and Subsidiaries
Consolidated Balance Sheets

(1)  Derived from fiscal year ended December 29, 2002 audited financial statements.

     See accompanying notes.

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ShoLodge, Inc. and Subsidiaries
Consolidated Balance Sheets

(1)  Derived from fiscal year ended December 29, 2002 audited financial statements.

     See accompanying notes.

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ShoLodge, Inc. and Subsidiaries
Consolidated Statements of Earnings (unaudited)

See accompanying notes.

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ShoLodge, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (unaudited)

See accompanying notes.

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SHOLODGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

In Management’s opinion, the information and amounts furnished in this report reflect all adjustments which are necessary for the fair presentation of the financial position and results of operations for the periods presented. All adjustments are of a normal and recurring nature. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2002.

The fiscal year consists of a 52/53 week year ending the last Sunday of the year. The Company’s fiscal quarters have 16, 12, 12, and 12 weeks in the first, second, third and fourth quarters, respectively, in each fiscal year. When the 53rd week occurs in a fiscal year, it is added to the fourth fiscal quarter, making it 13 weeks in length.

The Company has historically reported lower earnings in the first and fourth quarters of the year due to the seasonality of the Company’s business. The results of operations for the quarters ended April 20, 2003 and April 21, 2002 are not necessarily indicative of the operating results for the entire year.

EXCHANGE OF PROPERTIES

The Company opened a new AmeriSuites hotel in October 2001 and another in February 2002. In accordance with the July 2000 agreement in which the Company sold its operating interests in 27 AmeriSuites hotels, the Company was obligated to exchange either one or both of the AmeriSuites hotels with the purchaser, at its landlord’s option, for one or two specific existing hotels of the same brand and number of rooms previously operated by the Company prior to July 2000. The exchange option was exercised on both hotels, and the exchanges were completed in the first quarter of 2002. The exchanges were accounted for as the acquisitions of businesses, and the hotels received in the exchanges were recorded at their fair value in the first quarter of 2002.

LEASE ABANDONMENT INCOME

The Company leased three hotels to Prime Hospitality Corp. (“Prime”) in July of 2000. In the first quarter of 2003, Prime abandoned the lease of the three hotels and the Company resumed operations of the hotels on April 5, 2003. Due to the terms of the lease agreement, the Company had recorded a liability and a deferred credit in July of 2000. Due to the lease abandonment by Prime in the first quarter of 2003, the remaining deferred amounts totaling $4,913,836 and $415,668 in cash received from Prime upon the abandonment, were recognized as lease abandonment income totaling $5,329,504 in the first quarter of 2003.

DISCONTINUED OPERATIONS

Discontinued operations resulted from the sale of one hotel in the second quarter of 2002, the sale of one and transfer of five hotels in the fourth quarter of 2002, and the reclassification of five hotels to assets of hotels held for sale in the first quarter of 2003.

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The five hotels reclassified to assets of hotels held for sale in the first quarter of 2003 was based upon the Company’s decision to sell the five hotels to cash purchasers as part of a plan to divest all of the remaining Company-owned hotels other than its AmeriSuites hotels and one GuestHouse Inn which is leased. Subsequent to the decision in late January of 2003, contracts for the sale of all five of the hotels were executed by the end of the Company’s first fiscal quarter and the sales are expected to be consummated by the end of its second fiscal quarter of 2003. Based upon these sales contracts, three of the five hotels are expected to sell, net of sales commissions, for $1,768,559 less than their carrying values. Accordingly, the carrying values of these three hotels have been written down by this impairment amount in the first quarter of 2003.

The effects of these twelve hotels’ operations, the gain or loss on the sale and transfer of the hotels, and the impairment of the hotels classified as held for sale, have been removed from operating earnings for the first quarter of 2003 and 2002 in accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The following table summarizes the results of operations for the twelve properties sold, transferred, or classified as held for sale (amounts in thousands):