UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

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

OR

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

Commission File No. 0-19840

SHOLODGE, INC.

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 August 20, 2004, there were 5,006,611 shares of ShoLodge, Inc. common stock outstanding.

Table of Contents

ShoLodge, Inc. and Subsidiaries

(1)

Derived from fiscal year ended December 28, 2003 audited financial statements. See accompanying notes.

ShoLodge, Inc. and Subsidiaries
Consolidated Balance Sheets (continued)

(1)

Derived from fiscal year ended December 28, 2003 audited financial statements. See accompanying notes.

ShoLodge, Inc. and Subsidiaries

See accompanying notes.

ShoLodge, Inc. and Subsidiaries

See accompanying notes.

SHOLODGE, INC. AND SUBSIDIARIES

BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States 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 accounting principles generally accepted in the United States 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 28, 2003.

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 53^rd 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 July 11, 2004 and July 13, 2003 are not necessarily indicative of the operating results for the entire year.

Certain reclassifications have been made in the first quarter 2003 consolidated statement of earnings to conform to the classifications used in 2004. These reclassifications had no impact on net losses as previously reported.

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

Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, requires that long-lived assets to be disposed of by sale, including those of discontinued operations, be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. Discontinued operations do not include amounts for operating losses that have not yet been incurred. Under SFAS No. 144, the reporting of discontinued operations includes all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction. The Company reports as

discontinued operations assets held for sale (as defined by SFAS No. 144) and assets sold in the current period. All results of these discontinued operations are included in a separate component of income on the consolidated statements of earnings under the heading, “operations of hotels disposed of and transferred, net of income taxes.”

The following table summarizes the results of operations for five properties transferred in the fourth quarter of 2002 and eleven properties sold or classified as held for sale, from the hotel operations segment for the fiscal quarters and fiscal year-to-date periods ended July 11, 2004 and July 13, 2003 (amounts in thousands):

The assets of the five properties transferred in the fourth quarter of 2002 and presented in the accompanying consolidated balance sheets as assets of hotels transferred under contractual agreements (notes receivable) are as follows at July 11, 2004 (one property) and December 28, 2003 (two properties) (amounts in thousands):

The assets and liabilities of the properties held for sale presented in the accompanying consolidated balance sheets are as follows (amounts in thousands):

The remaining two properties held for sale were sold for approximately $9.2 million subsequent to July 11, 2004, resulting in a pretax gain of approximately $130,000 that will be recorded in the third quarter.

EARNINGS (LOSS) PER SHARE

Earnings (loss) per share was computed by dividing net earnings (loss) by the weighted average number of common shares outstanding. The following table reconciles earnings (loss) and weighted average shares used in the earnings (loss) per share calculations for the fiscal quarters and fiscal year-to-date periods ended July 11, 2004, and July 13, 2003: