UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             ----------------------

                                    FORM 10-Q

                                   (Mark One)

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

            For the quarterly period ended June 30, 1999.

                                                         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: 33-78866
                             ----------------------

                              MOA HOSPITALITY, INC.
            (Exact name of registrant as specified in its charter)

         Delaware                                           33-0166914
    (State or other jurisdiction of                      (I.R.S. Employer
     incorporation or organization)                       Identification No.)
                             ----------------------

                             701 Lee Street, Suite 1000
                             Des Plaines, Illinois 60016
                                  (847) 803-1200
            (Address, including zip code, and telephone number, including
             area code, of  registrant's  principal executive offices)
                             ----------------------

         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  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


     Number of shares of Common Stock,  $.01 par value  outstanding as of August
12, 1999: 800,000.
          -------


<PAGE>


                                INDEX TO FORM 10-Q

                                                                           Page
Part I    Financial Information

Item 1.   Financial Statements

          Condensed consolidated balance sheets - June 30, 1999              2
          (unaudited) and December 31, 1998.

          Condensed consolidated statements of operations - Three            3
          months ended June 30, 1999 and 1998 (unaudited); Six months
          ended June 30, 1999 and 1998 (unaudited).

          Condensed consolidated statements of cash flows -                  4
          Six months ended June 30, 1999 and 1998 (unaudited).

          Notes to condensed consolidated financial statements -             5
          June 30, 1999 (unaudited).


 Item 2.  Management's Discussion and Analysis of Financial Condition
          and Results of Operations

          General                                                            8

          Results of Operations                                              9

          Liquidity and Capital Resources                                   16


 Part II  Other Information

 Item 1.  Legal Proceedings                                                 18

 Item 2.  Changes in Securities                                             18

 Item 3.  Defaults upon Senior Securities                                   18

 Item 4.  Submission of Matters to a Vote of Security Holders               18

 Item 5.  Other Information                                                 18

 Item 6.  Exhibits and Reports on Form 8-K                                  18


 Signatures                                                                 19



<PAGE>


                         PART I - FINANCIAL INFORMATION

          Item 1.             Financial Statements

                         MOA HOSPITALITY, INC. AND SUBSIDIARIES

                         CONDENSED CONSOLIDATED BALANCE SHEETS
                          (In thousands, except share data)


                                                       June 30,     December 31,
                                                         1999           1998
                                                     -----------    -----------
                                                     (Unaudited)
ASSETS
 Current Assets:
 Cash and cash equivalents                           $    9,190     $   19,582
 Accounts receivable from property operations             2,783          2,015
 Operating supplies and prepaid expenses                  1,728          2,325
 Current portion of mortgage and notes receivable         2,463          2,139
                                                     -----------    -----------
 Total Current Assets                                    16,164         26,061
 Investment property:
   Operating properties, net of
     accumulated depreciation                           266,379        279,944
   Land held for development                              5,230          3,829
                                                     -----------    -----------
 Total investment property                              271,609        283,773
 Other Assets:
 Deposits and other assets                               15,436          5,507
 Mortgage and other notes receivable,
   less current portion                                  20,915         11,626
 Financing and other deferred costs,
   net of accumulated amortization
   of $9,104 in 1999 and $8,259 in 1998                  12,749         12,088
                                                     -----------    -----------
 Total Other Assets                                      49,100         29,221
                                                     -----------    -----------
    Total Assets                                     $  336,873     $  339,055
                                                     ===========    ===========

LIABILITIES, MINORITY INTERESTS AND
 STOCKHOLDERS' EQUITY
 Current Liabilities:
 Trade accounts payable                              $    4,620     $    3,939
 Real estate taxes payable                                2,833          2,848
 Accrued interest payable                                 3,400          3,382
 Other accounts payable and accrued expenses              7,826          8,300
 Current portion of long-term debt                       11,001         40,199
                                                     -----------    -----------
 Total Current Liabilities                               29,680         58,668

 Long-term debt, less current portion:
 Mortgage and other notes payable                       210,594        178,846
 12% Senior Subordinated Notes, net of
   unamortized discount of $2,692
   in 1999 and $2,894 in 1998                            77,308         77,106
                                                     -----------    -----------
 Total Long-term debt, excluding current portion        287,902        255,952
                                                     -----------    -----------
 Total Liabilities                                      317,582        314,620
                                                     -----------    -----------

 Minority Interests                                       1,694          1,689
 Stockholders' equity:
 Common stock, $.01 par value, 1,500,000
   shares authorized; 800,000 shares
   issued and outstanding                                     8              8
 Additional paid-in capital                              15,294         15,294
 Retained earnings                                        2,295          7,444
                                                     -----------    -----------
 Total Stockholders' Equity                              17,597         22,746
                                                     -----------    -----------
    Total Liabilities and Stockholders' Equity       $  336,873     $  339,055
                                                     ===========    ===========


 See accompanying notes to condensed consolidated financial statements.

<PAGE>


                   MOA HOSPITALITY, INC. AND SUBSIDIARIES

               CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                 (Unaudited, in thousands except share data)

<TABLE>
<CAPTION>

                                         Three Months Ended        Six Months Ended
                                               June 30                  June 30
                                        ---------------------    ----------------------
                                           1999        1998        1999         1998
                                        ---------   ---------    ---------    ---------
<S>                                     <C>         <C>          <C>          <C>
Revenues:
  Motel operating revenues              $ 26,181    $ 31,643     $ 47,444     $ 57,081
  Other revenues                           1,082         232        1,551          453
                                        ---------   ---------    ---------    ---------
Total revenues                            27,263      31,875       48,995       57,534
Costs and expenses:
  Motel operating expenses                14,145      15,681       27,525       30,617
  Marketing and royalty fees               1,799       2,010        3,234        3,810
  General and administrative               3,474       2,375        6,258        4,874
  Depreciation and amortization            3,606       4,038        7,218        8,086
                                        ---------   ---------    ---------    ---------
Total direct expenses                     23,024      24,104       44,235       47,387
                                        ---------   ---------    ---------    ---------
Net operating income                       4,239       7,771        4,760       10,147
Interest expense                           7,397       7,799       14,703       15,415
                                        ---------   ---------    ---------    ---------
Loss from operations                      (3,158)        (28)      (9,943)      (5,268)
Minority interests                           (18)        (58)          (5)         (40)
Gain on sale of properties                 1,278      14,421        1,652       14,874
                                        ---------   ---------    ---------    ---------
Income (loss) before income taxes         (1,898)     14,335       (8,296)       9,566
Income tax expense (benefit)                (657)      5,579       (3,147)       3,723
                                        ---------   ---------    ---------    ---------
Net income (loss)                       $ (1,241)   $  8,756     $ (5,149)    $  5,843
                                        =========   =========    =========    =========
Net income (loss) per common share
 (basic and diluted)                    $  (1.55)   $  10.95     $  (6.44)    $   7.30
                                        =========   =========    =========    =========

Weighted average number of
  common shares outstanding              800,000     800,000      800,000      800,000
                                        =========   =========    =========    =========

</TABLE>


 See accompanying notes to condensed consolidated financial statements.
<PAGE>

                     MOA HOSPITALITY, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (Unaudited, in thousands)


   <TABLE>
<CAPTION>
                                                                          Six Months Ended
                                                                               June 30
                                                                     --------------------------
                                                                         1999           1998
                                                                     -----------    -----------
<S>                                                                  <C>            <C>

 Cash flows provided by (used in) operating activities:
  Net income (loss)                                                  $   (5,149)    $    5,843
  Adjustments to reconcile net income (loss) to cash provided by
   operating activities:
  Depreciation, amortization and accretion of
   discount on notes                                                      7,411          8,273
  Minority interests of others in net income (loss)
   from operations                                                            5             40
  Deferred income taxes                                                   1,121            241
  Gain on sale of properties                                             (1,652)       (14,874)
  Change in assets and liabilities:
  (Increase) decrease in assets:
    Accounts receivable                                                    (772)        (1,506)
    Operating supplies, prepaid expenses,
      deposits and other assets                                         (12,056)         6,226
  Increase (decrease) in liabilities:
    Accounts payable and accrued expenses                                   (17)         2,404
    Accrued interest payable                                                 17           (188)
                                                                     -----------    -----------
 Net cash (used in) operating activities                                (11,092)         6,459
 Cash flows provided by (used in) investing activities:
  Acquisition and development of investment properties                   (4,303)       (11,497)
  Refurbishment of investment properties                                 (4,054)        (2,902)
  Net proceeds from sale of investment properties                         6,397         23,270
  Cash restricted for refurbishment of properties                         1,456            208
  Collections on mortgage and other notes receivable                        277          2,100
                                                                     -----------    -----------
 Net cash provided by (used in) investing activities                       (227)        11,179
  Cash flows provided by (used in) financing activities:
  Proceeds from notes payable                                            37,948          5,919
  Repayment of notes payable                                            (35,398)       (19,292)
  Distributions to minority interests                                         -           (157)
  Deferred financing costs                                               (1,623)          (247)
                                                                     -----------    -----------
 Net cash provided by (used in) financing activities                        927        (13,777)
                                                                     -----------    -----------
 Net increase (decrease) in cash and cash equivalents                   (10,392)         3,861
 Cash and cash equivalents at beginning of period                        19,582         13,032
                                                                     -----------    -----------
 Cash and cash equivalents at end of period                          $    9,190     $   16,893
                                                                     ===========    ===========

 Supplementary disclosure of cash flow information:
        Cash paid during the period for interest                     $    14,483    $   15,604
                                                                     ============   ===========
        Cash paid (net of refunds received) during the
             period for income taxes                                 $       656    $       96
                                                                     ============   ===========
</TABLE>

   See accompanying notes to condensed consolidated financial statements.

<PAGE>

                     MOA HOSPITALITY, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                                  June 30, 1999

1.  Basis of Presentation

         The accompanying  unaudited  interim condensed  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 the opinion of management,  all
adjustments   (consisting  only  of  normal  recurring  adjustments)  considered
necessary for a fair presentation have been included.  Operating results for the
six-month  period  ended June 30,  1999 are not  necessarily  indicative  of the
results that may be expected for the year ended  December 31, 1999.  For further
information,  refer  to the  consolidated  financial  statements  and  footnotes
thereto included in MOA  Hospitality,  Inc. and  Subsidiaries'  Annual Report on
Form  10-K for the year  ended  December  31,  1998.  The  terms  "MOA"  and the
"Company" mean MOA Hospitality, Inc. and its subsidiaries.

2.  Divestitures and Leasing Activities

         In January through June 1999, the Company leased eight of its operating
properties to third party operators for a term of five years.

         In January  through  June 1999,  the  Company  sold six of its  lodging
facilities for  approximately  $16.9 million  consisting of $7.0 million of cash
and $9.9 million in notes receivable. The net gain recognized by the Company was
approximately $1.7 million. In comparison,  during the period of January through
June of 1998 the Company sold two lodging facilities and a vacant parcel of land
for a net gain of $14.9 million.

         3. Mortgage and Other Notes Payable

                  In January 1999,  the Company  repaid  mortgage  notes with an
outstanding  balance of $17.2 million at December 31,1998 with the proceeds of a
new $13.5 million loan and the balance with cash. The new loan is secured by six
properties and bears interest at LIBOR plus 3.25 percentage  points.  During the
initial  year of the  loan,  all  excess  cash  flow  (as  defined  in the  loan
agreement) from the properties is to be applied toward  principal  amortization.
Thereafter,  principal  amortization is based on a twenty-year  schedule plus an
additional  $250,000 of annual  principal  amortization  paid monthly.  The loan
matures in January 2004. In March 1999, the Company borrowed $23.4 million,  the
proceeds of which were  utilized to pay-off loans with  outstanding  balances of
$14.0 million at December 31, 1998. The balance of the net proceeds was retained
for working capital  purposes.  The loan was initially secured by ten properties
and five mortgage notes  receivable.  The interest rate pertaining to the amount
of the loan  allocated to the  properties is the Prime Rate plus 0.5  percentage
points and the interest rate  pertaining to the amount of the loan  allocated to
the mortgage notes receivable is the Prime rate plus 1.25 percentage points. The
loan requires  principal payments based on a twenty-year  amortization  schedule
with the  outstanding  balance of the loan due in April 2006.  Provided  certain
conditions  are met, the Company has the ability to sell  properties  secured by
the loan in partial  exchange for a mortgage note  receivable that would than be
pledged as  collateral  under the loan with the  interest  rate  adjusted to the
Prime rate plus 1.25 percentage points.



<PAGE>


                  The Company's principal repayment  obligations,  reflective of
the above mentioned debt transaction,  as of June 30, 1999 is $7,132,000 for the
remainder of fiscal 1999; $5,842,000 for 2000 and $21,559,000 for 2001.

           The Company has a $3.9 million  mortgage note payable that originally
matured on May 31, 1999. The note is secured by four motel properties.  The bank
holding the note  extended the maturity  date to July 15, 1999,  however,  as of
this date has  indicated  it does not desire to provide any further  extensions.
The Company is in the process of seeking other financing. As of August 12, 1999,
no firm financing commitments have been obtained.

           The  Company  believes  it has or will be  able  to  obtain  adequate
resources to meet its near-term maturing debt and other  obligations.  Although,
the deteriorating  trend in operating results noted above could adversely affect
the Company's  ability to meet its maturing debt  obligations  in 2004 and 2005,
including the maturity of the $80 million 12% Senior Subordinated Notes in 2004.

4. Acquisitions

                  In June 1999, the Company acquired a newly  constructed  motel
and a parcel  of vacant  land  from an  affiliate  at a cost of  $3,496,000,  in
settlement  of a  receivable.  As of June 30,  1999 there are no further  motels
being developed by the affiliate for the Company.

5. Income Taxes

         Income tax expense  differs  from the amounts  computed by applying the
U.S. federal income tax rate of 34% to income before income taxes principally as
a result of state income taxes.

         6. Contingencies

                  In July 1999, the Company entered into a settlement  agreement
with ShoLodge Franchise Systems, Inc.  ("ShoLodge")  resolving all disputes with
respect to the litigation initiated by the Company against ShoLodge in 1997. The
Company  disaffiliated it's fourteen Shoney's Inns during the first half of 1998
at which  time it  ceased  the  payment  of  franchise  fees  that  amounted  to
approximately  $650,000 on an annual basis. While ShoLodge was seeking franchise
fees  for  the  remaining  terms  of the  franchise  agreements  the  settlement
agreement  requires  for the  Company to make an initial  payment of $575,000 in
July 1999 and three subsequent  payments of $200,000 in July 2000, 2001 and 2002
without interest. The present value of these payments or $1,068,000 was expensed
in June 1999 as part of the Company's general and administrative expenses.

                  The  Company is involved  in various  other legal  proceedings
arising in the ordinary  course of  business.  The Company does not believe that
any of these  actions,  either  individually  or in the  aggregate,  will have a
material  adverse  effect on the  Company's  business,  results of operations or
financial condition.

                  In January 1997, the company sold a property subject to an
existing $2.3 million first mortgage.  The Company remains contingently liable
for the outstanding balance of the note in the event the purchaser does not
repay the note in accordance with its terms.


<PAGE>


7. Segments

                  During the fourth quarter of 1998, the Company adopted  the
Financial   Accounting  Standards  Board's  Statement  of  Financial  Accounting
Standards  No 131,  "Disclosures  About  Segments of an  Enterprise  and Related
Information"("Statement  No. 131").  Statement No. 131 establishes standards for
the manner in which public business  enterprises  report  information  regarding
reportable operating segments.  The adoption of Statement No. 131 did not affect
the results of operations or financial position of the Company.

                  As  of  June  30,  1999  the  Company,  directly  and  through
subsidiaries, owned 117 lodging facilities in 38 states. The Company owns a 100%
interest in all but two of its  properties and also operates all but thirteen of
its  motels,  which are leased to third  party  tenants  pursuant  to  operating
leases. The Company separately  evaluates the performance of each of its motels.
However,  because each of the motels has similar economic  characteristics,  the
motels have been  aggregated  into a single  dominant motel segment as indicated
below.
<TABLE>
<CAPTION>

                                                        Three months ended            Six months ended
                                                             June 30                      June 30
                                                     -----------------------       ----------------------

                                                       1999          1998            1999         1998
                                                     ---------     ---------       ---------    ---------
<S>                                                  <C>           <C>             <C>          <C>
Motel operations:
  Motel operating revenue:

    Room revenues                                    $ 24,629      $ 29,734        $ 44,334     $ 53,238
    Ancillary motel revenues                            1,552         1,909           3,110        3,843
                                                     ---------     ---------       ---------    ---------
       Total motel operating revenues                  26,181        31,643          47,444       57,081
  Motel costs and expenses:
    Motel operating expenses                           14,145        15,681          27,525       30,617
    Marketing and royalty fees                          1,799         2,010           3,234        3,810
    Depreciation and amortization                       3,532         3,552           6,737        7,126
                                                     ---------     ---------       ---------    ---------
       Total motel direct expenses                     19,476        21,243          37,496       41,553
                                                     ---------     ---------       ---------    ---------
                                                        6,705        10,400           9,948       15,528
Corporate Operations
  Other revenues                                        1,082           232           1,551          453
  General and administrative expenses:
    Management Company Operations                       1,285         1,305           2,924        2,548
    Construction/Acquisition and Divestiture              320           276             683          597
    Other general and administrative                    1,869           794           2,652        1,729
                                                     ---------     ---------       ---------    ---------
      Total general and administrative expenses         3,474         2,375           6,259        4,874
Depreciation and amortization                              74           486             480          960
                                                     ---------     ---------       ---------    ---------
                                                       (2,466)       (2,629)         (5,188)      (5,381)
                                                     ----------    ---------       ---------    ---------
Net operating income                                    4,239         7,771           4,760       10,147
  Interest expense                                      7,397         7,799          14,703       15,415
                                                     ---------     ---------       ---------    ---------
Loss from operations                                   (3,158)          (28)         (9,943)      (5,268)
  Minority interests                                      (18)          (58)             (5)         (40)
  Gain on sale of properties                            1,278        14,421           1,652       14,874
                                                     ---------     ---------       ---------    ---------
Income (Loss) before income taxes                      (1,898)       14,335          (8,296)       9,566
  Income tax expense  (benefit)                          (657)        5,579          (3,147)       3,723
                                                     ---------     ---------       ---------    ---------
Net Income (Loss)                                    $ (1,241)     $  8,756        $ (5,149)    $  5,843
                                                     =========     =========       =========    =========

</TABLE>

<PAGE>



Item 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION
          AND RESULTS OF OPERATIONS


CERTAIN  STATEMENTS UNDER THE CAPTION  "MANAGEMENT'S  DISCUSSION AND ANALYSIS OF
FINANCIAL  CONDITION  AND RESULTS OF  OPERATIONS,"  CONSTITUTE  "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE  SECURITIES  LITIGATION REFORM ACT
OF 1995  AND AS  SUCH,  SPEAK  ONLY AS OF THE DATE  MADE.  SUCH  FORWARD-LOOKING
STATEMENTS  INVOLVE KNOWN AND UNKNOWN RISKS AND  UNCERTAINTIES AND OTHER FACTORS
WHICH MAY CAUSE THE ACTUAL  RESULTS,  PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY
TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS,  PERFORMANCE OR ACHIEVEMENTS
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING  STATEMENTS.  SUCH FACTORS INCLUDE,
AMONG  OTHERS,  THE  FOLLOWING:  THE  COMPANY'S  ABILITY  TO  OBTAIN  FINANCING,
COMPETITION,  INTEREST  RATE  FLUCTUATIONS,  OR GENERAL  BUSINESS  AND  ECONOMIC
CONDITIONS.

THIS  DISCUSSION  SHOULD  BE READ IN  CONJUNCTION  WITH  THE  INTERIM  CONDENSED
CONSOLIDATED  HISTORICAL  FINANCIAL  STATEMENTS  OF THE  COMPANY  AND THE  NOTES
THERETO INCLUDED ELSEWHERE HEREIN. THE SUPPLEMENTAL HISTORICAL OPERATING RESULTS
PRESENTED  BELOW FOR THE THREE AND SIX MONTHS  ENDED JUNE 30, 1999 AND 1998 HAVE
BEEN PREPARED ON THE SAME BASIS AS THE INTERIM CONDENSED CONSOLIDATED HISTORICAL
FINANCIAL STATEMENTS AND, IN THE OPINION OF THE COMPANY, INCLUDE ALL ADJUSTMENTS
(CONSISTING  ONLY OF NORMAL RECURRING  ADJUSTMENTS)  NECESSARY TO PRESENT FAIRLY
THE INFORMATION SET FORTH THEREIN.

General

         MOA operates  principally in the economy limited service segment of the
lodging industry.  As a result, its average room rates tend to be lower than the
average  room rates of full  service  lodging  facilities.  However,  due to the
limited  nature of the public space and ancillary  services  provided by limited
service  motels,  the  Company's  expenses  tend to be lower  than those of full
service lodging facilities. The profitability of the lodging industry in general
is  significantly  dependent upon room rental rates and occupancy  rates. Due to
the fixed nature of a relatively high portion of the Company's expenses, changes
in either room rates or  occupancy  rates result in  significant  changes in the
operating profit of the Company's motels.


<PAGE>


 Three Months Ended June 30, 1999 Compared to the Three Months Ended
 June 30, 1998

   The following chart presents certain historical operating results and
 statistics  and  is  being  provided  as a  supplement  to  the  condensed
 consolidated financial statements presented elsewhere herein.

<TABLE>
<CAPTION>

                                                                  Supplemental Operating Results and Statistics
                                                        -------------------------------------------------------------------
                                                                                   (unaudited)

                                                                            Three Months Ended June 30
                                                        -------------------------------------------------------------------
                                                           Motels Owned           Acquisitions/
                                                           Both Periods            Divestitures            Consolidated
                                                        --------------------    -------------------   ---------------------
                                                          1999       1998         1999       1998       1999         1998
                                                        ---------  ---------    --------  ---------   ---------   ---------
                                                                      (dollars in thousands, except Other data)
<S>                                                     <C>        <C>          <C>       <C>         <C>         <C>
      Motel operations:
        Motel operating revenues:

          Room revenues                                 $ 24,065   $ 23,496     $   564   $  6,238    $ 24,629    $ 29,734
          Ancillary motel revenues                         1,506      1,287          46        622       1,552       1,909
                                                        ---------  ---------    --------  ---------   ---------   ---------
            Total motel operating revenues                25,571     24,783         610      6,860      26,181      31,643
        Motel costs and expenses:
          Motel operating expenses                        13,584     10,856         561      4,825      14,145      15,681
          Marketing and royalty fees                       1,723      1,569          76        441       1,799       2,010
          Depreciation and amortization                    2,656      3,341         876        211       3,532       3,552
                                                        ---------  ---------    --------  ---------   ---------   ---------
            Total motel direct expenses                   17,963     15,766       1,513      5,477      19,476      21,243
                                                        ---------  ---------    --------  ---------   ---------   ---------
                                                        $  7,608   $  9,017     $  (903)  $  1,383       6,705      10,400
                                                        =========  =========    ========  =========

      Corporate operations:
        Other revenues, net                                                                              1,082         232
        General and administrative expenses:
          Management Company Operations                                                                  1,285       1,305
          Construction/Acquisition
              and Divestiture                                                                              320         276
          Other general and administrative                                                               1,869         794
                                                                                                      ---------   ---------
            Total general and administrative expenses                                                    3,474       2,375
        Depreciation and amortization                                                                       74         486
                                                                                                      ---------   ---------
                                                                                                        (2,466)     (2,629)
                                                                                                      ---------   ---------
      Net operating income                                                                            $  4,239    $  7,771
                                                                                                      =========   =========

      Other data:
      Number of motels at period end (5)                     111        111           6         26         117         137
      Number of rooms at period end (5)                    8,840      8,840         395      2,393       9,235      11,233
      Occupancy percentage (5)                             69.48%     66.83%      54.94%     62.39%      68.53%      65.88%
      ADR (1) (5)                                       $  43.01   $  43.63     $ 23.55   $  45.43    $  41.74    $  44.00
      REVPAR (2) (5)                                    $  31.75   $  30.76     $ 14.00   $  31.17    $  30.41    $  30.85
      Net operating income margin (3)                                                                    15.55%      24.38%
      Net motel revenue margin (4) (5)                     42.65%     52.60%      -4.79%     25.55%      41.56%      46.92%
</TABLE>

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

      (1) ADR  represents  room  revenues  divided by the total  number of rooms
          occupied.

      (2) REVPAR represents total motel operating  revenues divided by the total
          number of rooms available.

      (3) Net operating income margin represents net operating income divided
          by total motel operating revenues plus corporate other revenues.

      (4) Net motel revenue margin represents total motel operating  revenues
          less motel  operating  expenses  and  marketing  and royalty  fees,
          divided by motel room revenues.

      (5) At June 30,  1999 and for the three  months  then  ended,  excludes
          amounts  related to the  thirteen  motels which are leased to third
          party tenants.


<PAGE>




         Total revenues consist principally of motel operating  revenues.  Motel
operating  revenues are derived from room rentals and ancillary  motel  revenues
such as charges to guests for food and beverage service, long distance telephone
calls,  fax  machine  use and from  vending  machines.  Other  revenues  include
interest income,  net lease income,  distributions  of partnership  interests in
excess of the  Company's  basis in such  partnerships  and  other  miscellaneous
income.  Total revenues decreased to $27,263,000 for the three months ended June
30, 1999 from  $31,875,000  for the three months ended June 30, 1998, a decrease
of $4,612,000 or 14.5%.

         Motel revenues decreased to $26,181,000 for the three months ended June
30, 1999 from  $31,643,000  for the three months ended June 30, 1998, a decrease
of $5,462,000 or 17.3%.  The motel revenues for motels owned during both periods
increased approximately $788,000 which was offset by a decrease of $6,250,000 in
motel  revenues  for motels  acquired and  divested  since April 1, 1998.  Motel
revenues for motels owned during both periods  increased  3.2%.  The increase in
motel revenues for motels owned during both periods was attributable principally
to a increase in the occupancy percentage from 66.83% for the three months ended
June 30, 1998 to 69.48% for the three months  ended June 30, 1999.  The increase
in occupancy percentage is principally a result of management's efforts to raise
occupancy by decreasing  the average daily rate ("ADR").  The ADR for the motels
owned  during both  periods  decreased to $43.01 for the three months ended June
30, 1999 from $43.63 for the three  months  ended June 30,  1998,  a decrease of
$0.62 or 1.4%.  Revenue per available  room  ("REVPAR")  for motels owned during
both  periods  increased to $31.75 for the three months ended June 30, 1999 from
$30.76 for the three months  ended June 30, 1998,  an increase of $0.99 or 3.2%.
The acquired and divested motels had an occupancy  percentage of 54.94%,  an ADR
of $23.55 and REVPAR of $14.00 for the three months ended June 30, 1999.

         Motel operating expenses include payroll and related costs,  utilities,
repairs and maintenance,  property taxes, insurance,  linens and other operating
supplies. Motel operating expenses decreased to $14,145,000 for the three months
ended June 30, 1999 from $15,681,000 for the three months ended June 30, 1998, a
net decrease of $1,536,000 or 9.8%. Motel operating expenses for motels acquired
and  divested  since April 1, 1998  decreased  to $561,000  for the three months
ended June 30, 1999 from  $4,825,000 for the three months ended June 30, 1998, a
decrease  of  $4,264,000  or 88.4%.  The  decrease  was  partially  offset by an
increase  of  $2,728,000  or 25.1% in the costs of  operating  the motels  owned
during both  periods.  The cost of  operating  motels  owned during both periods
increased  to  $13,584,000  for the  three  months  ended  June  30,  1999  from
$10,856,000  for the three months ended June 30, 1998. The increase in operating
costs is principally due to increased labor and related costs and an increase in
repairs and maintenance  expenditures.  Motel operating expenses as a percentage
of motel  revenues  increased  to 54.0% for the three months ended June 30, 1999
from 49.6% for the three months ended June 30, 1998. Motel operating expenses as
a percentage of motel revenues for the motels owned in both periods increased to
53.1% for the three  months  ended June 30, 1999 from 43.8% for the three months
ended June 30, 1998.

<PAGE>

        Marketing and royalty fees include media advertising,  billboard rental
expense,  advertising fund contributions and royalty charges paid to franchisors
and other related  marketing  expenses.  Marketing and royalty fees decreased to
$1,799,000  for the three  months  ended June 30, 1999 from  $2,010,000  for the
three months ended June 30, 1998, a decrease of $211,000 or 10.5%. The marketing
and royalty fees for motels owned  during both periods  increased to  $1,723,000
for the three  months ended June 30, 1999 from  $1,569,000  for the three months
ended June 30,  1998,  an increase of  $154,000  or 9.8%.  For the motels  owned
during both periods, marketing and royalty fees as a percentage of room revenues
increased  to 7.1% for the three  months  ended June 30,  1999 from 6.7% for the
three months ended June 30, 1998. The increase in marketing and royalty fees for
motels owned in both periods are principally due additional marketing efforts to
increase the occupancy percentage.

                  Corporate general and  administrative  expenses are segregated
by the  Company  into  three  separate  areas:  Management  Company  Operations,
Construction/Acquisition  and  Divestiture  Division and Other.  Included in the
Management Company Operations,  which is the division  responsible for the motel
operations,  are the costs  associated  with  training,  marketing,  purchasing,
administrative  support,  property related legal and accounting costs. The major
components of these costs are salaries, wages and related expenses, travel, rent
and other administrative  expenses. The general and administrative  expenses for
the Management Company Operations  decreased $20,000 to $1,285,000 for the three
months ended June 30, 1999 from  $1,305,000  for the three months ended June 30,
1998, a decrease of 1.5%.  The general and  administrative  expenses  associated
with  Construction/Acquisition  and Divestiture  Division increased $44,000 from
$276,000  for the three  months  ended June 30, 1998 to  $320,000  for the three
months ended June 30, 1999. Other General and Administrative  expenses increased
$1,075,000 to $1,869,000  for the three months ended June 30, 1999 from $794,000
for the three  months  ended  June 30,  1998.  This  increase  is the  result of
entering into a settlement  agreement  with  ShoLodge  Franchise  Systems,  Inc.
("ShoLodge")  in July  1999 that  resolved  all  disputes  with  respect  to the
litigation  initiated  by the  Company  against  ShoLodge  in 1997.  The Company
disaffiliated it's fourteen Shoney's Inns during the first half of 1998 at which
time it ceased the payment of  franchise  fees that  amounted  to  approximately
$650,000 on an annual basis.  While ShoLodge was seeking  franchise fees for the
remaining terms of the franchise  agreements the settlement  agreement  provides
for the  Company to make an initial  payment of  $575,000 in July 1999 and three
subsequent  payments of $200,000 in July 2000,  2001 and 2002 without  interest.
The present value of these  payments or $1,068,000  was expensed in June 1999 as
part of the Company's general and  administrative  expenses.  As a percentage of
total  motel  operating  revenues,  Management  Company  Operations  general and
administrative  expenses  was 4.9% for the three  months ended June 30, 1999 and
4.1% for the three months ended June 30, 1998.

         Depreciation  and  amortization  decreased to $3,606,000  for the three
months ended June 30, 1999 from  $4,038,000  for the three months ended June 30,
1998, a net decrease of $432,000 or 10.7%. .


<PAGE>

         Net operating income decreased to $4,239,000 for the three months ended
June 30,  1999 from  $7,771,000  for the three  months  ended June 30,  1998,  a
decrease of $3,532,000 or 45.5%. The decrease in net operating income included a
decrease  of  $3,715,000  in net  motel  revenues  (motel  revenues  less  motel
operating  expenses and marketing and royalty fees). Of the $3,715,000  decrease
in net motel  revenues,  $2,094,000  resulted  from the motels owned during both
periods or a decrease  of 16.9%.  Net motel  revenues  for motels  acquired  and
divested since April 1, 1998  decreased  $1,621,000.  Net operating  income as a
percent of total  revenues was 15.5% for the three months ended June 30, 1999 as
compared to 24.4% for the three months ended June 30, 1998.


         Interest  expense  decreased to  $7,397,000  for the three months ended
June 30,  1999 from  $7,799,000  for the three  months  ended June 30,  1998,  a
decrease of $402,000.  The  decrease in interest  expense is  reflective  of the
lower average amount of outstanding borrowings during the second quarter of 1999
as compared to the second quarter 1998.

         Gain on sale of properties  amounted to $1,278,000 for the three months
ended June 30, 1999 compared to $14,421,000  for the respective  period in 1998.
In three unrelated transactions,  three properties were sold for $4.3 million in
cash and $4.4 million in notes receivable. One motel and a parcel of vacant land
were sold in 1998 for $23.0  million in cash in two  unrelated  transactions  on
which the $14.4 million gain was recognized.

         Net income  decreased to a net loss of $1,241,000  for the three months
ended June 30, 1999 from net income of  $8,756,000  for the three  months  ended
June 30, 1998.  Total revenues  decreased  $8,539,000 to $48,995,000 for the six
months  ended June 30, 1999 from  $57,534,000  for the six months ended June 30,
1998 or 14.8%.



<PAGE>


  Six Months Ended June 30, 1999 Compared to the Six Months Ended June 30, 1998

     The following chart presents certain historical operating results and
   statistics  and  is  being  provided  as a  supplement  to  the  condensed
       consolidated financial statements presented elsewhere herein.

<TABLE>
<CAPTION>

                                                                  Supplemental Operating Results and Statistics
                                                        -------------------------------------------------------------------
                                                                                   (unaudited)

                                                                             Six Months Ended June 30
                                                        ------------------------------------------------------------------
                                                            Motels Owned          Acquisitions/
                                                            Both Periods           Divestitures            Consolidated
                                                        --------------------   --------------------   --------------------
                                                          1999        1998       1999        1998       1999       1998
                                                        ---------  ---------   ---------  ---------   ---------  ---------
                                                                    (dollars in thousands, except Other data)
<S>                                                     <C>        <C>         <C>        <C>         <C>        <C>
     Motel operations:
        Motel operating revenues:

          Room revenues                                 $ 41,631   $ 41,346    $  2,703   $ 11,892    $ 44,334   $ 53,238
          Ancillary motel revenues                         2,928      2,616         182      1,227       3,110      3,843
                                                        ---------  ---------   ---------  ---------   ---------  ---------
            Total motel operating revenues                44,559     43,962       2,885     13,119      47,444     57,081
        Motel costs and expenses:
          Motel operating expenses                        25,403     22,560       2,122      8,057      27,525     30,617
          Marketing and royalty fees                       2,954      2,930         280        880       3,234      3,810
          Depreciation and amortization                    5,396      6,112       1,341      1,014       6,737      7,126
                                                        ---------  ---------   ---------  ---------   ---------  ---------
            Total motel direct expenses                   33,753     31,602       3,743      9,951      37,496     41,553
                                                        ---------  ---------   ---------  ---------   ---------  ---------
                                                        $ 10,806   $ 12,360    $   (858)  $  3,168       9,948     15,528
                                                        =========  =========   =========  =========

      Corporate operations:
        Other revenues, net                                                                              1,551        453
        General and administrative expenses:
          Management Company Operations                                                                  2,924      2,548
          Construction/Acquisition
              and Divestiture                                                                              683        597
          Other general and administrative                                                               2,652      1,729
                                                                                                      ---------  ---------
            Total general and administrative expenses                                                    6,259      4,874
        Depreciation and amortization                                                                      480        960
                                                                                                      ---------  ---------
                                                                                                        (5,188)    (5,381)
                                                                                                      ---------  ---------
      Net operating income                                                                            $  4,760   $ 10,147
                                                                                                      =========  =========

      Other data:
      Number of motels at period end (5)                     111        111           6         26         117        137
      Number of rooms at period end (5)                    8,840      8,840         395      2,393       9,235     11,233
      Occupancy percentage (5)                             62.49%     61.38%      51.49%     58.63%      61.71%     60.76%
      ADR (1) (5)                                       $  41.58   $  42.04    $  43.32   $  45.74      $41.42   $  42.80
      REVPAR (2) (5)                                    $  27.81   $  27.44    $  23.80   $  29.59      $26.93   $  27.88
      Net operating income margin (3)                                                                     9.72%     17.64%
      Net motel revenue margin (4) (5)                     38.92%     44.68%       6.39%     35.17%      37.63%     42.55%

     </TABLE>
-------------------------------------------

      (1) ADR  represents  room  revenues  divided by the total  number of rooms
          occupied.

      (2) REVPAR represents total motel operating  revenues divided by the total
          number of rooms available.

      (3) Net operating income margin represents net operating income divided
          by total motel operating revenues plus corporate other revenues.

      (4) Net motel revenue margin represents total motel operating  revenues
          less motel  operating  expenses  and  marketing  and royalty  fees,
          divided by motel room revenues.

      (5) At June  30,  1999  and for the six  months  then  ended,  excludes
          amounts  related to the  thirteen  motels which are leased to third
          party tenants.


<PAGE>

         Motel revenues  decreased to $47,444,000  for the six months ended June
30, 1999 from  $57,081,000 for the six months ended June 30, 1998, a decrease of
$9,637,000  or 16.9%.  The motel  revenues  for motels owned during both periods
increased  approximately  $597,000  or 1.4%  which  was  partially  offset  by a
decrease of $10,234,000 for acquired and divested motels, since January 1, 1998.
The  increase  in motel  revenues  for motels  owned  during  both  periods  was
attributable  principally  to an  increase  in  the  occupancy  percentage.  The
occupancy  percentage  increased  from 61.38% for the six months  ended June 30,
1998 to 62.49% for the six months ended June 30, 1999. The increase in occupancy
percentage is principally a result of management's efforts to raise occupancy by
decreasing  the average daily rate ("ADR").  The ADR for the motels owned during
both  periods  decreased  to $41.58 for the six months  ended June 30, 1999 from
$42.04 for the six  months  ended June 30,  1998,  a decrease  of $0.46 or 1.1%.
REVPAR for motels  owned  during both  periods  increased  to $27.81 for the six
months  ended June 30, 1999 from $27.44 for the six months  ended June 30, 1998,
an increase of $0.37 or 1.3%. The acquired and divested  motels had an occupancy
percentage of 51.49%, an ADR of $43.32 and REVPAR of $23.80 for the period which
they were owned by the Company in 1999.

         Motel operating expenses include payroll and related costs,  utilities,
repairs and maintenance,  property taxes, insurance,  linens and other operating
supplies.  Motel operating  expenses decreased to $27,525,000 for the six months
ended June 30, 1999 from  $30,617,000  for the six months ended June 30, 1998, a
net decrease of $3,092,000 or 10.1%.  The cost of operating  motels owned during
both  periods  increased to  $25,403,000  for the six months ended June 30, 1999
from  $22,560,000  for the six  months  ended  June  30,  1998,  a  decrease  of
$2,843,000 or 12.6%.  Motel operating  expenses for motels acquired and divested
since January 1, 1998  decreased to $2,122,000 for the six months ended June 30,
1999 from  $8,057,000  for the six months ended June 30, 1998.  Motel  operating
expenses as a percentage of motel revenues increased to 58.0% for the six months
ended June 30,  1999 from 53.6% for the six months  ended June 30,  1998.  Motel
operating  expenses as a  percentage  of motel  revenues for the motels owned in
both  periods  increased  to 57.0% for the six months  ended June 30,  1999 from
51.3% for the six months  ended June 30,  1998.  Motel  operating  expenses as a
percentage of motel revenues for the acquired and divested  motels was 73.6% for
the six months ended June 30, 1999.

         Marketing and royalty fees include media advertising,  billboard rental
expense,  advertising fund contributions and royalty charges paid to franchisors
and other related  marketing  expenses.  Marketing and royalty fees decreased to
$3,234,000  for the six months ended June 30, 1999 from  $3,810,000  for the six
months ended June 30, 1998, a decrease of $576,000 or 15.1%.  The  marketing and
royalty fees for motels owned during both periods  increased to  $2,954,000  for
the six months ended June 30, 1999 from $2,930,000 for the six months ended June
30,  1998,  an increase  of $24,000 or 0.8%.  For the motels  owned  during both
periods,  marketing and royalty fees as a percentage  of room revenues  remained
the same at 7.1% for the six months  ended June 30,  1999 and for the six months
ended June 30, 1998. The decrease in marketing and royalty fees is  attributable
to a reduction  in franchise  fees due to the decline in room  revenues on which
most  such  fees are based and a  reduction  in rates  for  certain  contractual
franchise  fees.  In addition,  during the period from February 1998 through May
1998 the Company  disaffiliated  its Shoney's  Inns from the ShoLodge  Franchise
System and ceased the  payments  of  franchise  fees at such time.  On an annual
basis, the Company historically paid approximately $650,000 of franchise fees on
its fourteen  Shoney's Inns.  Marketing and royalty fees for motels acquired and
divested  since  January 1, 1998  decreased to $280,000 for the six months ended
June 30, 1999 from $880,000 for the six months ended June 30, 1998.


<PAGE>

         Corporate  general and  administrative  expenses are  segregated by the
Company into three separate areas:  Management Company Operations,  Construction
and Development and Other. Included in the Management Company Operations,  which
is the division  responsible for the motel operations,  are the costs associated
with training, marketing,  purchasing,  administrative support, property related
legal and accounting  costs.  The major  components of these costs are salaries,
wages and related expenses,  travel, rent and other administrative expenses. The
general and  administrative  expenses for the  Management  Operations  increased
$376,000 to  $2,924,000  for the six months ended June 30, 1999 from  $2,548,000
for the six months  ended June 30, 1998,  an increase of 14.8%.  The general and
administrative  expenses associated with Construction and Development  increased
$86,000 from $597,000 for the six months ended June 30, 1998 to $683,000 for the
six months  ended June 30,  1999.  Other  General  and  Administrative  expenses
increased  $923,000 to  $2,652,000  for the six months  ended June 30, 1999 from
$1,729,000  for the six months ended June 30, 1998.  This increase is the result
of entering into a settlement  agreement with ShoLodge Franchise  Systems,  Inc.
("ShoLodge")  in July  1999 that  resolved  all  disputes  with  respect  to the
litigation  initiated  by the  Company  against  ShoLodge  in 1997.  The Company
disaffiliated it's fourteen Shoney's Inns during the first half of 1998 at which
time it ceased the payment of  franchise  fees that  amounted  to  approximately
$650,000 on an annual basis.  While ShoLodge was seeking  franchise fees for the
remaining terms of the franchise  agreements the settlement  agreement  provides
for the  Company to make an initial  payment of  $575,000 in July 1999 and three
subsequent  payments of $200,000 in July 2000,  2001 and 2002 without  interest.
The present value of these  payments or $1,068,000  was expensed in June 1999 as
part of the Company's general and  administrative  expenses.  As a percentage of
total motel operating revenues, Management Operations general and administrative
expenses  was 6.2% for the six months  ended June 30,  1999 and 4.5% for the six
months ended June 30, 1998.

         Depreciation  and  amortization  decreased  to  $7,217,000  for the six
months ended June 30, 1999 from  $8,086,000  for the three months ended June 30,
1998,  a net  decrease of $869,000 or 10.7%.  Approximately  $480,000 of the net
decrease in  depreciation  and  amortization  is  attributable  to the corporate
operations.

         Net operating  income  decreased to $4,760,000 for the six months ended
June 30,  1999 from  $10,147,000  for the six  months  ended  June 30,  1998,  a
decrease of $5,387,000 or 53.1%.  The decrease in net operating income included;
a decrease  of  $5,969,000  in net motel  revenues  (motel  revenues  less motel
operating  expenses and  marketing and royalty  fees),  an increase in corporate
general  and  administrative  expenses  of  $1,385,000,  offset by a decrease in
depreciation  and  amortization of $869,000 and an increase of other revenues of
$1,098,000.  Of the  $5,969,000  decrease  in  net  motel  revenues,  $2,270,000
resulted  from the motels owned during both periods or a decrease of 12.3%.  Net
motel revenues for motels  acquired and divested since January 1, 1998 decreased
$3,699,000. Net operating income as a percent of total revenues was 9.7% for the
six months  ended June 30, 1999 as  compared  to 17.6% for the six months  ended
June 30, 1998.

         Interest  expense  decreased to $14,703,000  for the six months ended
June 30,  1999 from  $15,415,000  for the six  months  ended  June 30,  1998,  a
decrease of $712,000.

<PAGE>

         Gain on sale of properties  amounted to  $1,652,000  for the six months
ended June 30, 1999 compared to $14,874,000  for the respective  period in 1998.
In six unrelated transactions, six properties were sold for $7.0 million in cash
and $9.9  million in notes  receivable.  Two motels and a parcel of vacant  land
were sold in 1998 for $24.4 million in cash in three  unrelated  transactions on
which the $14.9 million gain was recognized.

         Net  income decreased to a net loss of  $5,149,000 for the six months
ended June 30,  1999 from a net income of  $5,843,000  for the six months  ended
June 30, 1998.

Liquidity and Capital Resources

         The  Company's  primary  uses of its  capital  resources  include  debt
service,   capital   expenditures  and  working  capital.  In  addition,   on  a
discretionary  basis,  the  Company  utilizes  its  capital  resources  for  the
development and acquisition of motel properties.

           The Company's debt service  requirements consist of the obligation to
make interest and principal payments on its outstanding indebtedness. In January
1999 the Company  repaid  mortgage  notes with an  outstanding  balance of $17.2
million as of December  31, 1998 with the  proceeds of a new $13.5  million loan
and the balance with cash.  The new loan is secured by six  properties and bears
interest at LIBOR plus 3.25  percentage  points.  During the initial year of the
loan,  all  excess  cash  flow  (as  defined  in the  loan  agreement)  from the
properties is to be applied toward principal amortization. Thereafter, principal
amortization is based on a twenty-year  schedule plus an additional  $250,000 of
annual principal amortization paid monthly. The loan matures in January 2004. In
March 1999,  the Company  borrowed  $23.4  million,  the  proceeds of which were
utilized  to pay-off  loans with  outstanding  balances  of $14.0  million as of
December  31,  1998.  The balance of the net  proceeds  was retained for working
capital  purposes.  The loan was initially  secured by ten  properties  and five
mortgage  notes  receivable.  The interest rate  pertaining to the amount of the
loan allocated to the properties is the Prime Rate plus 0.5 percentage point and
the interest rate pertaining to the amount of the loan allocated to the mortgage
notes  receivable  is the  Prime  rate  plus 1.25  percentage  points.  The loan
requires  principal payments based on a twenty-year  amortization  schedule with
the  outstanding  balance  of the  loan  due in  April  2006.  Provided  certain
conditions  are met, the Company has the ability to sell  properties  secured by
the loan in partial  exchange for a mortgage note  receivable that would than be
pledged as  collateral  under the loan with the  interest  rate  adjusted to the
Prime  rate plus 1.25  percentage  points.  The  Company's  principal  repayment
obligations, reflective of the transactions mentioned above, as of June 30, 1999
is  $7,730,000  for the  remainder  of  fiscal  1999;  $7,166,000  for  2000 and
$24,011,000 for 2001.

         The Company has a $3.9 million  mortgage  note payable that  originally
matured on May 31, 1999. The note is secured by four motel properties.  The bank
holding the note  extended the maturity  date to July 15, 1999,  however,  as of
this date has  indicated  it does not desire to provide any further  extensions.
The Company is in the process of seeking other financing.  As of August 3, 1999,
no firm financing commitments have been obtained.

           The  Company  believes  it has or will be  able  to  obtain  adequate
resources to meet its near-term maturing debt and other  obligations.  Although,
the deteriorating  trend in operating results noted above could adversely affect
the Company's  ability to meet its maturing debt  obligations  in 2004 and 2005,
including the maturity of the $80 million 12% Senior Subordinated Notes in 2004.
<PAGE>

         The Company's  capital  expenditure  requirements  principally  include
capital  improvements and refurbishment of its lodging facilities as part of its
ongoing operating strategy to provide  well-maintained  facilities.  The Company
made  capital  expenditures   (exclusive  of  acquisitions  and  development  of
properties)  of $4,054,000 and $2,902,000 for the six months ended June 30, 1999
and 1998,  respectively.  In  addition,  as of June 30,  1999,  the  Company had
$747,000 of cash restricted for future  refurbishment  of motel  properties,  in
accordance with certain debt agreements.  Management is not aware of any unusual
required level of future capital expenditures necessary to maintain its existing
properties.

         For the six  months  ended  June 30,  1999,  cash and cash  equivalents
decreased  $10,392,000.  This  decrease  consisted  of $227,000 of funds used in
investing  activities and $927,000 of funds provided by financing activities and
$11,092,000  of funds used in operations.  Net investing  activities of $227,000
include:  $4,303,000  of cash  utilized  for motel  development  and  $4,054,000
expended on refurbishment of existing  properties,  offset by $6,674,000 of cash
provided from the sale of investment  properties and collections on mortgage and
other notes  receivable  and a change in cash  restricted for  refurbishment  of
$1,456,000. Cash provided by financing activities includes:  $35,398,000 of cash
utilized  to repay  indebtedness;  and  $1,623,000  of cash  used  for  deferred
financing  costs and other items offset by $37,948,000  from proceeds from notes
payable.

Impact of Year 2000

         The year 2000 Issue is the result of computer  programs  being  written
using two digits  rather  than four to define the  applicable  year.  Any of the
Company's  computer programs that have  time-sensitive  software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a  system  failure  or  miscalculations   causing   disruptions  of  operations,
including,  among other things, a temporary  inability to process  transactions,
send invoices, or engage in similar normal business activities.

           The Company replaced its primary financial  accounting system in 1998
at a cost of approximately $400,000. The new system is year 2000 compliant.  The
Company  is  continuing  to  evaluate  various  sub-systems  that are in  place,
including those utilized to process credit card transactions, to determine their
year 2000  readiness.  The  Company has also made  inquires  of its  significant
vendors  upon which it relies and  believes  they are  sufficiently  prepared to
handle year 2000  issues so as not to cause any  interruption  to the  Company's
operations.  The Company, on an on-going basis,  evaluates its contingency plans
with respect to  potential  year 2000  issues.  The Company does not  anticipate
incurring any additional significant  expenditures with respect to the year 2000
situation.



<PAGE>



                        PART II - OTHER INFORMATION


Item 1.  Legal Proceedings

         See Note 6 of the Notes to the Condensed Consolidated
         Financial Statements.

Item 2.  Changes in Securities

         Not Applicable

Item 3.  Defaults upon Senior Securities

         Not Applicable

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

         Not Applicable

Item 5.  Other Information

         Not Applicable

Item 6.  Exhibits and Reports on Form 8-K

         (a) Exhibits:

         Not Applicable

         (b) Reports on Form 8-K:

         Not Applicable


<PAGE>



                                                     SIGNATURES

         Pursuant to the  requirements  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.

                                              MOA HOSPITALITY, INC.




August 12, 1999               By:        /s/  Kurt M. Mueller
                              --------------------------------------------
                                         Kurt M. Mueller
                                         Chief Financial Officer


August 12, 1999               By:        /s/   Blane P. Evans
                              --------------------------------------------
                                         Blane P. Evans
                                         Vice President, Secretary and Treasurer