<PAGE>   1


                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-QSB

(MARK ONE)
  [X]       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES 
            EXCHANGE ACT OF 1934
            FOR THE QUARTERLY PERIOD ENDED MARCH 29, 1998
                                                     OR
  [ ]       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES 
            EXCHANGE ACT OF 1934
            FOR THE TRANSITION PERIOD FROM         TO 
                                           -------    -------

                         COMMISSION FILE NUMBER 0-23243
--------------------------------------------------------------------------------
                              HOTEL DISCOVERY, INC.
                 (Name of Small Business Issuer in its Charter)

           MINNESOTA                                    31-1487885
  (State or Other Jurisdiction of                    (I.R.S. Employer
  Incorporation or Organization)                    Indentification No.)

     4801 W. 81ST STREET, SUITE 112                       55437
        BLOOMINGTON, MN                                 (Zip Code)
  (Address of principal executive offices)

                                  612-837-9917
                (Issuer's telephone number, including area code)


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

As of May 7, 1998, the number of shares outstanding of the Issuer's Common Stock
was 8,000,189.

Transitional Small Business Disclosure Format (check one):
        Yes [ ]     No [X]
                                       1
<PAGE>   2



                           FORWARD-LOOKING STATEMENTS

Certain of the matters discussed in the following pages,  particularly regarding
estimates  of the number  and  locations  of new  restaurants  that the  Company
intends  to open  during  fiscal  1998  and  1999,  constitute  "forward-looking
statements" within the meaning of the Securities Act of 1933, as amended and the
Securities Exchange Act of 1934, as amended.  Forward-looking statements involve
a number of risks and  uncertainties,  and, in addition to the factors discussed
in this Form 10-QSB,  among the other factors that could cause actual results to
differ  materially  are the  following:  the  Company's  ability to identify and
secure  suitable  locations  on  acceptable  terms,  obtain  additional  capital
necessary for expansion on acceptable  terms,  open new  restaurants in a timely
manner,  hire and  train  additional  restaurant  personnel  and  integrate  new
restaurants into its operations;  the continued  implementation of the Company's
strict  business  discipline  over  a  growing  restaurant  base;  the  economic
conditions  in the new  markets  into which the  Company  expands  and  possible
uncertainties  in the customer base in these areas;  changes in customer  dining
patterns;  competitive  pressures  from other  national and regional  restaurant
chains; business conditions, such as inflation or a recession, and growth in the
restaurant  industry  and the general  economy;  changes in monetary  and fiscal
policies, laws and regulations;  and other risks identified from time to time in
the Company's SEC reports, registration statements and public announcements.

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

                                       2

<PAGE>   3


                              HOTEL DISCOVERY, INC.

                                      INDEX

                                                                      PAGE
                                                                      ----
PART I    FINANCIAL INFORMATION                                         4

ITEM 1.   Financial Statements                                          4

          Balance Sheets -                                              
               March 29, 1998 and December 28, 1997                     5

          Statements of Operations -                                    
               For the thirteen weeks ended March 29, 1998 and
               March 30, 1997                                           6

          Statements of Cash Flows -                                    
               For the thirteen weeks ended March 29, 1998 and
               March 30, 1997                                           7

          Condensed Notes to the Financial Statements                   8

ITEM 2.   Management's Discussion and Analysis of Financial 
               Condition and Results of Operations                      10

ITEM 3.   Changes in and Disagreements With Accountants on
          Accounting and Financial Disclosure                           12      

PART II   OTHER INFORMATION                                             13

ITEM 1.   Legal Proceedings                                             13      

ITEM 4.   Submission of Matters to a Vote of Security Holders           13
               
ITEM 6.   Exhibits and Reports on Form 8-K                              13

          Signatures                                                    14

                                       3

<PAGE>   4
                        PART I - FINANCIAL INFORMATION


ITEM 1.         FINANCIAL STATEMENTS - INDEX

                Balance Sheets - March 29, 1998 and December 28, 1997

                Statements of Operations - For the thirteen weeks ended March
                29, 1998 and March 30, 1997

                Statements of Cash Flows - For the thirteen weeks ended March
                29, 1998 and March 30, 1997

                Condensed Notes to the Financial Statements      




                                      4
<PAGE>   5


                              HOTEL DISCOVERY, INC.
                                BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                          March 29,                 December 28,
                                                                            1998                        1997
                                                                            ----                        ----
                            ASSETS                                      (Unaudited)

<S>                                                                    <C>                         <C>          
CURRENT ASSETS:
     Cash and cash equivalents                                         $   4,873,266               $   9,222,174
     Landlord allowance receivable                                         1,600,000                         ---
     Inventories                                                              40,012                      41,766
     Other current assets                                                    418,422                     250,043
                                                                       -------------               -------------
               Total current assets                                        6,931,700                   9,513,983

PROPERTY AND EQUIPMENT, net                                                7,806,207                   5,270,160

OTHER ASSETS                                                                  52,710                      55,908
                                                                       -------------               -------------
                                                                       $  14,790,617               $  14,840,051
                                                                       =============               =============

            LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
     Short-term notes payable                                                    ---                     200,000
     Accounts payable                                                        418,695                     669,380
     Accrued expenses                                                        121,835                     115,774
     Salaries and wages payable                                              179,356                     366,674
     Current portion of long-term debt                                        52,065                      69,420
                                                                       -------------               -------------
               Total current liabilities                                     771,951                   1,421,249

DEFERRED RENT                                                              1,600,000                         ---

LONG-TERM DEBT, less current portion                                         852,165                     852,165

CONVERTIBLE PROMISSORY NOTES PAYABLE                                         150,000                     150,000
                                                                       -------------               -------------
               Total liabilities                                           3,374,116                   2,423,414
                                                                       -------------               -------------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
     Common stock, $.01 par value, 100,000,000 shares
          authorized; 8,000,189 shares issued and outstanding                 80,002                      80,002
     Additional paid-in capital                                           20,152,948                  20,152,948
     Less: Common stock subscribed                                         (400,000)                   (400,000)
     Accumulated deficit                                                 (8,416,449)                 (7,416,312)
                                                                       -------------               -------------
               Total shareholders' equity                                 11,416,501                  12,416,638
                                                                       -------------               -------------

                                                                       $  14,790,617               $  14,840,051
                                                                       =============               =============

</TABLE>




The accompanying condensed notes are an integral part of these balance sheets.

                                       5
<PAGE>   6


                              HOTEL DISCOVERY, INC.
                           STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                           Thirteen weeks ended
                                                                           --------------------  
                                                                      March 29,               March 30,
                                                                         1998                    1997
                                                                         ----                    ----
<S>                                                                <C>                       <C>         
NET SALES                                                          $      804,319            $  1,047,765
                                                                   --------------            ------------

COSTS AND EXPENSES:
     Food, beverage and retail costs                                      218,416                 357,943
     Labor and benefits                                                   318,157                 592,618
     Restaurant operating expenses                                        363,445                 290,793
     Depreciation and amortization                                        125,840                 137,000
     Selling, general and administrative expenses                         742,135                 398,293
     Pre-opening and development costs                                    127,318                     ---
                                                                   --------------            ------------
               Total costs and expenses                                 1,895,311               1,776,647
                                                                   --------------            ------------

LOSS FROM OPERATIONS                                                   (1,090,992)               (728,882)
                                                                   --------------            ------------

INTEREST INCOME (EXPENSE), net                                             90,855                 (19,638)
                                                                   --------------            ------------

NET LOSS                                                           $   (1,000,137)           $   (748,520)
                                                                   ==============            ============

BASIC AND DILUTED WEIGHTED AVERAGE                                      8,000,189               4,092,400
                                                                   ==============            ============
   OUTSTANDING SHARES

BASIC AND DILUTED NET LOSS PER SHARE                               $        (0.13)           $      (0.18)
                                                                   ==============            ============

</TABLE>


   The accompanying condensed notes are an integral part of these financial
                                 statements.

                                      6

<PAGE>   7


                              HOTEL DISCOVERY, INC.
                           STATEMENTS OF CASH FLOWS
                                 (UNAUDITED)

<TABLE>
<CAPTION>                                                                              
                                                                                           Thirteen weeks ended
                                                                                        -------------------------
                                                                                       March 29,            March 30,
                                                                                         1998                 1997
                                                                                         ----                 ----
<S>                                                                                  <C>                  <C>          
 OPERATING ACTIVITIES:
      Net loss                                                                       $  (1,000,137)       $   (748,520)
      Adjustments to reconcile net loss to cash flows from operating ctivities:
                Depreciation                                                               149,641             137,000
                Changes in operating assets and liabilities:
                     Inventories                                                             1,754              20,300
                     Other current assets                                                 (168,379)            (48,152)
                     Other assets                                                            3,198                 401
                     Accounts payable                                                     (250,685)             18,225
                     Accrued expenses                                                     (181,257)           (333,153)
                                                                                     -------------        ------------
                          Net cash used in operating activities                         (1,445,865)           (953,899)
                                                                                     -------------        ------------

 INVESTING ACTIVITIES:
      Purchase of property and equipment                                                (2,685,688)           (217,117)
                                                                                     -------------        ------------

 FINANCING ACTIVITIES:
      Net borrowings/(payments) on short-term notes payable                               (200,000)         (2,500,000)
      Advances/(payments) from/(to) shareholder                                                ---             650,642
      Proceeds from issuance of stock                                                          ---             396,000
      Principal repayments on long-term debt                                               (17,355)            (11,570)
                                                                                     -------------        ------------
                          Net cash used in financing activities                           (217,355)         (1,464,928)
                                                                                     -------------        ------------

 DECREASE IN CASH AND CASH EQUIVALENTS                                                  (4,349,298)         (2,635,944)
 CASH AND CASH EQUIVALENTS, beginning                                                    9,222,174           2,709,136
                                                                                     -------------           ---------

 CASH AND CASH EQUIVALENTS, ending                                                   $   4,873,266        $     73,192
                                                                                     =============        ============

 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
      Cash paid for interest                                                         $      24,910        $     44,990
      Cash paid for income taxes                                                               ---                 ---
      Non-cash items - landlord allowance receivable                                     1,600,000                 ---


</TABLE>

   The accompanying condensed notes are an integral part of these financial
                                 statements.

                                       7
<PAGE>   8



                              HOTEL DISCOVERY, INC.
                        NOTES TO THE FINANCIAL STATEMENTS
                        MARCH 29, 1998 AND MARCH 30, 1997


1.   GENERAL

Hotel Discovery, Inc. (the Company) owns and operates one restaurant in
Cincinnati, Ohio (the Kenwood Restaurant), which opened under the name "Hotel
Mexico" on December 19, 1996. Prior to the opening of this restaurant, the
Company was in the development stage.

The Company's predecessor, Hotel Mexico (HMI), was originally incorporated in
January 1994 as an Ohio corporation. The Kenwood Restaurant Limited Partnership,
an Ohio limited partnership (the Kenwood Partnership), was formed in June 1995
for the purpose of owning and operating the Kenwood Restaurant. HMI's operations
and the net assets of the Kenwood Partnership were combined on November 14,
1996. On that date, the Kenwood Partnership contributed all of its net assets
totalling $1,567,197 to a newly formed corporation in exchange for shares of
such corporation. HMI, with total net assets of $631,966, then merged with and
into the newly formed corporation, the name of which remained Hotel Mexico, Inc.
(hereafter, Hotel Mexico). Upon consummation of the merger, all outstanding
shares of Hotel Mexico were converted into an aggregate of 1,350,000 shares of
Common Stock of the newly formed corporation.

The shares of Hotel Mexico Common Stock received by the Kenwood Partnership in
the reorganization were retained by the Kenwood Partnership until the effective
date of the Company's initial public offering, at which time the shares of
Common Stock and all other partnership assets were distributed to the general
and limited partners in accordance with the partnership agreement and the
Kenwood Partnership was dissolved.

On August 22, 1997, Hotel Mexico merged with and into Hotel Discovery, Inc., a
newly formed Minnesota corporation. The Company has an authorized capital stock
of 100,000,000 undesignated shares, and each share of Common Stock of Hotel
Mexico was converted into one share of the Company's Common Stock.

On February 25, 1998 the Company changed the name of its restaurant concept from
Hotel Discovery to Cafe Odyssey.  The Company believes that the new name
better reflects the concept's primary focus on award winning food, served in a
unique environment of adventure, imagination, exploration and innovation.  In
conjunction with this action, the Company's Board of Directors approved a
change in its corporate name from Hotel Discovery, Inc. to Cafe Odyssey, Inc.,
subject to shareholder approval.  The Cafe Odyssey name will be used for the
planned Mall of America Restaurant and all subsequent restaurants.  At the
present time, the company intends to retain the name "Hotel Discovery" for the
Kenwood Restaurant because of its already established and well-received 
perception in the marketplace.

2.   BASIS OF FINANCIAL STATEMENT PRESENTATION

The accompanying unaudited condensed financial statements have been prepared by
the Company pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. Although management believes that the disclosures are adequate to
make the information presented not misleading, it is suggested that these
interim condensed financial statements be read in conjunction with the Company's
most recent 10-KSB dated December 28, 1997. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary for a
fair presentation of the financial position, results of operations and cash
flows for the interim periods presented have been made. Operating results for
the thirteen weeks ended March 29, 1998 are not necessarily indicative of the
results that may be expected for the fiscal year ended December 27, 1998.

The Company has adopted a 52-53-week accounting period ending on the Sunday
nearest December 31 of each year.

3.   PROPERTY AND EQUIPMENT

     Property and equipment consisted of the following as of:

<TABLE>
<CAPTION>
                                         March 29,      December 28,
                                           1998            1997
                                           ----            ----
<S>                                    <C>             <C>      
Building and leasehold
  improvements                          $3,264,307      $3,182,160

Equipment and fixtures                   2,397,902       2,294,503
Construction in progress                 2,907,639         432,497
                                        ----------      ----------
                                         8,569,848       5,909,160

Less: accumulated depreciation            (763,641)       (639,000)
                                        ----------      ----------

Total property and 
  equipment, net                        $7,806,207      $5,270,160
                                        ==========      ==========

</TABLE>

4.   RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT

Statement of Financial Accounting Standard (SFAS) No. 130, "Reporting
Comprehensive Income", effective beginning in fiscal 1998, establishes standards
of disclosure and financial statement display for reporting total comprehensive
income and the individual components thereof. The adoption of SFAS No. 130 did
not have a material impact on the Company's financial position or results of
operations as comprehensive income and net income were the same for all periods
presented.

The Company adopted in fiscal 1997, Statement of Financial Accounting Standard
(SFAS) No. 128, "Earnings per Share", which requires disclosure of basic
earnings per share, which requires disclosure of basic earnings per share
(EPS) and diluted EPS, which replace the existing primary EPS and fully diluted
EPS, as defined by Accounting Principles Board (APB) No. 15.  Basic EPS is
computed by dividing net income by the weighted average number of shares of
Common Stock outstanding during the year.  Diluted EPS is computed similarly to
primary EPS as previously reported provided that, when applying the treasury
stock method to common equivalent shares, the Company must use its average
share price for the period rather than the more dilutive greater of the average
share price or end-of-period share price required by APB No. 15.

The adoption of SFAS No. 128 had no effect on the Company's March 30, 1997 EPS
data.


                                       8

<PAGE>   9

5.   EVENT SUBSEQUENT TO MARCH 29, 1998

During the second quarter of 1998, the Company entered into a lease agreement
with Denver Pavilions L.P. to lease approximately 18,000 square feet of space in
the Denver Pavilions, an urban retail/entertainment complex to be constructed 
in downtown Denver, Colorado. The lease has an initial term of fifteen years, 
with three options to renew for five years each. The lease provides for a fixed
minimum annual rent, contingent rent payments based on a percentage of gross
revenues, as defined, as well as payments of real estate taxes, insurance and
common area costs. In addition, the lease provides for tenant inducements and
rent abatement.
        


                                      9
<PAGE>   10

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



The following  discussion  should  be read in  connection  with  the  Company's
financial  statements  and related  notes  thereto  included  elsewhere  in this
report.

OVERVIEW

The Company was formed in January 1994 as an Ohio  corporation  to develop,  own
and operate upscale,  casual themed  restaurants  under the name "Hotel Mexico".
The  Company  opened its first  restaurant  in the  Kenwood  Shopping  Center in
Cincinnati,  Ohio (the "Kenwood  Restaurant") in December 1996. Prior to opening
the Kenwood  Restaurant,  the Company had no revenues  and its  activities  were
devoted  solely  to  development.   The  Company  is  presently  developing  two
additional  restaurants,  the first in the Mall of America (the "Mall of America
Restaurant") in Bloomington,  Minnesota,  a suburb of Minneapolis and the second
at Denver Pavilions (the "Denver Restaurant") in Denver, Colorado.

Future revenue and profits, if any, will depend upon various factors,  including
market acceptance of the Hotel  Discovery/Cafe  Odyssey concept,  the quality of
the  restaurant  operations,  the ability to expand to multi-unit  locations and
general economic conditions.  The Company's present source of revenue is limited
to  its  existing  restaurant.  There  can be no  assurances  the  Company  will
successfully implement its expansion plans, in which case it will continue to be
dependent on the revenues from the existing  restaurant.  The Company also faces
all of the risks, expenses and difficulties frequently encountered in connection
with the expansion and development of a new and expanding business. Furthermore,
to the extent the Company's expansion strategy is successful, it must manage the
transition to multiple-site operations, higher volume operations, the control of
overhead expenses and the addition of necessary personnel.

The  Company  uses a 52- or 53-week  fiscal  year  ending on the Sunday  nearest
December 31.

RESULTS OF OPERATIONS  FOR THE THIRTEEN WEEKS ENDED MARCH 29, 1998 AND MARCH 28,
1997

The Company had no revenues  or  operations  during the period from  January 13,
1994  (Inception) to December 19, 1996 (the opening of the Kenwood  Restaurant).
Accordingly,  comparisons  to  periods  prior  to  December  19,  1996  are  not
meaningful.

For the thirteen weeks ended March 29, 1998  (hereinafter  referred to as "first
quarter of 1998"),  the Company had net sales of $804,319 compared to $1,047,765
for the thirteen weeks ended March 30, 1997  (hereinafter  referred to as "first
quarter of 1997").  This decline in sales is  attributable  to a  comparison  of
steady-state  operations at the Kenwood Restaurant for the first quarter of 1998
as compared to its initial "honeymoon" period in the first quarter of 1997.

For the first quarter of 1998, food,  beverage and retail costs were $218,416 or
27.2% of sales  compared to $357,943 or 34.2% of sales for the first  quarter of
1997.  The  improvement  in food,  beverage and retail costs as a percentage  of
sales is due primarily to improved operating efficiencies.

For the first  quarter of 1998,  labor,  benefits  and other  direct  restaurant
operating expenses were $681,602 or 84.7% of sales compared to $883,411 or 84.3%
of sales for the first quarter of 1997. This result  occurred  despite the lower
sales  volume in the first  quarter of 1998 as compared to the first  quarter of
1997 and the  relatively  high  fixed cost  component  of  restaurant  operating
expenses at the Kenwood Restaurant.

Although  no  assurances  can be given,  management  believes  that the  Kenwood
Restaurant's  current level of sales,  trained  workforce and general  operation
will continue to improve its restaurant-level performance in future periods.

                                      10
<PAGE>   11


For the first quarter of 1998, the Company had a net loss of $1,000,137 compared
to a net loss of $748,520 for the first  quarter of 1997.  The net loss for the
first quarter of 1998 is primarily  attributable to continued  concept 
development and pre-opening costs of approximately  $127,000,  as well as
additional general and  administration  expenses incurred as the Company 
increased its  corporate  overhead structure for the  development of additional 
restaurants.  The net loss for the first  quarter of 1997 was largely 
attributable to the start-up  operations at the Kenwood Restaurant.  Continued 
development of the Company's concept will impact pre-opening and general and
administrative expenses on an ongoing basis.
        
LIQUIDITY AND CAPITAL RESOURCES

Since Inception,  the Company's principal capital requirements have been (i) the
development of the Company and the Hotel  Discovery/Cafe  Odyssey concept,  (ii)
the  construction  of the Kenwood  Restaurant and the  acquisition of furniture,
fixtures and equipment  therein and (iii) the development of the Mall of America
Restaurant.   Total  capital   expenditures  for  the  Kenwood  Restaurant  were
approximately $5.1 million, net of landlord contributions.

When completed,  the Company estimates that capital expenditures for the Mall of
America  Restaurant  will  be  approximately  $4.9  million,   net  of  landlord
contributions  of $1.6  million  and minimum  rent  abatement  of  approximately
$405,000.  As of March  29,  1998,  the costs  incurred  to date for the Mall of
America  Restaurant  were  approximately  $3.1  million.  The  Mall  of  America
Restaurant is expected to be complete in the second quarter of 1998.

The  Company's  primary  sources of working  capital have been proceeds from the
sale of Common Stock to and borrowings from its principal  shareholder,  Stephen
D. King, the private placement of Common Stock and debt, as well as the proceeds
from the Company's  initial  public  offering of Units in November 1997. For the
first  quarters of 1998 and 1997,  the Company  used  $1,445,865  and  $953,899,
respectively,  in cash flow for operating  activities.  As of March 29, 1998 and
March 28,  1997,  the Company had working  capital of  $6,159,749  and a working
capital deficit of $856,969, respectively.

In November 1997, the Company  completed an initial public offering of 2,500,000
Units,  each Unit  consisting  of one share of Common  Stock and one  redeemable
Class A Warrant  at an  initial  public  offering  price of $5.00  per Unit.  In
December 1997,  the Company issued an additional  100,000 Units to its principal
underwriter,  R.J. Steichen & Company, pursuant to the underwriter's decision to
exercise a portion of its  over-allotment.  The Company received net proceeds of
approximately  $11.2 million in conjunction with the initial public offering and
the partial exercise of the underwriter's over-allotment.

The Class A Warrants are subject to  redemption  by the Company at any time,  on
not less than 30 days'  written  notice,  at a price of $0.01 per Warrant at any
time  following  a period of 14  consecutive  trading  days  where the per share
average  closing bid price of the Company's  Common Stock exceeds $7.00 (subject
to adjustment),  provided that a current prospectus covering the shares issuable
upon the  exercise  of the Class A  Warrants  is then  effective  under  federal
securities  laws. For these purposes,  the closing bid price of the Common Stock
shall be determined  by the last reported sale price on the primary  exchange on
which the Common Stock is traded.

The Company  intends to open one restaurant in 1998 and one to three
restaurants in 1999. The Company estimates that its capital  expenditures (net
of estimated  landlord contributions)  will be  approximately  $10 to $15
million in fiscal 1998 and $10 to $20 million in fiscal 1999. The Company 
expects to finance its concept  development and  expansion  through cash flow
from  operations,  the exercise of its Class A Warrants and other forms of
financing such as the sale of additional  equity and debt  securities,  capital 
leases  and other  credit  facilities.  There are no assurances  that  such 
financing  will be  available  on  terms  acceptable  or favorable to the
Company.
        
                                       11

<PAGE>   12


ITEM 3.   CHANGES IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  
          AND  FINANCIAL DISCLOSURE

On February 4, 1998,  the  Company,  with the approval of its Board of Directors
and Audit  Committee,  engaged  Arthur  Andersen LLP as the  independent  public
accountants for Hotel Discovery, Inc. Prior to the engagement of Arthur Andersen
LLP, Ernst & Young LLP had served as the independent  public accountants for the
Company.  The  report  prepared  by Ernst & Young LLP as of  December  29,  1996
contained no adverse  opinion or  disclaimer of opinion and was not qualified or
modified  as  to  uncertainty  of  audit  scope  or  accounting  principles.  In
connection  with the audit of the financial  statements as of December 29, 1996,
and through February 4, 1998, there were no disagreements with Ernst & Young LLP
on any  matter  of  accounting  principles  or  practices,  financial  statement
disclosure or auditing scope or procedure, which disagreements,  if not resolved
to the satisfaction of Ernst & Young LLP, would have caused Ernst & Young LLP to
make reference to the subject matter of the disagreements in its reports.
This Current Report was filed on Form 8-K on February 4, 1998 and on Form 8-K/A
on February 9, 1998.
                                      12
<PAGE>   13

                          PART II.  OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS

        The Company is involved in routine legal actions in the ordinary course
        of its business.  Although outcomes of any such legal actions cannot
        be predicted, in the opinion of management there is no legal
        proceeding pending against or involving the Company for which the
        outcome is likely to have a material adverse effect upon the financial
        position or results of operations of the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
    
    (a) EXHIBITS
        
        11.     Computation of Net Loss per Common Share

        27.     Financial Data Schedule

    
    (b) REPORTS ON FORM 8-K

        On February 4, 1998, the Company filed a report on Form 8-K relating to 
        the dismissal by the Company as of February 4, 1998 of Ernst & Young    
        LLP as its independent public accountants and the engagement of Arthur
        Andersen LLP as its new independent public accountants as of February
        4, 1998.


                                      13
<PAGE>   14
                                  SIGNATURES


        In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.


                                
                          HOTEL DISCOVERY, INC.

                          By: /s/ Anne D. Huemme
                              --------------------
                          Anne D. Huemme    
                          Vice President-Finance and Chief Financial Officer
                          (Principal Financial and Accounting Officer)


Date:  May 13, 1998



<PAGE>   15
                                EXHIBIT INDEX


Exhibit Number                       Description
--------------                        -----------
                                     
     11                              Computation of Net Loss Per Common Share

     27                              Financial Data Schedule