10-Q 1 q0602924.txt SECOND QUARTER 2002 10Q 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, 2002. 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. [ ] Yes [X] No Number of shares of Common Stock, $.01 par value outstanding as of September 10,2003: 800,000 INDEX TO FORM 10-Q Page Part I Financial Information Item 1. Financial Statements Condensed consolidated balance sheets - June 30, 2002 2 (unaudited) and December 31, 2001. Condensed consolidated statements of operations - Three 3 months ended June 30, 2002 and 2001 and Six months ended June 30, 2002 and 2001 (unaudited). Condensed consolidated statements of cash flows - Six 4 months ended June 30, 2002and 2001 (unaudited). Notes to condensed consolidated financial statements - 5 June 30, 2002 (unaudited). Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General 9 Results of Operations 10 Liquidity and Capital Resources 16 Item 3. Controls and Procedures 17 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 Certifications 20 PART I - FINANCIAL INFORMATION Item 1. Financial Statements MOA HOSPITALITY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data)

See accompanying notes to condensed consolidated financial statements. MOA HOSPITALITY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited, in thousands except share data)

See accompanying notes to condensed consolidated financial statements. MOA HOSPITALITY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited, in thousands)

See accompanying notes to condensed consolidated financial statements. MOA HOSPITALITY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2002 (Unaudited) 1. Basis of Presentation The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by 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, 2002 are not necessarily indicative of the results that may be expected for the year ended December 31, 2002. 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, 2001. The terms "MOA" and the "Company" mean MOA Hospitality, Inc. and its subsidiaries. Certain reclassifications of prior-period amounts have been made to conform with current-period presentation, which have not changed operations or stockholders' equity. 2. Divestitures and Leasing Activities In January through June 30, 2002, the Company leased an additional four, and re-leased one of its lodging facilities to third party operators under terms similar to previous operating leases executed by the Company. In January through June 30, 2002, the Company sold two of its lodging facilities for approximately $3.7 million for a gain of approximately $147,000. Deferred purchase price credits and non-refundable security deposits aggregating approximately $280,000 were credited to the buyers in connection with these sales. In January through June 30, 2002, the company also sold and leased back two properties to related parties. Under FAS 66: Accounting for Sales of Real Estate, both sales were required to be recorded on the deposit method, because of the down payment and the continuing involvement of the company in the properties. In the attached financial statements the properties are reflected as operating properties. Subsequent to June 30, 2002 and prior to December 31, 2002, the Company leased an additional three of its lodging facilities to third party operators under terms similar to previous operating leases executed by the Company. Also the Company took back three of its leased lodging facilities and four of its leased locations exercised their right to purchase prior to lease expiration and one other property was sold. The five combined sales were for approximately $8.5 million resulting in a loss of $117,000 and a note receivable of $225,000. Subsequent to December 31, 2002, a property lessee defaulted on the operating lease. The Company operated the property for one month. At that time it was leased to a new third-party tenant. In accordance with SFAS 144 "Accounting for the Impairment or Disposal of Long Lived Assets," effective for financial statements issued for fiscal years beginning after December 31, 2001, operating results and gain/(loss) on sales of real estate for properties sold subsequent to December 31, 2001 are reflected in the consolidated statements of operations as discontinued operations for all periods presented. Below is a summary of the results of operations of these properties through their respective disposition dates:

3. Mortgage and Other Notes Payable In January through June 30, 2002 the Company was advanced $2.5million on loans of $7 million for construction advances on one property under construction in Santa Monica, CA bringing the total advanced to $5.0 million. During July through December 31, 2002, the Company was advanced an additional $1.4 million on loans of $7 million for construction advances on one property under construction in Santa Monica, CA bringing the total advanced to $6.4 million. Subsequent to December 31, 2002 the remaining .6 million was advanced. In April 2002, a subsidiary of the Company purchased a vending company for $210,000 by issuing a note payable of $110,000 with monthly principal and interest payments of $10,400, due March 1, 2003. Goodwill of $120,000 and fixed assets of $90,000 were preliminarily recorded as a result of this transaction. The Company is currently in default with respect to certain covenants on its Senior Subordinated Notes and also a $8.4 million note. The Company is seeking to extend the maturity dates and reduce the interest rates. The Company does not have sufficient liquidity to repay the notes if demanded by the holders and accordingly, there is substantial doubt about the Company's ability to contiue as a going concern. 4. 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. 5. Contingencies The Company is involved in various 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. 6. Related Parties During the quarters ended June 30, 2002 and 2001, the company received approximately $54,000 and $8,000 in management fees from related parties. For the six months ended June 30, 2002 and 2001 the Company received approximately $92,000 and $8,000 in management fees. The Company recognized interest income from related parties during the quarter ended June 30, 2002 of approximately $301,000. For the six months ended June 30, 2002 interest from related parties totaled approximately $603,000. Ground lease revenue from related parties for the six months and the quarter ended June 30, 2002 totaled approximately $65,000. The Company had receivables from related parties of approximately $763,000 at June 30, 2002. 7. Reclassifications Certain reclassifications have been made to previously reported 2001 statements in order to provide comparability with the 2002 statements reported herein. Theses reclassifications have not changed the 2001 results or stockholders' equity. 8. Subsequent Events The Company though a subsidiary (LLC) has a mortgage note payable secured by 93 of LLC's motels, 24 of which are operated by the Company, and 69 that are leased to third-party tenants. On February 28, 2003, the Company received a default notice from the servicer of the loan ("Servicer") alleging that LLC's lease program violated certain loan covenants. The Company believes that the leasing program, which began in 1998, has been properly disclosed to the lender in both monthly and annual financial reports provided to the lender. In addition, on March 31, 2003, the Company was notified that the loan had been accelerated. The Company disputes the validity of both the default and acceleration notices and has been in negotiations with the Servicer to resolve these issues. In conjunction with such continuing negotiations, the cure date was tolled and extended by the Servicer through July 11, 2003. In July 2003, negotiations with the Servicer stalled and on July 10th, LLC filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. Subsequent to filing the petition, LLC obtained a commitment to refinance the existing loan and the Servicer agreed to such refinancing subject to a $2.5 million prepayment penalty plus expenses. On August 26, 2003, the refinancing closed in the amount of $137.25 million. The new loan bears interest at LIBOR plus 5% with a floor of 7.5%, matures September 13, 2008 and stipulates that aggregate net proceeds in excess of $2.5 million from the sale of collateral properties must be applied as principal reductions on the loan. The loan has a requirement for cumulative mandatory principal reductions of $60 million by 9/13/2004, $90 million by 9/13/2005 and $112.25 million by 9/13/06. Additional payments of "Exit Interest" are required based on the proceeds of each property sale (as defined). The exit interest ranges from 2.5% to 5% and is capped at $6.25 million. The bankruptcy petition was dismissed by the court immediately prior to the closing of the refinancing. 9. Segments As of June 30, 2002 the Company, directly and through subsidiaries, owned 111 lodging facilities in 38 states. The Company owns a 100% interest in all of its properties. The Company operates thirty-three of its motels and leases seventy-eight of its motels to third party tenants pursuant to operating leases. The Company separately evaluates the performance of each of its motels.

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. FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS OR THOSE ANTICIPATED AT THE TIME OF THE FORWARD-LOOKING STATEMENTS ARE MADE, INCLUDING, WITHOUT LIMITATION, RISKS AND UNCERTAINTIES ASSOCIATED WITH THE FOLLOWING: GENERAL REAL ESTATE, TRAVEL AND NATIONAL AND INTERNATIONAL ECONOMIC CONDITIONS, INCLUDING THE SEVERITY AND DURATION OF THE DOWNTURN RESULTING FROM THE SEPTEMBER 11, 2001 TERRORIST ATTACKS ON NEW YORK AND WASHINGTON, D.C.;. 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, 2002 AND 2001 HAVE BEEN DERIVED FROM 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. The United States lodging industry has experienced downward pressure on ADR and occupancy throughout 2002 due to the overall slowdown in the economy. Such pressure was substantially increased as a result of the September 11, 2001 terrorist attacks on New York and Washington D.C. On a same store basis, through the second quarter ADR decreased to $47.75 for 2002 versus $47.80 for 2001, and occupancy increased to 66.48% for 2002 versus 66.02% for 2001. The Company is actively working with its managers and lessees to reduce operating and overhead expenses and has curtailed or postponed non-essential capital expenditure activities; however, there can be no assurance that the results of such efforts will be sufficient to enable the Company to continue meeting its obligations as they come due. Three Months Ended June 30, 2002 compared to the Three Months Ended June 30, 2001 The following chart presents certain historical operating results and statistics discussed herein and is being provided as a supplement to the condensed consolidated financial statements presented elsewhere herein. (certain of the 2001 numbers have been reclassified to conform to the 2002 presentation):

-------------------------------------------------- (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 lease revenues plus vending 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, 2002 and June 30, 2001, and for the six month periods then ended, excludes amounts related to the seventy-eight motels and seventy-five motels, respectively, which are leased to third party tenants. (6) Includes newly aquired properties, newly leased properties and properties which were leased that the Company is now operating. Effective January 1, 2002 the Company adopted the provisions of Statement of Financial Accounting Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS 144 addresses the financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS 144 extends the reporting requirements of discontinued operations to include components of an entity that have either been disposed of or are classified as held for sale subsequent to December 31, 2001. For the six months ended June 30, 2002, the Company disposed of three properties. The operating results of theses properties have been reclassified as discontinued operations in the unaudited consolidated statements of operations for each of the periods included herein. Total revenues decreased $2,207,000 to $27,350,000 for the six months ended June 30, 2002 from $29,557,000 for the six months ended June 30, 2001 or 7.47% primarily as a result of the sales and leasing activities of the Company. As lessor of 78 motels at June 30, 2002 the Company records rental income and does not reflect the gross revenues and expenses of operating these motels. Motel revenues decreased to $18,150,000 for the six months ended June 30, 2002 from $21,924,000 for the six months ended June 30, 2001, a decrease of $3,774,000 or 17.2%. The motel room revenues for motels owned during both periods increased approximately $79,000 or less than 1%, there also was a decrease of $3,611,000 for acquired and divested motels, since January 1, 2001. The ADR for the motels owned during both periods decreased to $47.75 for the six months ended June 30, 2002 from $47.80 for the six months ended June 30, 2001, a decrease of $.05 or less than 1%. The occupancy percentage increased from 66.02% for the six months ended June 30, 2001 to 66.48% for the six months ended June 30, 2002. The REVPAR for motels owned during both periods increased to $35.23 for the six months ended June 30, 2002 from $34.90 for the six months ended June 30, 2001, an increase of $.33 or 1%. 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 $9,936,000 for the six months ended June 30, 2002 from $12,411,000 for the six months ended June 30, 2001, a decrease of $2,475,000 or 19.9%. The cost of operating motels owned during both periods decreased to $9,039,000 for the six months ended June 30, 2002 from $9,249,000 for the six months ended June 30, 2001, a decrease of $210,000 or 2.3%. Motel operating expenses for motels acquired and divested since January 1, 2001 decreased to $897,000 for the six months ended June 30, 2002 from $3,162,000 for the six months ended June 30, 2001. The decrease in operating costs is principally due to decreased labor and related costs and a decrease in repairs and maintenance expenditures. Motel operating expenses as a percentage of motel revenues decreased to 54.7% for the six months ended June 30, 2002 from 56.6% for the six months ended June 30, 2001. Motel operating expenses as a percentage of motel revenues for the motels owned in both periods decreased to 52.5% for the six months ended June 30, 2002 from 54.2% for the six months ended June 30, 2001. Marketing and royalty fees include media advertising, billboard rental expense, advertising fund contributions and royalty charges paid to franchisers and other related marketing expenses. Marketing and royalty fees decreased to $1,271,000 for the six months ended June 30, 2002 from $1,552,000 for the six months ended June 30, 2001, a decrease of $281,000 or 18.1%. The marketing and royalty fees for motels owned during both periods increased to $1,204,000 for the six months ended June 30, 2002 from $1,193,000 for the six months ended June 30, 2001, an increase of $11,000 or less than 1%. For the motels owned during both periods, marketing and royalty fees as a percentage of room revenues was 7.7% for both periods. Marketing and royalty fees for motels acquired and divested since January 1, 2001 decreased to $67,000 for the six months ended June 30, 2002 from $359,000 for the six months ended June 30, 2001. Lease operations increased to $2,355,000 for the six months ended June 30, 2002 from $2,079,000 for the six months ended June 30, 2001, an increase of $276,000, which results from an increase to 78 leased properties with an asset value of $117,074,000 at June 30, 2002 compared with 75 leased properties with an asset value of $117,768,000 at June 30, 2001. Vending operations increased to $4,000 for the six months ended June 30, 2002 from ($235,000) for the six months ended June 30, 2001, an increase of $239,000 as a result of new vending locations added subsequent to January 1, 2001. Corporate general and administrative expenses are segregated by the Company into three separate areas: Management Company Operations, Construction and Development and Vending general and administrative. 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 decreased $360,000 to $2,197,000 for the six months ended June 30, 2002 from $2,557,000 for the six months ended June 30, 2001, a decrease of 14.1%. This is due primarily to discounts given on notes receivable paid off during the first six months of 2001 of $300,000 compared to $55,000 during the six months ended June 30, 2002. The general and administrative expenses associated with Construction and Development decreased $49,000 from $141,000 for the six months ended June 30, 2001 to $92,000 for the six months ended June 30, 2002. Vending general and administrative expenses increased $319,000 to $896,000 for the six months ended June 30, 2002 from $577,000 for the six months ended June 30, 2001. As a percentage of total motel operating revenues, Management Operations general and administrative expenses were 12.1% for the six months ended June 30, 2002 and 11.7% for the six months ended June 30, 2001. Depreciation and amortization decreased to $6,017,000 for the six months ended June 30, 2002 from $7,074,000 for the six months ended June 30, 2001, a net decrease of $1,057,000 or 14.94%. This decrease is due to the reduction in depreciation expense on furniture and fixtures which were fully depreciated for the six months ended June 30, 2002 compared to the six months ended June 30, 2001 of approximately $820,000. Also, there was a reduction of amortization expense on corporate of $51,000 for the six months ended June 30, 2002 compared to $262,000 for the six months ended June 30, 2001 on various loan costs which are now fully amortized. Net operating income increased to $4,781,000 for the six months ended June 30, 2002 from $4,247,000 for the six months ended June 30, 2001, an increase of $534,000 or 12.6%. This is a result of a decrease in management company operations expenses of $360,000, an increase of $319,000 in vending G&A and a decrease in depreciation and amortization costs. Net operating income as a percent of total revenues was 17.5% for the six months ended June 30, 2002 as compared to 14.4% for the six months ended June 30, 2001. Interest expense decreased to $9,279,000 for the six months ended June 30, 2002 from $10,402,000 for the six months ended June 30, 2001, a decrease of $1,123,000. The decrease in interest expense is reflective of the lower average amount of outstanding borrowings during the six months ending June 30, 2002 as compared to the six months ending June 30, 2001. Gain on sale of properties amounted to $2,659,000 for the six months ended June 30, 2001 compared to $0 for the period ended June 30, 2002 due to the newly adopted reporting requirements at January 1, 2002. For the six months ended June 30, 2001, one property was sold for $3.6 million and a deferred gain of $1.7 million was recognized on a second property upon repayment of the respective mortgage receivable balance. Discontinued operations increased to $43,000 for the six months ended June 30, 2002 compared to a loss of $87,000 for the six months ended June 30, 2001 as a result of the gain on sale of properties in 2002 included in discontinued operations. See Note 2 to the condensed consolidated financial statements. Net loss increased to $2,705,000 for the six months ended June 30, 2002 from a net loss of $2,234,000 for the six months ended June 30, 2001 primarily as a result of a decrease in interest expense, depreciation expense and the reporting of gains on sale of properties of $2,659,000 for the six months ended June 30, 2001 compared with $0 for the six months ended June 30, 2002. 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 through June 30, 2002 the Company was advanced $2.5million on loans of $7 million for construction advances on one property under construction in Santa Monica, CA bringing the total advanced to $5.0 million. During July through December 31, 2002, the Company was advanced an additional $1.4 million on loans of $7 million for construction advances on one property under construction in Santa Monica, CA bringing the total advanced to $6.4 million. Subsequent to December 31, 2002 the remaining $0.6 million was advanced. In April 2002, a subsidiary of the Company purchased a vending company for $210,000 by issuing a note payable of $110,000 with monthly principal and interest payments of $10,400, due March 1, 2003. Goodwill of $120,000 and fixed assets of $90,000 were preliminarily recorded as a result of this transaction. 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 $1,105,000 and $1,615,000 for the six months ended June 30, 2002 and 2001, respectively. In addition, as of June 30, 2002, the Company had $706,000 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. Capital repairs and maintenance expenses on leased properties are funded by lessees. For the six months ended June 30, 2002, cash and cash equivalents increased $671,000. This increase consisted of $1,231,000 of funds provided by investing activities and $6,371,000 of funds used in financing activities and $5,811,000 of funds provided by operations. Net investing activities of $1,231,000 include: $3,632,000 of cash utilized for motel development and $1,105,000 expended on refurbishment of existing properties, offset by $6,363,000 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 $395,000. Cash used in financing activities includes: $8,811,000 of cash utilized to repay indebtedness; and $233,000 of cash used for deferred financing costs and other items offset by $2,673,000 from proceeds from notes payable. The Company is currently in default with respect to certain covenants on its Senior Subordinated Notes and also a $8.4 million note. The Company is seeking to extend the maturity dates and reduce the interest rates. The Company does not have sufficient liquidity to repay the notes if demanded by the holders and accordingly, there is substantial doubt about the Company's ability to continue as a going concern. Subsequent to June 30, 2002, a subsidiary of the Company (the "LLC") was placed in technical default on one of its loans and was forced to file for Bankruptcy protection under Chapter 11 of the United States Bankruptcy Code on July 10, 2003. On August 26, 2003 the LLC refinanced the loan and the Bankruptcy proceedings were dismissed. The Company believes that the refinancing will not have any negative impact on the operations or liquidity in the future. Item 3. Controls and Procedures. Evaluation of Disclosure Controls and Procedures Our principal executive officer, Paul F. Wallace, and our principal financial officer, Kurt M. Mueller, evaluated within 90 days prior to the filing of this Form 10-K the effectiveness of the design and operation of our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. As a result of this evaluation, these executive officers have concluded that, as of such date, the design and operation of our disclosure controls and procedures were effective. Changes in Internal Controls Since the date of the evaluation of our disclosure controls and procedures by Mr. Wallace and Mr. Mueller described above, there have been no significant changes in our internal controls or in other factors that could significantly affect our disclosure controls and procedures. PART II - OTHER INFORMATION Item 1. Legal Proceedings The Company is involved in various 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. See Note 5 of the Notes to the Condensed Consolidated Financial Statements. Subsequent to June 30, 2002, a subsidiary of the Company (the "LLC") was placed in technical default on one of its loans and was forced to file for Bankruptcy protection under Chapter 11 of the United States Bankruptcy Code on July 10, 2003. On August 26, 2003 the LLC refinanced the loan and the Bankruptcy proceedings were dismissed. 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 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. September 29, 2003 By: /s/ Kurt M. Mueller Kurt M. Mueller President and Chief Financial Officer September 29, 2003 By: /s/ Blane P. Evans Blane P. Evans Secretary and Treasurer CERTIFICATIONS Written Statement of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes- Oxley Act of 2002. I, Kurt M. Mueller, certify that: 1. I have reviewed this quarterly report on Form 10-Q of MOA Hospitality, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. Date: September 29, 2003 /s/ Kurt M. Mueller Kurt M. Mueller Chief Financial Officer CERTIFICATIONS Written Statement of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes- Oxley Act of 2002. I, Paul F. Wallace, certify that: 1. I have reviewed this quarterly report on Form 10-Q of MOA Hospitality, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 4. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. Date: September 29, 2003 /s/ Paul F. Wallace Paul F. Wallace Chief Executive Officer

MOA HOSPITALITY INC 10-Q