COMMITMENTS AND CONTINGENCIES

6 Months Ended

Jun. 30, 2011

COMMITMENTS AND CONTINGENCIES

NOTE 8 -     COMMITMENTS AND CONTINGENCIES

We are involved from time to time in litigation arising in the ordinary course of business, however, we are not currently aware of any actions against us that we believe would materially adversely affect our business, financial condition or results of operations.

On March 23, 2011, Choice Hotels International terminated the franchise agreements for the following hotels effective that date:

● Cambria Suites, San Antonio, TX;

● Cambria Suites, Baton Rouge, LA;

● Cambria Suites, Boise, ID;

● Comfort Inn, Ft. Smith, AR;

● Comfort Inn, Salina, KS;

● Comfort Inn, Missoula, MT;

● Comfort Suites, Golden, CO;

● Comfort Inn & Suites, Twin Falls, ID;

● Comfort Suites, Charleston, WV; and

● Comfort Suites, Ft. Worth, TX

Choice also terminated the franchise agreement for the Cambria Suites, Bloomington, MN effective June 23, 2011.  We filed an arbitration action against Choice claiming wrongful termination of our franchise agreements.  Choice filed suit in United States District Court claiming trademark infringement and breach of contract.  In addition, in response to our arbitration action, Choice responded with counterclaims of fraudulent inducement, negligent misrepresentation, breach of contract and trademark infringement.  The parties have agreed to litigate all claims in the arbitration action.  The Company vehemently denies all asserted claims and is vigorously defending the claims.

Following the termination of the 11 franchise agreements with Choice, we entered into new license or franchise agreements for nine hotels.  On April 6, 2011, we entered into a license agreement with Holiday Hospitality Franchising, Inc. for the Holiday Inn in Boise, ID.  On April 15, 2011, we entered into franchise agreements with AmericInn International, LLC for five hotels in Salina, KS; Missoula, MT; Golden, CO; Twin Falls, ID; and Ft. Smith, AR.  On May 17, 2011, we entered into a license agreement with Carlson Inc. for the Country Inn & Suites in San Antonio, TX.  On June 24, 2011, we entered into a franchise agreement with Marriott International, Inc. for the SpringHill Suites in Bloomington, MN.  On August 5, 2011, we entered into a franchise agreement with Hilton Worldwide for the DoubleTree in Baton Rouge, LA.  We anticipate entering into new franchise agreements with respect to our 70 room hotel in Ft. Worth, TX and our 67 room hotel in Charleston, WV, in the third quarter of 2011.  However, we can give no assurance that we will be able to enter into new franchise agreements for these hotels.