~~ASSETS~~UNITED ~~September~~STATES 30 December 31 2000 1999 (unaudited) (audited) CURRENT ASSETS: Cash $ 89,920 $ 75,253 Accounts Receivable - Net 1,275,550 1,124,962 Accounts Receivable - Affiliates 669,826 580,403 Income Tax Receivable 9,310 9,310 Mortgages & Notes - Affiliates 124,446 121,240 Mortgages & Notes Receivable 616,929 688,072 Inventory 40,819 40,819 Prepaid Expenses 49,360 50,098 Loans - Employees .00 213 Interest Receivable 546,915 464,505 Deferred Tax Asset 7,448 7,447 Total Current Assets: $ 3,430,523 $ 3,162,322 PROPERTY, PLANT & EQUIPMENT: Land $ 1,660,306 $ 1,515,118 Buildings & Building Improvements 2,679,155 2,149,732 Furn. Fixtures & Equip. 625,680 561,128 Leasehold Improvements 44,448 331 Total Prop. & Equipment: 5,009,589 4,226,309 Less: Accum. Depreciation (1,257,500) (1,123,004) Total Prop. & Equip. (net): $ 3,752,089 $ 3,103,305 OTHER ASSETS: Mortg. & Notes Receivable $ 4,606,013 $ 5,030,468 Mortg. & Notes - Affiliates 573,947 1,116,802 Investments in Unconsolidated Affiliates 199,832 199,832 Investments in Affiliates 125,432 118,896 Investments in Real Estate 235,752 235,752 Trademarks - Net 1,279,878 1,295,688 Organizational Costs 9,640 9,540 Deposits 4,498 4,498 Marketable Equity Securities 26,676 26,676 Total Other Assets: $ 7,061,668 $ 8,038,152 TOTAL ASSETS: $ 14,244,280 $ 14,303,779

~~September~~SECURITIES 30AND ~~December~~EXCHANGE 31COMMISSION 2000 1999 CURRENT LIABILITIES: Accounts Payable - Trade $ 198,666 $ 106,097 Interest Payable 197,798 174,668 Taxes Payable 144,858 179,260 Other Taxes Payable 204,878 189,683 Other Liabilities 232,090 546,982 Mortgages & Notes Payable 445,536 482,843 Mortgages & Notes Payable - Affiliates 196,219 118,327 Current Deferred Tax Liabilities 0 0 Deferred Severance Pay 12,000 12,000 Total Current Liabilities: $ 1,632,045 $ 1,809,860 LONG TERM LIABILITIES Mortgages & Notes Payable $ 1,150,557 $ 1,308,603 Mortgages & Notes Payable - Affiliates 262,904 357,178 Escrow - Advance Construction Draw 18,543 15,000 Total Long Term Liabilities, 432,004 1,680,781 DEFERRED AMOUNTS Deferred Income - Installment $ 1,511,361 $ 1,511,361 Deferred Income Taxes 238,134 101,839 Deferred Severance Pay 143,750 143,750 Total Deferred Amounts: $ 1,893,245 $ 1,756,950 Total Liabilities & Deferred Amounts: $ 4,957,294 $ 5,247,591 Minority Interest 838,884 823,004 STOCKHOLDER'S EQUITY: Common Stock-No Par Value Auth. 5,000,000 Sh. Issued & Outstanding 2,365,284 $ 6,023,315 $ 6,023,315 Paid-In Capital 42,201 42,201 Retained Earnings 2,167,668 2,167,668 Current Year's Income 214,918 Total Stockholder's Equity 8,448,102 8,233,284 TOTAL LIABILITIES & STOCKHOLDER'S EQUITY: $14,244,280 $14,303,779

~~FOR THE NINE MONTHS ENDED September 30 December 31 2000 1999 (Unaudited) (Audited) REVENUES: Franchising Revenues $1~~WASHINGTON,~~492,538~~ $D.C. ~~1,833,472~~20549 Financing Revenues 408,014 620,325 Sale of Furniture 0 439 Operating Lease Income 336,062 507,064 Gain on Sale of Assets 29,322 134,096 Legal Settlement Income 78,175 62,356 Other Income 39,349 374,697 Total Revenues: $2,383,460 $ 3,532,449 COSTS AND EXPENSES: Operating Expense - Franchise Division $ 1,353,073 $ 1,595,417 Operating Expense - Financing & Investing 400,986 1,024,330 Cost of Sales - Furniture 0 4,174 Interest Expense 139,935 256,347 Depreciation & Amortization 134,496 238,590 Investment Loss 0 165,044 Loss on Sale of Property 0 0 Total Costs & Expenses $ 2,028,490 $ 3,283,902 Income (Loss) from Continuing Operations Before Taxes & Extraordinary Items 354,970 248,547 Less: Provisions for Income Taxes (124,172) (117,439) Income (Loss) before Minority Interest 230,798 131,108 Less: Minority Interest Income (Loss) of Consolidated Subsidiaries (15,880) (25,877) NET INCOME (LOSS): $ 214,918 $ 105,231

~~Nine~~FORM ~~Months Ending INCOME (LOSS) PER SHARE 9~~10-~~30-00~~Q 1999 Income (Loss) per Share from Operations before Taxes and Minority Interest $ .15 $ .11 Income (Loss) per share before Minority Interest $ .10 $ .06 Basic Net Income (Loss) per Common Share $ .09 $ .04 Average Shares Outstanding 2,365,284 2,365,284

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001

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

COMMISSION FILE NO. 0-7107

SOUTHERN SCOTTISH INNS, INC.

(Exact name of registrant as specified in its charter)


LOUISIANA		72-0711739
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1726 Montreal Circle

Tucker, Georgia 30084

(Address of principal executive offices)

(Zip Code)

(770) 938-5966

(Registrant's telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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, and (2) has been subject to such filing requirements for the past 90 days. Yes No X

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes No X


CLASS		SHARES OUTSTANDING AT JUNE, 2001
Common Stock, Par Value $0.01 per share		2,366,395

SOUTHERN SCOTTISH INNS, INC.

INDEX


		PAGE NO.
PART I. FINANCIAL INFORMATION:

Financial Statements

Consolidated Balance Sheets-As of June 30, 2001 (Unaudited) and December 31, 2000		2-3
Consolidated Statements of Income-For the six months ended June 30, 2001 and June 30, 2000 (Unaudited)		4-5

Consolidated Statements of Cash Flows-For the six months ended June 30, 2001 (Unaudited)		6

Notes to Consolidated Financial Statements		7-9


PART II. MANAGEMENT'S DISCUSSION AND ANALYSIS:

Item 1-Business		10-12

Item 2-Legal Proceedings		12-13

Item 3- Management's Discussion and Analysis of Financial Conditions and Results of Operations		13

Item 4-Controls and Procedures		14


SIGNATURE		15

PART I. FINANCIAL INFORMATION

SOUTHERN SCOTTISH INNS, INC.

CONSOLIDATED BALANCE SHEETS

ASSETS

		June 30, 2001 (Unaudited)		December 31, 2000
CURRENT ASSETS
Cash	$	114,771	$	54,612
Accounts Receivable-Net		1,648,845		1,234,991
Accounts Receivable-Affiliates		700,684		502,649
Mortgages & Notes-Affiliates		546,422		82,919
Mortgages & Notes Receivable		908,978		807,673
Inventory		40,749		40,749
Prepaid Expenses		43,833		69,256
Interest Receivable		599,014		612,246
Net Deferred Tax Asset		0		28,776

TOTAL CURRENT ASSETS		4,603,296		3,433,871

PROPERTY AND EQUIPMENT
Land		1,567,044		1,649,726
Buildings & Building Improvements		2,562,536		2,629,367
Furniture, Fixtures & Equipment		337,467		376,062
Vehicles		273,917		193,350
Total Property & Equipment		4,740,964		4,848,545
Less: Accumulated Depreciation		(1,195,000)		(1,248,451)
TOTAL NET PROPERTY AND EQUIPMENT		3,545,964		3,600,094


OTHER ASSETS
Mortgages & Notes Receivable		5,007,114		4,785,076
Mortgages & Notes-Affiliates		0		1,010,132
Investments in Unconsolidated Affiliates		(233,346)		(109,112)
Investment in Real Estate		217,964		217,964
Trademarks - Net		1,237,819		1,252,859
Loan Cost		7,828		7,822
Other Assets		3,711		4,498
Deferred Tax Asset		0		61,603
Marketable Equity Securities, Carried at Market		25,210		25,210

TOTAL OTHER ASSETS		6,266,300		7,256,052

TOTAL ASSETS	$	14,415,560	$	14,290,017

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS

2

SOUTHERN SCOTTISH INNS, INC.

CONSOLIDATED BALANCE SHEETS (Continued)

LIABILITIES AND STOCKHOLDERS' EQUITY

		June 30, 2001 (Unaudited)		December 31, 2000

CURRENT LIABILITIES
Accounts Payable - Trade	$	176,802	$	281,416
Interest Payable		201,662		241,363
Income Taxes Payable		221,942		160,486
Other Taxes Payable		306,172		311,630
Other Liabilities		289,572		332,617
Mortgages & Notes Payable		286,740		396,617
Mortgages & Notes Payable-Affiliates		132,877		118,327
Deferred Severance Pay		6,000		14,250

TOTAL CURRENT LIABILITIES		1,621,767		1,857,064

LONG-TERM LIABILITIES
Mortgages & Notes Payable		1,258,874		1,223,658
Mortgages & Notes Payable-Affiliates		313,069		327,619
Escrow - Real Estate Tax		5,039		971
TOTAL LONG-TERM LIABILITIES		1,576,982		1,552,248

DEFERRED AMOUNTS
Deferred Income-Installment		1,485,071		1,485,521
Deferred Income Tax		76,245		66,552
Deferred Severance Pay		167,500		167,500
TOTAL DEFERRED AMOUNTS		1,728,816		1,719,573

TOTAL LIABILITIES & DEFERRED AMOUNTS				5,128,885

MINORITY INTEREST		863,649		839,296

STOCKHOLDERS' EQUITY
Common Stock- no par value, Authorized 5,000,000 shares, Issued & Outstanding 2,366,395 year ended 2001 and 2000		6,023,981		6,023,981
Additional Paid in Capital		42,201		42,201
Retained Earnings		2,558,164		2,256,320

TOTAL STOCKHOLDERS' EQUITY		8,624,346		8,322,502

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	14,415,560	$	14,290,017

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS

3

SOUTHERN SCOTTISH INNS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

		Three Months Ended				Six Months Ended
		June 30,				June 30,
		2001		2000		2001		2000

REVENUES

Franchising Revenues	$	477,719	$	457,623	$	904,649	$	900,524
Financing Revenues		90,152		57,700		179,589		173,030
Leasing Revenues		117,249		122,748		235,296		233,609
Equity in Income of Unconsolidated Affiliates		0		0		0		1,100
Legal Settlement Revenues		308,578		70,664		309,078		119,539
Gain on the Sale of Assets		49,019		0		182,974		43,923
Other Income		26,010		0		60,936		8,833

TOTAL REVENUES		1,068,727		708,735		1,872,522		1,480,558

EXPENSES

Operating Expense-Franchise Division		520,153		373,725		902,742		848,283
Operating Expense-Financing & Investing		121,401		139,375		234,821		243,228
Leasing Expense		30,498		0		78,811		0
Interest Expense		31,808		37,484		67,719		89,458
Depreciation & Amortization		46,963		55,607		95,544		72,048

TOTAL EXPENSES		750,823		606,191		1,379,637		1,253,017

Net Income (Loss) from Continuing Operations before Taxes & Minority Interest		317,904		102,544		492,885		227,541

Provisions for Income Taxes		(106,456)		(17,697)		(166,028)		(15,005)

Net Income (Loss) before Minority Interest		211,448		84,847		326,857		212,537

Minority Interest in (Income) Loss - RCII		(22,479)		(7,397)		(25,019)		(5,711)

NET INCOME (LOSS)	$	188,969	$	77,450	$	301,838	$	206,826

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS

4

SOUTHERN SCOTTISH INNS, INC.

CONSOLIDATED STATEMENTS OF INCOME (Continued)

(Unaudited)

		Three Months Ended June 30, 2001 2000				Six Months Ended June 30, 2001 2000
INCOME (LOSS) PER SHARE

Income (Loss) per Share before Taxes &, Minority Interest	$	.13	$	.04	$	.21	$	.10
Income (Loss) per Share before Minority Interest		.09		.04		.14		.09

Basic Net Income (Loss) per Common Share	$	.08	$	.03	$	.13	$	.09
Average Shares Outstanding		2,366,395		2,366,395		2,366,395		2,366,395

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS

5

SOUTHERN SCOTTISH INNS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

		June 30. 2001
CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES

Net Income	$	301,838
Non-Cash Items Included in Net Income:
Depreciation and Amortization		95,544
Minority Interest Income		25,019
Gain on Sale of Assets		(182,974)
Miscellaneous		2,000

Net Changes In Current Assets and Liabilities:
Accounts Receivable		95,320
Accounts Receivable-Affiliates		(198,035)
Deposits		787
Interest Receivable		13,232
Prepaid Expense		25,423
Accounts Payable		(104,614)
Interest Payable		(39,701)
Taxes Payable		55,998
Deferred Income Tax		100,072
Other Accrued Liabilities		(52,109)
Escrow - Real Estate Taxes		4,068

NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES		141,868

CASH FLOWS PROVIDED BY (USED FOR) INVESTING ACTIVITIES

Collections on Mortgages and Notes Receivable		63,957
Acquisition (Disposition) of Fixed Assets		(7,624)

NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES		56,333

CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES

Principal Payments on Mortgages and Notes Payable		(138,042)

NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES		(138,042)

Increase (Decrease) in Cash		60,159

Cash - Beginning		54,612

Cash - Ending	$	114,771

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS

6

SOUTHERN SCOTTISH INNS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE

A - BASIS OF PRESENTATION

The accompanying consolidated financial statements for the six months ended June 30, 2001 and 2000 have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10Q and Rule 10-01 of Regulation S-X. These financial statements for the six months ended June 30, 2001 and June 30, 2000 have not been audited by independent public accountants but include all adjustments, consisting of normal recurring accruals, which in the management of Southern Scottish Inns, Inc. and subsidiaries ("SSI" or "the Company") are necessary for a fair statement of the financial position, results of operations and cash flows for the period presented. These statements should be read in conjunction with the audited financial statements and footnotes in the Company's annual report on Form 10-K for the year ended December 31, 2001. The accompanying consolidated balance sheet as of December 31, 2000 has been derived from audited financial statements but does not include all disclosures required by GAAP. The results of operations for the six months ended June 30, 2001 are not necessarily indicative of the results to be expected for the full year ending December 31, 2001.

The consolidated financial statements include the accounts of the Company and all subsidiaries except where control is temporary or does not rest with the Company. The Company's investments in companies in which it has the ability to exercise significant influence over operating and financial policies are accounted for by the equity method. Accordingly, the Company's share of the net earnings of these companies is included in consolidated net income. The Company's investments in other companies are carried at cost or fair value, as appropriate. All significant inter-company accounts and transactions are eliminated.

Prior to 2001, the Company did not provide Consolidated Statements of Cash Flows or Industry Segments in its filed 10Q's. Therefore, the 10Q for period ending March 31, 2001 and June 30, 2001 does not include any comparative figures for the same periods of 2000. Consolidated Statements of Cash Flows and Industry Segments are, however, included in the filed 10K for year ended 2000.

B - RECLASSIFICATIONS

Certain reclassifications have been made to prior period information to conform to the current period presentation. Among same was the reclassification by the franchising division of $221,292 from accounts receivable from franchisees to notes receivable from franchisees.

SOUTHERN SCOTTISH INNS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

C - INDUSTRY SEGMENTS

Our operations consist of three reportable segments, which are based on similar products or services. Information on segments is as follows:

		Six Months Ended
		June 30,
		2001
Sales to Unaffiliated Customers

Franchising	$	904,649
Financing & Investing		362,563
Leasing		235,296
Total Sales to Unaffiliated Customers		1,502,508

Other Income:
Franchising		330,315
Financing & Investing		20,616
Leasing		19,083
Total Other Income		370,014

Depreciation and Amortization:
Franchising		23,022
Financing & Investing		15,301
Leasing		59,221
Total Depreciation and Amortization		95,544

Interest Expense:
Franchising		2,599
Financing & Investing		12,441
Leasing		52,679
Total Interest Expense		67,719

Bad Debt Expense:
Franchising		5,677
Financing & Investing		0
Leasing		0
Total Bad Debt Expense		5,677

Net Income (Loss):
Franchising		258,031
Financing & Investing		(21861)
Leasing		65,668
Total Net Income (Loss)	$	301,838

8

SOUTHERN SCOTTISH INNS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

C - INDUSTRY SEGMENTS (Continued)

		Six Months Ended
		June 30,
		2001

Identifiable Assets:
Franchising	$	1,896,726
Financing & Investing		8,504,673
Leasing		3,899,390
Total Identifiable Assets		14,300,789


Additions in Property & Equipment:
Franchising		7,624
Financing & Investing		0
Leasing		0
Total Additions in Property & Equipment	$	7,624

9

PART II

Item 1. Business

A. - General

Due to the Company's development and finance division's acquiring and selling properties, the number of properties owned, operated, leased and the number of wrap around mortgages held fluctuates constantly.

B. - Segment Information

The Company identifies three significant industry segments as "franchising," "financing & investing," and "leasing & lodging." All revenue items represent sales to unaffiliated customers, as sales or transfers between industry segments are negligible.

C. - Description of Business

Products and Services

The Company's franchise division offers advertising, reservation, group sales, quality assurance and consulting services to motel owner/operators.

The Company's Financing division offers owner financing to persons acquiring motel properties previously operated and/or owned by the Company.

Leasing revenue is derived from the leasing of real and personal properties, i.e. motels, restaurants and part of Hospitality's office building belonging to the Company.

Status of Products and Segments

Each of the Company's industry segments is fully developed with an operational history of several years under Company's direction.

Raw Materials

Not Applicable.

Patents, Trademarks, Licenses, Franchises, and Concessions

The Company has no patents. The Company does own the trade names "Master Hosts Inns", "Red Carpet Inns", "Scottish Inns", "Downtowner Inns", "Passport Inns", "Sundowner Inns" and related trademarks, etc. used in operating lodging facilities or reservation services under these names.

"Sundowner Inns" Trademarks, Registration No. 1,280,236 and No. 1,280,237, United States Patent and Trademark office, were registered May 29, 1984. In 1994, Joe W. Hudgins, the owner of the corporation to which said marks were then registered, transferred ownership of said corporation, Sundowner Reservations, Inc., a Tennessee corporation, to Hospitality International, Inc. in consideration of cancellation of inter-company debt and promise to pay the assigned corporation's debt to Red Carpet Inns International, Inc. On April 30, 1995, Sundowner Reservations, Inc. transferred title to the subject marks to Hospitality International, Inc. As of December 31, 1996, Hospitality International, Inc. transferred ownership of the subject marks to Red Carpet Inns International, Inc. for consideration of $360,000.

Seasonality

The Company's financing and leasing businesses by their nature are not subject to seasonal fluctuations except, perhaps, as to mortgagors and lessees' ability to meet payment schedules due to seasonality of their businesses. The revenues from the Company's franchising and lodging segments tend to be greater in the spring and summer months during peak travel periods than during slower business months.

Working Capital

The Company's financing receipts are comprised primarily of interest which does not become reflected on its balance sheet until after it is earned, whereas its payments on underlying debts are comprised primarily of principal reduction and the portion which will be returned over the next twelve months is reflected on the balance sheet as a current liability. Because of this, the Company believes a current ratio of less than one to one is appropriate for its business. However, the Company continues to attempt to, among other things, (1) reduce and contain overhead costs, (2) seek to dispose of underproductive assets, and (3) seek the most advantageous financing terms available.

From 1995 to 2000, in particular, the Company aggressively pursued its legal rights to its trademarks. Largely, it has been successful in stopping motel operations from illegally using its trademarks as well as in enforcing compliance to its franchisee agreements. Settlements were reached on a number of lawsuits in most years that significantly increased the revenues of the Company. Attorney fees related to those settlements also increased in those same years.

Customers

The Company's business of franchising motels is contingent upon its being able to locate qualified property owner-operators who are seeking national affiliation. Through use of its franchise sales force, the Company has not experienced insurmountable difficulty in locating independent motel owner-operators or owner-operators seeking to change national affiliation nor does it anticipate any such difficulty in the future. However, more franchisors are offering multi-level brands, resulting in more downscaling conversions into the economy lodging sector and, therefore, providing more competition. Likewise, the Company's financing division requires that it locate qualified owner-operators or investors for its properties. Because of its franchise affiliations the financing division has not experienced, nor does it anticipate experiencing too much difficulty in locating qualified investors to purchase its developed properties. However, due to the Company's desire to limit the loans it holds to a manageable number and because third party or institutional financings for used motel properties are difficult to arrange, once a property is sold the Company carries the entire financing package and accordingly, each individual loan represents a larger portion of portfolio than it does with traditional lending institutions. Therefore, the continued performance of each existing loan may be material to the operation of the financing division.

Backlogs
- Not Applicable.

Government Contracts

The Company is not involved in, nor does it anticipate becoming involved in, any government contracts.

Competition

The Company's franchising, leased lodging and leased food service divisions each compete with other similar businesses, many of which are larger and have more national recognition than the Company. Each of these divisions competes on the basis of service and price/value relationship.

The Company's financing division competes with other, more traditional sources of long-term financing, most of which have greater financial resources than does the Company.

Developing and financing lodging properties is being significantly affected by over-development in many areas and is somewhat adversely affected by the area's and the country's general economic downturn

Research and Development

No significant research activities were conducted by the Company during the Fiscal year and the Company does not expect to expend sums on research activities during the next Fiscal Year.

Environmental Protection

The Company is not directly affected by environmental protection measures of federal, state or local authorities to any extent which would reasonably be expected to cause material capital expenditures for compliance, so far as in known. However, it is possible that an approximately five and three-tenths (5.09) acre tract of land held as an investment and acquired as a possible motel site, located on I-10 in Ocean Springs, Mississippi, may under the new guidelines, be determined to be in part "wetlands." If so, its use and value would be adversely affected. On January 27, 1995, 3.2 acres contiguous to said tract were sold at a consideration undiminished by the wetlands issue; the value of the remaining 5.09 acres, therefore, may not be diminished. The 5.09 acre tract is carried on the Company's books at $55,647

Foreign Operations

The Company is not currently involved in any business operations outside of the United States of America, except through its franchising division which does do limited business in Canada and has one franchise in the Bahamas and two in Jamaica.

Item 2. Legal Proceedings

The Company is named as a defendant for damages in an unspecified amount, reasonable attorney fees, interest and costs as a result of the Company's alleged violation of a patent. It is counsel's opinion that the Company will be dismissed any liability.

In settlement of a foreclosure action brought by Registrant on a delinquent note and mortgage on the McComb, Mississippi motel, Registrant accepted a deed in lieu.

The Company also has two cases where there is a trial for Declaratory Judgment where the franchisee is seeking a determination as to the validity of the franchise. In these cases, the Company is seeking damages under the franchise agreement against the franchisee. In one case, the franchisee has filed a counterclaim. Counsel expects the matter to be dismissed in a Motion for Summary Judgment.

12

Item 3. Management's Discussion and Analysis of Financial Conditions and Results of Operations

Results of Operation:

Franchising revenues in the second quarter of 2001 increased slightly compared to the second quarter of 2000. The smallness of the increase, in large part, is due to more competition from other franchisors offering multi-level brands, resulting in more down-scaling conversions into the economy lodging sector. To increase revenues, the Company has become more stringent in its requirements relating to franchises in the areas of quality assurance. A major source of revenue for the franchising area is legal settlements. The Company vigorously asserts its legal rights in the area of franchise infringements and violations of the franchise agreements.

Financing revenues continue to drop because the interest amount on the notes receivable is declining as the notes move toward maturity.

Leasing revenues declined in 1998 through 2000 due to the restructuring of the lease agreements due to economic conditions, such as new competition at each of our locations and our failure to refurbish and upgrade. In second quarter 2001, leasing revenues increased slightly compared to second quarter 2000 because the lease agreements were restructured. However, most of the increase is based on accrued rent income due from the lessee with a lack of probability of collection. The Company is considering managing its properties in-house in the future.

Liquidity:

The question of liquidity should not be an issue in the near future. The non-affiliated entity leasing properties from the Company is in arrears in its past lease payments; collection is doubtful. If cash requirements became an issue, any of the secured notes receivable could be sold at a discount. However, there is no reason to believe this will be required.

Capital Resources

No material commitments for capital expenditures are planned for 2001 other than possible purchases of properties through the financing division.

The trend in capital resources has resulted in a gradual tightening of credit with regard to new motel construction but continues tighter with regard to older properties. This has forced more sellers of older properties into the seller-financed arena creating more competition for the Company in its Finance and Development Division. This fact, coupled with less available loan money on the new property construction side, has meant less profitable opportunities for the Company. Although the economy for the past two years has not been good, fewer foreclosures have resulted than in recent prior periods of economic downturns and therefore there are not a lot of bank REO properties available. Individual sellers are asking multiples of sales of pre-downturn years rather than of more current years. These events and tendencies shorten the supply of motel inventory while increasing the cost of acquiring the same.

Item 4. Controls & Procedures

Evaluation of disclosure controls and procedures.

As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the "Exchange Act"), as of June 30, 2001, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. In designing and evaluating our disclosure controls and procedures, we and our management recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Based upon the required evaluation, the Chief Executive Officer and Chief Financial Officer believe that, as of the date of completion of the evaluation, our disclosure controls and procedures were reasonably effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, but not yet within the time periods specified in the Securities and Exchange Commission's rules and forms. In connection with the rules, we are continuing the process of reviewing and documenting our disclosure controls and procedures, including our internal controls and procedures for financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.

Changes in internal controls.

There has been no change in our internal controls over financial reporting during our most recent fiscal year that has been materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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SIGNATURES

(Originals on file)

Pursuant to the requirements of Section 13 or 15 (d) 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.

SOUTHERN SCOTTISH INNS, INC.

(Registrant)

By: __________________ ______ __ ________________ ______

Bobby E. Guimbellot Date Jack M. Dubard Date

Chief Executive Officer President & CFO

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

FOR THE BOARD OF DIRECTORS:

______________________
______ _____________________ ______

Michael M. Bush Date Richard A. Johnson Date

Director Director

______________________
______ _____________________ ______

Melanie C. Hanemann Date C. Guy Lowe, Jr. Date

Director Director

______________________
______ _____________________ ______

Jack M. Dubard Date Harry C. McIntire Date

Director Director

______________________
______ _____________________ ______

Bobby E. Guimbellot Date Gretchen W. Nini Date

Director Director

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______________________
______ _____________________ ______

George O. Swindell Date John Snyder Date

Director Director

______________________
______

Melinda Hotho l Date

Director

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