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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2003

or

For the transition from              to             

Commission File Number: 0-23256

JAMESON INNS, INC.

(Exact name of Registrant as specified in its Articles)

Registrant’s telephone number, including area code: (770) 481-0305

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.10 per share

9.25% Series A Cumulative Preferred Stock, par value $1.00 per share

$1.70 Series S Cumulative Convertible Preferred Stock, par value $1.00 per share

(Title of Each Class)

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 the filing requirements for the past 90 days.  x    Yes  ¨    No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Aggregate market value of the voting and non-voting common equity stock held by non-affiliates of the registrant as of March 12, 2004: $33,421,176.

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

Number of shares of common stock outstanding on March 12, 2004: 14,107,933.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement for the annual meeting of stockholders to be held June 25, 2004 are incorporated by reference into Part III.

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FORM 10-K

JAMESON INNS, INC.

ANNUAL REPORT

YEAR ENDED DECEMBER 31, 2003

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JAMESON INNS, INC.

ANNUAL REPORT

PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

Forward-Looking Statements

This report, including the documents incorporated in this report by reference, contains certain forward-looking statements. These include statements about the effects of the relinquishment of our status as a real estate investment trust and our acquisition of Kitchin Hospitality, LLC on January 2, 2004, changes in interest rates, our expansion plans, acquisition or leasing of additional land parcels, construction of new hotels and expansion of existing hotels, disposition of land parcels and hotels, access to debt financing and capital, future corporate strategies and direction, effects and circumstances relating to terrorist acts similar in nature to those which occurred on September 11, 2001, on-going military actions and the anticipated negative impact on travel, the national economic slowdown and other matters. These statements are not historical facts but are expectations or projections based on certain assumptions and analyses made by our senior management in light of their experience and perception of historical trends, current conditions, expected future developments and other factors. Whether actual results and developments will conform to our expectations and predictions is, however, subject to a number of risks and uncertainties. These include, but are not limited to:

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The words “estimate,” “project,” “intend,” “expect,” “anticipate,” “believe” and similar expressions are intended to identify forward-looking statements. These forward-looking statements are found at various places throughout this report and the documents incorporated in this report by reference as well as in other written materials, press releases and oral statements issued by us or on our behalf. We caution you not to place undue reliance on these forward-looking statements, which speak only as of the date that they are made. We do not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this report.

PART I

ITEM 1. BUSINESS

General

We were incorporated under the laws of Georgia in 1993. However, we originally began operations as a Delaware corporation in 1988. Until January 1, 2004, we were a self-administered real estate investment trust, commonly called a REIT. We are headquartered in Atlanta, Georgia. As of January 1, 2004, we are no longer a REIT, but instead will be taxed as a C corporation under federal tax laws. See “Subsequent Developments” below. We develop and own, and as of January 1, 2004, operate, limited service hotel properties (“Inns”) in the southeastern United States under the trademark “The Jameson Inn^®.” In addition, we own, and as of January 1, 2004, operate Inns in the midwestern United States operating under the trademark “Signature Inn^®.” In this report, we sometimes refer separately to the Inns operating under the Jameson trademark as “Jameson Inns” and to those operating under the Signature trademark as “Signature Inns.”

We have historically focused on developing Inns in communities which have a strong and growing industrial or commercial base and also serve a growing customer base with additional locations. Generally, our Inns are rooms-only facilities designed to appeal to price and quality conscious travelers. Our target customers are business travelers, such as sales representatives and government employees, as well as families and leisure travelers attending events in our markets, such as college or cultural gatherings, fairs, festivals and family reunions.

In late 1998, we designed and began building new three-story, interior corridor structures with 56 to 80 rooms and elevator access to each floor. Prior to 1998, we built two-story structures with exterior access to the guest rooms constructed on a one- to two-acre tract with an outdoor swimming pool, fitness center and parking area. All Jameson Inns are Colonial-style structures which feature amenities such as swimming pools, fitness centers, remote-controlled television with access to cable programming, including HBO, free local calls, complimentary continental breakfast and newspaper, king-sized or double beds, attractive decor, quality furnishings and, in select rooms, whirlpool baths and small refrigerators. Based on market demand, certain Jameson Inns have been expanded since their initial construction.

A typical Signature Inn incorporates an atrium, and a well-appointed lobby and registration area. A Signature Inn contains approximately 120 guest rooms, averaging over 300 square feet per room, swimming pools, exercise facilities and a complimentary breakfast, and other amenities including a microwave, refrigerator, in-room coffee, iron and ironing board and hair dryer in all guest rooms. We emphasize services designed for the business traveler, such as large, in-room desks, and voicemail in each guest room.

The lodging industry is generally divided into three broad categories based on the type of services provided. The first of these categories, full service hotels and resorts, offers their guests rooms, food and beverage services, meeting rooms, room service and similar guest services, and, in some cases, resort entertainment and

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activities. The second category is the limited service hotel, which generally offers rooms only and amenities such as swimming pools, continental breakfast and similar, limited services. The third category is the all-suite hotel or motel, which offers guests more spacious accommodations and usually kitchen facilities in the suite and common laundry facilities. Our brands are all limited service hotels. Smith Travel Research categorizes hotels into seven chain scales as follows:

Luxury

Upper Upscale Chains

Upscale Chains

Midscale Chains with F & B (Food & Beverage)

Midscale Chains without F & B (Food & Beverage)

Economy Chains

Independents

Prices for each of these categories vary by region and locale. Our Jameson Inns are in the economy category and our Signature Inns are in the limited service midscale without food and beverage category.

As a REIT, through December 31, 2003, we were prohibited from operating our properties other than through an independent contractor or a taxable REIT subsidiary. Accordingly, all of the Inns we own were leased to Kitchin Hospitality, LLC under master leases. References to Kitchin Hospitality throughout this report refer to either Kitchin Hospitality, LLC (formerly named Jameson Hospitality, LLC), or its predecessors. These master leases required Kitchin Hospitality to pay us base rent based on the number of rooms in operation (available for rent) on the first day of each month and percentage rent based on room revenues as defined in the master leases. Percentage rent is designed to allow us to participate in growth in revenues at the Inns. The master leases generally provided that a portion of aggregate room revenues in excess of specified amounts was paid to us as percentage rent.

Disposition of Properties. During 2003, we disposed of one exterior corridor 41-room Jameson Inn hotels located in Eastman, Georgia. The Jameson Inn hotel was sold in the third quarter of 2003. We sold one 125-room Signature Inn in Florence, Kentucky, in the first quarter of 2003. During 2003, upon completion of the sale of these two hotel properties for which impairment losses were not recorded, we recognized net gains of $23,600. Additionally, we sold a tract of land during 2003 resulting in a gain of $36,000.

One additional Signature Inn and two additional Jameson Inns were classified as held for sale at December 31, 2003 and were recorded at the lower of cost or fair value less anticipated selling costs, resulting in an impairment of $710,000. During 2004, we may identify for disposition additional Inns which do not meet our investment criteria.

Our mailing address is: Jameson Inns, Inc., 8 Perimeter Center East, Suite 8050, Atlanta, Georgia 30346-1604. Our telephone number is: (770) 481-0305. Our website is located at www.jamesoninns.com.

Subsequent Developments

Relinquishment of Our REIT Status. Effective January 1, 2004, we relinquished our REIT status. As of that date, any distributions to common or preferred shareholders are not deductible for purposes of computing our taxable income and we are subject to income tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates, without offset for distributions of such income to our shareholders.

As a REIT, we were required to distribute at least 90% of our net taxable income annually in order to maintain our REIT qualification. No such minimum-distribution requirements apply to us beginning on January 1, 2004. The dividend paid on shares of our common stock has been suspended, for the foreseeable future, in favor of retaining earnings and cash flow. We plan to continue to pay dividends on our preferred stock.

With the relinquishment of our REIT status, we will be taxed under the general rules applicable to C corporations. Consequently, we could pay up to 35% of our taxable income in federal taxes and also pay applicable state taxes. As a C corporation, our distributions in respect of our stock will be taxed as dividends to the extent of our current and accumulated earnings and profits. Distributions in excess of our current and accumulated profits will be taxed to a shareholder as a return of capital to the extent of the shareholder’s tax basis in his stock, and the amount of a distribution in excess of the shareholder’s tax basis will be taxed as a capital gain (a long term capital gain if the shareholder has held our stock for more than one year). Under the Jobs and Growth Tax Relief Reconciliation Act of 2003, the maximum federal income tax rate applicable to dividends and long term capital gains derived from a stock investment is 15%. On the other hand, distributions to corporate shareholders may be eligible for the dividends received deduction, subject to certain limitations in the Internal Revenue Code, whereas distributions from REITs are not eligible for the dividends-received deduction.

The relinquishment of our status as a REIT is part of our strategic decision to improve our earnings and return on equity by deploying our available capital into debt repayment and hotel development and operations.

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Since we are no longer subject to the restrictions under the Internal Revenue Code imposed upon REITs, we are now able to operate our properties ourselves.

Acquisition of Kitchin Hospitality. On January 2, 2004, we completed the acquisition of Kitchin Hospitality, LLC pursuant to a Membership Interest Purchase Agreement dated September 10, 2003 that we entered into with Thomas W. Kitchin, our chairman and chief executive officer, and members of his family including Craig Kitchin, our president and chief financial officer. As the consideration for Kitchin Hospitality, LLC, we issued 2,185,430 shares of our common stock and paid cash in the amount of $1.3 million. Subsequently, the previous owners of Kitchin Hospitality returned 32,064 shares based on the working capital target in the Membership Interest Purchase Agreement. Kitchin Hospitality is now our wholly owned subsidiary.

We will now operate all of our hotel properties. Kitchin Hospitality has historically paid the salaries of our employees and many of our other general and administrative expenses and we have reimbursed it for our share of those expenses. We terminated the cost reimbursement agreement and capital improvements agreement effective January 1, 2004. We will continue to manage two hotel properties that Kitchin Hospitality has been operating for third parties. We also will continue to receive licensing fees from the owners of eight inns that are operated as Jameson Inns. All of our current licensees bought their Jameson Inns from us.

Our acquisition of Kitchin Hospitality has eliminated the financial conflicts of interest that previously existed due to the ownership of Kitchin Hospitality by Thomas Kitchin and his family. Mr. Kitchin and his family will no longer realize any financial benefits from the operations of Kitchin Hospitality that are separate from their ownership interest in our capital stock.

Kitchin Hospitality had two subsidiaries that are engaged in the construction business. Kitchin Hospitality developed all of our new Jameson Inns opened since 1988 and built all of our expansions and performed all of the renovations on our Inns. On December 31, 2003, prior to our acquisition of Kitchin Hospitality, these construction subsidiaries were spun off from Kitchin Hospitality and transferred to its previous owners. Since the closing, we have not engaged, and our current intention is that we will not engage in the future, any businesses owned or controlled by the Kitchin family to provide to us any services or products.

Risk Factors

Risks Which are Specific to Jameson

The following risks relate specifically to the conduct of our business. You should also refer to the information under the heading Forward Looking Statements on page 1.

There are constraints on our future growth. In January 2003, we completed the expansion of one Inn in Tullahoma, Tennessee that was under construction at December 31, 2002. We have no immediate development or expansion growth plans. Our decision and our ability to expand in the future will depend on numerous factors, including those unique to us and those generally associated with overall hotel, real estate and general economic conditions. Those factors specific to us include our ability to:

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Some or all of the factors discussed above could preclude or at least delay any future development of new Inns and the expansion of existing properties. Similarly, the terms of financing available to us or the operating results of any new or expanded Inns could have a negative economic effect on us.

Our acquisition of Kitchin Hospitality and the operation of the Inns increases our financial risks. Prior to acquiring Kitchin Hospitality, we had only ten employees of Kitchin Hospitality perform services for us. Now that we have acquired Kitchin Hospitality, we will encounter the financial risks of its 2,000 employees and its operating and administrative expenses, as well as the legal and regulatory risks associated with operating hotel properties.

We will need to obtain additional debt financing on favorable terms. We will need to refinance amounts due under existing mortgage notes as they mature. We also may need to borrow funds to pay the costs of replacement and refurbishment of furniture, fixtures and equipment of the Inns. We are not certain that we will be able to obtain this financing, either through commercial borrowings or the issuance of corporate debt securities. If we are able to borrow needed funds, we may not be able to continue to meet our debt service obligations. To the extent that we cannot, we risk the loss of some or all of our assets, including the Inns, to foreclosure.

Interest rate increases will increase our cost of current and future debt. A significant portion of our indebtedness is subject to adjustable interest rates and is secured by a substantial number of our operating assets. We anticipate that our future borrowings will be at interest rates which adjust with certain indices. Therefore, our cost of financing will vary subject to events beyond our control. While interest rates have remained relatively steady in the past year, changes in economic conditions could result in higher interest rates which would increase debt service requirements on our floating rate debt. Adverse economic conditions could also cause the terms on which borrowings are available to us to be unfavorable. In those circumstances, if we needed capital to repay indebtedness, we could be required to sell one or more Inns at times which might not permit realization of the maximum return on our investment.

Cross-collateralization of the Inns increases our risk of loss. A significant number of our current loan agreements provide for cross-collateralization and cross-default with respect to our debt, and future loan agreements will likely contain similar provisions. The results of a cross-default provision are that all of the loans with this provision effectively secure repayment of our other loans and a default on one loan results in a default on the other loans. In general, these provisions in our loans may place our assets at a greater risk of foreclosure.

We could become more highly leveraged which would increase our debt service requirements and our risk of default. We currently have a policy of limiting our outstanding indebtedness for new construction, expansions and refinancings to 65% of the aggregate value of the Inns based on the most recent appraisals obtained on the Inns. However, our organizational documents do not limit the amount of indebtedness that we may incur. Accordingly, our Board of Directors could change the current policies and we could become more highly leveraged. This would increase our debt service requirements and also the risk of us defaulting on our obligations. An increase in our debt service requirements could adversely affect our financial condition and results of operations.

Our lack of industry diversification makes us more vulnerable to economic downturns. We currently, and intend in the future to, invest only in Inns and billboards. This concentration of our investments in narrow segments of a single industry makes us more vulnerable to adverse effects of occurrences such as economic downturns. A weakness in the economy could have a more significant effect on the operation of the Inns and, therefore, on revenues and cash flow than if our investments were more economically diverse.

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The Inns’ geographic concentration increases our risks from local and regional economic downturns and other events. All currently operating Jameson Inns are located in the Southeast and approximately 16% of our total rooms are located in Georgia (all of which are Jameson Inns). All Signature Inns are in the Midwest and approximately 20% of our total rooms are located in Indiana (all of which are Signature Inns). For the foreseeable future we will continue to have a concentration in those two regions of the country. This geographic concentration makes us more vulnerable to local and regional occurrences such as economic downturns, seasonal factors and natural disasters. Any of these could adversely affect our revenues and cash flow.

We rely heavily on the services of Thomas W. Kitchin. We have relied and expect to continue to rely heavily upon the services and expertise of Thomas W. Kitchin, our chairman and chief executive officer for strategic business direction. In addition, certain of our loan agreements provide for a default upon a change of management. The occurrence of any event which would cause us to lose the services of Mr. Kitchin could have a material adverse effect on us.

Shares issued under our stock incentive plans could dilute shareholders’ investments. We maintain certain stock option and stock grant plans to provide incentive compensation to our directors, officers and key employees. The availability for resale of shares of our common stock issued or issuable under our stock incentive plans may depress the market price of our common stock. In addition, to the extent stock options and other incentive awards which may be granted under our stock inventive plans vest and are exercised at prices below the net book value of our common stock, the resulting issuance of shares of our common stock will cause an immediate dilution of the interests of our other shareholders.

Our corporate documents have certain anti-takeover provisions that tend to reduce the likelihood of our acquisition by another company. Certain provisions of our articles of incorporation and bylaws may have the effect of discouraging a third party from making an acquisition proposal for us without the approval of our Board of Directors. This will tend to reduce the likelihood of a change in control of Jameson, even when the holders of our stock could have the opportunity to realize a premium over the then prevailing market prices. For example, a provision of our articles of incorporation creates our staggered Board. Under that provision, our Board of Directors is made up of three classes of directors with staggered terms of office. Directors for each class are elected for a three-year term upon the expiration of their then current class term. This makes it more difficult for our shareholders to change control of Jameson even if a change of control were in the shareholders’ interest.

Our articles of incorporation also authorize the Board of Directors to issue up to 10,000,000 shares of preferred stock and to establish the preferences and rights of any shares so issued. Accordingly, our Board of Directors is authorized, without shareholder approval, to issue preferred stock with distribution, dividend, liquidation, conversion, voting or other rights which could adversely affect the voting power or other rights of the holders of shares of our common stock. Issuance of preferred stock could have the effect of delaying or preventing a change of control of Jameson even if a change of control were in our shareholders’ interest. To date, our Board has approved the issuance of the 9.25% Series A Cumulative Preferred Stock (“Series A Preferred Stock”) and the $1.70 Series S Cumulative Convertible Preferred Stock (“Series S Preferred Stock”).

We could make changes in our investment and financing policies which could adversely affect our financial condition and/or results of operations. Our Board of Directors determines our investment and financing policies and our policies with respect to certain other activities, including growth, debt capitalization, distributions and operating policies. Among other things, our Board of Directors could make financing decisions which could result in the creation of interests in Jameson and/or the Inns with priority over the interests of the shareholders, and/or make equity investments in concerns with debt superior to our equity interest. Our Board of Directors has no present intention to amend or revise these policies. However, our Board of Directors may do so at any time without the approval of the shareholders. A change in these policies could adversely affect our financial condition or results of operations.

With our change from a REIT to a C-corporation, we must pay federal and state income taxes on a corporate level which we did not have to pay as a REIT. A REIT generally is not taxed at the corporate level on income it distributes to its shareholders, so long as it distributes at least 90% of its taxable income and satisfies certain other technical and complex requirements. Since we relinquished our REIT status effective January 1, 2004,

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we are no longer allowed a deduction for distributions to shareholders in computing taxable income and are subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates.

With the relinquishment of our REIT status, investments in our capital stock will be taxed under the general rules applicable to investments in stock of C corporations. As a C corporation, our distributions in respect of our stock will be taxed as dividends to the extent of our current and accumulated earnings and profits. Distributions in excess of our current and accumulated profits will be taxed to a shareholder as a return of capital to the extent of the shareholder’s tax basis in his stock, and the amount of a distribution in excess of the shareholder’s tax basis will be taxed as a capital gain (a long term capital gain if the shareholder has held our stock for more than one year). Under the Jobs and Growth Tax Relief Reconciliation Act of 2003, the maximum federal income tax rate applicable to dividends and long term capital gains derived from a stock investment is 15%.

Risks of Hotel Investments Generally

The following are risks which affect hotel investments generally which could significantly affect our results of operations.

General economic and regulatory conditions in the hotel industry will affect our business. Our ownership and operation of the Inns are subject to varying degrees of risk generally inherent in the ownership and operation of real property and, in particular, hotels. Our ownership and operation of the Inns may be adversely affected by a number of factors, including:

We face significant competition and the supply of hotel rooms is growing faster than demand in certain markets in which Inns are located. A strong national economy and readily available debt and equity financing during the mid and late 1990s and early 2000s prompted the construction of a significant number of new hotels and motels in certain markets where we operate Inns. Demand for lodging in the travel industry, however, has generally not kept up with the growth in the supply of rooms. As a result, occupancy rates for hotels, including the Inns, have tended to decline, most notably after the September 11, 2001 terrorist attacks and ongoing geo-political conflicts. This condition may continue in the foreseeable future and may continue to have a negative impact on our results of operations. In addition, there are numerous hotels, including those that are part of major chains with substantial advertising budgets, national reservation systems, marketing programs and greater name recognition than we have, that compete with our Inns. Further, many of the Inns are located in smaller communities where the entry of even one additional competitor into the market may materially affect the financial performance of our Inn in that community. In some of the markets where our Inns are located, additional hotel rooms are currently under construction.

We incur significant renovation and refurbishment costs. Hotels in general, including the Inns, have an ongoing need for renovation and refurbishment. We have adopted a policy of maintaining sufficient cash or available borrowings to fund expenditures for replacement and refurbishment of furniture, fixtures and equipment for the Inns up to an amount equal to 4% of total aggregate room revenues since July 1, 1995, less the amounts actually expended since that date. However, our expenditures for these purposes have historically exceeded this amount.

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We may not be adequately insured. The ownership and operation of hotel properties presents risks of liability resulting from injuries to guests and resulting litigation. We carry comprehensive liability, fire, extended coverage, rental loss and business interruption insurance covering all of the Inns with policy specifications and insured limits customarily carried for similar properties. However, our insurance coverage could be insufficient to fully protect our business and assets from all claims or liabilities, including environmental liabilities. Further, we may not always be able to obtain additional insurance at commercially reasonable rates, especially after the September 11, 2001 terrorist attacks. In the event that losses or claims are beyond the limits or scope of our insurance coverage, our business and assets could be materially adversely affected. In addition, certain types of losses (such as certain environmental liabilities) are not generally insured because they are either uninsurable or not economically insurable. If an uninsured loss or a loss in excess of insured limits occurs, we could lose our capital invested in the affected Inn, as well as anticipated future revenues from that Inn, while remaining obligated for any mortgage indebtedness or other financial obligations related to that Inn. Any such loss could have a material adverse effect on our financial condition and results of operations.

We must comply with the Americans with Disabilities Act. The Americans with Disabilities Act of 1990 (the “ADA”) requires that all public accommodations meet certain federal requirements related to access and use by disabled persons. If we were required to make modifications to comply with the ADA, our expenses could greatly increase. In addition to remedial costs, noncompliance with the ADA could result in imposition of fines or an award of damages in private litigation.

Our business is subject to seasonal fluctuations. The hotel industry is seasonal in nature. Hotel revenues are generally greater in the second and third calendar quarters than in the first and fourth quarters. This seasonality will cause quarterly fluctuations in our lease revenues.

Risks of Real Estate Investments Generally

The following are risks which are inherent in real estate investments generally and which could also significantly impact our results of operations.

Real estate investments, including the Inns, are typically illiquid. Equity real estate investments, including our investments in the Inns, are relatively illiquid. The illiquid nature of our investment in the Inns is further increased by the location of many of the Inns in smaller communities. As a result, our ability to sell or otherwise dispose of any Inn in response to changes in economic or other conditions may be limited.

Environmental laws and regulations could increase our costs or reduce the value of one or more of the Inns. Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the costs of removal or remediation of hazardous or toxic substances on, under or in such property. These laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of hazardous or toxic substances. In addition, the presence of hazardous or toxic substances, or the failure to properly remediate the property, may adversely affect the owner’s ability to borrow using that real property as collateral. Persons who arrange for the disposal or treatment of hazardous or toxic substances may also be liable for the costs of removal or remediation of those substances at the disposal or treatment facility, whether or not that facility is owned or operated by that person. We cannot be certain that

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The Master Leases

During 2003, we were a party to master leases with Kitchin Hospitality covering all of the Inns. As a REIT, we were unable to operate our own properties and thus, Kitchin Hospitality operated the Inns and paid us under the terms of the master leases. Effective January 1, 2004, we acquired Kitchin Hospitality and terminated our status as a REIT. We now receive the full benefits of profits that may be realized from the operation of the Inns.

Plans for 2004

Historically, our business plan has been to enhance stockholder value by increasing funds from operations and cash available for distribution by developing additional Inns, expanding existing Jameson Inns and participating, through the master leases, in increased room revenues generated through operation of the Inns by Kitchin Hospitality. For definitions, calculation of funds from operations and cash available for distributions, and related disclosures, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations. Our long range plans still include developing additional inns and expanding existing Jameson Inns as suitable opportunities arise. We also continue to sell underperforming Jameson and Signature Inns which no longer meet our investment criteria. See Policies and Objectives with Respect to Certain Activities – Dispositions. During 2003 we sold one Jameson Inn and one Signature Inn which were mostly under-performing and which no longer met our investment criteria. At year end, three Inns were held for sale.

Since we have relinquished our REIT status and acquired Kitchin Hospitality, we plan to use the cash that would otherwise be paid out in dividends on our common stock and any additional cash flow resulting from our ownership of Kitchin Hospitality to pay down long-term indebtedness and to finance any expansion and renovation projects that we believe are appropriate.

We also continue to consider other strategic alternatives as a possible means of growth and increasing shareholder value. These include acquisitions of other properties, business combinations, an offering of additional equity securities, entry into additional long-term debt financings, engaging in related lines of new business such as licensing or franchising the use of our trademarked names or operating hotel properties owned by third persons and other alternatives. We have made no decisions or commitments at this time, but we intend to continue to consider these alternatives.

Internal Growth. Due primarily to anticipated increases in the demand for hospitality services projected by some industry experts and professional observers, we are focusing on increasing revenue per available room, or REVPAR, between one and five percent for 2004. We will benefit from increases in room revenues generated through increases in occupancy rates and average daily room rates or ADR of the Inns. We practice market-sensitive pricing, increasing and decreasing room rates at particular Inns as market conditions in the specific communities warrant or require. The Inns’ general managers receive a portion of their compensation based on achieving specified quarterly operating results.

Raising Equity Capital. We are currently considering raising equity capital through an offering of additional common stock as a means of reducing leverage and strengthening our balance sheet.

Development of New Inns. We believe that selective opportunities may still exist for the development of new Jameson Inns in certain markets in the southeastern United States. Although we have no current plans to begin new development of Jameson Inns, we will continue to evaluate opportunities as they arise in targeted communities. At December 31, 2003, we had no Inns under expansion.

We have entered into agreements with Best Western under which three Signature Inns are being operated as “Best Western-Signature Inns.” We may consider other re-flagging opportunities in the future although we have no obligation to do so.

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Expansion of Existing Jameson Inns. We expanded one Jameson Inn in January 2003. We may consider expanding additional existing Jameson Inns if market conditions and other circumstances warrant although we currently do not have plans to do so in 2004. Since Jameson Inns built prior to 1999 were initially constructed with the office and lobby, swimming pool and fitness center on sites generally large enough for future expansions, the incremental cost per room of expansions is lower than for new Inn construction. Accordingly, we have expanded 44 Jameson Inns in markets that had strong room demand. Also, as compared to the development of new Inns, expansion of existing Jameson Inns has been a relatively lower risk growth strategy since we have an opportunity to assess local room demand and market trends based on our direct experience in developing and owning the existing hotel. We employ substantially the same strategy regarding possible expansion of our currently operating exterior-corridor Jameson Inns. The sites for new, interior-corridor Jameson Inns, however, and all of the current Signature Inn sites are fully developed and these properties cannot be expanded.

Sales and Marketing. In our marketing efforts, we will focus on local efforts directed to the business community in the city or town where the particular Inn is located. One of the key responsibilities of an Inn’s general manager is to make sales calls on local chambers of commerce, businesses, factories, government installations and colleges and universities. The goal of the sales call is to familiarize local business people with the Inn in their community and solicit their recommendation of the Inn to business travelers visiting communities where Inns are located, including both individual discretionary travelers as well as groups attending family or community events. We own 112 billboards and utilize other similar types of advertising and have our own call center with “800” numbers to facilitate reservations for the Inns. All Jameson Inns and Signatures have direct links to Global Distribution Systems (“GDS”) for reservations which also interface with major electronic reservation systems. This interface connects the Inns with travel agents nationally and internationally. In addition to billboard advertising which has been traditionally utilized and which we will continue to utilize, we place advertisements for the Inns in regional and special event publications and in newspapers. We also market the Inns through our website www.jamesoninns.com.

Competition. The hotel industry remains highly competitive. Each of our Inns is located in an area that has competing hotels. The number of competitive hotels in a particular area could have a material adverse effect on occupancy, ADR, and REVPAR of the Inns. Many of our Inns are located in cities and communities in which significant new hotel and motel development has occurred in recent years.

The Inns compete mainly on the basis of price, quality and perceived value. Competition for the Inns is made up primarily of limited service hotels in the southeastern and midwestern United States operating under national franchises, many of which have greater financial resources than we do, substantial advertising budgets, national reservation systems, marketing programs, guest reward programs and greater name recognition.

Regulations

Environmental Matters. Under various federal, state, and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the costs of removal or remediation of hazardous or toxic substances on, under or in such property. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. In addition, the presence of hazardous or toxic substances, or the failure to properly remediate such property, may adversely affect the owner’s ability to borrow using the real property as collateral. Persons who arrange for the disposal or treatment of hazardous or toxic substances may also be liable for the costs of removal or remediation of such substances at the disposal or treatment facility, whether or not such facility is owned or operated by such person.

While we have not incurred any such costs in connection with our Inns or land parcels, we may be potentially liable for such costs. We are not aware of any potential material liability or claims for which we may be responsible. However, we cannot be certain that (1) there are no material claims or liabilities related to real property which we own; (2) future laws, ordinances or regulations will not impose any material environmental liability on us; or (3) the current environmental condition of the Inns will not be affected by their operations, by the condition of properties in the vicinity of the Inns (such as the presence of underground storage tanks) or by third parties.

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We believe that the Inns are in compliance in all material respects with all federal, state and local ordinances and regulations regarding hazardous or toxic substances and do not anticipate that we will be required in the foreseeable future to expend any material amounts in order to comply with such ordinances and regulations. We have not been notified by any governmental authority, and are not otherwise aware, of any material noncompliance, liability or claim relating to hazardous or toxic substances in connection with any of our present or former properties.

Americans with Disabilities Act. Under the Americans with Disabilities Act of 1990 or the ADA, all public accommodations are required to meet certain federal requirements related to access and use by disabled persons. In addition to remedial costs, noncompliance with the ADA could result in imposition of fines or an award of damages to private litigants. We believe that all existing Inns are substantially in compliance with these requirements and we intend to construct future Inns in accordance with such requirements as well. We have engaged disabilities consultants at various times to make recommendations regarding compliance of the Inns with the ADA. These consultants submitted reports recommending a number of improvements for access to and use by disabled persons with respect to certain of the Inns in operation, which improvements were made. We have also incorporated the consultants’ recommendations into the construction of new Jameson Inns and plan to do so in the future.

Employees

At December 31, 2003, prior to our acquisition of Kitchin Hospitality, we employed 10 persons who were also employees of Kitchin Hospitality. Under the cost reimbursement agreement between Jameson and Kitchin Hospitality, we reimbursed Kitchin Hospitality for the time and for other general and administrative costs that these shared employees spent on our business. For the year ended December 31, 2003, our reimbursement to Kitchin Hospitality totaled approximately $1,824,000. Due to our acquisition of Kitchin Hospitality, we now employ approximately 2,000 full- and part-time employees who are engaged in day-to-day operations of the Inns. None of our employees is represented by a union or labor organization, nor have our operations ever been interrupted by a work stoppage. We consider relations with our employees to be excellent.

Policies and Objectives with Respect to Certain Activities

The following is a discussion of our investment objectives and policies, financing policies and policies with respect to certain other activities. These policies may be amended or revised from time to time at the sole discretion of our Board of Directors. We can give no assurance that we will attain our investment objectives or that the value of Jameson will not decrease.

Investment Objectives and Policies. Our investment objective is to improve our earnings and return on equity by deploying all of our available capital into debt repayment and hotel development and operations. We will seek to accomplish these objectives through the ownership and operation of the Inns, increases in the Inns’ room revenues and selective development and expansion of Inns. For related disclosures, see Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations.

We currently intend to invest only in Inns (as well as our billboards), although we may also hold temporary cash investments from time to time pending investment. We may purchase or lease properties for long-term investment, expand and improve properties, or sell such properties, in whole or in part, when circumstances warrant. Equity investments may be subject to existing mortgage financing and other indebtedness which have priority over our equity interest.

Dispositions. During 2003, we sold one 41-room Jameson Inn and one 125-room Signature Inn. Two additional Jameson Inns and one additional Signature Inn were classified as held for sale at December 31, 2003. We may identify additional Inns to dispose of which do not meet our investment criteria. We do not expect the combined sales of these properties to result in a significant gain or loss.

Financing. Our policy has been to finance all of the costs of developing new Inns and expanding existing Inns. Indebtedness we incur may be in the form of bank borrowings, secured and unsecured, and publicly and privately placed debt instruments. Indebtedness may be recourse to all or any part of our Inns or may be limited to

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the Inn to which the indebtedness relates. We may also use the proceeds from any of our borrowings for working capital, to refinance existing indebtedness or to finance acquisitions, expansions or development of new Inns. Most of our current mortgage indebtedness is with recourse to us. At December 31, 2003, we had outstanding an aggregate of approximately $213.8 million of mortgage debt. In addition, Kitchin Hospitality has a $1.5 million credit facility that Jameson has assumed and that has availability through the loan maturity in May 2004.

While our organizational documents do not limit the amount or percentage of indebtedness that we may incur, we currently have a policy of limiting outstanding indebtedness for new construction, expansions and refinancings to 65% of the aggregate value of the Inns based on the most recent appraisals obtained on the Inns. Our Board of Directors could change our current policies and we could become more highly leveraged, resulting in an increased risk of default on our obligations and in an increase in debt service requirements. This increase could adversely affect our financial condition and results of operations.

We may attempt to raise additional equity capital for working capital purposes, the repayment of indebtedness or the redemption of our outstanding preferred stock. In the event we desire to raise additional equity capital, our Board of Directors has the authority, without stockholder approval, to issue additional shares of Jameson common stock or other capital stock of Jameson in any manner (and on such terms and for such consideration) it deems appropriate, including in exchange for property. Existing stockholders would have no preemptive right to purchase shares issued in any offering, and any such offering might cause a dilution of a stockholder’s investment in Jameson.

Working Capital Reserves. Our policy is to maintain working capital reserves (and when not sufficient, access to borrowings) in amounts that our Board of Directors determines to be adequate to meet normal contingencies in connection with the operation of our business and investments.

Policy Regarding Capital Expenditures. In July 1995, we adopted a policy of maintaining cash or sufficient access to borrowings equal to 4% of the Jameson Inns’ aggregate room revenues since July 1, 1995, less amounts actually spent from that date forward for capital expenditures. This policy extends to the Signature Inns acquired in May 1999. For the period July 1, 1995 through December 31, 2003, our actual expenditures for these purposes exceed these amounts as 4% of room revenues equal $21.5 million and we expended $37.6 million on items during that same period. The amount actually expended represents 7.0% of aggregate room revenue since July 1, 1995.

Other Policies. We intend to operate in a manner that will not subject us to regulation under the Investment Company Act of 1940. We do not intend to (1) invest in the securities of other issuers for the purpose of exercising control over such issuer, (2) underwrite securities of other issuers or (3) actively trade in loans or other investments.

We may make investments other than as previously described, although we presently have no plans to do so.

Conflicts of Interest. Because of Thomas W. Kitchin’s ownership of Kitchin Hospitality prior to January 2, 2004 and his position with Jameson, there were inherent conflicts of interest in the construction of new Jameson Inns and Signature Inns and the expansion, refurbishment and other capital expenditures relating to existing Inns by Kitchin Hospitality. It is our current intention that we will no longer enter into any contracts with any company owned by Thomas W. Kitchin. Conflicts of interest also existed in our dealings with Kitchin Hospitality under the master leases and under the cost reimbursement agreement between the two companies. These conflicts of interest were eliminated upon our acquisition of Kitchin Hospitality.

Under the rules of The Nasdaq National Market, transactions between us and one or more of our directors, officers, 5% shareholders or any member of such person’s immediate family, or between us and any other entity which a director has a financial interest must be approved by our audit committee or another independent body of the Board of Directors.

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Taxation of Jameson

Prior to January 1, 2004, we were taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code, commencing with our taxable year beginning January 1, 1994. We terminated our status as a REIT effective January 1, 2004 after approval by our shareholders. For a discussion of the current tax treatment compared to the treatment as a REIT, see “Subsequent Developments” above.

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ITEM 2. PROPERTIES.

The Inns. The following tables set forth certain information about our 119 operating Inns at December 31, 2003. These Inns secure our mortgage debt in the amount of $213.8 million.

Jameson Inns

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Signature Inns

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ITEM 3. LEGAL PROCEEDINGS.

We are not a party to any litigation which, in our judgment, would have a material adverse effect on our operations or financial condition if adversely determined. However, due to the nature of our business, we are, from time to time, a party to certain legal proceedings arising in the ordinary course of our business.

Our directors are defendants in the case captioned: Tammy Newman v. Jameson Inns, Inc. et al., Superior Court, DeKalb County, Georgia, which is a shareholder lawsuit seeking class action status and derivative status for claims based on our acquisition of Kitchin Hospitality, LLC. Plaintiff has also named Jameson Inns, Inc. as a nominal defendant. This case was settled by agreement of the parties for certain non-monetary actions we have agreed to take and a payment to the plaintiff’s attorneys for their legal fees in an amount to be approved by the court, not to exceed $175,000. We will also be required to pay costs of providing notice of the settlement to our shareholders, which are estimated to be approximately $25,000. We have incurred legal fees on behalf of both the company and our directors (as required under our indemnification agreements with those directors). We may incur additional fees as the case is still pending court approval. Our directors and officers liability insurance carrier has agreed to reimburse us for 50% of the costs of settling this case, not to exceed $100,000.

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

We held our annual meeting on December 17, 2003. At the meeting, shareholders re-elected Robert D. Hisrich and Thomas J. O’Haren as the Class I directors whose term will expire in 2006. Dr. Hisrich and Mr. O’Haren received votes as follows:

Shareholders also (i) approved a proposal to relinquish our status as a REIT, (ii) approved the issuance of shares of common stock as consideration for the acquisition of all of the membership interests in Kitchin Hospitality pursuant to the Membership Interest Purchase Agreement dated as of September 10, 2003, (iii) approved the Jameson 2003 Stock Incentive Plan, and (iv) ratified the appointment of Ernst & Young LLP as independent auditors of Jameson for 2003. Shareholders did not approve the proposed amendments to our articles of incorporation to eliminate the common stock ownership restrictions necessitated by our status as a REIT. Also, shareholders did not approve a shareholder proposal to urge the board of directors to engage the services of a nationally recognized investment banker to explore the sale of the Company. The proposals received votes as follows:

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PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock trades on The Nasdaq National Market under the symbol “JAMS.” As of March 15, 2004, there were approximately 3,700 holders of record of our common stock and, we estimate, approximately 9,900 beneficial holders of our common stock.

Comparative Per Share Market Price and Dividend Information

The following table sets forth the high and low sale prices for our common stock for the periods indicated. The prices are as reported on The Nasdaq National Market based on published financial sources. The table also sets forth the cash dividends paid per common share for the periods indicated below:

We anticipate that we will no longer pay dividends on our common stock, at least for the foreseeable future. We plan to continue paying the dividends on our outstanding preferred stock.

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Equity Compensation Plan Information

The following table sets forth certain information as of December 31, 2003 with respect to compensation plans (including individual compensation arrangements) under which equity securities of the Company are authorized for issuance.

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Issuance of Unregistered Securities

On January 2, 2004, we issued 2,185,430 shares of common stock and paid $1.3 million in cash to acquire all of the membership interests in Kitchin Hospitality. Subsequently, we made an adjustment to the number of shares pursuant to the terms of the purchase agreement so that 32,064 shares were returned to us by the owners of Kitchin Hospitality. Kitchin Hospitality was the operator of our Inns. The consolidated financial statements and notes of Kitchin Hospitality are included in this report.

The issuance of the shares of stock issued to the owners of Kitchin Hospitality in the transaction was not registered under the Securities Act of 1933, as amended, in reliance upon the exemption from the registration requirements of that act provided by Section 4(2) thereof. The persons receiving the shares are sophisticated investors who are able to evaluate the risks of an investment in these securities, have the financial wherewithal to bear the financial risks of the investment and have had access to all material information regarding us.

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth our selected financial and operating information on a pro forma and historical basis. The following information should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this report. The consolidated historical financial data has been derived from our audited historical consolidated financial statements.

Historical financial and operating information includes all Inns owned by us, including both those under development as well as operating Inns; however, due to our development of new Jameson Inns, expansion of existing Jameson Inns, and sale of certain Inns, certain information may not be comparable between periods. Historical financial and operating information includes all Signature Inns owned by us. See Item 2. Properties. The information for the year ended December 31, 1999 assumes the Signature Inns were operated by Kitchin Hospitality for the entire year. Historical operating results, including net income, may not be comparable to future operating results.

JAMESON INNS, INC.

SELECTED FINANCIAL INFORMATION

(dollars in thousands, except per share data, ADR and REVPAR)

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consistent with the National Association of Real Estate Investment Trusts, Inc. definition from their White Paper issued in April 2002. FFO has been calculated as net income attributable to common stockholders before depreciation expense and gains or losses on disposal of depreciable real estate assets. However, this information may not be comparable to similarly titled measures presented by other companies. For a reconciliation of our FFO to our GAAP results, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations— Funds from Operations and EBITDA – Supplemental Non-GAAP Information.”

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read and considered in conjunction with our historical consolidated financial statements and those of Kitchin Hospitality and the respective accompanying notes which are included elsewhere in this report. This discussion includes forward-looking statements about our business which are based on certain current expectations and assumptions that are subject to change due to risks and uncertainties. Actual results could materially differ due to factors which are discussed in “Forward Looking Statements” and “Risk Factors” elsewhere in this report.

Overview

From 1994 through December 31, 2003, we were a Real Estate Investment Trust (REIT) for federal income tax purposes. On January 2, 2004, we acquired Kitchin Hospitality, LLC and relinquished our status as a REIT. With the closing of the acquisition, Kitchin Hospitality became our wholly owned subsidiary and we now both own and operate our Inns. As of December 31, 2003, we owned 95 Jameson Inn hotels and 24 Signature Inn hotels, all of which were classified as being within the economy and mid-scale segments of the lodging industry. We did not purchase or build any hotels in 2003, but we did expand one existing Jameson Inn in January 2003. During 2003, all of our hotels were leased to Kitchin Hospitality, LLC under certain master leases pursuant to which we received rental payments, which were our only substantive source of revenues. In addition to our ownership of our hotels, we also own billboards and other related assets. The billboards were leased to Kitchin Hospitality, LLC and to other parties, and the rental revenues were our sole source of revenue from these properties.

Although room revenues in 2003 were earned by our lessee, Kitchin Hospitality, not by us, they are the basis upon which the percentage rent earned by us until December 31, 2003 (under the master leases) was determined. Room revenues in 2003 were affected by a number of factors, including a weak economy generally, reduced business and leisure travel, the conflict in Iraq, terrorist threat assessments and national security alert levels, regional and local economic factors, the retail price of oil and gasoline, oversupply of rooms in specific markets, the effects of penetration over the last several years by competitors into certain secondary and tertiary markets in which we have historically operated and direct competition as to room rates. In 2004, room rental revenues will be received directly by us, and we will bear all of the hotel operating and administrative costs and expenses. These revenues and expenses were previously received and incurred by Kitchin Hospitality. As a result of our relinquishment of our status as a REIT in 2004, we are now a tax paying entity and are no longer entitled to a deduction for dividends and other distributions to our stockholders.

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Key Performance Indicator

The master leases provided for the payment by Kitchin Hospitality to us of base rent and percentage rent. For the year ended December 31, 2003, we earned a combined base rent and percentage rent in the aggregate amount of $28.0 million from the Jameson Inns master leases and $13.4 million from the Signature Inns master leases. The principal determinant of percentage rent under the master leases was the room revenues of our Inns. The primary financial indicator of our performance is our REVPAR (revenue per available room) and the factors contributing to it, such as our occupancy rate and our average daily room rate. Control of our operational and administrative expenses will also be an important aspect or our business since we are now operating our Inns, but many of the operational expenses will vary in proportion to the number of rooms that we operate. Thus, we believe that the results of our efforts to grow REVPAR will be the single-most important factor in determining our future financial performance.

Based on information from several observers of our industry and our recent experience, we expect demand for hospitality services to increase during 2004. As a result, we expect REVPAR growth of between 1% and 5% in 2004 due primarily to an expected increase in business travel. Our hotels, along with the other lodging companies, were negatively impacted in 2003 due to the weak economy in the first-half of the year.

Management’s Priorities

Our highest priority for 2004 is REVPAR growth. In addition, for 2004, our other principal priorities include the strengthening of our balance sheet and the re-branding of our Signature Inn hotels. We also intend to consider other strategic alternatives as a possible means of growth and increasing shareholder value. These include acquisitions of other properties, business combinations, corporate restructuring, redemption of our preferred stock, entry into additional long-term debt financings, engaging in related lines of new business, such as licensing or franchising the use of our trademarked names or operating hotel properties owned by third persons and other alternatives. We have made no decisions or commitments at this time, but we intend to continue to consider any of these alternatives. Our long-range plan is to grow the Jameson Inn brand as opportunities for growth become available which may include, among other things, new development or franchising of the brand.

Results of Operations

The following table shows certain historical financial and other information for the years indicated.