Form 10-KSB

                     U.S. Securities and Exchange Commission
                             Washington, D.C. 20549

                                   
                                   (Mark One)

   [X]            ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 1998

                                       OR
                                                     
   [  ]           TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                    For the transition period from ___ to ___

                         Commission file number 0-22132

                          BUCKHEAD AMERICA CORPORATION
                 (Name of small business issuer in its charter)

                 Delaware                                   58-2023732
          (State or other jurisdiction of               (I.R.S. Employer
          incorporation or organization)                Identification No.)

                4243 Dunwoody Club Drive, Suite 200, Atlanta, GA
               (Address of principal executive offices) (Zip Code)

                        Issuer's telephone numbeR (770)393-2662

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

          None                                         None
  (Title of each class)              (Name of each exchange on which registered)

             Securities registered under Section 12(g) of the Act:

                          Common stock, par value $.01
                                (Title of Class)

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

     Check  if  disclosure  of  delinquent  filers  in  response  to Item 405 of
Regulation  S-B is not  contained  in  this  form,  and no  disclosure  will  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-KSB
or any amendment to this Form 10-KSB.[_]

     State issuer's revenues for its most recent fiscal year. $ 28,794,648

     State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the stock was
sold,  or the  average  bid and  asked  price  of such  common  equity,  as of a
specified date within the past 60 days. As of February 28, 1999: $ 7,308,494

     State the number of shares  outstanding of each of the issuer's  classes of
common equity, as of the latest practicable date. As of February 28, 1999:

          Common Stock, par value $.01 - 1,943,935 shares outstanding

                       DOCUMENTS INCORPORATED BY REFERENCE

         No  documents  which are  required to be listed  under this caption are
incorporated by reference.

Transitional Small Business Disclosure Format (Check one): Yes _____; No X.
<PAGE>
                                     PART I


Item 1.  Description of Business.

BUSINESS DEVELOPMENT

         Form and Year of Organization. Buckhead America Corporation ("Buckhead"
or the "Company") and most of its wholly-owned subsidiaries were incorporated in
Delaware on December 17, 1992 in connection  with the bankruptcy  reorganization
of Buckhead America Corporation ("Old Buckhead"), a Georgia corporation formerly
known  as  Days  Inns  of  America,  Inc.  ("Days  Inns"),  and  certain  of its
affiliates.  The  Company,  the  successor-in-interest  to  certain  assets  and
liabilities  of Days Inns,  commenced  operations  on December 29,  1992.  Other
wholly-owned  subsidiaries were subsequently created,  generally for the purpose
of acquiring assets.  Unless the context otherwise  requires,  references to the
Company herein include the Company and its subsidiaries.

         Material Purchases and Sales of Significant  Assets. In March 1993, the
Company  acquired  through  foreclosure  a 180-room  Days Inn hotel in  Daytona,
Florida  (the  "Daytona  Hotel") and in  September  1994,  the Company  acquired
through  foreclosure  a 150-room  Days Inn hotel in Miami,  Florida  (the "Miami
Hotel").

         In  May  1994,  the  Company,  through  a  newly  formed,  wholly-owned
subsidiary, BAC Franchising Inc., a Delaware corporation, acquired the trademark
rights and license agreements comprising the Country Hearth Inn mid-priced hotel
franchise system.

         In May 1995,  Buckhead acquired a fifty-five  percent (55%) interest in
Heritage Inn  Associates,  Ltd., a  partnership  which owns a 150-room  hotel in
Orlando,   Florida  formerly  known  as  the  Heritage  Inn.   Immediately  upon
acquisition,  the hotel (the  "Orlando  Hotel")  was  converted  to operate as a
Country Hearth Inn. During 1998, the Company  acquired an additional 3% interest
in the partnership.

         In  December  1995  Buckhead   purchased   three  Homeplace  Inn  hotel
properties  in Texas from  affiliates  of  American  Liberty  Hospitality,  Inc.
("ALH").  Immediately upon acquisition, the acquired hotels (the "Texas Hotels")
along with three other ALH owned  Homeplace  Inn  properties  were  converted to
operate as Country Hearth Inns.

         In  March  1996 the  Company  acquired  an  82-room  hotel in  Atlanta,
Georgia.  During the latter  half of 1996 the hotel (the  "Atlanta  Hotel")  was
renovated and refurbished and presently operates as a Country Hearth Inn.

         In August 1996 the Company acquired a 96-room hotel in Dalton, Georgia.
Renovation  and  refurbishment  of that hotel was completed in February 1997 and
the hotel (the "Dalton Hotel") presently operates as a Country Hearth Inn.

         In December 1996 the Company sold the Miami Hotel.

         In May 1997, the Company  completed its acquisition of The Lodge Keeper
Group, Inc. of Prospect, Ohio ("Lodge Keeper").  Lodge Keeper operated 18 hotels
under  long-term  leases,  held  management  contracts on six Country Hearth Inn
hotels and owned a 186-room  independent  extended-stay  hotel.  Simultaneously,
Lodge Keeper assumed the management  responsibilities  of four hotels previously
owned by the Company.  In December  1997,  the Company  entered  into  long-term
leases with Host Funding,  Inc.  ("Host") on two of the already  managed Country
Hearth Inn hotels.

         In September  1997, the Company  completed its  acquisition of Hatfield
Inns, LLC. ("Hatfield"). The acquisition included eight 40-room hotel properties
located in Kentucky  and  Missouri  (the"Kentucky/Missouri  Hotels").  All eight
properties  were  converted to operate as Country Hearth Inns and are managed by
Lodge Keeper.  The  acquisition  also included the plans and design rights which
the  Company  has  used  for the  development  and  construction  of  additional
properties.  Four additional  such  properties have been opened (two owned,  one
leased,  and one  franchised)  and an  additional  eleven  properties  are under
development.

         In May 1998, the Company acquired a 121-room hotel in Norcross, Georgia
(the "Norcross Hotel"). The hotel is operated as a Best Western - Bradbury Suite
and is managed by Lodge Keeper.

         In June 1998,  the Company  entered  into  leases for seven  additional
hotel  properties owned by Host. The hotel properties are operated under Super 8
(4) and Sleep Inn (3) license agreements and are managed by Lodge Keeper.

         During  1998,  the  Company  sold seven  leasehold  interests  in hotel
properties which had been acquired with the Lodge Keeper acquisition.

     In September 1998, the Company  acquired  fee-simple  interest in a 50-room
hotel  property in  Coshocton,  Ohio (the  "Coshocton  Hotel").  The property is
operated under a Travelodge license agreement. The Company had previously held a
leasehold interest in the property as a result of the Lodge Keeper acquisition.

         From 1994 through  1998,  the Company  expanded its Country  Hearth Inn
franchising  operations by developing  updated prototype hotels,  implementing a
franchise  sales  and  marketing  plan,  and  establishing  a  centralized  room
reservation  system.  The Company is licensed to sell  Country  Hearth Inn hotel
franchises in 50 states. Presently, thirty-nine Country Hearth Inns are open and
operating in thirteen states, 21 of which are Company owned or leased.

         In addition to the Company owned and leased properties described above,
Lodge  Keeper  manages  nine other hotel  properties  which  operate  under five
different  brand names and has entered into  contracts for the management of two
additional hotels which are presently under construction.


BUSINESS

         Principal   Products  and  Services.   The  Company   operates  in  the
hospitality  industry  and its  principal  holdings  include  hotels,  leasehold
interests in hotels, loans and other investments secured by hotels,  franchising
rights,  hotel  management  contracts  and other related  assets.  Its principal
product is the  Country  Hearth Inn  mid-priced  hotel  chain  which the Company
acquired  in May  1994.  The  primary  activities  of the  Company  involve  the
expansion of the Country Hearth Inn chain, limited-service hotel management, and
development/acquisition/sale  of  hotel  properties.  Expansion  of the  Country
Hearth Inn chain has been effected through direct  acquisition and conversion of
existing hotels,  new construction,  and through franchise sales.  Additionally,
the  Company  manages 44 hotels,  35 of which are Company  owned or leased.  For
certain further information about the Company's hotels, see "Item 2. Description
of Property."

     Brands. The Orlando,  Atlanta, Dalton, Texas and Kentucky/Missouri  Hotels,
as well as five other properties  managed by the Company,  operate under Country
Hearth Inn license  agreements.  The Daytona Hotel is operated  under a Days Inn
license  agreement.  The Coshocton Hotel is operated under a Travelodge  license
agreement.  The Norcross  Hotel is operated as a Best  Western-Bradbury  Suites.
Additionally,  the Company  manages  eighteen leased  properties,  five of which
operate as Country Hearth Inns and eleven of which operate under other franchise
license agreements,  including  Travelodge (4), Sleep Inns (3), and Super 8 (4).
The Company also manages other hotel properties which operate under the names of
Suburban Lodge, Ramada, Villager, HoJo, and LK Motel.

         Competition.  There is  significant  competition  in every phase of the
hospitality  industry  including  development,   construction,  management,  and
franchising. There are many hotel management companies in the United States, and
many of them are significantly  larger than the Company. The continued growth of
the  Company's  hotel  management  operations  is partially  dependent  upon the
Company's  development  and  franchising  operations  as well as the  ability to
identify and successfully negotiate third party contracts.

         As a  franchisor,  the Company  competes  with a large  number of hotel
franchise  companies,  most of whom are much  larger  than the  Company  and own
brands which are more nationally  recognized than the Company's.  The Company is
somewhat disadvantaged by the larger companies' reservation systems and national
marketing efforts.

         As a hotel operator,  the Company's owned and leased properties compete
with other hotels in each local  market in which they are  located.  The Company
competes directly with these other hotels for hotel guests.  The Company's rates
and occupancies are directly impacted by activities of these other hotels and by
additions to the supply of competing rooms in each local market.

         The  Company is a  relatively  new  entrant in the hotel  industry.  It
believes  that  its  management  is  experienced  in  hotel  development,  hotel
franchising,  and hotel management.  In addition, the Company may identify other
opportunities in the hospitality industry. However, existing hotel companies and
new entrants to the hotel  industry in markets which the Company may pursue will
present significant competition which may have an adverse effect on the Company.

         Regulation.  Sales of  franchises  are  principally  regulated  through
fairly uniform state laws. Such laws generally  provide for  registration by the
franchisor  of  standardized  offering  documents and  compliance  with numerous
financial   qualifications.   The  Company  undertook  substantial  registration
activities and is presently licensed to sell Country Hearth Inn franchises in 50
states.

         Research  and  Development.  During 1998 and 1997 the Company  invested
approximately   $42,000   and   $63,000,   respectively,   in  market   studies,
environmental  studies,  and other  feasibility  analyses  relating to potential
hotel acquisitions and development.

         Environmental  Compliance.  The Company's  operations  and  maintenance
policies and  procedures  at each owned,  leased,  or managed  property  include
policies and procedures regarding  environmental  compliance.  The costs of such
compliance is not significant.

         Employees.  As of February 28, 1999,  the Company had 696  employees in
the aggregate,  including 40 full-time and 4 part-time  corporate  employees and
301 full-time and 351 part-time hotel employees.  Four full-time hotel employees
are employed under a collective bargaining agreement.

RISK FACTORS

         This Form 10-KSB contains forward looking statements that involve risks
and  uncertainties.  Statements  contained  in this  Form  10-KSB  that  are not
historical  facts are forward  looking  statements  that are subject to the safe
harbor  created by the Private  Securities  Litigation  Reform Act of 1995.  The
Company's actual results may differ  significantly from the results indicated by
such forward looking statements.

         The  Company  is subject to a number of risks,  including  the  general
risks of investing in real estate, the illiquidity of real estate, environmental
risks,  possible  uninsured or  underinsured  losses,  fluctuations  in property
taxes,  hotel  operating  risks,  the impact of  competition,  the difficulty of
managing growth, seasonality,  the risks inherent in operating a hotel franchise
business,  and the risks involved in hotel  renovation and  construction.  For a
discussion  of these and other  risk  factors,  see the  "RISK  FACTOR"  section
contained  in the  Company's  Registration  Statement  on  Form  S-3  (File  No.
333-37691).





<PAGE>


Item 2.  Description of Property.

CORPORATE OFFICES

         The Company's corporate  headquarters are located at 4243 Dunwoody Club
Drive,  Suite 200,  Atlanta,  Georgia.  The Company leases  approximately  3,600
square  feet as its  corporate  headquarters.  The lease  term  extends  through
October 1999 at an annual rate of  approximately  $57,000.  The Company believes
its headquarters are adequate for its current needs.

         Hotel management and accounting functions are conducted by Lodge Keeper
which  operates in leased  office  space  located in Prospect,  Ohio.  The Lodge
Keeper  leased  space  includes  approximately  16,800  square  feet and extends
through  November 2001 at an annual rate of approximately  $50,000.  The Company
believes that these offices are adequate for its current needs and provides room
for moderate expansion.





<PAGE>


OWNED REAL PROPERTIES

     Land. As of February 28, 1999, the Company owned six parcels of undeveloped
and  unencumbered  land,  with an aggregate book value of $214,198.  All of such
parcels are held for sale.

     Owned and Leased Hotel  Properties.  The following table sets forth certain
1998 information for each of the Company's owned and leased hotels:

<TABLE>
<S>                         <C>        <C>         <C>          <C>          <C>        <C>          <C>    

                                                                                         Revenue
                                                                 Average     Average       per
                            No. of       Year         Year      Occupancy     Daily     Available      Total
        Properties           Rooms      Built       Acquired     Rate(1)     Rate(1)     Room(1)     Revenue(2)
--------------------------- -------- ------------- ----------- ------------ ----------- ----------- -------------
2 Country Hearth Inns
   in Georgia                 172     1967-1971       1996        46.6%         $49.10      $22.89    $1,541,132

Country Hearth Inn
   Orlando, FL                150        1985         1995        81.9%         $70.34      $57.61    $4,029,107

3 Country Hearth Inns
   in Texas                   120     1984-1986       1995        53.3%         $47.89      $25.53    $1,151,386

9 Country Hearth Inns
in Kentucky and Missouri      359     1993-1998    1997-1998      58.2%         $47.13      $27.41    $3,452,372

Days Inn
   Daytona, FL                180        1972         1993        48.7%         $48.09      $23.40    $1,879,661

St. Louis NW Inn
   St. Louis, MO              186     1964-1968       1997        92.9%         $20.53      $19.07    $1,361,138

Travelodge
   Coshocton, OH               50        1974         1997        50.4%         $41.03      $20.67      $393,110

Best Western -
Bradbury Suites
   Norcross, GA               121        1987         1998        50.1%         $53.36      $26.74      $906,628

Host Funding Leases
   in FL, MS, OH, KY, MO
   IL, IN                     614     1985-1993    1997-1998      63.2%         $47.68      $30.12    $4,695,328

Other Leased Properties
   in OH and MI               539     1968-1975       1997        48.7%         $41.89      $20.41    $4,178,286

Other (3)                                                                                             $2,131,938
--------------------------- -------- ------------- ----------- ------------ ----------- ----------- -------------
   Total                                                                                             $25,720,086
--------------------------- -------- ------------- ----------- ------------ ----------- ----------- -------------
</TABLE>

(1)      Statistical information represents full year of operation.
(2)      Total revenue represents revenues earned during ownership period.
(3)      Represents revenues earned from properties prior to their sale in 1998.




<PAGE>


     Atlanta  Hotel.  In March 1996,  the Company  acquired an 82-room  hotel in
Atlanta,  Georgia formerly known as the Sandy Springs Inn (the "Atlanta Hotel").
During the latter half of 1996,  the hotel was  renovated  and  refurbished  for
conversion to operate as a Country Hearth Inn. The conversion was  substantially
completed  in  January  1997  at  a  total  cost  of   approximately   $800,000,
approximately half of such was financed through lease  arrangements,  which were
subsequently paid off in February 1998.

     The Atlanta  Hotel  secures a first  mortgage loan with a December 31, 1998
balance of  $2,087,394.  The loan bears  interest at 9.5% and  requires  monthly
payments of $20,350 until August 2016.

     The market for hotel rooms in Atlanta is extremely  competitive  due to the
multitude of  properties  in the area.  The hotel is  positioned as a moderately
priced property  targeted  primarily at business  travelers.  Occupancy and room
rates averaged approximately 52.9% and $60.27 during 1998.

     Renovation  and  environmental  programs are  continuously  ongoing and the
Company believes adequate funds are available for these purposes. In the opinion
of management,  the property is adequately  covered by insurance and is suitable
and  adequate  for its present use.  Property  taxes in 1998 were  approximately
$40,000.

     Differences  between financial  reporting asset bases and federal tax bases
are not significant. Straight-line depreciation methods are used based on useful
lives of 40 years for  depreciable  real  property  and 5-10 years for all other
depreciable property.

     Dalton  Hotel.  In August  1996,  the Company  acquired a 96-room  hotel in
Dalton,  Georgia  formerly  known as the Sunset Inn (the  "Dalton  Hotel").  The
Company immediately  initiated a renovation and refurbishment project to convert
the  hotel  to  operate  as a  90-room  Country  Hearth  Inn.  The  project  was
substantially  completed  in  February  1997  at a total  cost of  approximately
$850,000, including leased equipment which was paid off in February 1998.

     The Dalton  Hotel  secures a first  mortgage  loan with a December 31, 1998
balance of  $1,006,161.  The loan bears  interest at 9.15% and requires  monthly
payments of $9,549 until September 2001 at which time the then remaining balance
is due.

     The Dalton  Hotel also secures a second  mortgage  loan with a December 31,
1998 balance of $256,983.  The loan bears interest at 8.74% and requires monthly
payments  of $2,313  until  September  2001,  at which  time the then  remaining
balance is due.

     The property is positioned to compete with the existing low and  moderately
priced  properties  in the  area.  It will  also  compete  with  new  properties
presently under development in the area. It is located adjacent to and is highly
visible from I-75, a major north/south  interstate  highway.  Occupancy and room
rates in 1998 averaged approximately 40.9% and $35.95, respectively.

     Renovation  and  environmental  programs are  continuously  ongoing and the
Company believes adequate funds are available for these purposes. In the opinion
of management,  the property is adequately  covered by insurance and is suitable
and  adequate  for its present use.  Property  taxes in 1998 were  approximately
$23,000.

     Differences  between financial  reporting asset bases and federal tax bases
are not significant. Straight-line depreciation methods are used based on useful
lives of 40 years for  depreciable  real  property  and 5-10 years for all other
depreciable property.

     Orlando Hotel. In May 1995, the Company acquired the majority  ownership of
a  150-room  hotel in  Orlando,  Florida  (the  "Orlando  Hotel").  Prior to the
acquisition,  the  Company  held a  second  mortgage  on the  property  with  an
aggregate principal and interest balance of approximately $2.8 million (the "Old
Second  Mortgage").  The second mortgage  balance was reduced to $1 million (the
"New Second  Mortgage") in exchange for a fifty-five  percent (55%)  interest in
Heritage Inn Associates,  Ltd., the partnership  which owns the hotel. The hotel
was also subject to a first mortgage which collateralized certain Orange County,
Florida industrial development bonds (the "Orlando IRB").

     The Orlando IRB and the New Second  Mortgage  were fully paid and satisfied
in November  1996 with  proceeds  from a new first  mortgage loan secured by the
property.  The new first  mortgage  loan had a  December  31,  1998  balance  of
$4,436,293,  bears interest at 9.55% and requires monthly principal and interest
payments  of $43,028  until  December  2016,  at which  time the then  remaining
balance is due and payable.

     The market for hotel rooms in Orlando is extremely  competitive  due to the
multitude of  properties  in the area.  The Orlando  Hotel does benefit from the
large  number  of  local  attractions  and from the  Orlando  Convention  Center
activities.  The hotel is  positioned  as a lower  priced  alternative  property
situated among  mega-room high rises.  Occupancy and room rates in 1998 averaged
81.9% and $70.34, respectively.

     Renovation  and  environmental  programs are  continuously  ongoing and the
Company believes adequate funds are available for these purposes. In the opinion
of management,  the property is adequately  covered by insurance and is suitable
and  adequate  for its present use.  Property  taxes in 1998 were  approximately
$125,000.

     Differences  between financial  reporting asset bases and federal tax bases
are not significant. Straight-line depreciation methods are used based on useful
lives of 40 years for  depreciable  real  property  and 5-10 years for all other
depreciable property.

     Texas Hotels.  In December 1995,  Buckhead  purchased  three  Homeplace Inn
hotel properties in Texas from affiliates of American Liberty Hospitality,  Inc.
("ALH").  The three hotels secure a first mortgage loan with a December 31, 1998
balance of  $2,253,045.  The first mortgage loan matures  December  2002,  bears
interest at 9.056%, and requires monthly payments of $21,680.

     Immediately  upon  acquisition,  the acquired  hotels (the "Texas  Hotels")
along with three other ALH owned  Homeplace  Inn  properties  were  converted to
operate as Country Hearth Inns.

     The Texas Hotels are limited service 40-room  properties located in smaller
southeastern  Texas  cities.  Generally,  comparable  rooms are not  immediately
available in their selected  markets.  Occupancy and room rates in 1998 averaged
approximately 53.3% and $47.89, respectively.

     Renovation  and  environmental  programs are  continuously  ongoing and the
Company believes adequate funds are available for these purposes. In the opinion
of  management,  the  properties  are  adequately  covered by insurance  and are
suitable  and adequate for their  present  use.  Property  taxes in 1998 totaled
approximately $42,000.

     Differences  between financial  reporting asset bases and federal tax bases
are not significant. Straight-line depreciation methods are used based on useful
lives of 40 years for  depreciable  real  property  and 5-10 years for all other
depreciable property.

     Kentucky/Missouri  Hotels.  In September  1997, the Company  acquired eight
40-room hotel  properties  located in Kentucky and Missouri from Hatfield  Inns,
LLC. All eight  properties  (the  "Kentucky/Missouri  Hotels") were converted to
Country Hearth Inns. The conversion  costs were not  significant;  approximately
$10,000 to $20,000 per property.  In September 1998,  construction was completed
on a ninth comparable property located in Nicholasville, Kentucky.

     The Kentucky/Missouri Hotels secure first and second mortgage notes payable
with December 31, 1998 balances  aggregating  $8,003,310.  Three of the mortgage
notes were  refinanced in 1998.  The three new notes with an aggregate  December
31, 1998  balance of  $2,567,999  bear  interest  at 8.25% and  require  monthly
payments of $22,026 until  September  2018.  Three other notes with an aggregate
December 31, 1998 balance of $2,339,536 are cross-collateralized,  bear interest
at 9.18%,  and require  monthly  payments of $21,826  until  October  2007.  The
remaining  notes bear  interest  at prime  plus 1%,  require  aggregate  monthly
payments of $33,531, and mature at various dates (2000-2015).

     The Kentucky/Missouri  Hotels are limited service 40-room interior corridor
properties  located in smaller  cities where they enjoy limited  competition  in
their selected markets.  Occupancy and room rates in 1998 averaged approximately
58.2% and $47.13, respectively.

     Renovation  and  environmental  programs are  continuously  ongoing and the
Company believes adequate funds are available for these purposes. In the opinion
of  management,  the  properties  are  adequately  covered by insurance  and are
suitable and adequate for their present use.  Aggregate  property  taxes in 1998
were approximately $100,000.

     Differences  between personal property financial  reporting asset bases and
federal tax bases are not  significant.  Federal tax bases of real  property are
approximately   $2.4  million  less  than  financial   reporting   asset  bases.
Straight-line  depreciation  methods are used based on useful  lives of 40 years
for depreciable real property and 5-10 years for all other depreciable property.

     Daytona  Hotel.  The  Company  owns a 180-room  Days Inn hotel in  Daytona,
Florida  (the  "Daytona  Hotel")  which  was  acquired  by the  Company  through
foreclosure  in March 1993.  The hotel was acquired  subject to a first mortgage
which was in  default.  The  mortgage  note was  restructured  in May  1994.  In
September  1998,  the first  mortgage note was paid off and  refinanced by a new
mortgage.  The new mortgage  note with a December 31, 1998 balance of $2,288,917
bears  interest  at 8.5% and is due in monthly  installments  of  $19,960  until
October 2018.

     The market for comparable  rooms is extremely  competitive due to the large
number of  hotels/motels  in the Daytona area.  The area does benefit,  however,
from certain event  related  demand  peaks.  Average room  occupancy and average
daily rate during 1998 was 48.7% and $48.09, respectively.

     Renovation  and  environmental  programs are  continuously  ongoing and the
Company believes adequate funds are available for these purposes. In the opinion
of management,  the property is adequately  covered by insurance and is suitable
and  adequate  for its present use.  Property  taxes in 1998 were  approximately
$61,000.

     Differences  between financial  reporting asset bases and federal tax bases
are not significant. Straight-line depreciation methods are used based on useful
lives of 40 years for  depreciable  real  property  and 5-10 years for all other
depreciable property.

     St. Louis NW Inn. The Company  acquired the 186-room  Northwest  Inn in St.
Louis,  Missouri  (the  "NW  Inn"),  as  part  of  the  May  1997  Lodge  Keeper
acquisition.  The property is an  extended-stay  facility which is positioned to
compete with existing low priced  extended-stay  properties in the area. It will
also compete with new  extended-stay  properties  presently under development in
the area.  Occupancy  and room rates in 1998  averaged  approximately  92.9% and
$20.53, respectively.

     The property secures a first mortgage loan with a December 31, 1998 balance
of $1,753,000.  The loan bears interest at 8.5% and requires monthly payments of
$13,178 until February 2004.

     Renovation  and  environmental  programs are  continuously  ongoing and the
Company believes adequate funds are available for these purposes. In the opinion
of management,  the property is adequately  covered by insurance and is suitable
and  adequate  for its present use.  Property  taxes in 1998 were  approximately
$61,000.

     Differences  between personal property financial  reporting asset bases and
federal tax bases are not  significant.  Federal tax bases of real  property are
approximately   $1.7  million  less  than  financial   reporting   asset  bases.
Straight-line  depreciation  methods are used based on useful  lives of 40 years
for depreciable real property and 5-10 years for all other depreciable property.

     Coshocton Hotel. The Company  acquired  fee-simple  interest in the 50-room
Travelodge  in  Coshocton,  Ohio in  September  1998.  The hotel was  previously
operated by the Company under a lease agreement.  The purchase was financed by a
$600,000 mortgage which bore interest at 10%. In November 1998, the mortgage was
paid off with  proceeds  from  refinancing  of a new  mortgage  in the amount of
$700,000.  The new mortgage  with a December 31, 1998 balance of $699,200  bears
interest at 8.75% and requires monthly payments of $7,009 until December 2013.

     The Coshocton Hotel is a limited service 50-room interior corridor property
located in an area which enjoys limited competition in its market. Occupancy and
room rates in 1998 averaged approximately 50.4% and $41.03, respectively.

     Renovation  and  environmental  programs are  continuously  ongoing and the
Company believes adequate funds are available for these purposes. In the opinion
of management,  the property is adequately  covered by insurance and is suitable
and  adequate  for its present use.  Property  taxes in 1998 were  approximately
$9,000.

     Differences  between financial  reporting asset bases and federal tax bases
are not significant. Straight-line depreciation methods are used based on useful
lives of 40 years for  depreciable  real  property  and 5-10 years for all other
depreciable property.

     Norcross Hotel. In May 1998, the Company  acquired a 121-room hotel located
in Norcross,  Georgia which is operated as a Best  Western-Bradbury  Suites. The
property is a suites hotel and competes  favorably with other similar mid-priced
properties with commercial business from surrounding office complexes. Occupancy
and room rates in 1998 averaged 50.1% and $53.36, respectively.

     The property secures a first mortgage loan with a December 31, 1998 balance
of $3,776,924. The loan bears interest at an indexed rate based on U.S. Treasury
securities  and is currently at 8.75% and requires  monthly  payments of $32,911
until February 2007.

     Renovation  and  environmental  programs are  continuously  ongoing and the
Company believes adequate funds are available for these purposes. In the opinion
of management,  the property is adequately  covered by insurance and is suitable
and  adequate  for its present use.  Property  taxes in 1998 were  approximately
$49,000.

     Differences  between financial  reporting asset bases and federal tax bases
are not significant. Straight-line depreciation methods are used based on useful
lives of 40 years for  depreciable  real  property  and 5-10 years for all other
depreciable property.

     Host Funding  Leases.  During 1998 and 1997,  the Company,  in two separate
transactions,  entered into long term lease  agreements for four Super 8 Motels,
three  Sleep  Inns,  and two Country  Hearth  Inns owned by Host  Funding,  Inc.
("Host").  The  properties  are  located  in  Florida,  Mississippi,   Missouri,
Illinois,  Kentucky,  Ohio, and Indiana.  Lease terms are for fifteen (15) years
with two  extension  options of five years  each,  and  provide  for  contingent
payments based on a percentage of revenues.  Base rents for the nine  properties
aggregates $2,553,841 per year.

     The leased  properties are generally located along highways and interstates
and compete with similarly situated budget properties.  Occupancy and room rates
in 1998 averaged 63.2% and $47.68, respectively.

     Other Leased  Hotels.  In addition to the Host lease  properties  described
above, the Company leases eight other  limited-service  hotels which are located
in Ohio.  Lease terms range from 10 to 30 years with options to renew at varying
terms.  Certain of the  leases  provide  for  contingent  payments  based upon a
percentage  of  revenues.  Base  rentals  on  the  eight  properties  aggregates
$625,225.

     The Leased Hotels are generally  located along highways and interstates and
compete with similarly situated budget  properties.  Occupancy and room rates in
1998 averaged 48.7% and $41.89, respectively.



INVESTMENT POLICIES

     Most  of  the  Company's  initial  real  estate  holdings  was  principally
hospitality   related.   Asset  acquisitions  since  inception  have  also  been
predominately hospitality related and made for the primary purpose of generating
additional  income.  Further,  management's  experience  and expertise is in the
hospitality  business.  Accordingly,  the  Company has  determined  that it will
primarily seek out investments in the hospitality  industry. In that regard, the
Board of Directors has determined  that the Company will focus upon  investments
in hospitality related companies with income growth potential.  Such investments
could  take  the  form of (a)  hotel  property  purchases,  (b)  hotel  mortgage
purchases,  (c) hotel mortgage servicing,  (d) hotel management and/or (e) hotel
franchising.  The  Board  of  Directors  has  not  set  any  limitations  on the
percentage of assets which may be invested in any one investment. These policies
may be changed without a vote of security holders.





<PAGE>


Item 3.  Legal Proceedings.

     The  Company is not a party in any  pending  legal  proceedings  other than
routine litigation that is incidental to its business.


Item 4.  Submission of Matters to a Vote of Security Holders.

     None.


<PAGE>


                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters.

MARKET INFORMATION

     The  Company's  Common  Stock  trades on The Nasdaq  Stock Market under the
symbol: BUCK.

     The following  table  presents the high and low sales prices for the Common
Stock for each quarter of 1997 and 1998. 

                                                    ($ Per Share)
                                                   High         Low
                                                  ------------------
   Quarter ended March 31, 1997                    7.37        6.00
   Quarter ended June 30, 1997                     7.25        6.25
   Quarter ended September 30, 1997                9.12        6.62
   Quarter ended December 31, 1997                 8.87        7.00
   Quarter ended March 31, 1998                    7.88        6.00
   Quarter ended June 30, 1998                     7.75        6.50
   Quarter ended September 30, 1998                7.50        5.38
   Quarter ended December 31, 1998                 6.75        4.75


     The sales price  amounts have been  supplied by The Nasdaq Stock Market and
do not include retail  mark-up,  mark-down,  or commission and may not represent
actual transactions.


HOLDERS

     As  of  February  28,  1999,   the  Company   estimates   that  there  were
approximately 750 beneficial holders of its Common Stock.


DIVIDENDS

     On September 23, 1997,  the Company  issued 30,000  unregistered  shares of
$100 par value ten percent (10%) nonvoting  cumulative  Series A Preferred Stock
as partial consideration for the acquisition of Hatfield Inns, LLC. The Series A
Preferred  Stock has certain rights,  privileges and preferences  that limit and
qualify the rights of the Common  Shareholders  of the  Company.  Holders of the
Series A Preferred Stock are entitled to receive, prior and in preference to any
distribution to the holders of Common Stock, cumulative dividends at the rate of
10% per annum, to the extent declared by the Board of Directors. All accrued but
unpaid dividends of the Series A Preferred Stock must be paid in full before any
cash  dividend  may be declared  on the Common  Stock.  Further,  holders of the
Series A Preferred Stock have certain  preferential  distribution  rights in the
event of any liquidation, dissolution or winding-up of the Company.

     During 1998 and 1997, the Board of Directors declared dividends of $300,000
and $92,333,  respectively,  on the Series A Preferred Stock. As of December 31,
1998, $25,000 of such dividends remained unpaid.

     Certain of the Company's debt obligations  contain  provisions  relating to
minimum net worth and debt to equity ratios. In the opinion of management,  such
restrictions are not likely to limit the ability to pay dividends in the future.

     The  Company  has not sold any  securities  during the last  quarter of the
period covered by this report without  registering them under the Securities Act
of 1933.


<PAGE>


Item 6. Management's  Discussion and Analysis of Financial Condition and Results
of Operations.

FINANCIAL CONDITION AND CHANGES IN FINANCIAL CONDITION

         The Company  continued to acquire  interests in hotel properties during
1998. The most significant  transaction was the purchase of leasehold  interests
in seven hotel properties owned by Host Funding,  Inc. ("Host").  The properties
operate as Sleep  Inn(3) and Super 8(4) hotels.  The  leasehold  interests  were
purchased in June 1998 for an aggregate  purchase  price of  approximately  $1.3
million,  including  approximately  $500,000 in cash, $400,000 of Company common
stock,  and  $400,000  of  notes  payable.   The  Company  committed  to  expend
approximately  $400,000 for renovations and other improvements to the properties
for which it would receive dollar for dollar  credits  against its notes payable
to Host. Such expenditures have been substantially  completed.  The Company also
leases two Country  Hearth  Inns owned by Host;  such  transactions  having been
completed in October 1997.

         The Company also acquired a 121-room hotel in Norcross Georgia which is
operated as a Best Western-Bradbury  Suite. The acquisition was completed in May
1998 for an aggregate purchase price of approximately $4 million, including cash
of approximately  $200,000 and an assumed mortgage note payable of approximately
$3.8 million.

         In September  1998,  the Company  acquired a 50-room hotel  property in
Coshocton,  Ohio for  approximately  $725,000.  The property is operated under a
Travelodge  license  agreement.  The  Company  had  previously  held a leasehold
interest  in the  property.  The  purchase  price was  partially  financed  by a
$600,000  mortgage  note which was later paid off with the  proceeds  from a new
$700,000 mortgage note.

         The Company completed construction of a 40-room hotel in Nicholasville,
Kentucky  which  opened in  September  1998 and began  construction  on  another
40-room property in Eddyville,  Kentucky. The Eddyville property opened in March
1999.  Construction  of both of  these  properties  was  partially  financed  by
construction  loans ($1 million  each) from a local bank and by  purchase  money
notes to the land sellers for an aggregate of $225,000. Both of these properties
which  operate as Country  Hearth Inns are based on the designs  obtained in the
Company's  September  1997  acquisition of Hatfield Inns, LLC which is discussed
further below.

         Also during 1998,  the Company  entered into  agreements to lease three
newly constructed  properties in Georgia. These properties are also based on the
40-room  Country Hearth Inn designs.  One property in Barnesville  was completed
and opened in late  December.  Two other  properties in Cedartown and Monroe are
presently under construction and expected to open during 1999.

         During 1998,  the Company  completed  significant  renovations on three
leased  hotels in Ohio which have been  converted  to operate as Country  Hearth
Inns.

         In the aggregate, the Company spent approximately $6 million on capital
expenditures during 1998 in addition to approximately $900,000 on the Host lease
acquisition  and  renovation  expenditures.   Proceeds  from  notes  payable  of
approximately $3 million during 1998 partially financed these expenditures.  The
remaining  proceeds  from the  Company's  December  1997 sale of $5  million  of
convertible debentures (see below) provided the additional funds needed.

         Another  source of funds during 1998 was the sale of certain  leasehold
interests.  The Company has  previously  announced  its  intention to divest its
investments in older less profitable hotel properties.  During 1998, the Company
sold eight of its  leasehold  interests in hotel  properties  which  resulted in
gains of  approximately  $1.6 million.  The operating profit  contribution  from
these properties which has been lost was not significant.  Management expects to
complete similar sales in 1999, although the resulting gains are not expected to
be of the same magnitude.

         Two  significant  acquisitions  which nearly  doubled the assets of the
Company  highlighted 1997. In May 1997, the Company completed its acquisition of
The Lodge Keeper Group, Inc. of Prospect,  Ohio ("Lodge  Keeper").  Lodge Keeper
operated 18 hotels under  long-term  leases,  held  management  contracts on six
Country Hearth Inn hotels and owned a 186-room independent  extended-stay hotel.
In September 1997, the Company  completed its acquisition of Hatfield Inns, LLC.
("Hatfield").  The Hatfield  acquisition included eight 40-room hotel properties
located in Kentucky and Missouri.

          The Lodge Keeper acquisition included a fully-staffed hotel management
operations  center  capable  of  additional  capacity.   Simultaneous  with  the
acquisition, Lodge Keeper assumed the management responsibilities of four hotels
previously owned by the Company and has assumed  management  responsibility  for
all the properties  subsequently  acquired and developed in 1997 and 1998. As of
February 28, 1999, Lodge Keeper managed 44 hotel properties,  including 35 owned
or  leased by the  Company.  Management  believes  there is  significant  growth
potential  for its hotel  management  business  and the Company is  aggressively
pursuing  opportunities  to  manage  hotels  for  institutional  and  individual
investors.

         The Lodge Keeper  purchase  price  totaled  approximately  $6.3 million
consisting of $825,000 cash, 106,320 shares of common stock of the Company,  and
the assumption of approximately $4.8 million of debt.  Management  believes that
hotel  management and leasehold  profits will be adequate to service the assumed
debt.

         All eight of the properties  acquired from Hatfield have been converted
to operate as Country Hearth Inns.  Conversion costs were not  significant.  The
acquisition also included the plans and design rights for these 40-room interior
corridor  properties  specifically  designed  for  smaller  markets.  Management
believes  there  is  significant   growth  potential  for  the  development  and
construction of these properties.  Four additional hotel properties of this type
have been opened (two owned, one leased,  and one franchised) and another eleven
are under development.

          The  Hatfield   purchase  price  totaled   approximately  $11  million
consisting  primarily  of cash and  payables  of $1.5  million,  $3  million  of
preferred  stock  issued by the  Company,  and the  assumption  or  placement of
approximately $6.5 million of debt. The preferred stock is nonvoting and accrues
cumulative  dividends  at the  rate of 10% per  annum,  payable  when and to the
extent  declared by the  Company's  board of  directors.  All accrued but unpaid
dividends of the  preferred  stock must be paid in full before any cash dividend
may be declared on the  Company's  common  stock.  Management  believes that the
acquired hotels' operating profits will adequately  service the related debt and
preferred stock dividends, if declared.

         The  Company  completed  its  fourth  full year of  Country  Hearth Inn
franchising,  marketing,  and conversion  activities in 1998. As of February 28,
1999, there were 39 Country Hearth Inn properties open and operating in thirteen
states. During 1997 and 1998, the Company executed master license agreements for
the  development  of 65 new Country  Hearth  Inns.  Ten Country  Hearth Inns are
presently under construction and 12 other properties under signed agreements are
in various stages of pre-construction.

         For operating  purposes,  the Company has not historically  encountered
liquidity shortfalls,  the need for short-term  financing,  or the need to raise
additional equity capital. Significant acquisitions have been financed primarily
by mortgage debt and issuance of equity securities to the sellers.  The specific
need for future such financing would be directly impacted by the size and nature
of future  acquisitions,  if any.  The  Company's  hotel  operations  are highly
seasonal in nature.  Second and third  quarter  operating  profits are typically
higher than the first and fourth quarters.  As a result the Company is presently
susceptible to seasonal liquidity shortfalls.  The Company has arranged for a $1
million line of credit with a bank to help protect against such  shortfalls.  No
draws on the line of credit were made during 1998.

         In  December  1997,  the  Company  issued   $5,000,000  of  convertible
debentures to investment  funds managed by Tower  Investment  Group,  Inc.,  now
known as Bay Harbour Management ("Bay Harbour").  Bay Harbour manages investment
funds which already owned  approximately 14% of the outstanding common shares of
the Company at that time and now own  approximately  26%. The related  debenture
notes bear interest at 8%,  payable  quarterly in arrears,  and are due December
2002. The debentures  are  convertible  into common shares of the Company at any
time at $9.00 per share. If all such  debentures  were converted,  an additional
555,555  shares of common  stock would be issued.  The Company used the proceeds
for  conversions of certain leased  properties  into Country Hearth Inns and for
deposits  and/or cash portions of hotel and leasehold  interest  acquisitions as
discussed  above. A portion of the proceeds were also used to defer the need for
short term financing which may have otherwise become necessary due to the highly
seasonal impact of hotel operations.

         The  Company's  balance  sheet at December 31, 1998 includes a deferred
tax asset of $3,831,000.  In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion or all
of the  deferred tax assets will not be realized.  The ultimate  realization  of
deferred tax assets is dependent upon the generation of future taxable income by
the  Company  during the  periods in which those  temporary  differences  become
deductible.  Management  considers the projected  future  taxable income and tax
planning  strategies in determining  whether a valuation allowance is necessary.
Some of the various factors considered by management are discussed below.

     During 1997, the Company sold two wholly owned  subsidiaries  which held an
investment  in  Days  Inns  Mortgage  Trust  ("DIMT").  DIMT  was  treated  as a
partnership for income tax purposes and had produced significant tax purpose net
operating losses (NOLs) totaling  approximately $34 million through December 31,
1996. These NOLs had no impact on the Company's book provision for regular taxes
because the ultimate  dissolution of the  partnership  would result in immediate
gain  recognition  for a  comparable  amount.  Because of NOL  limitations,  the
Company was  exposed,  however,  to  significant  potential  future  alternative
minimum tax liability. All of these tax attributes accompanied the DIMT interest
with its sale, and the Company's tax position is no longer impacted by DIMT.

         Also during 1997, the Internal Revenue Service  commenced and completed
an examination  of the Company's  1994 federal income tax return.  No changes to
the Company's return, as filed, were made or proposed.

         The Hatfield acquisition was structured as a tax-free merger; thus, the
Company's tax basis in the assets  acquired  were not  stepped-up to fair market
value. The resulting deferred tax liability was offset,  however, by a reduction
in the Company's deferred tax asset valuation allowance of $930,000.

          In  evaluating  the  impact of the above  events in  conjunction  with
recent trends in the Company's operations,  specifically franchising activities,
hotel management, and hotel development and sales, management determined that it
was more likely than not that the results of future  operations  would  generate
sufficient taxable income to realize a portion of the deferred tax assets.  Such
determination  was  made  in  the  fourth  quarter  of  1997,  resulting  in the
recognition  of a $2,930,000  deferred  income tax  benefit.  Similarly in 1998,
based on actual events and other information available,  it appeared more likely
than not that  additional  portions of the deferred tax assets would be realized
and the Company  recognized  an  additional  net deferred tax asset of $901,000.
Although no assurances can be made,  realization  of the Company's  deferred tax
assets  should  occur if the  Company  generates  approximately  $14  million of
taxable income over the next 8 to 20 years.





<PAGE>



RESULTS OF OPERATIONS

         Hotel revenues and operating  profits in 1998 amounted to approximately
$25.7  million and $5.3 million,  respectively,  compared with $15.6 million and
$3.1  million in 1997.  These 1998  increases  reflect  the results of the Lodge
Keeper and Hatfield  acquisitions  in 1997 and the Host leases and other smaller
acquisitions in 1998.  Overall operating profit margins increased  slightly as a
result of the sale of leasehold  interests in eight  properties  which had lower
profit margins.

         For hotel  properties which were owned by the Company in 1998 and 1997,
revenue per available room ("Revpar") and operating profits generally  increased
at most  properties.  Specifically,  the  Company's  owned hotels in Atlanta and
Dalton,  Georgia;  Orlando and Daytona,  Florida;  and all Kentucky and Missouri
properties  experienced  Revpar increases in 1998. The Company's owned hotels in
Texas  experienced  Revpar declines in 1998.  Newer properties in nearby markets
have  negatively  impacted the  profitability  of these  hotels.  Management  is
presently assessing whether or not to sell some or all of these properties.

         The Company  earned  approximately  $2.1 million of hotel revenues from
eight leased  properties prior to their sale in 1998. The eight remaining leased
properties  acquired with the 1997 Lodge Keeper acquisition  generated aggregate
1998 revenues of approximately $4.2 million. Additional leasehold interest sales
are  anticipated in 1999 which will cause a decline in such revenues.  Operating
profits, however, are not expected be significantly impacted.

         The Host leases which were acquired in June 1998  contributed  revenues
of  approximately  $2.9  million and hotel  operating  profits of  approximately
$200,000.   Such  amounts   should   increase  on  an  annualized   basis  after
consideration of seasonal fluctuations.

          The Company  experienced net operating losses in the fourth quarter of
1997 and the first quarter of 1998 which largely reflects the seasonal nature of
limited service hotel operations.  The increase in the number of properties from
the  Lodge  Keeper  and  Hatfield  acquisitions  magnified  this  aspect  of the
Company's operations.

         Investment  income  declined  from  approximately  $784,000  in 1997 to
$201,000 in 1998.  The 1997 amount  includes a $455,000 gain from the call of an
industrial  revenue bond  previously  owned by the  Company.  Through 1997 and a
portion of 1998, the Company's note receivable portfolio declined as a result of
payments  received in excess of new notes  originated.  The  Company's  net note
receivable  portfolio increased in 1998, however, as a result of the notes taken
in connection with the previously  discussed leasehold interest sales.  Interest
income from this source is expected to continue.

         Franchising activities losses were reduced to approximately $247,000 in
1998.  Such loss is after the  elimination  of  intercompany  franchise  fees on
Company  owned and  leased  Country  Hearth  Inns.  If such fees were  included,
franchising  would  have  reported  a modest  profit in 1998.  The  Company  has
continued  investing in the  establishment  of the Country  Hearth Inn brand and
expects that  franchising  activities  will report a slight  profit in 1999 even
after the elimination of intercompany fees. Management continues to believe that
substantial  profits  will be realized in future years from its  investments  in
franchising activities.

         The Company continues to experience  substantial profits from its hotel
acquisition/development/sale   activities.   The  Company  recognized  gains  on
property and leasehold sales in 1998 and 1997 of approximately  $1.6 million and
$289,000,   respectively.   Management   expects   further  profits  from  these
activities, however, the amounts and timing of such are not predictable.

         Other  income  in  1998  and  1997  includes   nonrecurring   gains  of
approximately  $500,000 and $1.1  million,  respectively,  from  collections  on
impaired notes and favorable settlements of Old Buckhead claims.

         Other  operating  and  administrative  expenses  increased  in  1998 to
approximately $2.3 million from $1.8 million in 1997. The substantial portion of
this  increase  is  attributable  to the  acquisition  of Lodge  Keeper's  hotel
management  operations  in May 1997 and to a lesser  extent is  attributable  to
payroll increases.

          Interest  expense in 1998 increased to  approximately  $3 million from
$1.6 million in 1997. The increase is  attributable  to the additional debt from
the Lodge  Keeper  and  Hatfield  acquisitions  in 1997 and the  Norcross  hotel
acquisition in 1998.  Also,  the Company  recognized  approximately  $400,000 of
interest expense relating to the convertible debentures issued in December 1997.
The Company has  approximately $4 million of debt obligations which are floating
rate (prime plus 1%). The remainder of the Company's debt  obligations are fixed
rate (8% to 9.55%). Interest expense in 1999 is expected to increase as a result
of the obligations added in 1998 being  outstanding for a full year.  Management
considers the present  borrowing rates and availability of hotel financing to be
favorable, thus increasing the likelihood of further hotel acquisitions.

         Similarly,  depreciation and amortization expenses increased in 1998 as
a result of the hotel  acquisitions  and  should  increase  further in 1999 as a
result of the acquired properties being held for a full year.

         As previously  discussed,  the Company  recognized  deferred income tax
benefits in 1998 and 1997 of $901,000 and $2,930,000, respectively.



YEAR 2000 ISSUES

         The Year 2000  compliance  issue concerns the inability of computerized
information  systems to  accurately  calculate,  store or use a date after 1999.
This could result in a system failure or miscalculations  causing disruptions of
operations.  The  Year  2000  issue  affects  virtually  all  companies  and all
organizations.  The Company  recognizes  the  importance  of  ensuring  that its
business  operations are not disrupted as a result of Year 2000 related computer
system and software issues.

         The  Company has  conducted  an  assessment  of its  computer  and data
telecommunications  information  systems ("IT Systems"),  as well those computer
systems  that  do not  relate  to  information  technology,  including,  without
limitation,  electronic locks,  telephone  systems,  elevators,  VCR's and other
guest service related systems ("Non-IT  Systems"),  to identify needed Year 2000
remediation.  The Company  currently  anticipates that its Year 2000 assessment,
remediation, and testing efforts will be completed by December 31, 1999.

         The Company's home office,  and management company IT Systems have been
evaluated  and tested and are  considered to be Year 2000  compliant.  All hotel
front office systems have been  evaluated.  Seven such systems were found to not
be Year 2000  compliant and will need to be upgraded or replaced at an estimated
total cost of $40,000.

         The Company has communicated  with its significant  vendors and service
providers  regarding the extent to which these entities have addressed Year 2000
compliance  issues. The most critical IT System being credit card processing has
been  tested  and found to be Year 2000  compliant.  Other  vendor  and  service
provided systems such as electronic lock systems and guest related telephone and
television  systems  have been tested and found to be Year 2000  compliant.  All
other less critical systems are currently being evaluated.  Management estimates
that this process is  approximately  75% complete and  expenditures to remediate
any problems encountered will not be significant.

         The Company has not  communicated  with its hotel guests regarding Year
2000  compliance  issues,   since  none  of  its  guests  is  considered  to  be
individually  significant  and the Company  receives no electronic data from its
guests other than credit card information which is discussed above.

         Based on the  Company's  assessments  and  available  information,  the
Company  believes that its cost to ensure Year 2000  compliance  will not exceed
$100,000. As of February 28, 1999 the Company had incurred approximately $10,000
related to Year 2000 assessment,  remediation and testing.  The Company believes
that the Year 2000 issue will not pose significant  operational problems for the
Company.  However,  if all Year 2000  issues  are not  properly  identified,  or
assessment,  remediation and testing are not completed  timely,  there can be no
assurance  that the Year 2000 issue  will not  materially  adversely  impact the
Company's results of operations or adversely affect the Company's  relationships
with guests, vendors or others. Additionally, there can be no assurance that the
Year 2000 issues of other entities, including, but not limited to, the Company's
third  party  vendors  and service  providers  and its  guests,  will not have a
material adverse impact on the Company's  systems or results of operations.  The
Company has not engaged an independent  expert solely to assist in its Year 2000
efforts.  However, when installing new software,  the Company requires year 2000
compliance assurances from its vendors.

         The Company has not yet determined the  operational  costs and problems
that would be  reasonably  likely to result  from the failure by the Company and
certain  third  parties to  complete  efforts  necessary  to  achieve  Year 2000
compliance on a timely basis.  The Company has not developed a contingency  plan
for  dealing  with the most  reasonably  likely  worst case  scenario,  and such
scenario has not yet been clearly  identified.  The Company  currently  plans to
complete such analysis and contingency planning by December 31, 1999.

         Readers are cautioned that  forward-looking  statements  regarding Year
2000 issues should be read in conjunction  with the cautionary  statement in the
RISK FACTORS section of "Item 1. Description of Business".








Item 7.  Financial Statements.

ANNUAL FINANCIAL STATEMENTS

     The Company's  consolidated financial statements with independent auditors'
report thereon are included on pages 24 through 52 which follow.

FINANCIAL CONDITION AND CHANGES IN FINANCIAL CONDITION


                          BUCKHEAD AMERICA CORPORATION
                                AND SUBSIDIARIES

                        Consolidated Financial Statements

                           December 31, 1998 and 1997

                    With Independent Auditors' Report Thereon



<PAGE>


                          Independent Auditors' Report


The Board of Directors
Buckhead America Corporation:


We have audited the accompanying consolidated balance sheets of Buckhead America
Corporation  and  subsidiaries as of December 31, 1998 and 1997, and the related
consolidated  statements  of  income,  shareholders'  equity  and  comprehensive
income, and cash flows for the years then ended.  These  consolidated  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the financial  position of Buckhead America
Corporation  and  subsidiaries as of December 31, 1998 and 1997, and the results
of their  operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.



                                        /s/ KPMG LLP


Atlanta, Georgia
March 5, 1999
<PAGE>

                          BUCKHEAD AMERICA CORPORATION
                                AND SUBSIDIARIES

                           Consolidated Balance Sheets

                           December 31, 1998 and 1997

<TABLE>
<CAPTION>
                     Assets                                                              1998                 1997
                     ------                                                              ----                 ----
<S>                                                                                   <C>                 <C>    
Current assets:
    Cash and cash equivalents, including restricted cash of
       $547,695 in 1998 and $410,397 in 1997 (note 3)                          $       1,604,194           3,281,774
    Investment securities (note 4)                                                       120,496           3,188,115
    Accounts receivable, net (note 6)                                                  1,886,341           1,049,009
    Current portions of notes receivable, net (note 5)                                   367,017             370,520
    Other current assets                                                                 344,669             344,207
                                                                                       ---------           ---------
                     Total current assets                                              4,322,717           8,233,625

Noncurrent portions of notes receivable, net (note 5)                                  2,696,561             724,307
Investment securities (note 4)                                                           139,977                --
Property and equipment, at cost, net (notes 6, 8, and 9)                              42,306,067          34,275,664
Deferred tax assets (note 12)                                                          3,831,000           2,930,000
Deferred costs, net (note 7)                                                           1,892,195           1,933,153
Leasehold interests, net (note 7)                                                      3,192,939           2,839,487
Other assets (note 7)                                                                  1,159,662           1,227,787
                                                                                     -----------          -----------
                                                                               $      59,541,118          52,164,023
                                                                                     ===========          ===========

                     Liabilities and Shareholders' Equity
                     ------------------------------------

Current liabilities:
    Accounts payable and accrued expenses                                      $       3,618,621           3,291,528
    Current portions of notes payable (note 8)                                         1,251,251             933,183
                                                                                       ---------           ---------
                  Total current liabilities                                            4,869,872           4,224,711

Noncurrent portions of notes payable (note 8)                                         33,357,178          27,648,925
Other liabilities                                                                        256,049             262,567
                                                                                       ---------           ---------
                  Total liabilities                                                   38,483,099          32,136,203
                                                                                       ---------           ---------

Minority interest in partnership                                                         565,694             674,269

Shareholders' equity (notes 10 and 13):
    Series A preferred stock; par value $100; 200,000 shares
       authorized; 30,000 shares issued and outstanding                                3,000,000           3,000,000
    Common stock; $.01 par value; 5,000,000 shares
       authorized; 2,003,277 and 1,949,630 shares issued
       and 1,943,935 and 1,897,780 shares outstanding in
       1998 and 1997, respectively                                                        20,033              19,496
    Additional paid-in capital                                                         7,362,487           6,963,024
    Retained earnings                                                                 10,728,847           9,793,352
    Accumulated other comprehensive loss                                                (148,023)               --
    Treasury stock, 59,342 and 51,850 common shares
       in 1998 and 1997, respectively                                                   (471,019)           (422,321)
                                                                                       ---------           ---------
                  Total shareholders' equity                                          20,492,325          19,353,551

Commitments and contingency (notes 7, 9, and 15)
                                                                                       ---------           ---------
                                                                               $      59,541,118          52,164,023
                                                                                      ==========          ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
                          BUCKHEAD AMERICA CORPORATION
                                AND SUBSIDIARIES
                        Consolidated Statements of Income
                     Years ended December 31, 1998 and 1997
<CAPTION>
                                                                                       1998                  1997
                                                                                ----------------        ---------------
<S>                                                                             <C>                     <C>
Revenues:
    Hotel revenues                                                              $     25,720,086        $    15,590,744
    Franchise fee income                                                                 699,208                538,632
    Gains on property sales (notes 6 and 7)                                            1,648,894                289,300
    Investment income (note 4)                                                           201,334                784,090
    Other income, net (notes 11 and 14)                                                  525,126              1,366,783
                                                                                ----------------        ---------------
                  Total revenues                                                      28,794,648             18,569,549
                                                                                ----------------        ---------------
Expenses:
    Hotel operations                                                                  20,420,888             12,522,578
    Franchise operations                                                                 946,834              1,155,120
    Other operating and administrative (note 14)                                       2,337,140              1,842,974
    Depreciation and amortization                                                      1,773,346              1,204,082
    Interest                                                                           2,981,945              1,601,183
                                                                                ----------------        ---------------
                  Total operating, administrative, and
                     interest expenses                                                28,460,153             18,325,937
                                                                                ----------------        ---------------
                  Income before income taxes                                             334,495                243,612
Deferred income tax benefit (note 12)                                                   (901,000)            (2,930,000)
                                                                                ----------------        ---------------
                  Net income                                                    $      1,235,495              3,173,612
                                                                                ================        ===============
Net income per common share (note 10):
    Basic                                                                       $           0.48                   1.67
                                                                                ================        ===============
    Diluted                                                                     $           0.47                   1.56
                                                                                ================        ===============
See accompanying notes to consolidated financial statements.

</TABLE>
<PAGE>

                          BUCKHEAD AMERICA CORPORATION
                                AND SUBSIDIARIES
    Consolidated Statements of Shareholders' Equity and Comprehensive Income
                     Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
                                                                                              ACCUMULATED
                                                                         ADDITIONAL           OTHER                    TOTAL
                                     COMPREHENSIVE  COMMON    PREFERRED  PAID-IN    RETAINED  COMPREHENSIVE  TREASURY  SHAREHOLDERS'
                                     INCOME         STOCK     STOCK      CAPITAL    EARNINGS  INCOME (LOSS)  STOCK     EQUITY
                                     -------------  --------  ---------  ---------- --------- -------------  --------- -------------
<S>                                  <C>            <C>       <C>        <C>        <C>       <C>            <C>       <C>

Balances at December 31, 1996                       $ 18,180         --   6,288,574 6,712,073       455,128   (389,821)   13,084,134
Issuance of 106,320 common shares
    for business acquisition, net of
    5,000 treasury shares acquired                     1,063         --     690,017        --            --    (32,500)      658,580
Issuance of 25,333 common shares
    pursuant to exercise of options                      253         --      97,239        --            --        --        97,492
Issuance of 30,000 preferred shares
    for business acquisition, net of
    $112,806 issuance costs                               --  3,000,000    (112,806)       --            --        --     2,887,194
Preferred stock dividends                                 --         --          --   (92,333)           --        --       (92,333)
Comprehensive income:
    Net income                       $   3,173,612        --         --          -- 3,173,612            --        --     3,173,612
    Change in unrealized gain on
       investment securities 
       (see below)                        (455,128)       --         --          --        --      (455,128)       --      (455,128)
                                     -------------  --------  ---------  ---------- --------- -------------  --------- -------------
       Total comprehensive income    $   2,718,484
                                     =============  --------  ---------  ---------- --------- -------------  --------- -------------
Balances at December 31, 1997                         19,496  3,000,000   6,963,024 9,793,352            --   (422,321)  19,353,551

Issuance of 53,647 common shares
    for asset acquisition                                537         --     399,463        --            --         --      400,000
Acquisition of 7,492 common shares                        --         --          --        --            --    (48,698)     (48,698)
Preferred stock dividends                                 --         --          --  (300,000)           --         --     (300,000)
Comprehensive income:
    Net income                       $   1,235,495        --         --          -- 1,235,495            --         --    1,235,495
    Change in unrealized gain (loss)
    on investment securities (see
    below)                                (148,023)       --         --          --        --      (148,023)        --     (148,023)
                                     -------------
       Total comprehensive income    $   1,087,472
                                     =============  --------  ---------  ---------- --------- -------------  --------- -------------
Balances at December 31, 1998                       $ 20,033  3,000,000   7,362,487 10,728,847     (148,023)  (471,019)  20,492,325
                                     =============  ========  =========   ========= ========= =============  ========= =============

                                     1998           1997
                                     -------------  --------
Disclosure of reclassification 
    amount:
    Unrealized holding losses 
       arising during the period     $    (148,023)       --
    Less reclassification adjustment
       for gains included in net
       income                                   --   455,128
                                     =============  ========
                                     $    (148,023)  455,128
                                     =============  ========
See accompanying notes to consolidated financial statements.
</TABLE>






<PAGE>
                          BUCKHEAD AMERICA CORPORATION
                                AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                     Years ended December 31, 1998 and 1997

<TABLE>
<CAPTION>
                                                                                        1998                 1997
                                                                                  ----------------     ---------------
<S>                                                                            <C>                        <C>    
Cash flows from operating activities:
    Net income                                                                 $       1,235,495           3,173,612
    Adjustments to reconcile net income to net cash
       provided by (used in) operating activities:
         Depreciation and amortization                                                 1,773,346           1,204,082
         Sales (purchases) of trading securities, net                                  2,998,950           (1,631,470)
         Realized gains on trading securities                                             (37,260)           (146,527)
         Unrealized holding losses on trading securities                                 105,929              51,755
         Realized gains on available-for-sale securities                                    --               (455,128)
         Gains on property and leasehold interest sales                                (1,648,894)           (289,300)
         Gain on note sale                                                                  --               (800,000)
         Minority interest in partnership income                                         250,015             121,154
         Equity in joint venture losses                                                  124,480             125,487
         Deferred income tax benefit                                                     (901,000)         (2,930,000)
         Change in assets and liabilities, net of effect of acquisitions:
               Accounts receivable, net                                                  (837,332)           (415,596)
               Accounts payable and accrued expenses                                     295,140             (162,000)
               Other, net                                                                149,992              79,267
                                                                                   ----------------     ---------------
                  Net cash provided by (used in) operating activities                  3,508,861           (2,074,664)
                                                                                   ----------------     ---------------
Cash flows from investing activities:
    Principal receipts on notes receivable                                               704,970           1,188,566
    Originations of notes receivable                                                   (1,018,721)           (440,000)
    Acquisitions of businesses and hotels                                                (707,783)         (1,601,815)
    Additions to property and equipment                                                (5,966,947)         (1,364,478)
    Investments in joint ventures                                                        (148,873)           (648,525)
    Investment maturities                                                                   --             1,565,000
    Proceeds from property and leasehold interest sales                                  989,064             348,000
    Acquisition of additional partnership interests                                       (60,000)              --
                                                                                   ----------------     ---------------
                  Net cash used in investing activities                                (6,208,290)           (953,252)
                                                                                   ----------------     ---------------
Cash flows from financing activities:
    Proceeds from notes payable                                                        2,969,091           5,396,353
    Repayments of notes payable                                                        (1,723,092)           (848,489)
    Net proceeds from refinancing of notes payable                                       374,440                --
    Distribution to minority interest partners                                           (298,590)            (45,003)
    Proceeds from issuance of common shares                                                 --                97,492
    Preferred stock dividends paid                                                       (300,000)            (92,333)
                                                                                   ----------------     ---------------
                  Net cash provided by financing activities                            1,021,849           4,508,020
                                                                                   ----------------     ---------------
                  Net (decrease) increase in cash and cash equivalents                 (1,677,580)         1,480,104
Cash and cash equivalents at beginning of year                                         3,281,774           1,801,670
                                                                                   ----------------     ---------------
Cash and cash equivalents at end of year                                       $       1,604,194           3,281,774
                                                                                   ================     ===============
                                                                                                           (Continued)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                                        1998                 1997
                                                                                   ----------------     ---------------
<S>                                                                            <C>                         <C>   
Supplemental disclosure of cash flow information -
    cash paid during the year for interest, net of interest capitalized
    of $48,542 in 1998 and $32,843 in 1997                                     $       2,765,901           1,615,431
                                                                                   ================     ===============
Supplemental disclosures of noncash investing and financing activities:

         Costs:                              
            Cash                                                               $         191,148
            Payables                                                                      31,953
            Note payable assumed                                                       3,818,798
                                                                                   ----------------
               Property and equipment                                          $       4,041,899
                                                                                   ================
           Costs:
               Cash                                                            $         516,635
               Common stock issued                                                       400,000
               Notes payable issued                                                      400,000
                                                                                   ----------------
                                                                               $       1,316,635
                                                                                   ================
            Allocated to:
               Lessor's common stock                                           $         288,000
               Leasehold interests                                                     1,028,635
                                                                                   ----------------
                                                                               $       1,316,635
                                                                                   ================

            New notes payable issued                                           $       4,885,000
            Discharge of old notes payable                                             (4,323,476)
            Notes payable issuance costs                                                 (187,084)
                                                                                   ----------------
                  Net proceeds                                                 $         374,440
                                                                                   ================

                                                                                       (Continued)

</TABLE>

                                       2
<PAGE>

<TABLE> 
<S>                                                                            <C>  
            Proceeds:
               Cash, net of closing costs                                      $         989,064
               Notes receivable, net                                                   1,655,000
                                                                                   ----------------
                                                                                   ----------------
                                                                                       2,644,064
                                                                                   ----------------
            Basis in leasehold interests sold:
               Leasehold interests, net                                                  270,002
               Leasehold improvements, net                                               725,168
                                                                                   ----------------
                                                                                   ----------------
                                                                                         995,170
                                                                                   ----------------

                  Gains on leasehold interest sales, net                       $       1,648,894
                                                                                   ================

            Costs:
               Cash                                                            $         825,000
               Common stock issued, net of treasury stock acquired                       658,580
               Notes payable assumed                                                   4,784,754
                                                                                   ----------------

                                                                               $       6,268,334
                                                                                   ================

            Allocated to:
               Property and equipment                                          $       4,489,490
               Other assets                                                            3,127,860
               Working capital deficit                                                 (1,349,016)
                                                                                   ----------------

                                                                               $       6,268,334
                                                                                   ================
            Costs:
               Cash and payables                                               $         1,464,293
               Preferred stock issued, net of issuance costs                             2,887,194
               Notes payable assumed or placed                                           6,547,911
                                                                                   ----------------

                                                                               $        10,899,398
                                                                                   ================

            Allocated to:
               Property and equipment                                                   10,740,632
               Other assets                                                                158,766
                                                                                   ----------------

                                                                               $        10,899,398
                                                                                   ================
</TABLE>

See accompanying notes to consolidated financial statements.


                                       3





<PAGE>


                          BUCKHEAD AMERICA CORPORATION
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 1998 and 1997
                                                                                

(1)    The Company

       Buckhead  America  Corporation (the Company) was created in December 1992
       and  effectively  commenced  operations  on January 1, 1993.  The Company
       operates in the hospitality  industry and its principal  holdings include
       hotels,  loans,  leasehold  interests  and other  investments  secured by
       hotels, hotel management  contracts,  hotel franchising rights, and other
       related assets. Its principal product is the Country Hearth Inn midpriced
       hotel franchise system which the Company acquired in May 1994.

       The primary  activities  of the  Company  involve  the  expansion  of the
       Country   Hearth  Inn  chain,   limited-service   hotel   management  and
       development/ownerships/sales  of  hotel  properties.   Expansion  of  the
       Country Hearth Inn franchise  system is effected  through  development of
       new hotels,  direct  acquisition and conversion of existing  hotels,  and
       franchise sales.

       The Company also owns and manages other hotel  properties not included in
       the Country Hearth Inn system. Hotel management  operations are conducted
       through the Company's  wholly owned  subsidiary,  The Lodge Keeper Group,
       Inc. (Lodge Keeper).


(2)    Summary of Significant Accounting Policies

       (a)    Principles of Consolidation

              The accompanying  financial statements include the accounts of the
              Company and its consolidated subsidiaries. They also include, on a
              consolidated basis, the accounts of a 58%-owned  partnership which
              owns a hotel  subject to a nonrecourse  mortgage.  The accounts of
              the  partnership  are  consolidated  on a  gross  basis  with  the
              minority partners'  interest reflected  separately on a net basis.
              All significant  intercompany  accounts and transactions have been
              eliminated in the consolidated financial statements.

              Management  of the  Company  has made a number  of  estimates  and
              assumptions  relating to the  reporting of assets and  liabilities
              and the disclosure of contingent  assets and liabilities as of the
              balance sheet date and revenues and expenses  during the reporting
              period to prepare these  financial  statements in conformity  with
              generally  accepted  accounting  principles.  Actual results could
              differ from those estimates.

       (b)    Revenue Recognition

              Hotel  revenues  are  recognized  as  earned,  which is  generally
              defined  as the  date  upon  which a  guest  occupies  a room  and
              utilizes the hotel's services.

              Initial  franchise  fees are  recognized as income upon receipt as
              the Company has no future obligations  associated with the initial
              fees. The Company also receives continuing royalty, marketing, and
              other fees based upon a percentage of each hotel's gross revenues.
              These continuing fees are recognized when earned.

              Investment income is recognized as earned.



<PAGE>


       (c)    Cash and Cash Equivalents

              Cash and cash equivalents include demand and savings deposits with
              financial  institutions and cash on hand. Restricted cash includes
              funds  held by  trustees  for the  benefit  of the  Company or its
              creditors.  The Company  considers all highly  liquid  instruments
              with maturities of less than three months to be cash equivalents.

       (d)    Investment Securities

              The  Company  has  classified  all of its  investments  as  either
              "trading" or "available-for-sale."  Available-for-sale  securities
              are recorded at fair value with unrealized  gains and losses,  net
              of the related tax effect, reported as other comprehensive income.
              Trading securities are also recorded at fair value with unrealized
              gains and losses reported as investment income in the consolidated
              statements of income.

       (e)    Notes Receivable

              Notes  receivable are recorded at cost,  less the related  general
              allowance for doubtful  accounts and any  allowances  for impaired
              notes receivable. The Company, considering current information and
              events   regarding   the   borrowers'   ability  to  repay   their
              obligations, values its notes receivable, for which it is probable
              that the Company  will be unable to collect the full amount due in
              accordance  with the note  agreement,  at the present value of the
              expected  future  cash  flows,   market  price  of  the  loan,  if
              available, or the value of the underlying collateral,  if any. The
              Company does not accrue interest for notes  receivable  considered
              to be impaired.  Cash  receipts on impaired  notes  receivable  is
              either  applied  against  principal or may be reported as interest
              income depending on management's judgment as to the collectibility
              of principal.

       (f)    Property and Equipment

               Property  and  equipment  is  stated  at cost,  less  accumulated
               depreciation.

              Depreciation  on  property  and  equipment  is  calculated  on the
              straight-line  method  over  the  estimated  useful  lives  of the
              assets.  Property  and  equipment  held under  capital  leases and
              leasehold improvements are amortized over the shorter of the lease
              term or estimated useful life of the asset. Estimated useful lives
              of property and equipment are as follows:

                   Buildings                                25 to 40 years
                   Furniture, fixtures, and equipment        5 to 10 years
                   Leasehold improvements                    5 to 20 years

       (g)    Deferred Costs

              Deferred  costs  primarily  consist of costs  associated  with the
              acquisition  of trademark  rights and  franchise  licenses and are
              amortized  over the  estimated  useful lives of the assets,  which
              range from 10 - 20 years.  Deferred costs also include unamortized
              note payable  issuance  costs which are amortized over the term of
              the related debt.

      
              

<PAGE>
      (h)    Leasehold Interests


               Leasehold  interests  are  intangible  assets that  represent the
               right to operate certain hotel properties, inclusive of the right
               to use the properties  under existing lease  agreements,  and are
               stated at cost, less  accumulated  amortization.  Amortization is
               calculated  on the  straight-line  method  over the  terms of the
               related leases.

       (i)    Other Assets

              Other  assets  primarily  consist of deposits and  investments  in
              partnerships  or corporate  joint  ventures other than those which
              are  consolidated  due to control.  Investees in which the Company
              has the ability to exercise  significant  influence  are accounted
              for using the equity method.

       (j)    Treasury Stock

              Treasury  stock is stated at cost.  In  noncash  exchanges,  fair
              value represents cost.

       (k)    Marketing Costs

              The Company  incurs costs for various  marketing  and  advertising
              efforts.  All costs  related  to  marketing  and  advertising  are
              expensed  in the period  incurred.  Marketing  costs  amounted  to
              $556,360 and  $542,203  for the years ended  December 31, 1998 and
              1997,  respectively,  and are  included  in  franchise  operations
              expense  ($123,625  and  $302,254,   respectively)  and  in  hotel
              operations  expense  ($432,735 and $239,949,  respectively) in the
              accompanying consolidated statements of income.

       (l)    Income Taxes

              Income  taxes are  accounted  for  under  the asset and  liability
              method. Deferred tax assets and liabilities are recognized for the
              future tax  consequences  attributable to differences  between the
              financial  statement  carrying  amounts  of  existing  assets  and
              liabilities and their  respective tax bases and operating loss and
              tax credit carryforwards.  Deferred tax assets and liabilities are
              measured  using  enacted  tax rates  expected  to apply to taxable
              income  in the  years in which  those  temporary  differences  are
              expected to be  recovered  or settled.  The effect on deferred tax
              assets and  liabilities  of a change in tax rates is recognized in
              income in the period that includes the enactment date.

              A valuation  allowance  is  recognized  when it appears it is more
              likely than not that some or all of  deferred  tax assets will not
              be realized.

       (m)    Fair Value of Financial Instruments

              Management  believes  that the  carrying  amounts of cash and cash
              equivalents,  accounts receivable,  other current assets, accounts
              payable  and  accrued  expenses,  and  current  portions  of notes
              receivable and payable are reasonable approximations of their fair
              value because of the short-term nature of these instruments.

              The fair  value of  noncurrent  portions  of notes  receivable  is
              determined  as the  present  value of  expected  future cash flows
              discounted at the interest rate currently  offered by the Company,
              which  approximates  rates  currently  offered  by  local  lending
              institutions   for  loans  of  similar  terms  to  companies  with
              comparable  credit  risk.  Based  on this  valuation  methodology,
              management  believes  that the carrying  amount of the  noncurrent
              portions of notes receivable is a reasonable  approximation of its
              fair value.



<PAGE>


              Investment  securities (both trading and  available-for-sale)  are
              stated at fair value in the accompanying balance sheet. These fair
              values are based on quoted market prices at the reporting date for
              those or similar investments.

              The  fair  value of the  Company's  noncurrent  portions  of notes
              payable is estimated by discounting  the future cash flows of each
              instrument at rates  currently  offered to the Company for similar
              debt  instruments  of  comparable   maturities  by  the  Company's
              bankers. Based on this valuation methodology,  management believes
              that the  carrying  amount  of the  noncurrent  portions  of notes
              payable is a reasonable estimation of its fair value.

       (n)    Reclassifications

              Certain  reclassifications  have been made to the 1997 balances to
              conform with classifications adopted in 1998.

       (o)    Stock Options

              The Company  accounts  for its stock  options in  accordance  with
              Statement  of  Financial  Accounting  Standards  ("SFAS") No. 123,
              Accounting for Stock-Based Compensation, which encourages entities
              to recognize as expense over the vesting  period the fair value of
              all stock-based awards on the date of grant.  Alternatively,  SFAS
              No. 123 allows  entities to continue  to apply the  provisions  of
              Accounting Principles Board ("APB") Opinion No. 25, Accounting for
              Stock Issued to Employees,  and record compensation expense on the
              date of grant only if the current  market price of the  underlying
              stock  exceeds the  exercise  price.  In  addition,  pro forma net
              income and pro forma earnings per share  disclosures  for employee
              stock  option  grants must be provided as if the  fair-value-based
              method  defined  in SFAS No.  123 had been  applied.  The  Company
              continues  to apply  the  provisions  of APB  opinion  No.  25 and
              provides the pro forma provisions of SFAS No. 123.

       (p)    Impairment of Long-Term Assets

              Property and equipment, deferred costs and leasehold interests are
              reviewed   for   impairment   whenever   events  or   changes   in
              circumstances  indicate  that the carrying  amount of these assets
              may not be recoverable. Recoverability is measured by a comparison
              of the  carrying  amount  of an asset  to  future  net cash  flows
              expected to be generated by the asset.  If an asset is  considered
              to be impaired, the impairment to be recognized is measured by the
              amount by which the carrying  amount of the asset exceeds the fair
              value of the asset.


       (q)    Comprehensive Income

              On January 1, 1998,  the Company  adopted SFAS No. 130,  Reporting
              Comprehensive  Income.  This statement  establishes  standards for
              reporting  and  presentation  of  comprehensive   income  and  its
              components in a full set of general purpose financial  statements.
              SFAS No. 130 requires all items that are required to be recognized
              under accounting  standards as components of comprehensive  income
              be reported in a financial  statement  that is  displayed in equal
              prominence  with the  other  financial  statements.  Comprehensive
              income of the Company  consists  of net income and net  unrealized
              gains  (losses) on investment  securities  and is presented in the
              consolidated  statements of shareholders' equity and comprehensive
              income. The statement requires only additional  disclosures in the
              consolidated   financial  statements.   It  does  not  affect  the
              Company's   financial   position   or   consolidated   results  of
              operations. Prior year financial statements have been reclassified
              to conform to the requirements of SFAS No. 130.


<PAGE>


       (r)    Recent Accounting Pronouncements

              In June 1997, the Financial Accounting Standards Board issued SFAS
              No. 131,  Disclosures  about Segments of an Enterprise and Related
              Information.  This  statement  establishes  standards  for the way
              public  business  enterprises  are  to  report  information  about
              operating  segments in annual  financial  statements  and requires
              those  enterprises to report selected  information about operating
              segments  using  the  "management   approach"  concept.   It  also
              establishes  standards for related  disclosures about products and
              services,  geographic  areas,  and major  customers.  SFAS No. 131
              supersedes  SFAS No. 14,  Financial  Reporting  for  Segments of a
              Business  Enterprise,   but  retains  the  requirement  to  report
              information  about major customers.  SFAS No. 131 is effective for
              financial  statements  for periods  beginning  after  December 15,
              1997.  The  Company  operates  and  manages  its  business  as one
              segment.


(3)    Cash and Cash Equivalents

       Cash and cash  equivalents  at December  31, 1998 and 1997  included  the
following:

                                                1998               1997
                                            --------------     -------------
Unrestricted cash:
  Operating accounts, money market funds,
    and overnight investments               $   550,855         2,264,632
  Hotel operating accounts, savings
    accounts, and cash on hand                  505,644           606,745
                                            --------------     -------------
                                              1,056,499         2,871,377
                                            --------------     -------------
Restricted cash:
  Unsettled claim reserves (a)                      609            27,282
  Mortgage-related escrows (b)                  494,596           330,625
  Insurance deposits (c)                         52,490            52,490
                                            --------------     -------------
                                                547,695           410,397
                                            --------------     -------------

                                            $  1,604,194        3,281,774
                                            ==============     =============

              (a) The  Company  acted  as a  trustee  and  administered  certain
                  aspects of claims  asserted  in the  bankruptcy  of the entity
                  formerly  known  as  Days  Inns of  America,  Inc.  (the  Days
                  Bankruptcy).  The residual amounts,  if any, in certain of the
                  related reserve  accounts inured to the benefit of the Company
                  (note 11). Accordingly, these accounts, along with the related
                  liabilities,  are reflected in the  accompanying  consolidated
                  balance sheets.  Such liabilities,  which equal the restricted
                  cash  balances,  are included in accounts  payable and accrued
                  expenses.

              (b) Mortgage-related escrows are standard reserve accounts held by
                  or on behalf of the holders of  mortgages  on certain  Company
                  properties  (note  8).  Such  amounts  are  restricted  to the
                  payment of  insurance,  property  taxes,  and/or  property and
                  equipment   replacements  and  enhancements  relating  to  the
                  mortgaged properties.

              (c) The  Company  is   self-insured   for  workers'   compensation
                  liabilities   relating   to  certain   employees   in  certain
                  locations.   Some   states   require   deposits   be  made  by
                  self-insuring  companies.  Such deposits are restricted to the
                  payment of workers'  compensation  claims which are  otherwise
                  not settled.


<PAGE>


  (4)  Investment Securities

       The amortized cost,  gross  unrealized  holding gains,  gross  unrealized
       holding  losses,  and  fair  value  for  trading  and  available-for-sale
       securities  by  investment  type and class of  investment at December 31,
       1998 and 1997, are as follows:
<TABLE>
<S>                                        <C>                     <C>               <C>                  <C>    

                                                                                1998
                                               -----------------------------------------------------------------------
                                                                     Gross              Gross
                                                                   unrealized        unrealized
                                                 Amortized          holding            holding             Fair
                                                   cost              gains             losses              value
                                               --------------    ---------------    --------------    ----------------

             Trading securities -
                 equity securities         $        11,812          112,082             (3,398)            120,496
             Available-for-sale
                 securities - equity
                 securities                        288,000               --           (148,023)            139,977
                                               --------------    ---------------    --------------    ----------------

                        Total              $       299,812          112,082           (151,421)            260,473
                                               ==============    ===============    ==============    ================

                                                                                1997
                                               -----------------------------------------------------------------------
                                                                     Gross              Gross
                                                                   unrealized       unrealized
                                                 Amortized          holding            holding             Fair
                                                   cost              gains             losses              value
                                               --------------    ---------------    --------------    ----------------
             Trading securities:
                 U.S. government and
                   agency obligations      $     2,962,739                -                  -          2,962,739
                 Equity securities                  10,763          216,779             (2,166)           225,376
                                               --------------    ---------------    --------------    ----------------

                        Total              $   2,973,502            216,779             (2,166)         3,188,115
                                               ==============    ===============    ==============    ================
</TABLE>

       At December 31, 1998 and 1997,  all trading  securities are classified as
       short-term  and  all  available-for-sale  securities  are  classified  as
       long-term.

       Other  comprehensive  loss in 1998 consists of an  unrealized  loss on
       available-for-sale securities of $148,023.

       Certain  Industrial Revenue Bonds (IRBs) which were secured by a Days Inn
       hotel located in Birmingham,  Alabama,  were called at par on February 1,
       1997.  Investment  income in 1997  includes a realized  gain of  $455,128
       resulting from the call of the IRBs. Other  comprehensive  income in 1997
       includes an equal amount of loss relating to the corresponding  change in
       unrealized holding gain.

       Equity  securities  are primarily  concentrated  in  hospitality  related
       companies.

       Proceeds  from  the  sale  of  trading  securities  were  $3,000,000  and
       $2,600,000 in 1998 and 1997, respectively.  Net realized gross gains were
       calculated on a specific  identification basis and included in investment
       income in 1998 were $37,260 and in 1997 were $146,527.




<PAGE>


(5)    Notes Receivable

       Notes receivable at December 31, 1998 and 1997 consist of the following:
<TABLE>
<S>                                               <C>              <C>               <C>    

                                                                        1998
                                                 ----------------------------------------------------
                                                                       Other
                                                   Secured             notes              Total
                                                 -------------     --------------    ----------------

             Principal                       $     2,652,398            787,331          3,439,729
             Less allowances                         284,071             92,080            376,151
                                                 -------------     --------------    ----------------
                                                   2,368,327            695,251          3,063,578
             Less current portions                   121,495            245,522            367,017
                                                 -------------     --------------    ----------------

             Noncurrent portions             $     2,246,832            449,729          2,696,561
                                                 =============     ==============    ================

             Number of notes                          14                10                 24
                                                 =============     ==============    ================

                                                                        1997
                                                 ----------------------------------------------------
                                                                      Other
                                                   Secured            notes               Total
                                                 -------------    ---------------    ----------------

             Principal                       $       232,048           920,653           1,152,701
             Less allowances                          40,856            17,018              57,874
                                                 -------------    ---------------    ----------------
                                                     191,192           903,635           1,094,827
             Less current portions                   191,192           179,328             370,520
                                                 -------------    ---------------    ----------------

             Noncurrent portions             $            --           724,307             724,307
                                                 =============    ===============    ================

             Number of notes                          4                 9                  13
                                                 =============    ===============    ================
</TABLE>

       The  secured  notes are  primarily  collateralized  by  mortgages  and
       leasehold interests on hotel properties.

       The recorded  investment in impaired notes receivable has been recognized
       as of December 31, 1998 and 1997 was  approximately  $17,080 and $17,018,
       respectively,  and the Company has fully  reserved for these notes.  Cash
       received in payment of impaired  loans  during 1998 and 1997  amounted to
       $9,938 and $806,199, respectively, and is included in other income in the
       accompanying consolidated statements of income.



<PAGE>


          The activity in the allowance for doubtful  notes  receivable  for the
          years ended December 31, 1998 and 1997 was as follows:
<TABLE>

                                                                                 1998              1997
                                                                             -------------     -------------
<S>                                                                            <C>               <C>    
             Allowance for doubtful notes receivable at                   $      57,874          1,441,810
                 beginning of year
             Allowances recorded in connection with leasehold
                 interest sales (note 7)                                        350,215                 --
             Allowance allocated to impaired notes acquired in
                 business combination                                                --             41,196
             Write-downs charged against the allowance                          (22,000)          (618,933)
             Collections on impaired notes                                       (9,938)          (806,199)
                                                                             -------------     -------------

             Allowance for doubtful notes receivable
                 at end of year                                           $     376,151             57,874
                                                                             =============     =============


(6)    Property and Equipment

       Property  and  equipment  at December  31,  1998 and 1997  consist of the
following:

                                                                                  1998                1997
                                                                             ----------------    ----------------

             Hotel properties:
                 Country Hearth Inn in Atlanta, Georgia:
                   Land and building                                      $     3,913,680           3,910,363
                   Furniture, fixtures, and equipment                             385,931              61,240
                                                                             ----------------    ----------------
                                                                                4,299,611           3,971,603
                   Accumulated depreciation                                      (265,969)           (137,550)
                                                                             ----------------    ----------------
                                                                                4,033,642           3,834,053
                                                                             ----------------    ----------------

                 Country Hearth Inn in Dalton, Georgia:
                   Land and building                                            1,965,977           1,952,639
                   Furniture, fixtures, and equipment                             352,158             300,660
                                                                             ----------------    ----------------
                                                                                2,318,135           2,253,299
                   Accumulated depreciation                                      (161,967)            (72,686)
                                                                             ----------------    ----------------
                                                                                2,156,168           2,180,613
                                                                             ----------------    ----------------

                 Country Hearth Inn in Orlando, Florida:
                   Land and building                                            6,978,578           6,932,578
                   Furniture, fixtures, and equipment                             967,181             933,259
                                                                             ----------------    ----------------
                                                                                7,945,759           7,865,837
                   Accumulated depreciation                                    (1,564,040)         (1,319,416)
                                                                             ----------------    ----------------
                                                                                6,381,719           6,546,421
                                                                             ----------------    ----------------



<PAGE>



                                                                                  1998                1997
                                                                             ----------------    ----------------

                 Three Country Hearth Inns in southeastern
                   Texas:
                     Land and buildings                                   $      3,033,000           3,033,000
                     Furniture, fixtures, and equipment                            645,398             537,995
                                                                             ----------------    ----------------
                                                                                 3,678,398           3,570,995
                     Accumulated depreciation                                     (474,500)           (318,500)
                                                                             ----------------    ----------------
                                                                                 3,203,898           3,252,495
                                                                             ----------------    ----------------

                 Country Hearth Inns in Kentucky and Missouri  
                  (nine in 1998 and eight in 1997):
                     Land and buildings                                         11,373,223           9,744,326
                     Furniture, fixtures, and equipment                          1,562,165           1,363,557
                                                                             ----------------    ----------------
                                                                                12,935,388          11,107,883
                     Accumulated depreciation                                     (523,826)           (129,000)
                                                                             ----------------    ----------------
                                                                                12,411,562          10,978,883
                                                                             ----------------    ----------------

                 Days Inn in Daytona, Florida:
                   Land and building                                             3,046,020           3,029,895
                   Furniture, fixtures, and equipment                              270,858             338,363
                   Capital lease assets                                             49,110              49,110
                                                                             ----------------    ----------------
                                                                                 3,365,988           3,417,368
                   Accumulated depreciation                                       (561,100)           (455,052)
                                                                             ----------------    ----------------
                                                                                 2,804,888           2,962,316
                                                                             ----------------    ----------------

                 Extended-stay facility in St. Louis, Missouri:
                   Land and building                                             3,393,244           3,382,966
                   Furniture, fixtures, and equipment                              126,863             111,785
                                                                             ----------------    ----------------
                                                                                 3,520,107           3,494,751
                   Accumulated depreciation                                       (143,270)            (53,457)
                                                                             ----------------    ----------------
                                                                                 3,376,837           3,441,294
                                                                             ----------------    ----------------

                 Travelodge in Coshocton, Ohio:
                   Land and building                                               944,459                   --
                   Furniture, fixtures, and equipment                               29,212                   --
                                                                             ----------------    ----------------
                                                                                   973,671                   --
                   Accumulated depreciation                                        (13,154)                  --
                                                                             ----------------    ----------------
                                                                                   960,517                   --
                                                                             ----------------    ----------------
                 Best Western in Norcross, Georgia:
                   Land and building                                             3,861,899                   --
                   Furniture, fixtures, and equipment                              188,762                   --
                                                                             ----------------    ----------------
                                                                                 4,050,661                   --
                   Accumulated depreciation                                        (82,991)                  --
                                                                             ----------------    ----------------
                                                                                 3,967,670                   --
                                                                             ----------------    ----------------


<PAGE>



                                                                                  1998                1997
                                                                             ----------------    ----------------

             Leasedhotel  properties in the Midwest (eight in 1998 and seventeen
                   in 1997):
                     Leasehold improvements                               $      1,083,967             383,837
                     Furniture, fixtures, and equipment                            779,322             257,202
                     Capital lease assets                                           20,174             156,268
                                                                             ----------------    ----------------
                                                                                 1,883,463             797,307
                     Accumulated depreciation                                     (165,195)            (95,892)
                                                                             ----------------    ----------------
                                                                                 1,718,268             701,415
                                                                             ----------------    ----------------

             Construction-in-progress                                            1,001,213                   --
                                                                             ----------------    ----------------

             Corporate offices:
                 Leasehold improvements                                             60,985              60,985
                 Furniture, fixtures, and equipment                                122,352             145,539
                                                                             ----------------    ----------------
                                                                                   183,337             206,524
                 Accumulated depreciation                                         (107,850)            (79,239)
                                                                             ----------------    ----------------
                                                                                    75,487             127,285
                                                                             ----------------    ----------------

             Land held for sale                                                    214,198             250,889
                                                                             ----------------    ----------------

                        Total property and equipment                      $     42,306,067          34,275,664
                                                                             ================    ================
</TABLE>

       In May 1997,  the Company  acquired  Lodge Keeper of Prospect,  Ohio. The
       purchase price totaled approximately $6.3 million consisting primarily of
       cash of $825,000,  106,320 shares of common stock of the Company, and the
       assumption of  approximately  $4.8 million of debt (note 8). Lodge Keeper
       operated 18 hotels  under  long-term  leases  (note 7),  held  management
       contracts  on six Country  Hearth Inn hotels,  and owned one  independent
       hotel,  among  other  assets.  The  acquisition  was  recorded  using the
       purchase  method of accounting and Lodge  Keeper's  results of operations
       are included in the Company's  financial  statements from the acquisition
       date.

       In September 1997, the Company acquired  Hatfield Inns, LLC ("Hatfield").
       The purchase price totaled approximately $11 million consisting primarily
       of cash and  payables  of $1.5  million,  $3 million of  preferred  stock
       issued by the Company  (note 10),  and the  assumption  or  placement  of
       approximately $6.5 million of debt (note 8). Hatfield owned eight 40-unit
       hotel  properties  located in  Kentucky  and  Missouri.  The  Company has
       converted all eight  properties  into Country  Hearth Inns and intends to
       use the plans and design  rights which were also  acquired to develop and
       construct additional  properties.  The acquisition was recorded using the
       purchase  method of accounting and  Hatfield's  results of operations are
       included in the Company's financial statements from the acquisition date.

       In May 1998, the Company  acquired a 121-room hotel in Norcross,  Georgia
       (the "Norcross Hotel"). The hotel is operated as a Best  Western-Bradbury
       Suites.  The purchase price totaled  approximately $4 million  consisting
       primarily  of  cash  and  payables  of  $200,000  and the  assumption  of
       approximately  $3.8  million of debt (note 8). The  acquisition  has been
       recorded using the purchase method of accounting and the Norcross Hotel's
       results of operations are included in the Company's financial  statements
       from the acquisition date.



<PAGE>


       In  September  1998,  the Company  acquired a 50-room  hotel  property in
       Coshocton,  Ohio for  approximately  $725,000.  The  property is operated
       under a Travelodge license  agreement.  The Company had previously held a
       leasehold  interest  in the  property  as a result  of the  Lodge  Keeper
       acquisition. The Company's basis in the property reflected above includes
       the  purchase  price  and the  Company's  former  basis in the  leasehold
       interest of  approximately  $210,000.  The  property is  encumbered  by a
       mortgage loan (note 8).

       All of the above described  business and hotel acquisitions were recorded
       using the purchase method of accounting. The following table presents, on
       an unaudited pro forma basis,  the Company's  1998 and 1997  consolidated
       revenues,  net  income,  and net  income  per share  that would have been
       reported if all of these  transactions  had occurred at the  beginning of
       the  periods   presented.   The  unaudited  pro  forma  results  are  not
       necessarily indicative of the results which will occur in the future.

                                                   For the years ended
                                                       December 31,
                                            -----------------------------------
                                                1998                1997
                                            --------------     ----------------

          Revenues                          $  29,173,409         24,991,570
          Net income                            1,182,337          3,699,857
          Basic net income per share             .46                 1.83
          Diluted net income per share           .45                 1.57

     All of the  Company's  other owned hotel  properties  were acquired in 1993
     through 1998 and are encumbered by mortgage loans (note 8).

     In 1997,  the  Company  recognized  a gain of  $289,300  as a result of the
     taking of a parcel of land by the  Commonwealth  of Virginia  under eminent
     domain statutes. Compensation proceeds of $348,000 are included in accounts
     receivable in the accompanying  consolidated balance sheets at December 31,
     1998 and 1997 and were received during 1999.


(7)  Deferred Costs, Leasehold Interests, and Other Assets

     Deferred costs at December 31, 1998 and 1997 consist of the following:

                                                    1998              1997 
                                                ---------------    -------------
     Country Hearth Inn franchise system:       
         Trademark rights                       $  584,300            584,300
         Franchise licenses                        939,778            939,778   
         Other deferred costs                      163,549            162,338   
                                                -------------    -------------
                                                 1,687,627          1,686,416   
         Accumulated amortization                (470,333)          (350,334)  
                                                -------------    -------------  
                                                 1,217,294          1,336,082   
     Unamortized notes payable issuance costs      674,901            597,071   
                                                ---------------    -------------
                                                                                
                                                $1,892,195          1,933,153   
                                                ===============    =============
                                                 

<PAGE>


       Leasehold  interests  represent  the  cost of  leasehold  rights  in real
       property acquired by the Company and consist of the following at December
       31, 1998 and 1997:

                                                     1998              1997
                                                ---------------    -------------

             Leasehold interests             $     3,431,867         2,927,409
             Accumulated amortization               (238,928)          (87,922)
                                                ---------------    -------------

                                             $     3,192,939         2,839,487
                                                ===============    =============

       During  1998,  the  Company  sold  eight  leasehold  interests  in  hotel
       properties  which had been acquired in conjunction  with the Lodge Keeper
       acquisition.  The Company received net proceeds of approximately $990,000
       in cash and  $1,655,000 in notes  receivable.  The notes  receivable  are
       secured  by  the  related  leasehold  interests.   The  Company  recorded
       approximately  $1.6 million in gains in connection with these sales.  The
       Company remains  contingently  liable for rent payments due in accordance
       with the leases on certain of the properties (note 9).

       In June 1998, the Company entered into leases for seven hotel  properties
       owned by Host Funding, Inc. The hotel properties are operated under Super
       8(4)  and  Sleep  Inn  (3)  license  agreements.  All of the  leases  are
       accounted   for  as   operating   leases   (note  9).  The  Company  paid
       approximately  $500,000 in cash, $400,000 in common stock and $400,000 in
       notes payable for the leasehold interests. In addition to the leases, the
       Company  received  $288,000  of Host  Funding,  Inc.  common  stock;  the
       remainder of the acquisition fee was allocated to leasehold interests.

       Other assets at December 31, 1998 and 1997 consist of the following:
<TABLE>

                                                                    1998              1997
<S>                                                         <C>                  <C>    
                                                                -------------    -------------

             Contract deposits                               $         --            68,677
             Investments in joint ventures/partnerships         1,159,662         1,135,269
             Other                                                     --            23,841
                                                                -------------    -------------

                                                             $    1,159,662       1,227,787
                                                                =============    =============
</TABLE>

       Investments in joint ventures/partnerships consists of investments in six
       entities,  each of  which  owns a  single  hotel  property.  The  Company
       accounts for its interests on the equity method and recognized  aggregate
       losses from these entities of $124,480 and $125,487 during 1998 and 1997,
       respectively.




<PAGE>


(8)    Notes Payable

       Notes payable at December 31, 1998 and 1997 consist of the following:

 <TABLE>
                                                                                1998               1997
                                                                             ----------------    --------------
<S>          <C>                                                               <C>                  <C>    

             First mortgage note payable (Atlanta)                        $      2,087,394           2,131,037
             First and second mortgage notes payable (Dalton)                    1,263,144           1,289,924
             First mortgage note payable (Orlando)                               4,436,293           4,518,726
             First mortgage note payable (Texas)                                 2,253,045           2,305,258
             First and second mortgage notes payable
                 (Kentucky/ Missouri)                                            8,003,311           6,849,939
             First mortgage notes payable (Daytona)                              2,288,917           2,088,599
             First mortgage note payable (St. Louis)                             1,753,000           1,786,268
             First mortgage note payable (Coshocton)                               699,200                  --
             First mortgage note payable (Norcross)                              3,776,924                  --
             Construction loans (Kentucky)                                         592,482              23,391
             Unsecured subordinated debt                                         2,034,011           2,232,258
             Convertible debentures, net of unamortized discount                 4,920,555           4,900,555
             Other notes payable                                                   448,132             314,070
             Capital lease obligations (note 9)                                     52,021             142,083
                                                                             ----------------    --------------
                                                                                34,608,429          28,582,108
             Less current portions                                               1,251,251             933,183
                                                                             ----------------    --------------

             Noncurrent portions of notes payable                         $     33,357,178          27,648,925
                                                                             ================    ==============
</TABLE>

       The Atlanta  first  mortgage note payable is secured by the Atlanta hotel
       property  (note 6). The note bears  interest  at 9.5%,  requires  monthly
       payments of $20,350, and matures in August 2016.

       The Dalton  first and second  mortgage  notes  payable are secured by the
       Dalton hotel  property  (note 6). The first  mortgage  note payable bears
       interest at 9.15% and  requires  monthly  payments of $9,549.  The second
       mortgage  note  payable  bears  interest  at 8.74% and  requires  monthly
       payments of $2,313. Both notes mature in September 2001.

       The Orlando  first  mortgage note payable is secured by the Orlando hotel
       property  (note 6). The note bears  interest at 9.55%,  requires  monthly
       payments of $43,028, and matures in December 2016.

       The Texas  first  mortgage  note  payable is  secured by the Texas  hotel
       properties (note 6). The note bears interest at 9.056%,  requires monthly
       payments of $21,680, and matures in December 2002.

       The Kentucky/Missouri first and second mortgage notes payable are secured
       by the hotels in Kentucky and Missouri  (note 6).  Three  mortgages  were
       refinanced  during  1998.  The three new mortgage  notes  payable with an
       aggregate December 31, 1998 balance of $2,567,999 bear interest at 8.25%,
       require  monthly  payments of $22,026,  and mature in September 2018. The
       remaining  notes bear  interest at prime plus 1% (8.75% at  December  31,
       1998),  require  aggregate  monthly  payments of  $33,531,  and mature at
       various  dates  (2000-2015).  Three notes with an aggregate  December 31,
       1998 balance of  $2,339,536  are  cross-collateralized,  bear interest at
       9.18%,  and require  aggregate  monthly payments of $21,826 and mature in
       October 2007.



<PAGE>


       The Daytona  first  mortgage  note was  refinanced  during 1998.  The new
       Daytona  first  mortgage  note  payable is secured by the  Daytona  hotel
       property  (note 6). The note bears  interest  at 8.5%,  requires  monthly
       payments of $19,960, and matures in October 2018.

       The St.  Louis first  mortgage  note  payable is secured by the St. Louis
       extended-stay  facility  (note  6).  The  note  bears  interest  at 8.5%,
       requires monthly payments of $13,178, and matures in February 2004.

       The  Coshocton  first  mortgage  note payable is secured by the Coshocton
       hotel  property  (note 6). The note  bears  interest  at 8.75%,  requires
       monthly payments of $7,009, and matures in December 2013.

       The Norcross first mortgage note payable is secured by the Norcross hotel
       property  (note 6). The note bears  interest at 8.75%,  requires  monthly
       payments of $32,911, and matures in February 2007.

       The  construction  loan with a December  31,  1998  balance  of  $592,482
       represents draws made towards the construction of a Country Hearth Inn in
       Eddyville, Kentucky; the Company entered into a construction loan secured
       by the hotel  property  under  construction  with a total  commitment  of
       $1,000,000.  Borrowings  under  the loan  bear  interest  at  9.25%  with
       required monthly interest only payments until maturity in December 2001.

       The unsecured subordinated debt consists of five notes assumed as part of
       the  Lodge  Keeper  acquisition  (note 6).  The notes are due in  varying
       amounts of monthly and  quarterly  payments  and mature at various  dates
       through December 2002. The stated balances represent the present value of
       amounts to be paid at a  discount  rate of 9%. Two of the five notes were
       paid in full in 1998.

       The convertible debentures, which were issued to investment funds managed
       by  a  related  party  (note  14),  consist  of  four  notes  aggregating
       $5,000,000 net of unamortized  original issue discount of $79,445 in 1998
       and  $99,445 in 1997.  The notes  bear  interest  at 8%,  are  unsecured,
       require  quarterly  interest only payments,  and mature in December 2002.
       Under the debenture  agreements,  the holders also have certain rights of
       conversion (note 10).

       The combined  aggregate  amount of  maturities  for all notes payable for
       each of the next five years and thereafter is as follows:

              Year ending December 31,
              ---------------------------------

                           1999                 $   1,251,251
                           2000                     2,176,592
                           2001                     3,914,935
                           2002                     8,284,103
                           2003                       670,689
                           Thereafter              18,310,859
                                                  -------------

                                                $  34,608,429
                                                  =============


(9)    Leases

       The Company leases certain equipment under agreements that are classified
       as capital  leases.  The leases have terms  ranging from two to six years
       and have purchase options at the end of the original lease terms.



<PAGE>


     Capital  lease assets  included in property  and  equipment at December 31,
     1998 and 1997 are as follows:

                                              1998           1997
                                           -----------    -----------

           Equipment                   $      69,284        205,378
           Accumulated amortization          (14,830)       (20,836)
                                           -----------    -----------

                                       $      54,454        184,542
                                           ===========    ===========

       The Company operates several of its locations in leased facilities. Lease
       terms range from 10 to 30 years with  options to renew at varying  terms.
       Certain  of the  leases  provide  for  contingent  payments  based upon a
       percent of sales.  Some leased  vehicles and equipment are  classified as
       operating leases.

       Future  minimum   payments,   by  year  and  in  the   aggregate,   under
       noncancelable  capital  leases  and  operating  leases  with  initial  or
       remaining  terms of one year or more consist of the following at December
       31, 1998:
<TABLE>
<CAPTION>

                Year ending                                     Capital           Operating
                December 31,                                     leases            leases
                ------------                                 -------------     --------------
<S>             <C>                                               <C>             <C>   

                     1999                                  $       24,240          3,322,878
                     2000                                          19,818          3,297,347
                     2001                                          14,449          3,236,785
                     2002                                           9,632          3,188,304
                     2003                                              --          3,103,209
                     Subsequent years                                  --         25,673,393
                                                              -------------     --------------

                           Total minimum lease payments            68,139         41,821,916
                                                                                ==============

                Less estimated executory costs                      3,189
                                                              -------------
                Net minimum lease payments                         64,950

                Amounts representing interest                     (12,929)
                                                              -------------
                Present value of net minimum payments              52,021

                Current portions                                   16,935
                                                              -------------

                Long-term capitalized lease obligation     $       35,086
                                                              =============
</TABLE>

       Rental  expense,  including  contingent  rentals of  $230,376 in 1998 and
       $109,489  in 1997 and net of  sublease  rentals  of  $80,129  in 1998 and
       $84,741 in 1997,  for all  operating  leases was  $3,300,307  in 1998 and
       $1,356,003 in 1997.

       Leases described in the preceding  paragraphs  include leases between the
       Company  and   operating   companies   whose   shareholders   are  common
       shareholders  of the Company.  Such amounts  totaled  $69,984 in 1998 and
       $33,475 in 1997.  Total future minimum payments under these related party
       leases amount to $227,455.



<PAGE>


       The  Company  remains  contingently  liable  for  future  minimum  rental
       payments  of  $2,162,418  on sold  leasehold  interests  (note  7) and on
       subleased and assigned  properties  and equipment in the event of default
       by the purchasers, sublessees and assignees.


(10)   Capital Structure and Net Income Per Share

       Series A Preferred Stock

       In connection with the Hatfield  acquisition (note 6), the Company issued
       30,000 shares of Series A (par value $100) preferred  stock. The Series A
       preferred stock is nonvoting and accrues cumulative dividends at the rate
       of  10%  per  annum,  payable  when  and to the  extent  declared  by the
       Company's  Board of  Directors.  All accrued but unpaid  dividends of the
       Series A preferred  stock must be paid in full  before any cash  dividend
       may be declared on the Company's  common stock.  As of December 31, 1998,
       there  was one month  ($25,000)  of  cumulative  preferred  dividends  in
       arrears. Such amount is included in accounts payable and accrued expenses
       on the December 31, 1998 consolidated balance sheet.

       In the event of any voluntary or involuntary liquidation, dissolution, or
       winding-up  of the Company,  the holders of the Series A preferred  stock
       shall be entitled to receive, prior and in preference to any distribution
       to the holders of the Company's  common stock, an amount equal to the par
       value of the preferred shares held plus any unpaid cumulative dividends.

       At any time after  September 17, 2004,  each holder of Series A preferred
       stock may convert any or all such stock,  at par,  into common  shares of
       the Company.  The  conversion  price for such common  shares shall be the
       market price of such shares immediately prior to conversion.

       At any time after  September 17, 2004, the Company may convert all of the
       Series A  preferred  stock,  at 110% of par,  into  common  shares of the
       Company.  The conversion price for such common shares shall be the market
       price of such  shares  immediately  prior to  conversion.  If the Company
       converts the Series A preferred  stock into common shares of the Company,
       the holders of such  converted  shares have certain  rights for a limited
       time period to put the shares back to the Company for cash.

       Convertible Debentures

       The convertible debentures (note 8) are convertible into common shares of
       the  Company  any time at the  option of the  holder at a price of $9 per
       share.  If all such  debentures  were  converted,  an additional  555,555
       shares of common stock would be issued.



<PAGE>


       Net Income Per Share

       The following table sets forth the  computations of basic and diluted net
       income per common share for the years ended December 31, 1998 and 1997:

<TABLE>
                                                                                     1998               1997
                                                                                     ----               ----
<S>        <C>                                                                     <C>               <C>    
            Numerator:
              Net income                                                       $    1,235,495         3,173,612
              Less Series A preferred stock dividends                                (300,000)          (92,333)
                                                                                  --------------    --------------
              Numerator for basic net income per common shares                        935,495         3,081,279
              Add back debenture interest, net of tax (assumed
                 converted)                                                           248,000                --
              Add back Series A preferred stock dividends
                 (assumed converted)                                                       --            92,333
                                                                                  --------------    --------------

            Numerator for diluted net income per common shares                $     1,183,495         3,173,612
                                                                                  ==============    ==============

            Denominator:
              Denominator for basic net income per common share:
                 Actual weighted-average shares outstanding                         1,926,511         1,844,098
                 Effect of dilutive securities:
                   Series A preferred stock                                                --           122,178
                   Convertible debentures                                             555,555                --
                   Outstanding stock options                                           45,852            63,470
                                                                                  --------------    --------------

              Denominator for diluted net income per common share                   2,527,918         2,029,746
                                                                                  ==============    ==============

            Net income per common share:
              Basic                                                                $   0.48           $ 1.67
                                                                                       ====             ====

              Diluted                                                              $   0.47           $ 1.56
                                                                                       ====             ====
</TABLE>

       The assumed  conversion of the  convertible  preferred stock was excluded
       from the  computation  of diluted  net  income  per common  share in 1998
       because the effect would be antidilutive.  The assumed  conversion of the
       convertible  debentures was excluded from the  computation of diluted net
       income per common share in 1997 because the effect would be antidilutive.


(11)   Other Income

       Other income is presented net of minority interest in partnership income,
       $250,015 and $121,154 in 1998 and 1997, respectively, and equity in joint
       venture  losses  (note  7).  Other  income  includes  $9,938  in 1998 and
       $806,199 in 1997  relating  to  collections  on impaired  loans (note 5),
       hotel  management  fees  of  $224,454  and  $254,954  in 1998  and  1997,
       respectively,  and $510,000 and $330,540 in 1998 and 1997,  respectively,
       from  favorable  settlements  of Days  Bankruptcy  claims and  changes in
       estimates of allowed amounts of remaining unsettled claims (note 3).



<PAGE>


(12)   Income Taxes

       Total income tax benefit,  principally  Federal,  recognized differs from
       the amount  computed by applying the U.S.  Federal income tax rate of 34%
       to pretax income as a result of the following:

<TABLE>
                                                                                 1998                1997
                                                                             --------------     ---------------
<S>                                                                             <C>                <C>    
             Computed "expected" tax expense                              $        114,000             83,000
             Increase (reduction) in income taxes resulting from:
                 State taxes, net of Federal tax benefit                            13,000              7,000
                 Reduction in valuation allowance for deferred
                   tax assets                                                   (1,028,000)        (3,020,000)
                                                                             ----------------    ---------------

                                                                          $       (901,000)        (2,930,000)
                                                                             ================    ===============

       At December 31, 1998,  the Company has net operating  loss  carryforwards
       for Federal  income tax purposes of  approximately  $14 million  which is
       available to offset future  taxable  income,  if any, and expire at dates
       from 2006 through 2018.

       The tax effects of temporary  differences  that give rise to  significant
       portions of deferred tax assets and  liabilities  as of December 31, 1998
       and 1997 are presented below:

                                                                                  1998                1997
                                                                             ----------------    ---------------

             Deferred tax assets:
                 Notes receivable allowances                              $       128,000              20,000
                 Net operating loss carryforwards                               4,602,000           4,908,000
                 Effect of state income taxes                                     421,000             412,000
                                                                             ----------------    ---------------
                        Total deferred tax assets                               5,151,000           5,340,000

                 Less valuation allowance                                         (62,000)         (1,090,000)
                                                                             ----------------    ---------------
                        Deferred tax assets                                     5,089,000           4,250,000
                                                                             ----------------    ---------------

             Deferred tax liabilities:
                 Partnership losses                                               (30,000)             (1,000)
                 Property and equipment basis differences                      (1,228,000)         (1,319,000)
                                                                             ----------------    ---------------
                        Gross deferred tax liabilities                         (1,258,000)         (1,320,000)
                                                                             ----------------    ---------------
                                                                             
                        Net deferred tax assets                           $     3,831,000           2,930,000
                                                                             ================    ===============
</TABLE>

       The  valuation  allowance for deferred tax assets as of December 31, 1998
       and 1997 was $62,000 and $1,090,000, respectively. The net changes in the
       total valuation  allowance for the years ended December 31, 1998 and 1997
       were decreases of $1,028,000 and $3,950,000, respectively.  Approximately
       $930,000  of  the  1997  decrease  was   attributable   to  the  Hatfield
       acquisition (note 6) - (see below).



<PAGE>


       In  assessing  the  realizability  of  deferred  tax  assets,  management
       considers  whether it is more likely than not that some portion or all of
       the deferred tax assets will not be realized. The ultimate realization of
       deferred tax assets is dependent  upon the  generation of future  taxable
       income  by the  Company  during  the  periods  in which  those  temporary
       differences become deductible.  Management considers the projected future
       taxable income and tax planning  strategies in determining  the valuation
       allowance.

       The Hatfield  acquisition  (note 6) was structured as a tax-free  merger;
       thus, the Company's tax basis in the assets  acquired were not stepped-up
       to fair market value.  The  resulting  deferred tax liability was offset,
       however,  by a reduction in the  Company's  deferred tax asset  valuation
       allowance of $930,000.

       The Lodge Keeper acquisition was similarly  structured;  thus, there were
       deferred tax liabilities relating to differences in book and tax bases of
       the assets acquired.  Lodge Keeper, however, had NOLs available to offset
       such  built-in  gains;  thus,  no net  deferred tax impact from the Lodge
       Keeper acquisition was recognized by the Company.

       In evaluating the impact of the above events in  conjunction  with recent
       trends in the Company's operations,  specifically franchising activities,
       hotel management,  and hotel development and sales, management determined
       that it was more likely  than not that the  results of future  operations
       would  generate  sufficient  taxable  income to  realize a portion of the
       deferred tax assets. Such determination was made in the fourth quarter of
       1997,  resulting in the  recognition of a $2,930,000  deferred income tax
       benefit.  Similarly in 1998, based on actual events and other information
       available,  it appeared more likely than not that additional  portions of
       the deferred tax assets would be realized and the Company  recognized  an
       additional net deferred tax asset of $901,000. Although no assurances can
       be made, realization of the Company's deferred tax assets should occur if
       the Company  generates  approximately  $14 million of taxable income over
       the next 8 to 20 years.


(13)   Stock Option Plan

       The  Company's  1995 Stock  Option  Plan (the 1995 Plan)  authorized  the
       issuance  of options  for up to 170,000  shares of the  Company's  common
       stock.  The Company's  1997 Stock Option Plan (the 1997 Plan)  authorized
       the issuance of options for up to 80,000 shares of the  Company's  common
       stock.  The Company's  1998 Stock Option Plan (the 1998 Plan)  authorized
       the issuance of options for up to 90,000 shares of the  Company's  common
       stock. Granted options vest one-third immediately, one-third on the first
       anniversary of the grant date, and one-third on the second anniversary of
       the grant date.  The exercise  price for all options  represents the fair
       value of the  common  stock at the  grant  date.  All 1995  Plan  options
       terminate five years after vesting,  or earlier under certain conditions.
       All 1998 and 1997 Plan  options  terminate  ten years after  vesting,  or
       earlier under certain conditions.



<PAGE>


       The granted stock option activity is as follows:

                                         Number               Weighted-average
                                         of shares             exercise price
                                         --------------    --------------------

             Balance December 31, 1996      156,000           $    4.25
                 Granted in 1997             77,000                6.88
                 Exercised in 1997          (25,333)               3.85
                 Forfeited in 1997           (1,667)               5.38
                                         --------------            ----
                                         
             Balance December 31, 1997      206,000                5.27

                 Granted in 1998             90,000                7.37
                                         --------------            ----
                                        
             Balance December 31, 1998      296,000           $    5.91
                                         ==============            ====
                                         

       The  following  table  summarizes  information  concerning  stock options
outstanding as of December 31, 1998:
<TABLE>
<CAPTION>

                                                   Outstanding                                 Exercisable
                                ---------------------------------------------------    -----------------------------
                                                  Weighted-          Weighted-                          Weighted-
              Range of                             average            average                            average
              exercise                            remaining           exercise                          exercise
               prices             Shares            life               price             Shares           price
          -----------------     -----------     --------------    -----------------    -----------    --------------
<S>        <C>                   <C>             <C>                <C>                 <C>              <C>

              $  3.44              80,000          2.3 years        $   3.44              80,000        $  3.44
           $  5.38 - 6.25          49,000          3.5 years            5.74              49,000           5.74
              $  6.88              77,000          9.5 years            6.88              51,333           6.88
              $  7.37              90,000         10.5 years            7.37              30,000           7.37
                                -----------                             ----            -----------
                                   296,000                           $  5.91             210,333
                                ===========                             ====            ===========
                                                                          
</TABLE>

       No  compensation  expense has been  recognized  for the  Company's  stock
       option plans. Had compensation  cost for the Company's stock option plans
       been determined  based upon the fair value  methodology  prescribed under
       SFAS No.  123,  the  Company's  net  income  would  have been  reduced by
       approximately  $151,000 or  approximately  $0.08 per common share (basic)
       and $0.06 per common share (diluted) in 1998 and reduced by approximately
       $73,000,  or approximately $0.04 per common share (basic and dilutive) in
       1997. The effects of either  recognizing or disclosing  compensation cost
       under SFAS No. 123 may not be  representative  of the effects on reported
       net income for future years. The fair value of the options granted during
       1998 is  estimated  as $2.31 on the date of grant using the  Black-Sholes
       option-pricing model with the following  assumptions:  dividend yield 0%,
       volatility of 20%,  risk-free interest rate of 6.0%, and an expected life
       of five years. The fair value of options granted during 1997 is estimated
       as $2.16 on the date of grant using the Black-Sholes option-pricing model
       with the  following  assumptions:  dividend  yield  0%,  volatility  20%,
       risk-free interest rate of 6.0%, and an expected life of five years.



<PAGE>


                                                              

(14)   Related Party Transactions

       Following the Days Bankruptcy, a trust was created (the Creditors' Trust)
       to pursue  certain  claims for the benefit of  unsecured  creditors.  The
       Company  acts as  trustee  for the  Creditors'  Trust.  The  Company  was
       reimbursed $100,000 in 1998 and 1997 for expenses incurred related to the
       Creditors'  Trust.  Other  operating and  administrative  expenses in the
       accompanying  1998  and  1997  consolidated   statements  of  income  are
       presented net of such amounts.

       The  Company  performed  accounting  and tax  services  for the  Days Inn
       Mortgage  Trust,  a  special-purpose  CMO  Trust.  Other  income  in 1997
       includes $60,000 for the performance of such services.

       Other notes  receivable  (note 5) at December 31, 1998 and 1997  includes
       $187,583 and $230,221,  respectively, due from an officer and shareholder
       of the Company.  Such note was  originated in  connection  with the Lodge
       Keeper  acquisition,  bears  interest  at  10%,  and is  due  in  monthly
       installments of $5,312 until June 2002.

       The  convertible  debentures  (notes 8 and 10) were issued to  investment
       funds managed by a subsidiary of Bay Harbour  Management,  formerly known
       as Tower  Investment  Group,  Inc.  (Bay  Harbour).  Bay Harbour  owns or
       controls  approximately 26% of the Company's outstanding common stock. An
       executive officer of Bay Harbour is on the Company's Board of Directors.


(15)   Commitments

       In  conjunction  with master  development  agreements  executed  with two
       developers,  the Company is required  to advance  certain  amounts to the
       developers at certain points in the construction of the properties. Under
       an agreement  executed with Marion and Cass St.  Corporation  (Cassland),
       owned by a significant shareholder,  the Company is required to advance a
       total of $135,000 per property  constructed.  The agreement specifies the
       construction  of three  properties.  As of December 31, 1998, the Company
       had  advanced  Cassland a total of $315,000 and is required to advance an
       additional $90,000 once certain  construction  points are achieved on the
       third  property.  These  advances are recorded as notes  receivable  with
       interest accruing at a rate of 8% per annum.

       The master  development  agreement  entered into with H&W Ventures,  Inc.
       (H&W) requires the Company to advance H&W a total of $75,000 per property
       developed. The agreement calls for a maximum of five properties.  For the
       first two  properties,  the advances are required once H&W purchases land
       and  executes  the  related  license  agreements.   For  the  last  three
       properties, the advances are made once a property is opened in accordance
       with the license agreement.




Item  8.  Changes  In and  Disagreements  with  Accountants  on  Accounting  and
Financial Disclosure.

     None.


<PAGE>


PART  III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.

DIRECTORS AND EXECUTIVE OFFICERS

         The directors and executive officers of the Company are as follows:
<TABLE>
<S>                      <C>       <C>                                         <C>   
                                                                               Year Joined
Name                      Age      Position                                    The Company
----                      ---      --------                                    -----------

Douglas C. Collins        46       Chairman of the Board of Directors            1992
                                   President, Chief Executive
                                   Officer and Treasurer

Robert B. Lee             44       Director                                      1992
                                   Senior Vice President, Chief
                                   Financial Officer and Secretary

Ronald L. Devine          55       Director                                      1997
                                   President - The Lodge Keeper Group

Gregory C. Plank         53        President - BAC Franchising, Inc.             1996

William K. Stern         72        Director                                      1992

Steven A. Van Dyke       40        Director                                      1997

David C. Glickman        36        Director                                      1999

David B. Mumford         40        Director                                      1999
</TABLE>


     Douglas C.  Collins.  Mr.  Collins  became  President  and Chief  Executive
Officer of the Company in December 1992, became a director of the Company in May
1995 and became  Chairman  of the Board of  Directors  in March  1999.  Prior to
joining the Company,  Mr. Collins served as President of Days Inns from February
1992  through  September  1992 and  Director  of Days Inns from  September  1992
through  November  1992.  Mr.  Collins served as Senior Vice President and Chief
Financial  Officer of Days Inns from August 1990 through  February  1992,  after
serving as President  of Imperial  Hotels  Corporation,  a hotel chain owner and
operator,  from April 1988 until May 1990. Mr. Collins  joined  Imperial  Hotels
Corporation in August 1980, serving as Vice President of Finance and Development
from June 1984 to April 1988.

     Robert B. Lee. Mr. Lee became Secretary of the Company in December 1992 and
became Vice  President  and Chief  Financial  Officer in July 1993.  Mr. Lee was
named  Senior  Vice  President  of Buckhead in May 1996 and became a director in
June  1997.  Prior to joining  the  Company,  Mr.  Lee  served as the  Corporate
Controller of Days Inns from October 1990 until December 1992. Prior to that, he
functioned in numerous  capacities up to senior  manager in the  accounting  and
audit practice of KPMG from December 1979 to October 1990.

     Ronald L. Devine.  Mr. Devine was the President and Chief Executive Officer
of The Lodge Keeper Group, Inc. ("Lodge Keeper") prior to its acquisition by the
Company  and  served in that  capacity  for more than the last five  years.  Mr.
Devine  continues  to serve as  President  of Lodge  Keeper and is an  executive
officer of the  Company.  Mr.  Devine  became a director of the Company in March
1999.

     Gregory C. Plank. Mr. Plank became President of BAC Franchising,  Inc., the
Company's Country Hearth Inn franchising  subsidiary,  in May 1996. From 1991 to
1996,  Mr. Plank  served as  Executive  Vice  President  of Forte  Hotels,  Inc.
overseeing  Travelodge and  Thriftlodge  in North and South  America.  Mr. Plank
previously  served as Vice  President of Marketing  for Ramada and has held Vice
President  positions in development  and operations for Sheraton Inns,  Hawthorn
Suites, and independent developers.

     William K. Stern.  Mr.  Stern  became a director of the Company in December
1992.  He has over forty years of  experience in the  hospitality  industry.  He
served  as  Vice   President   of  Loews   Hotels  and  as  President  of  Loews
Representation International, Inc. ("LRI"), a separate division of Loews Hotels.
In 1987,  Mr.  Stern  established  "The Grande  Collection  of Hotels," a deluxe
division of LRI.  Mr.  Stern also served as the Chief  Executive  Officer of the
Grande  Collection  division.  Mr.  Stern has been the  owner of Stern  Services
International, a hotel consulting company, since 1992.

     Steven A. Van Dyke.  Mr. Van Dyke  became a director of the Company in June
1997. He is the President and Chief Executive Officer of Bay Harbour Management,
L.C. ("Bay  Harbour"),  formerly known as Tower Investment  Group,  Inc. and has
served  in that  capacity  for  more  than  the  last  five  years.  Tower is an
investment  advisor  and manages  multimillion  dollar  private  equity and debt
funds.

     David C. Glickman.  Mr.  Glickman became a director of the Company in March
1999. He is an Associate  Director with Bear Stearns & Co.,  Inc., an investment
banking firm, and has served in that capacity for more than the last five years.

     David B.  Mumford.  Mr.  Mumford  became a director of the Company in March
1999. He is the  president of Mumford  Company,  Inc., a national  leader in the
brokerage  of hotel real estate,  and has served in that  capacity for more than
the last five years.

     The members of the  Company's  Board of Directors  are elected  annually to
serve one year terms. Messrs.  Devine,  Glickman,  and Mumford were appointed to
the Board in March 1999 in order to fill a vacated  seat and to fill  additional
seats which were  concurrently  created.  The holders of Common Stock will elect
directors  at the next annual  meeting,  which is scheduled to occur on or about
Thursday, May 27, 1999.




<PAGE>


INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS

         None.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Based  solely on its review of copies of forms  received by it pursuant
to Section 16(a) of the Securities  Exchange Act of 1934, as amended, or written
representations from certain reporting persons, the Company believes that during
1998 all Section 16(a) filing requirements applicable to its executive officers,
directors  and greater than 10%  beneficial  owners were complied with except as
follows:

                                       Type and (#) of Reports       Number of
  Reporting Person                     Not Timely Filed in 1998     Transactions
  ----------------------               ------------------------     ------------

  Steven A. Van Dyke and                     Form 4  (6)                19

  Additional Reporting Persons:
       Douglas P. Teitelbaum
       Tower Investment Group, Inc.
       Bay Harbour Management, L.C.

         The Company  believes  that all required  filings were filed,  but that
those described above were not timely filed.





<PAGE>


Item 10.  Executive Compensation.

SUMMARY COMPENSATION TABLE

         The following table sets forth the compensation  paid by the Company to
the named  executive  officers for the years ended  December 31, 1998,  1997 and
1996. These are the only executive officers who received annual salary and bonus
in excess of $100,000 in 1998.
<TABLE>
<CAPTION>

                                                                                          Long Term
                                                                                       Compensation
                                                                                          Awards
                                                    Annual Compensation                  Securities        All Other     
Name and                                            Salary      Bonus                    Underlying        Compensa-
Principal Position                      Year         ($)         ($)                     Options (#)       tion ($)
--------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>         <C>         <C>                     <C>                <C>        
                                                                                                                      
Douglas C. Collins                      1998        $250,000    110,470                 18,000 (c)         $14,000 (d)
Chief Executive Officer                 1997         235,000     94,005                 16,000               1,500    
                                        1996         235,000     72,000                  7,000               4,750    
                                                                                                                      
Robert B. Lee                           1998         115,500     25,457                 12,000 (c)           9,000 (e)
Chief Financial Officer                 1997         105,000     31,502                  9,000               1,449    
                                        1996          98,600     22,292                  4,000               3,022    
                                                                                                                      
Gregory C. Plank                        1998         150,000     48,062                  9,000 (c)           6,500 (f)
President - Franchising                 1997         135,000     40,502                  6,000                  -     
                                        1996 (a)      81,000     24,111                 15,000              35,312    
                                                                                                                      
Ronald L. Devine                        1998         111,481     24,572                  9,000 (c)           5,000 (g)
President - Lodge Keeper                1997 (b)      70,240     21,005                  9,000                  -     
</TABLE>                                                                  

  (a) Mr. Plank's employment with the Company began on May 20, 1996.

  (b) Mr. Devine's employment with the Company began on May 8, 1997.

  (c) See "OPTION GRANTS TABLE."

  (d) Employer's  portion of 401(k)  contribution  ($4,000) and non-qualified
      deferred compensation plan ($10,000).

  (e) Employer's  portion of 401(k)  contribution  ($4,000) and non-qualified
      deferred compensation plan ($5,000).

  (f) Employer's  portion of 401(k)  contribution  ($4,000) and non-qualified
      deferred compensation plan ($2,500).

  (g) Employer's portion of non-qualified deferred compensation plan.


<PAGE>


OPTION GRANTS TABLE

         The  following  table sets  forth the number of shares of Common  Stock
underlying options granted to the named executive officers during the year ended
December 31, 1998. No stock appreciation rights were granted.
<TABLE>
<CAPTION>

                                           Individual Grants

                                 Number of            Percent of
                                 Shares of                 Total
                                 Common Stock            Options
                                 Underlying           Granted to            Exercise
                                 Options               Employees               Price               Expiration
Name                             Granted (#)      in Fiscal 1998          ($/Share)                  Date (g)
-------------------------------------------------------------------------------------------------------------
<S>                              <C>                 <C>                  <C>                    <C>         
                                                                                                             
Douglas C. Collins               6,000               8.3%                 $ 7.37 (f)             May 28, 2008 
                                 6,000               8.3%                 $ 7.37 (f)             May 28, 2009
                                 6,000               8.3%                 $ 7.37 (f)             May 28, 2010
                                                                                                             
Robert B. Lee                    4,000               5.6%                 $ 7.37 (f)             May 28, 2008
                                 4,000               5.6%                 $ 7.37 (f)             May 28, 2009
                                 4,000               5.6%                 $ 7.37 (f)             May 28, 2010
                                                                                                             
Gregory C. Plank                 3,000               4.2%                 $ 7.37 (f)             May 28, 2008
                                 3,000               4.2%                 $ 7.37 (f)             May 28, 2009
                                 3,000               4.2%                 $ 7.37 (f)             May 28, 2010
                                                                                                             
Ronald L. Devine                 3,000               4.2%                 $ 7.37 (f)             May 28, 2008
                                 3,000               4.2%                 $ 7.37 (f)             May 28, 2009
                                 3,000               4.2%                 $ 7.37 (f)             May 28, 2010
                                                                                                             
</TABLE>                                                                  

(f) The exercise price was fixed as the market price at the date of grant.

(g) The options expire ten years after the date they become vested.




<PAGE>


AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE

         The following  table sets forth the number and fiscal year-end value of
unexercised  options granted to the named executive  officers as of December 31,
1998.
<TABLE>

                           Number of
                           Shares of
                           Common Stock              Value of
                           Underlying                Unexercised
                           Unexercised               In-the-Money
                           Options at                Options at
                           FY-End(#)                 FY-End($)

                           Exercisable/              Exercisable/
    Name                   Unexercisable             Unexercisable
    ----                   -------------             -------------

<S>                        <C>                       <C> 
    Douglas C. Collins     53,666 / 17,334           $39,300 / -0-

    Robert B. Lee          24,000 / 11,000           13,100 / -0-

    Gregory C. Plank        22,000 / 8,000              -0- / -0-

    Ronald L. Devine         9,000 / 9,000              -0- / -0-

          No options were exercised by the named executive officers during 1998.
No stock appreciation rights have been issued or exercised.
</TABLE>



COMPENSATION OF DIRECTORS

     Robert M.  Miller,  the former  Chairman of the Board of  Directors  of the
Company,  received  annual fees of $87,000 and $750 per  attendance  at board of
directors meetings during 1998 and 1997. Mr Miller resigned as a director of the
Company  in March  1999.  Mr.  Miller  received  total  compensation  in 1999 of
$78,750.

     Each of the Company's  other outside  (non-employee)  directors  receive an
annual fee of $12,000 and $750 per attendance at board of directors meetings.




<PAGE>


EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS

     Douglas C.  Collins.  The Company has entered into an  employment  contract
with Mr.  Collins  for a term which  expires in July 2002.  If the  contract  is
terminated  by the Company (1) prior to the end of its term,  (2) other than for
cause,  and (3) within twelve months following a  change-in-control  (generally,
acquisition of control of over 50% of the Common Stock or a change in a majority
of the board of directors),  Mr. Collins shall be entitled to the greater of (x)
his annual salary (as defined)  payable  through the end of his employment  term
and (y)  one-half of his annual  salary (as defined) for the rest of the year in
which such termination occurs. If such event occurred as of January 1, 1999, Mr.
Collins would be entitled to a payment of $1,382,382.

     If Mr.  Collins  terminates  his  contract  (1)  between  90 and  120  days
following a  change-in-control  or (2) within 30 days  following  any  demotion,
diminution of responsibility or pay or forced relocation occurring within twelve
months of a  change-in-control,  he shall be  entitled  to the lesser of (x) his
annual  salary (as  defined)  through the end of his  employment  term,  and (y)
one-half  of his  annual  salary  (as  defined)  for  the  year  in  which  such
termination  occurs.  If such event  occurred as of January 1, 1999, Mr. Collins
would be entitled to a payment of $192,890.

     If Mr. Collins' employment is otherwise terminated without cause before the
expiration of his  employment  term, the Company must pay him an amount equal to
his annual salary (as defined) for the year in which such termination occurs. If
such event  occurred as of January 1, 1999,  Mr.  Collins would be entitled to a
payment of $385,781.

     Robert B. Lee. The Company has entered into an employment contract with Mr.
Lee for a term which  expires in July 2002. If the contract is terminated by the
Company  (1) prior to the end of its term,  (2) other  than for  cause,  and (3)
within twelve months following a  change-in-control  (as defined above), Mr. Lee
shall be entitled to the greater of (x) his annual  salary (as defined)  payable
through the end of his employment term and (y) one-half of his annual salary (as
defined)  for the rest of the year in which  such  termination  occurs.  If such
event  occurred as of January 1, 1999, Mr. Lee would be entitled to a payment of
$577,339.

     If Mr. Lee  terminates his contract (1) between 90 and 120 days following a
change-in-control  or (2) within 30 days  following any demotion,  diminution of
responsibility or pay or forced  relocation  occurring within twelve months of a
change-in-control,  he shall be entitled to the lesser of (x) his annual  salary
(as defined)  through the end of his  employment  term,  and (y) one-half of his
annual  salary (as defined) for the year in which such  termination  occurs.  If
such  event  occurred  as of January 1,  1999,  Mr. Lee would be  entitled  to a
payment of $80,559.

     If Mr. Lee's  employment is otherwise  terminated  without cause before the
expiration of his  employment  term, the Company must pay him an amount equal to
his annual salary (as defined) for the year in which such termination occurs. If
such  event  occurred  as of January 1,  1999,  Mr. Lee would be  entitled  to a
payment  of  $116,118.  

     Gregory C. Plank. The Company has entered into an employment  contract with
Mr. Plank for a term which expires in May 2000. If the contract is terminated by
the Company (1) prior to the end of its term, (2) other than for cause,  and (3)
within twelve months following a change-in-control (as defined above), Mr. Plank
shall be entitled to the greater of (x) his annual base salary  payable  through
the end of his employment  term and (y) one-half of his base salary for the rest
of the year in which  such  termination  occurs.  If such event  occurred  as of
January 1, 1999, Mr. Plank would be entitled to a payment of $212,500.

     If Mr. Plank  terminates his contract (1) between 90 and 120 days following
a change-in-control or (2) within 30 days following any demotion,  diminution of
responsibility or pay or forced  relocation  occurring within twelve months of a
change-in-control,  he shall be  entitled  to the lesser of (x) his annual  base
salary  through the end of his  employment  term,  and (y)  one-half of his base
salary for the year in which such termination  occurs. If such event occurred as
of January 1, 1999, Mr. Plank would be entitled to a payment of $75,000.

     If Mr. Plank's employment is otherwise  terminated without cause before the
expiration of his  employment  term, the Company must pay him an amount equal to
his annual base salary for the year in which such  termination  occurs.  If such
event  occurred as of January 1, 1999,  Mr. Plank would be entitled to a payment
of $150,000.

     Ronald L. Devine. The Company has entered into an employment  contract with
Mr.  Devine for a term which  expires in May 2000. If the contract is terminated
by the Company (1) prior to the end of its term,  (2) other than for cause,  and
(3) within twelve months following a  change-in-control  (as defined above), Mr.
Devine  shall be entitled  to the greater of (x) his annual base salary  payable
through the end of his  employment  term and (y) one-half of his base salary for
the rest of the year in which such termination occurs. If such event occurred as
of January 1, 1999, Mr. Devine would be entitled to a payment of $153,333.

     If Mr. Devine terminates his contract (1) between 90 and 120 days following
a change-in-control or (2) within 30 days following any demotion,  diminution of
responsibility or pay or forced  relocation  occurring within twelve months of a
change-in-control,  he shall be  entitled  to the lesser of (x) his annual  base
salary  through the end of his  employment  term,  and (y)  one-half of his base
salary for the year in which such termination  occurs. If such event occurred as
of January 1, 1999, Mr. Devine would be entitled to a payment of $57,500.

     If Mr. Devine's employment is otherwise terminated without cause before the
expiration of his  employment  term, the Company must pay him an amount equal to
his annual base salary for the year in which such  termination  occurs.  If such
event  occurred as of January 1, 1999, Mr. Devine would be entitled to a payment
of $115,000.


REPORT ON REPRICING OF OPTIONS/SARS

         Not applicable.


<PAGE>


Item 11.  Security Ownership of Certain Beneficial Owners and Management.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

     The  following  table sets forth  information  as of February 28, 1999 with
respect  to the  beneficial  ownership  of shares of the  Common  Stock  held by
beneficial owners of more than 5% of the Common Stock. The information set forth
below is based upon the Company's stock records and information  obtained by the
Company from the persons named below.  Unless otherwise  indicated,  each person
has sole  voting and  investment  power with  respect to such  shares.


  Name and Address                         Amount and Nature of        Percent
  of  Beneficial  Ownership                Beneficial Ownership        of Class
  -------------------------                -----------------------     --------

  NY Motel Enterprises                       112,821 - Direct            5.80%
  440 West 57th Street
  New York, NY   10019

  Leon M. & Marsha C. Wagner                 124,181 - (a)               6.39%
  1325 Avenue of the Americas
  22nd Floor
  New York, NY 10019

  Hotel-Motel Management Corporation         182,750 - Direct            9.40%
  3485 N. Desert Drive - Suite 106
  Building 2
  East Point, GA  30344

  Heartland Advisors, Inc.                   184,600 - Investment       9.50%
  790 North Milwaukee Street                           Advisor
  Milwaukee, WI 53202

  Bay Harbour Management, L.C.             1,054,702 - Investment       42.20%
  Suite 270                                            Advisor (b)
  777 South Harbour Island Boulevard
  Tampa, FL 33602


(a) Mr. Wagner holds 111,036 shares directly and Ms. Wagner,  his spouse,  holds
13,145 shares directly.

(b) Includes 499,147 shares owned by investment funds managed by Bay Harbour and
555,555 contingently  issuable shares from the conversion of debentures owned by
investment funds managed by Bay Harbour.

SECURITY OWNERSHIP OF MANAGEMENT

     The following  table sets forth,  as of February 28, 1999,  all  beneficial
holdings of  outstanding  Common Stock by the directors and the named  executive
officers of the Company and all directors and executive officers as a group. The
information  set forth  below is based  upon the  Company's  stock  records  and
information  obtained  by the  Company  from the  persons  named  below.  Unless
otherwise  indicated,  each  person has sole  voting and  investment  power with
respect to such shares. The address of each director and executive officer is in
care of the Company,  Suite 200,  4243  Dunwoody  Club Drive,  Atlanta,  Georgia
30350.

              Name of                Amount and Nature of        Percent
         Beneficial Holder           Beneficial Ownership        of Class
         -----------------           --------------------        --------
                                                       
         Douglas C. Collins             72,774 - (a)              3.64%
         Robert B. Lee                  37,808 - (b)              1.92%
         Ronald L. Devine               74,452 - (c)              3.81%
         Gregory C. Plank               24,000 - (d)              1.22%
         William K. Stern               41,666 - (e)              2.11%
         Steven A. Van Dyke          1,069,399 - (f)             42.67%
         David C. Glickman                     -                    -
         David B. Mumford                      -                    -
         Directors and Officers      1,313,591 - (a-f)           49.64%
         as a group (8 persons)                                 
                                                                
     (a) Mr.  Collins  holds  12,600  shares  directly  and holds  6,508  shares
indirectly  through DC Hospitality,  Inc., which is 85% owned by Mr. Collins and
15% owned by Mr. Lee. Mr.  Collins  also has the right to acquire an  additional
53,666 shares within the next 60 days pursuant to option agreements.

     (b) Mr. Lee holds 7,300 shares  directly and holds 6,508 shares  indirectly
through DC Hospitality, Inc., which is 15% owned by Mr. Lee and 85% owned by Mr.
Collins.  Mr.  Lee also has the right to  acquire an  additional  24,000  shares
within the next 60 days pursuant to option agreements.

     (c) Mr. Devine holds 65,452 shares directly and has the right to acquire an
additional 9,000 shares within the next 60 days pursuant to option agreements.

     (d) Mr.  Plank holds  2,000  shares  directly  and has the right to acquire
22,000 additional shares within the next 60 days pursuant to option agreements.

     (e) Mr.  Stern holds  10,000  shares  directly and has the right to acquire
31,666 additional shares within the next 60 days pursuant to option agreements.

     (f) Mr. Van Dyke holds 8,031  shares  directly and has the right to acquire
an  additional  6,666  shares  within  the  next  60  days  pursuant  to  option
agreements.  Mr. Van Dyke is the  President and Chief  Executive  Officer of Bay
Harbour.  Bay Harbour manages investment funds which own 499,147 shares and have
the right to  acquire  555,555  within the next 60 days from the  conversion  of
debentures.


CHANGES IN CONTROL

         To the best of the Company's knowledge, there are no arrangements which
may result in a change of control.





<PAGE>


Item 12.  Certain Relationships and Related Transactions.

     On  December  22,  1997,  the  Company  issued  $5,000,000  of  Convertible
Debentures to investment  funds managed by Tower  Investment  Group,  Inc.,  now
known as Bay Harbour  Management,  L.C.  ("Bay  Harbour").  Bay Harbour  manages
investment  funds which, at that time,  owned 262,000 (13.8%) of the outstanding
common shares of the Company.  Bay Harbour presently owns 449,147 (23.1%) common
shares.  Mr. Van Dyke, a director of the Company is the Chief Executive  Officer
of Bay Harbour.

     The related  debenture  notes bear  interest at 8%,  payable  quarterly  in
arrears,  and are due December 22, 2002.  The debentures  are  convertible  into
common  shares  of the  Company  at any time at  $9.00  per  share.  If all such
debentures were converted, an additional 555,555 shares of Common Stock would be
issued.

     In  connection  with the Lodge Keeper  acquisition,  the Company  assumed a
lease for  office  space in  Prospect,  Ohio.  The lease  requires  annual  rent
payments of approximately  $50,000 through 2001. Members of the immediate family
of Mr. Devine, an executive officer and director of the Company,  own 50% of the
lessor.

     Also in connection with the Lodge Keeper acquisition, Mr. Devine executed a
$250,000 note payable to the Company for certain  inventory and equipment  which
did not relate to Lodge Keeper's  primary  business.  The note bears interest at
10% and is due in monthly installments of $5,312 until June 2002.

     During 1998, Mumford Company,  Inc. earned aggregate brokerage  commissions
of $142,313 relating to the Company's sale of seven leasehold interests in hotel
properties.  Mr. Mumford, a director of the Company, is the President of Mumford
Company, Inc. Mr. Mumford was not a director of the Company at the time the sale
transactions occurred.


<PAGE>


Item 13.  Exhibits and Reports on Form 8-K.

(a)   INDEX TO EXHIBITS
      -----------------

   Exhibit     Description
   -------     -----------

   2.1         Closing  Agreement  dated  May  15,  1995  between  Heritage  Inn
               Associates,  Ltd. and BLM EB, Inc.  (Incorporated by reference to
               Exhibit (2) to the Registrant's  Current Report on Form 8-K filed
               May 25, 1995.)

   2.2         Agreement for Purchase and Sale of Hotel between Buckhead and ALH
               Properties  No. One, Inc.  (Incorporated  by reference to Exhibit
               (2)(a)  to the  Registrant's  Current  Report  on Form 8-K  filed
               December 20, 1995.)

   2.3         Agreement for Purchase and Sale of Hotel between Buckhead and ALH
               Properties  No. Two, Inc.  (Incorporated  by reference to Exhibit
               (2)(b)  to the  Registrant's  Current  Report  on Form 8-K  filed
               December 20, 1995.)

   2.4         Stock  Purchase  Agreement  dated as of March 7,  1997  among the
               Registrant, The Lodge Keeper Group, Inc. ("Lodge Keeper") and the
               Stockholders  of Lodge  Keeper.  (Incorporated  by  reference  to
               Exhibit 2.1 to the  Registrant's  Quarterly Report on Form 10-QSB
               for the quarter ended March 31, 1997.)

   2.5         Agreement  of  Merger  dated  as of  March  11,  1997  among  the
               Registrant,  BLM-RH,  Inc.,  Hatfield  Inns,  LLC,  Guy  Hatfield
               Dorothy Hatfield, and Hatfield Inns Advisors,  LLC. (Incorporated
               by reference to Appendix B to the  Registrant's  Definitive Proxy
               Statement filed with the Securities and Exchange Commission on
               June 9, 1997.)

   2.6         Second  Amendment to  Agreement of Merger,  dated as of September
               17, 1997 among the Company, BLM-RH, Inc., Hatfield Inns, LLC, Guy
               Hatfield,  Dorothy  Hatfield,  and  Hatfield Inn  Advisors,  LLC.
               (Incorporated  by reference to Exhibit 2.1.1 to the  Registrant's
               Current Report on Form 8-K filed October 8, 1997.)

   3.1         Articles of Incorporation.  (Incorporated by reference to Exhibit
               2.1 to the Registrant's Registration Statement on Form 10-SB (No.
               0-22132) which became effective on November 22, 1993.)

   3.2         Certificate  of  Amendment  of   Certificate  of   Incorporation.
               (Incorporated by reference to Exhibit 3(i)(a) to the Registrant's
               Annual  Report on Form 10-KSB for the fiscal year ended  December
               31, 1994.)

   3.4         Certificate  of  Amendment  of   Certificate   of   Incorporation
               (Incorporated  by reference  to Appendix "A" to the  Registrant's
               Definitive Proxy Statement filed with the Securities and Exchange
               Commission on June 9, 1997.)

   3.5         Certificate  of  Designation,  Preference  and Rights of Series A
               Preferred Stock of the Registrant.  (Incorporated by reference to
               Exhibit  3.1(c)  to the  Registrant's  Quarterly  Report  on Form
               10-QSB for the quarter ended September 30, 1997.)

   3.6         Certificate  of  Amendment  of   Certificate   of   Incorporation
               (Incorporated  by reference  to Appendix "A" to the  Registrant's
               Definitive Proxy Statement filed with the Securities and Exchange
               Commission on May 5, 1998.)

   3.7         By-Laws - Amended and Restated as of June 27, 1994. (Incorporated
               by reference to Exhibit 3(ii) to the  Registrant's  Annual Report
               on Form 10-KSB for the fiscal year ended December 31, 1994.)

   4.1         Mortgage  Note  Payable  dated as of  November  7.  1996  made by
               Heritage Inn Associates,  LP as maker,  to Bloomfield  Acceptance
               Company, LLC.  (Incorporated by reference to Exhibit 4(ii) to the
               Registrant's  Annual  Report on Form  10-KSB for the fiscal  year
               ended December 31, 1996.)

   4.2         Certificate  of  Designation,  Preference  and Rights of Series A
               Preferred Stock of the Registrant.  (Incorporated by reference to
               Exhibit  3.1(c)  to the  Registrant's  Quarterly  Report  on Form
               10-QSB for the quarter ended September 30, 1997.)

   4.3         Form of Stock  Certificate  (Incorporated by reference to Exhibit
               4.3 to the Registrant's  Registration  Statement on Form S-8 (No.
               333-58375) filed on July 2, 1998.

  10.1         Employment  Agreement  dated  as of June  30,  1993  between  the
               Company and Douglas C.  Collins.  (Incorporated  by  reference to
               Exhibit 6.2 to the  Registrant's  Registration  Statement on Form
               10-SB (No.022132) which became effective on November 22, 1993.)


<PAGE>


  10.2         Amendment   to   Douglas   C.   Collins   Employment   Agreement.
               (Incorporated by reference to Exhibit (ii)(b) to the Registrant's
               Annual  Report on Form 10-KSB for the fiscal year ended  December
               31, 1995.)

  10.3         Employment  Agreement  dated  as of June  30,  1993  between  the
               Company and Robert B. Lee.  (Incorporated by reference to Exhibit
               10(ii)(c) to the  Registrant's  Annual  Report on Form 10-KSB for
               the fiscal year ended December 31, 1995.)

  10.4         Amendment to Robert B. Lee Employment Agreement. (Incorporated by
               reference to Exhibit 10(ii)(d) to the Registrant's  Annual Report
               on Form 10-KSB for the fiscal year ended December 31, 1995.)

  10.5         Employment  Agreement  dated as of April  29,  1996  between  the
               Company and  Gregory C.  Plank.  (Incorporated  by  reference  to
               Exhibit  10(ii)(e)  to the  Registrant's  Annual  Report  on Form
               10-KSB for the fiscal year ended December 31, 1996.)

  10.6         1995 Stock  Option  Plan. (Incorporated  by reference to Appendix
               A to the Registrant's Definitive Proxy Statement dated April 25,
               1995.)

  10.7         1997  Employee  Stock Option Plan  (Incorporated  by reference to
               Annex 1 to the Registrant's Definitive Proxy Statement filed with
               the Securities and Exchange Commission on June 9,1997.)

  10.8         Form of Amended and Restated Debenture (Incorporated by reference
               to  Exhibit  II to the  Schedule  13D of Bay  Harbour,  Tower and
               Steven Van Dyke filed December 31, 1997 (File No. 005-47807)).

  10.9         Debentures  Purchase  Agreement  dated  as of  December  2,  1997
               between the  Company  and Bay  Harbour for its managed  accounts.
               (Incorporated  by reference  to Exhibit 10.2 to the  Registrant's
               Current Report on Form 8-K filed January 9, 1998.)

  10.10        1998  Employee  Stock Option Plan  (Incorporated  by reference to
               Annex 1 to the Registrant's Definitive Proxy Statement filed with
               the Securities and Exchange Commission on May 5, 1998.)

  21*          Subsidiaries of the Company

  23*          Accountants' Consent

  27*           Financial Data Schedule (Electronic filing only)

  --------------------------
  * Filed herewith.

(b)      REPORTS ON FORM 8-K.


         The  Company  has not filed any  reports  on Form 8-K  during  the last
quarter of the period covered by this report.





<PAGE>




                                   SIGNATURES

     In accordance  with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
<TABLE>
<CAPTION>

(Registrant)                      BUCKHEAD AMERICA CORPORATION
<S>                              <C>                        <C>    
By: (Signature and Title):   /s/ Douglas C. Collins          /s/ Robert B. Lee
                             -------------------------------------------------------
                                 Douglas C. Collins          Robert B. Lee
                                 President &                 Senior Vice President & Chief
                                 Chief Executive Officer     Financial & Accounting Officer

Date:                            March 29 , 1999             March 29 , 1999
                                 ---------------             ---------------
</TABLE>

     In  accordance  with the Exchange Act, this report has been signed below by
the following  persons on behalf of the  registrant and in the capacities and on
the dates indicated.

By: (Signature and Title)                                  Date

 /s/ Douglas C. Collins                                    March   29  , 1999
-------------------------                                  ------------------
Douglas C. Collins
Director

 /s/ Robert B. Lee                                         March    29 , 1999
-------------------------                                  ------------------
Robert B. Lee
Director

 /s/ Ronald L. Devine                                      March    29 , 1999
-------------------------                                  ------------------
Ronald L. Devine
Director

 /s/ William K. Stern                                      March    29  , 1999
-------------------------                                  -------------------
William K. Stern
Director

                                                           March    29  , 1999
-------------------------                                  -------------------
Steven A. Van Dyke
Director

 /s/ David C. Glickman                                     March    29  , 1999
-------------------------                                  -------------------
David C. Glickman
Director

 /s/ David B. Mumford                                      March    29  , 1999
-------------------------                                  -------------------
David B. Mumford
Director