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

                                    FORM 10-K
(Mark One)

[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(D) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934 For the fiscal year ended December 31, 2001

[ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(D)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934 For the transition period from ______ to _______


                         Commission file number 0-22132


                          BUCKHEAD AMERICA CORPORATION
                    -----------------------------------------
             (Exact name of registrant as specified in its charter)


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


 7000 Central Parkway, Suite 850, Atlanta, GA                  30328
   (Address of principal executive offices)                 (Zip Code)


        Registrant's telephone number, including area code (770) 393-2662

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

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

              Securities registered under Section 12(g) of the Act:
                             Common stock, par value
                                      $.01
                                (Title of class)

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No

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

     State the aggregate market value of the voting and non-voting common equity
held by non-affiliates of the registrant. The aggregate market value is computed
by  reference  to the price at which the stock was sold,  or the average bid and
asked prices of such stock,  as of a specified  date within 60 days prior to the
date of filing. As of February 28, 2002: $ 932,927 .

     For purposes of this  response,  all  executive  officers,  directors,  and
holders of greater than 10% of the  outstanding  common shares of the registrant
as of the specified date are considered to be affiliates.

     Indicate  the  number of  shares  outstanding  of each of the  registrant's
classes of common stock, as of the latest  practicable  date. As of February 28,
2002:
           Common Stock, par value $.01 - 2,015,885 shares outstanding

                       DOCUMENTS INCORPORATED BY REFERENCE

     Information  contained in registrant's  definitive proxy statement relating
to the 2002 Annual  Meeting of  Stockholders  is  incorporated  by  reference in
response to Items 10 through 13 of Part III.



<PAGE>

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS.

General Development of Business

     Buckhead America Corporation  ("Buckhead" or the "Company") and most of its
wholly-owned  subsidiaries  were  incorporated in Delaware on December 17, 1992.
Other  subsidiaries  were subsequently  created or purchased,  generally for the
purpose of acquiring assets.  Unless the context otherwise requires,  references
to Buckhead or to the Company herein include the Company and its subsidiaries.

     In 1994,  Buckhead acquired the trademark and franchise licensing rights to
Country  Hearth  Inns,  a  modernized  bed and  breakfast  hotel  concept.  From
inception  through  2000,  the Company's  primary  growth  activities  generally
included the acquisition and  construction of hotels,  entering lease agreements
relating to hotels,  entering into  contracts  for the  management of hotels for
third parties,  and the marketing and selling of Country Hearth Inn  franchises.
The  Company's  operating  activities  included  the  operation of the owned and
leased  hotels,  the operation of a hotel  management  company which managed the
owned and leased  hotels as well as other  hotels,  and the operation of a hotel
franchising  company  which  marketed,  sold,  and serviced  Country  Hearth Inn
franchises.

     At the beginning of 2001,  Buckhead owned 22 hotel properties,  21 of which
operated as Country Hearth Inns. Buckhead also leased 15 hotel properties, eight
of which  operated as Country  Hearth Inns.  Lodge Keeper,  the Company's  hotel
management  subsidiary,  managed all but one of the owned and leased hotels.  In
addition,  Lodge Keeper managed 22 other hotel  properties  which operated under
various brand names,  including seven Country Hearth Inns. A total of 58 Country
Hearth Inns were open and operating in 12 states, 29 of which were Company owned
or leased.

     Of the 37 hotels owned or leased as of the  beginning  of the year,  17 had
been classified as held for sale. During 2001, the Company classified all of its
remaining owned hotels as held for sale and also sought to sell or terminate its
remaining leasehold  interests.  During 2001, the Company sold nine owned hotels
and  one  leasehold  interest  in a  hotel.  The  Company  also  negotiated  the
termination of seven other  long-term  hotel leases.  Additionally,  the Company
granted  leasehold  interests  in  two of  its  owned  hotels  and  the  related
agreements also included  purchase  options for the properties,  one of such was
executed subsequent to year end.

     As of the end of 2001,  the  Company  owned 13  hotels,  all of which  were
classified  as held for sale.  The Company also held  leasehold  interests in 11
other  hotels,  four of which had become  effective  during 2001.  Including the
hotel sold subject to the purchase option,  three owned hotels have been sold in
the  first  quarter  of 2002.  Also  subsequent  to year end 2001,  the  Company
negotiated  the  termination of three  additional  hotel leases and continues to
pursue either the sale or termination of its remaining hotel leases.

     During the fourth quarter of 2001, management adopted a plan to discontinue
its hotel management business.  The Company executed contracts with an unrelated
third  party for the  management  of its owned and leased  hotels  which  became
effective  January 1, 2002.  The Company also  terminated  or assigned its third
party hotel  management  contracts  effective at various dates from January 1 to
March 31,  2002.  The  Company's  hotel  management  subsidiary,  Lodge  Keeper,
continues to perform  certain  accounting and cash  management  functions.  Such
activities are anticipated to cease during the second quarter of 2002.

     The Company continued to market and sell Country Hearth Inn franchises.  As
of December  31, 2001,  61 Country  Hearth Inns were open and  operating,  21 of
which were  Company  owned or leased.  An  additional  seven were under  various
stages of development.


Financial Information About Segments

     The  information  required by this  caption is  included  in the  Company's
consolidated  financial statements which are included pursuant to Item 8 of this
Form 10-K and incorporated herein by reference.


                                       2
<PAGE>

Description of 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.  Expansion of the Country  Hearth Inn chain has been  effected
through direct  acquisition and conversion of existing hotels, new construction,
and through franchise sales. For certain further information about the Company's
hotels, see "ITEM 2. DESCRIPTION OF PROPERTY."

     Segments.  The Company conducted recurring  operations in three segments of
the limited-service  hotel industry - hotel franchising,  hotel management,  and
hotel  operations.  The company  generated  additional  revenues  and results of
operations from hotel development activities. During the fourth quarter of 2001,
management  adopted a plan to discontinue its hotel  management  segment.  It is
anticipated that all activities  relating to the hotel  management  segment will
cease by the end of the second quarter of 2002.

     Hotel franchising involves the selling and servicing of rights and licenses
comprising the Country Hearth Inn lodging system.  Revenues include initial fees
and continuing  royalty,  marketing and reservation  fees from Company owned and
leased hotels and from unaffiliated customers. Continuing fees are based on each
franchised hotel's room revenues.

     Hotel management  involved the oversight of day-to-day hotel operations and
accounting for  limited-service and some full-service  hotels.  Revenues include
continuing  fees from  Company  owned and leased  hotels  and from  unaffiliated
customers. Continuing fees are based on each managed hotel's revenues.

     Hotel  operations  involves  the  operations  of  Company  owned and leased
hotels.  Revenues are generated from unaffiliated hotel guests. Hotel operations
also includes the Company's  share (equity  method) of  unconsolidated  entities
which also  operate  hotels and the  minority  interests  share of  consolidated
partnerships' results which are included in hotel operations.

     Hotel development  involves the development and construction or purchase of
existing  hotel  properties  and  subsequent  sale  thereof  along with  related
activities such as servicing notes  receivable  generated from sales.  Corporate
activities are generally administrative and also include all interest income and
expense which does not specifically relate to other segment operations.

     Franchise  and  management  fees are  charged to  Company  owned and leased
hotels at the same rates as charged to unaffiliated customers.

     Brands.  The Company's owned and leased  properties as of December 31, 2001
operate  under the brand names of Country  Hearth Inn (21),  Sleep Inn (1),  and
unbranded (2).

     Competition.  There  is  significant  competition  in  every  phase  of the
hospitality industry including  development/ownership and franchising. There are
many hotel  companies in the United States,  and many of them are  significantly
larger than the Company.

     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 small player in the hotel industry. It believes
that its management is experienced in hotel  development and hotel  franchising.
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  operates  will  present  significant
competition which may have an adverse effect on the Company.



                                       3
<PAGE>


     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.

     Seasonality.  Due to the typical  travel  trends of hotel guests in most of
the  geographic  areas in which the  Company  operates,  limited  service  hotel
operations tend to be highly seasonal.  Historically,  results in the second and
third calendar quarters are stronger than in the first and fourth quarters. This
seasonality  impacts all of the Company's  operating segments since the revenues
of all segments are dependent on hotel guest revenue.

     Economy. As is true in most industries,  general economic conditions impact
operating results and strategic  opportunities.  Economic conditions during 2001
were generally not favorable for the hotel industry.  Many authoritative  bodies
reported the occurrence of a mild recession.  Additionally,  after September 11,
significant  declines  in travel  were  experienced  which  not only  negatively
impacted the results from hotel  operations,  but also  negatively  impacted the
Company's hotel sales program.

     Research and Development.  During 2001, 2000, and 1999 the Company invested
approximately $30,000,  $38,000, and $28,000,  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,  2002,  the Company had 60 employees in the
aggregate,   including  6  full-time  corporate  employees,  4  full-time  hotel
franchising employees,  12 full-time and 1 part-time hotel management employees,
and 13 full-time and 24 part-time hotel operations employees.


Financial Information About Geographic Areas

     All of the Company's operations are conducted in the United States.



                                       4
<PAGE>

Risk Factors

     This Form 10-K contains  forward looking  statements that involve risks and
uncertainties.  Statements  contained in this Form 10-K 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 under insured  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 hotel  management  business,  and the risks involved in hotel renovation and
construction,   and  the  uncertainty  of  obtaining   additional  financing  or
extensions of existing  credit  facilities as needed.  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). Also see "Liquidity and
Capital Resources"  section of "Item 7. Management's  Discussion and Analysis of
Financial  Condition and Results of Operations." and "Item 7A.  Quantitative and
Qualitative Disclosures About Market Risk."





ITEM 2.  DESCRIPTION OF PROPERTY.

Corporate Offices

     The Company's  corporate  headquarters are located at 7000 Central Parkway,
Suite 850, Atlanta,  Georgia. The Company leases approximately 4,900 square feet
as its corporate  headquarters.  The lease term extends through December 2002 at
an annual  rate of  approximately  $96,600.  Franchising  and  hotel  management
operations  are also  conducted  at this  location.  The  Company  believes  its
headquarters are adequate for its current needs.

     Hotel 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 2006 at
an annual rate of approximately $60,000. The Company believes that these offices
are  adequate  for its  current  needs.  The  Company  is  presently  conducting
negotiations  for the  termination  of the Lodge Keeper lease as a result of the
plan to discontinue its hotel management operations, see "ITEM 1. DESCRIPTION OF
BUSINESS."




                                       5
<PAGE>


Owned and Leased Real Properties

     Land.  As of  February  28,  2002,  the  Company  owned  three  parcels  of
undeveloped and unencumbered land, with an aggregate book value of $115,501. All
of such parcels are held for sale.

     Owned and Leased Hotel  Properties.  The following table sets forth certain
2001  information for each of the Company's hotels which were owned or leased as
of December 31, 2001:



<TABLE>
<CAPTION>
<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         Rate         Room        Revenue(a)
---------------------------------------------------------------------------------------------------------------------------
Country Hearth Inn
 Norcross, GA                        121      1985       1998        35.3%          $41.10        $14.51        $ 672,526

Country Hearth Inn
 Mason, OH                           93       1997       1999        41.9%          $62.93        $26.37        $ 931,752

Two Country Hearth Inns                       1987-
 and Suites in MI & OH                82      1988       2000        49.2%          $62.15        $30.58        $ 941,736

Eight Owned Country Hearth                    1993-      1997-
 Inns in IN, KY, MO, & OH            319      2000       2000        51.4%          $51.30        $26.37       $3,060,825

Six Leased Country Hearth                     1999-      1999-
 Inns in GA & TN                     240      2001       2001        43.5%          $47.13        $20.50       $1,398,637

Two Leased Properties                        1994-
 in FL & MS                          158     1995        1998        47.4%          $47.54        $22.53       $1,346,533

Other Leased Properties                       1970-
 Three in OH                         213      1973       1997        45.3%          $50.26        $22.78       $1,845,326

Northwest Inn                                1964-
   St. Louis, MO                     186     1968        1997        95.6%          $22.41        $21.42       $1,546,212

Other (b)                                                                                                      $5,773,690
---------------------------------------------------------------------------------------------------------------------------
   Total                                                                                                      $17,517,237
---------------------------------------------------------------------------------------------------------------------------

</TABLE>

     (a)  Total revenue represents revenues earned during ownership period.

     (b)  Represents revenues earned in 2001 from properties prior to their sale
          or lease expiration.


                                       6
<PAGE>


     Norcross,  GA Country  Hearth Inn. This 121-room hotel was acquired in 1998
and was converted to operate as a Country  Hearth Inn in 1999. The hotel secures
a mortgage note with a December 31, 2001 balance of $3,591,794. This property is
held for sale and is presently listed with a broker.

     Mason,  OH  Country  Hearth  Inn.  This  93-room  Country  Hearth  Inn  was
constructed in 1996 and 1997 and opened in June 1997.  The Company's  investment
in the  partnership  which owned the hotel  increased from 27.5% to 44.5% in May
1997 in connection with the Lodge Keeper  acquisition.  The property was subject
to a first  mortgage  loan with a December 31, 2001 balance of  $2,388,060.  The
partnership also had notes payable to certain partners including $220,038 to the
Company and $247,244 to a minority partner as of December 31, 2001. The property
was sold in March 2002.

     Two Country Hearth Inns and Suites . In August 2000, the Company acquired a
40-unit all suites  property in Grand Rapids,  Michigan and a 42-unit all suites
property in Dublin, Ohio. Both properties were immediately  converted to operate
under the Country Hearth Inn franchise system. The Dublin property is owned by a
limited  partnership in which the Company holds an approximate  74% interest and
the  hotel  secures  a  mortgage  note  with a  December  31,  2001  balance  of
$1,375,533.  The Grand  Rapids  property is owned by an LLC in which the Company
holds a 20% interest and the hotel  secures a mortgage  note with a December 31,
2001 balance of $1,376,846.  The Company leases  (triple-net basis) the property
from  the LLC for net  rent of  approximately  $200,000  per  year.  The  Dublin
property is  presently  under  contract  for sale and the Company is  conducting
negotiations for the lease termination and sale of the Grand Rapids property. No
assurance can be given that any of these anticipated transactions will close.

     Eight Owned Country Hearth Inns. In September  1997,  the Company  acquired
eight 40-room  hotel  properties  located  primarily in smaller  communities  of
Kentucky  (5) and Missouri  (3). All eight were  converted to operate as Country
Hearth  Inns.  From 1998 through 2000 the Company  constructed  five  additional
properties  of similar  design in  Kentucky  (2),  Ohio (2),  and  Indiana  (1).
Generally,  these properties are interior corridor 40-room facilities located in
smaller  communities and enjoy limited  competition.  During 2001, five of these
properties  were sold.  The  remaining  eight  properties  are held for sale and
secure first and second  mortgage  notes payable with December 31, 2001 balances
aggregating  $6,905,802.  The Company granted leasehold  interests in two of the
properties and the related  agreements  also included  purchase  options for the
properties, one of which was executed in March 2002.

     Six Leased  Country  Hearth Inns. The Company had entered into several long
term  triple-net  lease  agreements   relating  to  40-room   properties  to  be
constructed  in smaller  communities  in Georgia  and  Tennessee,  four of which
became  effective during 2001.  Generally,  each lease had an initial term of 15
years and options for up to an additional 15 years.  Each lease required  annual
rent of approximately $150,000 and provided for additional percentage rent based
on hotels  revenues over certain  levels.  During 2001,  several of these leases
were  terminated  and of the six leases which  remained as of December 31, 2001,
one was  terminated  in  January  2002.  The  Company  is  presently  conducting
negotiations for the termination of the remaining leases.

     Two Leased Properties.  During 1997 and 1998, the Company,  in two separate
transactions, entered into long term lease agreements for eight hotel properties
owned by Host Funding,  Inc.  ("Host").  During 2001, the Company negotiated the
termination  of six of these  leases.  During  the first  quarter  of 2002,  the
Company completed  negotiations for the termination of the remaining two leases;
such terminations are expected to be effective March 31, 2002.

     Other Leased  Properties.  In addition to the leased  properties  described
above,  the Company leases three other  limited-service  hotels all of which are
located in Ohio.  All three  properties  operate as Country  Hearth Inns.  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 three properties aggregates $217,157 per year. Two
of these leasehold interests are presently being marketed for sale.

     St. Louis Northwest Inn. The Company acquired the 186-room Northwest Inn in
St.  Louis,  Missouri,  as part of the May 1997 Lodge  Keeper  acquisition.  The
property  secured a first  mortgage  loan with a December  31,  2001  balance of
$1,623,863. The property was sold in February 2002.

     Renovation  and  environmental  programs  are  continuously  ongoing at all
Company  owned and leased  hotels and  management  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.


                                       7
<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  and/or  involves claims
which do not exceed 10% of its current assets.



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

     None.


                                       8
<PAGE>

                                     PART II

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

Market Information

     The Company's  Common Stock trades on The Nasdaq  SmallCap Market under the
symbol:  BUCK.  Prior to February 27,  2001,  the Common Stock was traded on The
Nasdaq National Market.

     The Company has received  notifications from The Nasdaq Stock Market,  Inc.
that its shares fail to meet certain minimum requirements for continued listing.
If the  qualification  requirements  are not met,  the  shares  will  likely  be
delisted, possibly as soon as June 4, 2002.

     The following  table  presents the high and low sales prices for the Common
Stock for each quarter of 2000 and 2001.

                                                     ($ Per Share)
                                                    ----------------
                                                    High         Low
         Quarter ended March 31, 2000               5.94        5.12
         Quarter ended June 30, 2000                5.56        4.00
         Quarter ended September 30, 2000           5.37        4.12
         Quarter ended December 31, 2000            5.50        3.62
         Quarter ended March 31, 2001               4.19        3.12
         Quarter ended June 30, 2001                3.20        1.80
         Quarter ended September 30, 2001           2.06        1.00
         Quarter ended December 31, 2001            2.70        0.90

     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,  2002,   the  Company   estimates   that  there  were
approximately 800 beneficial holders of its Common Stock,  including  individual
participants in security position listings.

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. Pursuant to
a  settlement  agreement  finalized in 2000,  certain  dividends in arrears were
forgiven  and the Company  agreed to exchange all of the  outstanding  shares of
Series A Preferred Stock for an equal number of unregistered  shares of $100 par
value Series B Preferred  Stock. The exchange was completed in the first quarter
of 2001.  The Series B  Preferred  Stock is  nonvoting  and  accrues  cumulative
dividends at the rate of 9.25%. The Series B 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 B  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 9.25% per annum,  to the
extent declared by the Board of Directors.  All accrued but unpaid  dividends of
the Series B Preferred  Stock must be paid in full before any cash  dividend may
be  declared  on the Common  Stock.  Further,  holders of the Series B Preferred
Stock  have  certain  preferential  distribution  rights  in  the  event  of any
liquidation, dissolution or winding-up of the Company. During 2001 and 2000, the
Board of Directors declared dividends of $208,125 and $231,250 respectively,  on
the Preferred  Stock.  As of December 31, 2001,  there was $95,500 of cumulative
preferred dividends in arrears.


Recent  Sales  of  Unregistered  Securities;  Use of  Proceeds  from  Registered
Securities

     None.


                                       9
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

The selected consolidated financial data of Buckhead America Corporation for and
as of the end of each of the  years  indicated  in the  five-year  period  ended
December  31, 2001 have been  derived  from the audited  consolidated  financial
statements of Buckhead America Corporation and subsidiaries,  which consolidated
financial  statements  have been audited by KPMG LLP. The selected  consolidated
financial data should be read in  conjunction  with the  consolidated  financial
statements of Buckhead America Corporation and subsidiaries, including the notes
to those consolidated financial statements,  which are included elsewhere herein
and in the  registrant's  previously  filed Form 10-K for 2000 and Form 10-KSB's
for 1999, 1998, and 1997.

<TABLE>
<CAPTION>
<S>                                       <C>           <C>             <C>             <C>           <C>
                                              2001           2000           1999            1998           1997
                                              ----           ----           ----            ----           ----

Hotel revenues                            17,517,237     23,717,220     25,886,594      25,720,086     15,590,744

Total revenues                            18,926,002     25,655,463     31,340,104      28,944,689     18,314,595

(Loss) income from continuing
    operations before income taxes       (11,748,017)    (4,807,645)     2,272,049         927,893        857,488

Income tax expense (benefit)                       -      2,859,328        880,000        (901,000)    (2,930,000)

(Loss) income from continuing
   operations                            (11,748,017)    (7,666,973)     1,392,049       1,828,893      3,787,488

Net (loss) income                        (14,423,423)    (8,273,121)     1,668,957       1,235,495      3,173,612

Diluted (loss) income from continuing
   operations per common share              (5.96)         (3.93)          0.52            0.70           1.87

Diluted (loss) income per
   common share                             (7.29)         (4.23)          0.61            0.47           1.56



Total assets                              28,736,998     53,364,472     58,714,701      59,541,118     52,164,023

Notes payable                             24,765,384     35,156,721     32,779,342      34,608,429     28,582,108

</TABLE>



                                       10
<PAGE>

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

Financial Condition and Changes in Financial Condition

     For an  understanding  of  the  significant  factors  that  influenced  the
Company's  performance  during the past three years,  the  following  discussion
should be read in conjunction with the consolidated financial statements and the
notes to consolidated  financial  statements  included under Item 8 of this Form
10-K  for the  years  ended  December  31,  2001,  2000,  and  1999,  which  are
incorporated herein by reference.

     The  Company's  operations  did not generate  sufficient  cash to cover its
current  obligations  during 2001.  The Company used  proceeds from sales of its
operating assets in order to remain liquid and implemented a plan to discontinue
its hotel management segment, a personnel reduction, a salary deferment program,
and other cost reduction strategies. The Company has also negotiated extensions,
and sometimes reductions, of certain of its obligations.

     These activities are ongoing and management believes that the negative cash
flow from  operations will be  significantly  reduced in 2002, but will still be
negative.   Thus,  the  Company's  program  of  selling  assets  is  continuing.
Unfortunately,  current economic conditions  affecting the hospitality  industry
are not favorable and the Company did not receive its invested values from sales
occurring  in 2001 and  expects  similar  results for sales  occurring  in 2002.
Accordingly, the Company recognized significant write-downs of various assets in
the fourth quarter of 2001.

     Management is continuing  negotiations with creditors for extensions and/or
reductions of obligations.  Management believes that it is possible that current
obligations  in 2002  could be met  through  asset  sales and  restructuring  of
certain  obligations.  No assurance  can be given that such  activities  will be
successful.  See "Liquidity and Capital  Resources" below for further discussion
of these matters.

     During 2001, as in 1999 and 2000, payment of preferred stock dividends were
suspended  for various  periods of time.  As of  December  31,  2001,  there was
$92,500 of cumulative  preferred  dividends in arrears.  Management is currently
conducting negotiations regarding the future payment of such dividends.

     As of December 31, 2000,  the Company had 13 properties  and four leasehold
interests  classified as held for sale.  During 2001,  the Company  continued to
market its owned and leased  hotels and  classified  almost all of its owned and
leased hotels as held for sale. During 2001, the Company sold nine owned hotels,
sold the  leasehold  interest  in one  hotel,  sold three  parcels of land,  and
negotiated  the  termination  of  seven  long-term   leases  relating  to  hotel
properties  previously operated by the Company.  Additionally,  the Company sold
leasehold  interests in two of its owned hotel  properties.  The leases  include
purchase options, one of which was exercised in February 2002.

     In connection  with the sales  mentioned  above,  the Company  incurred net
losses of  $1,218,185  which were charged to previously  established  impairment
allowances. Also, the Company recorded a loss of $280,778 in connection with the
termination of seven long-term hotel leases. Such amount is also included in the
2001 results of operations.  In connection with the 2001 sales,  aggregate notes
payable were reduced by $9,586,153  and the Company  generated net cash proceeds
of $3,271,909 and notes receivable of $975,000.

     Additionally,  during the  fourth  quarter of 2001,  the  Company  incurred
losses of $1,394,921 on the sale of two of the sold hotel  properties  for which
no impairment  allowances had previously been provided.  Such amount is included
in the 2001 results of operations.

     During  the fourth  quarter  of 2001,  economic  conditions  affecting  the
hospitality industry worsened significantly.  The Company evaluated the carrying
values of its 13 owned and two leased hotel  properties which were classified as
held  for  sale  as of  December  31,  2001.  The  Company  recorded  additional
impairment  provisions  of  $6,360,000  relating  to these  hotels in the fourth
quarter of 2001.  As of  December  31,  2001,  aggregate  impairment  allowances
amounted to $7,265,344.



                                       11
<PAGE>

     The Company remains  contingently liable on three mortgage notes payable on
which the Company is guarantor relating to properties sold in 2000 and 2001. The
aggregate  balance of these notes at December  31, 2001 was  approximately  $3.7
million and the notes are due in aggregate monthly installments of $34,318 until
2018.  The Company also remains  contingently  liable for future  minimum rental
payments totaling  $1,926,825  ($610,177 in 2002,  $598,511 in 2003, $360,488 in
2004, and $357,649 in later years) on sold leasehold  interests and on subleased
and assigned properties and equipment in the event of default by the purchasers,
sublessees and/or  assignees.  The potential  financial  exposure for guaranteed
note  obligations and contingent rents may be determined by the ability of other
hotel  operators to satisfy  these  obligations.  Their  ability to satisfy such
obligations is subject to many risks,  including economic  conditions  affecting
the hotel industry,  their ability to effectively manage their hotel assets, new
competition, and other factors.

     During  the  fourth  quarter  of  2001,  the  Company  adopted  a  plan  to
discontinue  its  hotel  management  activities.   The  Company  terminated  its
management  contracts relating to hotels owned by third parties and entered into
management  contracts  with an unrelated  company for the  management of Company
owned and leased hotels.  The Company  continues to perform  certain  accounting
functions relating to these hotels and anticipates that all such activities will
be  discontinued  during the second  quarter  of 2002.  Remaining  assets of the
discontinued  segment  are  not  significant.   Remaining   liabilities  of  the
discontinued  segment primarily consist of lease obligations and severance.  The
estimated  costs  associated  with such  obligations  have been  accrued and are
included in the 2001 estimated loss on disposal of hotel management segment.

     The same adverse  economic  conditions  which  affected the Company's  2001
hotel operations also affected other hotel owners from which the Company is owed
various accounts and notes receivable. Accordingly, during the fourth quarter of
2001, the Company recorded additional  receivable allowances (bad debt expenses)
of $878,964, $400,000 of such amount related to the Company's discontinued hotel
management operations.

     In April  2001,  nine  management  contracts  relating  to hotels  owned by
affiliates  of Quality  Lodging  LLC were  purportedly  terminated  by the hotel
owners.  The Company is  contesting  the  validity of such  terminations  and is
seeking to recover  damages through  arbitration and litigation.  The defendants
have alleged certain  counterclaims  and presently the outcome of the dispute is
uncertain.  Discontinued  operations'  loss from operations of hotel  management
segment in 2001 includes charges of  approximately  $1.1 million relating to the
termination of these contracts.

     The Company has continued  its expansion of the Country  Hearth Inn lodging
system.  The net number of Country  Hearth Inns open increased by 12 in 1999, by
nine in 2000, and by three in 2001 bringing the total number of properties  open
to 61. An additional seven properties are in various stages of development; most
of which are expected to open within the next 12 to 18 months.

     During 2000,  the Company sold a 40-room hotel in Texas, a 50-room hotel in
Ohio, and a 180-room hotel in Florida.  Net proceeds from these sales aggregated
approximately $1.1 million in cash plus a $550,000 note receivable.  Also, notes
payable of approximately $3.5 million were paid-off or assumed by purchasers.

     In August 2000, the Company acquired a 40-unit all suites property in Grand
Rapids,  Michigan  and a 42-unit  all  suites  property  in Dublin,  Ohio.  Both
properties  were  immediately  converted to operate under the Country Hearth Inn
franchise system. The Dublin property is owned by a limited partnership in which
the Company holds an  approximate  74% interest and the hotel secures a mortgage
note with an original  balance of $1.4  million.  The Grand  Rapids  property is
owned by an LLC in which the Company  holds a 20% interest and the hotel secures
a mortgage  note with an original  balance of $1.4 million.  The Company  leases
(triple-net  basis)  the  property  from the LLC for net  rent of  approximately
$200,000 per year. These two properties are included in those classified as held
for sale as of December 31, 2001.

     In June 2000, the Company  purchased a 40-room property in Georgia which it
had previously operated under a lease agreement.  The Company assumed a mortgage
note  payable of  approximately  $1.0  million  in  connection  therewith.  This
property was one of those sold during 2001.



                                       12
<PAGE>

     Capital expenditures during 2000, aggregated approximately $3.4 million and
mostly  related to the Company's two newly  constructed  Country  Hearth Inns in
Madison,   Indiana  and  Urbana,  Ohio.   Approximately  $2.3  million  of  such
expenditures  was funded by construction  loan commitments and the remainder was
funded by working  capital  and the  Company's  line of credit.  The Madison and
Urbana  properties  are  included  in  those  classified  as held for sale as of
December 31, 2001.

     In June 1999,  the Company  completed  the sale of the  Country  Hearth Inn
located in Orlando,  Florida for $13.5 million.  The Company held an approximate
59%  interest  in the  partnership  which owned the hotel in addition to holding
franchise  and hotel  management  contracts  relating  to the  operation  of the
property.  After  retirement of an approximate $4.4 million first mortgage loan,
payment of certain fees,  costs,  bonuses,  and minority  interest  shares,  the
Company's  share  of  net  proceeds  was  approximately   $5.5  million.   After
distributions to minority interest partners of approximately  $3.2 million,  the
Company began  soliciting for additional  partnership  units and the Company has
purchased an additional 15% of the partnership. The Company continued to operate
the property  under an agreement  with Orange  County,  Florida (the  purchaser)
until  January 2001 at which time the property  was  demolished  to make way for
expansion of the Orange County Convention Center.

     In August 1999, the Company purchased nine hotel management agreements from
the members of Quality Lodging,  LLC ("Quality") for an aggregate purchase price
of approximately $900,000,  including the issuance of 65,378 unregistered shares
of the Company's  common stock.  The Company also agreed to purchase  additional
contracts  from Quality when the related  hotel  properties  were  completed and
opened.  During 2000, the Company purchased an additional three contracts for an
aggregate   purchase  price  of   approximately   $230,000,   including   19,226
unregistered  shares  of  the  Company's  common  stock.  These  are  the  hotel
management contracts involved in the wrongful  termination  litigation discussed
above.

     The Company sold its leasehold  interests in four hotel  properties  during
1999  resulting  in  aggregate  gains of  approximately  $500,000.  These  sales
represented a  continuation  of the  Company's  previously  announced  desire to
divest itself of older properties.

     In July 1999,  the Company  completed  the sale of one of its three 40-room
hotel properties in Texas. A second of these properties was sold in January 2000
and the third  property was sold in March 2001.  Operating  profit  contribution
from these hotels has not been  significant.  Management  estimated an aggregate
loss on sale of these three properties to be approximately  $300,000.  Such loss
was recognized in the second quarter of 1999 by the recording of a provision for
impairment.

     The Company holds a 44.5%  interest in a  partnership  which owns a 93-room
Country Hearth Inn in Mason, Ohio. Due to an increase in effective control,  the
Company consolidated the partnership in its 1999 and 2000 financial  statements.
As a result of the consolidation, the Company's property and equipment increased
by  approximately  $4 million  and notes  payable by  approximately  $3 million.
During 1999, the Company loaned the  partnership  approximately  $240,000 which,
along with $268,000 from another partner,  was used to reduce the first mortgage
obligation on the hotel. This property was sold in March 2002 at an amount which
approximated  the balance of the first mortgage  loan.  The Company's  resulting
loss is included in the 2001 impairment provision discussed above.

     Capital  expenditures  during 1999 aggregated  approximately $3 million and
mostly  related to two new  Company  owned  Country  Hearth  Inns in  Eddyville,
Kentucky and Washington  Courthouse,  Ohio.  Approximately  $1.5 million of such
expenditures  was funded by construction  loan commitments and the remainder was
funded by working  capital  and the  Company's  line of credit.  The  Washington
Courthouse  property was among those sold during 2001 and the Eddyville property
is included in those classified as held for sale as of December 31, 2001.

     During the first half of 1999, the Company drew down $1 million on its bank
line of  credit  in  order  to  fund  working  capital  needs  and  construction
commitments. Also, the Company temporarily suspended payment of dividends on its
preferred stock.


                                       13
<PAGE>

     The  Company's  balance  sheet at December 31, 1999 included a deferred tax
asset of  $2,788,000.  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.
As a result of significant  operating  losses  incurred in the fourth quarter of
2000 and the necessity to recognize  significant  asset impairment  provisions ,
management elected to establish a valuation allowance for the full amount of the
Company's  deferred tax assets.  This resulted in the  recognition in the fourth
quarter of 2000 of a net income tax charge of approximately $2.9 million.


Liquidity and Capital Resources

     Net cash used in  continuing  operations in 2001 was  $2,226,157.  Net cash
used  in  all  operations,   including   discontinued   operations  amounted  to
$2,866,323.  The primary source for such cash was the sale of properties and the
termination  of  certain  leases  which  in  the  aggregate  provided  funds  of
$3,271,909.  Overall,  the Company's net cash and cash equivalents  decreased in
2001 by $720,666.

     The property  sales and lease  terminations  alone are expected to decrease
negative cash flow by  approximately  $500,000.  As certain other properties are
sold,  management  expects  additional  decreases  in  negative  cash flow.  The
Company's   hotel   management   segment  which  is  in  the  process  of  being
discontinued,  used  $640,166 of cash in 2001.  After  payment of  approximately
$500,000 of phase-out  costs,  management  expects  negative  cash flow from the
hotel management segment to be eliminated.

     The Company has  suspended  payment of preferred  stock  dividends  and has
negotiated  deferrals  of certain  note  payable  obligations.  The  Company has
significantly  reduced  personnel  and  implemented a salary  deferral  program.
Certain other overhead costs have been reduced or eliminated. The combination of
these and the previously  discussed actions are expected to reduce the Company's
negative cash flow from operations to an amount which  management  expects to be
funded from continued property sales.

     Current  portions  of notes  payable as of December  31,  2001  amounted to
approximately  $15.2  million.  Approximately  $8.1  million  of such  amount is
expected to be repaid by 2002 property  sales. As of March 29, 2002, the Company
was in  default  on  certain  of its note  payable  obligations.  Management  is
presently  conducting  negotiations with certain of its creditors  regarding the
modification of repayment terms. If such  negotiations  are not successful,  the
Company  will most  likely not be able to satisfy  all its  obligations  as they
become due.

     Management  is  also  exploring  sources  of  liquidity  other  than  those
described above, including the sale or financing of some of its other assets. No
assurance can be given that any of the previously  described  activities will be
successful.  These  circumstances  raise  substantial  doubt about the Company's
ability to continue as a going concern.

     Following is the Company's  material  contractual  cash  commitments  as of
December 31, 2001:

                                                 Operating
     Due In:         Notes Payable *        Lease Payments            Total

     2002               $ 15,227,767             1,301,995       16,529,762
     2003                    762,004             1,012,598        1,774,602
     2004                    692,507               983,213        1,675,720
     2005                    468,305               925,916        1,394,221
     2006                    325,669               843,649        1,169,318
     Thereafter            7,289,132             6,748,940       14,038,072

     * Includes capital lease obligations



                                       14
<PAGE>

Results of Operations

     The  Company  conducted  recurring  operations  in  three  segments  of the
limited-service hotel industry - hotel franchising,  hotel management, and hotel
operations.  The Company generates additional revenues and results of operations
from hotel development activities.

     Hotel franchising involves the selling and servicing of rights and licenses
comprising the Country Hearth Inn lodging system.  Revenues include initial fees
and continuing  royalty,  marketing and reservation  fees from Company owned and
leased hotels and from unaffiliated customers. Continuing fees are based on each
franchised hotel's room revenues.

     Hotel management  involved the oversight of day-to-day hotel operations and
accounting for limited-service and some full-service  hotels.  Revenues included
continuing  fees from  Company  owned and leased  hotels  and from  unaffiliated
customers. Continuing fees were based on each managed hotel's revenues.

     Hotel  operations  involves  the  operations  of  Company  owned and leased
hotels.  Revenues are generated from unaffiliated hotel guests. Hotel operations
also include the Company's  share  (equity  method) of  unconsolidated  entities
which also operate  hotels and the  minority  interests'  share of  consolidated
entities' results which are included in hotel operations.

     Hotel  development  activities  involve the development and construction or
purchase of existing hotel  properties  and  subsequent  sale thereof along with
related  activities  such as servicing  notes  receivable  generated from sales.
Corporate activities are generally  administrative and also include all interest
income  and  expense  which  does  not  specifically  relate  to  other  segment
operations.

     Franchise  and  management  fees were  charged to Company  owned and leased
hotels at the same rates as charged to unaffiliated customers and are eliminated
in consolidation.

     During  the  fourth  quarter  of  2001,  the  Company  adopted  a  plan  to
discontinue  its  hotel  management  activities.   The  Company  terminated  its
management  contracts relating to hotels owned by third parties and entered into
management  contracts  with an unrelated  company for the  management of Company
owned and leased hotels.  The Company  continues to perform  certain  accounting
functions relating to these hotels and anticipates that all such activities will
be  discontinued  during the second  quarter  of 2002.  Remaining  assets of the
discontinued  segment  are  not  significant.   Remaining   liabilities  of  the
discontinued  segment primarily consist of lease obligations and severance.  The
costs  associated with such  obligations have been estimated to be approximately
$500,000  which was accrued and included in the 2001  estimated loss on disposal
of hotel management segment. The 2001 phase-out loss also includes the write off
of  approximately  $180,000 of deferred costs  relating to management  contracts
which were terminated.

Hotel Franchising Segment

     Hotel  franchising  revenues and income before taxes amounted to $1,975,271
and $727,016,  respectively, in 2001, $1,784,142 and $424,763,  respectively, in
2000,  and  $2,141,373  and $901,020,  respectively,  in 1999.  The 1999 results
include  termination  fees of $640,895 from the Orlando hotel sale  transaction.
The  remaining  increases  in  revenues  and  profits  are  attributable  to the
previously  discussed  increases in the number of Country  Hearth Inns opened in
2001,  2000,  and 1999.  Revenues also include fees from Company owned or leased
hotels of $739,080 in 2001, $911,572 in 2000, and $809,624 in 1999.  Franchising
expenses in 2001  decreased  by $111,124  from the 2000  amount  partially  as a
result  of  the  Company's  overall  2001  cost  reduction  activities.  One  of
management's  goals  continues  to be the  expansion  of the Country  Hearth Inn
chain.


                                       15
<PAGE>

Hotel Operations Segment

     Hotel revenues  amounted to  $17,517,237 in 2001,  $23,717,220 in 2000, and
$25,886,594  in 1999.  Hotel  earnings  before  interest,  taxes,  depreciation,
amortization,   and  rent  ("EBITDAR")  declined  from  $7,115,743  in  1999  to
$4,931,736  in 2000 and to $3,478,161  in 2001.  As  previously  discussed,  the
Company has sold numerous  properties during 1999, 2000, and 2001. The decreases
specified  above  are  mostly  attributable  to those  transactions.  Additional
factors affecting the hotel operations segment are discussed below.

     Same property revenues generally declined moderately during the first three
quarters of 2001 and  declined  sharply in the fourth  quarter.  The first three
quarters'  decline is generally  attributable to slightly  weakened demand which
resulted in lower room occupancies.  Both occupancy and ADR (average daily rate)
decreased significantly in the fourth quarter as a result of extreme declines in
demand.  The ADR declines  have a much larger impact on  profitability  which is
reflected in lower profit margins in 2001.  Hotel  operations  segment  expenses
also  include  $130,807,  $812,654,  and  $131,065  in  2001,  2000,  and  1999,
respectively,  relating to joint  venture  losses.  Further  such joint  venture
losses are not expected.

     Management  has noted some mild upswings in demand during the first quarter
of 2002. However,  because of the liquidity issues previously  discussed,  it is
still the  Company's  intention to sell its  remaining  hotel assets and to seek
termination of its hotel leases.

     Decreases  in  hotel  operations  depreciation  and  interest  expense  are
directly related to property sales. Further decreases are expected as additional
properties  have been placed for sale. Rent expense is also expected to decrease
significantly in future periods as a result of lease terminations, most of which
occurred near the end of 2001.

Development and Corporate

     Development  revenues in 2000 and 1999 include  gains on property  sales of
$608,717 and $3,587,639.  The 2001  development  segment includes the previously
discussed  property  losses of  $1,675,699.  All three years include  impairment
provisions.  Property and  leasehold  interests  held for sale are stated at the
lower of cost or fair  value  less costs to sell.  Fair  value of  property  and
leasehold  interests held for sale has been  estimated by management  based upon
current market  information.  At the date on which a decision is made to dispose
of a property or leasehold interest,  any amount by which the carrying amount of
an asset exceeds the fair value less cost to sell is reported as a provision for
impairment.  During 2001,  2000, and 1999, the Company  recorded  provisions for
impairment of $6,360,000,  $2,050,000, and $373,529,  respectively,  relating to
its  properties  held for sale.  The  Company  recorded an  additional  $250,000
provision for impairment in 2000 relating to two hotel leases because the lender
had  initiated  foreclosure  activities  against  the  landlord  on  two  of the
properties.

     Investment  income  from  the  Company's  note  receivable   portfolio  and
investment  securities is included in development  and corporate  revenues.  The
decline  in 2001  investment  income  is due to the  recognition  of a  $288,000
other-than-temporary impairment on available-for-sale securities. Similar losses
in future periods are not expected.

     Development  and  corporate  expenses in 2001  include a $428,964  bad debt
provision relating to the Company's note receivable  portfolio.  Other operating
and  administrative  expenses decreased from $1,847,550 in 2000 to $1,495,506 in
2001 primarily as a result of the Company's  overall cost reduction  activities.
Management expects an additional decrease in 2002.

     Development and corporate interest expense relates to various notes payable
which do not relate directly to owned hotel properties.  Such notes include a $5
million convertible  debenture which is due in December 2002. See "Liquidity and
Capital Resources" above.

Risk Factors

     This report  contains  forward  looking  statements  that involve risks and
uncertainties. Statements contained in this report 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.



                                       16
<PAGE>


     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 under insured  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,
the risks involved in hotel renovation and construction,  and the uncertainty of
obtaining  additional  financing or extensions of existing credit  facilities as
needed. 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).  Also see  "Liquidity  and  Capital  Resources"  above and "Item 7A.
Quantitative and Qualitative Disclosures about Market Risk."


Critical Accounting Policies

Discontinued Operations

     The Company  reports its results of  discontinued  operations in accordance
with APB Opinion No. 30,  Reporting  the Results of  Operations - Reporting  the
Effects of Disposal of a Segment of a Business,  and Extraordinary,  Unusual and
Infrequently Occurring Events and Transactions.  Under APB Opinion No. 30, since
the  Company  has  determined  to  discontinue  the  management  segment  of its
business,  the net  results of  operations  and cash  flows from the  management
segment are  segregated and reported  separately  from the results of operations
and cash flows from continuing operations.  Additionally,  costs associated with
the  phasing  out of the  management  segment  and  the  expected  losses  to be
sustained  during the phase out period  have been  accrued  and  reported  as an
additional component of discontinued operations. Such accrued costs are based on
management's  current best  estimates and are subject to changes based on future
events.

Property, Equipment, and Leasehold Interests Held for Sale

     Property,  equipment,  and leasehold  interests held for sale are stated at
the lower of cost or fair value less costs to sell.  Fair value of property  and
leasehold  interests held for sale has been determined by the Company based upon
current market information  assuming a non-distressed  sale. Future events, such
as a forced  liquidation,  could negatively  impact such values.  At the date on
which a decision is made to dispose of a property  or  leasehold  interest,  any
amount by which the carrying amount of an asset exceeds the fair value less cost
to sell is  reported  as a provision  for  impairment.  Due to the intent of the
Company to dispose of such properties and leasehold interests in the short-term,
the properties, leasehold interests, and all related notes payable are initially
reflected  as  current  in  the  consolidated  balance  sheets.  Properties  and
leasehold interests which have remained held for sale for more than one year and
are not under contract for sale are classified as noncurrent.

Going Concern

     Management is continuing  negotiations with creditors for extensions and/or
reductions of obligations.  Management believes that it is possible that current
obligations  in 2002 could be met  through  assets  sales and  restructuring  of
certain  obligations.  However,  no assurance can be given that such  activities
will be  successful.  These  circumstances  raise  substantial  doubt  about the
Company's  ability to continue as a going concern.  The  consolidated  financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.


Effect of New Accounting Pronouncements

     In June  2001,  SFAS No.  141,  Business  Combinations  and  SFAS No.  142,
Goodwill and Other Intangible Assets, were issued. SFAS No. 141 requires the use
of purchase accounting for all business combinations entered into after June 30,
2001.  The Company  adopted the  provisions  of SFAS No. 141 as of July 1, 2001;
however,  there was no  material  impact on the  Company's  financial  position,
results of operations,  or cash flows.  SFAS No. 142 specifies that goodwill and
certain  intangible  assets  will no longer be  amortized  but  instead  will be
subject to  periodic  impairment  testing.  The Company is required to adopt the
provisions  of SFAS No. 142 as of January 1, 2002.  The Company  does not expect
any material impact on the Company's financial position,  results of operations,
or cash flows from the adoption of SFAS No. 142 due to the fact that there is no
goodwill recorded in the consolidated financial statements.


                                       17
<PAGE>

     In August 2001, SFAS No. 143, Accounting for Asset Retirement  Obligations,
was  issued.  SFAS  No.  143  addresses   financial   accounting  and  reporting
obligations associated with the retirement of tangible long-lived assets and for
the related  retirement costs. SFAS No. 143 is required to be adopted on January
1, 2003.  Management  does not anticipate that the adoption of SFAS No. 143 will
have  a  material  impact  on  the  Company's  financial  position,  results  of
operations or cash flows.

     In October 2001, SFAS No. 144, Accounting for the Impairment or Disposal of
Long-lived Assets,  was issued.  SFAS No. 144 supersedes and amends SFAS No. 121
and  relevant  portions  of APB  Opinion  No. 30. SFAS No. 144 is required to be
adopted on January 1, 2002.  Management does not anticipate that the adoption of
SFAS No. 144 will have a material  impact on the Company's  financial  position,
results of operations or cash flows.


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     As of December 31, 2001, the Company's  obligations  included variable rate
mortgage notes and a line of credit bank note with aggregate  principal balances
of $1,990,028 which mature at various dates through 2015. The Company is exposed
to the market risk of  significant  increases  in future  interest  rates.  Each
incremental  point  increase  in the prime  interest  rate  would  increase  the
Company's  interest  expense by  approximately  $20,000  per year.  This risk is
somewhat  mitigated  in that  inflationary  increases  in  interest  rates would
theoretically result in increases in average hotel room rates. Also, significant
increases  in  interest  rates  would have a dampening  effect on  additions  of
competitive hotels in the Company's markets.

     At December 31, 2001,  the  Company's  unrestricted  investment  securities
included equity securities valued at $22,419. The Company is exposed to the risk
that such securities will become worthless.  The Company's restricted investment
securities also include equity securities.  Such restricted  securities comprise
the assets of the Company's deferred  compensation plan and changes in the value
of such securities have no net impact on the Company's earnings.

     The ultimate  collection  of the Company's  notes  receivable is subject to
various  credit  risks.  Net notes  receivable  at December 31, 2001 amounted to
$4,547,390 and consisted of 34 notes,  most of which were  collateralized  by or
related to various hotel assets. Additionally,  the Company remains contingently
liable on three  mortgage  notes  payable  on which  the  Company  is  guarantor
relating to properties  sold in 2000 and 2001.  The notes'  balances at December
31, 2001 were  approximately  $3.7  million  and the notes are due in  aggregate
monthly   installments   of  $34,318  until  2018.   The  Company  also  remains
contingently  liable for future  minimum  rental  payments  totaling  $1,926,825
($610,177  in 2002,  $598,511 in 2003,  $360,488 in 2004,  and $357,649 in later
years) on sold leasehold  interests and on subleased and assigned properties and
equipment  in  the  event  of  default  by  the  purchasers,  sublessees  and/or
assignees.  The collection of such notes receivable and the potential  financial
exposure for guaranteed note  obligations and contingent rents is determinant on
the ability of other hotel operators to satisfy these obligations. Their ability
to  satisfy  such  obligations  is  subject to many  risks,  including  economic
conditions  affecting the hotel  industry,  their ability to effectively  manage
their hotel assets, new competition, and other factors.



                                       18
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

CONSOLIDATED FINANCIAL STATEMENTS WITH INDEPENDENT AUDITORS' REPORT THEREON

     Buckhead  America  Corporation's  consolidated  financial  statements  with
independent auditors' report thereon are included on the pages which follow.




                                       19
<PAGE>
















                          BUCKHEAD AMERICA CORPORATION
                                AND SUBSIDIARIES

                        Consolidated Financial Statements

                           December 31, 2001 and 2000

                   (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  (the Company) as of December 31, 2001 and 2000 and
the related  consolidated  statements  of income  (loss),  shareholders'  equity
(deficit) and comprehensive  income (loss), and cash flows for each of the years
in the three-year period ended December 31, 2001. 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 auditing standards generally accepted
in the  United  States of  America.  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, 2001 and 2000 and the results of
their  operations  and their cash flows for each of the years in the  three-year
period  ended  December  31,  2001  in  conformity  with  accounting  principles
generally accepted in the United States of America.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in note 1 to the
consolidated  financial  statements,  the Company has suffered  recurring losses
from  operations,  operating cash  deficiencies  and currently does not have the
ability to repay or refinance certain debt maturing in 2002. These circumstances
raise  substantial  doubt  about the  Company's  ability to  continue as a going
concern.  Management's  plans in regard to these  matters are also  described in
note 1. The  consolidated  financial  statements do not include any  adjustments
that might result from the outcome of this uncertainty.






Atlanta, Georgia
March 29, 2002

<PAGE>

                                            BUCKHEAD AMERICA CORPORATION
                                                  AND SUBSIDIARIES
                                             Consolidated Balance Sheets
                                             December 31, 2001 and 2000

<TABLE>
<CAPTION>
<S>                                                                                <C>                   <C>
                                                                                               2001          2000
ASSETS                                                                                        -------    -------------
Current assets:
      Cash and cash equivalents, including restricted cash of $329,479
         in 2001 and $382,646 in 2000 (note 3)                                        $      625,005        1,345,671
      Investment securities, including restricted securities of $168,259
         in 2001 and $182,067 in 2000 (note 4)                                               190,678          202,750
      Accounts receivable, net                                                             1,013,534        1,436,030
      Current portions of notes receivable, net (note 5)                                     676,017          832,055
      Property, equipment, and leasehold interests held for sale, net (notes 6
         and 8)                                                                           10,539,253       21,273,517
      Other current assets                                                                   289,438          202,911
                                                                                      ---------------    -------------
                      Total current assets                                                13,333,925       25,292,934
Investment securities (note 4)                                                                    --           42,771
Noncurrent portions of notes receivable, net (note 5)                                      3,871,373        3,695,160
Property, equipment, and leasehold interests held for sale, net (notes 6 and 8)            9,415,229               --
Other property and equipment, at cost, net (notes 6, 8, and 9)                               966,640       20,967,076
Deferred costs, net (note 7)                                                               1,149,831        2,535,461
Leasehold interests, net (note 7)                                                                 --          670,530
Other assets (note 7)                                                                             --          160,540
                                                                                      ---------------    -------------
                                                                                      $   28,736,998       53,364,472
                                                                                      ===============    =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
      Accounts payable                                                                $    1,250,123        1,310,588
      Accrued expenses                                                                     2,514,933        2,109,689
      Current portions of notes payable (note 8)                                          15,227,767       18,803,712
                                                                                      ---------------    -------------
                      Total current liabilities                                           18,992,823       22,223,989
Noncurrent portions of notes payable (note 8)                                              9,537,617       16,353,009
Other liabilities (note 4)                                                                   289,551          269,330
                                                                                      ---------------    -------------
                      Total liabilities                                                   28,819,991       38,846,328
                                                                                      ---------------    -------------
Minority interests                                                                           587,520          764,068
                                                                                      ---------------    -------------
Shareholders' equity (notes 10 and 13):
      Series B preferred stock; $100 par value. Authorized 200,000 shares;
         issued and outstanding 30,000 shares                                              3,000,000        3,000,000
      Common stock; $0.01 par value. Authorized 5,000,000 shares;
         issued 2,113,881 shares, outstanding 2,015,885 and 2,025,023 shares in
         2001 and 2000, respectively                                                          21,139           21,139
      Additional paid-in capital                                                           7,897,530        7,897,530
      (Accumulated deficit) retained earnings                                           (10,901,865)        3,729,683
      Accumulated other comprehensive loss                                                        --        (245,229)
      Treasury stock, 97,996 and 88,858 common shares
         in 2001 and 2000, respectively                                                    (687,317)        (649,047)
                                                                                      ---------------    -------------
                      Total shareholders' equity                                           (670,513)       13,754,076

Commitments and contingencies (notes 8, 9, and 15)
                                                                                      ---------------    -------------
                                                                                      $   28,736,998       53,364,472
                                                                                      ===============    =============
</TABLE>

          See accompanying notes to consolidated financial statements.



                                       22
<PAGE>


                          BUCKHEAD AMERICA CORPORATION
                                AND SUBSIDIARIES
                    Consolidated Statements of Income (Loss)
                  Years ended December 31, 2001, 2000, and 1999

<TABLE>
<CAPTION>
<S>                                                                <C>                     <C>               <C>
                                                                            2001               2000              1999
                                                                       ----------------    --------------    -------------
Revenues:
      Hotel revenues                                                   $    17,517,237        23,717,220       25,886,594
      Franchise fee income (note 6)                                          1,200,810           872,570        1,331,749
      Gains on property sales, net (notes 6 and 7)                                  --           608,717        3,587,639
      Investment income (note 4)                                               207,955           442,719          495,531
      Other income, net                                                             --            14,237           38,591
                                                                       ----------------    --------------    -------------
             Total revenues                                                 18,926,002        25,655,463       31,340,104
                                                                       ----------------    --------------    -------------
Expenses:
      Hotel operations                                                      13,474,214        17,454,398       18,141,606
      Franchise operations                                                     767,230           840,239          808,909
      Other operating and administrative (notes 11 and 14)                   1,495,506         1,847,550        1,702,913
      Leasehold rent                                                         2,621,336         2,601,020        2,858,378
      Bad debt expense (note 5)                                                478,964                --               --
      Depreciation and amortization (note 6)                                   836,060         1,607,648        1,752,372
      Losses on property sales and lease
         terminations (notes 6, 7, and 8)                                    1,675,699                --               --
      Provisions for impairment (note 6)                                     6,360,000         2,300,000          373,529
      Interest                                                               2,834,203         2,999,599        3,299,283
      Equity in joint venture losses (note 7)                                  130,807           812,654          131,065
                                                                       ----------------    --------------    -------------
             Total expenses                                                 30,674,019        30,463,108       29,068,055
                                                                       ----------------    --------------    -------------
             (Loss) income from continuing operations before
               income taxes                                               (11,748,017)       (4,807,645)        2,272,049
Provision for income taxes (note 12)                                                --         2,859,328          880,000
                                                                       ----------------    --------------    -------------
             (Loss) income from continuing operations                     (11,748,017)       (7,666,973)        1,392,049
                                                                       ----------------    --------------    -------------
Discontinued operations (note 16):
      (Loss) income from operations of hotel management
         segment (less income taxes in 1999 of $175,000)                   (1,995,578)         (606,148)          276,908
      Estimated loss on disposal of hotel management
         segment, including operating losses during
         phase-out period                                                    (679,828)                --               --
                                                                       ----------------    --------------    -------------
             (Loss) income from discontinued operations                    (2,675,406)         (606,148)          276,908
                                                                       ----------------    --------------    -------------
             Net (loss) income                                         $  (14,423,423)       (8,273,121)        1,668,957
                                                                       ================    ==============    =============
Net (loss) income per common share (note 10):
      Basic:
         Continuing operations                                         $        (5.96)            (3.93)             0.55
         Discontinued operations                                                (1.33)            (0.30)             0.14
                                                                       ----------------    --------------    -------------
             Net (loss) income                                         $        (7.29)            (4.23)             0.69
                                                                       ================    ==============    =============
      Diluted:
         Continuing operations                                         $        (5.96)            (3.93)             0.52
         Discontinued operations                                                (1.33)            (0.30)             0.09
                                                                       ----------------    --------------    -------------
             Net (loss) income                                         $        (7.29)            (4.23)             0.61
                                                                       ================    ==============    =============
</TABLE>


          See accompanying notes to consolidated financial statements.



                                       23
<PAGE>


                          BUCKHEAD AMERICA CORPORATION
                                AND SUBSIDIARIES
            Consolidated Statements of Shareholders' Equity (Deficit)
                        and Comprehensive Income (Loss)
                  Years ended December 31, 2001, 2000, and 1999


<TABLE>
<CAPTION>
<S>                                <C>               <C>             <C>           <C>          <C>          <C>
                                                                                                             (ACCUMULATED
                                                                     SERIES A      SERIES B     ADDITIONAL    DEFICIT)
                                   COMPREHENSIVE       COMMON        PREFERRED     PREFERRED    PAID-IN       RETAINED
                                   INCOME (LOSS)        STOCK          STOCK        STOCK       CAPITAL       EARNINGS
                                   --------------    ------------    ----------    ---------    ---------    ------------
Balances at December 31, 1998                        $    20,033     3,000,000           --     7,362,487     10,728,847
Issuance   of  65,378   common
  shares for asset acquisition                               654            --           --       391,614             --
Issuance   of  26,000   common
  shares pursuant  to  exercise
  of options                                                 260            --           --       100,820             --
Acquisition  of  6,000  common
  shares                                                      --            --           --            --             --
Preferred stock dividends paid                                --            --           --            --      (163,750)
Comprehensive income:
  Net income                       $   1,668,957              --            --           --            --      1,668,957
  Change in unrealized loss
    on investment securities                  --              --            --           --            --             --
                                   --------------
    Total comprehensive income     $   1,668,957
                                   ==============    ------------    ----------    ---------    ---------    ------------
Balances at December 31, 1999                             20,947     3,000,000           --     7,854,921     12,234,054
Issuance   of  19,226   common
  shares for asset acquisition                               192            --           --        95,938             --
Acquisition  of 23,516  common
  shares                                                      --            --           --            --             --
Preferred stock dividends paid                                --            --           --            --      (231,250)
Exchange of Series A preferred
  stock for Series B preferred
  stock                                                       --   (3,000,000)    3,000,000      (53,329)             --
Comprehensive loss:
  Net loss                         $ (8,273,121)              --            --           --            --    (8,273,121)
  Change in unrealized loss
    on investment securities            (97,206)              --            --           --            --             --
                                   --------------
    Total comprehensive loss       $ (8,370,327)
                                   ==============    ------------    ----------    ---------    ---------    ------------
Balances at December 31, 2000                             21,139            --    3,000,000     7,897,530      3,729,683
Acquisition  of  9,138  common
  shares                                                      --            --           --            --             --
Preferred stock dividends paid                                --            --           --            --      (208,125)
Comprehensive loss:
  Net loss                         $(14,423,423)              --            --           --            --   (14,423,423)
  Change in unrealized loss
    on investment securities
    (see below)                          245,229              --            --           --            --             --
                                   --------------
    Total comprehensive loss       $(14,178,194)
                                   ==============    ------------    ----------    ---------    ---------    ------------
Balances at December 31, 2001                        $    21,139            --    3,000,000     7,897,530   (10,901,865)
                                                     ============    ==========    =========    =========    ============
                                                            2001          2000         1999
                                                     ------------    ----------    ---------
Disclosure of reclassification
  amount:
  Unrealized holding losses arising
    during the period                                $  (42,771)      (97,906)           --
      Less reclassification adjustment for
      losses included in income                          288,000            --           --
                                                     ------------    ----------    ---------
                                                     $   245,229      (97,906)           --
                                                     ============    ==========    =========
</TABLE>

<TABLE>
<CAPTION>
<S>                                 <C>              <C>           <C>
                                     ACCUMULATED                     TOTAL
                                       OTHER                      SHAREHOLDERS'
                                    COMPREHENSIVE     TREASURY      EQUITY
                                        LOSS           STOCK       (DEFICIT)
                                    -------------    ----------    -----------
Balances at December 31, 1998          (148,023)     (471,019)     20,492,325
Issuance   of  65,378   common
  shares for asset acquisition                --            --        392,268
Issuance   of  26,000   common
  shares pursuant  to  exercise
  of options                                  --            --        101,080
Acquisition  of  6,000  common
  shares                                      --      (36,261)       (36,261)
Preferred stock dividends paid                --            --      (163,750)
Comprehensive income:
  Net income                                  --            --      1,668,957
  Change in unrealized loss
    on investment securities                  --            --             --

    Total comprehensive income
                                    -------------    ----------    -----------
Balances at December 31, 1999          (148,023)     (507,280)     22,454,619
Issuance   of  19,226   common
  shares for asset acquisition                --            --         96,130
Acquisition  of 23,516  common
  shares                                      --     (141,767)      (141,767)
Preferred stock dividends paid                --            --      (231,250)
Exchange of Series A preferred
  stock for Series B preferred
  stock                                       --            --       (53,329)
Comprehensive loss:
  Net loss                                    --            --    (8,273,121)
  Change in unrealized loss
    on investment securities            (97,206)            --       (97,206)

    Total comprehensive loss
                                    -------------    ----------    -----------
Balances at December 31, 2000          (245,229)     (649,047)     13,754,076
Acquisition  of  9,138  common
  shares                                      --      (38,270)       (38,270)
Preferred stock dividends paid                --            --      (208,125)
Comprehensive loss:
  Net loss                                    --            --   (14,423,423)
  Change in unrealized loss
    on investment securities
    (see below)                          245,229            --        245,229

    Total comprehensive loss
                                    -------------    ----------    -----------
Balances at December 31, 2001                 --     (687,317)      (670,513)
                                    =============    ==========    ===========

</TABLE>


                See accompanying notes to consolidated financial
                                   statements.



                                       24
<PAGE>

                          BUCKHEAD AMERICA CORPORATION
                                AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                  Years ended December 31, 2001, 2000, and 1999



<TABLE>
<CAPTION>
<S>                                                                  <C>                <C>           <C>
                                                                            2001           2000           1999
                                                                         ------------    ----------    -----------
Cash flows from operating activities:
     (Loss) income from continuing operations                          $(11,748,017)   (7,666,973)      1,392,049
     Adjustments  to  reconcile   income  (loss)  from   continuing
       operations to net cash  provided by (used in)  continuing
       operating activities:
          Depreciation and amortization                                      836,060     1,607,648      1,752,372
          (Purchases) sales of trading securities, net                       (8,088)     1,113,599    (1,127,927)
          Realized losses (gains) on trading securities                        2,505     (114,510)       (39,377)
          Unrealized   holding   losses  (gains)  on  trading
            securities                                                        17,655       110,417       (16,033)
          Realized losses on available-for-sale securities                   288,000            --             --
          Losses   (gains)  on   property   sales  and  lease
            terminations                                                   1,675,699     (608,717)    (5,883,451)
          Provisions for impairment                                        6,360,000     2,300,000        373,529
          Bad debt expense                                                   478,964            --             --
          Minority interest in (loss) income                               (199,024)       137,543      2,544,050
          Equity in joint venture losses                                     130,807       812,654        131,065
          Deferred income tax expense (benefit)                                   --     2,859,328        880,000
          Changes in assets and liabilities:
            Accounts receivable, net                                          22,496       420,972         29,339
            Accounts payable and accrued expenses                          (155,221)       786,093      (830,826)
            Other, net                                                        72,007       340,501       (45,069)
                                                                         ------------    ----------    -----------
                    Net   cash   (used   in)    provided   by
                      continuing operating activities                    (2,226,157)     2,098,555      (840,279)

     Net cash (used in) provided by discontinued operations                (640,166)     (430,525)        508,379
                                                                         ------------    ----------    -----------
                    Net cash (used in) provided by operations            (2,866,323)     1,668,030      (331,900)
                                                                         ------------    ----------    -----------
Cash flows from investing activities:
     Principal receipts on notes receivable                                  615,861       695,094        288,075
     Originations of notes receivable                                      (140,000)     (897,500)      (400,000)
     Acquisitions of businesses and hotels                                        --   (1,127,144)      (506,041)
     Capital expenditures                                                  (553,010)   (3,430,915)    (2,990,276)
     Investments in joint ventures                                                --     (604,114)             --
     Proceeds from property sales and lease terminations                   3,271,909     1,202,088      8,043,247
     Acquisition of additional partnership interests                         (9,832)            --      (110,000)
                                                                         ------------    ----------    -----------
                    Net cash  provided by (used in) investing
                      activities                                           3,184,928   (4,162,491)      4,325,005
                                                                         ------------    ----------    -----------
Cash flows from financing activities:
     Proceeds from notes payable                                             240,000     3,309,119      2,762,902
     Repayments of notes payable                                         (1,065,184)   (1,209,732)    (2,663,520)
     Contributions by minority interest holders                               65,284            --             --
     Distributions to minority interest holders                             (32,976)     (223,765)    (3,206,894)
     Proceeds from issuance of common shares                                      --            --        101,080
     Issuance costs of preferred stock                                            --      (53,329)             --
     Purchase of treasury shares                                            (38,270)     (141,767)       (36,261)
     Preferred stock dividends paid                                        (208,125)     (231,250)      (163,750)
                                                                         ------------    ----------    -----------
                    Net cash (used in)  provided by financing
                      activities                                         (1,039,271)     1,449,276    (3,206,443)
                                                                         ------------    ----------    -----------
                    Net (decrease)  increase in cash and cash
                      equivalents                                          (720,666)   (1,045,185)        786,662

Cash and cash equivalents at beginning of year                             1,345,671     2,390,856      1,604,194
                                                                         ------------    ----------    -----------
Cash and cash equivalents at end of year                                 $   625,005     1,345,671      2,390,856
                                                                         ============    ==========    ===========
Supplemental disclosure of cash flow information:
     Cash  paid  during  the year  for  interest,  net of  interest
       capitalized of $-0- in 2001, $30,571 in 2000, and
       $34,024 in 1999                                                   $ 2,691,424     2,857,421      3,362,708
     Cash paid during the year for income taxes                                2,038        71,328         12,000


                                                                                                       (Continued)
</TABLE>



                                       25
<PAGE>

                          BUCKHEAD AMERICA CORPORATION
                                AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                  Years ended December 31, 2001, 2000, and 1999



<TABLE>
<CAPTION>
<S>                                                                  <C>                <C>           <C>
                                                                            2001           2000           1999
                                                                         ------------    ----------    -----------

Supplemental  disclosure  of noncash and partial cash
investing  and  financing activities:
     During 2001,  the Company  recorded the following  partial cash activity
     relating  to the sale of 12 owned or leased  hotels,  three  parcels  of
     land, and the termination of seven long-term leases on hotel properties:
       Proceeds:
          Cash, net of closing costs and debt repayments          $       3,271,909
          Notes receivable                                                  975,000
                                                                  ------------------
                                                                          4,246,909
                                                                  ------------------
       Basis of assets sold:
          Property, equipment, and leasehold
            interests, net of
            impairment allowances of
            $1,218,185                                                   15,429,852
          Deferred costs                                                     78,909
          Notes payable                                                 (9,586,153)
                                                                  ------------------
                                                                          5,922,608
                                                                  ------------------
                    Loss on sales, net                            $     (1,675,699)
                                                                  ==================

     During 2000,  the Company  recorded the following  partial cash activity
     relating to the sale of three hotels and a parcel of unimproved land:
       Proceeds:
          Cash, net of closing costs                                                    $   1,202,088
          Notes receivable                                                                    550,000
                                                                                        -------------
                                                                                            1,752,088
                                                                                        -------------
       Basis of assets sold:
          Property, equipment, and leasehold
            interests, net                                                                  4,563,459
          Notes payable                                                                   (3,509,808)
          Other, net                                                                           89,720
                                                                                        -------------
                                                                                            1,143,371
                                                                                        -------------
                    Gain on sales, net                                                  $     608,717
                                                                                        =============

     During 2000,  the Company  recorded the following  partial cash activity
     relating to the acquisition of three hotels:
       Costs:
          Cash                                                                          $     992,556
          Notes receivable applied                                                            225,694
          Notes payable issued or assumed                                                   3,767,800
          Minority interest holder's contribution                                             400,000
                                                                                        -------------
                                                                                        $   5,386,050
                                                                                        =============
       Allocated to:
          Property and equipment                                                        $   5,283,331
          Deferred costs                                                                      102,719
                                                                                        -------------
                                                                                        $   5,386,050
                                                                                        =============
     During 2000,  the Company  recorded the following  partial cash activity
     relating  to the  acquisition  of  management  contracts  on three hotel
     properties:
       Costs:
          Cash                                                                          $     134,588
          Common stock issued - 19,226 shares                                                  96,130
                                                                                        -------------
                    Allocated to deferred costs                                         $     230,718
                                                                                        =============



                                                                                                          (Continued)

</TABLE>


                                       26
<PAGE>

                          BUCKHEAD AMERICA CORPORATION
                                AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                  Years ended December 31, 2001, 2000, and 1999



<TABLE>
<CAPTION>
<S>                                                                  <C>                <C>           <C>
                                                                            2001           2000           1999
                                                                         ------------    ----------    -----------

     During 1999,  the Company  recorded the following  partial cash activity
     relating to the sale of a 150-room hotel in Orlando, Florida:
       Gross sales price                                                                                 $ 13,500,000
       Gross sales price allocated to management
          and franchise contract termination                                                              (1,446,590)
                                                                                                         -------------
                    Net sales price                                                                        12,053,410
       Payoff of note payable                                                                               4,383,335
       Other costs                                                                                            330,505
                                                                                                         -------------
                    Net cash proceeds                                                                       7,339,570
                                                                                                         -------------
       Basis of assets sold:
          Property and equipment, net                                                                       6,191,988
          Note payable                                                                                    (4,383,335)
          Other                                                                                               149,305
                                                                                                         -------------
                                                                                                            1,957,958
                                                                                                         -------------
                    Gain on sale                                                                            5,381,612
       Minority interest holders' share of gain on sale                                                   (2,319,182)
                                                                                                         -------------
       Company share of gain on sale                                                                     $  3,062,430
                                                                                                         =============
     During  1999,  the Company  also  recorded  the  following  partial cash
     activity relating to the sale of one other hotel and leasehold interests
     in four hotels:
       Proceeds:
          Cash, net of closing costs                                                                     $    703,677
          Notes receivable                                                                                    825,000
                                                                                                         -------------
                                                                                                            1,528,677
                                                                                                         -------------
       Basis of assets sold:
          Property and equipment, net                                                                         896,829
          Leasehold interests, net                                                                            655,009
          Note payable                                                                                      (525,000)
                                                                                                         -------------
                                                                                                            1,026,838
                                                                                                         -------------
                    Gain on sales, net                                                                   $    501,839
                                                                                                         =============
     During 1999,  the Company  recorded the following  partial cash activity
     relating  to the  acquisition  of  management  contracts  on nine  hotel
     properties:
       Costs:
          Cash                                                                                           $    506,041
          Common stock issued - 65,378 shares                                                                 392,268
                                                                                                         -------------
                    Allocated to deferred costs                                                          $    898,309
                                                                                                         =============

                                                                                                          (Continued)
</TABLE>



                                       27
<PAGE>


                          BUCKHEAD AMERICA CORPORATION
                                AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                  Years ended December 31, 2001, 2000, and 1999



<TABLE>
<CAPTION>
<S>                                                                  <C>                <C>           <C>
                                                                            2001           2000           1999
                                                                         ------------    ----------    -----------




     During 1999, the Company acquired additional control in a partnership which
     owns a hotel property subject to mortgage notes payable. Prior to 1999, the
     Company's  investment  in the  partnership  had been  accounted  for on the
     equity  method.  Due  to  the  increase  in  control,  the  1999  financial
     statements include the accounts of the partnership on a consolidated basis.
     The noncash impact on investing and financing  activities of  consolidating
     the partnership in 1999 was as follows:
       Investing:
          Increase in property and equipment, net                                                      $    3,956,581
          Decrease in investments in partnerships                                                           (365,907)
                                                                                                       ---------------
                                                                                                       $    3,590,674
                                                                                                       ===============
       Financing:
          Increase in notes payable                                                                    $    3,091,339
          Increase in minority interests                                                                      502,015
          Other, net                                                                                          (2,680)
                                                                                                       ---------------
                                                                                                       $    3,590,674
                                                                                                       ===============

</TABLE>

          See accompanying notes to consolidated financial statements.




                                       28
<PAGE>

                          BUCKHEAD AMERICA CORPORATION
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 2001 and 2000


(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.

     The primary  activities  of the  Company  involve  the  franchising  of the
     Country  Hearth  Inn  chain,   limited-service  hotel  management  and  the
     operation, development, and sales of hotel properties.

     The  Company's  operations  did not generate  sufficient  cash to cover its
     current  obligations  during 2001.  The Company used proceeds from sales of
     its operating  assets in order to remain  liquid and  implemented a plan to
     discontinue its hotel management segment, a personnel  reduction,  a salary
     deferment  program,  and other cost reduction  strategies.  The Company has
     also negotiated  extensions,  and sometimes  reductions,  of certain of its
     obligations.

     These activities are ongoing and management believes that the negative cash
     flow from operations will be significantly  reduced in 2002, but will still
     be negative.  Thus, the Company's  program of selling assets is continuing.
     Current  economic  conditions  affecting the  hospitality  industry are not
     favorable  and the Company did not receive its  invested  values from sales
     occurring in 2001 and expects  similar results for sales occurring in 2002.
     During  the fourth  quarter  of 2001,  economic  conditions  affecting  the
     hospitality  industry  worsened,  and the  Company  accordingly  recognized
     significant write-downs of various assets in the fourth quarter of 2001.

     As of March 29,  2002,  the  Company  was in default of certain of its note
     payable obligations.  Management is continuing  negotiations with creditors
     for extensions and/or reductions of obligations.  Management  believes that
     it is possible that current obligations in 2002 could be met through assets
     sales and restructuring of certain  obligations.  However, no assurance can
     be given that such activities will be successful. These circumstances raise
     substantial  doubt  about the  Company's  ability  to  continue  as a going
     concern.   The  consolidated   financial  statements  do  not  include  any
     adjustments that might result from the outcome of this uncertainty.

(2)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     (A)  PRINCIPLES OF CONSOLIDATION

          The  accompanying   consolidated   financial  statements  include  the
          accounts of the Company and its wholly owned  subsidiaries.  They also
          include, on a consolidated basis, the accounts of two partnerships and
          one  company  controlled  by the  Company,  each of which owns a hotel
          subject to a nonrecourse mortgage.  The accounts of these entities are
          consolidated  on a gross basis with the minority  interests  reflected
          separately on a net basis. All significant  intercompany  balances 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  accounting
          principles generally accepted in the United States of America.  Actual
          results could differ from those estimates.

                                       29                            (Continued)
<PAGE>
                          BUCKHEAD AMERICA CORPORATION
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 2001 and 2000


     (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  generally  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  franchisee's  room
          revenues. These continuing fees are recognized when earned. Management
          fees are generally based on a percentage of each managed hotel's gross
          revenues and are recognized when earned.

          Investment income is recognized as earned. Changes in the market value
          of  investments  classified  as trading  securities  are  included  in
          investment income.

     (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 (loss).
          Available-for-sale  securities  are  classified  as  long-term,  while
          trading  securities  are  classified  as current  in the  accompanying
          consolidated balance sheets.



                                       30                            (Continued)
<PAGE>
                          BUCKHEAD AMERICA CORPORATION
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 2001 and 2000


     (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)  PROPERTY, EQUIPMENT, AND LEASEHOLD INTERESTS HELD FOR SALE

          Property,  equipment, and leasehold interests held for sale are stated
          at the lower of cost or fair value  less costs to sell.  Fair value of
          property and leasehold  interests held for sale has been determined by
          the Company  based upon  current  market  information.  At the date on
          which a  decision  is made  to  dispose  of a  property  or  leasehold
          interest,  any amount by which the carrying amount of an asset exceeds
          the fair  value  less  cost to sell is  reported  as a  provision  for
          impairment.  Due to the  intent  of the  Company  to  dispose  of such
          properties and leasehold interests in the short-term,  the properties,
          leasehold  interests,  and all  related  notes  payable  are  intially
          reflected as current in the accompanying  consolidated balance sheets.
          Properties and leasehold  interests  which have remained held for sale
          for  more  than  one  year  and are not  under  contract  for sale are
          classified as  noncurrent.  The Company has the ability to remove such
          properties  and  leasehold  interests  from  operations at the current
          time.

     (H)  DEFERRED COSTS

          Deferred costs include the costs  associated  with the  acquisition of
          trademark  rights and  franchise  licenses  which are  amortized  on a
          straight-line  basis over the  estimated  useful  lives of the assets,
          which  range  from  10  to  20  years.  Deferred  costs  also  include
          unamortized  note payable  issuance costs which are amortized over the
          term of the related notes  payable.  Deferred  costs also included the
          acquisition  costs of long-term hotel  management  contracts which are
          amortized over the related terms of the contracts.

                                       31                            (Continued)
<PAGE>
                          BUCKHEAD AMERICA CORPORATION
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 2001 and 2000


     (I)  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.

     (J)  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.

     (K)  TREASURY STOCK

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

     (L)  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  $984,972,
          $1,235,054,  and  $1,156,983  for the years ended  December  31, 2001,
          2000, and 1999, respectively, and are included in franchise operations
          expense ($60,436,  $335,147, and $101,161,  respectively) and in hotel
          operations expense ($924,536, $899,907, and $1,055,822,  respectively)
          in the accompanying consolidated statements of income (loss).

     (M)  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.

     (N)  FAIR VALUE OF FINANCIAL INSTRUMENTS

          Management  believes  that  the  carrying  amounts  of cash  and  cash
          equivalents,   accounts  receivable,   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.

                                       32                            (Continued)
<PAGE>
                          BUCKHEAD AMERICA CORPORATION
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 2001 and 2000


          Investment securities (both trading and available-for-sale) are stated
          at fair value in the accompanying  consolidated  balance sheets. 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.

     (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  disclosures  required by 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 (LOSS)

          Comprehensive  income  (loss) of the  Company  consists  of net income
          (loss) and net unrealized  losses on investment  securities  available
          for  sale  (other   comprehensive   loss)  and  is  presented  in  the
          consolidated  statements  of  shareholders'  equity and  comprehensive
          income (loss).  Other comprehensive loss does not affect the Company's
          consolidated results of operations.

     (R)  REPORTABLE SEGMENTS

          The Company  reports both  quantitative  and  qualitative  information
          regarding its reportable  operating  segments.  Operating segments are
          determined  by  assessing  what  information  is reviewed by the chief
          operating decision maker in evaluating the performance of the Company.

                                       33                            (Continued)
<PAGE>
                          BUCKHEAD AMERICA CORPORATION
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 2001 and 2000


          The Company has  determined its  reportable  operating  segments to be
          hotel  operations,  management,  and franchising and has presented the
          required  information  for each of these  segments.  During 2001,  the
          Company committed to a plan to dispose of its management segment.

     (S)  DISCONTINUED OPERATIONS

          The  Company  reports  its  results  of  discontinued   operations  in
          accordance  with  APB  Opinion  No.  30,   Reporting  the  Results  of
          Operations  -  Reporting  the  Effects of  Disposal  of a Segment of a
          Business, and Extraordinary, Unusual and Infrequently Occurring Events
          and  Transactions.  Under APB  Opinion  No. 30,  since the Company has
          determined to discontinue the management segment of its business,  the
          net results of operations and cash flows from the  management  segment
          are segregated and reported  separately from the results of operations
          and  cash  flows  from  continuing  operations.   Additionally,  costs
          associated  with the  phasing  out of the  management  segment and the
          expected losses to be sustained  during the phase out period have been
          accrued  and  reported  as an  additional  component  of  discontinued
          operations.

     (T)  RECLASSIFICATIONS

          Certain reclassifications have been made to the 2000 and 1999 balances
          to conform with the presentation used in 2001.

     (U)  EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS

          In June 2001, SFAS No. 141,  Business  Combinations  and SFAS No. 142,
          Goodwill  and  Other  Intangible  Assets,  was  issued.  SFAS No.  141
          requires the use of purchase accounting for all business  combinations
          entered into after June 30, 2001.  The Company  adopted the provisions
          of SFAS No. 141 as of July 1,  2001;  however,  there was no  material
          impact on the Company's financial position,  results of operations, or
          cash  flows.   SFAS  No.  142  specifies  that  goodwill  and  certain
          intangible  assets will no longer be  amortized  but  instead  will be
          subject to  periodic  impairment  testing.  The Company is required to
          adopt the  provisions  of SFAS No.  142 as of  January  1,  2002.  The
          Company does not expect any material impact on the Company's financial
          position,  results of  operations,  or cash flows from the adoption of
          SFAS No. 142 due to the fact that there is no goodwill recorded in the
          consolidated financial statements.

          In  August  2001,  SFAS  No.  143,  Accounting  for  Asset  Retirement
          Obligations,  was issued. SFAS No. 143 addresses financial  accounting
          and reporting  obligations  associated with the retirement of tangible
          long-lived  assets and for the related  retirement costs. SFAS No. 143
          is  required  to be adopted on  January 1, 2003.  Management  does not
          anticipate  that the  adoption  of SFAS No.  143 will have a  material
          impact on the Company's financial  position,  results of operations or
          cash flows.

          In October  2001,  SFAS No.  144,  Accounting  for the  Impairment  or
          Disposal of Long-lived Assets, was issued. SFAS No. 144 supersedes and
          amends SFAS No. 121 and relevant  portions of APB Opinion No. 30. SFAS
          No. 144 is required to be adopted on January 1, 2002.  Management does
          not anticipate  that the adoption of SFAS No. 144 will have a material
          impact on the Company's financial  position,  results of operations or
          cash flows.

                                       34                            (Continued)
<PAGE>
                          BUCKHEAD AMERICA CORPORATION
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 2001 and 2000


(3)  CASH AND CASH EQUIVALENTS

     Cash and cash  equivalents  at  December  31,  2001 and 2000  included  the
     following:

<TABLE>
<CAPTION>
      <S>                                                                       <C>                     <C>
                                                                                        2001                   2000
                                                                                 --------------------   --------------------

      Unrestricted cash:
          Operating accounts, money market funds, and overnight investments      $        189,175                660,304
          Hotel operating accounts, savings accounts, and cash on hand                    106,351                302,721
                                                                                 --------------------   --------------------
                                                                                          295,526                963,025
      Restricted cash - mortgage-related escrows                                          329,479                382,646
                                                                                 --------------------   --------------------
                                                                                 $        625,005              1,345,671
                                                                                 ====================   ====================
</TABLE>

     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.

(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, 2001
     and 2000, are as follows:

<TABLE>
<CAPTION>
<S>                                 <C>                    <C>                    <C>                   <C>
                                                                             2001
                                    ----------------------------------------------------------------------------------------
                                                            GROSS UNREALIZED       GROSS UNREALIZED
                                        AMORTIZED               HOLDING                HOLDING                 FAIR
                                           COST                  GAINS                  LOSSES                 VALUE
                                    -------------------    -------------------    -------------------   --------------------
      Trading securities:
        Equity securities           $        9,332                 16,488                 (3,401)               22,419
        Third-party managed funds          184,701                     --                (16,442)              168,259
                                    -------------------    -------------------    -------------------   --------------------
                                    $      194,033                 16,488                (19,843)              190,678
                                    ===================    ===================    ===================   ====================

</TABLE>

                                       35                            (Continued)
<PAGE>
                          BUCKHEAD AMERICA CORPORATION
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 2001 and 2000



<TABLE>
<CAPTION>
<S>                                 <C>                    <C>                    <C>                   <C>
                                                                             2000
                                    ----------------------------------------------------------------------------------------
                                                            GROSS UNREALIZED       GROSS UNREALIZED
                                        AMORTIZED               HOLDING                HOLDING                 FAIR
                                           COST                  GAINS                  LOSSES                 VALUE
                                    -------------------    -------------------    -------------------   --------------------

      Trading securities:
        Equity securities           $        9,332                 14,728                 (3,377)               20,683
        Third-party managed funds          179,118                  2,949                     --               182,067
                                    -------------------    -------------------    -------------------   --------------------
                                           188,450                 17,677                 (3,377)              202,750
      Available-for-sale
        securities - equity
        securities                         288,000                     --               (245,229)               42,771
                                    -------------------    -------------------    -------------------   --------------------
                    Total           $      476,450                 17,677               (248,606)              245,521
                                    ===================    ===================    ===================   ====================
</TABLE>

     Equity  securities  are  primarily   concentrated  in  hospitality  related
     companies.

     The available-for-sale  securities were acquired in 1998 in connection with
     the  purchase of certain  leases  (note 7) and are  restricted  as to their
     sale.  During 2001, it was determined that these securities had experienced
     an other-than-temporary impairment. Therefore, the Company has recognized a
     writedown of $288,000 in the accompanying  consolidated statement of income
     (loss) for 2001. Other comprehensive loss in 2000 consists of an unrealized
     loss on  available-for-sale  securities of $97,206.  There was no change in
     this unrealized loss in 1999.

     Third party  managed funds  consist of trading  securities  held by a Rabbi
     Trust for the benefit of certain  employees  who  participate  in a Company
     deferred  compensation  plan.  Such funds are  restricted to the payment of
     deferred compensation liabilities.  Such liabilities are included in "other
     liabilities" in the  accompanying  consolidated  balances sheets at amounts
     equal to the fair value of the restricted  funds.  None of the  third-party
     managed funds are invested in the common stock of the Company.

     Proceeds from the sale of trading securities were $27,297,  $1,133,099, and
     $3,500,000 in 2001, 2000, and 1999, respectively.  Net realized gross gains
     (losses)  calculated  on a specific  identification  basis and  included in
     investment income were $(2,505),  $114,510,  and $39,377 in 2001, 2000, and
     1999, respectively.


                                       36                            (Continued)
<PAGE>
                          BUCKHEAD AMERICA CORPORATION
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 2001 and 2000



(5)  NOTES RECEIVABLE

     Notes receivable at December 31, 2001 and 2000 consist of the following:

<TABLE>
<CAPTION>
<S>                                                        <C>                   <C>                    <C>
                                                                                         2001
                                                           -----------------------------------------------------------------
                                                                                        OTHER
                                                                SECURED                 NOTES                  TOTAL
                                                           -------------------   --------------------   --------------------
      Principal                                            $      4,585,403               779,282              5,364,685
          Less allowances                                           380,110               437,185                817,295
                                                           -------------------   --------------------   --------------------
                                                                  4,205,293               342,097              4,547,390
      Less current portions                                         459,252               216,765                676,017
                                                           -------------------   --------------------   --------------------
      Noncurrent portions                                  $      3,746,041               125,332              3,871,373
                                                           ===================   ====================   ====================
      Number of notes                                                    23                    11                     34
                                                           ===================   ====================   ====================


                                                                                         2000
                                                           -----------------------------------------------------------------
                                                                                        OTHER
                                                                SECURED                 NOTES                  TOTAL
                                                           -------------------   --------------------   --------------------

      Principal                                            $      3,899,005              1,004,361             4,903,366
          Less allowances                                           284,071                 92,080               376,151
                                                           -------------------    -------------------   --------------------
                                                                  3,614,934                912,281             4,527,215
      Less current portions                                         388,908                443,147               832,055
                                                           -------------------    -------------------   --------------------
      Noncurrent portions                                  $      3,226,026                469,134             3,695,160
                                                           ===================    ===================   ====================
      Number of notes                                                    19                     15                    34
                                                           ===================    ===================   ====================

</TABLE>

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

     Seven notes with aggregate  balances of $1,945,302 as of December 31, 2001,
     collateralized  by  leasehold  interests  on hotel  properties,  have  been
     pledged by the Company as collateral for a line-of-credit with a bank (note
     8).

     The recorded  investment  in impaired  notes  receivable as of December 31,
     2001 and 2000 was $83,950 and $906, respectively, and the Company has fully
     reserved  for these  notes.  Cash  received  in payment of  impaired  notes
     amounted to $-0- in 2001 and 2000, and $16,174 in 1999.

                                       37                            (Continued)
<PAGE>
                          BUCKHEAD AMERICA CORPORATION
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 2001 and 2000


     The activity in the allowance for doubtful  notes  receivable for the years
     ended December 31, 2001, 2000, and 1999 was as follows:

<TABLE>
<CAPTION>
<S>                                                        <C>                    <C>                   <C>
                                                                  2001                  2000                   1999
                                                           -------------------   --------------------   --------------------

      Allowance for doubtful notes receivable at
          beginning of year                                $        376,151               376,151                376,151
      Additions charged to bad debt expense                         478,964                    --                 16,174
      Write-downs charged against the allowance                     (37,820)                   --                     --
      Collections on impaired notes                                      --                    --                (16,174)
                                                           -------------------   --------------------   --------------------
      Allowance for doubtful notes receivable at end
          of year                                          $        817,295               376,151                376,151
                                                           ===================   ====================   ====================
</TABLE>

(6)  PROPERTY,  EQUIPMENT,  AND  LEASEHOLD  INTERESTS  HELD FOR  SALE AND  OTHER
     PROPERTY AND EQUIPMENT

     Property  and  leasehold  interests  held for sale at December 31, 2001 and
     2000 consist of the following:

<TABLE>
<CAPTION>
<S>                                                                               <C>                   <C>
                                                                                         2001                  2000
                                                                                  -------------------   -------------------
      Current:
          Property and equipment (six hotels at December 31, 2001 and 13
            hotels at December 31, 2000)                                          $     12,682,360            20,194,012
          Leasehold interests (one hotel at December 31, 2001 and four
            hotels at December 31, 2000)                                                   814,755             2,879,591
          Other, principally land                                                               --               323,443
          Allowance for impairment                                                      (2,957,862)           (2,123,529)
                                                                                  -------------------   -------------------
                                                                                  $     10,539,253            21,273,517
                                                                                  ===================   ===================
      Noncurrent:
          Property and equipment (seven hotels at December 31, 2001)              $     12,275,358                    --
          Leasehold interests (one hotel at December 31, 2001)                           1,331,852                    --
          Other, principally land                                                          115,501                    --
          Allowance for impairment                                                      (4,307,482)                   --
                                                                                  -------------------   -------------------
                                                                                  $      9,415,229                    --
                                                                                  ===================   ===================

</TABLE>



                                       38                            (Continued)
<PAGE>
                          BUCKHEAD AMERICA CORPORATION
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 2001 and 2000


     Other  property and  equipment at December 31, 2001 and 2000 consist of the
     following:

<TABLE>
<CAPTION>
<S>                                                                              <C>                    <C>
                                                                                        2001                   2000
                                                                                 --------------------   --------------------
      Owned hotel properties (nine in 2000):
          Land and buildings                                                     $             --             19,583,047
          Furniture, fixtures, and equipment                                                   --              2,307,322
                                                                                 --------------------   --------------------
                                                                                               --             21,890,369
          Accumulated depreciation                                                             --             (1,481,080)
                                                                                 --------------------   --------------------
                                                                                               --             20,409,289
                                                                                 --------------------   --------------------
      Leased hotel properties (nine in 2001 and 11 in 2000):
          Leasehold improvements                                                          417,929                282,169
          Furniture, fixtures, and equipment                                              526,307                158,612
                                                                                 --------------------   --------------------
                                                                                          944,236                440,781
          Accumulated depreciation                                                       (139,342)               (80,267)
                                                                                 --------------------   --------------------
                                                                                          804,894                360,514
                                                                                 --------------------   --------------------
      Other:
          Land                                                                                 --                 39,317
          Other, principally office furniture, fixtures,
            and other equipment                                                           419,470                348,581
                                                                                 --------------------   --------------------
                                                                                          419,470                387,898
          Accumulated depreciation                                                       (257,724)              (190,625)
                                                                                 --------------------   --------------------
                                                                                          161,746                197,273
                                                                                 --------------------   --------------------
                                                                                 $        966,640             20,967,076
                                                                                 ====================   ====================
</TABLE>


     In 1999,  the Company  completed the sale of the Country Hearth Inn located
     in Orlando,  Florida for $13.5 million. The Company held an approximate 59%
     interest  in the  partnership  which owned the hotel in addition to holding
     franchise and hotel management  contracts  relating to the operation of the
     property.  After  retirement of an approximate  $4.4 million first mortgage
     loan,  payment of certain  fees,  costs,  bonuses,  and  minority  interest
     shares, the Company's share of net proceeds was approximately $5.5 million.
     The Company  continued  to operate the  property  under an  agreement  with
     Orange County, Florida (the purchaser) until January 2001 at which time the
     property was  demolished  to make way for  expansion  of the Orange  County
     Convention Center.

     The  Company's  share  of the  1999  gain  on  sale,  net  of the  minority
     interests'  share  approximated  $3.1  million.  The Company also  received
     franchise  termination  fees and  hotel  management  fees of  approximately
     $640,000  and  $605,000,  respectively.  Such  fees were  included  in  the
     Company's franchising and management operating segments.


                                       39                            (Continued)
<PAGE>
                          BUCKHEAD AMERICA CORPORATION
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 2001 and 2000


     During  1999,  the  Company  began to  actively  market for sale five hotel
     properties.  The  statement of income for the year ended  December 31, 1999
     includes  a  provision  for  impairment  of  $373,529   which   represented
     management's  estimate of losses expected to be incurred in connection with
     the hotel sales.  One of the hotel properties was sold in 1999 resulting in
     a loss of $123,529 which was charged to the allowance for impairment. As of
     December 31, 1999,  four properties with an aggregate net carrying value of
     $8,114,083  remained held for sale. In January 2000, another hotel property
     was sold resulting in a charge to the remaining allowance for impairment of
     $176,471.

     As of December 31, 2000,  the Company had 13 properties  and four leasehold
     interests  classified  as held for sale.  The Company  recorded  additional
     provisions for impairment of $2,050,000 relating to these hotels. Also, the
     Company  recorded  a  $250,000  impairment  provision  relating  to certain
     leasehold interests which were not held for sale (note 7).

     During 2001,  the Company  continued to market its owned and leased  hotels
     and classified  almost all of its owned and leased hotels as held for sale.
     During  2001,  the  Company  sold nine  owned  hotels,  sold the  leasehold
     interest  in one hotel,  sold three  parcels of land,  and  negotiated  the
     termination  of  seven  long-term   leases  relating  to  hotel  properties
     previously  operated  by  the  Company.   Additionally,  the  Company  sold
     leasehold  interests  in two of its  owned  hotel  properties.  The  leases
     include purchase options, one of which was exercised in February 2002.

     In connection  with the sales  mentioned  above,  the Company  incurred net
     losses  of  $1,218,185   which  were  charged  to  previously   established
     impairment  allowances.  Also,  the Company  recorded a loss of $280,778 in
     connection  with the  termination  of seven  long-term  hotel leases.  Such
     amount is also  included in the 2001 results of  operations.  In connection
     with the 2001 sales, aggregate notes payable were reduced by $9,586,153 and
     the Company  generated net cash proceeds of $3,271,909 and notes receivable
     of  $975,000.  Related to certain of these  sales,  the  Company  agreed to
     guarantee  mortgage  notes  assumed by the buyer and  remains  contingently
     liable with  respect to certain  lease  payments  should the buyer  default
     (notes 8 and 9).

     Additionally,  during the  fourth  quarter of 2001,  the  Company  incurred
     losses of  $1,394,921 on the sale of two of the sold hotel  properties  for
     which no impairment allowances had previously been provided. Such amount is
     included in the 2001 results of operations.

     During  the fourth  quarter  of 2001,  economic  conditions  affecting  the
     hospitality  industry  worsened  significantly.  The Company  evaluated the
     carrying values of its 13 owned and two leased hotel  properties  which are
     classified as held for sale as of December 31, 2001.  The Company  recorded
     additional  impairment provisions of $6,360,000 relating to these hotels in
     the fourth quarter of 2001. As of December 31, 2001,  aggregate  impairment
     allowances amounted to $7,265,344.


                                       40                            (Continued)
<PAGE>
                          BUCKHEAD AMERICA CORPORATION
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 2001 and 2000


     Revenues and expenses included in the consolidated financial statements for
     the  years  ended  December  31,  2001,  2000,  and  1999  relating  to the
     properties sold during those years were as follows:

<TABLE>
<CAPTION>
<S>                                                      <C>                    <C>                    <C>
                                                                2001                   2000                   1999
                                                         --------------------   -------------------    -------------------
      Hotel revenues                                     $      5,773,690             13,760,811             16,128,205
      Less:
          Hotel operations expense                              4,268,306             11,010,298             11,700,623
          Rent                                                  1,547,552              1,729,174              1,973,773
          Depreciation                                            185,874                604,749                818,908
          Interest                                                450,318              1,023,306              1,421,497
                                                         --------------------   -------------------    -------------------
                    (Loss) income before income taxes    $       (678,360)              (606,716)               213,404
                                                         ====================   ===================    ===================
</TABLE>


     Revenues and expenses for the years ended December 31, 2001, 2000, and 1999
     relating to the properties held for sale were as follows:
<TABLE>
<CAPTION>
<S>                                                      <C>                    <C>                    <C>
                                                                2001                   2000                   1999
                                                         --------------------   -------------------    -------------------
      Hotel revenues                                     $      8,515,798              7,536,758              7,355,149
      Less:
          Hotel operations expense                              6,911,042              5,966,881              5,362,617
          Rent                                                    162,919                160,410                160,410
          Depreciation                                            402,225                740,648                763,004
          Interest                                              1,723,717              1,366,715              1,177,725
                                                         --------------------   -------------------    -------------------
                    Loss before income taxes             $       (684,105)              (697,896)              (108,607)
                                                         ====================   ===================    ===================
</TABLE>


     The revenues and expenses  relating to hotel  properties  held for sale are
     included in the Company's hotel operations business segment (note 16).

     All of the  Company's  owned hotel  properties  are  encumbered by mortgage
     obligations (note 8).


                                       41                            (Continued)
<PAGE>
                          BUCKHEAD AMERICA CORPORATION
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 2001 and 2000


(7)  DEFERRED COSTS, LEASEHOLD INTERESTS, AND OTHER ASSETS

     Deferred costs at December 31, 2001 and 2000 consist of the following:

<TABLE>
<CAPTION>
<S>                                                                              <C>                    <C>
                                                                                        2001                   2000
                                                                                 --------------------   --------------------
      Country Hearth Inn franchise system:
          Trademark rights                                                       $        584,300                584,300
          Franchise licenses                                                              939,778                939,778
          Other deferred costs                                                            260,400                260,400
                                                                                 --------------------   --------------------
                                                                                        1,784,478              1,784,478
          Accumulated amortization                                                       (842,333)              (716,333)
                                                                                 --------------------   --------------------
                                                                                          942,145              1,068,145
                                                                                 --------------------   --------------------
      Hotel management contract acquisition costs                                              --              1,254,027
      Accumulated amortization                                                                 --               (161,886)
                                                                                 --------------------   --------------------
                                                                                               --              1,092,141
                                                                                 --------------------   --------------------
      Notes payable acquisition costs, net                                                207,686                375,175
                                                                                 --------------------   --------------------
                                                                                 $      1,149,831              2,535,461
                                                                                 ====================   ====================
</TABLE>


     Hotel management contract acquisition rights were written off in connection
     with the  Company's  plan to  discontinue  its hotel  management  operating
     segment  (note 16) and  litigation  related  to the  management  contracts.
     Discontinued operations expenses in 2001 include $1,092,141 relating to the
     amortization and write-off of such costs.

     Leasehold interests represent the cost of leasehold rights in real property
     acquired by the Company and consist of the  following  at December 31, 2001
     and 2000:

<TABLE>
<CAPTION>
<S>                                                                              <C>                    <C>
                                                                                        2001                   2000
                                                                                 --------------------   --------------------
      Leasehold interests                                                        $             --              1,028,635
      Accumulated amortization                                                                 --               (108,105)
                                                                                 --------------------   --------------------
                                                                                               --                920,530
      Allowance for impairment                                                                 --               (250,000)
                                                                                 --------------------   --------------------
                                                                                 $             --                670,530
                                                                                 ====================   ====================
</TABLE>


     During 2001,  the Company  negotiated the  termination  of seven  long-term
     leases on hotel  properties.  As a result,  the Company  recorded a loss of
     $280,778 in 2001 which is  included  in losses on property  sales and lease

                                       42                            (Continued)
<PAGE>
                          BUCKHEAD AMERICA CORPORATION
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 2001 and 2000


     terminations  (note 6).  The  Company  recorded a  $250,000  provision  for
     impairment in 2000 relating to these leases  because a lender had initiated
     foreclosure activities against the owner on two of the properties.

     The Company's remaining two leasehold interests are classified as property,
     equipment, and leasehold interests held for sale.

     During 1999, the Company sold four leasehold interests in hotel properties.
     The Company  received  net proceeds of  approximately  $500,000 in cash and
     $825,000  in notes  receivable.  The notes  receivable  are  secured by the
     related leasehold interests. The Company recorded approximately $500,000 in
     gains in  connection  with those sales.  The Company  remains  contingently
     liable for rent  payments due in  accordance  with the leases on certain of
     the properties (note 9).

     Other assets at December 31, 2000 consist of  investments in joint ventures
     and partnerships.

     Investments in joint ventures/partnerships  consists of investments in five
     partnership  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 $130,807,  $812,654,  and $131,065
     during  2001,  2000,  and 1999,  respectively.  Such losses are included in
     hotel operations expense in the Company's hotel operations business segment
     (note 16). One of the partnerships  sold its hotel in 2000 and is no longer
     active.  The aggregate  losses  described  above  include  losses from this
     partnership of $587,558 and $87,056 in 2000 and 1999, respectively.

(8)  NOTES PAYABLE

     Notes payable at December 31, 2001 and 2000 consist of the following:

<TABLE>
<CAPTION>
<S>                                                                               <C>                   <C>
                                                                                         2001                  2000
                                                                                  -------------------   --------------------
      Variable rate mortgage notes                                                $        990,028             2,866,907
      Fixed rate mortgage notes                                                         16,485,558            24,963,189
      Unsecured subordinated notes                                                       1,154,613             1,286,991
      Convertible debenture notes, net of unamortized discount                           4,980,555             4,960,555
      Bank note                                                                          1,000,000               850,000
      Other notes payable                                                                   33,549               113,082
      Capital lease obligations (note 9)                                                   121,081               115,997
                                                                                  -------------------   --------------------
                                                                                        24,765,384            35,156,721
      Less current portions                                                             15,227,767            18,803,712
                                                                                  -------------------   --------------------
                    Noncurrent portions of notes payable                          $      9,537,617            16,353,009
                                                                                  ===================   ====================
</TABLE>


     The variable rate mortgage  notes at December 31, 2001 consist of two notes
     secured by one hotel  property.  The notes bear  interest  at prime plus 1%
     (6.0% at December 31, 2001), require aggregate monthly payments of $12,479,
     and mature at various dates through 2015.


                                       43                            (Continued)
<PAGE>
                          BUCKHEAD AMERICA CORPORATION
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 2001 and 2000


     The fixed rate  mortgage  notes at December  31,  2001  consist of 13 notes
     secured by 12 hotel  properties.  The notes bear  interest at rates ranging
     from 8.25% to 10.25% (weighted average at December 31, 2001 of 9.15%).  The
     notes require  aggregate monthly payments of $161,920 and mature at various
     dates through 2020.

     The  unsecured  subordinated  notes consist of three notes which are due in
     varying  amounts of monthly and  quarterly  payments  and mature at various
     dates through  December  2005.  The stated  balances  represent the present
     value of amounts to be paid at a discount rate of 9%.

     The convertible  debentures,  which were issued to investment funds managed
     by a related party (note 14), consist of five notes aggregating  $5,000,000
     net of  unamortized  original issue discount of $19,445 in 2001 and $39,445
     in 2000.  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 bank note at December 31, 2001 consists of the  remaining  balance of a
     revolving  line of credit which had expired.  In February 2002, the balance
     was reduced to  $625,000  and a new note was  executed.  The new note bears
     interest at prime plus 2% and requires  monthly payments of $20,827 through
     February 2005.

     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:
                 2002                                 $     15,227,767
                 2003                                          762,004
                 2004                                          692,507
                 2005                                          468,305
                 2006                                          325,669
                 Thereafter                                  7,289,132
                                                      -------------------
                                                      $     24,765,384
                                                      ===================

     Current  portions of notes  payable  include  $8,158,542  relating to seven
     notes secured by six hotel properties classified as currently held for sale
     (note 6). The actual amount  required to be paid in the year 2002 under the
     terms of these notes is $2,550,903.

     The Company remains  contingently liable on three mortgage notes payable on
     which the  Company is  guarantor  relating to  properties  sold in 2000 and
     2001.  The notes'  balances at December  31, 2001 were  approximately  $3.7
     million and the notes are due in aggregate monthly  installments of $34,318
     until 2018.

                                       44                            (Continued)
<PAGE>
                          BUCKHEAD AMERICA CORPORATION
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 2001 and 2000


(9)  LEASES

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

     Capital  lease assets  included in property  and  equipment at December 31,
     2001 and 2000 are as follows:

<TABLE>
<CAPTION>
<S>                                                                              <C>                    <C>
                                                                                        2001                   2000
                                                                                 --------------------   --------------------
      Furniture, fixtures, and equipment                                         $        152,905                134,531
      Accumulated amortization                                                            (27,961)               (20,240)
                                                                                 --------------------   --------------------
                                                                                 $        124,944                114,291
                                                                                 ====================   ====================
</TABLE>

     The Company operates several of its locations in leased  facilities.  These
     leases are treated as operating leases and have terms ranging 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  revenues.  Some  leased
     vehicles and equipment are also 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, 2001:

<TABLE>
<CAPTION>
<S>                                                                               <C>                   <C>
                                                                                       CAPITAL           OPERATING LEASES
                                                                                       LEASES
                                                                                 --------------------   --------------------
      Year ending December 31:
          2002                                                                   $         41,036              1,301,995
          2003                                                                             41,036              1,012,598
          2004                                                                             41,036                983,213
          2005                                                                             34,196                925,916
          2006                                                                                 --                843,649
          Subsequent years                                                                     --              6,748,940
                                                                                 --------------------   --------------------
                    Total minimum lease payments                                          157,304       $     11,816,311
                                                                                                        ====================
      Amounts representing interest                                                        36,223
                                                                                 --------------------
                    Present value of net minimum payments                                 121,081
      Current portions                                                                     25,627
                                                                                 --------------------
                    Long-term capitalized lease obligation                       $         95,454
                                                                                 ====================
</TABLE>


     Rental expense, including contingent rentals of $4,810 in 2001, $116,052 in
     2000, and $176,774 in 1999, and net of sublease rentals of $122,921 in 2000
     and  $78,040 in 1999,  for all  operating  leases was  $2,862,803  in 2001,
     $3,190,125 in 2000, and $3,350,064 in 1999.



                                       45                            (Continued)
<PAGE>
                          BUCKHEAD AMERICA CORPORATION
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 2001 and 2000


     Leases  described in the preceding  paragraphs  include  leases between the
     Company and an operating company whose principal shareholder was a director
     and executive officer of the Company. Such amounts totaled $61,586 in 2001,
     $62,402 in 2000, and $60,512 in 1999.  Total future minimum  payments under
     this related  party lease  amount to  $311,464.  The Company also has lease
     agreements with certain other related parties (note 14).

     The Company remains  contingently liable for future minimum rental payments
     totaling $1,926,825  ($610,177 in 2002, $598,511 in 2003, $360,488 in 2004,
     and $357,649 in later years) on sold  leasehold  interests  (note 7) and on
     subleased and assigned  properties and equipment in the event of default by
     the purchasers, sublessees and/or assignees.

(10) CAPITAL STRUCTURE AND NET INCOME (LOSS) PER SHARE

     PREFERRED STOCK

     In connection with an acquisition in 1997, the Company issued 30,000 shares
     of Series A (par value $100) preferred  stock. The Series A preferred stock
     was  nonvoting  and  accrued  cumulative  dividends  at the rate of 10% per
     annum,  payable when and to the extent  declared by the Company's  board of
     directors. Pursuant to a settlement agreement finalized in 2000, all of the
     outstanding  shares of Series A preferred stock were exchanged for an equal
     number of shares of Series B (par value $100) preferred stock. The Series B
     preferred stock is nonvoting and accrues  cumulative  dividends at the rate
     of  9.25%  per  annum,  payable  when  and to the  extent  declared  by the
     Company's  board of  directors.  All  accrued but unpaid  dividends  of the
     Series B preferred  stock must be paid in full before any cash dividend may
     be declared on the Company's  common stock. As of December 31, 2001,  there
     was $92,500 of cumulative preferred dividends in arrears.

     In the event of any voluntary or involuntary liquidation,  dissolution,  or
     winding-up  of the  Company,  the holders of the Series B  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 B 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  B  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 B 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.



                                       46                            (Continued)
<PAGE>
                          BUCKHEAD AMERICA CORPORATION
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 2001 and 2000


     NET INCOME (LOSS) PER SHARE

     The following tables set forth the computations of basic and diluted income
     (loss) per common share for the years ended  December 31, 2001,  2000,  and
     1999:

<TABLE>
<CAPTION>
<S>                                                         <C>                  <C>                    <C>
                                                         2001
      ----------------------------------------------------------------------------------------------------------------------
                                                               CONTINUING           DISCONTINUED             NET LOSS
                                                               OPERATIONS            OPERATIONS
                                                           -------------------   --------------------   --------------------
      Basic and diluted:
          Numerator:
            Loss                                           $    (11,748,017)           (2,675,406)           (14,423,423)
              Less preferred stock dividends                       (277,500)                   --               (277,500)
                                                           -------------------   --------------------   --------------------
                    Numerator for per common share
                      amounts (basic and diluted)          $    (12,025,517)           (2,675,406)           (14,700,923)
                                                           ===================   ====================   ====================
          Denominator for per common share
            amounts (basic and diluted):
              Actual weighted average shares
                outstanding                                       2,016,672             2,016,672              2,016,672
                                                           ===================   ====================   ====================
          Loss per common share (basic and diluted)        $         (5.96)                (1.33)                 (7.29)
                                                           ===================   ====================   ====================



                                                        2000
      ----------------------------------------------------------------------------------------------------------------------
                                                               CONTINUING           DISCONTINUED             NET LOSS
                                                               OPERATIONS            OPERATIONS
                                                           -------------------   --------------------   --------------------
      Basic and diluted:
          Numerator:
            Loss                                           $     (7,666,973)             (606,148)            (8,273,121)
              Less preferred stock dividends                       (277,500)                   --               (277,500)
                                                           -------------------   --------------------   --------------------
                    Numerator for per common share
                      amounts (basic and diluted)          $     (7,944,473)             (606,148)            (8,550,621)
                                                           ===================   ====================   ====================
          Denominator for per common share
            amounts (basic and diluted):
              Actual weighted average shares
                outstanding                                       2,022,946             2,022,946              2,022,946
                                                           ===================   ====================   ====================
          Loss per common share (basic and diluted)        $         (3.93)                (0.30)                 (4.23)
                                                           ===================   ====================   ====================
</TABLE>

                                       47                            (Continued)
<PAGE>
                          BUCKHEAD AMERICA CORPORATION
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 2001 and 2000


<TABLE>
<CAPTION>
<S>                                                         <C>                  <C>                    <C>
                                                        1999
      ----------------------------------------------------------------------------------------------------------------------
                                                               CONTINUING           DISCONTINUED            NET INCOME
                                                               OPERATIONS            OPERATIONS
                                                           -------------------   --------------------   --------------------
      Basic:
          Numerator:
            Income                                         $       1,392,049               276,908              1,668,957
              Less preferred stock dividends                       (300,000)                   --               (300,000)
                                                           -------------------   --------------------   --------------------
                    Numerator for basic per common
                      share amounts                        $      1,092,049               276,908              1,368,957
                                                           ===================   ====================   ====================
          Denominator for basic per common share amounts:
              Actual weighted average shares
                outstanding                                       1,983,114             1,983,114              1,983,114
                                                           ===================   ====================   ====================
          Basic income per common share                    $           0.55                 0.14                    0.69
                                                           ===================   ====================   ====================
      Diluted:
          Numerator:
            Numerator for basic per common share
              amounts                                      $      1,092,049               276,908              1,368,957
            Add back preferred stock dividends
              (assumed converted)                                   300,000                    --                300,000
            Add back debenture interest, net of tax
              (assumed converted)                                   248,000                    --                248,000
                                                           -------------------   --------------------   --------------------
                    Numerator for diluted per common
                      share amounts                        $      1,640,049               276,908              1,916,957
                                                           ===================   ====================   ====================
      Denominator:
          Actual weighted average shares outstanding              1,983,114             1,983,114              1,983,114
          Effect of dilutive securities:
            Preferred stock                                         558,423               558,423                558,423
            Convertible debentures                                  555,555               555,555                555,555
            Outstanding stock options                                30,189                30,189                 30,189
                                                           -------------------   --------------------   --------------------
                    Denominator for diluted per
                      common share amounts                        3,127,281             3,127,281              3,127,281
                                                           ===================   ====================   ====================
          Diluted income per common share                  $           0.52                 0.09                    0.61
                                                           ===================   ====================   ====================
</TABLE>

                                       48                            (Continued)
<PAGE>
                          BUCKHEAD AMERICA CORPORATION
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 2001 and 2000



     The assumed  conversion of the  convertible  preferred  stock,  convertible
     debentures,   and   in-the-money   stock  options  was  excluded  from  the
     computation of the diluted per common share  computations  in 2001 and 2000
     because the effect would be antidilutive.

(11) OTHER EXPENSE

     During the fourth quarter of 2000,  the employment of an executive  officer
     and certain  other  officers and employees of the Company  terminated.  The
     Company  recognized  severance and other  one-time  costs  relating to such
     terminations of $207,000 in 2000.

(12) INCOME TAXES

     Total income tax expense (benefit),  principally  Federal and all deferred,
     recognized  differs from the amount  computed by applying the U.S.  Federal
     income  tax  rate  of 34%  to  pretax  income  (loss)  before  discontinued
     operations as a result of the following:

<TABLE>
<CAPTION>
<S>                                                        <C>                   <C>                    <C>
                                                                  2001                  2000                   1999
                                                           -------------------   --------------------   --------------------
      Computed "expected" tax expense (benefit)            $     (3,994,000)           (1,635,000)               772,000
      Increase (reduction) in income taxes resulting
          from:
            State taxes, net of Federal tax effect                 (470,000)             (192,000)                91,000
            Increase in valuation allowance for
              deferred tax assets                                 5,481,000             4,845,000                 65,000
            Portion of valuation allowance increase
              attributable to discontinued operations            (1,017,000)             (230,000)                    --
            Other                                                        --                71,328                (48,000)
                                                           -------------------   --------------------   --------------------
                                                           $             --             2,859,328                880,000
                                                           ===================   ====================   ====================
</TABLE>

     At December 31, 2001, the Company has net operating loss  carryforwards for
     Federal  income tax  purposes  of  approximately  $16.6  million  which are
     available to offset future taxable income, if any, and expire at dates from
     2006 through 2021.

                                       49                            (Continued)
<PAGE>
                          BUCKHEAD AMERICA CORPORATION
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 2001 and 2000


     The tax  effects of  temporary  differences  that give rise to  significant
     portions of deferred tax assets and liabilities as of December 31, 2001 and
     2000 are presented below:

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

                                                                                       2001                   2000
                                                                                -------------------    -------------------
      Deferred tax assets:
          Notes and accounts receivable allowances                              $        430,000                128,000
          Asset impairment allowances                                                  2,405,000                890,000
          Net operating loss and AMT carryforwards                                     5,836,000              3,536,000
          Partnership basis differences                                                  660,000                650,000
          Effect of state income taxes                                                 1,060,000                523,000
          Other                                                                          442,000                 45,000
                                                                                -------------------    -------------------
                    Total deferred tax assets                                         10,833,000              5,772,000
          Less valuation allowance                                                   (10,453,000)            (4,972,000)
                                                                                -------------------    -------------------
                    Deferred tax assets                                                  380,000                800,000
      Deferred tax liabilities - Acquired property and equipment basis
          differences                                                                   (380,000)              (800,000)
                                                                                -------------------    -------------------
                    Net deferred tax assets                                     $             --                     --
                                                                                ===================    ===================

</TABLE>

     The valuation allowance for deferred tax assets as of December 31, 2001 and
     2000 was $10,453,000 and  $4,972,000,  respectively.  The net change in the
     total  valuation  allowance  for the year ended  December  31,  2001 was an
     increase  of  $5,481,000,  for the  year  ended  December  31,  2000 was an
     increase  of  $4,845,000,  and for the  year  ended  December  31,  1999 an
     increase of $65,000.

     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 the valuation allowance.

(13) STOCK OPTION PLANS

     The Company's various Stock Option Plans authorized the issuance of options
     for up to 520,000  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. Plan options terminate ten years after vesting, or
     earlier under certain conditions.

                                       50                            (Continued)
<PAGE>
                          BUCKHEAD AMERICA CORPORATION
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 2001 and 2000


     The granted stock option activity is as follows:

<TABLE>
<CAPTION>
<S>                                                                               <C>                   <C>
                                                                                                         WEIGHTED AVERAGE
                                                                                  NUMBER OF SHARES        EXERCISE PRICE
                                                                                 --------------------   --------------------
      Balance December 31, 1998                                                           296,000       $        5.91
      Granted in 1999                                                                      93,000                5.26
      Exercised in 1999                                                                   (26,000)               3.89
      Forfeited in 1999                                                                   (52,000)               6.59
                                                                                 --------------------   --------------------
      Balance December 31, 1999                                                           311,000                5.77
      Granted in 2000                                                                     118,000                4.95
      Exercised in 2000                                                                        --                 --
      Forfeited in 2000                                                                   (81,000)               6.04
                                                                                 --------------------   --------------------
      Balance December 31, 2000                                                           348,000                5.43
      Granted in 2001                                                                          --                 --
      Exercised in 2001                                                                        --                 --
      Forfeited in 2001                                                                   (38,000)               5.53
                                                                                 --------------------   --------------------
      Balance December 31, 2001                                                           310,000       $        5.42
                                                                                 ====================   ====================
</TABLE>


     The  following  table  summarizes   information  concerning  stock  options
     outstanding as of December 31, 2001:

<TABLE>
<CAPTION>
<S>                           <C>                <C>                <C>                <C>               <C>
                                                   OUTSTANDING                                    EXERCISABLE
                              ------------------------------------------------------   -----------------------------------
              RANGE OF                              WEIGHTED           WEIGHTED                              WEIGHTED
              EXERCISE                               AVERAGE            AVERAGE                               AVERAGE
               PRICES             SHARES         REMAINING LIFE     EXERCISE PRICE         SHARES         EXERCISE PRICE
       -------------------    ---------------    ----------------   ----------------   ----------------   ----------------
       $   3.44                         60,000      4.3 years       $        3.44                60,000   $        3.44
           4.31 - 6.13                  25,000      6.0 years                5.17                23,333            5.23
           6.88                         45,000      6.5 years                6.88                45,000            6.88
           7.37                         51,000      7.5 years                7.37                51,000            7.37
           5.25                         57,000      8.4 years                5.25                57,000            5.25
           5.00                         72,000      8.4 years                5.00                48,000            5.00
                              ----------------                       ----------------   ----------------   ----------------
                                       310,000                       $       5.42               284,333   $        5.46
                              ================                       ================   ================   ================
</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 loss would have been  increased  by  approximately
     $117,000 or  approximately  $0.06 per common  share  (basic and diluted) in

                                       51                            (Continued)
<PAGE>
                          BUCKHEAD AMERICA CORPORATION
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 2001 and 2000


     2001,  and  $168,000 or  approximately  $0.08 per common  share  (basic and
     diluted) in 2000 and the  Company's  net income  would have been reduced by
     approximately  $113,000 or approximately $0.06 per common share (basic) and
     $0.04 per common share (diluted) in 1999. 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 options  granted  during 2000 and 1999 is  estimated as $1.57
     per share, and $1.65 per share,  respectively,  on the dates of grant using
     the  Black-Scholes  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.

(14) RELATED PARTY TRANSACTIONS

     The Company acted as  administrator  and was a beneficiary of the Days Inns
     of America, Inc. (Days Inns) Chapter 11 bankruptcy.  The Company also acted
     as trustee for the Days Inns Creditors'  Trust.  The Company was reimbursed
     $100,000  in 2001,  2000,  and 1999 for  expenses  incurred  related to the
     Creditors'  Trust.  Other  operating  and  administrative  expenses  in the
     accompanying  2001,  2000, and 1999  consolidated  statements of income are
     presented net of such amounts.

     Other notes  receivable  (note 5) at December 31, 2000 includes $72,316 due
     from a former officer and director of the Company.  Such note bore interest
     at 10% and was fully repaid in March 2001.

     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 32.6% of the Company's outstanding common stock. An executive
     officer of Bay Harbour is on the Company's board of directors.

     A director of the Company is a principal in a hotel brokerage company. Such
     company  acted as the  broker in the  sales of hotels in which the  Company
     owned or held an interest and received aggregate commissions of $403,250 in
     2001, $210,875 in 2000, and $63,000 in 1999 in connection therewith.

     In conjunction with various agreements with Marion and Cass St. Corporation
     (Cassland), owned by a significant shareholder, the Company was required to
     advance a total of $135,000 per hotel property constructed by Cassland. The
     Company then operates the properties under operating leases. As of December
     31,  2001,  the Company had net  advances  to Cassland of  $684,082.  These
     advances are recorded as notes receivable with interest  accruing at a rate
     of 8% per annum.  Hotel operations expense in 2001, 2000, and 1999 includes
     rent  expense  of  $463,114,  $374,642,  and  $220,049,   respectively,  to
     Cassland.

(15) LITIGATION

     In April  2001,  nine  management  contracts  relating  to hotels  owned by
     affiliates of Quality Lodging LLC were purportedly  terminated by the hotel
     owners.  The Company is contesting the validity of such terminations and is
     seeking  to  recover  damages  through  arbitration  and  litigation.   The
     defendants have alleged certain  counterclaims and presently the outcome of
     the dispute is uncertain.  Discontinued operations' loss from operations of
     hotel management  segment in 2001 includes  charges of  approximately  $1.1
     million relating to the termination of these contracts.


                                       52                            (Continued)
<PAGE>
                          BUCKHEAD AMERICA CORPORATION
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 2001 and 2000


(16) OPERATING SEGMENTS AND DISCONTINUED OPERATIONS

     The  Company  conducted  recurring  operations  in  three  segments  of the
     limited-service hotel industry - hotel franchising,  hotel management,  and
     hotel operations.  The Company generates additional revenues and results of
     operations from hotel development activities.

     Hotel franchising involves the selling and servicing of rights and licenses
     comprising the Country Hearth Inn lodging system.  Revenues include initial
     fees and continuing  royalty,  marketing and reservation  fees from Company
     owned and leased hotels and from  unaffiliated  customers.  Continuing fees
     are based on each franchised hotel's room revenues.

     Hotel management  involved the oversight of day-to-day hotel operations and
     accounting  for  limited-service  and some  full-service  hotels.  Revenues
     included  continuing  fees from  Company  owned and leased  hotels and from
     unaffiliated customers.  Continuing fees were based on each managed hotel's
     revenues.

     Hotel  operations  involves  the  operations  of  Company  owned and leased
     hotels.  Revenues are  generated  from  unaffiliated  hotel  guests.  Hotel
     operations   also  include  the   Company's   share   (equity   method)  of
     unconsolidated   entities  which  also  operate  hotels  and  the  minority
     interests'  share of consolidated  entities'  results which are included in
     hotel operations.

     Hotel  development  activities  involve the development and construction or
     purchase of existing hotel  properties  and  subsequent  sale thereof along
     with related  activities such as servicing notes receivable  generated from
     sales.  Corporate activities are generally  administrative and also include
     all interest income and expense which does not specifically relate to other
     segment operations.

     Franchise  and  management  fees were  charged to Company  owned and leased
     hotels at the same  rates as  charged to  unaffiliated  customers  and were
     eliminated in consolidation.

     During  the  fourth  quarter  of  2001,  the  Company  adopted  a  plan  to
     discontinue its hotel  management  activities.  The Company  terminated its
     management  contracts relating to hotels owned by third parties and entered
     into management  contracts with an unrelated  company for the management of
     Company owned and leased hotels.  The Company  continues to perform certain
     accounting functions relating to these hotels and anticipates that all such
     activities  will  be  discontinued  during  the  second  quarter  of  2002.
     Remaining assets of the discontinued segment are not significant. Remaining
     liabilities  of  the  discontinued   segment  primarily  consist  of  lease
     obligations  and  severance.  The  estimated  costs  associated  with  such
     obligations  have been accrued and are included in the 2001  estimated loss
     on disposal of hotel management segment.


                                       53                            (Continued)
<PAGE>
                          BUCKHEAD AMERICA CORPORATION
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 2001 and 2000


     Condensed  operating  results,  assets,  and notes payable  related to each
     segment as of and for the years ended December 31, 2001, 2000, and 1999 are
     presented  below.  Segment  assets and notes payable  exclude  intercompany
     balances  which  eliminate in  consolidation.  No specific  assets or notes
     payable relate to development  activities and such activities are generally
     conducted by corporate personnel on a nonrecurring basis. Thus, development
     results are included with corporate results. Assets of hotel operations and
     the related  notes payable are  reflected in the hotel  operations  segment
     through the date of sale.  Net gains (losses) from such sales are reflected
     in the development  and corporate  segment.  Capital  expenditures in 2001,
     2000,  and  1999  amounted  to  $553,010,   $3,430,915,   and   $2,990,276,
     respectively,  and  principally  related  to hotel  operations.  Income tax
     expense (benefit) is not allocated to the various segments.

<TABLE>
<CAPTION>
<S>                                      <C>                <C>              <C>             <C>              <C>
                                                                                 2001
                                         ----------------------------------------------------------------------------------
                                                                             DEVELOPMENT
                                               HOTEL           HOTEL             AND
                                            OPERATIONS      FRANCHISING       CORPORATE      ELIMINATIONS     CONSOLIDATED
                                         ---------------    -------------    -------------   -------------    -------------
     Revenues                            $  17,517,237         1,975,271          172,574        (739,080)      18,926,002
     Expenses                               14,039,076         1,122,255        1,924,470        (739,080)      16,346,721
                                         ---------------    -------------    -------------                    -------------
           EBITDAR*                          3,478,161           853,016       (1,751,896)                       2,579,281
     Rent                                    2,621,336                --               --                        2,621,336
     Depreciation and amortization             686,060           126,000           24,000                          836,060
     Property losses**                              --                --        8,035,699                        8,035,699
     Interest                                2,174,035                --          660,168                        2,834,203
                                         ---------------    -------------    -------------                    -------------
           (Loss) income before income
             taxes                       $  (2,003,270)          727,016      (10,471,763)                    (11,748,017)
                                         ===============    =============    =============                    =============
     Assets***                           $  22,023,869         1,530,396        4,800,338                       28,354,603
                                         ===============    =============    =============                    =============
     Notes payable                       $  17,630,216                          7,135,168                       24,765,384
                                         ===============                     =============                    =============


                                                                                 2000
                                         ----------------------------------------------------------------------------------
                                                                            DEVELOPMENT
                                               HOTEL           HOTEL            AND
                                            OPERATIONS      FRANCHISING      CORPORATE       ELIMINATIONS    CONSOLIDATED
                                         ---------------    -------------    -------------   -------------    -------------
     Revenues                            $  23,717,220         1,784,142       1,065,673         (911,572)      25,655,463
     Expenses                               18,785,484         1,233,379       1,847,550         (911,572)      20,954,841
                                         ---------------    -------------    -------------                    -------------
           EBITDAR*                          4,931,736           550,763        (781,877)                        4,700,622

     Rent                                    2,601,020                --              --                         2,601,020
     Depreciation and amortization           1,457,648           126,000          24,000                         1,607,648
     Provision for impairment                       --                --       2,300,000                         2,300,000
     Interest                                2,390,021                --         609,578                         2,999,599
                                         ---------------    -------------    -------------                    -------------
           (Loss) income before income
             taxes                       $  (1,516,953)          424,763      (3,715,455)                       (4,807,645)
                                         ===============    =============    =============                    =============
     Assets***                           $  44,556,598         1,205,057       5,852,584                        51,614,239
                                         ===============    =============    =============                    =============
     Notes payable                       $  28,059,175                         7,097,546                        35,156,721
                                         ===============                     =============                    =============
</TABLE>


                                       54                            (Continued)
<PAGE>
                          BUCKHEAD AMERICA CORPORATION
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 2001 and 2000


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

                                                                                 1999
                                         ----------------------------------------------------------------------------------
                                                                            DEVELOPMENT
                                               HOTEL           HOTEL            AND
                                            OPERATIONS      FRANCHISING      CORPORATE       ELIMINATIONS    CONSOLIDATED
                                         ---------------    -------------    -------------   -------------    -------------
      Revenues                            $  25,886,594        2,141,373        4,121,761        (809,624)      31,340,104
      Expenses                               18,770,851        1,120,353        1,702,913        (809,624)      20,784,493
                                         ---------------    -------------    -------------                    -------------
            EBITDAR*                          7,115,743        1,021,020        2,418,848                       10,555,611

      Rent                                    2,858,378               --               --                        2,858,378
      Depreciation and amortization           1,620,372          120,000           12,000                        1,752,372
      Provision for impairment                       --               --          373,529                          373,529
      Interest                                2,599,222               --          700,061                        3,299,283
                                         ---------------    -------------    -------------                    -------------
            Income before income taxes    $      37,771          901,020        1,333,258                        2,272,049
                                         ===============    =============    =============                    =============
      Assets***                           $  45,934,343        1,424,376        9,669,756                       57,028,475
                                         ===============    =============    =============                    =============
      Notes payable                       $  26,083,007                         6,696,335                       32,779,342
                                         ===============                     =============                    =============
</TABLE>

     *Earnings before interest, taxes, depreciation, amortization, and rent.

     **Property losses includes provisions for impairment and losses on property
     sales and lease terminations.

     ***Excludes hotel management segment.




                                       55
1457938v1

<PAGE>


SUPPLEMENTARY FINANCIAL INFORMATION

Selected Quarterly Financial Data

     The  following  selected  quarterly  financial  data was  derived  from the
unaudited  condensed  consolidated  financial  statements  of  Buckhead  America
Corporation  and  subsidiaries  included  in the  Company's  Form 10-Q's for the
quarterly  periods  ended March 31, June 30, and September 30, 2001 and from the
audited consolidated  financial statements for the years ended December 31, 2001
and 2000 which are included herein. The selected quarterly financial data should
be read in conjunction with such consolidated  financial  statements,  including
the notes to those  financial  statements,  which are  incorporated by reference
herein.


<TABLE>
<CAPTION>
<S>                                                          <C>            <C>             <C>            <C>
                                                                                         2001
                                                             ----------------------------------------------------------
                                                               First Qtr      Second Qtr       Third Qtr    Fourth Qtr
                                                             -------------  --------------  -------------  ------------

Total revenues (excluding discontinued operations)           $ 4,737,712      5,505,070       5,442,996      3,240,224

EBITDAR* (excluding discontinued operations)                     570,432      1,399,746       1,331,659       (722,556)

Net income (loss)                                             (1,382,541)      (434,732)      (450,508)    (12,155,642)

Net income (loss) per common share - diluted                     (0.72)         (0.25)          (0.26)        (6.06)



                                                                                         2000
                                                             ----------------------------------------------------------
                                                               First Qtr      Second Qtr       Third Qtr    Fourth Qtr
                                                             -------------  --------------  -------------  ------------

Total revenues (excluding discontinued operations)           $ 6,338,273      6,732,684       7,489,719      5,094,787

EBITDAR* (excluding discontinued operations)                   1,481,893      1,817,532       1,937,287       (536,090)

Net income (loss)                                               (232,215)        10,888          19,511     (8,071,305)

Net income (loss) per common share - diluted                     (0.15)         (0.03)          (0.03)         (4.02)

</TABLE>

     *    Earnings before interest, taxes, depreciation, amortization, and rent


ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE.

     None.


                                       56
<PAGE>
                                    PART III

     All  information  required  by PART  III  (ITEMS  10,  11,  12,  AND 13) is
incorporated by reference to the Company's  definitive proxy statement  relating
to the 2002 Annual Meeting of Stockholders.


                                       57
<PAGE>

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(A) LIST OF DOCUMENTS FILED AS PART OF THIS REPORT.

     (1) Financial Statements

         Independent Auditors' Report
         Consolidated Balance Sheets as of December 31, 2001 and 2000
         Consolidated Statements of Income  (Loss) for  the Years ended December
           31, 2001, 2000, and 1999
         Consolidated   Statements   of   Shareholders'   Equity  (Deficit)  and
           Comprehensive Income  (Loss)  for  the  Years  ended December 31,
           2001, 2000, and 1999
         Consolidated Statements of Cash Flows for the Years ended December 31,
           2001,   2000,  and  1999
         Notes  to  Consolidated   Financial Statements

     (2) Financial Statement Schedules

         All  financial  statement  schedules   are omitted  since the  required
         information is either not  applicable,  or  is not  significant,  or is
         included in the consolidated financial statements and notes thereto.

     (3) Index to Exhibits


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

2.1       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.)

2.2       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.)

2.3       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.)

2.4       Post Closing  Amendment  to  Agreement of Merger,  dated as of May 31,
          2000  among  the  Company,  BLM-RH,  Inc.,  Hatfield  Inns,  LLC,  Guy
          Hatfield,   Dorothy   Hatfield,   and  Hatfield  Inn  Advisors,   LLC.
          (Incorporated by reference to Exhibit 2.4 to the  Registrant's  Annual
          Report on Form 10-K for the fiscal year ended December 31, 2000.)

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.)

3.3       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.)

3.4       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 May 5,
          1998.)


                                       58
<PAGE>


3.5       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       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.

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       Certificate  of  Designation,  Preferences  and  Rights  of  Series  B
          Preferred  Stock of the  Registrant.  (Incorporated  by  reference  to
          Exhibit 4(i) to the Registrant's Quarterly Report on Form 10-Q for the
          quarter ended March 31, 2001.)

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.)

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

10.3      Second   Amendment  to  Douglas  C.  Collins   Employment   Agreement.
          (Incorporated by reference to Exhibit 10.3 to the Registrant's  Annual
          Report on Form 10-KSB for the fiscal year ended December 31, 1999.)

10.4      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.)

10.5      First 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.)

10.6      Second Amendment to Robert B. Lee Employment Agreement.  (Incorporated
          by reference to Exhibit 10.6 to the Registrant's Annual Report on Form
          10-KSB for the fiscal year ended December 31, 1999.)

10.7      Employment  Agreement  dated as of May 8, 1997 between the Company and
          Ronald L.  Devine.  (Incorporated  by reference to Exhibit 10.7 to the
          Registrant's  Annual  Report on Form  10-KSB for the fiscal year ended
          December 31, 1999.)

10.8      First   Amendment   to  Ronald   L.   Devine   Employment   Agreement.
          (Incorporated by reference to Exhibit 10.8 to the Registrant's  Annual
          Report on Form 10-KSB for the fiscal year ended December 31, 1999.)

10.9      Ronald L. Devine Termination Agreement.  (Incorporated by reference to
          Exhibit 10.9 to the  Registrant's  Annual  Report on Form 10-K for the
          fiscal year ended December 31, 2000.)

10.10     1995 Stock  Option Plan.  (Incorporated  by reference to Appendix A to
          the Registrant's Definitive Proxy Statement dated April 25, 1995.)

10.11     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.)

10.12     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.)

10.13     1999 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 April 29, 1999.)

10.14     2000 Employee Stock Option Plan  (Incorporated by reference to Exhibit
          10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter
          ended June 30, 2000.)


                                       59
<PAGE>


21*       Subsidiaries of the Company

23*       Accountants' Consent

------------------
    *   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.



(C) EXHIBITS

     The required exhibits as listed in Item 14(a)3 - "Index to Exhibits" herein
follows.



(D) FINANCIAL STATEMENT SCHEDULES

     None. See Item 14(a)2 herein.




                                       60
<PAGE>
                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

<TABLE>
<CAPTION>
<S>                                   <C>                                         <C>
(Registrant)                          BUCKHEAD AMERICA CORPORATION

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 , 2002                             March 29, 2002
                                      ---------------------------------           -----------------------------------------

</TABLE>

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

By: (Signature and Title)                     Date

 /s/ Douglas C. Collins                       March  29, 2002
-------------------------------               --------------------
Douglas C. Collins
Director

                                              March  29, 2002
-------------------------------               ---------------------
David C. Glickman
Director

 /s/ Robert B. Lee                            March  29, 2002
-------------------------------               --------------------
Robert B. Lee
Director

 /s/ David B. Mumford                         March  29, 2002
-------------------------------               ---------------------
David B. Mumford
Director

 /s/ William K. Stern                         March  29, 2002
-------------------------------               ---------------------
William K. Stern
Director

 /s/ Steven A. Van Dyke                       March  29, 2002
-------------------------------               ---------------------
Steven A. Van Dyke
Director



                                       62

1457946v1