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UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-K/A


(Amendment No. 1)


|                                               |  |                                                                                              
|---------------------------------------------- |  | ---------------------------------------------------------------------------------------------
|(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, 2003                                                  
|                                              
|or                                            
|                                              
|o                                              |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|                                              
|For the transition period
    from          to

Commission file no. 1-14537





Lodgian, Inc.


(Exact name of registrant as specified in its charter)


|                                                                                            |  |                                         
|------------------------------------------------------------------------------------------- |  | ----------------------------------------
|Delaware                                                                                    |  | 52-2093696                              
|(State or other jurisdiction of
    incorporation or organization)                          |  | (I.R.S. Employer
    Identification No.)
|                                                                                           
|3445 Peachtree Road N.E., Suite 700
    Atlanta, GA(Address of principal executive offices) |  | 30326(Zip Code)                         

Registrants telephone number, including area code:


(404) 364-9400


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


|                                             |  |                                          
|-------------------------------------------- |  | -----------------------------------------
|Title of Each Class                          |  | Name of Each Exchange on Which Registered
|                                             |  |                                          
|Common Stock, $.01 par value per share       |  | American Stock Exchange                  
|Preferred Stock, $.01 par value per share    |  | American Stock Exchange                  
|(initial liquidation value of $25 per share) |  |                                          

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


Title of Each Class









þ o


o


o þ




þ o




DOCUMENTS INCORPORATED BY REFERENCE












---



LODGIAN, INC.


Form 10-K/A


For the Year Ended December 31, 2003


EXPLANATORY NOTE













TABLE OF CONTENTS


|                                                   |  |                                                                                           |    |      |    | 
|-------------------------------------------------- |  | ----------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                                                   |  |                                                                                           |    | Page
|                                                   |  |                                                                                           |    |     
|PART II                                           
|Item 7.                                            |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations |    |      | 2  | 
|Item 8.                                            |  | Financial Statements and Supplementary
    Data                                           |    |      | 43 | 
|PART IV                                           
|Item 15.                                           |  | Exhibits, Financial Statement Schedules,
    and Reports on Form 8-K                      |    |      | 43 | 
|Signatures                                         |  |                                                                                           | 44 |     
|EX-31.1 SECTION 302 CERTIFICATION OF THE CEO      
|EX-31.2 SECTION 302 CERTIFICATION OF THE CFO      
|EX-32 SECTION 906 CERTIFICATION OF THE CEO AND CFO







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PART II







|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations

You should read the discussion below in conjunction with the
consolidated financial statements and accompanying notes. Also,
the discussion which follows contains forward-looking statements
which involve risks and uncertainties. Our actual results could
differ materially from those anticipated in these
forward-looking statements as a result of various factors,
including those discussed below under Factors Which May
Affect Future Results.


Executive Summary






| |   |                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------
| |  | 87 hotels that we wholly own and operate through
    subsidiaries;                                                                  
|
| |  | four hotels that we operate in joint ventures in which we have a
    50% or greater voting equity interest and exercise control; and
|
| |  | one hotel that we operate in a joint venture in which we have a
    30% non-controlling equity interest.                            











| |   |                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------
| |  | renovating and repositioning certain of our existing hotels to
    improve performance;                                    
|
| |  | divesting hotels that do not fit this strategy or that are
    unlikely to do so without significant effort or expense; and
|
| |  | acquiring selected hotels that better fit this strategy.                                                                   



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Operating Summary






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Revenues declined in 2003 and the 2002 Combined Period as a
    result of a lack of available funds to maintain the quality and
    competitiveness of our hotels, the weak U.S. economy and the
    severe decline in the lodging industry in the aftermath of the
    terrorist attacks of September 11, 2001. Though the lodging
    industry experienced some recovery during the second half of
    2003, we were not able to benefit fully from the recovery due to
    deferred capital expenditures and renovation displacement at
    some of our hotels.                 
|
| |  | Operating expenses declined in 2003 and the 2002 Combined Period
    primarily as a result of lower revenues. As revenues declined,
    variable expenses also fell. Operating expenses also declined,
    in part, as a result of our cost reduction efforts in the wake
    of the weak economy and lower revenues.                                                                                                                                                                                                                                                              
|
| |  | Interest expense declined in 2003 and the 2002 Combined Period
    because we were able to reorganize our debt as part of the
    Chapter 11 proceedings. The reorganization resulted in
    lower principal amounts on some of our debt due to debt
    forgiveness, and lower interest rates on other of our debt.
    Also, during the bankruptcy proceedings, we did not pay interest
    on certain debt, as approved by the Bankruptcy Court.                                                                                                                                
|
| |  | Depreciation and amortization expense declined in 2003 and the
    2002 Combined Period due to the restatement of our assets to
    fair value as part of fresh start reporting. Since we are
    depreciating a lower asset base, our depreciation in 2003 was
    significantly less than in the 2002 Combined Period.                                                                                                                                                                                                                                                           
|
| |  | During 2003, after identifying assets held for sale, we recorded
    impairment charges where the carrying values exceeded the
    estimated selling prices, net of selling costs. We also analyzed
    our assets held for use at December 31, 2003 and recorded
    impairment charges, as appropriate, when the carrying values
    exceeded their undiscounted future cash flows. During the 2002
    Combined Period, we recorded a significant write down of our
    hotels as part of our fresh start reporting. We also recorded
    significant impairment losses in 2001.

Summary of Discontinued Operations








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|                                                                         |  |                |        | 
|------------------------------------------------------------------------ |  | -------------- | ------ | 
|                                                                         |  | (in thousands)
|Aggregate sales price                                                    |  | $              | 24,585 | 
|Debt pay down                                                            |  |                | 14,635 | 
|Total revenues for the year ended December 31, 2003                      |  |                | 12,298 | 
|Total direct operating expenses for the year ended
    December 31, 2003 |  |                | 5,650  | 



Critical Accounting Policies and Estimates




Consolidation policy






Deferral policy


4



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Asset impairment








Reorganization items


Accrual of self-insured obligations


Income Statement Overview




5



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Revenues






| |   |                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Room revenues  derived from guest room rentals;                                                                                                                                                                                  
|
| |  | Food and beverage revenues  derived from hotel
    restaurants, room service, hotel catering and meeting room
    rentals; and                                                                                                   
|
| |  | Other revenues  derived from guests
    long-distance telephone usage, laundry services, parking
    services, in-room movie services, vending machine commissions,
    leasing of hotel space and other miscellaneous revenues.







| |   |                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Occupancy  computed by dividing total room
    nights sold by the total available room nights;                                                                                                
|
| |  | Average daily rate (ADR)  computed by dividing
    total room revenues by total room nights sold; and                                                                                         
|
| |  | Revenue per available room (RevPAR)  computed by
    dividing total room revenues by total available room nights.
    RevPAR can also be obtained by multiplying the occupancy by the
    ADR.







| |                   
| | ------------------
| | Operating expenses





| |   |                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Direct expenses  these expenses tend to vary with
    available rooms and occupancy. However, hotel level expenses
    contain significant elements of fixed costs and, therefore, do
    not decline proportionately with revenues. Direct expenses are
    further categorized as follows:



| |   |                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------
| |  | Rooms expenses  expenses incurred in generating room
    revenues;                                                   
|
| |  | Food and beverage expenses  expenses incurred in
    generating food and beverage revenues; and                      
|
| |  | Other direct expenses  expenses incurred in
    generating the revenue activities classified in other
    revenues.

6



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| |   |                                                           
| | - | ----------------------------------------------------------
| |  | General, administrative and other expenses, which include:



| |   |                                                                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Salaries for hotel management;                                                                                                                                                                                                                                                                                                                   
|
| |  | Advertising and promotion;                                                                                                                                                                                                                                                                                                                       
|
| |  | Franchise fees;                                                                                                                                                                                                                                                                                                                                  
|
| |  | Repairs and maintenance;                                                                                                                                                                                                                                                                                                                         
|
| |  | Utilities;                                                                                                                                                                                                                                                                                                                                       
|
| |  | Equipment, ground and building rentals;                                                                                                                                                                                                                                                                                                          
|
| |  | Insurance;                                                                                                                                                                                                                                                                                                                                       
|
| |  | Property and other taxes;                                                                                                                                                                                                                                                                                                                        
|
| |  | Legal and professional fees; and                                                                                                                                                                                                                                                                                                                 
|
| |  | Corporate overhead, including corporate salaries and benefits,
    accounting services, directors fees, costs for office
    space and information technology costs. Also included in
    general, administrative and other expenses for the year ended
    December 31, 2003 are expenses relating to post-emergence
    Chapter 11 activities.



| |   |                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Depreciation and amortization expense  depreciation
    of fixed assets (primarily hotel assets) and amortization of
    deferred franchise fees.
|
| |  | Impairment charges  charges which were required to
    write down hotel carrying values to their fair values.                                    



| |                    
| | -------------------
| | Non-operating items





| |   |                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Interest expense, Preferred Stock dividends and amortization of
    deferred loan fees;                                                           
|
| |  | Gain on disposal of assets;                                                                                                                       
|
| |  | Interest income;                                                                                                                                  
|
| |  | Our 30% share of the income or loss of our non-controlling
    equity interest in one hotel, for which we account under the
    equity method; and



| |   |                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------
| |  | Minority interests  our equity partners share
    of the income or loss of the four hotels owned by joint ventures
    that we consolidate.

7



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Results of Operations  Continuing
Operations




| |                                                                      
| | ---------------------------------------------------------------------
| | Year Ended December 31, 2003 Compared to the 2002
    Combined Period

Revenues  Continuing
Operations


|                           |                   |      |       |          |  |                     |       |         |  |   |       |         |   |  |      |       |   
|-------------------------- | ----------------- | ---- | ----- | -------- |  | ------------------- | ----- | ------- |  | - | ----- | ------- | - |  | ---- | ----- | --
|                           |                   |      |       | 2002     |  |                     |       |        
|                           |                   |      |       | Combined |  |                    
|                           |                   | 2003 |       | Period   |  | Increase (decrease)
|                           |                   |      |       |          |  |                    
|Revenues ($ in thousands): |                   |      |       |          |  |                     |       |         |  |   |       |         |   |  |      |      
|                           | Rooms             |      | $     | 229,519  |  |                     | $     | 237,800 |  |   | $     | (8,281  | ) |  |      | (3.5  | )%
|                           | Food and beverage |      |       | 70,791   |  |                     |       | 74,124  |  |   |       | (3,333  | ) |  |      | (4.5  | )%
|                           | Other             |      |       | 11,104   |  |                     |       | 12,649  |  |   |       | (1,545  | ) |  |      | (12.2 | )%
|                           |                   |      |       |          |  |                     |       |         |  |   |       |         |   |  |      |      
|                           | Total revenues    |      | $     | 311,414  |  |                     | $     | 324,573 |  |   | $     | (13,159 | ) |  |      | (4.1  | )%
|                           |                   |      |       |          |  |                     |       |         |  |   |       |         |   |  |      |      
|Occupancy                  |                   |      | 59.9  | %        |  |                     | 61.5  | %       |  |   |       |         |   |  | (2.6 | )%   
|ADR                        |                   | $    | 74.44 |          |  | $                   | 75.02 |         |  | $ | (0.58 | )       |   |  | (0.8 | )%   
|RevPAR                     |                   | $    | 44.57 |          |  | $                   | 46.16 |         |  | $ | (1.59 | )       |   |  | (3.4 | )%   











| |   |                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Were not held for sale;                                                                                                                                                 
|
| |  | Were not undergoing major renovation during 2002 or 2003 (we
    consider a major renovation to be a renovation which in the
    aggregate exceeded $5,000 per room); or
|
| |  | Were not subject to brand changes during 2002 or 2003.                                                                                                                  



|                            |  |      |        |          |  |            |        |   |  |  |      |   
|--------------------------- |  | ---- | ------ | -------- |  | ---------- | ------ | - |  |  | ---- | --
|                            |  |      |        | 2002     |  |           
|                            |  |      |        | Combined |  | % increase
|                            |  | 2003 |        | Period   |  | (decrease)
|                            |  |      |        |          |  |           
|Number of stabilized hotels |  |      | 58     |          |  |            | 58     |   |  |  |     |   
|Number of rooms             |  |      | 10,659 |          |  |            | 10,659 |   |  |  |     |   
|Occupancy                   |  |      | 62.5   | %        |  |            | 64.1   | % |  |  | (2.5 | )%
|ADR                         |  | $    | 75.59  |          |  | $          | 76.30  |   |  |  | (0.9 | )%
|RevPAR                      |  | $    | 47.22  |          |  | $          | 48.87  |   |  |  | (3.4 | )%

8



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| |                                                      
| | -----------------------------------------------------
| | Direct operating expenses  Continuing
    Operations

|                           |                                 |                  |      |          |  |                     |      |         |  |  |   |        |   |  |  |      |   
|-------------------------- | ------------------------------- | ---------------- | ---- | -------- |  | ------------------- | ---- | ------- |  |  | - | ------ | - |  |  | ---- | --
|                           |                                 |                  |      | 2002     |  |                     |      |        
|                           |                                 |                  |      | Combined |  |                    
|                           |                                 | 2003             |      | Period   |  | Increase (decrease)
|                           |                                 |                  |      |          |  |                    
|                           |                                 | ($ in thousands) |      |         
|Direct operating expenses: |                                 |                  |      |          |  |                     |      |         |  |  |   |        |   |  |  |     
|                           | Rooms                           |                  | $    | 65,814   |  |                     | $    | 65,624  |  |  | $ | 190    |   |  |  | 0.3  | % 
|                           | Food and beverage               |                  |      | 48,686   |  |                     |      | 52,269  |  |  |   | (3,583 | ) |  |  | (6.9 | )%
|                           | Other                           |                  |      | 7,970    |  |                     |      | 8,716   |  |  |   | (746   | ) |  |  | (8.6 | )%
|                           |                                 |                  |      |          |  |                     |      |         |  |  |   |        |   |  |  |     
|                           | Total direct operating expenses |                  | $    | 122,470  |  |                     | $    | 126,609 |  |  | $ | (4,139 | ) |  |  | (3.3 | )%
|                           |                                 |                  |      |          |  |                     |      |         |  |  |   |        |   |  |  |     
|% of total revenues        |                                 |                  | 39.3 | %        |  |                     | 39.0 | %       |  |  |   |        |   |  |  |     













| |                                                 
| | ------------------------------------------------
| | Other operating expenses  Continuing Operations

|                          |                                   |                  |      |          |  |                     |      |         |  |  |   |         |   |  |  |       |   
|------------------------- | --------------------------------- | ---------------- | ---- | -------- |  | ------------------- | ---- | ------- |  |  | - | ------- | - |  |  | ----- | --
|                          |                                   |                  |      | 2002     |  |                     |      |        
|                          |                                   |                  |      | Combined |  |                    
|                          |                                   | 2003             |      | Period   |  | Increase (decrease)
|                          |                                   |                  |      |          |  |                    
|                          |                                   | ($ in thousands) |      |         
|Other operating expenses: |                                   |                  |      |          |  |                     |      |         |  |  |   |         |   |  |  |      
|                          | General, administrative and other |                  | $    | 137,888  |  |                     | $    | 132,194 |  |  | $ | 5,694   |   |  |  | 4.3   | % 
|                          | Depreciation and amortization     |                  |      | 29,761   |  |                     |      | 43,636  |  |  |   | (13,875 | ) |  |  | (31.8 | )%
|                          | Impairment of long-lived assets   |                  |      | 12,667   |  |                     |      |        |  |  |   | 12,667  |   |  |  | n/m   |   
|                          |                                   |                  |      |          |  |                     |      |         |  |  |   |         |   |  |  |      
|                          | Total other operating expenses    |                  | $    | 180,316  |  |                     | $    | 175,830 |  |  | $ | 4,486   |   |  |  | 2.6   | % 
|                          |                                   |                  |      |          |  |                     |      |         |  |  |   |         |   |  |  |      
|% of total revenues       |                                   |                  | 57.9 | %        |  |                     | 54.2 | %       |  |  |   |         |   |  |  |      

9



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| |   |                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We incurred $4.6 million in legal, professional and other
    costs related to the Chapter 11 proceedings. Prior to our
    emergence from Chapter 11, these costs would have been
    classified as reorganization expenses.
|
| |  | Insurance costs increased $1.7 million due to increased
    insurance premium costs and safety training programs;                                                                                                            
|
| |  | Utility costs increased $1.6 million due to increases in
    rates and increases in consumption caused by severe weather
    conditions in the Northeast;                                                                    
|
| |  | Ground and property rent increased $0.5 million due to
    escalation clauses in the lease agreements; and                                                                                                                   
|
| |  | Repairs and maintenance costs increased $0.4 million due to
    enhanced preventative maintenance programs as well as to delayed
    renovations on some of our hotels.                                                      





| |   |                                                                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Legal and other professional fees decreased by approximately
    $1.2 million partially as a result of our reduced reliance
    on external professional services and also as a result of the
    resolution of a number of litigation cases through the
    Chapter 11 proceedings;
|
| |  | Equipment rentals decreased by $0.5 million as a result of
    the initiation of improved lease programs for hotel vans,
    copiers and other equipment;                                                                                                                           
|
| |  | Franchise fees decreased by $0.4 million. Substantially all
    of our franchise fees are revenue-based and, therefore, fell as
    a result of the reduction in revenues; and                                                                                                      
|
| |  | Bad debt expense decreased by $1.8 million. This was
    partially due to a release of previous reserves during 2003 of
    $0.8 million that was no longer needed and an improvement
    in our portfolio as compared to the 2002 Combined Period.                                 





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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $4.5 million on the Crowne Plaza Macon, GA as the expected
    holding period for this hotel was reduced to six months because
    the Company was unable to locate a lender to refinance the
    maturing mortgage on this hotel as a single asset loan;                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | $2.5 million on the Holiday Inn St. Louis North, MO because
    the nearby airport renovations drastically changed the ingress
    and egress of this hotel thereby significantly lowering the
    financial performance of this hotel;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | $1.8 million on the Quality Hotel & Conference Center
    Metairie, LA because of a significant decline in this
    hotels group room business because this hotel is in need
    of a major renovation, which the company had previously planned
    but subsequently discarded due to an inadequate expected return
    on investment. Transient business has also declined, resulting
    in reduced operating profits which led to the recording of
    impairment;                                                                                                                                                                                                                                                              
|
| |  | $1.5 million on the Crowne Plaza Cedar Rapids, IA as the
    primary revenue source at this hotel has historically been group
    room revenues which have declined considerably in the past two
    years due to the poor condition of a city-owned ballroom
    attached to this hotel; and                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | $1.3 million on the Holiday Inn Winter Haven, FL as this
    hotel had been identified for sale in the second quarter of 2003
    and the estimated sales price, less costs to sell, was below the
    hotels carrying value. The estimated sales price of the
    hotel was negatively impacted by the unanticipated closure of a
    nearby tourist attraction and the unexpected announcement that a
    major baseball team was going to relocate their spring training
    facilities away from this property. In the fourth quarter of
    2003, the Company ceased its selling efforts with respect to
    this hotel because the allocated loan amount on this hotel
    significantly exceeded the fair value of the hotel.



| |                                                            
| | -----------------------------------------------------------
| | Non-operating income (expenses)  Continuing
    Operations

|                                 |                            |                          |   |          |         |                     |   |        |         |   |   |         |       |  |  |        |     |  
|-------------------------------- | -------------------------- | ------------------------ | - | -------- | ------- | ------------------- | - | ------ | ------- | - | - | ------- | ----- |  |  | ------ | --- | -
|                                 |                            |                          |   | 2002     |         |                     |   |       
|                                 |                            |                          |   | Combined |         |                    
|                                 |                            | 2003                     |   | Period   |         | Increase (decrease)
|                                 |                            |                          |   |          |         |                    
|                                 |                            | ($ in thousands)        
|Non-operating income (expenses): |                            |                          |   |          |         |                     |   |        |         |   |   |         |       |  |  |       
|                                 | Interest income and other  |                          | $ | 807      |         |                     | $ | 4,954  |         |   | $ | (4,147  | )     |  |  | (83.7  | )% 
|                                 | Interest expense:          |                          |   |          |         |                     |   |        |         |   |   |         |       |  |  |        |    
|                                 |                            | Preferred Stock dividend |   |          | (8,092  | )                   |   |        |        |   |   |         | 8,092 |  |  |        | n/m |  
|                                 |                            | Other interest expense   |   |          | (28,581 | )                   |   |        | (28,273 | ) |   |         | 308   |  |  |        | 1.1 | %
|                                 | Gain on asset dispositions |                          |   | 445      |         |                     |   |       |         |   |   | 445     |       |  |  | n/m    |    
|                                 | Reorganization items       |                          |   | (1,397   | )       |                     |   | 11,038 |         |   |   | (12,435 | )     |  |  | (112.7 | )% 
|                                 | Minority interests         |                          |   | 1,294    |         |                     |   | 273    |         |   |   | 1,021   |       |  |  | 374.0  | %  





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| |   |                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Adjustments recorded on the application of fresh start reporting
    of $33.3 million consisting of a gain on extinguishment of
    debt of $223.1 million offset by fixed asset write downs
    and other fresh start adjustments of $189.8 million; and
|
| |  | Expenses incurred as a result of the Chapter 11 proceedings
    of approximately $22.3 million, consisting mainly of legal
    and professional fees.                                                                                                    



The 2002 Combined Period
Compared to the Year Ended December 31, 2001


Revenues 
Continuing Operations


|                            |                   |          |       |         |  |                     |       |         |  |   |       |         |   |  |      |       |   
|--------------------------- | ----------------- | -------- | ----- | ------- |  | ------------------- | ----- | ------- |  | - | ----- | ------- | - |  | ---- | ----- | --
|                            |                   | 2002     |       |         |  |                     |       |        
|                            |                   | Combined |       |         |  |                    
|                            |                   | Period   |       | 2001    |  | Increase (decrease)
|                            |                   |          |       |         |  |                    
|Revenues ($ in thousands)*: |                   |          |       |         |  |                     |       |         |  |   |       |         |   |  |      |      
|                            | Rooms             |          | $     | 237,800 |  |                     | $     | 257,100 |  |   | $     | (19,300 | ) |  |      | (7.5  | )%
|                            | Food and beverage |          |       | 74,124  |  |                     |       | 79,554  |  |   |       | (5,430  | ) |  |      | (6.8  | )%
|                            | Other             |          |       | 12,649  |  |                     |       | 14,418  |  |   |       | (1,769  | ) |  |      | (12.3 | )%
|                            |                   |          |       |         |  |                     |       |         |  |   |       |         |   |  |      |      
|                            | Total revenues    |          | $     | 324,573 |  |                     | $     | 351,072 |  |   | $     | (26,499 | ) |  |      | (7.5  | )%
|                            |                   |          |       |         |  |                     |       |         |  |   |       |         |   |  |      |      
|Occupancy                   |                   |          | 61.5  | %       |  |                     | 63.0  | %       |  |   |       |         |   |  | (2.4 | )%   
|ADR                         |                   | $        | 75.02 |         |  | $                   | 77.60 |         |  | $ | (2.58 | )       |   |  | (3.3 | )%   
|RevPAR                      |                   | $        | 46.16 |         |  | $                   | 48.91 |         |  | $ | (2.75 | )       |   |  | (5.6 | )%   

12



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##### Table of Contents








|  |                                                                                                                                                                                                                                
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Revenues for 2001 in the table above include the revenues of six
    hotels sold in 2001, while occupancy, ADR and RevPAR in the
    table exclude the six hotels sold in 2001. Revenues in 2001 for
    these six hotels were:

|                  |  |                  |       | 
|----------------- |  | ---------------- | ----- | 
|                  |  | ($ in thousands)
|Rooms             |  | $                | 5,041 | 
|Food and beverage |  |                  | 1,520 | 
|Other             |  |                  | 465   | 
|                  |  |                  |       | 
|Total revenues    |  | $                | 7,026 | 
|                  |  |                  |       | 







|                            |  |          |        |      |  |            |        |   |  |  |      |   
|--------------------------- |  | -------- | ------ | ---- |  | ---------- | ------ | - |  |  | ---- | --
|                            |  | 2002     |        |      |  |           
|                            |  | Combined |        |      |  | % increase
|                            |  | Period   |        | 2001 |  | (decrease)
|                            |  |          |        |      |  |           
|Number of stabilized hotels |  |          | 58     |      |  |            | 58     |   |  |  |     |   
|Number of rooms             |  |          | 10,659 |      |  |            | 10,659 |   |  |  |     |   
|Occupancy                   |  |          | 64.1   | %    |  |            | 64.4   | % |  |  | (0.5 | )%
|ADR                         |  | $        | 76.30  |      |  | $          | 79.31  |   |  |  | (3.8 | )%
|RevPAR                      |  | $        | 48.87  |      |  | $          | 51.11  |   |  |  | (4.4 | )%



Direct operating
expenses  Continuing Operations


|                            |                                 |                  |      |         |  |            |      |         |  |  |   |        |   |  |  |      |   
|--------------------------- | ------------------------------- | ---------------- | ---- | ------- |  | ---------- | ---- | ------- |  |  | - | ------ | - |  |  | ---- | --
|                            |                                 | 2002             |      |         |  |           
|                            |                                 | Combined         |      |         |  | Increase  
|                            |                                 | Period           |      | 2001    |  | (decrease)
|                            |                                 |                  |      |         |  |           
|                            |                                 | ($ in thousands)
|Direct operating expenses*: |                                 |                  |      |         |  |            |      |         |  |  |   |        |   |  |  |     
|                            | Rooms                           |                  | $    | 65,624  |  |            | $    | 69,257  |  |  | $ | (3,633 | ) |  |  | (5.2 | )%
|                            | Food and beverage               |                  |      | 52,269  |  |            |      | 55,459  |  |  |   | (3,190 | ) |  |  | (5.8 | )%
|                            | Other                           |                  |      | 8,716   |  |            |      | 8,540   |  |  |   | 176    |   |  |  | 2.1  | % 
|                            |                                 |                  |      |         |  |            |      |         |  |  |   |        |   |  |  |     
|                            | Total direct operating expenses |                  | $    | 126,609 |  |            | $    | 133,256 |  |  | $ | (6,647 | ) |  |  | (5.0 | )%
|                            |                                 |                  |      |         |  |            |      |         |  |  |   |        |   |  |  |     
|% of total revenues         |                                 |                  | 39.0 | %       |  |            | 38.0 | %       |  |  |   |        |   |  |  |     






|  |                                                                                                                                                                                             
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Direct operating expenses for 2001 in the table above include
    the direct operating expenses of six hotels sold in 2001. Direct
    operating expenses in 2001 for these six hotels were:

|                      |  |                  |       | 
|--------------------- |  | ---------------- | ----- | 
|                      |  | ($ in thousands)
|Rooms                 |  | $                | 1,794 | 
|Food and beverage     |  |                  | 1,241 | 
|Other                 |  |                  | 202   | 
|                      |  |                  |       | 
|Total direct expenses |  | $                | 3,237 | 
|                      |  |                  |       | 

13



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##### Table of Contents









Other operating
expenses  Continuing Operations


|                          |                                   |                  |      |         |  |                     |      |         |  |  |   |         |   |  |  |        |   
|------------------------- | --------------------------------- | ---------------- | ---- | ------- |  | ------------------- | ---- | ------- |  |  | - | ------- | - |  |  | ------ | --
|                          |                                   | 2002             |      |         |  |                     |      |        
|                          |                                   | Combined         |      |         |  |                    
|                          |                                   | Period           |      | 2001    |  | Increase (decrease)
|                          |                                   |                  |      |         |  |                    
|                          |                                   | ($ in thousands)
|Other operating expenses: |                                   |                  |      |         |  |                     |      |         |  |  |   |         |   |  |  |       
|                          | General, administrative and other |                  | $    | 132,194 |  |                     | $    | 154,320 |  |  | $ | (22,126 | ) |  |  | (14.3  | )%
|                          | Depreciation and amortization     |                  |      | 43,636  |  |                     |      | 46,065  |  |  |   | (2,429  | ) |  |  | (5.3   | )%
|                          | Impairment of long-lived assets   |                  |      |        |  |                     |      | 20,503  |  |  |   | (20,503 | ) |  |  | (100.0 | )%
|                          |                                   |                  |      |         |  |                     |      |         |  |  |   |         |   |  |  |       
|                          | Total other operating expenses    |                  | $    | 175,830 |  |                     | $    | 220,888 |  |  | $ | (45,058 | ) |  |  | (20.4  | )%
|                          |                                   |                  |      |         |  |                     |      |         |  |  |   |         |   |  |  |       
|% of total revenues       |                                   |                  | 54.2 | %       |  |                     | 62.9 | %       |  |  |   |         |   |  |  |       









| |   |                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A $6.6 million charge related to revised estimates of fair
    value for properties held for sale;                                                                                                                                   
|
| |  | A $4.0 million charge related to one property which was
    identified as held for sale and also sold in 2001; and                                                                                                                   
|
| |  | Impairment charges on assets held for use of $21.7 million,
    offset by a recapture of $11.8 million of impairment
    charges related to assets previously held for sale that were no
    longer being actively marketed for sale.

14



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##### Table of Contents



Non-operating income
(expenses)  Continuing Operations


|                                 |                                                      |                  |     |         |   |                     |    |         |   |  |     |         |   |  |       |        |   
|-------------------------------- | ---------------------------------------------------- | ---------------- | --- | ------- | - | ------------------- | -- | ------- | - |  | --- | ------- | - |  | ----- | ------ | --
|                                 |                                                      | 2002             |     |         |   |                     |    |        
|                                 |                                                      | Combined         |     |         |   |                    
|                                 |                                                      | Period           |     | 2001    |   | Increase (decrease)
|                                 |                                                      |                  |     |         |   |                    
|                                 |                                                      | ($ in thousands)
|Non-operating income (expenses): |                                                      |                  |     |         |   |                     |    |         |   |  |     |         |   |  |       |       
|                                 | Interest income and other                            |                  | $   | 4,954   |   |                     | $  | 709     |   |  | $   | 4,245   |   |  |       | 598.7  | % 
|                                 | Interest expense                                     |                  |     | (28,273 | ) |                     |    | (71,817 | ) |  |     | (43,544 | ) |  |       | (60.6  | )%
|                                 | Gain on asset dispositions                           |                  |     |        |   |                     |    | 23,975  |   |  |     | 23,975  |   |  |       | (100.0 | )%
|                                 | Reorganization items                                 |                  |     | 11,038  |   |                     |    | (21,672 | ) |  |     | (32,710 | ) |  |       | 150.9  | % 
|                                 | Minority interests  Preferred redeemable securities |                  |     |        |   |                     |    | (12,869 | ) |  |     | 12,869  |   |  |       | (100.0 | )%
|Minority interests  Other       |                                                      |                  | 273 |         |   |                     | 38 |         |   |  | 235 |         |   |  | 618.4 | %     











| |   |                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Adjustments recorded on the application of fresh start reporting
    of $33.3 million, consisting of gain on extinguishment of
    debt of $223.1 million offset by fixed asset write downs
    and other fresh start adjustments of $189.8 million; and
|
| |  | Expenses incurred as a result of the Chapter 11 proceedings
    of approximately $22.3 million consisting mainly of legal
    and professional fees.                                                                                                    





Results of Operations  Discontinued Operations




15



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| |                                                                                                           
| | ----------------------------------------------------------------------------------------------------------
| | Year Ended December 31, 2003 Compared to the 2002
    Combined Period and the Year Ended December 31, 2001



|                                                  |                                   |                                |        |             |        |                  |         |                  |        |                  |         |        |         |   |         |         |         |   |        |         |         |  
|------------------------------------------------- | --------------------------------- | ------------------------------ | ------ | ----------- | ------ | ---------------- | ------- | ---------------- | ------ | ---------------- | ------- | ------ | ------- | - | ------- | ------- | ------- | - | ------ | ------- | ------- | -
|                                                  |                                   |                                |        | 2002        |        |                  |         | Increase         |        | Increase        
|                                                  |                                   |                                |        | Combined    |        |                  |         | (decrease)       |        | (decrease)      
|                                                  |                                   | 2003                           |        | Period      |        | 2001             |         | 2003 versus 2002 |        | 2002 versus 2001
|                                                  |                                   |                                |        |             |        |                  |         |                  |        |                 
|                                                  |                                   | (28 hotels)(1)                 |        | (28 hotels) |        | (28 hotels)      |         |                  |        |                 
|                                                  |                                   |                                |        |             |        | ($ in thousands) |         |                  |        |                 
|Revenues                                          |                                   |                                |        |             |        |                  |         |                  |        |                  |         |        |         |   |         |         |         |   |        |        
|                                                  | Rooms                             |                                | $      | 46,451      |        |                  | $       | 63,860           |        |                  | $       | 71,752 |         |   | $       | (17,409 | )       |   | $      | (7,892  | )      
|                                                  | Food and beverage                 |                                |        | 11,264      |        |                  |         | 16,709           |        |                  |         | 19,020 |         |   |         | (5,445  | )       |   |        | (2,311  | )      
|                                                  | Other                             |                                |        | 3,422       |        |                  |         | 4,629            |        |                  |         | 5,712  |         |   |         | (1,207  | )       |   |        | (1,083  | )      
|                                                  |                                   |                                |        |             |        |                  |         |                  |        |                  |         |        |         |   |         |         |         |   |        |        
|                                                  | Total revenues                    |                                |        | 61,137      |        |                  |         | 85,198           |        |                  |         | 96,484 |         |   |         | (24,061 | )       |   |        | (11,286 | )      
|                                                  |                                   |                                |        |             |        |                  |         |                  |        |                  |         |        |         |   |         |         |         |   |        |        
|Operating expenses                                |                                   |                                |        |             |        |                  |         |                  |        |                  |         |        |         |   |         |         |         |   |        |        
|                                                  | Direct:                           |                                |        |             |        |                  |         |                  |        |                  |         |        |         |   |         |         |         |   |        |         |        
|                                                  |                                   | Rooms                          |        |             | 14,439 |                  |         |                  | 20,782 |                  |         |        | 22,158  |   |         |         | (6,343  | ) |        |         | (1,376  | )
|                                                  |                                   | Food and beverage              |        |             | 8,905  |                  |         |                  | 13,516 |                  |         |        | 15,206  |   |         |         | (4,611  | ) |        |         | (1,690  | )
|                                                  |                                   | Other                          |        |             | 2,483  |                  |         |                  | 3,075  |                  |         |        | 3,662   |   |         |         | (592    | ) |        |         | (587    | )
|                                                  |                                   |                                |        |             |        |                  |         |                  |        |                  |         |        |         |   |         |         |         |   |        |        
|                                                  |                                   | Total direct expenses          |        |             | 25,827 |                  |         |                  | 37,373 |                  |         |        | 41,026  |   |         |         | (11,546 | ) |        |         | (3,653  | )
|                                                  |                                   |                                |        |             |        |                  |         |                  |        |                  |         |        |         |   |         |         |         |   |        |        
|                                                  |                                   |                                | 35,310 |             |        |                  | 47,825  |                  |        |                  | 55,458  |        |         |   | (12,515 | )       |         |   | (7,633 | )      
|Other operating expenses                          |                                   |                                |        |             |        |                  |         |                  |        |                  |         |        |         |   |         |         |         |   |        |        
|                                                  | General, administrative and other |                                |        | 29,643      |        |                  |         | 40,478           |        |                  |         | 40,515 |         |   |         | (10,835 | )       |   |        | (37     | )      
|                                                  | Depreciation and amortization     |                                |        | 3,367       |        |                  |         | 13,558           |        |                  |         | 16,480 |         |   |         | (10,191 | )       |   |        | (2,922  | )      
|                                                  | Impairment of long-lived assets   |                                |        | 5,387       |        |                  |         |                 |        |                  |         | 46,837 |         |   |         | 5,387   |         |   |        | (46,837 | )      
|                                                  |                                   |                                |        |             |        |                  |         |                  |        |                  |         |        |         |   |         |         |         |   |        |        
|                                                  |                                   | Total other operating expenses |        |             | 38,397 |                  |         |                  | 54,036 |                  |         |        | 103,832 |   |         |         | (15,639 | ) |        |         | (49,796 | )
|                                                  |                                   |                                |        |             |        |                  |         |                  |        |                  |         |        |         |   |         |         |         |   |        |        
|                                                  |                                   |                                | (3,087 | )           |        |                  | (6,211  | )                |        |                  | (48,374 | )      |         |   | 3,124   |         |         |   | 42,163 |        
|Non-operating income (expense):                   |                                   |                                |        |             |        |                  |         |                  |        |                  |         |        |         |   |         |         |         |   |        |        
|Interest expense                                  |                                   |                                | (3,953 | )           |        |                  | (3,855  | )                |        |                  | (3,509  | )      |         |   | (98     | )       |         |   | (346   | )      
|Gain on asset dispositions                        |                                   |                                | 3,085  |             |        |                  |        |                  |        |                  |        |        |         |   | 3,085   |         |         |   |       |        
|                                                  |                                   |                                |        |             |        |                  |         |                  |        |                  |         |        |         |   |         |         |         |   |        |        
|Loss before income taxes and reorganization items |                                   |                                | (3,955 | )           |        |                  | (10,066 | )                |        |                  | (51,883 | )      |         |   | 6,111   |         |         |   | 41,817 |        
|Reorganization items                              |                                   |                                | (648   | )           |        |                  | 1,652   |                  |        |                  | (3,344  | )      |         |   | (2,300  | )       |         |   | 4,996  |        
|                                                  |                                   |                                |        |             |        |                  |         |                  |        |                  |         |        |         |   |         |         |         |   |        |        
|Loss before income taxes                          |                                   |                                | (4,603 | )           |        |                  | (8,414  | )                |        |                  | (55,227 | )      |         |   | 3,811   |         |         |   | 46,813 |        
|Benefit for income taxes                          |                                   |                                |       |             |        |                  | 1,200   |                  |        |                  |        |        |         |   | (1,200  | )       |         |   | 1,200  |        
|                                                  |                                   |                                |        |             |        |                  |         |                  |        |                  |         |        |         |   |         |         |         |   |        |        
|Net loss                                          |                                   | $                              | (4,603 | )           |        | $                | (7,214  | )                |        | $                | (55,227 | )      |         | $ | 2,611   |         |         | $ | 48,013 |        
|                                                  |                                   |                                |        |             |        |                  |         |                  |        |                  |         |        |         |   |         |         |         |   |        |        






|    |                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The 2003 revenues and expenses in the table above includes de
    minimus amounts of the eight hotels conveyed to a lender in
    January 2003 and the one hotel returned to the lessor of a
    capital lease, also in January 2003.

16



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##### Table of Contents







| |                                                                      
| | ---------------------------------------------------------------------
| | Year Ended December 31, 2003 Compared to the 2002
    Combined Period





|                                  |                   |                       |        |        |        | 
|--------------------------------- | ----------------- | --------------------- | ------ | ------ | ------ | 
|                                  |                   | 2002 Combined        
|                                  |                   | Period               
|                                  |                   |                      
|                                  |                   | ($ in thousands)     
|Revenues:                         |                   |                       |        |       
|                                  | Rooms             |                       | $      | 17,116 |       
|                                  | Food and beverage |                       |        | 4,657  |       
|                                  | Other             |                       |        | 716    |       
|                                  |                   |                       |        |       
|                                  | Total revenues    |                       |        | 22,489 |       
|                                  |                   |                       |        |       
|Operating expenses:               |                   |                       |        |       
|                                  | Direct:           |                       |        |        |       
|                                  |                   | Rooms                 |        |        | 5,959  | 
|                                  |                   | Food and beverage     |        |        | 3,781  | 
|                                  |                   | Other                 |        |        | 653    | 
|                                  |                   |                       |        |       
|                                  |                   | Total direct expenses |        |        | 10,393 | 
|                                  |                   |                       |        |       
|                                  |                   | $                     | 12,096 |       
|                                  |                   |                       |        |       
|General, administrative and other |                   | $                     | 10,406 |       
|Depreciation and amortization     |                   | $                     | 2,938  |       







| |   |                                                                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $1.1 million on the Holiday Inn Express Pensacola, FL as
    this hotel was identified for sale in the second quarter 2003.
    The performance of this hotel was negatively impacted in 2003 by
    the opening of three new hotels in its market and the conversion
    of another fully renovated hotel to the Holiday Inn Express
    brand in April 2003;

17



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##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $1.0 million on the Downtown Plaza Hotel Cincinnati, OH as
    this hotel was listed for sale in the second quarter 2003.
    Operating profits decreased more than forecast at this hotel
    following the loss of its franchise affiliation in May 2003;                                                                                                                                                                                                                               
|
| |  | $0.8 million on the Holiday Inn Morgantown, WV as this
    hotel was identified for sale in the second quarter 2003 at
    which time, based on the anticipated selling price, no
    impairment was required. In the fourth quarter of 2003 the
    expected selling price of this hotel was lowered as a result of
    the opening of a Radisson hotel in the market, which negatively
    impacted the operating results of this hotel;                                                
|
| |  | $0.6 million on the Holiday Inn Fort Mitchell, KY as
    this hotel was identified for sale in the second quarter 2003 at
    which time, based on the anticipated selling price, no
    impairment was required. In the third quarter of 2003 it was
    determined with the broker that the selling price needed to be
    lowered to find a willing buyer, resulting in an impairment
    charge;                                                                                      
|
| |  | $0.6 million on the land parcel in Mt. Laurel, NJ as this
    property was identified for sale in the second quarter of 2003.
    During the sales process the broker recommended a price
    reduction which resulted in $0.6 million of impairment
    charges;                                                                                                                                                                                                                         
|
| |  | $0.6 million on the Holiday Inn Market Center Dallas, TX as
    this hotel was identified for sale in the second quarter 2003 at
    which time $0.6 million of impairment was recorded. The
    reduction in value was primarily related to the
    franchisors decision to not transfer the franchise
    agreement on this hotel to a new buyer. This hotel was sold in
    January 2004 for net proceeds of $2.5 million compared to
    its adjusted net book value of $2.4 million;
|
| |  | $0.3 million on the Holiday Inn Memphis, TN as this hotel
    was identified for sale in the second quarter of 2003 at which
    time, based on the anticipated selling price, no impairment was
    required. In the third quarter of 2003 it was determined by the
    broker that it was advisable that the selling price should be
    lowered because the franchise agreement was not going to be
    renewed;                                                                       
|
| |  | $0.1 million on the Holiday Inn Austin (South), TX as this
    hotel was identified for sale in the second quarter of 2003 at
    which time impairment was recorded based on a listing
    brokers evaluation of the hotel; and                                                                                                                                                                                                                                                         
|
| |  | $0.1 million on the land parcel in Fayetteville, NC as this
    property was identified for sale in the second quarter of 2003
    at which time, based on the anticipated selling price, no
    impairment was required. In the third quarter 2003 the listing
    broker determined it was advisable to lower the asking price
    which resulted in an impairment charge.                                                                                                              





| |                                                                          
| | -------------------------------------------------------------------------
| | The 2002 Combined Period Compared to the Year Ended
    December 31, 2001





18



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##### Table of Contents







| |   |                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Adjustments recorded on the application of fresh start reporting
    of $5.0 million consisting of gain on extinguishment of
    debt of $33.3 million offset by fixed asset write downs and
    other fresh start adjustments of $28.3 million; and
|
| |  | Expenses incurred as a result of the Chapter 11 proceedings
    of approximately $3.3 million, consisting mainly of legal
    and professional fees.                                                                                                



Income taxes






EBITDA




19



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##### Table of Contents





|                                                                 |  |                  |         |                 |  |      |         |   |  |   |         |  
|---------------------------------------------------------------- |  | ---------------- | ------- | --------------- |  | ---- | ------- | - |  | - | ------- | -
|                                                                 |  |                  |         | 2002            |  |     
|                                                                 |  | 2003             |         | Combined period |  | 2001
|                                                                 |  |                  |         |                 |  |     
|                                                                 |  | ($ in thousands)
|Continuing operations:                                           |  |                  |         |                 |  |      |         |   |  |   |         |  
|(Loss) income from continuing operations                         |  | $                | (27,074 | )               |  | $    | 10,254  |   |  | $ | (87,537 | )
|Depreciation and amortization                                    |  |                  | 29,761  |                 |  |      | 43,636  |   |  |   | 46,065  |  
|Fresh start adjustments                                          |  |                  |        |                 |  |      | (33,318 | ) |  |   |        |  
|Interest income                                                  |  |                  | (486    | )               |  |      | (639    | ) |  |   | (709    | )
|Interest expense                                                 |  |                  | 28,581  |                 |  |      | 28,273  |   |  |   | 71,817  |  
|Preferred stock dividends                                        |  |                  | 8,092   |                 |  |      |        |   |  |   |        |  
|Interest on the Preferred redeemable securities (CRESTS)         |  |                  |        |                 |  |      |        |   |  |   | 12,869  |  
|(Provision) benefit for income taxes  continuing
    operations |  |                  | 178     |                 |  |      | (128    | ) |  |   | 2,829   |  
|                                                                 |  |                  |         |                 |  |      |         |   |  |   |         |  
|EBITDA                                                           |  | $                | 39,052  |                 |  | $    | 48,078  |   |  | $ | 45,334  |  
|                                                                 |  |                  |         |                 |  |      |         |   |  |   |         |  



|                                                                                                                    |  |  |        |   |  |  |        |  |  |  |         |  
|------------------------------------------------------------------------------------------------------------------- |  |  | ------ | - |  |  | ------ |  |  |  | ------- | -
|Post-emergence Chapter 11 expenses, included in corporate
    and other on our consolidated statement of operations |  |  | 4,752  |   |  |  | 800    |  |  |  |        |  
|Reorganization items                                                                                                |  |  | 1,397  |   |  |  | 22,278 |  |  |  | 21,672  |  
|Impairment of long-lived assets                                                                                     |  |  | 12,667 |   |  |  |       |  |  |  | 20,503  |  
|Gain on asset disposition                                                                                           |  |  | (445   | ) |  |  |       |  |  |  | (23,975 | )
|Adjustments to bankruptcy claim reserves                                                                            |  |  | (218   | ) |  |  |       |  |  |  |        |  

Quarterly Results of Operations




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|                                                                         |  |                                       |         |                     |             |         |        |         |  |                |        |       |              |        |         |       |         |   |         |   |  |  |   |        |   |  |   |        |   |  |   |        |   |  |   |         |  
|------------------------------------------------------------------------ |  | ------------------------------------- | ------- | ------------------- | ----------- | ------- | ------ | ------- |  | -------------- | ------ | ----- | ------------ | ------ | ------- | ----- | ------- | - | ------- | - |  |  | - | ------ | - |  | - | ------ | - |  | - | ------ | - |  | - | ------- | -
|                                                                         |  | Successor                             |         |                     | Predecessor
|                                                                         |  |                                       |         |                     |            
|                                                                         |  |                                       |         | Fourth Quarter 2002 |             |        
|                                                                         |  | Fourth                                |         | Third               |             | Second  |        | First   |  |                |        | Third |              | Second |         | First
|                                                                         |  | Quarter                               |         | Quarter             |             | Quarter |        | Quarter |  | November 23    |        |       | October 1 to |        | Quarter |       | Quarter |   | Quarter
|                                                                         |  | 2003                                  |         | 2003                |             | 2003    |        | 2003    |  | to December 31 |        |       | November 22  |        | 2002    |       | 2002    |   | 2002   
|                                                                         |  |                                       |         |                     |             |         |        |         |  |                |        |       |              |        |         |       |         |   |        
|                                                                         |  | (In thousands, except per share data)
|Revenues  Continuing operations                                         |  | $                                     | 73,685  |                     |             | $       | 81,699 |         |  | $              | 82,738 |       |              | $      | 73,292  |       |         | $ | 25,306  |   |  |  | $ | 49,612 |   |  | $ | 83,508 |   |  | $ | 89,532 |   |  | $ | 76,615  |  
|Direct operating  Continuing operations                                 |  |                                       | 30,758  |                     |             |         | 31,739 |         |  |                | 30,937 |       |              |        | 29,037  |       |         |   | 12,573  |   |  |  |   | 18,665 |   |  |   | 32,088 |   |  |   | 33,567 |   |  |   | 29,716  |  
|                                                                         |  |                                       |         |                     |             |         |        |         |  |                |        |       |              |        |         |       |         |   |         |   |  |  |   |        |   |  |   |        |   |  |   |        |   |  |   |         |  
|Gross profit                                                             |  |                                       | 42,927  |                     |             |         | 49,960 |         |  |                | 51,801 |       |              |        | 44,255  |       |         |   | 12,733  |   |  |  |   | 30,947 |   |  |   | 51,420 |   |  |   | 55,965 |   |  |   | 46,899  |  
|                                                                         |  |                                       |         |                     |             |         |        |         |  |                |        |       |              |        |         |       |         |   |         |   |  |  |   |        |   |  |   |        |   |  |   |        |   |  |   |         |  
|Net income (loss)*                                                       |  | $                                     | (16,506 | )                   |             | $       | (3,646 | )       |  | $              | (2,441 | )     |              | $      | (9,084  | )     |         | $ | (9,326  | ) |  |  | $ | 27,890 |   |  | $ | (4,557 | ) |  | $ | 3,463  |   |  |   | (14,430 | )
|Net income (loss) attributable to common stock*                          |  | $                                     | (16,506 | )                   |             | $       | (3,646 | )       |  | $              | (6,259 | )     |              | $      | (12,860 | )     |         | $ | (10,836 | ) |  |  | $ | 27,890 |   |  | $ | (4,557 | ) |  | $ | 3,463  |   |  | $ | (14,430 | )
|Basic and diluted loss per common share attributable to common
    stock |  | $                                     | (2.36   | )                   |             | $       | (0.52  | )       |  | $              | (0.89  | )     |              | $      | (1.84   | )     |         | $ | (1.55   | ) |  |  | $ | 0.98   |   |  | $ | (0.16  | ) |  | $ | 0.12   |   |  | $ | (0.51   | )
|Direct operating expenses as a % of revenues                             |  |                                       | 41.7    | %                   |             |         | 38.8   | %       |  |                | 37.4   | %     |              |        | 39.6    | %     |         |   | 49.7    | % |  |  |   | 37.6   | % |  |   | 38.4   | % |  |   | 37.5   | % |  |   | 38.8    | %
|Gross contribution as a % of revenues                                    |  |                                       | 58.3    | %                   |             |         | 61.2   | %       |  |                | 62.6   | %     |              |        | 60.4    | %     |         |   | 50.3    | % |  |  |   | 62.4   | % |  |   | 61.6   | % |  |   | 62.5   | % |  |   | 61.2    | %






|  |                                                                                                                       
|- | ----------------------------------------------------------------------------------------------------------------------
|* | There were no extraordinary items or cumulative effect of
    accounting change adjustments, during the above periods.



Liquidity and Capital Resources




| |                
| | ---------------
| | Working Capital





21



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22



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Cash Flow






| |                     
| | --------------------
| | Operating activities





| |                     
| | --------------------
| | Investing activities





| |                     
| | --------------------
| | Financing activities







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Debt, contractual obligations and franchise agreements




|                                                                                  |                                                   |                  |         |                                     |  |      |        |        |  |      |         |         |  |            |       |       |  |   |        |        |  |   |       |       |  |   |         |         | 
|--------------------------------------------------------------------------------- | ------------------------------------------------- | ---------------- | ------- | ----------------------------------- |  | ---- | ------ | ------ |  | ---- | ------- | ------- |  | ---------- | ----- | ----- |  | - | ------ | ------ |  | - | ----- | ----- |  | - | ------- | ------- | 
|                                                                                  |                                                   |                  |         | Contractual Obligations Due by Year
|                                                                                  |                                                   |                  |         |                                    
|                                                                                  |                                                   | Total            |         | 2004                                |  | 2005 |        | 2006   |  | 2007 |         | 2008    |  | After 2008
|                                                                                  |                                                   |                  |         |                                     |  |      |        |        |  |      |         |         |  |           
|                                                                                  |                                                   | ($ in thousands)
|Continuing Operations                                                             |                                                   |                  |         |                                     |  |      |        |        |  |      |         |         |  |            |       |       |  |   |        |        |  |   |       |       |  |   |         |        
|Exit Financing(1)                                                                 |                                                   |                  |         |                                     |  |      |        |        |  |      |         |         |  |            |       |       |  |   |        |        |  |   |       |       |  |   |         |        
|Merrill Lynch Mortgage Lending, Inc.(6)                                           |                                                   | $                | 274,238 |                                     |  | $    | 4,237  |        |  | $    | 270,001 |         |  | $          |      |       |  | $ |       |        |  | $ |      |       |  | $ |        |        
|Computershare Trust Company of Canada                                             |                                                   |                  | 7,521   |                                     |  |      | 222    |        |  |      | 240     |         |  |            | 259   |       |  |   | 6,800  |        |  |   |      |       |  |   |        |        
|Lehman Financing(2)                                                               |                                                   |                  |         |                                     |  |      |        |        |  |      |         |         |  |            |       |       |  |   |        |        |  |   |       |       |  |   |         |        
|Lehman Brothers Holdings, Inc.                                                    |                                                   |                  | 51,126  |                                     |  |      | 757    |        |  |      | 50,369  |         |  |            |      |       |  |   |       |        |  |   |      |       |  |   |        |        
|Other Financings(3)                                                               |                                                   |                  |         |                                     |  |      |        |        |  |      |         |         |  |            |       |       |  |   |        |        |  |   |       |       |  |   |         |        
|Column Financial, Inc.                                                            |                                                   |                  | 27,300  |                                     |  |      | 2,242  |        |  |      | 2,491   |         |  |            | 2,768 |       |  |   | 3,076  |        |  |   | 3,418 |       |  |   | 13,305  |        
|Lehman Brothers Holdings, Inc.                                                    |                                                   |                  | 23,409  |                                     |  |      | 482    |        |  |      | 529     |         |  |            | 580   |       |  |   | 21,818 |        |  |   |      |       |  |   |        |        
|JP Morgan Chase Bank                                                              |                                                   |                  | 10,644  |                                     |  |      | 530    |        |  |      | 570     |         |  |            | 615   |       |  |   | 665    |        |  |   | 720   |       |  |   | 7,544   |        
|DDL Kinser                                                                        |                                                   |                  | 2,385   |                                     |  |      | 98     |        |  |      | 2,287   |         |  |            |      |       |  |   |       |        |  |   |      |       |  |   |        |        
|Column Financial, Inc.                                                            |                                                   |                  | 8,943   |                                     |  |      | 398    |        |  |      | 437     |         |  |            | 480   |       |  |   | 528    |        |  |   | 580   |       |  |   | 6,520   |        
|Column Financial, Inc.                                                            |                                                   |                  | 3,206   |                                     |  |      | 137    |        |  |      | 3,069   |         |  |            |      |       |  |   |       |        |  |   |      |       |  |   |        |        
|Robb Evans, Trustee                                                               |                                                   |                  | 6,982   |                                     |  |      | 6,982  |        |  |      |        |         |  |            |      |       |  |   |       |        |  |   |      |       |  |   |        |        
|                                                                                  |                                                   |                  |         |                                     |  |      |        |        |  |      |         |         |  |            |       |       |  |   |        |        |  |   |       |       |  |   |         |        
|                                                                                  | Total Other Financings                            |                  |         | 82,869                              |  |      |        | 10,869 |  |      |         | 9,383   |  |            |       | 4,443 |  |   |        | 26,087 |  |   |       | 4,718 |  |   |         | 27,369  | 
|                                                                                  |                                                   |                  |         |                                     |  |      |        |        |  |      |         |         |  |            |       |       |  |   |        |        |  |   |       |       |  |   |         |        
|                                                                                  |                                                   |                  | 415,754 |                                     |  |      | 16,085 |        |  |      | 329,993 |         |  |            | 4,702 |       |  |   | 32,887 |        |  |   | 4,718 |       |  |   | 27,369  |        
|Long-term debt  other(4)                                                         |                                                   |                  | 8,043   |                                     |  |      | 478    |        |  |      | 3,447   |         |  |            | 391   |       |  |   | 397    |        |  |   | 382   |       |  |   | 2,948   |        
|                                                                                  |                                                   |                  |         |                                     |  |      |        |        |  |      |         |         |  |            |       |       |  |   |        |        |  |   |       |       |  |   |         |        
|                                                                                  |                                                   |                  | 423,797 |                                     |  |      | 16,563 |        |  |      | 333,440 |         |  |            | 5,093 |       |  |   | 33,284 |        |  |   | 5,100 |       |  |   | 30,317  |        
|12.25% cumulative Series A Preferred Stock subject to
    mandatory redemption(5) |                                                   |                  | 140,294 |                                     |  |      |       |        |  |      |        |         |  |            |      |       |  |   |       |        |  |   |      |       |  |   | 140,294 |        
|Ground and parking lease obligations                                              |                                                   |                  | 107,245 |                                     |  |      | 2,765  |        |  |      | 2,776   |         |  |            | 2,784 |       |  |   | 2,806  |        |  |   | 2,846 |       |  |   | 93,268  |        
|                                                                                  |                                                   |                  |         |                                     |  |      |        |        |  |      |         |         |  |            |       |       |  |   |        |        |  |   |       |       |  |   |         |        
|                                                                                  | Total continuing obligations                      |                  |         | 671,336                             |  |      |        | 19,328 |  |      |         | 336,216 |  |            |       | 7,877 |  |   |        | 36,090 |  |   |       | 7,946 |  |   |         | 263,879 | 
|Obligations Related to Assets Held for Sale                                       |                                                   |                  |         |                                     |  |      |        |        |  |      |         |         |  |            |       |       |  |   |        |        |  |   |       |       |  |   |         |        
|Exit Financing(1)                                                                 |                                                   |                  |         |                                     |  |      |        |        |  |      |         |         |  |            |       |       |  |   |        |        |  |   |       |       |  |   |         |        
|Merrill Lynch Mortgage Lending, Inc.(6)                                           |                                                   |                  | 25,095  |                                     |  |      | 388    |        |  |      | 24,707  |         |  |            |      |       |  |   |       |        |  |   |      |       |  |   |        |        
|Lehman Financing(2)                                                               |                                                   |                  |         |                                     |  |      |        |        |  |      |         |         |  |            |       |       |  |   |        |        |  |   |       |       |  |   |         |        
|Lehman Brothers Holdings, Inc.                                                    |                                                   |                  | 25,323  |                                     |  |      | 327    |        |  |      | 24,996  |         |  |            |      |       |  |   |       |        |  |   |      |       |  |   |        |        
|Other Financings(3)                                                               |                                                   |                  |         |                                     |  |      |        |        |  |      |         |         |  |            |       |       |  |   |        |        |  |   |       |       |  |   |         |        
|First Union Bank                                                                  |                                                   |                  | 3,359   |                                     |  |      | 56     |        |  |      | 63      |         |  |            | 69    |       |  |   | 3,171  |        |  |   |      |       |  |   |        |        
|Long-term debt  other(4)                                                         |                                                   |                  | 1,308   |                                     |  |      |       |        |  |      | 1,308   |         |  |            |      |       |  |   |       |        |  |   |      |       |  |   |        |        
|Ground and parking lease obligations                                              |                                                   |                  | 7,539   |                                     |  |      | 555    |        |  |      | 563     |         |  |            | 571   |       |  |   | 554    |        |  |   | 552   |       |  |   | 4,744   |        
|                                                                                  |                                                   |                  |         |                                     |  |      |        |        |  |      |         |         |  |            |       |       |  |   |        |        |  |   |       |       |  |   |         |        
|                                                                                  | Total Obligations Related to Assets Held for Sale |                  |         | 62,624                              |  |      |        | 1,326  |  |      |         | 51,637  |  |            |       | 640   |  |   |        | 3,725  |  |   |       | 552   |  |   |         | 4,744   | 
|                                                                                  |                                                   |                  |         |                                     |  |      |        |        |  |      |         |         |  |            |       |       |  |   |        |        |  |   |       |       |  |   |         |        
|                                                                                  |                                                   | $                | 733,960 |                                     |  | $    | 20,654 |        |  | $    | 387,853 |         |  | $          | 8,517 |       |  | $ | 39,815 |        |  | $ | 8,498 |       |  | $ | 268,623 |        
|                                                                                  |                                                   |                  |         |                                     |  |      |        |        |  |      |         |         |  |            |       |       |  |   |        |        |  |   |       |       |  |   |         |        






|    |                                                                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Discussed below under the caption Exit Financing.                                                                                                                                                                                                                                                 
|   
|(2) | Discussed below under the caption Lehman Financing.                                                                                                                                                                                                                                               
|   
|(3) | Discussed below under the caption Other Financings.                                                                                                                                                                                                                                               
|   
|(4) | Comprised of deferred interest related to the Lehman Financing
    of $4.3 million, a long-term ground lease ($2.5 million),
    unsecured notes payable of $2.0 million and other deferred
    credits of $0.6 million.                                                                            
|   
|(5) | Discussed below under the caption Preferred Stock.                                                                                                                                                                                                                                                
|   
|(6) | In the table above, we report the Merrill Lynch Mortgage debt as
    maturing in November 2005 because we intend to extend the
    maturity date and we believe we will be eligible for that
    extension. See also Factors Which May Affect Future
    Results  Risks Relating to Our Business.

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| |   |                                                                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Interest obligations  A substantial portion of our
    interest payments vary with LIBOR and would be difficult to
    project. For 2003, interest paid with respect to our continuing
    operations was $29.8 million;                                                                                                          
|
| |  | Franchise fees  Substantially all of our franchise
    fees vary with our revenues. Franchise fees expense for 2003
    relating to our continuing operations are shown below under the
    caption Franchise Agreements and Capital
    Expenditures;                                                                          
|
| |  | Equipment rentals and costs relating to our maintenance
    contracts  These items are of a short term nature and
    are cancellable by us. For 2003, costs relating to equipment
    rentals and maintenance contracts for our continuing operations
    were approximately $1.9 million and $4.6 million,
    respectively; and
|
| |  | Property and income taxes  These taxes vary from year
    to year and are not estimable. For 2003, property taxes relating
    to our continuing operations were $12.2 million. We paid no
    federal income taxes for 2003. State income taxes paid, net of
    refunds, for 2003 were $0.2 million.                            
|
| |  | Other purchase obligations  As of
    December 31, 2003, we had no material purchase obligations.                                                                                                                                                                                                                                 

Exit Financing






| |   |                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Senior debt of $224.0 million from Merrill Lynch Mortgage,
    accruing interest at the rate of LIBOR plus 2.24%, secured by,
    among other things, first mortgage liens on the fee simple or
    leasehold interests in 55 of our hotels;                                                                                              
|
| |  | Mezzanine debt of $78.7 million from Merrill Lynch
    Mortgage, accruing interest at the rate of LIBOR plus 9.00%,
    secured by the equity interest in the subsidiaries owning 56 of
    our hotels (the 55 hotels which secure the senior debt and one
    additional hotel); and                                                     
|
| |  | Debt provided through Computershare Trust Company of Canada, a
    Canadian lender, of $10.0 million Canadian dollars
    (approximately $6.3 million U.S. dollars at inception)
    maturing in December 2007, accruing interest at the fixed rate
    of 7.88% and secured by a mortgage on the property located in
    Windsor, Canada.





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| |                 
| | ----------------
| | Lehman Financing





| |                 
| | ----------------
| | Other Financings





26



---



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| |                     
| | --------------------
| | Mortgaged Properties



|                                                 |                                                               |                          |     |                     |    |                |         |                |         |   |         |       |         |                                     |                  |  |  | 
|------------------------------------------------ | ------------------------------------------------------------- | ------------------------ | --- | ------------------- | -- | -------------- | ------- | -------------- | ------- | - | ------- | ----- | ------- | ----------------------------------- | ---------------- |  |  | 
|                                                 |                                                               |                          |     | December 31, 2003   |    |               
|                                                 |                                                               |                          |     |                     |    |               
|                                                 |                                                               | No. of                   |     | Property, plant and |    | Long-term      |         |               
|                                                 |                                                               | Hotels                   |     | equipment, net(1)   |    | obligations(1) |         | Interest rates
|                                                 |                                                               |                          |     |                     |    |                |         |               
|                                                 |                                                               |                          |     | ($ in thousands)    |    |               
|Exit Financing                                   |                                                               |                          |     |                     |    |                |         |                |         |   |         |       |         |                                     |                  | 
|Merrill Lynch Mortgage Lending, Inc.  Senior    |                                                               |                          |     |                     |    |                |         |                |         | $ | 216,052 |       |         |                                     | LIBOR plus 2.36% | 
|Merrill Lynch Mortgage Lending, Inc.  Mezzanine |                                                               |                          |     |                     |    |                |         |                |         |   | 83,281  |       |         |                                     | LIBOR plus 8.79% | 
|                                                 |                                                               |                          |     |                     |    |                |         |                |         |   |         |       |         |                                     |                  | 
|Merrill Lynch Mortgage Lending, Inc.  Total     |                                                               |                          | 56  |                     |    | $              | 401,793 |                |         |   | 299,333 |       |         |                                     |                  | 
|Computershare Trust Company of Canada            |                                                               |                          | 1   |                     |    |                | 14,106  |                |         |   | 7,521   |       |         |                                     | 7.88%            | 
|Lehman Financing                                 |                                                               |                          |     |                     |    |                |         |                |         |   |         |       |         |                                     |                  | 
|Lehman Brothers Holdings, Inc.                   |                                                               |                          | 17  |                     |    |                | 69,539  |                |         |   | 76,449  |       |         | Higher of LIBOR plus 5.25% or 7.25%
|Other Financings                                 |                                                               |                          |     |                     |    |                |         |                |         |   |         |       |         |                                     |                  | 
|Column Financial, Inc.                           |                                                               |                          | 9   |                     |    |                | 61,681  |                |         |   | 27,300  |       |         |                                     | 10.59%           | 
|Lehman Brothers Holdings, Inc.                   |                                                               |                          | 5   |                     |    |                | 38,125  |                |         |   | 23,409  |       |         | $16,496 at 9.40%; $6,913 at 8.90%  
|JP Morgan Chase Bank                             |                                                               |                          | 2   |                     |    |                | 8,913   |                |         |   | 10,644  |       |         |                                     | 7.25%            | 
|DDL Kinser                                       |                                                               |                          | 1   |                     |    |                | 3,188   |                |         |   | 2,385   |       |         |                                     | 8.25%            | 
|First Union Bank                                 |                                                               |                          | 1   |                     |    |                | 4,297   |                |         |   | 3,359   |       |         |                                     | 9.38%            | 
|Column Financial, Inc.                           |                                                               |                          | 1   |                     |    |                | 6,491   |                |         |   | 8,943   |       |         |                                     | 9.45%            | 
|Column Financial, Inc.                           |                                                               |                          | 1   |                     |    |                | 6,120   |                |         |   | 3,206   |       |         |                                     | 10.74%           | 
|Robb Evans, Trustee                              |                                                               |                          | 1   |                     |    |                | 6,365   |                |         |   | 6,982   |       |         |                                     | Prime plus 4.00% | 
|                                                 |                                                               |                          |     |                     |    |                |         |                |         |   |         |       |         |                                     |                  | 
|                                                 |                                                               | Total  Other Financings |     |                     | 21 |                |         |                | 135,180 |   |         |       | 86,228  |                                     |                  |  |  | 
|                                                 |                                                               |                          |     |                     |    |                |         |                |         |   |         |       |         |                                     |                  | 
|                                                 |                                                               |                          | 95  |                     |    |                | 620,618 |                |         |   | 469,531 |       |         |                                     | 6.33%(2)         | 
|Long-term debt  other                           |                                                               |                          |     |                     |    |                |         |                |         |   |         |       |         |                                     |                  | 
|                                                 | Deferred interest  long-term                                 |                          |     |                    |    |                |         |               |         |   |         | 4,337 |         |                                     |                  |  | 
|                                                 | Deferred rent on a long-term ground lease                     |                          |     |                    |    |                |         |               |         |   |         | 2,506 |         |                                     |                  |  | 
|                                                 | Tax notes issued pursuant to our Joint Plan of Reorganization |                          |     |                    |    |                |         |               |         |   |         | 1,957 |         |                                     |                  |  | 
|                                                 | Other                                                         |                          |     |                    |    |                |         |               |         |   |         | 551   |         |                                     |                  |  | 
|                                                 |                                                               |                          |     |                     |    |                |         |                |         |   |         |       |         |                                     |                  | 
|                                                 |                                                               |                          |    |                     |    |                |        |                |         |   | 9,351   |       |         |                                     |                  | 
|                                                 |                                                               |                          |     |                     |    |                |         |                |         |   |         |       |         |                                     |                  | 
|Property, plant and equipment  other            |                                                               |                          |    |                     |    |                | 4,824   |                |         |   |        |       |         |                                     |                  | 
|                                                 |                                                               |                          |     |                     |    |                |         |                |         |   |         |       |         |                                     |                  | 
|                                                 |                                                               |                          | 95  |                     |    |                | 625,442 |                |         |   | 478,882 |       |         |                                     |                  | 
|Held for sale                                    |                                                               |                          | (18 | )                   |    |                | (61,624 | )              |         |   | (53,204 | )     |         |                                     |                  | 
|                                                 |                                                               |                          |     |                     |    |                |         |                |         |   |         |       |         |                                     |                  | 
|                                                 |                                                               | Total December 31, 2003  |     |                     | 77 |                |         | $              | 563,818 |   |         | $     | 425,678 |                                     |                  |  |  | 
|                                                 |                                                               |                          |     |                     |    |                |         |                |         |   |         |       |         |                                     |                  | 






|    |                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Long-term obligations and property, plant and equipment of the
    one hotel in which we have a non-controlling equity interest and
    do not consolidate are excluded from the table above.
|   
|(2) | Represents the annual weighted average cost at December 31,
    2003.                                                                                                                        



28



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##### Table of Contents





| |                
| | ---------------
| | Preferred Stock







| |                                              
| | ---------------------------------------------
| | Franchise Agreements and Capital Expenditures







|                        |  |                  |        |          |  |      |        |  |  |   |        | 
|----------------------- |  | ---------------- | ------ | -------- |  | ---- | ------ |  |  | - | ------ | 
|                        |  |                  |        | 2002     |  |     
|                        |  |                  |        | Combined |  |     
|                        |  | 2003             |        | Period   |  | 2001
|                        |  |                  |        |          |  |     
|                        |  | ($ in thousands)
|Continuing operations   |  | $                | 20,569 |          |  | $    | 20,996 |  |  | $ | 22,531 | 
|Discontinued operations |  |                  | 3,816  |          |  |      | 5,303  |  |  |   | 6,053  | 
|                        |  |                  |        |          |  |      |        |  |  |   |        | 
|                        |  | $                | 24,385 |          |  | $    | 26,299 |  |  | $ | 28,584 | 
|                        |  |                  |        |          |  |      |        |  |  |   |        | 

29



---



##### Table of Contents















Off Balance Sheet Arrangements




30



---



##### Table of Contents



FACTORS WHICH MAY AFFECT FUTURE RESULTS






| |   |                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The effects of regional, national and international economic
    conditions, including the magnitude and duration of the recent
    economic downturn in the United States;                                                                                           
|
| |  | Competitive conditions in the lodging industry and increases in
    room capacity;                                                                                                                                                                                    
|
| |  | The effects of actual and threatened terrorist attacks and
    international conflicts and their impact on domestic and
    international travel, including the potentially marked decrease
    in travel in connection with military action in Iraq or
    elsewhere;
|
| |  | The effectiveness of changes in management and our ability to
    retain qualified individuals to serve in senior management
    positions;                                                                                                                           
|
| |  | Requirements of franchise agreements, including the right of
    some franchisors to immediately terminate their respective
    agreements if we breach certain provisions;                                                                                           
|
| |  | Seasonality of the hotel business;                                                                                                                                                                                                                                    
|
| |  | The financial condition of the airline industry and its impact
    on air travel;                                                                                                                                                                                     
|
| |  | The effect that Internet reservation channels may have on the
    rates that we are able to charge for hotel rooms;                                                                                                                                                   
|
| |  | Increases in the cost of debt and our continued compliance with
    the terms of our loan agreements;                                                                                                                                                                 
|
| |  | The high level of our assets which are encumbered;                                                                                                                                                                                                                    
|
| |  | Our ability to meet the continuing listing requirements of the
    American Stock Exchange;                                                                                                                                                                           
|
| |  | The effect of self-insured claims in excess of our reserves, or
    our ability to obtain adequate property and liability insurance
    to protect against losses, or to obtain insurance at reasonable
    rates;                                                    
|
| |  | Potential litigation and/or governmental inquiries and
    investigations;                                                                                                                                                                                            



| |   |                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Laws and regulations applicable to our business, including
    federal, state or local hotel, resort, restaurant or land use
    regulations, employment, labor or disability laws and
    regulations;
|
| |  | The short time that the public market for our new securities has
    existed; and                                                                                                                      
|
| |  | The risks identified below under Risks Related to Our
    Business and Risks Relating to Our Common
    Stock.                                                                                     





31



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##### Table of Contents





Risks Related to Our Business




| |                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may not be able to meet the requirements imposed by our
    franchisors in our franchise agreements and therefore could lose
    the right to operate one or more hotels under a national
    brand.











| |   |                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | we are unable to replace, in a timely fashion (which, in the
    case of hotels that secure our Lehman Financing, is only five
    days), a terminated franchise agreement with a new franchise
    agreement acceptable to the lender whose loan is secured by the
    affected hotel and we fail to prepay a contractually specified
    release value relating to that hotel to the lender; or
|
| |  | in the case of hotels that secure our borrowings from Merrill
    Lynch Mortgage, we experience either:                                                                                                                                                                                                                                                                                          



| |   |                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | four franchise agreement terminations at one time, or                                                                                                  
|
| |  | one or more franchise agreement terminations for hotels whose
    allocated loan amounts represents 5% or more of the total
    allocated loan amounts.





32



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##### Table of Contents





Hotels require a high level
of capital expenditures, maintenance and repairs and if we are
not able to meet these requirements of our hotels appropriately,
our business and operating results will suffer.




All of our hotels are
pledged as collateral for mortgage loans, and we have a
significant amount of debt that could limit our operational
flexibility or otherwise adversely affect our financial
condition.






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We may not be able to repay, refinance or extend our maturing
    indebtedness on favorable terms or at all. We have
    $17.3 million, $384.5 million and $5.2 million of
    indebtedness maturing in 2004, 2005 and 2006, respectively. Of
    these amounts, the Merrill Lynch Mortgage financing, which
    matures in November 2004 and is subject to three one-year
    extensions, totaled $299.3 million as of December 31,
    2003 and currently is secured by 54 of our hotels. The first
    option to extend the maturity date of the Merrill Lynch Mortgage
    debt by up to one year (to November 2005) will be available
    to us as long as no events of default occur in respect of the
    payment of principal, interest and other required amounts.
    Because we intend to extend the maturity date and we believe we
    will be eligible for that extension, we report that debt as
    maturing in 2005. The second and third extension terms will be
    available to us only if no events of default of any type exist
    and minimum debt service coverage ratio and debt yield
    requirements are satisfied, which requirements we currently do
    not satisfy. The Lehman Financing, which matures in 2005 and is
    subject to a one-year extension, totaled $76.4 million as
    of December 31, 2003 and currently is secured by 15 of our
    hotels. The one-year extension will be available only if, at the
    time of electing to extend and at the initial maturity date, no
    events of default of any type exist, and we pay an extension fee
    in the amount of $3.0 million;
|
| |  | If we are unable to refinance or extend the maturity of our
    maturing indebtedness, we may not otherwise be able to repay
    such indebtedness. Debt defaults could lead to us being forced
    to sell one or more of our hotels on unfavorable terms or, in
    the case of secured debt, convey the mortgaged hotel(s) to the
    lender, causing a loss of any anticipated income and cash flow
    from, and our invested capital in, such hotel(s);                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | All of our hotels are pledged as collateral under existing
    mortgage loans totaling $469.5 million as of
    December 31, 2003, which represented 75.7% of the book
    value of our hotel property, plant and equipment, net, as of
    December 31, 2003, and, as a result, we have limited
    flexibility to sell our hotels to satisfy cash needs;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | Increased vulnerability to downturns in our business, the
    lodging industry and the general economy;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Our cash flow from operations may be insufficient to make
    required debt service payments;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Our ability to obtain other financing to fund future working
    capital, capital expenditures and other general corporate
    requirements may be limited;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

33



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##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We may be required to dedicate a substantial portion of our cash
    flow from operations to debt service payments, reducing the
    availability of our cash flow to fund working capital, capital
    expenditures, and other needs and placing us at a competitive
    disadvantage with other companies that have greater resources
    and/or less debt;
|
| |  | Our flexibility in planning for, or reacting to, changes in our
    business and industry may be restricted; and                                                                                                                                                                                                                                             
|
| |  | We currently are, and may in the future be, unable to pay
    dividends on our common stock.                                                                                                                                                                                                                                                                 

The terms of our debt
instruments place many restrictions on us, which reduce
operational flexibility and create default risks.










34



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##### Table of Contents







| |                                                                                              
| | ---------------------------------------------------------------------------------------------
| | Rising interest rates could have an adverse effect on our
    cash flow and interest expense.





| |                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------
| | To service our indebtedness, we require a significant
    amount of cash. Our ability to generate cash depends on many
    factors beyond our control.





| |   |                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Dependence on business and leisure travelers, which have been
    and continue to be affected by threats of terrorism, or other
    outbreaks of hostilities, and may otherwise fluctuate and be
    seasonal;
|
| |  | Cyclical overbuilding in the lodging industry;                                                                                                                                                                
|
| |  | Varying levels of demand for rooms and related services;                                                                                                                                                      
|
| |  | Competition from other hotels, motels and recreational
    properties, some of which may be owned or operated by companies
    having greater marketing and financial resources than we do;                   
|
| |  | Decreases in air travel;                                                                                                                                                                                      
|
| |  | Fluctuations in operating costs;                                                                                                                                                                              
|
| |  | Changes in governmental laws and regulations that influence or
    determine wages or required remedial expenditures;                                                                                         
|
| |  | Changes in interest rates and the availability of credit; and                                                                                                                                                 
|
| |  | The perception of the lodging industry and companies in the debt
    and equity markets.                                                                                                                      



| |                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------
| | The value of our hotels and repayment or refinancing of
    our debt are dependent upon the successful operation and cash
    flows of the hotels.





35



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##### Table of Contents







| |   |                                                   
| | - | --------------------------------------------------
| |  | general market conditions;                        
|
| |  | the markets perception of our growth potential;  
|
| |  | our current debt levels and property encumbrances;
|
| |  | our current and expected future earnings;         
|
| |  | our cash flow and cash needs; and                 
|
| |  | the market price per share of our common stock.   



| |                                                         
| | --------------------------------------------------------
| | We may not be able to implement our growth
    strategy.





| |                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our current and future joint venture investments could be
    adversely affected by our lack of sole decision-making
    authority, our reliance on joint venture partners
    financial condition and performance and any disputes that may
    arise between us and our joint venture partners.





| |                                                                                      
| | -------------------------------------------------------------------------------------
| | Fresh start reporting will make future financial
    statements difficult to compare.

Financial
Reporting by Entities in Reorganization Under the Bankruptcy
Code,


36



---



##### Table of Contents







| |                                                                                          
| | -----------------------------------------------------------------------------------------
| | Our prior bankruptcy proceedings could adversely affect
    our operations going forward.





| |                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------
| | We have a history of significant losses and we may not be
    able to successfully improve our performance to achieve
    profitability.





| |                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Acts and threats of terrorism, the ongoing war against
    terrorism, military conflicts and other factors have had a
    negative impact on and may continue to have a negative effect on
    the lodging industry and our results of operations.



37



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##### Table of Contents





| |                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------
| | We may be unable to sell real estate, including our assets
    held for sale, in a timely manner or at expected prices.





| |                                                                           
| | --------------------------------------------------------------------------
| | Our expenses may remain constant or increase even if
    revenues decline.





| |   |                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Rising interest rate levels;                                                                                                                                                    
|
| |  | The lack of available financing on favorable terms, or at all,
    to fund our working capital, debt service requirements, planned
    capital expenditures or other cash needs;
|
| |  | Increased costs associated with wages, employee benefits and
    taxes, property taxes, utilities and insurance; and                                                            
|
| |  | Changes in and the cost of compliance with government
    regulations, including those governing environmental, usage,
    zoning and tax matters.                              



| |                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------
| | We may make acquisitions or investments that are not
    successful and that adversely affect our ongoing
    operations.





| |   |                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Identifying suitable acquisition or investment candidates,
    performing appropriate due diligence, identifying potential
    liabilities and negotiating favorable terms for acquisitions and
    investments;
|
| |  | Reducing our working capital and hindering our ability to expand
    or maintain our business, including making capital expenditures
    and funding operations;                                                
|
| |  | The potential distraction of our management, diversion of our
    resources and disruption of our business;                                                                                                     
|
| |  | Competing for acquisition opportunities with competitors that
    are larger than we are or have greater financing and other
    resources than we have;                                                        
|
| |  | Accurately forecasting the financial impact of an acquisition or
    investment; and                                                                                                                            
|
| |  | Effectively integrating acquired companies or investments and
    achieving expected performance.                                                                                                               



| |                                                                    
| | -------------------------------------------------------------------
| | Losses may exceed our insurance coverage or estimated
    reserves.



38



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##### Table of Contents







| |                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------
| | Competition in the lodging industry could have a material
    adverse effect on our business and results of operations.





| |                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Adverse conditions in markets in which we do substantial
    amounts of business, such as our four largest markets of
    Baltimore/Washington, D.C., Pittsburgh, Buffalo/Niagara Falls
    and Phoenix, could negatively affect our results of
    operations.





| |                                  
| | ---------------------------------
| | The lodging business is seasonal.





| |                                                                           
| | --------------------------------------------------------------------------
| | We have experienced significant changes in our senior
    management team.



39



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##### Table of Contents





| |                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------
| | If we lose or are unable to obtain key personnel, our
    ability to effectively operate our business could be
    hindered.





| |                                                                                                           
| | ----------------------------------------------------------------------------------------------------------
| | The increasing use of third-party travel websites by
    consumers may adversely affect our profitability.





| |                                                                             
| | ----------------------------------------------------------------------------
| | We may be unable to utilize all of our net operating loss
    carryforwards.





| |                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Aspects of our operations are subject to government
    regulation, and changes in government regulations may adversely
    affect our results of operations and financial condition.







| |                                                                                                          
| | ---------------------------------------------------------------------------------------------------------
| | Costs of compliance with environmental laws and
    regulations could adversely affect operating results.



40



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##### Table of Contents















Risks Related to Our Common Stock




| |                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------
| | Our common stock could be de-listed from the American
    Stock Exchange if the listing standards are not
    maintained.



41



---



##### Table of Contents







| |                                 
| | --------------------------------
| | Our stock price may be volatile.





| |   |                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Actual or anticipated variations in our results of operations;                                                                                                                                                  
|
| |  | Announcements of new services or products or significant price
    reductions by us or our competitors;                                                                                                         
|
| |  | Market performance by our competitors;                                                                                                                                                                          
|
| |  | Future issuances of our common stock, or securities convertible
    into or exchangeable or exercisable for our common stock, by us
    directly, or the perception that such issuances are likely to
    occur;
|
| |  | Sales of our common stock by stockholders or the perception that
    such sales may occur in the future;                                                                                                        
|
| |  | The size of our market capitalization;                                                                                                                                                                          
|
| |  | Loss of our franchises;                                                                                                                                                                                         
|
| |  | Default on our indebtedness and/or foreclosure of our properties;                                                                                                                                               
|
| |  | Changes in financial estimates by securities analysts; and                                                                                                                                                      
|
| |  | Domestic and international economic, legal and regulatory
    factors unrelated to our performance.                                                                                                             



| |                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may never pay dividends on our common stock, in which
    event purchasers only return on their investment, if any,
    will occur on the sale of our common stock.





| |                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our charter documents, employment contracts and Delaware
    law may impede attempts to replace or remove our management or
    inhibit a takeover, which could adversely affect the value of
    our common stock.





| |   |                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Authorizing the issuance of preferred stock, the terms of which
    may be determined at the sole discretion of the board of
    directors;                                           
|
| |  | Establishing advance notice requirements for nominations for
    election to the board of directors or for proposing matters that
    can be acted on by stockholders at meetings; and
|
| |  | Requiring all stockholder action to be taken at a duly called
    meeting, not by written consent.                                                                                    



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##### Table of Contents



New accounting
pronouncements




|                            |  |                                                                                                                                    |  |              |  |                                                                                           |  |                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                      
|--------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------- |  | ------------ |  | ----------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                            |  |                                                                                                                                    |  |              |  | Effective date                                                                            |  |                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                      
|                            |  | Description                                                                                                                        |  | Month Issued |  | for Lodgian                                                                               |  | Summary of major provisions                                                                                                                                                                                                                                                         |  | Effect on Lodgian                                                                                                                                                                                                                                                                                    
|                            |  |                                                                                                                                    |  |              |  |                                                                                           |  |                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                      
|SFAS No. 144                |  | Accounting for the Impairment or Disposal of Long-Lived Assets                                                                     |  | August-01    |  | January-02                                                                                |  | Operating results of real estate assets and to be sold must be
    classified as discontinued operations.                                                                                                                                                                           |  | Assets held for sale (18 hotels and 3 land parcels) and
    assets disposed of in 2003 are included in discontinued
    operations.                                                                                                                                                                  
|FIN No. 45                  |  | Guarantors Accounting and Disclosure Requirements for
    Guarantees, Including Indirect Guarantees of Indebtedness of
    Others |  | November-02  |  | December-02                                                                               |  | Elaborates on disclosures to be made by a guarantor. At the
    inception of the guarantee, the guarantor must recognize the
    fair value of the guarantee as a liability.                                                                                                        |  | No effect, since guarantees all relate to subsidiaries which are
    consolidated.                                                                                                                                                                                                                   
|SFAS No. 148                |  | Accounting for Stock-Based Compensation  Transition
    and Disclosure                                                            |  | December-02  |  | November 22, 2002                                                                         |  | Amends SFAS No. 123 to provide alternative methods of transition
    for an entity that voluntarily changes to the fair-value-based
    method.                                                                                                                                     |  | Not applicable                                                                                                                                                                                                                                                                                       
|                            |  |                                                                                                                                    |  |              |  |                                                                                           |  | Amends SFAS No. 123 to require prominent disclosure about the
    effect of the fair value method on reported net income and
    earnings per share and about an entitys accounting policy.                                                                                        |  | Required disclosures are included in the financial statements
    starting on F-1.                                                                                                                                                                                                                   
|FIN No. 46                  |  | Consolidation of Variable Interest Entities                                                                                        |  | January-03   |  | Special purpose entities  December 31, 2003.
    Other entities  first quarter of 2004. |  | Addresses consolidation by a business of variable interest
    entities in which it is the primary beneficiary.                                                                                                                                                                     |  | No impact, since we have no variable interest entities                                                                                                                                                                                                                                               
|SFAS No. 149                |  | Amendment of Statement 133 on Derivative Instruments and
    Hedging Activities                                                    |  | April-03     |  | July-03                                                                                   |  | Amends and clarifies accounting for derivative instruments
    including certain derivative instruments embedded in other
    contracts and hedging activities.                                                                                                                     |  | Immaterial impact, since our investment in derivatives is
    minimal.                                                                                                                                                                                                                               
|SFAS No. 150                |  | Accounting for Certain Financial Instruments with
    Characteristics of both Liabilities and Equity                               |  | May-03       |  | July-03                                                                                   |  | Aims to eliminate diversity by requiring that certain types of
    freestanding instruments be reported as liabilities including
    mandatorily redeemable shares which unconditionally obligate the
    issuer to redeem the shares for cash or by transferring other
    assets. |  | Our Mandatorily Redeemable 12.25% Cumulative Preferred Stock has
    been reclassified to long- term debt in the Consolidated
    Financial Statements starting on page F-1 and the related
    dividends for the period July 1, 2003 to December 31,
    2003 has been included in interest expense.
|SFAS No. 132 (Revised 2003) |  | Employers Disclosures about Pensions and Other
    Postretirement Benefits                                                        |  | December-03  |  | January-04                                                                                |  | Increases existing disclosures by requiring more details about
    plan assets, benefit obligations, cash flows, benefit costs and
    related information.                                                                                                                         |  | No impact, since our costs in relation to pension and post-
    retirement benefits are insignificant.                                                                                                                                                                                               

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##### Table of Contents






Item 8.     Financial
Statements and Supplementary Data







PART IV







|         |                                                                     
|-------- | --------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules, and Reports on
    Form 8-K





| |                                  
| | ---------------------------------
| | (2) Financial Statement Schedule:



| |                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| | All Schedules are omitted because they are not applicable or
    required information is shown in the Consolidated Financial
    Statements or notes thereto.



| |              
| | -------------
| | (3) Exhibits:



| |                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------
| | The information called for by this paragraph is contained in the
    Exhibits Index of this report, which is incorporated herein by
    reference.





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##### Table of Contents






SIGNATURES






| |              
| | -------------
| | LODGIAN, INC.



| |     |                         
| | --- | ------------------------
| | By: | /s/ Linda Borchert Philp

| |                             
| | ----------------------------
| |                             
| | Linda Borchert Philp        
| | Executive Vice President and
| | Chief Financial Officer     

45



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##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS




|                                                                                                                                                                                                                                                                                         |  |      |     | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                                                                                                                                                                                                         |  | Page
|                                                                                                                                                                                                                                                                                         |  |     
|Report of Independent Registered Public Accounting Firm                                                                                                                                                                                                                                  |  |      | F-2 | 
|Consolidated Balance Sheets as of December 31, 2003 and 2002                                                                                                                                                                                                                             |  |      | F-3 | 
|Consolidated Statements of Operations for the Successor year
    ended December 31, 2003, the Successor period
    November 23, 2002 to December 31, 2002, the
    Predecessor periods January 1, 2002 to November 22,
    2002 and the year ended December 31, 2001                     |  |      | F-4 | 
|Consolidated Statements of Stockholders Equity (Deficit)
    for the Successor year ended December 31, 2003, the
    Successor period November 23, 2002 to December 31,
    2002, the Predecessor periods January 1, 2002 to
    November 22, 2002 and the year ended December 31, 2001 |  |      | F-5 | 
|Consolidated Statements of Cash Flows for the Successor year
    ended December 31, 2003, the Successor period
    November 23, 2002 to December 31, 2002, the
    Predecessor periods January 1, 2002 to November 22,
    2002 and the year ended December 31, 2001                     |  |      | F-6 | 
|Notes to the Consolidated Financial Statements                                                                                                                                                                                                                                           |  |      | F-7 | 



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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM






















F-2



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##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS


|                                      |                                                                                                                                                                             |                                       |         |                   |         |   |         |         |         | 
|------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------- | ------- | ----------------- | ------- | - | ------- | ------- | ------- | 
|                                      |                                                                                                                                                                             | December 31, 2003                     |         | December 31, 2002
|                                      |                                                                                                                                                                             |                                       |         |                  
|                                      |                                                                                                                                                                             | (In thousands, except per share data)
|ASSETS                               
|Current assets:                       |                                                                                                                                                                             |                                       |         |                   |         |   |         |        
|                                      | Cash and cash equivalents                                                                                                                                                   |                                       | $       | 10,897            |         |   | $       | 10,875  |        
|                                      | Cash, restricted                                                                                                                                                            |                                       |         | 7,084             |         |   |         | 19,384  |        
|                                      | Accounts receivable (net of allowances: 2003  $689;
    2002  $1,594)                                                                                                     |                                       |         | 8,169             |         |   |         | 10,681  |        
|                                      | Inventories                                                                                                                                                                 |                                       |         | 5,609             |         |   |         | 7,197   |        
|                                      | Prepaid expenses and other current assets                                                                                                                                   |                                       |         | 17,068            |         |   |         | 15,118  |        
|                                      | Assets held for sale                                                                                                                                                        |                                       |         | 68,567            |         |   |         |        |        
|                                      |                                                                                                                                                                             |                                       |         |                   |         |   |         |        
|                                      |                                                                                                                                                                             | Total current assets                  |         |                   | 117,394 |   |         |         | 63,255  | 
|Property and equipment, net           |                                                                                                                                                                             |                                       | 563,818 |                   |         |   | 664,565 |        
|Deposits for capital expenditures     |                                                                                                                                                                             |                                       | 15,782  |                   |         |   | 22,349  |        
|Other assets                          |                                                                                                                                                                             |                                       | 12,180  |                   |         |   | 11,995  |        
|                                      |                                                                                                                                                                             |                                       |         |                   |         |   |         |        
|                                      |                                                                                                                                                                             | $                                     | 709,174 |                   |         | $ | 762,164 |        
|                                      |                                                                                                                                                                             |                                       |         |                   |         |   |         |        
|LIABILITIES AND STOCKHOLDERS EQUITY 
|Liabilities not subject to compromise |                                                                                                                                                                             |                                       |         |                   |         |   |         |        
|                                      | Current liabilities:                                                                                                                                                        |                                       |         |                   |         |   |         |         |        
|                                      | Accounts payable                                                                                                                                                            |                                       | $       | 7,131             |         |   | $       | 12,380  |        
|                                      | Other accrued liabilities                                                                                                                                                   |                                       |         | 31,432            |         |   |         | 41,297  |        
|                                      | Advance deposits                                                                                                                                                            |                                       |         | 1,882             |         |   |         | 1,786   |        
|                                      | Current portion of long-term debt                                                                                                                                           |                                       |         | 16,563            |         |   |         | 14,550  |        
|                                      | Liabilities related to assets held for sale                                                                                                                                 |                                       |         | 57,948            |         |   |         |        |        
|                                      |                                                                                                                                                                             |                                       |         |                   |         |   |         |        
|                                      |                                                                                                                                                                             | Total current liabilities             |         |                   | 114,956 |   |         |         | 70,013  | 
|Long-term debt:                       |                                                                                                                                                                             |                                       |         |                   |         |   |         |        
|                                      | 12.25% Cumulative preferred shares subject to mandatory
    redemption                                                                                                      |                                       |         | 142,177           |         |   |         |        |        
|                                      | Long-term debt  other                                                                                                                                                      |                                       |         | 409,115           |         |   |         | 389,752 |        
|                                      |                                                                                                                                                                             |                                       |         |                   |         |   |         |        
|                                      |                                                                                                                                                                             | Total long-term debt                  |         |                   | 551,292 |   |         |         | 389,752 | 
|Liabilities subject to compromise     |                                                                                                                                                                             |                                       |        |                   |         |   | 93,816  |        
|                                      |                                                                                                                                                                             |                                       |         |                   |         |   |         |        
|                                      |                                                                                                                                                                             | Total liabilities                     |         |                   | 666,248 |   |         |         | 553,581 | 
|Minority interests                    |                                                                                                                                                                             |                                       | 2,320   |                   |         |   | 3,616   |        
|Commitments and contingencies         |                                                                                                                                                                             |                                       |         |                   |         |   |         |        
|                                      | 12.25% Cumulative preferred shares subject to mandatory
    redemption                                                                                                      |                                       |         |                  |         |   |         | 126,510 |        
|Stockholders equity:                 |                                                                                                                                                                             |                                       |         |                   |         |   |         |        
|                                      | Common stock, $.01 par value, 30,000,000 shares
    authorized; 7,000,774 and 7,000,000 issued and outstanding at
    December 31, 2003 and December 31, 2002, respectively |                                       |         | 70                |         |   |         | 70      |        
|                                      | Additional paid-in capital                                                                                                                                                  |                                       |         | 89,827            |         |   |         | 89,223  |        
|                                      | Unearned stock compensation                                                                                                                                                 |                                       |         | (508              | )       |   |         |        |        
|                                      | Accumulated deficit                                                                                                                                                         |                                       |         | (50,107           | )       |   |         | (10,836 | )      
|                                      | Accumulated other comprehensive income                                                                                                                                      |                                       |         | 1,324             |         |   |         |        |        
|                                      |                                                                                                                                                                             |                                       |         |                   |         |   |         |        
|                                      |                                                                                                                                                                             | Total stockholders equity            |         |                   | 40,606  |   |         |         | 78,457  | 
|                                      |                                                                                                                                                                             |                                       |         |                   |         |   |         |        
|                                      |                                                                                                                                                                             | $                                     | 709,174 |                   |         | $ | 762,164 |        
|                                      |                                                                                                                                                                             |                                       |         |                   |         |   |         |        



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##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                                                   |                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                       |         |                      |             |   |                    |         |        |   |  |         |         |         |   |         |          |         |  
|---------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------- | -------------------- | ----------- | - | ------------------ | ------- | ------ | - |  | ------- | ------- | ------- | - | ------- | -------- | ------- | -
|                                                                                   |                                                                                                                                                                                              | Successor                                                                                                                                                                                                                                                                                             |         |                      | Predecessor
|                                                                                   |                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                       |         |                      |            
|                                                                                   |                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                       |         | November 23, 2002 to |             |   | January 1, 2002 to |         |       
|                                                                                   |                                                                                                                                                                                              | 2003                                                                                                                                                                                                                                                                                                  |         | December 31, 2002    |             |   | November 22, 2002  |         | 2001  
|                                                                                   |                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                       |         |                      |             |   |                    |         |       
|                                                                                   |                                                                                                                                                                                              | (In thousands, except per share data)                                                                                                                                                                                                                                                                
|Revenues:                                                                          |                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                       |         |                      |             |   |                    |         |        |   |  |         |         |         |   |         |         
|                                                                                   | Rooms                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                       | $       | 229,519              |             |   | $                  | 16,902  |        |   |  | $       | 220,898 |         |   | $       | 257,100  |        
|                                                                                   | Food and beverage                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                       |         | 70,791               |             |   |                    | 7,415   |        |   |  |         | 66,709  |         |   |         | 79,554   |        
|                                                                                   | Other                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                       |         | 11,104               |             |   |                    | 989     |        |   |  |         | 11,660  |         |   |         | 14,418   |        
|                                                                                   |                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                       |         |                      |             |   |                    |         |        |   |  |         |         |         |   |         |         
|                                                                                   |                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                       | 311,414 |                      |             |   | 25,306             |         |        |   |  | 299,267 |         |         |   | 351,072 |         
|                                                                                   |                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                       |         |                      |             |   |                    |         |        |   |  |         |         |         |   |         |         
|Operating expenses:                                                                |                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                       |         |                      |             |   |                    |         |        |   |  |         |         |         |   |         |         
|                                                                                   | Direct:                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                       |         |                      |             |   |                    |         |        |   |  |         |         |         |   |         |          |        
|                                                                                   |                                                                                                                                                                                              | Rooms                                                                                                                                                                                                                                                                                                 |         |                      | 65,814      |   |                    |         | 6,246  |   |  |         |         | 59,378  |   |         |          | 69,257  |  
|                                                                                   |                                                                                                                                                                                              | Food and beverage                                                                                                                                                                                                                                                                                     |         |                      | 48,686      |   |                    |         | 5,447  |   |  |         |         | 46,822  |   |         |          | 55,459  |  
|                                                                                   |                                                                                                                                                                                              | Other                                                                                                                                                                                                                                                                                                 |         |                      | 7,970       |   |                    |         | 880    |   |  |         |         | 7,836   |   |         |          | 8,540   |  
|                                                                                   |                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                       |         |                      |             |   |                    |         |        |   |  |         |         |         |   |         |         
|                                                                                   |                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                       | 122,470 |                      |             |   | 12,573             |         |        |   |  | 114,036 |         |         |   | 133,256 |         
|                                                                                   |                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                       |         |                      |             |   |                    |         |        |   |  |         |         |         |   |         |         
|                                                                                   |                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                       | 188,944 |                      |             |   | 12,733             |         |        |   |  | 185,231 |         |         |   | 217,816 |         
|                                                                                   |                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                       |         |                      |             |   |                    |         |        |   |  |         |         |         |   |         |         
|                                                                                   | General, administrative and other                                                                                                                                                            |                                                                                                                                                                                                                                                                                                       |         | 137,888              |             |   |                    | 13,982  |        |   |  |         | 118,212 |         |   |         | 154,320  |        
|                                                                                   | Depreciation and amortization                                                                                                                                                                |                                                                                                                                                                                                                                                                                                       |         | 29,761               |             |   |                    | 3,113   |        |   |  |         | 40,523  |         |   |         | 46,065   |        
|                                                                                   | Impairment of long-lived assets                                                                                                                                                              |                                                                                                                                                                                                                                                                                                       |         | 12,667               |             |   |                    |        |        |   |  |         |        |         |   |         | 20,503   |        
|                                                                                   |                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                       |         |                      |             |   |                    |         |        |   |  |         |         |         |   |         |         
|                                                                                   |                                                                                                                                                                                              | Other operating expenses                                                                                                                                                                                                                                                                              |         |                      | 180,316     |   |                    |         | 17,095 |   |  |         |         | 158,735 |   |         |          | 220,888 |  
|                                                                                   |                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                       |         |                      |             |   |                    |         |        |   |  |         |         |         |   |         |         
|                                                                                   |                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                       | 8,628   |                      |             |   | (4,362             | )       |        |   |  | 26,496  |         |         |   | (3,072  | )       
|Other income (expenses):                                                           |                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                       |         |                      |             |   |                    |         |        |   |  |         |         |         |   |         |         
|                                                                                   | Interest income and other                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                       |         | 807                  |             |   |                    | 14      |        |   |  |         | 4,940   |         |   |         | 709      |        
|                                                                                   | Interest expense:                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                       |         |                      |             |   |                    |         |        |   |  |         |         |         |   |         |          |        
|                                                                                   |                                                                                                                                                                                              | Preferred stock dividend                                                                                                                                                                                                                                                                              |         |                      | (8,092      | ) |                    |         |       |   |  |         |         |        |   |         |          |        |  
|                                                                                   |                                                                                                                                                                                              | Interest expense (contractual interest: $29.8 million,
    $3.0 million, $53.5 million and $76.1 million for
    the Successor periods ended December 31, 2003 and
    December 31, 2002, the Predecessor periods ended
    November 22, 2002 and the year ended December 31,
    2001, respectively) |         |                      | (28,581     | ) |                    |         | (2,512 | ) |  |         |         | (25,761 | ) |         |          | (71,817 | )
|                                                                                   |                                                                                                                                                                                              | Gain on asset dispositions                                                                                                                                                                                                                                                                            |         |                      | 445         |   |                    |         |       |   |  |         |         |        |   |         |          | 23,975  |  
|                                                                                   |                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                       |         |                      |             |   |                    |         |        |   |  |         |         |         |   |         |         
|(Loss) income before income taxes, reorganization items and
    minority interests |                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                       | (26,793 | )                    |             |   | (6,860             | )       |        |   |  | 5,675   |         |         |   | (50,205 | )       
|Reorganization items                                                               |                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                       | (1,397  | )                    |             |   |                   |         |        |   |  | 11,038  |         |         |   | (21,672 | )       
|                                                                                   |                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                       |         |                      |             |   |                    |         |        |   |  |         |         |         |   |         |         
|(Loss) income before income taxes and minority interest                            |                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                       | (28,190 | )                    |             |   | (6,860             | )       |        |   |  | 16,713  |         |         |   | (71,877 | )       
|Minority interests:                                                                |                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                       |         |                      |             |   |                    |         |        |   |  |         |         |         |   |         |         
|                                                                                   | Preferred redeemable securities (contractual interest:
    $12.7 million and $13.2 million for the Predecessor
    periods ended November 22, 2002 and the year ended
    December 31, 2001) |                                                                                                                                                                                                                                                                                                       |         |                     |             |   |                    |        |        |   |  |         |        |         |   |         | (12,869  | )      
|                                                                                   | Other                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                       |         | 1,294                |             |   |                    | 147     |        |   |  |         | 126     |         |   |         | 38       |        
|                                                                                   |                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                       |         |                      |             |   |                    |         |        |   |  |         |         |         |   |         |         
|                                                                                   | (Loss) income before income taxes  continuing
    operations                                                                                                                                |                                                                                                                                                                                                                                                                                                       |         | (26,896              | )           |   |                    | (6,713  | )      |   |  |         | 16,839  |         |   |         | (84,708  | )      
|                                                                                   | (Provision) benefit for income taxes  continuing
    operations                                                                                                                             |                                                                                                                                                                                                                                                                                                       |         | (178                 | )           |   |                    | (32     | )      |   |  |         | 160     |         |   |         | (2,829   | )      
|                                                                                   |                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                       |         |                      |             |   |                    |         |        |   |  |         |         |         |   |         |         
|                                                                                   | (Loss) income  continuing operations                                                                                                                                                        |                                                                                                                                                                                                                                                                                                       |         | (27,074              | )           |   |                    | (6,745  | )      |   |  |         | 16,999  |         |   |         | (87,537  | )      
|                                                                                   |                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                       |         |                      |             |   |                    |         |        |   |  |         |         |         |   |         |         
|Discontinued operations:                                                           |                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                       |         |                      |             |   |                    |         |        |   |  |         |         |         |   |         |         
|                                                                                   | Loss from discontinued operations before income taxes                                                                                                                                        |                                                                                                                                                                                                                                                                                                       |         | (4,603               | )           |   |                    | (2,581  | )      |   |  |         | (5,833  | )       |   |         | (55,227  | )      
|                                                                                   | Income tax benefit                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                       |         |                     |             |   |                    |        |        |   |  |         | 1,200   |         |   |         |         |        
|                                                                                   |                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                       |         |                      |             |   |                    |         |        |   |  |         |         |         |   |         |         
|                                                                                   | Loss from discontinued operations                                                                                                                                                            |                                                                                                                                                                                                                                                                                                       |         | (4,603               | )           |   |                    | (2,581  | )      |   |  |         | (4,633  | )       |   |         | (55,227  | )      
|                                                                                   |                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                       |         |                      |             |   |                    |         |        |   |  |         |         |         |   |         |         
|                                                                                   | Net (loss) income                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                       |         | (31,677              | )           |   |                    | (9,326  | )      |   |  |         | 12,366  |         |   |         | (142,764 | )      
|                                                                                   | Preferred stock dividend                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                       |         | (7,594               | )           |   |                    | (1,510  | )      |   |  |         |        |         |   |         |         |        
|                                                                                   |                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                       |         |                      |             |   |                    |         |        |   |  |         |         |         |   |         |         
|                                                                                   | Net (loss) income attributable to common stock                                                                                                                                               |                                                                                                                                                                                                                                                                                                       | $       | (39,271              | )           |   | $                  | (10,836 | )      |   |  | $       | 12,366  |         |   | $       | (142,764 | )      
|                                                                                   |                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                       |         |                      |             |   |                    |         |        |   |  |         |         |         |   |         |         
|Basic and diluted loss per common share:                                           |                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                       |         |                      |             |   |                    |         |        |   |  |         |         |         |   |         |         
|                                                                                   | Net (loss) income attributable to common stock                                                                                                                                               |                                                                                                                                                                                                                                                                                                       | $       | (5.61                | )           |   | $                  | (1.55   | )      |   |  | $       | 0.43    |         |   | $       | (5.04    | )      
|                                                                                   |                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                       |         |                      |             |   |                    |         |        |   |  |         |         |         |   |         |         





F-4



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##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(DEFICIT)


For the Year Ended December 31, 2001, the period January
1, 2002 to November 22, 2002,


the period November 23, 2002 to December 31, 2002
and the year ended December 31, 2003


|                                             |                                                                   |                                   |             |            |  |          |      |              |  |               |          |                   |  |           |      |   |  |   |          |         |   |   |        |       |  |   |          |         |  
|-------------------------------------------- | ----------------------------------------------------------------- | --------------------------------- | ----------- | ---------- |  | -------- | ---- | ------------ |  | ------------- | -------- | ----------------- |  | --------- | ---- | - |  | - | -------- | ------- | - | - | ------ | ----- |  | - | -------- | ------- | -
|                                             |                                                                   |                                   |             |            |  |          |      |              |  | Accumulated   |          | Total            
|                                             |                                                                   | Common Stock                      |             | Additional |  | Unearned |      |              |  | Other         |          | Stockholders    
|                                             |                                                                   |                                   |             | Paid-In    |  | Stock    |      | Accumulated  |  | Comprehensive |          | Equity           
|                                             |                                                                   | Shares                            |             | Amount     |  | Capital  |      | Compensation |  | Deficit       |          | Loss (net of tax) |  | (Deficit)
|                                             |                                                                   |                                   |             |            |  |          |      |              |  |               |          |                   |  |          
|                                             |                                                                   | (In thousands, except share data)
|Predecessor Company:                         |                                                                   |                                   |             |            |  |          |      |              |  |               |          |                   |  |           |      |   |  |   |          |         |   |   |        |       |  |   |          |        
|Balance at December 31, 2000                 |                                                                   |                                   | 28,290,424  |            |  | $        | 282  |              |  | $             | 263,320  |                   |  | $         |     |   |  | $ | (125,542 | )       |   | $ | (1,180 | )     |  | $ | 136,880  |        
|401(k) Plan contribution                     |                                                                   |                                   | 189,413     |            |  |          | 2    |              |  |               |          |                   |  |           |     |   |  |   |          |         |   |   |        |       |  |   | 2        |        
|Net loss                                     |                                                                   |                                   |            |            |  |          |     |              |  |               |         |                   |  |           |     |   |  |   | (142,764 | )       |   |   |       |       |  |   | (142,764 | )      
|Currency translation adjustments, net of tax |                                                                   |                                   |            |            |  |          |     |              |  |               |         |                   |  |           |     |   |  |   |         |         |   |   | (799   | )     |  |   | (799     | )      
|                                             |                                                                   |                                   |             |            |  |          |      |              |  |               |          |                   |  |           |      |   |  |   |          |         |   |   |        |       |  |   |          |        
|Comprehensive loss                           |                                                                   |                                   |             |            |  |          |      |              |  |               |          |                   |  |           |      |   |  |   |          |         |   |   |        |       |  |   | (143,563 | )      
|                                             |                                                                   |                                   |             |            |  |          |      |              |  |               |          |                   |  |           |      |   |  |   |          |         |   |   |        |       |  |   |          |        
|Balance at December 31, 2001                 |                                                                   |                                   | 28,479,837  |            |  |          | 284  |              |  |               | 263,320  |                   |  |           |     |   |  |   | (268,306 | )       |   |   | (1,979 | )     |  |   | (6,681   | )      
|Net income through November 22, 2002         |                                                                   |                                   |            |            |  |          |     |              |  |               |          |                   |  |           |     |   |  |   | 12,366   |         |   |   |        |       |  |   | 12,366   |        
|Currency translation adjustments, net of tax |                                                                   |                                   |            |            |  |          |      |              |  |               |         |                   |  |           |     |   |  |   |          |         |   |   | 101    |       |  |   | 101      |        
|                                             |                                                                   |                                   |             |            |  |          |      |              |  |               |          |                   |  |           |      |   |  |   |          |         |   |   |        |       |  |   |          |        
|Comprehensive loss                           |                                                                   |                                   |            |            |  |          |     |              |  |               |         |                   |  |           |      |   |  |   |          |         |   |   |        |       |  |   | 12,467   |        
|                                             |                                                                   |                                   |             |            |  |          |      |              |  |               |          |                   |  |           |      |   |  |   |          |         |   |   |        |       |  |   |          |        
|Balance at November 22, 2002                 |                                                                   |                                   | 28,479,837  |            |  |          | 284  |              |  |               | 263,320  |                   |  |           |     |   |  |   | (255,940 | )       |   |   | (1,878 | )     |  |   | 5,786    |        
|Reorganization adjustments                   |                                                                   |                                   | (28,479,837 | )          |  |          | (284 | )            |  |               | (263,320 | )                 |  |           |     |   |  |   | 255,940  |         |   |   | 1,878  |       |  |   | (5,786   | )      
|                                             |                                                                   |                                   |             |            |  |          |      |              |  |               |          |                   |  |           |      |   |  |   |          |         |   |   |        |       |  |   |          |        
|Balance November 22, 2002                    |                                                                   |                                   |            |            |  |          |     |              |  |               |         |                   |  |           |     |   |  |   |         |         |   |   |       |       |  |   |         |        
|                                            
|Successor Company:                           |                                                                   |                                   |             |            |  |          |      |              |  |               |          |                   |  |           |      |   |  |   |          |         |   |   |        |       |  |   |          |        
|Distribution of new common shares            |                                                                   |                                   | 7,000,000   |            |  |          | 70   |              |  |               | 81,186   |                   |  |           |     |   |  |   |         |         |   |   |       |       |  |   | 81,256   |        
|Distribution of A warrants, 1,510,638        |                                                                   |                                   |            |            |  |          |     |              |  |               | 4,774    |                   |  |           |     |   |  |   |          |         |   |   |        |       |  |   | 4,774    |        
|Distribution of B warrants, 1,029,366        |                                                                   |                                   |            |            |  |          |     |              |  |               | 3,263    |                   |  |           |     |   |  |   |          |         |   |   |        |       |  |   | 3,263    |        
|Net loss  November 22 to December 31, 2002  |                                                                   |                                   |            |            |  |          |     |              |  |               |         |                   |  |           |     |   |  |   | (9,326   | )       |   |   |        |       |  |   | (9,326   | )      
|Currency translation adjustments, net of tax |                                                                   |                                   |            |            |  |          |     |              |  |               |         |                   |  |           |     |   |  |   |         |         |   |   |       |       |  |   |         |        
|                                             |                                                                   |                                   |             |            |  |          |      |              |  |               |          |                   |  |           |      |   |  |   |          |         |   |   |        |       |  |   |          |        
|Comprehensive loss                           |                                                                   |                                   |             |            |  |          |      |              |  |               |          |                   |  |           |      |   |  |   |          |         |   |   |        |       |  |   | (9,326   | )      
|Preferred dividends accrued (not declared)   |                                                                   |                                   |             |            |  |          |      |              |  |               |          |                   |  |           |      |   |  |   | (1,510   | )       |   |   |        |       |  |   | (1,510   | )      
|                                             |                                                                   |                                   |             |            |  |          |      |              |  |               |          |                   |  |           |      |   |  |   |          |         |   |   |        |       |  |   |          |        
|Balance December 31, 2002                    |                                                                   |                                   | 7,000,000   |            |  | $        | 70   |              |  | $             | 89,223   |                   |  | $         |     |   |  | $ | (10,836  | )       |   | $ |       |       |  | $ | 78,457   |        
|Issuance of restricted stock                 |                                                                   |                                   |            |            |  |          |     |              |  |               | 600      |                   |  |           | (600 | ) |  |   |         |         |   |   |       |       |  |   |         |        
|Amortization of unearned stock compensation  |                                                                   |                                   |            |            |  |          |     |              |  |               |         |                   |  |           | 92   |   |  |   |         |         |   |   |       |       |  |   | 92       |        
|Exercise of stock options                    |                                                                   |                                   | 774         |            |  |          |     |              |  |               | 4        |                   |  |           |     |   |  |   |         |         |   |   |       |       |  |   | 4        |        
|Comprehensive loss:                          |                                                                   |                                   |             |            |  |          |      |              |  |               |          |                   |  |           |      |   |  |   |          |         |   |   |        |       |  |   |          |        
|                                             | Net loss                                                          |                                   |             |           |  |          |      |             |  |               |          |                  |  |           |      |  |  |   |          | (31,677 | ) |   |        |      |  |   |          | (31,677 | )
|                                             | Currency translation adjustments (related taxes estimated at nil) |                                   |             |           |  |          |      |             |  |               |          |                  |  |           |      |  |  |   |          |        |   |   |        | 1,324 |  |   |          | 1,324   |  
|                                             |                                                                   |                                   |             |            |  |          |      |              |  |               |          |                   |  |           |      |   |  |   |          |         |   |   |        |       |  |   |          |        
|Total comprehensive loss                     |                                                                   |                                   |            |            |  |          |     |              |  |               |         |                   |  |           |      |   |  |   |         |         |   |   |       |       |  |   | (30,353  | )      
|Preferred dividends*                         |                                                                   |                                   |            |            |  |          |     |              |  |               |         |                   |  |           |     |   |  |   | (7,594   | )       |   |   |       |       |  |   | (7,594   | )      
|                                             |                                                                   |                                   |             |            |  |          |      |              |  |               |          |                   |  |           |      |   |  |   |          |         |   |   |        |       |  |   |          |        
|Balance December 31, 2003                    |                                                                   |                                   | 7,000,774   |            |  | $        | 70   |              |  | $             | 89,827   |                   |  | $         | (508 | ) |  | $ | (50,107  | )       |   | $ | 1,324  |       |  | $ | 40,606   |        
|                                             |                                                                   |                                   |             |            |  |          |      |              |  |               |          |                   |  |           |      |   |  |   |          |         |   |   |        |       |  |   |          |        










F-5



---



##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                                |                                                                                                     |                                                        |                                                    |                      |             |        |                    |        |       |         |   |         |          |          |         |         |          |         |        |  
|------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------- | ------------------------------------------------------ | -------------------------------------------------- | -------------------- | ----------- | ------ | ------------------ | ------ | ----- | ------- | - | ------- | -------- | -------- | ------- | ------- | -------- | ------- | ------ | -
|                                                                                |                                                                                                     | Successor                                              |                                                    |                      | Predecessor
|                                                                                |                                                                                                     |                                                        |                                                    |                      |            
|                                                                                |                                                                                                     |                                                        |                                                    | November 23, 2002 to |             |        | January 1, 2002 to |        |      
|                                                                                |                                                                                                     | 2003                                                   |                                                    | December 31, 2002    |             |        | November 22, 2002  |        | 2001 
|                                                                                |                                                                                                     |                                                        |                                                    |                      |             |        |                    |        |      
|                                                                                |                                                                                                     | (In thousands)                                        
|Operating activities:                                                           |                                                                                                     |                                                        |                                                    |                      |             |        |                    |        |       |         |   |         |          |          |         |         |         
|                                                                                | Net (loss) income                                                                                   |                                                        | $                                                  | (31,677              | )           |        | $                  | (9,326 | )     |         |   | $       | 12,366   |          |         | $       | (142,764 | )      
|                                                                                | Adjustments to reconcile (loss) income to net cash provided
    by (used in ) operating activities: |                                                        |                                                    |                      |             |        |                    |        |       |         |   |         |          |          |         |         |          |        
|                                                                                |                                                                                                     | Depreciation and amortization                          |                                                    |                      | 33,128      |        |                    |        | 3,970 |         |   |         |          | 53,224   |         |         |          | 62,545  |       
|                                                                                |                                                                                                     | Impairment of long-lived assets                        |                                                    |                      | 18,054      |        |                    |        |      |         |   |         |          | 222,071  |         |         |          | 67,340  |       
|                                                                                |                                                                                                     | Gain on extinguishment of debt                         |                                                    |                      |            |        |                    |        |      |         |   |         |          | (260,838 | )       |         |          |        |       
|                                                                                |                                                                                                     | Fresh start adjustments  other                        |                                                    |                      |            |        |                    |        |      |         |   |         |          | (3,938   | )       |         |          |        |       
|                                                                                |                                                                                                     | Amortization of unearned stock compensation            |                                                    |                      | 92          |        |                    |        |      |         |   |         |          |         |         |         |          |        |       
|                                                                                |                                                                                                     | Preferred stock dividends                              |                                                    |                      | 8,092       |        |                    |        |      |         |   |         |          |         |         |         |          |        |       
|                                                                                |                                                                                                     | Minority interests                                     |                                                    |                      | (1,296      | )      |                    |        | (147  | )       |   |         |          | (126     | )       |         |          | 12,831  |       
|                                                                                |                                                                                                     | Gain on asset dispositions                             |                                                    |                      | (3,530      | )      |                    |        |      |         |   |         |          |         |         |         |          | (23,975 | )     
|                                                                                |                                                                                                     | Write-off and amortization of deferred financing costs |                                                    |                      | 4,916       |        |                    |        | 167   |         |   |         |          | 56       |         |         |          | 26,273  |       
|                                                                                |                                                                                                     | Other                                                  |                                                    |                      | (225        | )      |                    |        | (381  | )       |   |         |          | 213      |         |         |          | 563     |       
|                                                                                |                                                                                                     | Changes in operating assets and liabilities:           |                                                    |                      |             |        |                    |        |       |         |   |         |          |          |         |         |          |         |       
|                                                                                |                                                                                                     |                                                        | Accounts receivable, net of allowances             |                      |             | 1,262  |                    |        |       | 3,821   |   |         |          |          | (2,013  | )       |          |         | 8,135  |  
|                                                                                |                                                                                                     |                                                        | Inventories                                        |                      |             | 211    |                    |        |       | 126     |   |         |          |          | (100    | )       |          |         | 582    |  
|                                                                                |                                                                                                     |                                                        | Prepaid expenses, other assets and restricted cash |                      |             | 9,311  |                    |        |       | 14,795  |   |         |          |          | (39,795 | )       |          |         | (1,607 | )
|                                                                                |                                                                                                     |                                                        | Accounts payable                                   |                      |             | (4,824 | )                  |        |       | (1,797  | ) |         |          |          | 1,604   |         |          |         | 2,277  |  
|                                                                                |                                                                                                     |                                                        | Other accrued liabilities                          |                      |             | (6,745 | )                  |        |       | (11,025 | ) |         |          |          | 15,611  |         |          |         | (2,818 | )
|                                                                                |                                                                                                     |                                                        | Advance deposits                                   |                      |             | 486    |                    |        |       | (303    | ) |         |          |          | 318     |         |          |         | (83    | )
|                                                                                |                                                                                                     |                                                        |                                                    |                      |             |        |                    |        |       |         |   |         |          |          |         |         |         
|Net cash provided by (used in) operating activities                             |                                                                                                     |                                                        | 27,255                                             |                      |             |        | (100               | )      |       |         |   | (1,347  | )        |          |         | 9,299   |         
|Investing activities:                                                           |                                                                                                     |                                                        |                                                    |                      |             |        |                    |        |       |         |   |         |          |          |         |         |         
|                                                                                | Capital improvements                                                                                |                                                        |                                                    | (35,350              | )           |        |                    | (4,808 | )     |         |   |         | (23,290  | )        |         |         | (28,844  | )      
|                                                                                | Proceeds from sale of assets, net of related selling costs, and
    land condemnations              |                                                        |                                                    | 13,145               |             |        |                    |       |       |         |   |         |         |          |         |         | 67,910   |        
|                                                                                | Withdrawals (deposits) for capital expenditures                                                     |                                                        |                                                    | 6,896                |             |        |                    | (7,656 | )     |         |   |         | 2,160    |          |         |         | (1,808   | )      
|                                                                                | Other                                                                                               |                                                        |                                                    | (261                 | )           |        |                    | (1,010 | )     |         |   |         | (758     | )        |         |         |         |        
|                                                                                |                                                                                                     |                                                        |                                                    |                      |             |        |                    |        |       |         |   |         |          |          |         |         |         
|Net cash (used in) provided by investing activities                             |                                                                                                     |                                                        | (15,570                                            | )                    |             |        | (13,474            | )      |       |         |   | (21,888 | )        |          |         | 37,258  |         
|Financing activities:                                                           |                                                                                                     |                                                        |                                                    |                      |             |        |                    |        |       |         |   |         |          |          |         |         |         
|                                                                                | Proceeds from issuance of long-term debt                                                            |                                                        |                                                    | 80,000               |             |        |                    |       |       |         |   |         | 309,098  |          |         |         |         |        
|                                                                                | Proceeds from working capital revolver                                                              |                                                        |                                                    | 2,000                |             |        |                    |       |       |         |   |         |         |          |         |         | 21,000   |        
|                                                                                | Proceeds from issuance of common stock                                                              |                                                        |                                                    | 114                  |             |        |                    |       |       |         |   |         |         |          |         |         |         |        
|                                                                                | Principal payments on long-term debt                                                                |                                                        |                                                    | (87,059              | )           |        |                    | (1,221 | )     |         |   |         | (266,601 | )        |         |         | (58,954  | )      
|                                                                                | Principal payments on working capital revolver                                                      |                                                        |                                                    | (2,000               | )           |        |                    |        |       |         |   |         |          |          |         |         | (15,000  | )      
|                                                                                | Payments of deferred loan costs                                                                     |                                                        |                                                    | (4,839               | )           |        |                    |       |       |         |   |         | (7,599   | )        |         |         | (598     | )      
|                                                                                |                                                                                                     |                                                        |                                                    |                      |             |        |                    |        |       |         |   |         |          |          |         |         |         
|Net cash (used in) provided by financing activities                             |                                                                                                     |                                                        | (11,784                                            | )                    |             |        | (1,221             | )      |       |         |   | 34,898  |          |          |         | (53,552 | )       
|Effect of exchange rate changes on cash                                         |                                                                                                     |                                                        | 121                                                |                      |             |        |                   |        |       |         |   |        |          |          |         |        |         
|Net (decrease) increase in cash and cash equivalents                            |                                                                                                     |                                                        | 22                                                 |                      |             |        | (14,795            | )      |       |         |   | 11,663  |          |          |         | (6,995  | )       
|Cash and cash equivalents at beginning of period                                |                                                                                                     |                                                        | 10,875                                             |                      |             |        | 25,670             |        |       |         |   | 14,007  |          |          |         | 21,002  |         
|                                                                                |                                                                                                     |                                                        |                                                    |                      |             |        |                    |        |       |         |   |         |          |          |         |         |         
|Cash and cash equivalents at end of period                                      |                                                                                                     | $                                                      | 10,897                                             |                      |             | $      | 10,875             |        |       |         | $ | 25,670  |          |          | $       | 14,007  |         
|                                                                                |                                                                                                     |                                                        |                                                    |                      |             |        |                    |        |       |         |   |         |          |          |         |         |         
|Supplemental cash flow information:                                             |                                                                                                     |                                                        |                                                    |                      |             |        |                    |        |       |         |   |         |          |          |         |         |         
|Cash paid during the period for:                                                |                                                                                                     |                                                        |                                                    |                      |             |        |                    |        |       |         |   |         |          |          |         |         |         
|                                                                                | Interest, net of the amounts capitalized shown below                                                |                                                        | $                                                  | 28,660               |             |        | $                  | 1,589  |       |         |   | $       | 31,132   |          |         | $       | 73,131   |        
|                                                                                | Interest capitalized                                                                                |                                                        |                                                    | 1,181                |             |        |                    | 149    |       |         |   |         | 365      |          |         |         | 861      |        
|                                                                                | Income taxes, net of refunds                                                                        |                                                        |                                                    | 237                  |             |        |                    |        |       |         |   |         | (302     | )        |         |         | 120      |        
|Supplemental disclosure of non-cash investing and financing
    activities:     |                                                                                                     |                                                        |                                                    |                      |             |        |                    |        |       |         |   |         |          |          |         |         |         
|                                                                                | Issuance of preferred stock on emergence from Chapter 11                                            |                                                        |                                                    |                     |             |        |                    |       |       |         |   |         | 125,000  |          |         |         |         |        
|                                                                                | Issuance of other securities on emergence from Chapter 11                                           |                                                        |                                                    |                     |             |        |                    |       |       |         |   |         | 89,293   |          |         |         |         |        
|                                                                                | Net non-cash debt increase                                                                          |                                                        |                                                    | 4,678                |             |        |                    | 16     |       |         |   |         | 137      |          |         |         |          |        
|Operating cash receipts and payments resulting from
    Chapter 11 proceedings: |                                                                                                     |                                                        |                                                    |                      |             |        |                    |        |       |         |   |         |          |          |         |         |         
|Professional fees paid                                                          |                                                                                                     |                                                        | (455                                               | )                    |             |        |                   |        |       |         |   | (11,184 | )        |          |         | (3,772  | )       
|Loan extension fee                                                              |                                                                                                     |                                                        | (1,500                                             | )                    |             |        |                   |        |       |         |   |        |          |          |         |        |         
|Other reorganization payments                                                   |                                                                                                     | $                                                      | (90                                                | )                    |             | $      |                   |        |       |         | $ | (908    | )        |          | $       | (24     | )       

Upon emergence from Chapter 11, the Company adopted
fresh start reporting. As a result, all assets and liabilities
were restated


to reflect their fair values. The consolidated financial
statements of the new reporting entity (the
Successor) are not


comparable to the reporting entity prior to the
Companys emergence from Chapter 11 (the
Predecessor).




F-6



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##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


December 31, 2003




|   |                                           
|-- | ------------------------------------------
|1. | Summary of Significant Accounting Policies

Description of
Business








| |   |                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------
| |  | renovating and repositioning certain of its existing hotels to
    improve performance;                                    
|
| |  | divesting hotels that do not fit this strategy or that are
    unlikely to do so without significant effort or expense; and
|
| |  | acquiring selected hotels that better fit this strategy.                                                                   



Fresh Start Reporting




Principles of
Consolidation




Melbourne Hospitality Associates, Limited Partnership (which
owns the Holiday Inn Melbourne, Florida)


New Orleans Airport Motel Associates, Ltd. (which owns the
New Orleans Airport Plaza Hotel and Conference Center,
Louisiana)


Servico Centre Associates, Ltd.


F-7



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##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


Macon Hotel Associates, L.L.C. (which owns the Crowne Plaza
Macon, Georgia)






Inventories




Minority
Interests  Preferred Redeemable Securities




Minority
Interests  Other




Property and
Equipment




F-8



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##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                                                        |  |                  |       |              |  |            |     |  |  |   |       | 
|------------------------------------------------------- |  | ---------------- | ----- | ------------ |  | ---------- | --- |  |  | - | ----- | 
|                                                        |  | Continuing       |       | Discontinued |  | Total     
|                                                        |  | operations       |       | operations   |  | operations
|                                                        |  |                  |       |              |  |           
|                                                        |  | ($ in thousands)
|Predecessor year ended December 31, 2001                |  | $                | 739   |              |  | $          | 122 |  |  | $ | 861   | 
|Predecessor period January 1, 2002 to November 22, 2002 |  |                  | 317   |              |  |            | 48  |  |  |   | 365   | 
|Successor period November 23, 2002 to December 31, 2002 |  |                  | 127   |              |  |            | 22  |  |  |   | 149   | 
|Successor year ended December 31, 2003                  |  |                  | 1,171 |              |  |            | 10  |  |  |   | 1,181 | 





| |    |                                                                                         
| | -- | ----------------------------------------------------------------------------------------
| | 1. | Management commits to a plan to sell the asset;                                         
|
| | 2. | The asset is available for immediate sale in its present
    condition;                 
|
| | 3. | An active marketing plan to sell the asset has been initiated at
    a reasonable price;
|
| | 4. | The sale of the asset is probable within one year; and                                  
|
| | 5. | It is unlikely that significant changes to the plan to sell the
    asset will be made. 





| |               
| | --------------
| | Deferred Costs



|                         |  |                              |        |                              |  |     |        |      |  |              |        |     |  |   |        |  |  |   |      |   |  |   |        | 
|------------------------ |  | ---------------------------- | ------ | ---------------------------- |  | --- | ------ | ---- |  | ------------ | ------ | --- |  | - | ------ |  |  | - | ---- | - |  | - | ------ | 
|                         |  | Year Ended December 31, 2003 |        | Year Ended December 31, 2002
|                         |  |                              |        |                             
|                         |  |                              |        | Accumulated                  |  |     |        |      |  | Accumulated  |        |    
|                         |  | Cost                         |        | amortization                 |  | Net |        | Cost |  | amortization |        | Net
|                         |  |                              |        |                              |  |     |        |      |  |              |        |    
|                         |  | ($ in thousands)            
|Deferred financing costs |  | $                            | 13,314 |                              |  | $   | (4,107 | )    |  | $            | 9,207  |     |  | $ | 7,656  |  |  | $ | (223 | ) |  | $ | 7,433  | 
|Deferred franchise fees  |  |                              | 3,369  |                              |  |     | (1,011 | )    |  |              | 2,358  |     |  |   | 4,670  |  |  |   | (389 | ) |  |   | 4,281  | 
|                         |  |                              |        |                              |  |     |        |      |  |              |        |     |  |   |        |  |  |   |      |   |  |   |        | 
|                         |  | $                            | 16,683 |                              |  | $   | (5,118 | )    |  | $            | 11,565 |     |  | $ | 12,326 |  |  | $ | (612 | ) |  | $ | 11,714 | 
|                         |  |                              |        |                              |  |     |        |      |  |              |        |     |  |   |        |  |  |   |      |   |  |   |        | 

F-9



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##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                         |  |                  |        |      |  |      |       |      |  |      |       |      |  |            |     |  |  |   |     |  |  |   |     |  |  |   |     | 
|------------------------ |  | ---------------- | ------ | ---- |  | ---- | ----- | ---- |  | ---- | ----- | ---- |  | ---------- | --- |  |  | - | --- |  |  | - | --- |  |  | - | --- | 
|                         |  | Total            |        | 2004 |  | 2005 |       | 2006 |  | 2007 |       | 2008 |  | After 2008
|                         |  |                  |        |      |  |      |       |      |  |      |       |      |  |           
|                         |  | ($ in thousands)
|Deferred financing costs |  | $                | 9,207  |      |  | $    | 5,425 |      |  | $    | 3,739 |      |  | $          | 22  |  |  | $ | 21  |  |  | $ |    |  |  | $ |    | 
|Deferred franchise fees  |  |                  | 2,358  |      |  |      | 559   |      |  |      | 504   |      |  |            | 405 |  |  |   | 332 |  |  |   | 231 |  |  |   | 327 | 
|                         |  |                  |        |      |  |      |       |      |  |      |       |      |  |            |     |  |  |   |     |  |  |   |     |  |  |   |     | 
|                         |  | $                | 11,565 |      |  | $    | 5,984 |      |  | $    | 4,243 |      |  | $          | 427 |  |  | $ | 353 |  |  | $ | 231 |  |  | $ | 327 | 
|                         |  |                  |        |      |  |      |       |      |  |      |       |      |  |            |     |  |  |   |     |  |  |   |     |  |  |   |     | 



| |                          
| | -------------------------
| | Cash and Cash Equivalents





| |                                     
| | ------------------------------------
| | Fair Values of Financial Instruments







| |                             
| | ----------------------------
| | Concentration of Credit Risk





| |             
| | ------------
| | Income Taxes





| |                           
| | --------------------------
| | Cash Flow Statement Method





| |                                                
| | -----------------------------------------------
| | Earnings Per Common and Common Equivalent Share



F-10



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##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)








| |                         
| | ------------------------
| | Stock Based Compensation









| |                    
| | -------------------
| | Revenue Recognition



Advertising Expense




|                                                        |  |                |       |              |  |            |     |  |  |   |       | 
|------------------------------------------------------- |  | -------------- | ----- | ------------ |  | ---------- | --- |  |  | - | ----- | 
|                                                        |  | Continuing     |       | Discontinued |  | Total     
|                                                        |  | operations     |       | operations   |  | operations
|                                                        |  |                |       |              |  |           
|                                                        |  | (In thousands)
|Predecessor year ended December 31, 2001                |  | $              | 1,834 |              |  | $          | 850 |  |  | $ | 2,684 | 
|Predecessor period January 1, 2002 to November 22, 2002 |  |                | 1,641 |              |  |            | 390 |  |  |   | 2,031 | 
|Successor period November 23, 2002 to December 31, 2002 |  |                | 170   |              |  |            | 50  |  |  |   | 220   | 
|Successor year ended December 31, 2003                  |  |                | 1,906 |              |  |            | 416 |  |  |   | 2,322 | 

F-11



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##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


Foreign Currency
Translation




Operating Segments




Use of Estimates




Self-insurance




New Accounting
Pronouncements




F-12



---



##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)










F-13



---



##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)






|   |                         
|-- | ------------------------
|2. | Stock-Based Compensation







|                           |  |                |         |      |  |                        |  |  |           | 
|-------------------------- |  | -------------- | ------- | ---- |  | ---------------------- |  |  | --------- | 
|                           |  | Issued under   |         |      |  | Available for issuance
|                           |  | the Stock      |         |      |  | under the Stock       
|                           |  | Incentive Plan |         | Type |  | Incentive Plan        
|                           |  |                |         |      |  |                       
|Total, December 31, 2002   |  |                |        |      |  |                        |  |  | 1,060,000 | 
|Issued  July 15, 2003     |  |                | 100,000 | (1)  |  | stock option           |  |  | 960,000   | 
|Issued  July 15, 2003     |  |                | 200,000 | (1)  |  | restricted stock       |  |  | 760,000   | 
|Issued  September 5, 2003 |  |                | 352,000 | (2)  |  | stock option           |  |  | 408,000   | 
|Issued  October 13, 2003  |  |                | 21,500  | (3)  |  | stock option           |  |  | 386,500   | 
|                           |  |                |         |      |  |                        |  |  |           | 
|Total, December 31, 2003   |  |                | 673,500 |      |  |                        |  |  |           | 
|                           |  |                |         |      |  |                        |  |  |           | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | July 15, 2003  W. Thomas Parrington, the
    Companys Chief Executive Officer, was awarded
    200,000 shares of restricted stock. These vest equally over
    three years commencing on July 15, 2004.
    Mr. Parrington was also granted incentive stock options to
    acquire 100,000 shares of the Companys common stock
    at an exercise price of $3.00 per share. The options also
    vest equally over three years commencing on July 15, 2004.
    In addition, pursuant to our employment agreement with
    Mr. Parrington, our chief executive officer, we have
    committed to grant him options to purchase 150,000 additional
    shares

F-14



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##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | of common stock. After taking into account the outstanding
    options and shares of restricted stock granted under the Stock
    Incentive Plan, as well as our contractual commitment to
    Mr. Parrington, we have 236,500 shares of common stock
    available for grant under the Stock Incentive Plan.                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(2) | September 5, 2003  Other awards were made to
    certain of the Companys employees and to members of the
    Audit Committee of the Board of Directors. The employees
    received incentive stock options to acquire 337,000 shares
    of the Companys common stock while each of the three
    members of the Audit Committee received non-qualified options to
    acquire 5,000 shares of the Companys common stock.
    The exercise price of the awards granted on September 5,
    2003 was $5.07. One-third of the options granted on
    September 5, 2003 vested at the date of grant, one-third
    will vest on September 5, 2004 and the remaining one-third
    will vest on September 5, 2005.
|   
|(3) | October 13, 2003  Manuel Artime, the
    Companys Chief Financial Officer, was granted incentive
    stock options to acquire 21,500 shares of the
    Companys common stock at an exercise price of $5.22.
    One-third of the options granted on October 13, 2003 vested
    at the date of grant, one-third will vest on October 13,
    2004 and the remaining one-third will vest on October 13,
    2005.                                                                                                                                                                                                                                                                                               





|                           |           |         |           |                  |   |   |      |      | 
|-------------------------- | --------- | ------- | --------- | ---------------- | - | - | ---- | ---- | 
|                           |           |         |           | Weighted Average
|                           |           | Options |           | Exercise Price  
|                           |           |         |           |                 
|Balance, December 31, 2001 |           |         | 1,504,600 | (1)              |   | $ | 5.44 |     
|                           | Cancelled |         |           | (1,504,600       | ) |   |      |      | 
|                           |           |         |           |                  |   |   |      |     
|Balance, November 22, 2002 |           |         |          |                  |   |   |     |     
|                           | Granted   |         |           |                 |   |   |      |     | 
|                           |           |         |           |                  |   |   |      |     
|Balance, December 31, 2002 |           |         |          |                  |   |   |      |     
|                           | Granted   |         |           | 473,500          |   |   |      | 4.64 | 
|                           | Exercised |         |           | (774             | ) |   |      | 5.07 | 
|                           | Forfeited |         |           |                 |   |   |      |     | 
|                           |           |         |           |                  |   |   |      |     
|Balance, December 31, 2003 |           |         | 472,726   |                  |   | $ | 4.64 |     
|                           |           |         |           |                  |   |   |      |     

|                           |           |            |         |         | 
|-------------------------- | --------- | ---------- | ------- | ------- | 
|                           |           | Restricted
|                           |           | stock     
|                           |           |           
|Balance, December 31, 2002 |           |            |        |        
|                           | Granted   |            |         | 200,000 | 
|                           | Exercised |            |         |        | 
|                           | Forfeited |            |         |        | 
|                           |           |            |         |        
|Balance, December 31, 2003 |           |            | 200,000 | (2)    
|                           |           |            |         |        






|    |                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------
|(1) | At December 31, 2001, there were also 112,500 Stock
    Appreciation Rights exercisable at $6.13 per right.
|   
|(2) | At December 31, 2003, none of the restricted stock had
    vested.                                         

F-15



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##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                |                |                     |  |                           |         |                  |  |        |     |                  |  |   |      |  |  |  |         |  |  |   |      | 
|--------------- | -------------- | ------------------- |  | ------------------------- | ------- | ---------------- |  | ------ | --- | ---------------- |  | - | ---- |  |  |  | ------- |  |  | - | ---- | 
|                |                | Options outstanding |  | Options exercisable      
|                |                |                     |  |                          
|                |                |                     |  | Weighted average          |         | Weighted average |  |        |     | Weighted average
|Range of prices |                | Number              |  | remaining life (in years) |         | exercise prices  |  | Number |     | exercise prices 
|                |                |                     |  |                           |         |                  |  |        |     |                 
|                | $3.00 to $3.50 |                     |  |                           | 100,000 |                  |  |        | 9.5 |                  |  | $ | 3.00 |  |  |  |        |  |  | $ | 3.00 | 
|                | $3.51 to $5.07 |                     |  |                           | 351,226 |                  |  |        | 9.7 |                  |  | $ | 5.07 |  |  |  | 116,559 |  |  | $ | 5.07 | 
|                | $5.08 to $5.22 |                     |  |                           | 21,500  |                  |  |        | 9.8 |                  |  | $ | 5.22 |  |  |  | 7,167   |  |  | $ | 5.22 | 
|                |                |                     |  |                           |         |                  |  |        |     |                  |  |   |      |  |  |  |         |  |  |   |      | 
|                |                |                     |  |                           | 472,726 |                  |  |        | 9.7 |                  |  | $ | 4.64 |  |  |  | 123,726 |  |  | $ | 5.08 | 
|                |                |                     |  |                           |         |                  |  |        |     |                  |  |   |      |  |  |  |         |  |  |   |      | 





F-16



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##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                                                                                                          |             |                   |   |                      |             |  |                   |         |                   |  |  |   |        |   |  |   |          |  
|--------------------------------------------------------------------------------------------------------- | ----------- | ----------------- | - | -------------------- | ----------- |  | ----------------- | ------- | ----------------- |  |  | - | ------ | - |  | - | -------- | -
|                                                                                                          |             | Successor         |   |                      | Predecessor
|                                                                                                          |             |                   |   |                      |            
|                                                                                                          |             | Year ended        |   | November 23, 2002 to |             |  | January 1 to      |         | Year ended       
|                                                                                                          |             | December 31, 2003 |   | December 31, 2002    |             |  | November 22, 2002 |         | December 31, 2001
|                                                                                                          |             |                   |   |                      |             |  |                   |         |                  
|Loss  continuing operations:                                                                             |             |                   |   |                      |             |  |                   |         |                   |  |  |   |        |   |  |   |         
|                                                                                                          | As reported |                   | $ | (27,074              | )           |  | $                 | (6,745  | )                 |  |  | $ | 16,999 |   |  | $ | (87,537  | )
|                                                                                                          | Pro forma   |                   |   | (27,687              | )           |  |                   | (6,745  | )                 |  |  |   | 16,999 |   |  |   | (87,537  | )
|Loss from discontinued operations, net of taxes:                                                          |             |                   |   |                      |             |  |                   |         |                   |  |  |   |        |   |  |   |         
|                                                                                                          | As reported |                   |   | (4,603               | )           |  |                   | (2,581  | )                 |  |  |   | (4,633 | ) |  |   | (55,227  | )
|                                                                                                          | Pro forma   |                   |   | (4,603               | )           |  |                   | (2,581  | )                 |  |  |   | (4,633 | ) |  |   | (55,227  | )
|Net loss:                                                                                                 |             |                   |   |                      |             |  |                   |         |                   |  |  |   |        |   |  |   |         
|                                                                                                          | As reported |                   |   | (31,677              | )           |  |                   | (9,326  | )                 |  |  |   | 12,366 |   |  |   | (142,764 | )
|                                                                                                          | Pro forma   |                   |   | (32,290              | )           |  |                   | (9,326  | )                 |  |  |   | 12,366 |   |  |   | (142,764 | )
|Net loss attributable to common stock:                                                                    |             |                   |   |                      |             |  |                   |         |                   |  |  |   |        |   |  |   |         
|                                                                                                          | As reported |                   |   | (39,271              | )           |  |                   | (10,836 | )                 |  |  |   | 12,366 |   |  |   | (142,764 | )
|                                                                                                          | Pro forma   |                   |   | (39,884              | )           |  |                   | (10,836 | )                 |  |  |   | 12,366 |   |  |   | (142,764 | )
|(Loss) income from continuing operations attributable to common
    stock before discontinued operations: |             |                   |   |                      |             |  |                   |         |                   |  |  |   |        |   |  |   |         
|                                                                                                          | As reported |                   |   | (34,668              | )           |  |                   | (8,255  | )                 |  |  |   | 16,999 |   |  |   | (87,537  | )
|                                                                                                          | Pro forma   |                   |   | (35,281              | )           |  |                   | (8,255  | )                 |  |  |   | 16,999 |   |  |   | (87,537  | )
|Basic and diluted earnings (loss) per common share:                                                       |             |                   |   |                      |             |  |                   |         |                   |  |  |   |        |   |  |   |         
|(Loss) income continuing operations:                                                                      |             |                   |   |                      |             |  |                   |         |                   |  |  |   |        |   |  |   |         
|                                                                                                          | As reported |                   | $ | (3.87                | )           |  | $                 | (0.96   | )                 |  |  | $ | 0.60   |   |  | $ | (3.09    | )
|                                                                                                          | Pro forma   |                   |   | (3.96                | )           |  |                   | (0.96   | )                 |  |  |   | 0.60   |   |  |   | (3.09    | )
|Loss from discontinued operations, net of taxes:                                                          |             |                   |   |                      |             |  |                   |         |                   |  |  |   |        |   |  |   |         
|                                                                                                          | As reported |                   |   | (0.66                | )           |  |                   | (0.37   | )                 |  |  |   | (0.17  | ) |  |   | (1.95    | )
|                                                                                                          | Pro forma   |                   |   | (0.66                | )           |  |                   | (0.37   | )                 |  |  |   | (0.17  | ) |  |   | (1.95    | )
|Net (loss) income:                                                                                        |             |                   |   |                      |             |  |                   |         |                   |  |  |   |        |   |  |   |         
|                                                                                                          | As reported |                   |   | (4.53                | )           |  |                   | (1.33   | )                 |  |  |   | 0.43   |   |  |   | (5.04    | )
|                                                                                                          | Pro forma   |                   |   | (4.62                | )           |  |                   | (1.33   | )                 |  |  |   | 0.43   |   |  |   | (5.04    | )
|Net (loss) income attributable to common stock:                                                           |             |                   |   |                      |             |  |                   |         |                   |  |  |   |        |   |  |   |         
|                                                                                                          | As reported |                   |   | (5.61                | )           |  |                   | (1.55   | )                 |  |  |   | 0.43   |   |  |   | (5.04    | )
|                                                                                                          | Pro forma   |                   |   | (5.70                | )           |  |                   | (1.55   | )                 |  |  |   | 0.43   |   |  |   | (5.04    | )
|(Loss) income from continuing operations attributable to common
    stock before discontinued operations: |             |                   |   |                      |             |  |                   |         |                   |  |  |   |        |   |  |   |         
|                                                                                                          | As reported |                   |   | (4.95                | )           |  |                   | (1.18   | )                 |  |  |   | 0.60   |   |  |   | (3.09    | )
|                                                                                                          | Pro forma   |                   |   | (5.04                | )           |  |                   | (1.18   | )                 |  |  |   | 0.60   |   |  |   | (3.09    | )

F-17



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##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                        |  |                   |          |                      |             |  |                   |  |                   |  |  |   |  |  |  |         | 
|----------------------- |  | ----------------- | -------- | -------------------- | ----------- |  | ----------------- |  | ----------------- |  |  | - |  |  |  | ------- | 
|                        |  | Successor         |          |                      | Predecessor
|                        |  |                   |          |                      |            
|                        |  | Year Ended        |          | November 23, 2002 to |             |  | January 1 to      |  | Year ended       
|                        |  | December 31, 2003 |          | December 31, 2002    |             |  | November 22, 2002 |  | December 31, 2001
|                        |  |                   |          |                      |             |  |                   |  |                  
|                        |  |                   |          | (1)                  |             |  | (1)               |  |                  
|Expected life of option |  |                   | 10 years |                      |             |  |                  |  |                   |  |  |  |  |  |  | 5 years | 
|Risk free interest rate |  |                   | 4.09%    |                      |             |  |                  |  |                   |  |  |  |  |  |  | 4.56%   | 
|Expected volatility     |  |                   | 55.75%   |                      |             |  |                  |  |                   |  |  |  |  |  |  | 81.60%  | 
|Expected dividend yield |  |                   |         |                      |             |  |                  |  |                   |  |  |  |  |  |  |        | 






|    |                                                                                                                                                                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The Company filed for Chapter 11 on December 20, 2001.
    The fair value of the options was estimated to be nil while the
    Company was in Chapter 11. On its emergence from
    Chapter 11 on November 25, 2002 (November 22,
    2002 for accounting) all stock options were cancelled. No
    options were granted between January 1, 2002 and
    December 31, 2002.



|                                               |  |              |           |                   |             |  |              |  |              |  |  |   |  |  |   |        | 
|---------------------------------------------- |  | ------------ | --------- | ----------------- | ----------- |  | ------------ |  | ------------ |  |  | - |  |  | - | ------ | 
|                                               |  | Successor    |           |                   | Predecessor
|                                               |  |              |           |                   |            
|                                               |  | Year Ended   |           | November 23, 2002 |             |  | January 1 to |  | Year Ended  
|                                               |  | December 31, |           | to December 31,   |             |  | November 22, |  | December 31,
|                                               |  | 2003         |           | 2002              |             |  | 2002         |  | 2001        
|                                               |  |              |           |                   |             |  |              |  |             
|Weighted average fair value of options granted |  | $            | 3.22      |                   |             |  |             |  |              |  |  |  |  |  | $ | 0.50   | 
|Total number of options granted                |  |              | 473,500   |                   |             |  |             |  |              |  |  |  |  |  |   | 55,000 | 
|Total fair value of all options granted        |  | $            | 1,524,367 |                   |             |  |             |  |              |  |  |  |  |  | $ | 27,500 | 



|   |                        
|-- | -----------------------
|3. | Discontinued Operations



F-18



---



##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                                      |                                           |                           |                           |     |       |        | 
|------------------------------------- | ----------------------------------------- | ------------------------- | ------------------------- | --- | ----- | ------ | 
|                                      |                                           | December 31, 2002        
|                                      |                                           |                          
|                                      |                                           | ($ in thousands)         
|ASSETS                               
|Current assets:                       |                                           |                           |                           |    
|                                      | Cash and cash equivalents                 |                           | $                         | 177 |      
|                                      | Accounts receivable, net                  |                           |                           | 517 |      
|                                      | Inventories                               |                           |                           | 570 |      
|                                      | Prepaid expenses and other current assets |                           |                           | 432 |      
|                                      |                                           |                           |                           |    
|                                      |                                           |                           | Total current assets      |     |       | 1,696  | 
|Property and equipment, net           |                                           |                           | 15,649                    |    
|Deposits for capital expenditures     |                                           |                           | 904                       |    
|Other assets                          |                                           |                           | 20                        |    
|                                      |                                           |                           |                           |    
|                                      |                                           | $                         | 18,269                    |    
|                                      |                                           |                           |                           |    
|LIABILITIES                          
|Liabilities not subject to compromise |                                           |                           |                           |    
|                                      | Current liabilities:                      |                           |                           |     |      
|                                      |                                           | Accounts payable          |                           | $   | 330   |       
|                                      |                                           | Other accrued liabilities |                           |     | 1,267 |       
|                                      |                                           | Advance deposits          |                           |     | 60    |       
|                                      |                                           |                           |                           |    
|                                      |                                           |                           | Total current liabilities |     |       | 1,657  | 
|Long-term debt subject to compromise  |                                           |                           | 15,922                    |    
|                                      |                                           |                           |                           |    
|                                      |                                           |                           | Total liabilities         |     | $     | 17,579 | 
|                                      |                                           |                           |                           |    







| |   |                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------
| |  | renovating and repositioning certain of its existing hotels to
    improve performance;                                    
|
| |  | divesting hotels that do not fit this strategy or that are
    unlikely to do so without significant effort or expense; and
|
| |  | acquiring selected hotels that better fit this strategy.                                                                   





F-19



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##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)






|                                          |                   |                   |        |        | 
|----------------------------------------- | ----------------- | ----------------- | ------ | ------ | 
|                                          |                   | December 31, 2003
|                                          |                   |                  
|                                          |                   | (In thousands)   
|ASSETS                                    |                   |                   |        |       
|Accounts receivable, net                  |                   | $                 | 1,252  |       
|Inventories                               |                   |                   | 1,377  |       
|Prepaid expenses and other current assets |                   |                   | 1,039  |       
|Property and equipment, net               |                   |                   | 61,624 |       
|Other assets                              |                   |                   | 3,275  |       
|                                          |                   |                   |        |       
|                                          |                   | $                 | 68,567 |       
|                                          |                   |                   |        |       
|LIABILITIES                               |                   |                   |        |       
|Accounts payable                          |                   | $                 | 1,234  |       
|Other accrued liabilities                 |                   |                   | 3,120  |       
|Advance deposits                          |                   |                   | 390    |       
|Current portion of long-term debt         |                   |                   | 771    |       
|Long-term debt                            |                   |                   | 52,433 |       
|                                          |                   |                   |        |       
|                                          | Total liabilities |                   | $      | 57,948 | 
|                                          |                   |                   |        |       

F-20



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##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                                                  |                          |                   |        |                      |             |   |                    |       |       |  |   |        |        |        |   |         |         |        | 
|------------------------------------------------- | ------------------------ | ----------------- | ------ | -------------------- | ----------- | - | ------------------ | ----- | ----- |  | - | ------ | ------ | ------ | - | ------- | ------- | ------ | 
|                                                  |                          | Successor         |        |                      | Predecessor
|                                                  |                          |                   |        |                      |            
|                                                  |                          |                   |        | November 23, 2002 to |             |   | January 1, 2002 to |       |      
|                                                  |                          | 2003              |        | December 31, 2002    |             |   | November 22, 2002  |       | 2001 
|                                                  |                          |                   |        |                      |             |   |                    |       |      
|                                                  |                          | (In thousands)   
|Revenues:                                         |                          |                   |        |                      |             |   |                    |       |       |  |   |        |        |        |   |         |        
|                                                  | Rooms                    |                   | $      | 46,451               |             |   | $                  | 4,311 |       |  |   | $      | 59,549 |        |   | $       | 71,752  |       
|                                                  | Food and beverage        |                   |        | 11,264               |             |   |                    | 1,596 |       |  |   |        | 15,113 |        |   |         | 19,020  |       
|                                                  | Other                    |                   |        | 3,422                |             |   |                    | 534   |       |  |   |        | 4,095  |        |   |         | 5,712   |       
|                                                  |                          |                   |        |                      |             |   |                    |       |       |  |   |        |        |        |   |         |        
|                                                  |                          |                   | 61,137 |                      |             |   | 6,441              |       |       |  |   | 78,757 |        |        |   | 96,484  |        
|                                                  |                          |                   |        |                      |             |   |                    |       |       |  |   |        |        |        |   |         |        
|Operating expenses:                               |                          |                   |        |                      |             |   |                    |       |       |  |   |        |        |        |   |         |        
|                                                  | Direct:                  |                   |        |                      |             |   |                    |       |       |  |   |        |        |        |   |         |         |       
|                                                  |                          | Rooms             |        |                      | 14,439      |   |                    |       | 1,822 |  |   |        |        | 18,960 |   |         |         | 22,158 | 
|                                                  |                          | Food and beverage |        |                      | 8,905       |   |                    |       | 1,409 |  |   |        |        | 12,107 |   |         |         | 15,206 | 
|                                                  |                          | Other             |        |                      | 2,483       |   |                    |       | 280   |  |   |        |        | 2,795  |   |         |         | 3,662  | 
|                                                  |                          |                   |        |                      |             |   |                    |       |       |  |   |        |        |        |   |         |        
|                                                  |                          |                   | 25,827 |                      |             |   | 3,511              |       |       |  |   | 33,862 |        |        |   | 41,026  |        
|                                                  |                          |                   |        |                      |             |   |                    |       |       |  |   |        |        |        |   |         |        
|                                                  |                          |                   | 35,310 |                      |             |   | 2,930              |       |       |  |   | 44,895 |        |        |   | 55,458  |        
|                                                  |                          |                   |        |                      |             |   |                    |       |       |  |   |        |        |        |   |         |        
|                                                  |                         
|General, administrative and other                 |                          |                   | 29,643 |                      |             |   | 4,471              |       |       |  |   | 36,007 |        |        |   | 40,515  |        
|Depreciation and amortization                     |                          |                   | 3,367  |                      |             |   | 857                |       |       |  |   | 12,701 |        |        |   | 16,480  |        
|Impairment of long-lived assets                   |                          |                   | 5,387  |                      |             |   |                   |       |       |  |   |       |        |        |   | 46,837  |        
|                                                  |                          |                   |        |                      |             |   |                    |       |       |  |   |        |        |        |   |         |        
|                                                  | Other operating expenses |                   |        | 38,397               |             |   |                    | 5,328 |       |  |   |        | 48,708 |        |   |         | 103,832 |       
|                                                  |                          |                   |        |                      |             |   |                    |       |       |  |   |        |        |        |   |         |        
|                                                  |                          |                   | (3,087 | )                    |             |   | (2,398             | )     |       |  |   | (3,813 | )      |        |   | (48,374 | )      
|Interest expense                                  |                          |                   | (3,953 | )                    |             |   | (183               | )     |       |  |   | (3,672 | )      |        |   | (3,509  | )      
|Gain on asset dispositions                        |                          |                   | 3,085  |                      |             |   |                   |       |       |  |   |       |        |        |   |        |        
|                                                  |                          |                   |        |                      |             |   |                    |       |       |  |   |        |        |        |   |         |        
|Loss before income taxes and reorganization items |                          |                   | (3,955 | )                    |             |   | (2,581             | )     |       |  |   | (7,485 | )      |        |   | (51,883 | )      
|Reorganization items                              |                          |                   | (648   | )                    |             |   |                   |       |       |  |   | 1,652  |        |        |   | (3,344  | )      
|                                                  |                          |                   |        |                      |             |   |                    |       |       |  |   |        |        |        |   |         |        
|Loss before income taxes                          |                          |                   | (4,603 | )                    |             |   | (2,581             | )     |       |  |   | (5,833 | )      |        |   | (55,227 | )      
|Benefit for income taxes                          |                          |                   |       |                      |             |   |                   |       |       |  |   | 1,200  |        |        |   |        |        
|                                                  |                          |                   |        |                      |             |   |                    |       |       |  |   |        |        |        |   |         |        
|Net loss                                          |                          | $                 | (4,603 | )                    |             | $ | (2,581             | )     |       |  | $ | (4,633 | )      |        | $ | (55,227 | )      
|                                                  |                          |                   |        |                      |             |   |                    |       |       |  |   |        |        |        |   |         |        



|   |                                                 
|-- | ------------------------------------------------
|4. | Bankruptcy Proceedings and Fresh Start Reporting





F-21



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##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)










| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 5,000,000 shares of Preferred Stock, par value $0.01,
    initial liquidation value $25 per share, were issued or
    reserved for issuance in satisfaction of outstanding debt and
    other obligations;                                                                                                                                                                                                                             
|
| |  | 7,000,000 shares of common stock, par value $0.01 per
    share, were issued or reserved for issuance in satisfaction of
    outstanding debt and other obligations;                                                                                                                                                                                                                                                                   
|
| |  | Class A warrants to purchase an aggregate of
    1,510,638 shares of common stock at $18.29 per share
    were made available for issuance in satisfaction of outstanding
    debt and other obligations;                                                                                                                                                                                                                              
|
| |  | Class B warrants to purchase an aggregate of
    1,029,366 shares of common stock at $25.44 per share
    were made available for issuance in satisfaction of outstanding
    debt and other obligations;                                                                                                                                                                                                                              
|
| |  | Previous equity, consisting of an aggregate of
    28,479,837 shares, was cancelled, and in exchange the
    stockholders received their pro rata share of
    207,900 shares of common stock, plus class A warrants
    to purchase an aggregate of 251,823 shares of common stock
    and class B warrants to purchase an aggregate of
    778,304 shares of common stock;                                                           
|
| |  | The CRESTS were cancelled and the holders received their pro
    rata share of 868,000 shares of the common stock, plus
    class A warrants to purchase 1,258,815 shares of
    common stock and class B warrants to purchase
    251,062 shares of common stock;                                                                                                                                                                     
|
| |  | The 12.25% Senior Subordinated Notes were cancelled and the
    holders of the notes received their pro rata share of
    4,690,600 shares of Preferred Stock and
    5,557,511 shares of common stock;                                                                                                                                                                                                                                
|
| |  | The holders of allowed general unsecured claims became entitled
    to 309,400 shares of Preferred Stock and
    366,589 shares of common stock, referred to as the
    disputed claims reserve. Until distributed, these
    shares form part of the disputed claims reserve for the
    pre-bankruptcy petition general unsecured creditors. These
    shares are periodically distributed as the disputed claims are
    resolved;
|
| |  | The Company closed on $302.7 million of exit financing
    arrangements with Merrill Lynch Mortgage Lending, Inc.
    (Merrill Lynch Mortgage) which was used to repay
    previous debt obligations, fund payments of certain allowed
    claims and fund portions of certain required cash escrows. This
    financing was secured by 56 of its hotels;                                                                            
|
| |  | The Company closed on a $6.3 million exit financing
    arrangement with Computershare Trust Company of Canada, secured
    by one of its hotels;                                                                                                                                                                                                                                                                                      
|
| |  | Loans from lenders approximating $86.0 million, secured by
    21 of our hotels, were reinstated on their previous terms,
    except for the extension of certain maturities; and in the case
    of certain loans, a new interest rate; and                                                                                                                                                                                           

F-22



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##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)








|                                                                                    |  |        |          |                 |  |  |          |  
|----------------------------------------------------------------------------------- |  | ------ | -------- | --------------- |  |  | -------- | -
|                                                                                    |  | Common |          |                
|                                                                                    |  | Stock  |          | Preferred Stock
|                                                                                    |  |        |          |                
|Entitlement on emergence from Chapter 11                                            |  |        | 366,589  |                 |  |  | 309,400  |  
|First distribution  March 20, 2003                                                 |  |        | (49,256  | )               |  |  | (41,560  | )
|Second distribution  September 30, 2003                                            |  |        | (141,724 | )               |  |  | (119,503 | )
|Other distributions, net of shares surrendered from the first
    two distributions |  |        | (6,618   | )               |  |  | (5,586   | )
|                                                                                    |  |        |          |                 |  |  |          |  
|Undistributed as of December 31, 2003                                               |  |        | 168,991  |                 |  |  | 142,751  |  
|                                                                                    |  |        |          |                 |  |  |          |  











| |                                                                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) A comparable company analysis, involving the analysis of
    enterprise values of public companies deemed generally
    comparable to the operating business of the Company and applying
    the earnings before interest, taxes, depreciation and
    amortization (EBITDA) provided by this analysis to
    the applicable Lodgian entities;
|
| | b) A discounted cash flow analysis utilizing a weighted
    average cost of capital to compute the present value of free
    cash flows and terminal value of the applicable Lodgian
    entities; and                                                                                                                                             
|
| | c) A comparable transaction analysis involving the analysis
    of the financial terms of certain acquisitions of companies and
    sales of assets which were deemed to be comparable to the
    operating businesses of the Company and then applying these
    EBITDA multiples to the applicable Lodgian entities.                             

F-23



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##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)








|                                                       |                                           |                                   |                           |                |        |             |          |               |        |                   |         |     |   |   |          |         |        |        |         |         |        |        | 
|------------------------------------------------------ | ----------------------------------------- | --------------------------------- | ------------------------- | -------------- | ------ | ----------- | -------- | ------------- | ------ | ----------------- | ------- | --- | - | - | -------- | ------- | ------ | ------ | ------- | ------- | ------ | ------ | 
|                                                       |                                           |                                   |                           |                |        |             |          |               |        | Successor        
|                                                       |                                           | Predecessor                       |                           |                |        |             |          |               |        |                  
|                                                       |                                           |                                   |                           |                |        |             |          | Fresh Start & |        | Reorganized      
|                                                       |                                           | Before Fresh Start                |                           | Extinguishment |        | Exchange of |          | Exit          |        | Balance Sheet    
|                                                       |                                           | November 22, 2002                 |                           | of Debt        |        | Stock       |          | Financing     |        | November 22, 2002
|                                                       |                                           |                                   |                           |                |        |             |          |               |        |                  
|Current assets:                                        |                                           |                                   |                           |                |        |             |          |               |        |                   |         |     |   |   |          |         |        |        |         |        
|                                                       | Cash and cash equivalents                 |                                   | $                         | 26,211         |        |             | $        | (541          | )(a)   |                   | $       |    |   |   | $        |        |        |        | $       | 25,670  |       
|                                                       | Cash, restricted                          |                                   |                           | 8,399          |        |             |          |              |        |                   |         |    |   |   |          | 99      |        |        |         | 8,498   |       
|                                                       | Accounts receivable, net of allowances    |                                   |                           | 14,392         |        |             |          |              |        |                   |         |    |   |   |          | 110     |        |        |         | 14,502  |       
|                                                       | Inventories                               |                                   |                           | 7,323          |        |             |          |              |        |                   |         |    |   |   |          |        |        |        |         | 7,323   |       
|                                                       | Prepaid expenses and other current assets |                                   |                           | 8,540          |        |             |          |              |        |                   |         |    |   |   |          | 32,259  |        |        |         | 40,799  |       
|                                                       |                                           |                                   |                           |                |        |             |          |               |        |                   |         |     |   |   |          |         |        |        |         |        
|                                                       |                                           | Total current assets              |                           |                | 64,865 |             |          |               | (541   | )                 |         |     |  |   |          |         | 32,468 | (d)    |         |         | 96,792 |       
|Property and equipment, net                            |                                           |                                   | 884,278                   |                |        |             |         |               |        |                   |        |     |   |   | (222,071 | )(d)    |        |        | 662,207 |        
|Deposits for capital expenditures                      |                                           |                                   | 14,665                    |                |        |             |         |               |        |                   |        |     |   |   | (1,012   | )(d)    |        |        | 13,653  |        
|Other assets                                           |                                           |                                   | 3,323                     |                |        |             |         |               |        |                   |        |     |   |   | 9,051    | (d)     |        |        | 12,374  |        
|                                                       |                                           |                                   |                           |                |        |             |          |               |        |                   |         |     |   |   |          |         |        |        |         |        
|                                                       |                                           | $                                 | 967,131                   |                |        | $           | (541     | )             |        | $                 |        |     |   | $ | (181,564 | )       |        | $      | 785,026 |        
|                                                       |                                           |                                   |                           |                |        |             |          |               |        |                   |         |     |   |   |          |         |        |        |         |        
|Liabilities Not Subject to Compromise                  |                                           |                                   |                           |                |        |             |          |               |        |                   |         |     |   |   |          |         |        |        |         |        
|                                                       | Current liabilities:                      |                                   |                           |                |        |             |          |               |        |                   |         |     |   |   |          |         |        |        |         |         |       
|                                                       |                                           | Accounts payable                  |                           | $              | 12,736 |             |          | $             |       |                   |         | $   |  |   |          | $       |       |        |         | $       | 12,736 |       
|                                                       |                                           | Other accrued liabilities         |                           |                | 41,989 |             |          |               | 12,466 | (a)               |         |     |  |   |          |         | 695    | (d)    |         |         | 55,150 |       
|                                                       |                                           | Advance deposits                  |                           |                | 2,089  |             |          |               |       |                   |         |     |  |   |          |         |       |        |         |         | 2,089  |       
|                                                       |                                           | Current portion of long-term debt |                           |                | 266    |             |          |               |       |                   |         |     |  |   |          |         | 14,284 | (d)    |         |         | 14,550 |       
|                                                       |                                           |                                   |                           |                |        |             |          |               |        |                   |         |     |   |   |          |         |        |        |         |        
|                                                       |                                           |                                   | Total current liabilities |                |        | 57,080      |          |               |        | 12,466            |         |     |   |  |          |         |        | 14,979 |         |         |        | 84,525 | 
|                                                       | Long-term debt                            |                                   |                           | 7,215          |        |             |          | 86,038        | (a)    |                   |         |    |   |   |          | 294,776 | (d)    |        |         | 388,029 |       
|Deferred income taxes                                  |                                           |                                   |                           |                |        |             |          |               |        |                   |         |     |   |   |          |         |        |        |         |        
|Liabilities subject to compromise                      |                                           |                                   | 926,387                   |                |        |             | (562,276 | )(a)          |        |                   |        |     |   |   | (269,695 | )(d)    |        |        | 94,416  |        
|Minority interests                                     |                                           |                                   | 5,290                     |                |        |             |         |               |        |                   |        |     |   |   | (1,527   | )(d)    |        |        | 3,763   |        
|Commitments and contingencies                          |                                           |                                   |                           |                |        |             |          |               |        |                   |         |     |   |   |          |         |        |        |         |        
|Mandatory redeemable 12.25% cumulative preferred stock |                                           |                                   |                           |                |        |             |          |               |        |                   | 125,000 | (e) |   |   |          |         |        |        | 125,000 |        

F-24



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##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


|                       |                                  |                                      |                                      |                |        |             |      |               |     |                   |   |          |       |          |          |          |      |          |         |        |   |        | 
|---------------------- | -------------------------------- | ------------------------------------ | ------------------------------------ | -------------- | ------ | ----------- | ---- | ------------- | --- | ----------------- | - | -------- | ----- | -------- | -------- | -------- | ---- | -------- | ------- | ------ | - | ------ | 
|                       |                                  |                                      |                                      |                |        |             |      |               |     | Successor        
|                       |                                  | Predecessor                          |                                      |                |        |             |      |               |     |                  
|                       |                                  |                                      |                                      |                |        |             |      | Fresh Start & |     | Reorganized      
|                       |                                  | Before Fresh Start                   |                                      | Extinguishment |        | Exchange of |      | Exit          |     | Balance Sheet    
|                       |                                  | November 22, 2002                    |                                      | of Debt        |        | Stock       |      | Financing     |     | November 22, 2002
|                       |                                  |                                      |                                      |                |        |             |      |               |     |                  
|Stockholders deficit: |                                  |                                      |                                      |                |        |             |      |               |     |                   |   |          |       |          |          |          |      |          |         |       
|                       | Common stock (new)               |                                      |                                      |               |        |             |      |              |     |                   |   | 70       | (e)   |          |          |         |      |          |         | 70     |  
|                       | Additional paid-in capital (new) |                                      |                                      |               |        |             |      | 206,801       | (b) |                   |   | (119,284 | )(e)  |          |          | 1,706    |      |          |         | 89,223 |  
|                       | Common stock (old)               |                                      |                                      | 284            |        |             |      |              |     |                   |   | (284     | )(e)  |          |          |         |      |          |         |       |  
|                       | Additional paid-in capital (old) |                                      |                                      | 263,320        |        |             |      |              |     |                   |   | (263,320 | )(e)  |          |          |         |      |          |         |       |  
|                       | Accumulated deficit              |                                      |                                      | (290,567       | )      |             |      | 256,430       | (c) |                   |   | 255,940  | (e)   |          |          | (221,803 | )(d) |          |         |       |  
|                       |                                  | Accumulated other comprehensive loss |                                      |                | (1,878 | )           |      |               |    |                   |   |          | 1,878 | (e)      |          |          |     |          |         |        |  |       
|                       |                                  |                                      |                                      |                |        |             |      |               |     |                   |   |          |       |          |          |          |      |          |         |       
|                       |                                  |                                      | Total stockholders equity (deficit) |                |        | (28,841     | )    |               |     | 463,231           |   |          |       | (125,000 | )        |          |      | (220,097 | )       |        |   | 89,293 | 
|                       |                                  |                                      |                                      |                |        |             |      |               |     |                   |   |          |       |          |          |          |      |          |         |       
|                       |                                  | $                                    | 967,131                              |                |        | $           | (541 | )             |     | $                 |  |          |       | $        | (181,564 | )        |      | $        | 785,026 |       
|                       |                                  |                                      |                                      |                |        |             |      |               |     |                   |   |          |       |          |          |          |      |          |         |       






|                       |  |                |         | 
|---------------------- |  | -------------- | ------- | 
|                       |  | (In thousands)
|Settlement in shares   |  | $              | 206,801 | 
|Cancellation of debt   |  |                | 256,430 | 
|Reinstated debt        |  |                | 86,038  | 
|Allowed claims accrued |  |                | 12,466  | 
|Claims paid in cash    |  |                | 541     | 
|                       |  |                |         | 
|                       |  | $              | 562,276 | 
|                       |  |                |         | 



|    |                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------
|(b) | Issuance of new shares to the Senior Subordinated
    Note Holders, the CREST holders and the general unsecured
    creditors.
|   
|(c) | Gain on cancellation of debt, calculated as follows:                                                                          

|                                                                                                      |  |                |          |  
|----------------------------------------------------------------------------------------------------- |  | -------------- | -------- | -
|                                                                                                      |  | (In thousands)
|Liabilities subject to compromise (pre-emergence)                                                     |  | $              | 926,987  |  
|Liabilities settled and to be settled in cash and shares                                              |  |                | (490,103 | )
|Reinstated debt                                                                                       |  |                | (86,038  | )
|Remaining liabilities subject to compromise (for subsidiaries in
    Chapter 11 at December 31, 2002) |  |                | (94,416  | )
|                                                                                                      |  |                |          |  
|                                                                                                      |  | $              | 256,430  |  
|                                                                                                      |  |                |          |  



|    |                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(d) | Represents the recording of the exit financing of
    $309 million (used to repay previous obligations, fund
    certain allowed claims and portions of certain required cash
    escrows) and fair value adjustments (primarily net write-down of
    fixed assets of $222.1 million).
|   
|(e) | Elimination of old equity                                                                                                                                                                                                                                                              

F-25



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##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                                                                          |  |                |         | 
|------------------------------------------------------------------------- |  | -------------- | ------- | 
|                                                                          |  | (In thousands)
|Long- term debt                                                           |  | $              | 388,000 | 
|Liabilities subject to compromise                                         |  |                | 94,400  | 
|Post-petition liabilities including current portion of long-term
    debt |  |                | 84,500  | 
|Mandatorily redeemable 12.25% cumulative preferred stock                  |  |                | 125,000 | 
|New equity including minority interest                                    |  |                | 93,100  | 
|                                                                          |  |                |         | 
|                                                                          |  | $              | 785,000 | 
|                                                                          |  |                |         | 



|   |                                  
|-- | ---------------------------------
|5. | Liabilities Subject to Compromise





|                                             |  |                |        | 
|-------------------------------------------- |  | -------------- | ------ | 
|                                             |  | (In thousands)
|Long-term debt and capital lease obligations |  | $              | 91,422 | 
|Accounts Payable                             |  |                | 2,394  | 
|                                             |  |                |        | 
|                                             |  | $              | 93,816 | 
|                                             |  |                |        | 



F-26



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##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                                                        |                             |                  |        |                |             |   |              |   |              |  |   |          |         |   |   |         |        |  
|------------------------------------------------------- | --------------------------- | ---------------- | ------ | -------------- | ----------- | - | ------------ | - | ------------ |  | - | -------- | ------- | - | - | ------- | ------ | -
|                                                        |                             | ($ in thousands)
|                                                        |                             | Successor        |        |                | Predecessor
|                                                        |                             |                  |        |                |            
|                                                        |                             | Year ended       |        | November 23 to |             |   | January 1 to |   | Year ended  
|                                                        |                             | December 31,     |        | November 22,   |             |   | November 22, |   | December 31,
|                                                        |                             | 2003             |        | 2002           |             |   | 2002         |   | 2001        
|                                                        |                             |                  |        |                |             |   |              |   |             
|                                                        |                             | (1)              |        | (1)            |             |   |              |   |             
|Net write-down of fixed assets (fresh start write-down) |                             |                  |       |                |             | $ |             |   |              |  | $ | (222,071 | )       |   | $ |        |       
|Gain on cancellation of debt                            |                             |                  |       |                |             |   |             |   |              |  |   | 256,430  |         |   |   |        |       
|Fresh start adjustments  other                         |                             |                  |       |                |             |   |             |   |              |  |   | 3,938    |         |   |   |        |       
|Write-off of deferred financing costs                   |                             |                  |       |                |             |   |             |   |              |  |   |         |         |   |   | (21,517 | )     
|Other reorganization items:                             |                             |                  |        |                |             |   |              |   |              |  |   |          |         |   |   |         |       
|                                                        | Legal and professional fees |                  |        | (455           | )           |   |              |  |              |  |   |          | (22,315 | ) |   |         | (3,179 | )
|                                                        | Loan extension fees         |                  |        | (1,500         | )           |   |              |  |              |  |   |          |        |   |   |         |       |  
|                                                        | Other                       |                  |        | (90            | )           |   |              |  |              |  |   |          | (3,292  | ) |   |         | (320   | )
|                                                        |                             |                  |        |                |             |   |              |   |              |  |   |          |         |   |   |         |       
|                                                        |                             | $                | (2,045 | )              |             | $ |             |   |              |  | $ | 12,690   |         |   | $ | (25,016 | )     
|                                                        |                             |                  |        |                |             |   |              |   |              |  |   |          |         |   |   |         |       
|Continuing operations(2)                                |                             | $                | (1,397 | )              |             | $ |             |   |              |  | $ | 11,038   |         |   | $ | (21,672 | )     
|Discontinued operations(2)                              |                             |                  | (648   | )              |             |   |             |   |              |  |   | 1,652    |         |   |   | (3,344  | )     
|                                                        |                             |                  |        |                |             |   |              |   |              |  |   |          |         |   |   |         |       
|                                                        |                             | $                | (2,045 | )              |             | $ |             |   |              |  | $ | 12,690   |         |   | $ | (25,016 | )     
|                                                        |                             |                  |        |                |             |   |              |   |              |  |   |          |         |   |   |         |       






|    |                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Reorganization expenses, shown in the table above, represent
    only those expenses relating to the Chapter 11 proceedings
    while the related hotels were in Chapter 11.                                                        
|   
|(2) | Reorganization expenses were allocated between Continuing
    Operations and Discontinued Operations, based on the values
    assigned to the respective entities subsequent to the
    consummation of the plans of reorganization.



|   |                    
|-- | -------------------
|6. | Accounts Receivable



|                                |  |                   |       |                   |  |   |        |  
|------------------------------- |  | ----------------- | ----- | ----------------- |  | - | ------ | -
|                                |  | December 31, 2003 |       | December 31, 2002
|                                |  |                   |       |                  
|                                |  | ($ in thousands) 
|Trade accounts receivable       |  | $                 | 8,287 |                   |  | $ | 11,684 |  
|Allowance for doubtful accounts |  |                   | (689  | )                 |  |   | (1,594 | )
|Other receivables               |  |                   | 571   |                   |  |   | 591    |  
|                                |  |                   |       |                   |  |   |        |  
|                                |  | $                 | 8,169 |                   |  | $ | 10,681 |  
|                                |  |                   |       |                   |  |   |        |  

F-27



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##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                                     |      |                  |   |            |   |                |   |            |   |  |   |       |  |  |   |        |  
|------------------------------------ | ---- | ---------------- | - | ---------- | - | -------------- | - | ---------- | - |  | - | ----- |  |  | - | ------ | -
|                                     |      | Balance at       |   |            |   |                |   | Balance at
|                                     |      | Beginning of     |   | Charged to |   | Write-offs and |   | End of    
|Description                          |      | Period           |   | Expenses   |   | Recoveries     |   | Period    
|                                     |      |                  |   |            |   |                |   |           
|                                     |      | ($ in thousands)
|Provision for uncollectible accounts |      |                  |   |            |   |                |   |            |   |  |   |       |  |  |   |       
|Year ended December 31,              |      |                  |   |            |   |                |   |            |   |  |   |       |  |  |   |       
|                                     | 2003 |                  | $ | (1,594     | ) |                | $ | 377        |   |  | $ | 528   |  |  | $ | (689   | )
|                                     | 2002 |                  |   | (1,237     | ) |                |   | (1,467     | ) |  |   | 1,110 |  |  |   | (1,594 | )
|                                     | 2001 |                  |   | (1,400     | ) |                |   | (204       | ) |  |   | 367   |  |  |   | (1,237 | )





|   |                                          
|-- | -----------------------------------------
|7. | Prepaid Expenses and Other Current Assets



|                                    |  |                   |        |                   |  |   |        | 
|----------------------------------- |  | ----------------- | ------ | ----------------- |  | - | ------ | 
|                                    |  | December 31, 2003 |        | December 31, 2002
|                                    |  |                   |        |                  
|                                    |  | ($ in thousands) 
|Deposit for property taxes          |  | $                 | 4,862  |                   |  | $ | 9,100  | 
|Prepaid insurance                   |  |                   | 5,718  |                   |  |   | 3,107  | 
|Lender-required insurance deposits  |  |                   | 2,774  |                   |  |   | 1,184  | 
|Deposits and other prepaid expenses |  |                   | 3,714  |                   |  |   | 1,727  | 
|                                    |  |                   |        |                   |  |   |        | 
|                                    |  | $                 | 17,068 |                   |  | $ | 15,118 | 
|                                    |  |                   |        |                   |  |   |        | 



|   |                       
|-- | ----------------------
|8. | Property and Equipment



|                              |  |         |       |                  |  |              |         |   |  |   |         |  
|----------------------------- |  | ------- | ----- | ---------------- |  | ------------ | ------- | - |  | - | ------- | -
|                              |  | Useful  |       |                  |  |             
|                              |  | Lives   |       | December 31,     |  | December 31,
|                              |  | (Years) |       | 2003             |  | 2002        
|                              |  |         |       |                  |  |             
|                              |  |         |       | ($ in thousands)
|Land                          |  |         |      |                  |  | $            | 76,624  |   |  | $ | 100,033 |  
|Buildings and improvements    |  |         | 10-40 |                  |  |              | 437,418 |   |  |   | 485,400 |  
|Furnishings and equipment     |  |         | 3-10  |                  |  |              | 58,817  |   |  |   | 69,763  |  
|                              |  |         |       |                  |  |              |         |   |  |   |         |  
|                              |  |         |       |                  |  |              | 572,859 |   |  |   | 655,196 |  
|Less accumulated depreciation |  |         |       |                  |  |              | (31,860 | ) |  |   | (3,891  | )
|Construction in progress      |  |         |       |                  |  |              | 22,819  |   |  |   | 13,260  |  
|                              |  |         |       |                  |  |              |         |   |  |   |         |  
|                              |  |         |       |                  |  | $            | 563,818 |   |  | $ | 664,565 |  
|                              |  |         |       |                  |  |              |         |   |  |   |         |  



F-28



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##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)










|   |             
|-- | ------------
|9. | Other Assets

|                           |  |                   |        |                   |  |   |        | 
|-------------------------- |  | ----------------- | ------ | ----------------- |  | - | ------ | 
|                           |  | December 31, 2003 |        | December 31, 2002
|                           |  |                   |        |                  
|                           |  | ($ in thousands) 
|Deferred financing costs   |  | $                 | 9,207  |                   |  | $ | 7,433  | 
|Deferred franchise fees    |  |                   | 2,358  |                   |  |   | 4,281  | 
|Utility and other deposits |  |                   | 615    |                   |  |   | 281    | 
|                           |  |                   |        |                   |  |   |        | 
|                           |  | $                 | 12,180 |                   |  | $ | 11,995 | 
|                           |  |                   |        |                   |  |   |        | 

F-29



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##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|    |                          
|--- | -------------------------
|10. | Other Accrued Liabilities



|                                 |  |                   |        |                   |  |   |        | 
|-------------------------------- |  | ----------------- | ------ | ----------------- |  | - | ------ | 
|                                 |  | December 31, 2003 |        | December 31, 2002
|                                 |  |                   |        |                  
|                                 |  | ($ in thousands) 
|Salaries and related costs       |  | $                 | 16,211 |                   |  | $ | 17,293 | 
|Property and sales taxes         |  |                   | 9,427  |                   |  |   | 14,606 | 
|Professional fees                |  |                   | 570    |                   |  |   | 807    | 
|Provision for state income taxes |  |                   | 2,361  |                   |  |   | 2,219  | 
|Franchise fee accrual            |  |                   | 1,115  |                   |  |   | 1,388  | 
|Accrued interest                 |  |                   | 526    |                   |  |   | 1,524  | 
|Accrual for allowed claims       |  |                   | 186    |                   |  |   | 1,749  | 
|Other                            |  |                   | 1,036  |                   |  |   | 1,711  | 
|                                 |  |                   |        |                   |  |   |        | 
|                                 |  | $                 | 31,432 |                   |  | $ | 41,297 | 
|                                 |  |                   |        |                   |  |   |        | 

F-30



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##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|    |                       
|--- | ----------------------
|11. | Long-Term Debt  Other



|                                                              |  |           |     |                     |  |                |         |                |  |   |         |   |  |                                    
|------------------------------------------------------------- |  | --------- | --- | ------------------- |  | -------------- | ------- | -------------- |  | - | ------- | - |  | -----------------------------------
|                                                              |  |           |     | December 31, 2003   |  |               
|                                                              |  |           |     |                     |  |               
|                                                              |  | Number    |     | Property, Plant and |  | Long-Term      |         |               
|                                                              |  | of Hotels |     | Equipment, Net(1)   |  | Obligations(1) |         | Interest Rates
|                                                              |  |           |     |                     |  |                |         |               
|                                                              |  |           |     | ($ in thousands)    |  |               
|Exit Financing                                                |  |           |     |                     |  |                |         |                |  |   |         |   |  |                                    
|Merrill Lynch Mortgage Lending, Inc.  Senior                 |  |           |     |                     |  |                |         |                |  | $ | 216,052 |   |  | LIBOR plus 2.36%                   
|Merrill Lynch Mortgage Lending, Inc.  Mezzanine              |  |           |     |                     |  |                |         |                |  |   | 83,281  |   |  | LIBOR plus 8.79%                   
|                                                              |  |           |     |                     |  |                |         |                |  |   |         |   |  |                                    
|Merrill Lynch Mortgage Lending, Inc.  Total                  |  |           | 56  |                     |  |                | 401,793 |                |  |   | 299,333 |   |  |                                    
|Computershare Trust Company of Canada                         |  |           | 1   |                     |  |                | 14,106  |                |  |   | 7,521   |   |  | 7.88%                              
|Lehman Financing                                              |  |           |     |                     |  |                |         |                |  |   |         |   |  |                                    
|Lehman Brothers Holdings, Inc.                                |  |           | 17  |                     |  |                | 69,539  |                |  |   | 76,449  |   |  | Higher of LIBOR plus 5.25% or 7.25%
|Other Financings                                              |  |           |     |                     |  |                |         |                |  |   |         |   |  |                                    
|Column Financial, Inc.                                        |  |           | 9   |                     |  |                | 61,681  |                |  |   | 27,300  |   |  | 10.59%                             
|Lehman Brothers Holdings, Inc.                                |  |           | 5   |                     |  |                | 38,125  |                |  |   | 23,409  |   |  | $16,496 at 9.40%; $6,913 at 8.90%  
|JP Morgan Chase Bank                                          |  |           | 2   |                     |  |                | 8,913   |                |  |   | 10,644  |   |  | 7.25%                              
|DDL Kinser                                                    |  |           | 1   |                     |  |                | 3,188   |                |  |   | 2,385   |   |  | 8.25%                              
|First Union Bank                                              |  |           | 1   |                     |  |                | 4,297   |                |  |   | 3,359   |   |  | 9.38%                              
|Column Financial, Inc.                                        |  |           | 1   |                     |  |                | 6,491   |                |  |   | 8,943   |   |  | 9.45%                              
|Column Financial, Inc.                                        |  |           | 1   |                     |  |                | 6,120   |                |  |   | 3,206   |   |  | 10.74%                             
|Robb Evans, Trustee                                           |  |           | 1   |                     |  |                | 6,365   |                |  |   | 6,982   |   |  | Prime plus 4.00%                   
|                                                              |  |           |     |                     |  |                |         |                |  |   |         |   |  |                                    
|Total  Other Financings                                      |  |           | 21  |                     |  |                | 135,180 |                |  |   | 86,228  |   |  |                                    
|                                                              |  |           |     |                     |  |                |         |                |  |   |         |   |  |                                    
|                                                              |  |           | 95  |                     |  |                | 620,618 |                |  |   | 469,531 |   |  | 6.33%(2)                           
|Long-term debt  other                                        |  |           |     |                     |  |                |         |                |  |   |         |   |  |                                    
|Deferred interest  long-term                                 |  |           |    |                     |  |                |        |                |  |   | 4,337   |   |  |                                    
|Deferred rent on a long-term ground lease                     |  |           |    |                     |  |                |        |                |  |   | 2,506   |   |  |                                    
|Tax notes issued pursuant to our Joint Plan of Reorganization |  |           |    |                     |  |                |        |                |  |   | 1,957   |   |  |                                    
|Other                                                         |  |           |    |                     |  |                |        |                |  |   | 551     |   |  |                                    
|                                                              |  |           |     |                     |  |                |         |                |  |   |         |   |  |                                    
|                                                              |  |           |    |                     |  |                |        |                |  |   | 9,351   |   |  |                                    
|                                                              |  |           |     |                     |  |                |         |                |  |   |         |   |  |                                    
|Property, plant and equipment  other                         |  |           |    |                     |  |                | 4,824   |                |  |   |        |   |  |                                    
|                                                              |  |           |     |                     |  |                |         |                |  |   |         |   |  |                                    
|                                                              |  |           | 95  |                     |  |                | 625,442 |                |  |   | 478,882 |   |  |                                    
|Held for sale                                                 |  |           | (18 | )                   |  |                | (61,624 | )              |  |   | (53,204 | ) |  |                                    
|                                                              |  |           |     |                     |  |                |         |                |  |   |         |   |  |                                    
|Total December 31, 2003                                       |  |           | 77  |                     |  | $              | 563,818 |                |  | $ | 425,678 |   |  |                                    
|                                                              |  |           |     |                     |  |                |         |                |  |   |         |   |  |                                    






|    |                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Long-term obligations and property, plant and equipment of the
    hotel in which the Company has a non-controlling equity interest
    and does not consolidate are excluded from the table above.
|(2) | Represents the annual weighted average cost at December 31,
    2003.                                                                                                                              





F-31



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##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                                                 |  |                   |         |            |  |      |        |      |  |      |         |      |  |            |       |  |  |   |        |  |  |   |       |  |  |   |        | 
|------------------------------------------------ |  | ----------------- | ------- | ---------- |  | ---- | ------ | ---- |  | ---- | ------- | ---- |  | ---------- | ----- |  |  | - | ------ |  |  | - | ----- |  |  | - | ------ | 
|                                                 |  | Long-Term         |         | Maturities
|                                                 |  | Obligations       |         |           
|                                                 |  | December 31, 2003 |         | 2004       |  | 2005 |        | 2006 |  | 2007 |         | 2008 |  | After 2008
|                                                 |  |                   |         |            |  |      |        |      |  |      |         |      |  |           
|                                                 |  | ($ in thousands) 
|Exit financing:                                  |  |                   |         |            |  |      |        |      |  |      |         |      |  |            |       |  |  |   |        |  |  |   |       |  |  |   |        | 
|Merrill Lynch Mortgage Lending, Inc.  Senior    |  | $                 | 216,052 |            |  | $    | 3,338  |      |  | $    | 212,714 |      |  | $          |      |  |  | $ |       |  |  | $ |      |  |  | $ |       | 
|Merrill Lynch Mortgage Lending, Inc.  Mezzanine |  |                   | 83,281  |            |  |      | 1,287  |      |  |      | 81,994  |      |  |            |      |  |  |   |       |  |  |   |      |  |  |   |       | 
|                                                 |  |                   |         |            |  |      |        |      |  |      |         |      |  |            |       |  |  |   |        |  |  |   |       |  |  |   |        | 
|Merrill Lynch Mortgage Lending, Inc.  Total     |  |                   | 299,333 |            |  |      | 4,625  |      |  |      | 294,708 |      |  |            |      |  |  |   |       |  |  |   |      |  |  |   |       | 
|Computershare Trust Company of Canada            |  |                   | 7,521   |            |  |      | 222    |      |  |      | 240     |      |  |            | 259   |  |  |   | 6,800  |  |  |   |      |  |  |   |       | 
|Lehman financing:                                |  |                   |         |            |  |      |        |      |  |      |         |      |  |            |       |  |  |   |        |  |  |   |       |  |  |   |        | 
|Lehman Brothers Holdings, Inc.                   |  |                   | 76,449  |            |  |      | 1,084  |      |  |      | 75,365  |      |  |            |      |  |  |   |       |  |  |   |      |  |  |   |       | 
|Other financing:                                 |  |                   |         |            |  |      |        |      |  |      |         |      |  |            |       |  |  |   |        |  |  |   |       |  |  |   |        | 
|Column Financial, Inc.                           |  |                   | 27,300  |            |  |      | 2,242  |      |  |      | 2,491   |      |  |            | 2,768 |  |  |   | 3,076  |  |  |   | 3,418 |  |  |   | 13,305 | 
|Lehman Brothers Holdings, Inc.                   |  |                   | 23,409  |            |  |      | 482    |      |  |      | 529     |      |  |            | 580   |  |  |   | 21,818 |  |  |   |      |  |  |   |       | 
|JP Morgan Chase Bank                             |  |                   | 10,644  |            |  |      | 530    |      |  |      | 570     |      |  |            | 615   |  |  |   | 665    |  |  |   | 720   |  |  |   | 7,544  | 
|DDL Kinser                                       |  |                   | 2,385   |            |  |      | 98     |      |  |      | 2,287   |      |  |            |      |  |  |   |       |  |  |   |      |  |  |   |       | 
|First Union Bank                                 |  |                   | 3,359   |            |  |      | 56     |      |  |      | 63      |      |  |            | 69    |  |  |   | 3,171  |  |  |   |       |  |  |   |        | 
|Column Financial, Inc.                           |  |                   | 8,943   |            |  |      | 398    |      |  |      | 437     |      |  |            | 480   |  |  |   | 528    |  |  |   | 580   |  |  |   | 6,520  | 
|Column Financial, Inc.                           |  |                   | 3,206   |            |  |      | 137    |      |  |      | 3,069   |      |  |            |      |  |  |   |       |  |  |   |      |  |  |   |       | 
|Robb Evans, Trustee                              |  |                   | 6,982   |            |  |      | 6,982  |      |  |      |        |      |  |            |      |  |  |   |       |  |  |   |      |  |  |   |       | 
|                                                 |  |                   |         |            |  |      |        |      |  |      |         |      |  |            |       |  |  |   |        |  |  |   |       |  |  |   |        | 
|                                                 |  |                   | 86,228  |            |  |      | 10,925 |      |  |      | 9,446   |      |  |            | 4,512 |  |  |   | 29,258 |  |  |   | 4,718 |  |  |   | 27,369 | 
|                                                 |  |                   |         |            |  |      |        |      |  |      |         |      |  |            |       |  |  |   |        |  |  |   |       |  |  |   |        | 
|                                                 |  |                   | 469,531 |            |  |      | 16,856 |      |  |      | 379,759 |      |  |            | 4,771 |  |  |   | 36,058 |  |  |   | 4,718 |  |  |   | 27,369 | 
|Long-term debt  other                           |  |                   | 9,351   |            |  |      | 478    |      |  |      | 4,755   |      |  |            | 391   |  |  |   | 397    |  |  |   | 382   |  |  |   | 2,948  | 
|                                                 |  |                   |         |            |  |      |        |      |  |      |         |      |  |            |       |  |  |   |        |  |  |   |       |  |  |   |        | 
|                                                 |  |                   | 478,882 |            |  |      | 17,334 |      |  |      | 384,514 |      |  |            | 5,162 |  |  |   | 36,455 |  |  |   | 5,100 |  |  |   | 30,317 | 
|Held for sale                                    |  |                   | (53,204 | )          |  |      | (771   | )    |  |      |         |      |  |            |       |  |  |   |        |  |  |   |       |  |  |   |        | 
|                                                 |  |                   |         |            |  |      |        |      |  |      |         |      |  |            |       |  |  |   |        |  |  |   |       |  |  |   |        | 
|                                                 |  | $                 | 425,678 |            |  | $    | 16,563 |      |  |      |         |      |  |            |       |  |  |   |        |  |  |   |       |  |  |   |        | 
|                                                 |  |                   |         |            |  |      |        |      |  |      |         |      |  |            |       |  |  |   |        |  |  |   |       |  |  |   |        | 



F-32



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##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                                               |                                                               |                  |         |       |  |   |         |       | 
|---------------------------------------------- | ------------------------------------------------------------- | ---------------- | ------- | ----- |  | - | ------- | ----- | 
|                                               |                                                               | December 31,    
|                                               |                                                               |                 
|                                               |                                                               | 2003             |         | 2002 
|                                               |                                                               |                  |         |      
|                                               |                                                               | ($ in thousands)
|Exit financing:                                |                                                               |                  |         |       |  |   |         |      
|Merrill Lynch Mortgage Lending, Inc.  Total   |                                                               | $                | 299,333 |       |  | $ | 302,708 |      
|Computershare Trust Company of Canada          |                                                               |                  | 7,521   |       |  |   | 6,339   |      
|Lehman financing:                              |                                                               |                  |         |       |  |   |         |      
|Lehman Brothers Holdings, Inc.                 |                                                               |                  | 76,449  |       |  |   |        |      
|Other financing:                               |                                                               |                  |         |       |  |   |         |      
|Column Financial, Inc.                         |                                                               |                  | 27,300  |       |  |   | 29,317  |      
|Lehman Brothers Holdings, Inc.                 |                                                               |                  | 23,409  |       |  |   | 23,849  |      
|JP Morgan Chase Bank                           |                                                               |                  | 10,644  |       |  |   | 11,179  |      
|DDL Kinser                                     |                                                               |                  | 2,385   |       |  |   | 2,498   |      
|First Union Bank                               |                                                               |                  | 3,359   |       |  |   | 3,410   |      
|Column Financial, Inc.                         |                                                               |                  | 8,943   |       |  |   | 9,305   |      
|Column Financial, Inc.                         |                                                               |                  | 3,206   |       |  |   | 3,330   |      
|Robb Evans, Trustee                            |                                                               |                  | 6,982   |       |  |   | 7,447   |      
|                                               |                                                               |                  |         |       |  |   |         |      
|Total  other financing                        |                                                               |                  | 86,228  |       |  |   | 90,335  |      
|                                               |                                                               |                  |         |       |  |   |         |      
|Liabilities subject to compromise              |                                                               |                  |        |       |  |   | 91,421  |      
|                                               |                                                               |                  |         |       |  |   |         |      
|                                               |                                                               |                  | 469,531 |       |  |   | 490,803 |      
|Long-term debt  other:                        |                                                               |                  |         |       |  |   |         |      
|                                               | Deferred interest  long-term                                 |                  |         | 4,337 |  |   |         |      | 
|                                               | Deferred rent on a long-term ground lease                     |                  |         | 2,506 |  |   |         | 2,342 | 
|                                               | Tax notes issued pursuant to our Joint Plan of Reorganization |                  |         | 1,957 |  |   |         | 2,061 | 
|                                               | Other                                                         |                  |         | 551   |  |   |         | 518   | 
|                                               |                                                               |                  |         |       |  |   |         |      
|                                               |                                                               |                  | 9,351   |       |  |   | 4,921   |      
|                                               |                                                               |                  |         |       |  |   |         |      
|                                               |                                                               |                  | 478,882 |       |  |   | 495,724 |      
|Long-term debt related to assets held for sale |                                                               |                  | (53,204 | )     |  |   |        |      
|                                               |                                                               |                  |         |       |  |   |         |      
|Total                                          |                                                               | $                | 425,678 |       |  | $ | 495,724 |      
|                                               |                                                               |                  |         |       |  |   |         |      

Exit financing:






| |   |                                                                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Senior debt of $224.0 million from Merrill Lynch Mortgage,
    accruing interest at the rate of LIBOR plus 2.24%, secured by,
    among other things, first mortgage liens on the fee simple or
    leasehold interests in 55 of the Companys hotels;             
|
| |  | Mezzanine debt of $78.7 million from Merrill Lynch
    Mortgage, accruing interest at the rate of LIBOR plus 9.00%,
    secured by the equity interest in the subsidiaries of 56 hotels
    (the 55 which secure the senior debt and one additional
    hotel); and

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LODGIAN, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




| |   |                                                                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Debt provided through Computershare Trust Company of Canada, a
    Canadian lender, of $10.0 million Canadian dollars (equated
    to approximately $6.3 million U.S. dollars at
    inception) maturing in December 2007, accruing interest at the
    rate of 7.88% secured by a mortgage on the property located in
    Windsor, Canada.







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##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




| |                 
| | ----------------
| | Lehman Financing







| |                 
| | ----------------
| | Other Financings





|                                                        |  |                |       | 
|------------------------------------------------------- |  | -------------- | ----- | 
|                                                        |  | (In thousands)
|Predecessor year ended December 31, 2001                |  | $              | 9,148 | 
|Predecessor period January 1, 2002 to November 22, 2002 |  |                | 6,486 | 
|Successor period November 23, 2002 to December 31, 2002 |  |                | 684   | 
|Successor year ended December 31, 2003                  |  |                | 8,003 | 



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LODGIAN, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                                                        |  |                |       | 
|------------------------------------------------------- |  | -------------- | ----- | 
|                                                        |  | (In thousands)
|Predecessor year ended December 31, 2001                |  | $              | 5,973 | 
|Predecessor period January 1, 2002 to November 22, 2002 |  |                | 5,507 | 
|Successor period November 23, 2002 to December 31, 2002 |  |                | 437   | 
|Successor year ended December 31, 2003                  |  |                | 5,595 | 







| |                                    
| | -----------------------------------
| | Working Capital/ Related Party Loan









| |                           
| | --------------------------
| | Loan/ Franchise agreements



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##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


12.     12.25% Cumulative Preferred
Shares Subject to Mandatory Redemption






13.     Stockholders Equity






| |   |                                                 
| | - | ------------------------------------------------
| |  | Common stock, 7,000,000 shares, par value $0.01.
|
| |  | Class A and B warrants                          







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LODGIAN, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


14.     Derivative Transactions






| |   |                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Two related to the exit financing obtained from Merrill Lynch
    Mortgage ($299.3 million and $302.7 million at
    December 31, 2003 and December 31, 2002,
    respectively), and
|
| |  | One related to the financing obtained from Lehman ($76.4 million
    at December 31, 2003).                                                                                         











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LODGIAN, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


15.     INCOME TAXES




|                              |  |                         |     |                  |  |                    |   |            |  |          |     |       |  |         |        |          |  |       |   |  |  |   |        |   |  |   |       |  |  |   |   |  |  |   |       | 
|----------------------------- |  | ----------------------- | --- | ---------------- |  | ------------------ | - | ---------- |  | -------- | --- | ----- |  | ------- | ------ | -------- |  | ----- | - |  |  | - | ------ | - |  | - | ----- |  |  | - | - |  |  | - | ----- | 
|                              |  | Year Ended December 31,
|                              |  |                        
|                              |  | 2003  Successor        |     | 2002  See below |  | 2001  Predecessor
|                              |  |                         |     |                  |  |                   
|                              |  | Current                 |     | Deferred         |  | Total              |   | Current(1) |  | Deferred |     | Total |  | Current |        | Deferred |  | Total
|                              |  |                         |     |                  |  |                    |   |            |  |          |     |       |  |         |        |          |  |      
|                              |  | ($ in thousands)       
|Federal                       |  | $                       |    |                  |  | $                  |  |            |  | $        |    |       |  | $       | (430   | )        |  | $     |  |  |  | $ | (430   | ) |  | $ |      |  |  | $ |  |  |  | $ |      | 
|State and local               |  |                         | 178 |                  |  |                    |  |            |  |          | 178 |       |  |         | (898   | )        |  |       |  |  |  |   | (898   | ) |  |   | 2,829 |  |  |   |  |  |  |   | 2,829 | 
|                              |  |                         |     |                  |  |                    |   |            |  |          |     |       |  |         |        |          |  |       |   |  |  |   |        |   |  |   |       |  |  |   |   |  |  |   |       | 
|                              |  |                         | 178 |                  |  |                    |  |            |  |          | 178 |       |  |         | (1,328 | )        |  |       |  |  |  |   | (1,328 | ) |  |   | 2,829 |  |  |   |  |  |  |   | 2,829 | 
|Less: Discontinued operations |  |                         |    |                  |  |                    |  |            |  |          |    |       |  |         | 1,200  |          |  |       |  |  |  |   | 1,200  |   |  |   |      |  |  |   |  |  |  |   |      | 
|                              |  |                         |     |                  |  |                    |   |            |  |          |     |       |  |         |        |          |  |       |   |  |  |   |        |   |  |   |       |  |  |   |   |  |  |   |       | 
|                              |  | $                       | 178 |                  |  | $                  |  |            |  | $        | 178 |       |  | $       | (128   | )        |  | $     |  |  |  | $ | (128   | ) |  | $ | 2,829 |  |  | $ |  |  |  | $ | 2,829 | 
|                              |  |                         |     |                  |  |                    |   |            |  |          |     |       |  |         |        |          |  |       |   |  |  |   |        |   |  |   |       |  |  |   |   |  |  |   |       | 






|    |                                             
|--- | --------------------------------------------
|(1) | This is comprised of (amounts in thousands):

|                        |  |                   |    |  |                   |  |   |        |  
|----------------------- |  | ----------------- | -- |  | ----------------- |  | - | ------ | -
|                        |  | Successor         |    |  | Predecessor      
|                        |  |                   |    |  |                  
|                        |  | November 23, to   |    |  | January 1, to    
|                        |  | December 31, 2002 |    |  | November 22, 2002
|                        |  |                   |    |  |                  
|Federal                 |  | $                 |   |  |                   |  | $ | (430   | )
|State and local         |  |                   | 32 |  |                   |  |   | (930   | )
|                        |  |                   |    |  |                   |  |   |        |  
|                        |  |                   | 32 |  |                   |  |   | (1,360 | )
|Less:                   |  |                   |    |  |                   |  |   |        |  
|Discontinued operations |  |                   |   |  |                   |  |   | 1,200  |  
|                        |  |                   |    |  |                   |  |   |        |  
|                        |  | $                 | 32 |  |                   |  | $ | (160   | )
|                        |  |                   |    |  |                   |  |   |        |  



|                                         |                          |                  |         |          |   |             |       |        |   |         |         |             |   |   |        |          |   |   |        |        |   |   |        |          |  
|---------------------------------------- | ------------------------ | ---------------- | ------- | -------- | - | ----------- | ----- | ------ | - | ------- | ------- | ----------- | - | - | ------ | -------- | - | - | ------ | ------ | - | - | ------ | -------- | -
|                                         |                          | 2003             |         | 2002    
|                                         |                          |                  |         |         
|                                         |                          | Total            |         | Current  |   | Non-current |       | Total  |   | Current |         | Non-current
|                                         |                          |                  |         |          |   |             |       |        |   |         |         |            
|                                         |                          | ($ in thousands)
|Property and equipment                   |                          | $                | 21,807  |          |   | $           |      |        |   | $       | 21,807  |             |   | $ | 40,609 |          |   | $ |       |        |   | $ | 40,609 |         
|Net operating loss carry forwards        |                          |                  | 104,911 |          |   |             |       |        |   |         | 104,911 |             |   |   | 79,909 |          |   |   |       |        |   |   | 79,909 |         
|Loan costs                               |                          |                  | 1,224   |          |   |             |       |        |   |         | 1,224   |             |   |   |       |          |   |   |       |        |   |   |       |         
|Legal and workers compensation reserves |                          |                  | 2,896   |          |   |             | 2,896 |        |   |         |         |             |   |   | 2,918  |          |   |   | 2,918  |        |   |   |       |         
|AMT and FICA credit carry forwards       |                          |                  | 2,342   |          |   |             |       |        |   |         | 2,342   |             |   |   | 2,092  |          |   |   |       |        |   |   | 2,092  |         
|Other operating accruals                 |                          |                  | 1,506   |          |   |             | 1,506 |        |   |         |        |             |   |   | 2,301  |          |   |   | 2,301  |        |   |   |       |         
|COD reduction in other asset basis       |                          |                  |        |          |   |             |      |        |   |         |        |             |   |   | (7,362 | )        |   |   | (7,362 | )      |   |   |       |         
|Other                                    |                          |                  | 5,316   |          |   |             |       |        |   |         | 5,316   |             |   |   | 7,157  |          |   |   | 7,157  |        |   |   |       |         
|                                         |                          |                  |         |          |   |             |       |        |   |         |         |             |   |   |        |          |   |   |        |        |   |   |        |         
|                                         | Total                    |                  |         | 140,002  |   |             |       | 4,402  |   |         |         | 135,600     |   |   |        | 127,624  |   |   |        | 5,014  |   |   |        | 122,610  |  
|                                         | Less valuation allowance |                  |         | (140,002 | ) |             |       | (4,402 | ) |         |         | (135,600    | ) |   |        | (127,624 | ) |   |        | (5,014 | ) |   |        | (122,610 | )
|                                         |                          |                  |         |          |   |             |       |        |   |         |         |             |   |   |        |          |   |   |        |        |   |   |        |         
|                                         |                          | $                |        |          |   | $           |      |        |   | $       |        |             |   | $ |       |          |   | $ |       |        |   | $ |       |         
|                                         |                          |                  |         |          |   |             |       |        |   |         |         |             |   |   |        |          |   |   |        |        |   |   |        |         

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LODGIAN, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                                                                     |  |                  |         |                   |             |   |                   |   |      |  |   |         |   |  |   |         |  
|-------------------------------------------------------------------- |  | ---------------- | ------- | ----------------- | ----------- | - | ----------------- | - | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                     |  | Successor        |         |                   | Predecessor
|                                                                     |  |                  |         |                   |            
|                                                                     |  |                  |         | November 23 to    |             |   | January 1 to      |   |     
|                                                                     |  | 2003             |         | December 31, 2002 |             |   | November 22, 2002 |   | 2001
|                                                                     |  |                  |         |                   |             |   |                   |   |     
|                                                                     |  | ($ in thousands)
|Federal income tax provision (benefit) at statutory federal
    rate |  | $                | (13,292 | )                 |             | $ | (3,160            | ) |      |  | $ | 3,742   |   |  | $ | (47,578 | )
|State income tax (benefit), net                                      |  |                  | (1,876  | )                 |             |   | (732              | ) |      |  |   | (12,929 | ) |  |   | (6,717  | )
|Effect of cancellation of debt                                       |  |                  |        |                   |             |   |                  |   |      |  |   | (40,848 | ) |  |   |        |  
|Non-deductible items                                                 |  |                  | 2,968   |                   |             |   | (74               | ) |      |  |   | (1,932  | ) |  |   | 177     |  
|Change in valuation allowance                                        |  |                  | 12,378  |                   |             |   | 3,998             |   |      |  |   | 50,607  |   |  |   | 56,947  |  
|                                                                     |  |                  |         |                   |             |   |                   |   |      |  |   |         |   |  |   |         |  
|                                                                     |  |                  | 178     |                   |             |   | 32                |   |      |  |   | (1,360  | ) |  |   | 2,829   |  
|Less discontinued operations                                         |  |                  |        |                   |             |   |                  |   |      |  |   | 1,200   |   |  |   |        |  
|                                                                     |  |                  |         |                   |             |   |                   |   |      |  |   |         |   |  |   |         |  
|                                                                     |  | $                | 178     |                   |             | $ | 32                |   |      |  | $ | (160    | ) |  | $ | 2,289   |  
|                                                                     |  |                  |         |                   |             |   |                   |   |      |  |   |         |   |  |   |         |  





16.     Related Party
Transactions




|                                                        |  |                |     | 
|------------------------------------------------------- |  | -------------- | --- | 
|                                                        |  | (In thousands)
|Predecessor year ended December 31, 2001                |  | $              | 90  | 
|Predecessor period January 1, 2002 to November 22, 2002 |  |                | 357 | 
|Successor period November 23, 2002 to December 31, 2002 |  |                | 22  | 
|Successor year ended December 31, 2003                  |  |                | 225 | 





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##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


17.     Earnings Per Share




|                                         |                                                                                                          |                                         |   |                      |             |  |                    |         |      |  |  |   |        |   |  |   |          |  
|---------------------------------------- | -------------------------------------------------------------------------------------------------------- | --------------------------------------- | - | -------------------- | ----------- |  | ------------------ | ------- | ---- |  |  | - | ------ | - |  | - | -------- | -
|                                         |                                                                                                          | Successor                               |   |                      | Predecessor
|                                         |                                                                                                          |                                         |   |                      |            
|                                         |                                                                                                          |                                         |   | November 23, 2002 to |             |  | January 1, 2002 to |         |     
|                                         |                                                                                                          | 2003                                    |   | December 31, 2002    |             |  | November 2002      |         | 2001
|                                         |                                                                                                          |                                         |   |                      |             |  |                    |         |     
|                                         |                                                                                                          | ($ in thousands, except per share data)
|Basic and diluted loss per share:        |                                                                                                          |                                         |   |                      |             |  |                    |         |      |  |  |   |        |   |  |   |         
|Numerator:                               |                                                                                                          |                                         |   |                      |             |  |                    |         |      |  |  |   |        |   |  |   |         
|                                         | (Loss) income  continuing operations                                                                    |                                         | $ | (27,074              | )           |  | $                  | (6,745  | )    |  |  | $ | 16,999 |   |  | $ | (87,537  | )
|                                         | Loss from discontinued operations, net of taxes                                                          |                                         |   | (4,603               | )           |  |                    | (2,581  | )    |  |  |   | (4,633 | ) |  |   | (55,227  | )
|                                         |                                                                                                          |                                         |   |                      |             |  |                    |         |      |  |  |   |        |   |  |   |         
|                                         | Net (loss) income                                                                                        |                                         |   | (31,677              | )           |  |                    | (9,326  | )    |  |  |   | 12,366 |   |  |   | (142,764 | )
|                                         | Preferred stock dividend                                                                                 |                                         |   | (7,594               | )           |  |                    | (1,510  | )    |  |  |   |       |   |  |   |         |  
|                                         |                                                                                                          |                                         |   |                      |             |  |                    |         |      |  |  |   |        |   |  |   |         
|                                         | Net (loss) income attributable to common stock                                                           |                                         |   | (39,271              | )           |  |                    | (10,836 | )    |  |  |   | 12,366 |   |  |   | (142,764 | )
|                                         |                                                                                                          |                                         |   |                      |             |  |                    |         |      |  |  |   |        |   |  |   |         
|                                         | (Loss) income  continuing operations                                                                    |                                         |   | (27,074              | )           |  |                    | (6,745  | )    |  |  |   | 16,999 |   |  |   | (87,537  | )
|                                         | Preferred stock dividend                                                                                 |                                         |   | (7,594               | )           |  |                    | (1,510  | )    |  |  |   |       |   |  |   |         |  
|                                         |                                                                                                          |                                         |   |                      |             |  |                    |         |      |  |  |   |        |   |  |   |         
|                                         | (Loss) income from continuing operations attributable to common
    stock before discontinued operations |                                         | $ | (34,668              | )           |  | $                  | (8,255  | )    |  |  | $ | 16,999 |   |  | $ | (87,537  | )
|                                         |                                                                                                          |                                         |   |                      |             |  |                    |         |      |  |  |   |        |   |  |   |         
|Denominator:                             |                                                                                                          |                                         |   |                      |             |  |                    |         |      |  |  |   |        |   |  |   |         
|                                         | Denominator for basic and diluted loss per share 
    weighted-average shares                           |                                         |   | 7,000                |             |  |                    | 7,000   |      |  |  |   | 28,480 |   |  |   | 28,350   |  
|                                         |                                                                                                          |                                         |   |                      |             |  |                    |         |      |  |  |   |        |   |  |   |         
|Basic and diluted loss per common share: |                                                                                                          |                                         |   |                      |             |  |                    |         |      |  |  |   |        |   |  |   |         
|                                         | (Loss) income  continuing operations                                                                    |                                         | $ | (3.87                | )           |  | $                  | (0.96   | )    |  |  | $ | 0.60   |   |  | $ | (3.09    | )
|                                         | Loss from discontinued operations, net of taxes                                                          |                                         |   | (0.66                | )           |  |                    | (0.37   | )    |  |  |   | (0.17  | ) |  |   | (1.95    | )
|                                         |                                                                                                          |                                         |   |                      |             |  |                    |         |      |  |  |   |        |   |  |   |         
|                                         | Net (loss) income                                                                                        |                                         |   | (4.53                | )           |  |                    | (1.33   | )    |  |  |   | 0.43   |   |  |   | (5.04    | )
|                                         |                                                                                                          |                                         |   |                      |             |  |                    |         |      |  |  |   |        |   |  |   |         
|                                         | Net (loss) income attributable to common stock                                                           |                                         |   | (5.61                | )           |  |                    | (1.55   | )    |  |  |   | 0.43   |   |  |   | (5.04    | )
|                                         |                                                                                                          |                                         |   |                      |             |  |                    |         |      |  |  |   |        |   |  |   |         
|                                         | (Loss) income from continuing operations attributable to common
    stock before discontinued operations |                                         | $ | (4.95                | )           |  | $                  | (1.18   | )    |  |  | $ | 0.60   |   |  | $ | (3.09    | )
|                                         |                                                                                                          |                                         |   |                      |             |  |                    |         |      |  |  |   |        |   |  |   |         

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##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)








18.     Commitments and
Contingencies




|                                                        |  |                |       |              |  |            |     |  |  |   |       | 
|------------------------------------------------------- |  | -------------- | ----- | ------------ |  | ---------- | --- |  |  | - | ----- | 
|                                                        |  | Continuing     |       | Discontinued |  | Total     
|                                                        |  | Operations     |       | Operations   |  | Operations
|                                                        |  |                |       |              |  |           
|                                                        |  | (In thousands)
|Predecessor year ended December 31, 2001                |  | $              | 3,609 |              |  | $          | 743 |  |  | $ | 4,352 | 
|Predecessor period January 1, 2002 to November 22, 2002 |  |                | 3,079 |              |  |            | 618 |  |  |   | 3,697 | 
|Successor period November 23, 2002 to December 31, 2002 |  |                | 378   |              |  |            | 124 |  |  |   | 502   | 
|Successor year ended December 31, 2003                  |  |                | 4,002 |              |  |            | 696 |  |  |   | 4,698 | 



|     |            |   |         |        | 
|---- | ---------- | - | ------- | ------ | 
|2004 |            | $ | 3,320   |       
|2005 |            |   | 3,339   |       
|2006 |            |   | 3,355   |       
|2007 |            |   | 3,361   |       
|2008 |            |   | 3,398   |       
|     | Thereafter |   |         | 98,012 | 
|     |            |   |         |       
|     |            | $ | 114,785 |       
|     |            |   |         |       



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LODGIAN, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                                                        |  |                  |        |              |  |            |       |  |  |   |        | 
|------------------------------------------------------- |  | ---------------- | ------ | ------------ |  | ---------- | ----- |  |  | - | ------ | 
|                                                        |  | Continuing       |        | Discontinued |  | Total     
|                                                        |  | operations       |        | operations   |  | operations
|                                                        |  |                  |        |              |  |           
|                                                        |  | ($ in thousands)
|Predecessor year ended December 31, 2001                |  | $                | 22,531 |              |  | $          | 6,053 |  |  | $ | 28,584 | 
|Predecessor period January 1, 2002 to November 22, 2002 |  |                  | 19,398 |              |  |            | 4,926 |  |  |   | 24,324 | 
|Successor period November 23, 2002 to December 31, 2002 |  |                  | 1,598  |              |  |            | 377   |  |  |   | 1,975  | 
|Successor year ended December 31, 2003                  |  |                  | 20,569 |              |  |            | 3,816 |  |  |   | 24,385 | 











|                                                        |  |                  |       |              |  |            |       |  |  |   |       | 
|------------------------------------------------------- |  | ---------------- | ----- | ------------ |  | ---------- | ----- |  |  | - | ----- | 
|                                                        |  | Continuing       |       | Discontinued |  | Total     
|                                                        |  | operations       |       | operations   |  | operations
|                                                        |  |                  |       |              |  |           
|                                                        |  | ($ in thousands)
|Predecessor year ended December 31, 2001                |  | $                | 3,260 |              |  | $          | 1,249 |  |  | $ | 4,509 | 
|Predecessor period January 1, 2002 to November 22, 2002 |  |                  | 2,130 |              |  |            | 874   |  |  |   | 3,004 | 
|Successor period November 23, 2002 to December 31, 2002 |  |                  | 221   |              |  |            | 96    |  |  |   | 317   | 
|Successor year ended December 31, 2003                  |  |                  | 3,690 |              |  |            | 932   |  |  |   | 4,622 | 





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##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)






19.     Employee Retirement Plans




|                                                        |  |                  |     |              |  |            |   |  |  |   |     | 
|------------------------------------------------------- |  | ---------------- | --- | ------------ |  | ---------- | - |  |  | - | --- | 
|                                                        |  | Continuing       |     | Discontinued |  | Total     
|                                                        |  | Operations       |     | Operations   |  | Operations
|                                                        |  |                  |     |              |  |           
|                                                        |  | ($ in thousands)
|Predecessor year ended December 31, 2001                |  | $                | 269 |              |  | $          |  |  |  | $ | 269 | 
|Predecessor period January 1, 2002 to November 22, 2002 |  |                  | 185 |              |  |            |  |  |  |   | 185 | 
|Successor period November 23, 2002 to December 31, 2002 |  |                  | 27  |              |  |            |  |  |  |   | 27  | 
|Successor year ended December 31, 2003                  |  |                  | 260 |              |  |            |  |  |  |   | 260 | 



|                                                        |  |                  |     |              |  |            |    |  |  |   |     | 
|------------------------------------------------------- |  | ---------------- | --- | ------------ |  | ---------- | -- |  |  | - | --- | 
|                                                        |  | Continuing       |     | Discontinued |  | Total     
|                                                        |  | Operations       |     | Operations   |  | Operations
|                                                        |  |                  |     |              |  |           
|                                                        |  | ($ in thousands)
|Predecessor year ended December 31, 2001                |  | $                | 410 |              |  | $          |   |  |  | $ | 410 | 
|Predecessor period January 1, 2002 to November 22, 2002 |  |                  | 254 |              |  |            | 76 |  |  |   | 330 | 
|Successor period November 23, 2002 to December 31, 2002 |  |                  | 35  |              |  |            | 10 |  |  |   | 45  | 
|Successor year ended December 31, 2003                  |  |                  | 601 |              |  |            | 76 |  |  |   | 677 | 

20.     Subsequent Event




|                                                                           |  |                  |        | 
|-------------------------------------------------------------------------- |  | ---------------- | ------ | 
|                                                                           |  | ($ in thousands)
|Aggregate sales price                                                      |  | $                | 11,525 | 
|Carrying values of property, plant & equipment as of
    December 31, 2003 |  |                  | 7,325  | 
|Long-term debt as of December 31, 2003                                     |  |                  | 7,187  | 
|Total revenues for the year ended December 31, 2003                        |  |                  | 9,639  | 
|Total operating expenses for the year ended December 31,
    2003          |  |                  | 9,571  | 

F-44



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##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


21.     Selected Quarterly Financial
Data, Unaudited




|                                                         |                                                          |                                         |         |         |   |         |        |         |   |   |        |       |   |   |         |       |  
|-------------------------------------------------------- | -------------------------------------------------------- | --------------------------------------- | ------- | ------- | - | ------- | ------ | ------- | - | - | ------ | ----- | - | - | ------- | ----- | -
|                                                         |                                                          | Successor                              
|                                                         |                                                          |                                        
|                                                         |                                                          | First                                   |         | Second  |   | Third   |        | Fourth 
|                                                         |                                                          | Quarter                                 |         | Quarter |   | Quarter |        | Quarter
|                                                         |                                                          |                                         |         |         |   |         |        |        
|                                                         |                                                          | ($ in thousands, except per share data)
|Year Ended December 31, 2003:                            |                                                          |                                         |         |         |   |         |        |         |   |   |        |       |   |   |         |      
|Revenues  continuing operations                         |                                                          | $                                       | 73,292  |         |   | $       | 82,738 |         |   | $ | 81,699 |       |   | $ | 73,685  |      
|Operating expenses  continuing operations               |                                                          |                                         | 71,414  |         |   |         | 75,418 |         |   |   | 73,740 |       |   |   | 82,213  |      
|Loss  continuing operations                             |                                                          |                                         | (5,521  | )       |   |         | (330   | )       |   |   | (3,597 | )     |   |   | (17,626 | )    
|(Loss) income from discontinued operations, net of taxes |                                                          |                                         | (3,563  | )       |   |         | (2,111 | )       |   |   | (49    | )     |   |   | 1,120   |      
|Net loss                                                 |                                                          |                                         | (9,084  | )       |   |         | (2,441 | )       |   |   | (3,646 | )     |   |   | (16,506 | )    
|Net loss attributable to common stock                    |                                                          |                                         | (12,860 | )       |   |         | (6,259 | )       |   |   | (3,646 | )     |   |   | (16,506 | )    
|Basic and diluted income (loss) per common share:        |                                                          |                                         |         |         |   |         |        |         |   |   |        |       |   |   |         |      
|                                                         | Loss  continuing operations                             |                                         | $       | (0.79   | ) |         | $      | (0.05   | ) |   | $      | (0.51 | ) |   | $       | (2.52 | )
|                                                         | (Loss) income from discontinued operations, net of taxes |                                         |         | (0.51   | ) |         |        | (0.30   | ) |   |        | (0.01 | ) |   |         | 0.16  |  
|                                                         | Net loss                                                 |                                         |         | (1.30   | ) |         |        | (0.35   | ) |   |        | (0.52 | ) |   |         | (2.36 | )
|                                                         | Net loss attributable to common stock                    |                                         |         | (1.84   | ) |         |        | (0.89   | ) |   |        | (0.52 | ) |   |         | (2.36 | )

|                                                      |                                                          |                                         |         |         |           |         |        |                   |   |   |                   |       |   |   |        |      |  |  |   |         |       |  
|----------------------------------------------------- | -------------------------------------------------------- | --------------------------------------- | ------- | ------- | --------- | ------- | ------ | ----------------- | - | - | ----------------- | ----- | - | - | ------ | ---- |  |  | - | ------- | ----- | -
|                                                      |                                                          | Predecessor                             |         |         | Successor
|                                                      |                                                          |                                         |         |         |          
|                                                      |                                                          | First                                   |         | Second  |           | Third   |        | October 1, to     |   |   | November 23 to   
|                                                      |                                                          | Quarter                                 |         | Quarter |           | Quarter |        | November 22, 2002 |   |   | December 31, 2002
|                                                      |                                                          |                                         |         |         |           |         |        |                   |   |   |                  
|                                                      |                                                          | ($ in thousands, except per share data)
|Year Ended December 31, 2002:                         |                                                          |                                         |         |         |           |         |        |                   |   |   |                   |       |   |   |        |      |  |  |   |         |      
|Revenues  continuing operations                      |                                                          | $                                       | 76,615  |         |           | $       | 89,532 |                   |   | $ | 83,508            |       |   | $ | 49,612 |      |  |  | $ | 25,306  |      
|Operating expenses  continuing operations            |                                                          |                                         | 73,416  |         |           |         | 78,394 |                   |   |   | 76,720            |       |   |   | 44,241 |      |  |  |   | 29,668  |      
|(Loss) income  continuing operations                 |                                                          |                                         | (10,569 | )       |           |         | 4,008  |                   |   |   | (3,990            | )     |   |   | 27,550 |      |  |  |   | (6,745  | )    
|(Loss) income  discontinued operations, net of taxes |                                                          |                                         | (3,861  | )       |           |         | (545   | )                 |   |   | (567              | )     |   |   | 340    |      |  |  |   | (2,581  | )    
|Net (loss) income                                     |                                                          |                                         | (14,430 | )       |           |         | 3,463  |                   |   |   | (4,557            | )     |   |   | 27,890 |      |  |  |   | (9,326  | )    
|Net (loss) income attributable to common stock        |                                                          |                                         | (14,430 | )       |           |         | 3,463  |                   |   |   | (4,557            | )     |   |   | 27,890 |      |  |  |   | (10,836 | )    
|Basic and diluted income (loss) per common share:     |                                                          |                                         |         |         |           |         |        |                   |   |   |                   |       |   |   |        |      |  |  |   |         |      
|                                                      | (Loss) income  continuing operations                    |                                         | $       | (0.37   | )         |         | $      | 0.14              |   |   | $                 | (0.14 | ) |   | $      | 0.97 |  |  |   | $       | (0.96 | )
|                                                      | (Loss) income from discontinued operations, net of taxes |                                         |         | (0.14   | )         |         |        | (0.02             | ) |   |                   | (0.02 | ) |   |        | 0.01 |  |  |   |         | (0.37 | )
|                                                      | Net (loss) income                                        |                                         |         | (0.51   | )         |         |        | 0.12              |   |   |                   | (0.16 | ) |   |        | 0.98 |  |  |   |         | (1.33 | )
|                                                      | Net (loss) income attributable to common stock           |                                         |         | (0.51   | )         |         |        | 0.12              |   |   |                   | (0.16 | ) |   |        | 0.98 |  |  |   |         | (1.55 | )

F-45



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##### Table of Contents






INDEX TO EXHIBITS


|        |    |             |  |                                                            
|------- | -- | ----------- |  | -----------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 31 | .1          |  | Sarbanes-Oxley Section 302 Certification by the CEO        
|        | 31 | .2          |  | Sarbanes-Oxley Section 302 Certification by the CFO        
|        | 32 |             |  | Sarbanes-Oxley Section 906 Certification by the CEO and CFO