<PAGE>

================================================================================
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                               -----------------

                                    FORM 10-K
                        FOR ANNUAL AND TRANSITION REPORTS
                     PURSUANT TO SECTIONS 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

(MARK ONE)

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934. FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

                                       OR

[ ]      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               (I.R.S. Employer
       incorporation or organization)               Identification No.)

     3445 PEACHTREE ROAD N.E., SUITE 700                   30326
                 ATLANTA, GA                            (Zip Code)
  (Address of principal executive offices)

       Registrant's telephone number, including area code: (404) 364-9400

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

                               TITLE OF EACH CLASS
                               -------------------

                     Common Stock, $.01 par value per share

        Securities registered pursuant to Section 12(g) of the Act: NONE

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

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ ]

         The aggregate market value of Common Stock, par value $.01 per share,
held by non-affiliates of the registrant as of March 15, 2002, was $1,634,865
based on the closing price of $0.06 per share on the Over the Counter Bulletin
Board on such date.

         The registrant has 28,479,837 shares of Common Stock, par value $.01,
outstanding as of March 15, 2002.


================================================================================

<PAGE>



                                     PART I

ITEM 1.           BUSINESS

         Lodgian, Inc. ("Lodgian" or the "Company") is a successor to Servico,
Inc. ("Servico") as a result of Servico's merger (the "Merger") with Impac Hotel
Group, LLC, a privately owned hotel ownership, management and development
company ("Impac"). The Merger was completed on December 11, 1998. The Merger was
accounted for under the purchase accounting method.

         Lodgian was formed by Servico's merger with Impac in December 1998.
Servico was incorporated in 1956 under the laws of the State of Delaware. From
1956 through 1990, the predecessor was engaged in the ownership and operation of
hotels under a series of different ownerships.

CHAPTER 11 FILING


         On December 20, 2001, the Company and eighty one of its subsidiaries
(collectively "the Debtors") filed for voluntary reorganization with the United
States Bankruptcy Court for the Southern District of New York (the Bankruptcy
Court) under Chapter 11 of the Bankruptcy Code (the Chapter 11 Cases). The
Chapter 11 Cases have been consolidated for purposes of administration under
case number 01-16345. The filing was precipitated by the weaker US economy, the
decline in travel since the events of September 11 and the Company's heavy debt
load. The Debtors are currently operating their businesses as
debtors-in-possession and are subject to the jurisdiction of the Bankruptcy
Court while a reorganization plan is being formulated.

         As a result of the Chapter 11 filing, the Company is prohibited from
paying pre-petition claims (unless these are approved by the courts) and
creditors are prohibited from attempting to collect loans or debts arising prior
to December 20, 2001. The Company, at its option, may assume or reject contracts
entered into prior to the date of filing. Rejected contracts entered into prior
to the date of the petition would be treated as unsecured claims.

         The Company has received approval from the Bankruptcy Court to pay pre
and post-petition employee wages, salaries, benefits and other employee
obligations. The Bankruptcy Court also approved orders granting the debtors
authority to pay, among other things, certain pre-petition claims of its
critical service vendors. The Company has been and intends to continue to pay
its post-petition obligations arising in the ordinary course of business.

         The Debtors have received debtor-in-possession financing (the DIP
facility) of $25 million from a group of lenders led by Morgan Stanley Funding
Inc. and Lehman Brothers Inc. The DIP facility, along with the rights of the
Debtors to use the cash collateral of these lenders, expires one year from the
date of filing or the effective date of the reorganization plan, whichever is
earlier. This financing will allow the Company to operate in the normal course
during the bankruptcy proceedings.

         As of March 22, 2002, the Debtor had not yet filed its plan of
reorganization (the Plan) with the Bankruptcy court but management believes that
the Plan will result in most unsecured claims being settled for less than 100%
of their face value and that the interests of the common stock holders will be
significantly diluted.

GENERAL

         Lodgian is one of the largest owners and operators of full-service
hotels in the United States. Lodgian owns or manages 106 hotels, containing
19,893 rooms located in 32 states and Canada as of December 31, 2001. The
Company's hotels include 101 wholly-owned hotels, four hotels in which the
Company has a 50% or greater equity interest and one hotel in which the Company
has a minority equity interest. Lodgian's hotels are primarily full-service
properties which offer food and beverage services, meeting space and banquet
facilities and compete in the mid-price and upscale segments of the lodging
industry. Lodgian believes that these segments have more consistent demand
generators than other segments of the lodging industry and that they have
recently experienced less development of new properties than other lodging
segments, such as


                                       1
<PAGE>

limited service, economy and budget segments. Substantially all of the Company's
hotels (101) are affiliated with seven different nationally recognized
hospitality franchises. The Company is one of the largest Holiday Inn
franchisees and one of the largest Marriott franchisees nationally.


FRANCHISE AFFILIATIONS

         Management believes that Lodgian's strong brand affiliations bring many
benefits in terms of guest loyalty and market share premiums. With 80% of the
Company's portfolio composed of Crowne Plaza, Holiday Inn and Marriott hotels,
the Company believes that it is well-positioned to take advantage of superior
brand equity, quality standards and reservation contribution. As a result of
recent renovations and improvements, as well as improvements made by other
franchisees under the "Holiday Inn Worldwide Core Modernization" program,
management believes that the Holiday Inn image will be enhanced. In addition,
management believes that Marriott continues to be a very strong name among
travelers and in the industry, providing consistently high quality products and
service. The Company's hotels also benefit from both franchisors' toll free
reservation numbers, which contribute approximately 30% of the Company's total
reservations for these brands.

         The Company is subject to certain property maintenance and quality
standard compliance requirements under its franchise agreements. The Company
periodically receives notifications from its franchisors of events of
noncompliance with such agreements and may continue to receive notifications if
the liquidity and cash constraints of the Company limit its ability to comply
with its franchise agreements. In the past, management has cured most cases of
noncompliance within the applicable cure periods and the events of noncompliance
did not result in events of default under the respective loan agreements.
However, in selected situations, as warranted, based on economic evaluations,
management may elect to not comply with the franchisor requirements. In such
situations, the Company will either select an alternative franchisor or operate
the property independent of any franchisor. As a result of the Company's
petition for bankruptcy, the Company is technically in default of its franchise
agreements. However, due to the automatic stay of proceedings, the franchisors
are prohibited from proceeding with certain actions absent approval from the
Bankruptcy Courts. Were the automatic stay, in respect of these franchise
agreements, to be lifted, this could negatively impact operating results and the
value of the Company's hotels.


         At December 31, 2001, substantially all of the Company's owned and
managed hotels were affiliated with national franchisors, as set forth in the
following table:

<TABLE>
<CAPTION>
                                                                                                   TOTAL
                                                                                                   -----
                                                                                      NO. OF HOTELS      NO. OF ROOMS
                                                                                      -------------      ------------
         <S>                                                                          <C>                <C>
         Six Continents Hotels and Resorts(1)...................................            69               14,107
         Marriott International(2)..............................................            16                1,892
         Hilton(3)..............................................................             7                1,205
         Choice Hotel(4)........................................................             6                1,068
         Starwood(5)............................................................             2                  346
         Radisson ..............................................................             1                  163
         Other    ..............................................................             5                1,112
                                                                                        ------            ---------
                  Total Owned...................................................           106               19,893
                                                                                        ======            =========
</TABLE>

--------------------------
(1)      Holiday Inn, Holiday Inn Select and Crowne Plaza brands.

(2)      Marriott, Courtyard by Marriott, Residence Inn and Fairfield Inn
         brands.

(3)      Hilton, Hampton Inn and Doubletree brands.

(4)      Comfort Inn and Suites, Quality Inn and Clarion brands.

(5)      Four Points brands.


                                       2
<PAGE>

         Franchisors provide a number of services to hotel operators which can
positively contribute to the improved financial performance of their properties,
including national reservation systems, marketing and advertising programs and
direct sales programs. The Company believes that noted franchisors with larger
numbers of hotels enjoy greater brand awareness among potential hotel guests
than those with fewer numbers of hotels. Hotels typically operate with high
fixed costs, and increases in revenues generated by affiliation with a national
franchisor can, at times, contribute positively to a hotel's financial
performance.

         The Company's license agreements with the national hotel franchisors
typically authorize the operation of a hotel under the licensed name, at a
specific location or within a specified area, and require that the hotel be
operated in accordance with standards specified by the licensor. Generally, the
license agreements require the Company to pay a royalty fee, an
advertising/marketing fee, a fee for the use of the licensor's nationwide
reservation system and certain ancillary charges. Royalty fees under various
license agreements generally range from 3% to 6.5% of gross room revenues, while
advertising/marketing fees provided for in agreements generally range from 1% to
4.5% of gross room revenues and reservation system fees generally range from 1%
to 2% of gross room revenues. In the aggregate, royalty fees,
advertising/marketing fees and reservation fees range from 6% to 9% of gross
revenues. The license agreements are subject to cancellation in the event of a
default, including the failure to operate the hotel in accordance with the
quality standards and specifications of the licensor. The license agreements
generally have an original ten-year term, although certain license agreement
provide for original 15 and 20-year terms. The majority of the Company's license
agreements have five to ten years remaining on the term. The licensor may
require the Company to upgrade facilities at any time to comply with the
licensor's then current standards. The licensee may apply for a license renewal
as existing licenses expire. In connection with license renewals, the licensor
may require payment of a renewal fee, increased royalty and other recurring fees
and substantial renovation of the facility or the licensor may elect not to
renew the license. It is the Company's policy to review individual property
franchise affiliations at the time of property acquisition and, thereafter, on a
regular basis. These reviews may result in changes in such affiliations.

DEVELOPMENT VENTURE; MANAGEMENT AGREEMENTS

         In addition to operating the 101 hotels which the Company wholly owned
at December 31, 2001, Lodgian operated four hotels owned in joint venture in
which the Company has a 50% or greater equity interest and one hotel in which
the Company has a minority equity interest. In each joint venture, to varying
extents, the Company shares decision making authority with its joint venture
partners and may not have sole discretion with respect to a hotel's disposition.

         Prior to March 2001, the Company managed one hotel for a third party:
the Courtyard by Marriott in Tifton, Georgia. A former Chief Executive Officer
and President and currently a member of the Board of Directors had been an 8%
limited partner in the partnership that owns the Courtyard by Marriott in
Tifton, Georgia since 1996. This hotel was managed in accordance with a
management agreement, which provided that the Company be paid a base fee
calculated as a percentage of gross revenues, an accounting services fee and an
incentive management fee. The base fee was 3% of gross revenues and the
incentive fee was a percentage of the amount by which gross operating profit
exceeded a negotiated amount. All operating and other expenses of the hotel were
paid by the owner. This management agreement was terminated in March 2001.

COMPETITION AND SEASONALITY

         The hotel business is highly competitive. The Company competes with
other facilities on various bases, including room prices, quality, service,
location and amenities customarily offered to the traveling public. The demand
for accommodations and the resulting cash flow vary seasonally. The off-season
tends to be the winter months for properties located in colder weather climates
and the summer months for properties located in warmer weather climates. Levels
of demand are dependent upon many factors including general and local economic
conditions and changes in levels of tourism and business-related travel. The
hotels depend upon both commercial and tourist travelers for revenues.
Generally, the hotels operate in areas that contain numerous other competitive
lodging facilities, including hotels associated with franchisors which may have
more extensive reservation systems.

         Lodgian also competes with other hotel owners and operators with
respect to: (1) licensing upscale and mid-priced franchises in targeted markets,
(2) acquiring hotel properties to renovate and reposition; and (3) acquiring
developmental sites


                                       3
<PAGE>

for new hotel properties. The Company's competition is highly fragmented and is
composed of relatively small, private owners and operators of hotel properties,
public companies and private equity funds.


EMPLOYEES

         At December 31, 2001, the Company had approximately 5,010 full-time and
1,898 part-time associates. The Company had 108 full time associates engaged in
administrative and executive activities. The balance of associates manage,
operate and maintain the Company's properties. At December 31, 2001,
approximately 843 of the Company's full and part-time associates located at 8
hotels were covered by collective bargaining agreements which expire between
December 2002 and September 2004. The Company considers relations with its
associates to be good.

INSURANCE

         Lodgian maintains insurance covering liabilities for personal injuries
and property damage. The Company also maintains, among other types of insurance
coverage, real and personal property insurance, directors' and officers'
liability insurance, liquor liability insurance, workers' compensation
insurance, travel accident insurance for certain employees, fiduciary liability
insurance and business automobile insurance. Management believes it maintains
sufficient insurance coverage for the operation of its business.

         However, following the terrorist activity of September 11, 2001, and in
light of the resulting uncertainty in the insurance market, many insurance
companies have indicated that they will exclude insurance against acts of
terrorism from their "all risks" policies. Our "all risk" insurance coverage in
place for the current policy year does not contain specific exclusions for
losses attributable to acts of terrorism; however, there is a high probability
that such exclusions will be present as we renew and replace existing insurance
coverage. The cost and limited availability of specific third party insurance
coverage for losses from acts of terrorism have made it commercially
unreasonable for us to secure such coverage in the future. Further, there are
other types of losses, such as from wars or catastrophic acts of nature, for
which we cannot obtain insurance at all or at a reasonable cost. In the event of
an uninsured loss or a loss in excess of our insurance limits, we could lose
both the revenues generated from the affected property and the capital we have
invested in the affected property; depending on the specific circumstances of
the affected property it is possible that we could be liable for any mortgage
indebtedness or other obligations related to the property. Any such loss could
materially and adversely affect our business and financial condition and results
of operations.

REGULATION

         The Company's hotels are subject to certain federal, state and local
regulations which require the Company to obtain and maintain various licenses
and permits. All such licenses and permits must be periodically renewed and may
be revoked or suspended for cause at any time. Certain of these licenses and
permits are material to the Company's business and the loss of such licenses
could have a material adverse effect on the Company's financial condition and
results of operations. The Company is not aware of any reason why it should not
be in a position to maintain its licenses.

         Lodgian is subject to certain federal and state labor laws and
regulations such as minimum wage requirements, regulations relating to working
conditions, laws restricting the employment of illegal aliens and the Americans
with Disabilities Act. As a provider of restaurant services, the Company is also
subject to certain federal, state and local health laws and regulations. The
Company believes it complies with such laws and regulations in all material
respects. Lodgian is also subject in certain states to dramshop statutes, which
may give an injured person the right to recover damages from any establishment
which wrongfully served alcoholic beverages to a person who, while intoxicated,
caused the injury. Management believes that the Company's insurance coverage
with respect to any such liquor liability is adequate.

         To date, federal and state environmental regulations have not had a
material effect on the Company's operations. However, such laws potentially
impose cleanup costs for hazardous waste contamination on property owners. If
any material hazardous waste contamination problems do exist on any of the
Company's properties, the Company may be exposed to liability for the costs
associated with the cleanup of such sites.


                                       4
<PAGE>




ITEM 2.           PROPERTIES

         Lodgian owned or managed 106 hotels, containing 19,893 rooms located in
32 states and Canada at December 31, 2001. The Company's hotels include 101
wholly-owned hotels, four hotels in which the Company has a 50% or greater
equity interest, and one hotel in which the Company has a minority equity
interest.

DISPOSITIONS

         As discussed in "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources",
the Company previously adopted strategic plans to reduce the size of the
Company's non-core hotel portfolio and reduce the overall level of debt. With
regard to these strategic plans, the Company sold twenty-five hotel properties
and four other assets between January 1, 2000 and December 31, 2001.

         As previously indicated, on December 20, 2001, the Company petitioned
for reorganization under Chapter 11 of the Bankruptcy Code and is currently not
actively pursuing the sale of any of its hotel assets.

PORTFOLIO

         The Company's hotel portfolio by franchisor is set forth below.

<TABLE>
<CAPTION>
                                                                                                          YEAR OF LAST
                                                                                                          RENOVATION OR
FRANCHISOR/HOTEL NAME                           NO. OF HOTELS   NO. OF ROOMS       LOCATION               CONSTRUCTION
---------------------                           -------------   ------------       --------               ------------
<S>                                             <C>             <C>             <C>                       <C>

SIX CONTINENTS HOTELS AND RESORTS

Crowne Plaza Albany.........................                        384         Albany, NY                     2001
Crowne Plaza Cedar Rapids...................                        275         Cedar Rapids, IA               1998
Crowne Plaza Houston........................                        291         Houston, TX                    1999
Crowne Plaza Macon(1).......................                        297         Macon, GA                      1998
Crowne Plaza Pittsburgh.....................                        193         Pittsburgh, PA                 2001
Crowne Plaza West Palm Beach(1).............                        219         West Palm Beach, FL            2001
Crowne Plaza Worcester......................                        243         Worcester, MA                  1996
Holiday Inn Arden Hills.....................                        156         St. Paul, MN                   1995
Holiday Inn Augusta.........................                        239         Augusta, GA                    1998
Holiday Inn Austin (South)..................                        210         Austin, TX                     1994
Holiday Inn Belmont.........................                        135         Belmont, MD                    2000
Holiday Inn Brunswick.......................                        126         Brunswick, GA                  1998
Holiday Inn BWI Airport.....................                        259         Baltimore, MD                  2000
Holiday Inn Cincinnati......................                        243         Cincinnati, OH                 1998
Holiday Inn City Center(2)..................                        240         Columbus, OH                   1996
Holiday Inn Clarksburg......................                        160         Clarksburg, WV                 1997
Holiday Inn Cromwell Bridge.................                        139         Cromwell Bridge, MD            2000
Holiday Inn Dothan..........................                        102         Dothan, AL                     1996
Holiday Inn East Hartford...................                        130         East Hartford, CT              2000
Holiday Inn Express Gadsden.................                        141         Gadsden, AL                    1997
Holiday Inn Express Palm Desert.............                        129         Palm Desert, CA                1992
Holiday Inn Express Pensacola...............                        214         Pensacola, FL                  1996
</TABLE>


                                       5
<PAGE>

<TABLE>
<S>                                                                 <C>         <C>                            <C>
Holiday Inn Fairmont........................                        106         Fairmont, WV                   1997
Holiday Inn Florence........................                        105         Florence, KY                   1997
Holiday Inn Fort Mitchell...................                        214         Fort Mitchell, KY              1997
Holiday Inn Fort Wayne......................                        208         Fort Wayne, IN                 1995
Holiday Inn Frederick.......................                        158         Frederick, MD                  2000
Holiday Inn Frisco..........................                        217         Frisco, CO                     1997
Holiday Inn Glen Burnie North...............                        127         Glen Burnie, MD                2000
Holiday Inn Grand Island....................                        261         Grand Island, NY               2000
Holiday Inn Greentree.......................                        200         Pittsburgh, PA                 2000
Holiday Inn Hamburg.........................                        130         Buffalo, NY                    1998
Holiday Inn Hilton Head.....................                        201         Hilton Head, SC                2001
Holiday Inn Inner Harbor....................                        375         Baltimore, MD                  2000
Holiday Inn Jamestown.......................                        146         Jamestown, NY                  1998
Holiday Inn Jekyll Island...................                        198         Jekyll Island, GA              2000
Holiday Inn Lancaster (East)................                        189         Lancaster, PA                  2000
Holiday Inn Lansing West....................                        244         Lansing, MI                    1998
Holiday Inn Lawrence........................                        192         Lawrence, KS                   1996
Holiday Inn Manhattan.......................                        197         Manhattan, KS                  1996
Holiday Inn Marietta........................                        193         Marietta, GA                   1996
Holiday Inn Market Center Dallas............                        246         Dallas, TX                     1998
Holiday Inn McKnight Rd.....................                        147         Pittsburgh, PA                 1995
Holiday Inn Meadow Lands....................                        138         Pittsburgh, PA                 1996
Holiday Inn Melbourne(1)....................                        295         Melbourne, FL                  1996
Holiday Inn Memphis.........................                        173         Memphis, TN                    1998
Holiday Inn Monroeville.....................                        188         Monroeville, PA                1998
Holiday Inn Morgantown......................                        147         Morgantown, WV                 1997
Holiday Inn Myrtle Beach....................                        133         Myrtle Beach, SC               1998
Holiday Inn North Miami.....................                         98         Miami, FL                      1998
Holiday Inn Parkway East....................                        178         Pittsburgh, PA                 1996
Holiday Inn Phoenix West....................                        144         Phoenix, AZ                    1995
Holiday Inn Richfield.......................                        216         Richfield, OH                  1998
Holiday Inn Rolling Meadows.................                        420         Rolling Meadows, IL            2000
Holiday Inn Santa Fe........................                        130         Santa Fe, NM                   1992
Holiday Inn Select DFW......................                        282         Dallas, TX                     1997
Holiday Inn Select Niagara Falls............                        397         Niagara Falls, NY              1999
Holiday Inn Select Phoenix Airport..........                        298         Phoenix, AZ                    1995
Holiday Inn Select Strongsville.............                        302         Cleveland, OH                  1996
Holiday Inn Select Windsor, Ontario.........                        214         Windsor, Ontario               1998
Holiday Inn Sheffield.......................                        201         Sheffield, AL                  1998
Holiday Inn Silver Spring...................                        231         Silver Spring, MD              1998
Holiday Inn St. Louis North.................                        392         St. Louis, MO                  1996
Holiday Inn Syracuse........................                        152         Syracuse, NY                   1997
Holiday Inn University Mall.................                        152         Pensacola, FL                  1997
Holiday Inn Valdosta........................                        167         Valdosta, GA                   1997
Holiday Inn Wichita.........................                        152         Wichita, KS                    1998
Holiday Inn Winter Haven....................                        228         Winter Haven, FL               1998
Holiday Inn York (Arsenal Rd.)..............                        100         York, PA                       2000
                                                                -------
     SUBTOTAL...............................            69       14,107
</TABLE>


                                       6
<PAGE>

<TABLE>
<CAPTION>
                                                                                                          YEAR OF LAST
                                                                                                          RENOVATION OR
FRANCHISOR/HOTEL NAME                           NO. OF HOTELS   NO. OF ROOMS       LOCATION               CONSTRUCTION
---------------------                           -------------   ------------       --------               ------------
<S>                                             <C>             <C>             <C>                       <C>
MARRIOTT INTERNATIONAL

Courtyard by Marriott Abilene.......................                 99         Abilene, TX                    1996
Courtyard by Marriott Bentonville...................                 90         Bentonville, AR                1996
Courtyard by Marriott Buckhead......................                181         Atlanta, GA                    1996
Courtyard by Marriott Florence......................                 78         Florence, KY                   1995
Courtyard by Marriott Lafayette.....................                 90         Lafayette, LA                  1997
Courtyard by Marriott Paducah.......................                100         Paducah, KY                    1997
Courtyard by Marriott Revere........................                154         Revere, MA                     1999
Courtyard by Marriott Tulsa.........................                122         Tulsa, OK                      1997
Fairfield Inn Augusta...............................                117         Augusta, GA                    1998
Fairfield Inn Colchester............................                117         Colchester, VT                 1998
Fairfield Inn Jackson...............................                105         Jackson, TN                    1998
Fairfield Inn Merrimack.............................                116         Merrimack, NH                  1998
Fairfield Inn Valdosta..............................                108         Valdosta, GA                   1997
Marriott Denver.....................................                238         Denver, CO                     1998
Residence Inn Dedham................................                 81         Dedham, MA                     1998
Residence Inn Little Rock...........................                 96         Little Rock, AR                1998
                                                                -------
     SUBTOTAL.......................................    16        1,892

HILTON

Doubletree Club Philadelphia........................                189         Philadelphia, PA               1997
Hampton Inn Dothan..................................                113         Dothan, AL                     1996
Hampton Inn Pensacola...............................                123         Pensacola, FL                  1995
Hilton Fort Wayne...................................                244         Fort Wayne, IN                 1996
Hilton Inn Columbia.................................                152         Columbia, MD                   1998
Hilton Inn Northfield...............................                191         Troy, MI                       1997
Hilton Inn Sioux City...............................                193         Sioux City, IA                 1994
                                                                -------
     SUBTOTAL.......................................     7        1,205

CHOICE HOTEL

Clarion Central Omaha...............................                212         Omaha, NE                      1997
Clarion Council Bluffs..............................                 89         Council Bluffs, IA             1997
Clarion Northwoods Atrium Inn.......................                197         Charleston, SC                 1994
Clarion Omaha.......................................                163         Omaha, NE                      1997
Clarion Raleigh Downtown............................                202         Raleigh, NC                    1994
Clarion West Des Moines.............................                157         West Des Moines, IA            1997
Clarion Quality Hotel & Conference Ctr. Metairie....                205         New Orleans, LA                1995
                                                                -------
     SUBTOTAL.......................................     7         1225

STARWOOD

Four Points Niagara Inn.............................                189         Niagara Falls, NY              1999
                                                                -------
     SUBTOTAL.......................................     1          189

RADISSON

Radisson Phoenix Hotel..............................                163         Phoenix, AZ                    1995
                                                                -------
     SUBTOTAL.......................................     1          163


</TABLE>


                                       7
<PAGE>


<TABLE>
<S>                                             <C>             <C>             <C>                            <C>
OTHER
Hurstborne Hotel, a Louisville
Conference Center...........................                        398         Louisville, KY                 2000
French Quarter Suites Memphis...............                        105         Memphis, TN                    1997
Mayfair House Coconut Grove.................                        179         Miami, FL                      1998
New Orleans Airport Plaza Hotel
And Conference Center (1)...................                        244         New Orleans, LA                1998
University Inn, Bloomington.................                        186         Bloomington, IN                1992
                                                              ---------
     SUBTOTAL...............................             5        1,112
                                                   -------    ---------
     TOTAL..................................           106       19,893
                                                   =======    =========
</TABLE>

--------------

(1)      These hotels are partially owned and consolidated.

(2)      This hotel is partially owned and not consolidated.

         Fourteen of Lodgian's hotels are located on land subject to long-term
leases. Generally, the leases are for terms in excess of the depreciable lives
of the improvements or contain a purchase option and provide for fixed rents. In
certain instances, additional rents, based on a percentage of revenue or cash
flow, may be payable. The leases generally require the Company to pay the cost
of repairs, insurance and real estate taxes.

ITEM 3.           LEGAL PROCEEDINGS

         On December 20, 2001, the Company and eighty one of its subsidiaries
filed for voluntary reorganization with the United States Bankruptcy Court for
the Southern District of New York under Chapter 11 of the Bankruptcy Code. The
Chapter 11 Cases have been consolidated for purposes of administration under
case number 01-16345. The filing was precipitated by the weaker US economy, the
decline in travel since the events of September 11 and the Company's heavy debt
load. The Debtors are currently operating their businesses as
debtors-in-possession and are subject to the jurisdiction of the Bankruptcy
Court while a reorganization plan is being formulated.

         As of March 22, 2002, the Debtors had not yet filed a plan of
reorganization (the Plan) with the Bankruptcy courts but management believes
that the Plan will result in most unsecured claims being settled for less than
100% of their face value and that the interests of the common stock holders will
be significantly diluted.

         The Company is a party in litigation with Hospitality Restoration and
Builders, Inc. ("HRB"), a general contractor hired to perform work on six of the
Company's hotels. The litigation involves hotels in Texas, Illinois, and New
York. In general, HRB claims that the Company breached contracts to renovate the
hotels by not paying for work performed. The Company contends that it was
over-billed by HRB and that a significant portion of the completed work was
defective. In July 2001, the parties agreed to settle the litigation pending in
Texas and Illinois. In exchange for mutual dismissals and full releases, the
Company has paid HRB $750,000. With respect to the matter pending in the state
of New York, HRB claims that it is owed $10.7 million. The Company asserted a
counterclaim of $7 million and believes that it has valid defenses and
counterclaims to the contractor's remaining claims and that the outcome will not
have a material adverse effect on its financial position or results of
operations.

         On October 13, 2000, Winegardner & Hammons, Inc. ("WH") filed an
arbitration claim against the Company claiming breach of contract relating to a
January 4, 1992 contract. WH claimed entitlement to profit participation
relating to the Company's acquisition of AMI Operating Partners, LP. WH sought
damages totaling $764,500. The Company settled this matter by paying WH $100,000
in exchange for a full release.

         In 1999 and 2000, a total of six class actions were filed in the
Delaware Court of Chancery on behalf of all security holders of the Company.
Named as defendants in each of the actions were the Company and six of the
Company's directors and/or officers. The complaints alleged, among other things:
(1) that the individual defendants breached their fiduciary duties in connection
with an offer by Casuarina Cayman Holdings Ltd. ("Casuarina") to acquire all of
the Company's outstanding common stock; (2) that the director defendants
breached their fiduciary duties in connection with effecting certain changes to

                                       8
<PAGE>

the size and composition of the Company's Board of Directors in connection with
certain agreements entered into by the Company regarding a potential sale of the
Company to Whitehall Street Real Estate Limited Partnership XIII and Whitehall
Parallel Real Estate Limited Partnership XIII ("Whitehall") and (3) that the
individual defendants breached their fiduciary obligations in connection with
their consideration of certain conditional offers received by the Company
regarding a potential sale of the Company. The complaints sought injunctive
relief and compensatory damages in unspecified amounts. The Delaware court
created one consolidated class action in November 2000 (the "Consolidated
Action"). In July 2001, the plaintiffs agreed to dismiss the Consolidated
Action, hence relieving the Company of any potential claim for damages.

         In October 2000, a class action was filed in the Superior Court of the
State of Georgia, Fulton County. Named as defendants were the Company, six of
the Company's directors and/or officers, and Whitehall. The complaint alleged,
among other things, that the individual defendants breached their fiduciary
duties in connection with certain agreements entered into with Whitehall
regarding a potential sale of the Company to those entities. The complaint also
alleges that Whitehall aided and abetted the alleged breach of fiduciary duty by
the individual defendants. The case was voluntarily dismissed by the plaintiffs
on December 20, 2001.

         In 2000, several actions were filed in the Delaware Court of Chancery
by Casuarina and Edgecliff Holdings, LLC ("Edgecliff"). Named as defendants were
the Company and five of its directors and/or officers. The complaints alleged,
among other things: (1) that the defendant directors breached their fiduciary
duties in connection with effecting certain changes to the size and composition
of the Company's Board of Directors and sought declaratory and injunctive
relief; and (2) that the Company had not timely scheduled its annual meeting of
shareholders in accordance with Section 211 of the Delaware General Corporation
Law. The complaints also challenged the Company's decision to postpone its
annual meeting from October 12 to October 20, 2000 in response to the offer
received by the Company from Whitehall. The court granted plaintiffs' motion for
summary judgment to the limited extent that the court required the Company to
hold the annual meeting on October 20, 2000, the rescheduled date on which the
Company had planned to hold the meeting. Subsequently, Edgecliff dismissed all
of its actions.

         The Company and individual directors are parties to a lawsuit alleging
violations of federal securities laws and breach of fiduciary duty in connection
with certain investments made in affiliates of Impac Hotel Group, LLC, a
predecessor of the Company. The Company believes that it has valid defenses to
this matter.

         The Company is a party to other legal proceedings arising in the
ordinary course of business, the impact of which would not, either individually
or in the aggregate, in management's opinion, have a material adverse effect on
its financial position or results of operations.

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

         The Company held its Annual Meeting of Shareholders on June 21, 2001.
The stockholders voted on (1) the election of directors to serve in Class III
until the Annual Meeting of Stockholders for fiscal 2004 and (2) to ratify the
appointment of Arthur Andersen LLP as independent public accountants of the
Company. The votes cast on each of the above matters were as follows:




<TABLE>
<CAPTION>
                                                ELECTION OF DIRECTORS

                        NOMINEE                      VOTES FOR                        VOTES WITHHELD
                   <S>                              <C>                               <C>

                    Robert S. Cole                  19,954,327                          1,398,579
                   Richard H. Weiner                20,170,471                          1,182,435



                                           INDEPENDENT PUBLIC ACCOUNTANTS

                          FOR                          AGAINST                            ABSTAIN

                      21,132,826                       127,572                             92,508
</TABLE>



                                       9
<PAGE>

PART II

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

         Prior to November 21, 2001, the Company's common stock was traded on
the New York Stock Exchange under the symbol "LOD". On November 21, 2001, due to
the dimunition in the stock price of the Company's common stock and the
Company's total market capitalization, the Company's stock ceased trading on the
New York Stock Exchange and is currently being traded on the Over-the-Counter
Bulletin Board under the trading symbol LODN.OB. The following table sets forth
the high and low sales prices of the Company's common stock on a quarterly basis
for the past two years.

<TABLE>
<CAPTION>
                                                                    2001                                2000
                                                                    ----                                ----
                                                            HIGH              LOW              HIGH              LOW
                                                            ----              ---              ----              ---

<S>                                                       <C>              <C>               <C>              <C>
First Quarter........................................     $   4.00         $    1.10         $   5.12         $    3.37
Second Quarter.......................................         1.20              0.62             3.87              1.81
Third Quarter........................................         0.75              0.07             3.81              2.00
Fourth Quarter.......................................         0.35              0.03             4.00              2.56
</TABLE>

         As of March 15, 2002, there were 757 shareholders of record of Lodgian
common stock. In addition, there were 2,456 Servico shareholders who had not yet
converted their shares into shares of the Company. When all Servico shareholders
have converted their shares, the Company will have 3,213 shareholders.

         On December 20, 2001, the Company and eighty one of its subsidiaries
filed for voluntary reorganization with the Bankruptcy Courts. As of March 22,
2002, the Debtor had not yet filed its plan of reorganization (the Plan) with
the Bankruptcy courts but management believes that the Plan will result in most
unsecured claims being settled for less than 100% of their face value and that
the interests of the common stock holders will be significantly diluted.

         The Company has not paid any cash dividends since the Merger and has no
current plans to initiate the payment of dividends and is currently prohibited
under various credit agreements from paying any dividends. The Company currently
anticipates that it will retain any future earnings for use in its business. On
exiting Chapter 11, the Board of Directors of the Company will determine future
dividend policies based on the Company's financial condition, profitability,
cash flow, capital requirements and business outlook, among other factors. The
Company's ability to pay dividends was previously restricted by the Indenture
governing the Company's 12 1/4 % Senior Subordinated Notes Due 2009 (the
"Notes"), the Company's credit agreement dated as of July 23, 1999 among the
Company, Lodgian Financing Corp., certain other of the Company's subsidiaries
and the banks named therein, and the Indenture governing the Company's
Convertible Redeemable Equity Structured Trust Securities ("CRESTS"). Payment
restrictions contained in the Company's Notes allowed the Company to defer
dividend payments on the CRESTS beginning June 30, 2000. Pursuant to the terms
of the instrument, the Company had the right to defer payment for up to twenty
quarters (the "Extension Period"), during which Extension Period no interest was
due and payable.


                                       10
<PAGE>


ITEM 6.           SELECTED FINANCIAL DATA

SELECTED CONSOLIDATED FINANCIAL DATA

         The following table presents selected financial data derived from the
Company's historical financial statements for the years ended December 31, 1997
through 2001. This financial data should be read in conjunction with "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Item 8. Financial Statements and Supplementary Data" included
in this Form 10-K.

<TABLE>
<CAPTION>
                                                      2001             2000             1999             1998             1997
                                                  ------------     ------------     ------------     ------------     ------------
                                                                            (IN THOUSANDS, EXCEPT SHARE DATA)

<S>                                               <C>              <C>              <C>              <C>              <C>
Revenues (a) ...................................  $    447,556     $    580,897     $    592,420     $    395,214     $    276,657
 (Loss) income before extraordinary items,
   net of taxes (b) ............................      (142,764)         (87,955)         (52,943)          (3,145)          12,570
Extraordinary items, net of taxes ..............            --               --           (7,750)          (2,076)          (3,751)
Net (loss) income ..............................      (142,764)         (87,955)         (60,693)          (5,221)           8,819
EBITDA, as adjusted (c) ........................        80,748          126,811          147,087           98,225           69,559
Net cash provided by operating activities ......         9,299           22,352           67,191           29,301           30,970
Net cash provided by (used in) investing
   activities ..................................        37,258          124,623          (90,957)        (182,524)        (220,266)
Net cash (used in) provided by financing
   activities ..................................       (53,552)        (140,617)          19,225          157,165          174,415

Earnings per common share:
(Loss) income before extraordinary items,
   net of taxes ................................         (5.04)           (3.12)           (1.95)           (0.16)            0.83
Net (loss) income ..............................         (5.04)           (3.12)           (2.23)           (0.26)            0.58

Earnings per common share-assuming dilution:
(Loss) income before extraordinary items,
   net of taxes ................................         (5.04)           (3.12)           (1.95)           (0.16)            0.80
Net (loss) income ..............................         (5.04)           (3.12)           (2.23)           (0.26)            0.56
Basic weighted average shares ..................    28,350,000       28,186,000       27,222,000       20,245,000       15,183,258
Diluted weighted average shares ................    28,350,000       28,186,000       27,222,000       20,245,000       15,640,000
Total assets ...................................  $    975,362     $  1,160,344     $  1,421,996     $  1,497,068     $     62,651
Long-term obligations ..........................         7,652          674,038          856,675          816,644          323,320
Liabilities subject to compromise ..............       925,894               --               --               --               --
Total stockholders' equity (deficit) ...........        (6,681)         136,880          224,542          283,767          239,535
</TABLE>

-------------
(a)      See Item 7: Management's Discussion and Analysis of Financial Condition
         and Results of Operations.

(b)      (Loss) income before extraordinary items, net of taxes, for 2001, is
         after deducting reorganization items of $25.0 million which primarily
         relates to write-offs of deferred loan fees.

(c)      The Company has computed earnings before interest, taxes, depreciation
         and amortization ("EBITDA") without regard to the unusual items and
         one-time charges presented in the table below. EBITDA is a widely
         regarded industry measure of liquidity used in the assessment of hotel
         property values. EBITDA does not measure whether cash flow is
         sufficient to fund all of the Company's cash needs, including principal
         amortization, capital expenditures, and distributions to shareholders.
         Additionally, EBITDA does not represent cash flows from operating,
         investing, or financing activities as defined by generally accepted
         accounting principles. EBITDA as calculated by Lodgian, may not be
         comparable to similarly titled measures reported by other companies and
         would be misleading unless all companies and analysts calculate EBITDA
         in the same manner.


                                       11
<PAGE>



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

<S>                                              <C>            <C>             <C>            <C>            <C>
EBITDA   ..................................      $   (13,917)   $    64,621     $   75,392     $    94,825    $    69,121
Unusual Items:
   Impairment of long-lived assets..........          67,340         60,688         37,977              --             --
   Write-off of goodwill....................              --             --         20,748              --             --
   Other operating expenses(1)..............              --             --         12,470              --             --
   Severance and other......................           2,309          1,502            500           3,400            438
   Reorganization expenses..................          25,016             --             --              --             --
                                                 -----------    -----------     ----------     -----------    -----------
EBITDA, as adjusted.........................     $    80,748    $   126,811     $  147,087     $    98,225    $    69,559
                                                 ===========    ===========     ==========     ===========    ===========
</TABLE>


(1)      See Item 7: Management's Discussion and Analysis of Financial Condition
         and Results of Operations and Note 14 to the Company's consolidated
         financial statements.

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

CHAPTER 11 PROCEEDINGS

         As previously discussed in "Item 1: Business", on December 20, 2001,
the Company and eighty one of its subsidiaries filed for voluntary
reorganization with the Bankruptcy Court. The Chapter 11 Cases have been
consolidated for purposes of administration under case number 01-16345. The
filing was precipitated by the weaker US economy, the decline in travel since
the events of September 11 and the Company's heavy debt load. The Debtors are
currently operating their businesses as debtors-in-possession and are subject to
the jurisdiction of the Bankruptcy Court while a reorganization plan is being
formulated.

CONSOLIDATED FINANCIAL STATEMENTS

         The Company's Consolidated Financial Statements have been prepared on
the going concern basis of accounting and do not reflect any adjustments that
might result if the Company is unable to continue as a going concern. The
Company's recent losses, and the Chapter 11 Cases, raise substantial doubt about
the Company's ability to continue as a going concern. The ability of the Company
to continue as a going concern and the appropriateness of using the going
concern basis is dependent upon, among other factors, the Company's ability (i)
to comply with the debtor-in-possession financing agreements, (ii) to obtain
exit financing to enable it to exit Chapter 11, (iii) to obtain confirmation of
a plan of reorganization under the Bankruptcy Code, (iv) to achieve profitable
operations after such confirmation, and (v) the Company's ability to generate
sufficient cash from operations to meet its obligations.

         As a result of the filing of the Chapter 11 Cases and related
circumstances, book values of assets may not be realized and liquidation of
liabilities is subject to substantial doubt. While under the protection of
Chapter 11, the Debtors may sell or otherwise dispose of assets and liquidate or
settle liabilities, for amounts other than those reflected in the Consolidated
Financial Statements. Further, the confirmation of a plan of reorganization
could materially change the amounts reported in the accompanying Consolidated
Financial Statements. The Consolidated Financial Statements do not include any
adjustments relating to recoverability of the value of the recorded asset
amounts or the amounts and classification of liabilities that might be necessary
as a consequence of a plan of reorganization.


FORWARD-LOOKING STATEMENTS/RISK FACTORS

         The following discussion should be read in conjunction with the
Company's financial statements and related notes thereto included elsewhere
herein.


                                       12
<PAGE>

         The discussion below and elsewhere in this Form 10-K includes
statements that are "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Exchange Act. These
include managements' expectations with respect to the Chapter 11 filing,
statements that describe anticipated revenues, capital expenditures and other
financial items, statements that describe the Company's business plans and
objectives, and statements that describe the expected impact of competition,
government regulation, litigation and other factors on the Company's future
financial condition and results of operations. The words "may", "should",
"expect", "believe", "anticipate", "project", "estimate", and similar
expressions are intended to identify forward-looking statements. Such risks and
uncertainties, any one of which may cause actual results to differ materially
from those described in the forward-looking statements, include or relate to,
among other things:

         -        The impact of the Chapter 11 Cases and related circumstances
                  which could materially reduce the reported amounts of assets
                  and liabilities included in these consolidated financial
                  statements. Liabilities subject to compromise could increase
                  as a result of negotiations, actions of the bankruptcy court,
                  changes in the reported amounts of disputed claims, proof of
                  claims and other events.

         -        Risks associated with the Company's ability to obtain approval
                  for its plan of reorganization.

         -        Risks associated with the Company's ability to obtain exit
                  financing to replace the DIP facility.

         -        The impact of pending or threatened litigation and/or
                  governmental inquiries and investigation involving the
                  Company.

         -        The effect of competition and the economy on the Company's
                  ability to maintain margins on existing operations, including
                  uncertainties relating to competition.

         -        The Company's ability to generate sufficient cash flows from
                  operations to meet its obligations.

         -        The effectiveness of changes in management and the ability of
                  the Company to retain qualified individuals to serve in senior
                  management positions.

         -        The potential for additional impairment charges against
                  earnings related to long-lived assets.

         -        The impact of increased expenses due to layoffs of employees.

Many of these factors are not within the Company's control and readers are
cautioned not to put undue reliance on these forward looking statements.

STRATEGIC PLANS PRIOR TO CHAPTER 11 FILING

         At the end of 1999, the Company adopted a strategic plan to reduce the
size of the Company's non-core hotel portfolio. In 2000, the Company adopted a
strategic plan to reduce the level of overall debt of the Company.

         As discussed more fully in the Liquidity and Capital Resources section
and in Notes 4 and 5 to the financial statements, with regard to these plans to
reduce the size of the Company's non-core hotel portfolio and reduce the level
of overall debt, the Company sold twenty-five hotel properties and four other
assets between January 1, 2000 and December 31, 2001. Gross sales price of these
twenty-nine properties was $285.3 million while the reduction of debt was $216.6
million.

GENERAL OVERVIEW

         Management believes that results of operations in the hotel industry
are best explained by four key performance measures: occupancy, average daily
rate ("ADR"), revenue per available room ("RevPAR") levels and EBITDA margins.
These measures are influenced by a variety of factors including national,
regional and local economic conditions, the degree


                                       13
<PAGE>

of competition with other hotels in the area and changes in travel patterns. The
demand for accommodations is also affected by normally recurring seasonal
patterns and most of the Company's hotels experience lower occupancy levels in
the fall and winter months (November through February) which may result in lower
revenues, lower net income and less cash flow during these months.

         Revenues. Revenues are composed of rooms, food and beverage and other
revenues. Room revenues are derived from guest room rentals, whereas food and
beverage revenues primarily include sales from hotel restaurants, room service
and hotel catering. Other revenues include charges for guests' long-distance
telephone service, laundry service and use of meeting facilities.

         Operating Expenses. Operating expenses are composed of direct, general
and administrative, other hotel operating expenses and depreciation and
amortization. Direct expenses, including rooms, food and beverage and other
operations, reflect expenses directly related to hotel operations. These
expenses are primarily variable with available rooms and occupancy rates, but
also have a small fixed component, which can be leveraged with increases in
revenues. General and administrative expenses represent corporate salaries and
other corporate operating expenses and are generally fixed. Other expenses
include primarily property level expenses related to general operations such as
marketing, utilities, repairs and maintenance and other property administrative
costs.

RESULTS OF OPERATIONS

         The downturn in the US economy, the lodging industry and the events of
September 11, 2001 have adversely impacted the Company's results of operations.

         In addition, operating results have been materially impacted by the
significant number of hotel dispositions.

         During 2001, the Company sold six hotel properties. Gross sales price
of these six properties was $76.5 million. The Company also re-branded 5 hotels.

         During 2000, the Company sold nineteen hotel properties and four other
assets. Gross sales price of these twenty-three properties was $208.8 million.
In February 2000, the Company opened the Lake Oswego Hilton Garden. During 2000,
the Company re-branded three hotels to flags which are more representative of
its core focus.

         In June 1999, the Company sold its joint venture interest in its
European hotel portfolio, which consisted of six hotels. The Company received
approximately $7.5 million in net proceeds from the sale. In addition, during
1999 the Company sold four wholly-owned hotels and two land parcels in the
United States receiving net proceeds of approximately $14.5 million, and,
effective August 1, 1999, ceased managing one hotel for a third party. These
transactions did not have a material effect on results of operations.

         In August 1999, the Company opened the Marriott Portland City Center in
Portland, Oregon and in October 1999, opened the Courtyard by Marriott in
Livermore, California. Also, in September 1999, the Company purchased for $10.2
million the 49% interest of its partner in six hotels. Further, in 1999, the
Company re-branded seven hotels to flags that were more representative of its
core focus.

         The discussion of results of operations, income taxes, liquidity and
capital resources that follows is derived from the Company's Audited
Consolidated Financial Statements set forth in "Item 8. Financial Statements and
Supplementary Data" included in this Form 10-K and should be read in conjunction
with such financial statements and notes thereto.


                                       14
<PAGE>



HISTORICAL RESULTS OF OPERATIONS

  Year Ended December 31, 2001 Compared to the Year Ended December 31, 2000

REVENUES

         At December 31, 2001, the Company owned or had a majority interest in
105 hotels and had a minority interest in one hotel. At December 31, 2000, the
Company owned or had a majority interest in 111 hotels, had a minority interest
in one hotel and managed one hotel for a third party.

         Revenues for the Company were $447.6 million for 2001, a 22.9% decrease
over revenues of $580.9 million for 2000. Of this $133.3 million decrease,
approximately $90.6 million is a result of the sale of hotels. Revenues on a
same unit basis, for hotels owned at the end of 2001 were $440.5 million for
2001 and $483.2 million for 2000 (a decline of 8.8%). RevPAR, on a same unit
basis, for hotels owned at the of 2001 declined by 8.3% compared with 2000
primarily as a result of a decline in occupancy of 7.4% as well as a decrease in
average daily rates of 1.0%. Revenues and RevPar on the same unit basis for 2001
were adversely impacted by a general decline in the industry, particularly in
certain of the Company's markets. These factors were exacerbated by the events
of September 11, 2001.

         The following table summarizes certain operating data for the Company's
hotels for the year ended December 31, 2001 and 2000:

<TABLE>
<CAPTION>
                                                                       2001               2000
                                                                       ----               ----
                                                                        (1)                (1)
                                                                        ---                ---

<S>                                                                  <C>                <C>
         Number of hotels at end of period....................          105                111
         RevPar   ............................................       $45.08             $49.62
         Occupancy............................................        59.89%             64.60%
         ADR      ............................................       $75.28             $76.73
</TABLE>

Same Unit Data

Operating data for hotels owned at the end of 2001, with 2000 data for the same
hotels:

<TABLE>
<CAPTION>
                                                                       2001               2000
                                                                       ----               ----
                                                                        (1)                (1)
                                                                        ---                ---

         <S>                                                         <C>                <C>
         Number of hotels.....................................          105                 105
         RevPar   ............................................       $45.13             $49.24
         Occupancy............................................        59.92%             64.72%
         ADR      ............................................       $75.32              $76.08
</TABLE>



(1)      The 2001 and 2000 data excludes one non-consolidated hotel and one
         hotel that was managed for a third party. The Company ceased managing
         the hotel for the third party in March 2001.


OPERATING EXPENSES

         Direct operating expenses for the Company were $174.3 million (38.9% of
direct revenues) for 2001 and $230.9 million (39.8% of direct revenue) for 2000.
This $56.6 million decrease is primarily attributable to the reduction in
revenues, which decrease was slightly offset by improvements in operating
margins in the food and beverage departments and in other


                                       15
<PAGE>

direct activities. Other direct revenue comprises revenue from telephone,
laundry services, use of meeting facilities and other miscellaneous activities.

         General, administrative and other expenses were $192.5 million (43.0%
of direct revenues) in 2001 and $223.2 million (38.4% of direct revenues) in
2000. The decrease in general administrative and other expenses is partially due
to reduced property level expenses related to reductions in revenues. Property
level expenses include expenses related to general operations such as marketing,
franchise fees, property repairs and maintenance and other property
administrative costs. The reductions were, however, offset by certain higher
general, administrative and other expenses, mainly utilities, property
insurance, franchise fees and property taxes. The utility costs increased 21% in
the first quarter of 2001 due to higher usages caused by extreme winter
conditions in certain locations and increased energy rates. These increased
utility costs were somewhat offset by utility surcharges added to room rates in
selected markets. Property insurance costs increased due to premium increases in
the global property insurance market and increases in certain small claims.
Franchise fees increased as a result of the prior year conversion of certain
hotels to franchise arrangements that have slightly higher fee structures and
certain changes in guest awards by franchisors. Property taxes increased due to
higher property tax assessments in certain markets. Also, included in general,
administrative and other expenses are $3.6 million related to professional fees
principally related to consultants performing certain financial and accounting
management responsibilities within the Company,$1.2 million relating to certain
legal matters mainly in respect of the HRB matter and $3.2 million relating
principally to provisions for certain sales and other taxes and receivable
write-offs.

         Included in general, administrative and other expenses for 2000 are
$7.5 million related to professional fees related to the completion of
accounting, tax, systems and other merger integration matters, $2.0 million
related to certain legal matters, including legal and other costs associated
with Whitehall, Edgecliff and certain hotel asset dispositions and $2.6 million
related principally to provisions for certain sales and other taxes and
receivable write-offs.

         Depreciation and amortization expense was $62.5 million in 2001 and
$64.8 million in 2000. The $2.3 million decrease is a result of a decrease in
depreciation of $7.1 million related to hotels sold, net of additional
depreciation expense of $4.8 million relating to six hotels previously
considered held for sale and that are no longer being actively marketed for
sale.

                  Impairment of long-lived assets was $67.3 million in 2001 and
$60.7 million in 2000. The charge for the 2001 period was comprised of $6.6
million related to revised estimates of fair value for properties held for sale,
$4.0 million related to one property which was identified as held for sale and
also sold in 2001 and $69.0 million relating to a charge to reduce the carrying
value of certain of the Company's hotels held for future use, offset by a
recapture of $12.3 million of impairment charges related to six hotels that were
previously considered held for sale that were no longer being actively marketed
for sale. Of the impairment charges in the 2001 period, $69.0 million of the
impairment charges and the recapture of $8.5 million of previously recognized
impairment reserves were recorded in the fourth quarter. In connection with its
bankruptcy petition on December 20, 2001, the Company determined that 29 of its
hotels were significantly overleveraged in that the estimated fair value of
these hotels did not exceed the outstanding debt on these hotels. Therefore,
with the approval of the Bankruptcy Court, the Company ceased paying interest to
the secured lenders of these properties from the date of the bankruptcy
petition. The Company also concluded that it no longer had the ability to hold
these hotels for a period sufficient for their estimated future undiscounted
cash flows to cover their carrying values. Therefore in accordance with the
provisions of FAS 121, the Company determined that an impairment charge of $69
million was necessary to reduce the carrying value of these assets. In
connection with the bankruptcy petition, the Company also ceased marketing for
sale the remaining four properties that were previously classified as held for
sale. Since these assets were not considered impaired as the estimated future
cash flows from the use of these properties exceeded their carrying values, the
Company recaptured $8.5 million of impairment reserves previously recorded in
1999, 2000 and 2001. Impairment charges for 2000 comprised $11.3 million related
to revised estimates of fair value for properties held for sale at December 31,
1999, $3.5 million related to one property held for use, $56.6 million related
to the ten hotels sold to Sunstone Investors, LLC on August 31, 2000, net of a
recapture of $10.7 million of impairment charges recorded in 1999 and 2000 as
seven hotels previously considered held for sale as of December 31, 1999 were no
longer being actively marketed for sale.

         Severance and restructuring charges were $2.3 million in 2001 and $1.5
million in 2000. The charge for 2001 related principally to senior level
management changes during 2001. In addition, during 2001, the Company, in an
effort to


                                       16
<PAGE>

reduce expenses, instituted a plan to reduce hotel level employees and to
eliminate certain positions at the corporate office. As part of this plan, the
equivalent of over 1600 full time employees were expected to be terminated at
the hotels while 47 employees were terminated at the Corporate office.
Approximately 1,800 full time equivalents were terminated under the plan. In
2001, the Company recognized a charge of approximately $0.8 million to implement
this plan. All of this charge related to salary and benefits of the terminated
employees. As of December 31, 2001, all but $83,000 had been paid. The corporate
component of this charge, $0.8 million for the year is reflected in severance
and restructuring expenses on the Statement of Operations while the hotel level
component is reflected in direct operating expenses and in general,
administrative and other expenses. The 2000 charges related to a plan instituted
in June 2000 to close four of the Company's six regional offices, close the
Company's reservation center located in Baton Rouge, Louisiana and eliminate
certain positions in the corporate office. Approximately 65 employees were
terminated in this restructuring. The Company recognized a charge of
approximately $1.5 million to implement this plan. Of the $1.5 million charge,
approximately $1.3 million was related to salary and benefits of the terminated
employees and $.2 million related to the costs of closing the physical regional
offices and the reservation center. These costs were paid in 2000. In connection
with the Merger, Servico incurred approximately $3.4 million of expenses in 1998
primarily associated with the closing and relocation of Servico's corporate
headquarters and termination and relocation of certain Servico employees.
Severance expenses in 1999 were $0.5 million.

During 2001, the following management changes occurred:

         -        On July 12, 2001, one of the Company's directors, Lewis N.
                  Wolff resigned from his position on the Board of Directors.
                  The resignation took effect on July 12, 2001 and was as a
                  result of the time commitment needed to serve on the board.

         -        On and with effect from October 1, 2001, Tom Arasi, the
                  Company's former President and Chief Executive Officer
                  resigned to pursue other opportunities.

         -        The Board of Directors named David E. Hawthorne as the
                  Company's interim Chief Executive Officer and President on
                  October 1, 2001 and Chief Executive Officer and President on
                  November 1, 2001.

         -        On October 11, 2001, William J. Yung resigned from the Board
                  of Directors. The resignation took effect on October 11, 2001
                  and was tendered for personal reasons.

         -        On November 1, 2001, the Company's Executive Vice President
                  and Chief Operating Officer, Karyn Marasco resigned to pursue
                  other opportunities. The resignation took effect on November
                  30, 2001.

         -        On November 13, 2001, Richard Cartoon was appointed Executive
                  Vice President and Chief Financial Officer, Michael Amaral was
                  appointed Senior Vice President of Operations and Daniel Ellis
                  was appointed Secretary and Vice President of Legal Affairs
                  and Risk Management.

         -        On January 4, 2002, Charles E. Miller, the former Chief
                  Accounting Officer and Controller resigned. He was replaced by
                  Manuel Artime who joined the Company effective December 27,
                  2001 as Vice President and Controller. On March 1, 2002, Mr.
                  Artime was appointed Chief Accounting Officer.



OTHER INCOME AND EXPENSE

         Interest expense was $75.3 million in 2001 and $97.3 million in 2000.
This decrease is primarily attributable to a decrease in the level of debt and
to a lesser extent to a decrease in the cost of debt.

         The interest hedge break fee recorded in 2000 represents amounts paid
by the Company to break the interest rate lock agreement on one of its credit
facilities.


                                       17
<PAGE>

         The acquisition termination fees of $3.5 million recorded during 2000
related to a reimbursement of expenses to Whitehall due to the non-consummation
of a definite agreement for the sale of the Company.

         Gains on asset dispositions were $24.0 million for 2001 and $0.3
million of 2000. The gain for 2001 related primarily to the sale of one hotel in
the first quarter of 2001 (the Westin William Penn) and represents the excess of
the net proceeds of sale over the net book value of assets sold.

         Minority interest expense was $12.8 million in 2001 and $13.1 million
in 2000. This $0.3 million decrease is due to an increase in the CREST dividend
as a result of interest compounding, which increase has been off-set by other
minority interests due to lower net income levels for those hotels which the
Company co-owns with its third-party-minority equity partners.

NET INCOME

         After a tax charge of $2.8 million in 2001 and a tax benefit of $28.7
million in 2000, the Company had a net loss of $142.8 million $(5.04 loss per
share) in 2001 compared with $88.0 million $(3.12 loss per share) in 2000.

Accounting during reorganization proceedings

         The Company continues to apply generally accepted accounting principles
in the preparation of its consolidated financial statements while in Chapter 11.
However, in accordance with the American Institute of Certified Public
Accountants' Statement of Position 90-7 - "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code" (SOP 90-7): 1) the consolidated
financial statements distinguish transactions and events that are directly
associated with the reorganization from the ongoing operations of the business;
2) the Company's consolidated balance sheets segregate liabilities subject to
compromise from liabilities not subject to compromise; and 3) where the
underlying collateral in respect of certain debt is considered to be less than
the debt obligation, the Company ceased accruing interest on those debts.


Liabilities subject to compromise

         Liabilities Subject to Compromise refers to known liabilities incurred
prior to the commencement of the Chapter 11 Cases, including those considered by
the Bankruptcy Court to be pre-petition claims. These liabilities consist
primarily of amounts outstanding under long-term debt and also include accounts
payable, accrued interest and other accrued expenses. These amounts represent
the Company's estimate of known or potential claims to be resolved in the
Chapter 11 Cases. Such claims remain subject to future adjustments. Adjustments
may result from (1) negotiations; (2) actions of the Bankruptcy Court; (3)
further development with respect to disputed claims; (4) proofs of claim; or (5)
other events. Payment terms for these amounts will be established under a plan
of reorganization.

         The principal categories of claims classified as liabilities subject to
compromise in the Chapter 11 Cases as of December 31, 2001 are identified below
(amounts in thousands):


<TABLE>
<CAPTION>
                                                                              December 31, 2001
                                                                              -----------------
<S>                                                                           <C>

Long-term debt and capital lease obligations                                           $485,774
Senior Subordinated Notes (including related accrued interest)                          210,549
Preferred redeemable securities (including related accrued interest) - CRESTS           197,218
Accounts payable                                                                         22,698
Accrued liabilities (including accrued interest of $1,027)                                9,655
                                                                                       --------
                                                                                       $925,894
                                                                                       ========
</TABLE>


                                       18
<PAGE>

Summary of Reorganization Items

         The results for the year ended December 31, 2001 include charges which
relate to the reorganization process and the Chapter 11 Cases. The table below
summarizes these reorganization charges (amounts in thousands):



<TABLE>
         <S>                                            <C>
         Write-off of deferred financing costs          $21,517
                                                        -------
         Other reorganization items:
            Legal and professional fees                   3,179
            Other                                           320
                                                        -------
                                                          3,499
                                                        -------
                                                        $25,016
                                                        =======
</TABLE>


  Year Ended December 31, 2000 Compared to the Year Ended December 31, 1999

REVENUES

         At December 31, 2000, the Company owned 111 hotels, had a minority
interest in one hotel and managed one hotel for a third party owner compared
with 132 hotels owned, a minority interest in one hotel and one hotel managed
for a third party at December 31, 1999.

         Revenues for the Company were $580.9 million for 2000, a 1.9% decrease
over revenues of $592.4 million for 1999. This decrease is primarily a result of
the reduction of twenty-one hotels in the owned portfolio. RevPAR, however, was
$49.62 for 2000, an increase of 5.5% over 1999, primarily due to the completion
of several renovation projects in the latter part of 1999 and early 2000.

         The following table summarizes certain operating data for the Company's
hotels for the year ended December 31, 2000 and 1999:

<TABLE>
<CAPTION>
                                                                       2000               1999
                                                                       ----               ----
                                                                       (1)                (1)
<S>                                                                  <C>                <C>
         Number of hotels at end of period....................          111                132
            RevPar............................................       $49.62             $47.03
            Occupancy.........................................         64.6%             63.10%
            ADR   ............................................       $76.73             $74.58
</TABLE>

------------

(1)      Excludes one hotel managed for a third party and one non-consolidated
         hotel.


OPERATING EXPENSES

         Direct operating expenses for the Company were $230.9 million (39.7% of
direct revenues) for 2000 and $233.9 million (39.4% of direct revenue) for 1999.
This $3.0 million decrease was primarily attributable to the reduction of
twenty-one hotels in the owned portfolio during 2000 and an improvement in the
operating margins in the food and beverage area offset by a decrease in the
operating margins for rooms.

         General, administrative and other expenses were $223.1 million (38.4%
of direct revenues) in 2000 and $223.9 million (37.8% of direct revenues) in
1999. Included in general, administrative and other expenses are $7.5 million
related to professional fees related to the completion of accounting, tax,
systems and other merger integration matters, $2.0 million related to certain
legal matters, including legal and other costs associated with Whitehall,
Edgecliff and certain hotel asset dispositions and $2.6 million relating
principally to provisions for certain sales and other taxes and receivable
write-offs.


                                       19
<PAGE>

         The 1999 charge of $12.5 million related to certain charges recorded in
the fourth quarter of 1999 after the completion of certain account
reconciliations.

         Depreciation and amortization expense was $64.8 million in 2000 and
$59.3 million in 1999. The $5.5 million increase is primarily a result of the
completion of a significant number of renovation projects and the opening of 3
hotels in the latter part of 1999 as well as in the first quarter of 2000,
offset by a decrease in depreciation related to hotels sold. In addition, as of
September 30, 2000 the Company recorded depreciation expense of $1.6 million
representing nine months of expense related to the seven hotels previously
considered held for sale as of December 31, 1999 and that were no longer being
actively marketed for sale.

         Impairment of long-lived assets was $60.7 million in 2000. This
comprises charges recorded throughout 2000 of $11.3 million related to revised
estimates of fair value for properties held for sale at December 31, 1999, $3.5
million related to one property held for use, $56.6 million related to the ten
hotels sold to Sunstone Investors, LLC on August 31, 2000, net of a recapture of
$10.7 million of impairment charges recorded in 1999 and 2000 as seven hotels
previously considered held for sale as of December 31, 1999 were no longer being
actively marketed for sale. The impairment charge for 1999 was $38.0 million,
representing a reduction in the carrying value of hotels the Company had
targeted for sale, pursuant to the Company's previous strategy to reduce the
number of non-core hotels in its portfolio.

         Also, in 1999, based on asset impairment indicators and the market
capitalization of the Company's common stock, the Company wrote-off goodwill of
$20.7 million in accordance with the market value method of accounting for the
impairment of the goodwill arising from the Merger.

OTHER INCOME AND EXPENSE

         Interest expense was $97.3 million in 2000 and $77.4 million in 1999.
This increase is primarily attributable to an increase in the level of debt for
the majority of 2000 as well as an increase in the cost of debt, primarily due
to rising interest rates in early 2000, offset by approximately $155.9 million
of debt repayments occurring in the latter half of 2000.

         During the third quarter, the Company paid a $4.3 million interest
hedge break fee to break the interest rate lock agreement on one of its credit
facilities.

         The acquisition termination fees of $3.5 million recorded during 2000
related to a reimbursement of expenses to Whitehall due to the non-consummation
of a definite agreement for the sale of the Company.

         Minority interest expense was $13.1 million in 2000 and $14.5 million
in 1999. This $1.4 million decrease is partially attributable to lower net
income levels for those hotels which the Company co-owns with its
third-party-minority equity partners.

NET INCOME

         After a benefit for income taxes of $28.7 million in 2000 and of $20.1
million in 1999, the Company had a loss before extraordinary item of $88.0
million $(3.12 loss per share) in 2000 compared with $52.9 million $(1.95 per
share) in 1999.

         In 1999 the Company had an extraordinary item, net of income tax
benefit of $7.8 million $(.28 loss per share) from the loss on early
extinguishment of debt.

         Net loss for 2000 amounted to $88.0 million $(3.12 loss per share)
compared with a net loss of $60.7 million $(2.23 per share) for 1999, for the
reasons discussed above.


                                       20
<PAGE>
INCOME TAXES

         As of December 31, 2001, Lodgian had net operating loss carryforwards
of approximately $235 million for federal income tax purposes, which expire in
2004 through 2021. It is likely that under the plan of reorganization,
substantial amounts of net operating losses will be utilized relating to debt
cancellations. The Company's ability to use these net operating loss
carryforwards to offset future income is subject to other limitations, and may
be subject to additional limitations in the future. Due to these limitations, a
portion or all of these net operating loss carryforwards could expire unused. In
addition, the Company recognized an income tax provision of $2.8 million during
2001, which related primarily to a provision for state income taxes on the gain
on sale of one hotel.

LIQUIDITY AND CAPITAL RESOURCES

         Lodgian's principal sources of liquidity consist of existing cash
balances, cash flow from operations and financing.

         On December 20, 2001, the Company and eighty one of its subsidiaries
filed for voluntary reorganization with the United States Bankruptcy Court for
the Southern District of New York under Chapter 11 of the Bankruptcy Code. The
Chapter 11 Cases have been consolidated for purposes of administration under
case number 01-16345. The filing was precipitated by the weaker US economy, the
decline in travel since the events of September 11 and the Company's heavy debt
load. The Debtors are currently operating their businesses as
debtors-in-possession and are subject to the jurisdiction of the Bankruptcy
Court while a reorganization plan is being formulated.

         As a result of the Chapter 11 filing, the Company is prohibited from
paying pre-petition claims (unless these are approved by the courts) and
creditors are prohibited from attempting to collect loans or debts arising prior
to December 20, 2001. The Company, at its option, may assume or reject contracts
entered into prior to the date of filing. Rejected contracts entered into prior
to the date of the petition would be treated as unsecured claims.

         The Company has received approval from the Bankruptcy Court to pay pre
and post-petition employee wages, salaries, benefits and other employee
obligations. The Bankruptcy Court also approved orders granting the debtors
authority to pay, among other things, certain pre-petition claims of its
critical service vendors. The Company has been and intends to continue to pay
its post-petition obligations arising in the ordinary course of business.

         The Debtors have received debtor-in-possession financing of $25 million
from a group of lenders led by Morgan Stanley Funding Inc. and Lehman Brothers
Inc. The DIP facility, along with the rights of the Debtors to use the cash
collateral of these lenders expires, one year from the date of filing or the
effective date of the reorganization plan, whichever is earlier. This financing
will allow the Company to operate in the normal course during the bankruptcy
proceedings.

         In addition, the Company has received approval from the courts to pay
the post-petition interest on debts relating to 75 of its properties. The
Company has not paid any post-petition interest in relation to the Senior
Subordinated Notes, CRESTS and the other 29 properties. Contractual interest not
accrued at December 31, 2001 amounted to $1.3 million including interests on the
CRESTS.

         As of March 22, 2002, the Debtor had not yet filed its plan of
reorganization with the Bankruptcy courts but management believes that the Plan
will result in most unsecured claims being settled for less than 100% of their
face value and that the interests of the common stock holders will be
significantly diluted.

         Under the DIP facility, the Company has the option to borrow at either
base rates plus 2.5% or at LIBOR plus 3.5%. The Company is currently in
compliance with the terms of the DIP facility. As of March 22, 2002, the Company
had not borrowed from the facility but had issued one letter of credit totaling
$750,000 against it.

         The Company had earnings from operations before interest, taxes,
depreciation and amortization ("EBITDA"), as adjusted in 2001 of $80.7 million,
a 36.3% decrease from the $126.8 million in 2000. The Company has computed
EBITDA without regard to the unusual items. During 2001 these items consisted of
impairment charges of $67.3 million, reorganization costs of $25.0 million and
severance and other costs of $2.3 million. The unusual charges for 2000
consisted of


                                       21

<PAGE>

professional fees and restructuring costs of $1.5 million and impairment charges
of $60.7 million. EBITDA is a widely regarded industry measure of lodging
performance used in the assessment of hotel property values, although EBITDA is
not indicative of and should not be used as an alternative to net income or net
cash provided by operations as specified by generally accepted accounting
principles. Net cash provided by operating activities in 2001 was $9.3 million
as compared with $22.4 million in 2000.

         Cash flows provided by investing activities were $37.3 million and
$124.6 million in 2001 and 2000, respectively. The 2001 amount includes capital
expenditures of $28.8 million, net proceeds from the sale of assets of $67.9
million and deposits for capital expenditure escrows of $1.8 million. The 2000
amount includes capital expenditures of $78.7 million, net proceeds from the
sale of assets of $205.5 million and deposits for capital expenditure escrows of
$2.2 million.

         Cash flows used in financing activities were $53.6 million and $140.6
million in 2001 and 2000, respectively. The 2001 and 2000 amounts consist
primarily of the net proceeds from the issuance and repayment of long-term
obligations, as well as payments of deferred loan fees. In 2000, the financing
activities also comprised minority interest distributions of $0.8 million.

         At December 31, 2001, the Company had a working capital surplus of
$50,000 compared with a working capital deficit of $103.5 million at December
31, 2000. The improved working capital position is primarily due to the
classification of all debts subject to compromise (both long and short term) as
current.

         The Company has a capital improvement program to address the capital
improvements required at the hotels related to product improvement plans
specified by license agreements with franchisors, re-branding of several hotels
and general renovation projects intended to ultimately improve the operations of
the hotels. As of December 31, 2001, the Company's anticipated expenditures for
such projects are approximately $59.4 million and the Company has approximately
$15.8 million escrowed for such improvements. Most of the approximately $59.4
million, is expected to be spent in 2002 with the balance to be spent in 2003.
The Company expects to fund its capital expenditures from a combination of
amounts escrowed for such expenditures, its current cash position, cash from
operations and if needed, from its DIP facility.

         In June 1998, the Company issued $175 million of CRESTS. The CRESTS
bear interest at 7% and are convertible into shares of the Company's common
stock at an initial conversion price of $21.42 per share. The sale of CRESTS
generated $168.5 million in net proceeds, substantially, all of which were used
to repay debt prior to their maturity. Payment restrictions contained in the
Company's Notes allowed the Company to defer the dividend payments on the CRESTS
beginning June 30, 2000. Pursuant to the terms of the agreement, the Company had
the right to defer the dividend payment for up to twenty quarters.

         On July 23, 1999, the Company sold $200 million of 12.25% Senior
Subordinated Notes due in 2009 (the "Notes"). In addition, the Company entered
into a new, multi-tranche Senior Secured loan credit facility. The facility
consisted of development loans with a maximum capacity of $75 million (the
tranche A and C loans), a $240 million tranche B term loan and a $50 million
revolving facility. The tranche A and C loans were to be used for hotel
development projects. At December 31, 1999, $238.8 million was outstanding on
the tranche B term loan and no amounts were outstanding from the tranche A and C
portion of the loan credit facility. The tranche B loan, along with the proceeds
from the Notes, were used to repay a substantial portion of the financing
entered into to consummate the Merger and, in September 1999, a $132.5 million
loan, part of the credit facilities.

         The Company was unable to deliver its 1999 annual audited and March 31,
and June 30, 2000 quarterly unaudited financial statements to its Senior Secured
loan facility lenders on a timely basis. The Company received a waiver for the
late delivery of these financial statements and the time period for delivery of
quarterly 2000 financial statements was extended. In addition, on July 31, 2000,
the Company entered into an amendment to its Senior Secured loan credit facility
which provided for a 0.5% increase in the interest rate, termination of the
tranche A facility which reduced the maximum credit facility by $25 million and
provided for additional amortization payment requirements for tranche B term
loans of (i) $25 million on or prior to December 31, 2000, (ii) an additional
$35 million on or prior to June 30, 2001 and (iii) an additional $40 million on
or prior to December 31, 2001. Prior to the amendment, amortization payment
requirements were effectively 1% per year of the outstanding tranche B term
loans during that period. The amendment modified various covenants and coverage
ratios. The


                                      22

<PAGE>

amendment provided for access to the $25 million unused portion of the revolving
credit facility and provided increased flexibility for the sale of hotel assets.
The Company paid an amendment fee of approximately $1.4 million. The Company
paid the $25 million required amortization payment due December 31, 2000, the
$35 million required amortization payment due June 30, 2001, and $4 million of
the $40 million due December 31, 2001.

         On August 31, 2000, in conjunction with the sale of nine hotels,
principally located in the Western United States, the Company and the lenders
amended the terms of the credit facilities. Under this amendment two former
credit facilities were amended into one new facility and the Company paid down
approximately $106.2 million of the debt with proceeds from the sale, extended
the maturity date to September 2003 after considering a one year option to
extend and converted the remaining balance owed, approximately $108.7 million,
to a floating rate facility. In addition, the Company paid approximately $4.3
million to "break" the interest rate lock agreement on $54 million related to
this debt.

         With regard to the mortgage notes with an interest rate of 9%, on
August 31, 2000 the Company sold one hotel, located in the Western United
States, securing this facility and used the proceeds to reduce principal, pay
origination and extension fees of approximately $1.9 million, and exercised its
option to extend the maturity date to November 2002 from November 2000.

         On May 15, 2001, the Company and the lenders of its Senior Secured Loan
Credit Facility reached an agreement to amend that facility. Prior to the
amendment, the Company would have been in violation of two financial covenant
ratios based on its first quarter 2001 operating results. The amendment
increased the interest rate spread (which was then LIBOR plus 4.25%) by 25 basis
points in each month from August 2001 to February 2002 up to a maximum of LIBOR
plus 6.00% until maturity. The amendment also provided that the interest rate
spread would increase an additional 25 basis points up to a maximum of LIBOR
plus 6.00% if the company's debt was downgraded by a rating agency subsequent to
the amendment date (the downgrade occurred in May 2001). In addition, the
interest rate spread would decrease 50 basis points for each aggregate $60.0
million of principal reductions made subsequent to the amendment date as long as
the Company was in compliance with certain financial coverage ratios. The
amendment also required additional amortization payments on the tranche B term
loans of $7.5 million on April 30, 2002, June 30, 2002, September 30, 2002 and
December 31, 2002, respectively. The amendment also modified various covenants
and financial coverage ratios. The Company paid an amendment fee of $565,000 on
the date of the amendment. In addition, on the amendment date, $25.0 million of
the outstanding balance on the working capital revolver was converted to the
tranche B term loan, thereby reducing the commitment on the working capital
revolver to $25.0 million as of May 15, 2001.

         Based on its third quarter 2001 results, the Company was not in
compliance with the financial covenants related to its Senior Secured Loan
Credit Facility (the senior facility), on which, as of November 14, 2001 the
Company had outstanding borrowings of $192.6 million. However, on November 13,
2001, the Company reached an agreement with the lenders of the facility (the
senior lenders) with respect to the financial covenant violations, pursuant to
which the senior lenders agreed to forbear from the exercise of their
default-related remedies against the Company until December 31, 2001 (unless an
additional event of default occurred earlier). The forbearance agreement also
reduced the commitment on the working capital revolver from $25.0 million to
$13.4 million leaving the Company $3.0 million of unused availability on the
working capital revolver portion of the senior facility. The forbearance
agreement also required that the remaining $3.0 million be used only to pay the
interest in respect of the senior facility. The Company did not make the
remaining $36.0 million of required special amortization payments to its senior
lenders due December 31, 2001. As of December 31, 2001, the Company had
outstanding borrowings on the Senior Secured Loan Credit Facility of $195.6
million.

         In addition, the Company did not make the $12.3 million interest
payment due January 15, 2002 to the holders of the Company's Senior Subordinated
Notes. As a result of the events of default with respect to its Senior Secured
Loan Facility, the Company's Senior Subordinated Notes and the CRESTS were also
in default due to cross-default provisions in those agreements.

         On May 20, 2001, promissory notes of approximately $3.9 million secured
by the pledge of 100% of the ownership interests of Macon Hotel Associates,
L.L.C. ("MHA") were due. The Company owns a 60% controlling interest in MHA.
MHA's sole asset is the Crowne Plaza Hotel located in Macon, Georgia. MHA did
not make this payment on May 20, 2001. MHA is in discussions with the note
holders with respect to the default. MHA has made significant progress in its


                                       23

<PAGE>

negotiations with the note holders and hopes to have the default cured by the
second quarter of 2002. During the first quarter of 2001, the Company recorded
an impairment charge of $2.2 million to reduce the carrying value of the hotel
to the outstanding debt balance, which includes the promissory notes discussed
above and a $7.8 million first mortgage. Based on the estimated sales price of
the property, which approximates the amount of the debt outstanding, there will
not be any remaining net proceeds available for MHA. MHA was not included in the
entities which filed for reorganization under Chapter 11.

         During the fourth quarter of 2001, the lenders of a $108.7 million
credit facility with certain subsidiaries of the Company, notified the Company
of a default under the loan agreement and called upon the Company to honor the
guarantee it made in relation to this debt. On December 20, 2001, prior to the
resolution of this matter, the Company filed for bankruptcy under Chapter 11.

         As a result of the Chapter 11 Cases, the Company is technically in
default of its debt agreements with the exception of certain debt of the
Company's joint ventures that were not included in the bankruptcy petition. All
of the Company's pre-petition debt, with the exception of the debt of the joint
ventures, are recorded in liabilities subject to compromise in the balance sheet
as of December 31, 2001.

         The Company is subject to certain property maintenance and quality
standard compliance requirements under its franchise agreements. The Company
periodically receives notifications from its franchisors of events of
noncompliance with such agreements and may continue to receive notifications if
the liquidity and cash constraints of the Company limit its ability to comply
with its franchise agreements. In the past, management has cured most cases of
noncompliance within the applicable cure periods and the events of noncompliance
did not result in events of default under the respective loan agreements.
However, in selected situations, as warranted, based on economic evaluations,
management may elect to not comply with the franchisor requirements. In such
situations, the Company will either select an alternative franchisor or operate
the property independent of any franchisor. As a result of the Company's
petition for bankruptcy, the Company is technically in default of its franchise
agreements. However, due to the automatic stay of proceedings, the franchisors
are prohibited from proceeding with certain actions absent approval from the
Bankruptcy Courts. Were the automatic stay, in respect of these franchise
agreements, to be lifted, this could negatively impact operating results and the
value of the Company's hotels.

         As discussed above, the Company had previously adopted strategic plans
to reduce the size of the Company's non-core hotel portfolio and reduce the
overall level of debt. With regard to these strategic plans, the Company sold
twenty-five hotel properties and four other assets during 2000 and 2001. Gross
sales price of these twenty-nine properties was $285.3 million while the
reduction of debt was $216.6 million. The balance was used primarily to support
capital expenditures related to major renovation projects and the construction
of one new hotel, which was subsequently sold prior to completion.

         Management believes that the combination of its current cash position,
cash flow from operations, and the DIP facility will provide sufficient
liquidity to fund the Company's operating, capital expenditure and debt service
obligations during the Chapter 11 proceedings. However, there can be no
assurance that this will be achieved. The Company's recent losses and the
Chapter 11 cases raise substantial doubt about the Company's ability to continue
as a going concern. The ability of the Company to continue as a going concern
and the appropriateness of using the going concern basis is dependent upon,
among other factors, the Company's ability (i) to comply with the
debtor-in-possession financing agreements, (ii) to obtain exit financing to
enable it to exit Chapter 11, (iii) to obtain confirmation of a plan of
reorganization under the Bankruptcy Code, (iv) to achieve profitable operations
after such confirmation, and (v) the Company's ability to generate sufficient
cash from operations to meet its obligations. In addition, the Company's
debtor-in-possession financing agreements expire in December 2002; there can be
no assurance that the Company will be successful in obtaining confirmation of a
plan of reorganization by December 2002 and, if not, there can be no assurance
that the existing debtor-in-possession lenders will agree to continue to provide
debtor-in-possession financing. Management believes that the DIP Facility, along
with its current cash and cash provided by operations, will provide sufficient
liquidity to fund its operations in the foreseeable future; however, there can
be no assurance that the sources of liquidity will be available or sufficient to
meet the Company's needs.

INFLATION

         The rate of inflation has not had a material effect on the Company's
revenues or costs and expenses in recent years and it is not anticipated that
inflation will have a material effect on the Company in the near term.


                                       24

<PAGE>

CRITICAL ACCOUNTING POLICIES

         The Company's financial statements are prepared in accordance with the
United States generally accepted accounting principles (GAAP). A summary of the
significant accounting policies is included in Note 1 to the consolidated
financial statements. The preparation of the financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenue and
expenses during the reporting period. There can be no assurance that actual
results will not differ from these estimates. The critical accounting policies
adopted by the Company relate to capitalization, useful/ depreciable lives of
fixed assets, revenue recognition, impairment evaluations, income taxes and
liabilities subject to compromise.

Capitalization and depreciable lives of assets

         Capital improvements are capitalized when they extend the useful lives
of the related asset. Management estimates the depreciable lives of the
Company's fixed assets. All items considered to be repair and maintenance items
are expensed as incurred. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets (buildings and improvements
10-40 years; furnishings and equipment 3-10 years). Property under capital
leases is amortized using the straight-line method over the shorter of the
estimated useful lives of the assets or the lease term.

Revenue recognition

         Revenues are recognized when the services are rendered. Revenues are
composed of rooms, food and beverage and other revenues. Room revenues are
derived from guest room rentals, whereas food and beverage revenues primarily
include sales from hotel restaurants, room service and hotel catering. Other
revenues include charges for guests' long-distance telephone service, laundry
service and use of meeting facilities.

Asset impairment evaluation

         Under GAAP, real estate assets are stated at the lower of depreciated
cost or fair value, if deemed impaired. As required by GAAP, the Company
periodically evaluates its real estate assets to determine if there has been any
impairment in carrying value and records impairment losses if there are
indicators of impairment and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amounts. The
impairment loss recognized in 2001, 2000 and 1999 respectively was $67.3
million, $60.7 million and $38.0 million. As a result of the filing of the
Chapter 11 Cases and related circumstances, the Company may ultimately sell
or otherwise dispose of its hotel assets for amounts less than the carrying
value of such assets and future actions by the Company, its creditors or the
Bankruptcy Court could adversely impact the Company's ability to hold its assets
for periods sufficient for it to recover the carrying value of its assets on an
undiscounted cash flow basis. As a result, the Company could recognize
additional impairment losses in future periods.

          Of the impairment charges in the 2001 period, $69.0 million of the
impairment charges and the recapture of $8.5 million of previously recognized
impairment reserves were recorded in the fourth quarter. In connection with its
bankruptcy petition on December 20, 2001, the Company determined that 29 of its
hotels were significantly overleveraged in that the estimated fair value of
these hotels did not exceed the outstanding debt on these hotels. Therefore,
with the approval of the Bankruptcy Court, the Company ceased paying interest to
the secured lenders of these properties from the date of the bankruptcy
petition. The Company also concluded that it no longer had the ability to hold
these hotels for a period sufficient for their estimated future undiscounted
cash flows to cover their carrying values. Therefore in accordance with the
provisions of FAS 121, the Company determined that an impairment charge of $69
million was necessary to reduce the carrying value of these assets. In
connection with the bankruptcy petition, the Company also ceased marketing for
sale, four properties that were previously classified as held for sale. Since
these assets were not considered impaired as the estimated future cash flows
from the use of these properties exceeded their carrying values, the Company
recaptured $8.5 million of impairment reserves previously recorded in 1999, 2000
and 2001.

Income taxes


                                       25

<PAGE>

         The Company accounts for income taxes under Statement of Financial
Accounting Standards (SFAS 109) "Accounting for Income Taxes", which requires
the use of the liability method of accounting for deferred income taxes. See
note 9 for the components of the Company's deferred taxes. As a result of the
Company's financial condition, continued losses and the Chapter 11 Cases, the
Company has provided a full valuation allowance against its deferred tax asset
as it is more likely than not that the deferred tax asset will not be realized.

Liabilities subject to compromise

         Liabilities subject to compromise refers to known liabilities incurred
prior to the commencement of the Chapter 11 Cases, including those considered by
the Bankruptcy Court to be pre-petition claims. These liabilities consist
primarily of amounts outstanding under long-term debt and also include accounts
payable, accrued interest and other accrued expenses. These amounts represent
the Company's estimate of known or potential claims to be resolved in the
Chapter 11 Cases. Such claims remain subject to future adjustments. Adjustments
may result from (1) negotiations; (2) actions of the Bankruptcy Court; (3)
further development with respect to disputed claims; (4) proofs of claim; or (5)
other events. Payment terms for these amounts will be established under a plan
of reorganization.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The risk inherent in the Company's market risk sensitive instruments is
the potential loss arising from adverse changes in interest rates. The Company
does not purchase or hold any derivative financial instruments for trading
purposes.

         Hotel owners and operators are inherently capital intensive, as the
vast majority of assets are hotels, which are long-lived. Lodgian's exposure to
market risk associated with changes in interest rates relates primarily to its
debt obligations. Prior to the Chapter 11 filing, the Company had significant
exposure to changes in cash flows resulting from changes in interest rates as
approximately 43% of its long-term debt carried floating rates of interest. For
the balance of long-term debt, the nature of fixed rate obligations did not
expose the Company to the risk of changes in the fair value of these
instruments, except for the Company's Senior Subordinated Notes. The Company has
outstanding debt of $701.1 million, including current maturities at December 31,
2001.

         The table below provides information about the Company's debt
obligations.

<TABLE>
<CAPTION>
                                                               ORIGINAL MATURITY DATE
                                                    2002       2003      2004      2005      2006   THEREAFTER  TOTAL   FAIR VALUE
                                                   -------   --------   -------   -------   ------  ---------- -------  ----------
                                                                              (DOLLARS IN THOUSANDS)
<S>                                                <C>       <C>        <C>       <C>       <C>      <C>       <C>       <C>
Mortgage notes payable with interest
 at LIBOR plus 5.75% (matures 2005) ............   $68,996   $  2,400   $19,200   $99,029   $   --   $     --  $189,625  $189,625
Credit facilities with interest at LIBOR
 plus 2.75% (matures 2003) .....................        --    108,652        --        --       --         --   108,652   108,652
Mortgage notes with an interest rate
 of 9.65% (matures 2002) .......................    54,565         --        --        --       --         --    54,565    54,565
Mortgage notes with fixed rates ranging
 from 7.9% to 10.7% (matures 2003
  to 2010) .....................................     4,426     35,335    26,616     4,018    4,440     38,816   113,651   113,651
Senior Subordinated notes with interest
 rates at 12.25% (matures 2009) ................        --         --        --        --       --    200,000   200,000  87,000(1)
Revolving credit facility with interest at
 LIBOR plus 5.75% (matures 2004) ...............        --         --     6,000        --       --         --     6,000     6,000
Other facilities with interest rates
 ranging from 0 to 14% .........................    14,577      8,238        95       104      114      5,523    28,651    28,651
</TABLE>

--------------

(1) Based on quoted market prices at December 31, 2001.

         At December 31, 2001, the Company had approximately $304.3 million of
debt instruments outstanding that are subject to changes in the LIBOR or PRIME
rate. Without regard to additional borrowings under those instruments or
scheduled amortization, the annualized effect of each twenty five basis point
increase in the LIBOR rate would be a reduction in income before income taxes in
2001 by approximately $0.8 million.


                                       26

<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                                      PAGE
                                                                                                                      ----
<S>                                                                                                                   <C>
Report of Independent Public Accountants...........................................................................    28
Report of Independent Auditors.....................................................................................    29
Consolidated Balance Sheets as of December 31, 2001 and 2000.......................................................    30
Consolidated Statements of Operations for the Years Ended December 31, 2001, 2000, and 1999........................    31
Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 2001, 2000 and 1999.....    32
Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999.........................    33
Notes to Consolidated Financial Statements.........................................................................    34
</TABLE>


                                       27

<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To Lodgian, Inc. and Subsidiaries:

         We have audited the accompanying consolidated balance sheets of
Lodgian, Inc. (a Delaware corporation) and subsidiaries as of December 31, 2001
and 2000, and the related consolidated statements of operations, stockholders'
equity (deficit), and cash flows for each of the two years in the period ended
December 31, 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Lodgian, Inc. and subsidiaries as of December 31, 2001 and 2000, and the
consolidated results of their operations and their cash flows for each
of the two years in the period ended December 31, 2001 in conformity with
accounting principles generally accepted in the United States.

         The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company filed a voluntary petition with the United
States Bankruptcy Court for reorganization under Chapter 11. This matter raises
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to this matter are described in Note 2. The
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.

Arthur Andersen LLP


Atlanta, Georgia
March 22, 2002


                                       28

<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

The Stockholders and Board of Directors
Lodgian, Inc.

         We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of Lodgian, Inc. (formerly known as Servico
Inc.) and Subsidiaries for the year ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

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

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated results of operations and
cash flows of Lodgian, Inc. (formerly known as Servico Inc.) and Subsidiaries
for the year ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.

Ernst & Young LLP


Atlanta, Georgia
July 14, 2000


                                       29
<PAGE>

                         LODGIAN, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                                      DECEMBER 31,
                                                                                             -------------------------------
                                                                                                 2001                2000
                                                                                             -----------         -----------
                                                                                                      (IN THOUSANDS,
                                                                                                     EXCEPT SHARE DATA)
<S>                                                                                          <C>                 <C>
                                               ASSETS
Current assets:
     Cash and cash equivalents ......................................................        $    14,007         $    21,002
     Cash, restricted ...............................................................              3,218               2,237
     Accounts receivable, net of allowances .........................................             12,489              20,624
     Inventories ....................................................................              7,223               7,805
     Prepaid expenses and other current assets ......................................              6,284               5,658
                                                                                             -----------         -----------
            Total current assets ....................................................             43,221              57,326
Property and equipment, net .........................................................            913,968           1,059,048
Deposits for capital expenditures ...................................................             15,813              14,005
Other assets, net ...................................................................              2,360              29,965
                                                                                             -----------         -----------
                                                                                             $   975,362         $ 1,160,344
                                                                                             ===========         ===========

                           LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY

Liabilities Not Subject to Compromise
  Current liabilities:
      Accounts payable ..............................................................        $     2,706         $    25,088
      Accrued interest ..............................................................              1,192              16,795
      Other accrued liabilities .....................................................             29,785              37,203
      Advance deposits ..............................................................              1,771               1,854
      Current portion of long-term debt and capital lease obligations ...............              7,717              79,843
                                                                                             -----------         -----------
      Total current liabilities .....................................................             43,171             160,783
  Other long-term debt and capital lease obligations ................................              7,652             674,038
Liabilities Subject to Compromise ...................................................            925,894                  --
Minority interests:
      Preferred redeemable securities (including related accrued interest) ..........                 --             184,349
      Other .........................................................................              5,326               4,294
Commitments and contingencies .......................................................                 --                  --
Stockholders' (deficit) equity:
   Common stock, $.01 par value, 75,000,000 shares authorized; 28,479,837 and
    28,290,424 issued and outstanding at December 31, 2001 and
    December 31, 2000, respectively .................................................                284                 282
   Additional paid-in capital .......................................................            263,320             263,320
   Accumulated deficit ..............................................................           (268,306)           (125,542)
   Accumulated other comprehensive loss .............................................             (1,979)             (1,180)
                                                                                             -----------         -----------
          Total stockholders' (deficit) equity ......................................             (6,681)            136,880
                                                                                             -----------         -----------
                                                                                             $   975,362         $ 1,160,344
                                                                                             ===========         ===========
</TABLE>

                 The accompanying notes are an integral part of
                    these consolidated financial statements.


                                       30

<PAGE>
                         LODGIAN, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                                                         YEAR ENDED DECEMBER 31,
                                                                                ------------------------------------------
                                                                                  2001             2000            1999
                                                                                ----------      ----------      ----------
                                                                                   (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                                             <C>             <C>             <C>
Revenues:
  Rooms ...................................................................     $  328,852      $  422,475      $  424,530
  Food and beverage .......................................................         98,574         131,333         139,474
  Other ...................................................................         20,130          27,089          28,416
                                                                                ----------      ----------      ----------
      Total revenue .......................................................        447,556         580,897         592,420
                                                                                ----------      ----------      ----------

Operating expenses:
 Direct:
    Rooms .................................................................         91,415         119,159         114,590
    Food and beverage .....................................................         70,665          94,950         102,045
    Other .................................................................         12,202          16,829          17,312
General, administrative and other .........................................        192,526         223,232         223,856
Depreciation and amortization .............................................         62,545          64,794          59,317
Impairment of long-lived assets ...........................................         67,340          60,688          37,977
Write-off of goodwill .....................................................             --              --          20,748
Severance and restructuring expenses ......................................          2,309           1,502             500
                                                                                ----------      ----------      ----------
      Total operating expenses ............................................        499,002         581,154         576,345
                                                                                ----------      ----------      ----------
                                                                                   (51,446)           (257)         16,075

Other income (expenses):
  Interest income and other ...............................................            709           1,458           1,579
  Interest expense ........................................................        (75,326)        (97,306)        (77,409)
  Interest hedge break fee ................................................             --          (4,294)             --
  Acquisition-termination fees ............................................             --          (3,500)             --
 Gain on asset dispositions ...............................................         23,975             298           1,242
Minority interests:
  Preferred redeemable securities .........................................        (12,869)        (12,412)        (13,224)
  Other ...................................................................             38            (665)         (1,300)
                                                                                ----------      ----------      ----------
Loss before income taxes and reorganization items .........................       (114,919)       (116,678)        (73,037)
Reorganization items:
 Write-off of deferred financing costs ....................................        (21,517)             --              --
 Other reorganization items ...............................................         (3,499)             --              --
                                                                                ----------      ----------      ----------
Loss  before income taxes, reorganization items and .......................       (139,935)       (116,678)        (73,037)
 extraordinary items
(Provision) benefit  for income taxes .....................................         (2,829)         28,723          20,094
                                                                                ----------      ----------      ----------
Loss  before extraordinary item ...........................................       (142,764)        (87,955)        (52,943)
Extraordinary item:
        Loss on extinguishment of indebtedness, net of income
        tax  benefit of $4,914  in 1999 ...................................             --              --          (7,750)
                                                                                ----------      ----------      ----------
Net loss ..................................................................     $ (142,764)     $  (87,955)     $  (60,693)
                                                                                ==========      ==========      ==========
Loss per common share, basic and diluted:
       Loss before extraordinary item .....................................     $    (5.04)     $    (3.12)     $    (1.95)
       Extraordinary item .................................................             --              --           (0.28)
                                                                                ----------      ----------      ----------
       Net loss  per common share .........................................     $    (5.04)     $    (3.12)     $    (2.23)
                                                                                ==========      ==========      ==========
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                      31

<PAGE>

                         LODGIAN, INC. AND SUBSIDIARIES

            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY


<TABLE>
<CAPTION>
                                                                                       RETAINED      ACCUMULATED
                                                                      ADDITIONAL       EARNINGS         OTHER           TOTAL
                                                 COMMON     STOCK       PAID-IN      (ACCUMULATED   COMPREHENSIVE   STOCKHOLDERS'
                                                 SHARES     AMOUNT      CAPITAL         DEFICIT)         LOSS      EQUITY (DEFICIT)
                                               ----------   ------    -----------    ------------   -------------  ----------------
                                                                   (IN THOUSANDS, EXCEPT SHARE DATA)
<S>                                            <C>          <C>       <C>            <C>            <C>            <C>
Balance at December 31, 1998 ...........       27,937,057    $278       $261,976       $  23,106        $(1,593)       $ 283,767
   401(k) Plan contribution ............          143,160       2            547              --             --              549
   Exercise of stock options ...........           30,000       1            119              --             --              120
   Tax benefit from exercise of
      stock options ....................               --      --             20              --             --               20
   Director compensation ...............           20,108      --             98              --             --               98
   Net loss ............................               --      --             --         (60,693)            --          (60,693)
   Currency translation adjustments ....               --      --             --              --            681              681
                                                                                                                       ---------
   Comprehensive loss ..................               --      --             --              --             --          (60,012)
                                               ----------    ----       --------       ---------        -------        ---------
Balance at December 31, 1999 ...........       28,130,325     281        262,760         (37,587)          (912)         224,542
                                               ----------    ----       --------       ---------        -------        ---------
   401(k) Plan contribution ............          144,131       1            504              --             --              505
   Director compensation ...............           15,968      --             56              --             --               56
   Net loss ............................               --      --             --         (87,955)            --          (87,955)
   Currency translation adjustments ....               --      --             --              --           (268)            (268)
                                                                                                                       ---------
   Comprehensive loss ..................               --      --             --              --             --          (88,223)
                                               ----------    ----       --------       ---------        -------        ---------
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 ....               --      --             --              --           (799)            (799)
                                                                                                                       ---------
   Comprehensive loss ..................               --      --             --              --             --         (143,563)
                                               ----------    ----       --------       ---------        -------        ---------
Balance at December 31, 2001 ...........       28,479,837    $284       $263,320       $(268,306)       $(1,979)       $  (6,681)
                                               ==========    ====       ========       =========        =======        =========
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                       32

<PAGE>

                         LODGIAN, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                    YEAR ENDED DECEMBER 31,
                                                                           ---------------------------------------
                                                                             2001           2000            1999
                                                                           ---------      ---------      ---------
                                                                                      (IN THOUSANDS)
<S>                                                                        <C>            <C>            <C>
Operating activities:
  Net loss ..........................................................      $(142,764)     $ (87,955)     $ (60,693)
  Adjustments to reconcile net loss to net cash
   provided by operating activities:
    Depreciation and amortization ....................................        62,545         64,794         59,317
    Impairment of long-lived assets ..................................        67,340         60,688         37,977
    Write-off of goodwill ............................................            --             --         20,748
    Loss on extinguishment of indebtedness ...........................            --             --         12,664
    Deferred income tax benefit ......................................            --        (30,063)       (25,008)
    Minority interests ...............................................        12,831         10,014          1,300
    401 (k) plan contributions .......................................             2            505            549
    Compensation in stock issued to directors ........................            --             56             98
    Equity in income of unconsolidated entities ......................            --            (84)          (278)
    Gain on sale of assets ...........................................       (23,975)          (298)        (1,242)
    Write-off and amortization of deferred financing costs ...........        26,273          5,654          7,243
    Other ............................................................           561         (3,520)            --
    Changes in operating assets and liabilities, net of acquisitions:
        Accounts receivable ..........................................         8,135          5,896         (1,022)
        Inventories ..................................................           582          1,385             73
        Prepaid expenses and other assets ............................        (1,607)         1,013         30,462
        Accounts payable .............................................         2,277         (3,499)       (22,921)
        Accrued liabilities ..........................................        (2,818)        (1,704)         9,339
        Advance deposits .............................................           (83)          (530)        (1,415)
                                                                           ---------      ---------      ---------
Net cash provided by operating activities ............................         9,299         22,352         67,191
                                                                           ---------      ---------      ---------
Investing activities:
  Acquisitions of property and equipment .............................            --             --         (1,929)
  Capital improvements, net ..........................................       (28,844)       (78,716)      (118,925)
  Purchase of minority interests .....................................            --             --        (10,200)
  Proceeds from sale of assets, net ..................................        67,910        205,523         22,068
  (Deposits) withdrawals  for capital expenditures ...................        (1,808)        (2,184)        18,029
                                                                           ---------      ---------      ---------
Net cash provided by (used in) investing activities ..................        37,258        124,623        (90,957)
                                                                           ---------      ---------      ---------
Financing activities:
  Proceeds from borrowings on working capital revolver ...............        21,000         30,000             --
  Proceeds from issuance of long-term obligations ....................            --          2,326        487,521
  Proceeds from issuance of common stock .............................            --             --            120
  Principal payments on long-term obligations ........................       (58,954)      (163,868)      (448,220)
  Principal payments on working capital revolver .....................       (15,000)        (5,000)            --
  Payments of deferred loan costs ....................................          (598)        (3,300)       (18,479)
  Distributions to minority interests ................................            --           (775)        (1,717)
                                                                           ---------      ---------      ---------
Net cash (used in) provided by financing activities ..................       (53,552)      (140,617)        19,225
                                                                           ---------      ---------      ---------
Net (decrease) increase in cash and cash equivalents .................        (6,995)         6,358         (4,541)
Cash and cash equivalents at beginning of period .....................        21,002         14,644         19,185
                                                                           ---------      ---------      ---------
Cash and cash equivalents at end of period ...........................     $  14,007      $  21,002      $  14,644
                                                                           =========      =========      =========

Supplemental cash flow information:
Cash paid during the period for:
  Interest, net of amount capitalized ................................     $  73,131      $  88,247      $  69,574
                                                                           =========      =========      =========
  Income taxes, net of refunds .......................................     $     120      $     584      $   3,810
                                                                           =========      =========      =========
  Net non-cash debt reduction ........................................     $      --      $   1,656      $      --
                                                                           =========      =========      =========
Operating cash receipts and payments
 resulting from Chapter 11
 proceedings:
 Interest received ...................................................     $       3      $      --      $      --
 Professional fees paid ..............................................        (3,772)            --             --
 Other reorganization payments .......................................           (24)            --             --
                                                                           ---------      ---------      ---------
                                                                           $  (3,793)     $      --      $      --
                                                                           =========      =========      =========
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                       33

<PAGE>

                         LODGIAN, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2001


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

         On December 11, 1998, Servico, Inc. (Servico) merged with Impac Hotel
Group, LLC (Impac), pursuant to which Servico and Impac formed a new company
Lodgian, Inc. ("Lodgian" or the "Company"). This transaction (the "Merger") was
accounted for under the purchase method of accounting, whereby Servico was
considered the acquiring company.

         As of December 31, 2001, Lodgian, its wholly owned subsidiaries and
consolidated joint ventures (collectively, the "Company"), owned or managed 106
hotels in 32 states and Canada. At December 31, 2000, the Company owned or
managed 113 hotels.

Principles of Consolidation

         The financial statements consolidate the accounts of Lodgian, its
wholly-owned subsidiaries and four joint ventures in which Lodgian exercises
control. Lodgian believes it has control of the joint ventures when the Company
manages and has control of the joint venture's assets and operations, has the
ability and authority to enter into financing agreements on behalf of the entity
or to sell the assets of the entity within reasonable business guidelines. An
unconsolidated entity (owning 1 hotel) is accounted for on the equity method.
All significant intercompany accounts and transactions have been eliminated in
consolidation.

Inventories

         Inventories consist primarily of food and beverage, linens, china,
tableware and glassware and are valued at the lower of cost (computed on the
first-in, first-out method) or market.

Minority Interests--Other

         Minority interests represent the minority interests' proportionate
share of equity of joint ventures that are accounted for by the Company on a
consolidated basis. The Company generally allocates to minority interests their
share of any profits or losses in accordance with the provisions of the
applicable agreements. However, if the loss applicable to a minority interest
exceeds its total investment and advances, such excess is charged to the
Company.

Minority Interests--Preferred Redeemable Securities

         Minority interests-preferred redeemable securities, represents
Convertible Redeemable Equity Structure Trust Securities ("CRESTS"). The CRESTS
bear interest at 7% and are convertible into shares of the Company's common
stock. For further discussion of The CRESTS, see Note 7.

Property and Equipment

         Property and equipment is stated at cost, less reserves for impairment,
where applicable. Capital improvements are capitalized when they extend the
useful lives of the related asset. All repair and maintenance items are expensed
as incurred. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. Property under capital leases is amortized
using the straight line method over the shorter of the estimated useful lives of
the assets or the lease term.


                                       34

<PAGE>

         The Company capitalizes interest costs incurred during the renovation
and construction of capital assets. During the years ended December 31, 2001,
2000 and 1999, the Company capitalized $861,000, $747,000, and $8,428,000 of
interest, respectively.

         Management periodically evaluates the Company's property and equipment
to determine if there has been any impairment in the carrying value of the
assets in accordance with Financial Accounting Standards Board Statement
("SFAS") 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." SFAS 121 was superceded by SFAS 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" effective
January 1, 2002 (see Recent Accounting Pronouncements below). SFAS 121 requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount.
Impairment losses for assets held for sale are recognized when the assets'
carrying values are greater than the fair value less estimated selling costs.
See Note 5 for further discussion of the Company's charges for asset impairment.

Goodwill

         Goodwill was being amortized over twenty years. Impairment of
enterprise level goodwill arising from the Merger was accounted for under the
market value method. All of the goodwill arising from the Merger was written of
in 1999.

Deferred Costs

         Deferred franchise and other deferred costs of $2,360,000 and
$3,320,000 at December 31, 2001 and 2000, respectively, are included in other
assets, net of accumulated amortization. Deferred financing costs were all
written off during 2001 and are included in reorganization items since the
related debt is subject to compromise in accordance with the Company's
bankruptcy petition. Deferred financing costs, net at December 31, 2000 was
$26,645,000. Deferred franchise and other costs are amortized using the
straight-line method over the terms of the related franchise or other
agreements, while deferred financing costs were being amortized using the
interest method over the related term of the debt.

Cash and Cash Equivalents

         The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents.
Restricted cash consists of amounts reserved for capital improvements, debt
service, taxes and insurance.

Fair Values of Financial Instruments

         The fair values of current assets and current liabilities are assumed
equal to their reported carrying amounts. The fair values of the Company's
long-term debt are estimated using discounted cash flow analyses, based on the
Company's current incremental borrowing rates for similar types of borrowing
arrangements. In the opinion of management, the carrying value of long-term debt
approximates market value as of December 31, 2001 and 2000. Quoted market prices
were not readily available for the CRESTS. Management estimates the fair market
value of the Company's CRESTS at December 31, 2001 to be $11.8 million (based on
informal quotes of between 5% to 7% of face value) compared with $53.4 million
at December 31, 2000. Management has estimated the fair market value of the
Company's Senior Subordinated notes at December 31, 2001 to be $87 million
(based on quoted market prices at December 31, 2001) compared with $184 million
at December 31, 2000.

Concentration of Credit Risk

         Concentration of credit risk associated with cash and cash equivalents
is considered low due to the credit quality of the issuers of the financial
instruments held by the company and due to their short duration to maturity.
Accounts receivable are primarily from major credit card companies, airlines and
other travel related companies. The Company performs ongoing evaluations of its
significant customers and generally does not require collateral. The Company
maintains an allowance for doubtful accounts at a level which management
believes is sufficient to cover potential credit losses. At December 31, 2001
and 2000, these allowances were $1,237,000 and $1,400,000, respectively.


                                       35

<PAGE>

Earnings Per Common and Common Equivalent Share

         The Company adopted SFAS 128 "Earnings Per Share" effective for the
year ended December 31, 1998. Basic earnings per share is calculated based on
the weighted average number of common shares outstanding during the periods and
include common stock contributed by the Company to its employees 401(k) Plan
(the "401(k)"). Dilutive earnings per common share include the Company's
outstanding stock options and shares convertible under the Company's CRESTS, if
dilutive. See Note 11 for computation of basic and diluted earnings per share.

Stock Based Compensation

         The Company grants stock options for a fixed number of shares to
employees with an exercise price equal to the fair value of the shares at the
date of grant. The Company accounts for stock option grants in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25) and related interpretations. Under APB 25, because the
exercise price of the Company's employee stock options is equal to the market
price of the underlying stock on the date of grant, no compensation expense is
recognized. Under SFAS 123, "Accounting for Stock-Based Compensation",
compensation cost is measured at the grant date based on the value of the award
and is recognized over the service (or vesting) period.

         The Financial Accounting Standards Board issued an interpretation of
APB 25 (the "Interpretation") in March 2000. One of the key areas affected by
the interpretation is the accounting for stock option repricings. The
interpretation is applied prospectively to transactions that occur after
December 15, 1998 commencing on the effective date of July 1, 2000.

         The Interpretation requires that once an option granted to an employee
is repriced, that option would be accounted for as if it were a variable plan,
giving rise to compensation expense for the subsequent changes in stock price,
from the date the option is repriced to the date it is exercised. Under the
interpretation, no compensation expense is recorded on the date of the
repricing. However, compensation expense is recorded quarterly through the date
of exercise to the extent that the fair market value of the common stock is in
excess of the exercise price of the options adjusted for the repricing. The
interpretation requires, in measuring compensation expense, the use of the
higher of the repriced exercise price of the options or the fair market value of
the stock on the date the interpretation is effective. On December 18, 1998, the
Company repriced options totaling 997,800, net of forfeitures, that were subject
to these requirements. There was no impact on the Company's operating results
for the years ended December 31, 2001 and 2000.

Revenue Recognition

         Revenues are recognized when the services are rendered. Revenues are
composed of rooms, food and beverage and other revenues. Room revenues are
derived from guest room rentals, whereas food and beverage revenues primarily
include sales from hotel restaurants, room service and hotel catering. Other
revenues include charges for guests' long-distance telephone service, laundry
service and use of meeting facilities.

Advertising Expense

         The cost of advertising is expensed as incurred. The Company incurred
$2,684,000, $3,492,000 and $3,997,000 in advertising cost during 2001, 2000 and
1999, respectively.

Foreign Currency Translation

         The financial statements of foreign subsidiaries have been translated
into U.S. dollars in accordance with SFAS 52 "Foreign Currency Translation." All
balance sheet accounts have been translated using the exchange rates in effect
at the balance sheet dates. Income statement amounts have been translated using
the average rate for the year. The gains and losses


                                       36

<PAGE>

resulting from the changes in exchange rates from year to year have been
reported in other comprehensive income. The effects on the statements of
operations of transaction gains and losses is insignificant for all years
presented.

Business Segments

         The Company's only business segment is the ownership and management of
hotels.

Use of Estimates

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

New Accounting Pronouncements

         In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes
accounting and reporting standards for derivative instruments embedded in other
contracts, and derivatives used for hedging purposes. SFAS No. 133 requires that
entities recognize all derivative financial instruments as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. SFAS No. 133 as amended by SFAS No. 137 and 138, was adopted by
the Company in the first quarter of 2001. The adoption had no impact on the
Company's financial statements.

         In June 2001, SFAS No. 141, "Business Combinations" (effective for
transactions initiated after June 30, 2001) and SFAS 142 "Goodwill and other
Intangible Assets" (effective for fiscal years beginning after December 15,
2001) were issued. SFAS No. 141 prohibits pooling-of interests accounting for
acquisitions. SFAS No. 142 specifies that goodwill and some intangible assets
will no longer be amortized but instead will be subject to periodic impairment
testing. SFAS No. 141 was adopted by the Company in the third quarter of 2001.
The adoption had no impact on the Company's financial statements. SFAS No. 142,
which will be implemented in January 2002, is also expected to have no impact on
the Company's financial statements.

         In August 2001, SFAS No. 143, "Accounting for Asset Retirement
Obligations," (effective for fiscal periods commencing after June 15, 2002) was
issued. SFAS No. 143 requires that entities recognize the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred if a reasonable estimate of fair value can be made. We believe that the
adoption of SFAS No. 143 will not have a significant impact on our financial
statements.

         In August 2001, SFAS No. 144 "Accounting for the Impairment or Disposal
of Long-Lived Assets," (effective for fiscal periods commencing December 15,
2001) was issued. SFAS No. 144 addresses financial accounting and reporting for
the impairment of long-lived assets and for long-lived assets to be disposed
of. The statement supersedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and among other
factors, establishes criteria beyond that previously specified in SFAS No. 121
to determine when long-lived asset is to be considered held for sale. We
currently believe that the implementation of SFAS No. 144 will require
operating results of real estate assets sold to be included in discontinued
operations in the statements of operations. We believe that the impairment
provisions of SFAS No. 144 are similar to SFAS No. 121 and that the adoption
thereof will not have a significant impact on our financial statements.

           Reclassifications

         Certain reclassifications have been made to prior year financial
statements in order to conform to the current year presentation.


                                       37

<PAGE>


2. BANKRUPTCY FILING AND GOING CONCERN MATTERS

         On December 20, 2001, the Company and eighty one of its subsidiaries
filed for voluntary reorganization with the United States Bankruptcy Court for
the Southern District of New York under Chapter 11 of the Bankruptcy Code (the
"Chapter 11 Cases"). The Chapter 11 Cases have been consolidated for purposes of
administration under case number 01-16345. The filing was precipitated by the
weaker US economy, the decline in travel since the events of September 11 and
the Company's heavy debt load. The Debtors are currently operating their
businesses as debtors-in-possession and are subject to the jurisdiction of the
Bankruptcy Court while a reorganization plan is being formulated.

         All operating subsidiaries of the Company are included in the Chapter
11 Cases except for two subsidiaries each owning one hotel. The Chapter 11 Cases
also exclude 66 non-operating subsidiaries of the Company. The assets and
liabilities of the operating and non-operating subsidiaries excluded from the
Chapter 11 cases are as follows (amounts in thousands):

<TABLE>
                   <S>              <C>
                   Assets           $ 20,639

                   Liabilities      $(35,309)
</TABLE>

         As a result of the Chapter 11 filing, the Company is prohibited from
paying pre-petition claims (unless these are approved by the courts) and
creditors are prohibited from attempting to collect loans or debts arising prior
to December 20, 2001. The Company, at its option, may assume or reject contracts
entered into prior to the date of filing. Rejected contracts entered into prior
to the date of the petition would be treated as unsecured claims.

         The Company has received approval from the Bankruptcy Court to pay pre
and post-petition employee wages, salaries, benefits and other employee
obligations. The Bankruptcy Court also approved orders granting the debtors
authority to pay, among other things, certain pre-petition claims of its
critical service vendors. The Company has been and intends to continue to pay
its post-petition obligations arising in the ordinary course of business.

         The Debtors have received debtor-in-possession financing of $25 million
from a group of lenders led by Morgan Stanley Funding Inc. and Lehman Brothers
Inc. The DIP facility, along with the rights of the Debtor to use the cash
collateral of these lenders expires one year from the date of filing or the
effective date of the reorganization plan, whichever is earlier. This financing
will allow the Company to operate in the normal course during the bankruptcy
proceedings.

         As of March 22, 2002, the Debtor had not yet filed its plan of
reorganization with the Bankruptcy courts but management believes that the Plan
will result in most unsecured claims being settled for less than 100% of their
face value and that the interests of the common stock holders will be
significantly diluted.

GOING CONCERN

         The accompanying consolidated financial statements have been prepared
on a going concern basis of accounting and do not reflect adjustments that might
result if the Company is unable to continue as a going concern. The Company's
recent losses and the Chapter 11 Cases, raise substantial doubt about the
Company's ability to continue as a going concern. The ability of the Company to
continue as a going concern and the appropriateness of using the going concern
basis is dependent upon, among other things, (i) the Company's ability to comply
with the debtor-in-possession financing (DIP Facility) agreements, (ii) the
Company's ability to obtain financing upon expiration of the DIP Facility, (iii)
confirmation of a plan of reorganization under the Bankruptcy Code; (iv) the
Company's ability to achieve profitable operations after such confirmation, and
(v) the Company's ability to generate sufficient cash from operations to meet
its obligations. In addition, the Company's debtor-in-possession financing
agreements expire in December 2002; there can be no assurance that the Company
will be successful in obtaining confirmation of a plan of reorganization by
December 2002 and, if not, there can be no assurance that the existing
debtor-in-possession lenders will agree to continue to provide
debtor-in-possession financing.


                                       38

<PAGE>
         The consolidated financial statements do not include any adjustments
relating to recoverability and classification of recorded asset amounts or the
amount and classification of liabilities that might be necessary should the
Company not be able to continue as a going concern.

         A plan of reorganization could materially change the amounts currently
recorded in the consolidated financial statements. The consolidated financial
statements do not give effect to any adjustments to the carrying value of assets
or amounts and classifications of liabilities that might be necessary as a
result of the Chapter 11 Cases.


                                       39

<PAGE>

3. ACCOUNTING DURING REORGANIZATION PROCEEDINGS

         The Company continues to apply generally accepted accounting principles
in the preparation of its consolidated financial statements while in Chapter 11.
However, in accordance with the American Institute of Certified Public
Accountants' Statement of Position 90-7 - "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code" (SOP 90-7): 1) the consolidated
financial statements distinguish transactions and events that are directly
associated with the reorganization from the ongoing operations of the business;
2) the Company's consolidated balance sheets segregate liabilities subject to
compromise from liabilities not subject to compromise; and 3) where the
underlying collateral in respect of certain debt is considered to be less than
the debt obligation, the Company ceased accruing interest on those debts.

         Management believes that 29 of its hotels are significantly
overleveraged in that the estimated fair value of these hotels does not exceed
the outstanding debt on these hotels. Therefore, with the approval of the
Bankruptcy Court, the Company ceased paying interest to the secured lenders of
these properties from the date of the bankruptcy petition. With respect to the
remaining 75 hotels that are in Chapter 11, management presently believes the
value of these hotels exceeds the outstanding debt on these properties.
Accordingly, with the approval of the Bankruptcy Court, the Company agreed to
pay interest on these debts. However, while the Company is in Chapter 11, the
value of these properties may be adversely affected by changes in the economy,
changes in the hospitality industry, actions taken or that may be taken by the
franchisors, and the Company's ability to obtain exit financing and achieve a
consensual plan of reorganization. Furthermore, management believes that the
significant terms of these debts could also be compromised as a result of the
Chapter 11 Cases. Accordingly, management considers that all of its secured debt
is subject to compromise and is classified as liabilities subject to compromise
in the accompanying balance sheet at December 31, 2001.

Liabilities subject to compromise

         Liabilities subject to compromise refers to known liabilities incurred
prior to the commencement of the Chapter 11 Cases, including those considered by
the Bankruptcy Court to be pre-petition claims. These liabilities consist
primarily of amounts outstanding under long-term debt and also include accounts
payable, accrued interest, and other accrued expenses. These amounts represent
the Company's estimate of known or potential claims to be resolved in the
Chapter 11 Cases. Such claims remain subject to future adjustments. Adjustments
may result from (1) negotiations; (2) actions of the Bankruptcy Court; (3)
further development with respect to disputed claims; (4) proofs of claim; or (5)
other events. Payment terms for these amounts will be established under a plan
of reorganization.

         The principal categories of claims classified as liabilities subject to
compromise in the Chapter 11 Cases as of December 31, 2001, are identified
below: (amounts in thousands)

<TABLE>
<S>                                                                                                   <C>
Long-term debt and capital lease obligations                                                          $485,774
Senior subordinated Notes (including related accrued interest)                                         210,549
Minority interest - preferred redeemable securities (including related accrued interest) - CRESTS      197,218
Accounts payable                                                                                        22,698
Accrued liabilities (including accrued interest of $1,027)                                               9,655
                                                                                                      --------
                                                                                                      $925,894
                                                                                                      ========
</TABLE>

Summary of Reorganization Items

         The results for the year ended December 31, 2001 include charges which
relate to the reorganization process and the Chapter 11 Cases. The table below
summarizes these reorganization charges (amounts in thousands):

<TABLE>
              <S>                                           <C>
              Write-off of deferred financing costs         $ 21,517
                                                            --------
              Other reorganization items:
                 Legal and professional fees                   3,179
                 Other                                           320
                                                            --------
                                                               3,499
                                                            --------
                                                            $ 25,016
                                                            ========
</TABLE>


                                       40

<PAGE>

4. STRATEGIC PLANS PRIOR TO CHAPTER 11 FILING

         At the end of 1999, the Company adopted strategic plans to reduce the
size of the Company's non-core hotel portfolio and in 2000, adopted a strategic
plan to reduce the level of overall debt.

         With regard to this strategic plan to reduce the size of the Company's
non-core hotel portfolio and reduce the level of overall debt, the Company sold
twenty-five hotel properties and four other assets between January 1, 2000 and
December 31, 2001. The gross sales price of these twenty-nine properties was
$285.3 million while the reduction of debt was $216.6 million.

5. PROPERTY AND EQUIPMENT

         At December 31, 2001 and 2000, property and equipment consisted of the
following:

<TABLE>
<CAPTION>
                                                                                       USEFUL
                                                                                        LIVES
                                                                                       (YEARS)     2001          2000
                                                                                       ------------------------------
                                                                                                    (IN THOUSANDS)
         <S>                                                                            <C>          <C>     <C>
         Land...................................................................           --   $  116,434   $   127,749
         Buildings and improvements.............................................        10-40      849,549       920,351
         Furnishings and equipment..............................................         3-10      190,081       212,936
                                                                                               -----------   -----------
                                                                                                 1,156,064     1,261,036
         Less accumulated depreciation and amortization.........................                  (249,882)     (206,599)
         Construction in progress...............................................                     7,786         4,611
                                                                                               ----------    -----------
                                                                                                $  913,968   $ 1,059,048
                                                                                               ===========   ===========
</TABLE>

         Included in property and equipment at December 31, 2000 is $39.8
million (10 properties) related to properties identified as held for sale at
December 31, 2000. As discussed in Note 4, the Company had previously adopted
strategic plans to reduce the size of the Company's non-core hotel portfolio and
reduce the level of overall debt of the Company. In this regard, in 1999 and
2000, the Company had identified certain properties as held for sale to meet
these objectives. At December 31, 2001, no properties were identified as held
for sale. All previously identified properties were either sold during 2001 (5
properties) or were no longer classified as held for sale (5 properties). With
the filing of bankruptcy, the Company is no longer actively marketing any of its
hotels for sale. With regard to the properties no longer classified as held for
sale, the Company recorded additional depreciation expense totaling $4.8 million
in 2001 and $1.6 million in 2000.

         During 2001, the Company sold six properties for gross sales price of
$76.5 million. The gain on the sale was $24.0 million which arose mainly from
one hotel (Westin William Penn).

         The Company has evaluated the recoverability of its long-lived assets
in accordance with SFAS 121 as of December 31, 2001 and has recorded impairment
losses for assets held for use, where the estimated future undiscounted cash
flows were insufficient to recover the carrying value of those assets. However,
as a result of the filing of the Chapter 11 Cases, the Company may ultimately
sell or otherwise dispose of its hotel assets for amounts less than the carrying
value of these assets and future actions by the Company, its creditors or the
Bankruptcy Court could adversely impact the Company's ability to hold its assets
for periods sufficient for it to recover the carrying value of its assets on an
undiscounted cash flow basis. As a result, the Company could recognize
impairment losses in future periods.

         Impairment of long-lived assets was $67.3 million in 2001, $60.7
million in 2000 and $38.0 million in 1999. The charge for the 2001 period was
comprised of $6.6 million related to revised estimates of fair value for
properties held for sale, $4.0 million related to one property which was
identified as held for sale and also sold in 2001 and $69.0 million


                                       41

<PAGE>


relating to a charge to reduce the carrying value of certain of the Company's
hotels held for future use, offset by a recapture of $12.3 million of impairment
charges related to six hotels that were previously considered held for sale that
were no longer being actively marketed for sale. Of the impairment charges in
the 2001 period, $69.0 million of the impairment charges and the recapture of
$8.5 million of previously recognized impairment reserves were recorded in the
fourth quarter. In connection with its bankruptcy petition on December 20, 2001,
the Company determined that 29 of its hotels were significantly overleveraged in
that the estimated fair value of these hotels did not exceed the outstanding
debt on these hotels. Therefore, with the approval of the Bankruptcy Court, the
Company ceased paying interest to the secured lenders of these properties from
the date of the bankruptcy petition. The Company also concluded that it no
longer had the ability to hold these hotels for a period sufficient for their
estimated future undiscounted cash flows to cover their carrying values.
Therefore in accordance with the provisions of FAS 121, the Company determined
that an impairment charge of $69 million was necessary to reduce the carrying
value of these assets. In connection with the bankruptcy petition, the Company
also ceased marketing for sale, four operating properties that were previously
classified as held for sale. Since these assets were not considered impaired as
the estimated future cash flows from the use of these properties exceeded their
carrying values, the Company recaptured $8.5 million of impairment reserves
previously recorded in 1999, 2000 and 2001. Impairment charges for 2000
comprised $11.3 million related to revised estimates of fair value for
properties held for sale at December 31, 1999, $3.5 million related to one
property held for use, $56.6 million related to the ten hotels sold to Sunstone
Investors, LLC on August 31, 2000, net of a recapture of $10.7 million of
impairment charges recorded in 1999 and 2000 as seven hotels previously
considered held for sale as of December 31, 1999 were no longer being actively
marketed for sale. The impairment charge for 1999 was $38.0 million,
representing a reduction in the carrying value of hotels the Company had
targeted for sale, pursuant to the Company's previous strategy to reduce the
number of non-core hotels in its portfolio.

         The following unaudited pro forma results of operations for 2000 and
1999 are presented as if the Company had completed the sale of the ten hotels to
Sunstone Investors LLC, discussed above, as of January 1, 1999. In management's
opinion, all adjustments necessary to reflect the effect of this transaction
have been made. These unaudited pro forma results of operations are not
necessarily indicative of what the actual results of operations would have been
for the years ended December 31, 2000 and 1999, nor do they purport to represent
the results of operations for future periods.

         No pro forma balance sheet is presented as the effects of the
transaction are reflected in the accompanying consolidated balance sheet as of
December 31, 2000.

<TABLE>
<CAPTION>
                                                                                                   2000          1999
                                                                                                   ------------------
                                                                                               (UNAUDITED; IN THOUSANDS,
                                                                                                EXCEPT PER SHARE DATA)

<S>                                                                                            <C>          <C>
Total revenues..........................................................................       $   543,310  $   550,591
Net loss before extraordinary item......................................................           (51,465)     (51,267)
Net loss after extraordinary item.......................................................           (51,465)     (59,017)
Net loss per common share, before extraordinary item, basic and diluted.................             (1.83)       (1.89)
Net loss per common share, basic and diluted............................................             (1.83)       (2.17)
</TABLE>

         Summary results of operations included in the Statement of Operations
with respect to the properties identified as held for sale at December 31, 2000
are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                             YEAR ENDED
                                                                                             DECEMBER 31,
                                                                                                2000
<S>                                                                                          <C>
Revenues .............................................................................       $  24,198
                                                                                             =========
Loss before income taxes..............................................................       $  (3,787)(1)
                                                                                             =========
</TABLE>
------------------------

(1)      Includes impairment charges of $8.8 million.


                                       42

<PAGE>

6. OTHER ACCRUED LIABILITIES

         At December 31, 2001 and 2000, other accrued liabilities consisted of
the following:

<TABLE>
<CAPTION>
                                                                                                   2001          2000
                                                                                                   ------------------
                                                                                                    (IN THOUSANDS)

         <S>                                                                                   <C>          <C>
         Salaries and related costs.....................................................       $    13,105  $    15,874
         Property and sales taxes.......................................................            16,518       13,649
         Professional fees..............................................................             1,048        1,289
         Other..........................................................................             7,742        6,391
                                                                                               -----------  -----------
                                                                                                    38,413       37,203
         Less amounts included in liabilities subject to compromise.....................            (8,628)          --
                                                                                               -----------  -----------
                                                                                               $    29,785  $    37,203
                                                                                               ===========  ===========
</TABLE>

7. OTHER LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS AND PREFERRED REDEEMABLE
   SECURITIES

         Long-term obligations consisted of the following at December 31:

<TABLE>
<CAPTION>
                                                                                                   2001          2000
                                                                                                   --------    ------
                                                                                                    (IN THOUSANDS)
         <S>                                                                                   <C>           <C>
         Mortgage notes payable with interest at LIBOR plus 5.75%.
            (See Senior Secured Loan Credit Facility description below)
            the notes are payable through 2005..........................................       $   189,625  $   195,219
         Credit facilities with interest at LIBOR plus 2.75% maturing 2003. (See
            description of August 31, 2000 amendment below).............................           108,652      108,652
         Mortgage notes with an interest rate of 9.65% maturing 2002....................            54,565       54,565
         Mortgage notes with fixed rates ranging from 7.9% to 10.7% payable through 2010           113,651      139,346
         Senior Subordinated Notes payable with interest at 12.25% due in 2009..........           200,000      200,000
         Revolving credit facility with interest at LIBOR plus 5.75%, maturing 2004.....             6,000       25,000
         Other..........................................................................            28,651       31,099
                                                                                               -----------  -----------
                                                                                                   701,144      753,881
         Less current portion of long-term obligations..................................            (7,717)     (79,843)
         Less obligations included in "liabilities subject to compromise"...............          (685,775)          --
                                                                                               -----------  -----------
                                                                                               $     7,652  $   674,038
                                                                                                ==========  ===========
</TABLE>

         The Company has received debtor-in-possession financing of $25 million
from a group of lenders led by Morgan Stanley Funding Inc. and Lehman Brothers
Inc. The DIP facility along with the rights of the debtors to use the cash
collateral of these lenders expires one year from the filing or the effective
date of the reorganization plan, whichever is earlier.

         Under the DIP facility, the Company has the option to borrow at either
base rates plus 2.5% or at LIBOR plus 3.5%. As of March 22, 2002, the Company
had not borrowed from the facility but had issued one letter of credit totaling
$750,000 against it.

         In addition, the Company believes that the underlying collateral on
certain of its debt is less than the principal obligation outstanding.
Therefore, in accordance with SOP 90-7, the Company has ceased accruing interest
on these debts as well as the Senior Subordinated Notes and the CRESTS.
Contractual interest not accrued at December 31, 2001 amounted to $1.3 million
including interest on the Senior Subordinated Notes and the CRESTS.


                                       43

<PAGE>

         Substantially, all the Company's property and equipment are pledged as
collateral for long-term obligations of which approximately $497 million has
been guaranteed by Lodgian, Inc. Certain of the mortgage notes are subject to a
prepayment penalty if repaid prior to their maturity.

         In June 1998, the Company issued $175 million of CRESTS. The CRESTS
bear interest at 7% and are convertible into shares of the Company's common
stock at an initial conversion price of $21.42 per share. The sale of CRESTS
generated $168.5 million in net proceeds, substantially, all of which were used
to repay existing debt prior to maturity. Payment restrictions contained in the
Company's Notes allowed the Company to defer the dividend payments on the CRESTS
beginning June 30, 2000. Pursuant to the terms of the agreement, the Company has
the right to defer the dividend payment for up to twenty quarters. The Company
does not anticipate resumption of the quarterly dividend payment on the CRESTS
in the near future.

         On July 23, 1999, the Company sold $200 million of 12.25% Senior
Subordinated Notes due in 2009 (the "Notes"). In addition, the Company entered
into a new, multi-tranche Senior Secured loan credit facility. The facility
consisted of development loans with a maximum capacity of $75 million (the
tranche A and C loans), a $240 million tranche B term loan and a $50 million
revolving facility. The tranche A and C loans were to be used for hotel
development projects. At December 31, 1999, $238.8 million was outstanding on
the tranche B term loan and no amounts were outstanding from the tranche A and C
portion of the loan credit facility. The tranche B loan, along with the proceeds
from the Notes, were used to repay a substantial portion of the financing
entered into to consummate the Merger and, in September 1999, a $132.5 million
loan, part of the credit facilities.

         The Company was unable to deliver its 1999 annual audited and March 31,
and June 30, 2000 quarterly unaudited financial statements to its Senior Secured
loan facility lenders on a timely basis. The Company received a waiver for the
late delivery of these financial statements and the time period for delivery of
quarterly 2000 financial statements was extended. In addition, on July 31, 2000,
the Company entered into an amendment to its Senior Secured loan credit facility
which provided for a 0.5% increase in the interest rate, termination of the
tranche A facility which reduced the maximum credit facility by $25 million and
provided for additional amortization payment requirements for tranche B term
loans of (i) $25 million on or prior to December 31, 2000, (ii) an additional
$35 million on or prior to June 30, 2001 and (iii) an additional $40 million on
or prior to December 31, 2001. Prior to the amendment, amortization payment
requirements were effectively 1% per year of the outstanding tranche B term
loans during that period. The amendment also modified various covenants and
coverage ratios. The amendment provided for immediate access to the $25 million
unused portion of the revolving credit facility and provided increased
flexibility for the sale of hotel assets. The Company paid an amendment fee of
approximately $1.4 million. The Company paid the $25 million required
amortization payment due December 31, 2000, the $35 million required
amortization payment due June 30, 2001, and $4 million of the $40 million due
December 31, 2001.

         On August 31, 2000, in conjunction with the sale of nine hotels,
principally located in the Western United States, the Company and the lenders
amended the terms of the credit facilities. Under this amendment, two former
credit facilities were amended into one new facility and the Company paid down
approximately $106.2 million of the debt with proceeds from the sale, extended
the maturity date to September 2003 after considering a one year option to
extend and converted the remaining balance owed, approximately $108.7 million,
to a floating rate facility. In addition, the Company paid approximately $4.3
million to "break" the interest rate lock agreement on $54 million related to
this debt.

         With regard to the mortgage notes with an interest rate of 9%, on
August 31, 2000 the Company sold one hotel, located in the western United
States, securing this facility and used the proceeds to reduce principal, pay
origination and extension fees of approximately $1.9 million, and exercised its
option to extend the maturity date to November 2002 from November 2000.

         On May 15, 2001, the Company and the lenders of its Senior Secured Loan
Credit Facility reached an agreement to amend that facility. Prior to the
amendment, the Company would have been in violation of two financial covenant
ratios based on its first quarter 2001 operating results. The amendment
increased the interest rate spread (which was then LIBOR plus 4.25%) by 25 basis
points in each month from August 2001 to February 2002 up to a maximum of LIBOR
plus 6.00% until maturity. The amendment also provided that the interest rate
spread would increase an additional 25 basis points up to a


                                       44

<PAGE>

maximum of LIBOR plus 6.00% if the Company's debt was downgraded by a rating
agency subsequent to the amendment date (the downgrade occurred in May 2001). In
addition, the interest rate spread would decrease 50 basis points for each
aggregate $60.0 million of principal reductions made subsequent to the amendment
date as long as the Company was in compliance with certain financial coverage
ratios. The amendment also required additional amortization payments on the
tranche B term loans of $7.5 million on April 30, 2002, June 30, 2002, September
30, 2002 and December 31, 2002, respectively. The amendment also modified
various covenants and financial coverage ratios. The Company paid an amendment
fee of $565,000 on the date of the amendment. In addition, on the amendment
date, $25.0 million of the outstanding balance on the working capital revolver
was converted to the tranche B term loan, thereby reducing the commitment on the
working capital revolver to $25.0 million as of May 15, 2001.

         Based on its third quarter 2001 results, the Company was not in
compliance with the financial covenants related to its Senior Secured Loan
Credit Facility, on which, as of November 14, 2001 the Company had outstanding
borrowings of $192.6 million. However, on November 13, 2001, the Company reached
an agreement with the lenders of the facility with respect to the financial
covenant violations, pursuant to which the senior lenders agreed to forbear from
the exercise of their default-related remedies against the Company until
December 31, 2001 (unless an additional event of default occurred earlier). The
forbearance agreement also reduced the commitment on the working capital
revolver from $25.0 million to $13.4 million leaving the Company $3.0 million of
unused availability on the working capital revolver portion of the senior
facility. The forbearance agreement also required that the remaining $3.0
million be used only to pay the interest in respect of the senior facility. The
Company also did not make the remaining $36.0 million of required special
amortization payments to its senior lenders due December 31, 2001. As of
December 31, 2001, the Company had outstanding borrowings on the Senior Secured
Loan Credit Facility of $195.6 million.

         In addition, the Company did not make the $12.3 million interest
payment due January 15, 2002 to the holders of the Company's Senior Subordinated
Notes. In addition, as a result of the events of default with respect to its
Senior Secured Loan Facility, the Company's Senior Subordinated Notes and the
CRESTS were also in default due to cross-default provisions in those agreements.

         On May 20, 2001, promissory notes of approximately $3.9 million secured
by the pledge of 100% of the ownership interests of Macon Hotel Associates,
L.L.C. ("MHA") were due. The Company owns a 60% controlling interest in MHA.
MHA's sole asset is the Crowne Plaza Hotel located in Macon, Georgia. MHA did
not make this payment on May 20, 2001. MHA is in discussions with the note
holders with respect to the default. MHA has made significant progress in its
negotiations with the note holders and hopes to have the default cured by the
second quarter of 2002. During the first quarter of 2001, the Company recorded
an impairment charge of $2.2 million to reduce the carrying value of the hotel
to the outstanding debt balance, which includes the promissory notes discussed
above and a $7.8 million first mortgage. Based on the estimated sales price of
the property, which approximates the amount of the debt outstanding, there will
not be any remaining net proceeds available for MHA. MHA was not included in the
entities which filed for reorganization under Chapter 11.

         During the fourth quarter of 2001, the lenders of a $108.7 million
credit facility with certain subsidiaries of the Company, notified the Company
of a default under the loan agreement and called upon the Company to honor the
guarantee it made in relation to this debt. On December 20, 2001, prior to the
resolution of this matter, the Company filed for bankruptcy under Chapter 11.

         As a result of the Chapter 11 Cases, the Company is technically in
default of its debt agreements with the exception of certain debt of the
Company's joint ventures that were not included in the bankruptcy petition. All
of the Company's pre-petition debt, with the exception of the debt of the joint
ventures, are recorded in liabilities subject to compromise in the balance sheet
as of December 31, 2001.

         The Company is subject to certain property maintenance and quality
standard compliance requirements under its franchise agreements. The Company
periodically receives notifications from its franchisors of events of
noncompliance with such agreements and may continue to receive notifications if
the liquidity and cash constraints of the Company limit its ability to comply
with its franchise agreements. In the past, management has cured most cases of
noncompliance within the applicable cure periods and the events of noncompliance
did not result in events of default under the respective loan


                                       45

<PAGE>

agreements. However, in selected situations, as warranted, based on economic
evaluations, management may elect to not comply with the franchisor
requirements. In such situations, the Company will either select an alternative
franchisor or operate the property independent of any franchisor. As a result of
the Company's petition for bankruptcy, the Company is technically in default of
its franchise agreements. However, due to the automatic stay of proceedings, the
franchisors are prohibited from proceeding with certain actions absent approval
from the Bankruptcy Courts. Were the automatic stay, in respect of these
franchise agreements, to be lifted, this could negatively impact operating
results and the value of the Company's hotels.

         As discussed in Note 4, the Company previously adopted strategic plans
to reduce the size of the Company's non-core hotel portfolio and reduce the
overall level of debt. With regard to these strategic plans, the Company sold
twenty-five hotel properties and four other assets during 2000 and 2001. Gross
sales price of these twenty-nine properties was $285.3 million while the
reduction of debt was $216.6 million. The balance was used primarily to support
capital expenditures related to major renovation projects and the construction
of one new hotel, which was subsequently sold prior to completion.

         Notwithstanding the Chapter 11 Cases, original maturities of long-term
obligations for each of the five years after December 31, 2001 and thereafter
are as follows:

<TABLE>
<CAPTION>
                                                                                              (IN THOUSANDS)
         <S>                                                                                   <C>
         2002...........................................................................       $   142,564
         2003...........................................................................           154,625
         2004...........................................................................            51,911
         2005...........................................................................           103,151
         2006...........................................................................             4,554
         Thereafter.....................................................................           244,339
                                                                                               -----------
                                                                                               $   701,144
                                                                                               ===========
</TABLE>

8. DERIVATIVE TRANSACTIONS

         On August 31, 2000, the Company paid $4.3 million to "break" the
interest rate lock agreement on $54 million of debt related to its credit
facilities. As of December 31, 2001 and 2000, the Company was not party to any
derivative transactions.

9. INCOME TAXES

         Provision (benefit) for income taxes for the Company is as follows:

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                       2001                             2000                            1999
                           CURRENT   DEFERRED     TOTAL    CURRENT    DEFERRED     TOTAL    CURRENT   DEFERRED     TOTAL
                         --------   --------   --------   --------   --------   --------  ---------  ---------  ---------
                                                                   (IN THOUSANDS)
<S>                      <C>        <C>        <C>        <C>        <C>        <C>       <C>        <C>        <C>
Federal...............   $     --   $     --   $     --   $     --   $(28,187)  $(28,187) $      --  $ (16,329) $ (16,329)
State and local.......      2,829         --      2,829      1,340     (1,876)      (536)        --     (3,765)    (3,765)
                         --------   --------   --------   --------   --------   --------  ---------  ---------  ---------
                         $  2,829   $     --   $  2,829   $  1,340   $(30,063)  $(28,723) $      --  $ (20,094) $ (20,094)
                         ========   ========   ========   ========   ========   ========  =========  =========  =========
</TABLE>

         The components of the cumulative effect of temporary differences in the
deferred income tax (liability) and asset balances at December 31, 2001 and 2000
are as follows:


                                       46

<PAGE>

<TABLE>
<CAPTION>

                                                          2001                                     2000
                                               TOTAL     CURRENT      NON-CURRENT     TOTAL       CURRENT   NON-CURRENT
                                          -----------  -----------   -----------  -----------  ------------ -----------
                                                                          (IN THOUSANDS)
<S>                                       <C>          <C>           <C>          <C>          <C>          <C>
Property and equipment..............      $   (36,208) $        --   $   (36,208) $   (65,659) $        --  $   (65,659)
Net operating loss carryforward.....           94,471           --        94,471       75,318           --       75,318
Loan Costs..........................            8,349           --         8,349           --           --           --
Legal and workers' compensation
    reserves........................            1,880        1,880            --        3,096        1,984        1,112
AMT and FICA credit carryforwards...            2,245           --         2,245        1,966           --        1,966
Other operating accruals............            2,586        2,586            --        1,619        1,619           --
Miscellaneous other.................             (304)          --          (304)        (268)          --         (268)
         Total......................           73,019        4,466        68,553       16,072        3,603       12,469
         Less valuation allowance...          (73,019)      (4,466)      (68,553)     (16,072)      (3,603)     (12,469)
                                          -----------  -----------   -----------  -----------  ------------ -----------
                                                   --  $        --   $        --  $        --  $        --  $        --
                                          ===========  ===========   ===========  ===========  ===========  ===========
</TABLE>

         The difference between income taxes using the effective income tax rate
and the federal income tax statutory rate of 34% is as follows:

<TABLE>
<CAPTION>
                                                                                          YEAR ENDED DECEMBER 31,
                                                                                      2001         2000          1999
                                                                                  -----------  -----------  -----------
                                                                                              (IN THOUSANDS)
         <S>                                                                      <C>          <C>          <C>
         Federal income tax (benefit) at statutory federal rate..............     $   (47,578) $   (39,670) $   (24,833)
         State income tax (benefits), net....................................          (6,717)      (5,601)      (2,485)
         Non-deductible items................................................             177          476        7,224
         Change in valuation allowance.......................................          56,947       16,072           --
                                                                                  -----------  -----------  -----------
                                                                                  $     2,829  $   (28,723) $   (20,094)
                                                                                  ===========  ===========  ===========
</TABLE>

         In 1999, non-deductible items consist primarily of the write-off of
goodwill.

         The Company has established a valuation allowance of $73.0 million to
reduce the net deferred tax assets to zero. Due to the financial condition of
the Company, its continuing operating losses and the Chapter 11 Cases, the
Company did not believe that it was more likely than not that its net deferred
tax assets would be realized and thus provided a valuation allowance to fully
reserve against such amounts. Of the $73.0 million, $56.9 and $16.1 million was
generated in 2001 and 2000, respectively. At December 31, 2001, the Company has
available net operating loss carry forwards of approximately $235,000,000 for
federal income tax purposes, which expire in years 2004 through 2021. It is
likely that under the plan of reorganization, substantial amounts of net
operating loss carryforwards will be utilized relating to debt cancellations.
The Company's ability to use these net operating loss carry forwards to offset
future income is subject to other limitations, and may be subject to additional
limitations in the future. Due to these limitations, a portion or all of these
net operating loss carryforwards could expire unused.

10. RELATED PARTY TRANSACTIONS

         Robert Cole, a member of the Board of Directors was a minority
shareholder of Impac Hotel Development ("IHD"), which provided acquisition and
property development services to Impac for a development fee of four percent of
the total project cost of each property acquired or developed. Impac agreed to
terminate this agreement prior to the consummation of the Merger so that Impac
and its subsidiaries would have no further obligations under the agreement after
the Merger other than the payment of up to a four percent development fee (not
to exceed $2.5 million in the aggregate) in the event Lodgian acquired or
developed any of the hotels or properties identified in the Merger Agreement as
Impac's acquisition and development pipeline. During 1999, the Company paid $1.0
million in connection with this arrangement. Of this amount,


                                       47
<PAGE>

Robert Cole received $225,000. No payments were made in 2001 or 2000 to IHD or
Robert Cole under this agreement. The Company's obligation to make any future
development fees was terminated in March 2001.

         Robert Cole, a member of the Board of Directors had been an 8% limited
partner in the partnership that owns the Courtyard by Marriott in Tifton,
Georgia since 1996. The Company previously managed this hotel in accordance with
a management agreement, which provided that the Company be paid a base fee
calculated as a percentage of gross revenues, an accounting services fee and an
incentive management fee. The base fee was 3% of gross revenues and the
incentive fee was a percentage of the amount by which gross operating profit
exceeded a negotiated amount. The Company earned fees of $15,000, $71,400 and
$69,300 during 2001, 2000, and 1999, respectively. The management agreement was
terminated in March 2001.

         On December 15, 2000, the Company sold a partially constructed hotel
located in Richmond, Virginia to an entity controlled by a shareholder who is a
10.9% beneficial owner of the Company's common stock. The Company received net
proceeds of approximately $12.3 million from the sale and recorded a loss on the
sale of approximately $0.5 million. In addition, the Company entered into a
separate management contract with the purchaser to provide construction
management oversight until completion of the project.

         Richard Cartoon, the Company's Executive Vice President and Chief
Financial Officer, is a principal in a business that the Company retained in
November 2001 to provide Richard Cartoon's services as Chief Financial Officer
and other restructuring support and services. In addition to amounts paid for
Richard Cartoon's services, the Company has been billed $220,000 for other
support and services provided by associates of Richard Cartoon, LLC for the
period October 4, 2001 to February 28, 2002. The Company expects to continue to
utilize such support and services as needed through the restructuring process.

         Thomas Eppich, Chief Executive Officer between June 1, 2000 and June
15, 2001 was employed by Jay Alix and Associates, a business that the Company
retained to provide financial and accounting assistance between June 1, 2000 and
June 19, 2001. In addition to amounts paid for Mr. Eppich's services, the
Company was billed $1,855,000 and $1,839,000 for such services for 2001 and
2000, respectively.

11. EARNINGS PER SHARE

         The following table sets forth the computation of basic and diluted
earnings per share:

<TABLE>
<CAPTION>
                                                                           2001              2000             1999
         <S>                                                           <C>              <C>               <C>
         Numerator:
            Loss before extraordinary item........................     $(142,764,000)   $ (87,955,000)    $ (52,943,000)
            Extraordinary item....................................                --               --        (7,750,000)
                                                                       -------------    -------------     -------------
                  Net loss........................................     $(142,764,000)   $ (87,955,000)    $ (60,693,000)
                                                                        =============   =============     =============

         Denominator:
            Denominator for basic and diluted loss per share--
               weighted-average shares............................        28,350,000       28,186,000        27,222,000
                                                                       =============    =============     =============

         Basic and diluted loss per share:
            Loss before extraordinary item........................     $       (5.04)   $       (3.12)    $       (1.95)
            Extraordinary item....................................                --               --              (.28)
                                                                       -------------    -------------     -------------
                  Net loss........................................     $       (5.04)   $       (3.12)    $       (2.23)
                                                                        =============   =============     =============
</TABLE>

         The computation of diluted EPS as calculated above did not include
shares associated with the assumed conversion of the CRESTS (8,169,935 shares)
or stock options because their inclusion would have been antidilutive.

12.      COMMITMENTS AND CONTINGENCIES


                                       48

<PAGE>

         Sixteen of the Company's hotels are subject to long-term ground leases,
parking and other leases expiring from 2002 through 2075 which provide for
minimum payments as well as incentive rent payments. In addition, most of the
Company's hotels have noncancellable operating leases, mainly for operating
equipment. For the years ended December 31, 2001, 2000 and 1999, lease expense
for the noncancellable ground, parking and other leases was approximately
$3,683,000, $3,646,000 and $3,400,000 respectively.

         At December 31, 2001, the future minimum commitments for noncancellable
ground, parking and other leases were as follows:

<TABLE>
<CAPTION>
                                                                                              (IN THOUSANDS)
         <S>                                                                                   <C>
         2002...........................................................................       $     3,337
         2003...........................................................................             2,913
         2004...........................................................................             2,337
         2005...........................................................................             2,333
         2006...........................................................................             2,299
         Thereafter.....................................................................            67,575
                                                                                               -----------
                                                                                               $    80,794
                                                                                               ===========
</TABLE>

         The Company has entered into license agreement with various hotel
chains which require annual payments for license fees, reservation services and
advertising fees. The license agreements generally have an original ten year
term. The majority of the Company's license agreements have five to ten years
remaining on the term. The licensors may require the Company to upgrade its
facilities at any time to comply with the licensor's then current standards.
Upon the expiration of the term of a license, the Company may apply for a
license renewal. In connection with the renewal of a license, the licensor may
require payment of a renewal fee, increase license, reservation and advertising
fees, as well as substantial renovation of the facility. Costs incurred in
connection with these agreements totaled approximately $28,584,000, $34,904,000
and $31,833,000 for the years ended December 31, 2001, 2000, and 1999,
respectively.

         The license agreements are subject to cancellation in the event of a
default, including the failure to operate the hotel in accordance with the
quality standards and specification of the licensors. The Company believes that
the loss of a license for any individual hotel would not have a material adverse
effect on the Company's financial condition and results of operations. The
Company believes it will be able to renew its current licenses or obtain
replacements of a comparable quality.

         The Company has maintenance agreements, primarily on a one to three
year basis, which resulted in expenses of approximately $4,509,000, $5,473,000
and $5,026,000, for the years ended December 31, 2001, 2000 and 1999,
respectively.

         The Company is contingently liable in respect to four (4) irrevocable
letters of credit totaling $8.2 million issued as guarantees to Zurich Insurance
Company and Safeco Insurance Company of America. The letters of credit expire in
the third and fourth quarters of 2002 but may require renewal beyond those
dates. Included in the letters of credit of $8.2 million is $750,000 issued
against the DIP facility.

         The Company is a party in litigation with Hospitality Restoration and
Builders, Inc. ("HRB"), a general contractor hired to perform work on six of the
Company's hotels. The litigation involves hotels in Texas, Illinois, and New
York. In general, HRB claims that the Company breached contracts to renovate the
hotels by not paying for work performed. The Company contends that it was
over-billed by HRB and that a significant portion of the completed work was
defective. In August 2001, the parties agreed to settle the litigation pending
in Texas and Illinois. In exchange for mutual dismissals and full releases, the
Company has paid HRB $750,000. With respect to the matter pending in the state
of New York, HRB claims that it is owed $10.7 million. The Company asserted a
counterclaim of $7 million and believes that it has valid defenses and
counterclaims to the contractor's remaining claims.

         On October 13, 2000, Winegardner & Hammons, Inc. ("WH") filed an
arbitration claim against the Company claiming breach of contract relating to a
January 4, 1992 contract. WH claimed entitlement to profit participation
relating to


                                       49

<PAGE>

the sale of certain hotel properties by an affiliate and predecessor of the
Company. The Company settled this matter by paying WH $100,000.

         The Company and individual directors are parties to a lawsuit alleging
violations of federal securities laws and breach of fiduciary duty in connection
with certain investments made in affiliates of Impac Hotel Group, LLC, a
predecessor of the Company. The Company believes that it has valid defenses to
this matter.

         The Company is a party to other legal proceedings arising in the
ordinary course of business, the impact of which would not, either individually
or in the aggregate, in management's opinion, have a material adverse effect on
its financial position or results of operations.

13. EMPLOYEE BENEFIT PLANS AND STOCK OPTION PLAN

         The Company makes contributions to several multi-employer pension plans
for employees of various subsidiaries covered by collective bargaining
agreements. These plans are not administered by the Company and contributions
are determined in accordance with provisions of negotiated labor contracts.
Certain withdrawal penalties may exist, the amount of which are not determinable
at this time. The cost of such contributions during the years ended December 31,
2001, 2000 and 1999, was approximately $269,000, $503,000, $580,000
respectively.

         The Company adopted the 401(k) plan for the benefit of its non-union
employees under which participating employees may elect to contribute up to 10%
of their compensation. The Company may match an employee's elective
contributions to the 401(k) plan, subject to certain conditions, with shares of
the Company's common stock equal to up to 100% of the amount of such employee's
elective contributions. These employer contributions vest at a rate of 20% per
year beginning in the third year of employment. The cost of these contributions
during the years ended December 31, 2001, 2000 and 1999 was $410,000, $505,000
and $549,000 respectively. The 401(k) plan does not require a contribution by
the Company.

         The Company has also adopted the Lodgian, Inc. Stock Option Plan, as
amended, (the "Option Plan"). In accordance with the Option Plan, options to
acquire up to 3,250,000 shares of common stock may be granted to employees,
directors, independent contractors and agents as determined by a committee
appointed by the Board of Directors. Options may be granted at an exercise price
not less than fair market value on the date of grant. These options will
generally vest over five years.

         In addition, in June 2001 and October 2000, each non-employee director
was awarded an option to acquire 5,000 shares of common stock at an exercise
price equal to the fair market price on date of grant. Such options became
exercisable upon date of grant and were granted under the Company's Non-Employee
Directors' Stock Plan.

         On December 18, 1998, the Company re-priced its options. See discussion
of impact of accounting pronouncement related to stock option repricings in Note
1.

         Presented below is a summary of the stock option plan activity for the
years shown:

<TABLE>
<CAPTION>
                                                                                                        WEIGHTED AVERAGE
                                                                                             OPTIONS     EXERCISE PRICE
         <S>                                                                                <C>               <C>
         Balance, December 31, 1998.................................................        2,369,900         $5.80
              Granted...............................................................          690,000          5.42
              Exercised.............................................................          (30,000)         4.00
              Forfeited.............................................................         (425,900)         5.72
                                                                                          -----------
         Balance, December 31, 1999.................................................        2,604,000          4.14
              Granted...............................................................           60,000          3.39
              Exercised.............................................................               --            --
</TABLE>


                                       50

<PAGE>

<TABLE>
         <S>                                                                                <C>               <C>
              Forfeited.............................................................         (528,900)         5.98
                                                                                          -----------
         Balance, December 31, 2000.................................................        2,135,100         $5.56
              Granted...............................................................        2,500,000(1)       0.90
              Exercised.............................................................               --            --
              Forfeited.............................................................       (3,130,500)(1)     $2.01
                                                                                          -----------
         Balance, December 31, 2001.................................................       1,504,600          $5.44
                                                                                          ==========
</TABLE>

------------

(1)      Includes 2 million options granted to and forfeited by Thomas Arasi
         during 2001 and does not include 1,000,000 options granted to Mr.
         Hawthorne, which were never issued and which expired on the Company's
         bankruptcy filing.

         Options exercisable and the weighted average exercise price of these
options at December 31, 2001, 2000 and 1999 were, 1,341,200 and $5.21, 1,664,100
and $5.45 and 1,118,420 and $5.58 respectively.

         The following table summarizes information for options outstanding and
exercisable at December 31, 2001:

<TABLE>
<CAPTION>
                                                            OPTIONS OUTSTANDING                OPTIONS EXERCISABLE
                                                    WEIGHTED AVERAGE WEIGHTED AVERAGE                   WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES                NUMBER       REMAINING LIFE   EXERCISE PRICE         NUMBER      EXERCISE PRICE
------------------------                ------       --------------   --------------         ------      --------------
                                                         (YEARS)
<S>                                     <C>         <C>              <C>                     <C>         <C>
   $0.69 to 1.50.................          55,000            9              0.73               25,000        $ 0.74
    1.51 to 2.50.................              --           --                --                   --            --
    2.51 to 3.50.................              --           --                --                   --            --
    3.51 to 4.50.................         307,500        2 yrs              4.00              301,500          3.99
    4.51 to 5.50.................         415,000        7 yrs              5.00              406,000          5.00
    5.51 to 6.50.................         712,100        5 yrs              6.14              602,700          6.14
    6.51 to 7.13.................          15,000        7 yrs              6.88                6,000          6.88
                                      -----------                                         -----------
   $0.69 to 7.13.................       1,504,600        5 yrs             $5.19            1,341,200         $5.21
                                      ===========                                         ===========
</TABLE>

         The income tax benefit, if any, associated with the exercise of stock
options is credited to additional paid-in capital. Also at December 31, 2001,
there were 112,500 Stock Appreciation Rights exercisable at $6.13 per right.

         Had compensation cost of the Company's Stock Option Plan been
recognized under SFAS 123, based on the fair market value at grant dates, the
Company's pro forma net loss and net loss per share would have been reflected as
follows:

<TABLE>
<CAPTION>
                                                                                      2001         2000          1999
                                                                                              (IN THOUSANDS,
                                                                                          EXCEPT PER SHARE DATA)
         <S>                                                                      <C>          <C>          <C>
         Loss before extraordinary item:
              As reported....................................................     $  (142,764) $   (87,955) $   (52,943)
              Pro forma......................................................        (144,745)     (91,048)     (56,546)
         Net loss:
              As reported....................................................        (142,764)     (87,955)     (60,693)
              Pro forma......................................................        (144,745)     (91,048)     (64,296)

         Loss per common share:
         Loss before extraordinary item:
              As reported....................................................     $    (5.04)  $     (3.12) $     (1.95)
              Pro forma......................................................          (5.11)        (3.23)       (2.08)
         Net loss:
              As reported....................................................          (5.04)        (3.12)       (2.23)
              Pro forma......................................................          (5.11)        (3.23)       (2.36)
</TABLE>

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for those options granted in 2001, 2000 and 1999:


                                       51

<PAGE>

<TABLE>
<CAPTION>
                                                                                      2001         2000          1999

         <S>                                                                        <C>           <C>          <C>
         Expected life of option.............................................         5yrs         5 yrs        5 yrs
         Risk free interest rate.............................................        4.56%          6.7%         6.3%
         Expected volatility.................................................       81.60%         47.4%        45.3%
         Expected dividend yield.............................................           --            --           --
</TABLE>

         The fair values of options granted during 2001, 2000 and 1999 are as
follows:

<TABLE>
<CAPTION>
                                                                                      2001         2000          1999
         <S>                                                                        <C>          <C>          <C>
         Weighted average fair value of options granted......................       $ 0.50       $    1.70    $    2.61
         Total number of options granted (in thousands)......................           55(1)           60          690
         Total fair value of all options granted (in thousands)..............       $27.50       $   102.1    $ 1,802.1
</TABLE>

------------
(1)      Amount is net of forfeitures.

14. SIGNIFICANT FOURTH QUARTER EVENTS

         2001

         As more fully discussed in Note 3, on December 20, 2001, the Company
filed for bankruptcy under Chapter 11. In connection with its bankruptcy
petition, the Company determined that 29 of its hotels were significantly
overleveraged. As a result, the Company determined that it no longer controlled
the ability to hold these assets for a period sufficient for the estimated
future undiscounted cash flows on the use of these properties to cover the
carrying value of those assets. Therefore, the Company recorded an impairment
charge of $69.0 million to reduce the carrying value of those hotels to the
outstanding debt on those hotels.

         1999

         During the fourth quarter of 1999, the Company initiated an internal
review of its accounting records. As discussed below, the Company experienced
significant difficulty in the integration and conversion of information and
accounting systems subsequent to the Merger. In addition, the Company determined
that a significant number of reconciliations involving cash, accounts
receivable, fixed assets, accounts payable, payroll and other accounts had not
been completed during 1999. As a result of these systems and reconciliation
issues, the Company experienced a significant delay in accurately preparing its
1999 annual financial statements. Certain charges were recorded in the fourth
quarter of 1999 after the account reconciliation process was completed in 2000.

         Also during the fourth quarter of 1999, the Company adopted a strategy
to reduce the number of its non-core hotel portfolio. In connection therewith,
the Company identified certain hotel assets for sale and reduced the carrying
value of these assets to estimated fair value, net of estimated selling costs.
Further, based on asset impairment indicators and market capitalization for the
Company's common stock, the Company wrote off its goodwill in accordance with
the market value method of accounting for impairment of goodwill arising from
the Merger.


                                       52

<PAGE>

         The charges and adjustments described in the preceding paragraphs had a
material effect on the Company's financial statements for the year ended
December 31, 1999. The following is a summary of these charges and adjustments:

<TABLE>
<CAPTION>
                                                                                                        (IN THOUSANDS)
         <S>                                                                                            <C>
         Impairment of long-lived assets.........................................................         $    37,977
         Write-off of goodwill...................................................................              20,748
         Other expenses (included in general, administrative and other operating expenses in the
              statement of operations)...........................................................              12,470
         Severance...............................................................................                 500
</TABLE>

         Asset Impairment. In connection with the adoption of a strategy to
reduce its non-core hotel portfolio, the Company identified 26 hotels which were
designated held for sale. In accordance with the requirements of SFAS 121 the
Company had recorded a non-cash charge of $38.0 million to reduce the carrying
value of these assets to estimated fair value, net of estimated selling costs.
For this purpose fair value was determined to be the amount a willing buyer
would pay a willing seller for the individual assets in a current transaction
that is other than a forced or liquidation sale.

         Goodwill. The Company initially recorded approximately $11.0 million of
goodwill in connection with the Merger based on its preliminary allocation of
the purchase price of Impac. During 1999, the Company revised and finalized its
preliminary allocation, resulting in (among other adjustments) a net increase of
$9.7 million to the preliminary estimate of goodwill arising from the Merger. In
addition, since the Company did not have goodwill prior to the Merger, it had
not previously adopted an accounting policy for measuring impairment of goodwill
prior to the Merger. The Company selected the market value approach to measuring
goodwill. Based on asset impairment indicators and market capitalization for the
Company's common stock, the Company selected the market value method of
accounting for goodwill and recorded a non-cash charge of $20.7 million to
write-off the adjusted balance of goodwill.

         Included in general, administrative and other operating expenses in the
statement of operations are $12.5 million of unusual expenses as described
following:

         Accounting, Systems and Merger Integration. During the fourth quarter,
the Company incurred substantial incremental fees and expenses primarily related
to the final phase of integration of accounting systems from legacy systems used
by Servico and Impac to the financial systems used by Lodgian. The total amount
either incurred or accrued at December 31, 1999, including severance and a
significant provision for increased professional fees, approximated $6.4
million. This amount also includes expenses associated with ensuring compliance
in the "Y2K" matter.

         Litigation Costs. At December 31, 1999, the Company accrued litigation
costs to be incurred related to several legal matters. Additionally, the Company
incurred other litigation settlement charges during 1999. The aggregate
litigation costs either incurred or accrued for these matters aggregated
approximately $2.7 million for 1999.

         Audit Matters. During the fourth quarter an unclaimed property audit
was initiated by the State of Florida. Additionally, several audits of the
Company's compliance with ERISA requirements were in various stages of
completion. The provision recorded in the fourth quarter for these and other
audit matters was approximately $1.3 million.

         Other. Other expenses, including significant payments to terminate the
franchise agreements on two hotels, were approximately $2.1 million.

         The Company, after consultation with its prior independent auditors,
concluded that its internal controls for the preparation of interim financial
information did not provide an adequate basis for its prior independent auditors
to complete reviews of the quarterly financial data for the quarters during
1999. The Company believes that certain charges that were recorded in the fourth
quarter of 1999 may relate to individual prior 1999 quarters; however the
Company does not have sufficient information to identify all specific charges
attributable to prior 1999 quarters.


                                       53

<PAGE>
15. SEVERANCE AND RESTRUCTURING

         Severance and restructuring charges were $2.3 million in 2001 and $1.5
million in 2000. The charge for 2001 related principally to senior level
management changes during 2001. In addition, during 2001, the Company, in an
effort to reduce expenses, instituted a plan to reduce hotel level employees
and to eliminate certain positions at the corporate office. As part of this
plan, the equivalent of over 1,600 full time employees were expected to be
terminated at the hotels while 47 employees were terminated at the Corporate
office. Approximately 1,800 full time equivalents were terminated under the
plan. In 2001, the Company recognized a charge of approximately $0.8 million to
implement this plan. All of this charge related to salary and benefits of the
terminated employees. As of December 31, 2001, all but $83,000 had been paid.
The corporate component of this charge, $0.8 million for the year is reflected
in severance and restructuring expenses on the Statement of Operations while
the hotel level component is reflected in direct operating expenses and in
general, administrative and other expenses. The 2000 charges related to a plan
instituted in June 2000 to close four of the Company's six regional offices,
close the Company's reservation center located in Baton Rouge, Louisiana and
eliminate certain positions in the corporate office. Approximately 65 employees
were terminated in this restructuring. The Company recognized a charge of
approximately $1.5 million to implement this plan. Of the $1.5 million charge,
approximately $1.3 million was related to salary and benefits of the terminated
employees and $.2 million related to the costs of closing the physical regional
offices and the reservation center. These costs were paid in 2000. In
connection with the Merger, Servico incurred approximately $3.4 million of
expenses in 1998 primarily associated with the closing and relocation of
Servico's corporate headquarters and termination and relocation of certain
Servico employees. Severance expenses in 1999 were $0.5 million.

         On February 9, 2001, Mr. Cole and the Company entered into a
Separation Agreement. On this date, Mr. Cole, with the Company's consent,
resigned his position as President and Chief Executive Officer and continued as
a non-officer employee through March 2, 2001. Mr. Cole received a severance
payment of $750,000 in full settlement of all amounts due Mr. Cole by reason of
the termination of his employment agreement. During the period March 3, 2001 to
March 31, 2002, Mr. Cole will provide transition assistance and strategic and
financial advisory services to Lodgian. Mr. Cole received $750,000 for his
consulting services.

16. SHAREHOLDERS RIGHTS PLAN

         On March 30, 1999, the board of directors adopted a Shareholder Rights
Plan and declared one Right on each outstanding share of the Company's common
stock. The dividend was paid on April 19, 1999 to stockholders of record on
April 14, 1999. Initially the Rights will trade with the common stock of the
Company and will not be exercisable. The Right will separate from the common
stock and become exercisable upon the occurrence of events typical of
shareholder rights plans. In general, such separation will occur when any
person or group of affiliated persons acquire 15% or more of the Company's
common stock. Thereafter, separate Right Certificates will be distributed and
each Right will entitle its holder to purchase one-hundredth of a share of the
Company's Participating Preferred Stock for an exercise price of $25. Each
one-hundredth of a share of Preferred Stock has economic and voting terms
equivalent to those of one share of the Company's common stock.

17. SUPPLEMENTAL GUARANTOR INFORMATION

         In connection with the Company's sale of Notes, certain of the
Company's subsidiaries (the "Subsidiary Guarantors") have guaranteed the
Company's obligations to pay principal and interest with respect to the Notes.
Each Subsidiary Guarantor is wholly-owned and management has determined that
separate financial statements for the Subsidiary Guarantors are not material to
investors. The subsidiaries of the Company that are not Subsidiary Guarantors
are referred to in this note as the "Non-Guarantor Subsidiaries."

         As discussed in Note 14 during the fourth quarter of 1999, the Company
recorded charges to the respective Parent, Subsidiary Guarantors and
Non-Guarantor Subsidiaries financial statements. However, net charges of
$580,000 were recorded at Lodgian's Management Company, which is part of the
Non-Guarantor Subsidiaries financial statements because the Company does not
have sufficient information to allocate these net charges to specific
subsidiaries. The Company considers these net amounts to be immaterial to the
financial statements herein.


                                      54

<PAGE>


         The following supplemental consolidating financial statements present
balance sheets as of December 31, 2001 and 2000 and statements of operations
and cash flows for the years ended December 31, 2001, 2000 and 1999. In the
consolidating financial statements, Lodgian, Inc. (the "Parent") accounts for
its investments in wholly-owned subsidiaries using the equity method.


                                      55

<PAGE>


                         LODGIAN, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

                         LODGIAN, INC. AND SUBSIDIARIES
                     CONDENSED CONSOLIDATING BALANCE SHEETS
                               DECEMBER 31, 2001

<TABLE>
<CAPTION>
                                                                                     SUBSIDIARY   NON-GUARANTOR     TOTAL
                                                        PARENT        GUARANTORS    SUBSIDIARIES  ELIMINATIONS   CONSOLIDATED
                                                       ---------      ---------     ------------  -------------  -------------
                                                                                  (IN THOUSANDS)
<S>                                                    <C>            <C>            <C>            <C>            <C>
                            ASSETS
Current assets:
     Cash and cash equivalents ...................     $       6      $   6,550      $   7,451      $      --      $  14,007
     Cash, restricted ............................            --             --          3,218             --          3,218
     Accounts receivable, net of allowances ......            --          5,921          6,568             --         12,489
     Inventories .................................            --          3,320          3,903             --          7,223
     Prepaid expenses and other current assets ...            --            143          6,141             --          6,284
                                                       ---------      ---------      ---------      ---------      ---------
            Total current assets .................             6         15,934         27,281             --         43,221
Property and equipment, net ......................            --        532,163        381,805             --        913,968
Deposits for capital expenditures ................            --             91         15,722             --         15,813
Investment in consolidated entities ..............      (361,752)            --             --        361,752             --
Due from (to) affiliates .........................       556,300       (247,346)      (308,954)            --             --
Other assets, net ................................            --          1,122          1,238             --          2,360
                                                       ---------      ---------      ---------      ---------      ---------
                                                       $ 194,554      $ 301,964      $ 117,092      $ 361,752      $ 975,362
                                                       =========      =========      =========      =========      =========

  LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Liabilities Not Subject to Compromise:
Current liabilities:
      Accounts payable ...........................            $-      $     280      $   2,426      $      --      $   2,706
      Accrued interest ...........................            --             --          1,192             --          1,192
      Other accrued liabilities ..................            --          4,837         24,948             --         29,785
      Advance deposits ...........................            --            896            875             --          1,771
      Current portion of long-term debt and
         capital lease obligations ...............            --             --          7,717             --          7,717
                                                       ---------      ---------      ---------      ---------      ---------
            Total current liabilities ............            --          6,013         37,158             --         43,171
  Other long-term debt and capital
     lease obligations ...........................            --             --          7,652             --          7,652
Liabilities Subject to Compromise ................       199,256        428,528        298,110             --        925,894
Minority interests - other .......................            --             --          5,326             --          5,326
Commitments and contingencies
Stockholders' (deficit) equity:
       Common stock ..............................           284             33            448           (481)           284
       Additional paid-in capital ................       263,320         22,619        (46,924)        24,305        263,320
       Accumulated deficit .......................      (268,306)      (153,250)      (184,678)       337,928       (268,306)
       Accumulated other comprehensive loss ......            --         (1,979)            --             --         (1,979)
                                                       ---------      ---------      ---------      ---------      ---------
             Total stockholders' (deficit) equity.        (4,702)      (132,577)      (231,154)       361,752         (6,681)
                                                       ---------      ---------      ---------      ---------      ---------
                                                       $ 194,554      $ 301,964      $ 117,092      $ 361,752      $ 975,362
                                                       =========      =========      =========      =========      =========


</TABLE>


                                      56

<PAGE>
                         LODGIAN, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

                         LODGIAN, INC. AND SUBSIDIARIES
                     CONDENSED CONSOLIDATING BALANCE SHEETS
                               December 31, 2000


<TABLE>
<CAPTION>
                                                                    SUBSIDIARY    NON-GUARANTOR                        TOTAL
                                                       PARENT       GUARANTORS     SUBSIDIARIES   ELIMINATIONS      CONSOLIDATED
                                                      ---------     ----------    -------------   ------------      -----------
                                                                                 (IN THOUSANDS)
<S>                                                   <C>            <C>            <C>            <C>              <C>
                    ASSETS

Current assets:
     Cash and cash equivalents                        $       6      $  20,653      $     343      $        --      $    21,002
     Cash, restricted                                        --             --          2,237               --            2,237
     Accounts receivable, net of allowances                  --          8,031         12,593               --           20,624
     Inventories                                             --          3,609          4,196               --            7,805
     Prepaid expenses and other current assets               --            110          5,548               --            5,658
                                                      ---------      ---------      ---------      -----------      -----------
            Total current assets                              6         32,403         24,917               --           57,326

Property and equipment, net                                  --        553,941        505,107               --        1,059,048
Deposits for capital expenditures                            --            917         13,088               --           14,005
Investment in consolidated entities                    (210,629)            --             --          210,629               --
Due from (to) affiliates                                530,018       (231,804)      (298,214)              --               --
Other assets, net                                         5,052         16,501          8,412               --           29,965
                                                      ---------      ---------      ---------      -----------      -----------
                                                      $ 324,447      $ 371,958      $ 253,310      $   210,629      $ 1,160,344
                                                      =========      =========      =========      ===========      ===========

     LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
      Accounts payable                                $      --      $   9,107      $  15,981      $        --      $    25,088
      Accrued interest                                       --         15,200          1,595               --           16,795
      Other accrued liabilities                              --          9,095         28,108               --           37,203
      Advance deposits                                       --            855            999               --            1,854
      Current portion of long-term obligations               --         67,190         12,653               --           79,843
                                                      ---------      ---------      ---------      -----------      -----------
            Total current liabilities                        --        101,447         59,336               --          160,783

Long-term obligations, less current portion               2,038        355,185        316,815               --          674,038
Deferred income taxes                                        --             --             --               --               --
Minority interests:
      Preferred redeemable securities (including
       related accrued interest)                        184,349             --             --               --          184,349
      Other                                                  --             --          4,294               --            4,294
                                                      ---------      ---------      ---------      -----------      -----------
           Total  liabilities                           186,387        456,632        380,445               --        1,023,464
                                                      ---------      ---------      ---------      -----------      -----------

Commitments and contingencies                                --             --             --               --               --

Stockholders' equity:
       Common stock                                         282             33            446             (479)             282
       Additional paid-in capital                       263,320         22,619        (46,924)          24,305          263,320
       Accumulated deficit                             (125,542)      (106,146)       (80,657)         186,803         (125,542)
       Accumulated other comprehensive loss                  --         (1,180)            --               --           (1,180)
                                                      ---------      ---------      ---------      -----------      -----------
             Total stockholders' equity (deficit)       138,060        (84,674)      (127,135)         210,629          136,880
                                                      ---------      ---------      ---------      -----------      -----------

                                                      $ 324,447      $ 371,958      $ 253,310      $   210,629      $ 1,160,344
                                                      =========      =========      =========      ===========      ===========
</TABLE>


                                      57

<PAGE>


                         LODGIAN, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

                         LODGIAN, INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
                          YEAR ENDED DECEMBER 31, 2001

<TABLE>
<CAPTION>
                                                                              SUBSIDIARY   NON-GUARANTOR     TOTAL
                                                     PARENT     GUARANTORS   SUBSIDIARIES  ELIMINATIONS   CONSOLIDATED
                                                   ---------     ---------     ---------     ---------     ---------
                                                                            (IN THOUSANDS)

<S>                                                <C>           <C>           <C>           <C>           <C>
Revenues:
  Rooms .......................................    $      --     $ 160,698     $ 168,154     $      --     $ 328,852
  Food and beverage ...........................           --        48,962        49,612            --        98,574
  Other .......................................           --         9,600        10,530            --        20,130
                                                   ---------     ---------     ---------     ---------     ---------
Total revenue .................................           --       219,260       228,296            --       447,556
                                                   ---------     ---------     ---------     ---------     ---------

Operating expenses:
 Direct:
    Rooms .....................................           --        44,645        46,770            --        91,415
    Food and beverage .........................           --        35,114        35,551            --        70,665
    Other .....................................           --         5,962         6,240            --        12,202
General, administrative and other .............           --        84,585       107,941            --       192,526
Depreciation and amortization .................           --        30,630        31,915            --        62,545
Impairment of long-lived assets ...............           --        (5,022)       72,362            --        67,340
Severance and restructuring  expenses .........           --            --         2,309            --         2,309
                                                   ---------     ---------     ---------     ---------     ---------
            Total operating expenses ..........           --       195,914       303,088            --       499,002
                                                   ---------     ---------     ---------     ---------     ---------
                                                          --        23,346       (74,792)           --       (51,446)

Other income (expenses):
  Interest income and other ...................           --            --           709            --           709
  Interest expense ............................           --       (48,089)      (27,237)           --       (75,326)
  (Loss) gain on asset dispositions ...........           --          (576)       24,551            --        23,975
  Equity in losses of consolidated subsidiaries     (139,935)           --            --       139,935            --
Minority interests:
  Preferred redeemable securities .............           --            --       (12,869)           --       (12,869)
  Other .......................................           --          (152)          190            --            38
                                                   ---------     ---------     ---------     ---------     ---------
Loss before income taxes and
  reorganization items ........................     (139,935)      (25,471)      (89,448)      139,935      (114,919)
Reorganization items: .........................           --
 Write-off of deferred financing costs ........           --       (13,143)       (8,374)           --       (21,517)
 Other reorganization items ...................           --            --        (3,499)           --        (3,499)
                                                   ---------     ---------     ---------     ---------     ---------
Loss  before income taxes .....................     (139,935)      (38,614)     (101,321)      139,935      (139,935)
Provision  for income taxes ...................       (2,829)         (129)       (2,700)        2,829        (2,829)
                                                   ---------     ---------     ---------     ---------     ---------
Net loss ......................................    $(142,764)    $ (38,743)    $(104,021)    $ 142,764     $(142,764)
                                                   =========     =========     =========     =========     =========
</TABLE>


                                      58

<PAGE>

                         LODGIAN, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

                         LODGIAN, INC. AND SUBSIDIARIES

                CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
                          YEAR ENDED DECEMBER 31, 2000


<TABLE>
<CAPTION>
                                                                    SUBSIDIARY    NON-GUARANTOR                     TOTAL
                                                       PARENT       GUARANTORS    SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                                      ---------     ----------    -------------   ------------   ------------
                                                                                (IN THOUSANDS)

<S>                                                   <C>            <C>            <C>            <C>            <C>
Revenues:
   Rooms ........................................     $      --      $ 189,963      $ 232,512      $      --      $ 422,475
   Food and beverage ............................            --         56,898         74,435             --        131,333
   Other ........................................            --         10,904         16,185             --         27,089
                                                      ---------      ---------      ---------      ---------      ---------
                                                             --        257,765        323,132             --        580,897

Operating expenses:
   Direct:
     Rooms ......................................            --         54,366         64,793             --        119,159
     Food and beverage ..........................            --         41,175         53,775             --         94,950
     Other ......................................            --          7,634          9,195             --         16,829
   General, administrative and other ............            --         93,223        130,009             --        223,232
   Depreciation and amortization ................            --         26,530         38,264             --         64,794
   Impairment of long-lived assets ..............            --          3,576         57,112             --         60,688
   Write-off of goodwill ........................            --             --             --             --             --
   Severance and restructuring expenses .........            --             --          1,502             --          1,502
                                                      ---------      ---------      ---------      ---------      ---------
         Total operating expenses ...............            --        226,504        354,650             --        581,154
                                                      ---------      ---------      ---------      ---------      ---------
                                                             --         31,261        (31,518)            --           (257)
Other income (expenses):
   Interest income and other ....................            --             --          1,458             --          1,458
   Interest expense .............................            --        (56,308)       (40,998)            --        (97,306)
   Interest hedge break fee .....................            --         (4,294)            --         (4,294)
   Acquisition termination fees .................            --             --         (3,500)            --         (3,500)
   Gain (loss) on asset dispositions ............            --            459           (161)            --            298
   Equity in loss of consolidated subsidiaries ..      (116,678)            --             --        116,678             --
Minority interests:
   Preferred redeemable securities ..............            --             --        (12,412)            --        (12,412)
   Other ........................................            --             --           (665)            --           (665)
                                                      ---------      ---------      ---------      ---------      ---------
Loss before income taxes ........................      (116,678)       (24,588)       (92,090)       116,678       (116,678)
Benefit for income taxes ........................       (28,723)        (8,360)       (20,363)        28,723        (28,723)
                                                      ---------      ---------      ---------      ---------      ---------
       Net loss .................................     $ (87,955)     $ (16,228)     $ (71,727)     $  87,955      $ (87,955)
                                                      =========      =========      =========      =========      =========
</TABLE>


                                      59

<PAGE>

                         LODGIAN, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


                         LODGIAN, INC. AND SUBSIDIARIES

                CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
                          YEAR ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>
                                                                      SUBSIDIARY     NON-GUARANTOR                      TOTAL
                                                        PARENT        GUARANTORS     SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                                        ------        ----------     ------------    ------------   ------------
                                                                                  (IN THOUSANDS)

<S>                                                    <C>             <C>             <C>             <C>             <C>
Revenues:
   Rooms ........................................      $      --       $ 195,863       $ 228,667       $      --       $ 424,530
   Food and beverage ............................             --          61,353          78,121              --         139,474
   Other ........................................             --          12,501          15,915              --          28,416
                                                       ---------       ---------       ---------       ---------       ---------
                                                              --         269,717         322,703              --         592,420
Operating expenses:
   Direct:
     Rooms ......................................             --          52,839          61,751              --         114,590
     Food and beverage ..........................             --          44,260          57,785              --         102,045
     Other ......................................             --           8,351           8,961              --          17,312
   General, administrative and other ............             --          96,128         127,728              --         223,856
   Depreciation and amortization ................             --          25,560          33,757              --          59,317
   Impairment of long-lived assets ..............             --          26,428          11,549              --          37,977
   Write-off of goodwill ........................             --              --          20,748              --          20,748
   Severance and restructuring expenses .........             --              --             500              --             500
                                                       ---------       ---------       ---------       ---------       ---------
         Total operating expenses ...............             --         253,566         322,779              --         576,345
                                                       ---------       ---------       ---------       ---------       ---------
                                                              --          16,151             (76)             --          16,075

Other income (expenses):
   Interest income and other ....................             --              --           1,579              --           1,579
   Interest expense .............................             --         (36,939)        (40,470)             --         (77,409)
   Gain on asset dispositions ...................             --              --           1,242              --           1,242
   Equity in loss of consolidated subsidiaries ..        (73,037)             --              --          73,037              --
Minority interests:
   Preferred redeemable securities ..............             --              --         (13,224)             --         (13,224)
   Other ........................................             --              --          (1,300)             --          (1,300)
                                                       ---------       ---------       ---------       ---------       ---------
Loss before income taxes and extraordinary
   Item .........................................        (73,037)        (20,788)        (52,249)         73,037         (73,037)
Benefit for income taxes ........................         20,094           8,066          12,028         (20,094)         20,094
                                                       ---------       ---------       ---------       ---------       ---------
Loss before extraordinary item ..................        (52,943)        (12,722)        (40,221)         52,943         (52,943)
Extraordinary item, net of tax ..................         (7,750)         (6,543)         (1,207)          7,750          (7,750)
                                                       ---------       ---------       ---------       ---------       ---------
         Net loss ...............................      $ (60,693)      $ (19,265)      $ (41,428)      $  60,693       $ (60,693)
                                                       =========       =========       =========       =========       =========
</TABLE>


                                      60

<PAGE>

                         LODGIAN, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

                         LODGIAN, INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
                          YEAR ENDED DECEMBER 31, 2001


<TABLE>
<CAPTION>
                                                                     PARENT AND     SUBSIDIARY    NON-GUARANTOR       TOTAL
                                                                    ELIMINATIONS    GUARANTORS     SUBSIDIARIES    CONSOLIDATED
                                                                    ------------    ----------    -------------    ------------
                                                                                         (IN THOUSANDS)

<S>                                                                   <C>            <C>             <C>             <C>
Operating activities:
 Net loss ......................................................      $     --       $ (38,743)      $(104,021)      $(142,764)
 Adjustments to reconcile net loss to net cash
 provided by  (used in) operating activities:
  Depreciation and amortization ................................            --          30,630          31,915          62,545
  Impairment of long-lived assets ..............................            --          (5,022)         72,362          67,340
  Minority interests ...........................................        12,831             152            (152)         12,831
  401 (k) plan contributions ...................................             2               0               2
  Loss (gain) on sale of assets ................................            --             576         (24,551)        (23,975)
  Write-offs and amortization of deferred financing costs ......         5,052          15,804           5,417          26,273
  Other ........................................................            38          (3,214)          3,737             561
 Changes in operating assets and liabilities:
  Accounts receivable ..........................................            --           2,110           6,025           8,135
  Inventories ..................................................            --             289             293             582
  Prepaid expenses and other assets ............................            --             (33)         (1,574)         (1,607)
  Accounts payable .............................................            --           3,824          (1,547)          2,277
  Accrued liabilities ..........................................            --          (1,682)         (1,136)         (2,818)
  Advance deposits .............................................            --              41            (124)            (83)
                                                                      --------       ---------       ---------       ---------
Net cash provided by  (used in) operating activities ...........        17,923           4,732         (13,356)          9,299
                                                                      --------       ---------       ---------       ---------
Investing activities:
  Capital improvements, net ....................................            --         (13,999)        (14,845)        (28,844)
  Proceeds from sale of assets, net ............................            --          12,181          55,729          67,910
  Net withdrawals (deposits)  for capital expenditures .........            --             826          (2,634)         (1,808)
                                                                                                     ---------       ---------
  Net cash  (used in) provided by investing activities .........            --            (992)         38,250          37,258
                                                                                                     ---------       ---------
Financing activities:
  Proceeds from borrowings on working capital revolver .........            --          21,000              --          21,000
  Proceeds (paid to) received from related parties .............       (17,923)          7,181          10,742              --
  Principal payments on long-term obligations ..................            --         (30,426)        (28,528)        (58,954)
  Principal payments on working capital revolver ...............            --         (15,000)             --         (15,000)
  Payments of deferred loan costs ..............................            --            (598)             --            (598)
                                                                      --------       ---------       ---------       ---------
  Net cash  used in  financing activities ......................       (17,923)        (17,843)        (17,786)        (53,552)
                                                                      --------       ---------       ---------       ---------
Net (decrease) increase in cash and cash equivalents ...........            --         (14,103)          7,108          (6,995)
Cash and cash equivalents at beginning of period ...............             6          20,653             343          21,002
                                                                      --------       ---------       ---------       ---------
Cash and cash equivalents at end of period .....................      $      6       $   6,550       $   7,451       $  14,007
                                                                      ========       =========       =========       =========
</TABLE>


                                      61

<PAGE>

                         LODGIAN, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

                         LODGIAN, INC. AND SUBSIDIARIES

                CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
                          YEAR ENDED DECEMBER 31, 2000


<TABLE>
<CAPTION>
                                                                      PARENT AND     SUBSIDIARY    NON-GUARANTOR      TOTAL
                                                                     ELIMINATIONS    GUARANTORS    SUBSIDIARIES    CONSOLIDATED
                                                                     ------------    ----------    ------------    ------------
                                                                                  (IN THOUSANDS)

<S>                                                                    <C>            <C>            <C>             <C>
Operating activities:
   Net loss .....................................................      $     --       $(16,228)      $ (71,727)      $ (87,955)
   Adjustments to reconcile net loss to net cash (used
     in) provided by operating activities:
     Depreciation and amortization ..............................            --         26,530          38,264          64,794
     Impairment of long-lived assets ............................            --          3,576          57,112          60,688
     Deferred income tax benefits ...............................       (30,063)            --              --         (30,063)
     Minority interests--other ..................................            --             --          10,014          10,014
     401(k) plan contributions ..................................           505             --              --             505
     Compensation in stock issued to directors ..................            56             --              --              56
     Equity in income of unconsolidated entities ................           (84)            --              --             (84)
     (Gain) loss on sale of assets ..............................            --           (459)            161            (298)
     Amortization of deferred loan fees .........................            --          3,272           2,382           5,654
     Other ......................................................           457           (403)         (3,574)         (3,520)
     Changes in operating assets and liabilities
       Accounts receivable ......................................            --            226           5,670           5,896
       Inventories ..............................................            --            507             878           1,385
       Prepaids and other assets.................................          (496)           (46)          1,555           1,013
       Accounts payable .........................................            --         (2,182)         (1,317)         (3,499)
       Accrued liabilities ......................................            --          6,303          (8,007)         (1,704)
       Advance deposits .........................................            --           (233)           (297)           (530)
                                                                       --------       --------       ---------       ---------
         Net cash (used in) provided by operating
           activities ...........................................       (29,625)        20,863          31,114          22,352
Investing activities:
   Capital improvements, net ....................................            --        (50,123)        (28,593)        (78,716)
   Proceeds from sale of assets and withdrawals
     (deposits) for capital expenditures ........................            --         74,814         128,525         203,339
                                                                       --------       --------       ---------       ---------
         Net cash provided by investing activities ..............            --         24,691          99,932         124,623
Financing activities:
   Proceeds from issuance of long-term obligations ..............            --         30,000           2,326          32,326
   Proceeds received from (paid to) related parties .............        29,572        (14,653)        (14,919)             --
   Principal payments of long-term obligations ..................            --        (48,758)       (120,110)       (168,868)
   Payments of deferred loan costs ..............................            --         (1,400)         (1,900)         (3,300)
   Distributions to minority interests ..........................            --             --            (775)           (775)
                                                                       --------       --------       ---------       ---------
         Net cash provided by (used in) financing
           activities ...........................................        29,572        (34,811)       (135,378)       (140,617)
                                                                       --------       --------       ---------       ---------
Net (decrease) increase in cash and cash equivalents ............           (53)        10,743          (4,332)          6,358
Cash and cash equivalents at beginning of period ................            59          9,910           4,675          14,644
                                                                       --------       --------       ---------       ---------
Cash and cash equivalents at end of period ......................      $      6       $ 20,653       $     343       $  21,002
                                                                       ========       ========       =========       =========
</TABLE>


                                      62

<PAGE>
                         LODGIAN, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                         LODGIAN, INC. AND SUBSIDIARIES

                CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
                          YEAR ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>
                                                                    PARENT AND      SUBSIDIARY    NON-GUARANTOR       TOTAL
                                                                   ELIMINATIONS     GUARANTORS    SUBSIDIARIES    CONSOLIDATED
                                                                   ------------     ----------    -------------   ------------
                                                                                    (IN THOUSANDS)

<S>                                                                   <C>            <C>             <C>            <C>
Operating activities:
   Net loss ....................................................      $     --       $ (19,265)      $(41,428)      $ (60,693)
   Adjustments to reconcile net loss to net cash (used in)
     provided by operating activities:
     Depreciation and amortization .............................            --          25,560         33,757          59,317
     Impairment of long-lived assets ...........................            --          26,428         11,549          37,977
     Write-off of goodwill .....................................            --              --         20,748          20,748
     Loss on extinguishment of indebtedness ....................            --              --         12,664          12,664
     Deferred income tax benefits ..............................       (25,008)             --             --         (25,008)
     Minority interests--other .................................            --              --          1,300           1,300
     401(k) plan contributions .................................           549              --             --             549
     Compensation in stock issued to directors .................            98              --             --              98
     Equity in income of unconsolidated entities ...............            --              --           (278)           (278)
     Gain on sale of assets ....................................            --              --         (1,242)         (1,242)
     Amortization of deferred loan fees ........................            --           4,346          2,897           7,243
     Changes in operating assets and liabilities:
       Accounts receivable .....................................            --            (978)           (44)         (1,022)
       Inventories .............................................            --          (1,074)         1,147              73
       Prepaid expenses and other assets .......................           (84)         30,671           (125)         30,462
       Accounts payable ........................................          (132)        (19,349)        (3,440)        (22,921)
       Accrued liabilities .....................................            --           6,238          3,101           9,339
       Advance deposits ........................................            --            (950)          (465)         (1,415)
                                                                      --------       ---------       --------       ---------
Net cash (used in)
  provided by operating activities .............................       (24,577)         51,627         40,141          67,191
Investing activities:
   Acquisitions of property and equipment ......................            --              --         (1,929)         (1,929)
   Capital improvements, net ...................................            --        (101,768)       (17,157)       (118,925)
   Purchase of minority interests ..............................            --              --        (10,200)        (10,200)
   Proceeds from sale of assets and withdrawals
     (deposits) for capital expenditures .......................            --            (551)        40,648          40,097
                                                                      --------       ---------       --------       ---------
         Net cash (used in) provided by investing
           activities ..........................................            --        (102,319)        11,362         (90,957)
Financing activities:
   Proceeds from issuance of long-term obligations .............            --         452,600         34,921         487,521
   Proceeds from issuance of common stock ......................           120              --             --             120
   Proceeds received from (paid to) related parties ............        26,901          34,234        (61,135)             --
   Principal payments of long-term obligations .................        (4,033)       (416,010)       (28,177)       (448,220)
   Payments of deferred loan costs .............................            --         (17,362)        (1,117)        (18,479)
   Distributions to minority interests .........................            --              --         (1,717)         (1,717)
                                                                      --------       ---------       --------       ---------
         Net cash provided by (used in) financing
           activities ..........................................        22,988          53,462        (57,225)         19,225
                                                                      --------       ---------       --------       ---------
Net (decrease) increase in cash and cash equivalents ...........        (1,589)          2,770         (5,722)         (4,541)
Cash and cash equivalents at beginning of period ...............         1,648           7,140         10,397          19,185
                                                                      --------       ---------       --------       ---------
Cash and cash equivalents at end of period .....................      $     59       $   9,910       $  4,675       $  14,644
                                                                      ========       =========       ========       =========
</TABLE>


                                      63

<PAGE>


18. SELECTED QUARTERLY FINANCIAL DATA, UNAUDITED

         In the opinion of management, the 1999 internal control weaknesses
discussed in Note 14 existed during the first and second quarters of 2000 and
to a lesser extent in the third quarter of 2000. These internal control
weaknesses caused a significant delay in preparing the Company's Form 10-Q's.
The Company's March 31, 2000 and June 30, 2000 Form 10-Q's were filed on
December 15, 2000 and the September 30, 2000 Form 10-Q was filed January 10,
2001. The Company has committed substantial resources to mitigate the
previously identified control weaknesses including contracting with outside
consulting accountants to ensure the Company has the corporate financial
personnel needed to provide reasonable assurances that it can comply with the
record keeping and internal control requirements applicable to SEC registrants.
Management believes these efforts have enabled the Company to produce reliable
interim and annual financial statements since the end of 2000. The Company
implemented a plan that enabled it to timely comply with the financial
statement reporting requirements applicable to SEC registrants beginning with
its 2000 Annual Report on Form 10-K and, in management's opinion, has
substantially developed and implemented an adequate control environment as of
this date. As part of this plan, during the third and fourth quarters of 2000,
the Company implemented the following action steps: (i) developed and
implemented numerous new controls and policies, (ii) implemented a process to
insure that material transactions are recorded on a timely basis, (iii)
implemented an account closing process so that all material accounts are
reconciled and reviewed on a timely basis and (iv) reorganized and changed
personnel in the accounting and finance functions to improve the accuracy and
timeliness of the financial accounting processes. The Company believes the
implementation of this plan has allowed it to timely comply with the financial
statement reporting requirements applicable to SEC registrants.

         The following table summarizes unaudited financial data:

<TABLE>
<CAPTION>
                                                      FIRST              SECOND              THIRD                FOURTH
                                                     QUARTER             QUARTER             QUARTER             QUARTER
                                                    ---------           ---------           ---------           ---------
                                                                  (IN THOUSANDS, EXCEPT SHARE DATA)

<S>                                                 <C>                 <C>                 <C>                 <C>
Year Ended December 31, 2001
Revenues .................................          $ 114,773           $ 125,897           $ 111,374           $  95,512
Operating expenses (1) ...................            114,427             115,796             107,964             160,815
Income (loss) before income taxes ........                844             (11,802)            (18,204)           (110,773)
Net loss .................................             (1,856)            (11,802)            (18,333)           (110,773)
Loss per share, basic and diluted:
         Net loss ........................              (0.07)              (0.42)              (0.64)              (3.91)
</TABLE>

---------
(1)      Operating expenses include impairment of long-lived asset charges, (in
         thousands) of $565, $4,000, $2,270 and $60,505 in the first, second,
         third and fourth quarters, respectively.

<TABLE>
<CAPTION>
                                                            FIRST              SECOND              THIRD             FOURTH
                                                           QUARTER             QUARTER            QUARTER            QUARTER
                                                          ---------           ---------           --------          ---------
                                                                         (IN THOUSANDS, EXCEPT SHARE DATA)

<S>                                                       <C>                 <C>                 <C>               <C>
Year Ended December 31, 2000
Revenues .......................................          $ 138,435           $ 161,123           $155,204          $ 126,135
Operating expenses(1) ..........................            136,919             193,073            123,145            127,933
(Loss) income before income taxes ..............            (25,519)            (60,891)               802            (31,070)
Net (loss) income ..............................            (16,842)            (40,188)               527            (31,452)
(Loss) earnings per share, basic and diluted:
         Net (loss) income .....................              (0.60)              (1.43)              0.02              (1.11)
</TABLE>

---------
(1)      Operating expenses include impairment of long-lived asset charges
         (recapture) of (in thousands) $9,613, $56,549, $(10,712) and $5,238,
         in the first, second, third and fourth quarters, respectively.


                                      64

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

         None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The table below sets forth the names and ages of the directors and
executive officers of the Company, as well as the positions and offices held by
such persons. A summary of the background and experience of each of these
individuals is set forth after the table.

<TABLE>
<CAPTION>
<S>                                                <C>        <C>
NAME                                               AGE        POSITION WITH LODGIAN

DIRECTORS WHOSE TERMS EXPIRE IN 2002:

     Peter R. Tyson                                55         Director
     Joseph C. Calabro                             50         Director and Chairman of the Office of the
                                                              Chairman of the Board

DIRECTORS WHOSE TERMS EXPIRE IN 2003:

     John M. Lang                                  47         Director and Member of the Office of the
                                                              Chairman of the Board

DIRECTORS WHOSE TERMS EXPIRE IN 2004:

     Robert S. Cole                                40         Director
     Richard H. Weiner                             52         Director

EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS:

     David Hawthorne                               51         Chief Executive Officer and President
     Michael Amaral                                44         Senior Vice President of Operations
     Richard Cartoon                               52         Executive  Vice  President  and  Chief  Financial Officer
</TABLE>

         DAVID HAWTHORNE has been Chief Executive Officer and President of the
Company since November 1, 2001. Between 1996 and 2001, Mr. Hawthorne held
positions with Tower Records, a Sacramento based Company, Premier Cruise Lines
and Alliance Entertainment Corporation. During this period, he also led a
redevelopment effort in the downtown areas of Central Florida which resulted in
the purchase and renovation of 13 historic buildings. Between 1990 and 1996, Mr.
Hawthorne was the Chairman and CEO of Servico, Inc., the predecessor of Lodgian.
Prior to joining Servico, Mr. Hawthorne held positions with Kendavis Holding
Company in Texas, was a consultant at Zolfo, Cooper and Co., in New York, a
consulting firm and worked with Gardinier, Inc. in Tampa, a French owned
phosphate miner and producer of phosphate products.

         RICHARD CARTOON was appointed Executive Vice President and Chief
Financial Officer on November 13, 2001. A member of the Georgia State Society of
Certified Public Accountants and of the Institute of Chartered Accountants
(S.A.), Mr. Cartoon is the President of Richard Cartoon LLC, a firm which
provides advisory services to companies undergoing change. The firm of Richard
Cartoon LLC is currently providing advisory services to Lodgian while the
Company is in Chapter 11. Between 1986 and 1989, Mr. Cartoon served as Senior
Manager and from 1989 to 1999 as partner with Ernst & Young's Restructuring and
Reorganization Group.


                                       65

<PAGE>
         MICHAEL AMARAL was appointed Senior Vice President of Operations of
Lodgian on November 13, 2001. Mr. Amaral brings over 20 years of hospitality
experience to his position. Prior to his appointment he was the Vice President
of Operations for the Company's Eastern Region, a position he held since
December 1998. Between August 1990 and December 1998, Mr. Amaral was employed by
Servico Inc. where he held the position of Regional Vice President of the
Pittsburg Region. Prior to joining Servico, Mr. Amaral held other senior
positions within the hospitality industry including general manager of Atlantic
Hospitality and Director of Operations of Prime Motor Inns Fairfield in New
Jersey, where he also served as general manager.

         JOSEPH C. CALABRO has been a director of Lodgian since the Merger, is
currently Chairman of the Office of the Chairman of the Board and was a director
of Servico from August 1992 until the Merger. Mr. Calabro has been a principal
of Joseph C. Calabro C.P.A, a Devon, Pennsylvania accounting firm, since 1982.
Mr. Calabro has also been an officer and director of Bibsy Corporation, which
previously owned and operated a Holiday Inn hotel in Bensalem, Pennsylvania,
since 1971.

         ROBERT S. COLE has been a director of Lodgian since the Merger. He was
Chief Executive Officer and President of the Company from the Merger until
February 9, 2001. Between 1990 and the date of the Merger, Mr. Cole was the
President of Impac and its predecessors and affiliates. Mr. Cole is currently
the Chief Executive Officer of Hospitality Ventures, LLC. Prior to that time,
Mr. Cole held a variety of general manager positions in hotels throughout the
United States.

         JOHN M. LANG has been a director of Lodgian since the Merger. Mr. Lang
is the President of Lang Capital Partners, LLC, a private venture investment
firm based in Atlanta, Georgia. From June 1996 until May 1998, Mr. Lang served
as Chief Executive Officer of ProTrust Capital, Inc., an investment firm based
in Atlanta, Georgia. Prior to 1996, Mr. Lang, an attorney, was the managing
partner of an Atlanta law firm.

         PETER R. TYSON has been a director of Lodgian since the Merger and was
a director of Servico from August 1992 until the Merger. From December 1990 to
the present, Mr. Tyson has been President of Peter R. Tyson & Associates, Inc.,
a firm offering consulting services to clients in the hospitality industry.
Prior to forming Peter R. Tyson & Associates, Inc., Mr. Tyson was the
partner-in-charge of the hospitality industry consulting practice in the
Philadelphia office of the accounting and consulting firm of Laventhol &
Horwath, with which he was associated for 20 years.

         RICHARD H. WEINER has been a director of Lodgian since the Merger and
was a director of Servico from August 1992 until the Merger. Mr. Weiner is a
senior partner in the Albany, New York law firm of Cooper, Erving, Savage, Nolan
& Heller, where he has practiced law since 1975.


                                       66

<PAGE>

         A. Director Compensation

         Lodgian pays non-executive Board members a $24,000 total annual
retainer, as well as fees of $1,500 per board meeting, $1,000 per board
committee meeting, and $500 per telephonic board or board committee meeting.
This amount is payable in either cash or stock of the Company or a combination
of both at the discretion of the Director. In addition, Mr. Joseph C. Calabro,
in lieu of the normal annual retainer and per meeting fees, is receiving annual
director compensation of $100,000 for services rendered to Lodgian in his
capacity as Chairman of the Office of the Chairman of the Board. During 2001,
Mr. Thomas Arasi as an executive officer of the Company, received no
compensation for serving as a member of Lodgian's Board and Mr. Robert Cole
received no compensation for being on the board for the period when he was an
executive officer.

         Lodgian also reimbursed directors for expenses associated with
attending Board and committee meetings of the Company.

         Under the Company's Non-Employee Directors' Stock Plan, each
non-employee director is automatically granted, on the date such director's term
of office commences, and each year thereafter on the day following any annual
meeting of stockholders (as long as such director's term as a director is
continuing for the ensuing year), an option to acquire 5,000 shares of Common
Stock at an exercise price equal to the fair market value of the Common Stock on
the date of grant. All options granted to non-employee directors become
exercisable upon grant.

ITEM 11. EXECUTIVE COMPENSATION

         The following table sets forth certain summary information concerning
compensation paid or accrued by the Company, to or on behalf of the Chief
Executive Officer and to each of the Company's executive officers other than the
Chief Executive Officer for the three years ended December 31, 2001.

<TABLE>
<CAPTION>
                                                                                            COMPENSATION
                                                          ANNUAL COMPENSATION                  AWARDS
                                                                                OTHER        SECURITIES
                                                                               ANNUAL        UNDERLYING         ALL OTHER
                                        YEAR     SALARY ($)    BONUS ($)  COMPENSATION ($)OPTIONS/SARS (8)   COMPENSATIONS
                                        ----     ----------    ---------  --------------------------------   --------------
<S>                                     <C>      <C>           <C>        <C>                                <C>
David Hawthorne (1).................    2001         90,770     150,000         --                 --               --
     Chief Executive Officer and
     President

Richard Cartoon (2).................    2001        162,439          --         --                 --               --
     Executive Vice President and
     Chief Financial Officer

Michael Amaral (3)..................    2001        184,570      93,995         --             68,000               --
     Senior Vice President of
     Operations

Thomas Arasi 4).....................    2001        378,294     243,750         --                 --               --
     Former Chief Executive Officer and
     President

Robert S. Cole (5)..................    2001        832,564          --         --                 --          750,000
     Former Chief Executive Officer and 2000        302,349          --         --                 --               --
     President                          1999        293,524          --         --                 --               --


Karyn Marasco (6)...................    2001        302,358     220,610         --                 --               --
     Former Chief Operating Officer and 2000        284,840      75,000         --                 --               --
     Executive Vice President           1999        257,862     121,000         --                 --               --
</TABLE>


                                       67

<PAGE>

<TABLE>
<S>                                     <C>         <C>              <C>        <C>                <C>              <C>
Thomas Eppich (7)...................    2001        636,252          --         --                 --               --
     Former Chief Financial Officer     2000        582,327          --         --                 --               --
</TABLE>


(1)      Mr. Hawthorne's employment with the Company commenced on October 1,
         2001 (as interim Chief Executive Officer and President with formal
         appointment on November 1, 2001).

(2)      Mr. Cartoon's appointment with the Company began on October 4, 2001.
         The amount shown as salary represents fees charged by Richard Cartoon,
         LLC for the services of Richard Cartoon from October 4, 2001 to
         December 31, 2001.

(3)      Mr. Amaral was appointed Senior Vice President of Operations on
         November 13, 2001.

(4)      Mr. Arasi was Chief Executive Officer between February 9, 2001 and
         October 1, 2001.

(5)      Mr. Cole served as Chief Executive Officer and President from December
         11, 1998 to February 9, 2001. Salary information includes $82,564 in
         salary and $750,000 for consulting services. Other compensation
         represents severance payments made to Mr. Cole.

(6)      Ms. Marasco's employment with Servico began in May 1997 and continued
         through the Merger. She resigned effective November 30, 2001.

(7)      Mr. Thomas Eppich was Chief Financial Officer between June 1, 2000 and
         June 15, 2001. Salary information represents amounts paid to Jay Alix
         and Associates for services provided by Mr. Eppich.

(8)      Represents the number of shares of common stock underlying the
         options/SARs.

         B. Stock Option Plan

         The Company's Stock Option Plan provides for the issuance of incentive
stock options within the meaning of Section 422A of the Internal Revenue Code of
1986 ("The Internal Revenue Code") and non-qualified stock options not intended
to meet the requirements of Section 422A of the Internal Revenue Code. The plan
is administered by a committee of the Board of Directors which, subject to the
terms of the plan, determines to whom grants are made and the vesting, timing
and amounts of such grants.

         There were no stock option grants made during 2001 to the executive
officers named in the "Summary Compensation Table". Accordingly, the table of
"Stock Option Grants in Fiscal Year 2001" has not been included. Options granted
to Mr. Thomas Arasi were all forfeited by him during 2001 and Mr. Hawthorne's
options, which were never issued, all expired on the filing of bankruptcy.

         The following table sets forth certain summary information concerning
exercised and unexercised stock options to purchase the Company's Common Stock
as of March 15, 2002, under Lodgian's Stock Option Plan held by executive
officers named in the "Summary Compensation Table."

                      STOCK OPTION EXERCISES IN FISCAL YEAR
                     2001 AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
                                                                       NUMBER OF UNEXERCISED      VALUE OF UNEXERCISED IN-
                                                                       OPTIONS/SARS HELD AT        THE-MONEY OPTIONS/SARS
NAME AND POSITION                         ACQUIRED ON     VALUE         FISCAL YEAR END(#)         AT FISCAL YEAR-END($)
                                                                        ------------------         ----------------------
DURING 2001 FISCAL YEAR                   EXERCISE(#)  REALIZED($) EXERCISABLE   UNEXERCISABLE  EXERCISABLE     UNEXERCISABLE
-----------------------                   -----------  ----------- -----------   -------------  -----------     -------------
<S>                                       <C>          <C>         <C>           <C>            <C>             <C>

Michael Amaral......................          --           --        65,000          3,000           --             --
     Senior Vice President
         of Operations
</TABLE>


                                       68

<PAGE>

         C. Employment Agreements and Termination of Employment

Employment Agreements

         DAVID HAWTHORNE entered into an employment agreement with Lodgian
relating to his employment as President and Chief Executive Officer as of
November 1, 2001. This employment agreement is for an initial term of three
years with a base salary of not less that $400,000. Annual increases are at the
discretion of the Board of Directors. During the initial three year term Mr.
Hawthorne is eligible to receive an annual bonus of up to 100% of base salary
limited to 50% of base salary for any fiscal year in which the Executive is paid
a reorganization bonus. The reorganization bonus will be paid to Mr. Hawthorne
if during his employment with the Company or 180 days following the date of
termination, the Company consummates a successful restructuring as further
defined in the agreement. The reorganization bonus has been set at $900,000 if
the Post Restructuring Equity Percentage is greater than 1% but not less than
10% on a fully diluted basis or $1,200,000 if the Restructuring Equity
Percentage is 10% or more on a fully diluted basis. The remainder of the annual
bonus will be determined based on the achievement of performance objectives that
are mutually agreed to by the Board, the Compensation Committees of the Board of
Directors and Mr. Hawthorne. Mr. Hawthorne receives paid health insurance, paid
disability insurance, paid life insurance, a company car and is entitled to
participate, to the extent eligible, under any benefit plans provided to other
executives of Lodgian. Mr. Hawthorne is entitled to a minimum of four weeks
vacation annually. He was granted options to acquire 1,000,000 shares of
Lodgian's Common Stock, which were to vest equally over a period of three years.
However, in accordance with the employment agreement, the options terminated
automatically upon the Company's commencement of bankruptcy proceedings. Mr.
Hawthorne is also entitled to reimbursement of expenses in accordance with the
Company's policy, payments in respect of temporary housing, living expenses for
a period of six months from date of the Agreement and relocation expenses in the
event the executive relocates to Atlanta. Mr. Hawthorne's employment agreement
contains provisions for payments to him in the event of termination or change of
control as described more fully under "Arrangements Regarding Termination of
Employment and Change of Control".

         THOMAS ARASI entered into an employment agreement with Lodgian relating
to his employment as President and Chief Executive Officer, as of February 9,
2001. This employment agreement was for an initial term of three years with a
base salary of not less that $550,000. Annual increases were at the discretion
of the Board of Directors. During the initial three year term Mr. Arasi was
eligible to receive an annual bonus of up to 100% of base salary. During the
first, second and third year of the employment period $325,000, $275,000 and
$225,000, respectively, of the annual bonus was guaranteed and was to be paid
quarterly. The remainder of the annual bonus was to be determined based on the
achievement of performance objectives that were mutually agreed to by the
Compensation Committees of the Board of Directors and Mr. Arasi. Mr. Arasi
received paid health insurance, paid disability insurance, paid life insurance,
a company car and was entitled to participate, to the extent eligible, under any
benefit plans provided to other executives of Lodgian. Mr. Arasi was entitled to
a minimum of four weeks vacation annually. Mr. Arasi was granted options to
acquire 2,000,000 shares of Lodgian's Common Stock, which were to vest equally
over a period of four years. These options were all forfeited on Mr. Arasi's
resignation. The term of the options was ten years. The exercise price of the
options was derived from a formula that would have yielded an exercise price
that was less than the fair market value of the stock on the date of grant. The
options granted to Mr. Arasi were granted outside of the Company's Stock Option
Plan. Mr. Arasi's employment agreement also contained provisions for payments to
him in the event of termination or change of control.

         On October 1, 2001, Mr. Arasi resigned to pursue other opportunities.
There are no claims outstanding as a result of Mr. Arasi's resignation.

         ROBERT COLE entered into an employment agreement with Lodgian relating
to his employment as President and Chief Executive Officer, as of December 11,
1998. This employment agreement provided for a base salary subject to increases
and bonuses, in each case, at the discretion of the Board of Directors. The base
salary paid to Mr. Cole during 2001 was $82,564. Mr. Cole also received paid
health insurance, paid disability insurance and was entitled to participate, to
the extent eligible,


                                       69

<PAGE>

under any benefit plans provided to other executives of Lodgian. Mr. Cole was
entitled to a minimum of three weeks paid vacation annually.

         On February 9, 2001, Mr. Cole and Lodgian entered into a Separation
Agreement. On this date, Mr. Cole, with the Company's consent, resigned his
position as President and Chief Executive Officer and continued as a non-officer
employee through March 2, 2001. Mr. Cole received a severance payment of
$750,000 in full settlement of all amounts due Mr. Cole by reason of the
termination of his employment agreement. During the period March 3, 2001 to
March 31, 2002 Mr. Cole will provide transition assistance and strategic and
financial advisory services to Lodgian. Mr. Cole received $750,000 for his
consulting services. The Company and Mr. Cole released one another from all
claims rising out of Mr. Cole's employment with the Company.

         KARYN MARASCO entered into a three-year employment agreement with
Servico relating to her employment as Executive Vice President and Chief
Operating Officer of Servico on May 2, 1997. On November 24, 1998, the agreement
was extended for a period of one year and on July 28, 2000 was extended through
September 2002. The employment agreement provided for a base salary of $257,862
subject to increases and bonuses at the discretion of the Board. Ms. Marasco was
also entitled to receive the benefits offered other executive officers. Pursuant
to the terms of her employment agreement, Ms. Marasco was granted options to
acquire 50,000 shares of Lodgian Common Stock, with 10,000 of such shares
vesting immediately and 10,000 vesting annually. The employment agreement was
terminable upon 30 days notice but in the event Ms. Marasco was terminated other
than "for Cause," as defined in the agreement, she would have been entitled to
her base salary and benefits under the agreement for the greater of the
unexpired term or one year.

         On November 1, 2001, Ms. Marasco resigned to pursue other
opportunities. The resignation took effect on November 30, 2001.

Arrangements Regarding Termination of Employment and Changes of Control

         The employment agreement between Lodgian and Mr. Hawthorne provides
that in the event the Executive's employment is terminated for cause, no
obligations are payable by the Company other than the obligations to pay
outstanding salary and benefits due through the date of termination.

         In the event of a change in control resulting from the Company's
termination of Mr. Hawthorne's employment (other than for cause) or from a
material diminution of the position, duties, benefits and other terms of the
Executive's employment with the Company, lump sum cash payments are due to the
Executive within one year of a change of control. The sum due would be the
greater of one and one-half times the base salary in effect upon consummation of
the change of control or the base salary in effect upon consummation of the
change of control multiplied by the number of years remaining (including partial
years) in the employment period.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth certain information regarding ownership
of Common Stock as of March 15, 2002, by (i) each person known to the Company to
be the beneficial owner of more than 5% of the issued and outstanding Common
Stock as of March 15, 2002, (ii) each of the members of the Company's Board of
Directors, (iii) each of the Company's current executive officers named in the
"Summary Compensation Table" under "Executive Compensation" and (iv) all
directors and executive officers of the Company as a group. All shares were
owned directly with sole voting and investment power unless otherwise indicated.

<TABLE>
<CAPTION>
                                                                                     SHARES OF COMMON       PERCENT OF COMMON
NAME OF BENEFICIAL OWNER AND                                                               STOCK                  STOCK
ADDRESS OF 5% BENEFICIAL OWNER                                                    BENEFICIALLY OWNED (1) BENEFICIALLY OWNED (2)
------------------------------                                                    ---------------------- ----------------------
<S>                                                                               <C>                    <C>
BENEFICIAL OWNERS OF 5% OR MORE
OF OUTSTANDING COMMON STOCK:
</TABLE>


                                       70

<PAGE>

<TABLE>
<S>                                                                                     <C>                      <C>
William J. Yung.................................................................        3,157,050(3)             10.9%
     201 Grandview Drive
     Fort Mitchell, KY 41017

Dimensional Fund Advisors.......................................................        1,565,800(4)              5.4%
     1299 Ocean Avenue, 11th Floor
     Santa Monica, CA 90401

DIRECTORS:
Thomas Arasi....................................................................           50,000                   *
Robert S. Cole..................................................................          572,843(5)              2.0%
Joseph C. Calabro...............................................................          288,224(6)                1%
John M. Lang....................................................................          383,061(7)              1.3%
Peter R. Tyson..................................................................           75,664(8)               *
Richard H. Weiner...............................................................           90,100(9)               *
NON DIRECTOR EXECUTIVE OFFICERS:
David Hawthorne.................................................................               --                  --
Mike Amaral.....................................................................          130,000(10)              *
Karyn Marasco...................................................................            2,700                  *
Richard Cartoon.................................................................               --                 --
All directors and executive officers as a group (ten persons)...................        1,592,592(11)             5.5%
</TABLE>

---------------

*  Represents less than 1%

(1)      This number does not include those shares of Lodgian to be distributed
         upon conversion of Servico shares and Impac units pursuant to the
         Merger which have as yet not been converted.

(2)      Ownership percentages are based on 28,479,837 shares of Common Stock
         outstanding as of March 15, 2002 and options to purchase 360,000 shares
         of Common Stock currently exercisable by the named individual or group.

(3)      William J. Yung filed a Schedule 13D/A dated October 15, 2001 with the
         Securities and Exchange Commission ("SEC") reporting beneficial
         ownership of 3,157,050 shares of Common Stock. Mr. Yung may be deemed
         to be the indirect beneficial owner of and have shared voting and
         dispositive power with respect to (i) the 1,563,350 Shares held by
         Edgecliff Holdings, LLC by virtue of his indirect control of Edgecliff
         Holdings, LLC and (ii) the 1,593,700 Shares held by Casuarina Cayman
         Holding, Ltd. by virtue of his direct control of Casaurina.

(4)      Dimensional Fund Advisors filed a Schedule 13G/A dated February 12,
         2002 with the SEC reporting ownership of 1,565,800 shares of Common
         Stock with sole voting and dispositive power with respect to such
         shares.

(5)      Includes currently exercisable options to purchase 5,000 shares of
         Common Stock.

(6)      Includes currently exercisable options to purchase 70,000 shares of
         Common Stock.


                                       71

<PAGE>

(7)      The shares in this table above do not include: (i) shares beneficially
         held by ProTrust Properties IV, Ltd., ProTrust Properties V, Ltd.,
         Hotel Investors, LP, and ProTrust Equity Growth Fund I, LP
         (collectively the "Entities"), from which, as of June 8, 1999, Mr. Lang
         resigned his position as manager, and the shares held by which were
         formerly deemed to be beneficially owned by him; and (iii) shares
         beneficially owned by Hotel Capital II, LLC, a limited liability
         company whose manager, with sole voting and dispositive power, is
         Robert H. Woods (a partner in Lang Capital Partners, LLC), with respect
         to which Mr. Lang is not a member or a manager, and does not have
         voting or dispositive power with respect to those shares; therefore,
         such shares are not included in Mr. Lang's beneficial ownership.
         Includes currently exercisable options to purchase 15,000 shares.

(8)      Includes currently exercisable options to purchase 70,000 shares of
         Common Stock.

(9)      Includes currently exercisable options to purchase 70,000 shares of
         Common Stock.

(10)     Represents currently exercisable options to purchase 130,000 shares of
         Common Stock.

(11)     Includes currently exercisable options to purchase 360,000 shares of
         Common Stock.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

          The following parties have direct or indirect material interest in
transactions with the Company since the beginning of its most recently completed
fiscal year and such transactions are described below.

         Robert Cole, a member of the Board of Directors was a minority
shareholder of Impac Hotel Development ("IHD"), which provided acquisition and
property development services to Impac for a development fee of four percent of
the total project cost of each property acquired or developed. Impac agreed to
terminate this agreement prior to the consummation of the Merger so that Impac
and its subsidiaries would have no further obligations under the agreement after
the Merger other than the payment of up to a four percent development fee (not
to exceed $2.5 million in the aggregate) in the event Lodgian acquired or
developed any of the hotels or properties identified in the Merger Agreement as
Impac's acquisition and development pipeline. During 1999, the Company paid $1.0
million in connection with this arrangement. Of this amount, Robert Cole
received $225,000. No payments were made in 2001 or 2000 to IHD or Robert Cole
under this agreement. The Company's obligation to make any future development
fees was terminated in March 2001.

         Robert Cole, a member of the Board of Directors had been an 8% limited
partner in the partnership that owns the Courtyard by Marriott in Tifton,
Georgia since 1996. The Company previously managed this hotel in accordance with
a management agreement, which provided that the Company be paid a base fee
calculated as a percentage of gross revenues, an accounting services fee and an
incentive management fee. The base fee was 3% of gross revenues and the
incentive fee was a percentage of the amount by which gross operating profit
exceeded a negotiated amount. The Company earned fees of $15,000, $71,400 and
$69,300 during 2001, 2000, and 1999, respectively. The management agreement was
terminated in March 2001.

         On December 15, 2000 the Company sold a partially constructed hotel
located in Richmond, Virginia to an entity controlled by a shareholder who is a
10.9% beneficial owner of the Company's common stock. The Company received net
proceeds of approximately $12.3 million from the sale and recorded a loss on the
sale of approximately $.5 million. In addition, the Company entered into a
separate management contract with the purchaser to provide construction
management oversight until completion of the project.

         Richard Cartoon, the Company's Executive Vice President and Chief
Financial Officer, is a principal in a business that the Company retained in
November 2001 to provide Richard Cartoon's services as Chief Financial Officer
and other restructuring support and services. In addition to amounts paid for
Richard Cartoon's services, which amounts are disclosed in Item 11 re Executive
Compensation, the Company has been billed $220,000 for other support and
services provided by


                                       72

<PAGE>

associates of Richard Cartoon, LLC for the period October 4, 2001 through
February 28, 2002. The Company expects to continue to utilize such support and
services as needed through the restructuring process.

         Thomas Eppich, Chief Executive Officer between June 1, 2000 and June
15, 2001 was employed to Jay Alix and Associates, a business that the Company
retained to provide financial and accounting assistance between June 1, 2000 and
June 19, 2001. In addition to amounts paid for Mr. Eppich's services which
amounts are disclosed in Item 11 re Executive Compensations, the Company was
billed $1,855,000 and $1,839,000 for such services for 2001 and 2000,
respectively.

         D. Compensation Committee Interlocks and Insider Participation

         During 2001, the following directors served on the Compensation
Committee of the Board of Directors: John Lang, Peter R. Tyson and Richard H.
Weiner. None of such persons is or has been an executive officer of the Company,
and no interlocking relationships exist between any such person and the
directors or executive officers of any other Company.

                                     PART IV

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

         (a)      (1) Consolidated Financial Statements:

                  Report of Independent Public Accountants

                  Report of Independent Auditors

                  Consolidated Balance Sheets as of December 31, 2001 and 2000

                  Consolidated Statements of Operations for the Years Ended
                  December 31, 2001, 2000 and 1999

                  Consolidated  Statements of Stockholders' Equity for the Years
                  Ended December 31,  2001, 2000 and 1999

                  Consolidated Statements of Cash Flows for the Years Ended
                  December 31, 2001, 2000 and 1999

                  Notes to Consolidated Financial Statements

         (b)      (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.

         (c)      (3) Exhibits:

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

         (d)      Reports on Form 8-K:

                  A report on Form 8-k was filed on March 28, 2001 relating to
                  pro forma financial statements on the sale of ten hotels.

                  A report on Form 8-K was filed on January 2, 2002 relating to
                  the voluntary filing of Lodgian Inc. and a number of its
                  subsidiaries, for protection under Chapter 11 of the United
                  States Bankruptcy Code in Federal Code in New York.


                                       73

<PAGE>

                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NO.                                                      DESCRIPTION
<S>         <C>   <C>
1.1         --    Purchase  Agreement,  dated  June 9,  1998,  by  Lodgian  Capital  Trust  I  and  NationsBanc
                  Montgomery Securities LLC.(h)

2.1         --    Amended and Restated  Agreement and Plan of Merger (the "Merger  Agreement")  among  Lodgian,
                  Inc., Servico,  Inc., Impac Hotel Group,  L.L.C.,  SHG-S Sub, Inc., SHG-I Sub,L.L.C.,  P-Burg
                  Lodging  Associates,  Inc., SHG-II Sub, Inc., Hazard Lodging  Associates,  Inc., SHG-III Sub,
                  Inc.,  Memphis Lodging  Associates,  Inc., SHG-IV Sub, Inc., Delk Lodging  Associates,  Inc.,
                  SHG-V  Sub,  Inc.,  Impac  Hotel  Development,  Inc.,  SHG-VI  Sun,  Inc.,  Impac  Design and
                  Construction,  Inc.,  SHG-VII Sub, Inc., Impac Hotel Group,  Inc., and SHG-VIII Sub, Inc., as
                  of July 22, 1998.(a)

2.2         --    Amendment to the Merger Agreement, dated as of September 16, 1998.(j)

3.1.1       --    Restated Certificate of Incorporation of Lodgian, Inc.(a)

3.1.2       --    Amended Restated Bylaws of Lodgian, Inc.(e)

3.2.1       --    Certificate of Incorporation of Lodgian Financing Corp.(f)

3.2.2       --    Bylaws of Lodgian Financing Corp.(f)

3.3.1       --    Amended and Restated Articles of Incorporation of Dothan Hospitality 3053, Inc.(f)

3.3.2       --    Bylaws of Dothan Hospitality 3053, Inc.(f)

3.4.1       --    Amended and Restated Articles of Incorporation of Dothan Hospitality 3071, Inc.(f)

3.4.2       --    Bylaws of Dothan Hospitality 3071, Inc.(f)

3.5.1       --    Second Amended and Restated Articles of Incorporation of Gadsden Hospitality, Inc.(f)

3.5.2       --    Bylaws of Gadsden Hospitality, Inc.(f)

3.6.1       --    Fourth  Amended and  Restated  Articles of  Incorporation  of  Sheffield  Motel  Enterprises,
                  Inc.(f)

3.6.2       --    Bylaws of Sheffield Motel Enterprises, Inc.(f)

3.7.1       --    Articles of Incorporation of Lodgian Anaheim, Inc.(f)

3.7.2       --    Bylaws of Lodgian Anaheim, Inc.(f)

3.8.1       --    Articles of Incorporation of Lodgian Ontario Inc.(f)

3.8.2       --    Bylaws of Lodgian Ontario Inc.(f)

3.9.1       --    Amended and Restated Articles of Incorporation of Servico Ft. Pierce, Inc.(f)

3.9.2       --    Bylaws of Servico Ft. Pierce, Inc.(f)
</TABLE>


                                       74

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO.                                                      DESCRIPTION
<S>         <C>   <C>
3.10.1      --    Amended and Restated Articles of Incorporation of Servico Pensacola 7200, Inc.(f)

3.10.2      --    Bylaws of Servico Pensacola 7200, Inc.(f)

3.11.1      --    Amended and Restated Articles of Incorporation of Servico Pensacola 7330, Inc.(f)

3.11.2      --    Bylaws of Servico Pensacola 7330, Inc.(f)

3.12.1      --    Amended and Restated Articles of Incorporation of Servico Pensacola, Inc.(f)

3.12.2      --    Bylaws of Servico Pensacola, Inc.(f)

3.13.1      --    Partnership Agreement of AMI Operating Partners, L.P., as amended.(f)

3.14.1      --    Second Amended and Restated Articles of Incorporation of Albany Hotel, Inc.(f)

3.14.2      --    Bylaws of Albany Hotel, Inc.(f)

3.15.1      --    Amended and Restated Articles of Incorporation of Servico Flagstaff, Inc.(f)

3.15.2      --    Bylaws of Servico Flagstaff, Inc.(f)

3.16.1      --    Amended and Restated Articles of Incorporation of Servico Northwoods, Inc.(f)

3.16.2      --    Bylaws of Servico Northwoods, Inc.(f)

3.17.1      --    Second Amended and Restated Articles of Incorporation of Servico Silver Spring, Inc.(f)

3.17.2      --    Bylaws of Servico Silver Spring, Inc.(f)

3.18.1      --    Second Amended and Restated Articles of Incorporation of Servico West Palm Beach, Inc.(f)

3.18.2      --    Bylaws of Servico West Palm Beach, Inc.(f)

3.19.1      --    Amended and Restated Articles of Incorporation of Servico Windsor, Inc.(f)

3.19.2      --    Bylaws of Servico Windsor, Inc.(f)

3.20.1      --    Amended and Restated Articles of Incorporation of Servico Winter Haven, Inc.(f)

3.20.2      --    Bylaws of Servico Winter Haven, Inc.(f)

3.21.1      --    Amended and Restated Articles of Incorporation of Brunswick Motel Enterprises, Inc.(f)

3.21.2      --    Bylaws of Brunswick Motel Enterprises, Inc.(f)

3.22.1      --    Operating Agreement of Atlanta-Hillsboro Lodging, LLC(f)

3.23.1      --    Operating Agreement of Lodgian Richmond, LLC(f)
</TABLE>


                                       75

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO.                                                      DESCRIPTION
<S>         <C>   <C>
3.24.1      --    Partnership Agreement of Little Rock Lodging Associates I, L.P.(f)

3.25.1      --    Amended and Restated Articles of Incorporation of Servico Cedar Rapids, Inc.(f)

3.25.2      --    Bylaws of Servico Cedar Rapids, Inc.(f)

3.26.1      --    Amended and Restated Articles of Incorporation of Servico Rolling Meadows, Inc.(f)

3.26.2      --    Bylaws of Servico Rolling Meadows, Inc.(f)

3.27.1      --    Second Amended and Restated Articles of Incorporation of Servico Metairie, Inc.(f)

3.27.2      --    Bylaws of Servico Metairie, Inc.(f)

3.28.1      --    Amended and Restated Articles of Incorporation of Servico Colesville, Inc.(f)

3.28.2      --    Bylaws of Servico Colesvilles, Inc.(f)

3.29.1      --    Amended and Restated Articles of Incorporation of Servico Columbia, Inc.(f)

3.29.2      --    Bylaws of Servico Columbia, Inc.(f)

3.30.1      --    Amended and Restated Articles of Incorporation of Servico Maryland, Inc.(f)

3.30.2      --    Bylaws of Servico Maryland, Inc.(f)

3.31.1      --    Amended and Restated Articles of Incorporation of NH Motel Enterprises, Inc.(f)

3.31.2      --    Bylaws of NH Motel Enterprises, Inc. (formerly RRCHR, Inc.)(f)

3.32.1      --    Amended and Restated Articles of Incorporation of Minneapolis Motel Enterprises, Inc.(f)

3.32.2      --    Bylaws of Minneapolis Enterprises, Inc.(f)

3.33.1      --    Amended and Restated Articles of Incorporation of Servico Roseville, Inc.(f)

3.33.2      --    Bylaws of Servico Roseville, Inc.(f)

3.34.1      --    Amended and Restated Articles of Incorporation of Lodgian Mount Laurel, Inc.(f)

3.34.2      --    Bylaws of Lodgian Mount Laurel, Inc.(f)

3.35.1      --    Restated Certificate of Incorporation of Servico Grand Island, Inc.(f)

3.35.2      --    Bylaws of Servico Grand Island, Inc.(f)

3.36.1      --    Restated Certificate of Incorporation of Servico Jamestown, Inc.(f)

3.36.2      --    Bylaws of Servico Jamestown, Inc.(f)
</TABLE>


                                       76

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO.                                                      DESCRIPTION
<S>         <C>   <C>
3.37.1      --    Restated Certificate of Incorporation of Servico New York, Inc.(f)

3.37.2      --    Bylaws of Servico New York, Inc.(f)

3.38.1      --    Restated Certificate of Incorporation of Servico Niagara Falls, Inc.(f)

3.38.2      --    Bylaws of Servico Niagara Falls, Inc.(f)

3.39.1      --    Amended and Restated Articles of Incorporation of Fayetteville Motel Enterprises, Inc.(f)

3.39.2      --    Bylaws of Fayetteville Motel Enterprises, Inc.(f)

3.40.1      --    Second Amended and Restated Articles of Incorporation of Apico Hills, Inc.(f)

3.40.2      --    Bylaws of Apico Inns of Green Tree, Inc.(f)

3.41.1      --    Second Amended and Restated Articles of Incorporation of Apico Inns of Green Tree, Inc.(f)

3.41.2      --    Bylaws of Apico Hills, Inc.(f)

3.42.1      --    Second Amended and Restated Articles of Incorporation of Servico Hilton Head, Inc.(f)

3.42.2      --    Bylaws of Servico Hilton Head, Inc.(f)

3.43.1      --    Amended and Restated Articles of Incorporation of Servico Austin, Inc.(f)

3.43.2      --    Bylaws of Servico Austin, Inc.(f)

3.44.1      --    Second Amended and Restated Articles of Incorporation of Servico Houston, Inc.(f)

3.44.2      --    Bylaws of Servico Houston, Inc.(f)

3.45.1      --    Second Amended and Restated Articles of Incorporation of Servico Market Center, Inc.(f)

3.45.2      --    Bylaws of Servico Market Center, Inc.(f)

3.46.1      --    Second  Amended and  Restated  Articles  of  Incorporation  of Palm Beach Motel  Enterprises,
                  Inc.(f)

3.46.2      --    Bylaws of Palm Beach Motel Enterprises, Inc.(f)

4.1.1       --    Indenture,  dated as of July 23,  1999, by and among Lodgian Financing Corp., Lodgian,  Inc.,
                  the subsidiary guarantors named therein and Bankers Trust Company, as Trustee.(f)

4.1.2       --    First  Supplemental  Indenture,  dated as of  September 13,  1999,  among  Lodgian  Financing
                  Corp.,  Lodgian,  Inc.,  the  subsidiary  guarantors  named  therein,  the  subsidiary of the
                  Company listed on Schedule A annexed thereto and Bankers Trust Company, as Trustee.(m)

4.2         --    Indenture,  dated as of June 17,  1998, between Servico,  Inc., Lodgian, Inc., and Wilmington
                  Trust Company, as Trustee.(a)
</TABLE>


                                       77

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO.                                                      DESCRIPTION
<S>         <C>   <C>
4.3         --    First Supplemental  Indenture,  dated as of June 17,  1998, between Servico,  Inc.,  Lodgian,
                  Inc., and Wilmington Trust Company, as Trustee.(a)

4.4         --    Registration  Rights  Agreement,  dated as of June 17,  1998, among Lodgian Capital Trust  I,
                  Servico, Inc., and NationsBanc Montgomery Securities, LLC.(a)

4.5         --    Registration and Rights  Agreement  between  Lodgian,  Inc. and certain  unitholders of Impac
                  Hotel Group, LLC.(a)

4.6         --    Specimen Note.(f)

4.7         --    Specimen CRESTS.(a)

4.8         --    Specimen Convertible Debenture.(a)

10.1        --    Lodgian 1998 Short-Term, Incentive Compensation Plan.(a)

10.2        --    Lodgian 1998 Stock Incentive Plan.(a)

10.3        --    Lodgian Non-Employee Directors' Stock Plan.(a)

10.4        --    Guarantee Agreement,  dated as of June 17,  1998, between Servico,  Inc., Lodgian,  Inc., and
                  Wilmington Trust Company, as Guarantee Trustee.(a)

10.5        --    Amended and Restated  Declaration  of Trust of Lodgian  Capital Trust I, dated as of June 17,
                  1998 between Servico, Inc., as Sponsor,  David A. Buddemeyer,  Charles M. Diaz and Phillip R.
                  Hale, as Regular  Trustees,  and  Wilmington  Trust  Company,  as Delaware Trust and Property
                  Trustee.(a)

10.6        --    Severance   Agreement,   dated   November 10,   1998,   between  Servico,   Inc.,  and  David
                  Buddemeyer.(g)

10.7        --    Severance Agreement, dated February 28, 1999, between Lodgian, Inc. and Warren M. Knight.(g)

10.8        --    Employment Agreement between Lodgian, Inc. and Robert S. Cole.(a)

10.9        --    Employment Agreement, dated May 2, 1997, between Karyn Marasco and Servico, Inc.(i)

10.10       --    Form of Employment  Agreement,  dated as of  February 9,  2001 between the Lodgian,  Inc. and
                  Thomas Arasi.(m)

10.11       --    Form of Separation Agreement,  dated as of February 9,  2001 between Lodgian, Inc. and Robert
                  S. Cole.(m)

10.13       --    Voting Agreement,  dated as of March 20,  1998, between Servico, Inc., and Certain Members of
                  Impac.(c)

10.14       --    Voting  Agreement,  dated as of March 20,  1998,  between  Servico,  Inc.,  and Certain Other
                  Members of Impac.(c)
</TABLE>


                                       78

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO.                                                      DESCRIPTION
<S>         <C>   <C>
10.15       --    Credit Agreement,  dated as of July 23,  1999, among Lodgian Financing Corp., Lodgian,  Inc.,
                  Impac Hotel Group, LLC, Servico,  Inc., and other affiliate  guarantors party thereto and the
                  initial  lenders and initial  issuing bank named therein and Morgan Stanley  Senior  Funding,
                  Inc., as  Administrative  Agent and Collateral  Agent,  and Morgan  Stanley  Senior  Funding,
                  Inc.,  as  Co-Lead  Arranger  and  Joint-Book  Manager  and  Syndication  Agent,  and  Lehman
                  Brothers, Inc., as Co-Lead Arranger and Joint-Book Manager.(f)

10.16       --    Security Agreement,  dated July 23,  1999, from Lodgian Financing Corp.,  Sevico, Inc., Impac
                  Hotel  Group,  LLC,  and the other  grantors  referred  to therein to Morgan  Stanley  Senior
                  Funding, Inc., as Collateral Agent.(f)

10.17.1     --    Loan  Agreement,  dated  December 8,  1998,  Sheraton  Concord,  Inc.,  and Banc One  Capital
                  Funding Corporation.(f)

10.17.2     --    Guaranty and Indemnity  Agreement,  dated  December 8,  1998, by Lodgian AMI, Inc.,  Penmoco,
                  Inc.,  and  Island  Motel   Enterprises,   Inc.,  in  favor  of  Banc  One  Capital   Funding
                  Corporation.(f)

10.17.3     --    Limited  Guaranty and Indemnity  Agreement,  dated  December 8,  1998,  by Lodgian,  Inc., in
                  favor of Banc One Capital Funding Corporation.(f)

10.18.1     --    Loan Agreement,  dated December 8,  1998,  between Island Motel Enterprises,  Inc.,  Penmoco,
                  Inc., and Banc One Capital Funding Corporation.(f)

10.18.2     --    Guaranty and Indemnity  Agreement,  dated  December 8,  1998, by Servico  Concord,  Inc., and
                  Lodgian AMI, Inc., in favor of Banc One Capital Funding Corporation.(f)

10.18.3     --    Limited  Guaranty and Indemnity  Agreement,  dated  December 8,  1998,  by Lodgian,  Inc., in
                  favor of Banc One Capital Funding Corporation.(f)

10.19.1     --    Loan  Agreement,  dated  December 8,  1998,  between  Lodgian AMI, Inc., and Banc One Capital
                  Funding Corporation (relating to Holiday Inn--Lancaster East).(f)

10.19.2     --    Guaranty and Indemnity Agreement,  dated December 8,  1998, by Servico Concord, Inc., Penmoco
                  Inc.,  and  Island  Motel   Enterprises,   Inc.,  in  favor  of  Banc  One  Capital   Funding
                  Corporation.(f)

10.19.3     --    Limited  Guaranty and Indemnity  Agreement,  dated  December 8,  1998,  by Lodgian,  Inc., in
                  favor of Banc One Capital Funding Corporation.(f)

10.20.1     --    Loan  Agreement,  dated  December 8,  1998,  between  Lodgian AMI, Inc., and Banc One Capital
                  Funding Corporation (relating to Holiday Inn--International Airport).(f)

10.20.2     --    Guaranty and Indemnity Agreement,  dated December 8,  1998, by Servico Concord, Inc., Penmoco
                  Inc.,  and  Island  Motel   Enterprises,   Inc.,  in  favor  of  Banc  One  Capital   Funding
                  Corporation.(f)

10.20.3     --    Limited  Guaranty and Indemnity  Agreement,  dated  December 8,  1998,  by Lodgian,  Inc., in
                  favor of Banc One Capital Funding Corporation.(f)
</TABLE>


                                       79

<PAGE>

<TABLE>
<S>         <C>   <C>
10.21.1     --    Loan Agreement  dated as of July 18,  1996,  among GMAC Commercial  Mortgage  Corporation and
                  Servico Council Bluffs,  Inc.,  Servico West Des Moines,  Inc.,  Servico Omaha, Inc., Servico
                  Omaha Central, Inc., and Servico Wichita, Inc.(f)
</TABLE>


                                       80

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO.                                                      DESCRIPTION
<S>         <C>   <C>
10.21.2     --    Mortgage  Note in the  amount  of $16.84  million,  dated as of  July 18,  1996,  by  Servico
                  Council Bluffs,  Inc.,  Servico West Des Moines,  Inc.,  Servico Omaha,  Inc.,  Servico Omaha
                  Central,   Inc.,  and  Servico   Wichita,   Inc.,  in  favor  of  GMAC  Commercial   Mortgage
                  Corporation.(f)

10.22.1     --    Loan Agreement  dated as of May 7,  1996,  between GMAC Commercial  Mortgage  Corporation and
                  Servico Lansing, Inc.(f)

10.22.2     --    Mortgage Note in the original amount of $5.687 million,  dated as of May 7,  1996, by Servico
                  Lansing, Inc., in favor of GMAC Commercial Mortgage Corporation.(f)

10.23.1     --    Loan Agreement  dated as of  January 17,  1996,  among Loan  Services,Inc.,  and  Brecksville
                  Hospitality, L.P., Sioux City Hospitality, L.P., and 1075 Hospitality, L.P.(f)

10.23.2     --    Mortgage Note in original amount of $12.91 million by Brecksville  Hospitality,  L.P.,  Sioux
                  City  Hospitality,  L.P., and 1075  Hospitality,  L.P., in favor of GMAC Commercial  Mortgage
                  Corporation.(f)

10.24.1     --    Loan  Agreement  dated as of  January 31,  1995,  by and among Column  Financial,  Inc.,  and
                  Servico  Fort Wayne,  Inc.,  Washington  Motel  Enterprises,  Inc.,  Servico  Hotels I, Inc.,
                  Servico  Hotels II, Inc.,  Servico  Hotels III,  Inc.,  Servico  Hotels IV, Inc., New Orleans
                  Airport Motels Associates,  Ltd.,  Wilpen,  Inc., Hilton Head Motels  Enterprises,  Inc., and
                  Moon Airport Hotel Inc.(f)

10.24.2     --    Promissory  Note in  original  amount of $60.5  million,  dated as of  January 31,  1995,  by
                  Servico  Fort Wayne,  Inc.,  Washington  Motel  Enterprises,  Inc.,  Servico  Hotels I, Inc.,
                  Servico  Hotels II, Inc.,  Servico  Hotels III,  Inc.,  Servico  Hotels IV, Inc., New Orleans
                  Airport Motels Associates,  Ltd.,  Wilpen,  Inc., Hilton Head Motels  Enterprises,  Inc., and
                  Moon Airport Hotel Inc., in favor of Column Financial, Inc.(f)

10.25.1     --    Loan  Agreement  dated  as of  June 29,  1995,  between  Column  Financial,  Inc.,  and  East
                  Washington Hospitality Limited Partnership.(f)

10.25.2           -- Promissory Note in original amount of $11.0 million, dated
                  as of June 29, 1995, by East Washington Hospitality Limited
                  Partnership in favor Column Financial, Inc.(f)

10.26.1     --    Loan  Agreement,  dated as of  January 31,  1995 and  amended as of  June 29,  1995,  between
                  Column Financial, Inc., and McKnight Motel, Inc.(f)

10.26.2     --    Promissory  Note in  original  amount  of $3.9  million,  dated  as of  January 31,  1995 and
                  amended as of June 29, 1995, by McKnight Motel, Inc., in favor of Column Financial, Inc.(f)

10.27.1     --    Loan  Agreement,  dated  December 8,  1998,  between  Lodgian AMI, Inc., and Banc One Capital
                  Funding Corporation (relating to Holiday Inn--Glen Burnie).(f)

10.27.2     --    Guaranty and Indemnity Agreement,  dated December 8,  1998 by Servico Concord,  Inc., Penmoco
                  Inc.,  and  Island  Motel   Enterprises,   Inc.,  in  favor  of  Banc  One  Capital   Funding
                  Corporation.(f)

10.27.3     --    Limited  Guaranty and Indemnity  Agreement,  dated  December 8,  1998,  by Lodgian,  Inc., in
                  favor of Banc One Capital Funding Corporation.(f)

10.28.1     --    Loan  Agreement,  dated  December 8,  1998,  between  Lodgian AMI, Inc., and Banc One Capital
                  Funding Corporation (relating to Holiday Inn--Inner Harbor).(f)
</TABLE>


                                       81

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO.                                                      DESCRIPTION
<S>         <C>   <C>
10.28.2     --    Guaranty and Indemnity Agreement,  dated December 8,  1998, by Servico Concord, Inc., Penmoco
                  Inc.,  and  Island  Motel   Enterprises,   Inc.,  in  favor  of  Banc  One  Capital   Funding
                  Corporation.(f)

10.28.3     --    Limited  Guaranty and Indemnity  Agreement,  dated  December 8,  1998,  by Lodgian,  Inc., in
                  favor of Banc One
                  Capital Funding Corporation.(f)

10.29       --    Form of Amendment No. 1, Waiver and Consent to the Credit  Agreement among Lodgian  Financing
                  Corp.,  Lodgian,  Inc., Impac Hotel Group, LLC, Servico Inc., the other Affiliate  Guarantors
                  party  hereto,  the Lenders and Issuing Bank named herein,  Morgan  Stanley  Senior  Funding,
                  Inc., as Administrative  Agent and Collateral Agent, Morgan Stanley Senior Funding,  Inc., as
                  Co-Lead  Arranger,  Joint-Book  Manager and  Syndication  Agent,  Lehman  Brothers  Inc.,  as
                  Co-Lead  Arranger,  Joint-Book  Manager and Lehman  Commercial  Paper Inc., as  Documentation
                  Agent.(k)

10.30       --    Form of  Consolidated,  Amended and Restated Loan  Agreement  dated as of August 31,  2000 by
                  and among Impac  Hotels II,  L.L.C. and Impac  Hotels III,  L.L.C. and the Capital Company of
                  America LLC.(k)

10.31       --    Employment  Agreement  dated November 1, 2001 between  Lodgian,  Inc. and David E. Hawthorne.
                  (l)

10.32       --    Amendment  No. 2 To The  Credit  Agreement  And  Amendment  No. 1 To The  Security  Agreement
                  (referred to herein as "this  Amendment")  among Lodgian  Financing Corp.  (the  "Borrower"),
                  Lodgian,  Inc. (the  "Parent"),  Impac Hotel Group,  LLC,  Servico Inc., the other  Affiliate
                  Guarantors  and Grantors  party  hereto,  the Lenders and Issuing Bank named  herein,  Morgan
                  Stanley Senior Funding,  Inc., as Administrative  Agent and Collateral Agent,  Morgan Stanley
                  Senior Funding,  Inc., as Co-Lead Arranger,  Joint-Book Manager and Syndication Agent, Lehman
                  Brothers Inc., as Co-Lead Arranger,  Joint-Book  Manager and Lehman Commercial Paper Inc., as
                  Documentation Agent.

10.33       --    Forbearance  Agreement  dated as of October  17,  2001 with  respect to the Credit  Agreement
                  dated July 23, 1999 (as heretofore  amended,  the "Credit Agreement") among Lodgian Financing
                  Corp.  (the  "Borrower"),  Lodgian,  Inc.  (the  "Parent"),  Impac Hotel Group LLC,  Servico,
                  Inc.,  the affiliate  Guarantors  party  thereto,  the Lenders party thereto (the  "Lender"),
                  Morgan Stanley Senior Funding,  Inc., as Administrative Agent (the  "Administrative  Agent"),
                  Collateral  Agent,  Co-Lead  Arranger,  Joint Book  Manager  and  Syndication  Agent,  Lehman
                  Brothers Inc., as Co-Lead  Arranger and Joint Book Manager and Lehman  Commercial Paper Inc.,
                  as Documentation Agent (collectively with the Administrative Agent, the "Agents").

10.34       --    Forbearance  Agreement  dated as of November  14, 2001 with  respect to the Credit  Agreement
                  dated July 23, 1999 (as amended,  the "Credit  Agreement") among Lodgian Financing Corp. (the
                  "Borrower"),  Lodgian,  Inc.  (the  "Parent"),  Impac Hotel  Group LLC,  Servico,  Inc.,  the
                  affiliate  Guarantors  party  thereto,  the Lenders  party  thereto (the  "Lenders"),  Morgan
                  Stanley  Senior  Funding  Inc.,  as  Administrative  Agent  (the   "Administrative   Agent"),
                  Collateral  Agent,  Co-Lead  Arranger,  Joint Book  Manager  and  Syndication  Agent,  Lehman
                  Brothers Inc., as Co-Lead  Arranger and Joint Book Manager and Lehman  Commercial Paper Inc.,
                  as Documentation Agent (collectively with the Administrative Agent, (the "Agents").

10.35       --    Form of  Voluntary  Petition  under  Chapter 11 of the U. S.  Bankruptcy  Code filed with the
                  United States  Bankruptcy  Court Southern  District of New York by Lodgian Inc. and 81 of its
                  subsidiaries.

10.36       --    Revolving  Credit  Agreement among Lodgian,  Inc., a debtor in possession under Chapter 11 of
                  the Bankruptcy  Code as borrower and certain  subsidiaries of the borrower and Morgan Stanley
                  Senior Funding, Inc., as administrative agent and collateral agent dated December 31, 2001.
</TABLE>


                                       82

<PAGE>

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

10.37       --    Final order authorizing debtors to use cash collateral in which certain mortgage
                  lenders claim an interest.

10.38       --    Final order (i) authorizing debtors (A) to obtain post-petition financing and
                  (B) to utilize cash collateral and (ii) granting adequate protection to
                  pre-petition secured parties.

10.39       --    Stipulation and Order among the debtors and JP Morgan Chase Bank as Successor
                  Indenture Trustee, providing for (i) limited use of cash  collateral and adequate
                  protection and (ii) related relief.

10.40       --    Stipulation and order among the debtors and Crimi Mae Services, L.P. as
                  special servicer, providing for (i) limited use of cash collateral and adequate
                  protection and (ii) related relief (low leverage debtor).

10.41       --    Stipulation and order among debtors and Lennar Partners Inc. as special servicer,
                  providing for (i) limited use of cash collateral and adequate protection and (ii)
                  related relief.

10.42       --    Agreed order regarding debtor's motion of entry of orders (i) authorizing the
                  debtors-in-possession to (A) obtain post-petition financing, (B) grant liens and priority
                  administrative expense claims status, (C) modify the automatic stay, and (D) enter into
                  financing agreement; and (ii) approving the use of cash  collateral and granting  adequate
                  protection regarding Nationwide loans.

10.43       --    Affidavit and disclosure statement of Richard Cartoon LLC in support of
                  application to employ Richard Cartoon LLC as Chief Financial Officer.

12.1        --    Statement Regarding Computation of Earnings to Fixed Charges.(h)

21.1        --    Subsidiaries of Lodgian, Inc.(m)

23.1        --    Consent of Arthur Andersen LLP with respect to Form S-8 in respect of the Company's
                  401 (k) Plan.

23.2        --    Consent of Ernst & Young LLP with respect to Form S-8 in respect of the Company's
                  401(k) Plan.

99          --    Letter relating to Arthur Andersen LLP's representation.
</TABLE>

---------------

(a)      This exhibit is incorporated by reference to exhibits and appendices to
         the Company's Registration Statement on Form S-4, as amended, filed on
         July 17, 1998. (SEC File No. 333-59315)

(b)      This exhibit is incorporated by reference to Servico, Inc.'s Form 10-K
         for the year ended December 31, 1997, filed on March 31, 1998. (SEC
         File No. 001-11342)

(c)      This exhibit is incorporated by reference to Servico, Inc.'s Form 8-K
         dated March 20, 1998, filed on March 26, 1998. (SEC File No 00-11342)

(d)      This exhibit is incorporated by reference to the Company's Form 8-K
         dated December 11, 1998, filed on December 28, 1998. (SEC File No.
         001-14537)

(e)      This exhibit is incorporated by reference to the Company's Form 8-K
         dated March 9, 2000, filed on March 9, 2000. (SEC File No. 001-14537)

(f)      This exhibit is incorporated by reference to exhibits and appendices to
         the Company's Registration Statement on Form S-4, as amended, filed on
         August 13, 1999. (SEC File No. 333-85235-01)

(g)      This exhibit is incorporated by reference to exhibits and appendices to
         the Company's Annual Report on Form 10-K, filed on March 31, 1999. (SEC
         File No. 001-14537)

(h)      This exhibit is incorporated by reference to exhibits and appendices to
         the Company's Registration Statement on Form S-1, as amended, filed on
         July 14, 1999. (SEC File No. 333-82859)

(i)      This exhibit is incorporated by reference to Servico's Form 10-Q for
         the period ended June 30, 1997, filed on August 14, 1997, (SEC File No.
         001-11342)


                                       83

<PAGE>

(j)      This exhibit is incorporated by reference to Servico's Form 8-K filed
         on September 17, 1998. (SEC File No. 001-11342)

(k)      This exhibit is incorporated by reference to the Company's Form 10-Q
         dated March 31, 2000, filed on December 15, 2000. (SEC File No.
         001-14537)

(l)      This exhibit is incorporated by reference to the Company's Form 10-Q
         for the period ended September 30, 2001, filed on November 14, 2001
         (SEC File No. 0001-14537)

(m)      This exhibit is incorporated by reference to the Company's Form 10-K
         for the year ended December 31, 2000 (SEC file No. 001-14537)


                                       84

<PAGE>

                                   SIGNATURES

         Pursuant to the requirement of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 29, 2002.

                                        LODGIAN, INC.



                                        By: /s/ David E. Hawthorne
                                           ------------------------------------
                                                    David E. Hawthorne
                                          President and Chief Executive Officer

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Company and in the capacities indicated, on March 29, 2002.

<TABLE>
<CAPTION>
                    SIGNATURE                                                     TITLE
<S>                                                           <C>


            /s/ David E. Hawthorne
----------------------------------------------                President and Chief Executive Officer
              David E. Hawthorne


             /s/ Richard Cartoon
----------------------------------------------                Executive  Vice  President  and  Chief  Financial Officer
                Richard Cartoon


            /s/ Joseph. C. Calabro
----------------------------------------------                Chairman of the Office of the Chairman
              Joseph. C. Calabro                              of the Board of Directors


              /s/ Robert S. Cole
----------------------------------------------                Director
                Robert S. Cole


                /s/ John Lang
----------------------------------------------                Director
                   John Lang


              /s/ Peter R. Tyson
----------------------------------------------                Director
                Peter R. Tyson


            /s/ Richard H. Weiner
----------------------------------------------                Director
               Richard H. Weiner
</TABLE>


                                       85