##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


______________________

FORM 10-Q

(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Period ended June 30, 2003

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 incorporation or organization)
    
    (I.R.S. Employer Identification No.)3445 Peachtree Road, N.E., Suite 700, Atlanta, GA
    
    30326(Address of principal executive offices)
    
    (Zip Code)


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

(Former name, former address and former fiscal year, if changed since last report):  Not applicable

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 o

Indicate by check mark whether the registrant is an accelerated filer as
defined by section 12-b  2 of the Act.   Yes o     No x

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.   Yes x     No o

Indicate the number of shares outstanding of each of the issuers classes
of common stock as of the latest practicable date.

Class
    
    Outstanding as of August 8, 2003Common
    
    6,682,667






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|                                             |                                                                                               |                                                          |  |  |  |  |  | 
|-------------------------------------------- | --------------------------------------------------------------------------------------------- | -------------------------------------------------------- |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION              
|                                             | ITEM 1. FINANCIAL STATEMENTS                                                                 
|                                             |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS                   
|                                             |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS         
|                                             |                                                                                               | CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
|                                             |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS         
|                                             |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS    
|                                             | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                             | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|                                             | ITEM 4. CONTROLS AND PROCEDURES                                                              
|PART II  OTHER INFORMATION                 
|                                             | ITEM 1. LEGAL PROCEEDINGS                                                                    
|                                             | ITEM 2. CHANGES IN SECURITIES                                                                
|                                             | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|                                             | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                                  
|INDEX TO EXHIBITS                           
|EX-10.59 EMPLOYMENT AGREEMENT               
|EX-10.60 401(K) PLAN & TRUST AGREEMENT      
|EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
|EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
|EX-32 SECTION 906 CERTIFICATION OF CEO & CFO



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LODGIAN, INC. AND SUBSIDIARIES
INDEX

PagePART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements:Condensed Consolidated Balance Sheets as of June 30, 2003
and December 31, 2002 (unaudited)
    
    
    1Condensed Consolidated Statements of Operations for the Successor
Three Months Ended June 30, 2003, the Predecessor Three Months
Ended June 30, 2002, the Successor Six Months Ended June 30,
2003 and the Predecessor Six Months Ended June 30, 2002
(unaudited)
    
    
    2Condensed Consolidated Statement of Stockholders Equity
for the Successor Six Months Ended June 30, 2003 (unaudited)
    
    
    3Condensed Consolidated Statements of Cash Flows for the Successor
Six Months Ended June 30, 2003 and the Predecessor Six Months
Ended June 30, 2002 (unaudited)
    
    
    4Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    14Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    29Item 4.
    
    Controls and Procedures
    
    
    29PART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    31Item 2.
    
    Changes in Securities
    
    
    31Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    31Item 6.
    
    Exhibits and Reports on Form 8-K
    
    
    32Signatures
    
    
    
    
    33






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PART I  FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS




LODGIAN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

June 30, 2003
    
    December 31, 2002(Unaudited in thousands, except per share data)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    7,476
    
    
    $
    10,875Cash, restricted
    
    
    8,560
    
    
    
    19,384Accounts receivable ( net of allowances: 2003 - $1,567; 2002 - $1,594)
    
    
    12,194
    
    
    
    10,681Inventories
    
    
    5,754
    
    
    
    7,197Prepaid expenses and other current assets
    
    
    17,465
    
    
    
    15,118Assets held for sale
    
    
    69,707
    
    
    
    Total current assets
    
    
    121,156
    
    
    
    63,255Property and equipment, net
    
    
    590,248
    
    
    
    664,565Deposits for capital expenditures
    
    
    15,374
    
    
    
    22,349Other assets
    
    
    15,241
    
    
    
    12,495$
    742,019
    
    
    $
    762,664LIABILITIES AND STOCKHOLDERS EQUITYLiabilities not subject to compromiseCurrent liabilities:Accounts payable
    
    $
    13,582
    
    
    $
    12,380Other accrued liabilities
    
    
    37,256
    
    
    
    43,625Advance deposits
    
    
    2,406
    
    
    
    1,786Current portion of long-term debt
    
    
    16,247
    
    
    
    14,550Liabilities related to assets held for sale
    
    
    51,727
    
    
    
    Total current liabilities
    
    
    121,218
    
    
    
    72,341Long-term debt
    
    
    422,621
    
    
    
    387,924Liabilities subject to compromise
    
    
    
    
    
    
    93,816Total liabilities
    
    
    543,839
    
    
    
    554,081Minority interests
    
    
    3,826
    
    
    
    3,616Commitments
and contingenciesMandatorily redeemable 12.25% cumulative preferred stock
    
    
    134,104
    
    
    
    126,510Stockholders equity:Common stock, $.01 par value, 30,000,000 shares authorized;
7,000,000 issued and outstanding
    
    
    70
    
    
    
    70Additional paid-in capital
    
    
    89,223
    
    
    
    89,223Accumulated deficit
    
    
    (29,955
    )
    
    
    (10,836
    )Accumulated other comprehensive gain
    
    
    912
    
    
    
    Total stockholders equity
    
    
    60,250
    
    
    
    78,457$
    742,019
    
    
    $
    762,664


See notes to condensed consolidated financial statements.

1



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LODGIAN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited in thousands, except per share data)Three months ended
    
    Six months endedJune 30, 2003
    
    
    June 30, 2002
    
    June 30, 2003
    
    
    June 30, 2002Successor
    
    
    Predecessor
    
    Successor
    
    
    PredecessorRevenues:Rooms
    
    $
    64,098
    
    

    $
    68,938
    
    
    $
    119,573
    
    

    $
    126,727Food and beverage
    
    
    20,077
    
    

    
    21,658
    
    
    
    37,342
    
    

    
    39,141Other
    
    
    2,891
    
    

    
    3,730
    
    
    
    5,796
    
    

    
    7,09487,066
    
    

    
    94,326
    
    
    
    162,711
    
    

    
    172,962Operating expenses:Direct:Rooms
    
    
    17,670
    
    

    
    18,212
    
    
    
    33,756
    
    

    
    34,084Food and beverage
    
    
    13,170
    
    

    
    14,737
    
    
    
    25,507
    
    

    
    27,665Other
    
    
    1,936
    
    

    
    2,536
    
    
    
    3,979
    
    

    
    4,70732,776
    
    

    
    35,485
    
    
    
    63,242
    
    

    
    66,456Gross contribution
    
    
    54,290
    
    

    
    58,841
    
    
    
    99,469
    
    

    
    106,506General, administrative and other
    
    
    37,212
    
    

    
    35,254
    
    
    
    73,804
    
    

    
    69,363Depreciation and amortization
    
    
    7,895
    
    

    
    12,020
    
    
    
    15,643
    
    

    
    23,657Other operating expenses
    
    
    45,107
    
    

    
    47,274
    
    
    
    89,447
    
    

    
    93,0209,183
    
    

    
    11,567
    
    
    
    10,022
    
    

    
    13,486Other income (expenses):Interest income and other
    
    
    126
    
    

    
    4,694
    
    
    
    209
    
    

    
    4,874Interest expense
    
    
    (7,102
    )
    

    
    (7,598
    )
    
    
    (13,549
    )
    

    
    (16,008
    )Income (loss) before income taxes reorganization items and minority interests
    
    
    2,207
    
    

    
    8,663
    
    
    
    (3,318
    )
    

    
    2,352Reorganization items
    
    
    (807
    )
    

    
    (2,205
    )
    
    
    (2,045
    )
    

    
    (8,032
    )Income (loss) before income taxes and minority interest
    
    
    1,400
    
    

    
    6,458
    
    
    
    (5,363
    )
    

    
    (5,680
    )Minority interests
    
    
    (69
    )
    

    
    (858
    )
    
    
    (217
    )
    

    
    (1,331
    )Income (loss) before income taxes  continuing operations
    
    
    1,331
    
    

    
    5,600
    
    
    
    (5,580
    )
    

    
    (7,011
    )(Provision) benefit for income taxes  continuing operations
    
    
    (76
    )
    

    
    (76
    )
    
    
    (151
    )
    

    
    (151
    )Income (loss)  continuing operations
    
    
    1,255
    
    

    
    5,524
    
    
    
    (5,731
    )
    

    
    (7,162
    )Discontinued operations:Loss from discontinued operations before income taxes
    
    
    (3,696
    )
    

    
    (2,061
    )
    
    
    (5,794
    )
    

    
    (3,805
    )Income tax provision
    
    
    
    
    

    
    
    
    
    
    
    
    

    
    Loss from discontinued operations
    
    
    (3,696
    )
    

    
    (2,061
    )
    
    
    (5,794
    )
    

    
    (3,805
    )Net (loss) income
    
    
    (2,441
    )
    

    
    3,463
    
    
    
    (11,525
    )
    

    
    (10,967
    )Preferred stock dividend
    
    
    (3,818
    )
    

    
    
    
    
    
    (7,594
    )
    

    
    Net (loss) income attributable to common stock
    
    $
    (6,259
    )
    

    $
    3,463
    
    
    $
    (19,119
    )
    

    $
    (10,967
    )Basic and diluted (loss) earnings per common share:Net (loss) income attributable to common stock
    
    $
    (0.89
    )
    

    $
    0.12
    
    
    $
    (2.73
    )
    

    $
    (0.38
    )


Upon emergence from Chapter 11, the Company adopted fresh start reporting. As a result, all assets and liabilities were restated
to reflect their fair values. The consolidated financial statements of the new reporting entity (the Successor) are not
comparable to the reporting entity prior to the Companys emergence from Chapter 11 (the Predecessor).

See notes to condensed consolidated financial statements.

2



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LODGIAN, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY

ACCUMULATEDCOMMON STOCK
    
    ADDITIONAL
    
    
    
    
    
    OTHER
    
    TOTALPAID-IN
    
    ACCUMULATED
    
    COMPREHENSIVE
    
    STOCKHOLDERS'SHARES
    
    AMOUNT
    
    CAPITAL
    
    DEFICIT
    
    GAIN (net of tax)
    
    EQUITY(Unaudited in thousands, except share data)Balance, December 31, 2002
    
    
    7,000,000
    
    
    $
    70
    
    
    $
    89,223
    
    
    $
    (10,836
    )
    
    $
    
    
    
    $
    78,457Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,525
    )
    
    
    
    
    
    
    (11,525
    )Currency translation
adjustments (related taxes estimated at nil)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    912
    
    
    
    912Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,613
    )Preferred dividends accrued (not declared)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,594
    )
    
    
    
    
    
    
    (7,594
    )7,000,000
    
    
    $
    70
    
    
    $
    89,223
    
    
    $
    (29,955
    )
    
    $
    912
    
    
    $
    60,250


The comprehensive loss for the three
months ended June 30, 2003 was $1.9 million
and the comprehensive income for the
            Predecessor three months ended June 30, 2002 was
$4.4 million. The comprehensive loss for the Predecessor six
months ended
            June 30, 2002 was $10.4 million.

See notes to condensed consolidated financial statements.

3



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LODGIAN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six months endedJune 30, 2003
    

    June 30, 2002(Unaudited in thousands)Successor
    
    
    PredecessorOperating activities:Net loss
    
    $
    (11,525
    )
    
    
    $
    (10,967
    )Add: loss from discontinued operations
    
    
    5,794
    
    
    
    
    3,805Loss  continuing operations
    
    
    (5,731
    )
    
    
    
    (7,162
    )Adjustments to reconcile loss from continuing operations
to net cash provided by operating activities:Depreciation and amortization
    
    
    15,643
    
    
    
    
    23,657Gain on extinguishment of debt
    
    
    
    
    
    
    
    (4,419
    )Minority interests
    
    
    217
    
    
    
    
    1,331Write-off and amortization of deferred financing costs
    
    
    1,398
    
    
    
    
    Other
    
    
    2,203
    
    
    
    
    (554
    )Changes in operating assets and liabilities:Accounts receivable, net of allowances
    
    
    (2,643
    )
    
    
    
    (3,236
    )Inventories
    
    
    (63
    )
    
    
    
    (39
    )Prepaid expenses, other assets and restricted cash
    
    
    7,732
    
    
    
    
    (5,705
    )Accounts payable
    
    
    (1,785
    )
    
    
    
    8,136Other accrued liabilities
    
    
    (8,274
    )
    
    
    
    8,683Advance deposits
    
    
    860
    
    
    
    
    507Net cash provided by operating activities
    
    
    9,557
    
    
    
    
    21,199Investing activities:Capital improvements
    
    
    (16,057
    )
    
    
    
    (7,784
    )Withdrawals (deposits) for capital expenditures
    
    
    7,312
    
    
    
    
    (1,576
    )Other
    
    
    (853
    )
    
    
    
    Net cash used in investing activities
    
    
    (9,598
    )
    
    
    
    (9,360
    )Financing activities:Proceeds from issuance of long-term debt
    
    
    80,000
    
    
    
    
    Principal payments on long-term debt
    
    
    (78,791
    )
    
    
    
    (1,031
    )Payments of deferred loan costs
    
    
    (3,033
    )
    
    
    
    Other
    
    
    (1,270
    )
    
    
    
    Net cash used in financing activities
    
    
    (3,094
    )
    
    
    
    (1,031
    )Cash flows used in discontinued operations:Net cash used in discontinued operations
    
    
    (264
    )
    
    
    
    (165
    )Net (decrease) increase in cash and cash equivalents
    
    
    (3,399
    )
    
    
    
    10,643Cash and cash equivalents at beginning of period
    
    
    10,875
    
    
    
    
    14,0077,476
    
    
    
    
    24,650Less: cash of discontinued operations
    
    
    (288
    )
    
    
    
    (552
    )Cash and cash equivalents at end of period
    
    $
    7,188
    
    
    
    $
    24,098Supplemental cash flow information:Cash paid during the period for:Interest, net of amount capitalized
    
    $
    13,491
    
    
    
    $
    17,320Income taxes, net of refunds
    
    $
    40
    
    
    
    $
    12Supplemental disclosure of non-cash investing and
financing activities:Preferred stock dividend accrued
    
    $
    7,594
    
    
    
    $
    


Upon emergence from Chapter 11, the Company adopted fresh start reporting. As a result, all assets and liabilities were restated
to reflect their fair values. The consolidated financial statements of the new reporting entity (the Successor) are not
comparable to the reporting entity prior to the Companys emergence from Chapter 11 (the Predecessor).

See notes to consolidated financial statements.

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

1. General

The condensed consolidated financial statements include the accounts of
Lodgian, Inc., its wholly-owned subsidiaries and four joint ventures in which
Lodgian has a controlling financial interest (owns at least 50% of the voting
interest) and exercises control (collectively Lodgian or the Company).
Lodgian believes it has control of the joint ventures when the Company is the
general partner and has control of the joint ventures assets and operations.
One unconsolidated entity (the Unconsolidated Entity) which owns one hotel is
accounted for using the equity method of accounting. All significant
intercompany accounts and transactions have been eliminated in consolidation.

The accounting policies followed for quarterly financial reporting are
disclosed in Note 1 of the Notes to Consolidated Financial Statements included
in the Companys Annual Report on Form 10-K (Form 10-K) for the year ended
December 31, 2002, this Quarterly Report and the Companys Quarterly Report on
Form 10-Q for the period ended March 31, 2003.

As previously indicated in the Companys Form 10-K for the year ended
December 31, 2002, the Company and substantially all of its subsidiaries which
owned hotel properties filed for voluntary reorganization under Chapter 11 of
the Bankruptcy Code on December 20, 2001, in the Southern District of New York.
The Bankruptcy Court confirmed the Companys First Amended Joint Plan of
Reorganization (the Joint Plan of Reorganization) on November 5, 2002, and on
November 25, 2002, the Company and entities owning 78 hotels officially emerged
from Chapter 11. Pursuant to the terms of the Joint Plan of Reorganization, an
additional eight wholly-owned hotels were returned to the lender in January
2003 in satisfaction of outstanding debt obligations and one wholly-owned hotel
was returned to the lessor of a capital lease.

Of the Companys 97 hotel portfolio, eighteen hotels, previously owned by
two subsidiaries (Impac Hotels II, L.L.C. and Impac Hotels III, L.L.C.), were
not part of the Joint Plan of Reorganization. On April 24, 2003, the
Bankruptcy Court confirmed the plan of reorganization relating to these
eighteen hotels (the Impac Plan of Reorganization). These eighteen hotels
remained in Chapter 11 until May 22, 2003, the date on which the Company,
through eighteen newly-formed subsidiaries (one for each hotel), finalized an
$80 million financing with Lehman Brothers Holdings, Inc. (the Lehman
Financing). The Lehman Financing was primarily used to settle the remaining
amount due to the secured lender of these hotels (See Note 7 to these Condensed
Consolidated Financial Statements). The Impac Plan of Reorganization also
provided for a pool of funds of approximately $0.3 million to be paid to the
general unsecured creditors of the eighteen hotels.

The effects of the Joint Plan of Reorganization were recorded in
accordance with the American Institute of Certified Public Accountants
Statement of Position (SOP) 90-7, Financial Reporting by Entities in
Reorganization under the Bankruptcy Code, effective November 22, 2002. SOP
90-7 required the application of Fresh Start Accounting. As a result, the
Consolidated Financial Statements subsequent to the Companys emergence from
Chapter 11 are those of a new reporting entity (the Successor) and are not
comparable with the financial statements of the Company prior to the effective
date of the Joint Plan of Reorganization (the Predecessor).

In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments, consisting primarily
of normal recurring adjustments, necessary to present fairly the financial
position of the Company as of June 30, 2003, the results of its operations for
the three and six months ended June 30, 2003 (Successor) and 2002 (Predecessor)
and its cash flows for the six months ended June 30, 2003 (Successor) and 2002
(Predecessor). The results for interim periods are not necessarily indicative
of the results for the entire year. These financial statements should be read
in conjunction with the consolidated financial statements and related notes
included in the Companys Form 10-K for the year ended December 31, 2002.

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America (GAAP) requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures 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.

5



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

Certain prior period amounts have been reclassified to conform to the current
periods presentation.

2. Discontinued operations

As previously indicated, pursuant to the terms of the Joint Plan of
Reorganization, eight wholly-owned hotels were returned to the lender in
January 2003 in satisfaction of outstanding debt obligations and one
wholly-owned hotel was returned to the lessor of a capital lease. In
accordance with Statement of Financial Accounting Standards (SFAS) No. 144,
the assets, liabilities and results of operations of these nine hotels are
reported in Discontinued Operations as of and for the three and six months
ended June 30, 2003 and 2002. Due primarily to the application of fresh start
accounting in November 2002, in which these and other assets were adjusted to
their respective fair values, there was no gain or loss on this transaction.

The following combined condensed table summarizes the assets and
liabilities of these nine hotels as of December 31, 2002:

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


In addition, in June 2003, the Company embarked on a plan to sell 14
hotels, 3 land parcels and an office building. The strategy to sell these
assets is part of managements plans to:



| |  |  | pay down the Lehman Financing by at least $20 million
to minimize interest costs (See Note 7 of the Condensed
Consolidated Financial Statements);
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | provide additional funding for the Companys capital
expenditure program to comply with franchisor requirements and
improve brand quality; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | dispose of certain hotels which are performing below
the standard set by management for the entire portfolio.
| | - |  | -------------------------------------------------------------------------------------------------------------

In connection with this strategy, where the carrying values of the assets
exceeded the estimated fair values, net of selling costs, the carrying values
were reduced and impairment charges were recorded. Fair value is determined
using quoted market prices, when available, or other accepted valuation
techniques. The impairment charges recorded related to 4 hotels and 2 land
parcels and approximated $3.4 million. Where the estimated selling prices, net
of selling costs, exceeded the carrying values, no adjustments were made.
Management plans to dispose of these assets within the next year. While the

6Table of ContentsLODGIAN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)completion of these dispositions is probable, there can be no assurance
that the Company will finalize the sale of any or all of these assets within
the next year, if at all. In accordance with SFAS No. 144, the results of
operations of all assets identified as held for sale (including the related
impairment charges) are reported in Discontinued Operations for the three and
six months ended June 30, 2003 and 2002. The assets held for sale and the
liabilities related to these assets are separately disclosed on the face of the
Condensed Consolidated Balance Sheet as of June 30, 2003.The following combined condensed table summarizes the assets and
liabilities relating to the properties identified as held for sale as of June
30, 2003:June 30, 2003(In thousands)ASSETSAccounts receivable, net of allowances
    
    $
    1,681Inventories
    
    
    979Prepaid expenses and other current assets
    
    
    416Property and equipment, net
    
    
    62,644Other assets
    
    
    3,987$
    69,707LIABILITIESAccounts payable
    
    $
    1,253Other accrued liabilities
    
    
    3,128Advance deposits
    
    
    256Long-term debt
    
    
    47,090Total liabilities
    
    $
    51,727

The condensed combined results of operations included in Discontinued
Operations for the three and six months ended June 30, 2003 and 2002 were as
follows:Three months ended

    
    Six months endedJune 30, 2003

    
    June 30, 2002
    
    June 30, 2003

    
    June 30, 2002(Unaudited in thousands)Successor

    
    Predecessor
    
    Successor

    
    PredecessorRevenues:Rooms
    
    $
    9,621
    

    
    $
    15,011
    
    
    $
    17,194
    

    
    $
    27,007Food and beverage
    
    
    2,076
    

    
    
    3,682
    
    
    
    3,777
    

    
    
    6,730Other
    
    
    438
    

    
    
    685
    
    
    
    790
    

    
    
    1,36712,135
    

    
    
    19,378
    
    
    
    21,761
    

    
    
    35,104Operating expenses:Direct:Rooms
    
    
    2,774
    

    
    
    4,633
    
    
    
    5,247
    

    
    
    8,561Food and beverage
    
    
    1,555
    

    
    
    2,916
    
    
    
    2,979
    

    
    
    5,362Other
    
    
    300
    

    
    
    492
    
    
    
    589
    

    
    
    9884,629
    

    
    
    8,041
    
    
    
    8,815
    

    
    
    14,911Gross contribution
    
    
    7,506
    

    
    
    11,337
    
    
    
    12,946
    

    
    
    20,193General, administrative and other
    
    
    5,948
    

    
    
    10,589
    
    
    
    12,020
    

    
    
    18,416Depreciation and amortization
    
    
    1,190
    

    
    
    2,700
    
    
    
    2,314
    

    
    
    5,327Impairment of long-lived assets
    
    
    3,448
    

    
    
    
    
    
    
    3,448
    

    
    
    Other operating expenses
    
    
    10,586
    

    
    
    13,289
    
    
    
    17,782
    

    
    
    23,743(3,080
    )

    
    
    (1,952
    )
    
    
    (4,836
    )

    
    
    (3,550
    )Interest expense
    
    
    (616
    )

    
    
    (109
    )
    
    
    (958
    )

    
    
    (255
    )Loss before income taxes
    
    
    (3,696
    )

    
    
    (2,061
    )
    
    
    (5,794
    )

    
    
    (3,805
    )Provision for income taxes
    
    
    
    

    
    
    
    
    
    
    
    

    
    
    Net loss
    
    $
    (3,696
    )

    
    $
    (2,061
    )
    
    $
    (5,794
    )

    
    $
    (3,805
    )

7Table of ContentsLODGIAN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)3. Cash, restrictedRestricted cash as of June 30, 2003 consists of amounts reserved for
letter of credit collateral and cash reserved pursuant to certain loan
agreements (includes reserves for debt service, taxes, insurance and other
lender-restricted cash balances).4. Property and equipment, netAs previously disclosed, pursuant to the terms of the Joint Plan of
Reorganization, eight wholly-owned hotels were returned to the lender in
January 2003 in satisfaction of outstanding debt obligations and one
wholly-owned hotel was returned to the lessor of a capital lease. In
addition, during the second quarter of 2003, the Company embarked on a plan to
sell 14 hotels, 3 land parcels and an office building (See Note 2 of these
Condensed Consolidated Financial Statements).5. Earnings per shareThe following table sets forth the computation of basic and diluted
earnings (loss) per share:(Unaudited in thousands)Three months ended


    
    Six months endedJune 30, 2003
    

    June 30, 2002
    
    June 30, 2003
    

    June 30, 2002Successor
    

    Predecessor
    
    Successor
    

    PredecessorIncome (loss)  continuing operations
    
    $
    1,255
    
    

    $
    5,524
    
    
    $
    (5,731
    )
    

    $
    (7,162
    )Loss from discontinued operations, net of taxes
    
    
    (3,696
    )
    

    
    (2,061
    )
    
    
    (5,794
    )
    

    
    (3,805
    )Net (loss) income
    
    
    (2,441
    )
    

    
    3,463
    
    
    
    (11,525
    )
    

    
    (10,967
    )Preferred stock dividend
    
    
    (3,818
    )
    

    
    
    
    
    
    (7,594
    )
    

    
    Net (loss) income attributable to common stock
    
    
    (6,259
    )
    

    
    3,463
    
    
    
    (19,119
    )
    

    
    (10,967
    )Income (loss)  continuing operations
    
    
    1,255
    
    

    
    5,524
    
    
    
    (5,731
    )
    

    
    (7,162
    )Preferred stock dividend
    
    
    (3,818
    )
    

    
    
    
    
    
    (7,594
    )
    

    
    (Loss) income from continuing operations attributable to common stock
before discontinued operations
    
    $
    (2,563
    )
    

    $
    5,524
    
    
    $
    (13,325
    )
    

    $
    (7,162
    )Denominator:Denominator for basic and diluted earnings (loss)
per share  weighted-average shares
    
    
    7,000
    
    

    
    28,480
    
    
    
    7,000
    
    

    
    28,480Basic and diluted earnings (loss) per common share:(Loss) income from continuing operations attributable to common stock
before discontinued operations
    
    
    (0.37
    )
    

    
    0.19
    
    
    
    (1.90
    )
    

    
    (0.25
    )Income (loss)  continuing operations
    
    
    0.18
    
    

    
    0.19
    
    
    
    (0.82
    )
    

    
    (0.25
    )Loss from discontinued operations
    
    
    (0.53
    )
    

    
    (0.07
    )
    
    
    (0.83
    )
    

    
    (0.13
    )Net (loss) income
    
    
    (0.35
    )
    

    
    0.12
    
    
    
    (1.65
    )
    

    
    (0.38
    )Net (loss) income attributable to common stock
    
    $
    (0.89
    )
    

    $
    0.12
    
    
    $
    (2.73
    )
    

    $
    (0.38
    )

The computation of diluted loss per share for the Successor periods ended
June 30, 2003, as calculated above, did not include shares associated with the
assumed conversion of the A and B warrants because their inclusion would have
been antidilutive. The computation of diluted earnings (loss) per share for the
Predecessor periods ended June 30, 2002, 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.8Table of ContentsLODGIAN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)6. Other accrued liabilitiesAt June 30, 2003 and December 31, 2002, other accrued liabilities
consisted of the following:Successor
    
    PredecessorJune 30, 2003
    
    December 31, 2002(In thousands)Salaries and related costs
    
    $
    16,655
    
    
    $
    17,293Property and sales taxes
    
    
    15,914
    
    
    
    16,668Professional fees
    
    
    821
    
    
    
    807Provision for state income taxes
    
    
    2,419
    
    
    
    2,219Franchise fee accrual
    
    
    1,905
    
    
    
    1,388Accrued interest
    
    
    78
    
    
    
    1,524Accrual for allowed claims
    
    
    1,314
    
    
    
    1,749Other
    
    
    1,278
    
    
    
    1,97740,384
    
    
    
    43,625Less : accrued liabilities related to assets held for sale
    
    
    (3,128
    )
    
    
    $
    37,256
    
    
    $
    43,625

7. Long-term debtAs previously discussed, on May 22, 2003, the Company completed an $80
million financing underwritten by Lehman Brothers Holdings, Inc. which was
primarily utilized to settle debts secured by the eighteen hotels previously
owned by Impac Hotels II, L.L.C. and Impac Hotels III, L.L.C. (both Lodgian
subsidiaries). The Lehman Financing, provided to eighteen newly-formed
subsidiaries (one for each hotel), is a two-year term loan with an optional
one-year extension and bears interest at the higher of 7.25% or LIBOR plus
5.25%. The one-year extension is only available if, at the time of electing to
extend and at the initial maturity date, there are no events of default. If
the Company opts for the one-year extension, an extension fee of $3.0 million
is payable. Pursuant to the terms of the agreement, additional interest of
$4.4 million is also payable prior to the initial maturity date (May 22, 2005).
If, however, the Company makes one or more prepayments totaling at least $20
million in aggregate on or before March 1, 2004, the additional interest
payable will reduce to $3.6 million. Payments of principal and interest on the
Lehman Facility are due monthly. If an event of default occurs, default
interest, which equates to an additional 3.25%, is payable for the period of
the default.On November 25, 2002, the effective date of the Joint Plan of
Reorganization, loans approximating $83.5 million, secured by 20 hotel
properties, were substantially reinstated on their original terms, except for
the extension of certain maturities. The terms of one loan, in the amount of
$2.5 million and secured by one hotel, were amended to provide for a new
interest rate as well as a new maturity date.On emergence from Chapter 11 on November 25, 2002, the Company also
received exit financing of $309 million with and through Merrill Lynch Mortgage
Lending, Inc. (Merrill), secured by 57 hotel properties. The exit financing
was initially comprised of three separate components as follows:
       
       Senior debt of $224.0 million accruing interest at
the rate of LIBOR plus 2.2442%, secured by, among other things,
first mortgage liens on the fee simple and leasehold interests
in 55 of the Companys hotels;
       
       Mezzanine debt of $78.7 million accruing interest at
the rate of LIBOR plus 9.00%, secured by the equity interest in
the subsidiaries of 56 hotels (the 55 which secure the Senior
Debt and one additional hotel); and
       
       Debt provided through Computershare Trust Company of
Canada, a Canadian lender, of $10.0 million Canadian dollars
(equated to approximately $6.3 million U.S. dollars at
inception) maturing in December 2007 accruing interest at the
rate of 7.879% secured by a mortgage on the Windsor property.9Table of ContentsLODGIAN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)In March 2003, as permitted by the terms of the Senior and Mezzanine debt
agreements, Merrill exercised the right to resize the Senior and Mezzanine
debt amounts, prior to the securitization of the mortgage loan. As a result,
the principal amount of the Senior Debt was decreased from $223.5 million
(initially $224.0 less $0.5 million of principal payments) to $218.1 million,
and the initial principal amount of the Mezzanine Debt was increased from $78.7
million to $84.1 million. Though the blended interest rate on the Merrill debt
remained at LIBOR plus 4% at the date of the resizing, the interest rate on the
Senior debt was modified to LIBOR plus 2.36% and the interest rate on the
Mezzanine debt was modified to LIBOR plus 8.2546%.The Senior and Mezzanine debts mature in November 2004. There are,
however, three one-year options to renew which could extend the facility for an
additional three years. The first option to extend the maturity date of the
Senior and Mezzanine debts by up to one year (i.e. to November 2005) is
available only if no events of default occur in respect of the payment of
principal, interest and other required payments. The second and third
extension terms are available only if no events of default (as defined by the
agreement) exist and are subject to minimum Debt Service Coverage Ratio and
Debt Yield requirements (as defined). Payments of principal and interest on
all three portions of the facility are due monthly; however, the principal
payments on the Senior and Mezzanine debts may be deferred during the first
twelve months of the agreement.The Senior and Mezzanine debt agreements provide that when either the Debt
Yield (as defined) for the trailing 12-month period is below 12.75% during the
first year of the loan ending November 2003 (13.25% during the second year) or
the Debt Service Coverage Ratio (as defined) is below 1.20, excess cash flows
(after payment of operating expenses, management fees, required reserves,
principal and interest) produced by the 56 properties must be deposited in a
special deposit account. These funds cannot be transferred to the parent
company, but can be used for capital expenditures on these properties with
lenders approval, or for principal and interest payments. Funds placed into
the special deposit account are released to the borrowers when the Debt Yield
and the Debt Service Coverage Ratio are sustained above the minimum
requirements for three consecutive months. As of March 31, 2003, the Debt
Yield for the 56 properties was below the 12.75% threshold and, therefore, the
excess cash produced by the 56 properties is being retained in the special
deposit account until the Debt Yield increases above the minimum requirements.
As of June 30, 2003, the Debt Yield remained below the minimum requirements.The Company through its wholly owned subsidiaries owes approximately $10.9
million under Industrial Revenue Bonds (IRBs) issued on the Holiday Inn
Lawrence, Kansas and Holiday Inn Manhattan, Kansas properties. The IRBs
require a minimum debt service coverage ratio (DSCR) (as defined), calculated
as of the end of each calendar year. For the year ended December 31, 2002, the
cash flows of the two properties were insufficient to meet the minimum DSCR
requirements due in part to renovations that were being performed at the
properties during 2002. The trustee of the IRBs may give notice of default,
at which time the Company could remedy the default by depositing with the
trustee an amount currently estimated at approximately $1 million. In the
event a default is declared and not cured, the properties could be subject to
foreclosure and the Company would be obligated pursuant to a partial guaranty
of approximately $1.0 million. The total revenues for these two hotels
approximated $2.2 million and $2.0 million for the Second Quarter 2003 and
2002, respectively, and $3.9 million and $3.5 million for the 2003 Period and
the 2002 Period, respectively.On
September 30, 2003, first mortgage debt of approximately $7.2 million
of Macon Hotel Associates, L.L.C. (MHA) will become due. MHAs sole asset is
the Crowne Plaza Hotel in Macon Georgia. The Company is in discussions with
the lender to extend the term of this debt to December 31, 2003 while the
Company explores alternative financing opportunities. However there can be no
assurance that the lender will grant the extension or that the Company will
complete a refinancing on or before the due date. If the lender does not grant
the extension and the Company is not able to refinance the debt, the property
could be subject to foreclosure. Total revenues for the Crowne Plaza Hotel in
Macon, Georgia were approximately $1.5 million each for the three months ended
June 30, 2003 and 2002, respectively, and $2.9 million and $3.2 million for the
six months ended June 30, 2003 and 2002, respectively. The Companys net
investment in MHA as of June 30, 2003 and December 31, 2002 was $2.4 million
and $2.610Table of ContentsLODGIAN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)million, respectively. The debt of
approximately $7.2 million is included
in the current portion of long-term debt in the accompanying condensed
consolidated balance sheet.Substantially all of the Companys property and equipment are pledged as
collateral for long-term obligations. Certain of the mortgage notes are
subject to a prepayment penalty if repaid prior to their maturity.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
non-compliance with such agreements. In the past, management has cured most
cases of non-compliance within the applicable cure periods and the events of
non-compliance did not result in events of default under the respective loan
agreements. However, in selected situations and 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 (See Note 9 to these Condensed
Consolidated Financial Statements).8. Income taxesThe Company recorded income tax provisions of $0.1 million and $0.2
million for the three and six months ended June 30, 2003, respectively. The
provisions for the Predecessor three and six months ended June 30, 2002 were
also $0.1 million and $0.2 million, respectively. Both related primarily to
provisions for state income taxes.9. Commitments and ContingenciesAs of August 11, 2003, the Company had received termination notices from
franchisors with respect to 3 properties (this does not include one hotel for
which the Company has met all of the requirements to cure but has not yet
received the cure letter from the franchisor). Also, the Company was not in
strict compliance with the terms of one other franchise agreement. The notices
from the franchisors resulted from physical conditions being below brand
standards. The Company is working with the franchisors to cure the default
conditions and has a capital improvement program to address the capital
improvements required by the franchisors, the re-branding of several hotels and
general renovation projects intended to ultimately improve the operations of
the hotels. During the two years ending December 2004, the Company expects to
spend approximately $76.0 million in aggregate on all 97 hotels, with
approximately $15.4 million currently escrowed for such improvements.While it is the Companys belief that it will cure all defaults under the
franchise agreements before the applicable termination dates, there can be no
assurance that it will be able to do so or be able to obtain additional time in
which to cure the defaults. 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. In
the event of a franchise termination, management may seek to license the hotel
with another nationally-recognized brand. 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, since the
Company would either select an alternative franchisor or operate the hotel
independent of a franchisor.As part of the Impac Plan of Reorganization, the Company elected to reject
its license agreement relating to its hotel in Cincinnati, Ohio and ceased
operating this hotel as a Holiday Inn on May 23, 2003; the hotel is currently
being operated as an independent hotel. In addition, the Company made the
following franchise changes during the second quarter of 2003:
       
       The previously independent hotel in Pensacola,
Florida was converted to a Holiday Inn Express on April 4, 2003;
       
       The previously independent hotel in Dothan, Alabama
was converted to a Holiday Inn Express on May 23, 2003;11Table of ContentsLODGIAN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
       
       The former Holiday Inn  Dothan in Alabama was
converted to a Quality Inn on May 23, 2003;
       
       The former Hurstbourne Hotel and Conference Center in
Louisville, Kentucky was converted to a Clarion Hotel on June 2,
2003.The Company is contingently liable with respect to three irrevocable
letters of credit totaling $4.9 million issued as guarantees to Zurich American
Insurance Company, Donlen Fleet Management Services and U.S. Food Services. The
letters of credit expire in November 2003 but may require renewal beyond those
dates.The Company is self insured up to certain limits (deductibles) with
respect to employee medical, employee dental, property insurance, general
liability insurance, personal injury claims, workers compensation and auto
liability. The Company establishes liabilities for these self-insured
obligations annually, based on actuarial valuations and the Companys history
of claims. Should unanticipated events cause these claims to escalate beyond
normal expectations, the Companys financial condition and results of
operations could be adversely affected. As of June 30, 2003, the Company had
approximately $7.6 million accrued for such liabilities.The Company was 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 involved hotels in Texas (filed in the
District Court of Harris County in October 1999), Illinois (in the United
States District Court, Northern District of Illinois, Eastern Division in
February 2000) and New York (filed in the Supreme Court, New York County in
July 1999). In general, HRB claimed that the Company breached contracts to
renovate the hotels by not paying for work performed. The Company contended
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 paid HRB $750,000. With respect to the matter pending in
the state of New York, HRB claimed that it was owed $10.7 million. The Company
asserted a counterclaim of $7 million. In February 2003, the Company and HRB
agreed to settle the litigation pending in the state of New York. In exchange
for mutual dismissals and full releases, the Company paid HRB $625,000. The
Company provided fully for this liability in its Consolidated Financial
Statements for the year ended December 31, 2002 (was reflected in general,
administrative and other expenses in the Statement of Operations).The Company is 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. Certain of these claims are
limited to the amounts available under the Companys disputed claims reserve.10. New Accounting PronouncementsIn November 2002, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN
45) which elaborates on the disclosures to be made by a guarantor in its
financial statements. It also requires a guarantor to recognize a liability
for the fair value of the obligation undertaken in issuing the guarantee at the
inception of a guarantee. The disclosure requirements of FIN 45 were effective
for the Company as of December 31, 2002. The recognition provisions of FIN 45
will be applied on a prospective basis to guarantees issued after December 31,
2002. The requirements of FIN 45 did not have a material impact on the
Companys financial position and results of operations.In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities (FIN 46). FIN 46 addresses consolidation by a
business of variable interest entities in which it is the primary beneficiary.
FIN 46 is effective immediately for certain disclosure requirements for
variable interest entities created after January 31, 2003 and effective for
periods beginning after June 15, 2003 for existing variable interest entities.
At June 30, 2003, the Company had no variable interest entities and therefore
the Company does not expect the effects of FIN 46 to have a material impact on
its financial position and results of operations.12Table of ContentsLODGIAN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)On April 30, 2003, the FASB issued SFAS No. 149, Amendment of Statement
133 on Derivative Instruments and Hedging Activities which amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts and hedging activities under SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. SFAS No.
149 requires that contracts with comparable characteristics be accounted for
similarly. In particular, SFAS No. 149 clarifies the circumstances under which
a contract with an initial net investment meets the characteristics of a
derivative as discussed in SFAS No. 133. In addition, SFAS No. 149 clarifies
when a derivative contains a financing component that warrants special
reporting in the statement of cash flows. SFAS No. 149 amends certain other
existing pronouncements, resulting in more consistent reporting of contracts
that are derivatives in their entirety or that contain embedded derivatives
that warrant separate accounting. SFAS No. 149 is effective for contracts
entered into or modified after June 30, 2003 and for hedging relationships
designated after June 30, 2003. The Company adopted SFAS No. 149 on July 1,
2003. The adoption did not have a material impact on its financial position
and results of operations.On May 15, 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity
which aims to eliminate diversity in practice by requiring that certain types
of freestanding instruments be reported as liabilities by their issuers
including mandatorily redeemable instruments issued in the form of shares which
unconditionally obligate the issuer to redeem the shares for cash or by
transferring other assets. Until now, these types of instruments have been
presented in various ways, as part of liabilities, as part of equity, or
between the liabilities and equity sections (sometimes referred to as
mezzanine reporting). The provisions of SFAS No. 150, which also include a
number of new disclosure requirements, are effective for instruments entered
into or modified after May 31, 2003. For pre-existing instruments, SFAS No.
150 is effective as of the beginning of the first interim period which
commences after June 15, 2003 (July 1, 2003 for the Company). The Company
adopted SFAS No. 150 in the third quarter of 2003. The adoption impacted the
treatment of the Companys Mandatorily Redeemable 12.25% Cumulative Preferred
Stock (Preferred Stock), presented in these Condensed Consolidated Financial
Statements between total liabilities and stockholders equity. For periods
subsequent to June 30, 2003, the Preferred Stock will be reported as a
liability and the related dividends will be included in interest expense.
Prior periods will be restated for comparability.11. Related party transactionsRichard Cartoon, the Companys Executive Vice President and Chief
Financial Officer, is a principal in a business that the Company retained in
October 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 was billed $69,000 and $122,000,
including expenses, for other support and services provided by associates of
Richard Cartoon, LLC for the three and six months ended June 30, 2003,
respectively.12. Subsequent eventIn August 2003, management committed to a plan to sell one additional
hotel. Management expects to dispose of this hotel within the next year.
However, there can be no assurance that the Company will finalize the sale of
this asset within the next year, if at all. This hotel is included in the
accompanying Condensed Consolidated Financial Statements as an asset held for
use. The net carrying value of the property, plant and equipment of this hotel
as of June 30, 2003 and December 31, 2002 was $1.9 million and $2.0 million,
respectively; related long-term debt approximated $1.8 million as of June 30,
2003 and December 31, 2002, respectively. Total revenues were $0.7 million
for each of the three months ended June 30, 2003 and 2002, respectively, and
$0.9 million and $1.0 million for the six months ended June 30, 2003 and 2002,
respectively.13Table of Contents
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSChapter 11 proceedingsAs previously discussed in the Notes to the unaudited Condensed
Consolidated Financial Statements included in this Form 10-Q, the Company and
substantially all of its subsidiaries which owned hotel properties filed for
voluntary reorganization under Chapter 11 of the Bankruptcy Code on December
20, 2001, in the Southern District of New York. The Bankruptcy Court confirmed
the Companys First Amended Joint Plan of Reorganization (the Joint Plan of
Reorganization) on November 5, 2002 and on November 25, 2002, the Company and
entities owning 78 hotels officially emerged from Chapter 11. Pursuant to the
terms of the Joint Plan of Reorganization, eight wholly-owned hotels were
returned to the lender in January 2003 in satisfaction of outstanding debt
obligations and one wholly-owned hotel was returned to the lessor of a capital
lease.Of the Companys 97 hotel portfolio, eighteen hotels, previously owned by
two subsidiaries (Impac Hotels II, L.L.C. and Impac Hotels III, L.L.C.), were
not part of the Joint Plan of Reorganization. On April 24, 2003, the
Bankruptcy Court confirmed the plan of reorganization relating to these
eighteen hotels (the Impac Plan of Reorganization). These eighteen hotels
remained in Chapter 11 until May 22, 2003, the date on which the Company,
through eighteen newly-formed subsidiaries (one for each hotel), finalized an
$80 million financing with Lehman Brothers Holdings, Inc. (the Lehman
Financing). The Lehman Financing was primarily used to settle the remaining
amount due to the secured lender of these hotels. The Impac Plan of
Reorganization also provided for a pool of funds of approximately $0.3 million
to be paid to the general unsecured creditors of the eighteen hotels.The effects of the Joint Plan of Reorganization were recorded in
accordance with the American Institute of Certified Public Accountants
Statement of Position (SOP) 90-7, Financial Reporting by Entities in
Reorganization under the Bankruptcy Code, effective November 22, 2002. SOP
90-7 required the application of Fresh Start Accounting. As a result, the
Consolidated Financial Statements subsequent to the Companys emergence from
Chapter 11 are those of a new reporting entity (the Successor) and are not
comparable with the financial statements of the Company prior to the effective
date of the Joint Plan of Reorganization (the Predecessor).Discontinued operationsPursuant to the terms of the Joint Plan of Reorganization, eight
wholly-owned hotels were returned to the lender in January 2003 in satisfaction
of outstanding debt obligations and one wholly-owned hotel was returned to the
lessor of a capital lease. The assets, liabilities and results of operations
of these nine hotels are reported in Discontinued Operations as of and for the
three and six months ended June 30, 2003 and 2002. Due primarily to the
application of fresh start accounting in November 2002, in which these and
other assets were adjusted to their respective fair values, there was no gain
or loss on this transaction.In addition, in June 2003, the Company embarked on a plan to sell 14
hotels, 3 land parcels and an office building. The strategy to sell these
assets is part of managements plans to:
       
       pay down the Lehman Financing by at least $20 million
to minimize interest costs (See Note 7 to the Condensed
Consolidated Financial Statements presented elsewhere in this
report);
       
       provide additional funding for the Companys capital
expenditure program to comply with franchisor requirements and
improve brand quality; and
       
       dispose of certain hotels which are performing below
the standard set by management for the entire portfolio.In connection with this strategy, where the carrying values of the assets
exceeded the estimated fair values, net of selling costs, the carrying values
were reduced and impairment charges were recorded. The impairment charges
recorded related to 4 hotels and 2 land parcels and approximated $3.4 million.
Fair value is determined using quoted market prices, when available, or other
accepted valuation14Table of Contentstechniques. Where the estimated selling prices, net of selling costs,
exceeded the carrying values, no adjustments were made. Management plans to
dispose of these assets within the next year. While the completion of these
dispositions is probable, there can be no assurance that the Company will
finalize the sale of any or all of these assets within the next year, if at
all. The results of operations of all assets identified as held for sale
(including the related impairment charges) are reported in Discontinued
Operations for the three and six months ended June 30, 2003 and 2002. The
assets held for sale and the liabilities related to these assets are separately
disclosed in the Condensed Consolidated Balance Sheet as of June 30, 2003.In August 2003, management committed to a plan to sell one additional
hotel. Management expects to dispose of this hotel within the next year.
However, there can be no assurance that the Company will finalize the sale of
this asset within the next year, if at all. This hotel is included in the
Condensed Consolidated Financial Statements, presented elsewhere in this
report, as an asset held for use. The net carrying value of the property, plant
and equipment of this hotel as of June 30, 2003 and December 31, 2002 was $1.9
million and $2.0 million, respectively; related long-term debt approximated
$1.8 million as of June 30, 2003 and December 31, 2002, respectively. Total
revenues were $0.7 million for each of the three months ended June 30, 2003 and
2002, respectively, and $0.9 million and $1.0 million for the six months ended
June 30, 2003 and 2002, respectively.Forward-looking statements/risk factorsThe following discussion should be read in conjunction with the Companys
Condensed Consolidated Financial Statements and related notes thereto included
elsewhere herein.The discussion below and elsewhere in this Form 10-Q 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
managements expectations, statements that describe anticipated revenues,
capital expenditures, other financial items, the Companys business plans and
objectives, 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, plan, 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:
       
       Risks associated with the Companys ability to maintain its
existing franchise affiliations which could affect the Companys
revenue generating capabilities;
       
       The impact of potential 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;
       
       Risks associated with reductions in hotel values which are
dependent upon the successful operation of the hotels;
       
       Risks associated with increases in the cost of debt;
       
       Risks associated with the holders of the Companys common stock
exercising significant control over the Company and selling large
blocks of shares;
       
       Risks associated with the Companys ability to meet the continuing
listing requirements of the American Stock Exchange;
       
       Risks associated with self-insured claims escalating beyond expectations;
       
       Risks associated with the Companys ability to comply with the terms of its loan agreements;
       
       Risks associated with the Companys short operating history since
the effectiveness of its Joint Plan of Reorganization;
       
       Risks associated with environmental, state and federal regulations;
       
       Risks associated with normal collective bargaining contract negotiations;
       
       Risks associated with the Companys high level of encumbered assets
which could affect its ability to access additional working capital;
and15Table of Contents
       
       Risks as a result of the short time that the public market for the
Companys new securities has existed.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.General OverviewManagement believes that the results of operations in the hotel industry
are best explained by three key performance measures: occupancy, average daily
rate (ADR) and revenue per available room (RevPAR) levels. These measures
are influenced by a variety of factors including national, regional and local
economic conditions, the degree 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 since 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. RevPAR is derived by dividing room revenues by
the number of available room nights for a given period or, alternatively, by
multiplying the occupancy by the ADR.The following table shows room data, occupancy, average daily rate and RevPAR
by category of hotel for the three and six months ended June 30, 2003 and 2002
(shown for those hotels owned and managed as of June 30, 2003,
including a minority-owned hotel which the Company manages):Three months ended
    
    Six months endedCapital Expenditure
    
    June 30, 2003
    

    June 30, 2002
    
    June 30, 2003
    

    June 30, 2002Six months endedJune 30, 2003
    
    Successor
    

    Predecessor
    
    Successor
    

    PredecessorUpper UpscaleNumber of properties
    
    - continuing
    
    $
    5,925
    
    
    
    4
    
    
    
    
    4
    
    
    
    4
    
    
    
    
    4Number of rooms
    
    
    
    
    
    
    
    
    
    
    825
    
    
    
    
    825
    
    
    
    825
    
    
    
    
    825Occupancy
    
    
    
    
    
    
    
    
    
    
    57.7
    %
    
    
    
    71.5
    %
    
    
    59.6
    %
    
    
    
    66.1
    %Average daily rate
    
    
    
    
    
    
    
    
    
    $
    88.93
    
    
    
    $
    93.95
    
    
    $
    90.76
    
    
    
    $
    94.24RevPAR
    
    
    
    
    
    
    
    
    
    $
    51.35
    
    
    
    $
    67.17
    
    
    $
    54.11
    
    
    
    $
    62.30UpscaleNumber of properties
    
    - continuing
    
    
    1,156
    
    
    
    18
    
    
    
    
    18
    
    
    
    18
    
    
    
    
    18Number of rooms
    
    
    
    
    
    
    
    
    
    
    3,156
    
    
    
    
    3,156
    
    
    
    3,156
    
    
    
    
    3,156Occupancy
    
    
    
    
    
    
    
    
    
    
    68.5
    %
    
    
    
    71.5
    %
    
    
    67.3
    %
    
    
    
    68.8
    %Average daily rate
    
    
    
    
    
    
    
    
    
    $
    82.65
    
    
    
    $
    83.54
    
    
    $
    84.48
    
    
    
    $
    85.44RevPAR
    
    
    
    
    
    
    
    
    
    $
    56.61
    
    
    
    $
    59.72
    
    
    $
    56.83
    
    
    
    $
    58.77Midscale with Food & BeverageNumber of properties
    
    - continuing
    
    
    6,684
    
    
    
    49
    
    
    
    
    48
    
    
    
    49
    
    
    
    
    48- discontinued
    
    
    758
    
    
    
    11
    
    
    
    
    12
    
    
    
    11
    
    
    
    
    12Number of rooms
    
    
    
    
    
    
    
    
    
    
    12,045
    
    
    
    
    11,895
    
    
    
    12,045
    
    
    
    
    11,895Occupancy
    
    
    
    
    
    
    
    
    
    
    60.5
    %
    
    
    
    64.1
    %
    
    
    55.6
    %
    
    
    
    58.5
    %Average daily rate
    
    
    
    
    
    
    
    
    
    $
    71.66
    
    
    
    $
    71.82
    
    
    $
    70.18
    
    
    
    $
    70.27RevPAR
    
    
    
    
    
    
    
    
    
    $
    43.37
    
    
    
    $
    46.03
    
    
    $
    39.05
    
    
    
    $
    41.13Midscale without Food & BeverageNumber of properties
    
    - continuing
    
    
    1,297
    
    
    
    9
    
    
    
    
    8
    
    
    
    9
    
    
    
    
    8- discontinued
    
    
    199
    
    
    
    1
    
    
    
    
    
    
    
    
    1
    
    
    
    
    Number of rooms
    
    
    
    
    
    
    
    
    
    
    1,282
    
    
    
    
    1,047
    
    
    
    1,282
    
    
    
    
    1,047Occupancy
    
    
    
    
    
    
    
    
    
    
    59.4
    %
    
    
    
    63.6
    %
    
    
    52.2
    %
    
    
    
    58.8
    %Average daily rate
    
    
    
    
    
    
    
    
    
    $
    58.25
    
    
    
    $
    57.12
    
    
    $
    58.07
    
    
    
    $
    57.06RevPAR
    
    
    
    
    
    
    
    
    
    $
    34.60
    
    
    
    $
    36.33
    
    
    $
    30.30
    
    
    
    $
    33.53Independent HotelsNumber of properties
    
    - continuing
    
    
    1,624
    
    
    
    3
    
    
    
    
    5
    
    
    
    3
    
    
    
    
    5- discontinued
    
    
    1,783
    
    
    
    2
    
    
    
    
    2
    
    
    
    2
    
    
    
    
    2Number of rooms
    
    
    
    
    
    
    
    
    
    
    957
    
    
    
    
    1,342
    
    
    
    957
    
    
    
    
    1,342Occupancy
    
    
    
    
    
    
    
    
    
    
    44.9
    %
    
    
    
    44.8
    %
    
    
    41.5
    %
    
    
    
    45.9
    %Average daily rate
    
    
    
    
    
    
    
    
    
    $
    69.53
    
    
    
    $
    75.57
    
    
    $
    74.05
    
    
    
    $
    77.91RevPAR
    
    
    
    
    
    
    
    
    
    $
    31.20
    
    
    
    $
    33.83
    
    
    $
    30.71
    
    
    
    $
    35.78All HotelsNumber of properties
    
    - continuing
    
    
    16,659
    
    
    
    83
    
    
    
    
    83
    
    
    
    83
    
    
    
    
    83- discontinued
    
    
    2,740
    
    
    
    14
    
    
    
    
    14
    
    
    
    14
    
    
    
    
    14Number of rooms
    
    
    
    
    
    
    
    
    
    
    18,265
    
    
    
    
    18,265
    
    
    
    18,265
    
    
    
    
    18,265Occupancy
    
    
    
    
    
    
    
    
    
    
    60.9
    %
    
    
    
    64.2
    %
    
    
    56.8
    %
    
    
    
    59.7
    %Average daily rate
    
    
    
    
    
    
    
    
    
    $
    73.54
    
    
    
    $
    74.55
    
    
    $
    73.45
    
    
    
    $
    74.17RevPAR
    
    
    
    
    
    
    
    
    
    $
    44.77
    
    
    
    $
    47.89
    
    
    $
    41.75
    
    
    
    $
    44.30


In accordance with the Smith Travel Research Chain Scales, the categories include the following brands:Upper Upscale: Hilton and MarriottUpscale: Courtyard by Marriott, Crowne Plaza, Radisson and Residence InnMidscale with Food & Beverage: Clarion, Doubletree Club, Four Points, Holiday Inn, Holiday Inn Select,
Holiday Inn SunSpree Resort and Quality InnMidscale without Food & Beverage: Fairfield Inn, Hampton Inn and Holiday Inn Express16Table of ContentsThe following table shows room data, occupancy, average daily rate and
RevPAR by geographic region for the three and six months ended June 30, 2003
and 2002 (shown for those hotels owned and managed as of
June 30, 2003, including a minority-owned hotel which the
Company manages):Three months ended
    
    Six months endedCapital Expenditure
    
    June 30, 2003
    

    June 30, 2002
    
    June 30, 2003
    

    June 30, 2002Six months endedJune 30, 2003
    
    Successor
    

    Predecessor
    
    Successor
    

    PredecessorNortheast RegionNumber of properties
    
    - continuing
    
    $
    4,191
    
    
    
    33
    
    

    
    33
    
    
    
    33
    
    

    
    33- discontinued
    
    
    156
    
    
    
    4
    
    

    
    4
    
    
    
    4
    
    

    
    4Number of rooms
    
    
    
    
    
    
    
    
    
    
    7,011
    
    

    
    7,011
    
    
    
    7,011
    
    

    
    7,011Occupancy
    
    
    
    
    
    
    
    
    
    
    64.1
    %
    

    
    69.0
    %
    
    
    57.6
    %
    

    
    60.2
    %Average daily rate
    
    
    
    
    
    
    
    
    
    $
    80.31
    
    

    $
    79.13
    
    
    $
    78.38
    
    

    $
    77.22RevPAR
    
    
    
    
    
    
    
    
    
    $
    51.46
    
    

    $
    54.60
    
    
    $
    45.17
    
    

    $
    46.51Southeast RegionNumber of properties
    
    - continuing
    
    
    3,537
    
    
    
    26
    
    

    
    26
    
    
    
    26
    
    

    
    26- discontinued
    
    
    2,317
    
    
    
    8
    
    

    
    8
    
    
    
    8
    
    

    
    8Number of rooms
    
    
    
    
    
    
    
    
    
    
    5,794
    
    

    
    5,794
    
    
    
    5,794
    
    

    
    5,794Occupancy
    
    
    
    
    
    
    
    
    
    
    61.4
    %
    

    
    61.0
    %
    
    
    57.6
    %
    

    
    58.9
    %Average daily rate
    
    
    
    
    
    
    
    
    
    $
    68.14
    
    

    $
    69.66
    
    
    $
    67.75
    
    

    $
    69.70RevPAR
    
    
    
    
    
    
    
    
    
    $
    41.86
    
    

    $
    42.52
    
    
    $
    39.03
    
    

    $
    41.07Midwest RegionNumber of properties
    
    - continuing
    
    
    5,707
    
    
    
    17
    
    

    
    17
    
    
    
    17
    
    

    
    17- discontinued
    
    
    267
    
    
    
    2
    
    

    
    2
    
    
    
    2
    
    

    
    2Number of rooms
    
    
    
    
    
    
    
    
    
    
    4,141
    
    

    
    4,141
    
    
    
    4,141
    
    

    
    4,141Occupancy
    
    
    
    
    
    
    
    
    
    
    55.0
    %
    

    
    60.9
    %
    
    
    52.3
    %
    

    
    57.2
    %Average daily rate
    
    
    
    
    
    
    
    
    
    $
    68.25
    
    

    $
    72.10
    
    
    $
    69.49
    
    

    $
    71.45RevPAR
    
    
    
    
    
    
    
    
    
    $
    37.55
    
    

    $
    43.88
    
    
    $
    36.35
    
    

    $
    40.89West RegionNumber of properties
    
    - continuing
    
    
    3,223
    
    
    
    7
    
    

    
    7
    
    
    
    7
    
    

    
    7Number of rooms
    
    
    
    
    
    
    
    
    
    
    1,319
    
    

    
    1,319
    
    
    
    1,319
    
    

    
    1,319Occupancy
    
    
    
    
    
    
    
    
    
    
    59.8
    %
    

    
    63.8
    %
    
    
    63.6
    %
    

    
    68.3
    %Average daily rate
    
    
    
    
    
    
    
    
    
    $
    74.59
    
    

    $
    76.07
    
    
    $
    82.54
    
    

    $
    84.04RevPAR
    
    
    
    
    
    
    
    
    
    $
    44.62
    
    

    $
    48.51
    
    
    $
    52.49
    
    

    $
    57.44All HotelsNumber of properties
    
    - continuing
    
    
    16,659
    
    
    
    83
    
    

    
    83
    
    
    
    83
    
    

    
    83- discontinued
    
    
    2,740
    
    
    
    14
    
    

    
    14
    
    
    
    14
    
    

    
    14Number of rooms
    
    
    
    
    
    
    
    
    
    
    18,265
    
    

    
    18,265
    
    
    
    18,265
    
    

    
    18,265Occupancy
    
    
    
    
    
    
    
    
    
    
    60.9
    %
    

    
    64.2
    %
    
    
    56.8
    %
    

    
    59.7
    %Average daily rate
    
    
    
    
    
    
    
    
    
    $
    73.54
    
    

    $
    74.55
    
    
    $
    73.45
    
    

    $
    74.17RevPAR
    
    
    
    
    
    
    
    
    
    $
    44.77
    
    

    $
    47.89
    
    
    $
    41.75
    
    

    $
    44.30

The regions are defined as follows:Northeast: Canada, Connecticut, Massachusetts, Maryland, New Hampshire, New York, Ohio, Pennsylvania,
Vermont, West VirginiaSoutheast: Alabama, Florida, Georgia, Kentucky, Louisiana, South Carolina, TennesseeMidwest: Arkansas, Iowa, Illinois, Indiana, Kansas, Michigan, Minnesota, Missouri, Oklahoma, TexasWest: Arizona, California, Colorado, New MexicoRevenues. Revenues are comprised of room, 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,
hotel catering and meeting room rentals. Other revenues include charges for
guests long-distance telephone service, laundry and parking. Approximately
73% of total revenues are derived from guest room rentals, primarily from
transient demand (approximately 70%). Group demand makes up approximately 24%
with contract demand comprising the remaining 6%.Operating Expenses. Operating expenses are comprised of direct expenses;
general, administrative and other 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
variable with available rooms and occupancy, but contain fixed components.
General, administrative and other expenses primarily represent property level
expenses related to general operations such as marketing, utilities, repairs
and maintenance and other property administrative costs. General,
administrative and other expenses also include corporate overhead (such as
accounting services, legal and professional fees, information technology and
executive management) which are generally fixed. Also included in general,
administrative and other expenses for the three and six months ended June 30,
2003 are expenses relating to the post-emergence reorganization activities.17Table of ContentsResults of OperationsThe discussion of results of operations, income taxes, liquidity and
capital resources that follows is derived from the Companys unaudited
Condensed Consolidated Financial Statements set forth in Item I. Financial
Statements included in this Form 10-Q (the Consolidated Financial
Statements) and should be read in conjunction with such financial statements
and notes thereto.At June 30, 2003, the Company managed a portfolio of 97 hotels. Of the 97
hotels, 92 were wholly-owned, four were owned in joint venture partnerships in
which the Company had a 50% or greater financial interest and one was owned in
a joint venture partnership in which the Company had a minority equity
interest.At June 30, 2002, the Company managed a portfolio of 106 hotels. Of the
106 hotels, 101 were wholly-owned, four were owned in joint venture
partnerships in which the Company had a 50% or greater financial interest and
one was owned in a joint venture partnership in which the Company had a
minority equity interest.Except for the hotel in which the Company had a minority equity interest
(which is accounted for using the equity method of accounting), the assets,
liabilities and results of operations of all the hotels are included in the
Condensed Consolidated Financial Statements.Reported in Continuing Operations for the three and six months ended June
30, 2003, are 82 of the 97 hotels; 14 hotels are included in Discontinued
Operations along with 3 land parcels and one office building; one hotel is not
consolidated.Reported in Continuing Operations for the three and six months ended June
30, 2002, are 82 of the 106 hotels; 23 hotels are included in Discontinued
Operations along with 3 land parcels and one office building; one hotel is not
consolidated. The reduction in hotels from 106 to 97 is a result of the return
of eight hotels to the lender and one hotel to the lessor of a capital lease in
January 2003.Three Months Ended June 30, 2003 (Second Quarter 2003) Compared to the Three
Months Ended June 30, 2002 (Second Quarter 2002) and Six Months Ended June
30, 2003 (2003 Period) Compared to the Six Months Ended June 30, 2002 (2002
Period)Continuing Operations -RevenuesSecond Quarter 2003 compared to Second Quarter 2002Revenues for the 82 hotels reported in Continuing Operations were $87.1
million for the Second Quarter 2003, a 7.7% decrease from revenues of $94.3
million for the Second Quarter 2002. RevPAR for these hotels declined 7.0%
from the Second Quarter 2002 due to both declines in occupancy (declined by
5.1%) and ADR (declined by 1.9%). Revenues and RevPAR for the Second Quarter
2003 were adversely affected by business declines related to the softening of
the U.S. economy as well as to large scale renovations being performed at some
of the Companys hotels, including all three Hilton hotels, which severely
impacted the Companys performance in the Upper Upscale category.2003 Period compared to 2002 PeriodThe factors described above also affected revenues for the 82 hotels
reported in Continuing Operations for the 2003 Period. Revenues for these
hotels for the 2003 Period were $162.7 million, a 6.0% decrease from revenues
of $173.0 million for the 2002 Period. RevPAR for these hotels declined 5.6%
from the 2002 Period due to both declines in occupancy (declined by 4.4%) and
ADR (declined by 1.2%).18Table of ContentsDirect Operating ExpensesSecond Quarter 2003 compared to Second Quarter 2002Direct operating expenses for the 82 hotels reported in Continuing
Operations were $32.8 million (37.7% of direct revenues) for the Second Quarter
2003 and $35.5 million (37.6% of direct revenues) for the Second Quarter 2002.
The $2.7 million decrease was primarily driven by the reduction in variable
expenses related to the reduction in revenues.2003 Period compared to 2002 PeriodAlso primarily driven by the reduction in revenues, direct operating
expenses for the 2003 Period for the 82 hotels reported in Continuing
Operations decreased by $3.3 million (5.0%), from $66.5 million (38.4% of
direct revenues) in the 2002 Period to $63.2 million (38.8% of direct revenues)
in the 2003 Period.General, administrative and other expensesSecond Quarter 2003 compared to Second Quarter 2002General, administrative and other expenses were $37.2 million for the
Second Quarter 2003 and $35.3 million for the Second Quarter 2002.
Contributing to this increase of $1.9 million were insurance ($0.8 million),
utilities ($0.4 million), property and other taxes ($0.3 million) and severance
payments of $0.8 million. Post-emergence expenses of $1.0 million related to
the Chapter 11 filing for the 78 hotels that emerged from Chapter 11 in
November 2002 and the nine properties that were disposed of in early January
2003 also contributed to the increase in general, administrative and other
expenses. Post-emergence expenses include legal and professional fees related
to the claims reconciliation process as well as fees payable to the United
States Trustee of the Department of Justice, which are required as part of the
reorganization process. These expenses were reported as reorganization items
for the Second Quarter 2002. These increases were partially offset by other
factors, particularly certain property level expenses which decreased primarily
as a result of the decline in revenues (property level general and
administrative expenses, advertising and promotion, franchise fees and
equipment rentals decreased $1.4 million in aggregate).2003 Period compared to 2002 PeriodGeneral, administrative and other expenses were $73.8 million for the 2003
Period, an increase of $4.4 million over the 2002 Period ($69.4 million). As
in the Second Quarter 2003, there were increases in certain general and
administrative expenses which were partially offset by reductions in property
level expenses, primarily as a result of reductions in revenues. Corporate
overhead also decreased as a result of certain cost reduction initiatives at
the corporate office, including reduction in office space and staff costs.
Insurance, utilities, ground rent and severance payments accounted for
increases of $1.4 million, $1.0 million, $0.3 million and $0.8 million,
respectively. In addition, post-emergence expenses of $3.2 million contributed
to the increase in general, administrative and other expenses. These increases
were partially offset by reduced property level expenses, primarily related to
the decline in revenues; property level general and administrative expenses,
franchise fees and equipment rentals decreased $1.4 million in aggregate. The
remaining reduction is primarily a result of the reductions in corporate
overhead discussed above.Depreciation and amortization expenseAs a result of the write-down of fixed assets recorded on the
implementation of fresh start reporting on November 22, 2002, depreciation for
both the Second Quarter 2003 and the 2003 Period were lower than the equivalent
periods in 2002.Second Quarter 2003 compared to Second Quarter 2002- Depreciation and
amortization expense was $7.9 million in the Second Quarter 2003 and $12.0
million in the Second Quarter 2002.2003 Period compared to 2002 Period Depreciation and amortization
expense was $15.6 million in the 2003 Period and $23.7 million in the 2002
Period.19Table of ContentsInterest expenseSecond Quarter 2003 compared to Second Quarter 2002 Interest expense was
$7.1 million in the Second Quarter 2003 (including amortization of financing
fees of $0.8 million) and $7.6 million in the Second Quarter 2002 (amortization
of financing fees were nil). The reduction in interest expense was primarily
attributable to a reduction in the cost of debt. The Companys variable rate
debt as of June 30, 2003, excluding the new Lehman Financing (which was
completed on May 22, 2003), was approximately $308.8 million. Average LIBOR
was 1.35% and 1.84% for the Second Quarter 2003 and Second Quarter 2002,
respectively. Also, the interest spread on the Companys variable rate debt
was approximately 2% less than it was during 2002. The reduction in interest
expense due to reductions in interest rates was offset by an increase of
approximately $0.4 million of interest expense related to the Lehman Financing
which replaced debt on which the Company paid no interest between December 20,
2001 and May 22, 2003 (as a result of its reorganization proceedings and with
the approval of the Bankruptcy Court, the Company ceased paying interest on
certain of its debts).2003 Period compared to 2002 Period Interest expense was $13.5 million
in the 2003 Period (including amortization of financing fees of $1.4 million)
and $16.0 million in the 2002 Period (amortization of financing fees were de
minimus). The reduction in interest expense was primarily attributable to a
reduction in the cost of debt. Average LIBOR was 1.38% and 1.87% for the 2003
Period and the 2002 Period, respectively. Also, the interest spread on the
Companys variable rate debt was approximately 2% less than it was during the
2002 Period. In addition, capitalized interest costs for the 2003 period
increased $0.3 million over the 2002 Period. The reduction in interest expense
due to reductions in interest rates and increases in capitalized interest costs
were offset by an increase of approximately $0.4 million of interest expense
related to the Lehman Financing which replaced debt on which the Company paid
no interest between December 20, 2001 and May 22, 2003 (as a result of its
reorganization proceedings and with the approval of the Bankruptcy Court, the
Company ceased paying interest on certain of its debts).Other income (expenses)Other income (expenses) for the Second Quarter 2002and the 2002 Period
consisted primarily of gain on extinguishment of debt of $4.4 million. This
gain related to a discharge of indebtedness (principal plus accrued interest)
in respect of Macon Hotel Associates (a subsidiary of the Company) as a result
of a Satisfaction and Release Agreement between Macon Hotel Associates and one
of its lenders.Reorganization itemsFor the Second Quarter 2003 and the 2003 Period, reorganization items
included only those Chapter 11 legal and professional costs directly
attributable to the Impac Debtors, as well as extension fees paid to the
secured lender of the Impac Debtors pursuant to the settlement agreement. For
the Second Quarter 2002 and the 2002 Period, the Company recorded all costs
incurred as a result of the Chapter 11 filing (mainly legal and professional
fees) as reorganization items.Second Quarter 2003 compared to Second Quarter 2002 Reorganization items
were $0.8 million for the Second Quarter 2003 compared to $2.2 million for the
Second Quarter 2002.2003 Period compared to 2002 Period Reorganization items were $2.0 million
for the 2003 Period compared to $8.0 million for the 2002 Period.Minority interestsMinority interests relate to the minority share of income or loss of
certain joint venture partnerships and are therefore directly related to the
operating results of the respective hotels. The reduction in minority
interests in the Second Quarter 2003 over the Second Quarter 2002 and also the
reduction for the 2003 Period over the 2002 Period are due to lower operating
results of the respective hotels as well as to a reduced equity ownership for
the minority partners in one hotel (50% in the Second Quarter 2002 and the 2002
Period was reduced to 18% in November 2002).Second Quarter 2003 compared to Second Quarter 2002 Minority interests were
$69,000 and $0.9 million for the Second Quarter 2003 and the Second Quarter
2002, respectively.20Table of Contents2003 Period compared to 2002 Period Minority interests were $0.2 million and
$1.3 million for the 2003 Period and the 2002 Period.Discontinued OperationsThe loss from Discontinued Operations for the Second Quarter 2003 was $3.7
million and $2.1 million for the Second Quarter 2002. For the 2003 Period and
2002 Period, the loss was $5.8 million and $3.8 million, respectively. The
Condensed Combined Statement of Operations for the properties classified in
Discontinued Operations is presented below along with a discussion of the
changes between the periods.Three months ended

    
    Six months endedJune 30, 2003

    
    June 30, 2002
    
    June 30, 2003

    
    June 30, 2002(Unaudited in thousands)Revenues:Successor
    
    
    Predecessor
    
    Successor
    
    
    PredecessorRooms
    
    
    
    
    
    $
    9,621
    

    
    $
    15,011
    
    
    $
    17,194
    

    
    $
    27,007Food and beverage
    
    
    
    
    
    
    2,076
    
    
    
    
    3,682
    
    
    
    3,777
    
    
    
    
    6,730Other
    
    
    
    
    
    
    438
    
    
    
    
    685
    
    
    
    790
    
    
    
    
    1,367(1
    )
    
    
    12,135
    
    
    
    
    19,378
    
    
    
    21,761
    
    
    
    
    35,104Operating expenses:Direct:Rooms
    
    
    
    
    
    
    2,774
    
    
    
    
    4,633
    
    
    
    5,247
    
    
    
    
    8,561Food and beverage
    
    
    
    
    
    
    1,555
    
    
    
    
    2,916
    
    
    
    2,979
    
    
    
    
    5,362Other
    
    
    
    
    
    
    300
    
    
    
    
    492
    
    
    
    589
    
    
    
    
    988(2
    )
    
    
    4,629
    

    
    
    8,041
    
    
    
    8,815
    

    
    
    14,911Gross contribution
    
    
    
    
    
    
    7,506
    

    
    
    11,337
    
    
    
    12,946
    

    
    
    20,193General, administrative and other
    
    
    (3
    )
    
    
    5,948
    

    
    
    10,589
    
    
    
    12,020
    

    
    
    18,416Depreciation and amortization
    
    
    (4
    )
    
    
    1,190
    

    
    
    2,700
    
    
    
    2,314
    

    
    
    5,327Impairment of long-lived assets
    
    
    (5
    )
    
    
    3,448
    

    
    
    
    
    
    
    3,448
    

    
    
    Other operating expenses
    
    
    
    
    
    
    10,586
    

    
    
    13,289
    
    
    
    17,782
    

    
    
    23,743(3,080
    )

    
    
    (1,952
    )
    
    
    (4,836
    )

    
    
    (3,550
    )Interest expense
    
    
    (6
    )
    
    
    (616
    )

    
    
    (109
    )
    
    
    (958
    )

    
    
    (255
    )Loss before income taxes
    
    
    
    
    
    
    (3,696
    )

    
    
    (2,061
    )
    
    
    (5,794
    )

    
    
    (3,805
    )Provision for income taxes
    
    
    
    
    
    
    
    

    
    
    
    
    
    
    
    

    
    
    Net loss
    
    
    
    
    
    $
    (3,696
    )

    
    $
    (2,061
    )
    
    $
    (5,794
    )

    
    $
    (3,805
    )

(1)
    
    The reduction in revenues was due primarily to the return of 8
properties to the lenders and one property to the lessor of a capital lease in
January 2003. Total revenues for these 9 properties were $6.6 million for the
Second Quarter 2002 and $11.5 million for the 2002 Period (revenues for these
properties were immaterial during 2003). The remaining reduction in revenues
($0.7 million between the Second Quarter 2003 and the Second Quarter 2002 and
$1.8 million between the 2003 Period and the 2002 Period) was due to the same
factors discussed above for Continuing Operations (revenue section).(2)
    
    The reduction in direct operating expenses was primarily related to the
reduction in revenues.(3)
    
    Of the reduction in general, administrative and
other of $4.7 million for the Second Quarter 2003 over the Second Quarter 2002,
$3.4 million was due to the elimination of the 9 properties from the portfolio.
The remaining reductions are due to the similar factors discussed above for
Continuing Operations.(4)
    
    Depreciation and amortization for the Second Quarter 2003 decreased $1.5
million compared to the Second Quarter 2002. For the 2003 period, depreciation
and amortization decreased $3.0 million compared with the 2002 Period. Of these
reductions, the elimination of the 9 properties from the portfolio accounted
for $0.8 million and $1.6 million, respectively. The remaining reductions were
due to the reduction in the carrying values of fixed assets which occurred on
the implementation of fresh start accounting on November 22, 2002.(5)
    
    The impairment of long-lived assets of $3.4 million for the Second
Quarter 2003 and the 2003 Period was recorded to reduce the carrying values of
4 hotels and 2 land parcels to their estimated selling prices less estimated
costs to sell. In accordance with SFAS No. 144, where the estimated selling
prices exceeded the carrying values, no gains were recorded.(6)
    
    Interest expense for the Second Quarter 2003 increased $0.5 million
compared to the Second Quarter 2002. For the 2003 Period, interest expense
increased by $0.7 million compared with the 2002 Period. For the Second
Quarter 2003 and the 2003 period, the increase was primarily due to interest on
the Lehman Financing of $0.2 million and to amortization of deferred financing
fees in 2003 which were de minimus21Table of Contentsfor the Second Quarter of 2002 and the 2002
Period. The Lehman Financing replaced debt on which the
Company paid no interest in the Second Quarter 2002 and the 2002 Period as a
result of its reorganization proceedings.Income TaxesAs of December 31, 2002, Lodgian had net operating loss carry-forwards of
approximately $206 million for federal income tax purposes, which expire in
2004 through 2021. Under the Joint Plan of Reorganization, substantial amounts
of net operating losses were utilized to offset income from debt cancellations.
The Companys ability to use the remaining net operating loss carry-forwards to
offset future income is subject to limitations which could increase over time.
Due to these limitations, a portion or all of these net operating loss
carry-forwards could expire unused. In addition, the Company recorded an
income tax provision of $0.1 million for the Second Quarter 2003 and $0.2
million for the 2003 Period which related primarily to provisions for state
income taxes.Liquidity and Capital ResourcesAs more fully discussed above, the Bankruptcy Court confirmed the
Companys Joint Plan of Reorganization on November 5, 2002 and on November 25,
2002, the Company and entities owning 78 hotels officially emerged from Chapter
11.Pursuant to the terms of the Joint Plan of Reorganization, eight other
wholly-owned hotels were returned to the lender in January 2003 in satisfaction
of outstanding debt obligations and one wholly-owned hotel was returned to the
lessor of a capital lease. As a result of the surrender of these nine hotels,
long-term debt approximating $15.9 million was extinguished. The results of
operations for these nine hotels have been presented as Discontinued Operations
in the Condensed Consolidated Statements of Operations.Eighteen hotels, previously owned by two subsidiaries (Impac Hotels II,
L.L.C. and Impac Hotels III, L.L.C.), were not part of the Joint Plan of
Reorganization. On April 24, 2003, the Bankruptcy Court confirmed the Impac
Plan of Reorganization which related to these eighteen hotels. These eighteen
hotels remained in Chapter 11 until May 22, 2003, the date on which the
Company, through eighteen newly-formed subsidiaries (one for each hotel),
finalized an $80 million financing with Lehman Brothers Holdings, Inc. (the
Lehman Financing). The Lehman Financing was primarily used to settle the
remaining amount due to the secured lender of these hotels. The Impac plan of
reorganization also provided for a pool of funds (approximately $0.3 million)
to be paid to the general unsecured creditors of the eighteen hotels.The Lehman Financing is a two-year term loan with an optional one-year
extension and bears interest at the higher of 7.25% or LIBOR plus 5.25%. The
one-year extension is only available if, at the time of electing to extend and
at the initial maturity date, there are no events of default. If the Company
opts for the one-year extension, an extension fee of $3.0 million is payable.
Pursuant to the terms of the agreement, additional interest of $4.4 million is
also payable prior to the initial maturity date (May 22, 2005). If, however,
the Company makes one or more prepayments totaling at least $20 million in
aggregate on or before March 1, 2004, the additional interest payable will
reduce to $3.6 million. Payments of principal and interest on the Lehman
Facility are due monthly. If an event of default occurs, default interest,
which equates to an additional 3.25%, is payable for the period of the default.In addition to the Lehman Financing, long-term debt includes loans
approximating $83.5 million which were substantially reinstated on their
original terms (except for the extension of certain maturities), on November
25, 2002, the effective date of the Joint Plan of Reorganization. These loans
are secured by 20 hotel properties. On the same date, the terms of one loan,
in the amount of $2.5 million and secured by one hotel were amended to provide
for a new interest rate as well as a new maturity date.The other major component of the Companys long-term debt is the exit
financing of $309 million which it received through Merrill Lynch Mortgage
Lending, Inc. (Merrill), secured by 57 hotel properties. Also received on
the date of emergence from Chapter 11, the exit financing was initially
comprised of three separate components as follows:

22Table of Contents
 
 Senior debt of $224.0 million accruing interest at
the rate of LIBOR plus 2.2442%, secured by, among other things,
first mortgage liens on the fee simple and leasehold interests
in 55 of the Companys hotels;
 
 Mezzanine debt of $78.7 million accruing interest at
the rate of LIBOR plus 9.00%, secured by the equity interest in
the subsidiaries of 56 hotels (the 55 which secure the Senior
Debt and one additional hotel); and
 
 Debt provided through Computershare Trust Company of
Canada, a Canadian lender, of $10.0 million Canadian dollars
(equated to approximately $6.3 million U.S. dollars at
inception) maturing in December 2007 accruing interest at the
rate of 7.879% secured by a mortgage on the Windsor property.In March 2003, as permitted by the terms of the Senior and Mezzanine debt
agreements, Merrill exercised the right to resize the Senior and Mezzanine
debt amounts, prior to the securitization of the mortgage loan. As a result,
the principal amount of the Senior Debt was decreased from $223.5 million
(initially $224.0 less $0.5 million of principal payments) to $218.1 million,
and the initial principal amount of the Mezzanine Debt was increased from $78.7
million to $84.1 million. Though the blended interest rate on the Merrill debt
remained at LIBOR plus 4% at the date of the resizing, the interest rate on the
Senior debt was modified to LIBOR plus 2.36% and the interest rate on the
Mezzanine debt was modified to LIBOR plus 8.2546%.The Senior and Mezzanine debts mature in November 2004. There are,
however, three one-year options to renew which could extend the facility for an
additional three years. The first option to extend the maturity date of the
Senior and Mezzanine debts by up to one year (i.e. to November 2005) is
available only if no events of default occur in respect of the payment of
principal, interest and other required payments. The second and third
extension terms are available only if no events of default (as defined by the
agreement) exist and are subject to minimum Debt Service Coverage Ratio and
Debt Yield requirements. Payments of principal and interest on all three
portions of the facility are due monthly; however, the principal payments on
the Senior and Mezzanine debts may be deferred during the first twelve months
of the agreement.The Senior and Mezzanine debt agreements provide that when either the Debt
Yield (as defined) for the trailing 12-month period is below 12.75% during the
first year of the loan ending November 2003 (13.25% during the second year) or
the Debt Service Coverage Ratio (as defined) is below 1.20, excess cash flows
(after payment of operating expenses, management fees, required reserves,
principal and interest) produced by the 56 properties must be deposited in a
special deposit account. These funds cannot be transferred to the parent
company, but can be used for capital expenditures on these properties with
lenders approval, or for principal and interest payments. Funds placed into
the special deposit account are released to the borrowers when the Debt Yield
and the Debt Service Coverage Ratio (as defined) are sustained above the
minimum requirements for three consecutive months. As of March 31, 2003, the
Debt Yield for the 56 properties was below the 12.75% threshold and, therefore,
the excess cash produced by the 56 properties is being retained in the special
deposit account until the Debt Yield increases above the minimum requirements.
As of June 30, 2003, the Debt Yield remained below the minimum requirements.The Company through its wholly owned subsidiaries owes approximately $10.9
million under Industrial Revenue Bonds (IRBs) issued on the Holiday Inn
Lawrence, Kansas and Holiday Inn Manhattan, Kansas properties. The IRBs
require a minimum debt service coverage ratio (DSCR) (as defined), calculated
as of the end of each calendar year. For the year ended December 31, 2002, the
cash flows of the two properties were insufficient to meet the minimum DSCR
requirements due in part to renovations that were being performed at the
properties during 2002. The trustee of the IRBs may give notice of default,
at which time the Company could remedy the default by depositing with the
trustee an amount currently estimated at approximately $1 million. In the
event a default is declared and not cured, the properties could be subject to
foreclosure and the Company would be obligated pursuant to a partial guaranty
of approximately $1.0 million. The total revenues for these two hotels
approximated $2.2 million and $2.0 million for the Second Quarter 2003 and
2002, respectively and $3.9 million and $3.5 million for the 2003 Period and
the 2002 Period, respectively.On
September 30, 2003, first mortgage debt of approximately $7.2 million
of Macon Hotel Associates, L.L.C. (MHA) will become due. MHAs sole asset is
the Crowne Plaza Hotel in Macon Georgia. The Company is in discussions with
the lender to extend the term of this debt to December 31, 2003 while the
Company explores alternative financing opportunities. However there can be no
assurance23Table of Contentsthat the lender will grant the extension or that the Company will complete
a refinancing on or before the due date. If the lender does not grant the
extension and the Company is not able to refinance the debt, the property could
be subject to foreclosure. Total revenues for the Crowne Plaza Hotel in Macon,
Georgia were approximately $1.5 million each for the three months ended June
30, 2003 and 2002, respectively, and $2.9 million and $3.2 million for the six
months ended June 30, 2003 and 2002, respectively. The Companys net
investment in MHA as of June 30, 2003 and December 31, 2002 was $2.4 million
and $2.6 million, respectively. The debt of approximately $7.2 million is
included in the current portion of long-term debt in the condensed consolidated
balance sheet included elsewhere in this report.Property, plant and equipment which are encumbered by the long-term
obligations discussed above are summarized, by lender pool, in the table below:June 30, 2003Number
    
    Property, plant
    
    Long-termof Hotels
    
    and equipment, net
    
    ObligationsMerrill Lynch Mortgage Lending, Inc.
    
    
    56
    
    
    $
    411,741
    
    
    $
    301,563Computer Share Trust Company of Canada
    
    
    1
    
    
    
    13,813
    
    
    
    7,378Lehman Brothers Holdings, Inc.- May 22, 2003
    
    
    18
    
    
    
    75,292
    
    
    
    80,000Column Financial, Inc.  January 1, 1995
    
    
    9
    
    
    
    61,418
    
    
    
    28,335Lehman Brothers Holdings, Inc.- June 30, 1997
    
    
    5
    
    
    
    38,998
    
    
    
    23,631JP Morgan Chase Bank
    
    
    2
    
    
    
    9,289
    
    
    
    10,899DDL Kinser
    
    
    1
    
    
    
    3,301
    
    
    
    2,430First Union Bank
    
    
    1
    
    
    
    4,412
    
    
    
    3,383Column Financial, Inc.  June 6, 1995
    
    
    1
    
    
    
    5,682
    
    
    
    9,128Column Financial, Inc.  January 1, 1995
    
    
    1
    
    
    
    6,238
    
    
    
    3,270Robb Evans, Trustee
    
    
    1
    
    
    
    11,078
    
    
    
    7,24396
    
    
    
    641,262
    
    
    
    477,260Other
    
    
    
    
    
    
    11,630
    
    
    
    8,69896
    
    
    
    652,892
    
    
    $
    485,958Held for sale
    
    
    (14
    )
    
    
    (62,644
    )
    
    
    (47,090
    )82
    
    
    $
    590,248
    
    
    $
    438,868

As of June 30, 2003, the Company was also contingently liable with respect
to three irrevocable letters of credit totaling $4.9 million issued as
guarantees to Zurich American Insurance Company, Donlen Fleet Management
Services and U.S. Food Services. The letters of credit expire in November 2003
but may require renewal beyond those dates.The Company is self insured up to certain limits (deductibles) with
respect to employee medical, employee dental, property insurance, general
liability insurance, personal injury claims, workers compensation and auto
liability. The Company establishes liabilities for these self-insured
obligations annually, based on actuarial valuations and the Companys history
of claims. Should unanticipated events cause these claims to escalate beyond
normal expectations, the Companys financial condition and results of
operations could be adversely affected. As of June 30, 2003, the Company had
approximately $7.6 million accrued for such liabilities.The Companys ability to make scheduled principal payments, to pay
interest, or to refinance its indebtedness depends on its future performance
and financial results, which, to a certain extent, are subject to general
conditions in or affecting the hotel and vacation industry and to the general
economic, political, financial, competitive, legislative and regulatory
environment. These factors, including the severity and duration of the current
economic downturn, are beyond the Companys control.The Companys franchise, occupancy and liquor licenses are material to its
business operations.Franchise licenses  these are generally granted for periods of between 10
to 20 years and are renewable at the expiration dates, subject to the
achievement of certain quality and guest satisfaction standards. As of August
11, 2003, the Company had received termination notices from franchisors with
respect to 3 properties (this does not include one hotel for which the Company
has met all of the requirements to cure but has not yet received the cure
letter from the franchisor). Also, the Company was not in strict compliance
with the terms of one other franchise agreement. The notices from the
franchisors resulted from physical conditions being below brand standards. The
Company is working with the franchisors to cure the default conditions and has
a capital improvement program to address the capital improvements required by
the franchisors, the re-branding of several hotels and general renovation
projects intended to ultimately improve the operations of the hotels. During
the two years ending December 2004,24Table of Contentsthe Company expects to spend
approximately $76.0 million in aggregate on
all 97 hotels, with approximately $15.4 million currently escrowed for such
improvements.While it is the Companys belief that it will cure all defaults under the
franchise agreements before the applicable termination dates, there can be no
assurance that it will be able to do so or be able to obtain additional time in
which to cure the defaults. 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. In
the event of a franchise termination, management may seek to license the hotel
with another nationally-recognized brand. 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, since the
Company would either select an alternative franchisor or operate the hotel
independent of a franchisor.As part of the Impac Plan of Reorganization, the Company elected to reject
its license agreement relating to its hotel in Cincinnati, Ohio and ceased
operating this hotel as a Holiday Inn on May 23, 2003; the hotel is currently
being operated as an independent hotel. In addition, the Company made the
following franchise changes during the second quarter of 2003:
 
 The previously independent hotel in Pensacola,
Florida was converted to a Holiday Inn Express on April 4, 2003;
 
 The previously independent hotel in Dothan, Alabama
was converted to a Holiday Inn Express on May 23, 2003;
 
 The former Holiday Inn  Dothan in Alabama was
converted to a Quality Inn on May 23, 2003; and
 
 The former Hurstbourne Hotel and Conference Center in
Louisville, Kentucky was converted to a Clarion Hotel on June 2,
2003.Occupancy licenses  these are obtained prior to the opening of a hotel
and require renewal if there has been a major renovation. The loss of the
occupancy license for an individual hotel could have a material adverse effect
on the Companys financial condition and results of operations if this relates
to one of the larger hotels.Liquor licenses  these licenses are required for the hotels to be able to
serve alcoholic beverages and are renewable annually. The loss of a liquor
license for an individual hotel would not have a material adverse effect on the
Companys financial condition and results of operations.Lodgian utilizes its cash flows for operating expenses, capital
expenditures and debt service. Currently, the Companys principal sources of
liquidity consist of existing cash balances and cash flow from operations.
Cash flow from operations could, however, suffer from a reduction in demand for
lodging as well as large scale renovations being performed at the Companys
hotels. Whereas a downturn in the airline industry could affect demand for
travel, such a decline would not be expected to materially impact liquidity.
The Company has identified for sale 14 hotels, 3 land parcels and an office
building. Though there can be no assurances, management plans to dispose of
these assets within the next year and expects that the aggregate sale of these
assets will provide additional cash to pay down the Lehman debt and fund a
portion of its capital expenditures.The Company intends to continue to use its cash for ongoing operations,
debt service and capital expenditures and, therefore, does not anticipate
paying dividends on the new common stock in the near future. The dividends on
the preferred stock due November 25, 2003 will be paid via the issuance of
additional shares of preferred stock. For the Second Quarter 2003 and the 2003
Period, the Company accrued $3.8 million and $7.6 million, respectively, of the
total preferred stock dividends due November 25, 2003. Also, until the claims
distribution process is complete and the remaining entities exit Chapter 11,
the Company will continue to make payments in respect of cash claims,
bankruptcy court fees and professional fees relating to the distribution of
shares.Net cash provided by operating activities for the 2003 Period totaled $9.6
million compared to $21.2 million for the 2002 Period.For the 2003 Period, cash flows used in investing activities approximated
$9.6 million compared to $9.4 million for the 2002 Period. Investing
activities for both periods consisted primarily of capital25Table of Contentsexpenditures on the Companys properties ($16.1 million and $ 7.8 million
for the 2003 Period and the 2002 Period, respectively). The investment in
capital expenditures for the 2003 Period was partially offset by net
withdrawals from capital expenditure escrows of $7.3 million, while the
investing activities for the 2002 Period were increased by net additions to
capital expenditure escrows of $1.6 million. Other investing activities for
the 2003 period ($0.9 million) consisted of other deposits and payments of
franchise application fees net of refunds.Cash flows used in financing activities were $3.1 million for the 2003
Period and $1.0 million for the 2002 Period. Financing activities for the 2003
Period consisted primarily of proceeds of long-term obligations of $80.0
million relating to the Lehman Financing, offset by repayment of long-term
obligations of $78.8 million (primarily relating to the repayment of the
secured lender of the eighteen hotels which emerged from Chapter 11 on May 22,
2003). For the 2003 Period, financing activities also consisted of payments of
deferred loan fees of $3.0 million and other financing activities both
primarily related to the Lehman Financing. For the 2002 period, financing
activities consisted of repayment of long-term obligations of $1.0 million.At June 30, 2003, after classifying assets held for sale as current
liabilities and liabilities related to the assets held for sale as current
liabilities, the Company had a working capital deficit of $62,000 compared with
$9.1 million at December 31, 2002.There can be no assurance that the Company will have sufficient liquidity
to be able to meet its capital expenditure or other requirements, and the
Company could lose the right to operate certain hotels under nationally
recognized brand names. Furthermore, the termination of one or more franchise
agreements could trigger a default under certain loan agreements as well as
obligations to pay liquidated damages under the franchise agreements.However, management believes that the combination of its current cash
position, cash flows from operations, capital expenditure escrows and asset
sales will be sufficient to meet its liquidity needs in the short-term. The
Companys ability to meet its long-term obligations and to make payments of
preferred dividends is dependent on the recovery of the economy, improved
operating results and the Companys ability to obtain financing. In the
short-term, the Company continues to monitor its costs and has already reduced
corporate overhead including costs for office space (management negotiated
reduced costs for office space at the corporate office, effective July 1,
2003). Any projections of future financial needs and sources of working capital
are however, subject to uncertainty. See Results of Operations and
Forward-Looking Statements for further discussion of conditions that could
adversely affect managements estimates of future financial needs and sources
of working capital.Corporate governance and senior executive management changesOn May 23, 2003, David E. Hawthorne, the Companys former President and
Chief Executive Officer, resigned. In accordance with his employment
agreement, Mr. Hawthorne was paid severance of $0.8 million (included in
general, administrative and other in the Condensed Consolidated Statement of
Operations, included elsewhere in this report).Concurrently with Mr. Hawthornes resignation, the board of directors
named W. Thomas Parrington as the Companys Interim President and Chief
Executive Officer. On July 15, 2003, Mr. Parrington was appointed President
and Chief Executive Officer. Mr. Parrington has been involved in the
hospitality industry for over 30 years. He was President and Chief Executive
Officer of Interstate Hotels Company (Interstate) until he retired in
December 1998. Interstate was a publicly traded company until it merged with
Wyndam Hotels in June 1998. During his 17-year tenure with Interstate, Mr.
Parrington also served as Chief Financial Officer and Chief Operating Officer.
Upon leaving Interstate, Mr. Parrington focused on real estate investments
(primarily hotels) and consultancy as well as the management of his personal
investments.Mr. Parrington was appointed to the Lodgian Board of Directors on the
Companys emergence from Chapter 11 on November 25, 2002. While on the Board,
Mr. Parrington served as member of the executive committee, the compensation
committee and was the Chairman of the audit committee. Upon his appointment as
Chief Executive Officer, he resigned from the audit and compensation committees
and continues to serve as director and member of the executive committee.26Table of ContentsThe Board of Directors has named Stephen Grathwohl as the new Chairman of
the audit committee, effective June 5, 2003. Mr. Grathwohl has been a director
since the Companys emergence from Chapter 11 on November 25, 2002. He is a
member of the executive committee of the Board of Directors and has been a
Principal at Burr Street Equities, LLC (a boutique real estate advisory
company) since 1997. Mr. Grathwohl is also director of Shorebank, a commercial
bank chartered by the State of Illinois, headquartered in Chicago, Illinois,
Shorebank Development Corporation, a Chicago real estate development and
management company, and Shorebank Advisory Services, an international financial
research and consulting company.InflationThe Company cannot determine the precise impact of inflation. However,
the Company believes that the rate of inflation has not had a material effect
on its revenues or expenses in recent years. It is difficult to predict
whether inflation will have a material effect on the Companys results in the
long-term.Changes in Accounting StandardsIn November 2002, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN
45) which elaborates on the disclosures to be made by a guarantor in its
financial statements. It also requires a guarantor to recognize a liability
for the fair value of the obligation undertaken in issuing the guarantee at the
inception of a guarantee. The disclosure requirements of FIN 45 were effective
for the Company as of December 31, 2002. The recognition provisions of FIN 45
will be applied on a prospective basis to guarantees issued after December 31,
2002. The requirements of FIN 45 did not have a material impact on the
Companys financial position and results of operations.In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities (FIN 46). FIN 46 addresses consolidation by a
business of variable interest entities in which it is the primary beneficiary.
FIN 46 is effective immediately for certain disclosure requirements for
variable interest entities created after January 31, 2003 and effective for
periods beginning after June 15, 2003 for existing variable interest entities.
At June 30, 2003, the Company had no variable interest entities and therefore
the Company does not expect the effects of FIN 46 to have a material impact on
its financial position and results of operations.On April 30, 2003, the FASB issued SFAS No. 149, Amendment of Statement
133 on Derivative Instruments and Hedging Activities which amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts and hedging activities under SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. SFAS No.
149 requires that contracts with comparable characteristics be accounted for
similarly. In particular, SFAS No. 149 clarifies the circumstances under which
a contract with an initial net investment meets the characteristics of a
derivative as discussed in SFAS No. 133. In addition, SFAS No. 149 clarifies
when a derivative contains a financing component that warrants special
reporting in the statement of cash flows. SFAS No. 149 amends certain other
existing pronouncements, resulting in more consistent reporting of contracts
that are derivatives in their entirety or that contain embedded derivatives
that warrant separate accounting. SFAS No. 149 is effective for contracts
entered into or modified after June 30, 2003 and for hedging relationships
designated after June 30, 2003. The Company adopted SFAS No. 149 on July 1,
2003. The adoption did not have a material impact on its financial position
and results of operations.On May 15, 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity
which aims to eliminate diversity in practice by requiring that certain types
of freestanding instruments be reported as liabilities by their issuers
including mandatorily redeemable instruments issued in the form of shares which
unconditionally obligate the issuer to redeem the shares for cash or by
transferring other assets. Until now, these types of instruments have been
presented in various ways, as part of liabilities, as part of equity, or
between the liabilities and equity sections (sometimes referred to as
mezzanine reporting). The provisions of SFAS No. 150, which also include a
number of new disclosure requirements, are effective for instruments entered
into or modified after May 31, 2003. For pre-existing instruments, SFAS No.
150 is effective as of the beginning of the first interim period which
commences after June 15, 2003 (July 1, 2003 for the Company). The Company
adopted SFAS No. 150 in the third quarter of 2003. The adoption impacted the
treatment of the27Table of ContentsCompanys Mandatorily Redeemable 12.25% Cumulative Preferred Stock
(Preferred Stock), presented in these Condensed Consolidated Financial
Statements between total liabilities and stockholders equity. For periods
subsequent to June 30, 2003, the Preferred Stock will be reported as a
liability and the related dividends will be included in interest expense.
Prior periods will be restated for comparability.Critical Accounting PoliciesThe Companys financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America
(GAAP). The accounting policies followed for quarterly reporting are the same
as those disclosed in Note 1 of the Notes to Consolidated Financial Statements
included in the Companys Form 10-K for the year ended December 31, 2002. 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 Company believes the following to be its critical
accounting policies:Capitalization and depreciable lives of assetsCapital 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 recognitionRevenues are recognized when the services are rendered. Revenues are
comprised 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, hotel catering and meeting
room rentals. Other revenues include charges for guests long-distance
telephone service, laundry and parking.Asset impairment evaluationUnder 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. In
connection with the Companys emergence from Chapter 11, and the application of
fresh start reporting, the Company recorded a net write-down of $222.1 million.Self insured obligationsThe Company is self insured up to certain limits (deductibles) with
respect to employee medical, employee dental, property insurance, general
liability insurance, personal injury claims, workers compensation and auto
liability. The Company establishes liabilities for these self-insured
obligations annually, based on actuarial valuations and the Companys history
of claims. Should unanticipated events cause these claims to escalate beyond
normal expectations, the Companys financial condition and results of
operations could be adversely affected. As of June 30, 2003, the Company had
approximately $7.6 million accrued for such liabilities.Income taxesThe 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. As a
result of the Companys history of losses, the Company has provided a full28Table of Contentsvaluation allowance against its deferred tax asset as it is more likely
than not that the deferred tax asset will not be realized.The list of critical accounting policies above is not intended to be a
comprehensive list of all of the Companys accounting policies. In many cases,
the treatment of a particular transaction is specifically determined by
generally accepted accounting principles with no need for managements judgment
in selecting from alternatives which would provide different results.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKThe Company is exposed to interest rate risks on its variable rate debt.
At June 30, 2003 and December 31, 2003, the Company had outstanding variable
rate debt of approximately $388.8 million and $310.2, respectively.In order to manage its exposure to fluctuations in interest rates with its
exit financing ($301.6 million and $302.7 million at June 30, 2003 and December
31, 2002, respectively), the Company entered into two interest rate cap
agreements, which allowed it to obtain exit financing at floating rates and
effectively cap them at LIBOR of 6.4375% plus the spread (See the Liquidity and
Capital Resources section). When LIBOR exceeds 6.4375%, the contracts require
settlement of net interest receivable at specified intervals, which generally
coincide with the dates on which interest is payable on the underlying debt.
When LIBOR is below 6.4375%, there is no settlement from the interest rate
caps. The Company is exposed to interest rate risks on the exit financing debt
for increases in LIBOR up to 6.4375%. The one-month LIBOR as of June 30, 2003
was 1.12%. The notional principal amount of the interest rate caps outstanding
was $302.8 million at June 30, 2003 and at December 31, 2002.On May 22, 2003, the Company finalized an $80 million financing with
Lehman Brothers Holdings, Inc. (the Lehman Financing). The Lehman Financing
is a two-year term loan with an optional one-year extension and bears interest
at the higher of 7.25% or LIBOR plus 5.25%. In order to manage its exposure to
fluctuations in interest rates with the Lehman Financing, the Company entered
into an interest rate cap agreement, which allowed it to obtain this financing
at a partial floating rate and effectively caps the interest rate at LIBOR of
5.00% plus 5.25%. When LIBOR exceeds 5%, the contracts require settlement of
net interest receivable at specified intervals, which generally coincide with
the dates on which interest is payable on the underlying debt. When LIBOR is
below 5.00%, there is no settlement from the interest rate cap. The Company is
exposed to interest rate risks on the Lehman Financing for LIBOR of between 2%
and 5%. The notional principal amount of the interest rate cap outstanding was
$80.0 million at June 30, 2003.With respect to the fair market value of the three interest rate caps,
(the two related to the exit financing and the one related to the Lehman
Financing), the Company believes that its interest rate risk at June 30, 2003
and December 31, 2003 was minimal. The impact on annual results of operations
of a hypothetical one-point interest rate reduction on the interest rate caps
as of June 30, 2003 and December 31, 2002 would be a reduction in net income of
approximately $0.1 million and $14,000, respectively . These derivative
financial instruments are viewed as risk management tools and are entered into
for hedging purposes only. The Company does not use derivative financial
instruments for trading or speculative purposes. However, the Company has not
elected the hedging requirements of SFAS 133.The fair value of the three interest rate caps as of June 30, 2003 and the
two interest rate caps at December 31, 2002 were approximately $15,000 and $0.1
million, respectively The fair values of the interest rate caps were
recognized on the balance sheet in other assets. Adjustments to the carrying
values of the interest rate caps are reflected in interest expense.The nature of Lodgians fixed rate obligations does not expose the Company
to fluctuations in interest payments. The impact on the fair value of
Lodgians fixed rate obligations of a hypothetical one-point interest rate
increase on the outstanding fixed-rate debt as of June 30, 2003 and December
31, 2002 would be approximately $2.9 and $3.1 million, respectively.
ITEM 4. CONTROLS AND PROCEDURESa)
 
 Based on an evaluation of the Companys disclosure controls
and procedures carried out as of June 30, 2003, the Companys Chief
Executive Officer and Chief Financial29Table of ContentsOfficer concluded that the Companys disclosure controls and
procedures were effective since they would cause material
information required to be disclosed by the Company in the
reports it files or submits under the Securities Exchange Act of
1934 to be recorded, processed, summarized and reported within
the time periods specified in the Commissions rules and forms.b)
 
 During the quarter ended June 30, 2003, there were no changes
in the Companys internal controls over financial reporting which
materially affected, or are likely to materially affect, the
Companys internal control over financial reporting.30Table of Contents
PART II  OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGSAs previously indicated in the Companys Form 10-K for the year ended
December 31, 2002, the Company and substantially all of its subsidiaries which
owned hotel properties filed for voluntary reorganization under Chapter 11 of
the Bankruptcy Code on December 20, 2001 in the Southern District of New York.
The Bankruptcy Court confirmed the Companys First Amended Joint Plan of
Reorganization (the Joint Plan of Reorganization) on November 5, 2002, and on
November 25, 2002, the Company and entities owning 78 hotels officially emerged
from Chapter 11. Pursuant to the terms of the Joint Plan of Reorganization,
eight wholly-owned hotels were returned to the lender in January 2003 in
satisfaction of outstanding debt obligations and one wholly-owned hotel was
returned to the lessor of a capital lease.Of the Companys 97 hotel portfolio, eighteen hotels, previously owned by
two subsidiaries (Impac Hotels II, L.L.C. and Impac Hotels III, L.L.C.), were
not part of the Joint Plan of Reorganization. On April 24, 2003, the
Bankruptcy Court confirmed the plan of reorganization relating to these
eighteen hotels (the Impac Plan of Reorganization). These eighteen hotels
remained in Chapter 11 until May 22, 2003, the date on which the Company,
through eighteen newly-formed subsidiaries (one for each hotel), finalized an
$80 million financing with Lehman Brothers Holdings, Inc. (the Lehman
Financing). The Lehman Financing was used, primarily, to settle the remaining
amount due to the secured lender of these hotels. The Impac Plan of
Reorganization also provided for a pool of funds of approximately $0.3 million
to be paid to the general unsecured creditors of the eighteen hotels.The Company was 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 involved hotels in Texas (filed in the
District Court of Harris County in October 1999), Illinois (in the United
States District Court, Northern District of Illinois, Eastern Division in
February 2000) and New York (filed in the Supreme Court, New York County in
July 1999). In general, HRB claimed that the Company breached contracts to
renovate the hotels by not paying for work performed. The Company contended
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 paid HRB $750,000. With respect to the matter pending in
the state of New York, HRB claimed that it was owed $10.7 million. The Company
asserted a counterclaim of $7 million. In February 2003, the Company and HRB
agreed to settle the litigation pending in the state of New York. In exchange
for mutual dismissals and full releases, the Company paid HRB $625,000. The
Company provided fully for this liability in its Consolidated Financial
Statements for the year ended December 31, 2002.The Company is 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. Certain of these claims are
limited to the amounts available under the Companys disputed claims reserve.
ITEM 2. CHANGES IN SECURITIESThe Company intends to use its cash for ongoing operations, debt service
and capital expenditures and does not anticipate paying dividends on the new
common stock in the near future. The dividends on the preferred stock due
November 25, 2003 will be paid via the issuance of additional shares of
preferred stock.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSThe Company held its Annual Meeting of Shareholders on June 5, 2003. The
stockholders voted on (1) the election of directors to serve until the Annual
Meeting of Stockholders of the Company in 2004 and until their successors have
been appointed and (2) to ratify the appointment of Deloitte & Touche LLP31Table of Contentsas independent public accountants of the Company. The votes cast on each
of the above matters were as follows:ELECTION OF DIRECTORSNOMINEE
    
    VOTES FOR
    
    VOTES WITHHELDRussel S. Bernard
    
    
    4,960,636
    
    
    
    514,012Sean F. Armstrong
    
    
    4,957,923
    
    
    
    516,725Stewart J. Brown
    
    
    4,960,636
    
    
    
    514,012Stephen P. Grathwohl
    
    
    4,960,636
    
    
    
    514,012Jonathan D. Gray
    
    
    4,960,626
    
    
    
    514,022Kenneth A. Caplan
    
    
    4,960,670
    
    
    
    513,978Kevin C. McTavish
    
    
    4,960,627
    
    
    
    514,021W. Thomas Parrington
    
    
    4,960,652
    
    
    
    513,996

INDEPENDENT PUBLIC ACCOUNTANTSFOR
    
    AGAINST
    
    ABSTAIN5,473,959
    
    
    518
    
    
    
    171



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K(a) ExhibitsA list of the exhibits required to be filed as part of this Report on Form
10-Q, is set forth in the Exhibit Index which immediately precedes such
exhibits, and is incorporated herein by reference.(b) Reports on Form 8-KA report on Form 8-K was filed on May 29, 2003 announcing the completion
of the $80 million financing underwritten by Lehman Brothers Holdings, Inc.32Table of Contents
SIGNATURESPursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.LODGIAN, INC.Date: August 14, 2003
    
    By: /s/ W. THOMAS PARRINGTONW. THOMAS PARRINGTON
President and Chief Executive OfficerDate: August 14, 2003
    
    By: /s/ RICHARD CARTOONRICHARD CARTOON
Executive Vice President and Chief Financial Officer

33Table of Contents
INDEX TO EXHIBITSEXHIBITNO.
    
    
    
    DESCRIPTION10.59
    
    
    
    Interim Employment Agreement for W. Thomas Parrington*10.60
    
    
    
    Lodgian, Inc. 401(k) Plan and Trust Agreement as Amended and Restated
on December 31, 2002, effective January 1, 2002 (except as otherwise provided)31.1
    
    
    
    Sarbanes  Oxley Section 302 certification by the CEO31.2
    
    
    
    Sarbanes  Oxley Section 302 certification by the CFO32
    
    
    
    Sarbanes  Oxley Section 906 certification by the CEO and CFO

*
 
 The agreement filed herewith reflects Mr. Parringtons agreement with
Lodgian, Inc. while he was the Interim President and Chief Executive Officer.
Mr. Parrington was offered and accepted formal appointment as President and
Chief Executive Officer on July 15, 2003; his new agreement has not yet been
finalized.34